Macro final

The demand curve for money is downward-sloping because A.At lower interest rates, people want to hold more money and fewer bonds. B.At higher interest rates, people want to hold more money and fewer bonds. C.At lower interest rates, bonds are more attractive. D.At higher interest rates, holding money is desirable.

A

Bank reserves are A.Liabilities of the bank. B.The loan portfolio of the bank. C.Assets that are used to meet deposit obligations. D.Equal to the bank's excess reserves.

C

The banking system as a whole can create money beyond initial deposits because A.Banks must hold 100 percent of deposits as required reserves. B.Much cash is located in ATMs. C.Financial regulation is lax. D.There are multiple banks and there is fractional reserve banking.

D

The marginal tax rate indicates A.The change in taxes resulting from a change in fiscal policy. B.The tax rate imposed on total income. C.The tax rate imposed on taxable income. D.The percentage of tax paid on the next dollar of earned income.

D

The monetary policy tool used most frequently by the Fed is A.Changing the reserve requirements. B.Changing the discount rate. C.Changing the price of gold. D.Using open market operations.

D

The supply of U.S. dollars originates from A.American demand for imported goods. B.American investment in foreign countries. C.Demand for foreign currency for speculative purposes. D.All of the answers are correct.

D

The terms of trade A.Is the negotiated price between international trading partners. B.Are equal to the opportunity cost of the strongest trading partner. C.Are equivalent to absolute advantage. D.Are the amount of good A given up for good B.

D

To say that a country has a comparative advantage in the production of wine is to say that A.It can produce wine with fewer resources than any other country can. B.Its opportunity cost of producing wine is higher than another country's. C.Its opportunity cost of producing wine is lower than another country's. D.The relative price of wine is higher in that country than in any other.

C

When exchange rates are flexible, they are A.Determined by proclamation of the monetary authorities of a country. B.Determined by the relative levels of gold reserves. C.Permitted to vary with changes in supply and demand in the foreign exchange market. D.Determined by the provisions of the Bretton Woods agreement.

C

A country will trade if A.The terms of trade are superior to its domestic opportunities. B.Its domestic opportunities are superior to the terms of trade. C.Domestic producers refuse to make a good or service. D.Its production possibilities are limited.

A

According to supply-side theory, which of the following causes a rightward shift in the aggregate supply curve? A.Lifting trade restrictions. B.Increasing transfer payments to the unemployed. C.Eliminating government-funded training programs for the structurally unemployed. D.Eliminating job search assistance.

A

By raising the reserve requirement, the Fed A.Immediately reduces the lending capacity of the banking system. B.Immediately increases the lending capacity of the banking system. C.Immediately increases banks' excess reserves. D.Allows private banks to borrow more cheaply from the Federal Reserve Bank.

A

Costa Rica can produce bananas using fewer inputs than Canada; thus A.Costa Rica has an absolute advantage in producing bananas. B.Costa Rica has a comparative advantage in producing bananas. C.Specialization will not change worldwide consumption possibilities in this case. AD.ll of the answers are correct.

A

If leakages are greater than injections into the economy, then A.The economy will grow. B.The economy will slow. C.Inflation will result. D.Business investment spending will pick up the slack.

B

If the required reserve ratio is 12 percent, the money multiplier is A.5. B.8.3. C.9. D.12.

B

Monetary stimulus will fail if A.Banks lend too much money. B.Short-term interest rates are affected but long-term interest rates are not. C.Consumers spend too much money, creating a shortage of money. D.Lower interest rates cause households to not refinance mortgages and not apply for new consumer loans.

B

Phillips developed a curve that shows the trade-off between the A.Full employment rate and interest rates. B.Unemployment rate and inflation rates. C.Full employment rate and the natural rate of unemployment. D.Natural rate of unemployment and exchange rates.

B

The Fed can decrease the federal funds rate by A.Selling government bonds. B.Buying government bonds, which causes market interest rates to fall. C.Simply announcing a lower rate because the Fed has direct control of this interest rate. D.Changing the money multiplier.

B

The Keynesian depiction of aggregate supply (AS) A.Shows a vertical aggregate supply curve. B.Shows a horizontal portion of the AS curve until full employment, then an upward-sloping AS curve. C.Shows an upward-sloping aggregate supply curve. D.Shows an upward-sloping aggregate demand curve until full employment, then a downward-sloping AD curve.

