macro
Which of the following are true about permanent tax cuts?
People will likely respond more strongly to permanent changes.
From 2006 to 2009, the United States experienced a declining trade deficit in part due to the economic recession during that time.
True
Historical trade relationships are a good indicator of future trade relationships.
True
The figure below shows an economy experiencing a(n) inflationary gap, which can be closed by shifting the aggregate demand curve ___________ and enacting ___________ fiscal policy.
left; contractionary
Identify which of the following expense could be on the budget of the city of San Francisco.
libraries
The Fed should ________________ monetary policy in a recession and ______________ it when inflation is high.
loosen; tighten
When productivity is unexpectedly high, how is unemployment typically impacted?
unemployment rates will likely be slightly lower than average
In regards to fiscal policy and trade imbalances, what happens to the trade deficit when a government moderately increases the budget deficit?
it moderately increases
What could happen to private savings if the budget surplus increases?
it would fall
If we assume that the equality of quantity supplied and quantity demanded always holds, what would happen to the trade deficit if the budget deficit rises?
it would rise
Economic recessions should automatically lead to _______________.
larger budget deficits
Which of the following have traditionally involved setting a fixed nominal dollar amount per year at retirement?
pensions
Of the following, who makes up the Federal Open Market Committee?
seven members of the Board of Governors the president of the New York Federal Reserve Bank
During the Great Depression, the U.S. economy experienced _________________.
severe deflation
In the 1970s, the U.S. space program downsized and aerospace engineers struggled to find employment that utilized their skills. What type of unemployment is this an example of?
structural
Carl has worked on a factory line for years. Recently, his job on the line has been increasingly replaced by robotics in his industry. As a result, Carl is laid off. Carl is struggling to find a job in his particular field because the majority of positions have been eliminated due to robotics technology. What type of unemployment is Carl experiencing?
structural unemployment
If the price level increases in the short run, assuming costs of production are unchanged, _________________.
suppliers will increase production
How would an increase in unemployment insurance duration affect the natural rate of unemployment? Please select two correct answers.
the natural rate of unemployment will increase the unemployed worker will be less eager to seek a new job
For the foreign exchange market to be in equilibrium, it must be true that __________.
the quantity supplied of currency equals its quantity demanded
In order to maintain purchasing power for those wage earners, the federal minimum wage rate should keep up with _________________.
the rate of inflation
Which of the following best describes the real interest rate?
the rate of interest after allowing for inflation
Neoclassical economists argue that the long-run aggregate supply curve is located at potential and therefore the long-run aggregate supply curve is a(n) __________ line at the level of potential GDP
vertical
According to neoclassical economists, what effect does an increase in aggregate demand have over the long run?
An increase in prices and a return to potential GDP.
According to neoclassical economists, what will families do when government carries out a policy that increases the debt?
Anticipate an increase in taxes. Reduce spending and consumption.
All of the following are sources of demand for the U.S. dollar except __________.
foreign firms that have sold imported goods in the U.S., earned U.S. dollars, and are trying to pay expenses incurred in their home countries
Aggregate demand includes spending on all of the following except:
foreign goods purchased by domestic consumers
Which of the following would not occur if the budget deficit fell?
foreign investment would rise
All of the following are sources of supply for the U.S. dollar except __________.
foreign investors who wish to make portfolio investments in the U.S. economy
When a nation experiences a rising trade, it likely leads to a decrease of net inflow of foreign financial capital.
False
When government rules encourage and support powerful unions, the unemployment rate almost always decreases.
False
When using discretionary fiscal policy, the government does not seek to change overall tax or spending levels.
False
A relatively high interest rate in the Euro Zone will cause the euro to __________.
appreciate
Megan left her teaching job to stay home with her baby. Now a couple of years later, she is actively seeking another teaching job. Megan is _______________ unemployed?
frictionally
What would economists describe as the "twin deficits?"
government budget and trade deficits
Which of the following best describes public savings?
government savings
A disadvantage of a hard peg policy is __________.
having to hold large foreign exchange reserves
The components with the highest weights in the Consumer Price Index are
housing, and food and beverage
When the government passes a bill it takes time for the bill to take effect. This is because of?
implementation lag
If the CPI leaves out new higher quality goods, it is overlooking one of the ways in which the standard of living is
improving
A rise in input prices that affects many or most firms across the economy can cause the aggregate supply curve to shift back to the left creating __________.
inflationary pressure
If rising input prices affect many or most firms across the economy, then the aggregate supply curve will shift, causing __________.
inflationary pressure
In the AD/AS framework, if aggregate demand continues to shift to the right while the economy is near potential GDP, then __________.
inflationary pressures will increase
Inflationary pressure can occur if _________.
input prices that affect many or most firms across the economy increase aggregate demand continues to shift to the right when the economy is already at or near potential GDP and full employment
Keynes believed that the government should __________ during recessions.
intervene and increase spending
All of the following are steps of how the U.S. Bureau of Labor Statistics calculates the unemployment rate, except:
interview about 50,000 US-owned companies The unemployment rate announced by the U.S. Bureau of Labor Statistics on the first Friday of each month for the previous month is based on the Current Population Survey (CPS), which the Bureau has carried out every month since 1940. The Bureau takes great care to make this survey representative of the country as a whole. The country is first divided into 3,137 areas. The U.S. Bureau of the Census then selects 729 of these areas to survey. It divides the 729 areas into districts of about 300 households each, and divides each district into clusters of about four dwelling units. Every month, Census Bureau employees call about 15,000 of the four-household clusters, for a total of 60,000 households.
