macroeconomics final

ASSETS: Loans = $900,000, Reserves = 100,00. LIABILITIES: Deposits = $1,000,000 If the reserve ratio is 5% and the banking system does NOT want to hold excess reserves, how much more can be added to the money supply? a. $1 million b. about $111,000 c. about $667,000 d. $250,000

$1 million

National Income accounts: in trillions GDP $15.9 Consumption 11.3 Gov. Spending 3 Exports 2.2 Imports 2.7 Budget Balance -1.2 The value of national savings is: a. $1.6 trillion. b. $4.9 trillion. c. $2.1 trillion. d. $15.9 trillion.

$1.6 trillion.

If the real money supply is $500 billion and the money supply grows by 2%, then real seignorage is: a. $10 billion. b. $25 trillion. c. $1 billion. d. $1 trillion.

$10 billion.

The present value of a $110 payment in one year, given an annual 10% interest rate, is: a. $110. b. $11. c. $10. d. $100.

$100.

Gino's Pizza: value of sales = $25,000. cost of intermediate goods = $20,000 Bruno's dough: value of sales = $7,000. cost of intermediate goods = $5,000 Carlo's tomatoes: value of sales = $8,000. cost of intermediate goods = $1,000 Aldo's pepperoni: value of sales = $5,000. cost of intermediate goods = $3,000 Determine the value add to GDP by these four firms. a. $16,000. b. $74,000. c. $29,000. d. $5,000.

$16,000

Suppose that real GDP per capita of the United States is $32,000 and its growth rate is 2% per year and that real GDP per capita of China is $4,000, and its annual growth rate is 7%. According to the rule of 70, how large will China's real GDP per capita be in 20 years? a. $8,000 b. $5,600 c. $28,000 d. $16,000

$16,000

If the money held by the public is $3 billion and inflation is 6%, the inflation tax is: a. $3.18 billion. b. $180 million. c. $1.8 billion. d. $50 billion.

$180 million.

Suppose that the aggregate consumption function is given by the equation C = 200 + 0.8YD, where C represents consumption and YD represents disposable income. If disposable income is $500, autonomous consumption is: a. $600. b. $400. c. $200. d. $0.

$200

MONETARY AGGREGATES: (in billions) Currency in circulation $500 Money market funds 550 Time deposits 800 Savings deposits 1,110 Checkable bank deposits 380 Traveler's checks 15 American express gift cards 25 a. $3,340 billion. b. $2,005 billion. c. $3,355 billion. d. $2,805 billion.

$3,355 billion

Suppose that a bank receives a $5,000 deposit and the reserve ratio is 25%. Based on this deposit alone, the bank can lend out: a. $4,500. b. $4,000. c. $3,500. d. $3,750.

$3,750.

If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is: a. $25 billion. b. $4 billion. c. $2.5 trillion. d. $400 billion.

$4 billion.

Measuring GDP (billions of dollars) Personal consumption expenditures $500 Gross private domestic investment 200 Net exports -5 State & local gov. purchases of goods/svcs 200 Federal gov. purchases of goods/svcs 100 Imports 15 Use Table: Measuring GDP. Total expenditures on GDP by the household sector are: a. $200 billion. b. $500 billion. c. $100 billion. d. $150 billion.

$500 billion

Suppose that, in year 1, an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year, the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each. The value of nominal GDP in years 1 and 2, respectively, is: a. $180,000 and $257,400. b. $900 and $990. c. $900 and $1,077.50. d. $1,000 and $1,005.

$900 and $1,077.50

Suppose that the Federal Reserve sells $500 in U.S. Treasury bills, and as a result the money supply falls by $5,000. The reserve ratio can be as low as: a. 0.5. b. 100. c. 0.1. d. 10.

0.1

In a simple, closed economy (no government or foreign sector), if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to consume is: a. 1.67. b. 0.60. c. $600. d. $400.

0.60

Suppose that the consumption function is C = $500 + 0.8* YD, where YD is disposable income. The marginal propensity to consume is: a. 0.8. b. 0. c. 0.2. d. $500.

0.8

The multiplier effect of changes in government purchases of goods and services is equal to: a. 1 / (1 - MPC). b. MPS / (1 - MPC). c. MPC / (1 - MPS). d. 1 / (1 - MPS).

1 / (1 - MPC)

If the MPS = 0.1, then the multiplier equals: a. 5. b. 1. c. 10. d. 9.

10.

If the monetary authorities decide to increase the nominal money supply by 10% when the economy is at its full-employment level of output, in the long run the aggregate price level increases by _____% and real GDP _____. a. 10; increases by 10% b. 10; returns to the potential level of output c. 5; increases by 20%, given a marginal propensity to consume of 0.5 d. 5; increases by 5%, according to Okun's law

10; returns to the potential level of output

Employed adults 200 million Labor force 208 million unemployed adults 8 million adults not in workforce 30 million non-adults 40 million The total population is _____ million. a. 283 b. 253 c. 486 d. 278

278

Full-time employed 20 million Not working but looking 2 million Part-time employed 10 million Discouraged workers 1 million If marginally attached workers are included in the labor force, the labor force is _____ million. a. 32 b. 1 c. 11 d. 33

33

Year 2011: Nominal GDP = $3,000; Price level = 100; Population = 5. Year 2014: Nominal GDP = $8,000; Price level = 200; Population = 10. The growth rate of per capita nominal GDP was: a. 20%. b. 10%. c. 33%. d. 25%.

