Macro Exam 4

Contractionary fiscal policy does the reverse: it decreases the level of aggregate demand by decreasing consumption, decreasing investments, and decreasing government spending, either through cuts in government spending or increases in taxes.

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if GDP is 2400 and the money supply is 600, then what is the velocity? 18.3 4 4.57 12

4

_____________ are numerical limitations on the quantity of products that can be imported. Tariffs Import quotas Taxes Nontariff barriers

Import quotas

Which statement describes examples of the actual relationship between government deficits and surpluses and private saving? When budget deficits got very large in 2008 and 2009, on the other hand, there was some sign of a rise in saving. In the mid-1980s, government budget deficits were quite large, but there was no corresponding surge of private saving. In the mid-1980s, government budget deficits were quite large, and there was a corresponding surge of private saving. When budget deficits turned to surpluses in the late 1990s, there was a simultaneous decline in private saving.

In the mid-1980s, government budget deficits were quite large, and there was a corresponding surge of private saving.

Which is not an example of how contractionary fiscal policy decreases the level of aggregate demand? Increasing government spending Decreasing investments Increasing taxes Decreasing government spending

Increasing government spending

which statement describes the countercyclical nature and characteristics of monetary policy? Monetary policy should be loosened when a recession has caused inflation to increase and tightened when unemployment threatens. If loose monetary policy seeking to end a recession goes too far, it may push aggregate demand so far to the right that it triggers deflation. If loose monetary policy seeking to end a recession goes too far, it may push aggregate demand so far to the right that it triggers unemployment. Monetary policy should be countercyclical, meaning that it should act to counterbalance the business cycles of economic downturns and upswings.

Monetary policy should be countercyclical, meaning that it should act to counterbalance the business cycles of economic downturns and upswings.

The race to the bottom scenario of global environmental degradation is explained roughly like this: Companies seek to reduce their costs of operations on plant and equipment design and this results in higher levels of pollution. Companies seek the lowest market prices on products in order to gain market share, resulting in inferior goods and increased waste and pollution. Profit-seeking multinational companies shift their production from countries with strong environmental standards to countries with weak standards, thus reducing their costs and increasing their profits. Companies seek to influence environmental legislation standards are set to the lowest possible standards in the USA in order to maximize profits.

Profit-seeking multinational companies shift their production from countries with strong environmental standards to countries with weak standards, thus reducing their costs and increasing their profits.

Which statement describes Quantitative Easing (QE)? Quantitative Easing (QE) is the purchase of short-term government and private mortgage-backed securities by central banks to make credit available, so as to stimulate aggregate demand. Quantitative Easing (QE) is the purchase of short-term government securities by the central banks to make credit available, so as to stimulate aggregate demand. Quantitative Easing (QE) is the purchase of short-term and long-term government securities by central banks to make credit available, so as to stimulate aggregate demand. Quantitative Easing (QE) is the purchase of long-term government and private mortgage-backed securities by central banks to make credit available, so as to stimulate aggregate demand..

Quantitative Easing (QE) is the purchase of long-term government and private mortgage-backed securities by central banks to make credit available, so as to stimulate aggregate demand..

Why would foreign firms export a product at less than its cost of production—which presumably means making a loss? Many nations participate in poor planning and as a result produce a surplus of product which they sell at a loss. This may be part of a long-term strategy in which foreign firms would sell at below the cost of production in the short-term for a time, and when they have driven out the domestic U.S. competition, they would then raise prices. Many nations simply wish to keep their workers employed, no matter what the cost. Many nations simply produce and sell inferior goods at prices that reflect this fact.

This may be part of a long-term strategy in which foreign firms would sell at below the cost of production in the short-term for a time, and when they have driven out the domestic U.S. competition, they would then raise prices.

Which of the following is the best example of a quota? a tax placed on all small cars sold in the domestic market a limit imposed on the number of men's suits that can be imported from a foreign country a subsidy from the American government to domestic manufacturers of men's suits so they can compete more effectively with foreign producers of men's suits a $100-per-car fee imposed on all small cars imported

a limit imposed on the number of men's suits that can be imported from a foreign country

If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP? a tight monetary policy fewer loanable funds a loose monetary policy higher interest rates

a loose monetary policy

When the interest rate in an economy decreases, it is most likely as a result of: an increase in the government budget surplus or its budget deficit. a decrease in the government budget surplus or its budget deficit. an increase in the government budget surplus or a decrease in its budget deficit. a decrease in the government budget surplus or an increase in its budget deficit.

an increase in the government budget surplus or a decrease in its budget deficit.

What is the name given to the macroeconomic equation MV = PQ? basic velocity of money equation basic quantity equation of output basic quantity equation of money basic velocity of price equation

basic quantity equation of money

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year. budget deficit budget surplus corporate tax regressive tax

budget deficit

A central bank that wants to increase the quantity of money in the economy will: raise the discount rate. sell bonds in open market operations. reverse quantitative easing. buy bonds in open market operations.

buy bonds in open market operations.

