Macro Econ Exam #1

If the bank deposits increase by $2 billion and the quantity of money increases by $10 billion, the money multiplier must be equal to

5

The current chairman of the Federal Reserve System is

Ben Bernanke.

Let C represent consumption expenditure, S saving, I gross private domestic investment, G government expenditure on goods and services, and NX net exports of goods and services. Then GDP equals

C + I + G + NX.

If the CPI was 121.5 at the end of 2005 and 138.3 at the end of 2006, the inflation rate over this year was

13.8 percent.

Full employment occurs when

cyclical unemployment is zero

The U.S. central bank is formally called the

Federal Reserve System.

Which of the following equations is used to derive the quantity theory of money?

MV = PY

Which of the following is NOT a reason that real GDP is a poor measure of a nation's economic welfare?

Real GDP overvalues household production.

A recession is

a period during which real GDP decreases for at least two successive quarters.

In the short run, which of the following actions lowers the interest rate?

an increase in the supply of money

Structural unemployment is

associated with the general decline of specific industries.

The CPI can be used to measure

changes in average price of the goods and services bought by a typical urban household.

Economic growth is measured by

changes in real GDP.

Which of the following is a policy tool of the Federal Reserve?

changes in the money supply

Suppose that the money multiplier is 3. If the bank deposits decrease by $2 million, the quantity of money will at most

decrease by $6 million.

The productivity slowdown refers to the

decrease in the growth rate of output per person that started during the 1970s.

Which of the following is NOT a monetary policy tool of the Federal Reserve?

deposit insurance

Economists distinguish real GDP from nominal GDP to

determine whether real production has changed.

Transfer payments are not part of government expenditure on goods and services because transfer payments

do not represent the purchase of a final good or service.

In years with inflation, nominal GDP increases ________ real GDP.

faster than

John Maynard Keynes

focused on the short term in attempting to solve the Great Depression..

An expansion ends when the economy

hits a peak and then enters a recession.

The most serious type of inflation is called ________, which is defined as occurring when the inflation rate exceeds 50 percent a ________.

hyperinflation; month

The opportunity cost of holding money is the

interest rate.

An expansion

is defined as a period when real GDP increases.

The Federal Open Market Committee

is the main policy-making organ of the Federal Reserve.

Frictional unemployment

is unemployment associated with normal labor turnover.

Inflation is a problem when

it causes resources to be diverted away from productive uses. it disrupts saving and borrowing. it causes the value of money to vary unpredictably.

M1 is a measure of

money and includes both currency and checking deposits.

Which of the following is the most common tool used by the Fed to control the quantity of money?

open market operations

The largest component of GDP is

personal consumption expenditures.

Deflation is a

process of falling prices.

Inflation is a

process of rising prices.

When the interest rate rises, the

quantity of money demanded decreases.

The discount rate is the interest rate

that the Fed charges on loans of reserves to depository institutions

An open market operation involves

the Federal Reserve's purchase or sale of government securities (bonds).

Monetary policy in the United States is controlled by

the Federal Reserve.

Which of the following is TRUE regarding the unemployment rate? I. The unemployment rate tells the percentage of the nation's population that is unemployed. II. The unemployment rate measures unemployed labor hours.

neither I nor II

The GDP deflator equals 100 times

nominal GDP divided by real GDP.

The reserve ratio is a bank's reserves as a fraction of its

total deposits.

Excess reserves are

total reserves (deposits) minus required reserves.

Which of the following is a component of the incomes approach to GDP?

wages and salaries

Which of the following groups has the lowest unemployment rate?

whites, 20 years of age or older

Modern macroeconomics emerged

with the Great Depression.

The most direct way in which money replaces barter is through its use as a

medium of exchange.

If nominal GDP is $5 trillion and the GDP deflator is 125, what is real GDP?

$4 trillion

In 1933, the worst year of the Great Depression, total production in the United States was

70 percent of its 1929 level, and 25 percent of the labor force was unemployed.

Choose the best statement.

GDP equals aggregate expenditure and equals aggregate income.

Which of the following are equal to one another? I. aggregate production II. aggregate expenditure III. aggregate income

I equals II equals III.

The majority of money is "created" when

banks make loans

If the inflation rate is negative, the price level in an economy is

falling.

The functions of money are

medium of exchange, unit of account, and store of value.

Bank managers lend the excess reserves because they want to

earn a profit.

Which of the following is an example of using money as a store of value?

keeping $200 on hand for an emergency

A trough is the

lower turning point of a business cycle when an expansion begins.

The term capital, as used in macroeconomics, refers to

manufactured inputs such as inventories, buildings, machinery, etc.

Gross domestic product is the total ________ produced within a country in a given time period.

market value of all final goods and services

The minimum percentage of deposits that a depository institution must hold and cannot use for lending is known as the

required reserve ratio.

Cyclical unemployment and its duration

rises during a recession and falls during an expansion.

The definition of M2 includes

savings deposits, time deposits, M1

The circular flow diagram shows

the flows between different sectors of the economy.

To calculate real GDP, the GDP deflator can used to adjust nominal GDP for changes in

the general price level.

If the Fed sells U.S. government securities (bonds),

the interest rate rises.

If the Fed buys U.S. government securities (bonds),

the interest rate will fall.

A business cycle is

the pattern of short-run upward and downward movements in total output.

The quantity theory of money predicts how changes in

the quantity of money affect the price level.