macro test 3 – Flashcards
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What if savings and investment were not equal?
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Which question did John Maynard Keynes pose for the classical economists?
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the classical economists
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Our economy is always tending towards full employment according to
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Savings = investment and aggregate demand = aggregate supply.
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At equilibrium GDP
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the classicals, but not by Keynes.
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Laissez-faire economics was advocated by
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supply creates its own demand.
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Say's law states that
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spend.
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People work, according to Jean Baptiste Say, so that they can
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interest rates will rise and savings will rise
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According to the classical economists, if the amounts of money people are planning to invest is greater than the amount that people want to save,
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government spending programs.
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Each of the following supports the classical theory of employment except
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We will occasionally have some unemployment, but our economy will automatically move back toward full employment.
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Which best describes the classical theory of employment?
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a rare occurrence
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Keynes considered full employment GDP to be
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are very similar
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The Keynesian and classical aggregate supply analyses
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is equal to; is equal to
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At equilibrium GDP, aggregate demand _______ aggregate supply and savings _______ investment.
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spend a lot of money.
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To fight a depression, Keynes said that the government should
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sums up Say's law
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The notion that everything the economy produces is purchased
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full employment was the natural state of the economy and that government should not interfere with the private market forces of supply and demand.
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Classical economics was based upon the belief that
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large unions and businesses resist wage and price cuts and lower wages mean decreased incomes and consumer spending.
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Keynesian economics finds fault with the classical economic argument that wage and price flexibility would guarantee full employment because
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is primarily demand-oriented
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Keynesian theory
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the Keynesians
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"The economy can be in equilibrium, with aggregate supply equal to aggregate demand, at a level substantially below the full employment level of output." This statement best describes the views of
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if unemployment appears, it would soon disappear because of a reduction in interest rates, wages, and prices.
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According to the classical economists
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a collapse in aggregate demand
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The principal cause of the Great Depression of the 1930s was
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All of the choices are true of classical employment theory.
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Classical employment theory holds that
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flexible interest rates, wages, and prices would assure full employment
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Classical economists believed that
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would be reduced by a decrease in interest rates, wages, and prices.
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According to the classical economists, an increase in unemployment
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demand creates its own supply.
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The Keynesian point of view suggests that
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are signals to business firms to increase or cut production.
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Unintended inventory changes
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the money supply.
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Fiscal policy deals with each of the following, except
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equilibrium GDP is smaller than full employment GDP
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There is a recessionary gap when
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both deficits and surpluses.
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Over the last four decades we have had
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They have helped smooth out the business cycle
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Which statement is true about automatic stabilizers?
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Both statements are true.
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Statement I: The federal budget deficit more than doubled between 1987 and 1992. Statement II: High federal budget deficits tend to push up real interest rates.
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corporate after-tax profits.
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When there is a recession, the biggest percentage decline would be in
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the unemployment insurance program.
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Each of the following is an example of discretionary fiscal policy except
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4
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If equilibrium GDP is $1 trillion greater than full employment GDP, and there is an inflationary gap of $250 billion, the multiplier is
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1986.
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The national debt passed the $2 trillion mark in
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Over 50 percent of the outstanding public debt is owed by foreigners
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Which statement is true?
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weak aggregate demand.
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In the 1930s, John Maynard Keynes said that our main economic problem was
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interest on the debt; because interest payments keep rising, our deficits keep growing, further pushing up the debt.
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Which statement is true?
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Over $8 trillion
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Right now our national debt is
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rose substantially
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Between fiscal years 1989 and 1992, our federal budget deficit
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fell substantially.
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In the mid-1990s, the federal budget deficit
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raise interest rates.
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Large budget deficits tend to
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the inflow of funds from foreigners
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Interest rates in the United States would have been higher in recent years had it not been for
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a budget deficit.
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When government expenditures in a given year exceed tax receipts, there exists
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The tendency of tax collections to fall as the economy moves into a recession.
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An illustration of the term "automatic stabilizer" is provided by
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there is definitely a recessionary gap.
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If full employment GDP is $8 trillion and equilibrium GDP is $7 trillion
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income is re-spent
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The reason the multiplier is greater than 1 is that
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we could spend our way out of the Great Depression
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John Maynard Keynes believed that
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a budget surplus
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When government expenditures in a given year are less than tax receipts, there exists
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$10.7 trillion
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Suppose the deficit in the year 2010 is $500 billion; in the year 2011 it falls to $200 billion. If the national debt at the beginning of year 2010 is $10 trillion, how much will it be at the end of year 2011?
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are probably insufficient to completely offset strong recessionary pressures.
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Automatic stabilizers
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are used to make expected expenditures.
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The transaction motive for holding money
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It would be falling.
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Suppose a goldsmith (banker) had a certain number of gold coins in his safe and he kept writing more and more goldsmiths' receipts for people who came to him to borrow money. What would be happening to his reserve ratio?
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inflation.
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John Maynard Keynes said that people have three motives for holding money. Each of the following is a Keynesian motive except
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10
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All large financial institutions have to hold a reserve of almost ___% of their demand deposits.
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varies directly with the interest rate.
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The opportunity cost of holding money
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Credit cards
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Which is NOT considered money?
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a medium of exchange.
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If a person writes a check on a Tulsa bank to purchase a new Oldsmobile, he is employing money as:
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Passbook savings account
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Which of the following is most unlike the others?
