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macro exam 2
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| Question | Answer |
|---|---|
| Aggregate Spending equals | The total of all consumption, investment, government expenditures and net exports. |
| A government budget deficit occurs when: | Government spending exceeds tax revenues. |
| When inflows of foreign savings exceed outflows of domestic savings, and economy has. | additional savings for domestic investment spending. |
| The Market for Loanable Funds is: | a hypothetical market featuring the demand for funds by borrowers and the supply of funds provided by lenders. |
| The supply of loanable funds would be increased by: | a reduction in government borrowing. |
| The value of a publicly traded stock: | is derived from dividends, and the expected sale price in the future. |
| Marginal Propensity to Consume is: | The amount that consumer spending increases when disposable income increases by $1. |
| A fiscal policy to correct an Inflationary Gap would be: | Reduce government spending. |
| In the context of financial markets, the Risk and Return trade-off is: | The idea that to get higher returns, investors must accept higher risk. |
| The idea that the market price of a financial asset takes all known public information into account is: | The Efficient Market Hypothesis. |
| Changes in government spending result in: | Direct effects on GDP. |
| Autonomous spending is: | The amount of spending that occurs when aggregate income is zero. |
| Expansionary Fiscal Policy is: | policy intended to increase GDP. |
| Which of the following is an argument against discretionary fiscal policy: | Fiscal discretion creates a layer of government risk for households and businesses. |
| The Aggregate Demand Curve slopes in a southeasterly direction due to: | The wealth effect and the interest rate effects. |
| Why is the Long Run Aggregate Supply Curve totally vertical? | The price level has no effect on potential output and income over the long term. |
| Aggregate demand is: | the quantity of output demanded by households, business, government, and the rest of the world. |
| Theoretically, an unplanned inventory investment results in: | a reduction in investment spending as businesses seek to clear excess inventory. |
| Which of the following would shift the aggregate consumption function? | A change in expected future disposable income. |
| Which of the following would cause the short run aggregate supply curve to shift? | A change in labor productivity. |
| The equilibrium interest rate is: | the interest rate where the quantity demanded for loanable funds equals the quantity supplied for loanable funds. |
| The Consumption Function | shows how household consumption spending varies with current disposable income. |
| Net capital inflows are determined by: | total flow of foreign capital into a country, minus capital outflows leaving a country. |
| In the context of government policy, transfer payments are: | funds taken from one citizen and paid to another citizen. |
| All other variables being fixed, and increase in the money supply should cause: | lower interest rates. |
| An example of contractionary monetary policy would be: | a reduction in the money supply. |
| Business investment is a critical factor driving long term GDP growth. An important determinant of this is: | A society’s long-term savings rate. |
| The liquidity premium is that part of the market interest rate that: | Compensates the lender for losing the use of their money for the life of the transaction. |
| The Fisher Effect is the idea that: | A given change in expected inflation will result in an identical change in nominal interest rates, so that the real interest rate remains unchanged. |
| The three basic tasks for a society’s financial system are: | Reduce transaction costs, reduce financial risk, provide liquidity. |
| Intermediaries are: | Institutions that gather funds from savers, converts them into financial assets, and sells them investors and borrowers. |
| The Dow Jones Index is: | An index of the prices of stock in 30 major companies published by Dow Jones. |
| A shift in the aggregate demand curve can result from: | A change in business and household expectations. |
| Short Run Macroeconomic Equilibrium is: | When aggregate output supplied is equal to aggregate quantity demanded. |
| In the Aggregate Demand – Aggregate Supply model, potential income is: | The sustainable level of GDP consistent with stable prices and the natural rate of unemployment. |
| At long run macroeconomic equilibrium: | GDP is equal to potential income and there is no recessionary or inflationary gap. |
| When there is a recessionary gap: | Actual national income is below potential national income. |
| According to the Multiplier Effect: | An initial autonomous change in aggregate spending triggers a chain of further changes in spending that results in the total change in aggregate spending being a multiple of the initial change. |
| If Households’ marginal propensity to consumer is .8, then the spending multiplier for the economy is: | 5 |
| Which of the following is not one of the critical factors that drive business investment spending? | Last year’s level of real GDP. |
| The “M1” measure of the money supply consists of: | Currency in circulation plus checking account deposits plus savings account deposits and other near money accounts. |
| A near money account is: | an account that can be readily convertible into checking account funds or cash at an amount near face value. |
| The roles of money in an economy include: | Medium of exchange, store of value, unit of account. |
| The value of Commodity Money is supported by: | a precious metal or some other commodity with intrinsic value in other uses. |
| The value of Fiat Money is supported by: | the issuing government’s ability to levy and collect taxes. |
| In the United States, the Reserve Requirement is set by: | The Federal Reserve |
| In a fractional reserve banking system, the Reserve Ratio (a/k/a Reserve Requirement) is: | the minimum level of cash a bank retains to ensure that they can meet their obligations when checks and debits are presented for payment. |
| In the context of the history of banking in the United States, a Bank Run occurs when: | the public loses confidence in the banking system and tries to withdraw their money all at once. |
| Major legislation passed in response to the Financial Crisis of 2008 was called: | Dodd Frank |
| In the United States, monetary policy is controlled by: | The Federal Reserve Bank. |
| The Federal Funds Market is: | the market for overnight funds loaned and borrowed between banks. |
| The discount rate | The rate the Fed charges banks who borrow overnight funds. |
| Treasury Securities are created when: | the Federal Government needs to borrow money. |
| As the price paid for Treasury Securities increases, the yield paid to the investor: | decreases |
| The primary tool for executing Monetary Policy is: | open market operations. |
| When the Federal Reserve Bank sells Treasury Securities: | the money supply decreases. |
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