question

The _______, or the _ _ _, is the increase in consumer spending when disposable income rises by $1.

answer

Marginal Propensity to Consume

question

The _______, or the _ _ _, is the increase in household saving when disposable income rises by $1.

answer

Marginal Propensity to Save

question

Formula For MPC

answer

Change in Consumer Spending / Change in Disposable Income

question

The ________ is the ratio of total change in Real GDP cause by an autonomous change in aggregate spending to the size of that autonomous change

answer

Multiplier

question

An _______ _______ __ ____________ _____________ is an initial rise or fall in aggregate spending that is the cause, not the result, of a series of income and spending changes.

answer

autonomous change in aggregate spending

question

Formula for the Multiplier

answer

1 / (1-MPC)

question

The __________ ___________ is an equation showing how an individual household's consumer spending varies with the household's current disposable income.

answer

consumption function

question

_______________ _____________ _____________ is the amount of money a household would spend if it had no disposable income.

answer

Autonomous consumer spending

question

The __________ ____________ _____________ is the relationship for the economy as a whole between aggregate current disposable income and aggregate consumer spending.

answer

Aggregate Consumption Function

question

_________ ___________ __________ is the investment spending that businesses intend to undertake during a given period

answer

Planned investment spending

question

___________ are stocks of goods held to satisfy future sales

answer

inventories

question

_____________ _____________ is the value of the change in total inventories held in the economy during a given period

answer

inventory investment

question

Positive __________ __________ ___________ occurs when actual sales are less than businesses expected, leading to unplanned increases in inventories. Sales in excess of expectations result in negative unplanned inventory investment

answer

unplanned inventory investment

question

________ __________ _________ is the sum of planned investment spending and unplanned inventory invesement

answer

Actual investment spending

question

Changes in Which of the following leads to a shift of the aggregate consumption function? I. expected future disposable income II. aggregate wealth III. current disposable income

answer

I, II, and III

question

The slope of a family's consumption function is equal to ____________

answer

the Marginal Propensity to Consume

question

The level of planned investment spending is negatively related to the _____________

answer

interest rate

question

Actual investment spending in any period is equal to ___________

answer

planned investment spending + unplanned inventory investment

question

__________ ____________ is the use of government policy to reduce the severity of recessions and rein in excessively strong expansions

answer

stabilization policy

question

_______ ________ programs are government programs intended to protect families against economic hardship

answer

social insurance

question

________________ fiscal policy increases aggregate demand

answer

expansionary

question

_______________ fiscal policy reduced aggregate demand

answer

contractionary

question

Which of the following contributes to the lag in implementing fiscal policy? I. It takes time for Congress and the President to pass spending and tax changes. II. Current economic data takes time to collect and analyze. III. It takes time to realize an output gap exists.

answer

I, II, and III

question

Which of the following is a government transfer program? a. Social Security b. Medicare/Medicaid c. unemployment insurance d. food stamps e. all of the above

answer

all of the above

question

Which of the following is an example of expansionary fiscal policy? a. increasing taxes b. increasing government spending c. decreasing government transfers d. decreasing interest rates e. increasing the money supply

answer

increasing government spending

question

Which of the following is a fiscal policy that is appropriate to combat inflation? a. decreasing taxes b. decreasing government spending c. increasing government transfers d. increasing interest rates e. expansionary fiscal policy

answer

decreasing government spending

question

An income tax rebate is an example of _____________

answer

expansionary fiscal policy

question

________ ____ _____ are taxes that don't depend on the taxpayer's income

answer

Lump-sum taxes

question

__________ ___________ are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands

answer

Automatic stabilizers

question

____________ ________ ________ is fiscal policy that is the result of deliberate actions by policy makers rather than rules

answer

Discretionary fiscal policy

question

The Marginal Propensity to consume: I. has a negative relationship to the multiplier II. Is equal to 1. III. represents the proportion of consumers' disposable income that is spent

answer

III only

question

The presence of taxes has what effect on the multiplier? They ______

answer

decrease it

question

A lump sum tax is ___________

answer

independent of income

question

Which of the following is NOT an automatic stabilizer? a. income taxes b. unemployment insurance c. Medicaid d. food stamps e. monetary policy

answer

monetary policy

question

The ________ ____ is the price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year

answer

interest rate

question

According to the __________-___________ ____________ _____________, savings and investment spending are always equal for the economy as a whole

answer

savings-investment spending identity

question

The __________ _________ is the difference between tax revenue and government spending when tax revenue exceeds government spending

answer

budget surplus

question

The ________ ________ is the difference between tax revenue and government spending when government spending exceeds tax revenue.

