Macroeconomics Quizzes

The Federal Reserve System's four monetary policy goals are

price stability, high employment, economic growth, and stability of financial markets and institutions.

Although the Federal Reserve had traditionally made discount loans only to commercial banks, in response to the financial crisis in 2008 the Fed made _____ eligible for discount loans as well.

primary dealers

Firms that participate in regular open market transactions with the Federal Reserve are called

primary dealers

The Federal Reserve was established in 1914 to

stop bank panics by acting as a lender of last resort

Many mortgages being granted to _____ borrowers with flawed credit histories and _____ borrowers who did not document their incomes.

sub-prime; "Alt-A"

Stagflation usually results from

supply shock

Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result,

the long-run aggregate supply curve will shift to the right

The major shortcoming of a barter economy is

the requirement of a double coincidence of wants

Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result,

the short-run aggregate supply curve will shift to the left as wages increase

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Required reserves increase by_____

$2000 (10,000 x 0.2)

U.S. net export spending rises when

The growth rate of U.S. GDP is slower than the growth rate of GDP in other countries

Open market operations refer to the purchase or sale of _____ to control the money supply.

U.S. Treasury securities by the Federal Reserve

The "wealth effect"

When the price level falls, the real value of household wealth rises.

Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

decrease

The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors was

fighting inflation

Long-run macroeconomic equilibrium occurs when

aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.

Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line. If the MPC is 0.9, then what is the change in GDP?

$100 million

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Checking account deposits in the banking system as a whole could eventually increase up to a maximum of _____

$50000 ( 1/0.2 = 5........ 10,000 x 5)

Suppose that investment spending decreases by $5 million, decreasing aggregate expenditure. If the MPS is 0.2, then what is the change in GDP?

-$25 million

A general formula for the multiplier is

1/MPS

If the velocity of money grows at 5%, the money supply grows at 10%, and real GDP grows at 4%, then the inflation rate will be.....

11% (10 + 5 = P + 4)

Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy?

A significant decrease in investment spending

What will cause a direct increase in consumption spending?

An increase in disposable income

Expansionary monetary policy refers to the _____ to increase real GDP.

Federal Reserve's increasing the money supply and decreasing interest rates

_____ consumption is consumption that depends upon the level of GDP and _____ consumption is consumption that does not depend upon the level of GDP.

Induced; autonomous

If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?

Inventories will rise, and GDP and employment will decline

Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?

Required reserves would increase

Which of the following functions of money would be violated if inflation were high?

Store of value

the Federal Reserve cut the federal funds rate seven times between Sept. 2007 and March 2008. What even led the fed to make these reductions in the federal funds rate?

Substantial reduction in the demand for housing

What statement is NOT TRUE about the multiplier?

The multiplier makes the economy less sensitive to changes in autonomous expenditure.

A decrease in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run?

The price level will fall, and the level of GDP will be unaffected.

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?

There was an unplanned increase in inventories equal to $2 million

Because the slope of the aggregate demand curve, we can say that

a decrease in the price level leads to a higher level of real GDP demanded

The statement, "My iPhone is worth $300" represents money's function as

a unit of account

The "international trade effect"

an increase in price level will lower net exports

investment spending will increase when

business cash flow increases

Marginal Propensity to Consume (MPC)

change in consumption/change in income

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers

the largest proportion of M1 is made up of

checking account deposits

Silver is an example of a

commodity money

If a person withdraws $100 from their checking account and puts it in their saving account, then M1 will ____ and M2 will _____

decrease; not change

Changes in the price level

do not affect the level of aggregate supply in the long run.

The ratio of the increase in _____ to the increase in _____ is called the multiplier.

equilibrium real GDP; autonomous expenditure

The interest rate that banks charge other banks for overnight loans is the

federal funds rate

When the price level in the U.S. falls relative to the price level of other countries, _____ will fall, _____ will rise, and _____ will rise.

imports; exports; net exports

An increase in the interest rate should _____ the demand for dollars and the value of the dollar, and net exports should _____.

increase; decrease

People hold money as opposed to financial assets because money

is perfectly liquid

The quantity theory of money predicts that, in the long run, inflation results from the

money supply growing at a faster rate than real GDP

The Fed can increase the federal funds rate by

selling Treasury bills, which decreases bank reserves.

If natural gas and oil prices increase because of a decrease in supply, but then the supply is restored and prices go back down, the restoration refining capacity should

shift the short-run aggregate supply curve to the right.

An increase in the price level causes the money demand curve to

shift to the right

When the economy enters into a recession, your employer is ____ to reduce your wages because _____

unlikely; lower wages reduce productivity and morale