Macroeconomics Exam 3 Mdc

Front 1

1. A falling aggregate price level ____ demand for a country's exports and therefore _____ output demanded.

Back 1

A) increases; increases

Front 2

2. An increase in net export spending will result in a(n):

Back 2

A) increase in aggregate demand.

Front 3

3. If the marginal propensity to consume is 0.9, by how much will $100 of government spending increase GDP?

Back 3

C) $1,000

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4. Which of the following statements regarding discretionary and mandatory spending is CORRECT?

Back 4

B) Mandatory spending may act as an automatic stabilizing force in the macroeconomy.

Front 5

5. Using demand-side fiscal policy to stimulate aggregate demand when the economy is at full employment will primarily result in:

Back 5

C) inflation.

Front 6

6. The fiscal policy that involves reducing government spending, reducing transfer payments, or raising taxes to decrease aggregate demand is called ___________.

Back 6

B) contractionary

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7. When the economy is at full employment, an expansionary fiscal policy results in a new long-run equilibrium at an output level _______ full employment and a _________ price level.

Back 7

A) at; higher

Front 8

8. If the economy expands beyond the level of full employment, what is the outcome?

Back 8

A) inflation

Front 9

9. Contractionary fiscal policy:

Back 9

B) decreases aggregate demand.

Front 10

10. Which of the following fiscal policies will increase aggregate supply?

Back 10

C) reducing the depreciation period for business equipment from five years to three years

Front 11

11. Which of the following statements is NOT a characteristic of good money?

Back 11

B) Money must have historic value.

Front 12

12. What are the primary functions of money?

Back 12

A) unit of account, medium of exchange, store of value

Front 13

13. Money used to purchase goods or services is functioning as a:

Back 13

D) medium of exchange.

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14. Which is NOT one of the three basic functions of money?

Back 14

A) a means to collect taxes

Front 15

15. Which of the following assets is the MOST liquid?

Back 15

A) demand deposits

Front 16

16. The supply curve for loanable funds represents _____ and is _____.

Back 16

D) savers; upward sloping

Front 17

17. Bond prices and their yields are ____ because the bond's _________ can fall below its __________.

Back 17

C) negatively related; sale price; face value

Front 18

18. Checking deposits generally have a _____ return on investment than do certificates of deposit because checking deposits are _____.

Back 18

D) lower; more liquid

Front 19

19. Student loans funded by the government typically offer ____ interest rates than similar bank loans and ____.

Back 19

C) lower; can be paid back later

Front 20

20. How much is a bond worth if it pays $55 per year in interest and the market interest rate is 8%?

Back 20

B) $687.50

Front 21

21.If a person borrows $3,000 at 8% interest and never makes any payments, how much will the loan balance be after three years?

Back 21

B) $3,779.14

Front 22

22. If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after two years?

Back 22

D) $2,205

Front 23

23. New technologies that increase productivity tend to shift the supply of loanable funds curve rightward.

Back 23

B) False

Front 24

24. The price of a bond is directly related to the general market interest rates.

Back 24

B) False

Front 25

25. The idea that banks hold only a portion of deposits and lend the rest out is called the:

Back 25

A) fractional reserve banking system.

Front 26

26. If a bank is subject to a reserve requirement of 10% and if its reserve ratio is 33%, then all of the following are true EXCEPT that it:

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C) must limit withdrawals.

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27. Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How much money can the banking system create?

Back 27

D) $6,000

Front 28

28. If the reserve requirement is 1.25%, the potential money multiplier is:

Back 28

C) 80.

Front 29

29. If foreigners become less confident in the ability of the U.S. dollar to hold its value:

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C) the actual multiplier will rise.

Front 30

30. The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases:

Back 30

A) interest rates will rise.

Front 31

31. A bank has excess reserves of $5,000 and demand deposits of $40,000; the reserve requirement is 20%. If the reserve requirement is increased to 25%, the maximum amount of new loans this bank can make is:

Back 31

D) $3,000.

Front 32

32. A higher interest rate __________ consumption, investment, and _____________, which ___________ aggregate demand

Back 32

A) decreases; exports; decreases

Front 33

33. Which action is the Fed most likely to take to curb inflation?

Back 33

D) sell securities in the open market

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34. When current real output exceeds potential real output, the Fed will _____ interest rates in an effort to fight _____.

Back 34

D) increase; inflation

Front 35

35. Which of the following fiscal items is NOT a component in the equation of exchange in classical economics?

Back 35

D) unemployment rate

Front 36

36. Monetarists believe that in the short run a change in the money supply can affect _______________________, while in the long run, a change in the money supply will affect _____________.

Back 36

C) output and the price level; the price level only

Front 37

37. In counteracting demand shocks, the Fed can achieve:

Back 37

B) both full employment and price stability.

Front 38

38. The two types of reserves are federal reserves and required reserves.

Back 38

B) False

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39. A decrease in the reserve ratio will increase excess reserves.

Back 39

A) True

Front 40

40.The fractional reserve banking system allows banks to lend out all the money they receive as deposits.

Back 40

B)False

Front 41

41.__________ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy.

Back 41

A)Increasing; increasing; lowering

Front 42

42. Which of the following is NOT a form of U.S. public debt?

Back 42

C) stocks

Front 43

43. Discretionary fiscal policy does not require action from Congress.

Back 43

B) False

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44. The burden of a nation's debt falls if interest rates fall.

Back 44

A) True

Front 45

45. Countries such as China often purchase U.S. debt to help manage their exchange rates against the U.S. dollar.

Back 45

A) True

Front 46

46. Which of the following is NOT a policy tool of the Federal Reserve?

Back 46

D) fiscal policy

Front 47

47. Federal Reserve banks are located in all of these cities EXCEPT:

Back 47

B) Augusta.

Front 48

48. If the Fed is buying bonds, then it wants bond prices to ____ and the federal funds rate to ____.

Back 48

B) rise; fall

Front 49

49. If banks decide to hold more in excess reserves, then the value of the money multiplier increases.

Back 49

B) False

Front 50

50. One argument against using taxation to pay off the public debt is that it will redistribute wealth from richer bondholders to poorer people who do not own bonds.

Back 50

B) False