Macroeconomics Chapters 8-12

Three functions of money

medium of exchange, unit of account, store of value

A decrease in personal taxes will: increase aggregate demand. increase aggregate supply. decrease aggregate demand. decrease aggregate supply.

A

An appropriate fiscal policy for demand-pull inflation is: a decrease in government spending and a tax increase. a decrease in government spending and a tax cut. an increase in government spending and a tax increase. an increase in government spending and a tax cut.

A

An increase in the money supply will: decrease interest rates and increase investment spending. decrease interest rates and decrease investment spending. increase interest rates and increase investment spending. increase interest rates and decrease investment spending.

A

An inflationary gap occurs when: the unemployment rate is less than the natural unemployment rate. the unemployment rate is greater than the natural unemployment rate. the level of output is equal to the level produced at the natural unemployment rate. the level of output is less than the level produced at the natural unemployment rate.

A

Anne's Diner invested $10,000 to purchase a building adjacent to the diner using profits from the diner to make the purchase. At the end of the year, Anne sold the building for $10,000, remarking "at least I broke even." Anne: is forgetting to include the opportunity cost relative to the $10,000 purchase. is correct. has no opportunity cost, since no money was borrowed.

A

If the MPC is 75%, the tax multiplier is: - 3. 3. 1.33. - 1.

A

In the short run, the aggregate supply curve is upward-sloping due to: sticky or fixed input costs. flexible input costs. partially-flexible input costs. some fixed and some variable input costs.

A

Jim's Auto Repair is considering a new paint sprayer with a useful life of 1 year. It costs $2,500. Jim will purchase the new sprayer if: the expected rate of return is greater than the cost of investment. the marginal benefit of owning the sprayer is less than the marginal cost. the opportunity cost is greater than the expected rate of return. the expected rate of return is less than the cost of investment.

A

John deposits $800 in currency into his checking account at Banker's Trust. Susan, also a customer of Banker's Trust, receives a loan for $2,000. These transactions result in: an increase in the money supply of $2,000. a decrease in the money supply of $2,000. an increase in the money supply of $800. a decrease in the money supply of $800.

A

John's new raise is reflected in this month's paycheck. He received an increase of $500 and spent $410 on a new printer. What is John's marginal propensity to save? 18% 82% 22%

A

Jose buys a jacket for $100. If his MPC is 40%, the expenditures multiplier: is 1.67. is 2.5. equals a $250 increase in real GDP.

A

Stagflation is characterized by: rising inflation and rising unemployment. falling inflation and rising unemployment. rising inflation and falling unemployment. falling inflation and falling unemployment.

A

The goal of contractionary fiscal policy is to: shift the AD curve left. shift the AD curve right. shift the AS curve right. shift the AS curve left.

A

The interest rate and real balances effects help explain: the shape of the aggregate demand curve. why monetary policy is not used to curb unemployment. when the aggregate demand curve shifts to the left or right. how we determine the price level.

A

When constructing an aggregate demand curve, the only thing that changes is: A) the price level. B) the amount of consumption expenditures multiplied by the multiplier. C) the amount of gross investment expenditures multiplied by the multiplier. D) an increase in personal income tax rates.

A

Which of the following is not a lag associated with fiscal policy? Policy lag Implementation lag Recognition lag Legislative lag

A

Which of the following statements about the federal funds rate is not correct? The Fed directly sets the federal funds rate. The Fed determines the target for the federal funds rate. The Fed impacts the federal funds rate through the use of open market operations. The Fed encourages banks to borrow and increase lending when the federal funds rate is low.

A

Which of the following statements about the money supply is true? M2 includes money market mutual funds. M2 is more liquid than M1. M2 includes large time deposits. M1 includes large time deposits .

A

Based on the following information, determine the new equilibrium level of real GDP. The current equilibrium level of real GDP equals $600, the MPC equals 0.60, and government purchases decrease by $100. $433 $350 $850 $767

B

If the AS curve shifts right on a fixed AD curve the result is: a decrease in real GDP only. a decrease in the price level and an increase in real GDP. an increase in the price level only. a decrease in the price level and a decrease in real GDP.

B

If the economy is at full employment, demand-pull inflation results from: the AD curve shifting left. the AD curve shifting right. the AS curve shifting left. the AS curve shifting right.

B

If the national income in the U.S. rises relative to other countries, we should see: a movement along the aggregate demand curve. the aggregate demand curve shift to the left. the aggregate demand curve shift to the right. a decrease in U.S. imports.

