Macro Exam

55. When required reserves exceed actual reserves, commercial banks will be forced to have borrowers: A. Use credit cards B. Withdraw some of their deposits C. Repay loans D. Take out more loans

C. Repay loans

45. The Federal Reserve System is an: A. Agency that is controlled by Congress B. Agency that is under the direction of the President C. Independent agency of government D. Agency ran by popularly-elected officials

C. Independent agency of government

56. If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be: A. $200 billion B. $400 billion C. $800 billion D. $3,200 billion

A. $200 billion

42. The Federal Reserve System was established by the Federal Reserve Act of: A. 1913 B. 1933 C. 1945 D. 1955

A. 1913

61. Which of the following statements is true? A. Bond prices and the interest rate are inversely related B. A lower interest rate raises the opportunity cost of holding money C. The supply of money is directly related to the interest rate D. The total demand for money is directly related to the interest rate

A. Bond prices and the interest rate are inversely related

27. Refer to the graph above. Automatic stability in this economy could be enhanced by: A. Changing the tax system so that the tax line has a steeper slope B. Changing the tax system so that the tax line is shifted upward but parallel to its present position C. Changing the government expenditures line so that it has a positive slope D. Changing the tax system so that the tax line has a flatter slope

A. Changing the tax system so that the tax line has a steeper slope

36. Checkable deposits are: A. Debts of commercial banks and savings institutions B. Debts of the Federal government and government agencies C. Assets of the Federal government and government agencies D. Assets of commercial banks and savings institutions

A. Debts of commercial banks and savings institutions

26. In the graph above, tax revenues vary: A. Directly with the level of GDP B. Inversely with the level of GDP C. Directly with the level of government spending D. Inversely with the level of government spending

A. Directly with the level of GDP

14. When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A. Fiscal policy B. Incomes policy C. Monetary policy D. Employment policy

A. Fiscal policy

22. In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could: A. Increase taxes by $16 billion B. Increase taxes by $24 billion C. Decrease government spending by $10 billion D. Decrease government spending by $16 billion

A. Increase taxes by $16 billion

1. The aggregate demand curve shows the: A. Inverse relationship between the price level and the quantity of real GDP purchased B. Direct relationship between the price level and the quantity of real GDP produced C. Inverse relationship between interest rates and the quantity of real GDP produced D. Direct relationship between real-balances and the quantity of real GDP purchased

A. Inverse relationship between the price level and the quantity of real GDP purchased

6. Refer to the graph above, which shows an aggregate demand. If the economy is at point C and the price level increases by 100, then the wealth, interest-rate, and foreign purchases effects will: A. Move the economy to point A B. Move the economy to point B C. Move the economy to point D D. Shift the AD curve to the left

A. Move the economy to point A

20. Refer to the figure above. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation? A. Shift aggregate demand by increasing taxes B. Shift aggregate demand by decreasing taxes C. Shift aggregate supply by increasing taxes D. Shift aggregate demand by increasing government spending

A. Shift aggregate demand by increasing taxes

58. Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply increases, then Sm2 will shift to: A. Sm3 and the interest rate will be 4 percent B. Sm3 and the interest rate will be 8 percent C. Sm1 and the interest rate will be 8 percent D. Sm1 and the interest rate will be 4 percent

A. Sm3 and the interest rate will be 4 percent

3. When the price level decreases: A. The demand for money falls and the interest rate falls B. Holders of financial assets with fixed money values decrease their spending C. Holders of financial assets with fixed money values have less purchasing power D. There is a decrease in consumer spending that is sensitive to changes in interest rates

A. The demand for money falls and the interest rate falls

5. Refer to the graph above. Which of the following factors does not explain a movement along the AD curve? A. The expenditure multiplier effect B. The real-balances effect C. The interest-rate effect D. The foreign purchases effect

A. The expenditure multiplier effect

38. Refer to the table above. The size of the M1 money supply is: A. $979 billion B. $1,236 billion C. $1,415 billion D. $1,618 billion

B. $1,236 billion

51. An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by: A. $11,000 B. $10,800 C. $9,600 D. $6,000

B. $10,800

53. Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal: A. $0 million B. $2 million C. $5 million D. $6 million

B. $2 million

21. In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: A. $10 billion B. $20 billion C. $31.25 billion D. $40.50 billion