In a period of a budget and trade deficit, when private and public savings have fallen, where does money typically come from in order to fill the gap left by decreased savings?
investment from abroad
Dollarizing __________
is using the U.S. dollar as the currency of a country outside the United States
How does a budget deficit impact demand in market for domestic financial capital?
it increases the demand
How does the standardized employment budget deficit compare to the actual budget deficit during a recession?
it is smaller
All of the following statements are true, except:
Strong economic growth tends to make trade surplus larger.
A budget deficit can easily result in a(n) ___________ exchange rate.
stronger
Federal debt is the ______ of annual budget deficits and surpluses? Select the correct response to fill in the blank.
sum
Which of the following is not a result of raising the discount rate?
Banks extend more loans to individuals and firms.
Which of the following statements is true?
Domestic investors will have more financial investment capital when the economy is in a trade surplus.
True or False: Say's law implies that in the long run there will be overproduction or underproduction of goods.
False
True or False: Supply shock shifts the aggregate supply curve to the right.
False
Up until which decade did the debt/GDP ratio reveal a fairly clear pattern of federal borrowing?
1970s
If there is an increase in budget deficits by 1% of GDP and the initial interest rate is 5%, the long-term interest rate will be between 5.5% and what?
6%
Which of the following is the correct definition of a budget deficit?
A budget deficit is a financial situation in which the federal government spends more money than it receives in taxes in a given year.
If the federal government spends $1.4 trillion more dollars than it collects in tax revenue, what occurs?
A budget deficit.
Which of the following is an example of cyclical unemployment?
A company has to lay off half of its work force to cut costs in order to make it through the recession.
Which of the following correctly defines "corporate income tax"?
A corporate income tax is a tax based on corporate profits.
According to neoclassical economists, what effect would a decrease in aggregate demand have over the long run?
A decrease in prices and a return to potential GDP
What is the best definition for foreign direct investment?
A foreign direct investment is the purchase of more than ten percent of a firm or the creation of a new enterprise in another country.
Which of the following is the best definition of the term "foreign exchange market"?
A foreign exchange market is the market in which people use one currency to buy another currency.
Which of the following best represents a nation experiencing a trade deficit?
A nation with an economy that is experiencing a net inflow of financial capital.
Which of the following statements is true?
A nation's level of trade is measured by its exports of goods and services as a share of its GDP.
Define individual income tax.
A personal income tax based on a persons income or salary.
Suppose the U.S economy is initially in long-run equilibrium in the AS/AD model. If a recession strikes in China leading to a decrease in U.S. exports, which type of gap will occur within the U.S economy and why?
A recessionary gap will occur because AD will shift left as a result of falling net exports.
Which of the following is the correct definition of "soft peg"?
A soft peg is an exchange-rate policy in which the government usually allows the exchange rate to be set by the market, but sometimes intervenes.
Which of the following statements is true?
A state that gives too many tax breaks may not generate enough revenue to balance the budget.
What do Keynesians economists believe is the root cause of changes in economic output?
Aggregate demand
According to the neoclassical model what chain of events follows in the long-run after a short-run decrease in demand accompanied by an increase in unemployment?
Aggregate supply shifts to the right as wages decline, thus returning output back to potential level and lowering prices.
What do neoclassical economists believe is the root cause of changes in economic output?
Aggregate supply.
Which of the following examples illustrates the danger of countercyclical monetary policy?
Aggressive expansionary monetary policy causes the economy to overshoot potential GDP and swing into an inflationary gap. High interest rates implemented by the Fed to reduce inflation cause the economy to go into a recession.
Which of the following explains how an increase in wealth impacts consumption?
All of the above
Which of the following are a characteristic of real GDP?
All of the above are true.
Which of the following is an example of the expenditure multiplier increasing the impact of a change in expenditure?
All of the above.
Which of the following scenarios determines consumption by influencing expectations of expected future income?
All of the above.
What happens when Americans find U.S. bonds more attractive than foreign bonds as a result of higher interest and exchange rates?
Americans supply fewer U.S. dollars.
Which of the following best defines the term bank capital?
Bank capital is a bank's net worth.
Why does changing the discount rate up or down have little impact on a bank's behavior?
