Unit 3 Macroeconomics Test Review

USA Test Prep Benchmark - PEHORAMADA

1)

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 called
A. Fabian economics C. Laissez-faire economics
B. Marxist economics D. Central-planning economics

2) Which term is used to describe a situation where most people who are looking for work are able to find a job?
A. full employment C. frictional unemployment
B. seasonal employment D. structural unemployment

3) The federal government uses government spending and tax rates to help control recessions and encourage economic
activity. This is called
A. fiscal policy C. supply-side economics
B. monetary policy D. open market operations

4) Overall levels of income, employment, and prices are determined by the spending and production decisions of all of the
following EXCEPT
A. households C. net exports
B. businesses D. net imports

5)

Senator English Touts Tax Bills Aimed to Blunt Impact of Slowing Economy
January 24, 2008
The 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?
A. The business community will support the plan
B. Using tax breaks will allow businesses to upgrade outdated equipment.
C. Employers can use 100 percent of all their taxes to purchase new equipment.
D. 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?
A. reduced net exports C. a federal budget surplus
B. increased excise taxes D. a federal budget deficit

7) If the federal government runs an annual budget deficit,

A. they will have a budget surplus C. the national debt will decrease
B. the national debt will increase D. they will attain a balanced budget
8) As a means of funding government programs, deficit spending
A. increases the national debt.
B. reduces the federal budget and national debt.
C. was eliminated by a federal balanced budget amendment.
D. 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?
A. -3% C. 1.9%
B. 1.2% D. 5%

10) A vehicle produced in the summer of 2009 and sold in December of 2012 would be counted in which year’s GDP?
A. 2009 C. 2011
B. 2010 D. 2012

11) GDP (gross domestic product) is supposed to indicate economic health because it is supposed to rise when
A. inflation is low C. wealth is being created
B. prices are falling D. unemployment levels are falling

12) In general, higher levels of consumer spending indicate that

A. unemployment is looming C. recessionary conditions are building
B. the economy is relatively healthy D. interest rates are unstable or falling

13) GDP is a valid method of measuring the value of

A. any goods sold on the open market C. of final goods and services produced
B. of happiness of a country's citizens D. leisure time enjoyed by a country's citizens

14) If consumers increase their purchases of goods and services, then a likely outcome for our economy is
A. rising GDP C. decreasing factory orders
B. rising unemployment D. slowing economic growth

15) Can a nation have a negative GDP?

A. No, because of negative net exports
B. Yes, because of negative net exports
C. Yes, because GDP measures the market value of products and that can be negative.
D. 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. a budget surplus C. growing deficits and debt
B. a balanced budget D. discretionary fiscal policy
17)

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?
A. spending slows and causes the GDP to expand
B. spending slows and causes the GDP to contract
C. spending increases and causes the GDP to expand
D. spending increases and causes the GDP to contract

18)

· setting the discount and interest rates

· establishing reserve requirements for banks
· buying and selling US government securities
All of these are ways in which the Federal Reserve system can
A. control the stock market C. decrease consumer spending
B. regulate the money supply D. challenge Presidential power

19) Which of these statements is NOT true of the workforce in the United States today?
A. It is becoming less mobile
B. It is facing more global competition
C. There is a shift to more service jobs
D. The percentage of manufacturing jobs in the economy is declining

20) Which of these will have an effect on the GDP of the country?
A. Monty buys a Picasso painting
B. Lisa loses $20.00 in a bet with Bart
C. Ned fixes Jay's car without buying any new parts
D. The Shelbyville Whoopee Cushion company makes 1,000 to export to China

21) The Consumer Price Index (CPI) is best used to determine

A. the Dow Jones Index C. the unemployment rate
B. the rate of inflation D. currency exchange rate

22) Which of these is an indicator of increased economic growth in a nation?

