MACRO FINALE~!

If a country's economic data shows that private savings equal $300 million, government spending equals $400 million, taxes equal $300, and the trade surplus equals $100 million, then what does investment equal?

$100 million

Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of the Stealth bank's liabilities?

$200 million

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$270 million

If a country's economic data shows private savings of $300 million, government spending of $350 million, tax revenue of $400 million, and a trade surplus of $75 million, then what does investment equal?

$275 million

If a country's economic data shows private savings of $400 million, government spending of $250 million, tax revenue of $400 million, and a trade surplus of $175 million, then what does investment equal?

$375 million

If a country's economic data shows that private savings equal $250 million, government spending equals $400 million, taxes equal $350, and the trade surplus equals $150 million, then what does investment equal?

$50 million

If a country's economic data shows private savings of $500 million, government spending of $300 million, tax revenue of $400 million, and a trade surplus of $100 million, then what does investment equal?

$500 million

Stealth bank has deposits of $350 million. It holds reserves of $30 million and government bonds worth $70 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

$500 million

Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

$510 million

Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$620 million

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?

$970 million

Houston Municipal Bank has deposits of $ 643 million. It holds reserves of $ 50 million and has purchased government bonds worth $ 36 million. The bank's loans, if sold at current market value, would be worth $ 547 million. What is the net worth of Houston Municipal Bank?

-10

When a government borrows money in the financial capital market, it causes a shift in the demand for financial capital from D0 to D1. As the equilibrium moves from E0 to E1, the equilibrium interest rate rises in this example. In this way, an expansionary fiscal policy intended to shift aggregate demand to the right can also lead to a higher interest rate, which has the effect of shifting aggregate demand back to the left .

.

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:

aggregate demand curve will shift to the right.

Which of the following is considered to be a relatively weak tool of monetary policy?

altering the discount rate

In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

an asset-liability time mismatch

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________.

an asset-liability time mismatch; diversify its loans

Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?

an estate

The federal government levies _____________________________ on people who pass assets ____________________________, either after death or during life.

an estate and gift tax; to the next generation

The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.

an expansionary fiscal policy; an increase in government spending

When the interest rate in an economy decreases, it is most likely as a result of:

an increase in the government budget surplus or a decrease in its budget deficit.

A consensus estimate based on a number of studies suggests that if there is an increase in budget deficits (or a fall in budget surplus) by 1% of GDP, it will most likely cause which of the following?

an increase of 0.5-1.0% in the long-term interest rate

If an economy moves into a recession, causing that country to produce less than potential GDP, then:

automatic stabilizers will cause tax revenue to decrease and government spending to increase.

If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:

automatic stabilizers will decrease government spending and increase tax revenue.

A central bank that wants to increase the quantity of money in the economy will:

buy bonds in open market operations.

Figure 24.14 "The Fed and the Flow of Money in the Economy" shows how the Fed influences the flow of money in the economy. Funds flow from the public—individuals, and firms—to banks as deposits. Banks use those funds to make loans to the public—to individuals and firms. The Fed can influence the volume of bank lending by ____________ bonds and thus injecting reserves into the system.

buying

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

by increasing its reserves

How are the specific interest rates for the lending and borrowing markets determined?

by the forces of supply and demand

When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view?

central bank prints more money

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.

contractionary

In 2010, Microsoft will pay corporate income tax to the federal government based on the company's __________________.

corporate profits

Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future.

exchange rates or rates of return

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

A decrease in the government's budget surplus will cause the interest rate to:

increase.

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.

expansionary fiscal policy; lead to a budget deficit

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.

expansionary monetary policy

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

federal funds rate

When the central bank decides to increase the discount rate, the:

interest rates increase.

In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment.

investment in physical capital; fiscal policy

When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:

investment will decrease if savings also remains constant.

When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant:

investment will increase if savings remain constant.

The current level of US government accumulated debt, when measured in nominal dollars:

is higher than it has ever been.