Because banks are expected to first borrow from other available sources, like other banks. Because the Federal Reserve charges a higher discount rate than the rate of federal funds.
When investors expect a country's currency to strengthen in the future, what would you expect them to do?
Buy more
In which of the following segments of the aggregate supply curve is inflationary price pressure not much of a concern?
C, the left most one
Suppose the government decreases spending. Which of the following best describes how this fall in government spending will likely impact consumption spending?
Consumption spending will decrease.
What does contractionary monetary policy cause?
Contractionary monetary policy will cause interest rate to rise.
Which of the following is the best definition of the term "countercyclical"?
Countercyclical means moving in the opposite direction of the business cycle of economic downturns and upswings.
Which of the following is not a consequence of deflation?
Deflation causes the real value of money to fall.
____________ is the most powerful determinant of how much an individual or household consumes.
Disposable income
Of the following, which are actions most closely associated with countercyclical monetary policy?
During an economic boom, interest rates should be kept high. When the economy slows down, the federal reserve should buy financial assets from commercial banks.
Which of the following is not true of the foreign exchange market?
Each country has its own currency.
What are the two functions of purchasing power parity?
Economists often use PPP exchange rates for international comparison of GDP and other economic statistics. knowing the purchasing power parity helps track and predict exchange rate relationships.
__________ are reserves held by banks in excess of the legally required minimum level.
Excess reserves
A person who moves to a different town and buys a new house the same size as the old one can expect to pay the same amount of property taxes on both houses.
False
A recessionary gap is associated with a business-cycle expansion.
False
According to a neoclassical economist, the short-run aggregate supply curve is vertical, while the long-run aggregate supply curve is downward-sloping.
False
According to neoclassical economists, a decline in aggregate demand will permanently reduce equilibrium GDP
False
According to neoclassical economists, an increase in aggregate demand will permanently increase equilibrium GDP.
False
An increase in import expenditures is bad for the U.S. economy.
False
An increase in productivity that affects many or most firms across the economy can cause the aggregate supply curve to shift to the left, thus creating inflationary pressures in the economy.
False
An inflationary gap is the result of a decrease in aggregate demand.
False
Cutting taxes and increasing government spending are remedies for a(n) inflationary gap, which is shown in the figure below.
False
During a trade deficit domestic capital leaves a nation's economy to be invested abroad.
False
Human capital per person, physical capital per person, and advances in technology have no impact on GDP growth.
False
In a neoclassical view, monetary policy affects only the real level of output, not the price level.
False
In recent decades, the Federal Reserve has often made discount loans.
False
In the AD/AS diagram, long-run economic growth—due to productivity increases over time—will be represented by a gradual shift to the right of aggregate demand.
False
In the AD/AS framework, when short-run macroeconomic equilibrium GDP is significantly below potential GDP, there is cyclical unemployment but it is very low.
False
In the imaginary country of Xurbia, large corporations typically hire employees for the long-term, often for life. Suppose, the proportion of older workers, relative to younger workers, in the Xurbian economy was relatively high. We would expect the natural rate of unemployment in Xurbia to be high.
False
It easy for a central bank to conduct countercyclical monetary policy with a hard peg.
False
Over the intermediate range of an aggregate supply curve, the price level stays constant when aggregate demand changes.
False
Physical and human capital are the only factors that influence GDP growth.
False
Purchasing power parity determines exchange rates in the short term.
False
Since a nation's central bank can use fiscal policy to affect its interest rates, a central bank can also cause changes in exchange rates.
False
The exchange rate that equalizes the prices of internationally traded goods across countries is the arbitrage exchange rate.
False
The federal funds rate is a long-term interest rate.
False
Today, the United States and other countries measure the balance of trade by tracking only the goods and not the services traded between countries.
False
Of the following, which count as a source of demand for the U.S. dollar?
Foreign investors who make direct investments in the U.S. economy.
Which type of exchange rate system is one in which governments do not intervene but rather let the market completely determine exchange rates?
Free-floating
Sydney was laid off from her non-profit firm due to a lack of funding. She is currently actively searching for another position in the non-profit field. Which category of unemployment does Sydney fall into?
Frictional
If an economy goes into recession due to a drop in aggregate demand, which of the following efforts would a neoclassical economist advocate?
Government retraining programs for structurally unemployed workers. Revamping welfare programs to give workers more incentive to look for work.
In which of these exchange-rate systems does the central bank have the most influence on the value of a nation's currency?
Hard peg
Which term is used for an exchange-rate policy in which the central bank sets a fixed value for the exchange rate?
Hard peg
All of the following statements are true, except:
High and variable inflation means that the incentives in the economy to adjust in response to changes in prices are stronger than in periods of low inflation.
What determines an individual's marginal tax rate?
His or her tax bracket
All of the following statements are true, except:
If a firm is currently holding a lot of assets in cash, it would benefit from inflation
A bank currently meets its required reserves when the Federal Reserve announces that required reserves will increase. What effect will this have on amount of lonable funds?