33%

If the slope of the aggregate expenditures curve is 0.75, the multiplier is: a. infinity. b. 5. c. 4. d. 1.

4

If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is: a. 7%. b. 9%. c. 2%. d. 5%.

5%

If the cost of a market basket is $150 in year 1 and $200 in year 2, the price index for year 1 using year 2 as the base is: a. 150. b. 100. c. 75. d. 133.

75

U.S. real GDP per capita in 2015 was _____% as much per person as it was in 1900. a. 16 b. 189 c. 804 d. 46

804

Which federal agency calculates and reports the official unemployment rate? a. Bureau of Labor Statistics b. Federal Reserve Bank c. Department of Health and Human Services d. Treasury Department

Bureau of Labor Statistics

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $700 billion, which of the following policies would bring the economy to potential output? a. Decrease taxes by $25 billion. b. Increase taxes by $100 billion. c. Decrease taxes by $100 billion. d. Decrease government transfers by $25 billion.

Decrease taxes by $25 billion

Effect of Minimum Wage

Depends on whether it is set above or below equilibrium price. If it is set below, nothing changes. Increases job-search activity and illegal hiring.

The classical model of the price level is more accurate during low inflation than high inflation. True False

False

Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. Which statement is TRUE? a. If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a higher rate of return than expected. b. If the bank charges an interest rate of 8% or higher, it will earn the expected return. c. If the bank charges 8% and the inflation rate is more than 3%, then the bank will have earned a higher rate of return than expected. d. As long as the bank charges a nominal interest rate of at least 5%, it will earn its expected return.

If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a higher rate of return than expected.

Which statement accurately describes disinflation? a. The inflation rate rises at a higher rate. b. It is a reduction of the inflation. c. It is a gradual reduction in the price level over time. d. It must be accompanied by a decline in the price level.

It is a reduction of the inflation

The quantity demanded for money is higher in Japan than in the United States because: a. Japanese interest rates are lower than those in the United States. b. telecommunications and information technology is more advanced in the United States than in Japan. c. Japanese interest rates are higher than those in the United States. d. Japanese consumers use credit cards more than people in the United States.

Japanese interest rates are lower than those in the United States

Do most economists believe that the budget should be balanced each fiscal year? a. No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well. b. Yes, as the law states that both the federal and state budgets should always be balanced. c. Yes, a budget should be balanced annually; otherwise persistent budget deficits can cause havoc in the economy. d. Yes, since the balanced budget multiplier is larger, so it makes the economy grow faster.

No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well.

Which statement about the U.S. economy is FALSE? a. Since the Second World War, macroeconomic policy has helped make the economy more stable. b. Since the Second World War, aggregate output has grown more rapidly than the population. c. Long-run growth per capita is the key to higher wages and a rising standard of living. d. Since the Second World War, aggregate output has grown more slowly than the population.

Since the Second World War, aggregate output has grown more slowly than the population.

The additional profit earned by Microsoft Corporation by marketing and using a proprietary method of coding software is a microeconomic issue. True False

True

The difference between the actual and potential GDP is the output gap. False True

True

The worst inflation in the United States in modern times occurred in the late 1970s, when prices were increasing at an annual rate of 13%. False True

True

Economists mostly agree that the problem of climate change necessitates government action in the form of market-based incentives such as: a. tax rebates to those causing negative externalities. b. a carbon tax or a cap and trade system. c. a reduction in the amount of gasoline that each person is allowed to purchase. d. a reduction in the price of green cars and appliances.

a carbon tax or a cap and trade system

If the Federal Reserve conducts a $10 million open-market sale and the reserve requirement is 20%, the maximum change in the money supply is: a. a decrease of $50 million. b. a decrease of $10 million. c. an increase of $10 million. d. a decrease of $8 million.

a decrease of $50 million.

A negative demand shock can cause: a. a recessionary gap. b. crowding out. c. an inflationary gap. d. a liquidity trap.

a recessionary gap

Suppose the market for loanable funds it at equilibrium with an interest rate of 8% and quantity is at 300. If there is an increase in the interest rate, __________ quantity of loanable funds will be demanded. a. a larger b. a smaller c. the same d. at first a smaller and then a larger

a smaller

Which shape accurately portrays the long-run Phillips curve? a. a downward-sloping curve b. a vertical curve c. an upward-sloping curve d. a horizontal curve

a vertical curve

Normally the discount rate is _____ the federal funds rate. a. equal to b. below c. after the discount, less expensive than d. above

above

According to the _____, there is a positive relationship between planned investment spending and the expected growth rate of real GDP. a. life-cycle hypothesis b. accelerator principle c. multiplier effect d. paradox of thrift

accelerator principle

Investment spending in macroeconomics refers to: a. adding to one's retirement account. b. adding to physical capital. c. buying stocks. d. buying newly issued shares of stock.

adding to physical capital.

If the government increases its borrowing, then at every interest rate there is a(n) _____ funds. a. decrease in the supply of b. additional supply of c. increase in the supply of d. additional demand for

additional demand for

The relation between a country's level of saving and investment: a. does not affect an open economy. b. has often been used to correct a trade deficit but not a trade surplus. c. pertains to trade surpluses only. d. affects its trade balances.

affects its trade balances.

