Practice Final

In Sub-Saharan Africa, the population is 910 million and the average GDP per capita is:

$1,415.

From a neoclassical view, which of the following is less important? A. fighting unemployment B. encouraging long-term growth C. fighting inflation D. level of potential GDP

A. fighting unemployment

Which of the following government policies would be supported by neoclassical macroeconomic assumptions? A. focus on long-term growth and on controlling inflation B. focus on short-term recession and controlling inflation C. focus on combating depression and cyclical unemployment D. focus on real GDP and cyclical unemployment

A. focus on long-term growth and controlling inflation

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? A. the money supply in the economy decreases B. Southern's net worth increases by $25 million C. decrease in Southern's bond assets by $25 million D. increase in Southern's loan assets of $25 million

A. the money supply in the economy decreases

Which of the following events would cause interest rates to increase? A. lower tax rates B. a higher discount rate C. lower reserve requirements D. an open market operation to buy bonds

B. a higher discount rate

If a country's economic data shows that private savings equal $300 million, government spending equals $400 million, taxes equal $300, and the trade surplus equals D.$100 million, then what does investment equal?

$100 million

If a country's economic data shows that private savings equal $350 million, government spending equals $375 million, taxes equal $300, and the trade surplus equals $125 million, then what does investment equal?

$150 million

If a country's economic data shows private savings of $400 million, government spending of $250 million, tax revenue of $400 million, and a trade surplus of $175 million, then what does investment equal?

$375 million

If a country's economic data shows that private savings equal $250 million, government spending equals $400 million, taxes equal $350, and the trade surplus equals $150 million, then what does investment equal?

$50 million

If a country's economic data shows private savings of $500 million, government spending of $300 million, tax revenue of $400 million, and a trade surplus of $100 million, then what does investment equal?

$500 million

Stealth bank has deposits of $350 million. It holds reserves of $30 million and government bonds worth $70 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

$500 million

Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities?

$600 million

Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$620 million

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?

$970 million

If an economy has a budget surplus of 400, private savings of 1,200, and investment of 1,600, what will the balance of trade in this economy equal?

0

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?

10

If GDP is 3600 and the money supply is 300, what is the velocity?

12

A government annually collects $230 billion in tax revenue and allocates $29 billion to its universal healthcare spending. What percentage of this government's budget is spent on healthcare?

12.60%

A government annually collects $320 billion in tax revenue and allocates $42 billion to education spending. What percentage of this government's budget is spent on education?

13.12%

A government collects $600 billion annually in tax revenue. Each year it allocates $35 billion to healthcare and $50 billion for education. What percentage of annual tax revenue is allocated to these two categories of government spending?

14.16%

A government collects $700 billion annually in tax revenue. Each year it allocates $130 billion to interest payments that it must pay on its accumulated debt. What percentage of annual tax revenue is allocated to make these interest payments?

18.57%

In 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013?

2009: .71 dollars, 2013: 1.11 dollars

In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012?

2010: .12 U.S. dollars; 2012: .15 U.S. dollars

In 2010, 1 Swiss franc cost .56 British pounds and in 2012 it cost .51 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012?

2010: 1.79 francs, 2012: 1.96 francs

In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93 U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013?

2010: 113.6 yen, 2013: 107.5 yen

A government collects $700 billion annually in tax revenue. Each year it allocates $70 billion to the justice system and $130 billion for its own administrative costs. What percentage of annual tax revenue is allocated to these two categories of government spending?

28.57%

If nominal GDP is 2700 and the money supply is 900, what is velocity?

3

A government annually collects $230 billion in tax revenue and allocates $70 billion to military spending. What percentage of this government's budget is spent on its military?

30.43%

If GDP is 2400 and the money supply is 600, then what is the velocity?

4

A government collects $70 billion quarterly in tax revenue. Each year it allocates $15 billion to the justice system and $29 billion for the administrative costs. What percentage of its total annual tax revenue is left for allocation to the remaining categories of government spending?

84.29%

A government deficit has increased from 30 to 50. The country's trade deficit is 100 and private savings equal 65 and investment equal 90. If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal:

85

North American and the European Union have about _________% of the world's population and their combined economic statistics show that they produce and consume about _________% of the world's GDP.

9, 70

If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then:

exchange rates will have less reason to vary.

