Macroeconomics - Exam 3 - Miller

question

The multiplier principle indicates that if business decision makers become more optimistic about the future and, as a result, increase their investment expenditures by $82 billion, real GDP

answer

will increase by more than $82 billion if the economy was initially operating well below capacity.

question

Rather than seeking to balance the budget, Keynesian economists argue that the government's tax and spending policies should be determined by the

answer

level of aggregate demand required to achieve full employment of resources.

question

If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, a Keynesian economist would be most likely to recommend

answer

a reduction in taxes, without any offsetting reduction in government expenditures

question

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

answer

It is difficult to properly time discretionary changes in fiscal policy.

question

Within the Keynesian model, if the output of an economy is less than the full-employment level, then

answer

output will tend to remain below full-employment capacity unless aggregate expenditures increase.

question

A major advantage of built-in or automatic stabilizers is that they

answer

require no Congressional action to be effective.

question

As the marginal propensity to consume (MPC) decreases, the spending multiplier

answer

decreases

question

The marginal propensity to consume is defined as the

answer

proportion of any change in income that is spent on consumption.

question

Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the following is true?

answer

When investment increases by $1, income increases by $5.

question

The primary tool of fiscal policy is

answer

the federal budget.

question

When the federal government is running a budget deficit,

answer

government expenditures exceed government revenues.

question

Which of the following best expresses the central idea of countercyclical fiscal policy?

answer

Deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.

question

According to Keynesian analysis, which of the following policy combinations would most likely to move the economy in recession to full employment?

answer

increase in government purchases and reduction in taxes

question

The crowding-out effect suggests that

answer

a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit

question

If a fiscal policy change is going to exert a stabilizing impact on the economy, it must

answer

add demand stimulus during a slowdown but restraint during an economic boom.

question

Keynesians and non-Keynesians would largely agree on which one of the following statements?

answer

Proper timing of discretionary fiscal policy is difficult to achieve.

question

The persistence of budget deficits during the last several decades is not surprising because politicians will find

answer

budget deficits more attractive than budget surpluses.

question

Other things being constant, countries with higher rates of saving

answer

will have higher rates of investment and growth.

question

If the government ran a major budget deficit, and there was no noticeable effect on the level of GDP, this could be taken as evidence of

answer

crowding-out.

question

Money is

answer

whatever is generally accepted in exchange for goods and services.

question

In the United States, the purchasing power of money is determined by

answer

Federal Reserve policy, which controls the money supply.

question

Ordinary commercial banks can expand the supply of money by

answer

using a portion of their deposits to extend additional loans.

question

Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

answer

$500 million increase in the money supply.

question

The primary benefit of a monetary system of exchange compared to a barter system is the increased

answer

efficiency in arranging transactions.

question

If money were not used as a medium of exchange,

answer

the gains from trade would be severely limited.

question

Fiat money is money

answer

that has little intrinsic value and is not backed by a commodity.

question

Money is used as a unit of account. This means

answer

money is used to measure the exchange value and costs of goods, services, assets and resources.

question

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

answer

fractional reserve banking system.

question

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

answer

limits the ability of banks to expand the money supply by extending additional loans.

question

The fraction that banks must, by law, hold as reserves against the checking deposits of their customers is called the

answer

required reserve ratio.

question

Excess reserves of banks equal

answer

actual reserves minus required reserves.

question

The federal funds rate is the interest rate paid when

answer

one bank borrows reserves from another bank.

question

The major overall purpose of the Federal Reserve System is to

answer

regulate the money supply and, thereby, provide a monetary climate that is in the best
interest of the economy.

question

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed

answer

increased its purchases of financial assets and thereby injected additional reserves into the banking system.

question

During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy?

answer

an increase in aggregate demand and real GDP

question

Cross country data illustrates that rapid expansion in the supply of money over a lengthy period of time (for example, a decade) leads to

answer

high rates of inflation.

question

If the Federal Reserve increases its bond purchases, the short-run effects will be

answer

an increase in the money supply and lower real interest rates.

question

When the Fed decreases the money supply, interest rates

answer

rise.

question

An unexpected increase in the supply of money will

answer

reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses.

question

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

answer

buy government bonds from the public

question

If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?

answer

b. an increase in unemployment

question

If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run?

answer

The supply of loanable funds will decrease, which will exert upward pressure on the interest rate.

question

The short-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be (graph)

answer

a decrease in aggregate demand and a decrease in real output

question

Most economists believe that

answer

a monetary policy that achieves price stability will reduce uncertainty and provide the framework for strong economic growth.

question

Economic growth is important because expansion in the output of goods and services

answer

makes it possible for individuals to consume more and achieve higher living standards