Currently, the US government accumulated debt to GDP ratio:

is lower than its historical high point.

If the Canadian dollar is strengthening, then:

it has appreciated in terms of other currencies.

When banks hold excess reserves because they don't see good lending opportunities:

it negatively affects expansionary monetary policy.

If Australia's exchange rate is stronger than the PPP rate for several years, which of the following will likely result?

its imports will increase

A prolonged period of budget deficits may lead to ___________________.

lower economic growth

If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?

medium of exchange

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

medium of exchange

In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?

medium of exchange.

A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a cause for concern.

moderate increase in a trade deficit and a moderate appreciation of the exchange rate

Which of the following is omitted in a barter transaction?

money

In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects?

monitoring asset prices and leverage

If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?

fighting inflation

In modern economies, _____________________ receive money from savers and provide funds to borrowers.

financial intermediaries

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?

fiscal policies

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession?

quantitative easing

The quantity of money in an economy and the _____________________ are inextricably intertwined.

quantity of credit for loans

If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

regressive

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.

regressive

The market in which loans are bought and sold is called the:

secondary loan market.

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

shorter than

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________.

A. long term growth; cyclical unemployment B. potential GDP; natural rate of unemployment C. natural level of output; cyclical unemployment rate D. real GDP; natural rate of unemployment Answer: B Reference:

From a neoclassical viewpoint, government should focus less on:

A. long-term growth. B. controlling inflation. C. aggregate supply. D. cyclical unemployment. Answer: D Reference:

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

A. lower unemployment. B. cause government to lower taxes. C. cause government to increase spending. D. exports will drop. Answer: A Reference:

If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur?

A. more consumption and less saving B. adjustment back to potential GDP C. increase in price inflation D. a rise in unemployment Answer: D Reference:

Which of the following is a valid criticism of the rational expectations theory?

A. prices do not wait on events B. the assumption seems too strong C. people form the most accurate possible expectations D. adjustment of wages and prices might be quite rapid Answer: B Reference:

Why do banks use a T-account?

the T-account separates assets on the left from liabilities on the right

A managed float regime is when

the central bank intervenes in the market for foreign exchange to hold the rate at some desired level.

If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then:

the central bank might react with an expansionary monetary policy.

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

the credit card company's M1 funds.

When a business firm makes an investment in physical capital, what is that investment subject to?

the discipline of the market

In most developed countries, the government plays a large role in society's investment in human capital through _________________________.

the education system

A government began 2013 with a budget deficit and a trade deficit. During the year, the government changed its policy and is now running a budget surplus. If all other factors hold constant, this change in policy will cause:

the exchange rate and the trade deficit to decrease.

When Mataeo buys Euros through _________________________, he will use his U.S. dollars to pay for them.

the foreign exchange market

When the central bank decides it will sell bonds using open market operations:

the money supply decreases.

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?

the money supply in the economy decreases

When the central bank lowers the reserve requirement on deposits:

the money supply increases and interest rates decrease.

According to the basic quantity equation of money, if price and output fall while velocity increases, then:

the quantity of money will fall.

If aggregate supply is vertical, then aggregate demand does not affect

the quantity of output.

If the economy is producing less than its potential GDP, _____________________ will show a larger deficit than the actual budget.

the standardized employment budget

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________.

the tools of demand and supply

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:

the trade deficit.

A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports .

tight; stimulates; reduces

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

total money; quantity of money

A __________________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy?

trade surplus

When increasing oil prices cause aggregate supply to shift to the left, then:

unemployment and inflation increase.

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.

unit of account

According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?

unpredictable rises and falls in nominal GDP

When inflation begins to climb to unacceptable levels in the economy, the government should:

use contractionary fiscal policy to shift aggregate demand to the right.

A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene.

volatility

In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93 U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013?

C. 2010: 113.6 yen, 2013: 107.5 yen

Referring to the diagram above, which of the following is a true statement?

C. Higher cost levels of increased output will force an increase in price for the product.

The shape of the ______________ involves a tradeoff between unemployment and inflation.

