Macro Final Exam
which action by the federal reserve is NOT considered to be one of its normal monetary policy tools
buying mortgage-backed securities
which of these is NOT a benefit of countries adopting the euro
it becomes easier to address regional differences in economic performance
if the reserve requirement changes from 10% to 15%, what happens to the money multiplier?
it goes down
an important reason why the federal reserve would not want to keep interest rates at 0% forever is that
it limits the ability of the fed to use expansionary monetary policy when the next recession occurs
according to the taylor rule, what will the federal reserve do if output falls below its potential GDP
it will lower its target
the main feature of fractional reserve banking is that banks
keep a portion of deposits in reserves but lend out the rest
what were the primary causes of the 2007-2009 US financial crisis
low interest rates and easy lending standards
a recent decision regarding the Federal Reserve's impending interest rate increase is an example of a _____ topic. on the other hand, a debate on the impact of the arrival of Uber on local taxi businesses in an example of a _____ topic.
macroeconomic; microeconomic
in general terms, which item is and example of an inferior good
a city bus
money
anything that is accepted in exchanged for other goods and services or for payment of debt
production levels to the left of the production possibilities frontier are
attainable but inefficient
in June 2013, the bank of Japan announced that it was continuing its easy money policy through open market operations. the bank must have decided to continue to sell securities
false
the factors that would shift the savings and consumption schedule include
household debt, wealth, taxes NOT taste and preferences
when quantity demanded in a market equals quantity supplied, then the
market is in equilibrium
consumer surplus is the difference between the
maximum price the buyer is willing to pay and the market price
money is considered a _____ because it is generally accepted as payment for goods and services
medium of exchange
another term for M2 is
near money
the financial problems facing several eurozone countries have led to all of these except
nearly half of eurozone countries defaulting on their debt
automatic stabilizers are designed so that as income falls
spending does not fall as much as income
which topic is a macroeconomic topic
the study of the business cycle
aggregate expenditures are equal to
the total consumption plus investments plus government expenditures plus exports minus imports
if a bank has a total of $80,000 in deposits and has made three loans in the amounts of $10,000, $20,000, and $30,000, what is the bank's reserve ratio
25%
if the money multiplier is 4, what is the reserve requirement
25%
if eighth street bank receives a $1,000 deposit, loans out $800, and keeps $200 in reserves, the total assets of eighth street bank increased by
$1,000
if disposable income is $3,000 and savings is $1,200, how much is consumption
$1,800
if the growth rate in an economy is 2%, its GDP will double in about
35 years
if consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is
0.25
if income rises from $10,000 to $20,000 and consumption increases from $9,000 to $16,000, then the marginal propensity to save is
0.25
there are _____ regional federal reserve banks; the only regional bank president who is a permanent member of the federal open market committee is based in _____
12; New York
if MPC = 0.6, what is the spending multiplier
2.5
three basic economic questions that each society must answer
1. what goods and services will be produced 2. how will the goods and services be produced 3. who will receive the goods and services
if the labor force is 20 million and the total employed is 18 million, what is the unemployment rate
10%
assume the demand schedule for smart phones is downward sloping. if the price of smart phones increases from $200 to $600
a decrease in quantity demanded of smart phones will occur
suppose the economy is growing at 4% a year, inflation is measured at 0.5% a year, and the federal deficit is relatively high. an economist who suggests that we so nothing is advocating
a functional finance approach to federal budgeting
what would cause the demand for loanable funds curve to shift leftward
an end to a program that provides investment tax credits
which factor would shift the demand curve for gasoline to the right
an increase in national income
how is money created out of thin air by banks
banks loan out money that is then redeposited in to other banks, creating a cycle
when the federal reserve prints money what does it do with it
buys bonds to reduce the interest rate
what are examples of financial intermediaries in the market for loanable funds
credit unions, mutual funds, insurance companies
*according to the table, in which country did the capital-to-labor ratio rise by the most from year one to year two
econia
the twin goals of monetary policy are
economic growth and stable prices
kim recently purchased a perpetual bond for $1,000. the bond pays $50 in interest per year. if market interest rates rise to 7% after her purchase, the price of the bond
falls to $714
economist who favor a _____ approach to the federal budget believe that the first priority of policymakers should be to keep the economy at full employment with stable prices
functional finance
which if the following actions would reduce frictional unemployment
holding job fairs
the federal government can finance its debts by all of the following measures
increase in money supply, sale of government bonds, sale of government assets NOT increase in the federal funds rate
if the federal reserve increases its purchase of bonds, then the money supply will _____ and aggregate demand will ______
increase; decrease
an expansionary fiscal policy can result in
inflation and higher GDP
economists refer to the payment to capital as
interest
examples of teaser rates
interest rate for a mortgage on an unaffordable home, an interest rate on a car loan for a luxury automobile, an interest rate on loans of more than 30 years
the demand curve for laonable funds represents _____ and is _____
investors; downward sloping
the medium of exchange function of money allows an economy to void the problem of
lack of double coincidence of wants
economists refer to rent as a payment to
land
if the economy is currently operating below long-run output, what should the Federal reserve do?
