ECON 103 FINAL
Assume the following information for an imaginary, closed economy. GDP $100,000 Taxes $22,000 Government Purchases $25,000 National Saving $15,000 Refer to Scenario 26-1. For this economy, investment amounts to a. $38,000. b. $15,000. c. $12,000. d. $18,000.
b
Which of the following is not a determinant of the long-run level of real GDP? a. Available technology b. The price level c. Available stock of human capital d. The amount of capital used by firms
b
A budget deficit a. does not influence the supply of or the demand for loanable funds. b. changes the demand for loanable funds. c. changes the supply of loanable funds. d. changes both the supply of and demand for loanable funds.
c
A decrease in taxes would move the economy from C to a. D in the short run and the long run. b. D in the short run and C in the long run. c. B in the short run and A in the long run. d. B in the short run and the long run.
c
Other things the same, if technology increases, then in the long run a. output is lower and prices are higher. b. both output and prices are lower. c. output is higher and prices are lower. d. both output and prices are higher.
c
From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate a. supply right. b. demand left. c. supply left. d. demand right.
d
If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from a. B to A. b. D to C. c. A to B. d. C to D. Hide Feedback
d
Which of the following would not cause a shift in the long-run aggregate-supply curve? a. an increase in the available labor b. an increase in the available capital c. an increase in the available technology d. an increase in price expectations e. All of the above shift the long-run aggregate-supply curve.
d
If a household experiences an $880 increase in consumption with a $1,100 increase in disposable income, what is mps equal to? A. 0.2 B. 2 C. 0.8 D. 0.08 E. 0.25
A
In a closed economy that does not have international trade, the multiplier equals A. 1/(1-MPC(1-t)). B. 1/MPC. C. 1/(MPC - 1). D. 1/(1 - MPS).
A
If you experience a $300 increase in saving with a $5,000 increase in disposable income, you would have an mps of A. 0.15 B. 0.06 C. 0.33 D. 0.033 E. 0.167
B
Consumption equals 1,100 when disposable income is 1,200 and consumption increases to 1,400 when disposable income goes to 1,650. Also mpm = 0.1 and the tax rate is 0.1. What are the marginal propensity to consume and the multiplier equal to? A. MPC = 1/3; multiplier = 3 B. MPC = 1/5; multiplier = 5 C. MPC = 2/3; multiplier = 2 D. MPC = 3/4; multiplier = 4
C
In deriving the multiplier, the smaller the tax rate (t), the A. smaller the multiplier. B. smaller the income of the economy. C. greater the change in income derived from a given change in autonomous spending.
C
The consumption equation illustrates that A. saving increases as disposable income decreases. B. consumption increases as saving increases. C. consumption increases as disposable income increases. D. consumption increases as disposable income decreases.
C
The net export equation illustrates that A. net exports are a positive function of domestic income. B. net exports are independent of domestic income. C. net exports are a negative function of domestic income. D. imports are independent of domestic income.
C
A change in the supply of labor, all else remaining the same, will shift the short-run aggregate-supply curve. a. True b. False
a
Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift a. aggregate demand to the right. b. aggregate demand to the left. c. aggregate supply to the right. d. aggregate supply to the left.
a
Stagflation occurs when the economy experiences a. rising prices and falling output. b. falling prices and rising output. c. falling prices and falling output. d. rising prices and rising output.
a
The economic boom of the early 1940s resulted mostly from a. increased government expenditures. b. falling prices of oil and other natural resources. c. rapid developments in transportation, electronics, and communication. d. an increase in the growth rate of the money supply.
a
The effect of a change in the value of the dollar in the foreign exchange market due to a change in the price level helps explain the slope of aggregate demand, but does not shift it. The effects of a change in the value of the dollar in the foreign exchange market due to speculation is shown by shifting the aggregate demand curve. a. True b. False
a
The following table presents information about a closed economy whose market for loanable funds is in equilibrium. GDP $8.7 trillion Consumer Spending $6.1 trillion Taxes Minus Transfers $1.0 trillion Government Purchases $0.8 trillion Refer to Table 26-1. The quantity of private saving is a. $1.6 trillion. b. $1.8 trillion. c. $0.2 trillion. d. $2.6 trillion.
a
The initial impact of an increase in an investment tax credit is to shift aggregate a. demand right. b. supply right. c. supply left. d. demand left.
