Unit 3 Econ. Macroeconomics

How might reducing taxes on middle- and lower-income citizens help stimulate the economy?

• It will lower the price of goods and services, enabling people to spend more money.

• It will allow people to save more money, providing a safety net when times are hard.

• It will give people more money to spend, increasing the overall demand for goods and services.

• It will lower the cost to make goods and provide services, enabling businesses to hire more workers.

What does the Federal Reserve indicate to financial institutions when it raises or lowers the discount rate?

• whether to increase or decrease the amount of cash kept on hand

  Student(s) may have incorrectly believed that the discount rate is related to the amount of cash financial institutions are required to have on hand rather than the interest rate charged on money that financial institutions borrow from the Federal Reserve. This answer choice is more closely associated with the reserve requirement.

• 
  whether to raise or lower the amount of interest paid on customer deposits

  Student(s) may have incorrectly believed that the discount rate is related to the amount of interest financial institutions pay on customer deposits rather than the interest rate charged on money that financial institutions borrow from the Federal Reserve. The Federal Reserve does not regulate financial institutions in this way.

•  

  whether to raise or lower the fees charged to open an account

  Student(s) may have incorrectly believed that the discount rate was related to the cost of opening an account at a financial institution rather than the interest rate charged on money that financial institutions borrow from the Federal Reserve. The Federal Reserve does not regulate financial institutions in this way.

• whether to increase or decrease their lending activity

  The discount rate is the interest rate charged on money that financial institutions borrow from the Federal Reserve. By adjusting the discount rate, the Federal Reserve sends a signal to financial institutions to either increase or decrease their lending activity.

Read the text and answer the question.

Peak Oil, Inc. operates an oil refinery in Washington state. In 2018, the company imported $1 billion worth of crude oil from Canada. Out of that crude oil, the company produced $1.5 billion worth of gasoline and $1.5 billion worth of fuel oil. Peak Oil exported and sold all of the gasoline it produced in Canada and it sold all of the fuel oil domestically. The company did not produce or import any other products.

Under the output expenditure model of determining gross domestic product, what value did Peak Oil contribute to the United States’ net exports in 2018?

• $0.5 billion

  Peak Oil exported $1.5 billion worth of goods and imported $1 billion worth of goods. Therefore, its impact on the United States’ net exports was $0.5 billion.

• $1.5 billion

  The total value of Peak Oil's exports was $1.5 billion, but the value of its imports must be subtracted from that value to determine the company’s impact on the United States’ net exports

• $2 billion

  The value of Peak Oil’s impact on the United States’ net exports would be $2 billion if the company had exported and sold the fuel oil it produced outside of the United States instead of selling the fuel oil domestically.

Along with government spending, what three factors make up gross domestic product (GDP) under the expenditure approach for calculating GDP?

• tax revenue

• 
  investment

• household income

• consumer spending

• net exports

In terms of the business cycle, what is a recession?

• an extended period of contraction

• a disrupted period of expansion

• a relatively low peak

Rapid improvements in technology MOST often contribute to which type of unemployment?

• structural unemployment

• frictional unemployment

• classical unemployment

An entrepreneur is analyzing economic trends and government policy to decide when to start a new business creating goods that will be sold domestically. What type of government policy would be most beneficial for the entrepreneur?

• 
  a foreign policy eliminating tariffs on imported goods

  A foreign policy eliminating tariffs on imported goods would likely increase competition for domestic producers of goods and would not be the most beneficial type of policy for the entrepreneur.

• a monetary policy promoting the goal of price stability

  When prices are stable, entrepreneurs are better able to predict how much money they will need to successfully fund a new business or product launch. This is the most beneficial type of policy for the entrepreneur.

• a tax policy increasing the tax rate on corporate income

  If the entrepreneur decides to form a corporation, he or she will have to pay a higher tax rate under such a policy. The entrepreneur may not be affected by the change in tax policy if he or she forms a different type of business organization, but a monetary policy promoting the goal of price stability would still be a more beneficial type of policy for the entrepreneur.

Who is the highest official in the Federal Reserve System?

• the Secretary of the Treasury

• the Commissioner of Internal Revenue

• the Chair of the Federal Reserve Board

• 
  the president of the Federal Reserve Bank

How could the Federal Reserve Board slow economic growth?

• It could lower the discount rate.

• It could raise reserve requirements.

• 
  It could decrease the interest rate on reserves.

• 
  It could buy government securities on the open market.

What monetary policy would the Federal Reserve adopt to control inflation?

• 
  lowering federal tax rates

• increasing federal tax rates

• 
  lowering the supply of money