MACRO EXAM 4 Review

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

• shift the AD curve to the right.

• increase the equilibrium GDP.

• not affect the AD curve.

• shift the AD curve to the left.

The cyclically adjusted budget tells us

• that in a full-employment economy, the federal budget should be in balance.

• that tax revenues should vary inversely with GDP.

• what the size of the federal budget deficit or surplus would be if the economy was at full employment.

• the actual budget deficit or surplus realized in any given year.

Most of the U.S. federal debt is owned by

• the United States

• China

• Japan

• Canada

If you place a part of your summer earnings in a savings account, you are using money primarily as a

• medium of exchange

• store of value.

• unit of account.

• standard of value.

When there is inflation in the economy, it implies that the

• price index is rising and the purchasing power of money is also rising.

• price index is falling and the purchasing power of money is also falling.

• price index is falling and the purchasing power of money is rising.

• price index is rising and the purchasing power of money is falling.

The Financial Crisis of 2007–2008 started in which sector of the economy?

• consumer durables sector

• foreign trade sector

• real estate and housing sector

• dot-com and technology sector

Most modern banking systems are based on

• money of intrinsic value.

• commodity money.

• 100 percent reserves.

• fractional reserves.

The reserve ratio refers to the ratio of a bank's

• reserves to its liabilities and net worth.

• capital stock to its total assets.

• checkable deposits to its total liabilities.

• required reserves to its checkable-deposit liabilities.

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to

• the reciprocal of the required reserve ratio.

• 1 minus the required reserve ratio.

• the reciprocal of the income velocity of money.

• 1/MPS.

The opportunity cost of holding money

• is zero because money is not an economic resource.

• varies inversely with the interest rate.

• varies directly with the interest rate.

• varies inversely with the level of economic activity.