If _____, expansionary fiscal policy is most likely to crowd out private spending. a. aggregate income is $500 billion above its potential level b. aggregate output is $300 billion below its potential level c. aggregate income is $800 billion below its potential level d. the unemployment rate is 15%

aggregate income is $500 billion above its potential level

The Arcadia Entertainment Co. produced 20,000 DVDs of the movie Thor in 2011. Only 4,000 copies remained unsold at the end of 2011. As a result: a. all 20,000 DVDs are initially counted in 2011 GDP as consumption expenditure, but they will be subtracted and added to 2012 GDP as the merchandise gets sold. b. only 16,000 DVDs are included in GDP of 2011; the remaining 4,000 are counted in GDP of 2012. c. all 20,000 DVDs will be included in GDP in 2011, 16,000 as consumption expenditure and 4,000 as investment expenditure. d. only 16,000 DVDs should be included in GDP in 2011 as consumption expenditure.

all 20,000 DVDs will be included in GDP in 2011, 16,000 as consumption expenditure and 4,000 as investment expenditure.

Use Figure: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in government spending, holding everything else constant, which outcome is likely to occur? a. an increase in the nominal GDP b. an increase in the unemployment rate c. a decrease in the inflation rate d. a decrease in the real GDP

an increase in the nominal GDP

When the economy is producing output above the potential, it has: a. falling wages. b. a Keynesian gap. c. an inflationary gap. d. a recessionary gap.

an inflationary gap.

Between 1970 and the present, research comparing similar wealthy countries found that increases in the money supply: a. had little effect on prices. b. and increases in the price level were roughly proportional. c. caused large decreases in real GDP. d. caused large increases in real GDP.

and increases in the price level were roughly proportional

An important advantage of bonds as a financial asset is that they: a. offer higher rates of return than stocks. b. are guaranteed to be risk free. c. are standardized and therefore are easier to sell than loans. d. allow the owner to receive a share of the company's profits in the form of dividends.

are standardized and therefore are easier to sell than loans.

The switching between recessions and expansions is known as the: a. business cycle. b. unemployment rate. c. macroeconomy. d. long-run economic growth.

business cycle

Deflation: a. can cause budget surpluses. b. will not affect output. c. can cause decreases in output. d. can cause increases in output.

can cause decreases in output.

An increase in capital stock would: a. cause a movement to the right along a stationary production function. b. cause a movement to the left along a stationary production function. c. shift the production function downward. d. shift the production function upward.

cause a movement to the right along a stationary production function.

From the standpoint of economic growth, banks are important to: a. channel savings into investment. b. channel investment into savings. c. fight inflation. d. keep interest rates low.

channel savings into investment

Included in M1 are: a. checkable bank deposits. b. savings deposits. c. demand deposits, savings deposits, and d. U.S. Treasury bills.

checkable bank deposits

The notion that the real quantity of money is always at its long-run equilibrium level is associated with the _____ of the price level. a. monetarist model b. Keynesian model c. classical model d. modern view

classical model

Which asset is the MOST liquid? a. money market mutual funds b. stocks c. checkable bank deposits d. currency

currency

In September 2007, reversing its course, the Federal Reserve began a series of: a. interest rate increases to combat inflation. b. interest rate increases, reversing its previous policy of lowering interest rates to fight the financial crisis. c. cuts in the reserve requirements, reversing its previous policy of increasing the reserve requirement, to stop bank failures. d. cuts in the federal funds target rate to lower the interest rate, reversing its previous policy of raising interest rates, to fight the financial crisis.

cuts in the federal funds target rate to lower the interest rate, reversing its previous policy of raising interest rates, to fight the financial crisis

The natural level of unemployment contains no_____ unemployment. a. minority b. frictional c. structural d. cyclical

cyclical

Scenario: Money Supply Changes II. Charlotte withdraws $8,000 from her checkable bank deposit to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. As a result of the withdrawal, required reserves: a. decrease by $8,000. b. decrease by $1,600. c. decrease by $6,400. d. don't change.

decrease by $1,600

Suppose the required reserve ratio is 10% and a depositor withdraws $500 from her checkable deposit. The money supply will _____ if the banking system does NOT hold any excess reserves. a. be unchanged b. decrease by $4,500 c. decrease by $5,000 d. decrease by $500

decrease by $4,500

If interest rates rise, there will be a(n): a. decrease in aggregate demand. b. increase in the money supply. c. increase in aggregate demand. d. increase in aggregate supply.

decrease in aggregate demand

Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment. a. increase in frictional b. increase in cyclical c. decrease in structural d. decrease in frictional

decrease in frictional

A decrease in the demand for money would result from a(n): a. increase in the price level. b. increase in income. c. decrease in real GDP. d. increase in nominal GDP.

decrease in real GDP

In the United States, recessions are typically associated with a(n): a. decrease in the percentage of Americans with health insurance. b. falling unemployment rate. c. decrease in the number of people living in poverty. d. increase in corporate profits.

decrease in the percentage of Americans with health insurance.

