MS. RAGAZZO'S CLASSROOM
Unit 3 Macroeconomics Test ReviewUSA Test Prep Benchmark - PEHORAMADA1)Many nineteenth century businessmen believed that the American economy was "self-adjusting." This idea traced its roots to Adam Smith and his teachings concerning capitalism.This philosophy of governmental non-interference in the economy is calledFabian economicsMarxist economicsLaissez-faire economicsCentral-planning economics2)?Which term is used to describe a situation where most people who are looking for work are able to find a job?full employmentseasonal employmentfrictional unemploymentstructural unemployment3)?The federal government uses government spending and tax rates to help control recessions and encourage economic activity. This is calledfiscal policymonetary policysupply-side economicsopen market operations4)?Overall levels of income, employment, and prices are determined by the spending and production decisions of all of the following EXCEPThouseholdsbusinessesnet exportsnet imports5)Senator English Touts Tax Bills Aimed to Blunt Impact of Slowing EconomyJanuary 24, 2008The Job Creation Economic Stimulus Act of 2008, components of which have received broad support from the business community, provides tax incentives for employers to make capital investments. Expensing allows companies to deduct from their taxes the cost of purchasing equipment or other capital investment. This has the added benefit of making capital equipment more affordable, meaning that for some companies expensing means the difference between being able to afford new equipment or not. Expensing is a proven vehicle for injecting money into the economy, offers the most bang-for-the-buck, and often attracts bipartisan support.?Under the English plan, employers could recover up to 100 percent of their capital investment if they purchase and place in service “high productivity” equipment, such as computers or high technology medical devices, among others, before January 1, 2009.How will the Senator's plan spur economic growth?The business community will support the planUsing tax breaks will allow businesses to upgrade outdated equipment.Employers can use 100 percent of all their taxes to purchase new equipment.Businesses will be able to save the money they will receive back from taxes.6)?Which result occurs when federal government expenditures are greater than the federal government's total receipts?reduced net exports increased excise taxes a federal budget surplus a federal budget deficit7)?If the federal government runs an annual budget deficit,they will have a budget surplusthe national debt will increasethe national debt will decreasethey will attain a balanced budget8)?As a means of funding government programs, deficit spendingincreases the national debt.reduces the federal budget and national debt.was eliminated by a federal balanced budget amendment.can be carried out by the federal government and states.9)The growth rate in the fourth quarter of 2010 was 3.1%. What was the growth rate in the first quarter of 2011?-3%1.2%1.9%5%10)?A vehicle produced in the summer of 2009 and sold in December of 2012 would be counted in which year’s GDP?200920102011201211)?GDP (gross domestic product) is supposed to indicate economic health because it is supposed to rise wheninflation is lowprices are fallingwealth is being createdunemployment levels are falling12)?In general, higher levels of consumer spending indicate thatunemployment is loomingthe economy is relatively healthyrecessionary conditions are buildinginterest rates are unstable or falling13)?GDP is a valid method of measuring the value ofany goods sold on the open marketof happiness of a country's citizensof final goods and services producedleisure time enjoyed by a country's citizens14)?If consumers increase their purchases of goods and services, then a likely outcome for our economy isrising GDPrising unemploymentdecreasing factory ordersslowing economic growth15)?Can a nation have a negative GDP?No, because of negative net exportsYes, because of negative net exportsYes, because GDP measures the market value of products and that can be negative.No, because GDP measures the market value of products and that can't be negative.16)?If a nation currently has a budget deficit, their income is not covering the cost of running their country and cuts may have to occur for public services and social welfare. If this budget is not revised, what could be a possible result of this situation?a budget surplusa balanced budgetgrowing deficits and debtdiscretionary fiscal policy17)Janet Yellen, Chairwoman of the Federal Reserve, announces that the outlook on the economy is slowing as consumer confidence is waning. She announces that Federal Reserve will be implementing monetary policies to encourage economic growth.What effect does poor consumer confidence have upon the nation's economy?spending slows and causes the GDP to expandspending slows and causes the GDP to contractspending increases and causes the GDP to expandspending increases and causes the GDP to contract18)· setting the discount and interest rates· establishing reserve requirements for banks· buying and selling US government securitiesAll of these are ways in which the Federal Reserve system cancontrol the stock marketregulate the money supplydecrease consumer spendingchallenge Presidential power19)?Which of these statements is NOT true of the workforce in the United States today?It is becoming less mobileIt is facing more global competitionThere is a shift to more service jobsThe percentage of manufacturing jobs in the economy is declining20)?Which of these will have an effect on the GDP of the country?Monty buys a Picasso paintingLisa loses $20.00 in a bet with BartNed fixes Jay's car without buying any new partsThe Shelbyville Whoopee Cushion company makes 