If banks are required to hold a greater amount in reserves, they have less money available to lend out.
Which of the following could be considered a potential advantage of a trade deficit to an economy?
Imported capital could be used to build and develop certain factors of production
If goods in the United States experience a general price increase relative to its major trading partners, then what does this mean for its imports and exports?
Imports will increase. Exports will decrease.
All of the following statements are true, except:
In recent decades in the U.S, rising inflation rates have always corresponded to increasing productivity rates.
Central banks may need to think about whether they should conduct monetary policy in a way that would seek to moderate the effects of asset bubbles and the leverage cycle.
True
Suppose the economy is initially in the long-run equilibrium, but a drop in consumer confidence causes the AD curve to shift to the left. What will be the impact on prices and output in the short run and long run?
In the short run, both prices and output fall. In the long run, prices fall, but output stays the same.
Suppose in 2010, a country's economy had reached potential output. Four years later, its GDP is 15% lower than what it had been at the full-employment level of output. What can the government do to reduce this recessionary gap?
Increase government spending.
Which of the following statements is true about inflation?
Inflation redistributes purchasing power in the economy.
What is not true about arbitrage?
It involves central banks building up large reserves of their country's currency to stabilize its value.
Which of the following is true about the International Price Index?
It is a measure of price level based on prices of merchandise that is exported or imported.
Which of the following statements is true?
It is possible for a country to record a large trade deficit despite having a relatively low level of trade, expressed as a percentage of GDP
Which of the following is true about the short-run aggregate supply curve
It is upward sloping
The government should engage in expansionary fiscal policy.
It will contribute to a recessionary gap. It will decrease aggregate demand.
Suppose in the imaginary country of Xurbia, a remarkable new tool which improves the ability for job seekers to find out about jobs at different companies and make contact with those companies with relative ease is introduced and widely adopted by employers and job seekers. What do you expect will happen to the natural rate of unemployment in Xurbia?
It will decrease.
Neoclassical economists focus on the economy in the ____________ .
Long run
Which of the following is an example of countercyclical monetary policy posing a danger of overreaction?
Loose monetary policy seeking to end a recession goes too far and triggers inflation. Tight monetary policy seeking to reduce inflation goes too far and begins a recession.
Why are changes in reserve requirements usually small?
Loosening requirements too much would create a danger of banks being unable to meet the demand for withdrawals. A sudden demand that all banks increase their reserves would be extremely disruptive and difficult to comply with.
Why might a central bank not seek to regulate asset prices?
Many people and their elected political representatives will be outraged.
All of the following statements are true, except:
Moderate or high Inflation rarely poses substantial long-term planning problems for businesses.
If interest rates rise in the United States as compared with Mexico, then what is the most likely outcome?
More investors will demand U.S. dollars so that they can buy interest-bearing assets Fewer investors will be willing to supply U.S. dollars to foreign exchange markets.
Which of the following best represents nation A experiencing a trade surplus?
Nation A's economy is experiencing a net outflow of financial capital.
____________ economists focus on the long run growth of the economy and on the natural rate of unemployment. _________ economists focus on short run fluctuations in the economy and using fiscal and monetary policy to smooth the business cycle.
Neoclassical; Keynesian
What will happen to the net exports of Mexico when there is an increase in income in the United States?
Net exports will increase because exports will increase.
Suppose that the velocity of money is constant and the Fed decreases the money supply. What impact will this have on Nominal GDP?
Nominal GDP will decrease.
The shape of the short-run aggregate supply curve is determined by
None of the above NOT: The wealth effect, The interest rate effect, The foreign price effect
Central banks provide banking services to the federal government.
True
During a trade surplus, domestic investors use capital to purchase foreign assets expecting to sell them later on.
True
Which of the following is true of open market operations?
Open market operations involve the purchase and sale of government securities.
Explain why President Trump has expressed interest in expansionary fiscal policy even though the economy is producing at or above potential GDP?
Politicians believe expansionary fiscal policy will continue the booming economic times which are favorable to the public.
Which of the following is true in the long run?
Prices are flexible and allow the economy to produce at the full employment level of output.
Which of the following is the best definition of quantitative easing?
Quantitative easing is the purchase of long-term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand.
How does quantitative easing differ from other traditional monetary policy tools?
Quantitative easing manipulates long-term interest rates through the purchase of long-term bonds.
Which of the following statements about real GDP are true?
Real GDP is used to determine whether output is rising or falling. Real GDP is a better indicator of economic performance than nominal GDP because real GDP is based on real values.
All of the following statements are true, except:
Recessions and economic booms often have little impact on trade surpluses or trade deficits.
Bank regulation is used to prevent excessively risky behavior by banks.
True
Which of the following statements best represents a neoclassical interpretation of a short-run increase in aggregate supply? Select the two correct answers below.
