question
In 2018, an increase of $516 million in real GDP in the United States was associated with an increase in consumption spending of $329 million. From this we can infer that the MPC is
answer
.64
MPC = change in consumption/change in GDP = $329 billion/$516 billion = 0.64
MPC = change in consumption/change in GDP = $329 billion/$516 billion = 0.64
question
Stocks drastically increase, increasing consumer wealth. Consumers are willing to spend more at each level of income. This is illustrated by
answer
an increase in the AE line which increases equilibrium (actual) GDP
question
Which of the following leads to lower real GDP based on the AE model?
A) Lower unplanned investment spending
B) A lower savings rate
C) A decreased in planned investment in capital
A) Lower unplanned investment spending
B) A lower savings rate
C) A decreased in planned investment in capital
answer
A decreased in planned investment in capital
- This shifts the AE line down, leading to lower real GDP.
- This shifts the AE line down, leading to lower real GDP.
question
The AE model in Hamsterville is given by AE=$10B + 0.8*Y.
If a depreciation of the Hamsterville snark increases net exports by $100M, how much will equilibrium real GDP change?
If a depreciation of the Hamsterville snark increases net exports by $100M, how much will equilibrium real GDP change?
answer
$500M
question
You predict that the output gap will decline from 1% to -1%. If the current unemployment rate is 3.5%, using Okun's rule you predict the unemployment rate to
answer
rise to 4.5%
question
Suppose the rate of inflation increases, and in response the Fed raises interest rates.
Which of the following would we expect to see?
- Investment increases
- Less consumption
- More consumption
- lower net exports
- Less investment
Which of the following would we expect to see?
- Investment increases
- Less consumption
- More consumption
- lower net exports
- Less investment
answer
- Less consumption
- lower net exports
- Less investment
- lower net exports
- Less investment
question
Assume that increased government spending has no effect on real interest rates (it might, but assume that it doesn't for now).
According to the AD-AS model, what is the effect of an increase in government spending have on output, inflation, and unemployment?
According to the AD-AS model, what is the effect of an increase in government spending have on output, inflation, and unemployment?
answer
real GDP increases, the price level increases, and unemployment decreases
question
Suppose business optimism, as measured by an index such as the NFIB (Links to an external site.), goes down, especially in the measure "now is a good time to expand". As a result, planned investment decreases.
According to the AD-AS model, what happens to real GDP, inflation, and unemployment, and what phase of the business cycle are you likely in?
According to the AD-AS model, what happens to real GDP, inflation, and unemployment, and what phase of the business cycle are you likely in?
answer
real GDP decreases, inflation decreases, unemployment increases, and either peak or contraction
question
As a result of supply chain disruptions, businesses throughout the economy anticipate higher production costs.
At the same time, reduced consumer confidence means that index of consumer sentiment is down.
All else equal (i.e., if we ignore business sentiment and just thought about these effects), and if prices are neither fully flexible nor fully fixed, then based on the AD-AS model we can expect real GDP to _______________ and inflation is _______________.
At the same time, reduced consumer confidence means that index of consumer sentiment is down.
All else equal (i.e., if we ignore business sentiment and just thought about these effects), and if prices are neither fully flexible nor fully fixed, then based on the AD-AS model we can expect real GDP to _______________ and inflation is _______________.
answer
- decrease
- not determinable without more information
- not determinable without more information
question
Tim Sands invites J Powell (the current chair of the Federal Reserve) to a large gathering that totally violates all the social distancing rules. As a result, J Powell and the entire Board of Governors (who makes monetary policy decisions) is quarantined. You are chosen to take over monetary policy decisions.
If there is a negative AD shock causing the unemployment rate to increase substantially, your best option is to
A) increase interest rates
B) decrease government spending
C) decrease interest rates, which increases planned investment.
D) increase government spending
If there is a negative AD shock causing the unemployment rate to increase substantially, your best option is to
A) increase interest rates
B) decrease government spending
C) decrease interest rates, which increases planned investment.
