Exam 3 17,18,19,22,23

The standard deduction for a single person is $12,200. Based on this table, if your total income is $84,200, what is the amount of tax you will pay on your taxable income? $15,840 $11,699 $18,524 $13,156

$11,699

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. If your employer owes you $665, approximately how much will you get after these deductions? $41.23 $60.52 $19.29 $604.49

$604.49

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $850. How much will your work cost your employer? $77.35 $24.65 $52.70 $927.35

$927.35

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate inflation is ____ less than expected. 0.25% 1.75% 3.75% 2.0%

0.25%

If expected inflation is 2%, and actual inflation is 2.8%, then unexpected inflation is: 2.8%. 0.8%. 4.8%. 2.0%.

0.8%.

If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at: 2%. 4%. 3.5%. 1.5%.

3.5%.

You are sitting at your desk in your new job as the Chair of the Federal Reserve Bank of the United States. The interest rate where potential GDP meets real GDP is 2%, the inflation rate is 1%, and the output gap is -1%. What is the appropriate new nominal federal funds rate that you should set for the economy? 1.5% 1% 0.5% 2.5%

1.5%

If government spending rises by $62 billion and GDP rises by $110 billion, then the multiplier in the economy is approximately: 2.77. 1.12. 0.56. 1.77.

1.77

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is -0.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy? 1% 3% 0.5% 2%

2%

Which of the following will fall when the economy is expanding? Consumer confidence Business confidence Applications for unemployment benefits Nonfarm payrolls

Applications for unemployment benefits

If an economy has a positive output gap of 1.5%, this means: inflation is 1.5% above the long-run rate of inflation. GDP is 1.5% above potential GDP. GDP is 1.5% below potential GDP. unemployment is 1.5% above the natural rate of unemployment.

GDP is 1.5% above potential GDP.

Which of the following is a reason to worry about government debt? The government never really needs to repay the debt. Future generations can help repay the debt. Most of the debt is domestic debt. High and rising debt slows economic growth.

High and rising debt slows economic growth.

Which of the following will probably rise when the economy is in a recession? Real retail sales Employment Real GDP growth Initial unemployment claims

Initial unemployment claims

Which of the following correctly describes the business cycle? It refers to excess unemployment during recessionary periods. It refers to ups and downs in business revenue during expansions and recessions. It is the constant rise in GDP over time. It is the fluctuations of GDP around the potential output.

It is the fluctuations of GDP around the potential output.

How do interest rates affect investment in the economy? Lower interest rates lower the after-tax profit for firms, and thus investment falls. Lower interest rates lower the cost of borrowing for firms, and so investment rises. Higher interest rates lower the cost of borrowing for firms, and so firms save more in banks. Higher interest rates increase government expenditure and thus raise investment.

Lower interest rates lower the cost of borrowing for firms, and so investment rises.

Which economic indicator tells you how fast wages and benefits are rising? Nonfarm payrolls The employment cost index Business confidence S&P 500

The employment cost index

Why don't most tax expenditures help much if your federal tax bill is zero? Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill. Most tax expenditures are specifically for high-income people. You don't qualify for tax breaks if your federal tax bill is zero. Taxes are an automatic stabilizer.

Most tax breaks reduce taxable income, but reducing taxable income below zero does not reduce the tax bill.

Which economic indicator tells you about the future expected profits of businesses? Consumer price index Initial unemployment claims S&P 500 Nonfarm payrolls

S&P 500

You are the manager of a local bank. Due to unstable financial conditions, savers are worried that your bank may fail. When they show up in large numbers to withdraw their savings, you find that you do not have enough cash to meet the obligations. Where can you turn for a loan if no other bank will lend to you? The discount window The market for overnight loans The stock market The bond markets

The discount window

You have saved $747. Where should you go if you want to open a checking account? the New York Federal Reserve district bank a commercial bank your local federal reserve district bank the Federal Reserve in Washington, D.C.

a commercial bank

A debt crisis occurs when: interest rates rise. bond markets weaken. consumers spend too much on credit cards. a government cannot repay its loans.

a government cannot repay its loans.

The Federal Reserve was created after: a period of very high unemployment. a series of bank runs and bankruptcies. an extended period of economic stagnation. an increase in the inflation rate.

a series of bank runs and bankruptcies.

The IS curve is constructed by: adding up the level of aggregate expenditure at each real interest rate. adding consumption and savings at each real interest rate. plotting savings at each real interest rate. adding up consumption and investment and plotting these two expenditure levels to income.

adding up the level of aggregate expenditure at each real interest rate.

Monetary policy is defined as the: change in government spending to change economic conditions. change of the tax code to achieve economic changes. implementation of ceilings on the federal funds rate in the economy. adjustment of interest rates to influence economic conditions.

adjustment of interest rates to influence economic conditions.

