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Economics Flash Cards

masudamarc English 73 cards

Cards in this deck (73)

  1. 1If the Fed pursues expansionary monetary policy then 37) A) the money supply will decrease, interest rates will rise and GDP will fall. B) the money supply will increase, interest rates will fall and GDP will rise. C) the money supply will decrease, interest rates will fall and GDP will fall. D) the money supply will increase, interest rates will rise and GDP will rise.B) the money supply will increase, interest rates will fall and GDP will rise.
  2. 2If the Fed pursues expansionary monetary policy, 38) A) aggregate demand will fall, and the price level will fall. B) aggregate demand will rise, and the price level will fall. C) aggregate demand will rise, and the price level will rise. D) aggregate demand will fall, and the price level will rise.C) aggregate demand will rise, and the price level will rise.
  3. 3Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy? 39) A) Potential GDP is forecasted to be higher than equilibrium GDP. B) Aggregate demand is growing too slowly and the economy is in danger of producing GDP above full employment. C) Aggregate demand is growing too fast to keep the economy at full employment. D) Potential GDP is forecasted to be lower than equilibrium GDP.A) Potential GDP is forecasted to be higher than equilibrium GDP.
  4. 4Which of the following characterizes the Fed's ability to prevent recessions? 40) A) The Fed is able to keep a recession shorter and milder than it would otherwise be. B) The Fed is incapable of changing aggregate demand through its monetary policy tools. C) The Fed is able to eliminate the business cycle and achieve absolute price stability. D) The Fed is able to "fine tune" the economy and entirely eliminate recessions.A) The Fed is able to keep a recession shorter and milder than it would otherwise be.
  5. 5From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely 44) A) increase income tax rates. B) increase interest rates. C) decrease income tax rates. D) decrease interest rates.D) decrease interest rates.
  6. 6Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________. 45) A) higher; higher B) lower; lower C) higher; lower D) lower; higherA) higher; higher
  7. 7The Taylor rule helps explain the relationship between the Fed's ________ and ________. 48) A) money supply target; the federal funds target B) money supply target; economic conditions C) federal funds target; economic conditions D) federal funds target; the monetary growth ruleC) federal funds target; economic conditions
  8. 8The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed, and a rate which was ________ that set when Arthur Burns chaired the Fed. 49) A) less than; greater than B) greater than; equal to C) less than; equal to D) greater than; less thanA) less than; greater than
  9. 9By the height of the housing bubble in 2005 and early 2006, lenders had greatly loosened the standards for obtaining a mortgage loan, with many mortgages being granted to sub-prime borrowers ________ and "Alt-A" borrowers ________. 50) A) with flawed credit histories; who did not document their incomes B) who borrowed more than 120 percent of the value of the house; with no proof of U.S. citizenship C) who purchased homes in depressed housing markets; who purchased homes which were repossessed by government agencies. D) who borrowed money at rates below the prime interest rate; who had AAA credit ratingsA) with flawed credit histories; who did not document their incomes
  10. 10The Federal Reserve responded to the 2008 financial crisis in several ways. Which of the following is one of the ways the Fed responded? 51) A) The Fed banned investment banks from obtaining discount loans. B) The Fed lent investment banks Treasury securities in exchange for mortgage-backed securities. C) The Fed helped Citibank to acquire General Motors and Chrysler. D) The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reservesB) The Fed lent investment banks Treasury securities in exchange for mortgage-backed
    securities.
  11. 11Although the Federal Reserve had traditionally made discount loans only to ________, in response to to the financial crisis in 2008 the Fed made primary dealers eligible for discount loans as well. 52) A) mortgage lenders B) investment banks C) commercial banks D) government agenciesC) commercial banks
  12. 12Which of the following would be considered an active fiscal policy? 53) A) Tax incentives are offered to encourage the purchase of fuel efficient cars. B) The Fed increases the money supply. C) Spending on the war in Afghanistan is increased to promote homeland security. D) A tax cut is designed to stimulate spending passed during a recession.D) A tax cut is designed to stimulate spending passed during a recession.