A. increased job satisfaction
B. increased aggregate demand
C. increased welfare applications

23) 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?
A. frictional unemployment C. seasonal unemployment
B. cyclical unemployment D. structural unemployment

24) 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?
A. frictional unemployment C. seasonal unemployment
B. cyclical unemployment D. structural unemployment

25) The Federal Reserve wants to increase the money supply in the United States. What is the Federal Reserve likely to do
to accomplish this?
A. reduce the discount rate C. increase the reserve requirement for banks
B. sell securities on the open market D. require banks to hold a reserve for all types of
deposits
26) Mr. Skinner has quit his job in order to look for another one. Mr. Skinner
A. is cyclically unemployed C. is structurally unemployed
B. is frictionally unemployed D. is not counted in the labor force

27)

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 to
A. an economic recession in the U.S
B. increased defense costs for the Cold War
C. the economic prosperity which existed during the Clinton administration
D. the decline in the size of the military following our withdrawal from Vietnam

28) What consumer behavior is the Federal Reserve Board trying to encourage when it implements a loose monetary
policy?
A. increased saving and spending C. increased saving and reduced spending
B. decreased saving and spending D. decreased saving and increased spending

29) 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 in
A. more oversight from the executive branch
B. more oversight from the legislative branch
C. significant control by the Treasury Department
D. relative independence of the Federal Reserve System

30) The process by which the government manages spending and taxes to influence the direction of the economy is
A. tax policy C. fiscal policy
B. trade policy D. monetary policy

31) If the federal government wants to encourage businesses and consumers to spend more money, it would MOST LIKELY
A. increase the tax rate
B. decrease the tax rate
C. increase the reserve requirement
D. decrease government spending on goods and services

32) Monetary policy is BEST described as

A. benefits received by employees in addition to wages and salaries
B. actions by the Federal Reserve System to expand or contract the money supply
C. a system that relies on supply and demand to determine the value of one currency to another
D. actions by the federal government to use spending and revenue collection to influence the economy
Use 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 a
A. peak C. recovery
B. recession D. trough

34) In the business cycle model, a recession is MOST LIKELY

A. a turnaround point where the real GDP stops going up
B. a turnaround point where the real GDP stops going down
C. a period during which the real GDP increases for two quarters in a row
D. a period during which the real GDP decreases for two quarters in a row

35) While inflation is a rise in the general level of prices, economic growth is a
A. short period during which the nation's total output of goods and services decreases
B. short period during which the nation's total output of goods and services increases
C. sustained period during which the nation's total output of goods and services decreases
D. sustained period during which the nation's total output of goods and services increases

36) Unemployment insurance, Welfare, Medicare, Medicaid, and Social Security are key components of
A. fiscal policy C. supply-side policy
B. monetary policy D. wage-price controls

37) Economic growth, inflation, and level of employment are all related. To determine inflation,
A. multiply the GDP by the change in price level
B. divide the change in price level by the unemployment rate
C. multiply the beginning price level by the unemployment rate
D. divide the change in price level by the beginning price level
38) The process by which the Federal Reserve controls the supply, availability, and cost of money in order to keep the
economy stable is
A. fiscal policy C. the interest rate
B. monetary policy D. the discount rate

39) Which of these would deter inflation?

A. a decrease in interest rates C. an increase in consumer spending
B. an increase in economic growth D. a decrease in the price of securities

40) 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?
A. Money Supply - Decreases / Interest Rates - Increase
B. Money Supply - Increases / Interest Rates – Increase
C. Money Supply - Decreases / Interest Rates – Decrease
D. Money Supply - Increases / Interest Rates - Decrease
41)

The above chart represents the organization of the Federal Reserve System.
Which of these correctly completes the chart?
A. Federal Reserve Chairman C. President of the United States
B. Federal Open Market Committee D. Senate and House of Representatives

42) What would MOST LIKELY happen if the Federal Reserve decided to increase the reserve requirement in banks?
A. The amount of federal taxes people owe would decrease
B. The amount of federal taxes people owe would increase
C. The amount of money circulating in the economy would decrease
D. The amount of money circulating in the economy would increase

43) Which of these actions of the Federal Reserve can slow economic growth?
A. The Federal Reserve regulates the amount of money that flows into and out of the nation’s economy.
B. The Federal Reserve buys securities, which puts money back into the hands of people who can spend it in the
marketplace
C. The Federal Reserve decreases the reserve requirement and banks have more money to loan to peopdele who
want to borrow it
D. The Federal Reserve increases the discount rate, which causes interest rates to rise and people to save rather than
to spend

44) Which statement describes economic activity in a recession?