C. Phillips curve

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

C. a self-fulfilling prophecy

In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment.

C. aggregate demand

One of the following groups is not participating in the foreign exchange markets. Which one?

C. an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.

C. exchange rate depreciation

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

C. exports; imports

From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?

C. investments in human capital

Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?

C. it would depreciate the country's exchange rate and break its hard peg

the ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment?

C. neoclassical

After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall?

C. rational expectations

In the neoclassical view, the economy has a ___________________________ to move back to potential GDP.

C. self-correcting tendency

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

C. standard of living is ultimately determined by long-term growth

The Canadian dollar will most likely strengthen against the U.S. dollar if:

C. the Canadian inflation rate becomes extremely low.

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:

Central Bank; safety and stability of the banking system.

_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________.

Certificates of deposit; time deposits

Which of the following is an example of a pegged currency?

Chinese yuan

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

D. a floating exchange rate.

Which of the following denotes a common misunderstanding about exchange rates?

D. an appreciating currency must be better than a depreciating currency

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

D. encouraging long-term growth

A stronger British pound is beneficial for:

D. exchange students with a British scholarship studying in Canada.

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

D. slopes upward; slopes downward

A __________________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate.

D. soft peg exchange rate

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

D. the Canadian dollar appreciated against the U.S. dollar.

Suppose that productivity growth in an economy over a two-year period has fallen to less than 2% per year, causing a severe recession. From the neoclassical view, which of the following will be more important in these circumstances?

D. the growth rate of long-term productivity

A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in _________________, but seeks to avoid extreme short-term fluctuations.

D. the short run

_________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check.

Demand deposits

Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets?

French franc

__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.

Money market funds

Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?

Northern's loan assets increase by $30 million

What do the economies of Greece, Ireland and Germany all share?

a common currency

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:

a contractionary monetary policy.

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:

a contractionary monetary policy.

If David Ricardo's theory holds completely true, then any change in budget deficits or budget surpluses would be completely offset by which of the following?

a corresponding change in private saving

When the interest rate in an economy increases, it is likely the result of either:

a decrease in the government's budget surplus or an increase in its budget deficit.

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

a double coincidence of wants

Which of the following events would cause interest rates to increase?

a higher discount rate

A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies:

a vertical Phillips curve.

Banks typically come under financial stress because of:

a widespread decline in the value of their assets.

Referring to the diagram above, which of the following statements is true?

. Monetary policy that increases the money supply also increases the level of potential GDP. B. Tight monetary policy expands the economy by increasing the level of potential GDP. C. This contractionary monetary policy shift will also affect exchange rates for both imports and exports. D. This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports. Answer: D Reference:

If American Airlines were to purchase Malaysian Airlines, it would likely have ______________________________ in mind.

. a longer-term horizon

At a macroeconomic level, the theory of rational expectations points out that if the ______________________ is vertical over time, then people should rationally expect this pattern.

. aggregate supply curve

Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause:

. at least a slight increase in unemployment.

From a neoclassical view, which of the following is less important?

. fighting unemployment

The _____________________________ is the largest market in the world economy.

. foreign exchange market

Which of the following is most strongly supported by the Keynesian perspective of macroeconomics?

. inflation is a price that might have to be paid to achieve lower unemployment

The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future

. rational expectations

Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs:

. risk causing even greater fluctuations in foreign exchange markets.

Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.

. taking a management responsibility

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:

. the dollar depreciated against the yen.

Referring to the figure above, an announcement that the peso exchange rate is likely to strengthen in the future will lead to greater demand for the peso in the present from investors who wish to benefit from the appreciation . Similarly, it will make investors less likely to supply pesos to the foreign exchange market. Both the shift of demand to the right and the shift of supply to the left cause an immediate appreciation in the exchange rate.

/

If an economy has a budget surplus of 400, private savings of 1,200, and investment of 1,600, what will the balance of trade in this economy equal?

