macro 30,34,35 and 39 study guide test the 15

the multiplier.

(Last Word) "Toppling Dominoes" (adopted from Art Buchwald's article "Squaring the Economic Circle") is a humorous description of

False

1 + MPS = MPC.

False

A decline in the real interest rate will shift the investment-demand curve to the right.

quota.

A maximum limit set on the amount of a specific good that may be imported into a country over a given period of time is called a

increase the price and sales of domestic producers.

A protective tariff will

tax.

A tariff is a

if inflation rises by 1 percentage point above its target, then the Fed should raise their targeted interest rate by 1.5 percentage points.

According to the Taylor rule,

fall.

All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually

a means of payment.

An asset's liquidity refers to its ability to be

7.4 percent.

An inflation rate of 8 percent would erode the purchasing power of the dollar by

Federal Open Market Committee.

As it relates to Federal Reserve activities, the acronym FOMC describes the

is the practice of selling goods in a foreign market at less than cost.

As it relates to international trade, dumping

"You can lead a horse to water, but you can't make it drink."

Assume the Fed reduces interest rates by buying government bonds in the open market, but banks do not make more loans because economic conditions are bad. This situation is a problem of

$10 billion.

Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be

income levels.

Benefits from international trade are based on differences in the following areas, except

the deposits held by banks and thrifts on which checks can be written.

Checkable deposits include

The Board of Governors consists of seven members who are appointed by the president for 14-year terms. They supervise and control the money and banking system. The 12 Federal Reserve Banks are quasi-public banks and act as a banker's bank in each of their designated regions. They collectively act as the central bank of the United States by setting monetary policy and regulating the private banking system under the direction of the Board of Governors. The Federal Open Market Committee (FOMC) is a

Describe the three key entities in the Federal Reserve System and their functions.

The long-term appointments provide the board with continuity, experienced membership, and independence from political pressures that could result in inflation.

How do long terms for appointments benefit the Federal Reserve's Board of Governors?

decrease by $75.

If disposable income decreases from $1,800 to $1,500 and MPC = 0.75, then saving will

saving more.

If households consume less at each level of disposable income, they are

3.

If the MPS is only half as large as the MPC, the multiplier is

will shift downward.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule

increase the interest rate and reduce the price level, assuming it is flexible downward.

If the economy is operating in the relatively steep (upper) portion of its aggregate supply curve, a reduction in the money supply will

investment will take place until i and r are equal.

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then, other things equal,

is 0.25.

If the slope of the consumption schedule is 0.75, then the slope of the saving schedule

0.5 percent.

If there is a 2 percent unemployment gap and the inflation rate is 1 percent, then according to the Taylor rule, the Fed should make their target interest rate

the APC rises and the APS falls.

If there is a decrease in disposable income in an economy, then

True

In 2018, the United States became a net exporter of oil.

slope of the consumption schedule is 0.8.

In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the

each nation must have a comparative advantage in at least one product.

In order for mutually beneficial trade to occur between two otherwise isolated nations,

the Fed pursued quantitative easing.

In response to the zero lower bound problem,

beer in West Lothian is 0.5 pizza.

In the accompanying diagrams, solid lines are production possibilities curves, and the dashed lines are trading possibilities curves. The opportunity cost of producing a

M1 stays the same and M2 stays the same

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

commercial banks.

Money supply M1 does not include the currency held by

the United States, Mexico, and Canada

NAFTA established a free-trade area and eliminated trade barriers between

One major advantage of money serving as a medium of exchange is that it allows society to

One major advantage of money serving as a medium of exchange is that it allows society to

Federal Reserve System

Paper money (currency) in the United States is issued by the

$80.

Refer to the accompanying graph, where Sd and Dd are the domestic supply and demand curves for a product. The world price of the product is $6. If the market is open to international trade but there is a tariff of $2 per unit imposed, the total government revenue generated by the tariff would be

domestic price for the nation represented by lines GB and GD.

Refer to the diagram, which pertains to two nations and a specific product. Point G is the

B

Refer to the diagram. Assume that for the entire business sector of a private closed economy there are $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range. Which of the lines on the diagram represents these data?

marginal propensity to consume will remain unchanged in each of the three countries.

Refer to the given consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Suppose that consumption decreased by $2 billion at each level of DI in each of the three countries. We can conclude that the

MPC is greater in A than in B.

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the

recession.

Refer to the given graph. A movement from b to a along C1 might be caused by a(n)

$1.25.

Refer to the given table. The value of the dollar in year 3 is

product A.

Refer to the graphs. Terryville has a comparative advantage in producing

is the subset of the EU that uses a common currency.

The "eurozone"

sets policy on the sale and purchase of government bonds by the Fed.

The Federal Open Market Committee (FOMC)

True

The United States has a trade surplus in services.

Germany has a comparative advantage in producing wine.

The accompanying table shows the output (either machines or wine) that each unit of input in France and Germany can produce. We see that

the MPC is constant and the APC declines as income rises.

The consumption schedule is such that

business pessimism about future economic conditions.

The investment-demand curve will shift to the left as the result of

are appointed for 14-year terms.

The members of the Federal Reserve Board

protect it from political pressure.

The reason the Fed is set up as an independent agency of government is to

Beta is more efficient than Alpha both in catching fish and in producing chips.

The tables give production possibilities data for two countries, Alpha and Beta, which have populations of equal size.The given data show that

Comparative advantage is a situation in which a person or country can produce a specific product at a lower opportunity cost in terms of other types of output foregone than some other person or country; the basis for specialization and trade. The principle of comparative advantage shows that it is advantageous for a country to specialize and trade with other countries even if it is less productive (in the engineering sense) in all economic activities relative to other nations. A nation with an a

What is the principle of comparative advantage?

1 − MPS

What is the slope of the consumption schedule or consumption line for a given economy?

a means of payment.

When economists say that money serves as a medium of exchange, they mean that it is

Line 2

Which line in the graph would best illustrate the supply of money curve?

the diversification-for-stability argument

Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary?

an increase in the possibility of retaliatory tariffs

Which of the following is a likely result of imposing tariffs to increase domestic employment?

Which of the following is a valid counterargument against using tariffs to protect high wages from cheap foreign labor?

Which of the following is a valid counterargument against using tariffs to protect high wages from cheap foreign labor?

APC + APS = 1.

Which of the following is correct?

$200,000 balance in the checking account of Main Street Trading Corp.

Which of the following is included as part of the M1 money supply?

small time deposits

Which of the following items are included in money supply M2 but not M1?

Quantitative easing refers to the Fed's use of open-market operations to buy hundreds of billions of dollars' worth of long-term bonds.

Which of the following statements about quantitative easing is most accurate?

open-market operations

Which one of the following is a tool of monetary policy used by the Fed for altering the interest rates of bonds?