Macro Test 3
4) ________ consumption is consumption that does not depend upon the level of GDP. A) Autonomous B) Induced C) Voluntary D) Disposable
B
41) If the marginal propensity to save is 0.4, the multiplier is 2.5. T F
T
42) Money will fail to serve as a medium of exchange if it ceases to be a store of value. T F
T
43) When Jack's income increases by $1,000, he spends an additional $850 dollars. This implies that his marginal propensity to consume is 0.85. T F
T
Consumption (dollars) $1,200 2,100 3,000 Disposable Income (dollars) $3,000 4,000 5,000 14) Refer to Table above. Given the consumption schedule in the table above, the marginal propensity to save is a. 0.1. b. 0.4. c. 0.7. d. 0.9.
A
13) A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases
A
14) Actual investment spending does not include a. spending on consumer durable goods. b. spending on new capital equipment. c. spending on new houses. d. changes in inventories.
A
14) Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred? a. There was an unplanned increase in inventories equal to $2 million. b. There was no unplanned change in inventories. c. There was an unplanned decrease in inventories equal to $2 million. d. There was an unplanned decrease in inventories equal to $19 million.
A
14) Examples of assets that are included in household wealth would be a. stocks, bonds, and savings accounts. b. stocks, loans owed, and savings accounts. c. stocks, bonds, and mortgages. d. stocks, credit cards, and savings accounts.
A
14) If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is a. 0.9. b. 0.8. c. 0.75. d. 0.6.
A
14) The aggregate expenditure model focuses on the ________ relationship between real spending and ________. a. short-run; real GDP b. short-run; inflation c. long-run; real GDP d. long-run; inflation
A
14) The five most important variables that determine the level of consumption are a. disposable income, wealth, expected future income, price level, and interest rate b. wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances c. government purchases, interest rates, income, taxes, and transfers d. government purchases, saving account balances, wealth, interest rates, portfolio balances
A
14) The slope of the consumption function is equal to a. the change in consumption divided by the change in disposable income. b. the change in consumption divided by the change in personal income. c. the change in disposable income divided by the change in consumption. d. the change in national income divided by the change in consumption.
A
30) Which of the following is a true statement about the multiplier? a. The multiplier rises as the MPC rises. b. The smaller the MPC, the larger the multiplier. c. The multiplier is a value between zero and one. d. The multiplier effect does not occur when autonomous expenditure decreases.
A
9) Bank reserves include A) vault cash and deposits with the Federal Reserve. B) loans to bank customers and deposits with the Federal Reserve. C) vault cash and loans to bank customers. D) customer checking accounts and vault cash.
A
11) If the central bank can act as a lender of last resort during a banking panic, banks can A) call in their loans to their customers and eventually restore the public's faith in the banking system. B) satisfy customer withdrawal needs and eventually restore the public's faith in the banking system. C) borrow more and more money from the central bank, and this will lower its reserves and decrease the public's faith in the banking system. D) encourage the public to borrow directly from the central bank, and this will worsen the banking panic.
B
12) Open market operations refer to the purchase or sale of ________ to control the money supply. A) corporate bonds and stocks by the Federal Reserve B) U.S. Treasury securities by the Federal Reserve C) corporate bonds and stocks by the U.S. Treasury D) U.S. Treasury securities by the U.S. Treasury
B
14) At macroeconomic equilibrium, a. total investment equals total inventories. b. total spending equals total production. c. total consumption equals total production. d. total taxes equal total transfers.
B
14) If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium? a. Inventories will decline, and GDP and employment will decline. b. Inventories will rise, and GDP and employment will decline. c. Inventories will decline, and GDP and employment will rise. d. Inventories will rise, and GDP and employment will rise.
B
14) If firms are more optimistic that future profits will rise and remain strong for the next few years, then a. investment spending will fall. b. investment spending will rise. c. investment spending will remain unaffected. d. investment spending will rise and then fall.
B
14) If inventories decline by more than analysts predict they will decline, this implies that a. actual investment spending was greater than planned investment spending. b. actual investment spending was less than planned investment spending. c. actual investment spending was equal to than planned investment spending. d. there is no relationship between actual investment spending and planned investment spending.