lower interest rates from their current level
if one person consumes a public good
others cannot be excluded from enjoying it
in a pure market economy, the government's primary roles include
protecting property rights, enforcing contracts between private parties, providing public goods like national defense NOT reallocating resources across the country
_____ is the total accumulation of past budget deficits less surpluses
public debt
holding other expenditures constant, if imports fall by $20 billion and exports fall by $10 billion, then GDP
rises by $10 billion
if interest rates rise, the burden of a nation's public debt _____ and the probability of a default ______
rises; rises
if the federal reserve wishes to raise the interest rate, what does it need to do
sell bonds to banks while reducing the money supply
the largest category of federal government spending in 2015 was
social security
which component of GDP includes inventory changes
investment
generally, which group of people has the highest marginal propensity to consume
low-income people
the price of feed corn would be included in the
producer price index
a monetary rule is especially appropriate in the case of a major economic shock
false
if there is a general rise in fear of the financial system, then the potential money multiplier will fall
false
jennifer received news that she is getting a 5%raise. however, the bureau of labor statistics just reported that prices are risin gby 7%. based in the given information, which of the following is true?
jennifer is losing purchasing power by 2%
the costs of cyclical unemployment can be minimized by
keeping the economy on a steady, low-inflationary growth path
according to Malthus, what part of the economy might increase at a rate such that the data would show an increase from 1.000 to 2.000 to 4,000 to 16,000
population
suppose that a customer's willingness to pay for a product is $5 and the seller's willingness to sell is $2. if the negotiated price is $4
producer surplus is greater than consumer surplus
what is true about the fed's board of governors
seven members, serve one 14 year term, located in DC NOT elected by the voters in the region they serve
the largest source of federal government revenues is
social security taxes
which of the following did classical economists believe would happen if the economy experienced a downturn
the economy would self-correct
when the federal reserve pursues expansionary monetary policy, which of these happens
AD shifts right
trade is
a driver of economic growth
which event would shift the supply curve for pipes to the left
an increase in taxes on pipes
prices typically contain useful information for
both buyers and sellers
which is a liability for a bank
customer's checking account balances
automatic stabilizers are most associated with the _____ balanced budget
cyclically
which of these would be the lowest interest rate
federal funds rate
the federal reserve will increase the money supply by a set percentage every year as a level consistent with long-term price stability and economic growth if it is following
friedman's monetary rule
producer surplus is defined as the
gap between the supply curve and the market price
when the economy is underperforming and policymakers pursue expansionary fiscal policy, they express a willingness to trade off _____ output for a _____ price level
higher; higher
willingness to pay is the
highest value that a consumer believes a good or service is worth
the federal funds rate is the interest rate that banks charge other banks for _____ loans
overnight
about _____ of US currency is held outside of the US
two-thirds
if the bureau of economic analysis reports that the annualized US growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was
0.625%
suppose in 2010 the cost of purchasing a basket of goods was $100. that same basket cost is $150 in 2011. if 2010 is the base year, the consumer price index for 2011 is
150
suppose banks hold 20% of money in reserves. what is the money multiplier?
