Macroeconomics Final Exam

The difference between tax revenue and government spending plus transfer payments is equal to... A. the public savings. B. national savings. C. the trade balance. D. investment spending.

A. the public savings.

The federal government is said to be "dissaving" when... A. there is a budget deficit. B. there is a budget surplus. C. there is no budget deficit and budget surplus D. savings does not equal investment spending

A. there is a budget deficit.

Use the information for a small economy presented in the following table to answer questions. Population age 16 and older: 200,000 Labor face: 100,000 Number of people working part time: 20,000 Number of people working full time: 70,000 How many people are unemployed? A. 10,000 B. 20,000 C. 30,000 D. 100,000

A. 10,000

Which of the following is considered contractionary fiscal policy? A. Congress increases the income tax rate. B. Congress increases defense spending. C. Legislation allowsa college tuition deduction from federal income taxes. D. The New Jersey legislature cuts highway spending to balance its budget.

A. Congress increases the income tax rate.

Refer to the Figure above. According to the figure above, at what point is aggregate expenditure greater than GDP? *Graph* Quiz 2 number 9! A. J B. K C. L D. None of the above.

A. J

The M2 definition of the money supply includes... A. M1, saving accounts, small time deposits, and money markets. B. M1, savings accounts, small time deposits, money markets, and credit cards. C. saving accounts, mutual funds, small time deposits, and credit cards. D. M1, savings accounts, mutual funds, and credit cards.

A. M1, saving accounts, small time deposits, and money markets.

The actual change in real GDP resulting from an increase in government purchases or a cut in taxes will be less than the simple multiplier effect indicates. A. True B. False

A. True

If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.) A. a $300 billion decrease in GDP. B. a $300 billion increase in GDP. C. a $30 billion increase in GDP. D. a $133.33 billion decrease in GDP

A. a $300 billion decrease in GDP

Which of the following changes would be the most likely to reduce the size of the money multiplier? A. a decrease in the required reserve ratio. B. A decrease in excess reserves. C. an increase in the cash holding by consumers. D. a decrease in bank runs.

A. a decrease in the required reserve ratio.

The budget balance tends to decline during a recession because... A. a tax revenue automatically declines. B. transfer payments automatically decline. C. government spending automatically declines. D. the government must cut spending as tax revenue automatically declines.

A. a tax revenue automatically declines.

An attempt to reduce inflation requires____ fiscal policy, which causes real GDP to ______ and the price level to _______. A. contractionary; fall; fall B. contractionary; rise; fall C. expansionary; rise; rise D. expansionary; rise; fall

A. contractionary; fall; fall

Contractionary monetary policy attempts to ____ aggregate demand by ______ interest rates. A. decrease; increasing. B. increase; decreasing. C. decrease; decreasing. D. increase; increasing.

A. decrease; increasing.

Which of the following assets is most liquid? A. dollar bill. B. bond. C. savings account. D. stock.

A. dollar bill.

Which of the following actions can the Fed take to decrease the equilibrium interest rate? A. increase the money supply. B. increase the money demand. C. decrease the money supply. D. decrease money demand.

A. increase the money supply.

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information we can conclude that Harry's production of large pepperoni pizzas this year: A. increased nominal GDP by $20,000 but left real GDP unchanged. B. increased nominal GDP by $120,000 and increased real GDP by $100,000. C. left nominal GDP unchanged but increased real GDP by $20,000. D. increased nominal GDP by $120,000 but left real GDPunchanged.

A. increased nominal GDP by $20,000 but left real GDP unchanged.

In an economy with rising prices, compared to the base year, .... A. nominal GDP is larger than real GDP in years after the base year. B. nominal GDP is equal to real GDP in years after the base year. C. nominal GDP is larger than real GDP in years before the base year. D. nominal GDP is equal to real GDP in years before the base year.

A. nominal GDP is larger than real GDP in years after the base year.

When the economy is experiencing a recession, automatic stabilizers will cause: A. transfer payments to decrease and tax revenues to decrease. B. transfers payments to increase and tax revenues to increase. C. transfer payments to increase and tax revenues to decrease. D. transfer payments and tax revenues to be unaffected.

C. transfer payments to increase and tax revenues to decrease.

Use the information for a small economy presented in the following table to answer questions. Population age 16 and older: 200,000 Labor face: 100,000 Number of people working part time: 20,000 Number of people working full time: 70,000 What is the unemployment rate? A. 70% B. 50% C. 20% D. 10%

D. 10%

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders shouldcharge a nominal interest rate of: A. 2 percent B. 3 percent C. 5 percent D. 7 percent

D. 7 percent

Which of the following would be considered a fiscal policy action? A. The Fed increases the money supply. B. Tax incentives are offered to encourage the purchase of fuel efficient cars. C. Spending on the war in Afghanistan is increased to promote homeland security. D. A tax cut is designed to stimulate spending during a recession.

D. A tax cut is designed to stimulate spending during a recession.

Which of the following is a monetary policy tool used by the Federal Reserve Bank? A. increasing the reserve requirement from 10 percent to 12.5 percent. B. Decreasing the rate at which banks can borrow money from the Federal Reserve. C. Buying $500 million worth of government securities, such as Treasury bills. D. All of the above.

