Macro Final exam - Study tests 3&4

The unit of account is defined as A) an agreed upon measure for stating prices of goods and services. B) an object that is accepted in return for goods and services. C) the medium of exchange. D) the exchange of goods and services directly for other goods and services. E) barter.

A

Assume the desired reserve ratio is 10 percent, banks loan all excess reserves and the currency drain is zero. If the Fed sells $100 million of U.S. government securities to Boise Bank, the monetary base increases by A) $1 million. B) $100 million. C) $1,000 million. D) $90 million. E) $10 million.

B

During a(n) ________ the demand for money decreases because ________. A) equilibrium; real GDP decreases B) expansion; real GDP decreases C) recession; real GDP decreases D) recession; nominal GDP increases E) recession; the price level rises

C

If real GDP grows by 3 percent, the velocity of circulation grows by -4 percent, and the quantity of money grows by 3 percent, then in the long run the inflation rate is A) 10 percent. B) 4 percent. C) -1 percent. D) -4 percent. E) 1 percent.

D

) A-1 bank initially has no excess reserves. If the desired reserve ratio is 10 percent and a new deposit of $10,000 is made in A-1, then A-1 A) can immediately loan $9,000. B) can immediately loan $100,000. C) can immediately loan a multiple of the $10,000. D) can immediately loan $10,000. E) is required to hold the deposit in its reserves.

A

A consequence of hyperinflation is that people A) spend time trying to keep their money holdings near zero. B) increase the quantity of money demanded. C) receive higher real wage hikes, which increases their purchasing power for goods and services. D) want to lend funds because interest rates are so high. E) who make fixed-payment loans to others receive higher payments as inflation increases.

A

Classical growth theory predicts that increases in A) real GDP per person are temporary and not sustainable. B) resources permanently increase labor productivity. C) resources permanently increase real GDP per person. D) competition increase economic growth. E) real GDP per person are permanent and sustainable.

A

From 1970 to 2007 households held ________ because ________. A) less money relative to income; people began using credit cards more often B) more money relative to income; people began using credit cards more often C) less money relative to income; people began using credit cards less often D) less money relative to income; the price level began to rise E) more money relative to income; people began using credit cards less often

A

In the money market, if the quantity of money supplied exceeds the quantity of money demanded, the nominal interest rate will ________ and the prices of assets will ________. A) fall; increase B) fall; not change C) rise; decrease D) fall; decrease E) rise; increase

A

Labor productivity is calculated as A) (real GDP ÷ aggregate hours). B) (real GDP ÷ aggregate hours × number of workers). C) (real GDP ÷ technology level). D) (real GDP ÷ number of workers × ratio of capital per worker). E) (real GDP ÷ aggregate hours × number of workers) × 100.

A

Using the rule of 70, a sustained 3 percent per year real GDP growth rate will A) double the current level of real GDP in about 23 years. B) last for 70 years. C) double the current level of real GDP in about 40 years. D) double the current level of real GDP in about 210 years. E) double the current level of real GDP in about 70 years.

A

) If real GDP exceeds potential GDP, to move the economy to potential GDP the Fed A) raises the federal funds rate to decrease real GDP but not potential GDP. B) raises the federal funds rate to decrease both real GDP and potential GDP. C) lowers the federal funds rate to decrease real GDP but not potential GDP. D) raises the federal funds rate to increase potential GDP but not real GDP. E) lowers the federal funds rate to increase potential GDP but not real GDP

A E4

) In the short-run, an increase in the price of raw materials will ________ the price level and ________ real GDP. A) raise; decrease B) raise; increase C) lower; increase D) raise; not change E) lower; decrease

A E4

A change in monetary policy affects A) consumption expenditure, investment, and net exports. B) consumption expenditure, productivity, and net exports. C) government expenditures on goods and services because it affects the government's budget balance. D) consumption expenditure, government expenditures on goods and services, and net exports. E) investment, government expenditures on goods and services, and net exports.

A E4

A rise in the price level brings a ________ in the real wage rate that ________ profits which leads to ________ production. A) fall; increases; increasing B) rise; reduces; increasing C) rise; increases; decreasing D) fall; decreases; decreasing E) rise; reduces; decreasing

A E4

A tax cut ________ aggregate demand and ________. A) increases; shifts theAD curve rightward B) decreases; shifts theAD curve rightward C) increases; shifts theAD curve leftward D) does not change; does not shift theAD curve E) decreases; shifts theAD curve leftward

A E4

Discretionary fiscal policy is defined as fiscal policy A) initiated by an act of Congress. B) with multiplier effects. C) initiated by a Presidential proclamation. D) left to the discretion of military authorities. E) triggered by the state of the economy.