When the price level decreases, firms in imperfectly competitive markets will: a. decrease output and increase the price. b. increase output. c. decrease output and decrease the price. d. decrease output.

decrease output and decrease the price

One reason financial institutions become very large is to: a. decrease transaction costs. b. enjoy the power of having a large corporation. c. avoid the risks of diversification. d. increase transaction costs.

decrease transaction costs

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____. a. decrease; $60 billion b. increase; $100 billion c. decrease; $100 billion d. decrease; $40 billion

decrease; $40 billion

Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, real GDP will _____ by _____. a. decrease; $800 billion b. decrease; $500 billion c. decrease; $200 billion d. increase; $400 billion

decrease; $500 billion

If the Federal Reserve wanted to increase the money supply, it could _____ the required reserve ratio, _____, and _____ bonds on the open market. a. decrease; increase the personal tax rate; buy b. decrease; increase the federal funds rate; sell c. decrease; decrease the discount rate; buy d. increase; increase the personal tax rate; sell

decrease; decrease the discount rate; buy

To close an inflationary gap using monetary policy, the Federal Reserve should _____ the money supply to _____ investment and consumer spending and shift the aggregate demand curve to the _____. a. increase; increase; right b. increase; increase; left c. decrease; decrease; right d. decrease; decrease; left

decrease; decrease; left

Deflation is a: a. decline in wages. b. recession. c. decreasing aggregate price level d. decrease in unemployment.

decreasing aggregate price level

The annual percentage change in the aggregate price level is negative when there is: a. inflation. b. disinflation. c. deflation. d. spiraling inflation.

deflation.

The total income of households after taxes and government transfers is called: a. disposable income. b. aggregate spending. c. investment. d. private savings.

disposable income

The demand curve for loanable funds slopes: a. upward since it takes a higher rate of return to get more funds. b. downward because more potential projects yield 10% than yield 5%. c. downward because quantity demanded is lower when the price to borrow money is higher. d. upward because higher rates of return are necessary to cover higher costs.

downward because quantity demanded is lower when the price to borrow money is higher

The aggregate demand curve slopes: a. downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases. b. upward, unlike an ordinary demand curve. c. downward in part because when the price level falls, the real wealth of the public falls, and this induces people to change their consumption. d. downward for the same reasons that an ordinary demand curve does.

downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases.

Okun's law is less than a 1:1 ratio because some: a. employees act to job share. b. employers quickly lay off workers. c. employers change the working hours of current employees as demand changes. d. workers are not counted as unemployed when they are actively seeking work.

employers change the working hours of current employees as demand changes.

Suppose that actual aggregate output is equal to the potential output; the actual unemployment rate is: a. equal to the natural rate of unemployment. b. higher than the natural rate of unemployment. c. zero. d. equal to the cyclical rate of unemployment.

equal to the natural rate of unemployment

The rule of 70 is MOST useful in: a. estimating the doubling time of real GDP for a given growth rate. b. identifying the causes of economic growth. c. identifying the sources of economic growth. d. estimating the productivity of labor.

estimating the doubling time of real GDP for a given growth rate

An upward shift in the aggregate consumption function can be caused by: a. expectations of less income. b. a stock market crash. c. a reduction in the wealth of households. d. expectations of higher incomes.

expectations of higher incomes

An important factor determining planned investment spending is: a. company profits. b. the prices of final products. c. expected real GDP. d. expected spending.

expected real GDP

The Fisher effect states that the: a. expected real rate of interest is unaffected by the change in expected inflation. b. nominal rate of interest is unaffected by the change in unexpected inflation. c. nominal rate of interest is unaffected by the change in expected inflation. d. expected real rate of interest increases by one percentage point for each percentage change in expected inflation.

expected real rate of interest is unaffected by the change in expected inflation.

When an economy is expanding, unemployment tends to _____ and overall prices tend to _____. a. fall; fall b. rise; fall c. rise; rise d. fall; rise

fall; rise

The U.S. dollar is defined as: a. fiat money, because it was established as money by an act of law. b. faith money, because we trust the government to defend its value. c. commodity money, because it is widely used to buy commodities. d. commodity-backed money, because it is convertible to gold.

fiat money, because it was established as money by an act of law

Unemployment that is due to the time workers spend in job search is _____ unemployment. a. frictional b. structural c. cyclical d. natural

frictional

Aggregate demand will shift to the RIGHT if: a. the aggregate price level increases. b. the money supply shrinks. c. taxes go up. d. government purchases increase.

government purchases increase.

Consumer spending will likely rise if: a. government transfers fall. b. the government raises tax rates. c. government transfers rise. d. the government raises tax rates or government transfers fall.

government transfers rise

If we add up the consumer spending on goods and services, investment spending, government purchases of goods and services, and the value of exports, then subtract the value of imports, we have measured the nation's: a. gross domestic product. b. trade deficit. c. disposable income. d. budget deficit.

gross domestic product.

In the U.S. economy, the circular-flow diagram does NOT illustrate: a. flows of goods and services. b. the purchase and sale of factors of production. c. flows of money. d. growing income inequality.

growing income inequality.

Economists use the term long-term growth to indicate: a. growth of the economy over several decades. b. the expansion phase of the business cycle. c. long-run growth of the value of a company. d. growth of the economy over one to five years.

growth of the economy over several decades.

Long-run economic growth is: a. lower in countries with a strong government and independent judiciary. b. lower in countries whose courts enforce property rights and whose government protects its citizens. c. higher in countries with a strong rule of law and political stability. d. higher in countries with a weak rule of law and excessive government intervention.

higher in countries with a strong rule of law and political stability.