  13. 13Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________. 54) A) discretionary fiscal policy; automatic stabilizers B) automatic stabilizers; discretionary fiscal policy C) discretionary fiscal policy; conscious fiscal policy D) automatic stabilizers; monetary policyA) discretionary fiscal policy; automatic stabilizers
  14. 14When the Fed embarked on a policy known as quantitative easing, they 34) A) opened up lending to primary dealers, commercial banks, and investment banks. B) slowly lowered the federal funds rate target until it was equal to zero. C) bought longer-term securities than are usually bought in open market operations. D) they reduced the required reserve ration by one-quarter point per month for 12 months.C) bought longer-term securities than are usually bought in open market operations.
  15. 15Falling interest rates can 33) A) raise the cost of borrowing for firms and decrease investment. B) increase a firm's stock price, which causes firms to issue more stock shares, and thus increases funds for investment. C) lower the cost of buying new homes and fewer new homes will be purchased. D) raise the cost of buying new homes and fewer new homes will be purchased.B) increase a firm's stock price, which causes firms to issue more stock shares, and thus
    increases funds for investment.
  16. 16If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these circumstances, then the interest rate will 32) A) rise substantially and investment and consumer spending will rise substantially. B) fall substantially and investment and consumer spending will fall substantially. C) change very little and investment and consumer spending will change very little. D) fall substantially and investment and consumer spending will change very little.C) change very little and investment and consumer spending will change very little.
  17. 17Lowering the interest rate will 31) A) decrease spending on new homes. B) decrease the value of the dollar and lower net exports. C) decrease spending on consumer durables. D) increase investment projects by firms.D) increase investment projects by firms.
  18. 18Increases in the price level 27) A) increase the quantity of money needed for buying and selling. B) decrease the quantity of money needed for buying and selling. C) increase the opportunity cost of holding money. D) decrease the opportunity cost of holding money.A) increase the quantity of money needed for buying and selling.
  19. 19If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run. 26) A) reduce; lower B) increase; lower C) increase; raise D) reduce; raiseA) reduce; lower
  20. 20The Fed's two main monetary policy targets are 25) A) the money supply and the inflation rate. B) the inflation rate and real GDP. C) the money supply and the interest rate. D) the interest rate and real GDP.C) the money supply and the interest rate.
  21. 21The Fed seeks to promote stability of financial markets because 24) A) they want to lift the self-esteem of workers. B) Congress directed them to do so by the Employment Act of 1946. C) unstable markets result in increased efficiency. D) resources are lost when there is not an efficient matching of savers and borrowers. 25)D) resources are lost when there is not an efficient matching of savers and borrowers.
  22. 22Rising prices erode the value of money as a ________ and as a ________. 23) A) store of value; unit of barter B) unit of barter; unit of account C) medium of exchange; store of value D) store of value; unit of liquidityC) medium of exchange; store of value
  23. 23Monetary policy refers to the actions the Federal Reserve takes to manage 21) A) the money supply and interest rates to pursue its economic objectives. B) government spending and income tax rates to pursue its economic objectives. C) income tax rates and interest rates to pursue its economic objectives. D) the money supply and income tax rates to pursue its economic objectives.A) the money supply and interest rates to pursue its economic objectives.
  24. 24The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals 20) A) 0. B) the growth rate of real GDP. C) the growth rate of the velocity of money. D) the growth rate of the price level.B) the growth rate of real GDP.
  25. 25According to the quantity theory of money, inflation is caused by 19) A) GDP growing at the same rate as the money supply. B) the money supply growing slower than real GDP. C) the money supply growing faster than real GDP. D) GDP growing faster than the money supply.C) the money supply growing faster than real GDP.
  26. 26The quantity theory of money assumes that 18) A) the velocity of money is negative. B) the velocity of money is zero. C) the velocity of money is constant. D) the velocity of money fluctuates unpredictably.C) the velocity of money is constant.
  27. 27Which of the following is an example of discretionary fiscal policy? 55) A) an increase in unemployment insurance payments during a recession B) a decrease in food stamps issued during an expansion or boom C) an increase in income tax receipts with rising income during an expansion D) the tax cuts passed by Congress in 2001 to combat the recessionD) the tax cuts passed by Congress in 2001 to combat the recession
  28. 28The majority of dollars spent by government prior to the Great Depression was spending at the ________ level. In the post World War II period, two-thirds to three quarters of all dollars spent by government in the United States are spent at the ________ level. 56) A) state and local; federal B) federal; state and local C) state and local; state D) local; stateA) state and local; federal
  29. 29Expansionary fiscal policy will 57) A) not shift the aggregate demand curve. B) shift the short-run aggregate supply curve to the left. C) shift the aggregate demand curve to the right. D) shift the aggregate demand curve to the left.C) shift the aggregate demand curve to the right.