1,000 to export to China21)?The Consumer Price Index (CPI) is best used to determinethe Dow Jones Indexthe rate of inflationthe unemployment ratecurrency exchange rate22)?Which of these is an indicator of increased economic growth in a nation?increased job satisfactionincreased aggregate demandincreased welfare applications23)?Milford has a job as a ski instructor at a resort in Vermont. He does not have a job during the summer months. What type of unemployment is Milford experiencing?frictional unemploymentcyclical unemploymentseasonal unemploymentstructural unemployment24)?Ned is a typewriter repairman. As typewriters are being replaced by computers Ned finds less and less work. What kind of unemployment is Ned experiencing?frictional unemploymentcyclical unemploymentseasonal unemploymentstructural unemployment25)?The Federal Reserve wants to increase the money supply in the United States. What is the Federal Reserve likely to do to accomplish this?reduce the discount ratesell securities on the open marketincrease the reserve requirement for banksrequire banks to hold a reserve for all types of deposits26)?Mr. Skinner has quit his job in order to look for another one. Mr. Skinneris cyclically unemployedis frictionally unemployedis structurally unemployedis not counted in the labor force27)This graph shows that there was an increase in the unemployment rate in the U.S. in the years between 1990 and 1993. This increase most likely corresponds toan economic recession in the U.Sincreased defense costs for the Cold Warthe economic prosperity which existed during the Clinton administrationthe decline in the size of the military following our withdrawal from Vietnam28)?What consumer behavior is the Federal Reserve Board trying to encourage when it implements a loose monetary policy?increased saving and spendingdecreased saving and spendingincreased saving and reduced spendingdecreased saving and increased spending29)?Although the members of the Board of Governors of the Federal Reserve System are appointed by the president, the Board does not receive funding from Congress. The seven members serve a 14 year term, and report to the Speaker of the House once a year. This MOST LIKELY results inmore oversight from the executive branchmore oversight from the legislative branchsignificant control by the Treasury Departmentrelative independence of the Federal Reserve System30)?The process by which the government manages spending and taxes to influence the direction of the economy istax policytrade policyfiscal policymonetary policy31)?If the federal government wants to encourage businesses and consumers to spend more money, it would MOST LIKELYincrease the tax ratedecrease the tax rateincrease the reserve requirementdecrease government spending on goods and services32)?Monetary policy is BEST described asbenefits received by employees in addition to wages and salariesactions by the Federal Reserve System to expand or contract the money supplya system that relies on supply and demand to determine the value of one currency to anotheractions by the federal government to use spending and revenue collection to influence the economyUse the following graph to answer questions 33 and 34.33)?A period during which real GDP declines for two quarters in a row, or six consecutive months, is MOST LIKELY apeakrecessionrecoverytrough34) In the business cycle model, a recession is MOST LIKELYa turnaround point where the real GDP stops going upa turnaround point where the real GDP stops going downa period during which the real GDP increases for two quarters in a rowa period during which the real GDP decreases for two quarters in a row35)?While inflation is a rise in the general level of prices, economic growth is ashort period during which the nation's total output of goods and services decreasesshort period during which the nation's total output of goods and services increasessustained period during which the nation's total output of goods and services decreasessustained period during which the nation's total output of goods and services increases36)?Unemployment insurance, Welfare, Medicare, Medicaid, and Social Security are key components offiscal policymonetary policysupply-side policywage-price controls37)?Economic growth, inflation, and level of employment are all related. To determine inflation,multiply the GDP by the change in price leveldivide the change in price level by the unemployment ratemultiply the beginning price level by the unemployment ratedivide the change in price level by the beginning price level38)?The process by which the Federal Reserve controls the supply, availability, and cost of money in order to keep the economy stable isfiscal policymonetary policythe interest ratethe discount rate39)?Which of these would deter inflation?a decrease in interest ratesan increase in economic growthan increase in consumer spendinga decrease in the price of securities40)?When the Federal Reserve sells government securities on the open market, what effect does this action have on the nation’s money supply and interest rates?Money Supply - Decreases / Interest Rates - IncreaseMoney Supply - Increases / Interest Rates – IncreaseMoney Supply - Decreases / Interest Rates – DecreaseMoney Supply - Increases / Interest Rates - Decrease41)The above chart represents the organization of the Federal Reserve System.Which of these correctly completes the chart?Federal Reserve ChairmanFederal Open Market CommitteePresident of the United StatesSenate and House of Representatives42)?What would MOST LIKELY happen if the Federal Reserve decided to increase the reserve requirement in banks?The amount of federal taxes people owe would decreaseThe amount of federal taxes people owe would increaseThe amount of money circulating in the economy would decreaseThe amount of money