A E4

In the above figure, the short-run equilibrium depicts an economy: A) with a recessionary gap. B) with an inflationary gap. C) at long-run equilibrium. D) producing at full employment.

A E4

In the short run, when the Fed increases the nominal interest rate, the real interest rate A) temporarily rises. B) permanently rises. C) permanently falls. D) temporarily falls. E) does not change

A E4

The structural deficit or surplus is the A) government budget deficit or surplus that would occur if the economy were at full employment. B) actual government budget deficit or surplus minus expenditures for capital improvements. C) change in national debt that will result from current budgetary policies. D) difference between actual government outlays and actual government revenues. E) difference between actual government outlays and what would be government revenues if the economy were at full employment.

A E4

The table above gives data for the nation of Pearl, a small island in the South Pacific. If a supply shock decreases the quantity of real GDP supplied by $6 billion at each price level, the new equilibrium real GDP is A) $22 billion. B) $23 billion. C) $17 billion. D) $16 billion. E) $19 billion.

A E4

Economic growth is a sustained expansion of production possibilities, as measured by the increase in ________ over time. A) population B) real GDP C) the price level D) inflation E) employment

B

If Country A's real GDP per person is growing at 6 percent and Country B's real GDP per person is growing at 3 percent, then A) the standard of living is higher in Country B. B) the standard of living is growing more rapidly in Country A. C) the standard of living is higher in Country A. D) We cannot say whose standard of living is growing more rapidly without knowing the population growth rate. E) We cannot say whose standard of living is growing more rapidly without knowing the growth rate of real GDP.

B

If real GDP grows at a rate of 6 percent and population grows at a rate of 2 percent, then real GDP per person grows at a rate of A) 0.5 percent. B) 4 percent. C) -3 percent. D) 8 percent. E) 2 percent.

B

If the Fed engages in quantitative easing, it has likely A) increased the discount rate to prevent inflation. B) decreased the federal funds rate to almost zero by buying large sums of securities. C) decreased the discount rate by selling its own securities. D) started paying interest on required reserves. E) increased the federal funds rate by selling private securities.

B

In performing which of its primary functions does money solve the problem of the double coincidence of wants? A) barter system B) medium of exchange C) store of value D) money supply E) unit of account

B

In the long run, an increase in the quantity of money ________ the value of money and ________ the price level. A) raises; raises B) lowers; raises C) does not change; raises D) lowers; lowers E) raises; lowers

B

M2 equals A) M1 minus traveler's checks because they are not really money. B) M1 plus savings deposits, small time deposits, and money market fund deposits. C) M1 and is just another name for currency outside of banks. D) M1 plus savings deposits and small time deposits minus money market fund deposits. E) currency plus savings deposits, all time deposits, and money market funds and other deposits.

B

One possible way of achieving faster economic growth is to A) promote tax saving so that people spend more and businesses' profits are larger. B) encourage research and development. C) limit schooling in order to have more people in the labor force, producing goods and services. D) abolish the system of patents and copyrights so that everyone can use people's ideas. E) limit international trade to only a few countries so that the nation is not hurt by too much trade.

B

The interest rate the Federal Reserve charges a bank when it borrows reserves from the Fed is called the A) borrowing rate. B) discount rate. C) market interest rate. D) federal funds rate. E) prime rate.

B

The voting members of the Federal Open Market Committee consists of the A) six Board of Governor members and six Federal Reserve Bank presidents. B) seven Board of Governor members and five Federal Reserve Bank presidents. C) 12 Board of Governor members and the five Federal Reserve Bank presidents. D) seven Board of Governor members and the 12 Federal Reserve Bank presidents. E) 12 Board of Governor members and the seven Federal Reserve Bank presidents

B

) If the Fed bases its monetary policy on judgments of its policymakers about the current needs of the economy, it is following A) an inflation targeting rule. B) discretionary policy. C) a monetary base instrument rule. D) wait-and-see policy. E) a money targeting rule.

B E4

A combination of recession and inflation is called A) an expansion. B) stagflation. C) a business cycle. D) a recession. E) depression.

B E4

Economic growth is represented by a: A) leftward shift of an aggregate production function. B) rightward shift of the potential GDP line. C) horizontal potential GDP line. D) leftward shift of a produection possibilities curve.

B E4

If the Fed lowers the federal funds rate, which of the following occurs? A) The price of the dollar on the foreign exchange market increases. B) Investment increases. C) Government expenditures on goods and services increases. D) Net exports decreases. E) Consumption expenditure decreases.

B E4

If the Fed sells U.S. government securities, A) banks' reserves increase. B) the federal funds rate rises. C) the U.S. Treasury gains some revenue. D) the U.S. Treasury loses some revenue. E) None of the above answers is correct.

