econ final exam
The public debt (national debt; federal debt) held by the public in the second quarter of 2020 equaled appropriately
$21 trillion
The federal debt (national debt) held by the public in the second quarter of 2020 equaled what percent of U.S. GDP?
105%
The United States in 2017 had the ________ highest public debt (national debt) as a percentage of GDP of countries in the world
36th
In the static AD-AS model, which of the following would cause deflation?
A decrease in oil prices
Which of the following would shift the aggregate demand to the right?
A depreciation in the U.S. dollar
Using the Aggregate Demand - Aggregate Supply model, which of the following could cause a recession?
A shift to the left of the aggregate demand curve
Using the Aggregate Demand - Aggregate Supply model, which of the following would cause inflation?
A shift to the left of the aggregate supply curve
Which of the following would increase the demand for U.S. dollars in the foreign exchange market?
An increase in the risk of foreign financial assets
The economic definition of money is:
Any asset that people are generally willing to accept in exchange for goods and services
The price index which is used to measure changes in the cost of living is the
Consumer Price Index (CPI).
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
Which of the following would cause the foreign exchange value of the U.S. dollar to depreciate?
Decrease in U.S. interest rates
What would be the appropriate monetary policy if the economy is in a short-run equilibrium below potential GDP?
Decrease interest rates
Briefly explain whether an expansionary fiscal policy will cause each of the following variables to increase or decrease: (ii) The unemployment rate
Decrease the unemployment rate by increasing production.
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?
Every penny spent on a good or service must end up as someone's income.
How does the size of a country's GDP affect the quality of life of the country's people?
Generally, the more goods and services people have, the better off they are.
What index measures the degree of inequality in the distribution of family income in a country?
Gini index
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
If Congress and the president decide an expansionary fiscal policy is necessary, what changes should they make in government spending or taxes?
In this case, Congress and the president should enact policies that increase government spending and decrease taxes
Which of the following would cause the foreign exchange value of the dollar to appreciate?
Increase in the risk of foreign financial assets
Briefly explain whether an expansionary fiscal policy will cause each of the following variables to increase or decrease: (i) Real GDP
Increase real GDP by increasing aggregate demand
Briefly explain whether an expansionary fiscal policy will cause each of the following variables to increase or decrease: the price level
Increase the price level because more is demanded.
If Irving Fisher was correct in his prediction about the value of velocity, then the quantity equation can be written to solve for the inflation rate as follows:
Inflation rate = Growth rate of the money supply - Growth rate of real output.
Suppose you withdraw $1,000 from a money market mutual fund and deposit the funds in your bank checking account. How will this action affect M1 and M2?
M2 will not be affected, but M1 will increase
Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?
Required reserves would increase
Monetary policy is defined as:
The actions the Federal Reserve takes to manage the money supply and interest rates.
As output increases along the short-run aggregate supply curve, briefly explain what happens to the cyclical rate of unemployment.
The cyclical rate decreases because fewer workers will be laid off
Based on the quantity theory of money, if velocity is constant, inflation is likely to occur when:
The money supply grows at a faster rate than real GDP
As output increases along the short-run aggregate supply curve, briefly explain what happens to the natural rate of unemployment.
The natural rate remains the same because it is not affected by the business cycle.
Fiscal policy refers to:
The government's use of taxes and expenditures to achieve macroeconomic policy objectives.
Why do few economists argue that it would be a good idea to balance the federal budget every year?
To keep a balanced budget during a recession, taxes would have to increase and government expenditures would have to decrease, which would further reduce aggregate demand and deepen the recession.
Open market operations refer to the purchase or sale of ________ to control the money supply
U.S. Treasury securities by the Federal Reserve
Open market operations refer to the purchase or sale of ________ to control the money supply.
U.S. Treasury securities by the Federal Reserve
If the dollar appreciates against the Mexican peso,
U.S. exports to Mexico become more expensive
If the U.S. dollar depreciates against the euro
U.S. imports from the euro-zone become more expensive.
The demand curve for U.S. dollars is downward sloping because an increase in the foreign exchange value of the dollar makes
U.S. goods, services, and assets more expensive to foreigners
Why does inflation make nominal GDP... a poor measure of the increase in total production from one year to the next?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.
Which equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
Suppose you decide to withdraw $100 in cash from your checking account. Which one of the following choices accurately shows the effect of this transaction on your bank's balance sheet.
Your bank's balance sheet shows a decrease in reserves by $100 and a decrease in deposits by $100.
Which of the following would shift the demand for U.S. dollars to the left?
a decrease in U.S. interest rates
Which of the following is not one of the monetary policy goals of the Federal Reserve ("the Fed")?
a high foreign exchange rate of the U.S. dollar relative to other currencies
Which of the following causes the short-run aggregate supply curve to shift to the right?
a positive technological change
A decrease in the interest rate would cause the
aggregate expenditure line to shift upward, increasing equilibrium real GDP.
How does real GDP...deal with the problem inflation causes with nominal GDP?
all of the above
The simple deposit multiplier equals
all of the above
If in Year 1 the price level was 100 and real GDP was $20 trillion and in Year 2 the price level was 105 and real GDP was $21 trillion, then the predominant change that occured in Year 2 was
an increase in aggregate demand.
