MACRO FINAL - ALL PREVIOUS TEST QUESTIONS]

If the reserve requirement is 25% and a new deposit leads to a potential increase in the money supply of $4,000, the amount of the new deposit must equal

$1,000

if you spend $100 and the MPC is 0.9, how much spending will this $100 generate in the economy

$1,000

when jay wins a contest, he is able to choose one prize from 4 options. he chooses a 4-year certificate of deposit that will accumulate interest and cannot be cashed until maturity in 4 years. given the options below, which prize would provide jay with the largest value 4 years from now

$1,100 with an interest rate of 3%

when using the expenditure approach, the GDP is

$1770 billion

the slope of the saving schedule is

1 - MPC

if the government raises taxes, what will this do to the AD curve

AD shifts left

the real GDP that firms will produce at varying price levels is

aggregate supply

what does the 45 degree line in the aggregate expenditures model represent

all consumption and no saving

assume the reserve requirement is 25% and the federal open market committee buys $4 million of US government bonds from the public. as a result of this transaction, the supply of money is

directly increased by $4 million and has the potential to be increased by another $12 million

the GDP deflator shows that since the mid 1980's, the US economy has had

disinflation

the functions of money include

medium of exchange, store of value, unit of account

what is the likely chain of events if asset prices rise

people feel wealthier so their spending rises and their saving falls, causing interest rates to rise

if the federal reserve decides to increase the money supply

the federal funds rate will fall

which organization determines the beginning and end dates of a recession

the national bureau of economic research

a decrease in foreign income will cause the aggregate demand to shift to the left

true

a decrease in the reserve ratio will increase excess reserves

true

a monetary rule would make it difficult to respond to unforeseen consequences

true

frictional employment refers primarily to workers between jobs

true

if a bank does not have enough funds in reserves, it can borrow through either the federal funds market or the discount window

true

when economists warn about the crowding-out effect, they are referring to

when government borrowing reduces private investment

in the following aggregate expenditures graph, to raise income from $4,400 to $4,800, government spending (G) must increase by _________; this corresponds with an MPC of

$100; 0.75

if your income is $35,000 and the average propensity to save is 0.46, what is consumption

$18,900

if the reserve requirement is 10%, and a bank initially receives $20,000 in deposits, then the maximum amount of money that the banking system can create is

$200,000

If autonomous investment spending falls by $1,000 and the marginal propensity to consume is 0.75, the total effect on the economy is a decrease of _____ in income or output.

$4,000

if the marginal propensity to save is 0.2 and income rises by $5,000, how much of the $5,000 will be consumed

$4,000

assume that the empathy state bank begins with the balance sheet below and is fully loaned up. if this bank is subject to a reserve requirement of 5%, what is the amount of its excess reserves

$5,000

if your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114

$51,818

if the national debt is $55 million and this year's deficit is $5 million, what would the new national debt be

$60 million

last year, Megan's salary was $65,000. The CPI increased from 109 to 115. If Megan received a cost-of-living adjustment, what would her salary be

$68,578

assume the reserve requirement is 10% and all banks are fully loaned up. if a new deposit of $10,000 is made into bank X, that bank, with this deposit can make a new loan of

$9,000

which of the following marginal propensities to consume results in the flattest consumption line in an aggregate expenditures model

0.4

if MPC = 0.6, what is the spending multiplier

2.5

the housing bubble occured from

2004-2006

using the equation of exchange, if the money supply is $4 trillion, the price level is 2, and level of output (real GDP) is $6 trillion, then the velocity of money is

3

suppose the unemployment rate is 10% and an economist breaks the unemployment breaks into the following components: frictional (3%) and structural (3%). based on the estimates, the cyclical inflation rate is

4%

suppose the government collected $3.2 trillion in tax revenues and spent $3.8 trillion, and discretionary spending was $1.5 trillion. for the government to fully balance the budget this year, how much discretionary spending needs to be cut

40%

if technological advances increase productivity, the demand for loanable funds curve will shift from __________ to ____________ and the new equilibrium will be at point __________, holding supply constant at S0

D0; D1; c

if a country's population increases at a slower rate than the growth in its real GDP

GDP per capita has increased

the quantity theory equation of exchange states

M * V = P * Q

the federal reserve engineered a recession to reduce out-of-control inflation under

Paul Volcker

If households decide to save a larger portion of their income, because they fear job loss due to a recession, the loanable funds supply curve will shift from ___________ to ____________, and the new equilibrium will be at point ______, holding demand constant at D0