  30. 30Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP? 58) A) an increase in the supply of money B) an increase in individual income taxes C) a decrease in transfer payments D) an increase in government purchasesD) an increase in government purchases
  31. 31A decrease in individual income taxes ________ disposable income, which ________ consumption spending. 59) A) increases; increases B) decreases; decreases C) decreases; increases D) increases; decreasesA) increases; increases
  32. 32Tax increases on business income decrease aggregate demand by decreasing 60) A) government spending. B) business investment spending. C) consumption spending. D) wage rates.B) business investment spending
  33. 33Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP. 64) A) decreases; increases B) decreases; decreases C) increases; increases D) increases; decreasesC) increases; increases
  34. 34Cutting taxes 69) A) will raise disposable income and raise spending. B) will lower disposable income and raise spending. C) will lower disposable income and lower spending. D) will raise disposable income and lower spending.A) will raise disposable income and raise spending.
  35. 35A cut in tax rates effects equilibrium real GDP through two channels: ________ disposable income and consumer spending, and ________ the size of the multiplier effect. 70) A) decreasing; decreasing B) increasing; increasing C) decreasing; increasing D) increasing; decreasingB) increasing; increasing
  36. 36Suppose real GDP is $13 trillion, potential real GDP is $13.5 trillion, and Congress and the president plan to use fiscal policy to restore the economy to potential real GDP. Assuming a constant price level, Congress and the president would need to decrease taxes by 71) A) less than $500 billion. B) $500 billion. C) more than $500 billion. D) None of the above are correct. Congress should raise taxes in this case.A) less than $500 billion.
  37. 37Suppose real GDP is $14 trillion and potential real GDP is $14.4 trillion. An increase in government purchases of $400 billion would cause real GDP to ________ potential real GDP (assuming a constant price level). 72) A) be less than B) equal C) be more than D) There is insufficient information given here to draw a conclusionC) be more than
  38. 38If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential real GDP $14.5 trillion, then government purchases would need to increase by ________ to restore the economy to potential real GDP. 73) A) $7.25 trillion B) $1 trillion C) $500 billion D) $250 billionD) $250 billion
  39. 39If the absolute value of the tax multiplier equals 1.6, real GDP is $13 trillion, and potential real GDP is $13.4 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP. 74) A) $250 billion B) $400 billion C) $640 billion D) None of the above are correct. TaxesA) $250 billion
  40. 40It is ________ difficult to effectively time fiscal policy than monetary policy because ________. 75) A) less; monetary policy takes longer to implement B) more; fiscal policy takes longer to implement C) more; fiscal policy can be quickly decided and changed D) less; monetary policy takes longer to decide and changeB) more; fiscal policy takes longer to implement
  41. 41A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out. 76) A) increase; decrease B) increase; increase C) decrease; increase D) decrease; decreaseC) decrease; increase
  42. 42if government spending and the price level increase, then 77) A) the interest rate decreases, consumption increases, and investment spending increases. B) the interest rate decreases, consumption declines, and investment spending declines. C) the interest rate increases, consumption declines, and investment spending declines. D) the interest rate increases, consumption increases, and investment spending increases.C) the interest rate increases, consumption declines, and investment spending declines.
  43. 43Crowding out, following an increase in government spending, results from (the exchange rate is the foreign exchange price of the domestic currency) 78) A) lower interest rates and a lower exchange rate. B) higher interest rates and a higher exchange rate. C) lower interest rates and a higher exchange rate. D) higher interest rates and a lower exchange rate.B) higher interest rates and a higher exchange rate.
  44. 44Crowding out will be greater 79) A) the further equilibrium GDP is below potential GDP. B) the less sensitive consumption spending is to changes in the interest rate. C) if the economy is in recession, rather than at full employment. D) the more sensitive investment spending is to changes in the interest rate.D) the more sensitive investment spending is to changes in the interest rate.
