Macroeconomics Test #3

Deposit insurance is a system in which the government guarantees that: A) depositors will not lose any money even if their bank goes bankrupt. B) people can have deposits at commercial banks. C) commercial banks will not go bankrupt. D) commercial banks will not lose any deposits.

A

In the long run, countries with higher rates of money growth usually have: A) higher rates of inflation. B) lower rates of inflation. C) faster growth rates of real output. D) smaller budget deficits

A

The end of a recession is called the: A) trough. B) expansion. C) peak. D) boom.

A

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. Turning Point (A) Date July 1953 Real GDP (1996 $ billions) 1992.2 Turning Point (B) Date May 1954 Real GDP (1996 $ billions) 1941.0 Turning Point (C) Date Apr. 1957 Real GDP (1996 $ billions) 2182.7 Turning Point (D) Date Apr. 1958 Real GDP (1996 $ billions) 2117.4 Turning Point (E) Date Apr. 1960 Real GDP (1996 $ billions) 2391.0 The economy experienced a recession that lasted from: A) July 1953 to May 1954. B) May 1954 to April 1957. C) July 1953 to April 1957. D) May 1954 to April 1958.

A

Wealth is the same as: A) net worth B) assets C) capital gains D) savings

A

Which of the following does not describe a characteristic of short-term economic fluctuations? A) Expansions and recessions are felt in only a few sectors of the economy. B) Expansions and recessions are irregular in length and severity. C) The unemployment rate rises during recessions. D) Durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.

A

Which of the following is an asset of a family? A) Student Loan B) Mortgage C) Unpaid Credit Card Balance D) Checking Account Balance

A

An increase in the government's budget deficit ________ the real interest rate and ________ the equilibrium quantity of national saving. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

B

Compared to older workers, younger workers change jobs more frequently, so they are more prone to ________ unemployment; also, younger workers have fewer skills, so they are more prone to ________ unemployment. A) cyclical; frictional B) frictional; structural C) structural; frictional D) frictional; cyclical

B

If a bank's desired reserve-deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it: A) has too few reserves and will reduce its lending. B) has too many reserves and will increase its lending. C) has the correct amount of reserves and outstanding loans. D) should increase the amount of its reserves.

B

If the actual rate of unemployment equals the natural rate of unemployment, then: A) potential output is greater than real GDP. B) potential output is equals real GDP. C) potential output is less than real GDP. D) there is a recessionary gap.

B

If the output gap equals 1.8 percent, then: A) cyclical unemployment equals the sum of structural and frictional unemployment. B) there is an expansionary gap. C) there is significant cyclical unemployment. D) potential GDP exceeds actual GDP.

B

In an open economy, a decrease in capital inflows ________ the equilibrium domestic real interest rate and ________ the quantity of domestic investment. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

B

In an open economy, an increase in the government's budget deficit will ________ the domestic real interest rate and ________ the level of capital investment in the country, holding other factors constant. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

B

M1 differs from M2 in that: A) M1 includes currency and balances held in checking accounts, which are not included in M2. B) M2 includes savings deposits, small-denomination time deposits, and money market mutual funds that are not included in M1. C) M1 is a broader measure of the money supply than M2. D) the assets in M2 are more liquid than the assets in M1.

B

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate 5 percent paid annually fell to $981. The one-year interest rate must be: A) 8.5 percent. B) 7 percent. C) 5 percent. D) 1.9 percent.

B

Public saving is negative when: A) there is a government budget surplus. B) there is a government budget deficit. C) the government's budget is balanced. D) after-tax income of households and businesses is greater than consumption expenditures

B

Suppose the following information describes the economy: Consumption- 8,000 Investment-1,000 Government purchases-1,000 Net exports-0 Government transfers and interest payments-500 Government tax collections-1,700 Private saving equals ________; public saving equals ________; national saving equals ________. A) 800; 200; 600 B) 800; 200; 1,000 C) 1,000; 800; 1,000 D) 1,500; 700; 2,700

B

Ted and Alice want to make sure that their children will inherit lots of money when they die, so that their children do not have to struggle the way they themselves did. Saving more in response to this a ____________ reason for saving. A) Life-Cycle B) Bequest C) Private D) Precautionary

B

The amount of money in the United States is determined by: A) the Federal Reserve B) the combined behavior of commercial banks and the public, as well as actions of the Federal Reserve C) the public D) the combined behavior of commercial banks and the public

B

Two examples of governments that printed large quantities of paper currency to finance massive budget deficits, causing hyperinflation, are ________ and ________. A) the Confederacy during the American Civil War; Japan after World War II B) the Confederacy during the American Civil War; Germany after World War I C) the United States during the Great Depression; Japan after World War II D) the United States during the Great Depression; Germany after World War I

B

When the Federal Reserve buys government bonds from the public, this is an example of a(n): A) open-market sale. B) open-market purchase. C) discount loan. D) bank panic.