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond? by noting a decrease in net worth by increasing its reserves its balance sheet will be unchanged it can make more loans with increased loan assets

by increasing its reserves

How are the specific interest rates for the lending and borrowing markets determined? U.S. Treasury Department Board policy by the forces of supply and demand through open market operations by altering the discount rate

by the forces of supply and demand

As international trade increases, it contributes to a shift in jobs away from industries where that economy does not have a(n) __________ advantage and toward industries where it has a(n) ___________ advantage. absolute; absolute comparative; comparative comparative; competitive comparative; absolute

comparative; comparative

If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only: create an inflationary increase in price level. create an increase in GDP. create an increase in unemployment. create a deflationary loss in price level.

create an inflationary increase in price level.

An increase in the government's budget surplus will cause the interest rate to: either increase or decrease. remain the same. increase. decrease.

decrease.

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? discount rate reserve requirement Fed rate open market rate

discount rate

The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that: firms will be protected from subsidized foreign competition. domestic producers can attain the economies of scale to allow them to compete in world markets. there will be adequate supplies of crucial resources in case they are needed for national defence. it will not be subjected to a takeover from a foreign competitor.

domestic producers can attain the economies of scale to allow them to compete in world markets.

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing? financial policies monetary policies fiscal policies economic policies

fiscal policies

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will: follow expansionary monetary policy. follow loose monetary policy. follow tight monetary policy. follow quantitative easing policy.

follow tight monetary policy.

An import quota or tariff on French wine that raises the prices for wine will probably: hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices. hurt both domestic wine drinkers and domestic wineries, but this will be more than offset by a reduction in driving fatalities. hurt both domestic wine drinkers and domestic wine producers because of a reduction in competition. hurt domestic wineries, which will lose business as a result of the higher prices.

hurt domestic wine drinkers but help domestic wineries, which will gain from the higher prices.

A government will likely ____________________________ to encourage investment in technology R&D by private firms? reduce R&D grants to nonprofit organizations reduce R&D grants to universities spend more on R&D in government laboratories implement fiscal policy establishing tax incentives

implement fiscal policy establishing tax incentives

A decrease in the government's budget surplus will cause the interest rate to: decrease. increase. either increase or decrease. remain the same.

increase

Raising an existing tariff on grapes from Argentina will: increase domestic production of grapes. increase total American consumption of grapes. increase American consumption of domestically produced grapes. increase American imports of grapes from Argentina.

increase American consumption of domestically produced grapes.

If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes. decrease because GDP increased increase because its debt increased increase increase or decrease

increase or decrease

Import tariffs generally ________ the output of domestic producers of the affected products and also _________ the output of domestic exporters. decrease; decrease decrease; increase increase; decrease increase; increase

increase; decrease

When banks hold excess reserves because they don't see good lending opportunities: it negatively affects contractionary monetary policy. it negatively affects expansionary monetary policy. expansionary monetary policy is unaffected. contractionary monetary policy is unaffected.

it negatively affects expansionary monetary policy.

A prolonged period of budget deficits may lead to ___________________. outflows of financial capital abroad lower inflation lower economic growth increasing exchange rates

lower economic growth

The U.S. economy has two main sources for financial capital; _______________________ and ____________________________. private savings from U.S. households and firms; inflows of foreign financial investment. private sector investment; government borrowing private savings from U.S. households and firms; government borrowing private sector investment; inflows of foreign financial investment from abroad

private savings from U.S. households and firms; inflows of foreign financial investment.

An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following? productivity and economic growth increased levels of R&D spending consumer orientated spin-offs highly qualified teachers

productivity and economic growth

If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is: regressive. progressive. proportional. optional.

proportional

The quantitative easing policies adopted by the Federal Reserve are usually thought of as: short term loans to fill out reserves. temporary emergency measures. traditional monetary policies. a relatively weak tool.

temporary emergency measures.

If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then: higher interest rates will crowd out private investment. government borrowing is likely to crowd out private investment. an inflationary increase in the price level is a real danger. the central bank might react with an expansionary monetary policy.

the central bank might react with an expansionary monetary policy.

When the central bank lowers the reserve requirement on deposits: the money supply increases and interest rates decrease. the money supply and interest rates decrease. the money supply and interest rates increase. the money supply decreases and interest rates increase.

the money supply increases and interest rates decrease.

According to the basic quantity equation of money, if price and output fall while velocity increases, then: the quantity of money will rise. the quantity of money will fall. the quantity of money will rise before it falls. the quantity of money will rise slowly.

the quantity of money will fall.

A __________________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy? trade surplus trade deficit fiscal deficit twin surplus

trade surplus `

When increasing oil prices cause aggregate supply to shift to the left, then: unemployment and inflation decrease. unemployment decreases and inflation increases. unemployment and inflation increase. unemployment increases and inflation decreases.

unemployment and inflation increase.