D) increase government spending
answer
C) decrease interest rates, which increases planned investment.
question
The Federal Reserve was created
answer
in 1913 in response to a banking crisis in 1907
question
How is monetary policy different from fiscal policy?
answer
Monetary policy adjusts interest rates, whereas fiscal policy adjusts government spending and taxes.
question
What is the Federal Reserve's mandate?
answer
to ensure maximum employment while maintaining stable prices
question
The Board of Governors of the Federal Reserve:(i) guides the operations of the Federal Reserve.(ii) ensures that interest rate ceilings are maintained.(iii) ensures that monetary policy follows the guidelines from Congress.(iv) oversees all the Federal Reserve district banks.
answer
(i), (ii), and (iv)
question
Which of the following best describes the purpose and mechanism of a overnight reverse repo (ONP RRP)?
answer
The Fed sells securities to a bank (or other dealer) overnight with an agreement to buy the bond back the next day at a pre-determined price. This decreases the excess reserves a bank has to loan out, which increases the FFR.
question
If the Fed announces that it is raising interest rates 50 basis points, which of the following is possible?
answer
It is trying to normalize interest rates
It is concerned about inflation
It is concerned about inflation
question
Suppose that the Federal Reserve has a 2% target on inflation. If actual inflation is 2%, then, the Fed will:
answer
not change the real interest rate.
question
If you read an announcement in the news that the Fed has lowered interest on excess reserves, a reasonable conclusion would be the FOMC is concerned about
answer
high unemployment
question
The IOER serves as a _______ to the FFR and the Discount Rate serves as a _______ to the FFR.
answer
- floor
- ceiling
- ceiling
question
Inflation in Hamsterville is low and predictable. If the citizens of Hamsterville start to worry about the risk of corporate bonds failing, we would expect to see
answer
an increase in money demand and a decrease in the nominal interest rate
question
Real GDP in Hamsterville increased by 10%. If the central bank of Hamsterville takes no action, we would expect to see what in the short run?
answer
An increase in the demand for money and an increase in nominal interest rates.
question
You are single and earn $51,875 a year. You plan to take the standard deduction, so your taxable income in 2020 is $39,475 putting you at the marginal tax rate of 12%. Someone offers you a job with a salary of $56,875.
If there are no added costs associated with the new job, will your take home pay increase?
If there are no added costs associated with the new job, will your take home pay increase?
answer
Yes
question
In the United States, the largest components of federal government spending are:
military spending and science.
Medicare and health.
state expenditures and housing.
social security, unemployment, and labor.
military spending and science.
Medicare and health.
state expenditures and housing.
social security, unemployment, and labor.
answer
social security, unemployment, and labor.
question
Programs like Social Security and Medicare are funded through:
corporate taxes.
individual income taxes.
payroll taxes.
tariffs.
corporate taxes.
individual income taxes.
payroll taxes.
tariffs.
answer
Payroll taxes
question
Which taxes are more likely to be regressive?
1 Social Security Taxes
2 Federal Income taxes
3 Sales taxe
1 Social Security Taxes
2 Federal Income taxes
3 Sales taxe
answer
1 and 3
question
Government spending adds directly to GDP through _____ and indirectly through _____.
A) government purchases; transfer payments
B) Transfer payments; government purchases
C) government purchases; military spending
D) Higher interest rates; crowding out
A) government purchases; transfer payments
B) Transfer payments; government purchases
C) government purchases; military spending
D) Higher interest rates; crowding out
answer
A government purchases; transfer payments
question
Fiscal policy works best when it is:
A) timely, targeted, and temporary.
B) general, nonspecific, and long-lasting.
C) Discretionary.
D) not countercyclical.
A) timely, targeted, and temporary.
B) general, nonspecific, and long-lasting.
C) Discretionary.
D) not countercyclical.
answer
A
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