1 of 45

question

The multiplier principle indicates that if business decision makers become more optimistic about the future and, as a result, increase their investment expenditures by $82 billion, real GDP

answer

will increase by more than $82 billion if the economy was initially operating well below capacity.

question

Rather than seeking to balance the budget, Keynesian economists argue that the government's tax and spending policies should be determined by the

answer

level of aggregate demand required to achieve full employment of resources.

question

If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand, a Keynesian economist would be most likely to recommend

answer

a reduction in taxes, without any offsetting reduction in government expenditures

question

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

answer

It is difficult to properly time discretionary changes in fiscal policy.

question

Within the Keynesian model, if the output of an economy is less than the full-employment level, then

answer

output will tend to remain below full-employment capacity unless aggregate expenditures increase.

question

A major advantage of built-in or automatic stabilizers is that they

answer

require no Congressional action to be effective.

question

As the marginal propensity to consume (MPC) decreases, the spending multiplier

answer

decreases

question

The marginal propensity to consume is defined as the

answer

proportion of any change in income that is spent on consumption.

question

Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the following is true?

answer

When investment increases by $1, income increases by $5.

question

The primary tool of fiscal policy is

answer

the federal budget.

question

When the federal government is running a budget deficit,

answer

government expenditures exceed government revenues.

question

Which of the following best expresses the central idea of countercyclical fiscal policy?

answer

Deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.

question

According to Keynesian analysis, which of the following policy combinations would most likely to move the economy in recession to full employment?

answer

increase in government purchases and reduction in taxes

question

The crowding-out effect suggests that

answer

a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit

question

If a fiscal policy change is going to exert a stabilizing impact on the economy, it must

answer

add demand stimulus during a slowdown but restraint during an economic boom.

question

Keynesians and non-Keynesians would largely agree on which one of the following statements?

answer

Proper timing of discretionary fiscal policy is difficult to achieve.

question

The persistence of budget deficits during the last several decades is not surprising because politicians will find

answer

budget deficits more attractive than budget surpluses.

question

Other things being constant, countries with higher rates of saving

answer

will have higher rates of investment and growth.

question

If the government ran a major budget deficit, and there was no noticeable effect on the level of GDP, this could be taken as evidence of

answer

crowding-out.

question

Money is

answer

whatever is generally accepted in exchange for goods and services.

question

In the United States, the purchasing power of money is determined by

answer

Federal Reserve policy, which controls the money supply.

question

Ordinary commercial banks can expand the supply of money by

answer

using a portion of their deposits to extend additional loans.

question

answer

$500 million increase in the money supply.

question

The primary benefit of a monetary system of exchange compared to a barter system is the increased

answer

efficiency in arranging transactions.

question

If money were not used as a medium of exchange,

answer

the gains from trade would be severely limited.

question

Fiat money is money

answer

that has little intrinsic value and is not backed by a commodity.

question

Money is used as a unit of account. This means

answer

money is used to measure the exchange value and costs of goods, services, assets and resources.

question

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

answer

fractional reserve banking system.

question

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

answer

limits the ability of banks to expand the money supply by extending additional loans.

question

The fraction that banks must, by law, hold as reserves against the checking deposits of their customers is called the

answer

required reserve ratio.

question

Excess reserves of banks equal

answer

actual reserves minus required reserves.

question

The federal funds rate is the interest rate paid when

answer

one bank borrows reserves from another bank.

question

The major overall purpose of the Federal Reserve System is to

answer

regulate the money supply and, thereby, provide a monetary climate that is in the best
interest of the economy.

question

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed

answer

increased its purchases of financial assets and thereby injected additional reserves into the banking system.

question

answer

an increase in aggregate demand and real GDP

question

Cross country data illustrates that rapid expansion in the supply of money over a lengthy period of time (for example, a decade) leads to

answer

high rates of inflation.

question

If the Federal Reserve increases its bond purchases, the short-run effects will be

answer

an increase in the money supply and lower real interest rates.

question

When the Fed decreases the money supply, interest rates

answer

rise.

question

An unexpected increase in the supply of money will

answer

reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses.

question

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

answer

buy government bonds from the public

question

If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?

answer

b. an increase in unemployment

question

If the Federal Reserve unexpectedly decides to sell bonds, which of the following will most likely happen in the short run?

answer

The supply of loanable funds will decrease, which will exert upward pressure on the interest rate.

question

The short-run impact of the Fed unexpectedly shifting to a more restrictive monetary policy will be (graph)

answer

a decrease in aggregate demand and a decrease in real output

question

Most economists believe that

answer

a monetary policy that achieves price stability will reduce uncertainty and provide the framework for strong economic growth.

question

Economic growth is important because expansion in the output of goods and services

answer

makes it possible for individuals to consume more and achieve higher living standards

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Macroeconomics – Exam 3 – Miller

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