a
Which of the following policy actions by the Fed is likely to increase the money supply? a. reducing reserve requirements b. selling government bonds c. increasing the discount rate d. increasing interest on reserves e. All of these will increase the money supply.
a
A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement. a. It has $80 in reserves and $9,920 in loans. b. It has $800 in reserves and $9,200 in loans. c. It has $1,250 in reserves and $8,750 in loans. d. It has $8,000 in reserves and $2,000 in loans.
b
As the interest rate falls to equilibrium in the market for money , a. the quantity of money demanded rises, which would reduce a shortage of money. b. the quantity of money demanded rises, which would reduce a surplus of money. c. the quantity of money demanded falls, which would reduce a surplus of money. d. the quantity of money demanded falls, which would reduce a shortage of money.
b
Critics of stabilization policy argue that a. policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived. b. policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived. c. policy does not affect aggregate demand. d. policy affects aggregate demand with a lag, but the effects are short-lived.
b
Crowding out occurs when investment declines because a budget a. deficit makes interest rates fall. b. deficit makes interest rates rise. c. surplus makes interest rates fall. d. surplus makes interest rates rise.
b
Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. How is the new long-run equilibrium different from the original one? a. The price level is the same and real GDP is higher. b. The price level is higher and real GDP is the same. c. The price level and real GDP are higher. d. The price level and real GDP are lower.
b
In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving? a. Public saving would rise and national saving would fall. b. Public and national saving would fall. c. Public and national saving would rise. d. Public saving would fall and national saving would rise.
b
Suppose the economy is initially in long-run equilibrium. Then suppose there is a drought that destroys much of the wheat crop. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run? a. Prices rise; output rises. b. Prices rise; output falls. c. Prices fall; output rises. d. Prices fall; output falls.
b
Given that Monika's income exceeds her expenditures, Monika is best described as a a. saver or as a demander of funds. b. borrower or as a supplier of funds. c. saver or as a supplier of funds. d. borrower or as a demander of funds.
c
If Americans become less concerned with the future and save less at each real interest rate, a. real interest rates fall and investment rises. b. real interest rates fall and investment falls. c. real interest rates rise and investment falls. d. real interest rates rise and investment rises.
c
If the government's expenditures exceeded its receipts, it would likely a. lend money to a bank or other financial intermediary. b. buy bonds directly from the public. c. sell bonds directly to the public. d. borrow money from a bank or other financial intermediary.
c
In the short-run an increase in the costs of production makes a. output rise and prices fall. b. both output and prices fall. c. output fall and prices rise. d. both output and prices rise.
c
Suppose the economy starts at Z. Stagflation would be consistent with the move to a. P1 and Y3. b. P1 and Y1. c. P3 and Y1. d. P3 and Y3.
c
The measure of the money stock called M1 includes a. everything that is included in M2 plus some additional items. b. wealth held by people in money market mutual funds. c. wealth held by people in their checking accounts. d. wealth held by people in their savings accounts.
c
When money demand is expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the interest rate a. increases the quantity demanded of money. b. increases the demand for money. c. decreases the quantity demanded of money. d. decreases the demand for money. e. none of the above.
c
When the economy goes into a recession, real GDP ________ and unemployment ________. a. rises; rises b. rises; falls c. falls; rises d. falls; falls
c
Which of the following events shifts the short-run aggregate-supply curve to the right? a. an increase in government spending on military equipment b. an increase in price expectations c. a drop in oil prices d. a decrease in the money supply e. none of the above
c
Which of the following policy actions would unambiguously reduce the supply of loanable funds and crowd out investment? a. an increase in both taxes and government spending. b. an increase in taxes and a decrease in government spending. c. a decrease in taxes together with an increase in government spending. d. a decrease in both taxes and government spending.
c
Bank of Pleasantville Assets Reserves $3,000 Loans $47,000 Liabilities Deposits $50,000 Refer to Table 29-4. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier? a. 6.0 b. 15.6 c. 6.4 d. 16.7
d
Economic expansions in Europe and China would cause the U.S. price level a. to fall and real GDP to rise. b. to rise and real GDP to fall. c. and real GDP to fall. d. and real GDP to rise.
d
In the model of aggregate demand and aggregate supply, the initial impact of an increase in consumer optimism is to a. shift aggregate demand to the left. b. shift short-run aggregate supply to the left. c. shift short-run aggregate supply to the right. d. shift aggregate demand to the right. e. shift long-run aggregate supply to the left.