B. $20 billion

59. Refer to the table above. Suppose that the transactions demand for money is equal to 20 percent of the nominal GDP, the supply of money is $800 billion, and the asset demand for money is that shown in the table. If the nominal GDP is $2000 billion, the equilibrium interest rate is: A. 4 percent B. 5 percent C. 6 percent D. 7 percent

B. 5 percent

41. An inflation rate of 8% would erode the purchasing power of the dollar by: A. 8.0 percent B. 7.4 percent C. 4.4 percent D. 12.5 percent

B. 7.4 percent

19. Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2? A. An increase in taxes and an increase in government spending B. A decrease in taxes and an increase in government spending C. An increase in taxes and no change in government spending D. A decrease in taxes and a decrease in government spending

B. A decrease in taxes and an increase in government spending

47. A bank's net worth is equal to its: A. Assets plus its liabilities B. Assets minus its liabilities C. Liabilities minus its assets D. Profits plus its assets

B. Assets minus its liabilities

48. One major component of money supply M1 is part of a bank's: A. Assets B. Reserves C. Liabilities D. Net worth

C. Liabilities

9. The short-run aggregate supply curve: A. Becomes flatter at output levels above the full-employment output B. Becomes steep at output levels above the full-employment output C. Is upward-sloping with a constant slope D. Is horizontal

B. Becomes steep at output levels above the full-employment output

13. If personal income taxes and business taxes increase, then this will: A. Increase aggregate demand and aggregate supply B. Decrease aggregate demand and aggregate supply C. Decrease aggregate demand and increase aggregate supply D. Increase aggregate demand and decrease aggregate supply

B. Decrease aggregate demand and aggregate supply

24. Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues: A. Increase and transfer payments decrease B. Decrease and transfer payments increase C. And transfer payments both decrease D. And transfer payments both increase

B. Decrease and transfer payments increase

62. A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond increases by $2500, the interest rate in effect will: A. Decrease by 1 percentage point B. Decrease by 2 percentage points C. Increase by 1 percentage point D. Increase by 2 percentage points

B. Decrease by 2 percentage points

17. If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy

B. Expansionary fiscal policy

31. The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This cyclically-adjusted deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that: A. Fiscal policy was more expansionary B. Fiscal policy was more contractionary C. The Federal government is decreasing taxes D. The Federal government is increasing spending

B. Fiscal policy was more contractionary

29. The cyclically-adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be: A. Balanced B. In deficit C. In surplus D. Expanding

B. In deficit

7. The expenditure multiplier concept of the aggregate-expenditures model: A. Is not at all relevant in the AD-AS model B. Magnifies the shifts of the aggregate demand curve C. Explains movement up or down the aggregate demand curve D. Reverses the shift of the aggregate demand curve

B. Magnifies the shifts of the aggregate demand curve

33. Money eliminates the need for a coincidence of wants in trading primarily through its role as a: A. Unit of account B. Medium of exchange C. Store of value D. Medium of deferred payment

B. Medium of exchange

39. Which of the following "backs" the value of money in the United States? A. The gold stored in the Federal Reserve Bank of New York B. The acceptability of it as a medium of exchange C. The willingness of foreign government to hold U.S. dollars D. The size of the budget surplus in the U.S. government

B. The acceptability of it as a medium of exchange

28. The cyclically-adjusted budget estimates the Federal budget deficit or surplus if: A. The rate of inflation were zero B. The economy were at full employment C. The MPC were zero D. The government had a balanced budget

B. The economy were at full employment

40. If the purchasing power of the dollar is falling, then it follows that: A. The price index is falling B. The price index is rising C. Nominal incomes are falling D. Interest rates are rising

B. The price index is rising

23. The so-called "negative taxes" are better known as: A. Government spending B. Transfer payments C. Built-in stabilizers D. Fiscal multipliers

B. Transfer payments

52. Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank? A. $5.6 million B. $6 million C. $2 million D. $2.4 million

C. $2 million

57. Refer to the graph above, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be: A. $125 B. $175 C. $200 D. $225

C. $200

50. A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities? A. $120 million B. $900 million C. $300 million D. $1,200 million

C. $300 million

11. The long-run aggregate supply analysis assumes that: A. Input prices are fixed while product prices are variable B. Input prices are variable while product prices are fixed C. Both input and product prices are variable D. Both input and product prices are fixed

