macroeconomics final
In the financial industry, "securitization" refer to
bundling groups of loans, bonds, mortgages, and other financial debts into new securities
In a private closed economy, when aggregate expenditures are below GDP
business inventories will rise
Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank
cannot safely lend out more money
The marginal propensity to save (MPS) can be defined as that fraction of a
change in income that is not spent
The Average Propensity to Consume (APC) can be defined as the fraction of a
specific level of total income that is consumed
Susie has lost her job in a Vermont textile plant 10 years ago because the plant shut down due to import competition. We can say that Susie is faced with
structural unemployment
To say that coins are "token money" means that
their face value is greater than their intrinsic value
According to the "paradox of thrift", increased efforts to save will cause
A decrease in income but no overall change in saving
When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule
equals the MPC
According to the laissez-faire economic philosophy
The government sector should play a very minimal role in the economy
Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves
are $20,000
A commercial bank's reserves are
assets to the commercial bank and liabilities to the Federal Reserve Bank holding them
When a check is drawn and cleared, the
bank against which the check is cleared loses reserves and deposits equal to the amount of the check
What are "mortgagee-backed securities"?
bonds backed by mortgage payments
The amount by which government expenditures exceed revenues during a particular year is the
budget deficit
At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be
$38 billion
Consider the following data for a hypothetical economy. Change in: Income Consumption Saving Increase in Investment $20 $____ $4.00 Second Round $____ $12.80 $____ All Other Rounds $ ____ $36.00 $____ Totals $____ $____ $20.00 Refer to the above data. The total change in income resulting from the initial change in investment will be
$100
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Government Purchases 15 Consumer Expenditures 90 Net Private Domestic Investment 20 Consumption of Fixed Capital 5 (depreciation) Exports 13 Imports 8 The Net Domestic Product (NDP) of this economy is
$130
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Government Purchases 15 Consumer Expenditures 90 Net Private Domestic Investment 20 Consumption of Fixed Capital 5 (depreciation) Exports 13 Imports 8 The Gross Domestic Product (GDP) of this economy is
$135
Consider the following data for a hypothetical economy. Change in: Income Consumption Saving Increase in Investment $20 $____ $4.00 Second Round $____ $12.80 $____ All Other Rounds $ ____ $36.00 $____ Totals $____ $____ $20.00 Refer to the above data. The change in income in round two will be
$16
Suppose the reserve requirement is 20 percent. If a bank has $4 million of checkable deposits and actual reserves of $1 million, it can safely lend out
$200,000
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Gross Private Domestic Investment $46 Exports of the U.S. 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factor Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the U.S. 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 Refer to the above data. Personal Income (PI) is
$228
Suppose the ABC bank has excess reserves of $4,000 and checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?
$24,000
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Gross Private Domestic Investment $46 Exports of the U.S. 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factor Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the U.S. 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 Net Domestic Domestic Product (NDP) is
$255
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Gross Private Domestic Investment $46 Exports of the U.S. 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factor Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the U.S. 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 Refer to the above data. National Income (NI) is
$265
Consider the following data for Disposable Income (DI) and Consumption (C). DI C 200 205 225 220 250 235 275 250 300 265 Refer to the above data. If disposable income were $325, we would expect consumption to be
$280
Consider the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Assets Liabilities and Net Worth Reserves $51 Checkable deposits $140 Loans 109 Stock Shares 130 Securities 100 Property 10 Refer to the above information. The maximum amount by which the commercial banking system can expand the supply of money by lending is
$30 billion
Answer questions below on the basis of the following diagram for a private closed economy. Refer to the above diagram for a private closed economy. The equilibrium level of GDP is
$300
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 280 Consumption of Fixed Capital 15 Net Private Domestic Investment 65 Rents 10 Interest 20 Exports 30 Imports 50 Corporate Profits 25 Undistributed corporate Profits 5 Taxes on Production and Imports 25 Net Foreign Factor Income 0 Statistical Discrepancy 0 The National Income (NI) of this economy is
$380
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 300 Consumption of Fixed Capital 15 Gross Investment 80 Rents 10 Interest 20 Exports 30 Imports 50 Corporate Profits 25 Taxes on Production and Imports 5 Net Foreign Factor Income 0 Statistical Discrepancy 0 The Net Domestic Product (NDP) of this economy is
$380
Consider the following data for a hypothetical economy. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 300 Consumption of Fixed Capital 15 Gross Investment 80 Rents 10 Interest 20 Exports 30 Imports 50 Corporate Profits 25 Taxes on Production and Imports 5 Net Foreign Factor Income 0 Statistical Discrepancy 0 The Gross Domestic Product (GDP) of this economy is