d
In the short run, open-market purchases a. decrease investment, interest rates, and real GDP. b. increase investment and interest rates, and decrease real GDP. c. increase real GDP and interest rates, and decrease investment. d. increase investment and real GDP, and decrease interest rates.
d
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand? a. Net exports would rise which by itself would increase U.S. aggregate demand. b. Net exports would rise which by itself would decrease U.S. aggregate demand. c. Net exports would fall which by itself would increase U.S. aggregate demand. d. Net exports would fall which by itself would decrease U.S. aggregate demand.
d
The money stock includes all of the following EXCEPT a. metal coins. b. bank balances accessible with debit cards. c. paper currency. d. lines of credit accessible with credit cards.
d
Which of the following is not included in either M1 or M2? a. Demand deposits b. Money market mutual funds c. Small time deposits d. U.S. Treasury bills
d
Which of the following would cause stagflation? a. Aggregate demand shifts left. b. Aggregate supply shifts right. c. Aggregate demand shifts right. d. Aggregate supply shifts left.
d
Use the table below to answer the following question. Disposable Income (Dollars) 20,000 24,000 Consumption (Dollars) 18,000 20,000 What is the marginal propensity to consume? A. 0.5 B. 0.875 C. 0.9 D. 1.33
A
If a household experiences an increase in wealth, it will experience A. an increase in its MPC. B. an autonomous decrease in consumption. C. a decrease in its MPS. D. an autonomous increase in consumption.
D
Suppose autonomous imports are equal to $205 billion, the mpm is equal to 0.1, and income is equal to $1,500 billion. What is the value of total imports? A. $16.4 billion B. $120 billion C. $164 billion D. $355 billion
D
If the multiplier equals 6 and real GDP is $2 billion below potential GDP, then to reach the potential real GDP level A. total spending needs to increase by $2 billion B. we have a recessionary gap of $12 billion. C. total spending needs to decrease by $6 billion. D. potential GDP needs to decrease by $12 billion. E. total spending needs to increase by $0.33 billion.
E
A decrease in the money supply causes the interest rate to rise so that investment falls. a. True b. False
a
An increase in the expected price level shifts a. neither the long-run aggregate supply curve nor the short-run aggregate supply curve to the left. b. the long-run aggregate supply curve to the left but does not affect the short-run aggregate supply curve. c. both the short-run and long-run aggregate supply curves to the left. d. the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.
d
Assume the following information for an imaginary, closed economy. GDP $100,000 Taxes $22,000 Government Purchases $25,000 National Saving $15,000 Refer to Scenario 26-1. This economy's government is running a budget a. surplus of $3,000. b. deficit of $12,000. c. surplus of $12,000. d. deficit of $3,000.
d
Autonomous consumption is defined as A. the domestic consumption that does not depend on the exchange rate. B. the consumption of the government. C. the level of consumption that does not depend on income.
C
As disposable income increases, consumption spending will rise but by less than disposable income if the mps is positive. True False
True
If the economy starts at Y, then a recession occurs at a. X. b. Z. c. W. d. V.
c
A closed economy has income of $1,000, government spending of $200, taxes of $150, and investment of $250. What is private saving? a. $200 b. $400 c. $100 d. $300
d
The natural level of output occurs at a. Y3. b. both Y1 and Y3. c. Y1. d. Y2.
d
The Keynesian multiplier will ["increase", "decrease"] with a fall in the marginal propensity to consume (MPC), will ["increase", "decrease"] with an increase in the marginal propensity to imports (MPM), will ["increase", "decrease"] with a fall in the average tax rate (t).
decrease, decrease, increase
Assume General Motors has decided to build an assembly plant in St. Louis. The plant will employ one thousand full-time workers at an annual wage of $30,000 each. If the mpc, mpm and t in St. Louis are 0.6, 0.2, and 0.2, respectively, then what change in income will result from operation of the plant for one year? A. $21.7 million B. $35 million C. 41.7 million D. $95.4 million
C
A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events? a. The government reduces government spending, resulting in a decrease in people's incomes. b. The government cuts taxes, resulting in an increase in people's incomes. c. The Federal Reserve increases the supply of money, which decreases the interest rate. d. The Federal Reserve decreases the supply of money, which increases the interest rate.