A stronger British pound is beneficial for:

exchange students with a British scholarship studying in Canada

In the neoclassical model, the AS curve shifts to the right over time as _________ and potential GDP expands.

productivity increases

If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

progressive

If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

proportional

A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.

proportional tax

If a government decides to finance an investment in ______ with higher taxes or ___________ in other areas, it need not worry that it is crowding out private investment.

public physical capital; lower government spending

In the U.S., international trade raises many _______________ that are the same as issues raised by ________________________ in the domestic economy.

public policy issues; competitive market forces

The quantity of money in an economy and the _____________________ are inextricably intertwined.

quantity of credit for loans

A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system.

sustained pattern of large budget deficits

Growth policies that mainly focus on both finding appropriate technology and on getting connected through communications and transport infrastructure are generally associated with:

technologically disconnected nations.

The quantitative easing policies adopted by the Federal Reserve are usually thought of as:

temporary emergency measures

If the economy is producing less than its potential GDP, _____________________ will show a smaller deficit than the actual budget.

the standardized employment budget

Why do smaller economies around the world typically face more volatile inflation?

they can be unsettled by international movements of capital and goods

The money multiplier is equal to the ____________ in the economy divided by the original ______________.

total money; quantity of money

When increasing oil prices cause aggregate supply to shift to the left, then:

unemployment and inflation increase.

When inflation begins to climb to unacceptable levels in the economy, the government should:

use contractionary fiscal policy to shift aggregate demand to the left.

A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene.

volatility

Most contracts, wage levels, and interest rates are either indexed to inflation, or involve using the currency of another country to sidestep the problem of inflation in some converging economies. Following these policies caused

will begin a cycle of heavy reliance on economic growth from a few exported products.

In a number of middle to low-income economies around the world, governments may run an expansionary policy of huge and sustained budget deficits. This policy

will shift aggregate demand to the right, so that output is beyond the potential GDP level.

Which of the following is considered to be a relatively weak tool of monetary policy? A. quantitative easing B. altering the discount rate C. reserve requirements D. reducing the money supply

B. altering the discount rate

Which of the following is a valid criticism of the rational expectations theory? A. prices do not wait on events B. the assumption seems too strong C. people form the most accurate possible expectations D. adjustment of wages and prices might be quite rapid

B. assumption seems too strong

In order to shift the vertical supply curve to the left, which of the following would have to occur? A. increase in productivity B. breakdown of key market institutions C. expansion of potential GDP D. flexible wage and price adjustments

B. breakdown of key market institutions

Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely? A. reduced government borrowing to avoid crowding out private investment B. difficulty managing public investment so it's done in a cost effective way C. government budgets will exactly shadow the rate of private investment D. tax budgets increase without a corresponding drop in private investment

B. difficulty managing public investment so it's done in a cost effective way

In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects? A. price stability to reinforce effect of deposit insurance B. monitoring asset prices and leverage C. quantitative easing when banks are under stress D. inflation-targeting lender of last resort policies

B. monitoring assets prices and leverage

In any economy functioning at potential GDP, there are occasions when the short term aggregate supply curve unexpectedly shifts, causing inflationary pressures. Which of the following is considered to be a common cause of this type of shift? A. overoptimistic lending by banks B. sudden rise in input prices C. a surge of export sales D. a wave of government spending

B. sudden rise in input prices

With regard to the major issues involving trade imbalances, which of the following explains why smaller countries around the world should take some steps to limit flows of international capital? A. to counter cyclical unemployment B. to reduce susceptibility to economic whiplash C. to maintain the natural rate of unemployment D. to achieve real productivity gains

B. to reduce susceptibility to economic whiplash

______ is a completely inadequate mechanism ______ in a modern advanced economy.

Barter; for trying to coordinate trades

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.

