Macroeconomics Final Exam Review Questions (2016)

Macroeconomics Final Exam Review Questions (2016)

Ch. 11

1.  Fiscal policy refers to

a. / efforts to balance a government's budget.
b. / changes in the money supply to achieve particular economic goals.
c. / changes in government expenditures and taxation to achieve particular economic goals.
d. / the change in private expenditures that occurs as a consequence of changes in government spending.

2.  When the economy is in a recessionary gap, Keynesian economists will often advocate expansionary policy measures. Why?

a. / Keynesians believe the economy sometimes gets stuck in a recessionary gap and can't get itself out without government intervention.
b. / Keynesians believe the economy itself sometimes takes too long to eliminate the recessionary gap and return to full-employment output.
c. / Keynesians are generally in favor of increasing taxes.
d. / a and b
e. / a and c

3.  Suppose the economy is at a position below the institutional production possibilities frontier. In response to this situation, Keynesian economists would propose that the government should ______expenditures, which will cause the aggregate demand curve to shift to the ______in an attempt to close this ______gap.

a. / decrease; left; inflationary
b. / increase; right; inflationary
c. / decrease; right; inflationary
d. / increase; right; recessionary
e. / decrease; left; recessionary

4.  If there is complete crowding out as a result of an increase in government spending there will be

a. / a decrease in aggregate demand.
b. / no change in aggregate demand.
c. / an increase in aggregate demand.
d. / a downward movement along the aggregate demand curve.

5.  The AD curve shifts to the right with a ______in government purchases (G) or a ______in taxes.

a. / rise; rise
b. / rise; fall
c. / fall; rise
d. / fall; fall

6.  The lag between an increase in government spending and the impact of this increased spending on the economy is called the ______lag.

a. / effectiveness
b. / transmission
c. / legislative
d. / data

7.  The period that elapses between the passage of legislation reducing taxes and the time the tax cut is put into effect is called the ______lag.

a. / data
b. / wait-and-see
c. / legislative
d. / transmission

8.  A curve showing the relationship between tax rates and tax revenues is called a ______curve.

a. / Phillips
b. / Keynesian
c. / Gaussian
d. / Laffer

Exhibit 11-1

9.  Refer to Exhibit 11-1. Compare points A and B. Which of the following is true?

a. / At A and B, the tax rates are the same, but tax revenues are different.
b. / At A tax rates are higher than at B, but tax revenues are the same.
c. / At B tax rates are higher than at A, but tax revenues are the same.
d. / none of the above

10.  Refer to Exhibit 11-1. At point A, if we cut tax rates slightly, tax revenues

a. / increase.
b. / decrease.
c. / will not change.
d. / drop to zero.

11.  Refer to Exhibit 11-1. At point B, if we cut tax rates slightly, tax revenues

a. / increase.
b. / decrease.
c. / will not change.
d. / drop to zero.

12.  .Refer to Exhibit 11-1. At the highest point above the horizontal axis, tax revenues

a. / are maximized.
b. / are lower than at A and higher than at B.
c. / are lower than at B and higher than at A.
d. / drop to zero.

13.  All other things held constant, lower marginal (income) tax rates

a. / necessarily increase tax revenues.
b. / necessarily decrease tax revenues.
c. / decrease the attractiveness of productive activities relative to leisure and tax- avoidance activities, and shift the SRAS curve rightward.
d. / do not affect the attractiveness of productive activities relative to leisure and tax- avoidance activities and therefore the SRAS does not shift rightward or leftward.
e. / increase the attractiveness of productive activities relative to leisure and tax- avoidance activities and shift the SRAS curve rightward.

14.  Supply-side economists believe reductions in tax rates can

a. / shift the aggregate demand curve to the left.
b. / shift the short run aggregate supply curve to the left.
c. / increase output and lower prices.
d. / decrease output and lower prices.