0

Which of the following is the percentage of annual US government spending allocated to foreign aid?

1%

A government annually allocates $5 billion of its total tax revenue to weather related disaster relief, $21 billion to healthcare and $11 billion to education. If the government's quarterly tax revenue is $33 billion, what percentage of its budget is allocated annually to healthcare?

15.90%

Foreign direct investment is purchasing more than 10 percent of a firm or starting a new enterprise in another country.

10

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?

10

In 2009, the U.S. government spent $1.4 trillion more than it collected in taxes. This deficit was about:

10% of the size of the U.S. GDP in 2009.

If GDP is 3600 and the money supply is 300, what is the velocity?

12

Suppose that the Federal Reserve wants to stimulate the economy by increasing the money supply. The bankers estimate that the velocity of money is 3, and that the price level will increase from 100 to 103 due to the stimulus. Using the quantity equation of money, what will be the impact of a $ 715 billion dollar increase in the money supply on the quantity of goods and services in the economy given an initial money supply of $4 trillion?

17 (I put 17.3 got it wrong, use money equation)

The diagram refers to a private closed economy. In this instance, the equilibrium GDP is:

180 billion

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?

20

A government annually collects $230 billion in tax revenue and allocates $70 billion to military spending. What percentage of this government's budget is spent on its military?

30.43%

If GDP is 2400 and the money supply is 600, then what is the velocity?

4

If nominal GDP is 1800 and the money supply is 450, then what is velocity?

4

A government deficit has decreased from 100 to 60. The country's trade deficit is 120 and private savings equal 80 and investment equals 100. If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal:

40

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

Money

Assume that there are excess reserves in the banking system of $64 billion and the required reserve ratio is 10%, what is the money-creating potential of the entire banking system if all the excess reserves are lent out to the public? Round your answer to one place to the right of the decimal point and do not include the "$" symbol or comma in your answer. In order to do this properly, make sure that your money multiplier is only carried out to an accuracy of one place to the right of the decimal place as well.

640

Bellville Bank made a loan to a customer in the amount of $810 that is eventually spent. Let us suppose it ends up with a customer who banks at Clarkston Bank. Bellville's checkable deposits fall by $810; Clarkston's rise by the same amount. Clarkston submits the check to the Fed, which transfers the money from Bellville's reserve account to Clarkston's. Notice that Clarkston's deposits rise by $810; Clarkston must increase its reserves by $81. But its reserves have risen by $810. How much are its excess reserves now? (Provide a numerical answer with no "$" sign symbol and no comma)

729

A government collects $70 billion quarterly in tax revenue. Each year it allocates $15 billion to the justice system and $29 billion for the administrative costs. What percentage of its total annual tax revenue is left for allocation to the remaining categories of government spending?

84.29%

A government deficit has increased from 30 to 50. The country's trade deficit is 100 and private savings equal 65 and investment equal 90. If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal:

85.

If aggregate supply is vertical, then which of the following statements must be true?

A. Aggregate demand does not affect the quantity of output.

From a neoclassical view, which of the following is a true statement?

A. Lower wages will cause an economy-wide increase in the price of a key input. B. Because wages are flexible, they are unaffected by high rates of unemployment. C. A surge in aggregate demand ends up as a rise in output, but does not increase price levels. D. The economy cannot sustain production above its potential GDP in the long run. Answer: D Reference:

________________ economists place an emphasis on __________ run economic performance.

A. Phillips; short B. Keynesian; long C. Neoclassical; long D. Says; short Answer: C Reference:

Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in:

A. a rise in level of output. B. an increase in price level. C. downward pressure on the price level. D. pressure for a lower level of inflation. Answer: B Reference:

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

A. aggregate demand

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

A. change in government policy to decrease in aggregate demand B. substantial short-term off-setting decrease in output C. inflationary increase in price level D. short-run decrease in cyclical unemployment Answer: C Reference:

A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of:

A. cyclical unemployment. B. real unemployment. C. aggregate demand. D. inflationary pressures. Answer: C Reference:

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

A. economic growth; the size of the economy B. government spending; aggregate demand C. government spending; aggregate supply D. economic adjustments; cyclical unemployment Answer: A Reference:

Which of the following government policies would be supported by neoclassical macroeconomic assumptions?

