Macroeconomics Final

Historically speaking, a $1 decrease in household wealth will cause consumer spending to fall by

$0.03 to $0.07

Carlos purchases a bond, newly issued by the Big Time Corporation, for $10,000. The bond pays $400 to its holder at the end of the first, second, and third years and pays $10,400 upon its maturity at the end of four years. The principal amount of this bond is_____, the coupon rate is _____, and the term of this bond is _____.

$10,000; 4 percent; four years

Sydney purchases a newly issued, two-year government bond with a principal amount of $20,000 and a coupon rate of 5 percent paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if newly issued one-year government bonds are paying a 6 percent coupon rate?

$19,811

Sydney purchases a newly issued, two-year government bond with a principal amount of $20,000 and a coupon rate of 3 percent paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if newly issued one-year government bonds are paying a 2 percent coupon rate?

$20,196

If the desired reserve-deposit ratio is 0.4 and the banking system receives an additional $10 million in reserves, bank deposits will increase by

$25 million

If the principal amount of a bond is $8,000,000, the coupon rate is 4 percent, and the inflation rate is 2 percent, then the annual coupon payment made to the holder of the bond is

$32,000

If potential output for an economy equals $1,200 billion and actual output equals $1,140 billion, then this economy's output gap should be expressed as

-5 %

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals

0.9

The Federal Reserve System first began operations in

1914

The longest and most severe recession in the United States since 1900 began in

1929

If the natural rate of unemployment equals 4 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals

2 %

There is $2,000,000 of currency in Econland, which are all held by banks as reserves. The public does not hold any currency. If the banks' desired reserve/deposit ratio is 0.1, then the money supply equals

20,000,000

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 80, planned investment is fixed at 50, government purchases are fixed at 140, and net exports are fixed at 30. Planned aggregate expenditure equals

320 + 0.75Y.

If the cyclical rate of employment equals 1 percent and the actual rate of unemployment equals 7 percent, then the natural rate of unemployment must equal

6 %

Which of the following workers is least likely to lose his/her job during a recession?

A police officer

The seven Fed governors, the president of the Federal Reserve Bank of New York, and four of the presidents of the other regional Federal Reserve Banks constitute the

Federal Open Market Committee.

Which of the following would be expected to decrease the demand for money in the U.S.?

Grocery stores begin to accept credit cards in payment

M1 differs from M2 in that

M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1.

In the United States saving is allocated to its most productive use by

a decentralized, market-oriented financial system.

After the Federal Reserve increases reserves in the banking system, banks create new deposits through multiple rounds of lending and accepting deposits until the

actual reserve-deposit ratio is equal to the desired reserve-deposit ratio.

When an individual deposits currency into a checking account

bank reserves increase, which allows banks to lend more and increases the money supply.

The direct trade of goods and services for other goods and services is called

barter

A legal promise to repay a debt is called

bond

Each of the following is an example of a financial intermediary except a

bond market

According to the textbook, monetary policymaking is most accurately described as

both an art and a science

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.

businesses and households; downward

Changes in autonomous consumption could be the result of

changes in housing prices

Menu costs are the costs of

changing prices

Federal Reserve actions that reduce nominal interest rates and increase the money supply will

close a recessionary gap.

Privately owned firms that accept deposits from individuals and businesses and use those deposits to make loans are called

commercial banks

The federal funds rate is the interest rate on short-term loans made by

commercial banks to other commercial banks

The two main responsibilities of the Federal Reserve System are to ______ and to ______.

conduct monetary policy; oversee financial markets

The largest component of planned aggregate expenditure is

consumption

The interest rate promised when a bond is issued is called the

coupon rate

You own shares in a start-up Internet company. If the company announces that it will not pay dividends next year as it has in the past, then the price of your shares will _____, holding other factors constant.

decrease

Higher nominal interest rates ______ the amount of money demanded and higher real income ______ the amount of money demanded.

decrease; increases

When Argentinians increase their savings in U.S. dollars, the U.S. money

demand curve shifts right

Deposit insurance is a system in which the government guarantees that

depositors will not lose any money even if their bank goes bankrupt.

