MacroEconomic questions Pearson Exam Prep
Sarah takes out a loan today for $14,000 at an interest rate of 2 percent a year. She plans to repay the loan after 5 years. How much will she have to pay after 5 years?
$15,457 in 5 years
The present value of $250,three years in the future if the interest rate is 2 percent is?
$235.58
Consider payment of $500, which will be made three years in the future. The interest rate is 1 percent.
$485.30
Tom took out a $5,000 loan to buy a boat at an interest rate of 10 percent a year. He plans to repay the loan after 2 years. How much will he have to pay?
$6050
If the monetary base increases by $1 million and the quantity of money increases by $2.5 million, then the money multiplier is _____.
2.5
The real interest rate that Alfred is paying to Daisy is _______.
2.5%
The table provides estimates of an economy's wealth and saving in three years. What are the years in which the change in wealth exceeds saving? What are the years in which saving exceeds the change in wealth?
2020 and 2021; none of the years in the table
If the annual interest paid on a $500 loan is $25, the nominal interest rate is _____ percent per year. If the nominal interest rate is 5 percent per year and the inflation rate is 2 percent a year, the real interest rate is _____ per year.
5;3
Choose the correct statement about investment.
A government budget deficit competes with investment for funds.
Which of the following are money?
Deposits are money, checks are not money, and credit cards are not money.
A government budget surplus _______ loanable funds.
Increases the supply of
The quantity theory of money is that in the _______, an increase in the quantity of money brings an equal percentage _______.
Long run; increase in the price level
The two main official measures of money in the United States today are _______. The two main official measures of money in the United States _______ really money.
M1 and M2; are
The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate _______.
Supports the quantity theory, but the correlation is not perfect
I=
S + (T−G)+ (M−X)
Which of the following statements illustrates monetary policy?
The Fed has raised the federal funds rate by 0.3 percent.
How can the change in U.S. wealth differ from U.S. saving?
The change in wealth includes changes in the prices of assets owned and saving excludes these items.
Joe has a term deposit that pays 5 percent a year and its value after two years will be $10,000. What is the present value of Joe's term deposit?
The present value of Joe's term deposit is $9070.29
Choose the correct statement
The real interest rate is the nominal interest rate adjusted to remove the effects of inflation on the buying power of money.
The net present value is the _______ flows of money from a financial decision minus _____.
Value today of all future; the initial cost of the decision
At arrow 1 in the graph, the economy is in _______ full- employment equilibrium and the intersection of the AD and SAS curves is to the _______ of the LAS curve.
a below, left
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
If the money wage rate rises and potential GDP remains the same, does the LAS curve or the SAS curve shift or is there a movement along the LAS curve or the SAS curve?
a leftward shift of the SAS curve and no change in the LAS curve
Inflation results from _______.
a persistent increase in aggregate demand at a faster pace than that of the increase in long-run aggregate supply
The output gap in the graph is _______ because _______.
a recessionary gap; potential GDP exceeds real GDP
A macroeconomic equilibrium in which real GDP exceeds potential GDP is _______ equilibrium. And one in which real GDP is less than potential GDP is _______ equilibrium.
an above full-employment; a below full-employment
At arrow 2, the economy is in _______ full-employment equilibrium and the intersection of the AD and SAS curves is to the _______ of the LAS curve.
an above, right
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
The output gap in the graph is _______ because _______.
an inflationary gap; potential GDP is less than real GDP
The supply of loanable funds is determined by the _________. The supply of loanable funds changes when _______.
aving decisions of households, which are influenced by the real interest rate, disposable income, expected future income, wealth, and default risk; disposable income, expected future income, wealth, or default risk change
Depository institutions provide four benefits, which are _______.
creating liquidity, lowering the cost of borrowing, lowering the cost of monitoring borrowers, and pooling risk
We call the leakage of bank reserves into currency the currency drain, and we call the ratio of _____ to _____ the currency drain ratio.
currency;deposits
Aggregate demand _______ when a decrease in the quantity of money occurs. Aggregate demand _______ when an increase in expected inflation occurs.
decreases;increases
the "average overall increase across the board" wage increase _______.
decreases short-run aggregate supply because it increases firms' costs
In the long run, an increase in the quantity of money _______ the interest rate.
does not change
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied _______ and there is a movement up along the _______ aggregate supply curve.
does not change; long-run
the supply of loanable funds is influenced by _______.
expected future income, and the higher a household's expected future income, the smaller is its saving today
How does the price of a bond and its interest rate change? The price of a bond _______ and the interest rate _______.
falls;rises
The price of a bond _______ and the interest rate in the short run _______.
falls;rises
The loanable funds market is the aggregate of all the individual _____ markets.
financial
A financial institution is a firm that operates on both sides of the markets for _____: It _____ in one market and _____ in another.
financial capital;borrows,lends
What are depository institutions?
financial firm that takes deposits from households and firms
The _______, the greater is the amount that a household decides to save.
greater a household's disposable income and the smaller a household's expected future income
A mortgage is a legal contract that gives ownership of a _____ to the _____ in the event that the _____ fails to meet the agreed loan payments (repayments and interest).
home;lender;borrower
What is the effect of an increase in expected future profits on aggregate demand? An increase in expected future profits _______.
increases aggregate demand today
An increase in expected future income _______. An increase in the expected future inflation rate _______.
increases aggregate demand today; increases aggregate demand today
Starting from a full-employment equilibrium, an increase in aggregate demand _______, and creates _______ gap.