A rise in nominal wages represents: an increase in production costs. a right shift of supply for firms. an increase in employment. a decrease in production costs.

an increase in production costs.

Which of the following cause(s) shifts in the MP curve? changes in monetary policy consumer pessimism spending shocks business optimism

changes in monetary policy

If the U.S. government lowers personal income tax rates: government expenditure rises, and this leads to a right shift of the IS curve. government expenditure falls, and this leads to a left shift of the IS curve. disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve. investment decreases, and this leads to a left shift in the IS curve.

disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve.

When unexpected inflation is zero, the corresponding unemployment rate is the _____ unemployment rate. equilibrium zero maximum minimum

equilibrium

Demand-pull inflation is inflation resulting from: insufficient demand. excess demand. excess supply. a surplus.

excess demand.

In order to boost output, the federal government engages in _____ fiscal policy, which _____ government spending and _____ taxes. contractionary; raises; lowers expansionary; lowers; raises contractionary; lowers; raises expansionary; raises; lowers

expansionary; raises; lowers

Planned investment is the: expenditure on goods and services by consumers. use of electricity and water by factories. expenditure on capital goods by businesses. planned purchases of stocks and bonds by consumers.

expenditure on capital goods by businesses.

The risk premium is the: extra rise in interest rates when the Federal Reserve identifies an output gap. risk-free rate of interest. extra interest charged by lenders to account for risk. federal funds rate.

extra interest charged by lenders to account for risk.

Which of the following cause shifts in the MP curve? financial shocks changes in tariffs changes in tax rates spending shocks

financial shocks

You are driving to see your grandparents when you get caught in traffic caused by construction on the interstate. The construction is an example of: government expenditure. consumption. planned investment. exports.

government expenditure.

In the long run, inflation is determined by: the business cycle. the level of output relative to potential output. the unemployment rate. inflation expectations.

inflation expectations.

Forecasts expect inflation to be 2%. Actual inflation ends up being 1.75%. Holding all else equal, if there is no supply-side change in the economy, these statistics indicate there is: currency depreciation. insufficient demand. demand-pull inflation. excess demand.

insufficient demand.

A good proxy for the risk-free interest rate is the interest rate on a: junk bond. loan to the U.S. government. loan to a member of the public who has a good credit rating. corporate bond.

loan to the U.S. government.

If inflation is 0%, and a firm wants to lower real wages by 1%, it will need to: lower real wages by 2%. raise inflation by 2%. lower nominal wages by 1%. raise nominal wages by 1%.

lower nominal wages by 1%.

Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 1%, then the Fed will want the new real interest rate to be: equal to the inflation rate. equal to the neutral interest rate. lower than the neutral interest rate. higher than the neutral interest rate.

lower than the neutral interest rate.

The higher the opportunity cost of consumption, the: more to the right the economy is along the IS curve. higher the consumption. higher the investment in the economy. lower the aggregate expenditures.

lower the aggregate expenditures.

If the output gap is negative, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. lower; down raise; down lower; up raise; up

lower; up

The intersection of the IS curve and the MP curve determine: the federal funds rate. the largest output gap. macroeconomic equilibrium. the risk-free interest rate in the economy.

macroeconomic equilibrium.

A bank run occurs when: many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand. interest rates are too high. too many borrowers want to take out loans from a bank, and the bank is unable to meet loan demands. consumers increase their deposits at banks faster than the bank can loan out the funds.

many people want to withdraw their savings from a bank at the same time, and the bank does not have enough cash on hand.

With a progressive tax, those with _____ income tend to pay a _____. more; flat tax rate less; higher share of their income in taxes more; lower share of their income in taxes more; higher share of their income in taxes

more; higher share of their income in taxes

The four stages of the business cycle are: consumption, investment, government expenditure, and net exports. peak, recession, trough, and expansion. expansion, growth, contraction, and depression. full employment, potential GDP, recessionary gap, and inflationary gap.

peak, recession, trough, and expansion.

If managers have an expectation of ongoing inflation, then it is likely that: prices will fall. prices will rise. the cost of inputs will fall. prices will not change.

prices will rise.

Forward guidance occurs when the Federal Reserve: provides information about current monetary policy in order to influence expectations about future interest rates. provides information about the future course of monetary policy in order to influence expectations about future interest rates. follows the same future course of monetary policy that it has been following in the past. carries out open market operations to influence future interest rates.

provides information about the future course of monetary policy in order to influence expectations about future interest rates.