$395
Assume the MPC is 0.8. If the government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by
$40 billion
Refer to the above diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both
$50
Consider the following data: C = 60 + 0.75Y, where C is Consumption and Y is Income (or GDP) Gross Investment = 60 Exports = 30 Imports = 25 The equilibrium GDP in this economy is
$500
The consumption schedule is as follows: C = 20 + 0.9Y, where C is Consumption and Y is Disposable Income. Refer to the above consumption schedule. At an $800 level of disposable income, the level of saving is
$60
Consider the following data: C = 60 + 0.75Y, where C is Consumption and Y is Income (or GDP) Gross Investment = 60 Exports = 30 Imports = 25 Refer to the above data. The equilibrium level of saving is
$65
Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the required reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of
$75,000
Consider the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Assets Liabilities and Net Worth Reserves $51 Checkable deposits $140 Loans 109 Stock Shares 130 Securities 100 Property 10 The commercial banking system has excess reserves of
$9 billion
Consider the following data for Disposable Income (DI) and Consumption (C). DI C 200 205 225 220 250 235 275 250 300 265 The Marginal Propensity to Consumer (MPC) is
0.6
Consider the following data for a hypothetical economy. Change in: Income Consumption Saving Increase in Investment $20 $____ $4.00 Second Round $____ $12.80 $____ All Other Rounds $ ____ $36.00 $____ Totals $____ $____ $20.00 Refer to the above data. The MPC is
0.8
The consumption schedule is as follows: C = 20 + 0.9Y, where C is Consumption and Y is Disposable Income. Refer to the above consumption schedule. The MPC is
0.90
The Consumer Price Index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about
1.6 percent
If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is
11 percent
If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the required reserve ratio is
12.5 percent
If real GDP in a particular year is $120 billion and nominal GDP is $160 billion, the GDP price index for that year is
133
Consider the following data for a hypothetical economy. All figures are in millions. Unemployed 17 Total Population 195 Employed 95 Discouraged Workers 10 The rate of unemployment in this economy is:
15.17
The Federal Reserve System was created in
1913
The General Theory of Employment, Interest and Money was published in
1936
Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. Real GDP in Year 4 is
28
Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions?
29 percent
Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. Real GDP in Year 5 is
32
Approximately what percentage of the U.S. public debt is held by Federal government agencies and the Federal Reserve?
41 percent
Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. Nominal GDP in Year 4 is
49
Assume the consumption schedule is given by the following equation: C = 40 + 0.8Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is
5
Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is
6 percent
Consider the following data for a hypothetical economy of Scoob. All figures are in millions. Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The unemployment rate in Scoob is ____ percent.
6.9
Assume an economy that makes only one product and that YEAR 2 is the BASE YEAR. Output and price data for a five-year period are as follows. Year Units of Output Price per Unit 1 3 $3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above information. The Price Index for Year 1 is
75
Consider the following data: C = 60 + 0.75Y, where C is Consumption and Y is Income (or GDP) Gross Investment = 60 Exports = 30 Imports = 25 Refer to the above information. The economy is incurring
A trade surplus
Which of the following transactions would be included in current year's GDP?
An increase in business inventories
Until the Great Depression (1929 - 1933), the dominant school of economics was
Classical Economics
Which of the following resulted from the financial crisis of 2007-2008?
FDIC insurance was increased from $100,000 to (at least) $250,000 per account
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes and bonds) is the
Federal Open Market Committee (FOMC)
Overnight loans from one bank to another for reserve purposes entail an interest rate called the
Federal funds rate
According to the Classical Economists, economies always tend towards
Full employment equilibrium
Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that
GDP in 2010 is $500 billion
Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index was 100 in 1990 and 112.5 in 2000. Between 1990 and 2000 real GDP
Increased by $40 billion
Production automatically generates income of comparable value, and no one produces anything for the market unless they intend to buy something else. This line of reason implies that, in the aggregate, demand is automatically present if goods are supplied, and is the primary underpinning for
J. B. Say's Law of Markets
Classical economists believed in
Laissez-faire
Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?
Lehman Brothers
Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion
M1 money supply will decline and M2 money supply will remain unchanged
Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion
M1 money supply will not change
Which of the following financial institutions was acquired by Bank of America as a result of the financial crisis of 2007 and 2008?
Merrill Lynch
Gross Domestic Product (GDP) is the
Monetary value of all final goods and services produced within the borders of a nation in a particular year
Classical economists believed that
The economy was a self-correcting system
A recession is defined as a period in which
Real domestic output falls
J. M. Keynes considered unemployment to be
The normal state of economic affairs
Which of the following is NOT considered economic investment?