Which of the following would cause the U.S. dollar to depreciate?
an increase in foreign interest rates
Which of the following causes the short-run aggregate supply curve to shift to the left?
an increase in the expected price of an important natural resource
When actual GDP is below potential GDP the budget deficit increases because of:
an increase in transfer payments and a decrease in tax revenues.
In the basic aggregate demand and aggregate supply model, a decrease in the expected price level (a decrease in inflationary expectations) would in the short run lead to _______ in real GDP and ______ in the price level.
an increase; a decrease
In the static aggregate demand - aggregate supply model, a decrease in interest rates will in the short run lead to ________ in real GDP and ________ in the price level.
an increase; an increase
In the static aggregate demand - aggregate supply model, a depreciation in the foreign exchange value of the dollar will in the short run lead to ________ in real GDP and ________ in the price level.
an increase; an increase
In the static aggregate demand - aggregate supply model, an increase in the corporate income (profit) tax will in the short run lead to ________ in real GDP and ________ in the price level.
a decrease; a decrease
In 1913, Congress established the Federal Reserve system with the intention of putting an end to
bank panics
Changes in the federal funds rate change
both short-term and long-term nominal interest rates
To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the
budget deficit or surplus as a percentage of GDP.
Investment, as defined by economists, would include the purchase of a
computer by an accounting firm
Consider an annual balanced-budget amendment. When a recession occurs and causes a budget deficit, an annual balanced-budget amendment would require the government to enact
contractionary fiscal policy -- a decrease in government spending and/or an increase in taxes -- to balance the budget this year.
Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic
cyclical unemployment
What is the appropriate fiscal policy if the economy is in a short-run equilibrium below potential GDP?
decrease income taxes
The sale of Treasury securities by the Federal Reserve will, in general
decrease the quantity of reserves held by banks.
The sale of Treasury securities by the Federal Reserve will, in general,
decrease the quantity of reserves held by banks.
A higher required reserve ratio _________ the value of the simple deposit multiplier.
decreases
An increase in the amount of excess reserves that banks keep _________ the value of the real-world deposit multiplier.
decreases
A fractional reserve banking system is one in which banks hold less than 100 percent of ________ as reserves.
deposits
When an unemployed person drops out of the labor force, it
does not affect the employment-population ratio.
In the aggregate expenditure model, an appreciation in the foreign exchange value of the dollar would cause the aggregate expenditure line to shift
downward, decreasing equilibrium real GDP.
Whenever banks gain reserves and make new loans, the money supply ___________; and whenever banks lose reserves, and reduce their loans, the money supply __________.
expands; contracts
The demand for U.S. dollars is a derived demand for
foreign goods, services, and assets.
The supply for U.S. dollars is a derived demand for
foreign goods, services, and assets.
Each year that the federal government runs a deficit, the federal debt _____. Each year that the federal government runs a surplus, the federal debt _____.
grows; shrinks
________ is caused by central banks increasing the money supply at a rate far in excess of the growth rate of real GDP
hyperinflation
In the basic aggregate demand and aggregate supply model, which of the following would cause deflation? An increase in
income taxes
A depreciation in the domestic currency will
increase exports and decrease imports, thereby increasing net exports.
The purchase of Treasury securities by the Federal Reserve will, in general,
increase the quantity of reserves held by banks.
Government unemployment insurance tends to
increase the unemployment rate by lowering the opportunity cost of job search.
Assume that the economy is in long-run equilibrium in Year 1, and that in Year 2 the normal conditions occur and that the curves shift the way they typically shift in the dynamic aggregate demand - aggregate supply model. In addition to what normally occurs in the dynamic model in Year 2, also assume that foreign real GDP decreases moderately. The moderate decrease in foreign real GDP in Year 2 will cause the unemployment rate to
increase, but will not cause a recession.
Assume that the economy is in long-run equilibrium in Year 1, and that in Year 2 the normal conditions occur and that the curves shift the way they typically shift in the dynamic aggregate demand - aggregate supply model. In addition to what normally occurs in the dynamic model in Year 2, also assumes that household wealth decreases moderately from a decline in housing prices and stock prices. The moderate decrease in household wealth in Year 2 will cause the unemployment rate to ________ and the growth rate of real GDP to _______ from what they would have been in Year 2.
increase; decrease
In the basic aggregate demand and aggregate supply model, which of the following would cause inflation? A decrease in
interest rates
The rule of 70
is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.
The federal funds rate
is the rate that banks charge each other for short-term loans of excess reserves.
The quantity equation states that the
money supply times the velocity of money equals the price level times real output.
Firms in the shadow banking system were more vulnerable than commercial banks to "bank" runs because the shadow banking firms were ________ highly leveraged and held a ________ portion of mortgage-backed securities than commercial banks
more; higher
Firms in the shadow banking system were more vulnerable than commercial banks to "bank" runs because in the shadow banking system, unlike the commerical banking system, there was
no federal deposit insurance
According to the quantity theory of money, if velocity does not change, when the money supply of a country increases, what will occur?
nominal GDP will increase
The difference between a nominal variable and a real variable is that
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.