When labor unions successfully bargain for wage rates that are _____ the equilibrium wage rate, they may cause _____. a. lower than; frictional unemployment b. higher than; shortages in that labor market c. equal to; shortages in that labor market d. higher than; an increase in structural unemployment

higher than; an increase in structural unemployment

Which question is the most appropriate to the study of MACROECONOMICS? a. how does the aggregate price level affect overall consumer spending? b. what determines whether Wachovia opens a new office in Beijing? c. how does the level of interest rates affect Delta's decision to buy a new airplane? d. How much will Sony charge for the new game system to be introduced later this year?

how does the aggregate price level affect overall consumer spending?

The skills, training, and education possessed by workers that contribute to economic growth are known as: a. saving. b. human capital. c. natural resources. d. output of labor.

human capital

If Medicaid is expanded to cover a greater percentage of the population: a. the public debt will immediately increase. b. implicit liabilities will decrease. c. implicit liabilities will be unaffected. d. implicit liabilities will increase.

implicit liabilities will increase.

One difference between a closed and an open economy is that: a. in the latter, foreign savings complement domestic savings in financing investment spending. b. in the former, foreign savings complement domestic savings in financing investment spending. c. in the latter, the government is more open to the idea of financing investment spending than in the former. d. in the former, foreign savings finance more investment spending than in the latter.

in the latter, foreign savings complement domestic savings in financing investment spending.

The long run in macroeconomic analysis is a period: a. longer than one year. b. in which the capital stock is held constant. c. in which prices and nominal wages are flexible. d. in which wages and some other prices are sticky.

in which prices and nominal wages are flexible

Disposable income equals: a. income minus taxes minus government transfers. b. income minus taxes plus government spending. c. income plus government spending minus taxes. d. income plus government transfers minus taxes.

income plus government transfers minus taxes.

If the marginal propensity to consume increases, the multiplier will: a. increase. b. fluctuate randomly. c. decrease. d. remain constant.

increase

Suppose that the economy is in a recessionary gap. A $100 billion _____ is likely to increase real GDP by the LARGEST amount. a. increase in government purchases, paid for by a $100 billion increase in taxes b. increase in transfer payments c. decrease in taxes d. increase in government purchases

increase in government purchases

What could have resulted from a rightward shift of the aggregate demand curve? a. significant decrease in the consumers' income. b. increase in the total quantity of consumer goods and services demanded. c. lower price level. d. higher price level.

increase in the total quantity of consumer goods and services demanded

A decrease in energy prices will: a. decrease short-run aggregate supply. b. decrease aggregate demand. c. increase short-run aggregate supply. d. decrease the quantity of aggregate output supplied in the short run.

increase short-run aggregate supply

If the Federal Reserve wants to discourage banks from borrowing directly from the Federal Reserve and thus decrease the monetary base, it will likely: a. increase the discount rate. b. sell U.S. Treasury bills in an open market operation. c. increase the federal funds rate. d. increase the reserve requirement.

increase the discount rate

Suppose the equilibrium aggregate price level and the equilibrium level of real GDP are both rising. This is probably the effect of a(n) _____ in aggregate _____. a. decrease; demand b. increase; supply c. increase; demand d. decrease; supply

increase; demand

When the unemployment rate is high, there is political demand to increase the benefit period for unemployment compensation. In a standard analysis, doing so will lead to: a. more job creation. b. reductions in unemployment. c. more job destruction. d. increases in the unemployment rate.

increases in the unemployment rate.

An increase in the marginal propensity to consume: a. decreases the multiplier. b. increases the multiplier. c. shifts the autonomous investment line upward. d. shifts the autonomous investment line downward.

increases the multiplier

An expansionary fiscal policy either _____ government spending or _____ taxes. a. increases; increases b. decreases; decreases c. decreases; increases d. increases; decreases

increases; decreases

According to the concept of monetary neutrality, _____ in the money supply _____ real GDP _____ the price level. a. decreases; lower; but do lower b. increases; raise; but do not change c. increases; raise; but do raise d. increases; do not change; but do raise

increases; do not change; but do raise

If the economy is in a liquidity trap, monetary policy is _____ and fiscal policy is _____. a. effective; effective b. ineffective; effective c. effective; ineffective d. ineffective; ineffective

ineffective; effective

The topics studied in macroeconomics include: a. mergers b. spillovers, such as pollution c. inflation d. monopolies

inflation

A short-run Phillips curve implies a negative relationship between: a. inflation and prices. b. consumption and saving. c. consumption and inflation. d. inflation and unemployment.

inflation and unemployment.

If the natural rate of unemployment is 5% and the actual rate of unemployment is 4%: a. the short-run Phillips curve will shift down. b. it will not affect prices. c. inflation will increase. d. disinflation is likely.

inflation will increase

Which factor contributes to economic development? a. low saving and investment rates b. complete absence of government involvement c. investment in infrastructure d. a command socialist economic system

investment in infrastructure

Inflation: a. is a movement of the economy toward economic growth. b. can be thought of as an increase in a nation's standard of living. c. is an increase in the overall level of prices. d. is a sustained fall in the overall level of prices.

is an increase in the overall level of prices.

To acquire human capital a person would: a. save to buy a printing press. b. learn to use a printing press c. purchase a printing press rather than a very large television. d. sell the books that the printing press produces.

learn to use a printing press

Who gains when there is unexpected deflation? a. real-asset owners b. borrowers c. real-asset owners, borrowers, and lenders d. lenders

lenders

The multiplier effect of changes in government transfers is: a. impossible to determine. b. greater than the multiplier effect of a change in government spending. c. less than the multiplier effect of a change in government spending. d. zero because transfer payments do not affect aggregate demand.

less than the multiplier effect of a change in government spending.

