Macroeconomics exam 4

Suppose the tax rate on the first $20,000 of income is 0%; 10% on the next $20,000 earned; and 20% on any additional income earned. A person earning $35,000 pays an income of:

$1,500

Refer to the table. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Third National Bank can make if it decides to hold 1% of deposits as excess reserves?

$308,089.60

Refer to the table. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Second National Bank can make if it holds only the required reserves?

$338,560

If the average reserve ratio in the banking system is 20% and the Fed increases bank reserves by $100,000, what will be the total potential increase in the money supply?

$500,000

If the Fed credits Alex's checking account with $8,000 and Alex's bank decides to keep the entire $8,000 in the form of reserves instead of lending it out, how much does the money supply increase?

$8,000

If a $500 increase in reserves ultimately leads to a $2,000 increase in the money supply, the reserve ratio is:

0.25

Refer to the table. For the multiple deposit expansion process described in this table, if all banks hold only required reserves, what is the money multiplier?

12.5

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, what is that person's average tax rate?

13.3%

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earned $75,000 what is that person's marginal tax rate?

20%

Suppose the tax rate on the first $20,000 of income is 0%; 10% on the next $20,000 earned; and 20% on any additional income earned. The average tax rate for a person earning $35,000 is:

4.3%

The maximum amount of time that a person can receive welfare payments is _________ during a lifetime.

5 years

Refer to the table. For the multiple deposit expansion process described in this table, what is required reserve ratio in this banking system?

8%

The best type of negative shock for the federal reserve to respond to is a negative shock to:

AD

Why did the tax rebate of $78 billion in 2008 have few net stimulus benefits?

Consumers used much of the rebate to pay off existing debt.

What are the four major limits to fiscal policy?

Crowding out, a drop in the bucket, a matter of timing, and real shocks

When the Fed buys short-term Treasury securities, short-term interest rates:

Fall

Which statement pertains to the condition of crowding out?

Government raises taxes by $300 million to finance new spending on highway construction, resulting in a decrease in investment spending by $270 million

The largest source of revenue for the US federal government is:

Individual Income Tax

The discount rate is the:

Interest rate banks pay when they borrow directly from the Fed

An asset that without loss of value can be quickly converted into money:

Is a liquid asset

The time between which an economic shock is recognized and when the government passed a plan to carry out a policy response is called the:

Legislative lag

The main difference between M1 and M2 is that:

M2 includes some less liquid assets in addition to the assets in M1

The main cause of higher government spending in the future will be:

Medicare, Medicaid, and social security

Whereas ______ covers the elderly, ______ covers the poor and the disabled.

Medicare; Medicaid

Which is a limitation of monetary policy in stabilizing the economy?

Monetary policy is subject to uncertain lags.

A nominal GDP rule says __________ should always grow at a constant rate.

Mv

The annual difference between federal spending and revenues is called the:

National deficit

_________ refers to the Federal Reserve's purchase of longer-term government bonds or other securities.

Quantitative easing

The largest spending program for the U.S. Federal government is:

Social Security

When a bank has short-term liabilities that are greater than its short-term assets but overall its liabilities are less than assets, the bank is considered:

Solvent and illiquid

Tyler owes $100,000 but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000. If these are all the assets and liabilities that Tyler has, Tyler is:

Solvent but illiquid

What is the reason it might be hard for the Fed to restore aggregate demand in the face of a negative demand stock?

The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

Which is an example of quantitative easing by the Federal Reserve?

The Fed purchases $50,000 worth of long-term government bonds.

Which is an example of quantitative easing by the federal reserve?

The Fed purchases $50,000 worth of long-term government bonds.

What demographic change in the United States will cause government spending to increase in the next 50 years?

The population older than 65 will grow

Which of the following statements are correct? -Women, who generally live longer than men, benefit more from the system. -Your social security withholdings from your paychecks are deposited into an account for you. -The earlier you retire, the greater the benefits you receive from the social security system.

Women, who generally live longer than men, benefit more from the system.

A liquid asset is:

an asset that can be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments.

When the government conducts fiscal policy, it can make up for a decrease in C with:

an increase in G

When the government conducts fiscal policy, it makes up for a decrease in c with:

an increase in G

Refer to the figure. This economy is initially begins at point A and a negative supply shock takes it to point Y. Taking the economy back to the LRAS curve would require:

an inflation rate much greater than 16%

Which is not included in the US money supplies M1 and M2?

bond mutual funds

One of the Fed's greatest powers is its ability to:

boost market confidence

The FICA tax burden is:

borne more by the employee even though the employer contributes an equal dollar amount.

If the Fed overreacts to a negative spending shock by increasing money growth too much:

both real GDP growth and inflation will increase more than the Fed prefers

To increase the money supply in the economy, the Fed would:

carry out open market purchases and/or lower the discount rate.

automatic stabilizers are:

changes in fiscal policy that stimulate aggregate demand in a recession without the need for explicit action by policymakers.

