Quiz review for Macro Exam 3
QUIZ 14 If the money supply is growing at a rate of 3 percent per year, real GDP (real output) is growing at a rate of 3 percent per year, and velocity is constant, what will the inflation rate be? (Enter your response as an integer value.)
0%
QUIZ 14 If the money supply is growing at a rate of 3 percent per year, real GDP (real output) is growing at a rate of 3 percent per year, and velocity is growing at 3 percent per year instead of remaining constant, what will the inflation rate be? (Enter your response as an integer value.)
3%
QUIZ 13 A reporter for the Wall Street Journal wrote, "A strong dollar and weak growth overseas portend downward pressure on U.S. exports." A. A "strong dollar" means that the B. Weak growth overseas" means that C. The combination of a strong U.S. dollar and weak growth overseas might result in lower U.S. exports because D. The result of a strong dollar will be
A. U.S. dollar exchanges for more units of foreign currencies. B. foreign economies are growing more slowly than the U.S. economy. C. U.S. exports become more expensive for foreign buyers while income, and purchasing power, in other countries is rising only slowly. D.a leftward shift of the U.S. aggregate demand curve because it reduces exports, a spending component of aggregate demand.
QUIZ 14 During the Civil War, the Confederate States of America printed lots of its own currency--- Confederate dollars----to fund the war. By the end of the war, nearly 1.5 billion paper dollars had been printed by the Confederate government. How would such a large quantity of Confederate dollars have affected the value of the Confederate currency? A.It would have generated high inflation and therefore decreased the value of the Confederate currency. B.It would have had no substantial effect on the Confederate currency. C.More money in circulation leads to increased spending. As spending increases, real output increases, and the economy enters an economic expansion. D.It would have generated substantial deflation, lowered the price of goods and services, and pushed the Confederate states toward economic recession.
ANSWER A. It would have generated high inflation and therefore decreased the value of the Confederate currency.
QUIZ 14 A newspaper article contains the statement: "Income is only one way of measuring wealth." Do you agree that income is a way of measuring wealth? A.Income measures wealth because wealth is equal to the income that is not spent. B.Wealth can be measured by income since wealthy individuals have high incomes. C.Wealth is the stock of money and income adds to that stock. D.Income is yearly earnings and it doesn't measure wealth which is the value of personal assets less all debts.
ANSWER. D. Income is yearly earnings and it doesn't measure wealth which is the value of personal assets less all debts.
QUIZ 15 An article in the Wall Street Journal quoted a Federal Reserve economist as referring to "the Fed's existing dual mandate to achieve maximum sustainable employment in the context of price stability." Price stability" means A.a low and stable inflation rate. B.prices are set by the Fed. C.a zero percent inflation rate. D.prices do not change.
ANSWER: A. .a low and stable inflation rate.
In what ways does the federal budget serve as an automatic stabilizer for the economy? A.During a recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. During an expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these occur automatically and both effects help to stabilize aggregate demand. B.During a recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits rise. During an expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits fall. Both of these occur automatically and both effects help to stabilize aggregate demand. C.During a recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. During an expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these require government action to stabilize aggregate demand. D.During a recession, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. During an expansion, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. Both of these occur automatically and both effects help to stabilize aggregate demand.
ANSWER: A. During a recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. During an expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these occur automatically and both effects help to stabilize aggregate demand.
What is fiscal policy? A.Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives. B.Fiscal policy can be described as changes in government spending and interest rates to achieve macroeconomic policy objectives. C.Fiscal policy can be described as changes in interest rates and taxes to achieve macroeconomic policy objectives. D.Fiscal policy can be described as changes in interest rates to achieve macroeconomic policy objectives.
ANSWER: A. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives.
QUIZ 14 In the late 1940s, the Communists under Mao Zedong were defeating the government of China in a civil war. The paper currency issued by the Chinese government was losing much of its value, and most businesses refused to accept it. At the same time, there was a paper shortage in Japan. During these years, Japan was still under military occupation by the United States. Some U.S. troops in Japan realized that they could use dollars to buy up vast amounts of paper currency in China, ship it to Japan to be recycled into paper, and make a substantial profit. Under these circumstances, was the Chinese paper currency a commodity money or a fiat money? A.It is a commodity money because it has value as recycled paper.. B.It is a fiat money because it has value as recycled paper. C.It is a fiat money because it has no value except as money. D.It is a commodity money because it has no value except as money.
