Macro Chapter 9, Macro Chapter 10, Macro Chapter 11, Macro Chapter 12, Macro Chapter 13, Macro Chapter 14, Macro Chapter 15, Macro Chapter 16, Macro Chapter 17, Macro Chapter 18
Q13. Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. The MPC is a) 0.45. b) 0.20. c) 0.50. d) 0.90.
d) 0.90.
The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y; I = I0 = 30 In equilibrium, the level of consumption spending will be a) 170. b) 270. c) 160. d) 195.
d) 195.
Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is: a) 80 percent. b) 8 percent. c) 2 percent. d) 20 percent.
d) 20 percent.
The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is a) 7.5 percent. b) 1.39 percent. c) 2.5 percent. d) 3.9 percent.
d) 3.9 percent.
Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The operational lag of fiscal policy is reflected in event(s) a) 1 and 2. b) 2 and 3. c) 3 and 4. d) 5.
d) 5.
Money functions as a) a store of value. b) a unit of account. c) a medium of exchange. d) All of the above.
d) All of the above.
Which set of events would most likely decrease aggregate demand? a) A reduction in the excess capital of the existing capital stock b) A reduction in business and personal tax rates c) An increase in investment spending d) An increase in personal income tax rates
d) An increase in personal income tax rates
Q12. Which of the following best describes the cause-effect chain of an expansionary monetary policy? a) A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. b) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. c) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. d) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
d) An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
What is one significant characteristic of fractional reserve banking? a) Banks are not subject to "panics" or "runs." b) Banks use deposit insurance for loans to customers. c) Bank loans will be equal to the amount of gold on deposit. d) Banks can create money through lending their reserves.
d) Banks can create money through lending their reserves.
Q7. A college graduate using the summer following graduation to search for a job would best be classified as: a) not officially a member of the labor force. b) a part of structural unemployment. c) a part of cyclical unemployment. d) a part of frictional unemployment.
d) a part of frictional unemployment.
The equilibrium level of GDP in a private closed economy is where: a) MPC = APC. b) unemployment is about 3 percent of the labor force. c) consumption equals saving. d) aggregate expenditures equal GDP.
d) aggregate expenditures equal GDP.
Which of the following fiscal policy actions is most likely to increase aggregate supply? a) an increase in personal income tax rates b) a reduction in interest rates that encourages consumers to purchase more durable goods c) an increase in transfer payments to unemployed workers d) an increase in government spending on infrastructure that increases private sector productivity
d) an increase in government spending on infrastructure that increases private sector productivity
A bank that has liabilities of $150 billion and a net worth of $20 billion must have a) excess reserves of $130 billion. b) assets of $150 billion. c) excess reserves of $150 billion. d) assets of $170 billion.
d) assets of $170 billion.
A commercial bank's reserves are a) liabilities to both the commercial bank and the Federal Reserve Bank holding them. b) liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. c) assets to both the commercial bank and the Federal Reserve Bank holding them. d) assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.
d) assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.
Currency in circulation is part of a) M1 only. b) M2 only. c) neither M1 nor M2. d) both M1 and M2.
d) both M1 and M2.
An adverse aggregate supply shock: a) automatically shifts the aggregate demand curve rightward. b) causes the Phillips Curve to shift leftward and downward. c) can be caused by a boost in the rate of growth of productivity. d) can cause stagflation.
d) can cause stagflation.
The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are: a) military goods and capital goods. b) services and nondurable consumer goods. c) clothing and education. d) capital goods and durable consumer goods.
d) capital goods and durable consumer goods.
If the MPC in an economy is 0.75, government could shift the aggregate demand curve rightward by $20 billion by a) increasing government spending by $20 billion. b) increasing government spending by $5 billion. c) decreasing taxes by $5 billion. d) decreasing taxes by $6.67 billion.
?
Reserve Requirement % = W Checkable Deposits = 100,000 Actual Reserves = 10,000 Excess Reserves = 0
W = 10%
Reserve Requirement % = 8 Checkable Deposits = X Actual Reserves = 20,000 Excess Reserves = 12,000
X = 100,000
Reserve Requirement % = 12 Checkable Deposits = 200,000 Actual Reserves = Y Excess Reserves = 8,000
Y = 32,000
Reserve Requirement % = 20 Checkable Deposits = 300,000 Actual Reserves = 70,000 Excess Reserves = Z
Z = 10,000
Assume that a single commercial bank has no excess reserves and that the reserve ratio is 20 percent. If this bank sells a bond for $1,000 to a Federal Reserve Bank, it can expand its loans by a maximum of a) $1,000. b) $2,000. c) $800. d) $5,000.
a) $1,000.