B

The rate at which banks borrow from each other in an overnight market is called the A.Discount rate. B.Federal funds rate. C.Prime rate. D.Short-term rate.

B

The use of government taxes and spending to alter macroeconomic outcomes is known as A.Monetary policy. B.Fiscal policy. C.Income policy. D.Foreign trade policy.

B

What will happen to the equilibrium price and quantity in a market as a result of a tariff on imports? A.Equilibrium price and quantity should both go up. B.Equilibrium price should go up and equilibrium quantity should go down. C.Equilibrium price should go down and equilibrium quantity should go up. D.Equilibrium price and quantity should both go down.

B

When an American purchases an imported good, she creates a A.Demand for U.S. dollars. B.Supply of U.S. dollars. C.Demand for U.S. exports. D.Supply of foreign currencies (e.g., Japanese yen).

B

When the fed conducts monetary restraint, A.The demand curve for money shifts right. B.The supply curve for money shifts left. C.The slope of the demand curve for money changes. D.There is a decrease in interest rates.

B

Which of the following causes appreciation of the U.S. dollar versus the euro? A.The incomes of Europeans fall. B.Interest rates in the United States are higher than in Europe. C.The price level in the United States is higher than in Europe. D.Speculators assume the value of the dollar will fall in the future.

B

One of the essential functions a bank performs is that of A.Creating money by lending required reserves. B.Participating in the stock market. C.Transferring money from savers to borrowers. D.Purchasing government bonds.

C

The Fed can change the equilibrium rate of interest by changing A.Government spending. B.Taxes. C.Reserve requirements or the discount rate, or through open market operations. D.Tariffs.

C

The Federal Reserve has lost some control over the money supply due to A.The growth of money market accounts at brokerage houses. B.Large corporations now lend money. C.Globalization of lending activity. D.All of the answers are correct.

D

Which of the following generates a demand for dollars in the foreign exchange market? A.Transfers of money by foreign workers in the United States to relatives abroad. B.U.S. military installations abroad. C.Foreign aid given by the United States. D.Travel by foreign visitors in the United States.

D

Which of the following is not an argument for protectionist measures A.Other countries that dump products in the United States below cost deserve retaliation. B.Some industries are just getting started and need protection. C.Some products necessary for national defense should not be traded. D.Trade promotes specialization and increases total world output.

D

improved labor productivity A.Occurs through investments in human capital. B.Shifts the aggregate supply curve to the right. C.Increases the output per hour for workers. D.All of the answers are correct.

D

money is anything A.That can be used to barter. B.That a government declares to have value. C.That has intrinsic value. D.That is generally accepted as a medium of exchange.

D

the formula for the multiplier is A.The change in consumer spending divided by the change in income. B.1 + MPS. C.The change in consumer spending in response to a change in MPC. D.1/(1 - MPC).

D

If the banking system has a required reserve ratio of 25 percent, the money multiplier is A.4.0. B.1.25. C.0.25. D.0.2.

A

Cyclical unemployment A.Increases during an inflationary gap. B.Falls during a recessionary gap. C.Increases during a recessionary gap. D.Does not change over the course of the business cycle.

C

A tax stimulus measure might not be as powerful as policy makers hope because A.The recipients might save the money. B.The recipients might spend it on paying bills. C.The recipients might spend it on imported goods. D.All of the answers are correct.

D

If businesses see that inventories are piling up, A.They will increase production plans. B.They will raise prices. C.They will become more optimistic. D.They will lower prices or cut production.

D

In a diagram of aggregate demand and supply curves, the GDP gap is measured as the A.Horizontal distance between the equilibrium output and the full-employment output. B.Vertical distance between the equilibrium price and the price at which the aggregate demand would intersect aggregate supply at full employment. C.Horizontal distance between the aggregate demand necessary to achieve full employment and the aggregate demand curve at equilibrium output. D.Vertical distance between the equilibrium output and the full-employment output.

A

In an economy below full employment, ceteris paribus, increased investment leads to A.Higher desired saving and higher income. B.Higher desired saving but no change in income. C.No change in desired saving but higher income. D.No change in desired saving and no change in income.