B E4

In 2010, the U.S. government had tax revenues of $2,703 billion and outlays were $3,973 billion. The budget A) deficit was $3,973 billion. B) deficit was $1,270 billion. C) surplus was $2,703 billion. D) was balanced because every dollar the government spends it must raise. E) surplus was $1,270 billion.

B E4

Increases in the quantity of money can start a ________ inflation and an increase in government expenditure can start a ________ inflation. A) demand-pull; cost-push B) demand-pull; demand-pull C) cost-push; demand-pull D) cost-push; cost-push E) None of the above is correct because increases in the quantity of money are necessary to continue an inflation but cannot start an inflation.

B E4

Raising the federal funds rate shifts the aggregate demand curve ________ so that real GDP ________ and the price level ________. A) leftward; decreases; rises B) leftward; decreases; falls C) rightward; increases; falls D) rightward; increases; rises E) leftward; increases; rises

B E4

Using fiscal policy, the government can get the economy out of a recession in the short-run by: A) decreasing their purchases of goods and swervices or decreasing tax rates. B) increasing their purchases of goods and swervices or decreasing tax rates. C) increasing their purchases of goods and services or increasing tax rates. D) decreasing their purchases of goods and swervices or increasing tax rates.

B E4

According to the new growth theory, which of the following promote economic growth? i. discoveries that bring profit ii. choices that expand human capital iii. random events that create technology change A) i and iii B) i, ii and iii C) i and ii D) ii only E) i only

C

A bank has $400 in checkable deposits, $800 in savings deposits, $700 in time deposits, $900 in loans to businesses, $300 in outstanding credit card balances, $500 in government securities, $10 in currency in its vault, and $20 in deposits at the Fed. The bank's deposits that are part of M1 are equal to A) $530. B) $1,900. C) $400. D) $410. E) $1,210.

C

A reason why many of the third world countries are not achieving an increase in their standard of living is that they A) don't have strong military power to force people to work harder. B) don't have enough natural resources. C) don't have social institutions with a strong rule of law and economic freedom. D) don't have a strong central government. E) strongly encouraged international trade.

C

If the nominal interest rate is less than the equilibrium nominal interest rate determined in the money market, then in the short run households and firms A) lower the price level. B) buy financial assets. C) sell financial assets. D) raise the price level. E) increase real GDP.

C

In the figure above, what happens if the Fed decreases the quantity of money? A) There is a movement downward along the LRMD. B) TheLRMDcurve shifts leftward. C) here is a movement upward theLRMD. D) TheLRMD curve shifts rightward. E) The price level rises, without changing the LRMD-MS equilibrium.

C

Which of the following countries experienced situations close to hyperinflation in the recent past? A) Japan throughout most of the first decade of the 2000s B) Great Britain in 2016 C) Zimbabwe in 2008 and Venezuela in 2016 D) China between 2013 and 2014 E) None of the above

C

A rise in the price level A) has no effect on aggregate demand or on the quantity of real GDP demanded. B) increases aggregate demand. C) decreases the quantity of real GDP demanded. D) increases the quantity of real GDP demanded. E) decreases aggregate demand.

C E4

An increase in government expenditure can ________ potential GDP and an increase in taxes can ________ potential GDP. A) increase; increase B) increase; never change C) increase; decrease D) never change; never change E) decrease; decrease

C E4

During a recession, unemployment benefit payments increase without the need for any government action. This increase is an example of A) discretionary fiscal policy. B) government expenditure but it is not an example of either discretionary or automatic policy. C) automatic fiscal policy. D) discretionary monetary policy. E) automatic monetary policy.

C E4

To increase the quantity of money (the money supply), the Federal Reserve can A) lower the federal income tax rate B) increase the required reserve ratio C) purchase U.S. government bonds D) increase the federal funds rateTo increase the quantity of money (the money supply), the Federal Reserve can A) lower the federal income tax rate B) increase the required reserve ratio C) purchase U.S. government bonds D) increase the federal funds rate

C E4

Which of the following is NOT a monetary policy goal? A) promoting maximum employment B) keeping long-term interest rates moderate C) keeping a high exchange rate for the dollar D) maintaining stable prices E) All of the above are monetary policy goals.

C E4

) In the long run, the price level adjusts A) so that the inflation rate equals the growth rate of real GDP. B) so that the real interest rate equals the nominal interest rate. C) so that the inflation rate equals zero. D) to achieve money market equilibrium. E) so that the inflation rate is moderate

D

Suppose the Fed sells $100 of government securities. If the desired reserve ratio is 20 percent and there is no currency drain, then the quantity of money A) increases by $100. B) decreases by $400. C) decreases by $100. D) decreases by $500. E) decreases by $80.