Liabilities of the commercial banking system include

deposits

One problem with using monetary policy to address "bubbles" in asset markets is that

doing so presupposes that the Federal Reserve is better than financial-market professionals at identifying bubbles.

Two reasons savers keep deposits at banks are to

earn a return on their savings and to facilitate making payments

When actual investment is greater than planned investment

firms have sold less output than expected

Recessions tend to be

followed by a decrease in the rate of inflation

Porsha pays $10,000 for a newly issued two-year government bond with a $10,000 face value and a 6 percent coupon rate. One year later, after receiving the first coupon payment, Porsha sells the bond. If the current one-year interest rate on government bonds is 5 percent, then the price Porsha receives is

greater than $10,000.

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers.

higher than

An increase in interest rates results in a(n) ______ in the required rate of return to hold stocks and ______ current stock prices.

increase; reduces

The increasing availability of temporary job placement agencies and online job services has ______ the efficiency of matching workers and jobs and has therefore ______ the natural rate of unemployment in the United States.

increased; decreased

A rapidly growing supply of money will lead to

inflation

Autonomous expenditure is the portion of planned aggregate expenditure that

is independent of output

Money serves as a medium of exchange when

it is used to purchase goods and services

A bond is a(n)

legal promise to repay a debt

In a fractional-reserve banking system, the reserve/deposit ratio equals

less than 100 percent

The coupon rate on newly issued bonds is usually higher for bonds with ______ terms and ______ risk that the borrower will go bankrupt.

longer; greater

The coupon rate on newly issued bonds is usually ______ for bonds with favorable tax treatment, such as municipal bonds, and ______ for bonds that are very risky, such as junk bonds.

lower; higher

The slope of the consumption function

marginal propensity to consume

Workers in durable-goods industries are ______ workers in professional service industries to lose their jobs during a recession.

more likely than

The opportunity cost of money is

nominal interest rate

When there is a recessionary gap, capital and labor resources are

not being fully utilized

The principal amount of a bond is the amount

originally lent

The main disadvantage of using money as a store of value is that

other assets pay relatively higher rates of interest than money.

In the short run, total spending affects ____, and in the long run total spending affects ______.

output; prices

Economic activity moves from a period of expansion to a ______ and then moves into a period of ______ until it reaches a _____.

peak, recession; trough

Planned aggregate expenditure is total

planned spending on final goods and services

A recession occurs when ______, when _______, or when both of these occur

potential output grows slowly; actual output falls below potential output

In the past, some governments' budget deficits became so large that they could not raise sufficient taxes to finance the spending, so they ______, which led to ______.

printed large quantities of paper money; hyperinflation

The money demand curve will shift to the right if

real income increases

In Macroland potential GDP equals $300 billion and real GDP equals $288 billion. Macroland has a(n) ______ gap equal to ______ percent of potential GDP.

recessionary; −4

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will

reduce production

Assets of the commercial banking system include

reserves and loans

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional

spending

The demand for money is

the amount of wealth an individual or firm chooses to hold in the form of money

The amount of wealth an individual chooses to hold in the form of money is called

the demand for money

In determining the beginning of recessions, the NBER Business Cycle Dating Committee looks for evidence of decline in

the entire economy

The effect on short-run equilibrium output of a one-unit increase in autonomous expenditure is called

the income-expenditure multiplier.

The Federal Reserve's policy reaction function provides information about

the long-run target for inflation and how aggressively targets will be pursued.

Potential output is

the maximum sustainable amount of output.

If firms sell less than is expected, actual investment increases because _____, which is counted as investment

the unsold goods are added to inventory

Commercial banks create new money

through multiple rounds of lending.

Planned investment may differ from actual investment because of

unplanned changes in inventories.

Because the Fed determines the money supply, the money supply curve is

vertical

For policymakers, the problem with a recessionary gap is ________ and the problem with an expansionary gap is ________.

wasted resources; a tendency for inflation to increase