Printable Flash Cards

The forces that generate economic growth are those that shift the ______
A) long-run aggregate supply curve rightward.
B) long-run aggregate supply curve left ward.
C) aggregate demand curve left ward.
D) None of the above answers are correct.

If both the unemployment rate and the inflation rate decrease, you predict that ________
A) the natural unemployment rate has increased
B) the expected inflation rate has increased
C) the economy has moved along its short-run Phillips curve
D) the natural unemployment rate has decreased

Which of the following could start a demand-pull inflation?
A) an increase in government expenditures
B) a decrease in the quantity of money C) an increase in imports D) an increase in the money prices of raw materials

An increase in the world price of oil will result in ________.
A) demand-pull inflation
B) deflation
C) cost-push inflation
D) stagflation

The Phillips curve shows the relationship between the
A) nominal interest rate and the real interest rate.
B) real interest rate and the unemployment rate.
C) expected rate of inflation and the nominal interest rate.
D) unemployment rate and the inflation rate.

Demand-pull inflation persists because of
A) continuing increases in aggregate supply.
B) continuing increases in the quantity of money.
C) continuing increases in government expenditures.
D) continuing increases in real wage rates.

The long-run Phillips curve shows the relationship between the inflation rate and the unemployment rate when the
A) real interest rate is zero.
B) real interest rate equals the nominal interest rate.
C) inflation rate is zero.
D) actual inflation rate equals the expected inflation rate.

The long-run Phillips curve
A) is horizontal.
B) is vertical.
C) slopes downward.
D) slopes upward.

Moving along the short-run Phillips curve indicates
A) that higher unemployment leads to a higher inflation rate.
B) a natural rate of unemployment that does not vary with inflation.
C) a tradeoff between inflation and unemployment so that higher inflation is related to lower
unemployment.
D) that higher inflation leads to a higher unemployment rate.

Which of the following statements about a cost-push inflation is correct? A) To persist, cost-push inflation needs a continual series of cost hikes with no change in
aggregate demand.
B) The United States has never experienced a cost-push inflation.
C) Cost-push inflation might start with a rise in the price of raw materials, but it requires increases in the quantity of money to persist.
D) Cost-push inflation starts when an increase in aggregate demand ʺpushesʺ costs higher.

By itself, an increase in the price of oil shifts the A) short-run aggregate supply curve rightward and does not shift the aggregate demand curve. B) aggregate demand curve rightward and does not shift the short-run aggregate supply curve.
C) aggregate demand curve left ward and does not shift the short-run aggregate supply curve. D) short-run aggregate supply curve left ward and does not shift the aggregate demand curve.

A one-time increase in oil prices without any following change in aggregate demand produces A)stagflation.
B) a one-time fall in the price level. C) an increase in the money wage rate that exceeds the percentage increase in the price level. D) demand-pull inflation.

In a demand-pull inflation, the AD ( steps A to B) curve shifts ________ and the SAS curve shifts ________ (steps B to C).
A) rightward; rightward C) rightward; left ward B) left ward; left ward D) left ward; rightward

Stagflation is characterized by A) an economy which is growing at a rate equal to its historical average growth rate.
B) an increase in both output and the price level. C) a decrease in output and the price level. D) an increase in the unemployment rate and an increase in the price level.

A key element of the new classical model of the business cycle is A) rational expectations. B) random fluctuations in technology. C) sticky prices. D) a horizontal SAS curve.

Which theory emphasizes frequent changes in investment because of ʺanimal spiritsʺ as the main source of economic fluctuations?
A) Keynesian cycle theory
B) new classical cycle theory
C) monetarist cycle theory
D) real business cycle theory

In monetarist business cycle theory, the factor leading to a business cycle is changes in
A) the growth rate of the quantity of money. C) investment spending.
B) net exports. D) consumer spending.

Critics of the real business cycle model argue that A) investment spending is strongly related to the real interest rate.
B) investment spending is only weakly related to the real interest rate. C) labor supply is only weakly related to the real interest rate. D) labor supply is very strongly related to the real interest rate.