Bonds

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

a self-fulfilling prophecy

In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve?

a vertical line drawn at the level of potential GDP

Banks typically come under financial stress because of:

a widespread decline in the value of their assets

Policies that provide governments with economic controls should be evaluated on their ________________, not on the basis of the promises of their supporters or the theories of economists.

actual effects, which can be positive or negative

In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment.

aggregate demand

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

aggregate demand

Which of the following is a distinguishing characteristic of the neoclassical view?

aggregate demand increases

At a macroeconomic level, the theory of rational expectations points out that if the_______ is vertical over time, then people should rationally expect this pattern.

aggregate supply curve

In what way is each and every one of the economies of the more than 200 countries of the world similar?

all have their own distinctive characteristics

The federal government levies ___________________ on people who pass assets _______________________, either after death or during life.

an estate and gift tax; to the next generation

When the interest rate in an economy decreases, it is most likely as a result of:

an increase in the government budget surplus or a decrease in its budget deficit.

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:

cause the exchange rate for U.S. currency to depreciate.

Ricardian equivalence means that:

changes in private savings offset any changes in the government deficit.

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.

contractionary

A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports.

contractionary; reduces; stimulates

Many _____________ countries have a legacy of government economic controls

converging

It is sometimes necessary for a _________________ economy to live with a degree of uncertainty over _______________ that would be politically unacceptable in the high income economies.

converging; inflation

An increase in government borrowing can:

crowd out private investment in physical capital.

An increase in the government's budget surplus will cause the interest rate to:

decrease

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________.

decrease

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.

double coincidence of wants

The neoclassical view holds that long-term expansion of potential GDP due to _______________ will determine _______________.

economic growth; the size of the economy

By about 2050, the ___________ populations in _____________ are expected to boom.

elderly; low-income countries

The _____________ is an example of a large-scale common currency.

euro

A central bank must be concerned about whether a large and unexpected __________________ will drive most of the country's existing banks into bankruptcy.

exchange rates deoreciation

Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future.

exchange rates or rates of return

When a government records a trade surplus, the national savings and investment identity is written as:

S = I + (G - T) + (X - M)

Contrast the actions a central bank would take to increase the quantity of money in the economy with the actions it would take to produce the opposite effect.

A central bank that wants to increase the quantity of money in the economy can buy bonds in an open market operation, reduce the reserve requirement, lower the discount rate, or engage in quantitative easing. Conversely, a central bank that wants to reduce the quantity of money in the economy can sell bonds in an open market operation, raise the reserve requirement, raise the discount rate, or reverse its past practices of quantitative easing.

Briefly explain why a central bank will be concerned about the exchange rate.

A central bank will be concerned about the exchange rate for three reasons: (1) Movements in the exchange rate will affect the quantity of aggregate demand in an economy; (2) Frequent substantial fluctuations in the exchange rate can disrupt international trade and cause problems in a nation's banking system; (3) The exchange rate may contribute to an unsustainable balance of trade and large inflows of international financial capital, which can set the economy up for a deep recession if international investors decide to move their money to another country.

Define and contrast contractionary monetary policy and expansionary monetary policy and their respective economic outcomes. Explain what happens if the effects of either of these policies goes too far.

A monetary policy which reduces the amount of money and loans in the economy is a contractionary monetary policy or a "tight" monetary policy. A monetary policy that expands the quantity of money and loans is known as an expansionary monetary policy or a "loose" monetary policy. Tight or contractionary monetary policy that leads to higher interest rates and a reduced quantity of loanable funds will reduce two components of aggregate demand. Conversely, loose or expansionary monetary policy that leads to lower interest rates and a higher quantity of loanable funds will tend to increase business investment and consumer borrowing for big-ticket items. If loose monetary policy seeking to end a recession goes too far, it may push aggregate demand so far to the right that it triggers inflation. If tight monetary policy seeking to reduce inflation goes too far, it may push aggregate demand so far to the left that a recession begins.

Identify the negative macroeconomic outcomes that a government risks when it continues a sustained pattern of large budget deficits over time.

A sustained pattern of large budget deficits over time risks causing several negative macroeconomic outcomes: a shift to the right in aggregate demand that causes an inflationary increase in the price level; crowding out private investment in physical capital in a way that slows down economic growth; and creating a dependence on inflows of international portfolio investment which can sometimes turn into outflows of foreign financial investment that can be injurious to a macroeconomy.

If aggregate supply is vertical, then which of the following statements must be true? A. Aggregate demand does not affect the quantity of output. B. Aggregate demand does not cause inflationary changes in price level. C. Inflation will accompany any rise in output. D. Inflation creates greater social benefits.

