Econ Exam 3 study
11. When real GDP is less than potential GDP, there is ____ which leads the unemployment rate to _____
A) An inflationary gap; rise B) A recessionary gap; remain at the natural level C) A recessionary gap; rise D) A recessionary gap; decline E) An inflationary gap; remain at the natural level C
11. The federal funds rate is
A) Another name for the real interest rate B) Also known as the prime rate C) The interest rate on the 3-month Treasury bill D) The interest rate banks charge each other on overnight loans E) The interest rate on the 30-year treasury bond D
10. When we put a price tag on goods and services, we are using money as a
A) Barter token B) Medium of exchange C) Store of value D) Means of payment E) Unit of exchange E
10. For a commodity or token to be money it must
A) Be paper B) Have a double coincidence of wants C) Be accepted in exchange for all other goods and services D) Be issued by the government or a government agency E) Be backed by government precious metals, like gold C
10. Banks generally earn the highest interest rate
A) By making loans to businesses firms B) By making mortgage loans to individuals C) By making credit card loans D) On services charges on individuals' checking accounts E) By buying government securities C
11. Which of the following is NOT an effect from a change in the federal funds rate?
A) Change in other interest rates B) Change in the quantity of money C) Change in government expenditures D) Change in investment E) Change in aggregate demand C
11. Which of the following is NOT one of the Fed's monetary policy tools?
A) Changing the required reserve ratio B) Conducting open market sales of government securities C) Conducting open market purchases of government securities D) Changing the coupon rate E) Changing the discount rate D
12. The legislative time lag best described as the time that it takes
A) Congress to pass laws needed to change taxes or spending B) The president to sign a bill sent from congress C) A newly passed law to become the norm in daily lives D) Congress to recognize that new laws must be passed to change taxes or spending A
10. Which of the following is NOT a component of M1?
A) Currency B) Saving deposits C) Demand deposits D) Traveler's checks B
12. The crowding out effect refers to the _____ from ____ in the government budget deficit
A) Decrease in investment; an increase B) Increase in consumption; and increase C) Increase in investment; an increase D) Decrease in employment; an increase E) Decrease in consumption; a decrease A
12. Which of the following is an example of a fiscal stimulus?
A) Decrease in taxes B) Decreases in government expenditure on goods and services C) Increase in taxes D) Decrease in transfer payments A
11. When the exchange rate falls, imports _____ and exports _____
A) Decrease; decrease B) Increase; increase C) Decrease; increase D) Increase; decrease E) Decrease; do not change C
9. The government increases the level of government expenditure. If there is no change in the aggregate supply curve, then aggregate demand will _______, real GDP will ______, and the price level will _______.
A) Decrease; increase; increase B) Decrease; remain the same; decrease C) Increase; remain the same; increase D) Remain the same; increase; increase E) Increase; increase; increase E
9. An increase in the price of oil____ aggregate supply, shifting the aggregate supply curve _____ and potentially bringing the _____ phase of the business cycle.