B

In an economy with a MPC of 0.75 the government could shift the aggregate demand curve to the right by $160 billion if they reduced government spending by $40 billion increased government spending by $40 billion increased taxes by $40 billion decreased taxes by $40 billion

B

Jan has $60,000 in government bonds. She wants to sell $20,000 to use as a down payment on a home. If the Fed purchases the bonds from Jan, and the reserve requirement is 20%, the potential change in the money supply is: $80,000. $100,000. $200,000. $150,000.

B

Suppose the reserve requirement is 10%. Jennifer writes a check for $500 to purchase a new laptop. After the check clears: the bank where the check was deposited loses reserves and deposits in the amount of $500. Jennifer's bank loses reserves and deposits in the amount of $500. Jennifer's bank receives reserves and deposits in the amount of $500. Jennifer's bank loses reserves of $500 and deposits of $450.

B

The Surety bank has excess reserves of $10,000. Its checkable deposits are $120,000. If the reserve requirement is 20%, total reserves equal: $30,000. $34,000. $24,000. $20,000.

B

The purpose of the reserve requirement is to: prevent banks from failing. provide a mechanism by which the Fed can exert some control over the lending ability of banks. ensure that banks earn profits. prevent banks from charging interest rates that are too high.

B

The supply of money graphs as: a horizontal line. a vertical line. an upward-sloping line. a downward-sloping line.

B

The tax multiplier is -3, the MPC is 0.75, and current real GDP is $400 billion less than the full employment level of real GDP. The appropriate action is a tax increase of $133.33 billion a tax cut of $133.33 billion a government spending increase of $133.33 billion a government spending decrease of $133.33 billion

B

To maintain the federal funds rate, the Fed: buys government bonds from the public when the demand for reserves falls. buys government bonds from the public when the demand for reserves increases. sells government bonds to the public when the demand for reserves increases. changes the discount rate

B

What happens when banks borrow from the Fed? Reserves decrease and banks expand their ability to make loans to customers. Reserves increase and banks expand their ability to make loans to customers. Reserves increase and banks contract their ability to make loans to customers. Reserves do not change and banks contract their ability to make loans to customers.

B

Which of the following committees determines and implements monetary policy? Board of Governors Federal Open Market Committee President's Council of Economic Advisers Consumer Advisory Committee

B

Which of the following statements about bonds is accurate? Bond prices and yields move in the same direction. Bond prices and yields move in opposite directions. Bond yield is the cost of a bond. Bond price is the return on a bond.

B

Which of the following will cause a leftward shift of the aggregate supply curve? A decrease in resource prices. An increase in resource prices. An improvement in productivity. A change in social institutions that positively impacts productivity.

B

A fractional reserve banking system is: not allowed to create money via the process of lending. not allowed in the United States. vulnerable to bank panics . only allowed in the European Union.

C

Assume the economy is operating where real GDP is $20 billion more than the long-run equilibrium and the reserve requirement is 20%. To return to the long-run equilibrium level of real GDP, the Fed should: buy $4 billion of government bonds. buy $16 billion of government bonds. sell $4 billion of government bonds. sell $16 billion of government bonds.

C

Calculate Ye for Queensland using the following information: A = $120, G = $90, I = $200, NX = −$60, and T = $175. $1,400 $525 $875 $1,300

C

If the Fed decides to decrease the money multiplier, it needs to: increase interest rates. decrease interest rates. increase the reserve requirement. decrease the reserve requirement.

C

If the demand for money decreases, the interest rate: remains the same. increases. decreases. may or may not change.

C

If the economy is at full employment, cost-push inflation results from: the AD curve shifting left. the AD curve shifting right. the AS curve shifting left. the AS curve shifting right.

C

If the money supply increases, the interest rate: remains the same. increases. decreases. may or may not change.

C

If the real interest rate decreases: investment will increase, and the AD curve shifts to the left. investment will decrease, and the AD curve shifts to the left. investment will increase, and the AD curve shifts to the right. investment will decrease, and the AD curve shifts to the right.

C

In practice, expansionary monetary policy sometimes doesn't work the way we want it to because: lower interest rates cause banks to make more loans. consumers spend more as disposable income rises. lower interest rates cause the investment demand curve to shift to the left. lower interest rates cause the investment demand curve to shift to the right.

C

In the money market, the equilibrium interest rate occurs: where the supply of money is greater than the demand for money. where the demand for money is greater than the supply of money. where the demand for money equals the supply of money.

C

Jill is willing to loan Ben $3,000 for one year. Jill wants to realize a 6% real interest rate. She and Ben agree that the inflation rate will be 2% over the course of the year. The nominal rate Jill charges Ben is: 4%. 6%. 8%. −3%.