A. consumer spending declines C. the employment rate increases
B. business production increases D. government regulations decrease

45) The Federal Reserve has kept interest rates very low. Some might argue that this could lead to
A. inflation C. a strong dollar
B. deflation D. higher unemployment

46) Which has LEAST LIKELY been the historical goal of the Federal Reserve's monetary policy?
A. Keeping unemployment rates low C. Holding prices stable
B. Decreasing the national debt D. Sustainable growth

47) This term refers to the overall decrease in the price of goods and services.
A. appreciation C. depreciation
B. deflation D. inflation

48) During an economic recession, how would the United States Federal Reserve alter their monetary policy?
A. The Fed would buy bonds from investors
B. The Fed would increase the discount rate on loans
C. The Fed would raise the reserve requirements for banks
D. The Fed would wait for the Secretary of Treasury to make the decision
49) "Too much money chasing too few goods" is a common way use to describe what economic concept?
A. bankruptcy C. inflation
B. depression D. recession

50) What would be reasonable monetary policy if the economy was in a recession?
A. cut taxes C. reduce the money supply
B. raise taxes D. increase the money supply

51) Why would adjusting the money supply be expected to increase economic growth during a recession?
A. Increasing the money supply will encourage more saving
B. Increased money supply will encourage more spending and investment
C. Decreased money supply will encourage more spending and investment
D. Recession is caused by too much spending, so money supply must be reduced

52) 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?
A. frictional unemployment C. seasonal unemployment
B. cyclical unemployment D. structural unemployment

53) Which choice shows the stages of the business cycle in the correct order?
A. trough, expansion, contraction, peak C. peak, contraction, trough, expansion
B. contraction, expansion, trough, peak D. expansion, peak, trough, contraction

54) Shawn just graduated from college. Why might Shawn benefit from rapid inflation in the economy?
A. Purchasing a home will be easier
B. There will be more goods to purchase
C. Businesses are more likely to hire during times of inflation
D. Student loan repayments will not cost as much in real dollars

55) 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 and
A. put them in a box in your closet instead of a savings account because the bank is only paying 2% which is half the
inflation rate
B. put 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 rate
C. put them in a box in your closet instead of a savings account because the bank is only paying 6% which just equals
the inflation rate
D. put the money in a savings account regardless of the interest, because any positive rate will reduce the negative
impact of inflation on the accumulated savings

56) According to monetarists, to prevent recessions, the Federal Reserve should

A. increase taxation C. increase the money supply
B. decrease the money supply D. decrease government spending

57) Federal program that provides monthly payments (entitlements) to people who are retired or unable to work is called
A. Welfare C. Social Security
B. Medicare D. Senior Citizen’s program

58) Which pairs of operations BEST fit with fiscal policy?

A. government spending and taxation C. discount rate and government spending
B. taxation and open market operations D. open market operations and discount rate

59) Discretionary fiscal policy is defined as

A. the arbitrary fluctuation in tax laws and budget requirements
B. the automatic change in certain fiscal instruments when real GDP changes
C. the deliberate manipulation of the money supply to expand the total economy
D. a deliberate change in tax laws and government spending to change equilibrium income
60)

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?
A. Raising and lowering the minimum wage
B. Helping to develop the taxation policies
C. Increasing and decreasing government spending
D. Raising and lowering short-term interest rates

61) Business cycles in the United States

A. occur about every 5 years C. occur irregularly and without pattern
B. always follow the same basic pattern D. are always followed by periods of mild inflation

62) In the business cycle, what always follows immediately after a contraction?
A. depression C. recession
B. expansion D. trough

63) In the business cycle, what always follows immediately after a peak?
A. contraction C. expansion
B. depression D. trough

64)

1. Elderly on a fixed income

2. Renters who live in a rent controlled apartment
3. People who are paying on a loan with adjustable interest rates
4. Banks who are collecting on loans with adjustable interest rates
Who is harmed the MOST during periods of unexpected inflation?
A. 1 C. 1, 2, and 3
B. 1 and 3 D. 2 and 4

65) What is the Federal Reserve's role in helping to control inflation?