A) Decrease; leftward; recession B) Decrease; rightward; expansion C) Decrease; rightward; recession D) Increase; rightward ; expansion E) Increases; rightward; recession A
12. Since 1960, the share that the US government has spent on national defenses has generally _______ and the share it has spent on Social Security and healthcare has _____
A) Decreased; decreased B) Decreased; increased C) Increased; decreased D) Increased; increased B
12. The crowding out effects refers to the ____ from-_______ in the goverment's budget deficit
A) Decreases in investment; an increase B) Decrease in employment; an increase C) Increase in investment; an increase D) Increase in consumption; an increase E) Decrease in consumption; a decrease A
10. Required reserves rations are the minimum amount of
A) Deposits any one bank must hold as a percentage of its reserves B) Reserves any one bank must hold as a percentage of its loans C) Deposits any one bank is allowed to accept as percentage of its capital D) Reserves any one bank must hold as a percentage of its total assets E) Reserves any one bank must hold as a percentage of its deposits E
11. The interest rate the Federal Reserve charges a bank when it borrows reserves from the Fed is called the
A) Discount rate B) Borrowing rate C) Market interest rate D) Federal funds rate E) Prime rate A
9. Aggregate demand _______ if the expected inflation rate increases because ________
A) Does not change; inflation does not affect the aggregate demand curve B) Increases; people expect to receive cost of living raised as inflation begins C) Decreases; people want to wait for the price of goods and services begin to decrease D) Decreases; people wait for the exchange rates to change before making purchases E) Increases; people want to make purchases now before the price of goods and services begin to increase E
10. Banks can make loans as long as they have
A) Excess government securities B) Deposits C) Required reserves D) Excess reserves D
10. The store of value function is defined as the
A) Exchange of goods and services directly for pother good and services B) Use of money as a medium of exchange C) Holding of money from one transaction to be used latter in another transaction D) Pricing of goods and services in one measure E) Double coincidence of wants used in the debate over barter versus money C
12. An example of automatic fiscal policy is
A) Expenditure for unemployment benefits increasing as economic growth slows B) The Federal Reserve reducing interests rates as economic growth slows C) Congress passing a tax rate reducing packages D) The federal government expanding spending at the Department of Education A
9. At a peak in the business cycle, the macroeconomics equilibrium is ________ the level of potential real GDP
A) Falling below B) Less than C) Equal to D) Greater than D
12. In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?
A) Increase government expenditures on goods and services B) Raise taxes C) Cut taxes D) Cut interest rates E) Increase the quantity of money B
12. If the economy is at the short-run equilibrium by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to
A) Increase taxes and decrease government spending simultaneously B) Increase the quantity of money C) Decrease the quantity of money D) Increase government spending E) Decrease taxes A
12. To eliminate a recessionary gap, the government can ________ government expenditures on goods and services or __________ taxes
A) Increase; decrease B) Increase; increase C) increase; not change D) Decrease; increase E) Decrease; decrease A
11. When the Fed sells government securities, bank's reserves _____, the quantity of money ______, and the federal funds rate _____
A) Increase; decrease; rises B) Decrease; decrease; falls C) Increase; increase; falls D) Decrease; decreases; rises E) Decreases; Increases; falls D
11. If the Fed carries out an open market operation and buys US government securities, the quantity of reserves ______ and the federal funds rate ________
A) Increases; increases B) Decreases; does not change C) Decreases; decreases D) Decreases; increases E) Increases; Decreases E
9. Aggregate demand _______and shifts the AD curve _______ when _______:
A) Increases; leftward; government expenditure increases B) Increases; rightward; taxes increase C) Increases; rightward; government expenditure increases D) Increases; rightward; future expected profit decreases E) Decreases; leftward; foreign income increases C
9. An increase in investment _______ aggregate demand, the aggregate demand curve shifts ______ and the economy is in the _______ phase of the business cycle
A) Increases; rightward; expansion B) Decreases; leftward; recession C) Decreases; rightward; expansion D) Increases; rightward; recession E) Increases; leftward; recession A
12. The standard view in economics is that tax cuts without _______ will _______ the budget deficit resulting in _______
A) Increasing spending; decreases; unemployment B) Increases spending; increases; crowding out investment C) Spending cuts; decreases; unemployment D) Spending cuts; increases; crowding out investment E) Spending cuts; decreases; crowding out investments D
12. The national debt is the amount
A) Of government outlays summed over time B) By which government tax revenue exceed outlays in a given year C) By which government outlays exceed tax revenue in a given year D) Of all future entitlement spending E) Of debt outstanding that arise from past budget deficits E
11. In response to the financial crisis in 2008, the Fed created which of the following policy tools?
A) Open market operations B) The required reserve ratio C) The discount rate D) The federal funds rate E) Quantitative easing E
11. Open market operations are the
A) Purchase or sales of government securities by the Fed B) Minimum percentages pf loans that banks must retain as a reserves in the open market C) Purchase or sale of gold by the Fed D) Borrowing of reserves by the Fed from the banking system E) Lending of reserves to the banking system by the Fed A
11. If the AS and AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that _____ the federal funds rate and _____ aggregate demand
A) Raises; has no effect on B) Lower; increases C) Raises; decreases D) Lower; decreases E) raises; increases C
12. A ________ policy will cause a greater share of income to be collected from those with high incomes that from those with lower incomes
A) Regressive tax B) Corrective tax C) Progressive tax D) Proportional tax C
11. To fight a recession, an appropriate policy would be that the Fed conducts an open market operation that _______ government securities, ______ the federal funds rate, and _______ aggregate demand.