15.  Crowding out suggests that

a. / high taxes reduce both consumption and saving.
b. / increases in consumption are always at the expense of saving.
c. / increases in government spending may raise the interest rate, thereby reducing investment.
d. / increases in government spending will close a recessionary gap.

16.  Fiscal policy is

a. / the money supply policy that the Fed pursues to achieve particular economic goals.
b. / the spending and tax policy that the government pursues to achieve particular macroeconomic goals.
c. / the investment policy that businesses pursue to achieve particular macroeconomic goals.
d. / the spending and saving policy that consumers pursue to achieve particular macroeconomic goals.
e. / none of the above

17.  To eliminate an inflationary gap, Keynesian theory indicates that government should

a. / increase taxes.
b. / decrease taxes.
c. / increase government purchases.
d. / decrease government purchases.
e. / either a or d

18.  A permanent marginal tax decrease is likely to

a. / shift the short-run aggregate supply curve to the left and the long-run aggregate supply curve to the right.
b. / shift both the short-run and the long-run aggregate supply curves to the left.
c. / shift the short-run aggregate supply curve to the right, and the long-run aggregate supply curve to the left.
d. / shift both the short run and the long run aggregate supply curves to the right.

19.  The marginal tax rate is equal to the

a. / total amount of a person's tax payment divided by the total amount of the person's taxable income.
b. / total amount of a person's tax payment divided by the change in the person's taxable income.
c. / change in the person's tax payment divided by the total amount of the person's taxable income.
d. / change in the person's tax payment divided by the change in the person's taxable income.

20.  Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?

a. / the data lag
b. / the recessionary lag
c. / the legislative lag
d. / the transmission lag
e. / None of the above; all are examples of such lags.

Ch. 12

21.  Barter is

a. / the exchange of money for goods and then the exchange of those goods for money.
b. / the exchange of money for money, or the exchange of money for stocks and bonds.
c. / the exchange of goods and services for goods and services without the use of money.
d. / any exchange, with or without the use of money, in which the participants negotiate (or barter) the price of the goods to be exchanged.

22.  Transaction costs are best defined as the

a. / various costs of different goods and services.
b. / cost of one good in terms of another; that is, the price of apples in terms of oranges.
c. / costs involved in borrowing money from someone, that is, the interest that must be paid for the use of someone else's money.
d. / costs associated with the time and effort necessary to make an exchange.

23.  Which of the following is a correct listing of money's functions?

a. / source of credit, value of transaction costs, unit of barter
b. / medium of barter, medium of exchange, medium of transactions
c. / unit of barter, unit of account, a unit of income
d. / store of value, store of exchange, measure of account
e. / store of value, medium of exchange, unit of account

24.  If peanuts were widely accepted for purposes of exchange, then

a. / peanuts would be money.
b. / peanuts would be less valuable than they are currently.
c. / we would observe people using peanuts to purchase cars.
d. / a and c
e. / a and b

25.  Compared to barter, money ______transaction costs, making transactions ______time-consuming.

a. / increases; more
b. / increases; less
c. / reduces; more
d. / reduces; less

26.  Which of the following statements is true?

a. / In June 2012, of the three components of M1, the checkable deposits component was the largest.
b. / M1 is sometimes referred to as the “broad definition of the money supply”.
c. / Time deposits are a part of M1, but not M2.
d. / M1 is a larger dollar amount than M2.

27.  A "money market deposit account" is a(n)

a. / checking account that pays no interest.
b. / bank account with a specified maturity date.
c. / store of Federal Reserve Notes held in bank vaults to cash checkable deposits on demand.
d. / checking account created from an automatic transfer from a savings account.
e. / interest-earning account at a bank or thrift institution that usually has a minimum balance requirement.

28.  In a barter economy, people are ______to specialize in the production of one good or service, compared to in a money economy.

a. / more likely
b. / less likely
c. / equally likely
d. / almost always going

29.  M2 is comprised of

a. / small-denomination time deposits + savings deposits + money market accounts.
b. / small-denomination time deposits + credit cards + money market accounts + gold deposits.
c. / M1 + small-denomination time deposits + savings deposits + retail money market mutual funds.
d. / M1 + small denomination time deposits + credit cards + money market accounts.