D. All of the above.

In the definition of the money supply, where do credit cards belong? A. Both M1 and M2. B. M1. C. M2. D. Credit cards are not included in the definition of the money supply.

D. Credit cards are not included in the definition of the money supply.

Macroeconomic equilibrium occurs where.. A. the unemployment rate is zero. B. consumption equals investment and investment equals government expenditure. C. total production, orGDP, equals total planned investment. D. total spending, or aggregate expenditure, equals total production, or GDP.

D. total spending, or aggregate expenditure, equals total production, or GDP.

According to the Rule of 70, if a country's real GDP per capita grows at a rate of 4% per year, it will take how many years for real GDP per capita to double? A. 17.5 B. 20 C. 35 D. 70

A. 17.5

What will happen to the money supply and the equilibrium interest rate if the Federal Reserve sells Treasury securities? A. Money supply will increase and the equilibrium interest rate will increase. B. Money supply will decrease and the equilibrium interest rate will increase. C. Money supply will increase and the equilibrium interest rate will decrease. D. Money supply will decrease and the equilibrium interest rate will decrease.

B. Money supply will decrease and the equilibrium interest rate will increase.

When income is $1,000, the level of consumption spending is equal to $850. When income rises to $1,200, the level of consumption spending is equal to $1,000. In this case the value of the marginal propensity to consume is... A. 0.85 B. 0.83 C. 0.75 D. 0.50

C. 0.75

The total debt of the U.S. federal government... A. is the same as pubic debt. B. is measured by the difference between the government's revenue and spending for a particular year. C. increases when the government runs a budget deficit. D. decreases when the government runs a budget deficit.

C. increases when the government runs a budget deficit.

If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then... A. the multiplier is 0.1 B. the multiplier is 1. C. the multiplier is 10. D. the multiplier is 100.

C. the multiplier is 10.

In 2013, Ozzie purchased a 2010 Ford Escort from his neighbor for his son, purchased a 2009 "one owner" Camry from Larchmont Toyota for his wife, bought a 2013 new Ford for himself, and sold his 2002 Dodge Caravan to his teenage nephew. Which, if any, ofthese transactions will be included in GDP in 2013? A. all four transactions. B. all three purchases but not the sale. C. the purchase of the Ford and the Caravan. D. only the purchase of the Ford.

D. only the purchase of the Ford.

Which of the following is NOT included in GDP? A. production of services, such as the services of doctors. B. production of goods that last more than one year, such as television sets. C. production of goods that do not last more than one year, such as gasoline. D. production in the home.

D. production in the home.

The quantity of money demanded rises (that is, there is a movement along the money demand curve) when... A. the aggregate price level increases. B. the aggregate price level falls. C. real GDP increases. D. short-term interest rates fall.

D. short-term interest rates fall.

If the marginal propensity to consume is 0.5, then a $100 million increase in investment expenditure will increase real GDP by... A. $100 million B. $200 million C. $150 million D. $300 million

B. $200 million

The multiplier is equal to... A. MPC B. 1/(1-MPC) C. 1/(1+MPC) D. 1/MPC

B. 1/(1-MPC)

If the CPI was 121.5 at the end of last year and 138.3 at the end of this year, the inflation rate over these two years was... A. 10.2 percent B. 13.8 percent C. 12.2 percent D. 16.8 percent

B. 13.8 percent

Use the information for a small economy presented in the following table to answer questions. Population age 16 and older: 200,000 Labor face: 100,000 Number of people working part time: 20,000 Number of people working full time: 70,000 What is the labor force participation rate? A. 70% B. 50% C. 20% D. 10%

B. 50%

If a country's real GDP per capita doubles in 10 years, what was its average annual rate of growth of real GDP per capita? A. 3.5% B. 7% C. 10% D. 70%

B. 7%

Which of the following will increase the demand for loanable funds? A. A federal government budget surplus B. An increase in perceived business opportunities C. A decrease in the interest rate D. Decreased private saving rates.

B. An increase in perceived business opportunities

What is fiscal policy? A. Fiscal policy can be described as changes in interest rates to achieve macroeconomic policy objectives. B. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives. C. Fiscal policy can be described as changes in interest rates and taxes to achieve macroeconomic policy objectives. D. Fiscal policy can be described as changes in government spending and interest rates to achieve macroeconomic policy objectives.

B. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives.

What changes should they make if they decide a contractionary fiscal policy is necessary? A. In this case, Congress and the president should enact policies that decrease government spending and decrease taxes. B. In this case, Congress and the president should enact policies that decrease government spending and increase taxes. C. In this case, Congress and the president should enact policies that increase government spending and increase taxes. D. In this case, Congress and the president should enact policies that increase government spending and decrease taxes.

B. In this case, Congress and the president should enact policies that decrease government spending and increase taxes.

A person who is unemployed because of a mismatch between the quality of labor supplied and the quality of labor demanded is experiencing what type of unemployment? A. Frictional B. Structural C. Cyclical D. None of the above

B. Structural

Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will be A. an increase of $100 million. B. an increase of more than $100 million. C. an increase of less than $100 million. D. an increase of either more than or less than $100 million, depending on the MPC.