A

Monetary policy is most likely to result in inflation when the aggregate supply curve is A.Vertical and the Fed lowers the discount rate. B.Vertical and the Fed raises the reserve requirement. C.Horizontal and the Fed sells securities. D.Horizontal and the Fed lowers the reserve ratio.

A

Stagflation is caused by A.A leftward shift in the aggregate supply curve. B.A rightward shift in the aggregate demand curve. C.A rightward shift in the aggregate supply curve. D.A leftward shift in the aggregate demand curve.

A

The Federal Open Market Committee is responsible for A.The Fed's daily activity in financial markets. B.Determining broad Fed policy. C.Providing central banking services to individual banks. D.Check cashing services for large corporations.

A

The members of the Federal Reserve Board of Governors A.Are appointed by the president of the United States. B.Are each appointed for a six-year term. C.Must have an academic background. D.Are appointed for life.

A

Trade restrictions A.Reduce the gains from trade for the country as a whole. B.Increase the gains from trade for poor countries. C.Reduce the number of hours employees must work. D.Increase the standard of living for the country as a whole.

A

Two countries with differing comparative advantages may engage in trade because A.They will be able to consume more goods in total due to specialization and trade. B.They will achieve an absolute advantage with one another. C.They will be able to produce and consume goods on their production possibilities curves. D.They are required to because they are part of the World Trade Organization.

A

When the Fed purchases bonds at higher price in the open market, A.Yields on bonds decrease. B.Banks' required reserve ratio changes. C.Banks' total reserves do not change. D.Short-term interest rates rise.

A

lower interest rates A.Encourage people to borrow more and often to spend more on housing. B.Reduce business investment spending. C.Cause the aggregate demand curve to shift left. D.Often cause people to want to shift their portfolios from cash to bonds.

A

"Crowding out" occurs when government A.Increases taxes, thus causing a decrease in consumption. B.Issues debt, thus making it more difficult for the private sector to issue debt. C.Prints money, which displaces other types of currency. D.Cancels out the effectiveness of the Fed's policy measures.

B

A bank has $10 million in transactions balances, and the required reserve ratio is 12 percent. The bank must hold required reserves of A.$1 million. B.$1.2 million. C.$10 million. D.$12 million.

B

According to Keynes, the source of high unemployment is A.Excessive aggregate demand. B.Insufficient aggregate demand. C.An increase in aggregate supply. D.Say's law.

B

According to supply-side theorists, a decrease in marginal tax rates will provide the incentive to A.Work less. B.Produce more. C.Invest less. D.Reduce regulation.

B

An American traveling in Europe buys a dinner costing 60 euros. If the exchange rate is 1 euro = $0.77, then the price of the dinner in dollars is A.$7.70. B.$46.20. C.$55.67. D.$77.92.

B

Hurricane Katrina in 2006 was an example of a natural disaster that caused A.The aggregate supply curve to shift to the right. B.The aggregate supply curve to shift to the left. C.An increase in output. D.A decrease in inflation.

B

If a country is completely self-reliant in producing goods for its own consumption needs, then A.It is consuming more than it could with trade. B.Its consumption possibilities will equal its production possibilities. C.It is promoting specialization. D.It has the broadest possible mix of consumer goods.

B

Which of the following explains why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment? A.Price level changes will make up for the difference between the fiscal stimulus and the AD shortfall. B.The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap. C.The government can increase taxes to create an additional increase in aggregate demand. D.The price level is constant.

B

Which of the following groups would be aided by a depreciation of the American dollar? A.Foreign producers of goods imported by the United States. B.American producers of goods for export. C.U.S. importers of goods from abroad. D.Foreign workers.

B

Which of the following is consistent with the general consensus about the shape of the short-run aggregate supply curve? A.Horizontal until full employment is reached, and then vertical. B.Horizontal, then upward-sloping, and ultimately vertical. C.Horizontal at all production levels. D.Vertical.

B

Which of the following is included in both M1 and M2? A.Traveler's checks. B.Cash in circulation. C.Savings accounts. D.Treasury bills.

B

Which of the following is not a function of one of the 12 Federal Reserve Banks? A.Clearing checks. B.Conducting monetary policy. C.Providing loans to private banks. D.Holding bank reserves.