answer

budget deficit

question

The _________ __________ is the difference between tax revenue and government spending

answer

budget balance

question

___________ _________, the sum of private savings and the budget balance, is the total amount of savings generated within the economy

answer

National Savings

question

____________ ___________ is the net inflow of funds into a country

answer

Capital Inflow

question

A household's ________ is the value of its accumulated savings.

answer

wealth

question

A ___________ _____ is a paper claim that entitles the buyer to future income from the seller

answer

financial asset

question

A _________ _______ is a claim on a tangible object that gives the owner the right to dispose of the object as he or she wishes

answer

physical asset

question

A ____________ is a requirement to pay money in the future

answer

liability

question

____________ _______ are the expenses of negotiating and executing a deal

answer

transaction costs

question

____________ _____ is uncertainty about future outcomes that involve financial losses and gains

answer

financial risk

question

An individual can engage in ______________ by investing in several different assets so that the possible losses are independent events

answer

diversification

question

An asset is ________ if it can be quickly converted into cash without much loss of value.

answer

liquid

question

An asset is ____________ if it cannot be quickly converted into cash without much loss of value.

answer

illiquid

question

A _____ is a lending agreement between an individual lender and an individual borrower

answer

loan

question

A ____________ occurs when a borrower fails to make payments as specified by the loan or bond contract

answer

default

question

A ______-_________ _______ is an asset created by pooling individual loans and selling shares in that pool

answer

loan-backed security

question

A _____________ _____________ is an institution that transforms the funds it gathers from many individuals into financial assets

answer

financial intermediary

question

a _______ ______ is a financial intermediary that creates a stock portfolio and then resells shares of this portfolio to individual investors

answer

mutual fund

question

A _______ ______ is a type of mutual fund that holds assets in order to provide retirement income to its members

answer

pension fund

question

A _____ __________ __________ sells policies that guarantee a payment to a policyholder's beneficiaries when the policyholder dies.

answer

life insurance company

question

a _____ _________ is a claim on a bank that obliges the bank to give the depositor his or her cash when demanded

answer

bank deposit

question

A _____ is a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investment spending needs of borrowers

answer

bank

question

Decreasing which of the following is a task of the financial system? I. transaction costs II. risk III. liquidity

answer

I and II only

question

Which of the following is NOT a type of financial asset? a. bonds b. stocks c. bank deposits d.loans e. houses

answer

houses

question

The federal government is said to be "dissaving" when _____________

answer

there is no budget deficit

question

A nonprofit institution collects the savings of its members and invests those funds in a wide variety of assets in order to provide its members with income after retirement. This describes a ________

answer

pension fund

question

A financial intermediary that provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers is called a _________________

answer

bank

question

________ is any asset that can easily be used to purchase goods and services

answer

Money

question

_____________ ___ ______________ is cash held by the public

answer

Currency in circulation

question

_____________ _____ ____________ are bank accounts on which people can write checks

answer

Checkable bank deposits

question

The _______ ___________ is the total value of financial assets in the economy that are considered money

answer

Money supply

question

A ____________ ___ ____________ is an asset that individuals acquire for the purpose of trading goods and services rather than for their own consumption

answer

medium of exchange

question

A ________ __ ________ is a means of holding purchasing power over time

answer

store of value

question

A _____ ___ ________ is a measure used to set prices and make economic calculations

answer

unit of account

question

_______________ ______ is a good used as a medium of exchange that has intrinsic value in other uses

answer

commodity money

question

____________-___________ _______ is a medium of exchange with no intrinsic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods

answer

commodity-backed money

question

__________ _________ is a medium of exchange whose value derives entirely from its official status as a means of payment

answer

fiat money

question

A _________ __________ is an overall measure of the money supply

answer

monetary aggregate

question

________ are financial assets that can't be directly used as a medium of exchange but can be readily converted into cash or checkable bank deposits

answer

near-moneys

question

When you use money to purchase your lunch, money is serving which role(s)? I.medium of exchange II. store of value III. unit of account

answer

I, II, and III

question

When you decide you want "$10 worth" of a product, money is serving which role(s)? I. medium of exchange II. store of value III. unit of account

answer

II only

question

In the United States, the dollar is __________

answer

fiat money

question

Which of the following is the most liquid monetary aggregate? a. M1 b. M2 c. M3 d. near-moneys e. dollar bills

answer

near-moneys

question

Which of the following is the best example of using money as a store of value? a. A customer pays in advance for $10 worth of gasoline at a gas station b. A babysitter puts her earnings in a dresser drawer while she saves to buy a bicycle c. Travelers buy meals on board an airline flight d. Foreign visitors to the United States convert their currency to dollars at the airport. e. You use $1 bills to purchase soda from a vending machine

answer

A babysitter puts her earnings in a dresser drawer while she saves to buy a bicycle

question

The ________ _______ of $1 realized one year from now is equal to $1/(1+r): the amount of money you must lend out today in order to have $1 in one year. It is the value to you today of $1 realized one year from now.

answer

present value

question

The ____ ___________ _______ of a project is the present value of current and future benefits minus the present value of current and future costs

answer

net present value

question

Suppose, for simplicity, that a bank uses a single interest rate for loans and deposits, there is no inflation, and all unspent money is deposited in the bank. The interest rate measures which of the following? I. The Cost of using a dollar today rather than a year from now. II. the benefit of delaying the use of a dollar from today until a year from now. III. the price of borrowing money calculated as a percentage of the amount borrowed

answer

I, II, and III

question

If the interest rate is zero, then the present value of a dollar received at the end of the year is _________

answer

equal to $1

question

IF the interest rate is 10%, the present value of $1 paid to you one year from now is___________

answer

$0.91

question

If the interest rate is 5%, the amount received one year from now as a result of lending $100 today is ____________

answer

$105

question

What is the present value of $100 realized two years from now if the interest rate is 10%?

answer

$83

question

____ __________ are the currency banks hold in their vaults plus their deposits at the Federal Reserve

answer

bank reserves

question

A _-______ is a tool for analyzing a business's financial position by showing, in a single table, the business' assets (on the left) and liabilities (on the right)

answer

T-account

question

The _______ ______ is the fraction of bank deposits that a bank holds as reserves

answer

reserve ratio

question

The _______ _________ ______ is the smallest fraction of deposits that the Federal Reserve allows banks to hold

answer

required reserve ratio

question

A _____ ____ is a phenomenon in which many of a bank's depositors try to withdraw their funds due to fears of a bank failure

answer

bank run

question

__________ ___________ guarantees that a bank's depositors will be paid even if the bank can't come up with the funds, up to a maximum amount per account

answer

deposite insurance

question

__________ _____________ are rules set by the Federal Reserve that determine the required reserve ratio for banks

answer

reserve requirements

question

The _____ ______ is an arrangement in which the Federal Reserve stands ready to lend money to banks

answer

discount window

question

_______ _______ are a bank's reserves over and above its required reserves

answer

excess reserves

question

The _______ ______ is the sum of currency in circulation and bank reserves

answer

monetary base

question

The ______ ________ is the ratio of the money supply to the monetary base. It indicates the total number of dollars created in the banking system by each $1 addition to the monetary base.