ANSWER: A. It is a commodity money because it has value as recycled paper.
QUIZ 13 Could these firms have reduced their labor costs by the same, or possibly more, if they laid off fewer workers while cutting wages? A.No, because workers would become disgruntled with wage cuts and reduce their productivity, resulting in higher production costs. B.Yes, but they chose not to do that because they wanted to reduce their workforce anyway. C.No, because labor contracts specify the terms of workforce changes during economic slowdowns. D.Yes, but this could cost more in the long run because some workers would have been idle.
ANSWER: A. No, because workers would become disgruntled with wage cuts and reduce their productivity, resulting in higher production costs.
QUIZ 15 Which one of the following is not one of the monetary policy goals of the Fed? A.Reduce income inequality. B.Maintain high employment. C.Maintain stability of financial markets and institutions. D.Maintain price stability.
ANSWER: A. Reduce income inequality.
What is the difference between the federal budget deficit and federal government debt? A.The federal budget deficit is the year-to-year short fall in tax revenues relative to government spending (T < G + TR), financed through government bonds. The federal government debt is the accumulation of all past deficits. B.The federal budget deficit is the year-to-year surplus in tax revenues relative to government spending (T > G + TR), financed through government bonds. The federal government debt is the accumulation of all past deficits. C.The federal budget debt is the year-to-year short fall in tax revenues relative to government spending (T < G + TR), financed through government bonds. The federal government deficit is the accumulation of all past debts. D.The federal budget deficit is the year-to-year short fall in tax revenues relative to government spending (T < G + TR), financed through corporate bonds. The federal government debt is the accumulation of all past deficits.
ANSWER: A. The federal budget deficit is the year-to-year short fall in tax revenues relative to government spending (T < G + TR), financed through government bonds. The federal government debt is the accumulation of all past deficits.
QUIZ 15 In 2015, one article in the Wall Street Journal discussed the possibility of "a September quarter-point increase in the Fed's range for overnight target rates," while another article noted, "the U.S. central bank's discount rate...has been set at 0.75% since February 2010." What is the name of the "target interest rate" mentioned in this article? A.The federal funds rate. B.The prime rate. C.The mortgage rate. D.The discount rate.
ANSWER: A. The federal funds rate.
QUIZ 14 Excess reserves A.are reserves banks keep above the legal requirement. B.are loans made at above market interest rates. C.are the deposits that banks do not use to make loans. D.are reserves banks keep to meet the reserve requirement.
ANSWER: A. are reserves banks keep above the legal requirement.
Government spending and taxes that increase or decrease without any actions taken by the government are referred to as A.automatic stabilizers. B.discretionary fiscal policy. C.monetary policy. D.government expenditures.
ANSWER: A. automatic stabilizers.
QUIZ 13 The short-run aggregate supply curve slopes upward because of all of the following reasons except A.in the short run, an unexpected change in the price of an important resource can change the cost to firms. B.in the short run, as prices of final goods and services increase, input prices react more slowly. C.in the short run, as prices of final goods and services increase, some firms are very slow to adjust their prices, thus their sales increase. D.in the short run, prices of final goods and services adjust slowly due to the existence of menu costs.
ANSWER: A. in the short run, an unexpected change in the price of an important resource can change the cost to firms.
If the Federal Reserve is late to recognize a recession and implements an expansionary policy too late, the result could be an increase in inflation during the beginning of the next phase. Even though the goal had been to reduce the severity of the recession, the poor timing caused another problem: inflation. This is an example of what type of policy? A.Tight policy B.Procyclical policy C.Countercyclical policy D.Fiscal policy
ANSWER: B. Procyclical policy
QUIZ 13 An article in the Economist magazine noted that: "the economy's potential to supply goods and services [is] determined by such things as labour force and capital stock, as well as inflation expectations." This list of the determinants of potential GDP is A.incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply. .B.correct since changes in the expected price level affect both the short run and the long run aggregate supply. C.incorrect since changes in the expected price level do not affect aggregate supply. D.correct since changes in the expected price level affect short run aggregate supply which in turn determines potential GDP.
ANSWER: A. incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply.