A) Sells; raises; increases B) Buys; lowers; decreases C) Sells; lowers; increases D) Sells; raises; decreases E) Buys; lowers; increases E
10. A shared stock is a
A) Set of demands and suppliers for the savings of households B) Collection of funds that travels the world looking for the highest return C) Promises to pay specified sums of money on specified dates D) Forms of investment in physical capital E) Certificate of ownership and claim to the profits made by a firm E
10. A distinction between stocks and bonds is that
A) Stocks represent ownership claims to the company and bonds do not B) Bonds can be traded many times in the bond market, while stocks are non-transferable C) Bonds cannot be sold to anyone other than the company that issued it while stocks can be resold to anyone D) Bonds must be held for a fixed number of years whereas stocks can be bought and sold at any time E) Although the return on a bond is determined by the force of supply and demand, the return on a stock is set by the stock exchange A
9. An increase in ______ increases productivity (and hence, potential GDP) and ______ aggregate supply.
A) Technology; increases B) The cost of labor; decreases C) Technology; decreases D) The cost of labor; increases E) The price of oil; decreases A
11. Control of monetary policy rests with
A) The Federal Reserve B) Congress C) The US Treasury D) The president E) The Comptroller of the Currency A
12. What two parts of the government determine the federal budget?
A) The Federal Reserve and the FOMC B) The US Treasury and the Federal Reserve C) The Congress and the President D) The Congress and the Federal Reserve E) The President and the Federal Reserve C
11. Steps in the transmission of monetary policy are
A) The Federal Reserve increases government expenditures on goods and services, leading to an increase in aggregate demand B) Congress increases the budget deficit, which increases the money supply, which increase aggregate supply C) Congress increases government expenditures on goods and services, leading to an increase in aggregate demand D) The Federal Reserve lowers the federal funds rate, which lowers the real interest rate, and leads to an increase in aggregate demand E) Congress increases the money supply, which lowers the interest rate, and leads to an increase in aggregate demand D
9. Macroeconomics equilibrium occurs when
A) The aggregate quantity demanded is equal to the aggregate quantity supplied B) There is no inflation C) Real GDP is equal to potential GDP D) The price level equals the potential price level E) The economy is fully employed A
11. The three traditional policy tools the federal Reserve System uses to implement monetary policy are
A) The discount rate, open market operations, and the required reserve ratio B) Credit easing, the discount rate, and tax rates C) Quantitative easing, market interest rate, and open market operations D) The prime rate, open market operations, and extradentary crisis management E) Quantitative easing, open market operations, and tax rates A
12. Fiscal policy focuses on how
A) The federal funds rate affects aggregate supply B) Government taxing and spending affects aggregate supply C) The federal funds rate affects aggregate demand D) Government taxing and spending affects aggregate demand E) The federal funds rate affects potential GDP D