answer

money multiplier

question

Bank Reserves include which of the following? I. currency in bank vaults II. bank deposits held in accounts at the Federal Reserve III. customer deposits in bank checking accounts

answer

I and II

question

The fraction of bank deposits actually held as reserves is the _________

answer

reserve ratio

question

Bank regulation includes which of the following? I. deposit insurance II. capital requirements III. reserve requirements

answer

I, II, and III

question

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 cash holding by consumers d. a decrease in bank runs e. an increase in deposit insurance

answer

an increase in cash holding by consumers

question

The monetary base equals ________ ?

answer

currency in circulation + reserves held by banks

question

A _____ ____ is an institution that oversees and regulates the banking system and controls the monetary base.

answer

central bank

question

A __________ _______ accepts deposits and is covered by deposit insurance

answer

commercial bank

question

An _____________ _______ trades in financial assets and is not covered by deposit insurance

answer

investment bank

question

A _______ ___ _____ (thrift) is another type of deposit-taking bank, usually specialized in issuing home loans

answer

savings and loan

question

A financial institution engages in ________ when it finances its investment with borrowed funds

answer

leverage

question

The _______ _____ _____ is the reduction in a firm's net worth from falling asset prices

answer

balance sheet effect

question

A __________ ____ ___ __________ takes place when asset sales to cover losses produce negative balance sheet effects on other firms and force creditors to call in their loans, forcing sales of more assets and causing further declines in asset prices

answer

vicious cycle of deleveraging

question

_______ _______ is lending to home buyers who don't meet the usual criteria for being able to afford their payments

answer

subprime lending

question

In ____________ a pool of loans is assembled and shares of that pool are sold to investors

answer

securitization

question

Which of the following contributed to the creation of the Federal Reserve System? I. The bank panic of 1907 II. the Great Depression III. The savings and loan crisis of the 1980s

answer

I only

question

Which of the following is a part of both the Federal Reserve System and the federal Government? a. The Federal Reserve Board of Governors b. the 12 regional Federal Reserve Banks c. the Reconstruction Finance Corporation d. commercial banks e. the Treasury Department

answer

the Federal Reserve Board of Governors

question

Which of the following is NOT a role of the Federal Reserve System? a. controlling bank reserves b. printing currency (Federal Reserve Notes) c. carrying out monetary policy d. supervising and regulating banks e. holding reserves for commercial banks

answer

printing currency (Federal Reserve notes)

question

Who oversees the Federal Reserve System?

answer

the Board of Governors of the Federal Reserve System

question

Which of the following contributed to the financial crisis of 2008? a. subprime lending b. securitization c. deleveraging d. low interest rates leading to a housing boom e. all of the above

answer

deleveraging

question

The ______ _____ ______ allows banks that fall short of the reserve requirement to borrow funds from banks with excess reserves.

answer

federal funds market

question

The _____ ____ _____ is the interest rate determined in the federal funds market.

answer

federal funds rate

question

The __________ ____ is the interest rate the Fed charges on loans to banks.

answer

discount rate

question

An _______-________ __________ is a purchase or sale of government debt by the Fed

answer

open-market operation

question

Which of the following is a function of the Federal Reserve System? I. examine commercial banks II. print Federal Reserve Notes III. conduct monetary policy

answer

I and III only

question

Which of the following financial services does the Federal Reserve provide for commercial banks? I. clearing checks II. holding reserves III. making loans

answer

I, II, and III

question

When the Fed makes a loan to a commercial bank, it charges _________

answer

the discount rate

question

If the Fed purchases U.S Treasury bills from a commercial bank, what happens to bank reserves and the money supply?

answer

Bank Reserves decrease and Money Supply decreases

question

When banks make loans to each other, they charge the _______

answer

CD rate

question

The ________ ______ ______ ______ is an estimate of what the budget balance would be if real GDP were exactly equal to potential output

answer

cyclically adjusted budget balance

question

A _______ ____ runs from October 1 to September 30 and is labeled according to the calendar year in which it ends

answer

fiscal year

question

______ ____ is government debt held by individuals and institutions outside the government

answer

Public debt

question

The _______-______ _____ is the government's debt as a percentage of GDP

answer

debt-GDP ratio

question

___________ ___________ are spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics

answer

implicit liabilities

question

If government spending exceeds tax revenues, which of the following is necessarily true? There is a I. positive budget balance II. budget deficit III. recession

answer

I and II only

question

The cyclically adjusted budget deficit is an estimate of what the budget balance would be if real GDP were __________________

answer

equal to potential output

question

During a recession in the United States, what happens automatically to tax revenues and government spending?