D

Which statement is most correct about the types of deposits a commercial bank can accept? A) A commercial bank accepts savings and time deposits, but not checking deposits. B) A commercial bank does not accept deposits but sells shares. C) A commercial bank can only accept checking deposits from commercial enterprises. D) A commercial bank accepts checking, savings and time deposits. E) A commercial bank can accept loan deposits, reserve deposits, and checkable deposits.

D

) Transfer payments include i. social security benefits ii. medicare and medicaid benefits iii. unemployment benefits A) i only. B) ii only. C) iii only. D) i, ii, and iii. E) i and iii only

D E4

Discretionary fiscal policy is handicapped by A) automatic stabilizers, law-making time lags, and potential GDP estimation. B) induced taxes and automatic stabilizers. C) economic forecasting, law-making time lags, and induced taxes. D) law-making time lags, estimation of potential GDP, and economic forecasting. E) automatic stabilizers and induced taxes.

D E4

If the government increases spending to eliminate the recessionary gap portrayed in the above figure, the result is ________ price level and ________ government budget deficit. A) a higher; a lower B) no change in the; no change in the C) a lower; a larger D) a higher; a larger E) a lower; a lower

D E4

Moving along the aggregate supply curve, A) the quantity of capital used increases. B) the real wage rate is constant. C) technology advances. D) only the price level changes. E) the stock of human capital increases

D E4

The FOMC is concerned about inflation and has ________ the federal funds rate. Due to substitution effects, other ________ interest rates will ________ almost immediately. A) decreased; short-term; decrease B) decreased; long-term; decrease C) increased; long-term; increase D) increased; short-term; increase E) increased; short-term; decrease

D E4

When comparing a $100 billion increase in government expenditure to a $100 billion decrease in tax revenue, the effect of the increase in government expenditure on aggregate demand is A) less than the effect of the tax decrease. B) equal to the effect of the tax decrease. C) positive whereas the effect of the tax decrease is negative. D) greater than the effect of the tax decrease. E) negative whereas the effect of the tax decrease is positive.

D E4

Which of the following is the Fed's monetary policy instrument? A) the demand for reserves B) the supply of reserves C) the core inflation rate D) the federal funds rate E) the output gap

D E4

) Susan just sold her text books for $200 cash and deposited the cash she received in her checking account. This transaction has A) decreased the quantity of M2. B) increased the quantity of M2. C) decreased the quantity of M1. D) increased the quantity of M1. E) not changed either M1 or M2.

E

In the productivity curve figure above, the combined effect of capital accumulation, discovery of new technologies, and the expansion of human capital on the labor productivity could be illustrated as A) a shift fromA toC. B) a shift fromB toD. C) a movement fromA to B. D) a movement fromC toD. E) a shift fromA toD.

E

The quantity theory of money is a proposition about A) the Fed's methods used to change the quantity of money. B) the nominal interest rate and the quantity of money demanded. C) nominal and real interest rates. D) the relationship between financial assets and currency demanded. E) the relationship between a change in the quantity of money and the price level.

E

Which of the following is money? A) debit cards B) e-checks C) credit cards D) checks E) checkable deposits

E

Which of the following statements is likely to be made by someone who believes in the new growth theory? A) Although technological changes increase real GDP, these changes are random and unexplainable. B) Choices made by human capital are likely to be inefficient. C) Population growth will limit long-run gains in real GDP per person. D) Economic growth will eventually slow. E) Competition will encourage discoveries of new ideas leading to greater economic growth.

E

) If government expenditure on goods and services increase by $100 billion, then aggregate demand A) decreases by more than $100 billion. B) increases by less than $100 billion. C) increases by $100 billion. D) remains unchanged. E) increases by more than $100 billion.

E E4

Last year the price level increased from 118 to 122. The increase in the price level leads to a decrease in A) potential GDP. B) the real interest rate. C) the money wage rate. D) the price of domestic goods and services relative to foreign goods and services. E) the buying power of money.

E E4

National debt decreases in a given year when a country has A) no discretionary fiscal policy. B) a balanced budget. C) a budget supplement. D) a budget deficit. E) a budget surplus

E E4

The Fed raises the federal funds rate. Which of the following changes takes the longest time before it occurs? A) Supply of loanable funds decreases. B) Exchange rate rises. C) Short-term interest rates rise. D) Quantity of money decreases. E) Aggregate demand decreases.

E E4

The economy is at full employment. If aggregate demand increases, A) an inflationary gap is created and potential GDP increases to close the gap. B) a recessionary gap is created and theAS curve shifts leftward as the money wage rate falls. C) an inflationary gap is created and theAD curve shifts leftward. D) a recessionary gap is created and theAS curve shifts leftward as the money wage rate rises. E) an inflationary gap is created and theAS curve shifts leftward as the money wage rate rises.

E E4