S0; S1; b

if there are advances in technology, the short run aggregate supply curve will shift from SRAS0 to ___________ and the price level will shift to ___________

SRAS1; P1

if the government raises taxes or increases regulations, the short run aggregate supply curve will shift from SRAS0 to _____________ and the price level will be at __________

SRAS2; P2

which of these items is not a function of money

a method of making change

_______________ keeps the growth of money stocks, such as M1 and M2, on a steady path, following the equation of exchange

a monetary rule

according to john maynard keynes, what determines employment and income

aggregate expenditures

if the ultimate goal of fiscal policy aimed at aggregate supply is achieved, what happens to the aggregate price level and aggregate output

aggregate price level decreases; aggregate output increases

which of the following resources is an example of infrastructure

an elementary school

which of the following fiscal policies would least likely result in an increase in aggregate supply

an increase in business regulations

how does the spending multiplier compare between a $1,000 increase in a government spending and a $1,000 decrease in taxes collected

an increase in government spending has a greater spending multiplier than an equivalent tax decrease

a shift of the long run aggregate supply curve to the right suggests which of the following

an increase in productivity

according to the taylor rule, the 2 most important factors influencing the federal reserve's changing the federal funds rate are

an inflation rate different from the fed's target and output different from potential GDP

if full employment income is $1,000 while the current equilibrium is $750 a point a, _____ gap exists, such that __________ in aggregate expenditures equal to __________ is needed to close the gap

an inflationary; a decrease; $100

retirees and creditors

are hurt by inflation because their purchasing power is reduced

which of the following statements do economists generally disagree on

at an average tax rate of 50%, tax revenues are maximized for a government

the direct exchange of goods and services is called

barter

the report that compiles economic conditions collected by the federal reserve regional banks is called the

beige book

the portion of the national debt that is not held by the federal reserve and government agencies include

both the internally and externally held debt

the great depression showed that the short run aggregate supply and the aggregate demand curves

can intersect at output levels below full employment

the multiplier effect shows that a change in aggregate spending

causes output to change even more than the change in aggregate spending

among these options, the least likely risky portfolio is 50% ____________ and 50% __________

certificates of deposit; blue-chip stocks

which action is not a tool of monetary policy

changing government spending and taxes

the idea that all income ultimately goes to households, which then use to buy goods and services from firms, is a central idea of the:

circular flow diagram

which of these was not a cause of the 2007-2009 financial crisis

congress enacted restrictive trade policies that failed to curb imports

an economist notices that M1 is rapidly rising. One conclusion she might draw is that:

consumers are preparing to make more purchases

reducing government spending , reducing transfer payments, or raising taxes describes which policy

contractionary fiscal policy

automatic stabilizers have __________ effects during times of economic prosperity and ____________ effects during times of economic downturn

contractionary; expansionary

the 1973 oil shocks created

cost pull inflation

banks

create money by making loans using the deposits of their customers

the most common type of short term debt is

credit card debt

which of the following requires the government to balance its budget over the business cycle

cyclically balanced budget

what is the one major category that separates national debt from public debt

debt held by other government agencies

which short run economic shock would be the most difficult to address through monetary policy

decrease in short run aggregate supply

what did arthur laffer suggest president reagan do in the 1980's

decrease income taxes

in February 2010, the central bank of Brazil raised reserve requirements. by raising those requirements, Brazil was attempting to

decrease its money supply

suppose energy prices spike. in the short run, output will _____________; in the long run, output will ________ from its starting point

decrease; remain unchanged

if a government collects $550 billion in taxes and spends $700 billion, it would have a

deficit of $150 billion

which one of the following is a reason the crowding-out effect could be mitigated

deficit spending used for public investment

the 3 types of consumption are

durables, nondurables and services

the use of tax receipts to modernize the air traffic control system promotes economic growth by

enhancing physical and human capital

how do changes in inflation expectations impact the short run aggregate supply curve and the long run aggregate supply curve

expectations that inflation will rise will cause short run aggregate supply to decrease and long run aggregate supply to remain constant

a consumer price index of 107 means that prices rose by 7% from the previous year

false

a country's infrastructure does not affect its economic growth

false

a product demand curve and the aggregate demand curve are negatively sloped for the same reasons

false

during demand pull inflation, the economy cannot expand beyond full employment

false

during the 2007-2009 recession, the federal reserve was not able to compensate for the change in the money supplier

false

if a bank is subject to a reserve requirement of 3% and its reserve ratio is 1%, this bank is considered highly liquid