QUIZ 13 Indicate which of the following would cause a shift in the aggregate demand curve from point A to point C (from point A to Point C, PL is the same while rGDP increases) (Mark all that apply.) A.Decrease in the price level B.Lower taxes C.Lower interest rates D.Inflation E.Increased consumer optimism F.Decrease in the U.S. exchange rate relative to other currencies
ANSWER: B,C,E,F
What is a contractionary fiscal policy? A.Contractionary fiscal policy includes increasing government spending and taxes to decrease aggregate demand. B.Contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand. C.Contractionary fiscal policy includes increasing government spending and decreasing taxes to decrease aggregate demand. D.Contractionary fiscal policy includes decreasing government spending and taxes to decrease aggregate demand.
ANSWER: B. Contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand.
What is an expansionary fiscal policy? A.Expansionary fiscal policy includes decreasing government spending and taxes to increase aggregate demand. B.Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand. C.Expansionary fiscal policy includes increasing government spending and taxes to increase aggregate demand. D.Expansionary fiscal policy includes decreasing government spending and increasing taxes to increase aggregate demand.
ANSWER: B. Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand.
What is the difference between federal government purchases (spending) and federal government expenditures? A.Government purchases refer to spending for which no good or service is received. B.Government purchases are included in government expenditures. C.Government expenditures are included in government purchases. D.They are the same.
ANSWER: B. Government purchases are included in government expenditures.
The term "crowding out" refers to a situation where: A.Fed policy increases interest rates and decreases private investment. B.Government spending increases interest rates and decreases private investment. C.Fed policy decreases interest rates and increases private investment. D.Government spending decreases interest rates and increases private investment.
ANSWER: B. Government spending increases interest rates and decreases private investment
QUIZ 15 Which of the following is a monetary policy target used by the Fed? A.Growth rate of GDP. B.Interest rate. C.Budget deficit. D.Unemployment rate.
ANSWER: B. Interest rate
QUIZ 13 What does the article mean by firms reducing the "cash value" of workers' wages? A.It means firms found it difficult to cut real wages. B.It means firms found it difficult to cut nominal wages. C.It means firms found it difficult to cut real wages by more than prices. D.It means firms found it difficult to cut nominal wages by more than prices.
ANSWER: B. It means firms found it difficult to cut nominal wages.
QUIZ 14 In 2008, the required reserve ratio for a bank's first $9.3 million in checking account deposits was zero. It was 3 percent on deposits between $9.3 million and $43.9 million, and 10 percent on deposits above $43.9 million. In most cases, and for simplicity, we assume that the required reserve ratio is 10 percent on all deposits. Therefore, the simple deposit multiplier is 10. Is the real-world deposit multiplier greater than, less than, or equal to the simple deposit multiplier? A.Equal. There is no difference between the two. B.Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier. C.Greater. Inflation plays a large role in the increase in checkable deposits. D.None of the above. They are very different concepts.
ANSWER: B. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier.
QUIZ 15 Which of the following is NOT a monetary policy goal of the Federal Reserve bank (the Fed)? A.Low unemployment B.Low prices C.Higher living standards D.Stable financial markets
ANSWER: B. Low prices
QUIZ 14 Suppose you withdraw $1,000 from a money market mutual fund and deposit the funds in your bank checking account. How will this action affect M1 and M2? A.M2 will increase, but M1 will not be affected. B.M2 will not be affected, but M1 will increase. C.M2 will increase and M1 will decrease. D.M2 will decrease and M1 will increase.
ANSWER: B. M2 will not be affected, but M1 will increase.
Which can be changed more quickly: monetary policy or fiscal policy? A.Fiscal policy can be changed more quickly than monetary policy. Fiscal policy has much shorter delays due to the smaller number of legislators involved. B.Monetary policy can be changed more quickly than fiscal policy. Monetary policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy. C.Fiscal policy can be changed more quickly than monetary policy. Monetary policy has much longer delays due to the larger number of legislators involved. D.Monetary policy can be changed more quickly than fiscal policy. Fiscal policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy.
ANSWER: B. Monetary policy can be changed more quickly than fiscal policy. Monetary policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy.
QUIZ 15 What is the discount rate? A.The discount rate is the rate at which banks lend to their best customers. B.The discount rate is the rate at which the Fed lends to banks. C.The discount rate is the rate at which banks lend to each other. D.The discount rate is the rate at which auto loans and mortgages are made.
ANSWER: B. The discount rate is the rate at which the Fed lends to banks.