In the real business cycle model, the quantity of money 20) A) can decrease the effect from technology shocks.
B) has no effect on real GDP. C) can change the real wage rate. D) can increase the real interest rate.

Whenever the federal government spends more than it receives in tax revenue, then by definition it
A) operates a balanced budget.
B) runs a budget deficit.
C) runs a budget surplus.
D) increases economic growth.

If we compare the United States to France, the U.S. tax wedge is ________ the French tax wedge.
A) smaller than B) larger than C) not comparable to D) equals to

Suppose the only revenue taken in by the government is in the form of income tax, and the tax rate is 10 percent. If aggregate income is $800 billion, and government outlays are $100 billion then the government budget has
A) a surplus of $20 billion.
B) a deficit of $80 billion. C) neither a surplus nor a deficit. D) a deficit of $20 billion.

The Laffer curve shows that increasing ________ increases ________ when ________ low.
A) tax revenue; potential GDP; tax revenue is
B) potential GDP; tax revenue; tax revenue is C) tax rates; tax revenue; tax rates are D) None of the above answers is correct.

I equals
A) S + T + G.
B) S + (T - G) + (M-X)
C) C+T+G+(M-X).
D)C+S+T.

The idea that a government budget deficit decreases investment is called
A) the capital investment effect. B) the crowding-out effect. C) government dissaving. D) the Ricardo-Barro effect.

Comparing the fiscal imbalance for the current generation versus future generations, it is the case that

A) future generations pay a larger share of the fiscal imbalance. B) the current generation pays a larger share of the fiscal imbalance.
C) each generation pays all of its fiscal imbalance. D) each generation pays half of the fiscal imbalance.

The tendency for private saving to increase in response to growing government deficits is known as the
A) Keynes effect. B) money illusion effect. C) crowding out effect. D) Ricardo-Barro effect.

In order for the United States to repay its international debt, the United States would need to
A) have a surplus of imports over exports.
B) cut taxes.
C) have a current account deficit.
D) have a surplus of exports over imports.

The largest source of government revenues is ________.
A) social security taxes
B) corporate income taxes
C) indirect taxes
D) personal income taxes

The Employment Act of 1946 states that it is the responsibility of the federal government to
A) promote economic equality.
B) promote full employment.
C) maintain the inflation rate at below 10 percent per year.
D) All of the above answers are correct.

Lags in fiscal policy include:
A) impact lag.
B) recognition lag.
C) implementation (i.e. law-making) lag D) all of the above.
E) none of the above.

During an expansion, tax revenues ________ and government transfer payments ________.
A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

According to the balance budget multiplier, a simultaneous increase government expenditures and taxes by the same amount will:
A) stimulate aggregate demand and GDP. B) decrease aggregate demand and GDP.
C) have no effect on aggregate demand and GDP. D) increases aggregate demand but decreases GDP.

Historically, the budget deficit has tended to
A) decline steadily over time. B) increase during a recession. C) decrease during a recession. D) remain the same over the business cycle.

In terms of monetary policy, the implementation lag (i.e. law making) lag is on average:
A) nearly a year. B) very short (days or weeks). C) very long (years). D) more than 7 months.

The approximate size of the generational imbalance according to your text (in $ trillions) is:
A) 22 B) 90 C) 210 D) 79

Ranked from largest to smallest, the four main sources of federal tax revenue are
A) personal income tax; corporate income tax; indirect taxes, Social Security taxes.
B) corporate income tax; personal income tax; Social Security taxes; indirect taxes. C) personal income tax; indirect taxes; Social Security taxes; corporate income tax. D) personal income tax; Social Security taxes; corporate income tax; indirect taxes.

Splitting the fiscal imbalance between current and future generations is called
A) actuarial accounting. B) actuarial balance. C) genealogical accounting. D) generational imbalance.

The largest component of the generational imbalance is:
A) Medicare and health care. C) Social Security.
B) defense. D) welfare payments to the poor.