A. Aggregate demand does not affect the quantity of output.

Despite many negative feelings, a number of governments have decided that reducing barriers to trade is at least potentially beneficial to their economy. Which of the following is an example of countries reducing barriers through free trade? A. NAFTA B. NATO C. G20 D. GTO

A. NAFTA

Which of the following is a valid criticism of the use of money as a store of value in modern economies? A. annual inflationary loss of buying power B. money supply is too narrowly defined C. storing money is wasteful D. imperfect as a unit of account

A. annual inflationary loss of buying power

In the global economy, some nations are open to international trade, while others use tariffs and import quotas to limit the impact of trade. Which of the following is a reasonable conclusion that you can draw from this statement? A. differences in economic institutions exist among nations B. no nation intentionally aims for an unsustainable trade imbalance C. nations have similar priorities and similar economic situations D. economic growth is built on a foundation of trade improvements

A. differences in economic institutions exist among nations

Which of the following is least likely to benefit the civilian economy? A. R&D carried out in government laboratories B. R&D aimed at producing new weapons C. direct private sector R&D spending D. tax policy promoting civilian R&D spending

B. R&D aimed at producing new weapons

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: A. a loose monetary policy. B. a contractionary monetary policy. C. a expansionary monetary policy. D. a quantitative easing policy.

B. a contractionary monetary policy

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

Sarah's M1 funds

Which of the following is the percentage of annual US government spending allocated to foreign aid? A. 21% B. 10% C. 1% D. 17%

C. 1%

One of the following groups is not participating in the foreign exchange markets. Which one? A. Boston business firms trading goods and services with firms in France B. international investors buying bonds issued by a German car manufacturing firm C. an Iowa travel firm that arranges vacation tours for local seniors to Hawaii D. international investors buying part-ownership of a mining operation in Afghanistan

C. an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account? A. a new car B. an iPod C. an estate D. gym membership

C. an estate

Which of the following would be classified in the M1 category of the money supply? A. savings deposits B. money market deposit C. demand deposits D. certificates of deposit

C. demand deposits

If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be? A. leverage cycle B. bank runs C. fighting inflation D. bank supervision

C. fighting inflation

After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall? A. neoclassical theory B. cyclical expectations C. rational expectations D. Keynesian theory

C. rational expectations

Of all the arguments for placing limitations on trade, which of the following would most likely be characterized as being the most controversial among economists? A. bank/financial sector regulation argument B. floating currency argument C. the infant industry argument D. quantitative easing argument

C. the infant industry argument

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the

Central Bank; safety and stability of the banking system

_______ that requires the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called _________.

Certificates of deposits; time deposits

When a government records a budget surplus, the national savings and investment identity is written as:

S + (M - X) + (T - G) = I

Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets? A. U.S. dollar B. British pound C. Japanese yen D. French franc

D. French franc

Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency? A. savings B. money C. M2 D. M1

D. M1

With respect to measuring the money supply, which of the following terms describes a checking account? A. demand certificates B. currency deposits C. cash certificates D. demand deposits

D. demand deposits

A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy? A. especially large and sustained household saving B. increased borrowing by private firms C. reduction in influx of funds for foreign financial investors D. especially large and sustained government borrowing

D. especially large and sustained government borrowing

From a neoclassical view, which of the following is a true statement? A. Lower wages will cause an economy-wide increase in the price of a key input. B. Because wages are flexible, they are unaffected by high rates of unemployment. C. A surge in aggregate demand ends up as a rise in output, but does not increase price levels. D. The economy cannot sustain production above its potential GDP in the long run.

D. the economy cannot sustain production above its potential GDP in the long run

________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check

Demand deposits

Identify and briefly describe some practical difficulties of discretionary fiscal policy.

Discretionary fiscal policy faces some practical difficulties: (a) expansionary fiscal policy can raise interest rates, which tends to reduce the expansionary impact of the policy; (b) there are long and variable time lags in enacting fiscal policy and waiting for it to have an effect; (c) the impact of temporary fiscal policy is smaller than the impact of permanent fiscal policy; (d) fiscal policy cannot push economic output above the potential GDP level of output; (e) it may be hard to persuade politicians of the merits of countercyclical fiscal policy.

Contrast the actions a central bank should take when an economy is in recession with production substantially below potential GDP and those needed when an economy is producing in overdrive above potential GDP.