QUIZ 14 An article in the New York Times in 2015 noted, "A rising number of Greeks in rural areas are swapping goods and services in cashless transactions since the government shut down banks on June 28 for three weeks." If Greeks were able to swap goods and services for other goods and services, did it matter that currency was not available because the banks had been closed? A.No, it did not matter. This swapping is actually better than using money because each person wants what the other one has. B.Yes, it mattered. Without money, swapping goods and services for other goods and services requires that each person must want what the other one has, and takes considerable time and energy. C.Yes, it mattered. Without money, people focus much more on what they need than what they want, making the economy more efficient. D.No, it did not matter. Since Greeks were able to swap goods and services for other goods and services, they were just as well off without money.
ANSWER: B. Yes, it mattered. Without money, swapping goods and services for other goods and services requires that each person must want what the other one has, and takes considerable time and energy.
QUIZ 15 An increase in the money supply in the U.S. will not A.cause the value of the dollar to decrease relative to other assets. B.cause the value of investing in U.S. financial assets to become more desirable to foreign investors. C.cause the U.S. interest rate to decline relative to interest rates in other countries. D.cause the amount of net exports from the U.S. to increase, as exports rise and imports fall.
ANSWER: B. cause the value of investing in U.S. financial assets to become more desirable to foreign investors.
QUIZ 10 Evaluate the following statement: "Saving money is not lending. How can it be? When I save my money, I put it in a bank. I don't loan it out to someone else." The statement is A.correct. Depositing money in a bank is borrowing, not saving. B.incorrect. The supply of loanable funds is determined by household saving. C.incorrect. The supply of loanable funds is determined by firms' willingness to borrow. D.correct. Depositing money in a bank is neither saving nor borrowing.
ANSWER: B. incorrect. The supply of loanable funds is determined by household saving.
QUIZ 15 An article in the Wall Street Journal reported in 2015 that the People's Bank of China, which is the central bank of China, "is freeing up cash by reducing the amount that banks must keep in reserve." The People's Bank of China was hoping this policy action would A.expand the banking sector. B.stimulate economic growth. C.lower the inflation rate. D.increase interest rate income for investors.
ANSWER: B. stimulate economic growth.
QUIZ 15 An article in the Wall Street Journal quoted a Federal Reserve economist as referring to "the Fed's existing dual mandate to achieve maximum sustainable employment in the context of price stability." "Maximum sustainable employment" means the economy is producing at its potential where A.unemployment includes cyclical and structural unemployment. B.unemployment includes frictional and structural unemployment. C.unemployment includes frictional and cyclical unemployment. D.the unemployment rate is zero percent.
ANSWER: B. unemployment includes frictional and structural unemployment.
QUIZ 13 During a recession, some firms lay off some of their workers, while not cutting the wages of the workers they continue to employ, because the workers they continue to employ A. have fixed contracts so their wages cannot be cut. B. would likely react by becoming less productive if their wages are cut. C. would likely quit if their wages are cut. D.negotiated this arrangement.
ANSWER: B. would likely react by becoming less productive if their wages are cut.
Which of the following are examples of discretionary fiscal policy? (Check all that apply.) A.The government spends more on the military to provide assistance to England after a natural disaster. B.The government provides stimulus funds to repair roads and bridges to increase spending in the economy. C.A state government borrows money to finance the building of a new bridge. D.Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. E.Additional taxes are collected as the economy experiences an increase in income resulting from economic growth. F.The president and Congress reduce tax rates to increase the amount of investment spending.
ANSWER: B.The government provides stimulus funds to repair roads and bridges to increase spending in the economy. D.Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. F.The president and Congress reduce tax rates to increase the amount of investment spending.
QUIZ 14 Look carefully at the following list. a. The coins in your pocket. b. The funds in your checking account. c. The funds in your savings account. d. The traveler's check that you have left over from a trip. e. Your Citibank Platinum MasterCard. Which of the things above are NOT included in the M1 definition of the money supply?
ANSWER: C & E
What is the cyclically adjusted budget deficit or surplus? A.The cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal government's budget if the economy were above potential GDP. B.The cyclically adjusted budget deficit or surplus requires the federal budget to always be in balance, therefore avoiding a deficit or surplus. C.The cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal government's budget if the economy were at potential GDP. D.The cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal government's budget if the economy were below potential GDP.
ANSWER: C. The cyclically adjusted budget deficit or surplus is the deficit or surplus in the federal government's budget if the economy were at potential GDP.
QUIZ 15 The government would want the economy to contract when real GDP is A.below potential GDP and the price level is rising. B.below potential GDP and the price level is falling. C.above potential GDP and the price level is rising. D.above potential GDP and the price level is falling.