C. Both input and product prices are variable

32. Money functions as a store of value if it allows you to: A. Measure the value of goods in a reliable way B. Make exchanges in a more efficient manner C. Delay purchases until you want the goods D. Increase your confidence in money

C. Delay purchases until you want the goods

10. The short-run aggregate supply curve shows the: A. Inverse relationship between the price level and real GDP purchased B. Inverse relationship between the price level and real GDP produced C. Direct relationship between the price level and real GDP produced D. Direct relationship between the price level and real GDP purchased

C. Direct relationship between the price level and real GDP produced

15. When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is: A. Active Monetary Policy B. Automatic Fiscal Policy C. Discretionary Fiscal Policy D. Active Federal Policy

C. Discretionary Fiscal Policy

4. The foreign purchases effect on aggregate demand suggests that a: A. Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand B. Fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand D. Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand

C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

43. The Federal Open Market Committee (FOMC): A. Provides advice on banking stability to the Fed B. Monitors regulatory banking laws for member banks C. Sets policy on the sale and purchase of government bonds by the Fed D. Follows the actions and operations of financial markets to keep them open and competitive

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

8. When the dollar appreciates relative to foreign currencies, it means that: A. We need more dollars to buy each unit of another currency B. We can buy less foreign currency with a given amount of dollars C. The value of foreign currencies decreased relative to our dollar D. Foreigners need less of their currency to buy one dollar

C. The value of foreign currencies decreased relative to our dollar

49. Refer to the table above. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are: A. $30 million B. $3 million C. $1.8 million D. $1.2 million

D. $1.2 million

54. A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of: A. $1,000 B. $1,500 C. $2,000 D. $2,500

D. $2,500

35. The paper money or currency in the U.S. essentially represents: A. A debt of commercial banks and savings institutions B. A debt of the U.S. Treasury C. An asset of the Federal government D. A debt of the Federal Reserve System

D. A debt of the Federal Reserve System

12. Refer to the graph above. Which of the following factors will shift AS1 to AS2? A. An increase in real interest rates B. A decrease in business subsidies C. An increase in input prices D. A decrease in business taxes

D. A decrease in business taxes

2. Which of the following effects best explains the downward slope of the aggregate demand curve? A. A multiplier effect B. An expectations effect C. A substitution effect D. An interest-rate effect

D. An interest-rate effect

34. The M1 money supply is composed of: A. All coins and paper money held by the general public and the banks B. Bank deposits of households and business firms C. Bank deposits and mutual funds D. Checkable deposits and currency in circulation

D. Checkable deposits and currency in circulation

44. The main function of the Federal Reserve System is to: A. Serve as the fiscal agent for the Federal government B. Set reserve requirements of banks C. Clear checks from member banks D. Control the money supply

D. Control the money supply

18. The set of fiscal policies that would be most contractionary would be a(n): A. Increase in government spending and taxes B. Decrease in government spending and taxes C. Increase in government spending and a decrease in taxes D. Decrease in government spending and an increase in taxes

D. Decrease in government spending and an increase in taxes

30. In Year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from Year 1 to Year 2 became more: A. Proportional B. Progressive C. Contractionary D. Expansionary

D. Expansionary

60. An increase in the money supply is likely to reduce: A. The general price level B. Nominal income C. Money demand D. Interest rates

D. Interest rates

46. The fractional reserve system of banking started when goldsmiths began: A. Accepting deposits of gold for safe storage B. Charging people who deposited their gold C. Using deposited gold to produce products for sale to others D. Issuing paper receipts in excess of the amount of gold held

D. Issuing paper receipts in excess of the amount of gold held

25. Refer to the graph above. A budget surplus would be associated with GDP level: A. H B. J C. K D. L

D. L

16. Fiscal policy is enacted through changes in: A. Interest rates and the price level B. The supply of money and foreign exchange C. Unemployment and inflation D. Taxation and government spending

D. Taxation and government spending

37. Currency and checkable deposits are: A. Assets of the Federal Reserve Banks or of financial institutions B. Redeemable for gold and silver from the Federal Reserve System C. Of intrinsic value which determines the relative worth of money D. The major components of money supply M1

D. The major components of money supply M1