answer

Tax revenues will decrease and Government spending will increase

question

Which of the following is a reason to be concerned about persistent budget deficits? a. crowding out b. government default c. the opportunity cost of future interest payments d. higher interest rates leading to decreased long-run growth e. all of the above

answer

all of the above

question

The Federal Reserve can move the interest rate through open market operations that shift the money supply curve. In practice, the Fed sets a ______ ____ ____ ____ and uses open market operations to achieve that target

answer

target federal funds rate

question

________ _________ _________ is monetary policy that increases aggregate demand

answer

expansionary monetary policy

question

_______ __________ _________ is monetary policy that reduces aggregate demand

answer

contractionary monetary policy

question

The _______ _____ ____ ___________ _________ is a rule for setting the federal funds rate that takes into account both the inflation rate and the output gap

answer

Taylor rule for monetary policy

question

________ ___________ occurs when the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target

answer

inflation targeting

question

At each meeting of the Federal Open Market Committee, the Federal Reserve sets a target for which of the following? I. The federal funds rate II. the prime interest rate III. the market interest rate

answer

I only

question

Which of the following actions can the Fed take to decrease the equilibrium interest rate? a. increase the money supply b. increase money demand c. decrease the money supply d. decrease money demand e. both (a) and (d)

answer

increase the money supply

question

Contractionary monetary policy attempts to ________ aggregate demand by ________ interest rates.

answer

Decrease; increasing

question

Which of the following is a goal of monetary policy? a. zero inflation b. deflation c. price stability d. increased potential output e. decreased actual real GDP

answer

price stability

question

When implementing monetary policy, the Federal Reserve attempts to achieve ____________

answer

a low, but positive inflation rate

question

According to the concept of ________ _________, changes in the money supply have no real effects on the economy

answer

monetary neutrality

question

In the long run, changes in the quantity of money affect which of the following? I. Real aggregate output II. Interest rates III. the aggregate price level

answer

III only

question

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. decreased consumer spending d. increased aggregate demand e. lower real GDP

answer

increased aggregate demand

question

A 10% decrease in the money supply will change the aggregate price level in the long run by _________

answer

10%

question

Monetary neutrality means that, in the long run, changes in the money supply _____________

answer

have no real effect on the economy

question

A graph of percentage increases in the money supply and average annual increases in the price level for various countries provides evidence that ____________

answer

money is neutral in the long run

question

According to the _________ _____ __ ___ ___ ______, the real quantity of money is always at its long run equilibrium level

answer

classical model of the price level

question

An __________ ____ is a reduction in the value of money held by the public caused by inflation

answer

inflation tax

question

________-_______ ________ is inflation that is caused by a significant increase in the price of an input with economy-wide importance

answer

cost-push inflation

question

__________-__________ ___________ is inflation that is caused by an increase in aggregate demand

answer

demand-pull inflation

question

The real quantity of money is: I. equal to M/P II. the money supply adjusted for inflation III. higher in the long run when the Fed buys government securities.

answer

I and II only

question

In the classical model of the price level, a. only the short run aggregate supply curve is vertical b. both the short run and long run aggregate supply curves are vertical c. only the long run aggregate supply curve is vertical d. both the short-run aggregate demand and supply curves are vertical e. both the long-run aggregate demand and supply curves are vertical

answer

both the short run and long run aggregate supply curves are vertical

question

The classical model of the price level is most applicable in _________

answer

periods of high inflation

question

An inflation tax is ____________

answer

the result of a decrease in the value of money held by the public

question

Revenue generated by the government's right to print money is known as ___________

answer

seignorage

question

The ______-_____ _______ _____ is the negative short-run relationship between the unemployment rate and the inflation rate

answer

Short-Run Phillips Curve

question

The _______________ ___________ _____ ____ ____________ or _______ is the unemployment rate at which inflation does not change over time

answer

non accelerating inflation rate of unemployment, or NAIRU

question

The ____ ____ ______ _____ shows the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience

answer

Long-run Phillips Curve

question

_____ ________ is the reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation

answer

debt deflation

question

There is a ____ _______ on the nominal interest rate: it cannot go below zero.

