Macro Final

When using the Fed model, the first step is to: A. identify the shock and shift the curve. B. assess inflation. C. increase the federal funds rate. D. find the output gap.

A. identify the shock and shift the curve.

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

A. raise; cool inflationary pressures

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

B. a government cannot repay its loans.

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

B. adjustment of interest rates to influence economic conditions.

A financial shock is any change in: A. potential GDP in the economy. B. borrowing conditions that changes the real interest rate at which people can borrow. C. aggregate expenditure, at a given interest rate and level of income. D. production costs that leads suppliers to change the prices they charge at any given level of output.

B. borrowing conditions that changes the real interest rate at which people can borrow.

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

B. expansionary; raises; lowers

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

B. government spending exceeds government revenue.

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? A. the low-income person B. the high-income person C. They all pay the same tax rate. D. the middle-income person

B. the high-income person

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

B. timely, targeted, and temporary.

The Federal Reserve's lender-of-last-resort function has been curtailed over time by the: A. very financial institutions that it is meant to serve. B. public. C. Dodd-Frank Act. D. governor of the Federal Reserve.

C. Dodd-Frank Act.

In the IS-MP analysis in the Fed model, contractionary fiscal policy will shift the: A. IS curve to the right. B. MP curve up. C. IS curve to the left. D. MP curve down.

C. IS curve to the left.

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

D. $927.35

What was the Fed's inflation target in 2019? A. 0.75%. B. 5%. C. 3.5%. D. 2%.

D. 2%.

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

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

When using the Fed model to diagnose the economy, if a shock causes the real interest rate to rise, then the economy has been hit by _____ shock. A. an inflation B. a spending C. a supply D. a financial

D. a financial

Argentina and Chile both produce copper and timber. If Chile produces copper much more efficiently than Argentina and timber slightly more efficiently than Argentina, _____ can benefit from trading copper and timber with each other. A. neither country B. only Chile C. only Argentina D. both countries

D. both countries

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

D. social insurance.

Which of the following is LEAST likely to be traded internationally? A. sports trading cards B. sports broadcasts C. sporting equipment D. sports arenas

D. sports arenas

A tariff is a: A. limit on the quantity of a good that can be imported. B. limit on the quantity of a good that can be exported. C. tax on exported products. D. tax on imported products.

D. tax on imported products.

Once you have connected the output gaps from the IS-MP model and the Phillips curve, the next step is to identify the: A. unemployment rate from the labor market. B. potential GDP level. C. price level from the Phillips curve. D. unexpected inflation from the Phillips curve.

D. unexpected inflation from the Phillips curve.

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

A. High and rising debt slows economic growth.

Suppose that one hour of labor in Singapore can produce 20 computers or 40 cellphones. Further, suppose that one hour of labor in Ireland can produce 10 computers or 15 cellphones. _____ has a comparative advantage in the production of computers. _____ has a comparative advantage in the production of cellphones. A. Ireland; Singapore B. Singapore; Singapore C. Ireland; Ireland D. Singapore; Ireland

A. Ireland; Singapore

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

A. a commercial bank

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

A. a series of bank runs and bankruptcies.

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: A. lower than the neutral interest rate. B. equal to the inflation rate. C. higher than the neutral interest rate. D. equal to the neutral interest rate.

A. lower than the neutral interest rate.

If a spending shock increases aggregate expenditure by $35 billion and the multiplier is 2.5, then the IS curve will shift: A. right by $87.5 billion. B. left by $35 billion. C. right by $35 billion. D. left by $14 billion.

A. right by $87.5 billion.

Tariffs on inputs lead to a _____ shock. A. supply B. deflation C. spending D. financial

A. supply

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? A. $604.49 B. $60.52 C. $41.23 D. $19.29

A. $604.49

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

A. $725.52

If you see a newspaper headline that says "Steel prices rise sharply," this is an example of _____ shock. A. a supply B. an interest rate C. a spending D. a financial

A. a supply

Which of the following services are provided by local government? A. Pell grants B. bus services C. Medicare D. military defense

B. bus services

The Fed model links the IS, MP, and Phillips curves. In the IS-MP analysis, an increase in exports will shift the: A. IS curve to the left. B. MP curve up. C. MP curve down. D. IS curve to the right.

D. IS curve to the right.

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation. A. AD; AS; Phillips B. demand for loanable funds; supply of loanable funds; AD C. dollar demand; dollar supply; AS D. IS; MP; Phillips

D. IS; MP; Phillips

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy? A. a rise in the real interest rate, an unchanged output gap, and unexpected deflation B. a rise in the real interest rate, rising output, and unexpected inflation C. an unchanged real interest rate, falling output, and unexpected inflation D. an unchanged real interest rate, an unchanged output gap, and unexpected inflation

D. an unchanged real interest rate, an unchanged output gap, and unexpected inflation

An export is a good or service: A. sold to a domestic buyer. B. sold to a foreign buyer. C. purchased from a domestic seller. D. purchased from a foreign seller.

