Macroeconomics Final Exam

Question Question 1 Barter transactions involve the use of money. True False 3 points Question 2 The use of money as a medium of exchange represents the mostimportant service that money renders. True False 3 points Question 3 Currency includes demand deposits. True False 3 points Question 4 The money supply known as M1 includes all assets that are good storesof value. True False 3 points Question 5 A primary tool of the Federal Reserve System is open market operations. True False 3 points Question 6 Commercial banks and credit unions create money in concert with theFed. True False 3 points Question 7 Providing a secure place for savings is not a major function of financialinstitutions. True False 3 points Question 8 The Fed’s reserve requirement ratio can reduce the monetary base. True False 3 points Question 9 If bankers want to retain reserves of 25% against all deposits if the Fedissues $100 billion in currency and if private individuals keep all moneyin banks then once the banks are fully loaned up the money supply willconsist of $400 billion in demand deposits. True False 3 points Question 10 The Long-run Aggregate Supply Curve that is compatible with the classicalmacroeconomc model is a vertical line at full employment. True False 3 points Question 11 When the federal government spends more than it collects it must issuemore debt or more monetary base. True False 3 points Question 12 Keynesians tend to believe that massive tax cuts and new government spending are cures for recession. True False 3 points Question 13 There are currently 13 Federal Reserve Districts. True False 3 points Question 14 One of the 3 tools of the Federal Reserve is fiscal policy. True False 3 points Question 15 Monetary policy of the Federal Reserve affects the monetary base toachieve its goals of rates of inflation and interest. True False 3 points Question 16 The buying of securities in the open market by the Federal Reserve will augment the monetary base of the economy. True False 3 points Question 17 The selling of securities in the open market by the Federal Reserve willactually decrease the monetary base by reducing the amount the bankingsystem will ultimately be able to lend. True False 3 points Question 18 The Federal Funds Market is actually monitored and manipulated by theFederal Reserve but individuals can actually enter the market andborrow funds if desired. True False 3 points Question 19 The short-run Phillips curve is a curve that shows the relationship betweenthe inflation rate and the pure interest rate when the natural rate ofunemployment rate and the expected inflation rate remain constant. True False 3 points Question 20 When interest rates are rising the tendency is for holders of M1 to get outof M1 and move into M2 and M3 due to the opportunity costs of holdingM1. True False 3 points Question 21 The science of macroeconomics: solved the Great Depression. did not solve the Great Depression but kept the U.S. economy from suffering. emerged during the decade of the Great Depression. did not evolve until after World War II so had no connection to the Great Depression. 4 points Question 22 The tax cuts passed by Congress in 2002 to help move the economy more rapidly toward potential GDP are an example of: automatic fiscal policy. discretionary fiscal policy. lump-sum taxes. contractionary fiscal policy. 4 points Question 23 In the post World War II period considerable growth in total production took place in the U.S. But at the same time businesses were dumping their waste into the Great Lakes with minimal cost to themselves significantly polluting the bodies of water as a result. This occurrence is an example where: real GDP gives an overly positive view of economic welfare. real GDP gives an overly negative view of economic welfare. investment would have been a better measure of total production. the pollution counts as a final good. 4 points Question 24 A Phillips curve measures the relationship between: the unemployment rate and inflation. the level of money wage rates and GDP. unemployment and GDP. inflation and GDP. 4 points Question 25 In order for the United States to repay its international debt the United States would need to: have a current account deficit. cut taxes. have a surplus of imports over exports. have a surplus of exports over imports. 4 points Question 26 If the CPI was 122.3 at the end of 2007 and 124.5 at the end of 2008 the inflation rate over these two years was: 1.8 percent. 2.5 percent. 22.5 percent. 18.0 percent. 4 points Question 27 A demand-pull inflation initially is characterized by: increasing real output and a labor shortage. increasing real output and a labor surplus. decreasing real output and a labor shortage. decreasing real output and a labor surplus. 4 points Question 28 The labor force is the sum of the: working-age population and the number of unemployed people. number of employed people and the working-age population. number of employed people and the number of unemployed people. total population and the number of unemployed people. 4 points Question 29 In 2005 Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2006 real GDP was $4.59 billion and population was 2.97 million. From 2005 to 2006 Armenia’s standard of living ________. increased decreased did not change might have increased decreased or remained unchanged but more information is needed to determine which. 4 points Question 30 According to real business cycle theory a fall in the real interest rate ________ current labor supply and ________ current employment. increases; increases increases; decreases decreases; increases decreases; decreases 4 points

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