Suppose that Jim just got a $20,000 loan from his credit union to buy a new car. The loan is a _____ for Jim and a _____ for the credit union. a. financial asset; financial asset b. financial asset; liability c. liability; physical asset d. liability; financial asset

liability; financial asset

The government has almost eliminated the possibility of bank runs by instituting protective measures. Which example is NOT such a measure? a. capital requirements b. loan guarantees c. reserve requirements d. deposit insurance

loan guarantees

When a country utilizes more physical capital per worker over time, there will be: a. lower but always positive growth rates of productivity. b. lower and eventually zero growth rate of productivity. c. higher growth rates of productivity. d. no change in the growth rate of productivity.

lower but always positive growth rates of productivity

If the marginal propensity to save is small, it will: a. not affect the value of the multiplier. b. make the multiplier larger. c. increase the interest rate. d. make the multiplier smaller.

make the multiplier larger

The government budget balance equals taxes _____ purchases _____ transfers. a. minus; minus b. plus; plus c. minus; plus d. plus; minus

minus; minus

In the short run, the interest rate is determined in the _____ market. a. commodity b. loanable funds c. money d. stock

money

An improvement in technology with everything else remaining unchanged is shown on the diagram as a movement from a. movement b. shift in supply curve

movement

Okun's law finds that output gaps and unemployment rates are _____ related in a _____ ratio. a. positively; less than one-to-one b. negatively; one-to-one c. positively; one-to-one d. negatively; less than one-to-one

negatively; less than one-to-one

If a country has a trade surplus, we can conclude that it also has a: a. budget surplus. b. net capital inflow. c. net capital outflow. d. budget deficit.

net capital outflow.

In the long run, the aggregate price level has: a. a negative effect on the quantity of aggregate output. b. no effect on the quantity of aggregate output. c. an effect on aggregate output but none on employment. d. a positive effect on the quantity of aggregate output.

no effect on the quantity of aggregate output.

Inflation does NOT reduce purchasing power if: a. nominal wages rise at the same rate as prices. b. it remains under 10% per year. c. the Federal Reserve increases the money supply enough to offset it. d. prices of essential products, such as food and gasoline, don't increase too much.

nominal wages rise at the same rate as prices.

To be officially unemployed, a person must: a. be working fewer than 30 hours per week. b. be under 55 years old. c. not have a job and must have looked for work in the past four weeks. d. be working fewer than 20 hours per week.

not have a job and must have looked for work in the past four weeks

The intersection of an economy's aggregate demand and long-run aggregate supply curves: a. determines its equilibrium real GDP in both the long run and the short run. b. occurs at high levels of cyclical unemployment. c. occurs at the economy's potential output in long-run equilibrium. d. determines its equilibrium price level in both the long run and the short run.

occurs at the economy's potential output in long-run equilibrium.

The aggregate supply curve shows the relationship between the aggregate price level and the aggregate: a. output supplied b. money supply. c. employment. d. unemployment rate.

output supplied

Fiat money is: a. used only in the United States as a medium of exchange. b. paper money with no intrinsic value. c. money backed by gold. d. money that only the government will accept to pay taxes.

paper money with no intrinsic value

For the past several months, per capita output has increased at a slower and slower rate. Over the same period, the unemployment rate has been falling, but it appears that both have leveled off. Where in the business cycle is the economy? a. trough b. recession c. expansion d. peak

peak

Disinflation: a. occurs as a result of policy makers' attempts to correct a major recession. b. results in a fall in the unemployment rate. c. policy may plunge the economy into a recession. d. entails eliminating inflation in an economy.

policy may plunge the economy into a recession.

Productivity is declining when: a. the ratio of adult civilians employed outside the home rises. b. the number of hours worked exceeds the number of workers. c. real GDP growth exceeds the population growth. d. population growth exceeds real GDP growth.

population growth exceeds real GDP growth.

An amount that would equal a particular future value if deposited today at the prevailing interest rate is the: a. inflation rate. b. present value. c. discount premium. d. market index.

present value.

Liquidity traps are most likely to occur when the: a. public expects inflation. b. economy is going through a recovery. c. economy is expanding rapidly. d. public expects deflation.

public expects deflation

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate: a. quantity of output demanded by households, businesses, the government, and the rest of the world. b. unemployment rate. c. quantity of output demanded by businesses only. d. productivity.

quantity of output demanded by households, businesses, the government, and the rest of the world

A business will be likely to borrow to fund projects if the: a. rate of return on the project is at least as high as the interest rate on the loan. b. rate of return on the project is less than the interest rate on the loan. c. minimum efficient scale will be attained. d. project will produce a good or service that is in high demand.

rate of return on the project is at least as high as the interest rate on the loan.

When economists measure economic growth, they often use: a. the unemployment rate. b. nominal GDP. c. real GDP. d. the inflation rate.

real GDP

The key measure used to track economic growth is: a. nominal GDP per capita. b. nominal GDP. c. real GDP per capita. d. real GDP.

real GDP per capita

If real GDP is greater than planned aggregate spending: a. the economy is in equilibrium. b. real GDP will fall. c. real GDP will rise. d. unplanned inventory investment is negative.

real GDP will fall.