A commercial bank has actual reserves of $50,000 and checkable deposits of $200,000, and the required reserve ratio is 20 percent. The excess reserves of the bank are: a) $10,000. b) $20,000. c) $40,000. d) $50,000.
a) $10,000.
Suppose that Betty takes out a loan for $300 at an annually compounded interest rate of 6 percent to be repaid after 5 years. How much will be required to pay off the loan at the end of the 5 years? a) $401.47 b) $390 c) $393.54 d) $408.75
a) $401.47
Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The recognition lag of fiscal policy is reflected in events a) 1 and 2. b) 2 and 3. c) 3 and 4. d) 4 and 5.
a) 1 and 2.
The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y; I = I0 = 30 In equilibrium, the level of saving will be a) 30. b) 26. c) 25. d) 60.
a) 30.
A bond of $1000 offers to pay $50 annually. What is the percentage rate of return? a) 5 percent b) 10 percent c) 20 percent d) 50 percent
a) 5 percent
In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? a) Expansion b) Recession c) Peak d) Trough
a) Expansion
Which is a reason given by supply-side economists as to why tax cuts should increase aggregate supply? a) Saving will increase. b) Risk-taking will decrease. c) Work incentives will decrease. d) The net export effect will increase.
a) Saving will increase.
Saving and investment are, respectively: a) a leakage and an injection. b) an injection and a leakage. c) wealth and income. d) income and wealth.
a) a leakage and an injection.
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as a) a medium of exchange. b) a store of value. c) a unit of account. d) an economic investment.
a) a medium of exchange.
Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures? a) a tax increase and an increase in the money supply b) a tax reduction and an increase in the money supply c) a reduction in government expenditures and a decline in the money supply d) a tax increase and an increase in the interest rate
a) a tax increase and an increase in the money supply
A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of: a) an asset. b) a liability. c) capital stock. d) a checkable deposit.
a) an asset.
In the extended AD-AS model, demand-pull inflation occurs because of: a) an increase in AD, resulting in a decrease in the short-run AS curve. b) an increase in nominal wages, resulting in an increase in the short-run AS curve. c) a decrease in nominal wages, resulting in a decrease in the short-run AS curve. d) an increase in nominal wages, resulting in a decrease in the short-run AS curve.
a) an increase in AD, resulting in a decrease in the short-run AS curve.
The slope of the immediate-short-run aggregate supply curve is based on the assumption that: a) both input and output prices are fixed. b) neither input nor output prices are fixed. c) input prices are flexible but output prices are fixed. d) input prices are fixed but output prices are flexible.
a) both input and output prices are fixed.
In the United States, the money supply (M1) includes a) coins, paper currency, and checkable deposits. b) currency, checkable deposits, and Series E bonds. c) coins, paper currency, checkable deposits, and credit balances with brokers. d) paper currency, coins, gold certificates, and time deposits.
a) coins, paper currency, and checkable deposits.
If the MPC is 0.8 and disposable income is $200, then a) consumption and saving cannot be determined from the information given. b) saving will be $20. c) personal consumption expenditures must be $160. d) saving will be $40.
a) consumption and saving cannot be determined from the information given.
Refer to the diagram for a private closed economy. At the $200 level of GDP, a) consumption is $200 and planned investment is $50, so aggregate expenditures are $250. b) consumption is $200 and planned investment is $100, so aggregate expenditures are $300. c) consumption is $250 and actual investment is $50, so aggregate expenditures are $300. d) aggregate expenditures fall short of GDP, with the result that GDP will decline.
a) consumption is $200 and planned investment is $50, so aggregate expenditures are $250.
Tessa's break-even income is $10,000, and her MPC is 0.75. If her actual disposable income is $16,000, her level of a) consumption spending will be $14,500. b) consumption spending will be $15,500. c) consumption spending will be $13,000. d) saving will be $2,500.
a) consumption spending will be $14,500.
Fiscal policy refers to the a) deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. b) deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. c) altering of the interest rate to change aggregate demand. d) fact that equal increases in government spending and taxation will be contractionary.
a) deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.
