Macro exam 2 homework questions
identify which asset is the most liquid
checking account
classify each example as commodity money or fiat money silver, horses, cigs
commodity money
if the government is required to balance the budget and the economy falls into a recession, which of the actions is a feasible policy response?
cut spending equal to the reduction in tax revenue
policymakers should reduce spending and increase taxes when the economy is growing in order to prevent overheating
cyclically balanced budget
businesses become increasingly pessimistic about the economy. investment demand will
decrease
congress increases business taxes to avoid the much discussed "fiscal cliff". Investment demand will
decrease
indentify how each of the scenarios affect short run aggregate supply the US government increases the minimum wage
decrease
therefore, the net effect of an increase in the price level in the US is that the amount of US goods/services that are purchased will
decrease
classify the events according to their impact on aggregate demand a dramatic decline in the average price of houses will
decrease AD
_______ fiscal policy involves more government spending money on anything
expansionary
lowering unemployment and increasing inflation is a goal of ______ fiscal policy
expansionary
a person's ______ regarding how much income he or she will earn is the future as well as future prices could shape how much he or she spends and saves today
expectations
if the price level in the US increases relative to other countries, then the US will export
fewer goods/services
classify each example as commodity money or fiat money bitcoins, Mexican pesos
fiat money
policymakers should focus on keeping unemployment low and providing the people with the public goods and services they want
functional finance
this approach ignores the impact of the budget on the business cycle
functional finance
the total accumulated amount that the government has borrowed and not yet paid back overtime
government debt
the more _____ a person has, the less current consumption he or she undertakes
household debt
Keynesian economists believe that _____ is the key determinant of consumption and spending
income
after a major hurricane, the resulting floods destroy much of the existing capital stock in many parts of the eastern US. investment demand will
increase
indentify how each of the scenarios affect short run aggregate supply the government decreases the payroll tax paid by employees
increase
indentify how each of the scenarios affect short run aggregate supply widespread adoption of the internet by businesses increase productivity and efficiency
increase
the practice of fracking, which is a technique used to extract oil and natural gas increases, causing the costs of using many types of machinery to fall. investment demand will
increase
the tech industry develops the personal computer, which has a significant impact on productivity. investment demand will
increase
classify the events according to their impact on aggregate demand a dramatic improvement in the stock market causing investors wealth to rise will
increase AD
Classical economists believe that the higher the _______, the more people will save, which means that they will consume less
interest rate
one of the key underpinnings of public choice analysis is the assumption that politicians and bureaucrats
make political decisions based on self interest, just as individuals and firms do
which type of spending currently takes up a larger proportion of the US federal budget?
mandatory spending
the slope of the consumption function is the ___________
marginal propensity to consume
for the US government which of the given is NOT an example of discretionary spending?
medicare
cattle is not an effective form of money. what essential characteristic of money does cattle lack that most makes it ineffective?
medium of exchange
and the US will import
more goods/services
indentify how each of the scenarios affect short run aggregate supply the US government decreases the personal income tax rate paid by households
no change
a decrease in the money supply is ______ fiscal policy
not an example of
classify the events according to their impact on aggregate demand an announcement by the central bank to maintain its existing monetary policy will
not change AD
identify each type of retirement accounts according to whether the individual contributor pays income taxes on the contribution (posttax) or not (pretax) at the time of contribution both IRA
post tax
identify each type of retirement accounts according to whether the individual contributor pays income taxes on the contribution (posttax) or not (pretax) at the time of contribution traditional IRA social security 401k
pretax
______ fiscal policy focuses on reducing regulations on businesses
supply side
_______ fiscal policy encourages human and capital development
supply side
lowering unemployment and prices is a goal of _______ fiscal policy
supply side
which type of fiscal policy takes longer to affect the economy?
supply side
a person's total income can be divided into 3 components: consumption, savings, and _______
taxes
if the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?
the business will not take out the loan
liquidity is best defined as
the ease of converting as asset into cash
as prices rise in the US foreigners purchase fewer US goods
the export effect
as prices rise, the cost for businesses to finance new equipment increases, causing a drop in quantity demanded of real GDP
the interest rate effect
what is a likely consequence of this policy?
the negative consequences of the recession are magnified
choose the answer that best defines the marginal propensity to save (MPS)
the share of each additional dollar of income earned that is devoted to saving rather than consumption
the purchasing power of money held in savings accounts falls as prices rise
the wealth effect
savings, which it total income minus consumption and taxes, can be used to create _______.
wealth
complete the sentences with the correct function of money. she quickly walks to the checkout line where she pays the cashier for her new dress. at the cashier, money is serving as
a medium of exchange
a double coincidence of wants is
a situation where 2 individuals each want something or service that the other people can provide
complete the sentences with the correct function of money. she is especially excited because she has been saving money each week in her piggy bank at home so that she can afford a trip to Florida next summer. the money in the piggy bank is serving as
a store of value
complete the sentences with the correct function of money. Norah walks into her favorite department store to pick out a new dress. She checks out the price tag and is excited to see that the dress is on sale and is now relatively cheaper than another dress she was considering. Here money is serving as
a unit of account
what is the wealth affect?