Short-run increases in supply will not have an effect on prices in the long term. Short-run increases in GDP due to a shift in aggregate supply cannot be maintained over the long term.
An individual who is not working and not actively looking for employment because he is discouraged by the lack of available jobs is not counted as part of the labor force. Why can this impact the unemployment rate?
Since the individual is not considered part of the labor force, he is not included the unemployment rate.
Around the 1980s when Turkey was trying to industrialize and needed to buy intermediate goods for production, it overvalued its currency to make it cheaper to buy the imports it needed for manufacturing. Its central bank announced that the exchange rate was $1.20per Turkish lira when the actual equilibrium exchange rate would have been $0.60 per lira if it were traded in international foreign exchange markets. At other times, the Turkish central bank has also set different exchanges rates for different goods. Which of the following types of exchange-rate systems was Turkey using?
Soft peg
Automatic stabilizer are programs that are already laws that stimulate aggregate demand in a recession and hold down aggregate demand in a potentially inflationary boom.
TRUE
Which of the following is not a component of the current account balance?
Tariffs
How does the Fed lower the Federal Funds rate?
The Fed buys securities on the open market and increases the money supply.
Which of the following is true regarding the reserve requirements?
The Fed makes small changes to them almost every year.
When comparing the strength of two economies, which exchange rate, the market exchange rate or purchasing power parity exchange rate, is better to use and why?
The PPP exchange rate because it remains relatively constant.
Which of the following relating to the Phillips Curve is incorrect or has been called into question in the last half century?
The Phillips Curve always reflects a negative relationship between unemployment and inflation.
All of the following statements about the U.S. balance of trade since 1971 are true, except:
The U.S. has not experienced a trade surplus since 1971.
Which of the following would be classified as a portfolio investment for a foreigner?
The buying of U.S. government bonds.
Flexible prices allow output to remain the same in the long run even when there are short run shifts in aggregate demand or supply.
True
For about two decades prior to 1980s, the U.S. economy experienced modest trade surpluses.
True
The market below experiences sticky prices and wages. Which of the following statements explains what happens in the immediate term following a decrease in aggregate demand?
The economy will produce at the original equilibrium price, but quantity demanded will drop, creating a surplus of output.
Which of the following is a reason why we should not expect a government budget to be balanced within a term of a few years?
The government may run a large budget deficit now to make important long-run investments.
If an economy at full employment experiences a fall in aggregate demand, then what should the government do to restore the economy to full employment?
The government should engage in expansionary fiscal policy.
Which of the following could be considered a potential disadvantage of a trade deficit to an economy?
The inflow of financial capital may not boost productivity adequately.
Banks may choose to hold excess reserves during a recession because they fear that when the economy is contracting, a high proportion of loan applicants become less likely to repay their loans.
True
All of the following statements are true, except:
The share of U.S. exports in proportion to the U.S. economy is well above the global average.
What is efficiency wage theory?
The theory that workers' productivity depends on their pay, and so employers will often find it worthwhile to pay their employees somewhat more than market conditions might dictate.
How would economists define implementation lag?
The time it takes to disperse funds and start a project.
How would economists define legislative lag?
The time it takes to pass a bill.
How would economists define a recognition lag?
The time it takes to realize a recession has occurred.
Which of the following is not a reason why governments and businesses fear high relative inflation?
The value of the currency appreciates, making exports less competitive.
Which of the following are reasons for bank regulation?
To prevent excessively risky behavior by banks To prevent bank runs
All of the following are examples of someone who is involuntary unemployed, except:
Tom was let go from his job at The Burger Shack five weeks ago and has yet to search for another job because he wants to earn more than $15/hour.
A central bank is an institution that conducts a nation's monetary policy and regulates its banking system.
True
A neoclassical long-run aggregate supply curve will imply a vertical shape for the Phillips curve, indicating no long run tradeoff between inflation and unemployment.
True
A person who is working, self-reporting herself as unemployed is an example of how the U.S. Bureau of Labor Statistics may overstate the unemployment rate.
True
After a recognition lag, policymakers become aware of the problem and propose fiscal policy bills.
True
Allowing goods and services that make up the price indices of the items used to input the Consumer Price Index to shift and evolve to reflect the substitution bias can help reduce biases in the CPI.
True
Historically speaking, the unemployment rate and the Federal Funds Rate are negatively related. That is, whenever unemployment has decreased the Federal Funds Rate has increased and whenever unemployment has increased the Federal Funds Rate has decreased.
True
If during an economic boom, private domestic investment increases more than public and private saving, a nation with a trade deficit will experience a decrease in that trade deficit.
True
If the central bank raises the discount rate, then commercial banks will reduce their borrowing of reserves from the Fed, and instead call in loans to replace those reserves.
True
If the velocity of money decreases, but the money supply remains constant, then a decrease in nominal GDP will occur.
True
Income payments refer to money flowing into and out of a country.