The crowding-out effect of expansionary fiscal policy suggests that a) government spending increases at the expense of private investment. b) imports replace domestic production. c) private investment increases at the expense of government spending. d) saving increases at the expense of investment.
a) government spending increases at the expense of private investment.
Over time, an increase in the real output and incomes of the trading partners of the United States will: a) increase U.S. exports and U.S. imports. b) decrease U.S. exports and U.S. imports. c) increase U.S. exports and decrease U.S. imports. d) decrease U.S. exports and increase U.S. imports.
a) increase U.S. exports and U.S. imports.
The amount by which an aggregate expenditures schedule must shift downward to eliminate demand-pull inflation and still achieve the full-employment GDP is a(n): a) inflationary expenditure gap. d) recessionary expenditure gap. c) depreciation rate. d) price-level change.
a) inflationary expenditure gap.
Riskier investments tend to sell for: a) lower prices so they provide a higher expected rate of return to compensate for risk. b) higher prices so they provide a higher expected rate of return to compensate for risk. c) higher prices; that is why they are considered to be riskier. d) prices directly correlated with expected rates of return.
a) lower prices so they provide a higher expected rate of return to compensate for risk.
The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits a) of commercial banks are unchanged, but their reserves increase. b) and reserves of commercial banks both decrease. c) of commercial banks are unchanged, but their reserves decrease. d) and reserves of commercial banks are both unchanged.
a) of commercial banks are unchanged, but their reserves increase.
Answer the question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond falls by $200, the interest rate will a) rise by 2.5 percentage points. b) rise by 5 percentage points. c) fall by 2.5 percentage points. d) fall by 5 percentage points.
a) rise by 2.5 percentage points.
If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to a) sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks. b) buy government securities, raise reserve requirements, raise the discount rate, and reduce the amount of interest paid on reserves held at the Fed banks. c) sell government securities, lower reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks. d) sell government securities, raise reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks.
a) sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks.
Generally speaking, the greater the MPS, the: a) smaller would be the increase in income which results from an increase in consumption spending. b) larger would be the increase in income which results from an increase in consumption spending. c) larger would be the increase in income which results from a decrease in consumption spending. d) smaller would be the increase in income which results from a decrease in consumption spending.
a) smaller would be the increase in income which results from an increase in consumption spending.
An economist who favors smaller government would recommend a) tax cuts during recession and reductions in government spending during inflation. b) tax increases during recession and tax cuts during inflation. c) tax cuts during recession and tax increases during inflation. d) increases in government spending during recession and tax increases during inflation.
a) tax cuts during recession and reductions in government spending during inflation.
If government uses fiscal policy to restrain cost-push inflation, we can expect: a) the unemployment rate to rise. b) the unemployment rate to fall. c) the aggregate demand curve to shift rightward. d) tax-rate declines and increases in government spending.
a) the unemployment rate to rise.
The Securities Market Line (SML) is: a) upsloping, indicating that the average expected return increases as the risk level increases. b) upsloping, indicating that the average expected return decreases as the risk level increases. c) downsloping, indicating that the average expected return decreases as the risk level increases. d) downsloping, indicating that the average expected return increases as the risk level decreases.
a) upsloping, indicating that the average expected return increases as the risk level increases.
Present value is best defined as the: a) worth today of future expected returns or costs. b) worth in the future of a current flow of returns or costs. c) current worth of a financial asset purchased in the past. d) expected future value of a financial asset purchased today.
a) worth today of future expected returns or costs.
The following equations refer to a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP): Ig = 80; S = -80 + 0.4Y The equilibrium GDP will be: a) $160 b) $400 c) $360 d) $480
b) $400
Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by: a) $100 billion. b) $50 billion. c) $500 billion. d) $5 billion.
b) $50 billion.
The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent. This information is consistent with the bank having a) $90,000 in outstanding loans and $35,000 in reserves. b) $90,000 in checkable deposit liabilities and $32,000 in reserves. c) $20,000 in checkable deposit liabilities and $10,000 in reserves. d) $90,000 in checkable deposit liabilities and $35,000 in reserves.
b) $90,000 in checkable deposit liabilities and $32,000 in reserves.
The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y; I = I0 = 30 In this economy, the equilibrium level of income (Y) is a) 360. b) 225. c) 200. d) 135.
b) 225.
Assume that the legally required reserve is 15 percent and commercial banks choose to hold additional excess reserves equal to 5 percent of any newly acquired deposits. Under these circumstances the monetary multiplier for the commercial banking system is: a) 6.67. b) 5. c) 4. d) 3.
b) 5.