The functions of money are
A) medium of exchange and the ability to buy goods and services.
B) pricing, contracts, and means of payment.
C) medium of exchange, unit of account, and means of payment.
D) medium of exchange, unit of account, and store of value.

Monetary policy is controlled by
A) the president.
B) Congress.
C) the Federal Reserve.
D) the Treasury Department

The ʺdouble coincidence of wantsʺ problem is
A) always present in all economic systems.
B) resolved by the use of money.
C) resolved under a system of barter.
D) created by the use of money.

During periods of inflation, which function of money is most severely affected?
A) medium of exchange
B) store of value
C) means of payment
D)unit of account

Checking deposits are
A) part of money.
B) quite different from checking accounts.
C) not part of money.
D) small in volume relative to currency in circulation.

If the Fed wants to decrease the quantity of money, it can
A) sell U.S. government securities. B)purchase U.S. government securities.
C) decrease the government budget deficit.
D) raise income tax rates

M1 includes
A) money, checking deposits and travelerʹs checks.
B) money, stocks and bonds.
C) money market mutual funds, stocks and bonds.
D) currency, checking deposits and travelerʹs checks.

The current chairman of the Federal Reserve is
A) Paul Volcker.
B) Alan Greenspan
C) Ben Bernanke.
D) Milton Friedman

Monetary policy affects real GDP by
A) creating budget deficits.
B)changing aggregate demand.
C) creating budget surpluses.
D) changing aggregate supply.

The largest component of the fiscal imbalance is
A) Medicare.
B) Defense spending.
C) Social Security.
D) none of the above

11) Liquidity is the
A) inverse of the velocity of money.
B) ease with which an asset can be converted into money.
C) speed with which the price of an asset changes as its intrinsic value changes.
D) same as the velocity of money.

The definition of M2 includes
A) time deposits.
B) savings deposits.
C) M1.
D) all of the above

Credit cards are
A) not money.
B) money but are not a large part of the money supply.
C) not money because they are not made of paper.
D) money and are the largest part of the money supply

When you keep money in a change jar to be used later, what function is it fulfilling?
A) medium of exchange.
B) unit of account.
C) store of value.
D) recording device.

Depository institutions
A) earn profit according to how much the Federal Reserve pays them.
B) make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans.
C) earn money by charging the government for their services.
D) earn zero profit but receive compensation by the government because their services are so
valuable.

Modern U.S. commercial banks perform all of the following functions EXCEPT
A) issue paper currency.
B) accept checking deposits.
C) accept savings deposits.
D) make loans to households and business firms.

A depository institution is a firm that takes deposits from ________ and makes loans to ________.
A) households; firms
B) firms; households
C) firms; other firms
D) households and firms; other households and firms

An essential characteristic of credit unions is that
A) branching across state lines is prohibited.
B) they are typically large.
C) their lending is primarily for mortgage loans.
D) they are organized for individuals with a common bond.

For a commercial bank, the term ʺreservesʺ refers to
A) a bankerʹs concern (ʺreservationʺ) in making loans to an individual without a job.
B) the net interest that it earns on loans.
C) the cash in its vaults and its deposits at the Federal Reserve.
D) the profit that the bank retains at the end of the year.

Members of the Federal Reserve Systemʹs Board of Governors
A) are elected for life.
B) are elected at large by district banks.
C) hold 14-year staggered terms. D) are a special subcommittee of the Senate.

When banks borrow money from the Federal Reserve, these funds are called
A) discount loans.
B) Treasury funds.
C) federal funds.
D) federal loans.