Which asset would you classify as being most liquid?

checkable deposits

Which of the following limits the effectiveness of fiscal policy?

crowding out

Which refers to the decrease in private spending when government spending increases?

crowding out effect

What are the four major limits to fiscal policy?

crowding out, a drop in the bucket, a matter of timing, and real shocks

Which of the following would help the government fight a recession? -cutting taxes -raising taxes -paying down national debt -cutting spending

cutting taxes

Which of these would help a government fight a recession?

cutting taxes

In the long run, a negative real shock will cause output growth to:

decrease

If the Fed sells $200 million in government bonds, the total money supply will:

decrease by more than $200 million

Which asset would you classify as being most liquid?

demand deposits

In a fractional reserve banking system, banks hold only a fraction of their:

deposits as reserves

What monetary policy philosophy is against tying the hands of the central bank?

discretion

when c falls, the LRAS curve:

does not move

Suppose you are a married person with one child but your whole family earns less than $20,000 per year. Which of the following will supplement income? -Federal Insurance Contribution Act -alternative minimum tax -earned income tax credit -social security

earned income tax credit

The time necessary for a fiscal policy plan to have an impact is called the:

effectiveness lag

The medicare program offers healthcare benefits for the:

elderly

In the United States, the marginal tax rate for married couples:

exceeds the average tax rate for most income levels

What is the overnight lending rate from one bank to another?

federal funds rate

the primary tools of fiscal policy are:

government expenditure and taxation

Fiscal policy can best be defined as the use of:

government expenditure, borrowing, and taxation to influence the business cycle

If the total liabilities of Bank A are less than its total assets but its total assets but its short-term liabilities are greater than its short-term assets, Bank A is:

illiquid, but solvent

The time necessary for government bureaucracies to carry out a fiscal policy plan is called the:

implementation lag

An increase in money growth will cause the inflation rate to increase in:

in both the short run and the long run.

In the long run, a negative real shock will cause the inflation rate to:

increase

Some economists argue that the Fed should commit to keeping M+V fixed at a particular value, say 5%. How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock?

increase M; do nothing

Suppose the reserve ratio is 20% for all banks. The Fed increases bank reserves by $200, then the money supply will:

increase by $1,000.

To reduce the money supply in the economy, the Fed would:

increase the discount rate.

To offset the effect of negative growth in money velocity (v), the central bank should:

increase the growth rate of the money supply.

Some economists argue that Fed should commit to keep M+V fixed at a particular value, say 5%. How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock?

increase; do nothing

The intended effect of an expansionary monetary policy is that aggregate demand:

increases, raising real GDP growth in the short run, but only inflation rises in the long run.

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising:

inflation.

government spending on "interest on the debt" refers to:

interest paid to owners of government debt held by public

The alternative minimum tax:

is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes

The time between which an economic shock is recognized and when the government passes a plan to carry out a policy response is called the:

legislative lag

The time it takes Congress to propose and pass a plan for fiscal policy is called the:

legislative lag

The time necessary for Congress to propose and pass a fiscal policy plan is called the:

legislative lag

In the absence of any policy intervention, when C falls the result will be:

lower inflation and real growth

The tax rate paid on an additional dollar of income is the:

marginal tax rate

A nominal GDP rule says _____ should always grow at a constant rate.

mv

Debt held outside the U.S government is called the:

national debt held by the public

Debt held outside the U.S. government is called the:

national debt held by the public

When the text refers to the current US national debt, it means the:

national debt held by the public

The annual difference between federal spending and revenues is called the:

national deficit

The Federal Reserve's major tool(s) to control the money supply is (are):

open market operations, discount rate lending, and paying interest on reserves.

The federal funds rate is the:

overnight lending rate on loans from one major bank to another.

The money you pay into Social Security goes to:

pay current beneficiaries

Refer to the figure. This economy initially begins at point A and a negative supply shock takes it to point Y. If the Fed reacts by increasing money growth by 3% this would take the economy to:

point X

The medicaid program offers healthcare benefits for the:

poor and disabled

Which is not a function of the federal reserve?

providing loans to small businesses

The term auction facility involves the federal reserve:

providing reserves to banks through an auction.

The time necessary to determine that an economic problem exists is called the:

recognition lag

The U.S. social security tax (FICA) is an example of a:

regressive tax

The US social security tax (FICA) is an example of:

regressive tax

The U.S. social security tax (FICA) is an example of a:

regressive tax.

An increase in government spending growth will cause the LRAS curve to:

remain unchanged

when c falls, the aggregate demand curve:

shifts to the left

The purpose of FICA taxes is to fund:

social security payments

The risk that the failure of one financial situation can lead to the failure of other financial institutions is called:

systemic risk

The marginal tax rate:

tax rate paid on each additional dollar earned

The Federal Reserve can influence the economy by shifting:

the AD curve.

What is the overnight lending rate from one bank to another?

the Federal Funds rate

An increase in government spending causes:

the aggregate demand curve to shift to the right.

The main difference between Medicare and Medicaid is that Medicare covers the medical care of:

the elderly, while Medicaid covers medical care of the poor and disabled.

Systemic risk is present when:

the failure of one financial institution will bring down other institutions as well.

Bill Clinton's administration experienced a federal budget surplus. Which one of the following is therefore correct? -The national debt held by the public decreased. -The federal budget was still in deficit, but the deficit was smaller in amount than in previous years. -government expenditure was no longer counted as part of federal budget. -the national debt reached record high levels.

the national debt held by the public decreased

When the Fed buys bonds, it increases the demand for bonds, which pushes:

up the price of bonds, thus lowering the interest rate.