answer

zero bound

question

A ________ ___ is a situation in which conventional monetary policy is ineffective because nominal interest rates are up against the zero bound

answer

liquidity trap

question

The Long-run Phillips curve is I. the same as the short run Phillips curve. II. vertical III. the short-run Phillips curve plus expected inflation

answer

II only

question

The Short run Phillips Curve shows a _______ relationship between ____________

answer

negative relationship between unemployment and inflation

question

An increase in expected inflation will shift __________

answer

the Short run phillips curve upward

question

Bringing down inflation that has become embedded in expectations is called _________

answer

disinflation

question

Debt deflation is ___________ a. the effect of deflation in decreasing aggregate demand. b. an idea proposed by Irving Fisher c. a contributing factor in causing the Great Depression d. due to differences in how borrowers/lenders respond to inflation losses/gains e. all of the above

answer

all of the above

question

_______________ _______ ____________ is the use of monetary and fiscal policy to smooth out the business cycle

answer

Monetary policy activism

question

_________ asserts that GDP will grow steadily if the money supply grows steadily

answer

Monetarism

question

____________ _________ __________ is the use of changes in the interest rate or the money supply to stabilize the economy

answer

Discretionary Monetary Policy

question

A ________ __________ _________ is a formula that determines the central bank's actions

answer

monetary policy rule

question

The _________ ______ ____ _____ emphasizes the positive relationship between the price level and the money supply. It relies on the velocity equation (MxV=PxY)

answer

Quantity Theory of Money

question

The ________ __ ________ is the ratio of nominal GDP to the money supply. It is a measure of the number of times the average dollar bill is spent per year

answer

velocity of money

question

According to the _________ _____ __________, to avoid accelerating inflation over time, the unemployment rate must be high enough that the actual inflation rate equals the expected inflation rate.

answer

natural rate hypothesis

question

A ________ __________ __________ results when politicians use macroeconomic policy to serve political ends

answer

political business cycle

question

_______ __________ _____________ is an approach to the business cycle that returns to the classical view that shifts in the aggregate demand curve affect only the aggregate price level, not aggregate output

answer

New Classical macroeconomics

question

___________ _____ is the view that individuals and firms make decisions optimally, using all available information

answer

Rational expectations

question

According to ____ ______________ __________, market imperfections can lead to price stickiness for the economy as a whole

answer

new Keynesian economics

question

_______ ________ _____ _______ claims that fluctuations in the rate of growth of total factor productivity cause the business cycle

answer

Real business cycle theory

question

Which of the following was an important point emphasized in Keynes' influential work? I. In the Short run, shifts in aggregate demand affect aggregate output II. Animal spirits are an important determinant of business cycles III. in the long run we're all dead.

answer

I, II, and III

question

Which of the following is a central point of monetarism? a. Business cycles are associated with fluctuations in money demand. b. Activist monetary policy is the best way to address business cycles. c. Discretionary monetary policy is effective while discretionary fiscal policy is not d. The Fed should not follow a monetary policy rule e. All of the above

answer

The Fed should not follow a monetary policy rule

question

The natural rate hypothesis says that the unemployment rate should be ________

answer

high enough that the actual rate of inflation equals the expected rate

question

The main difference between the classical model of the price level and Keynesian economics is that ___________

answer

the classical model assumes a vertical short-run aggregate supply curve

question

That fluctuations in total factor productivity growth cause the business cycle is the main tenet of which theory?