If the output gap is positive, the Federal Reserve will _____ the real interest rate to _____. lower; cool inflationary pressures lower; reduce unemployment raise; reduce unemployment raise; cool inflationary pressures

raise; cool inflationary pressures

If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will _____ the real interest rate to drive _____ consumption and investment. lower; up raise; up raise; down lower; down

raise; down

Suppose that an economy is in a recession. You would expect to see the unemployment rate: be equal to the equilibrium unemployment rate. rise above the equilibrium unemployment rate. be zero. fall below the equilibrium unemployment rate.

rise above the equilibrium unemployment rate.

Based on Okun's rule of thumb, if you forecast that the output gap will decline from 0% to -3%, the unemployment rate will: rise by 3%. fall by 2%. fall by 1.5%. rise by 1.5%.

rise by 1.5%.

According to Okun's rule of thumb, for every 1% fall in the actual output below potential output, the unemployment rate: falls by 1%. rises by 1%. falls by 0.5%. rises by 0.5%.

rises by 0.5%.

What kind of data adjustment removes the effect of sales spikes due to the holiday season? nominal data real data annual data seasonally adjusted data

seasonally adjusted data

The Philippines government provides retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits. These are examples of: social insurance. consumption. items that count toward GDP. taxes.

social insurance.

Insufficient demand leads to a: shortage and falling prices. shortage and rising prices. surplus and falling prices. surplus and rising prices.

surplus and falling prices.

The government's debt is: the equivalent of the country's imports. the accumulation of all the deficits. always zero by the end of the year. the current year's deficit.

the accumulation of all the deficits.

If actual GDP is greater than potential GDP: businesses are not producing at maximum capacity. unemployment must be higher than the natural rate of unemployment. the economy can experience inflation. businesses can easily increase supply.

the economy can experience inflation.

Suppose a high-income person, a middle-income person, and a low-income person all purchase identical houses that are financed by similar mortgages. Who spends the most on tax-preferred goods? They all spend the same on tax-preferred goods. the middle-income person the low-income person the high-income person

the high-income person

Suppose a high-income person, a middle-income person, and a low-income person purchase identical houses that are financed by similar mortgages. Who gets the largest tax benefit? the middle-income person the low-income person They all pay the same tax rate. the high-income person

the high-income person

What is a reserve requirement? the amount of money that the Federal Reserve spends on buying bonds the ceiling on the federal funds rate the minimum amount of reserves that each bank must hold a maximum loan amount on the overnight loan market

the minimum amount of reserves that each bank must hold

Fiscal policy is increased in its effectiveness through: monetary policy. administrative lags. crowding out. the multiplier effect.

the multiplier effect.

Payroll taxes are 6.2%, and Medicare taxes are 2.9%. Your employer owes you $665. How much will your work cost your employer? $725.52 $41.23 $60.52 $604.48

$725.52

In your current job, you earn $41,000. You take the standard deduction of $12,200. You have an offer of a new job working for a different employer. Your salary would go up by $6,500. How much extra will you owe in federal income taxes if you take the new job? $1,430 $9,020 $780 $650

$780

A budget deficit occurs when: discretionary spending exceeds automatic spending. imports exceed exports. government revenue exceeds government spending. government spending exceeds government revenue.

government spending exceeds government revenue.

If the output gap is positive, then the Federal Reserve will use its floor framework to _____ the federal funds rate, influence short- and long-term interest rates _____, and _____ total spending in the economy. raise; upward; increase lower; downward; increase lower; downward; decrease raise; upward; decrease

raise; upward; decrease

If government expenditure rises by $27.5 billion and the multiplier in the economy is 2.5, then: real GDP rises by $68.75 billion, and the IS curve shifts to the right. real GDP falls by $11 billion, but the IS curve does not shift. real GDP rises by $27.5 billion, and the IS curve shifts to the right. real GDP falls by $55 billion, and the IS curve shifts to the left.

real GDP rises by $68.75 billion, and the IS curve shifts to the right.

If inflation is 4% and a firm gives its workers a 1.5% nominal wage raise, then: inflation rises by 1.5%. real wages have fallen by 2.5%. inflation decreases by 1.5%. real wages have gone up by 2.5%.

real wages have fallen by 2.5%.

An economy's potential output level is: equivalent of the GDP at current market value. the output that is possible when all resources are fully employed. the level at which no resources are available in the economy. the output when unemployment is zero.

the output that is possible when all resources are fully employed.

An example of a leading indicator is: the stock market. unemployment insurance claims. nonfarm payrolls. unemployment.

the stock market.

Fiscal policy works best when it is: discretionary. general, nonspecific, and long-lasting. not countercyclical. timely, targeted, and temporary.

timely, targeted, and temporary.

What is excess demand? fast-changing consumer preferences too many buyers for too few goods too much supply for too few buyers higher equilibrium quantity

too many buyers for too few goods

Which of the following did the New Deal create? tariffs quotas the stock exchange unemployment benefits

unemployment benefits