Macroeconomics Quiz # 10

Which variable in the following equation refers to the money allocated in the federal budget?

AE ≡ C + I + G + (X – M)

C

I

G

X – M

Which of the following is considered an autonomous expenditure that may be added to the consumption function?

Personal debt

Household consumption

Investment

Net imports

Which of the following responds most dramatically to perceptions of future changes in economic activity?

Planned investment

Government spending

Net exports

Unplanned investment

Which of the following explains why an increase in business investment of a given amount can create an increase in output equal to many times the investment increase?

Autonomous determinants of consumption expenditure

Expenditure multiplier

Marginal propensity to save

Unplanned inventory investment

The idea of the expenditure multiplier is that ______ increases in spending in one part of the economy lead to increased spending by others in the economy as well.

Early

Enormous

Permanent

Unexpected

The expenditure multiplier equals 1 ______ the marginal propensity to save.

Plus

Minus

Multiplied by

Divided by

What happens to the level of aggregate expenditure as the price level decreases?

It increases.

It decreases.

It remains constant.

It drops to zero.

What happens to the aggregate demand curve when aggregate expenditure decreases?

It shifts left.

It shifts right.

It remains unchanged.

It becomes steeper.

Which of the following does the aggregate expenditure model fail to account for?

Demand

Imports

Inflation

Unplanned investment

The term “fiscal policy” is used to describe actions of ______.

The federal government

State governments

Local governments

Foreign governments

The largest fiscal stimulus policy in U.S. history was enacted in ______.

1933

1991

2009

2017

Expansionary policy can be used to ______.

Close an inflationary gap

Close a recessionary gap

Close both inflationary and recessionary gaps

Shift aggregate demand leftward

Contractionary policy can be used to ______.

Close an inflationary gap

Close a recessionary gap

Close both inflationary and recessionary gaps

Shift aggregate demand rightward

The multiplier effect refers to ______.

A decrease in consumption and investment spending as a result of an increase in government purchases

The discretionary, or deliberate, use of government purchases and taxes to alter equilibrium output and prices to stabilize the economy

Changes in government transfer payments or tax collections that automatically help counter business cycle fluctuations

A chain reaction of additional income and purchases that results in total purchases that are greater than the initial increase in purchases

What percentage of their 2008 rebates did consumers actually spend?

5%

20%

35%

75%

The government has used demand-side policies ______.

Mainly since 2008

Only in times of expansion

Only in times of recession

Since the 1930s

Economist Arthur Laffer is ______.

The creator of rational expectations theory

The former chairman of the Fed

A demand-side economist

A supply-side economist

The Kennedy tax cuts of 1964 led to ______.

Economic growth

A recession

A depression

Economic stagnation

The time between the start of an economic downturn and the gathering of data that reflect the downturn is known as the ______.

Propensity to consume

Laffer curve

Recognition lag

Implementation lag

The time between the realization there is an economic downturn and the enactment of fiscal policy to address it is known as the ______.

Propensity to consume

Laffer curve

Recognition lag

Implementation lag

The most important automatic stabilizer is the ______.

Social security system

Tax system

Stock market

Bond market

During normal economic times, automatic stabilizers are ______.

Replaced by discretionary fiscal policy

More effective than expansionary policy

Less effective than expansionary policy

Less effective than contractionary policy

In 1980, Ronald Reagan campaigned to ______.

Decrease the size of the military

Increase the size of the government

Lower taxes

Raise interest rates

Nearly 70% of U.S. government securities are owned by ______.

Foreign governments

U.S. citizens and institutions

One investment firm

Foreign citizens

What is the primary function of money?

To be a means of deferred payment

To serve as a medium of exchange

To act as a unit of account

To provide a means of storing value

Money’s function as a unit of account refers to its ______.

Relative stability in value over time

Ability to be saved in an efficient manner

Role in facilitating transactions and lowering transaction costs

Ability to act as a precise measurement of value

Fiat money is money that has been ______.

Established as a means of exchange by government declaration

Recognized as valuable by both parties to a transaction

Issued in the form of metallic coins or paper currency

Established as valuable by custom or tradition

A broker pools depositor funds and invests in Treasury bills. The resulting accounts earn interest, and depositors are allowed to write checks against their individual accounts. This is an example of a ______.

Nontransaction deposit account

Certificate of deposit

Money market mutual fund

Time deposit

Which of the following is included in the M1 money definition?

Noninstitutional money market mutual fund shares

Time deposits

Demand deposits

Savings deposits

What does a bank use to make loans to borrowers?

Excess reserves

The required reserve ratio

Secondary reserves

Mutual funds