macro final exam
If the reserve requirement is 10%, a withdrawal of $500 leads to a potential decrease in the money supply of
$5,000
the federal reserve system includes (blank) regional banks
12
the percentage of the world's population that is very poor, as opposed to living in extreme poverty, is about
25%
If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____.
4; equal or less than 4
last year, the consumer price index was 115 while this year it was 125; what is the rate of inflation?
8.7%
Johnny is 17 and works in his father's bubble gum store 10 hours a week after school. His father pays him no money but buys video games for him. However, Johnny earns a spot on the high school football team and no longer works in his father's store. How is Johnny categorized in the unemployment figures?
Johnny is not part of the labor force
which of these would NOT cause a shift in the short-run aggregate supply curve?
a decrease in real interest rates
which of these is NOT an example of gross private domestic investment
a household's purchase of shares of Google stock
the real GDP that firms will produce at varying price levels is
aggregate supply
which of these occurrences is NOT a source of productivity growth?
an increase in the level of consumption spending
when the federal reserve increases the money supply, how and why does it do it?
buys bonds to reduce the interest rate
which of these is NOT an instrument used to finance the US public debt?
certificates of deposits
To counteract a positive demand shock, the Federal Reserve uses _____ monetary policy, which _____.
contractionary; reduces both output and the price level
which group is most likely to be harmed by international trade? a) businesses who buy imported raw materials for production b) consumers who buy imported goods for consumption c) businesses that produce goods primarily for export d) businesses who produce goods that compete against imports
d) businesses who produce goods that compete against imports
the twin goals of monetary policy are
economic growth and stable prices
the GDP of the country of Econia is $100 billion with the following components: C=$50 billion, I= $15 billion, G= $30 billion, and (X-M)= $5 billion. which of these would have the largest immediate impact to increase Econia's GDP?
exports rise by $4 billion
during cost-push inflation, aggregate output (blank) and the aggregate price level (blank)
falls;rises
As a clergyman and an economist, Thomas Malthus believed that society could eliminate poverty and create a heaven on earth.
false
In the long run, the Federal Reserve targets full employment, which it considers to be 4% to 5% unemployment.
false
The only institutions bailed out by the Federal Reserve during the last financial crisis were commercial banks.
false
a country with a large population and centralized government cannot be a world leader in economic growth
false
an advantage of GDP per capita to measure the standard of living in a country is that it declines if economic growth results in deterioration of the environment
false
countries such as china often purchase US debt to keep their currencies from falling against the US dollar
false
economic models must fully reflect reality (T/F)
false
labor includes the physical but not the mental talents of people
false
leisure time is included in the GDP accounts
false
small differences in growth rates do not lead to large overall differences in income over time
false
the Laffer curve has aggregate expenditure and income on its axes
false
the fed's board of governors is made up of the heads of the 12 regional districts
false
when investors believe an economic slowdown is likely, they buy short-term bonds to lock in interest rates
false
which group benefits from an unanticipated rise in the inflation rate
homeowners with fixed-rate mortgages
the (blank) lag is the time required to turn fiscal policy into law to have an impact on the economy.
implementation
which statement is TRUE regarding the catch-up effect with economic growth?
increases in capital generally lead to higher growth in developing countries
which of these will result if the economy expands beyond the level of full employment?
inflation
barter
involves a double coincidence of wants if an exchange takes place
the automatic stabilizer
is exemplified by a program such as unemployment compensation
liquidity refers to low
quickly, easily, and reliably an asset can be converted into a medium of exchange
which activity would NOT qualify a person as being in the labor force?
reading help-wanted ads
if the fed increases the supply of money in the market through open market operations, bond prices will (blank) and interest rates will (blank)
rise;fall
the single largest consumer in the United States is
the goverment
as interest rates rise
there is a movement upward along the demand curve for loanable funds
which of these is NOT a key role of financial insitutions?
to increase interest rates charged to borrowers
Both overspending on credit by households and low interest rates set in motion the events that led to the 2007-2009 recession.