The purchase of 100 shares of AT&T by a retired business executive
TARP, created in 2008, stands for
Troubled Asset Relief Program
Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP, then
U.S. real GDP will fall
Which of the following represents the most expansionary fiscal policy
a $10 billion increase in government spending
Which of the following represents the most contractionary fiscal policy?
a $30 billion decrease in government spending
Money held in checkable deposits in commercial banks is
a liability of the commercial bank and an asset of the checkable deposit holder
When economists say that money serves as a unit of account, they mean that it is
a standard for measuring and comparing the relative values of goods
Planned investment plus unintended increases in inventories equals
actual investment
Saving is always equal to
actual investment
The 45-degree line on a graph relating consumption and income shows
all points at which consumption and income are equal
If Carol's disposable income increases from $1,200 to $1,700 and her level of consumption increases $1100 to $1400 , her marginal propensity to
consume is three-fifths
Tessa's break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of
consumption spending will be $14,500
Kara, a factory worker, was temporarily laid off until business activity picks up again. Kara presently is
cyclically unemployed
According to Keynes Select one: a. People will always spend their entire income b. All money that is saved will be invested c. The amount people are willing to spend is always sufficient to purchase all output produced d. None of the above
d. None of the above
Money functions as Select one: a. a medium of exchange b. a store of value c. a unit of account d. all of the above
d. all of the above
Suppose the economy's multiplier is 2. Other things equal, a $25 billion decrease in government expenditures will cause equilibrium GDP to
decrease by $50 billion
Assume the MPC is 2/3. If investment spending decreases by $2 billion, the equilibrium GDP will
decrease by $6 billion
The reserves of a commercial bank consist of
deposits at the Federal Reserve Bank and vault cash
Consider the following data for Disposable Income (DI) and Consumption (C). DI C 200 205 225 220 250 235 275 250 300 265 Refer to the above data. At the $200 level of disposable income
dissaving is $5
Consider the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Assets Liabilities and Net Worth Reserves $51 Checkable deposits $140 Loans 109 Stock Shares 130 Securities 100 Property 10 Refer to the above information. If the commercial banking system actually loans the maximum amount it is able to lend
excess reserves will be reduced to zero
Other things equal, the multiplier effect associated with a change in government spending is
greater than that associated with a change in taxes
If a multiplier in an economy is 5, a $20 billion increase in net exports will
increase GDP by $100 billion
If the MPC is 0.75 and investment increases by $5 billion, the equilibrium GDP will
increase by $20 billion
If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to
increase by $45 billion
Suppose the Federal government had budget deficits of $40 billion in Year 1 and $50 billion in Year 2, but had budget surpluses of $20 billion in Year 3 and $50 billion in Year 4. The government used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have
increased by $20 billion
If 100 percent of any change in income is spent, the multiplier will be
infinitely large
If the Consumer Price Index rises from 116 to 120 in a particular year, the economy has experienced
inflation of 3.34 percent
Investment and saving are, respectively
injections and leakages
Collateralized (or credit) default swaps
insured holders of loan-backed securities in case the underlying loans were not repaid
The multiplier applies to
investment, net exports, and government spending.
When a bank loan is repaid the supply of money
is decreased
The numerical value of the multiplier will be smaller the
larger the slope of the saving schedule
The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves is
larger the smaller the required reserve ratio
A commercial bank that has assets of $85 billion and a net worth of $10 billion must have
liabilities of $75 billion
Money is destroyed when
loans are repaid
The practical significance of the multiplier is that it
magnifies initial changes in spending into larger changes in GDP
Fiscal policy refers to the
manipulation of government spending and taxes to stabilize domestic output, employment and the price level.
Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of
moral hazard
The ZZZ Corporation issued $25 million in new common stock in 2010. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:
of $18 million has occurred
Refer to the above diagram for a private closed economy. Unplanned changes in inventories will be zero
only at the $300 level of GDP
Which of the following best describes automatic or built-in stabilizers as they function in the United States?
personal and corporate income tax collections automatically rise and subsidies automatically decline as GDP rises
Recessions have contributed to the public debt by
reducing national income and therefore tax revenues.
The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that
reserves lost by any particular bank will be gained by some other bank
At the point where the consumption schedule intersects the 45-degree line
the APC is 1.00
Fiscal policy in the United States is conducted by
the United States Congress, the President, and the Treasury
A private open economy includes
the consumption, investment and foreign trade sectors
Official unemployment statistics
understate unemployment because discouraged workers are not counted as unemployed