a
An increase in household saving causes consumption to a. fall and aggregate demand to decrease. b. rise and aggregate demand to increase. c. rise and aggregate demand to decrease. d. fall and aggregate demand to increase.
a
Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate? a. Corporate bond, U.S. government bond, municipal bond b. Corporate bond, municipal bond, U.S. government bond c. U.S. government bond, municipal bond, corporate bond d. Municipal bond, U.S. government bond, corporate bond
a
The effect of an increase in the price level on the aggregate-demand curve is represented by a a. movement to the left along a given aggregate-demand curve. b. shift to the right of the aggregate-demand curve. c. movement to the right along a given aggregate-demand curve. d. shift to the left of the aggregate-demand curve.
a
If the government collects more in tax revenue than it spends, and households consume more than they get in after-tax income, then a. private saving is positive, but public saving is negative. b. private saving is negative, but public saving is positive. c. private saving and public saving are both positive. d. private saving and public saving are both negative.
b
If the reserve ratio is ¼ and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by a. $150. b. $480. c. $90. d. $160.
b
In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy? a. Public saving is equal to investment. b. The government's tax revenue is equal to its expenditures. c. Private saving is equal to government expenditures. d. After paying their taxes and paying for their consumption, households have nothing left.
b
Recessions come at a. regular intervals. During recessions investment spending falls relatively more than consumption spending. b. irregular intervals. During recessions investment spending falls relatively more than consumption spending. c. irregular intervals. During recessions consumption spending falls relatively more than investment spending. d. regular intervals. During recessions consumption spending falls relatively more than investment spending.
b
If the interest rate is above the Fed's target, the Fed should a. buy bonds to decrease the money supply. b. sell bonds to increase the money supply. c. buy bonds to increase the money supply. d. sell bonds to decrease the money supply.
c
Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. In the short run what happens to the price level and real GDP? a. The price level falls and real GDP rises. b. Both the price level and real GDP fall. c. The price level rises and real GDP falls. d. Both the price level and real GDP rise.
d
In national income accounting, we use which of the following pairs of terms interchangeably? a. "Saving" and "national saving" b. "Investment" and "purchases of stocks and bonds" c. "Investment" and "private saving" d. "Public saving" and "government tax revenue minus government spending"
d
Investment is a. a small part of real GDP, so it accounts for a small share of the fluctuation in real GDP. b. a large part of real GDP, so it accounts for a large share of the fluctuation in real GDP. c. a large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP. d. a small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
d
The natural level of output is the amount of real GDP produced a. when there is no unemployment. b. when the economy is at the natural level of investment. c. when the economy is at the natural level of aggregate demand. d. when the economy is at the natural rate of unemployment.
d
In which case can we be sure aggregate demand shifts left overall? a. People want to save more for retirement and the Fed decreases the money supply. b. People want to save less for retirement and the Fed increases the money supply. c. People want to save less for retirement and the Fed decreases the money supply. d. People want to save more for retirement and the Fed increases the money supply.
a
Long-term bonds are a. riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. b. less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. c. riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. d. less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
a
If banks increase their holdings of excess reserves a. the money multiplier decreases and the money supply increases. b. the money multiplier and the money supply decrease. c. the money multiplier and the money supply increase. d. the money multiplier increases and the money supply decreases.
b
Suppose the economy is in long-run equilibrium. If the government increases its expenditures, eventually the increase in aggregate demand causes price expectations to a. fall. This fall in price expectations shifts the short-run aggregate supply curve to the left. b. rise. This rise in price expectations shifts the short-run aggregate supply curve to the left. c. rise. This rise in price expectations shifts the short-run aggregate supply curve to the right. d. fall. This fall in price expectations shifts the short-run aggregate supply curve to the right.
b
The price level rises in the short run if a. aggregate demand shifts left or aggregate supply shifts right. b. aggregate demand or aggregate supply shifts right. c. aggregate demand shifts right or aggregate supply shifts left. d. aggregate demand or aggregate supply shifts left.
c
The multiplier effect means that a given change in autonomous expenditures A. will change equilibrium income by an amount greater than the initial change in autonomous expenditures. B. will change equilibrium by an amount less than the initial change in autonomous expenditures. C. will change equilibrium income by an amount equal to the initial change in autonomous expenditures. D. will change the MPC by a multiple of the initial change in autonomous expenditures. E. will change the MPS by a multiple of the initial change in autonomous expenditures.