false

in the short run, demand and supply shocks to the economy require the same monetary policy

false

monetary policy lags can last up to 3 years

false

mortgage debt is a type of short term debt

false

most economists agree that the long term goal of monetary policy is to keep interest rates as low as possible

false

new regulations on financial firms include the lower capital requirements and more restrictions on leverage

false

no federal reserve chairman has had to deal with deflation since 1978

false

some analysts blame the last economic crisis on federal reserve policy. they argue that the fed did not adequately regulate the mortgage markets credit standards for issuing loans as required by the federal reserve act

false

spending money on research and development hurts a national economy because it increases the average cost of all products

false

supply shocks that are counteracted by increasing the money supply will restore the economy to full employment and also decrease the price level

false

the 2007 housing crisis led banks to increase lending in an effort to offset foreclosures

false

the balanced budget multiplier changes according to the values of marginal propensity to consume and marginal propensity to save

false

the discount rate is the rate that banks charge their best customers

false

the intangible components of infrastructure are the easiest to measure objectively

false

the labor force consists of all adults in the US

false

the return on investment of an asset largely depends on the risk of the asset, with lower risk assets generally earning a higher return

false

when the fed buys bonds, its demand raises the price of bonds, in turn raising nominal interest rates in the market

false

which of the following would not cause a rightward shift in aggregate supply

fear of inflation

the __________ oversees the main tool of monetary policy

federal open market committee

when recession gets under way

firms start to lay off workers to reduce costs

if the reserve requirement is 25% then a $500 increase in deposits means that the money supply

has the potential to increase by $2,000

which of the following statements are true i. if cyclical unemployment is 0%, then the unemployment rate equals the natural rate of unemployment ii. the unemployment rate consists of only frictional or structural unemployment iii. an unemployment rate of 0% is generally considered the equivalent of full employment

i only

which of the following are considered withdrawals from an economy

imports; taxes; savings

increases in government spending ______________ equilibrium income, and increases in taxes ______________ equilibrium income

increase, decrease

a ______ in oil prices and a ______ in taxes will shift short run aggregate supply to the left

increase; increase

a ___________ in productivity and a _____ in taxes will shift short run aggregate supply to the right

increase; increase

according to the production function, which of the following changes will not result in economic growth

increases in consumption spending

which of the following measures would decrease the money supply

increasing reserve requirement

if 2014 is selected as the base year, the economy is experiencing ____________ in 2017

inflation

_______ occurs when a central bank sets a target inflation rate and adjusts monetary policy to keep inflation within that range

inflation targeting

if real GDP at full employment is $5 billion while current GDP is $6 billion, a ________ exists, and will require a _________ in spending to bring the economy back to full employment

inflationary gap; decrease

the GDP gap divided by the multiplier yields the

inflationary or recessionary gap

in september 2013, the FOMC said it would wait for more evidence that progress had been made on teh economic recovery before it cut back on open market purchases. the BEA did not release its advanced estimate of the 3rd quarters GDP growth until a month after the quarter ended. the 2nd estimate was released 2 months after the quarter ended and a 3rd revised estimate was released about 3 months after the quarter ended. the wait for accurate data to be collected is known as the

information lag

GDP includes output produced _________ but it does not include output produced ___________

inside the US by foreign citizens; outside the US by US citizens

the most important measure in determining whether a country's national debt is a significant problem is

interest paid on the national debt as a portion of GDP

money

is anything that is accepted in exchange for other goods and services or payment of debt

if an economy is on the vertical portion of the aggregate supply curve, then it

is at full employment

when the consumption lies below the 45 degree reference line, saving

is positive

an economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as

jobless recovery

the national economic objectives that the Fed attempts to achieve include all the following actions except

keeping tax rates low

the cost of cyclical unemployment can be minimized by

keeping the economy on a steady, low-inflationary growth path

which of these was not a factor leading to the 2007-2009 financial crisis?