C

John pays for a new smartphone by writing a check. In this instance, money is functioning as a: store of value. purchase investment. medium of exchange. unit of account investment.

C

The AD-AS model is related to the business cycle via: the price level. the full employment level of output. real GDP. the AS curve.

C

The long-run aggregate supply curve (LRAS): slopes downward. slopes upward. is a vertical line. is a horizontal line.

C

The reserve requirement is 15%. Banker's Trust has $1 million of checkable deposits and actual reserves of $300,000. Banker's Trust: can loan up to $850,000. can loan up to $300,000. can loan up to $150,000. cannot make a loan.

C

The tool the Fed uses most often to impact the money supply is: changing the discount rate to change reserves. changing the reserve requirement to change reserves. changing the reserves of banks by selling and purchasing government bonds. limiting the amount of Federal Reserve currency in the U.S.

C

Which of the following equations does not correctly describe aggregate expenditures equilibrium? C = DI Savings = 0 MPC = MPS Real GDP = DI (when taxes are considered)

C

Which of the following factors affects the amounts that consumers, businesses, governments, and foreigners wish to purchase at each price level? The determinants of aggregate demand The determinants of aggregate supply The real balances, interest rate, and foreign purchases effects The determinants of equilibrium real GDP

C

Which of the following is not considered when determining appropriate fiscal policy? Changes in government spending Changes in taxes Changes in interest rates Automatic stabilizers

C

Which of the following statements does not describe the MPC? It is calculated by the change in consumption divided by the change in income. It measures the slope of the consumption schedule. It measures the amount of autonomous consumption. It represents the percentage of a change in income that is consumed.

C

Will receives a loan from Banker's Trust in the amount of $4,000. Instead of depositing the loan check in his checking account, he cashes the check and walks out of the bank. As a result, the potential money that could be created by the banking system: will not be affected. will increase. will decrease.

C

A bank's reserves are: assets to both the bank and its customers. assets to the bank and liabilities to its customers. assets to both the bank and the district Federal Reserve Bank holding them. assets to the bank and liabilities to the district Federal Reserve Bank holding them.

D

An increase in real GDP will: decrease asset demand and shift the demand for money to the right. increase asset demand and shift the demand for money to the left. decrease the transaction demand and shift the demand for money to the left. increase the transaction demand and shift the demand for money to the right.

D

Assume the economy is operating at the full employment level of real GDP when aggregate demand increases from AD1 to AD2. To return to the full employment level of real GDP, the aggregate supply curve shifts ____ and the new equilibrium price level _____. left; falls left; rises right; rises right; falls

D

Equilibrium real GDP occurs where the 45 degree equilibrium line intersects: consumption expenditures and government purchases. consumption and investment expenditures. consumption expenditures, investment expenditures, and net exports when net exports are positive. consumption expenditures, investment expenditures, government purchases, net exports.

D

If the AD curve shifts left on a fixed short-run AS curve, the result is: an increase in real GDP only. an increase in the price level and real GDP. an increase in the price level only. a decrease in the price level and real GDP.

D

The banking system has $2 million in checkable deposits and actual reserves of $600,000. The reserve requirement is 20%. The banking system can potentially increase the money supply by: $1,400,000. $3,000,000. $2,000,000. $1,000,000.

D

The cause and effect chain of contractionary monetary policy will ultimately shift the aggregate _______ curve to the _______. supply; right supply; left demand; right demand; left

D

The graphical relationship between the price level and the amount of real GDP that is made up of consumer, business, and government purchases plus net exports is known as: the aggregate expenditures demand curve. the aggregate supply curve. the government purchases curve. the aggregate demand curve.

D

Which function of money does transaction demand align with? Measure of value Store of value Unit of account Medium of exchange

D

Which of the following components of the aggregate expenditures model is considered to be dependent on changes in real GDP? Government purchases Investment spending Net exports Consumption expenditures

D

Which of the following does not describe automatic stabilizers? They decrease the impact of inflationary and recessionary pressures. They involve taxes. They involve transfer payments. They involve Congress passing legislation.

D

Which of the following statements does not describe the aggregate expenditures model? It assumes that output can change without changing prices. In equilibrium, real output equals the sum of consumption, government purchases, investment expenditures, and net exports. It assumes that some expenditures are made independent of real GDP. It assumes that all expenditures are dependent on real GDP.

D

determinants of aggregate supply

Productivity, Resource Prices, Social Institutions