Menu costs are the: a. adjustments to the cost of living. b. costs of money becoming less reliable. c. increase in the transaction costs caused by inflation. d. real costs of changing listed prices

real costs of changing listed prices

If the economy is at potential output and the Fed increases the money supply, in the long run real GDP will likely: a. remain the same. b. decrease. c. fluctuate randomly. d. increase.

remain the same

The existence of banks: a. inhibits the creation of money. b. makes the money supply equal to the amount of currency in circulation. c. results in the money supply being larger than the amount of currency in circulation. d. results in the money supply being less than the amount of currency in circulation.

results in the money supply being larger than the amount of currency in circulation.

Suppose that the budget deficit of a country remains level for five years. The federal debt will: a. remain constant. b. fall. c. rise. d. either remain constant or fall.

rise

Suppose that the economy is operating at potential output and the money supply increases. Aggregate output will _____ potential output, nominal wages will _____, and the SRAS will shift _____. a. rise above; rise; rightward b. rise above; fall; leftward c. rise above; rise; leftward d. fall below; rise; leftward

rise above; rise; leftward

When the economy expands, income tax receipts will: a. stay the same unless the government changes the tax rates. b. fall, but sales tax revenues will rise. c. rise, and sales tax revenues will rise. d. rise, but sales tax revenues will remain the same.

rise, and sales tax revenues will rise.

If real GDP falls while nominal GDP rises, then prices on average have: a. risen. b. Real GDP cannot rise when nominal GDP falls. c. fallen. d. stayed the same.

risen

A survey reveals that, on a small island, initially 100 people have jobs, 25 people don't have jobs but are looking for jobs, and 45 people are neither working nor looking for work. Suppose that 15 of the 45 people who weren't looking for work now begin looking for work. There are now 40 people looking for work and 100 people working. The unemployment rate: a. falls to 20%. b. Nothing happens to the unemployment rate because these people weren't working before and they aren't working now. c. rises to 50%. d. rises to 28.6%.

rises to 28.6%

All else equal, a nation that has a high rate of _____ will have a high rate of _____ and therefore a high growth rate of _____ capital. a. savings; consumption; physical b. savings; investment; physical c. savings; investment; natural d. investment; savings; human

savings; investment; physical

To avoid falling into a liquidity trap, most central banks: a. aim at a target of zero inflation so that inflation expectations are zero too. b. conduct open-market operations to change the money supply instead of changing the discount rate. c. target inflation rather than the money supply. d. seek a positive but small inflation rate rather than zero inflation.

seek a positive but small inflation rate rather than zero inflation

Fiscal policy entails: a. setting the money supply. b. correcting only recessionary problems. c. setting interest rates in specific markets. d. setting levels of taxation and/or government spending.

setting levels of taxation and/or government spending.

Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a: a. shift to the left. b. movement downward. c. shift to the right. d. movement upward.

shift to the left.

If Congress places a $5 tax on each ATM transaction, there will likely be a: a. movement down a stationary money demand curve. b. movement up a stationary money demand curve. c. shift to the right of the money demand curve. d. shift to the left of the money demand curve.

shift to the right of the money demand curve.

If planned investment spending increases, the planned aggregate spending line: a. becomes flatter. b. becomes steeper. c. shifts up. d. shifts down.

shifts up

The negative relationship between the inflation rate and the unemployment rate is known as the _____curve. a. short-run Phillips b. short-run aggregate supply c. aggregate demand d. long-run Phillips

short-run Phillips

The Federal Open Market Committee sets the target interest rate for the next: a. three months. b. three weeks. c. six weeks. d. six months.

six weeks

If the economy is operating well below potential output, the cyclically adjusted budget balance deficit is _____ than the actual budget balance. a. unrelated to b. larger than c. the same as d. smaller than

smaller than

An example of an intermediate good is: a. wages paid to an employee. b. vegetables purchased for your dinner. c. electric bills for your house. d. steel purchased by aircraft manufacturers.

steel purchased by aircraft manufacturers

In the short run, wages and some prices are considered to be: a. extremely flexible. b. irrelevant. c. sticky. d. unpredictable.

sticky

The long-run Phillips curve: a. shows the positive relationship between the unemployment rate and the inflation rate. b. depicts the negative relationship between the unemployment rate and the inflation rate. c. suggests that policies have little effect on the natural rate of unemployment in the long run. d. explains how expansionary policies can affect an economy, while contractionary policies have little effect.

suggests that policies have little effect on the natural rate of unemployment in the long run.

According to the liquidity preference model, the equilibrium interest rate is determined by the: a. level of investment spending and saving. b. International Monetary Fund. c. supply of and demand for money. d. supply of and demand for loanable funds.

supply of and demand for money

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____. a. demand; aggregate demand; right b. supply; short-run aggregate supply; left c. supply; aggregate demand; left d. demand; long-run aggregate supply; left

supply; short-run aggregate supply; left

Long-run growth is a(n): a. sustained upward trend in the economy's overall output per person, which generates higher incomes and a higher standard of living for its members. b. reduction in the price level over decades. c. increase in the overall output of the economy over a three- or four-year period. d. increase in the rate of inflation across time, which reduces real salaries.

sustained upward trend in the economy's overall output per person, which generates higher incomes and a higher standard of living for its members.