true
Friedman advocated a steady growth in the supply of money
true
a disadvantage of supply-side fiscal policies is that they take longer to work than do demand-side fiscal policies
true
a jobless recovery occurs when an economic recovery produces too few jobs to significantly reduce the unemployment rate
true
an example of a natural resource is a mineral deposit
true
externally held debt is public debt held by foreigners
true
generally speaking, private markers are the most efficient institutions for providing goods and services (T/F)
true
if the marginal propensity to consume is 0.8, then every $80 of every additional $100 of income will be spent on consumption
true
structural unemployment can be reduced by retraining workers for new industries
true
the reserve ratio is the amount of reserves a bank holds as a percentage of total deposits
true
when the economy is growing steadily, rising tax revenues and declining transfer payments have a contractionary effect on the economy
true
structural unemployment
unemployment resulting from industrial reorganization, typically due to technological change, rather than fluctuations in supply or demand
both social security and medicare are pay-as-you-go programs. this means that
current taxpayers fund the benefits that are currently paid out
which type of unemployment do economists attempt to resolve using economic policy?
cyclical unemployment
if both consumers and businesses are pessimistic about the future of the economy
the aggregate demand curve shifts to the left
(blank) combine land. labor, and capital to produce goods and services and assume the risks associated with running a business
entrepreneurs
which of these is NOT an element of expansionary fiscal policy?
expanding immigration policies
Assume that the economy is in full-employment equilibrium. If an inflation targeting rule is used and a positive demand shock hits the economy, the Federal Reserve will undertake an expansionary monetary policy to return the economy to full employment.
false
If a $1,000 bond is issued with a coupon rate of 11% and the market interest rate drops to 7%, the trading price of that bond will drop.
false
Suppose a country has full employment and price stability if the unemployment rate is 4% to 5%, inflation runs at 2% to 3%, and real GDP grows at a rate of 2.25% to 3% per year. If the federal deficit was $3 trillion, economic growth was 2%, and the unemployment rate was 10%, a functional finance economist would suggest increasing taxes in order to balance the budget.
false
as a measure of inflation, the media gives more attention to the GDP deflator than the consumer price index
false
the circular flow diagram shows that the sum of the resource market and the product market must equal the total payments going to the business market
false
the economy is not likely to be heading into a recession when the National Activity Index equals -0.95
false
the primary purpose of the circular flow model is to show how government policies affect businesses and households
false
tight monetary policy is likely to decrease imports
false
the US median household income in 2018 was about $60,000
false ($63,179)
which statement about fiscal policy and aggregate supply is correct?
fiscal policies that influence aggregate supply do not always require tradeoffs between price level and output
which of these is NOT a policy tool of the federal reserve?
fiscal policy
an increase in which of these would lead to a lower rate of economic growth? trade greater tax burden research and development business investment
greater tax burden
the key difference between microeconomics and macroeconomics is microeconomics focuses on (blank) while macroeconomics focuses on (blank)
individual issues; aggregate issues
the twin perils of the modern macro economy are said to be
inflation and unemployment
which fiscal policy time lag is caused by the fact that GDP data are not immediately available?
information lag
to say that the federal reserve is transparent means that the fed
is open regarding its monetary policy
the short-run aggregate supply curve
is upward sloping because some costs are slow to rise as output expands
If the reserve requirement changes from 10% to 15%, what happens to the money multiplier?
it goes down
Which statement was NOT a criticism of the Federal Reserve's response to the 2007-2009 financial crisis in the United States?
it took minimal rather than drastic action
the natural gas deposits found in the United States over the past decade are an example of
land and natural resources
a shift to the (blank) of the (blank) curve would cause the price level and employment to decrease
left; aggregate demand
bonds are considered to be (blank) than stocks because (blank)
less risky; bondholders are less affected by a firm's bankruptcy
the proportion of additional income that consumers spend is known as the
marginal propensity to consume
the (blank) is the sum of past (blank) less surpluses
national debt; budget deficits
During periods of economic expansion, cyclical unemployment can become _____, causing the unemployment rate to become _____ than the natural rate of unemployment.
negative;lower
one of the key concepts involved in the circular flow diagram is that
one person's spending is another person's income
the federal open market committee is responsible for
overseeing the buying and selling of government securities in the open market
what is the likely chain of events if asset prices rise?
people feel wealthier, so their spending rises and their savings falls, causing interest rates to rise
full employment on a production possibilities frontier (PPF) is shown by
points on the PPF
if the labor force is 20 million people and 18 million people are employed, what is the unemployment rate?
10%
Which statement is TRUE about specialization and exchange between two individuals? A) They generally benefit the poorer individual at the expense of the richer individual. B) They generally benefit neither the poorer individual nor the richer individual. C) They generally benefit the richer individual at the expense of the poorer individual. D) They generally benefit the poorer individual as well as the richer individual.
