Macro Final

The bank described in question 4 above could create loans for its deposit liabilities in the amount totaling

$1500

If a bank currently has deposit liabilities of $1000 reserves of $500, and a 20% reserve requirement, it could immediately invoke a loan in the amount of

$300

Suppose that real national income (Y) is equal to 800 and that government purchases are equal to 200. If the government's net tax revenues are equal to tY, where t is the tax rate, then what is the value of t necessary for the government to have a balanced budget?

(200/800)=25 percent

If an economy has the consumption function C=1000+.8Y , then its saving function is

-1000+.2Y

If c=.9 t=.2 and m=.12 , the slope of the AE curve is

.6

The multiplier is the reciprocal of

1 - slope of the AE curve

How many Federal Reserve regional banks are there?

12

How many regional banks are there in the Federal Reserve System

12

The Federal Reserve System was established in

1913

What year was the Federal Reserve Act passed by Congress?

1913

If a country's labor force is 150 million people, and 8 million of those are unemployed, the country's unemployment rate is

5.3 percent

A basic underlying point in economics is that A. people have unlimited wants in the face of limited resources B. there are unlimited resources C. governments should satisfy the needs of the people D. people have limited wants in the face of limited resources

A

Cost push inflation results when ______________ production costs shift the ________ curve to the __________ A. higher; AS; left B. lower; AD; right C. higher; AS; right D. lower; AD; left

A

If consumers view a good more favorably, the _______ of the good will likely ________. A. demand; rise B. demand; fall C. quantity demanded; rise D. quantity demanded; fall

A

If the Fed wants to reduce excess reserves in the banking system, it should A. raise the reserve ratio B. lower the discount rate C. lower the target rate for all interest rates D. purchase bonds in the open market

A

Lowering the reserve ratio causes excess reserves to ________ and the DEM to _________ A. rise; rise B. rise; fall C. fall; rise D. fall; fall

A

Which of the following is the best example of frictional unemployment?

A worker is laid off because his firm has to reduce production due to reduced demand

Checking account balances

Are liabilities of commercial banks

According to the Phillips Curve, a decrease in AD will cause unemployment to ___________ and inflation to______ A. rise; rise B. rise; fall C. fall; rise D. fall; fall

B

Consider the law of demand. Other things being equal, the quantity of beer demanded will be great if the A. incomes of beer drinkers are higher B. price of beer is lower C. price of wine is higher D. number of beer drinkers is higher

B

Economic growth is illustrated by A. a reduction in the unemployment of resources B. an outward shift of the economy's production possibilities boundary C. a movement onto the economy's production possibilities boundary D. a movement along the economy's production possibilities boundary

B

Higher production costs will cause the ________ of a good to __________ A. supply; rise B. supply; fall C. quantity supplied; rise D.quantity supplied; fall

B

If the Fed lowers the discount rate, banks may want to borrow _________ from the Fed, which would cause market interest rates to _________ A. more;rise B.more;fall C. less;rise D. less;fall

B

The market price of a good is "too high" if A. the quantity demanded exceed the quantity supplied B. the quantity supplied exceeds the quantity demanded C. if we find the good in shortage D. none of these are correct

B

Consider the market for gasoline. If the price of gas declines, we would expect the ________ of gas to __________. A. demand; rise B. demand; fall C. quantity demanded; rise D. quantity demanded; fall

C

If the Fed sells bonds in the open market A. interest rates will rise and the demand to hold money will also rise B. interest rates will fall and the demand to hold money will rise C. interest rates will rise and the demand to hold money will fall D. interest rates will fall and the demand to hold money will also fall

C

If the Fed wants interest rates to decline, it will _______ bonds, and excess reserves of banks will ________ A. sell; rise B. sell; fall C. buy; rise D. buy; fall

C

Quantity demanded is the A. total amount of a good that is actually purchased during a given period of time B. entire relationship between desired purchases and possible prices C. total amount of a good that purchasers wish to purchase at a given price during a given period of time D. product advertising, and is unrelated to price

C

The opportunity cost of going to college for 4 years is A. equal to the wage rate a person will earn after graduation B. the least valued alternative one forfeits to attend C. the cost of tuition and books and 4 years of lost wages from employment D. the cost of tuition, residence fees and books

C

An increase in AD could be caused by any of the following except A. lower taxes B. lower interest rates C. higher export sales D.lower household wealth

D

If a country's production possibilities boundary is drawn as a concave line it indicates A. decreasing opportunity cost of producing more of either good B. the use of the scarce resources in an economy C. constant opportunity cost of producing more of either good D. increasing opportunity cost of producing more of either good

D

Which of the following would be an example of contractionary monetary policy?

Fed sells bonds on the open market

Monetary policy is one of the two main macroeconomic tools governments use to control the aggregate economy, the other being

Fiscal policy

The most commonly used measure of total national output is

Gross domestic product

Who is the current Chairperson of the Fed?

Janet Yellen

In a macro model with the government, to reduce equilibrium national income by $100 billion, G must be

Lowered by $100 billion divided by the multiplier

The model used to explain how monetary policy ultimately affects GDP is called....