A. focus on long-term growth and on controlling inflation B. focus on short-term recession and controlling inflation C. focus on combating depression and cyclical unemployment D. focus on real GDP and cyclical unemployment Answer: A Reference:

Which of the following represents a Keynesian point of view of macroeconomics?

A. focus on long-term growth in the economy B. aggregate supply is the primary determinate of economic output C. creating increases in aggregate demand to reduce unemployment D. vertical aggregate supply Answer: C Reference:

Which of the following is a distinguishing characteristic of the neoclassical view?

A. increasing price levels will increase the unemployment rate B. wages and real GDP are sticky over time C. wages are maintained at original equilibrium D. flexibility of wages and prices over time Answer: D Reference:

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

A. interest rates; right

Suppose the diagram above refers to a situation where investors in the US are looking to Japan as a place where they should invest for a future high rate of return, while Japanese investors are looking to lower their investments in the US. The combined effect will

A. shift the demand curve out, the supply curve shifts in and the value of the dollar decreases. B. shift the supply curve out, the demand curve shifts in and the value of the dollar increases. C. shift the demand curve out, the supply curve shifts in and the value of the dollar increases. D. shift the supply curve out, the demand curve shifts in and the value of the dollar decreases. Answer: D Reference:

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

A. swings in exchange rates

In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve?

A. the AS curve shifting as productivity increases B. an upward sloping curve with a vertical top C. a vertical line drawn at the level of potential GDP D. the AS curve shifting as potential GDP expands Answer: C Reference:

The Keynesian view of economics assumes that:

A. the Keynesian Phillips curve is vertical. B. wages are sticky. C. the economy must focus is on long-term growth. D. economic output is primarily determined by aggregate supply. Answer: B Reference:

In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands.

A. the macroeconomy adjusts back to real GDP B. productivity increases C. the level of real output drops D. aggregate demand increases Answer: B Reference:

Which of the following is a building block of neoclassical economics?

A. the size of the economy is determined by real GDP B. sticky wages and prices C. aggregate demand model D. wages and prices will adjust in a flexible manner Answer: D Reference:

In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right.

A. vertical AS curve B. vertical AD curve C. vertical Phillips curve D. 45 degree AD curve Answer: A Reference:

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

A. zero

If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:

a budget deficit.

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

Which of the following would be classified in the M1 category of the money supply?

demand deposits

A stronger euro is less favorable for:

B. American tourists traveling in France.

Referring to the diagram above, which of the following is a true statement?

B. The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.

B. aggregate demand

In order to shift the vertical supply curve to the left, which of the following would have to occur?

B. breakdown of key market institutions

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:

B. cause the exchange rate for U.S. currency to depreciate.

If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then:

B. exchange rates will have less reason to vary.

People or firms use one currency to purchase another currency at the _______________________.

B. foreign exchange market

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

B. is vertical; is vertical

When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market.

B. soft peg

If a nation merges its currency with another nation to create a single currency, what must it give up?

B. the ability to determine its own nationally-oriented monetary policy

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

B. weakening; less

____________ is a completely inadequate mechanism ____________________ in a modern advanced economy.

Barter; for trying to coordinate trades

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.

Bonds

____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?

Long and variable time lags

Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?

M1

Which category of the money supply would you be contributing to if you invest in money market funds?

M2

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

When a government records a trade surplus, the national savings and investment identity is written as:

S = I + (G - T) + (X - M)

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

Sarah's M1 funds.

Which of the following institutions oversees the safety and stability of the U.S. banking system?

The Federal Reserve

Assume the market for dollars is as illustrated in the figure above and the equilibrium exchange rate is initially at E. Which of the following would take place after a decrease in demand for U.S dollars?