D) They generally benefit the poorer individual as well as the richer individual
Which of these would be considered frictional unemployment?I. Alisha has taken a job at a different company in order to accept a promotion. She quit her current job but has one month off until she starts her new job.II. John has lost his job as a book binder, as the demand for e-books has replaced demand for traditional books.III. Melissa quit her full-time job to become a full-time student in order to pursue her Ph.D.
I only
Which statement(s) is/are TRUE?I. The crowding-out effect can be mitigated if the funds from deficit spending are used for public investment.II. The majority of the U.S. national debt is held by the foreign public and is owned by foreign banks, corporations, mutual funds, pension plans, and individuals.III. It's always wise for a country to pay off its debt.
I only
In the classical monetary transmission mechanism, any change in _____ will bring about _____.
M; a direct proportionate change in P
the united states can grow a greater total quantity of wheat than can Japan. the united states has an (blank) in wheat production?
absolute advantage
the curve that shows how much GDP is demanded at various price levels is called
aggregate demand
at the peak of the business cycle, the economy is typically operating
at its capacity
land as a productive resource does not include
computers
an economist notices that M1 is rapidly rising. One conclusion she might draw is that
consumers are preparing to make more purchases
which question would not be considered one of the basic economic questions? a) what production method should be used to make batteries for plug in cars? b) to whom will the production of solar panels be sold to? c) should brazil continue to produce ethanol? d) when will the new high-speed train in california be completed?
d) when will the new high-speed train in california be completed?
During the Christmas season, people tend to draw money out of their checking accounts to pay for presents. As a result, the actual money multiplier will
decrease
which of these is NOT an example of infrastructure in the United States?
desktop computers in the workplace
_____ spending is the part of the budget that works its way through Congress each year and includes programs such as national defense, transportation, environment, and education.
discretionary
when fiscal policy is used to correct short-run fluctuations in the business cycle, which type of spending is able to be changed more readily?
discretionary spending
Assume the Fed's target for unemployment is 4% to 5%, and its target for inflation is 2% to 3%. If the unemployment rate is 4.5% and the inflation rate is 6%, the Federal Reserve will most likely
sell bonds
income payments to the rest of the world are
subtracted from the GDP
in the market for loanable funds, what can cause a rise in interest rates?
supply shifting left and demand shifting right
an interest rate that is low for only a short period of time is called a
teaser rate
increases in (blank) often lead to economic growth
technology
which statement about social security is NOT true?
the FICA tax used to fund social security is collected on all income regardless of the amount
In the market for loanable funds, the government announces new tax breaks for saving for retirement while there is an increase in demand for products. What should be expected in the market for loanable funds as a result of these two events?
the amount of funds borrowed will rise, but there is uncertainty about the direction of any change in interest rates
The Potbelly Pothole Company is undertaking some investments in its plant. Suppose interest rates fall and new technologies increase the return on investment. What is likely to happen?
the company's demand for investments will rise
the rule of 70 would be most accurate for estimating the doubling time in which situation?
the growth rate is steady at 4%
collegetown's unemployment rate is 5%. After graduation, students who previously did not work actively seek jobs but only 80% find work right away. The rest continue to actively look for jobs. How does collegetown's labor force participation rate and unemployment rate change?
the labor force participation rate increases and the unemployment rate increases
which of these provides an accurate description regarding the slope of the short-run aggregate supply curve?
the positive slope of the short-run aggregate supply curve is steeper the more flexible prices are or the flatter the more rigid prices are.
if the US aggregate price level rises
the purchasing power of wealth will decrease
the "wealth effect" refers to the fact that when aggregate price levels rise
the real value of savings accounts, bonds, and cash declines
who is responsible for paying off a deferment on a college loan?
the student at a later date
in which situation is a country LEAST likely to be producing on its production possibilities curve?
there are legal disputes over the ownership of 15% of the factory buildings in the country
government policy to achieve high employment may cause inflation to rise too quickly (T/S)
true
increased government regulation can cause the aggregate supply curve to shift to the left
true
the government sector is the single largest consumer of goods and services in the United States
true
wants are usually greater than resources (T/F)
true
water is included in the definition of land
true
frictional unemployment
unemployment which exists in an economy due to people being in the process of moving from one job to another
cyclical unemployment
unemployment which is related to the cyclical trends in the industry or the business cycle
land and natural resources include
water and minerals that come from the earth