question

An increase in the money wage rate (or an increase in other input prices)

answer

decreases the short-run aggregate supply

question

Aggregate demand decreases when

answer

the government implements monetary policies that decrease the quantity of money

question

According to the wealth effect, if real wealth decreases then people

answer

decreases their consumption expenditure

question

Which of the following does NOT shift the aggregate demand curve?

answer

an increase in the price level

question

A decrease in government transfer payments

answer

decrease aggregate demand

question

Economic growth is best defined as

answer

increases in potential GDP

question

According to the interest rate effect (i.e. intertemporal substitution effect) a fall in the price level will

answer

increase the real value of wealth, which raises the interest rate so that the quantity of real GDP demanded decreases

question

__________ economists believe that the economy is self-regulatory and always at full employment.

answer

classical

question

The short-run aggregate supply curve shifts leftward when the

answer

money wage rate (input prices) increases

question

Which of the following events will increase long-run aggregate supply? a) an increase in the interest rate b) a decrease in expected profit c) an advance in technology d) an increase in resource prices

answer

c) an advance in technology

question

The U.S. monetary policy implemented in 2008 was an attempt to

answer

decrease interest rates in order to stimulate business investment and consumption expenditure, thereby increasing AD

question

The U.S. aggregate demand curve shifts leftward if

answer

the Federal Reserve increases the interest rate

question

The short-run aggregate supply curve is upward sloping because in the short run the

answer

price level changes but the money wage rage (input prices) does not

question

Substitution (interest rate) effects help explain the slope of the aggregate demand curve. One substitution effect refers to the

answer

effect on investment expenditures that result form a change in interest rates produced by a change in the price level

question

Which of the following increases aggregate demand and shifts the AD curve rightward? a) an increase in the exchange rate that makes imports less exspensive b) predictions of a recession that lead to expectations of lower future income c) a fall in the price d) an increase in the quantity of money and a resulting fall in the interest rate

answer

d) an increase in the quantity of money and a resulting fall in the interest rate

question

Higher taxes

answer

decrease aggregate demand

question

A decrease in government expenditure on goods and services

answer

decreases aggregate demand

question

If the money wage rate and other resources prices do not change when the price level rises by 10 percent, __________.

answer

there is movement along the short-run aggregate supply curve

question

When the labor market is at full employment

answer

real GDP equals potential GDP

question

_________ economists believe that the economy is self-regulating and will be at full employment

answer

Classical

question

In the long-run

answer

real GDP is equal to potential GDP

question

If higher inflation is expected in the future, then the

answer

AD curve shifts rightward

question

People expect their incomes will decrease next year (i.e. consumer expectations). As a result, the ________ will shift _________.

answer

aggregate demand curve; leftward

question

The legs of the Keynesian school of thought are a) President Roosevelt's New Deal b) 1970's Great Regulation c) all of the answers in this question d) President Johnson's Great Society

answer

c) all of the answers in this question

question

An increase in the quantity of money

answer

increases aggregate demand

question

Other things constant, the economy's aggregate demand curve shows that

answer

the quantity of real GDP demanded decreases when the price level rises

question

_________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment

answer

Keynesian

question

Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decreases real GDP in the short run?

answer

an increase in the price of oil that decreases aggregate supply

question

A decrease in the money wage rate

answer

increases the short-run aggregate supply

question

A decrease in government transfer payments

answer

decreases aggregate demand

question

A Keynesian economist believes that

answer

if the economy was left alone, it would rarely operate at full employment

question

Which of the following statements is FALSE? a) an increase in disposable income leads to a decrease in aggregate demand b) government expenditure affects aggregate demand directly because government expenditure is a component of aggregate demand. c) taxes and transfer payments affect aggregate demand by changing disposable income. d) fiscal policy is the attempt to influence the economy using taxes, transfer payments, and government expenditures

answer

a) an increase in disposable income leads to a decrease in aggregate demand

question

Which of the following shifts the aggregate demand curve left ward? a) a decrease in taxes b) an increase in net exports of goods and services c) an increase in consumption expenditures d) a decrease in government expenditures on goods and services

answer

d) a decrease in government expenditures on goods and services

question

Which of the following shifts the aggregate demand curve rightward? a) an increase in investment b) a decrease in consumption c) a decrease in net exports d) a decrease in government expenditures on goods and services

answer

a) an increase in investment

question

An increase in the price level creates a

answer

- wealth effect - decrease in consumption expenditures - movement along the aggregate demand curve

question

As the price level falls and other things remain the same, real wealth ________ and __________.