B

Which of the following is not a supply-side policy option? A.Tax incentives for investment, work, and savings. B.A tax cut on specific products (e.g., Cash for Clunkers). C.Less red tape for business. D.Human capital investments (e.g., education subsidies)

B

the major difference between classical and Keynesian economists is that A.Classical economists argue that prices and wages are not flexible and Keynes economists disagree. B.Keynesians argue that the economy will not self-adjust to fluctuations in aggregate demand. C.Keynesians argue that the multiplier process will cause the economy to self-adjust. D.Classical economists argue that there is no multiplier process.

B

the multiplier process describes A.How the economy self-adjusts to a fall in aggregate demand. B.How layoffs in one sector can spread to other sectors. C.How the marginal propensity to consume rises over time. D.How the circular flow freezes up in a recession.

B

the recessionary GDP gap represents the A.Amount by which aggregate demand must increase to reach full employment. B.Value of the goods and services that could be produced but were not due to unemployed resources. C.Leakages minus injections. D.Amount by which actual investment differs from desired investment.

B

A fiscal stimulus is intended to A.Shift aggregate demand to the left. B.Shift aggregate supply to the right. C.Shift aggregate demand to the right. D.Shift aggregate supply to the left.

C

A tax cut intended to increase aggregate demand is an example of A.Fiscal restraint. B.Monetary restraint. C.Fiscal stimulus. D.Fiscal targeting.

C

According to supply-side theory, saving A.Is a leakage from the economy. B.Reduces spending in the long run. C.Encourages investment in the long run. D.Has no effect on current spending.

C

If a country's currency depreciates in the foreign exchange market A.Its currency becomes more expensive in terms of another currency. B.The country's exports become more expensive. C.Its currency becomes cheaper in terms of another currency. D.The country's imports become cheaper.

C

If private investment spending falls by $100 billion, then A.Real GDP also falls by $100 billion. B.Real GDP rises by $100 billion. C.Real GDP will fall by more than $100 billion. D.Real GDP will rise by more than $100 billion.

C

If the elasticity of supply is large, A.A tax cut reduces tax revenues. B.A tax increase increases tax revenues. C.A tax cut increases tax revenues. D.A tax increase has no impact on tax revenues.

C

If the exchange rate of U.S. dollars to Mexican pesos was $1.00 = 3 pesos in 1995 and $1.00 = 11 pesos in 2009, then A.The U.S. dollar depreciated relative to the Mexican peso. B.The Mexican peso appreciated relative to the U.S. dollar. C.The U.S. dollar appreciated relative to the Mexican peso. D.Mexican imported goods became more expensive in the United States.

C

In making monetary policy the Fed currently A.Increases the money supply at a fixed rate each year. B.Has adopted the monetarist view and "leans against the wind." C.Focuses on the federal funds rate. D.Measures success by meeting fixed targets.

C

International demand for U.S. dollars originates with A.American demand for imported goods. B.American demand for foreign assets. C.Foreign demand for American products. D.The Federal Reserve Board.

C

The United States has an absolute advantage in producing T-shirts, but not a comparative advantage, because A.Another country may have an absolute advantage in producing T-shirts. B.The United States uses fewer resources to produce T-shirts than another country can C.Other countries, such as China, can produce T-shirts at a lower opportunity cost relative to the United States. D.Labor costs in the production of T-shirts are lower in the United States than in other countries.

C

The demand for money is A.The amount of money banks are willing to lend at various interest rates. B.A fixed quantity of money controlled by the Federal Reserve Bank. C.The willingness of people to hold money at different interest rates. D.Not determined by precautionary motives.

C

The federal government can alter aggregate demand by all of the following except A.Purchasing more or fewer goods and services. B.Raising or lowering taxes. C.Altering immigration laws and green card rules. D.Changing the level of income transfers.

C

The quantity theory of money holds that A.The velocity of money times the money multiplier equals the total spending in the economy. B.The price level equals the money supply times the money multiplier. C.The quantity of money in the economy multiplied by velocity will be equal to total spending. D.The quantity of money in the economy has little effect on total spending and income.

C

The unemployment effects of trade are felt most strongly in A.Export-sensitive industries. B.The most highly taxed states. C.Industries that compete with imported goods. D.The service sector.