Monetary Transmission Mechanism (MTM)

What is the difference between fiscal an monetary policy?

Monetary policy is typically implemented by a central bank , while Fiscal policy decisions are set by the national government

In macro-equilibrium, it must be true that

S+T+M=I+G+X

How do we know when something is scarce?

Something is scarce when the price is high?

If a country experiences an increased trade surplus in this year, if all other things are the same as last year, then

The AE curve will shift up

Consider the following news headline: "Business community gloomy about the economy-investment plans axed." What effect will this have, all other things equal, on the AE function and on equilibrium national income?

The AE function will shift down parallel to itself and equilibrium national income will fall

The discount rate is the interest rate

The Fed charges on loans to commercial banks

The governing body in charge of making decisions concerning changing interest rates is called

The Federal Open Market Committee

Who nominates people to serve on the Fed's Board of Governors?

The US President and they are approved by the Senate

The two resources each of us have that are subject to scarcity

Time and money

deflation

a decline in the overall level of prices, more prices fell than rose

a leftward shift in the supply curve indicates

a decrease in supply

Consider a negatively sloped demand curve for some product. If market supply for this product increases, the new equilibrium will have

a lower price and a greater quantity

A tax cut would increase __________ and lead to an increase in ____________, and may ultimately cause prices to _________

aggregate demand, supply, rise

Ceteris paribus means..

all other factors stay the same

inflation

an increase in the overall level of prices. Is a weighted average of all prices because different components have different weights

What are the 5 stages of the evolution of a monetary system (in order)

barter, commodity, coinage, paper backed money, FIAT

The two main components of investment expenditures ( I )

business purchasing plant equipment( real capital), businesses purchasing new dwellings (construction and purchase of new dwellings)

Open market operations occur whenever the fed

buys or sells existing government debt

List the six items that comprise the money supply defined as M2

currency , coins , checking accounts, travelers checks, savings accounts, time deposits, retail money market mutual fund

disinflation

decline in the inflation rate; a negative positive, slower rate of inflation

Banks hold people's cash for free, and sometimes even pay for the privilege of holding it, because

deposits allow banks to make profitable loans

When a society chooses an item to serve as money, what four qualities should it possess

durable, portable, divisible, relatively scarce

Which components of aggregate demand (expenditures) are most sensitive to price changes?

exports and ( C ) consumption

the term "quantity supplied" is the amount of a commodity that

firms wish to sell at a given price during a given period of time

Why do bonds pay interest to the holder?

if they didn't, no one would hold them because they are risky and not spendable

In our model, lower interest rates will result in

increased investment

aggregate demand

is the change in price

Three reasons why it is important to keep inflation low and stable

it creates uncertainty, affects the integrity of the Fed and monetary system, reduces purchasing power

The economy's three factors of production

labor, capital, land

In macroeconomies, the term "capital goods" refers to

man-made factors of production, such as tools, machines, and factory buildings

When a clerk gives you a pair of jeans for your $20 bill, the money is serving which function?

medium of exchange

Which monetary policy tool is used most frequently?

open market operations

If an economy is suffering from a high rate of inflation, which of the following would be recommend?

raising the discount rate

Short-run fluctuations in real GDP around its trend value are

referred to in economics as "the business cycle"

If the Federal Reserve buys existing government bonds from the non-bank public, the money supply will ________ and interest rates will _____________

rise;fall

What three functions should money perform

serve as a medium of exchange, have store value, serve as a unit of account

What is the most important function of the FOMAC?

set which way the interest rates change

Any decrease in C,I,G, or X will...

shift the AD curve to the left

Any increase in C ,I ,G ,or X will....

shift the AD curve to the right

Suppose new medical research suggests that consuming 200 grams of tofu everyday will help to prevent heart disease. The dissemination of this research, other things being equal is likely to have what impact on the market for tofu

shift the whole demand curve to the right

An increase in the nation's rate of consumption would cause its AE curve to

shift upwards

Which of the following is not included in the M1 definition of money?

small time deposits

What is the demand for money called that people hold for future purchases of bonds?

speculative demand

An improved technology would cause the aggregate __________ curve to shift to the __________

supply, left

If the Fed lowers the reserve requirement, the _________ of loanable fund will ________

supply; rise

All other things being constant, and increase in the tax rate (t) will cause

the AE curve to rotate down

Currently, the main target for monetary policy is

the Fed funds rate

When commercial bank borrows reserves from its Federal Reserve bank, the rate of interest it pays is called

the discount rate

The economic problems studied in macroeconomies include

the level of economic activity, the rate of inflation, the rate of unemployment

A surplus exists in the market when

the quantity demanded is less than the quantity supplied

In which statement is the term "supply" used correctly. (1) An increase in the price of leather will cause a decrease in the supply of leather. (2) An increase in the price of leather will cause a decrease in the supply of leather boots

the second statement only

A (blank) is what we must sacrifice in order to have something else

trade off

The amount of loans a bank can make at any time is determined by the reserve requirement, the bank's reserve balance, and its

value of deposits

To calculate GDP from the expenditure side, one must add together

wages, profits, government purchases, and net exports

equilibrium price

when the bid price and the ask price are the same