Which Federal Reserve Bank president is always on the Federal Open Market Committee?
A) New York
B) St. Louis
C) Chicago
D) Boston

Which of the following equations represents the equation of exchange?
A) M = VP/Y B) PM = VY
C) MV = PY D) MY = PV

The Federal Open Market Committee (FOMC) is composed of
A) the Board of Governors, the Vice-President of the United States, and the Secretary of
Treasury for the United States.
B) representatives from the governors of all 50 states.
C) the 12 Presidents of the Federal Reserve regional banks.
D) Presidents of 5 Federal Reserve regional banks and the Board of Governors.

he sum of Federal Reserve notes, coins, and depository institutions reserves is the ________.
A) assets of the Fed
B) reserves of the Fed
C) liabilities of the Fed
D) monetary base

26) Which of the following is a tool that is used by the Fed to control the quantity of money?
A) excess reserves
B) open market operations
C) government expenditure multiplier D) real interest rate

The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank.
A) 7 B) 10 C) 52 D) 12

On the Fedʹs balance sheet, assets include
A) Federal Reserve notes and depository institutionsʹ deposits at the Federal Reserve.
B) Federal Reserve notes and loans to depository institutions.
C) depository institutions deposits at the Federal Reserve and loans to depository institutions.
D) U.S. government securities and loans to depository institutions (discount loans)

Money is created by
A) banks making loans.
B) banks taking in deposits.
C) banks paying for depositorʹs insurance.
D) government taxation.

A bankʹs required reserves are calculated by multiplying ________. A) cash in its vault by the required reserve ratio
B) the gold in its vault by the reserve ratio
C) the sum of its deposits and cash in its vault by the reserve ratio
D) its deposits by the required reserve ratio

Given a desired reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of
A) $80. B) $400. C) $0. D) $20.

When the monetary base increases by $2 billion, the quantity of money increases by $10 billion Thus, the money multiplier equals
A) 20.0 B) 0.2 C) 5 D) none of the above

Suppose that the money multiplier is 3. If the monetary base increases by $1 million, the quantity of money will
A) increase by $3 million.
B) decrease by $3 million.
C) increase by $300,000.
D) decrease by $300,000.

The fraction of deposits that banks must keep on hand or at the Federal Reserve is called the
A) money multiplier.
B) discount rate.
C) deposit multiplier.
D) required reserve ratio.

If the required reserve ratio is 20 percent, the simple deposit multiplier is
A) 5.0. B) 2.5. C) 10.0. D) 4.0.

37) Open market purchases by the Federal Reserve System (the Fed)
A) occur when the Fed wants to decrease the quantity of money.
B) increase bank reserves.
C) raise the federal funds rate.
D) All of the above answers are correct.

The Board of Governors of the Federal Reserve System consists of
A) 12 members appointed by Congress.
B) 7 members appointed by the President of the United States.
C) 7 members appointed by Congress and 7 appointed by the President.
D) the presidents of each regional Federal Reserve bank.

39) The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank.
A) 12 B) 10
C) 52 D) 7

Which of the following is one of the Fedʹs policy goals?
A) price level stability
B) monetary base
C) help the President win reelection
D) exchange rate

Why does the demand curve slope downward?
A) Wealth effect
B) export effect
C) interest rate effect
D) all of the above
E) none of the above

2) Which of the following does NOT shift the aggregate demand curve?
A) an increase in the price level
B) an increase in investment
C) a decrease in taxes
D) a decrease in the quantity of money

Higher taxes
A) decrease the short-run aggregate supply.
B) increase the short-run quantity supply.
C) decrease aggregate demand.
D) increase aggregate demand.

An increase in the quantity of money
A) increase the short-run quantity supply.
B) increases aggregate demand.
C) decrease the short-run aggregate supply.
D) decreases aggregate demand.

People expect their incomes will decrease next year (i.e. consumer expectations). As a result, the ________ will shift ________.
A) long-run aggregate supply curve; rightward
B) aggregate demand curve; rightward
C) aggregate demand curve; left ward
D) short-run aggregate supply curve; rightward

An increase in the money wage rate (or an increase in other input prices)
A) decreases the long-run aggregate supply.
B) decreases the short-run aggregate supply.
C) increases the long-run aggregate supply.
D) increases the short-run aggregate supply.