C

To increase the money supply and reduce interest rates, the Fed will A.Raise the reserve requirement. B.Sell bonds in the open market. C.Buy bonds in the open market. D.Raise the discount rate.

C

Which is the correct sequence when the Fed changes monetary policy? A.The demand for money changes, investment spending changes, and aggregate demand changes. B.The supply of money changes, aggregate demand changes, and investment spending changes. C.The supply of money changes, interest rates change, investment spending changes, and aggregate demand changes. D.The supply of money remains unchanged, but the amount of business investment spending shifts to the right.

C

Which of the following is an example of fiscal policy A.Creating tougher laws on banking and credit cards. B.Having a uniform national speed limit. C.President Obama's stimulus package. D.Increasing interest rates.

C

Which of the following is an example of the multiplier at work as a result of an increase in consumption expenditures? A.Consumers compete with the government by increasing their expenditures, causing businesses to increase their investments to satisfy the increased demand. B.Consumption expenditures increase inflation, which reduces real incomes; consumer expenditures and investment decline, which reduces aggregate spending. C.Households and businesses receive income from consumption expenditures; they spend a portion of this new income; these expenditures, in turn, generate income for other businesses and households, which in turn spend a portion of the new income, and so on. D.Consumption expenditures stimulate investment in new plants and equipment to produce goods and services for the government, which provides fewer jobs and decreases incomes.

C

Which of the following is not a tool of monetary policy? A.Changing the reserve requirements. B.Changing the discount rate. C.Cutting tax rates. D.Using open market operations.

C

Which of the following is not considered to be part of the money supply A.Checking account balances. B.Cash and coins. C.Credit cards. D.Savings accounts.

C

Which of the following is the market where reserves can be borrowed by one bank from another bank for very short periods of time? A.Money market. B.Commercial paper market. C.Federal funds market. D.Foreign exchange market.

C

Which of the following will not undermine the effectiveness of fiscal policy? A.Private borrowing may be crowded out by government borrowing. B.Time lags. C.Multiplier effects. D.Politicians disagree about the proper fiscal policy.

C

a leakage is A.An export from the economy. B.A decline in the capacity of the economy to produce goods. C.A diversion of income from spending on domestic output. D.A decrease in aggregate supply.

C

money is functioning as a store of value when you A.Use it to compare the cost of tuition 10 years ago to the cost today. B.Take out a student loan to buy books. C.Save your cash to pay for tuition next semester. D.Pay your tuition in installments rather than all at one time.

C

the reserve ratio is the ratio of A.Bank reserves to savings accounts. B.Bank transactions deposits to required reserves. C.Bank reserves to total transactions deposits. D.Required reserves to excess reserves.

C

If Americans want to purchase more European imports, then the A.Demand curve for U.S. dollars shifts to the right. B.Demand curve for euros shifts to the left. C.Supply curve for euros shifts to the right. D.Supply curve for U.S. dollars shifts to the right

D

If MPC is .80 and government spending increases by $200 billion, then A.Total spending will increase by $200 billion. B.Total spending will increase by $400 billion. C.Total spending will decrease by $200 billion. D.Total spending will increase by $1,000 billion.

D

If the Federal Reserve wants to increase commercial bank lending, it will A.Require banks to lower interest rates on their loans. B.Ask banks to sell assets. C.Raise the required reserve ratio. D.Lower the required reserve ratio.

D

If the government wanted to reduce inflation, it could A.Increase income transfers for the needy. B.Increase government spending. C.Cut taxes for the poor. D.Increase taxes on middle-income and upper-income earners.

D

Monetarists say A.An increase in the money supply is likely to lead to inflation. B.A monetary stimulus is ineffective if firms' costs of production also rise. C.Long-run aggregate supply is vertical at the natural rate of unemployment. DAll of the answers are correct.

D

Motivation for trade includes all of the following except A.To increase output due to specialization. B.To be able to import goods that are cheaper than those you can make yourself. C.To be able to consume beyond your production possibilities. D.To reduce your consumption possibilities.

D

Speculation in foreign exchange markets A.Creates worldwide inflation. B.Cannot happen under flexible exchange rates. C.Occurs only with well-known currencies (e.g., dollar, euro). D.Often promotes foreign exchange stability.

D