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falling interest rates
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Each of the following hurt the savings and loan industry in the 1980s except
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rises
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As the interest rate declines the amount of money the public wishes to hold
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falls as the interest rate rises.
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The demand for money schedule shows that the quantity of money that people want to hold
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They had a reserve ratio that was too low.
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What led to the bankruptcy of many goldsmiths?
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M1 is part of M2, and M2 is part of M3.
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Which is true?
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medieval times.
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Banking began in
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Gold
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Which one of the following is not part of our money supply?
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Gold
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Which one of the following is not money?
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in goldsmiths' safes.
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Back in the Middle Ages, the only safe place to put your money was
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the price level rises and credit availability falls.
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People tend to hold more money as
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about $200 billion.
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The S & L debacle will ultimately cost American taxpayers
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included in both M1 and in M2.
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Coins in the hands of the public are
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John Maynard Keynes
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The concept of the liquidity trap was formulated by
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M1.
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The most narrow definition of the money stock developed by the Federal Reserve System in the United States is
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riskier; higher
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In the early 1980s the savings and loan associations started making _____ loans and paying their shareholders _____ interest rates.
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Citigroup is the largest American bank
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Which statement is true?
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M2 + large denomination time deposits = M3.
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Which statement is true?
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equal to total reserves minus excess reserves
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Required reserves are
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the Federal Reserve District Bank in Minneapolis.
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A woman in Duluth, Minnesota, bought tickets to a Minnesota Vikings game. Her check was deposited in a bank in Minneapolis. From there it went directly to
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All of the choices are correct
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The purpose of establishing the Federal Reserve System was
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Our central bank was formed in 1913.
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Which statement is true?
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sell securities on the open market
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When there is a great deal of inflation the Fed will
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12
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The Federal Open Market Committee has _____ members.
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buys U.S. government securities.
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When the Fed wants to increase the money supply it
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a high price and drives down interest rates.
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In order to buy securities the Fed offers
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1913.
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The United States did not have a central bank until
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1980.
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All of the nation's financial institutions came under the jurisdiction of the Federal Reserve in
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the president of the United States.
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The Federal Open Market Committee is made up of all of the following, except
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the Federal Reserve
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The rate of growth of our money supply is controlled by
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depositors attempting to withdraw more deposits than the banks held in reserve
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Bank panics were the result of
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None of the statements are true.
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Which statement is true?
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7; 14
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There are _____ members of the Board of Governors of the Federal Reserve; each serves one _____ year term.
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serve on the Board at the pleasure of the President, who can make individual governors resign at any time
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The Board of Governors of the Federal Reserve does each of the following, except
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None of the statements are true about the Fed's Governing Board.
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Which statement is true about the Fed's Governing Board?
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control the rate of growth of the money supply.
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The main job of the Fed is to
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Insuring bank deposits
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Which is not a job of the Federal Reserve?
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the Federal Reserve.
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Our currency is issued by
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Chairman of the Federal Reserve Board
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The most powerful individual in the Federal Reserve System is the
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both the President and Congress.
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The Board of Governors of the Federal Reserve is independent of
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The United States has had a central bank since 1913
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Which statement is true?
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the president.
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The members of the Board of Governors are appointed by
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Actual reserves - required reserves = excess reserves.
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Which statement is true?
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The less developed countries
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In which countries of the world has Malthus's prediction come closest to being true?
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LDCs
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India and China are
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research and development spending
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Each of the following EXCEPT ______________ slowed our rate of economic growth in the 1970s and early 1980s.
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Thomas Robert Malthus
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The theory of population of _____ predicted that the world's population would increase faster than the food supply.
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sub-Saharan Africa.
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The Malthusian theory appears to be coming true in
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steam engine.
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One of the basic innovations of the first phase of the industrial revolution was (the)
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1,000 less hours a year.
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Compared to 1870, the average worker today in the United States, Britain, France, Germany, and Japan works about
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The average American worker puts in more hours on the job than the average Japanese worker.
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Which statement is true?
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immigration.
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Each of the following has lowered our rate of economic growth except
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the population doubled every 25 years
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Thomas Robert Malthus said that
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geometric; arithmetic
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The Malthusian theory said that population tended to grow in a(n) _____ progression, while the food supply tended to grow in a(n) _____ progression
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Thomas Malthus.
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The theory that our population would grow too quickly relative to our food supply is associated with
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was confined to Europe, the United States, Canada, Australia, New Zealand, and Japan until the mid-20th century.
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The first Industrial Revolution
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NIC.
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Brazil should be classified as a(n)
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About 16 percent of our GDP goes toward health care
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Which of the following statements is TRUE?
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the world's population tends to grow geometrically
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According to Malthusian population theory,
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second
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The age of mass production, which began in the United States during the early years of the 20th century, was the ______ phase of the Industrial Revolution.
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1800
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During a year, the average American worker puts in about _____ hours on the job.
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second
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Mass production of automobiles, electrical machinery, and steel was a feature of the ________ phase of the industrial revolution
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started in America in the 1920s with the mass production of cars and electrical machinery.
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The second phase of the Industrial Revolution
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1750
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The industrial revolution began around the year _____.
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1920
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The age of mass consumption truly began around
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the United States
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The nation whose workers work more hours per year than any other industrial nation is
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Americans work more hours than the citizens of virtually every other developed country.
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Which is the most accurate statement?
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the LDCs.
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Most of the world's population lives in