A decrease in government expenditure on goods and services
A) decreases the aggregate quantity demanded.
B) increases the aggregate quantity demanded.
C) increases aggregate demand.
D) decreases aggregate demand

In the long-run
A) the long-run aggregate supply curve is upward sloping.
B) the long-run aggregate supply depends on the price level.
C) real GDP is equal to potential GDP. D) All of the above answers are correct.

________ economists believe that the economy is self-regulating and will be at full employment .
A) Classical
B) All
C) Keynesian
D) Democratic

________ economists believe that active help from fiscal and monetary policy is needed to insure 11) that the economy is operating at full employment.
A) Keynesian
B) Classical
C) All
D) Republican

One possible result of a decrease in aggregate demand (ceteris paribus):
A) an increase in employment levels. B) a rise in the price level.
C) an economic expansion.
D) a recession.

According to the interest rate effect (i.e. inter temporal substitution effect), a fall in the price level will
A) cause the interest rate to fall. As a result, investment increases and the quantity of real GDP demanded increases.
B) lead to an increase in net exports, which causes the quantity of real GDP demanded to increase.
C) decrease the real value of wealth, which causes the quantity of real GDP demanded to increase.
D) increase the real value of wealth, which causes interest rates to increase. As a result, the quantity of real GDP demanded decreases.

Aggregate demand decreases when
A) incomes in foreign countries increase.
B) the government implements monetary policies that decrease the quantity of money.
C) the government cuts taxes.
D) businesses come to expect higher profits in the future.

Higher taxes
A) increase the aggregate quantity demanded.
B) decrease aggregate demand.
C) decrease the aggregate quantity demanded.
D) increase aggregate demand.

Which of the following shifts the aggregate demand curve left ward?
A) an increase in net exports of goods and services
B) an increase in consumption expenditures
C) a decrease in taxes
D) a decrease in government expenditures on goods and services

People expect their incomes will decrease next year. As a result, the ________ will shift ________.
A) aggregate demand curve; left ward
B) long-run aggregate supply curve; rightward
C) aggregate demand curve; rightward
D) short-run aggregate supply curve; rightward

Which of the following shifts the aggregate demand curve rightward?
A) the expectation of a future loss of income
B) a decrease in the quantity of money and an increase in interest rates
C) a decrease in government expenditures
D) a cut in personal income taxes

As the price level falls and other things remain the same, real wealth ________ and ________.
A) increases; the quantity of real GDP demanded increases
B) decreases; short-run aggregate supply decreases
C) increases; aggregate demand increases
D) decreases; the quantity of real GDP demanded decreases

An increase in the price level creates a
A) wealth effect.
B) decrease in consumption expenditures.
C) movement along the aggregate demand curve.
D) All of the above answers are correct.

Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decrease real GDP in the short run?
A) an increase in the stock of capital that increases aggregate supply
B) an increase in the price of oil that decreases aggregate supply
C) an increase in government expenditures
D) a decrease in the quantity of money

When the prices of U.S.-produced goods rise and the price of foreign-produced goods do not change, the result is
A) no change in imports or exports. B) a decrease in exports.
C) a decrease in imports.
D) an increase in exports.

Which of the following increases aggregate demand and shifts the AD curve rightward?
A) predictions of a recession that lead to expectations of lower future income
B) a fall in the price level
C) an increase in the exchange rate that makes imports less expensive
D) an increase in the quantity of money and a resulting fall in the interest rate

The budget deficit
A) reached its peak in the year 2000.
B) is the total outstanding borrowing by the government.
C) is the difference between government outlays and tax revenues.
D) decreased during the Obama Administration.

If the federal governmentʹs tax revenues are greater than its outlays, then the federal budget has a
A) deficit.
B) transfer payment.
C) surplus.
D) balanced budget.

If the tax rate rises with income, the tax system is:
A) progressive.
B) proportional.
C) regressive.
D) none of the above

Suppose you make $20,000 per year and Joe makes $100,000 per year, if you both pay $1,000 tax the system is:
A) regressive
B) proportional
C) progressive
D) none of the above.