circulating in the economy would increase43)?Which of these actions of the Federal Reserve can slow economic growth?The Federal Reserve regulates the amount of money that flows into and out of the nation’s economy.The Federal Reserve buys securities, which puts money back into the hands of people who can spend it in the marketplaceThe Federal Reserve decreases the reserve requirement and banks have more money to loan to peopdele who want to borrow itThe Federal Reserve increases the discount rate, which causes interest rates to rise and people to save rather than to spend44)?Which statement describes economic activity in a recession?consumer spending declinesbusiness production increasesthe employment rate increasesgovernment regulations decrease45)?The Federal Reserve has kept interest rates very low. Some might argue that this could lead toinflationdeflationa strong dollarhigher unemployment46)?Which has LEAST LIKELY been the historical goal of the Federal Reserve's monetary policy?Keeping unemployment rates lowDecreasing the national debtHolding prices stableSustainable growth47)?This term refers to the overall decrease in the price of goods and services.appreciationdeflationdepreciationinflation48)?During an economic recession, how would the United States Federal Reserve alter their monetary policy?The Fed would buy bonds from investorsThe Fed would increase the discount rate on loansThe Fed would raise the reserve requirements for banksThe Fed would wait for the Secretary of Treasury to make the decision49)?"Too much money chasing too few goods" is a common way use to describe what economic concept?bankruptcydepressioninflationrecession50)?What would be reasonable monetary policy if the economy was in a recession?cut taxesraise taxesreduce the money supplyincrease the money supply51)?Why would adjusting the money supply be expected to increase economic growth during a recession?Increasing the money supply will encourage more savingIncreased money supply will encourage more spending and investmentDecreased money supply will encourage more spending and investmentRecession is caused by too much spending, so money supply must be reduced52)?Sean has lost his job at the New York Stock exchange because the country has fallen into a deep recession. What kind of unemployment is Sean experiencing?frictional unemploymentcyclical unemploymentseasonal unemploymentstructural unemployment53)?Which choice shows the stages of the business cycle in the correct order?trough, expansion, contraction, peakcontraction, expansion, trough, peakpeak, contraction, trough, expansionexpansion, peak, trough, contraction54)?Shawn just graduated from college. Why might Shawn benefit from rapid inflation in the economy?Purchasing a home will be easierThere will be more goods to purchaseBusinesses are more likely to hire during times of inflationStudent loan repayments will not cost as much in real dollars55)?You read that inflation for the foreseeable future expected to average 6% a year. You are trying to accumulate funds to start a business, and so you take your excess earnings andput them in a box in your closet instead of a savings account because the bank is only paying 2% which is half the inflation rateput them in a box in your closet instead of a savings account because the bank is only paying 4% which is only 2/3 of the inflation rateput them in a box in your closet instead of a savings account because the bank is only paying 6% which just equals the inflation rateput the money in a savings account regardless of the interest, because any positive rate will reduce the negative impact of inflation on the accumulated savings56)?According to monetarists, to prevent recessions, the Federal Reserve shouldincrease taxationdecrease the money supplyincrease the money supplydecrease government spending57)?Federal program that provides monthly payments (entitlements) to people who are retired or unable to work is calledWelfareMedicareSocial SecuritySenior Citizen’s program58)?Which pairs of operations BEST fit with fiscal policy?government spending and taxationtaxation and open market operationsdiscount rate and government spendingopen market operations and discount rate59)?Discretionary fiscal policy is defined asthe arbitrary fluctuation in tax laws and budget requirementsthe automatic change in certain fiscal instruments when real GDP changesthe deliberate manipulation of the money supply to expand the total economya deliberate change in tax laws and government spending to change equilibrium income60)In its role as money manager, the Federal Reserve has three primary goals: to maintain stable prices (control inflation), ensure maximum employment, and increase production output.How does the Federal Reserve achieve these goals?Raising and lowering the minimum wageHelping to develop the taxation policiesIncreasing and decreasing government spendingRaising and lowering short-term interest rates61)?Business cycles in the United Statesoccur about every 5 yearsalways follow the same basic patternoccur irregularly and without patternare always followed by periods of mild inflation62)?In the business cycle, what always follows immediately after a contraction?depressionexpansionrecessiontrough63)?In the business cycle, what always follows immediately after a peak?contractiondepressionexpansiontrough64)1. Elderly on a fixed income2. Renters who live in a rent controlled apartment3. People who are paying on a loan with adjustable interest rates4. Banks who are collecting on loans with adjustable interest ratesWho is harmed the MOST during periods of unexpected inflation?11 and 31, 2, and 32 and 465)?What is the Federal Reserve's role in helping to control inflation?to keep the money supply lower than the rate of inflationto keep the demand for money higher than the rate