Discouraged workers are classified by the BLS as
not in the labor force
In the basic AD-AS model, a decrease in the aggregate demand curve would in the long run lead to ________ in the unemployment rate and _______ in the price level.
no change; a decrease
In the basic AD-AS model, an increase in the aggregate demand curve would in the long run lead to ________ in real GDP and ________ in the price level.
no change; an increase
Budget deficits
occur when government spending exceeds tax revenue, and increase during recessions and wars.
In the basic (static) AD-AS model, which of the following would cause a recession? An increase in
oil prices
The four main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations, discount policy, reserve requirements, and interest on reserves
The four main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations, discount policy, reserve requirements, and interest on reserves.
The employment-population ratio measures the
percentage of the working age population that is employed.
The payment of government unemployment insurance reduces the severity of recessions by
preventing a huge drop in income and spending for the unemployed.
The adjustment of the economy to potential real GDP in the long run from a level of real GDP above potential real GDP occurs as nominal wages ________, shifting the short-run aggregate supply curve to the ________.
rise; left
An increase in interest rates affects aggregate demand by
shifting the aggregate demand curve to the left, reducing real GDP and lowering the price level.
The maturity mismatch that banks face refers to the banks having ________ deposits and ________ loans.
short-term; long-term
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
If the foreign exchange rate goes from 85 Japanese yen per U.S. dollar to 90 Japanese yen per U.S. dollar, then
the U.S. dollar has appreciated.
A monetary policy change that causes a decrease in interest rates will result in
the aggregate demand curve shifting to the right.
When the Federal Reserve sells Treasury securities in the open market,
the buyers of these securities pay for them with checks and bank reserves fall.
The aggregate demand - aggregate supply model considers
the demand (spending) side and the supply (producer) side of the economy
A double coincidence of wants refers to
the fact that for a barter trade to take place between two people, each person must want what the other one has.
Who determines monetary policy?
the federal reserve
In the short-run model of foreign exchange rates, what variable is on the vertical axis?
the foreign exchange value of the dollar
Gross Domestic Product (GDP) is
the market value of all final goods and services produced in a country during a period of time
When the economy is at full employment, unemployment is equal to
the natural rate of unemployment
The difference between the nominal interest rate and the real interest rate is
the nominal interest rate is the stated interest rate whereas the real interest rate is the nominal interest rate minus the inflation rate
If the economy is experiencing deflation,
the nominal interest rate will be lower than the real interest rate
If inflation is expected to increase
the nominal interest rate will increase
The position of the long-run aggregate supply (LRAS) curve is determined by
the number of workers, the amount of capital, and the available technology.
The two key factors that cause labor productivity to increase over time are
the quantity of capital per hour worked and the level of technology.
When the Federal Reserve purchases Treasury securities in the open market,
the sellers of such securities deposit the funds in their banks and bank reserves increase.
When the Federal Reserve sells Treasury securities in the open market,
the sellers of such securities deposit the funds in their banks and bank reserves increase.
The natural rate of unemployment is
the sum of structural unemployment and frictional unemployment.
The national debt is best measured as
the total value of U.S. Treasury securities outstanding.
The quantity theory of money is better able
to explain the inflation rate in the long run.
When the economy is experiencing a recession automatic stabilizers will cause:
transfer payments to increase and tax revenues to decrease.
When an unemployed person drops out of the labor force, the unemployment rate
understates the true degree of joblessness in the economy.
In the long run,
unemployment is at its natural rate.
There are ________ members of the Board of Governors, who the President of the United States appoints to ________. One of the Board members is appointed Chairman for ________.
7; 14-year nonrenewable terms; a 4-year renewable term
In the static AD-AS model, a decrease in stock prices and housing prices will cause real GDP to ________ and the price level to ________ in the short run.
decrease; decrease
The adjustment of the economy to potential real GDP in the long run from a level of real GDP below potential real GDP occurs as nominal wages _______, shifting the short-run aggregate supply curve to the ________.
fall; right
In the basic aggregate demand and aggregate supply model, which of the following would cause a recession? A decrease in
firms' expectations of future profitability of investment spending
Assume that the economy is in long-run equilibrium in Year 1, and that in Year 2 the normal conditions occur and that the curves shift the way they typically shift in the dynamic aggregate demand - aggregate supply model. In addition to what normally occurs in the dynamic model in Year 2, also assume that oil prices increase moderately. The moderate increase in oil prices in Year 2 will cause the unemployment rate to ________ and the inflation rate to _______ from what they would have been in Year 2.
increase; increase
The short run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly.
positive; final goods and services; inputs
The federal funds rate is a
short-term nominal interest rate
The government budget constraint shows that a government has ________ ways to pay for government spending, and these ways are
three; collecting taxes, borrowing by issuing bonds, or printing money
The government budget constraint shows that a government has ________ way(s) to finance a budget deficit, and the/these way(s) is/are
two; borrowing by issuing bonds and printing money