Final Flashcards
Explain how is it possible for consumption to be positive even when disposable income is zero
When income is zero households finance consumption either through existing savings from past
income or through borrowing against future income.
Promoting moderate long-term interest rates is one of the three primary goals of the Federal Reserve. List
the other two.
Price stability
Maximum employment
Which two budget items are excluded in the calculation of the core CPI?
Food and fuel: the prices of both of these goods fluctuate more wildly, and make the standard CPI
a noisier measures of prices (and thus a worse predictor of future movements).
Explain the differences between a budget deficit, a budget surplus, and a balanced budget
For a household, firm, or government:
• A budget deficit occurs when spending is greater than income.
• A budget surplus occurs when spending is less than income.
• A balanced budget occurs when spending exactly equals income.
If firms' inventories are less than they planned, aggregate planned expenditure is \_\_\_\_\_\_\_\_ real GDP and firms \_\_\_\_\_\_\_\_ their production. A) greater than; increase B) greater than; decrease C) less than; increase D) less than; decrease
A) greater than; increase
The U.S. monetary policy implemented in 2008 was an attempt to
A) give billions of dollars to businesses and low- and middle-income Americans in order stimulate business investment
and consumption expenditure, thereby increasing aggregate demand.
B) decrease interest rates in order to stimulate business investment and consumption expenditure, thereby increasing
short-run aggregate supply.
C) decrease interest rates in order to stimulate business investment and consumption expenditure, thereby increasing
aggregate demand.
D) decrease the exchange rate in order to boost net exports, thereby increasing aggregate demand.
C) decrease interest rates in order to stimulate business investment and consumption expenditure, thereby increasing
aggregate demand.
One result of a decrease in aggregate demand and no change in aggregate supply is A) a recession. B) an increase in employment levels. C) an economic expansion. D) a rise in the price level.
A) a recession.
The federal funds rate is the interest rate
A) banks charge each other on overnight loans.
B) on the 3-month Treasury bill.
C) on the 30-year treasury bond.
D) also known as the prime rate.
A) banks charge each other on overnight loans.
Prior to the Great Depression, the purpose of the federal budget was to ________.
A) stabilize the economy
B) finance the activities of the government
C) maintain low interest rates
D) decrease unemployment
B) finance the activities of the government
The budget deficit
A) is the total outstanding borrowing by the government.
B) is the difference between government outlays and tax revenues.
C) decreased during the Obama Administration.
D) reached its peak in the year 2000.
B) is the difference between government outlays and tax revenues.
A discouraged worker ________ counted as officially unemployed and ________ counted as in the labor
force.
D) is not; is not
When real GDP exceeds aggregate planned expenditure,
A) actual inventories decrease below their target.
B) the circular flow will increase.
C) GDP will decrease.
D) a higher level of equilibrium income will prevail.
C) GDP will decrease.
The multiplier effect exists because a change in autonomous expenditure
A) leaves the economy in the form of imports.
B) leads to changes in income, which generate further spending.
C) prompts further exports.
D) will undergo its complete effect in one round.
B) leads to changes in income, which generate further spending.
Suppose a bank has $1,500,000 in deposits and the desired reserve ratio is 12 percent. If the bank is
currently holding $200,000 in reserves, the excess reserves are equal to
D) $20,000.
If the MPC increases from 0.75 to 0.80 and there taxes and imports are autonomous variables,
A) the multiplier becomes larger.
B) the multiplier becomes smaller.
C) the slope of the consumption function becomes smaller.
D) the slope of the savings function becomes larger.
A) the multiplier becomes larger.
