BA 206 Macroeconomics Final Exam Answers


Question 1

Barter transactions involve the use of money.

Question 2

The use of money as a medium of exchange represents the mostimportant service that money renders.

Question 3

Currency includes demand deposits.

Question 4

The money supply known as M1 includes all assets that are good storesof value.

Question 5

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

Question 6

Commercial banks and credit unions create money in concert with theFed.

Question 7

Providing a secure place for savings is not a major function of financialinstitutions.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

There are currently 13 Federal Reserve Districts.

Question 14

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

Question 15

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

Question 16

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

Question 17

The selling of securities in the open market by the Federal Reserve willactually decrease the monetary base by reducing the amount the bankingsystem will ultimately be able to lend.

Question 18

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

Question 19

The short-run Phillips curve is a curve that shows the relationship betweenthe inflation rate and the pure interest rate when the natural rate ofunemployment rate and the expected inflation rate remain constant.

Question 20

When interest rates are rising, the tendency is for holders of M1 to get outof M1 and move into M2 and M3 due to the opportunity costs of holdingM1.

Question 21

The science of macroeconomics:

Question 22

The tax cuts passed by Congress in 2002 to help move the economy more rapidly toward potential GDP are an example of:

Question 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:

Question 24

A Phillips curve measures the relationship between:

Question 25

In order for the United States to repay its international debt, the United States would need to:

Question 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:

Question 27

A demand-pull inflation initially is characterized by:

Question 28

The labor force is the sum of the:

• Question 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 ________.

Question 30

According to real business cycle theory, a fall in the real interest rate ________ current labor supply and ________ current employment.