Q9. Which would decrease investment demand? a) A decrease in business taxes b) An increase in the cost of acquiring capital goods c) An increase in the rate of technological change d) A decrease in the stock of capital goods on hand
b) An increase in the cost of acquiring capital goods
Which would shift the consumption schedule upward? a) A decrease in wealth b) An increase in wealth c) Consumer expectations of falling prices d) Consumer expectations of product surpluses
b) An increase in wealth
The economy experiences an increase in the price level and a decrease in real domestic output. Which is a likely explanation? a) Productivity has increased. b) Input prices have increased. c) Excess capacity has decreased. d) Government regulations have been reduced.
b) Input prices have increased.
In which of the following cases would real income rise? a) Nominal income rises by 8 percent, and the price level rises by 10 percent. b) Nominal income rises by 2 percent, and the price level remains unchanged. c) Nominal income falls by 4 percent, and the price level fall by 4 percent. d) Real income will rise in all of the above cases.
b) Nominal income rises by 2 percent, and the price level remains unchanged.
Which of the following is correct? a) The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises. b) The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises. c) The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate. d) The asset demand for money is downsloping because bond prices and the interest rate are directly related.
b) The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.
Efficiency wages are associated with: a) a price level that is inflexible upward. b) a price level that is inflexible downward. c) a domestic output that cannot be increased. d) a domestic output that cannot be decreased.
b) a price level that is inflexible downward.
Q12. For a private closed economy, an unintended decline in inventories suggests that a) aggregate expenditures are less than the business sector expected them to be. b) aggregate expenditures exceed production. c) actual investment exceeds saving. d) planned investment is greater than consumption.
b) aggregate expenditures exceed production.
Refer to the data for a fictional economy. The changes in the budget conditions between 1999 and 2000 best reflect a) demand-pull inflation. b) an expansionary fiscal policy. c) a recession. d) a contractionary fiscal policy.
b) an expansionary fiscal policy.
Which one of the following might offset a crowding-out effect of financing a large public debt? a) a decline in net exports b) an increase in public investment c) a decrease in the money supply d) a decline in public investment
b) an increase in public investment
The effect of a government surplus on the equilibrium level of GDP is substantially the same as a) a decrease in imports. b) an increase in saving. c) an increase in consumption. d) an increase in investment.
b) an increase in saving.
As disposable income decreases, consumption: a) and saving both increase. b) and saving both decrease. c) increases and saving decreases. d) decreases and saving increases.
b) and saving both decrease.
Refer to the given diagram. The marginal propensity to consume is equal to a) AE/0E. b) CF/CD. c) CB/AB. d) CD/CF.
c) CB/AB.
Bank panics: a) occur frequently in fractional reserve banking systems. b) are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently. c) cannot occur in a fractional reserve banking system. d) occur more frequently when the monetary system is backed by gold.
b) are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.
One statistic that quantifies the risk of an investment is: a) alpha. b) beta. c) gamma. d) the average expected rate of return.
b) beta.
Which of the following did not contribute directly to the Great Recession? a) crisis in the mortgage lending market b) bursting of the dot-com stock market bubble c) freezing credit markets d) pessimism originating from financial market turmoil
b) bursting of the dot-com stock market bubble
When a check is cleared against a bank, it will lose: a) cash and securities. b) checkable deposits and reserves. c) reserves and capital stock. d) loans and demand deposits.
b) checkable deposits and reserves.
The reserves of a commercial bank consist of a) the amount of money market funds it holds. b) deposits at the Federal Reserve Bank and vault cash. c) government securities that the bank holds. d) the bank's net worth.
b) deposits at the Federal Reserve Bank and vault cash.
If there is sufficient time for wage contracts to expire and nominal wage adjustments to occur, then the: a) economy is operating in the short run. b) economy has entered the long run. c) unemployment rate will increase. d) inflation rate will decrease.
b) economy has entered the long run.
The crowding-out effect suggests that a) tax increases are paid primarily out of saving and therefore are not an effective fiscal device. b) government borrowing to finance the public debt increases the real interest rate and reduces private investment. c) it is very difficult to have excessive aggregate spending in a capitalist economy. d) consumer and investment spending always vary inversely.
b) government borrowing to finance the public debt increases the real interest rate and reduces private investment.