ANSWER: C. above potential GDP and the price level is rising.
QUIZ 10 Crowding out occurs when A.interest rates increase as firms spend a larger amount of resources on research and development. B.interest rates increase because the Federal Reserve reduces that economy's money supply. C.governments must borrow funds which causes interest rates to rise and thus private investment is reduced. D.firms borrow more to expand operations which results in an increase in interest rates.
ANSWER: C. governments must borrow funds which causes interest rates to rise and thus private investment is reduced
QUIZ 15 The Fed uses policy targets of interest rate and/or money supply because A.it is difficult to set a target for the unemployment rate, which constantly fluctuates. B.the inflation rate is controlled by Congress and the White House. C.it can affect the interest rate and the money supply directly and these in turn can affect unemployment, GDP growth, and the price level. D.the target for the GDP growth rate is set by Congress.
ANSWER: C. it can affect the interest rate and the money supply directly and these in turn can affect unemployment, GDP growth, and the price level.
QUIZ 15 An article in the Wall Street Journal reported in 2015 that the People's Bank of China, which is the central bank of China, "is freeing up cash by reducing the amount that banks must keep in reserve." This policy change would "free up cash" because A.total reserves would increase. B.total deposits would increase. C.reserves that were required are now excess reserves available for lending. D.reserves that were excess are now required reserves available for lending.
ANSWER: C. reserves that were required are now excess reserves available for lending.
QUIZ 14 What is price deflation? A.An increase in the price level. B.A decrease in the rate of growth of the price level. C.An increase in the rate of growth of the price level. D.A fall in the price level.
ANSWER: D. A fall in the price level.
QUIZ 15 Which of the following is a monetary policy tool used by the Federal Reserve Bank? A.Buying $500 million worth of government securities, such as Treasury bills. B.Decreasing the rate at which banks can borrow money from the Federal Reserve. C.Increasing the reserve requirement from 10 percent to 12.5 percent. D.All of the above.
ANSWER: D. All of the above
How does a budget deficit act as an automatic stabilizer and reduce the severity of a recession? A.Transfer payments to households increase. B.During recessions, tax obligations fall due to falling wages and profits. C.Consumers spend more than they would in the absence of social insurance programs, like unemployment. D.All of the above.
ANSWER: D. All of the above.
QUIZ 14 What is meant by Professor Spencer's statement "This printing of money 'will keep the [deflation] wolf from the door'"? A.An increase in the money supply will increase the velocity of money, and thus there will be hyperinflation. B.An increase in the money supply will decrease the price level because money will be worth less. C.An increase in the money supply will cause consumers to demand more goods. D.An increase in the money supply that exceeds the rate of growth of GDP will increase the price level.
ANSWER: D. An increase in the money supply that exceeds the rate of growth of GDP will increase the price level.
QUIZ 15 Who borrows money and who lends money at this "target interest rate"? A.Banks borrow and the Fed lends. B.The Fed borrows and banks lend. C.Banks borrow and investors lend. D.Banks borrow and banks lend.
ANSWER: D. Banks borrow and banks lend.
QUIZ 14 Why would deflation cause "shoppers to hold back," and what does Evans-Pritchard mean when he says, "Once this psychology gains a grip, it can gradually set off a self-feeding spiral that is hard to stop"? A.Banks will be unwilling to lend when prices are falling, causing a decrease in investment and a fall in demand. B.Deflation increases purchasing power, so it is not necessary to buy as many goods. C.Decreases in the price level cause the money supply to decrease, which makes it difficult to purchase goods. D.Consumers delay purchases, expecting prices to fall more, and the lack of demand causes prices to fall further.
ANSWER: D. Consumers delay purchases, expecting prices to fall more, and the lack of demand causes prices to fall further.
QUIZ 14 Evaluate the following statement: Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit. A.True. Any money that is left over after a bank loans money to businesses and households will be loaned to other banks. B.False. In reality, banks are rarely able to find borrowers for all of their deposits. C.True. Deposits that sit in a bank as vault cash earn no interest. D.False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.
ANSWER: D. False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.
Suppose that the economy is currently at potential GDP, and the federal budget is balanced. If the economy moves into recession, what will happen to the federal budget? A.If the budget is balanced at potential GDP and the economy moves into recession, then the budget will remain balanced as government expenditure decreases and tax revenue decreases will exactly offset each other. B.If the budget is balanced at potential GDP and the economy moves into recession, then the budget will remain balanced as government expenditure increases and tax revenue decreases will exactly offset each other. C.If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures decrease and tax revenues increase. D.If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures increase and tax revenues decrease.