B. an increase of more than $100 million.

Which of the following is not counted in M1? A. checking account balances. B. credit card balances. C. travelers' checks. D. currency in circulation.

B. credit card balances.

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run equilibrium? An increase in... A. the money supply and a decrease in interest rates. B. government purchases. C. oil prices. D. taxes.

B. government purchases.

Which of the following is an example of expansionary fiscal policy? A. increasing taxes. B. increasing government purchases. C. decreasing government transfers. D. decreasing interest rates.

B. increasing government purchases.

Which of the following is a goal of monetary policy? A. zero inflation. B. price stability. C. increased potential output. D. decreased actual real GDP.

B. price stability.

The fraction of bank deposits that is required to held as reserves is the... A. reserve ratio. B. required reserve ratio. C. excess reserve ratio. D. reserve requirement.

B. required reserve ratio.

If real GDP is less than planned aggregate spending then... A. unplanned change in inventories will increase. B. unplanned change in inventories will decrease. C. unplanned change in inventories will remain constant. D. Firms will reduce production.

B. unplanned change in inventories will decrease.

If the cost of a market basket of goods increases from $100 in year 1 to $108 in year 2, whatis the consumer price index in year 2 if year 1 is the base year? A. 8 B. 100 C. 108 D. 110

C. 108

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is... A. 7 percent B. 5 percent C. 3 percent D. 2 percent

C. 3 percent

If the consumer price index increases from 80 to 120 from one year to the next, the inflation rate over that time period was.. A. 20% B. 40% C. 50% D. 80%

C. 50%

Which of the following will increase the supply of loanable funds? A. An increase in perceived business opportunities. B. Increased government borrowing. C. An increased private saving rate. D. An increase in the expected inflation rate.

C. An increased private saving rate.

Which of the following is the most liquid monetary aggregate? A. M1 B. M2 C. Dollar bills D. Checking accounts

C. Dollar bills.

A change in which of the following will shift the money demand curve? I. the aggregate price level. II. real GDP III. the interest rate A. I only. B. II only. C. I and II only. D. I, II, and III

C. I and II only.

If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium? A. Inventories will decline, and GDP and employment will decline. B. Inventories will rise, and GDP and employment will decline. C. Inventories will decline, and GDP and employment will rise. D. Inventories will rise, and GDP and employment will rise.

C. Inventories will decline, and GDP and employment will rise.

After September 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal policy? A. Yes. Fiscal policy refers to changes in government spending and taxes. B. Yes. Increases in defense spending are designed to achieve macroeconomic policy objectives. C. No. The increase in defense spending after that date was designed to achieve homeland security objectives. D. No. Fiscal policy refers to changes interest rates and the money supply.

C. No. The increase in defense spending after that date was designed to achieve homeland security objectives.

In the graph above, suppose the economy is initially at point A. The movement of the economy to point Bas shown in the graph illustrates the effect of which of the following policy actions by Congress and the president? *Refer to Graph* A. an increase in transfer payments. B. an increase in interest rates. C. an increase in income taxes. D. an open market purchase of Treasury bills.

C. an increase in income taxes.

Suppose that the economy is currently at potential GDP, and the the federal budget is balanced. If the economy moves into recession, what will happen to the federal budget? A. If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures decrease and tax revenues increase. B. If the budget is balanced at potential GDP and the economy moves into recession, then the budget will remain balanced as government expenditure increases and tax revenue decreases will exactly offset each other. C. If the budget is balanced at potential GDP and the economy moves into recession, the the budget will remain balanced. D. If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures increase and tax revenues decrease.

D. If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures increase and tax revenues decrease.

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP? A. Nominal and real GDP would both rise. B. Nominal and real GDP would both be unchanged. C. Real GDP would rise, but nominal GDP would be unchanged. D. Nominal GDP would rise, but real GDP would be unchanged.

D. Nominal GDP would rise, but real GDP would be unchanged.

Suppose the Consumer Price Index is 143.6. What does that number mean? A. On average, goods cost $143.60. B. On average, goods cost $243.60. C. Prices rose 143.6 percent over the reference base period, on average. D. Prices rose 43.6 percent over the reference base period, on average.

D. Prices rose 43.6 percent over the reference base period, on average.

The dynamic aggregate demand and aggregate supply model allows for a more realistic examination of monetary policy over the basic aggregate supply and aggregate demand model by allowing the economy in the dynamic model to... A. use both fiscal and monetary policy. B. experience changes in the price level and changes in net exports. C. experience changes in aggregate demand when the Fed changes the money supply. D. experience continuous inflation and experience long-run economic growth.

D. experience continuous inflation and experience long-run economic growth.

A recent accounting graduate from a major business school is searching for a place to begin his career as an accountant. This individual is best considered as.... A. structurally unemployed. B. seasonally unemployed. C. cyclically unemployed. D. frictionally unemployed.

D. frictionally unemployed.

An increase in the money supply will lead to which of the following in the short run? A. higher interest rates. B. decreased investment spending. C. decreasing consumer spending. D. increased aggregate demand.

D. increased aggregate demand.