True
It is possible for a country to record a large trade deficit despite having a relatively low level of trade, expressed as a percentage of GDP.
True
Keynes's treatment of investment focuses on the key role of expectations about the future in influencing business decisions.
True
Neoclassical economics argues that fiscal policy does not shift the aggregate demand curve at all.
True
Neoclassical economists agree with the supply side effects of Say's law.
True
Neoclassical economists do not see aggregate demand as a useful tool for reducing unemployment. With a vertical aggregate supply curve determining economic output, changes in aggregate demand have no long-run effects on unemployment.
True
Neoclassical economists tend to focus more on long term economic growth.
True
Neoclassical theory argues that a rightward shift in aggregate demand above the long run equilibrium point will only be inflationary.
True
Suppose that an economy is in a recessionary gap. Because prices are flexible in the long run, a drop in wages will shift the aggregate supply to the right and restore long run equilibrium.
True
The AD/AS diagram illustrates recessions when the equilibrium level of real GDP falls, often occurring below potential GDP.
True
The AD/AS framework implies two ways that inflationary pressures may arise. One is if aggregate demand continues to shift to the right when the economy is already at or near potential GDP and full employment, and another is if input prices that affect many or most firms across the economy increase.
True
The interest rate affects the decision of businesses to purchase physical capital.
True
The money multiplier is a reason why the leverage cycle can exaggerate episodes of economic growth.
True
The theory of adaptive expectations posits that the speed of macroeconomic adjustment is always gradual.
True
True or False: According to Say's law, in the long run, as supply increases demand increases.
True
True or False: If businesses become more confident about the economy, we can expect investment spending to increase.
True
True or False: If consumers become more confident about the economy, we can expect consumption to increase.
True
True or False: One can use the Producer Price Index (PPI) to determine price indices for different industries.
True
Wages are considered sticky when they do not fall in response to a decrease in demand.
True
When a country is trying to keep a soft peg, rumors from foreign exchange speculators trying to anticipate central bank intervention can cause the exchange rate to shift up and down. These shifts defeat a soft peg policy's purpose to reduce short-term exchange-rate fluctuations.
True
When looking at a long run AS curve, potential GDP and the rate of unemployment remain the same at every point along the vertical AS curve.
True
When the U.S. economy is growing strongly, the unemployment rate only rarely dips as low as 4%. Therefore, it is safe to assume that the natural rate of unemployment in the U.S. is at least 5%.
True
In a recession, a neoclassical economist would likely argue for changes to labor policy institutions and nothing more.
True because :A neoclassical economist would argue for policy changes in labor institutions, but would not advocate for fiscal or monetary policy measures due to the length of time these would take, as well as the inherent belief that the economy will stabilize itself over the long run.
Assume that China is a major importer of U.S. goods. If the growth rate in China relative to the United States increases, then which of the following will occur?
U.S. AD will shift right. U.S. exports will increase.
Supply for the U.S. dollar comes from __________.
U.S. investors who want to make portfolio investments in other countries
Suppose the natural rate of unemployment is at 5%. What will happen to unemployment and inflation in the long run if the government tries to reduce and keep unemployment below 5% using expansionary fiscal policy?
Unemployment cannot stay below its natural rate in the long run, and inflation will spiral upwards.
Suppose the economy of the U.S. was in long run equilibrium, but then a recession caused a leftward shift in AD. According to the neoclassical perspective, how would the economy return to a new long run equilibrium over time?
Unemployment caused by the recession will put downward pressure on wages, causing AS to shift down and to the right.
Which of the following is the definition of the velocity of money?
Velocity of money is the speed with which money circulates through the economy.
Graphically, the long-run aggregate supply curve is
Vertical
All of the following are examples of menu costs except for what?
When deciding what to order at a local restaurant, the length of the menu causes Bob to spend a significant time deciding what to eat.
What kind of conditions can lead to stagflation?
Workers have just received wage increases that reflect expectations of future inflation. A few months later, however, prices rise faster than expected. A military conflict results in a sharp and unexpected rise in the cost of oil.
In the AD-AS model, what change leads to the Stagflation phase of the Phillips curve?
a leftward shift of aggregate supply
In the parable on trade and international lending based on Daniel Defoe's novel, where Robinson Crusoe engaged in the building of a garden irrigation system while receiving free coconuts and fish from his trading partner Friday for a period of several months, the understanding is that the free produce is in effect __________________.
a loan from Friday, similar to how a trade deficit results in international borrowing
Which of the following is an example of a social value-based regulation that can impose a barrier between some willing workers and other willing employers?
a local government not allowing liquor stores be open on Sundays
When the trade balance is equal to zero, it means that:
a nation is neither a net borrower nor lender
A short-run Phillips curve seems to suggests ________________________________.
a smooth inverse transition between unemployment and inflation
Which of the following can lead to cyclical unemployment?