ANSWER: D. If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures increase and tax revenues decrease.
QUIZ 15 The Fed uses monetary policy to offset the effects of a recession (high unemployment and falling prices when actual real GDP falls short of potential GDP) and the effects of a rapid expansion (high prices and wages). Can the Fed, therefore, eliminate recessions? A.The Fed is only concerned with the money supply and interest rates. B.The Fed can eliminate recessions by properly anticipating the economic events that cause them. C.The Fed can, but choses not to, eliminate recessions. D.The Fed can only soften the magnitude of recessions, not eliminate them.
ANSWER: D. The Fed can only soften the magnitude of recessions, not eliminate them.
Who is responsible for fiscal policy? A.The federal government and the Federal Reserve jointly control fiscal policy. B.Fiscal policy is controlled by market forces. C.The Federal Reserve controls fiscal policy. D.The federal government controls fiscal policy.
ANSWER: D. The federal government controls fiscal policy.
Why do few economists argue that it would be a good idea to balance the federal budget every year? A.To keep a balanced budget during an expansion, taxes would have to increase and government expenditures would have to decrease, which would increase aggregate demand and lead to inflation. B.To keep a balanced budget during an expansion, taxes would have to decrease and government expenditures would have to increase, which would increase aggregate demand and decrease inflation. C.To keep a balanced budget during a recession, taxes would have to decrease and government expenditures would have to increase, which would further reduce aggregate demand and deepen the recession. D.To keep a balanced budget during a recession, taxes would have to increase and government expenditures would have to decrease, which would further reduce aggregate demand and deepen the recession.
ANSWER: D. To keep a balanced budget during a recession, taxes would have to increase and government expenditures would have to decrease, which would further reduce aggregate demand and deepen the recession.
QUIZ 14 How do the banks "create money"? A.Banks sell bonds in the open market and lose reserves; the excess cash holding by households increases the money supply. B.Banks buy bonds in the open market and gain reserves; this excess reserve holding increases the money supply. C.When there is a decrease in checking account deposits, banks lose reserves and reduce their loans, and the money supply expands. D.When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands.
ANSWER: D. When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands.
QUIZ 15 An article in the Wall Street Journal reported in 2015 that the People's Bank of China, which is the central bank of China, "is freeing up cash by reducing the amount that banks must keep in reserve." The monetary policy tool that the People's Bank of China was using was changes to the A.discount rate. B.interest rate. C.volume of bonds. D.required reserve ratio.
ANSWER: D. required reserve ratio.
QUIZ 13 If firms want to reduce workers wages over time, they have to reduce A.the cash or real value, of wages. B.the cash or marginal value, of wages. C.the cash or average value, of wages. D.the cash or nominal value, of wages.
ANSWER: D. the cash or nominal value, of wages.
When the economy is experiencing an expansion automatic stabilizers will cause: A.transfer payments and tax revenues to be unaffected. B.transfer payments to decrease and tax revenues to decrease. C.transfer payments to increase and tax revenues to increase. D.transfer payments to decrease and tax revenues to increase.
ANSWER: D. transfer payments to decrease and tax revenues to increase.
QUIZ 14 When money is acting as a store of value, it allows an individual to A.exchange goods for other goods and services in the economy. B.trade money for goods and services in the economy. C.measure the value of goods and services in the economy. D.transfer dollars, and therefore purchasing power, into the future.
ANSWER: D. transfer dollars, and therefore purchasing power, into the future.
If the government increases expenditure without raising taxes, this will A.increase the budget deficit and require the government to borrow additional funds. B.cause the interest rate to increase, thereby, reducing private investment and crowding out the private sector. C.cause a decrease in the domestic exchange rate which will increase exports and decrease imports. D.All of the above. E.A and B only.
ANSWER: E.A and B only.
S(saving)=I(investment)
saving must equal investment in a closed economy
Y(GDP)=
C(consumption)+I(investment)+G(gov't purchases)
QUIZ 10 In a closed economy, Y = $18 billion C = $14.4 billion I = $1.8 billion TR = $1.0 billion T = $1.0 billion Calculate each of the following (round each answer to one decimal place).
