Macro Final

When consumers save their tax cut for a future tax increase they are adhering to

Ricardian equivalence

Which of the following can be defined as saving according to economics?

Sandra purchases a certificate of deposit from a bank.

Which of the following chains of logic explain the functions of banks in the process of economic growth?

Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.

To increase the money supply in the economy, the Fed would

carry out open market purchases and/or lower the discount rate.

The largest component of GDP is

consumption spending.

When an increase in government spending leads to a decrease in private spending it is called

crowding out

Which of the following is the most liquid asset?

currency

For a given money multiplier, a decrease in the banking system's reserves will cause the money supply to

decrease

If the interest rate rises from 5 percent to 9 percent, the number of new businesses will

decrease.

At lower interest rates, the cost of investing ______ and the funds that are demanded for investment ______.

decreases; increase

Which of the following assets would you classify as being most liquid?

demand deposits

The labor force is made up of __?

employed and unemployed workers.

What is a service that banks specialize in providing?

evaluating the quality of investment opportunities

The primary tools of fiscal policy are

government expenditure and taxation

Since 1950, the female labor force participation rate in the United States

has risen

Discouraged workers are people who?

have given up looking for work but would still like to work.

When the Federal Reserve makes an open market purchase, the reserves of the banking system will

increase.

When workers lose their jobs and become officially unemployed, the unemployment rate

increases

During recessions the unemployment rate __?

increases.

The Federal Reserve acquires its exclusive powers through its ability to

issue money

Holding reserves is costly for banks because

it leads to fewer profits

The percentage of adults in the labor force is the

labor force participation rate.

In the United States, the amount of cash per capita is about $3,000. This figure

misrepresents actual currency holdings in the United States because a lot of dollars are held outside the country.

France, Germany, Italy, and Spain have experienced ______ unemployment compared to the United States since 1980.

more

All else being equal, a working-age person who has more patience tends to have

more savings

A decrease in consumption growth will cause aggregate demand to

shift inward.

An increase in government spending growth will cause the AD curve to

shift outward

Which of the following assets would you classify as being most liquid?

small-time deposits

When homeowners saw the value of their homes rise in the 1997-2006 boom, they felt wealthier and

spent more.

All of the following are means of payment in the United States EXCEPT

stock options

If consumers expect to have shorter life expectancy and desire to save less, then the

supply of loanable funds will decrease, and the equilibrium interest rate will increase.

An open market operation occurs when

the Fed buys or sells government bonds

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on

the Federal Funds rate

When the U.S. government borrows, it sells

treasury bonds

To be considered money, an asset must be

widely accepted as a means of payment

To be considered money, an asset must be

widely accepted as a means of payment.

Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10 percent. By how much is the money supply expected to change?

$1.6 million

If $100 is saved at an annual interest rate of 10 percent, what will be the return in one year

$10

At an 8 percent interest rate, the quantity of savings is $250 billion. What would the quantity of savings be if the interest rate falls to 5 percent?

$190 billion

Trading in the market for loanable funds determines the equilibrium

B A. amount of borrowing. B. It determines all three of these. C. interest rate. D.level of savings.

Why is the demand for loanable funds downward sloping?

More people borrow money when interest rates are low than when they are high.

One of the Fed's greatest powers is its ability to

boost market confidence.

The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus,

they are somewhat insulated from the political process

The main difference between M1 and M2 is that

M2 includes some less liquid assets in addition to the assets in M1

The reserve ratio is the ratio of bank reserves to

bank deposits

If the required reserve ratio is 4 percent, the money multiplier is

25

What is the unemployment rate for a nation with 6 million employed and 2 million unemployed?

25 percent

How did the Fed encourage business confidence after the September 11th terrorist attacks?

A A. by lending billions to banks B. by lowering corporate taxes C. by reducing money supply D. by putting a moratorium on bank loans

Why do firms and individuals borrow?

A. They want to smooth consumption. B. Debt is often necessary for large purchases. C. They believe their return will be greater than the interest rate. D. Each of these explanations provides a reason for borrowing.

Which of the following did NOT contribute to the financial crisis of 2007-2008?

A. highly leveraged investment banks B. highly leveraged homeowners C. fear on the part of short-term lenders D. Each of these contributed to the crisis.

The Federal Reserve is the

A. federal government's bank. B. U.S. central bank. C. banker's bank in the United States D. Each of these answers is correct.

In the dynamic AD-AS diagram, an increase in the growth rate of the money supply causes

C A. an upward movement along the aggregate demand curve. B. a downward movement along the aggregate demand curve. C. a shift of the aggregate demand curve to the right. D. a shift of the aggregate demand curve to the left.

What philosophy of economic adjustment is against tying the hands of the central bank?

C A. rules B. inclination C. discretion D. prudence

Which of the following is a tool that the Federal Reserve can use to influence AD?

D A. open-market operations B. lending to banks and other financial institutions C. changes in reserve requirements and the interest rate paid on reserves D. Each of these answers is correct.

When the price level actually falls, what is the economy experiencing?

D A. stagflation B. disinflation C. devaluation D. deflation

Mario is saving if he does which of the following?

D A. makes a deposit in a savings account at the bank B. buys a share of stock in a computer company C. buys a corporate bond D. Each of these answers is correct

Which of the following individuals can be counted as unemployed?

D A. Darren, a ten-year-old child B. Moesha, a full-time college student C. Nazma, a stay-at-home mom D. None of the answers is correct.

Which of the following poses a limit to fiscal policy?

D A. crowding out B. size of government expenditures C. timing lags D. Each of these answers is correct.

All individuals who do not have a job are counted as unemployed

False

Bubbles in asset markets are usually easy to identify.

False

Lags associated with monetary policy are generally longer than lags associated with fiscal policy.

False

What is the overnight lending rate from one bank to another

Federal Funds rate

Banks can borrow money from what sources? I. other banks II. the Fed's discount window II. ATMs

I and II only

The Federal Reserve's major tools to control the money supply are I. open market operations. II. discount rate lending and the term auction facility. III. required reserve ratio and payment of interest on reserves. IV. federal funds lending.

I, II, and III only

Financial intermediation can break down as a result of: I. low and stable inflation II. government controls on interest rates III. bank failures

II and III only

The Federal Reserve I. clears all checks. II. makes monetary policy. III. supervises the banking sector.

II and III only

Fiscal policy is most effective when people are otherwise unwilling to spend money

True

If the Fed decides to increase the money supply by $200 million, it can buy government bonds in the open market for less than $200 million

True

If the Fed increases the amount of bank reserves by $100 million, the total money supply will potentially increase by more than $100 million.

True

Monetary policy is more effective in changing real GDP growth if the policy is more credible

True

The most liquid asset is cash

True

As the government builds new schools, the construction workers and material vendors employed on the project spend more in the community where they work. What is the economic term for this effect?

multiplier

The money multiplier equals

one divided by the reserve ratio

The supply of savings is positively sloped because

people are enticed to forgo consumption when interest rates are higher

Which of the following is NOT a function of the Federal Reserve?

providing loans to small businesses

During the 1970s, the Fed often reacted to negative oil shocks by decreasing the money supply and focusing on

reducing inflation

The supply of loanable funds comes from ______ and the demand for loanable funds comes from ______.

saving; investment

Firms primarily raise money by using which two methods?

selling stocks and issuing corporate bonds

When the Fed wants to increase interest rates, it

sells bonds in the open market

Investment is

the purchase of new capital goods