as inflation occurs, consumers buy fewer goods and services because the value of their accumulated wealth declines
which describes the role of automatic stabilizers in the economy?
automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. automatic stabilizers increase aggregate demand during recessions and reduce aggregate demand during expansions
when government spending and taxes are equal
balanced budget
reducing tax rates is which type of fiscal policy
both demand side and supply side
in which type of discretionary fiscal policy does the multiplier play a role?
both government spending changes and tax changes
when the federal government spends more than it collects in taxes in a given time period
budget deficit
when the government receives more in taxes than it spending in a given time period
budget surplus
according to the wealth affect, what happens as the price level falls?
consumption spending increases
lowering inflation and increasing unemployment is a goal of ______ fiscal policy
contractionary
which of the statements concerning retirement accounts is true?
contributions to personal retirement accounts remain the property of the individuals or heirs, but social security payments are transferred to others
classify the events according to their impact on aggregate demand a recession occurring in a trading partner's economy will
decrease AD
classify the events according to their impact on aggregate demand a reduction in government spending will
decrease AD
classify the events according to their impact on aggregate demand increased concern that a recession is looming will
decrease AD
what discretionary fiscal policy tool did Arthur Laffer propose that the US utilize to increase tax revenues?
decrease income tax rates
classify each of the given events according to the category that best describes how it affects the equilibrium interest rate in the market for loanable funds an increase in savings, a decrease in investor optimism
decreases the interest rate
why are persistent budget deficits worrisome?
deficits can lead to private investment spending being crowded out, debt places an increased burden on the economy in the future, the likelihood of default increases
identify the impact on either the supply or demand of loanable funds following the events listed in an effort to balance the budget, the government increases taxes paid by businesses. as a result, the ______ loanable funds will _______.
demand for, decrease
identify the impact on either the supply or demand of loanable funds following the events listed if economic conditions improve, increasing the demand for goods and services, then the _______ loanable funds will ______.
demand for, increase
identify the impact on either the supply or demand of loanable funds following the events listed innovations in robotics technology vastly improves productivity within manufacturing firms. as a result the _______ loanable funds will ________.
demand for, increase
the consumption function shows the relationship between consumption spending and ___________
disposable income
changes in consumption can be predicted by multiplying the change in ______ by the ________
disposable income marginal propensity to consume
classify each of the given events according to the category that best describes how it affects the equilibrium interest rate in the market for loanable funds an investment tax credit, an increase in large investments
increases the interest rate
which of the terms acts as the "price" in the market for loanable funds?
interest rate
the interest rate effect
is the change in consumer and investment spending due to changes in interest rates resulting from changes in the aggregate price level
barter is best defined as
literally trading one good for another without using money
which statement best describes some of the components of externally held debt?
public debt held by foreign individuals and entities
as interest rate decreases, what happens to the quantity of loanable funds demanded?
quantity demanded will increase
what effect will an increase in interest rates have on the quantity of loanable funds supplied?
quantity supplied will increase
what is the typical reason why investors would choose to put their money into an investment with higher risk rather than one with lower risk?
riskier investments typically have higher returns
the public choice perspective on deficit spending suggests that deficit spending
shifts the costs of programs away from current taxpayers and onto future generations
fresh fish is not an effective form of money. what essential characteristic of money does fish lack that most makes it ineffective?
store of value
identify the impact on either the supply or demand of loanable funds following the events listed if economic conditions deteriorate, prompting households to save a larger portion of their income, then _______ loanable funds will _______.
supply of, increase
choose the answer that best explains the relationship between the consumption function and the savings function
there is an inverse relationship between shifts in the consumption and savings function
money is best defined as
whatever serves society in 3 functions: medium of exchange, store of value, and unit of account
which best describes why the multiplier exists?
when people spend money, that money ends up in the pockets or bank accounts of other people or organizations, who then use that money in some way
which of the following equations represents the macroeconomic equilibrium condition in the aggregate expenditure model?
Y = C + I + G + NX
a decrease in government spending is ______ fiscal policy
a contractionary
a decrease in transfer payment is ______ fiscal policy
a contractionary
an increase in tax rates is ______ fiscal policy
a contractionary
cost push inflation is caused by
a decrease in short run aggregate supply to an equilibrium point below full employment
which of the following best defines a financial intermediary?
a financial institution that transforms investor funds into financial assets
a decrease in taxes is ______ fiscal policy
an expansionary
an increase in government spending is _______ fiscal policy
an expansionary
demand and pull inflation is caused by
an increase in aggregate demand to an equilibrium point beyond full employment
if insisted upon, this approach would only worsen the economy during a recession
annually balanced budget
this approach was considered conventional wisdom until the advent of the great depression
annually balanced budget