B

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals: A) C + I + G - T. B) Y - T - C. C) Y -T - G. D) Y - C - I.

B

Which of the following is an example of the precautionary motive for saving? A) Pat puts $400 per month in his 401(k) retirement account. B) Jordan sets aside $200 per month in case she has to pay for a new roof for her house. C) Gerry and Terry put $2,000,000 in a trust fund that will go to their children when the parents die. D) Every month, Chris puts $400 into his saving account so that he can buy a new car in a few years.

B

Among the most important indicators used by the NBER Business Cycle Dating Committee to determine the beginning of the 2007-2009 recession were all of the following except: A) industrial production B) total sales in manufacturing, wholesale trade, and retail trade. C) the consumer price index D) confirm employment

C

During the 1960s and 1970s, the U.S. trade balance was close to zero, but during the 1980s, the trade deficit ballooned to unprecedented levels due to: A) an inability of U.S. companies to compete in the international market. B) a decline in private saving that resulted from an upsurge in consumption. C) a decline in national saving caused largely by rapidly rising government budget deficits. D) a worldwide recession that made it difficult for American companies to sell their products abroad.

C

In the United States from 1960 to today, the largest positive contribution to national saving was from: A) the public sector. B) the government budget deficit. C) business saving. D) household saving.

C

Jay owns a classic car he purchased for $50,000. At a car rally a knowledgeable classic car enthusiast offers him $75,000 for the car. Based on this information: A) Jay's saving this year has increased by $25,000. B) Jay's saving this year has decreased by $25,000. C) Jay has experienced a $25,000 capital gain. D) Jay's wealth is unchanged.

C

One year before maturity, the price of a bond with a principal amount of $1,000 and a coupon rate of 5 percent paid annually rose to $1,019. The one-year interest rate must be: A) 6 percent. B) 5 percent. C) 3 percent. D) 2 percent.

C

Regular interest payments made to bondholders are called ________ payments. A) diversification B) reserve C) coupon D) dividend

C

The economy of Omega operates according to Okun's law. In Omega, the actual and the natural rates of unemployment equal 5 percent, and real GDP equals $10 trillion. What is potential GDP in Omega? A) $9.0 trillion B) $9.5 trillion C) $10.0 trillion D) $10.5 trillion

C

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ________ and there is a capital ________ the United States. A) imports increase; outflow from B) imports decrease; inflow to C) imports increase; inflow to D) exports increase; outflow from

C

An economy with a trade deficit must also have: A) a budget deficit. B) a budget surplus. C) positive net capital outflows. D) positive net capital inflows.

D

At each value of the domestic interest rate, increases in the riskiness of domestic assets ________ capital inflows, ________ capital outflows, and ________ net capital inflows. A) increase; increase; increase B) increase; increase; decrease C) increase; decrease; increase D) decrease; increase; decrease

D

Banks hold reserves: A) to earn interest. B) to increase profits. C) only because the government requires them to hold reserves D) to meet depositor withdrawals and payments

D

Based on the following information, the value of the M1 measure of the money supply is ________ and the value of the M2 measure of the money supply is ________. Currency-$20b Demand Deposits-$300b Money Market Mutual Funds-$800b Traveler's Checks-$10b Savings Deposits-$1800b Other Checkable Deposits-$200b Small Denomination Time Deposits-$1100 A) $530b; $3700b B) $330b; $4230b C) $520b; $4320b D) $530b; $4230b

D

If the principal amount of a bond is $2,000,000, the coupon rate is 6 percent, and the inflation rate is 4 percent, then the annual coupon payment made to the holder of the bond is: A) $12,000. B) $40,000. C) $80,000. D) $120,000.

D

If there is 3 percent frictional unemployment, 4 percent structural unemployment, and −2 percent cyclical unemployment, then the natural rate of unemployment equals: A) 1 percent. B) 2 percent. C) 5 percent. D) 7 percent.

D

Refer to the information in the table. The amount of currency held by the public ________, and the amount of reserves held by banks ________. It must be the case that, in 1932, the Federal Reserve ________. Currency held by public (in billions): Dec 1931 - $4.59 Dec 1932 - $4.82 Reserve-deposit ratio: Dec 1931 - 0.095 Dec 1932 - 0.109 Bank reserves (in billions) Dec 1931 - $3.11 Dec 1932 - $3.18 Money supply (in billions) Dec 1931 - $37.3 Dec 1932 - $34.0 A) increased; also increased; increased the discount rate B) decreased; also decreased; kept the rate of inflation low C) decreased; increased; performed open-market operations D) increased; also increased; injected reserves into the economy

D

Which of the following workers is least likely to lose his/her job during a recession? A) A carpenter B) An automobile assembly worker C) A roofer D) A police officer

D