Interest paid on excess reserves held at the Fed a) is available to the general public, but not to commercial banks. b) incentivizes financial institutions to hold more reserves and reduce risky lending. c) is determined by the federal funds rate. d) totaled over $1 trillion in 2012.
b) incentivizes financial institutions to hold more reserves and reduce risky lending.
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: a) increase the amount of U.S. real output purchased. b) increase U.S. imports and decrease U.S. exports. c) increase both U.S. imports and U.S. exports. d) decrease both U.S. imports and U.S. exports.
b) increase U.S. imports and decrease U.S. exports.
A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n): a) decrease in the level of income. b) increase in the price level. c) increase in the level of income. d) decrease in the price level.
b) increase in the price level.
A rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will: a) increase real output by more than the price level. b) increase the price level by more than real output. c) reduce real output by more than the price level. d) reduce the price level by more than real output.
b) increase the price level by more than real output.
The traditional Phillips Curve shows the: a) direct relationship between the rate of inflation and the unemployment rate. b) inverse relationship between the rate of inflation and the rate of unemployment. c) direct relationship between the short-run and long-run aggregate supply. d) inverse relationship between the short-run and long-run aggregate supply.
b) inverse relationship between the rate of inflation and the rate of unemployment.
An increase in nominal GDP increases the demand for money because a) interest rates will rise. b) more money is needed to finance a larger volume of transactions. c) bond prices will fall. d) the opportunity cost of holding money will decline.
b) more money is needed to finance a larger volume of transactions.
The rate of unemployment when the economy is at its potential output is called the: a) full-employment rate of unemployment. b) natural rate of unemployment. c) structural rate of unemployment. d) frictional rate of unemployment.
b) natural rate of unemployment.
The equilibrium level of GDP is associated with: a) an excess of planned investment over saving. b) no unintended changes in inventories. c) an unintended decrease in business inventories. d) an unintended increase in business inventories.
b) no unintended changes in inventories.
The purpose of a restrictive monetary policy is to a) alleviate recessions. b) raise interest rates and restrict the availability of bank credit. c) increase aggregate demand and GDP. d) increase investment spending.
b) raise interest rates and restrict the availability of bank credit.
The fear of unwanted price wars may explain why many firms are reluctant to: a) reduce wages when a decline in aggregate demand occurs. b) reduce prices when a decline in aggregate demand occurs. c) expand production capacity when an increase in aggregate demand occurs. d) provide wage increases when labor productivity rises.
b) reduce prices when a decline in aggregate demand occurs.
The Securities Market Line (SML) shows how the average expected rates of return on assets vary by: a) stock price. b) risk level c) dividend payment. d) time preference.
b) risk level
An increase in the investment demand curve will: a) shift the investment schedule downward. b) shift the investment schedule upward. c) decrease the quantity of investment. d) decrease the real rate of interest.
b) shift the investment schedule upward.
If you place a part of your summer earnings in a savings account, you are using money primarily as a a) medium of exchange. b) store of value. c) unit of account. d) standard of value.
b) store of value.
If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a: a) surplus and the price level will rise. b) surplus and the price level will fall. c) shortage and the price level will rise. d) shortage and the price level will fall.
b) surplus and the price level will fall.
If the economy has a cyclically adjusted budget surplus, this means that a) the public sector is exerting an expansionary impact on the economy. b) tax revenues would exceed government expenditures if full employment were achieved. c) the actual budget is necessarily also in surplus. d) the economy is actually operating at full employment.
b) tax revenues would exceed government expenditures if full employment were achieved.
If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion then: a) the multiplier is 4. b) the MPC for this economy is 0.8. c) the MPC for this economy is 0.6. d) the multiplier is 3.
b) the MPC for this economy is 0.8.
If business taxes are reduced and the real interest rate increases: a) consumption and saving will necessarily increase. b) the level of investment spending might either increase or decrease. c) the level of investment spending will necessarily increase. d) the level of investment spending will necessarily decrease.
b) the level of investment spending might either increase or decrease.
Other things equal, if the required reserve ratio was lowered: a) banks would have to reduce their lending. b) the size of the monetary multiplier would increase. c) the actual reserves of banks would increase. d) the federal funds interest rate would rise.
b) the size of the monetary multiplier would increase.
To say that coins are "token money" means that a) their face value is less than their intrinsic value. b) their face value is greater than their intrinsic value. c) their face value is equal to their intrinsic value. d) they are not legal tender.
b) their face value is greater than their intrinsic value.
Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus, a) saving is $10 billion. b) unplanned decreases in inventories of $10 billion will occur. c) the MPC is 0.80. d) unplanned increases in inventories of $10 billion will occur.
b) unplanned decreases in inventories of $10 billion will occur.
To say money is socially defined means that a) money has been defined in a Constitutional amendment. b) whatever performs the functions of money extremely well is considered to be money. c) the money supply includes all public and private securities purchased by society. d) society, acting through Congress, specifies what shall be included in the money supply.
b) whatever performs the functions of money extremely well is considered to be money.
Refer to the given table. The value of the dollar in year 2 is a) $1.25. b) $1.33. c) $0.80. d) $0.75.
c) $0.80.
Refer to the table. Money supply M1 for this economy is a) $60. b) $70. c) $130. d) $140.
c) $130.
The following equations refer to a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP): Ig = 80; S = -80 + 0.4Y In equilibrium, consumption will be: a) $400 b) $280 c) $320 d) $360
c) $320
If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: a) $360 billion. b) $660 billion. c) $320 billion. d) $20 billion.
c) $320 billion.
A commercial bank has checkable deposit liabilities of $400,000, reserves of $150,000, and a required reserve ratio of 25 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are, respectively: a) $50,000 and $100,000. b) $50,000 and $150,000. c) $50,000 and $200,000. d) $150,000 and $200,000.
c) $50,000 and $200,000.
If an investment is 70 percent likely to return 10 percent per year and 30 percent likely to return 15 percent a year, then its average expected rate of return is: a) 10.5 percent. b) 11.0 percent. c) 11.5 percent. d) 12.5 percent.
c) 11.5 percent.
Q9. If the annual inflation rate is 5 percent a year, about how many years will it take for the price level to double? a) 10 years b) 12 years c) 14 years d) 16 years
c) 14 years
Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is a) 7.5 percent. b) 10 percent. c) 15 percent. d) 20 percent.
c) 15 percent.
Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative lag of fiscal policy is reflected in events a) 1 and 2. b) 2 and 3. c) 3 and 4. d) 4 and 5.
c) 3 and 4.
A nation has a population of 300 million people. Of these, 80 million are retired, in the military, in institutions, or under sixteen years old. There are 210 million who are employed and 10 million who are unemployed. What is the unemployment rate? a) 3.3 percent b) 3.6 percent c) 4.5 percent d) 5.2 percent
c) 4.5 percent
Which of the following best describes the idea of a political business cycle? a) Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. b) Fiscal policy will result in alternating budget deficits and surpluses. c) Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. d) Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.
c) Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is: a) Cyclical b) Frictional c) Structural d) Natural
c) Structural
Which of the following statements is true? a) The Federal Reserve sets the federal funds rate. b) The Federal Reserve sets the target for the federal funds rate, and then uses the reserve ratio to push banks toward that target. c) The Federal Reserve does not set the federal funds rate, but historically has influenced it through the use of its open-market operations. d) The Federal Reserve will set a higher target for the federal funds rate if pursuing an expansionary monetary policy.
c) The Federal Reserve does not set the federal funds rate, but historically has influenced it through the use of its open-market operations.
Refer to the data for a fictional economy. The changes in the budget conditions between 1998 and 1999 best reflect a) demand-pull inflation. b) an expansionary fiscal policy. c) a recession. d) a contractionary fiscal policy.
c) a recession.
If you are estimating your total expenses for school next semester, you are using money primarily as a) a medium of exchange. b) a store of value. c) a unit of account. d) an economic investment.
c) a unit of account.
Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward a) an equality of tax receipts and government expenditures. b) an excess of tax receipts over government expenditures. c) an excess of government expenditures over tax receipts. d) a reduction of subsidies and transfer payments and an increase in tax rates.
c) an excess of government expenditures over tax receipts.
Refer to the data for a fictional economy. The changes in the budget conditions between 2000 and 2001 best reflect a) demand-pull inflation. b) cost-push inflation. c) an expansion of real GDP and an automatic increase in tax revenues. d) a contractionary fiscal policy.
c) an expansion of real GDP and an automatic increase in tax revenues.
The multiplier effect means that: a) consumption is typically several times as large as saving. b) a change in consumption can cause a larger increase in investment. c) an increase in investment can cause GDP to change by a larger amount. d) a decline in the MPC can cause GDP to rise by several times that amount.
c) an increase in investment can cause GDP to change by a larger amount.
Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves a) are $1,000,000. b) are $10,000. c) are $20,000. d) cannot be determined from the given information.
c) are $20,000.
Refer to the diagram for a private closed economy. The MPC and MPS are a) 0.6 and 0.4, respectively. b) 0.7 and 0.3, respectively. c) both 0.5. d) both 0.7.
c) both 0.5.
If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to a) save is three-fifths. b) consume is one-half. c) consume is three-fifths. d) consume is two-fifths.
c) consume is three-fifths.
Q15. Dissaving occurs where a) income exceeds consumption. b) saving exceeds consumption. c) consumption exceeds income. d) saving exceeds income.
c) consumption exceeds income.
Refer to the diagram for a private closed economy. At the $400 level of GDP, a) aggregate expenditures exceed GDP, with the result that GDP will rise. b) consumption is $350 and planned investment is zero, so aggregate expenditures are $350. c) consumption is $300 and planned investment is $50, so aggregate expenditures are $350. d) consumption is $300 and actual investment is $100, so aggregate expenditures are $400.
c) consumption is $300 and planned investment is $50, so aggregate expenditures are $350.
An investor wants to invest in the oil industry but does not know which major companies will produce the greatest return. As a result, the investor buys shares in several oil companies. By buying several companies to reduce risk, the investor is seeking to lower: a) systemic risk. b) the risk premium. c) diversifiable risk. d) nondiversifiable risk.
c) diversifiable risk.
The size of the MPC is assumed to be: a) less than zero. b) greater than one. c) greater than zero, but less than one. d) two or more.
c) greater than zero, but less than one.
A private closed economy includes: a) households, businesses, and government, but not international trade. b) households, businesses, and international trade, but not government. c) households and businesses, but not government or international trade. d) households only.
c) households and businesses, but not government or international trade.
Suppose that, for every 1-percentage-point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent, bank reserves will a) increase by $1 billion and the money supply will increase by $5 billion. b) decline by $1 billion and the money supply will decline by $10 billion. c) increase by $1 billion and the money supply will increase by $10 billion. d) increase by $10 billion and the money supply will increase by $100 billion.
c) increase by $1 billion and the money supply will increase by $10 billion.
The public debt for the economy is a) $540 billion. b) $400 billion. c) $580 billion. d) $460 billion.
d) $460 billion.
Refer to the given data. The marginal propensity to consume is a) 0.25. b) 0.75. c) 0.20. d) 0.80.
d) 0.80.
When the required reserve ratio is decreased, the excess reserves of member banks are a) reduced, but the multiple by which the commercial banking system can lend is unaffected. b) reduced and the multiple by which the commercial banking system can lend is increased. c) increased and the multiple by which the commercial banking system can lend is increased. d) increased and the multiple by which the commercial banking system can lend is reduced.
c) increased and the multiple by which the commercial banking system can lend is increased.
Contractionary fiscal policy is so named because it a) involves a contraction of the nation's money supply. b) necessarily reduces the size of government. c) is aimed at reducing aggregate demand and thus achieving price stability. d) is expressly designed to expand real GDP.
c) is aimed at reducing aggregate demand and thus achieving price stability.
The short run in macroeconomics is a period in which nominal wages: a) remain unresponsive as the price level stays constant. b) change as the price level stays constant. c) remain unresponsive as the price level changes. d) change as the price level changes.
c) remain unresponsive as the price level changes.
In an aggregate demand-aggregate supply framework, fiscal policy that emphasizes cutting taxes as a means of improving incentives to work, save, and invest would be characterized as primarily a shift: a) rightward shift of the aggregate demand curve. b) leftward shift of the aggregate demand curve. c) rightward shift of the long-run aggregate supply curve. d) leftward shift of the long-run aggregate supply curve.
c) rightward shift of the long-run aggregate supply curve.
The limited liability rule means that if a corporation goes bankrupt: a) shareholders are responsible for all the debts of the firm. b) bondholders are responsible for all the debts of the firm. c) shareholders only lose the amount they invested. d) bondholders only lose the face value of the bond.
c) shareholders only lose the amount they invested.
A fall in the price of capital goods will shift the aggregate: a) demand curve leftward. b) demand curve rightward. c) supply curve rightward. d) supply curve leftward.
c) supply curve rightward.