answer

increases; quantity of real GDP demanded increases

question

Which of the of the following statements correctly describes the policy stance of a macroeconomist? a) A Keynesian would believes that if taxes are always kept low and the quantity of money is kept on a steady growth path, no policy actions will be needed to maintain full employment b) A new classical macroeconomist believes that fiscal and monetary policy are required to maintain full employment c) A monetarist believes that the quantity of money should be constantly changed in order to offset changes in aggregate demand. d) A classical macroeconomist believes that maintaining consistently low taxes will allow the economy to expand at and appropriate and rapid pace.

answer

d) a classical macroeconomist believes that maintaining consistently low taxes will allow the economy to expand at an appropriate and rapid pace

question

Other things equal, along the aggregate demand curve, a higher price level is associated with

answer

a decrease in the quantity of real GDP demanded

question

One possible result of a decrease in aggregate demand (ceteris paribus):

answer

a recession

question

People expect their incomes will decrease next year. As a result, the ________ will shift _________.

answer

aggregate demand curve; leftward

question

Higher taxes:

answer

decrease aggregate demand

question

People expect their incomes will decrease next year. As a result, the __________ will shift ___________.

answer

aggregate demand curve; left ward

question

Why does the demand curve slope downward? a) wealth effect b) export effect c) interest rate effect d) all of the above e) none of the above

answer

d) all of the above

question

Which of the following shifts the aggregate demand curve rightward? a) an increase in tax rates b) an increase in the exchange rate c) a increase in imports d) an increase in government expenditure

answer

d) an increase in government expenditure

question

If the economy is in short run equilibrium then

answer

real GDP can be greater than, less than, or equal to potential GDP

question

The Great Depression, in which real GDP fell and unemployment rose, can be characterized as a ___________.

answer

recessionary gap

question

"If policy is anticipated, there is no short-run" is a property of the ________ school of thought. a) Keynesian b) monetarist c) real business cycle d) classical e) rational expectations/new classical

answer

e) rational expectations/new classical

question

The Keynesian explanation of the business cycle rests on several concepts, including a) rigid money wage rates (i.e. sticky prices and wages) b) unstable monetary policy by the Fed c) shocks to the rate of technological change d) the desire of politicians to be re-selected

answer

a) rigid money wage rates (i.e. sticky prices and wages)

question

True of False: Say's Law: Supply creates its own demand; implies there cannot be insufficient aggregate demand or demand caused recessions.

answer

True

question

What caused the stagflation of the 1970s? a) 1973 oil shock b) 1979 oil shock c) collapse of the Bretton-Woods fixed exchange rate system d) sharp increase in agriculture prices e) all of the above

answer

e) all of the above

question

Income taxes in the United States are automatic stabilizers because

answer

tax revenues increase when income increases, thus offsetting some of the increase in aggregate demand

question

Which theory fundamentally denies demand-side economic shocks?

answer

real-business cycle theory

question

Fiscal policy a) involves changing taxes and government spending b) is enacted by the Federal Reserve c) involves changing the money supply d) involves changing interest rates

answer

a) involves changing taxes and government spending

question

Which theory distinguishes between expected and unexpected fluctuations in aggregate demand and asserts that only unexpected changes can affect real GDP?

answer

new classical cycle theory

question

The cyclical deficit is the portion of the deficit

answer

created by fluctuations in real GDP

question

Economists who believe tax policy has a big effect on unemployment and potential GDP are called

answer

supply-siders

question

The system that measures the lifetime tax burden and benefits of each generation is called

answer

generational accounting

question

Keynes used the term "animal spirits" to represent

answer

volatile investment spending arising from fluctuations in business confidence

question

As real GDP increases and the economy improves (ceteris paribus) government tax revenues tend to:

answer

increase

question

The supply side school of though proposed: a) cutting the (top) marginal tax b) cutting government regulation c) cutting the size of government d) all of the above

answer

d) all of the above

question

The monetarist school of thought:

answer

believes that velocity is predictable making monetary policy effective

question

The rational expectations/new classical theory argues that the primary factor leading to business cycles are

answer

unexpected changes in aggregate demand

question

According to the real business cycle theory, technological change

answer

happens at an uneven pace

question

According to the Ricardo-Barro effect

answer

households increase their personal saving when governments run budget deficits

question

One assumption of the new classical model is that

answer

people make rational expectations about aggregate demand

question

The forces that generate economic growth are those that shift the

answer

long-run aggregate supply curve rightward

question

As real GDP increases and the economy improve (ceteris paribus) government outlays and expenditures tend to:

answer

decline

question

One reason why many supply-side economists focus policy on lowering the top marginal tax rate is their belief that

answer

it would have the greatest positive influence on the decision makers in the economy with the highest marginal product (i.e. most productive in the economy)

question

Supply side economists focus policy change by lowering the

answer

highest (i.e. marginal tax rates)

question

Suppose that following an expected decline in the price level, workers immediately renegotiate their money wage rates to match the fall in prices. This behavior is most consistent with

answer

the new classical cycle theory

question

According to aggregate demand and supply analysis, the rising oil prices coupled with the global financial crisis in 2007-2008 caused the unemployment rate to _________ and the level aggregate output to __________.

answer

increase; decrease

question

In a demand-pull inflation, the AD (steps A to B) curve shifts _________ and the SRAS curve sifts ____________ (steps B to C).

answer

rightward; leftward

question

Demand-pull inflation persists because of

answer

continuing increases in the quantity of money

question

Adaptive expectations are a property of the __________ school of thought.

answer

monetarist

question

Which of the following could start a demand-pull inflation? a) an increase in money prices of raw materials b) a decrease in the quantity of money c) an increase in government expenditures d) an increase in imports

answer

c) an increase in government expenditures

question

Factors that shift the long-run aggregate supply and potential GDP rightward include an increase in: a) quality and quantity of other inputs b) quantity of capital (physical capital and human capital) c) quantity of labor d) all of the above

answer

d) all of the above

question

Which of the following is true? a) all of the answers are true b) classical economics is focused on aggregate supply c) Keynesian economics is focused on aggregate demand d) Aggregate supply is "passive" in the Keynesian model

answer

a) all of the answers are true

question

The real business cycle theory proposes that a) aggregate demand shocks are the only factors affecting the business cycle b) aggregate demand shocks do not effect the business cycle c) government activism in the macro economy is essential d) aggregate demand shocks do effect the business cycle

answer

b) aggregate demand shocks do not effect the business cycle

question

Which of the following is a criticism of real business cycle theory? a) real business cycle theory assumes that money wage rates are sticky b) real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand c) real business cycle theory fails to explain the phenomenon of economic growth d) none of the above are criticisms of real business cycle theory

answer

b) real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand

question

If a tax cut increases people's labor supply, then

answer

tax cuts increase potential GDP

question

According to the new Keynesian theory a) current and past expectations of the price level determine the money wage rate b) unexpected changes in aggregate demand change real GDP c) expected changes in aggregate demand change real GDP d) all of the above

answer

d) all of the above

question

Sticky prices and wages are a property of the ___________ school of thought.

answer

Keynesian

question

For monetarists the main cause of economic fluctuations is changes in

answer

inappropriate monetary policy

question

The Employment Act of 1946 states that it is the responsibility of the federal government to a) maintain the inflation rate at below 10 percent per year b) promote full employment c) promote economic equality d) all of the above

answer

b) promote full employment

question

The short-run aggregate supply curve is upward sloping because in the short run the

answer

price level changes but the money wage rate (or other input prices) does not

question

"Current economic parameters are determined by past rational expectations" is a property of the _________ school of thought.

answer

New Keynesian

question

The real business cycle (RBC) theory assets that the impact on real GDP of technological change is

answer

usually positive but occasionally negative

question

If decision makers become so pessimistic that all new money injected into the economy by the FED becomes hoarded and not loaned out or spent, we are in a:

answer

liquidity trap

question

By itself, an increase in aggregate demand increases GDP by the least amount (or zero) in the

answer

real business cycle theory

question

The real business cycle theory asserts that changes in _______ lead to changes in __________.

answer

technology; productivity

question

An decrease in the input prices (such as the money wage) ceteris paribus

answer

increases the short-run aggregate supply

question

True of False: Keynes Law: Demand creates its own supply; implies there cannot be insufficient aggregate supply and implies demand-causes recessions

answer

true

question

If the economy is on the negative slope of the Laffer curve and your raise taxes

answer

tax revenues will fall

question

Rational expectations are

answer

based on all relevant information

question

Real business cycle theory says that the factor leading to the business cycle is changes in

answer

productivity

question

Taken to its logical conclusion, the real business cycle theory (and New Classical Theory) proposes that

answer

actual GDP always equals potential GDP, making all unemployment voluntary

question

The functions of money are a) medium exchange and the ability to buy goods and services b) pricing, contracts, and means of payment c) medium exchange, unit of account, and means of payment d) medium of exchange, unit of account, store of value, and standard of deferred value