increases real GDP above potential GDP; an inflationary
A government budget deficit _______ loanable funds.
increases the demand for
A government budget deficit occurs, which _______. The real interest rate _______.
increases the demand for loanable funds; rises
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied _______ and there is a movement up along the _______ aggregate supply curve.
increases; short-run
An open market purchase _______ the monetary base. An open market sale _______ the monetary base.
increases;decreases
A central bank _______. A commercial bank _______.
is a bank's bank; is a firm that takes deposits from households and firms
Net worth is the total market value of what a financial institution has _____ minus the market value of what it has _____.
lent;borrowed
FDIC insurance helps to minimize the cost of bank failure by _______.
limiting the loss of each deposit to amounts over $250,000
Correct statement about depository institutions.
loans and funds committed for an agreed-upon period of time
The functions of depository institutions include _______.
lowering the cost of borrowing
In times of recession, the Fed _______ the interest rate and _______ the quantity of money.
lowers, increases
FDIC insurance brings _______ stability to the banking system because _______.
more; depositors know that money they have deposited with a bank will be repaid making bank runs less likely
At an interest rate of 7 percent a year, people want to hold _______ money than the quantity supplied, so they _______ bonds.
more;sell
The aggregate demand curve slopes downward because _______.
of the wealth effect and the substitution effect
Wealth is the value of all the things that people______
own
A stock is a certificate of _____ and claim to the _____ that a firm makes.
ownership;profits
Saving is the amount of income that is _____ in net taxes or spent on _____ goods and services.
paid; consumption
Starting from a short-run equilibrium, when the Fed decreases the quantity of money, _______.
people enter the loanable funds market and sell bonds
Why does an international substitution effect arise? An international substitution effect arises because when the U.S. price level rises, _______.
people spend less on the more expensive U.S.-made items and they spend more on the less expensive foreign-made items
Keynesian macroeconomists recommend _______.
policies that actively offset changes in aggregate demand that bring recession
Monetarist macroeconomists recommend _______.
policies that keep taxes low to avoid disincentive effects that decrease potential GDP
Classical macroeconomists recommend _______.
policies that minimize the disincentive effects of taxes on employment, investment, and technological change
Net present value is the _______..
present value of all the future flows of money that arise from a financial decision minus the initial cost of the decision
What happens in the loanable funds market when the real interest rate rises? The _______ because the _______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded decreases; real interest rate
What happens in the loanable funds market when the real interest rate falls? The _______ because the _______ is the opportunity cost of loanable funds.
quantity of loanable funds demanded increases; real interest rate
A government budget deficit _______ the real interest rate, increases _______.
raises; private saving, and decreases investment
The defining feature of the Keynesian view of macroeconomics is that the economy is _______.
rarely at full employment
The crowding-out effect is the tendency for a government budget deficit to raise the _____ and _____ investment.
real interest rate; decrease
The risk that a borrower, also known as a creditor, might not _____ is called credit risk or default risk.
repay a loan
Will the interest rate change? The interest rate will _______
rise
The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate _______ and the equilibrium quantity of loanable funds _______.
rises, falls, or remains the same; increases
In the long run, the money wage rate _______, short-run aggregate supply _______, and the economy returns to a full-employment equilibrium.
rises; decreases
The defining feature of the classical view of macroeconomics is that the economy is __
self- regulating and always at full employment
The defining feature of the monetarist view of macroeconomics is that the economy is _______.
self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
If the interest rate is 5 percent, do people buy or sell bonds? Will bond prices rise or fall? People will _______ bonds. Bond prices will _______.
sell;fall
State the financial decision rule: If the net present value is positive _______ and if the net present value is negative _______.
take the action; do not take the action
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
Which of the following statements illustrates fiscal policy?
the U.S. government has proposed a hike in the corporate tax rate.
when the price of a financial asset rises, _______.
the interest rate falls
The quantity of money that the banking system can create is limited by _______.
the monetary base, desired reserves, and desired currency holdings
How does the economy return to a full-employment equilibrium? The economy returns to a full-employment equilibrium as _______.
the money wage rate falls
The demand for loanable funds is the relationship between _____ demanded and the _____ when all other influences on borrowing plans remain the same.
the quantity of loanable funds; real interest rate
The supply of loanable funds is the relationship between _____ supplied and the _____ when all other influences on lending plans remain the same.
the quantity of loanable funds; real interest rate
What happens in the loanable funds market when a shortage or a surplus arises? When a shortage or a surplus arises in the loanable funds market _______.
the real interest rate is pulled to the new equilibrium level
Candy takes a summer job painting houses. During the summer, she earns an after-tax income of $4,500 and she spends $2,500 on living expenses. What was Candy's saving during the summer?
total savings during the summer $2,000
A government budget surplus _______ the real interest rate, decreases _______.
Lowers; private saving, and increases investment
On January 1, 2021, Sophie's Sunl ounge owned 4 tanning beds valued at $20,000. During 2021, Sophie's bought 3 new beds at a total cost of $14,000. At the end of the year, the market value of all of Sophie's beds was $27,000. Calculate Sophie's gross investment and depreciation during 2021.
Sophie's gross investment during 2021 was $14,000. Sophie's depreciation during 2021 was $7,000
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply _______ the price level and _______ potential GDP.
increases; decreases real GDP below
Private saving _______, and investment _______
increases; decreases
When potential GDP increases, _______.
long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward
The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate _______ and the equilibrium quantity of loanable funds _______.
rises; increases, decreases, or remains the same