The dollar would depreciate and there would be fewer dollars traded on the foreign exchange market.

Referring to the figure above for the market for pesos, which of the following is the net result of the demand and supply shifts depicted?

The peso depreciates and the quantity of pesos traded remains the same.

What do goods like gasoline, tobacco, and alcohol typically share in common?

They are all subject to government excise taxes.

_________________________ are included in the aggregate amount of MI money currently in circulation.

Traveler's checks

If the U.S. dollar weakens, which of the following parties will benefit?

U.S firms selling in Europe

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

both the money multiplier and supply of money in the economy will decrease.

If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger.

an inflationary increase in the price level

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

annual inflationary loss of buying power

If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:

both the money multiplier and the supply of money in the economy will increase.

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a:

budget surplus

A ______________________ means that government spending and taxes are equal.

balanced budget

What is the name given to the macroeconomic equation MV = PQ?

basic quantity equation of money

the Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:

borrow for the short term from the central bank.

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?

countercyclical

If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:

create an inflationary increase in price level.

The process of banks making loans in financial capital markets is intimately tied to the:

creation of money.

An increase in government borrowing can:

crowd out private investment in physical capital.

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________.

decrease

If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

depend on borrowed money

Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely?

difficulty managing public investment so it's done in a cost effective way

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:

discretionary fiscal policy.

In the figure above, as aggregate demand shifts to the right, from AD0 to AD1to AD2, real GDP in this economy and the level of unemployment do not change. . However, there is inflationary pressure for a higher price level as the equilibrium changes from E0 to E1 to E2.

do not change.

A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?

especially large and sustained government borrowing

If the government initiates an expansionary monetary policy at the same time that its budget deficit increases, then the interest rate will __________________.

either increase or decrease

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow tight monetary policy.

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:

following a loose monetary policy.

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is:

following an expansionary monetary policy.

A reduction in government borrowing can:

give private investment an opportunity to expand.

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

government borrowing

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:

he dollar strengthened against the peso.

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

her M1 funds

A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.

higher interest rate

If the government's budget deficit increases while the economy is producing substantially less then potential GDP and expansionary monetary policy is implemented, then any ________________ from government borrowing would be _____________________________ from that monetary policy.

higher interest rates; largely offset by the lower interest rates

A government will likely ____________________________ to encourage investment in technology R&D by private firms?

implement fiscal policy establishing tax incentives

By June, 2010, the U.S. government owed $13.6 trillion dollars ________________ that, over time, has remained unpaid.

in accumulated government debt

If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?

income tax is a progressive tax

If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase

Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?

increase of $1 million in Pacific's loan assets

If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes

increase or decrease

If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase or decrease

If a country's GDP increases, but its debt decreases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase or decrease

Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits?

increasing exchange rates

In an economy with _______________, money loses some buying power each year, but it remains money.

inflation

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.

inflation or recession

If a government decides to finance an investment in ________________ with higher taxes or ____________________ in other areas, it need not worry that it is crowding out private investment.

public physical capital; lower government spending

Which of the following is a traditional tool used by the Fed during recessions?

open market operations

In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.

owning gold

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

potential GDP and aggregate supply

The market where loans are made to borrowers is called the:

primary loan market.

The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.

private savings from U.S. households and firms; inflows of foreign financial investment.

Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget surplus increases by 100, then:

private savings will decrease by 100.

An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?

productivity and economic growth

If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

progressive

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

progressive tax

If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

proportional

A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.

proportional tax

A central bank that desires to reduce the quantity of money in the economy can:

raise the reserve requirement.

If South Dakota's governor reports a budget surplus in 2011, that state government likely:

received more in taxes than it spent in that year.

The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.

reserve ratio

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

reserve requirements

When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment budget will show a __________________ than the actual budget.

smaller deficit

Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

store of value

A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system.

sustained pattern of large budget deficits

The quantitative easing policies adopted by the Federal Reserve are usually thought of as:

temporary emergency measures.