answer

real business cycle

question

Is expansionary monetary policy helpful in fighting recessions? (Classical)

answer

No

question

Is expansionary monetary policy helpful in fighting recessions? (Keynesian)

answer

Not Very

question

Is expansionary monetary policy helpful in fighting recessions? (Monetarism)

answer

Yes

question

Is expansionary monetary policy helpful in fighting recessions? (Modern Consensus)

answer

Yes, except in special circumstances

question

Is expansionary fiscal policy effective in fighting recessions? (Classical)

answer

No

question

Is expansionary fiscal policy effective in fighting recessions? (Keynesian)

answer

Yes

question

Is expansionary fiscal policy effective in fighting recessions? (Monetarism)

answer

No

question

Is expansionary fiscal policy effective in fighting recessions? (Modern Consensus)

answer

Yes

question

Can monetary and/or fiscal policy reduce unemployment in the long run? (Classical)

answer

No

question

Can monetary and/or fiscal policy reduce unemployment in the long run? (Keynesian)

answer

Yes

question

Can monetary and/or fiscal policy reduce unemployment in the long run? (Monetarism)

answer

No

question

Can monetary and/or fiscal policy reduce unemployment in the long run? (Modern Consensus)

answer

No, except in special circumstances

question

Should monetary policy be used in a discretionary way? (Classical)

answer

No

question

Should monetary policy be used in a discretionary way? (Keynesian)

answer

Yes

question

Should monetary policy be used in a discretionary way? (Monetarism)

answer

No

question

Should monetary policy be used in a discretionary way? (Modern Consensus)

answer

Still in dispute

question

Which of the following is an example of an opinion on which economists have reached a broad consensus? I. The natural rate hypothesis holds true. II. Discretionary fiscal policy is usually counterproductive. III. Monetary policy is effective, especially in a liquidity trap.

answer

I and II only

question

Which of the following is stressed by supply siders? a. Taxes should be increased b. Lower taxes will lead to lower tax revenues c. It is important to increase incentives to work, save, and invest. d. The economy operates on the upward-sloping section of the Laffer curve. e. Supply side views are widely supported by empirical evidence.

answer

It is important to increase incentives to work, save, and invest

question

Which of the following is true regarding central bank targets? a. The Fed has an explicit inflation target. b. All central banks have explicit inflation targets. c. No central banks have explicit inflation targets. d. The Fed clearly does not have an implicit inflation target. e. Economists are split regarding the need for explicit inflation targets

answer

Economists are split regarding the need for explicit inflation targets

question

The Fed's main concerns are _____________

answer

inflation and unemployment

question

The "clean little secret of macroeconomics" is that __________

answer

economists have reached a significant consensus

question

A country's _________ __ __________ _______ are a summary of the country's transactions with other countries.

answer

balance of payments accounts

question

A country's __________ ____ __________ ____ _____ __________ ________ or the ________ _________ is its balance of payments on goods and services plus net international transfer payments and factor income

answer

balance of payments on the current account, or the current account

question

A country's ___________ __ ________ __ ______ ___ _________ is the difference between its exports and its imports during a given period

answer

balance of payments on goods and services

question

The ____________ _______ ________, or ________ ___________, is the difference between a country's exports and imports of goods

answer

merchandise trade balance, or trade balance

question

A country's ____________ __ _____________ __ ____ ________ __________, or simply the _________ _________, is the difference between its sales of assets to foreigners and its purchases of assets from foreigners during a given period

answer

balance of payments on the financial account, or the financial account

question

Current Account = ____________

answer

-Financial Account

question

The current account includes which of the following? I. payments for goods and services II. transfer payments III. factor income

answer

I, II, and III

question

The balance of payments on the current account plus the balance of payments on the financial account is equal to ________

answer

zero

question

The financial account was previously known as the ___________

answer

capital account

question

The trade balance includes which of the following? I. imports and exports of goods. II. imports and exports of services III. net capital flows

answer

I only

question

Which of the following will increase the demand for loanable funds in a country? a. economic growth b. decreased investment opportunities c. a recession d. decreased private savings rates e. government budget surpluses

answer

economic growth

AP Macroeconomics Unit 4 Multiple Choice and Vocabulary – Flashcards

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