If the economy is in a recession, with production substantially below potential GDP, then the central bank should raise the supply of money and credit, first by reducing interest rates, and then by considering the use of "quantitative easing" and direct loans. If the economy is producing in overdrive above potential GDP, experiencing high inflation, then the central bank should raise interest rates by holding down growth of the money supply.

_____________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?

Long and variable time lags

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

Money

___________ economists place an emphasis on _______ run economic performance.

Neoclassical; long

The shape of the _________ involves a tradeoff between unemployment and inflation.

Philips curve

_______________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

___are funds that the bank keeps on hand that are not loaned out or invested in bonds.

Reserves

When GDP per capita is used as a rough measure to compare the economic regions of the World, Latin America and the Caribbean are better off than _________________, but worse off than ___________________.

Sub-Saharan Africa; South Asia, Eastern Europe and Central Asia

Briefly describe what the "baby boom" affect will be in relation to payroll taxes and indicate what options the government could use to address this issue.

The current level of the payroll taxes that support Social Security and Medicare will fall well short of the projected expenses of these programs; thus, the forecast is for large budget deficits. The current payroll tax levied on workers, which support all of Social Security and the hospitalization insurance part of Medicare, won't be enough to cover the expected costs. Taxes could be raised to fund these programs. Or the government could run very large budget deficits and borrow the money to finance these programs.

Stealth Bank is holding $4 million in reserves, $9 million in government bonds and $9.6 million in low risk mortgage loans. Out of the $20 million in customers' deposits, Stealth holds $13.1 million in the form of certificates of deposit. Describe the formula for determining Stealth Bank's net worth and, using the figures above, determine the Bank's net worth. Identify the criteria for classifying a bank as healthy or unhealthy and determine which applies to Stealth Bank in these circumstances.

The net worth of a bank is defined as its total assets minus its total liabilities .($4mil + $9mil + $9.6mil) - $20mil = $2.6 million net worth. For the Stealth Bank, net worth is equal to $2.6 million; that is, $22.6 million in assets minus $20 million in liabilities. For a financially healthy bank, the net worth will be positive. If a bank has negative net worth, and depositors tried to withdraw their money, the bank would not be able to give all depositors their money. In the circumstances noted above, Stealth Bank has a positive net worth and is therefore a healthy bank.

What do goods like gasoline, tobacco, and alcohol typically share in common?

They are all subject to government excise taxes.

The most commonly traded currency in foreign exchange markets is the:

U.S. dollar

If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:

a budget deficit.

What do the economies of Greece, Ireland and Germany all share?

a common currency

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:

a contractionary monetary policy

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

a double coincidence of wants

If American Airlines were to purchase Malaysian Airlines, it would likely have _______________________ in mind.

a longer-term horizon

If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then __________________________ is not much of a danger.

an inflationary increase in the price level

If an economy moves into a recession, causing that country to produce less than potential GDP, then:

automatic stabilizers will cause tax revenue to decrease and government spending to increase.

What is the name given to the macroeconomic equation MV = PQ?

basic quantity equation of money

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:

borrow for the short term form the central bank.

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

both the money multiplier and supply of money in the economy will decrease

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

by increasing its reserves

A trade balance can be quickly defined as the gap between _____________, which are also included in the current account balance along with ___________.

exports and imports; investment income and unilateral transfers

From a macroeconomic point of view, increases in _____ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

exports; imports

In 2010, many high-income countries will be focused on the short-term economic horizon due to aggressive and often controversial steps governments took to jump-start these economies out of severe recession. Considering the economic challenges that result from these policies, which of the following actions would be most advisable?

extricate themselves from the recession and the policies adopted in fighting that recession

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

federal funds rate

The main public policies of technological leading countries are _______________ focused on investment, including investment in human capital, in technology, and in physical plant and equipment.

fiscal policies

Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget deficit increases by 50, then:

private savings will increase by 50

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow tight monetary policy

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:

following a loose monetary policy

A reduction in government borrowing can:

give private investment an opportunity to expand.