B. sold to a foreign buyer.

In the IS-MP analysis in the Fed model, the MP curve shows you the: A. output level in the economy. B. price level in the economy. C. potential GDP level in the economy. D. current real interest rate.

D. current real interest rate.

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

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

Which of the following is NOT a trade cost? A. the cost of producing a good B. adapting to different ways of doing business C. the hassle of working across language barriers D. dealing with foreign laws

A. the cost of producing a good

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? A. 3% B. 2% C. 0.5% D. 1%

B. 2%

In 2018, the unemployment rate in the United States went as low as 3.7%, as measured by the Bureau of Labor Statistics. This historically low level of unemployment occurred simultaneously with a large trade deficit. This provides evidence against which of the following arguments against international trade? A. International trade may hurt national security. B. International trade may lead to job loss. C. International trade may promote unfair competition. D. International trade may hurt infant industries.

B. International trade may lead to job loss.

In the IS-MP analysis in the Fed model, a decrease in the risk-free rate shifts the: A. IS curve to the left. B. MP curve down. C. MP curve up. D. IS curve to the right.

B. MP curve down.

What is the floor framework that the Federal Reserve uses to influence the federal funds rate? A. Operations by the Open Market Trading Desk at the Fed B. The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go C. The use of open market operations by the Fed D. The Fed's approach of setting the discount rate above the federal funds rate

B. The Fed's approach of setting other interest rates to put a lower bound on how low the federal funds rate can go

The Affordable Care Act is an example of: A. health care spending. B. discretionary spending. C. mandatory spending. D. military defense spending.

B. discretionary spending.

When a spending shock occurs, the IS curve shifts by the: A. size of the multiplier. B. change in spending. C. change in spending times the multiplier. D. change in spending divided by the multiplier.

C. change in spending times the multiplier.

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. A. lower; down B. raise; up C. lower; up D. raise; down

C. lower; up

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

C. more; higher share of their income in taxes

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

C. lower nominal wages by 1%.

An import is a good or service: A. sold to a domestic buyer. B. sold to a foreign buyer. C. purchased from a foreign seller. D. purchased from a domestic seller.

C. purchased from a foreign seller.

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

B. the accumulation of all the deficits.

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

B. real wages have fallen by 2.5%.

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. A. raise; upward; increase B. lower; downward; decrease C. lower; downward; increase D. raise; upward; decrease

D. raise; upward; decrease

Which of the following is an example of a trade cost associated with a U.S. citizen importing a sweater produced in India? A. the cost of the labor used in producing the sweater B. the cost of the wool used in producing the sweater C. the cost of the tariff on imported sweaters from India D. the final price of the sweater

C. the cost of the tariff on imported sweaters from India

Russia and Kazakhstan both produce horses and oil. If Kazakhstan is much more efficient than Russia in the production of horses and slightly more efficient than Russia in the production of oil, _____ can benefit from trading horses and oil with each other. A. only Russia B. only Kazakhstan C. neither country D. both countries

D. both countries

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the horizontal axis will show you the: A. unexpected inflation. B. output gap. C. actual inflation. D. equilibrium real interest rate.

B. output gap.

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? A. the middle-income person B. the high-income person C. They all spend the same on tax-preferred goods. D. the low-income person

B. the high-income person

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? A. The market for overnight loans B. The bond markets C. The discount window D. The stock market

C. The discount window

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

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

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

C. the multiplier effect.

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

B. the minimum amount of reserves that each bank must hold

A supply shock is any change in: A. borrowing conditions that changes the real interest rate at which people can borrow. B. production costs that leads suppliers to change the prices they charge at any given level of output. C. aggregate expenditure at a given interest rate and level of income. D. potential GDP in the economy.

B. production costs that leads suppliers to change the prices they charge at any given level of output.

Which of the following did the New Deal create? A. unemployment benefits B. tariffs C. quotas D. the stock exchange

A. unemployment benefits

Countries benefit from trade by exporting goods in which their opportunity costs are relatively _____ and importing goods in which their opportunity costs are relatively _____. A. high; low B. low; high C. high; high D. low; low

B. low; high

In the IS-MP analysis in the Fed model, a fall in the interest rate causes a: A. left shift of the IS curve. B. movement to the right along the IS curve. C. right shift of the IS curve. D. movement to the left along the IS curve.

B. movement to the right along the IS curve.

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? A. 1% B. 2.5% C. 0.5% D. 1.5%

D. 1.5%

Why is the discount rate the upper bound for the federal funds rate? A. It is set lower than the federal funds rate. B. The discount rate is the highest interest rate that banks can charge the public when they make loans. C. The discount rate does not change over time. D. It is set higher than the federal funds rate.

D. It is set higher than the federal funds rate.

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. A. lower; down B. lower; up C. raise; up D. raise; down

D. raise; down