Prin. of Macroeconomics Final Exam

the diversifiable risk of potential new investments.

An investor with a diversified portfolio is generally less concerned about

changing the tax system so that the tax line has a steeper slope.

Refer to the graph. Automatic stability in this economy could be enhanced by

increase the public debt from $400 billion to $420 billion.

Security Amount (in Billions) Treasury Bills $ 220 Corporate Bonds 140 Treasury Notes 80 Corporate Stock 200 US Savings Bonds 60 Treasury Bonds 100 Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the economy would

use optimistic forward guidance, lower the federal funds rate, and lower the IORB rate

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?

decrease aggregate demand.

The sale of government bonds in the open market by the Fed will

increased current consumption and increased indebtedness to foreigners.

Two of the implications of large U.S. trade deficits for the United States are

an increase in the dollar price of pesos.

Under a system of freely flexible (floating) exchange rates, a U.S. trade deficit with Mexico will tend to cause

U.S. imports will increase more than U.S. exports.

What are the effects on U.S. imports and exports when the U.S. experiences economic growth stronger than its major trading partners?

an increase in domestic consumption and U.S. indebtedness

What are two major outcomes from the large U.S. trade deficits?

The domestic output of DVCs is so low that the absolute volume of saving is small.

What is the problem with saving in DVCs, even when saving as a percentage of domestic output is the same as in industrially advanced countries?

B

Which of the diagrams for the U.S. economy best portrays the effects of a rise in excess capacity?

the acceptability of it as a medium of exchange

Which of the following "backs" the value of money in the United States?

the flight of private savings to investments in IACs, where there is less risk

Which of the following is a factor limiting saving in DVCs?

lower the overnight reverse repo rate

Which of the following is a monetary policy intended to rein in inflation?

government announces additional spending on education

Which of the following is an example of a public investment?

open-market operations

Which one of the following is a tool of monetary policy used by the Fed for altering the interest rates of bonds?

buying gold to sell later at a higher price

Which one of the following is an example of a financial investment but not an economic investment?

the World Bank

Which organization primarily makes and guarantees loans to developing nations for basic development projects such as the construction of dams, roads, and schools?

managed floating exchange rates

Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses?

$604,000

You estimate that a piece of real estate for investment will be worth $700,000 in five years. The current interest rate is 3 percent. What is the present value of this investment (rounded to the nearest thousand)?

$312

You invest $300 at an annual interest rate of 4 percent. What will your investment be worth at the end of one year?

New Zealand and Denmark

Which two of the following countries had the best score in the Corruption Perceptions Index in 2020?

$3.8 trillion.

At the start of 2022, bank and thrift reserve balances totaled over

$167.5 billion

Suppose that technological advancements stimulate $25 billion in additional investment spending. If the MPC = 0.85, how much will the change in investment increase aggregate demand?

not accurately predict what will happen to interest rates or bond prices.

Suppose the demand for money and the supply of money increase simultaneously. We can

vertical.

The long-run aggregate supply curve is

the real domestic output will decrease and the price level will rise.

A decrease in aggregate supply means

supply curve rightward.

A fall in the prices of inputs will shift the aggregate

lower interest rates and increase the equilibrium GDP.

An increase in the money supply will

not included in either M1 or M2.

Checkable deposits are

the total demand for money is 8,000 billion.

If nominal GDP is $7,000 billion and the amount of money demanded for transactions purposes is $1,000 billion, it can generally be concluded that

the pound will depreciate relative to the U.S. dollar.

If the U.S. dollar appreciates relative to the British pound, then

30 percent.

If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about

in-kind investment.

Suppose that surplus labor in a Pakistani village is used to build a medical clinic and dig several wells. This is an illustration of

both direct private investment and government-provided foreign aid to the DVCs decreased.

In 2005,

banks can create money through the lending process.

In a fractional reserve banking system,

8 percent.

Money SupplyMoney DemandInterest RateInvestment (at Interest Rate Shown)$ 500$ 7006%$ 800$ 5006007700$ 5005008600$ 5004009400$ 50030010300 Answer the question based on the information in the table. The equilibrium interest rate is

time the need for the fiscal action is recognized and the time that the action is taken.

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the

the bond's rate of return would rise from 5 percent to 5.6 percent.

Pavel is considering buying a $10,000 bond with no expiration date that generates yearly payments of $500. If the price of the bond were to fall to $9,000,

total input cost divided by units of output.

Per-unit production cost is

increase taxes by $16 billion.

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

In saying that the present system of floating exchange rates is managed, we mean that

index funds.

Investments that are designed to match exactly the performance of a group of stocks like the Dow Jones Industrial Average or the S&P 500 are called

more likely outcomes.

Investors evaluate an investment by estimating its average expected rate of return, and this estimation process assigns higher weights to

shortage of $2,000 in the economy, and output demanded will increase as the price level falls.

Real Domestic Output Demanded (in Billions) Price Level (Index Value) Real Domestic Output Supplied (in Billions) $ 3,000 350 $ 9,000 4,000 300 8,000 5,000 250 7,000 6,000 200 6,000 7,000 150 5,000 8,000 100 4,000 The accompanying table shows the aggregate demand and aggregate supply schedules for a hypothetical economy. At the price level of 100, there will be a general

suspended the collection of debt payments owed by DVCs to help them through the COVID-19 pandemic.

Recently, the governments of the IACs have

government borrowing to finance the public debt increases the real interest rate and reduces private investment.

The crowding-out effect suggests that

checkable deposits.

As of November 2021, about 10 percent of the money supply (M1) was in the form of

expansionary fiscal policy.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

The Federal Open Market Committee (FOMC) is made up of