Private savings = __$3.6__ billion Public savings = __$-1.8__ billion Total savings in this economy = __$1.8__ billion The government's budget deficit or surplus = __$-1.8__ billion (enter a negative number for a deficit, positive number for surplus).
QUIZ 10 Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion G = $2 trillion Spublic = $negative 0.50 trillion T = $2 trillion Now suppose that government purchases increase from $2 trillion to $2.75 trillion but the values of Y and C are unchanged. What must happen to the values of S and I?
S and I drop by $0.75 trillion.
Spublic=
T(taxes)-G(gov't purchases)-TR(transfer payments)
QUIZ 14 Suppose you deposit 2,200 cash into your checking account. By how much will checking deposits in the banking system increase as a result when the required reserve ratio is 0.10? (enter your result rounded to the nearest dollar).
The change in checking deposits is equal to: $22,000
QUIZ 10 What will be the effect of an increase in business taxes on the quantity of investment by firms and the economy's capital stock in the future?
The quantity of investment will decrease and the economy's future capital stock will decrease.
QUIZ 13 Suppose the economy enters a recession. If government policymakers-Congress, the president, and members of the Federal Reserve-do not take any policy actions in response to the recession, what is the likely result?
The unemployment rate will rise in the short run but return to the natural rate of unemployment in the long run, and real GDP will drop below potential GDP in the short run but return to potential GDP in the long run.
Sprivate=
Y (GDP)+TR(transfer payments)-C(consumption) - T(taxes)
I(investments)=
Y(GDP)-C(consumption)-G(gov't purchases)
QUIZ 10 Consider the following data for a closed economy: Y = $13 trillion C = $9 trillion G = $2 trillion Spublic = $negative 1.0 trillion T = $4 trillion Use the data to calculate the following: (Enter your responses rounded to one decimal place.) .
a. Private saving is: __$3__ trillion. b. Investment spending is:__$2__ trillion. c. Transfer payments are: __$3__ trillion. d. The government budget balance is:__-$1__ trillion and as a result the government budget is in __deficit___
QUIZ 10 If the government changes its tax policy and taxes only real interest payments and not nominal interest payments,
both saving and investment increase.
QUIZ 15 When the Federal Open Market Committee (FOMC) decides to increase the money supply, it _______ U.S. Treasury securities. If the FOMC wishes to decrease the money supply, it _______ U.S. Treasury securities.
buys; sells
QUIZ 14 REVIEW question 7-8, question 11 (second part), & 13
computing M1 & M2
QUIZ 13 The price level that is currently higher than expected will _______ the SRAS curve because this is a change in ______.
decrease (shift leftward); an adjustment to past errors in expectations about future prices
QUIZ 13 An increase in what the price level is expected to be in the future will _________ the SRAS curve because this is a change in ______.
decrease (shift leftward); expectations about future prices
QUIZ 13 An unexpected increase in the price of an important raw material will _________ the SRAS curve because this is a change in ________. .
decrease (shift leftward); the price of an important natural resource .
QUIZ 10 If the government changes its tax policy and taxes only real interest payments and not nominal interest payments, the equilibrium real interest rate will _____ and the equilibrium quantity of loanable funds will _____ .
decrease; increase
QUIZ 10 When business taxes increase, the equilibrium interest rate ______ and the equilibrium quantity of loanable funds _______. .
decreases; decreases
QUIZ 13 An increase in the labor force will ______ the SRAS curve because this is a change in ________.
increase (shift rightward); the productive capacity of the economy
QUIZ 14 Money is an imperfect standard of deferred payment because _______causes the value of money to decrease over time.
inflation
QUIZ 13 An increase in interest rates will cause a ________ the aggregate demand curve.
leftward shift of
QUIZ 13 An increase in state income taxes will cause a ________ the aggregate demand curve.
leftward shift of
QUIZ 13 An increase in the price level will cause a ________________ the aggregate demand curve.
movement up along
QUIZ 13 An increase in the price level will _______ the SRAS curve because this is a change in _______.
not change; the price level
QUIZ 13 A faster income growth in other countries will cause a ________ the U.S. aggregate demand curve.
rightward shift o
QUIZ 13 An increase in government purchases will cause a _______ the aggregate demand curve.
rightward shift of
QUIZ 13 REVIEW question 8
shifts in SRAS and LRAS
QUIZ 15 The ______________ is considered the most relevant interest rate when conducting monetary policy.
short-term nominal interest rate