9. Which of the following does NOT affect potential GDP?
A) The quantity of land and natural resources B) The quantity of capital and human capital C) The amount of entrepreneurial talent available D) The quantity of labor employed E) The quantity of money E
12. The national debt can only be reduced if
A) There are no tax multiplier effects B) The federal budget is in surplus C) The economy has an inflationary gap D) The economy has a deflationary gap E) The federal budget is in deficit B
10. A public authority that provided services to commercial banks and regulates financial institutions and markets is called a
A) Thrift institution B) Mint C) Central bank D) Commercial banks E) Money market fund C
10. M1 is composed of
A) Traveler's checks, credit cards, and e-cash B) Checkable deposits owned by individuals and businesses, saving deposits, and certifications of deposits C) Currency held by individuals and business, traveler's checks, and checkable deposits owned by individuals and businesses D) Currency inside of banks, traveler's checks, and government- issued checks E) Currency held by individuals and businesses, traveler's checks, and the credit line on credit cards C
10. Regulating the amount of money in the US is one of the most important responsibilities of the
A) US Mint B) State governments C) Federal reserves D) State departments E) Treasury department C
9. If European economics enter a recession
A) US aggregate demand increases and the US AD curve shifts rightward B) US aggregate demand decreases and the US AD curve shifts leftward C) The quantity of real GDP in the Us decreases and there is a movment down along the US AD curve D) US aggregate demand decreases and the US AD curve shifts leftward E) The quantity of real GDP demanded in the US increases and there is a movment up along the US AD curve D
11. A hike in the federal funds rate typically results in _____ in other interest rate which leads to a _____ in investment
A) An increases; an increase B) A decrease; a decrease C) An increase: a decrease D) A decrease; an increase E) A decrease; no change C
9. "Stagflation" ( aka cost- push inflation) can be started by
A) An increase in the price of raw materials, such as oil B) A decrease in government expenditures on goods and services C) An increase in the quantity of money D) An increase in government expenditure on goods and services E) A decrease in the cost of labor A
11. All of the following are elements in the structure of the Fed EXCEPT the
A) 12 Federal Reserve Banks B) Board of Governors C) Executive Council to the Governor D) President of the 12 Federal Banks E) Federal Open Market Committee C
11. The Federal Reserve System is organized into
A) 12 districts, dividing up the United States B) One large district covering the entire United States C) Three districts; one for each of the countries in North America D) 50 districts, one per state E) 12 districts, dividing up the countries in North America A
10. Which of the following is NOT an example of physical capital?
A) A building B) A computer C) A dump truck D) A lawn mower E) A bond E
9. Which of the following can lead to higher inflation
A) A decrease in aggregate demand or an increase in aggregate supply B) A decrease in aggregate demand or an decrease in aggregate supply C) An increase in aggregate demand or an increase in aggregate supply D) An increase in aggregate demand or a decrease in aggregate supply D
9. If the cost of production increases, there is
A) A decrease in aggregate supply and the AS curve shifts rightwards B) An increase in the quantity of real GDP supplied and a movement up along the AS curve C) An increase in aggregate supply and the AS curve shifts rightward D) A decrease in the quantity of real GDP supplied and a movement down along the AS curve E) A decrease in aggregate supply and the AS curve shifts leftward E
9. The change in potential real GDP and aggregate supply shown in the graph above can be a result of
A) A decrease in the price of oil B) A decrease in the cost of labor C) An increase in the quantity of capital D) A fall in the price level E) An increase in the cost of labor C
12. If the economy is in equilibrium with real GDP less than potential GDP, there is ___ gap, and a fiscal policy that ____ is appropriate
A) A recessionary; decrease aggregate demand B) An inflationary; increases aggregate demand C) A recessionary; increases aggregate demand D) A recessionary; increases potential GDP E) An inflationary; decreases aggregate demand C
9. If the aggregate demand curve and the aggregate supply intersect at a level of real GDP more than potential GDP there is:
A) A rising real GDP B) A recessionary gap C) An inflationary gap D) A below full employment equilibrium E) A falling price level C
10. A document that promises to pay specified sums of money on specified dates and is a debt to the issuer is called
A) A stock B) Net investment C) Gross investment D) Depreciation E) A bond E
11. The Feral Reserve monetary policy goal of maximum employment means