a stock market crash
An economist believes inflation will be 2% next year because it was 2% last year. She has _______________ expectations.
adaptive
If aggregate demand in the economy has soared so high that firms in the economy are not capable of producing additional goods, because labor and physical capital are fully employed, then __________.
additional increases in aggregate demand can only result in a rise in the price level
In the AD/AS diagram, long-run economic growth due to productivity increases over time will be represented by a gradual shift to the right of the __________.
aggregate supply curve
Inflationary pressures happen when __________. 2
aggregate supply decreases as a result of increases in input prices which are widely used throughout the economy aggregate demand is close to full employment and shifts even closer to full employment
What does the current account balance of a nation equal?
all of the above
Which of the following is considered a source of investment income for a nation?
all of the above
Which of the following variables does the Federal Reserve Bank target when regulating commercial banks?
all of the above
The nominal interest rate on the adjustable rate mortgage is going down. Which of the following could explain this decrease?
an expectation of lower inflation by the bank and/or a decrease in the real interest rate used by the bank for setting its rates
What best describes a form of insurance for an employee wanting protection against wage declines in bad times in exchange for lower wages in good times?
an implicit contract
An increase in the stock market results in ________.
an increase in spending
Due to the connection between trade balances and international flows of financial capital, what do economists sometimes describe the balance of trade as?
balance of payments
What term is best defined as a situation in which depositors race to the bank to withdraw their deposits for fear that otherwise those deposits would be lost?
bank run
The combination of reduced foreign investment capital and __________ can sharply reduce aggregate demand, causing a deep recession.
banks that are bankrupt
The unemployment rate on the long-run Phillips curve will __________.
be the natural rate of unemployment
If a recession occurs after an economy has been running trade deficits, it may _______________.
become difficult to repay the international community that invested in the economy
An expectation that the peso will appreciate in value will __________.
cause the peso to appreciate and either increase, decrease, or not change the quantity bought and sold in the foreign exchange market.
What term is best defined as an institution that conducts a nation's monetary policy and regulates its banking system?
central bank
If the velocity is changing over time but in a constant and predictable way, then __________.
changes in the money supply will continue to have a predictable effect on nominal GDP
When a government uses ___________________, aggregate demand shifts inward (to the left).
contractionary fiscal policy
The following graph illustrates a shift of the aggregate demand curve to the left. It can be caused by:
contractionary monetary policy countercyclical monetary policy
The AD/AS diagram shows the magnitude of __________ unemployment by how close the economy is to the potential or full GDP employment level.
cyclical
A stronger U.S. dollar __________
decrease exports from America increases imports to America
contractionary fiscal policy
decrease spending, decrease demands
If rates of return in America looks relatively low, then the demand for the dollar will __________ and the supply of the dollar will __________.
decrease; increase
In open market operations, the selling of bonds by the central bank __________.
decreases the amount of loans and money supply in an economy
What is the most important bank regulation, from the customer's point of view?
deposit insurance
If rates of return in a country look relatively low, then funds will tend to flee to other economies. This will cause the domestic currency to __________.
depreciate weaken
When the exchange rate for a currency falls, so that a currency trades for less of other currencies, we refer to it as __________.
depreciating weakening
Labor laws in Europe ______________ laying off or firing current workers compared to labor laws in the U.S. Therefore, the natural rate of unemployment in Europe is likely to be higher than the natural rate of unemployment in the U.S.
discourage
All of the following scenarios can result when the budget deficit rises, except:
domestic private investment rises, given fixed private savings and a fixed trade deficit
Which of the following best describes sticky wages?
earnings that don't adjust quickly to changes in labor market conditions
Which of the following best describes the price of a currency in the foreign exchange market?
equilibrium exchange rate
Which of the following best describes the relative wage coordination argument?
even if most workers were hypothetically willing to see a decline in their own wages in bad economic times as long as everyone else also experiences such a decline, there is no obvious way for a decentralized economy to implement such a plan
Suppose that the economy is in a recessionary gap. The appropriate countercyclical monetary policy is
expansionary monetary policy
If domestic investment is less than domestic savings, then ____________________________.
exports are greater than imports
During recessions, the automatic stabilizers tend to automatically __________ both government spending and the budget deficit.
increase
An earthquake in Japan destroys an automobile factory. In response, the United States exports more automobiles at a time when the American economy is at full employment. What could the U.S Government do in order to reduce inflationary pressures on the U.S economy?
increase taxes reduce government spending
Over the past forty years, the Federal Reserve has responded to high inflation by pursuing policy to _______________ the federal funds rate, and has responded to high unemployment by pursuing policy to _______________ the federal funds rate.
increase, decrease
A decrease in the supply of loanable funds will __________ interest rates and __________ quantity demanded of loanable funds.
increase; decrease
Which of the following would be an example of contractionary fiscal policy?
increasing taxes
If prices are considered the messengers in a market economy because they convey information about supply and demand conditions, what can blur price messages about the economy?