A. to keep the money supply lower than the rate of inflation
B. to keep the demand for money higher than the rate of inflation
C. to keep the money supply stable in order to maintain low inflation
D. to keep fiscal policy stable in order to maintain a low level of inflation

66)

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?
A. The 9-11 attacks on Washington and New York City
B. Rising inflation, a crash in the "housing bubble," and a recession from 2007-2010
C. Lower inflation and the largest growth in real GDP since WWII with a healthy economy into 2013
D. Rising inflation and the arrest of the Federal Reserve Chairman for causing the Great Depression

67) What would be the appropriate monetary policy during a period of low inflation and steady GDP growth?
A. Buy bonds to stop business investment
B. Just monitor the situation, but do nothing
C. Sell bonds to encourage even more business investment
D. Continue to keep interest rates low to encourage low inflation
68) What is the effect upon the economy of an expansionary fiscal policy upon an economy with an increasing budget
deficit and growing national debt?
A. increased deficit spending and increasing or growing national debt
B. decreased deficit spending and increasing or growing national debt
C. decreased deficit spending and decreasing or shrinking national debt
D. increased deficit spending and decreasing or shrinking national debt

69) How will a contractionary fiscal policy affect a budget deficit?

A. not affect it C. shrink the deficit
B. grow the deficit D. change monetary policy

70) You want a new truck. How can the Federal Reserve's raising of the discount rate affect your decision to purchase the
truck?
A. It will raise interest rates and make your truck payment lower
B. It will lower interest rates and make your truck payment higher
C. It will lower interest rates and make your truck payment lower
D. It will raise interest rates and make your truck payment higher

71) With regards to economic growth, what is the goal of an expansionary fiscal policy?
A. to increase trade deficits C. to decrease economic growth
B. to increase economic growth D. to maintain current economic levels

72)

Functions of Money
· Unit of account
· Medium of exchange
· Store of value
Which function(s) of money informs the consumer what currency to use to obtain a good or service?
A. store of value C. medium of exchange
B. unit of account D. both unit of account and store of value

73) The fact that money "enables people to transfer purchasing power from the present to the future" refers to the ______
function of money.
A. store of value C. medium of exchange
B. unit of account D. both unit of account and store of value

74) 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?
A. buy bonds C. increase interest rates
B. sell bonds D. increase reserve rates

75)

Which function of money is the above picture an example of?

A. store of value C. medium of exchange
B. unit of account D. both unit of account and store of value
76) 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?
A. Raise taxes C. Decrease interest rates
B. Increase spending D. Increase reserve requirements

77) The Federal Reserve institutes a tight monetary policy in order to reign in inflation. What is a likely consequence of
such action?
A. The stock market will crash C. The unemployment rate will fall
B. The unemployment rate will rise D. The stock market will experience a boom

78) 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 as
A. cyclical unemployment C. frictional unemployment
B. structural unemployment D. underemployment

79) 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?
A. Higher rates of inflation C. Higher taxes
B. Lower rates of inflation D. Lower taxes

80) 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?
A. Higher rates of inflation C. Higher interest rates
B. Lower rates of inflation D. Lower interest rates

81) The Consumer Price Index (CPI) measures

A. the amount of consumer confidence within the economy
B. the average prices of a few consumer goods and services in the market basket
C. the average of the prices paid by urban consumers for a fixed market basket of goods and services
D. the average of the costs paid by businesses to produce a fixed market basket of consumer goods and services

82) If a country had a CPI of 104.0 last year and a CPI of 101.0 this year, then
A. the average quality of goods and services between last year and this year
B. the average prices of goods and services increased between last year and this year
C. the average prices of goods and services decreased between last year and this year
D. the quantity of consumer goods and services produced decreased between last year and this year

83) What word describes the phase of a business cycle that occurs after a trough and before a peak?
A. expansion C. trough
B. contraction D. lag

84) A period of expansion and contraction of aggregate economic activity measured by real GDP is called a
A. supply and demand curve C. business cycle
B. production possibility curve D. circular flow of economic activity

85) Which of these types of unemployment is characterized by peaks of joblessness at specific times of the year?
A. seasonal C. frictional
B. cyclical D. structural