macro exam 2 review

If spending growth is 3% and real GDP growth is 2%, what is the inflation rate?

1%

Which of the following scenarios could result in a recession?

Aggregate demand decreases, and wages are sticky.

Which is an example of someone who is fooled by money illusion in a certain country with a 4% inflation rate

An employee thinks he can buy 7% more goods and services after receiving a 7% raise.

Which is an example of someone who is fooled by money illusion in a certain country with a 4% inflation rate?

An employee thinks he can buy 7% more goods and services after receiving a 7% raise.

Which accurately describes who gains and who loses from unexpected inflation that occurs after the interest rate is set?

Borrowers gain and lenders lose.

Which of the following would cause the AD curve to shift to the right?

an increase in consumer wealth

When the government monetizes its debt, the results are:

higher inflation and losses for holders of government bonds.

Workers and firms adjust to predictable inflation by:

including adjustments for it in contracts.

When a family's income becomes more uncertain, we expect its saving to:

increase

According to the inflation parable discussed in the text, a positive shock to spending:

increases output at first but in the long run only increases price.

Borrowed funds are demanded by _____, while borrowed funds are supplied by _____.

investors; savers

In the long run, money:

is neutral

The U.S. federal government finances most of its new spending by:

issuing bonds.

Inflation hurts the economy because:

it affects the ability of market prices to send signals about the value of resources

When Lehman Brothers went bankrupt, most of Lehman's managers:

lost some money but still ended up being very rich.

Many economists blame the severity of the Great Depression on:

poor monetary policy conducted by the Federal Reserve.

The position of the long-run aggregate supply curve shows the economy's:

potential growth rate given by the real factors of production.

During the financial crisis, because of high leverage, losses on mortgages:

pushed banks toward insolvency.

For a tax system in which higher-income earners pay a larger share of their incomes in taxes, a higher inflation rate:

raises the tax burden of taxpayers.

People with a high time preference are less likely to:

save

The process of bundling loans together and selling them on the market as financial assets is called:

securitization.

What is an example of impatience in economic behavior?

taking the first job you are offered

Government can influence a person's choice to work or not through:

taxes on workers and benefits paid to nonworkers.

Which of the following best explains the crowding-out effect?

the decrease in private investment due to higher interest rates that result from increased government borrowing to finance larger budget deficits

Which of the following elements reduces structural unemployment?

the enhancement of worker retraining programs

Inflation occurs when the growth in _____ exceeds the growth in _____.

the money supply; output

The presence of discouraged workers causes the measured unemployment rate to be:

understated.

Suppose the inflation rate is 3% when a 15-year mortgage loan is given at a fixed rate of 4.5%. Five years later the inflation rate rises to 4%. What impact does this change have on the nominal interest rate and the real interest rate on the mortgage loan?

The nominal interest rate remains the same and the real rate interest decreases.

Which of the following is an example of money illusion, assuming that inflation is 5%?

You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend.

unanticipated high inflation always means

a loss in purchasing power for lenders of fixed-rate loans.

Which of the following is an example of an unemployed person?

a recent college graduate looking for her first job

According to the quantity theory of money, a nation that increases its money supply by 30% should expect its price level to increase by approximately:

30%

What is meant by the claim that inflation redistributes wealth?

Some people gain and some people lose from inflation.

How do taxes impact spending in the economy?

Taxes have a negative relationship with both consumption and investment spending.

If individuals become more impatient, what will happen in the market for loanable funds?

The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease.

When the U.S. government borrows, it sells:

Treasury bonds.

In the short run, an increase in spending will cause:

both output and prices to rise.

If the interest rate increases, then:

both the quantity saved and the quantity supplied of loanable funds will increase.

An unexpected increase in money growth leads to increased inflation in:

both the short run and the long run

How do banks earn a profit?

by charging higher interest rates on loans than they pay on deposits

Someone who recently moved to Florida because of its warmer climate will need to spend some time looking for a new job. This is an example of:

frictional unemployment.

The shadow banking system includes each of the following except:

commercial banks.

Because of money illusion, inflation often confuses:

consumers, workers, and firms

As the baby boomers retire, the U.S. labor force participation rate will:

decrease.

If, in an economic panic, people decide to hold their money rather than spend it, the velocity of money will:

decrease.

When business firms become more pessimistic about the state of the economy, the:

demand to borrow shifts to the left.

Which of the following is NOT a reason for the financial crisis of 2007-2008?

excessive confidence about the stock market

Critics of securitization argue that, leading up to the housing crisis, banks often:

failed to properly research their borrowers.