5
the taylor rule is 2+inflation rate+1/2 output gap+1/2 inflation gap. if inflation is 3%, output gap is 1%, and inflation gap is 1%, the target interest rate is
6%
about how large is the U.S. public debt as a fraction of GDP
70%
prices from about _____ goods and services are collected each month by the Bureau of Labor Statistics data collectors to be used in calculating the consumer price index
80,000
AE = ______
C + I + G + (X-M)
Jill plants flowers in her yard to supply a local florist. her neighbor is enjoying the flowers, therefore
Jill is creating an external benefit for her neighbor
checking accounts are counted as part of
M1 and M2
which nation was NOT part of the eurozone when it was introduced in 1999
Slovenia
historical evidence shows that
a country's degree of freedom is related to the level of economic growth
the main idea behind supply-side economics is that
a decrease in marginal income tax rates would stimulate economic growth
the producer price index contains
aggregate measures of price changes, organized by a stage of processing
the main role of a market is to
allocate resources
one of the important reasons why many economists prefer monetary policy that uses discretion instead of rules is that it
allows monetary policy to be used more aggressively when major economic shocks occur
what does the paradox of thrift say
an economy that saves too much can end up with lower total savings
personal consumption expenditures
can be found by subtracting saving from disposable income
which type of economist would advocate little to no role for the central bank
classical economists
rank the smallest to largest components of M1
coins, banknotes, demand deposits
what is included in gross private domestic investment
construction of residential housing, new equipment purchased by businesses, an increase in business inventories NOT purchases of common stock by investors
suppose that a customer's willingness to pay for a product is $5 and the seller's willingness to sell is $2. if the negotiated price is $3
consumer surplus is greater than producer surplus
in a capitalist economy, the answer to the question "what should be produced?" is determined by
consumers' demand for specific goods and services
according to the crowding-out effect, if the government sells bonds to finance spending, _____ can eventually fall
consumption and investment
the average propensity to consume is
equal to consumption divided by income
if the economy is in a recession, the federal reserve would most likely pursue _____ which causes interest rates to _____
expansionary monetary policy; fall
to have long-term economic growth, the production function suggests
increasing the availability of technology, capital, and labor
which of the following measures is an example of expansionary fiscal policy
increasing unemployment compensation
one reasonably objective measure of intangible infrastructures is the
index of economic freedom
a country operating inside of its production possibilities frontier is operating
inefficiently but in an area that can be attained
when the economy is overheating and policymakers pursue contractionary fiscal policy, they express a willingness to trade off _____ output for a _____ price level
lower; lower
a market exists when
people exchange money for goods and services
financial institutions
reduce information costs, reduce transaction costs, and diversify assets
investment spending
tends to be volatile
because of an economic downturn, 20% of the labor force is unemployed. as the economy picks up and these workers begin to return to work, long-run economic growth can occur.
true
if the reserve requirement is 20% the money multiplier is 5
true
paper money constitutes 90% of currency
true
the crowding out effect can be mitigated if the funds from deficit spending are used for public investment
true
when a demand shock occurs in the short run, monetary policy may focus on either output or income , since its effect is the same as focusing on price stability
true
increasing the reserve requirement would decrease the money supply decreasing the discount rate would decrease the money supply buying government bonds would increase the money supply
true false true
M1 is the narrowest measure of the money supply near monies are as liquid as cash coins form only a small part of M1 M2 is about 4 times the size of M1
true false true true
as interest rates fall, the burden of the federal deficit is reduced as financial markets become more global in scale, it has reduced the burden of the federal deficit
true; true
microeconomics is concerned with issues such as
which job to take
when consumer confidence falls in an economy, _____ increase in an economy and this amount is _____ by the multiplier
withdrawals; enhanced
examples of financial intermediaries
citibank, schwab mutual funds, hartford insurance
under what condition would the fed be most likely to engage in its role as the lender of last resort
if a lack of confidence in the financial system causes savers to withdraw money from the banks
what is the most important function of the federal reserve
open market operations
according to classical economists and the quantity theory of money, any change in the money supply will affect prices
true
an increase in government spending would increase aggregate demand
true
a market demand curve
is the horizontal summation of individual demands
if your income is $35,000 and the average propensity to save is 0.46, what is consumption
$18,900
suppose that a customer's willingness to pay for a product is $1,480 and the seller's willingness to sell is $1,210. if the negotiated price is $1,300, how much is the consumer surplus?
$180
if a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after two years
$2,205
suppose that a customer's willingness to pay for a product is $1,480 and the seller's willingness to sell is $1,210. If the negotiated price is $1,479, how much is the producer surplus?
$269
if the marginal propensity to save is 0.2 and income rises by $5,000, how much of this $5,000 will be consumed
$4,000
we are most likely to see a recession if interest rates on long-term bonds are _____ and interest rates on short-term bonds are _____
2%; 4%
*when disposible income increases from $1,000 to $1,200, what is the value of the marginal propensity to save
0.5
if disposable income is $250 and savings is $50,how much is the average propensity to consume
0.8
the economy is least likely to be heading into a recession when the national activity index equals
0.81
the taylor rule is 2+inflation rate+1/2 output gap+1/2 inflation gap. if inflation is 1%, output gap is -3%, and the inflation gap is -1%, the target interest rate is
1%
there are 15 million people living in Marketstan, of whom 9 million are working and 1 million are actively looking for work. what is Marketstan's unemployment rate?
10%
suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. using 1996 as the base year, the consumer price index for today is
121.4
if the reserve requirement is 20%, but the banks hold an additional 10% of deposits as excess reserves, what is the leakage-adjusted money multiplier?