30.  Because money ______, people are ______likely to specialize in their work in a money economy.

a. / is a store of value; less
b. / eliminates the double coincidence of wants; more
c. / is a unit of account; more
d. / eliminates the need for holdings of precious metals; more

31.  In the history of banking, warehouse receipts refer to receipts

a. / that goldsmiths once issued acknowledging that they held a customer's gold.
b. / for storing furniture in a warehouse.
c. / goldsmiths issued to each other when they borrowed gold.
d. / for storing food and other perishables in a warehouse.

32.  Fractional reserve banking is a term used to describe a banking system whereby

a. / individual banks share a fraction of the total funds deposited in the whole banking system.
b. / banks are required to quote interest rates in fractions.
c. / banks hold reserves equal to only a fraction of their deposit liabilities.
d. / banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple.
e. / banks are required to maintain a certain fraction of their deposits in the form of checkable deposits, a certain fraction of their deposits in the form of savings deposits, etc.

33.  Tenth National Bank holds $285 million in checkable deposits and $35 million in reserves. With a required reserve ratio of 11 percent, how much in excess reserves is Tenth National holding?

a. / $250 million
b. / $3.65 million
c. / $35.2 million
d. / 3.85 million

34.  Bank A has checkable deposits of $800,000 and total reserves of $200,000. If the required reserve ratio is 0.15, the bank has required reserves of

a. / $600,000.
b. / $120,000.
c. / $90,000.
d. / $30,000.

35.  When a bank makes a loan to one of its customers, to the bank the loan is classified as

a. / an asset.
b. / a liability.
c. / neither an asset nor a liability.
d. / an asset in some cases and a liability in other cases, depending on the type of loan.

36.  The store of value function of money refers to the ability of money to

a. / facilitate the exchange of goods and services.
b. / maintain its value over time.
c. / express relative scarcity.
d. / earn interest over time.
e. / increase its value over time.

Ch. 13

37.  The Board of Governors of the Federal Reserve is comprised of

a. / seven persons, each appointed to a seven-year term.
b. / seven persons, each appointed to a fourteen-year term.
c. / fourteen persons, each appointed to a seven-year term.
d. / twelve persons, each appointed to a seven-year term.
e. / twelve persons, each appointed to a fourteen-year term.

38.  The United States is divided into ______Federal Reserve districts, each with a district bank.

a. / three
b. / eight
c. / twelve
d. / twenty
e. / fifty

39.  The Board of Governors of the Federal Reserve is part of a larger policy-making group called the

a. / Senate Banking Committee.
b. / Federal Deposit Insurance Corporation.
c. / American Banking Association.
d. / Federal Open Market Committee.

40.  Which of the following is not a major responsibility of the Fed?

a. / supplying the economy with paper money
b. / providing check-clearing services
c. / supervising member banks
d. / serving as fiscal agent for the Treasury
e. / All of the above are major responsibilities of the Fed.

41.  When a check is written on an account at Bank A and deposited in Bank B, the reserve account of ______will rise and reserves of the entire banking system will ______.

a. / Bank A; rise
b. / Bank A; remain constant
c. / Bank B; rise
d. / Bank B; remain constant

42.  Open Market Operations are conducted by

a. / the main Fed office in Washington, D.C.
b. / the U.S. Treasury on behalf of the Fed.
c. / the Federal Reserve Bank of New York.
d. / a consortium of private banks contracted by the Fed.

43.  Open market operations are the

a. / buying and selling of Federal Reserve Notes in the open market.
b. / means by which the Fed supplies the economy with currency.
c. / means by which the Fed acts as the government's banker.
d. / buying and selling of government securities by the Fed.
e. / buying and selling of government securities by the Treasury.

44.  The funds the Fed receives from selling government securities