lack in faith in the ability of the US treasury to pay on government bonds

lack of transparency regarding monetary policy could cause which problem

lack of understanding among the public regarding monetary policy actions

generally, which group of people has the highest marginal propensity to consume

low income people

according to the taylor rule, the more GDP falls below potential GDP, other things equal the

lower the federal funds target rate

student loans funded by the government typically offer ____________ interest rates than similar bank loans and ______________

lower; can be paid back later

which measure did the european central bank take to prevent the financial crises in individual countries from collapsing the eurozone

making loans to troubled countries

the money multiplier

measures the maximum amount the money supply can increase when new deposits enter the banking system

milton friedman and anna schwarts are most famous for

monetary theory

all of the following programs are mandatory spending except

national defense

which situation indicates that total output in a country has grown the most when the starting output is the same in all situations

output per worker grows by 4% while the labor force grows by 12%

the price of feed corn would be included in the

producer price index

which phase of the business cycle occurs immediately before a trough

recession

if the economy has high levels of unemployment, the federal reserve will

reduce interest rates

which of the following is a source of increases in productivity

research and development, improvements in labor quality, capital investment

which of the following is a form of US public debt

savings bonds

if the fed wants to raise the federal funds rate, it will ________ bonds, which __________ bond prices

sell; lower

all of these actions are performed by the federal reserve regional banks except

setting reserve requirements

if an economy is in a recession, what would expansionary fiscal policy do

shift AD to the right

the aggregate demand curve

shows the amount of real GDP that will be demanded at each possible price level

consumption spending is

spending by individuals and households on both durable and nondurable

since the invention of automatic teller machines, many bank tellers have lost their job. This is an example of ______ unemployment

structural

if both consumers and businesses are pessimistic about the future of the economy

the aggregate demand curve shifts to the left

the potbelly pothole company is undertaking some investments in its plant. suppose interest rates fall and new technologies increase the return on its investment. what is likely to happen

the companys demand for investments will rise

in the US, the census bureau computes the unemployment rate from

the current population survey

an increase in aggregate demand can be caused by

the depreciation of the dollar

which of the following is a critical dilemma when implementing fiscal policy in reference to timing lags

the economy may already be in a recovery before fiscal policy is enacted

the discount rate is the interest rate

the fed charges depository institutions to borrow reserves from a regional federal reserve bank

which statement is not a criticism of the federal reserve's handling of the 2007-2009 financial crisis

the fed should have strengthened the dollar to shore up exports

the national activity index was developed by

the federal reserve bank of chicago

in the market for loanable funds, the government reduces tax breaks for saving and increases the penalties for corruption. what changes should be expected in the market for loanable funds due to these events

the interest rates will rise, but there is uncertainty about any change in the amount of borrowed funds

which statement is not true

the supply of funds to the loanable funds market is inversely related to the interest rate

in the equation of exchange, if M=$2 trillion, P=1.5, and Q=$8 trillion

the velocity of money (V)=6

when the federal reserve sells bonds, it is implementing

tight money policy

after the banking crisis of 2008-2009, the financial services industry now has to meet

tighter regulations

certeris paribus, a decrease in imports will increase aggregate demand

true

expansionary monetary policy shifts the aggregate demand curve rightward

true

free trade refers to the ability to buy and sell products with other countries without significant barriers, such as tariffs or quotas

true

if new technologies are not developed, the catch-up effect tends to slow over time

true

if the reserve requirement is 20%, the money multiplier is 5

true

in both the simple keynesian model and the full keynesian model, the sum of injections of spending must equal the sum of withdrawals at equillibrium

true

keynes believed that more government spending was necessary to solve the unemployment problem created by the great depression, since it was unlikely that investment or exports would increase

true

monetarists believe that any change in the money supply will change prices, output, or both in the short run

true

monetarists believe that the economy will return to full employment in the long run on its own

true

shortcomings of the national income and product accounts include ignoring nonmarket transactions, such as the value of your labor within your own home (value of cooking your own dinner)

true

stocks tend to be more volatile than bonds

true

tax changes generally have less of an impact on equilibrium than do changes in gov. spending

true

the 45 degree line represents the set of points where aggregate expenditures is equal to disposable income

true

the compounding effect makes debt repayment significantly higher over time

true

the consumer price index measures the average change in prices paid by urban consumers and urban wage earners for a market basket of goods and services, covering 87% of the population

true

the federal reserve is responsible for, among other things, promoting economic growth with low inflation

true

the great depression was characterized by a lack of aggregate demand

true

the legal enforcement of contract rights is an important component of intangible infrastructure that promotes economic growth

true

the long run aggregate supply curve represents the full employment capacity of the economy

true

there is an inverse relationship between bond prices and interest rates

true

when the open market committee buys $1 million worth of bonds, $1 million of reserves is instantly put into the banking system

true

when you deposit $100 in your bank, your bank can lend part of that $100 to others

true

which of the following is an example of an automatic stablizer

unemployed workers claiming unemployment benefits during a recession

social security and medicare are considered ____________ liabilities and expected to ____________ over the next generation

unfunded; rise