  45. 45If policy makers implement an expansionary fiscal policy but do not take into account the potential for crowding out, the new equilibrium level of GDP is likely to 80) A) be below potential GDP. B) be at potential GDP. C) be above potential GDP. D) There is insufficient information given here to draw a conclusion.A) be below potential GDP.
  46. 46Following a decrease in government spending, as the price level falls we would expect the level of interest rates to ________ and investment to ________. 81) A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decreaseC) decrease; increase
  47. 47An increase in government spending may expedite recovery from a recession in the short run, but in the long run this policy may 82) A) raise interest rates and reduce consumer expenditures on automobiles and new houses. B) make domestic businesses less competitive in international markets as the dollar appreciates in value. C) reduce investment in new capital. D) All of the above are correct.D) All of the above are correct.
  48. 48If the federal government's expenditures are less than its tax revenues, then 83) A) a budget surplus results. B) the budget is balanced. C) a budget deficit results. D) No conclusion can be drawn here regarding the budget surplus or deficit without information regarding government purchases versus other outlays.A) a budget surplus results.
  49. 49During the twentieth century, the largest budget deficits as a percentage of GDP occurred 84) A) during the Vietnam war. B) during World Wars I and II. C) during the 1990s. D) during the 1980s.B) during World Wars I and II.
  50. 50If the federal budget has an actual budget deficit of $100 billion and a cyclically adjusted budget deficit of $75 billion, then the economy 85) A) must be below potential real GDP. B) could be below or above potential real GDP. C) must be at potential real GDP. D) must be above potential real GDP.A) must be below potential real GDP.
  51. 51Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential, 86) A) government transfer payments will be rising and tax receipts will be falling. B) this will result in a current budget deficit. C) the cyclically adjusted budget will be balanced. D) All of the above are correct.D) All of the above are correct
  52. 52If tax reduction and simplification are effective, then 87) A) real wages will rise as labor supply and demand increase. B) saving and investment in new capital will increase. C) fewer new firms will be established, since existing firms will make more profit. D) interest rates will rise in financial markets and demand for financial assets falls.B) saving and investment in new capital will increase.
  53. 53Tax reduction and simplification should ________ long-run aggregate supply and ________ aggregate demand. 88) A) decrease; decrease B) increase; decrease C) decrease; increase D) increase; increaseD) increase; increase
  54. 54If we include consideration of potential effects of a proposed tax reduction and simplification on the labor supply, we would expect crowding out of investment and net exports brought about by the tax cut to be 89) A) increased as aggregate real income and output rise in the long run. B) unaffected by the shifting long-run aggregate supply curve. C) less than it would be without the supply-side effects. D) dependent upon the impact of this tax change on consumer disposable income.C) less than it would be without the supply-side effects.
  55. 55Which of the following transactions would be included in Germany's current account? 90) A) An American citizen purchases a new Volkswagen made in Germany. B) A German citizen purchases a new Volkswagen made in Germany. C) An American citizen purchases 100 shares of BMW stock. D) A German citizen purchases 100 shares of Texas Instruments stock.A) An American citizen purchases a new Volkswagen made in Germany.
  56. 56Which of the following would decrease net exports in the United States? 91) A) An American party planner purchases 350 piñatas from Mexico. B) The U.S. government donates $25 million to Mexico to help victims of a hurricane in Mexico. C) The government of Mexico purchases 2,000 Dell laptop computers from the United States. D) A Mexican citizen purchases 100 shares of stock in IBM.A) An American party planner purchases 350 piñatas from Mexico.
  57. 57When the United States sends money to the Philippines to help typhoon survivors, the transaction is recorded in 92) A) the financial account. B) the foreign exchange account. C) the current account. D) the capital account.C) the current account.
  58. 58A Canadian oil company hires geological survey services from the United States. If all else remains equal, this will 93) A) increase the balance of trade. B) decrease the current account balance. C) increase the financial account. D) increase net exports.D) increase net exports.