Fiscal policy attempts to affect the level of overall spending by making changes in: a. the interest rate. b. taxes and spending. c. banking regulations. d. the money supply.

taxes and spending

National savings is the sum of private savings and: a. private consumption. b. the budget balance. c. trade surplus. d. government tax revenue.

the budget balance

The eurozone is: a. the countries that use the euro as their common currency. b. the only countries in Europe that engage in free trade with the United States. c. made up of the communist countries in eastern Europe. d. another name for Scandinavia.

the countries that use the euro as their common currency

Bank reserves are: a. the amount of cash that a bank must hold to pay FDIC insurance premiums. b. the currency held at bank vaults plus bank deposits at the Federal Reserve. c. the entire amount of checkable bank deposits. d. the money in bank vaults only.

the currency held at bank vaults plus bank deposits at the Federal Reserve.

How to calculate the growth rate of real GDP:

the difference of total prices (taken at the base year), /the base year total price

Keynesian economics promotes ideas that: a. the private sector is perfectly capable of regulating itself. b. the government can help a depressed economy via fiscal and monetary policies. c. government intervention can be destabilizing. d. the free market system will always prevail.

the government can help a depressed economy via fiscal and monetary policies.

Shoe-leather costs are the costs of: a. the raw material used in production. b. living adjustments as inflation increases. c. having to change prices as inflation increases. d. the increased number of transactions as inflation increases.

the increased number of transactions as inflation increases.

If the Federal Reserve increases the discount rate: a. the money supply is not likely to change. b. the money supply is likely to decrease. c. the federal funds rate must decrease. d. the money supply is likely to increase.

the money supply is likely to decrease

Which factor is NOT included in investment spending in the national income accounts? a. new residential construction. b. spending on inventories. c. the purchase of stocks and bonds by a business. d. the purchase of machinery and other productive physical capital

the purchase of stocks and bonds by a business

Which item would NOT be included in this year's GDP? a. the production of a television show b. the purchase of your neighbor's house, which was built in 1994 c. the hiring of a new schoolteacher d. the purchase of a new hybrid truck

the purchase of your neighbor's house, which was built in 1994

Disinflation means a decrease in: a. aggregate supply. b. prices. c. the money supply. d. the rate of inflation.

the rate of inflation

GDP does NOT exclude: a. the value of housework. b. damage to the environment. c. the value of leisure. d. the value of owner-occupied housing.

the value of owner-occupied housing

In the long run, when the actual inflation rate gets embedded in people's expectation: a. actual inflation at any unemployment rate is always higher than expected inflation. b. it is possible to achieve lower unemployment in the long run by accepting higher inflation. c. the trade-off between inflation and unemployment becomes even stronger. d. there is no longer a trade-off between inflation and unemployment.

there is no longer a trade-off between inflation and unemployment.

If disposable income increases: a. there will be a leftward movement along the consumption function. b. the consumption function will shift upward. c. there will be a rightward movement along the consumption function. d. the consumption function will shift downward.

there will be a rightward movement along the consumption function.

People forgo interest and hold money: a. because there are no substitutes for money. b. to reduce their transaction costs. c. because banks are too risky. d. because they are required to.

to reduce their transaction costs

An open economy: a. does not regulate its industries. b. allows free practice of speech and religion. c. trades goods and services with other countries. d. does not impose taxes on its citizens.

trades goods and services with other countries.

Government payments to households for which no good or service is provided in return are called: a. government purchases. b. investment expenditures. c. transfer payments. d. consumption expenditures.

transfer payments

In economies with persistently high inflation, an increase in the money supply will: a. translate into a proportional increase in the aggregate price level much faster than usual. b. translate into a proportional increase in the aggregate output much faster than usual. c. not affect either the aggregate price level or the aggregate output. d. translate into a proportional increase in the aggregate price level only in the long run.

translate into a proportional increase in the aggregate price level much faster than usual.

The unemployment rate is the ratio of all of the people: a. unemployed to those in the labor force. b. out of work to the total population. c. out of work to those over age 16. d. unemployed to those looking for work.

unemployed to those in the labor force

During a recession: a. unemployment and the growth rate of real GDP both decrease. b. unemployment increases and the growth rate of real GDP decreases. c. unemployment decreases and the growth rate of real GDP increases. d. there is no relation between unemployment and the growth rate of real GDP.

unemployment increases and the growth rate of real GDP decreases

"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate? a. means of deferred payment b. unit of account c. store of value d. medium of exchange

unit of account

When planned investment is less than actual investment, there must be: a. unplanned inventory investment. b. unplanned technological progress. c. unplanned depreciation. d. unplanned inventory disinvestments.

unplanned inventory investment.

Producing a short-run level of aggregate output that exceeds the economy's potential output results in a(n) _____ adjustment in _____. a. downward; profits per unit of output b. downward; production costs c. downward; nominal wages d. upward; nominal wages

upward; nominal wages

In the liquidity preference model, the money supply is represented by a(n): a. upward-sloping curve with a slope of 1/V. b. horizontal line. c. downward-sloping curve with a slope of 1/k. d. vertical line.

vertical line

Which would not be classified as a MACROECONOMIC question? a. what determines a university's cost of offering a new course? b. what determines the overall level of prices? c. how many people are employed in the economy as a whole? d. what determines the overall trade in goods, services, and financial assets between the United States and the rest of the world?

what determines a university's cost of offering a new course?