A) A zero percent natural unemployment rate B) Aiming for an amount of employment that exceeds full employment C) A zero percent unemployment rate D) Keeping the unemployment rate close to the natural unemployment rate E) Cyclical unemployment should not necessarily be minimized D
9. An inflationary gap starts with a shift of the:
A) AS curve leftward B) AD curve rightward C) AD curve leftward D) AS curve rightward E) Potential GDP line leftward B
9. Cyclical unemployment could increase when:
A) Aggregate supply increases B) Potential GDP increases C) Aggregate demand increases D) An inflationary gap is created E) The government decreases its expenditure on goods and services E
9. In the figure above, the economy is at an equilibrium with real GDP of $16 trillion and a price level of 110. At this point there is
A) An above full-employment equilibrium B) A recessionary gap C) An inflationary gap D) A full-employment equilibrium E) Price stability B
9. ________ increases potential GDP
A) An increase in aggregate demand B) A recessionary gap C) A recession D) A decrease in the cost of labor E) An increase in the amount of human capital E
9. All of the following actions shift the aggregate demand curve to the right EXCEPT:
A) An increase in government transfer payments B) The Fed raises the interest rate C) Inflation in expected to rise next year D) A decrease in taxes E) An increase in expected future profit B
11. In the short run, if the Fed wants to raise the federal funds rate, it
A) Instructs the New York Fed to sell government securities in the foreign exchange market B) Instructs the New York Fed to sell government securities in the open market C) Instructs large commercial banks to sell government securities in the open market D) Tells large commercial banks to raise their interest rates E) Instructs the New York Fed to buy government securities in the open market B
10. When a commercial bank receives a deposit, it must keep part of the deposit as cash reserves to satisfy its
A) Interbank loans B) Excessive reserves C) Required reserves D) Securities and loans E) Loan requirement C
10. When banks of America finances your purchase of a new car you are
A) Lending in the bond market B) Borrowing in the loan market C) Lending in the capital market D) Borrowing in the stock market E) Borrowing in the bond market B
11. While the Fed has a "dual mandate" of goals to achieve, most economists believe that in the long run the single key role is attaining
A) Low economic growth rates B) Stable velocity of money C) Price stability D) High levels of income and output E) High inflationary rates C
12. A decrease in taxes should be applied in a situation with
A) Low unemployment B) A inflationary gap C) High demand for goods and services D) No tax multiplier E) A recessionary gap E
9. If a country is trying to recover from a recent recession, it is unlikely their government officials will decide to ________ because that would ________.
A) Lower interests rates; decrease aggregate demand B) Raise interest rates; increase aggregate demand C) Increase taxes; increase aggregate demand D) Institute a tax cut; increase aggregate demand E) Raise interest rates; decrease aggregate demand E
11. To fight a recession, the Fed can
A) Lower the federal funds rate by buying securities B) Lower income taxes on interest income C) Lower federal funds rate by selling securities D) Raise the federal funds rate by selling securities E) Raise the federal funds rate by buying securities A
12. An economy is at a short-run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to
A) Lower the interest rate by increasing the quantity of money and move the economy to a full-employment equilibrium at point b. B) Increase government expenditures and move the economy to a full-employment equilibrium at point b C) Increase government expenditures and move the economy to a full- employment and point c D) Increase tax rates and move the economy to a full-employment equilibrium at point c B
9. The slope of the aggregate supply curve shows that the _______ the price level, the _______
A) Lower; is the quantity of potential GDP supplied B) Lower; greater is the quantity of real GDP supplied C) Higher; smaller is the quantity of real GDP supplied D) Higher; greater is the quantity of real GDP supplied E) Higher; is the quantity of potential GDP supplied D
11. The Fed is concerned about inflation. Its policy will _____ US interest rates and, in the foreign exchange market, lead to the value of the US dollar
A) Lower; not changing B) Lower; rising C) Raise; not changing D) Raise; rising E) Lower; falling D
10. M2 consists of
A) M1 plus travelers checks B) M1 plus checkable deposits C) M1 plus saving deposits, small time deposits, and money market funds D) M1 plus federal reserves E) M1 plus currency at the banks C
10. Banks create money by
A) Making loans B) Printing paper money C) Buying government securities D) Minting coins A
10. A household increases its wealth by
A) Making sure that its net investment exceeds its gross investment B) Decreasing its depreciation C) Spending more on consumption goods D) Increasing its capital consumption E) Saving E