B
2) A general formula for the multiplier is A) 1/(1-MPS) B) 1/(MPC) C) 1/(MPS) D) 1/(MPC-1)
B
29) To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could A) raise the required reserve ratio. B) buy Treasury securities. C) raise the discount rate. D) lower bank taxes.
B
30) On the 45-degree line diagram, for points that lie below the 45-degree line, a. planned aggregate expenditure is greater than GDP. b. planned aggregate expenditure is less than GDP. c. planned aggregate expenditure is equal to GDP. d. planned aggregate expenditure is less than aggregate income.
B
30) The Federal Reserve's narrowest definition of the money supply is a. M0. b. M1. c. M2. d. M3.
B
30) Which of the following functions of money would be violated if inflation were high? a. unit of account b. store of value c. certificate of gold d. medium of exchange
B
5) How does a decrease in government spending affect the aggregate expenditure line? A) It shifts the aggregate expenditure line upward. B) It shifts the aggregate expenditure line downward. C) It increases the slope of the aggregate expenditure line. D) It decreases the slope of the aggregate expenditure line.
B
6) Economies where goods and services are traded directly for other goods and services are called ________ economies. A) trade B) barter C) direct D) seigniorage
B
7) Fiat money has A) little to no intrinsic value but is backed by the quantity of gold held by the central bank. B) little to no intrinsic value and is authorized by the central bank or governmental body. C) value, because it can be redeemed for gold by the central bank. D) a great intrinsic value that is independent of its use as money.
B
8) The largest proportion of M1 is made up of A) currency. B) checking account deposits. C) traveler's checks. D) savings account deposits.
B
1) If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP, then A) the MPC is 0.5. B) the MPC is 0.75. C) the MPC is 0.8. D) the MPC is 0.9.
C
10) If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to A) $100. B) $1,000. C) $10,000. D) $100,000.
C
14) If the marginal propensity to save is 0.25, then a $10,000 decrease in disposable income will a. increase consumption by $7,500. b. increase consumption by $2,500. c. decrease consumption by $7,500. d. decrease consumption by $2,500.
C
14) ________ usually increase(s) when the U.S. economy is in a recession and decrease(s) when the U.S. economy is expanding. a. Consumer spending b. Planned investment c. Net Exports d. Unplanned investment
C
30) If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then a. the multiplier is 0.125. b. the multiplier is 3.5. c. the multiplier is 8. d. the multiplier is 50.
C
30) Which of the following is one of the most important benefits of money in an economy? a. Money allows for the exchange of goods and services. b. Money allows for the accumulation of wealth. c. Money makes exchange easier, leading to more specialization and higher productivity. d. Money encourages people to produce all of their own goods (self-sufficiency) and therefore increases economic stability.
C
14) The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by a. investment spending. b. export spending. c. government spending. d. the level of aggregate expenditure.
D
3) All of the following are true statements about the multiplier except A) The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. B) The larger the MPC, the larger the multiplier. C) The multiplier is the ratio of the change in real GDP to the change in autonomous expenditure. D) The multiplier makes the economy less sensitive to changes in autonomous expenditure.
D
30) In economics, money is defined as a. the total value of one's assets in current prices. b. the total value of one's assets minus the total value of one's debts, in current prices. c. the total amount of salary, interest, and rental income earned during a year. d. any asset people generally accept in exchange for goods and services.
D
30) John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending, a. this may benefit the economy in the short run, but not in the long run. b. the economy will benefit in the short run and benefit by an even greater amount in the long run. c. this will have a major negative impact on the economy in both the short run and in the long run. d. this may benefit the economy in the long run, but could be counterproductive in the short run.
D
43) Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports. T F
F
43) Economies cannot function without money. T F
F
43) If gold is used as money in an economy, the money supply is easy to control. T F
F
43) Liquidity increases as we move from the M1 to the M2 definition of the money supply. T F
F
43) The amount of national income in an economy equals the money supply in an economy. T F
F
43) When the dollar becomes stronger compared to the Japanese Yen, then the Japanese imports from the U.S. will increase. T F
F
50) Commodity money can be used only as a medium of exchange. T F
F