Economics: Macroeconomics and Monetary Policy
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Questions and Answers

Unpredictable changes in the value of money, which brings about gains and losses, are a consequence of unpredictable changes in

  • real GDP
  • unemployment rate
  • inflation (correct)
  • productivity

    • What does the federal funds rate refer to?

  • The interest rate on the 3-month Treasury bill
  • The interest rate that banks charge each other on overnight loans (correct)
  • The interest rate on the 30-year treasury bond
  • The interest rate that the Fed charges commercial banks on loans

    • If the FOMC forecasts higher inflation above its target, what will it do to moderate the inflation?

  • Lower the federal funds target very quickly in a few large steps
  • Lower the federal funds target in small steps over several months
  • Raise the federal funds target very quickly in a few large steps
  • Raise the federal funds target in small steps over several months (correct)

    • What is a limitation of using fiscal policy?

    <p>Time lags associated with fiscal policy may cause the policy to take effect too late</p> Signup and view all the answers

    Which of the following is an example of a person who is not in the labor force?

    <p>A person who is not working or looking for work</p> Signup and view all the answers

    What type of gap is illustrated in the figure above?

    <p>Inflationary gap</p> Signup and view all the answers

    What is an example of an investment in capital goods?

    <p>The purchase of new machine tools to manufacture batteries</p> Signup and view all the answers

    What is the discount rate?

    <p>The interest rate that the Fed charges on its loans to banks</p> Signup and view all the answers

    What has been the average annual growth rate of real GDP per person in the United States over the past 120 years?

    <p>2%</p> Signup and view all the answers

    What is a discretionary fiscal policy?

    <p>A fiscal policy that requires action by Congress</p> Signup and view all the answers

    What does the Laffer curve show?

    <p>The relationship between tax rates and tax revenue</p> Signup and view all the answers

    What type of unemployment is associated with the changing of jobs in a changing economy?

    <p>Frictional unemployment</p> Signup and view all the answers

    What is the term for the highest point of a business cycle?

    <p>A peak</p> Signup and view all the answers

    How many regional Federal Reserve Banks and members of the Board of Governors are there in the Federal Reserve?

    <p>12 regional banks and 7 members of the Board of Governors</p> Signup and view all the answers

    What is the correct formula to calculate the unemployment rate if 25 people are not in the labor force out of a working age population of 100?

    <p>Unemployment rate = 25/75 × 100</p> Signup and view all the answers

    Which of the following is the central bank of the United States?

    <p>Federal Reserve System</p> Signup and view all the answers

    What happens when transfer payments increase and tax revenues decrease?

    <p>Interest rates increase</p> Signup and view all the answers

    What is the primary function of the Federal Open Market Committee (FOMC)?

    <p>Determine the Fed's monetary policy</p> Signup and view all the answers

    What does G represent in the equation GDP = C + I + G + X - M?

    <p>Local, state, and federal government expenditure on goods and services, but does not include transfer payments</p> Signup and view all the answers

    What is the primary function of a money market mutual fund?

    <p>To invest in securities such as U.S. Treasury bills</p> Signup and view all the answers

    What is the formula to calculate the percentage change in real GDP?

    <p>((real GDP in current year - real GDP in previous year)/real GDP in previous year) × 100</p> Signup and view all the answers

    What is the unemployment rate in the given scenario?

    <p>5.4 percent</p> Signup and view all the answers

    What is included in government expenditures in the expenditure approach to GDP?

    <p>Both answers B and C are correct</p> Signup and view all the answers

    What is the primary reason for focusing on long-term growth?

    <p>To bring about higher living standards</p> Signup and view all the answers

    When the Federal Reserve is concerned about recession, what monetary policy will it use to stimulate aggregate demand?

    <p>Quantitative easing</p> Signup and view all the answers

    What type of unemployment is Bill experiencing when he loses his job as a loan officer and is searching for a new job?

    <p>Frictional unemployment</p> Signup and view all the answers

    What does the aggregate production function describe?

    <p>The relationship between real GDP and the quantity of labor employed</p> Signup and view all the answers

    What is the primary goal of quantitative easing?

    <p>To increase the money supply and stimulate economic growth</p> Signup and view all the answers

    Which of the following expenditures is for a final good?

    <p>You buy new tires for your used car</p> Signup and view all the answers

    What is the likely outcome of higher standards of living?

    <p>An increase in the production of goods and services</p> Signup and view all the answers

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