10. Which of the following is NOT among the primary functions of money?
A) Medium of exchange B) Store of value C) Barter mechanism D) Unit of account C
10. A credit card is
A) Money B) Not money C) Barter money D) Fiat money B
10. Which statement about money is most correct?
A) Money is a new invention and can include anything that is accepted as a means of payment B) Money is a new invention and only includes dollar bills and coins C) Money has been around for a long time and only includes dollar bills and coins D) Money has been around for a long time and only includes checking accounts and savings accounts E) Money has been around for a long time and can include anything that is accepted as a means of payment E
11. If the Federal Reserve lowers the required reserve ratio, people will end up taking out _____ because the interest rates _____
A) More loans; will fall B) Fewer loans; will rise C) More loans; will rise D) The same number of loans; will not change E) Fewer loans; are controlled by the economic conditions alone A
11. If the Fed raises the federal funds rate, which of the following happens?
A) Net exports increase B) Real GDP increase C) Aggregate demand decreases D) The real interest rate falls E) The price level rises C
10. Financial capital is used to help finance
A) Net investment but not gross investment B) Gross investment but not net investment C) People's savings D) The purchase of physical capital by firms E) Consumption expenditure by households D
12. Do automatic fiscal stabilizers eliminate business cycles?
A) No, they increase the likelihood that a business cycle occurs B) No, but they do moderate business cycles C) Yes D) No, because they have no effect if the business cycle is the result of some unanticipated change E) No, they make business cycle fluctuations more sever B
10. Banks earn a profit by
A) Not paying interest on their reserves B) Keeping as many reserves on hand as possible C) Charging an interest rate on their depositor's accounts D) Making loans at a higher interest rate than the rates that they offer of their deposits E) Making loans at a lower interest rate than the rate they offer on their deposits D
9. If people expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve
A) Will not shift; but potential GDP will increase B) Will shift rightward because people will increase spending now C) Will shift leftward because people will spend less now D) Will not change until income actually rises E) And the AS curve will both shift leftward because people will increase their savings B
10. The US dollar is called
A) convertible money because the government stands ready to convert it into gold or silver B) Commodity money, because it it convertible into gold C) Frail money because wear and tear ruins paper bills D) Fiat money because the law decrees it is money D
9. Stagflation is defined as a period when real GDP _______ and the price level ________.
A) decreases; decreases B) is constant; rises rapidly C) decreases; increases D) increases; decreases E) increases; increases C
10. Which of the following are assets of commercial banks? i. reserves ii. loans iii. deposits
A) i and ii B) i,ii, and iii C) ii only D) i only E) ii and iii A
11. The "dual mandate" of the Fed includes i. maximum employment ii. balanced federal budget iii. stable prices
A) i and ii only B) i and iii only C) ii and iii only D) i only E) i, ii, and iii B
9. In its macroeconomics equilibrium, the economy can be producing at i. below full employment ii. full employment iii. above full employment
A) i, ii, or iii B) iii only C) ii only D) i only E) i or ii A
11. Which of the following statements are correct? i. Congress does not play a role in making monetary policy decisions. ii. The FOMC meets eight times a year to make monetary policy decisions. iii. The president of the US appoints members of the Board of Governors and the Chairman of the Board of Governors, but the President has little other formal authority over monetary policy.
A) ii and iii B) i and iii C) i,ii, and iii D) i and ii E) ii only C
9. Which of the following shifts the aggregate supply curve rightward? i. The cost of labor rises ii. Productivity increases iii. Government expenditure on goods and services increases
A) ii only B) iii only C) i only D) i, ii, and iii E) ii and iii A
10. To acquire financial capital, a firm can i. obtain a loan from a bank ii. issue stock iii. issue bonds
A) iii only B) ii only C) i and iii D) i. ii, and iii E) i only D
9. All of the followings shift the aggregate demand curve to the right EXCEPT
A)An increase in foreign income B)An increase in taxes C)An increase in expected future profit D)An expansion of the global economy E)An increase in government expenditure B