answer

d) medium of exchange, unit of account, store of value, and standard of value

question

Monetary policy is controlled by a) the President b) Congress c) the Federal Reserve d) the Treasury Department

answer

c) the Federal Reserve

question

The most important function of money is its role as: a) medium of exchange b) standard of deferred value c) store of value d) unit of account

answer

a) medium of exchange

question

The "double coincidence of wants" problem is: a) always present in all economic systems b) resolved by the use of money c) resovled under a system of barter d) created by the use of money

answer

b) resolved by the use of money

question

During periods of inflation, which function of money is most severely affected? a) medium of exchange b) store of value c) means of payment d) unit of account

answer

b) store of value

question

Money that has value simply because the government declares it so, is called: a) fiat money b) commodity money c) representative commodity money d) gold

answer

a) fiat money

question

If the Fed wants to decrease the quantity of money, it can a) sell U.S. government securities b) purchase U.S. government securities c) decrease the government budget deficit d) raise income tax rates

answer

a) sell U.S. government securities

question

M1 includes a) savings, checking deposits, and travelers checks b) money, stocks, and bonds c) money market mutual funds, stocks and bonds d) currency, checking deposits, and travelers checks

answer

d) currency, checking deposits, and travelers checks

question

The current chairman of the Federal Reserve is a) Paul Volcker b) Alan Greenspan c) Ben Bernanke d) Milton Friedman

answer

c) Ben Bernanke

question

Monetary policy affects real GDP by a) creating budget deficits b) changing aggregate demand c) creating budget surpluses d) changing aggregate supply

answer

b) changing aggregate demand

question

Liquidity is the a) inverse of the velocity of money b) ease with which an asset can be converted into money c) speed with which the price of an asset changes as its intrinsic value changes d) same as the velocity of money

answer

b) ease with which an asset can be converted into money

question

The definition of M2 includes a) time deposit b) savings deposits c) M1 d) all of the above

answer

d) all of the above

question

Credit cards are: a) not money b) money but are not a large part of the money supply c) money because they act like money d) money and are the largest part of the money supply

answer

a) not money

question

When you keep money in a change jar to be used later, what function is it fulfilling? a) medium of exchange b) unit of account c) store of value d) recording device

answer

c) store of value

question

Depository institutions a) earn profit according to how much the Federal Reserve pays them b) make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans c) earn money by charging the government because their services d) earn zero profit but receive compensation by the government because their services are so valuable

answer

b) make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans

question

A depository institution is a firm that takes deposits from _____ and makes loans to _______. a) households; firms b) firms; households c) firms; other firms d) households and firms; other households and firms

answer

d) households and firms; other households and firms

question

An essential characteristic of credit unions is that a) branching across state lines is prohibited b) they are typically large c) their lending is primarily for mortgage loans d) they are organized for individuals with a common bond

answer

d) they are organized for individuals with a common bond

question

For a commercial back, the term "reserves" refers to a) a banker's concern ("reservation") in making loans to an individual without a job b) the net interest that it earns on loans c) the cash in its vaults and its deposits at the Federal Reserve d) the profit that the bank retains at the end of the year

answer

c) the cash in its vaults and its deposits at the Federal Reserve

question

Members of the Federal Reserve system's Board of Governors a) are elected for life b) are elected at large by district banks c) hold 14-year staggered terms d) are a special subcommittee of the Senate

answer

c) hold 14-year staggered terms

question

When banks borrow money from the Federal Reserve, these funds are called a) discount loans b) Treasury funds c) federal funds d) federal loans

answer

a) discount loans

question

Which of the Federal Reserve Bank president is always on the Federal Open Market Committee? a) New York b) St. Louis c) Chicago d) Boston

answer

a) New York

question

Which of the following equations represents the equation of exchange? a) M=VP/Y b) PM=VY c) MV=PY d) MY=PV

answer

c) MV=PY

question

The Federal Open Market Committee (FOMC) is composed of a) the Board of Governors, the Vice-President of the United States, and the Secretary of Treasury for the United States b) representatives from the governors of all 50 states c) the 12 Presidents of the Federal Reserve regional banks d) Presidents of 5 Federal Reserve regional banks and the Board of Governors

answer

d) Presidents of 5 Federal Reserve regional banks and the Board of Governors

question

The sum of currency in circulation and bank reserves is the _________. a) assets of the Fed b) reserves of the Fed c) liabilities of the Fed d) monetary base