  59. 59If New Yorkers decrease their purchases of French champagne, assuming all else remains constant, this will ________ of the United States. 94) A) decrease the current account balance B) increase the balance of trade C) decrease net exports D) increase the trade deficit E) increase the balance of paymentsB) increase the balance of trade
  60. 60In international exchange markets, a rise in interest rates in the United States will cause the demand for dollars to ________ and the supply of dollars to ________. 95) A) decrease; decrease B) increase; increase C) decrease; increase D) increase; decreaseD) increase; decrease
  61. 61Ceteris paribus, a rise in interest rates in the United States will cause the yen price of the dollar in international exchange markets to ________. I.e., the dollar ________ in value against the yen. 96) A) decrease; depreciates B) increase; depreciates C) increase; appreciates D) decrease; appreciatesC) increase; appreciates
  62. 62How does an increase in the relative price of a country's goods in terms of foreign goods, or real exchange rate, affect its balance of trade? 98) A) An increase in the real exchange rate reduces imports, raises exports, and reduces the balance of trade. B) An increase in the real exchange rate raises imports, reduces exports, and increases the balance of trade. C) An increase in the real exchange rate raises imports, reduces exports, and reduces the balance of trade. D) An increase in the real exchange rate reduces imports, raises exports, and increases the balance of trade.C) An increase in the real exchange rate raises imports, reduces exports, and reduces the balance
    of trade.
  63. 63National saving equals 99) A) income - taxes - consumption. B) income - consumption - government spending. C) private saving + public saving - net foreign investment. D) taxes - government spending.B) income - consumption - government spending.
  64. 64If net exports are negative, 100) A) net foreign investment is also negative. B) net foreign investment is positive. C) capital inflows must be less than capital outflows. D) Both A and B are correct.A) net foreign investment is also negative.
  65. 65If net exports are equal to net foreign investment, 101) A) the current account balance is equal to the negative of the financial account balance. B) the balance of payments is zero. C) net capital inflows are equal to imports minus exports. D) All of the above are true when net exports are equal to net foreign investment.D) All of the above are true when net exports are equal to net foreign investment.
  66. 66A federal budget deficit ________ interest rates, which ________ exchange rates (foreign currency per domestic currency), and ________ the balance of trade. 102) A) raises; raises; reduces B) raises; reduces; reduces C) reduces; raises; reduces D) reduces; reduces; raisesA) raises; raises; reduces
  67. 67What impact might a decrease in the U.S. federal budget deficit have on interest rates and exchange rates in the market for the U.S. dollar? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.) 103) A) Interest rates and exchange rates increase. B) Interest rates increase and exchange rates decrease. C) Interest rates and exchange rates decrease. D) Interest rates decrease and exchange rates increase.C) Interest rates and exchange rates decrease.
  68. 68Suppose the Fed purchases Treasury Securities. Interest rates in the United States will ________ and the U.S. dollar will ________ against foreign currencies. 104) A) increase; appreciate B) increase; depreciate C) decrease; depreciate D) decrease; appreciateC) decrease; depreciate
  69. 69If the Fed pursues an expansionary monetary policy, investment in the United States will ________ and net exports will ________. 105) A) decrease; decrease B) decrease; increase C) increase; increase D) increase; decreaseC) increase; increase
  70. 70Suppose the government cuts taxes. We would expect interest rates to ________ and the dollar to ________ in foreign exchange markets. 106) A) rise; appreciate B) fall; depreciate C) rise; depreciate D) fall; appreciateA) rise; appreciate
  71. 71In an open economy, expansionary monetary policy will cause 107) A) consumption to fall, but investment and net exports will rise. B) consumption, investment, and net exports to rise. C) consumption and investment to rise, but net exports will fall. D) consumption to rise, but investment and net exports will fall.B) consumption, investment, and net exports to rise.
  72. 72Which of the following is "crowded out" by higher interest rates that can be the result of expansionary fiscal policy? 108) A) private investment B) consumption C) net exports D) All of the above are crowded out by higher interest rates.D) All of the above are crowded out by higher interest rates.
  73. 73If the government finances an increase in government purchases with an increase in taxes, which of the following would you expect to see? 109) A) a decrease in aggregate demand B) a decrease in the interest rate C) an increase in net exports D) an increase in the exchange rateD) an increase in the exchange rate

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Flashcards on Economics Flash Cards, created by masudamarc on 12/05/2015.
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