inflation
A(n) __________ occurs when AD increases, resulting in an attempt to push the economy past potential output.
inflationary gap
Some supporters of the balanced budget amendment like to argue that, since households must balance their own budgets, the government should too. What is the flaw with this analogy?
most households do not balance their budgets every year
The establishment payroll surveys generates payroll employment estimates based on all of the following, except:
number of underemployed employees
In a neoclassical view, expansionary monetary policy affects __________.
only the price level
Of the following, which is the most commonly used tool of monetary policy in the United States?
open market operations
Increases in _________ result GDP growth.
physical capital per person human capital per person
In a neoclassical view, monetary policy affects only the __________, not the level of output in the economy.
price level
Which of the following best describes what comprises a country's national savings?
private savings plus public savings
What type of tax is the federal income tax?
progressive
Which of the following is not associated with traditional monetary policy?
purchasing private securities to make an industry operational
Although the Fed had taken interest rates down to near-zero by December 2008, the economy was still deep in recession as measured by high unemployment rates. Open market operations could not make the interest rate turn negative in order to increase aggregate demand and reduce unemployment. Therefore, the Federal Reserve had to think "outside the box." An example of this "outside the box" thinking was __________.
quantitative easing
Phyllis uses extensive economic and policy research to arrive at a conclusion about the rate of inflation next year. Phyllis is employing ________ expectations.
rational
Which of the following will occur if aggregate demand is not high enough?
recession
Which of the following best defines automatic stabilizers?
tax and spending rules that have the effect of impacting aggregate demand without any additional change in legislation
Let's say that the U.S. exchange rate appreciates. What would happen to the U.S. supply of dollars?
the U.S. supply of dollars would decrease
Inflationary pressures happen when __________.
the aggregate demand curve shifts closer to full employment GDP
The core assumption(s) of the neoclassical theory rests on __________.
the behavior of individuals to make rational decisions in their own self-interest the reliability of individuals to always maximize their utility, wealth, and profit
Consider an individual who borrowed $$25,000 to purchase a used car at a fixed interest rate of 9%. If inflation is 9%, what is the real interest rate the individual will be paying?
the car loan must be repaid at a real interest rate of zero
A current account deficit means that _________________________.
the country is a net borrower from the rest of the world
Relatively high inflation in a nation will cause __________.
the demand for its currency to shift to the left
Why is the term twin deficits used when it refers to trade and the budget?
the economy has both a budget deficit and a trade deficit
An employee who is paid higher than her peers is more productive because she realizes that she would likely suffer a decline in salary if she were to leave her position. Which of the following best describes why her situation could cause wage stickiness?
the efficiency wage theory
Which of the following best defines the balance of trade?
the gap between a nation's dollar value of its exports and a nation's dollar value of imports
Bob has been an employee at Spex Technologies for 15 years and is considered to be an essential part of the company running smoothly. Spex Technologies has been experiencing a decrease in profits over the past two years and needs to find ways to cut costs. As of right now, the company is reluctant to reduce Bob's salary. Which of the following best describes why this scenario can lead to wage stickiness?
the insider-outsider model of the labor force, which argues that a firm will not cut wages for its insiders (those who already work for the company) because it depends on them to keep the organization running smoothly, to be familiar with routine procedures, and to train new employees
Which of the following best defines the natural rate of unemployment?
the level of unemployment when the economy is considered to be healthy
In a period of trade deficit, if domestic investment remains the same, private savings increases by $1.2 billion, and public savings remains the same:
the trade deficit will decrease
Which of the following would be considered part of the merchandise trade balance?
the trade of manufactured goods between the U.S. and the EU.
A purpose of the Core Inflation Index is _______________.
to be a gauge from which to make important government policy changes
The Fed might sell treasury bills _________.
to counter inflationary pressures and to slow down an overheating economy
In the short term, how would economists expect budget deficits and surpluses to behave?
to fluctuate up and down with the economy and automatic stabilizers
Which of the following is not a goal of quantitative easing?
to generate high inflation
What is the term for the point in the business cycle where real GDP reaches its lowest point and begins rising?
trough
When considering the various exchange rate systems, a merged currency policy __________.
utilizes the adoption of another nation's currency
The logging industry has had a very productive thirty years and as a result, the demand for labor has been increasing a little each year and equilibrium wages rose each year. If the logging industry's productivity were to slow down, what is likely to happen to equilibrium wages?
wages would continue to rise despite the demand for labor not rising, causing the natural rate of unemployment to rise
Which of the following best defines indexing?
when prices, wages, or the interest rate is adjusted automatically with inflation
Which of the following best describes discretionary fiscal policy?
when the government passes a new law that explicitly changes tax or spending levels
If a person has money in a bank account that pays 4% interest, but inflation rises to 5%, then the real rate of return for the money invested in that bank account is ___________.
−1%