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

her M1 funds

Unemployment rates in the nations of Europe have typically been ____________ than in the United States.

higher

A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.

higher interest rate

If the government's budget deficit increases while the economy is producing substantially less then potential GDP and expansionary monetary policy is implemented, then any ______ from government borrowing would be _____ from that monetary policy.

higher interest rates; largely offset by the lower interest rates

If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?

income tax is a progressive tax

A decrease in the government's budget surplus will cause the interest rate to:

increase

If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase

If a country's GDP increases, but its debt decreases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase or decrease

In an economy with _______________, money loses some buying power each year, but it remains money.

inflation

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.

inflation or recession

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

inflationary increase in price level

In a market-oriented economy, private firms will undertake most of the____________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment.

investment in physical capital; fiscal policy

When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:

investment will decrease if savings also remains constant.

From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?

investments in human capital

The current level of US government accumulated debt, when measured in nominal dollars:

is higher than it has ever been.

Currently, the US government accumulated debt to GDP ratio:

is lower than its historical high point.

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

is vertical; is vertical

If the Canadian dollar is strengthening, then:

it has appreciated in terms of other currencies

Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?

it would depreciate the country's exchange rate and break its hard peg

When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment budget will show a _______________ than the actual budget.

larger deficit

A prolonged period of budget deficits may lead to ___________________.

lower economic growth

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

lower unemployment

What do growth in standard of living, low unemployment, low inflation, and a sustainable balance of trade all share in common?

main universal goals of macroeconomic policy

Countries have strong differences in economic institutions: the U.S. is extremely _________________, Cuba has a ________________ and Canada is a mixture of both.

market-oriented; command economy

If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?

medium of exchange

In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?

medium of exchange

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

medium of exchange

A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a cause for concern.

moderate increase in a trade deficit and a moderate appreciation of the exchange rate

The __________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment?

neoclassical

Which of the following is a traditional tool used by the Fed during recessions? A. quantitative easing B. higher interest rates C. open market operations D. coins and paper currency

open market operations

In the long-run neoclassical view, when wages and prices are flexible, __________ determine the size of real GDP.

potential GDP and aggregate supply

The market where loans are made to borrowers is called the:

primary loan market

The U.S. economy has two main sources for financial capital; __________________ and ____________________________.

private savings from U.S. households and firms; inflows of foreign financial investment.

Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget surplus increases by 100, then:

private savings will decrease by 100.

A central bank that desires to reduce the quantity of money in the economy can:

rate the reverse requirement

If South Dakota's governor reports a budget surplus in 2011, state government likely:

received more in taxes than it spent in that year.

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.

regressive

The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.

reserve ratio

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? A. discount requirements B. deposit requirements C. reserve requirements D. monetary requirements

reserve requirements

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

shorter than

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

slopes upward; slopes downward

When a government uses a _____________ exchange rate policy, it usually allows the exchange rate to be set by the market.

soft peg

A _______________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate.

soft peg exchange rate

In low and middle-income countries, workers who are not connected to a labor market are often unable to:

specialize very much.

If an economy has a budget surplus of 1,500, private savings of 3,000, and investment of 5,000, what will the balance of trade in this economy equal?

surplus of 500

If an economy has a budget deficit of 600, private savings of 2,000, and investment of 800. What is the balance of trade in this economy?

surplus of 600

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

the Canadian dollar appreciated against the U.S. dollar.

The Canadian dollar will most likely strengthen against the U.S. dollar if:

the Canadian inflation rate becomes extremely low.

When per capita GDP is used as a rough measure to compare the economic regions of the World, the richest region is ____________ and the poorest region is ___________.

the United States, Western Europe and Japan; Sub- Saharan Africa

If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then:

the central bank might react with an expansionary monetary policy.

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

the credit card company's M1 funds

When a business firm makes an investment in physical capital, what is that investment subject to?

the discipline of the market

If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:

the dollar depreciated against the yen.

A government began 2013 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause:

the exchange rate and the trade deficit to increase.

A foreign aid donor has provided technology to help farmers in an undeveloped country to be more productive. If that country's government reacts to political pressure by urban food consumers by imposing price ceilings on farm products,

the farmers receiving the technology will still be unable to make a living.

When Mataeo buys Euros through ______, he will use his U.S. dollars to pay for them.

the foreign exchange market

Because China and the East Asian tigers are _________________________, their economies have all experienced rapid economic growth rates.

the highest savers in the world, often saving one-third or more of GDP

When the central bank decides it will sell bonds using open market operations:

the money supply decreases