answer

d) monetary base

question

Which of the following is a tool that is most used by the Fed to control the quantity of money? a) excess reserves b) open market operations c) government expenditures multiplier d) real interest rate

answer

b) open market operations

question

The nation is divided into _______ Federal Reserve districts, each having a Federal Reserve Bank. a) 7 b) 10 c) 52 d) 12

answer

d) 12

question

On the Fed's balance sheet, assets include a) Federal Reserve notes and depository institutions' deposits at the Federal Reserve b) Federal Reserve notes and loans to depository institutions c) depository institutions deposits at the Federal Reserve and loans to depository institutions d) U.S. government securities and loans to depository institutions (discount loans)

answer

d) U.S. government securities and loans to depository institutions (discount loans)

question

Money is created by a) banks making loans b) banks taking in deposits c) banks paying for depositor's insurance d) government taxation

answer

a) banks making loans

question

A bank's required reserves are calculated by multiplying _________. a) cash in its vault by the required reserve ratio b) the gold in its vault by the reserve ratio c) the sum of its checking deposits and cash in its vault by the reserve ratio d) its checking deposits by the required reserve ratio

answer

d) its checking deposits by the required reserve ratio

question

Given a reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of a) $80 b) $400 c) $50 d) $20

answer

a) $80

question

The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank. a) 12 b) 10 c) 52 d) 7

answer

a) 12

question

Which of the following is one of the Fed's policy goals? a) price level stability b) monetary base c) help the President win reelection d) exchange rate

answer

a) price level stability

question

Open market purchase by the Federal Reserve System (the Fed) a) occur when the Fed wants to decrease the quantity of money b) increase bank reserves c) raise the federal funds rate d) all of the above

answer

d) all of the above

question

The fraction of deposits that banks must keep on hand or at the Federal Reserve is called the a) money multiplier b) discount rate c) deposit multiplier d) required reserve ratio

answer

d) required reserve ratio

question

If the required reserve ratio is 20 percent, the simple deposit multiplier is a) 5.0 b) 2.5 c) 10.0 d) 4.0

answer

a) 5.0

question

"Those borrowers who most desperately want loans are the ones who are least able to repay the loans," is an example of: a) adverse selection b) high profit banking c) moral hazard d) adverse selection

answer

a) adverse selection

question

"Being careless with fire because you have fire insurance," is an example of: a) fraud b) high profit banking c) moral hazard d) adverse selection

answer

c) moral hazard

question

The _________ method of closing a bank has the greatest moral hazard. a) purchase and assumption b) "do nothing" c) payoff method d) drop off

answer

a) purchase and assumption

question

The legislation that overturned the prohibition on interstate baking is a) the Glass-Steagall At (Part of the Banking Acts of 1933-1935) b) the Riegle-Neal Act (Banking Act 1994) c) the McFadden Act (banking Act of 1927) d) the Gramm-Leach-Bliley Act (Banking Act of 1999)

answer

b) the Riegle-Neal Act (Banking Act 1994)

question

The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as the: a) McFadden Act b) Federal Reserve Act of 1913 c) National Bank Act of 1863 d) Glass-Steagall Act (Part of the Banking Acts of 1933-1935) e) Banking Act of 1980 (DIDMCA)

answer

d) Glass-Steagall Act (Part of the Banking Acts of 1933-1935)

question

The legislation that began the "era of deregulation" for banking in the U.S. was a) Glass-Steagall Act (Part of the Banking Acts of 1933-1935) b) National Bank Act of 1863 c) Federal Reserve Act of 1913 d) McFadden Act e) Banking Act of 1980 (DIDMCA)

answer

e) Banking Act of 1980 (DIDMCA)

question

True or False: Before 1980 savings and loans were generally not allowed to offer checking accounts to their customers.

answer

True

question

True or False: The Banking Act of 2000 deregulated the derivatives market.

answer

True

question

True or False: 3-6-3 Rule: Pay savers 3% interest on savings, charge borrowers 6% on loans, and be on the golf course by 3pm

answer

True

question

True or False: The FED was founded in 1913 due to banking panic of 1907.

answer

True

question

True or False: Banks are very sensitive to liquidity problems, more than other firms in the U.S.

answer

True

question

True or False: The two basic type of money demand is: 1) transactions demand 2) asset demand

answer

True

question

True or False: Keynesians believe that velocity is stable and predictable, making monetary policy effective.

answer

False

question

True or False: The asset demand for money is a direct function of income.

answer

False

question

True or False: The asset demand for money is a direct function of income.

answer

False

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