The public debt is the amount of money that a) state and local governments owe to the federal government. b) Americans owe to foreigners. c) the federal government owes to holders of U.S. securities. d) the federal government owes to taxpayers.
c) the federal government owes to holders of U.S. securities.
In the long run, stability for the economy is achieved only at: a) a high rate of profit. b) the natural rate of inflation. c) the natural rate of unemployment. d) the efficiency trade-off between unemployment and inflation.
c) the natural rate of unemployment.
The cyclically adjusted budget tells us a) that in a full-employment economy, the federal budget should be in balance. b) that tax revenues should vary inversely with GDP. c) what the size of the federal budget deficit or surplus would be if the economy was at full employment. d) the actual budget deficit or surplus realized in any given year.
c) what the size of the federal budget deficit or surplus would be if the economy was at full employment.
If the consumption schedule shifts downward, and the shift was not caused by a tax change, then the saving schedule: a) may shift either upward or downward. b) will shift downward. c) will shift upward. d) will not shift.
c) will shift upward.
The multiplier is useful in determining the a) full-employment unemployment rate. b) level of business inventories. c) change in the rate of inflation from a change in the interest rate. d) change in GDP resulting from a change in spending.
d) change in GDP resulting from a change in spending.
Refer to the data for a fictional economy. The changes in the budget conditions between 2000 and 2001 best reflect a(n) a) recession. b) expansionary fiscal policy. c) tax increase. d) contractionary fiscal policy.
d) contractionary fiscal policy.
Suppose the federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have a) increased by $50 billion. b) increased by $150 billion. c) decreased by $200 billion. d) decreased by $150 billion.
d) decreased by $150 billion.
Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is a) not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. b) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million. c) directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. d) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
d) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
Most modern banking systems are based on a) money of intrinsic value. b) commodity money. c) 100 percent reserves. d) fractional reserves.
d) fractional reserves.
An economist who favored expanded government would recommend a) tax cuts during recession and reductions in government spending during inflation. b) tax increases during recession and tax cuts during inflation. c) tax cuts during recession and tax increases during inflation. d) increases in government spending during recession and tax increases during inflation.
d) increases in government spending during recession and tax increases during inflation.
An inverse relationship between the rate of interest and the level of: a) income is suggested by the consumption function. b) prices is suggested by the aggregate supply curve. c) employment is suggested by the aggregate demand curve. d) investment spending is suggested by the investment demand curve.
d) investment spending is suggested by the investment demand curve.
Expansionary fiscal policy is so named because it a) involves an expansion of the nation's money supply. b) necessarily expands the size of government. c) is aimed at achieving greater price stability. d) is designed to expand real GDP.
d) is designed to expand real GDP.
Other things equal, a decrease in the real interest rate will a) shift the investment demand curve to the right. b) shift the investment demand curve to the left. c) move the economy upward along its existing investment demand curve. d) move the economy downward along its existing investment demand curve.
d) move the economy downward along its existing investment demand curve.
In the last half of the 1990s, the usual short-run trade-off between inflation and unemployment did not arise because: a) the Fed held interest rates constant. b) the federal government balanced its budget. c) the U.S. personal savings rate rose. d) productivity (and thus aggregate supply) grew faster than previously.
d) productivity (and thus aggregate supply) grew faster than previously.
If the demand for money and the supply of money both decrease, the equilibrium a) interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. b) quantity of money and the equilibrium interest rate will both increase. c) quantity of money will increase, but we cannot predict the change in the equilibrium interest rate. d) quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.
d) quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.
If GDP exceeds aggregate expenditures: a) planned investment will exceed saving. b) planned investment will exceed actual investment. c) injections will exceed leakages. d) saving will exceed planned investment.
d) saving will exceed planned investment.
The American Recovery and Reinvestment Act of 2009 was implemented primarily to a) reduce inflationary pressure caused by oil price increases. b) curb the overspending by households that contributed to the Great Recession. c) bring the federal budget back into balance. d) stimulate aggregate demand and employment.
d) stimulate aggregate demand and employment.
During periods of full employment the: a) burden of unemployment is quite evenly distributed among males and females, African-Americans and whites, and young and old workers. b) unemployment rate for teenagers is below the rate for the labor force as a whole. c) unemployment rate for women is considerably lower than that for men. d) unemployment rate for African-Americans is about twice the rate for whites.
d) unemployment rate for African-Americans is about twice the rate for whites.