3.3
according to the equation of exchange, if PxQ = 7 trillion and the money supply is 2 trillion, what is the velocity of money
3.5
which economist promoted the idea that reducing tax rates can increase tax revenue
Arthur Laffer
which headline would be LEAST likely to be studied in macroeconomics
GM expands car sales in China
what act created the central bank of the US as we know it today
The Federal Reserve Act of 1913
the study of economics
is about people making decisions regarding their use of scarce resources
suppose in 2009, country X had a tax revenue of $550 billion and government expenditures of $700 billion. in addition, at the end of 2008, its national debt was $6.5 trillion. in 2009, country X had a _____ and at the end of 2008, a public debt of _____.
deficit of $150 billion; $6.65 trillion
which is NOT a leakage in money creation
depositing a large jar of coins at the bank
jody purchases a stock from her employer, acme corporation. this is an example of _____ finance.
direct
workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as
discouraged workers
_____ refers to the way an economy allocates goods and services to consumers
distribution
capital includes all of these EXCEPT
dollar bills in a bank vault
public debt held by foreigners is known as _____ debt
externally held
money does not lose value when inflation occurs
fales
suppose that while households are deciding to increase savings, the demand by firms for investment funds falls. in the market for loanable funds, the real interest rate will _____ and the quantity of loanable funds will _____
fall; rise, fall, or stay the same
near money includes individual stocks and bonds
false
in a market economy, product prices do NOT help to determine how
governments allocate their resources
suppose there is news of rising unemployment. what is a likely scenario
households save in anticipation of bad times, the supply of loanable funds rises, interest rates fall, and firms take advantage of of lower interest rates and make more investments, all of which stimulates the economy
economists understand that people respond to
incentives
a shift in the demand curve is caused by
income, expectations, prices of related goods
for your purchasing power to stay the same, your wages must
increase at the same rate as inflation
property rights consist of _____ goods that _____ be easily measured
intangible; cannot
the reward for saving is called _____, and this variable is placed on the _____ axis of the loanable funds market graph
interest; vertical
a _____ is the most difficult for the federal reserve to address because it causes both inflation and unemployment to rise
negative supply shock
the conversion formula for the current dollar value to the constant dollar value is
nominal x (base year index / current year index)
which situation indicates that total output in a country has grown the most when the starting output is the same in all situations
output per worker grows by 4% while the labor force grows by 12%
_____ are almost 70% of GDP, while _____ are about 17% of GDP
personal consumption expenditures; government expenditures
when main street bank buys new automatic teller machines, the quantity of _____ in the economy increases
physical capital
if the federal reserve chair is considered a "dove" this means that she
places greater emphasis on promoting output and curbing inflation
macroeconomics deals with
recessions, inflation, job creation rates
in order for the federal reserve to raise the interest rates, it needs to
reduce the money supply
what is an example of contractionary fiscal policy
reducing military spending
when a financial institution provides a standardized financial product such as a mortgage, it is
reducing transaction costs
which functions are performed by the federal reserve banks and their branches
regulating and supervising member banks, distributing coins and currency
when an economy is in a recession, welfare and unemployment compensation payments _____ and tax revenues _____.
rise; decline
the business cycle refers to
short-run fluctuations in macroeconomic activity
which question would be considered a normative question
should obstacle races be regulated to ensure the safety of its participants
if the price the US post office charges to deliver express mail rises, the demand facing FedEx will rise because its respective services are _____ goods
substitute
what constrains the federal budget
the amount of bonds the public is willing to purchase, the money supply, tax receipts NOT the mortgage interest rate
in the market for loanable funds, the government announces new tax breaks for saving for retirement while there is an increase in demand for products, which raises the return on investment in capital, what should be expected in the market for loanable funds as a result of these two events
the amount of funds borrowed will rise but there is uncertainty about the direction of any change in interest rates
in a planned economy, most of the productive resources are owned by
the government
supply is defined as
the maximum amount of a product that sellers are willing and able to provide for sale over a particular time period at various prices, holding all other relevant factors constant
which statement is NOT an illustration of opportunity cost
the more a person works at her job, the more leisure time she has
according to the law of demand, people buy more of a good when
the price falls
if a country's population increases at a higher rate than the growth in its real GDP
the standard of living in the country has declined
at equilibrium price
the sum of consumer surplus and producer surplus is maximized
Tim woke up this morning with a stomachache and decided to skip class in order to get more rest. what is the opportunity cost of Tim's decision to sleep in?
the value of attending the class he decided to miss
the derivation of a production possibilities frontier assumes that
there is a fixed quantity of resources and technology available
if income is $50,000, consumption is $47,500, and savings is $2,500, then the marginal propensity to consume is
there is not enough information to answer this question
economists like to use graphs and equations primarily because
these tools efficiently express economic concepts
which statement is NOT correct about markets
they require a physical location for transactions to take place
zach has been laid off from his job as an aircraft worker. he has been actively looking for a job but has had no luck for the past 6 weeks. according to the bureau of labor statistics, zach is
unemployed
macroeconomics is concerned with issues such as
unemployment
a depressed economy has considerable slack, therefore
unemployment is high
a surplus exists
when quantity supplied exceeds the quantity demanded