of inflationto keep the money supply stable in order to maintain low inflationto keep fiscal policy stable in order to maintain a low level of inflation66)The Federal Reserve uses interest rates to help the economy maintain economic growth and curb inflation. The Federal Reserve kept interest rates low during 2000-2004 to encourage economic growth after the dot-com crash. The intended result was growth in real GDP, and a housing "boom" (also a "housing bubble")in the United States.What was the?unintended?consequence or outcome of this monetary policy?The 9-11 attacks on Washington and New York CityRising inflation, a crash in the "housing bubble," and a recession from 2007-2010Lower inflation and the largest growth in real GDP since WWII with a healthy economy into 2013Rising inflation and the arrest of the Federal Reserve Chairman for causing the Great Depression67)?What would be the appropriate monetary policy during a period of low inflation and steady GDP growth?Buy bonds to stop business investmentJust monitor the situation, but do nothingSell bonds to encourage even more business investmentContinue to keep interest rates low to encourage low inflation68)?What is the effect upon the economy of an expansionary fiscal policy upon an economy with an increasing budget deficit and growing national debt?increased deficit spending and increasing or growing national debtdecreased deficit spending and increasing or growing national debtdecreased deficit spending and decreasing or shrinking national debtincreased deficit spending and decreasing or shrinking national debt69)?How will a contractionary fiscal policy affect a budget deficit?not affect itgrow the deficitshrink the deficitchange monetary policy70)?You want a new truck. How can the Federal Reserve's raising of the discount rate affect your decision to purchase the truck?It will raise interest rates and make your truck payment lowerIt will lower interest rates and make your truck payment higherIt will lower interest rates and make your truck payment lowerIt will raise interest rates and make your truck payment higher71)?With regards to economic growth, what is the goal of an expansionary fiscal policy?to increase trade deficitsto increase economic growthto decrease economic growthto maintain current economic levels72)Functions of Money· Unit of account· Medium of exchange· Store of valueWhich function(s) of money informs the consumer what currency to use to obtain a good or service?store of valueunit of accountmedium of exchangeboth unit of account and store of value73)?The fact that money "enables people to transfer purchasing power from the present to the future" refers to the ______ function of money.store of valueunit of accountmedium of exchangeboth unit of account and store of value74)?Through open market operations, the Federal Reserve buys and sells government securities to influence the supply of bank reserves. When the Fed wants to increase excess reserves held by banks, it does what?buy bondssell bondsincrease interest ratesincrease reserve rates75)Which function of money is the above picture an example of?store of valueunit of accountmedium of exchangeboth unit of account and store of value76)?The economy is experiencing negative GDP growth and high unemployment. Which fiscal policy action should the government implement in an attempt to fix this problem?Raise taxesIncrease spendingDecrease interest ratesIncrease reserve requirements77)?The Federal Reserve institutes a tight monetary policy in order to reign in inflation. What is a likely consequence of such action?The stock market will crashThe unemployment rate will riseThe unemployment rate will fallThe stock market will experience a boom78)?A situation in which a worker is employed, but not in the desired capacity-- or is working less than full time even though they would prefer to work more hours-- is known ascyclical unemploymentstructural unemploymentfrictional unemploymentunderemployment79)?The United States government decides to use a loose money policy to assist businesses in borrowing money in an effort to help them hire more people. What is a likely unintended consequence of such an action?Higher rates of inflationLower rates of inflationHigher taxesLower taxes80)?Fearing a recession, the government decides to give citizens a tax rebate check to buy Christmas gifts. What is a possible outcome of this action?Higher rates of inflationLower rates of inflationHigher interest ratesLower interest rates81)?The Consumer Price Index (CPI) measuresthe amount of consumer confidence within the economythe average prices of a few consumer goods and services in the market basketthe average of the prices paid by urban consumers for a fixed market basket of goods and servicesthe average of the costs paid by businesses to produce a fixed market basket of consumer goods and services82)?If a country had a CPI of 104.0 last year and a CPI of 101.0 this year, thenthe average quality of goods and services between last year and this yearthe average prices of goods and services increased between last year and this yearthe average prices of goods and services decreased between last year and this yearthe quantity of consumer goods and services produced decreased between last year and this year83)?What word describes the phase of a business cycle that occurs after a trough and before a peak?expansioncontraction troughlag84)?A period of expansion and contraction of aggregate economic activity measured by real GDP is called asupply and demand curveproduction possibility curvebusiness cyclecircular flow of economic activity85)?Which of these types of unemployment is characterized by peaks of joblessness at specific times of the year?seasonalcyclicalfrictionalstructural ................
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