Macroeconomics Mutiple Choice Questions: See below

1 Barter transactions involve the use of money.

True

False

2 The use of money as a medium of exchange represents the most important service that money renders.

True

False

3 Currency includes demand deposits.

True

False

4 The money supply known as M1 includes all assets that are good stores of value.

True

False

5 A primary tool of the Federal Reserve System is open market operations.

True

False

6 Commercial banks and credit unions create money in concert with the Fed.

True

False

7 Providing a secure place for savings is not a major function of financial institutions.

True

False

8 The Fed’s reserve requirement ratio can reduce the monetary base.

True

False

9 If bankers want to retain reserves of 25% against all deposits, if the Fed issues $100 billion in currency, and if private individuals keep all money in banks, then once the banks are fully loaned up, the money supply will consist of $400 billion in demand deposits.

True

False

10 The Long-run Aggregate Supply Curve that is compatible with the classical macroeconomic model is a vertical line at full employment.

True

False

11 When the federal government spends more than it collects, it must issue more debt or more monetary base.

True

False

12 Keynesians tend to believe that massive tax cuts and new government spending are cures for recession.

True

False

13 There are currently 13 Federal Reserve Districts.

True

False

14 One of the 3 tools of the Federal Reserve is fiscal policy.

True

False

15 Monetary policy of the Federal Reserve affects the monetary base to achieve its goals of rates of inflation and interest.

True

False

16 The buying of securities in the open market by the Federal Reserve will augment the monetary base of the economy.

True

False

17 The selling of securities in the open market by the Federal Reserve will actually decrease the monetary base by reducing the amount the banking system will ultimately be able to lend.

True

False

18 The Federal Funds Market is actually monitored and manipulated by the Federal Reserve, but individuals can actually enter the market and borrow funds if desired.

True

False

19 The short-run Phillips curve is a curve that shows the relationship between the inflation rate and the pure interest rate when the natural rate of unemployment rate and the expected inflation rate remain constant.

True

False

20 When interest rates are rising, the tendency is for holders of M1 to get out of M1 and move into M2 and M3 due to the opportunity costs of holding M1.

True

False

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.

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.

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.

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.

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.

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.

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.

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.

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.

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