A
If the government instituted an investment tax credit, then which of the following would be higher in equilibrium? a. Saving and the interest rate b. The interest rate but not saving c. Saving but not the interest rate d. Neither saving nor the interest rate
a
If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be a. $1,000 higher and M2 would be $1,500 higher. b. M2 and M1 would be $1,500 higher. c. $500 higher and M2 would be $1,500 higher. d. $1,000 high and M2 would be $500 higher.
a
Imagine that in 2019 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. In the long run, w hat happens to the expected price level and what impact does this have on wage bargaining? a. The expected price level rises. New wage contracts are negotiated at higher wages. b. The expected price level falls. New wage contracts are negotiated at lower wages. c. The expected price level falls. New wage contracts are negotiated at higher wages. d. The expected price level rises. New wage contracts are negotiated at lower wages.
a
In Figure 33-3, point B represents a a. short-run equilibrium, and Point A represents a long-run equilibrium. b. long-run equilibrium, and Point C represents a short-run equilibrium. c. short-run equilibrium and a long-run equilibrium. d. long-run equilibrium, and Point A represents a short-run equilibrium.
a
In a closed economy, what remains after paying for consumption and government purchases is a. national saving. b. national disposable income. c. public saving. d. private saving.
a
Policymakers are said to "accommodate" an adverse supply shock if they a. respond to the adverse supply shock by increasing aggregate demand, which further raises prices. b. respond to the adverse supply shock by decreasing aggregate demand, which lowers prices. c. fail to respond to the adverse supply shock and allow the economy to adjust on its own. d. respond to the adverse supply shock by decreasing short-run aggregate supply.
a
Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would a. rise which by itself would increase aggregate demand. b. rise which by itself would decrease aggregate demand. c. fall which by itself would increase aggregate demand. d. fall which by itself would decrease aggregate demand.
a
Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then the a. demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. b. demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. c. supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. d. supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
a
Financial intermediaries are a. a more general name for financial assets such as stocks, bonds, and checking accounts. b. financial institutions through which savers can indirectly provide funds to borrowers. c. individuals who make profits by buying a stock low and selling it high. d. the same as financial markets.
b
If Americans become more thrifty, we would expect a. the demand for loanable funds to shift to the right and the real interest rate to rise. b. the supply of loanable funds to shift to the right and the real interest rate to fall. c. the supply of loanable funds to shift to the right and the real interest rate to rise. d. the demand for loanable funds to shift to the right and the real interest rate to fall.
b
If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would a. appreciate which would cause aggregate demand to shift right. b. depreciate which would cause aggregate demand to shift right. c. depreciate which would cause aggregate demand to shift left. d. appreciate which would cause aggregate demand to shift left.
b
Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers allow the economy to adjust to the long-run natural level on its own, a. people will raise their price expectations and aggregate demand will shift left. b. people will reduce their price expectations and the short-run aggregate supply will shift right. c. people will reduce their price expectations and aggregate demand will shift right. d. people will raise their price expectations and the short-run aggregate supply will shift left.
b
Suppose the economy is operating in a recession such as point B in Exhibit 4. If policymakers wished to move output to its long-run natural level, they should attempt to a. shift short-run aggregate supply to the left. b. shift aggregate demand to the right. c. shift aggregate demand to the left. d. shift short-run aggregate supply to the right.
b
The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. Which of the following movements shows the effects of households' decision to save more? a. A movement from Point F to Point A b. A movement from Point C to Point F c. A movement from Point C to Point B d. A movement from Point A to Point B
b
The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is a. more profitable and employment and output falls. b. more profitable and employment and output rises. c. less profitable and employment and output rises. d. less profitable and employment and output falls.
b
Which of the following both increase the money supply? a. An increase in the discount rate and an increase in the interest rate on reserves b. A decrease in the discount rate and a decrease in the interest rate on reserves c. An increase in the discount rate and a decrease in the interest rate on reserves d. A decrease in the discount rate and an increase in the interest rate on reserves
b
Which of the following policies can the Fed follow to increase the money supply? a. Sell government bonds b. Reduce the interest rate on reserves c. Increase reserve requirements for banks d. Reduce the quantity of funds available through the Term Auction Facility
b
In 2009, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right? a. Neither the increased funding for states nor the tax cuts b. Only the tax cuts c. Both the increased funding for states and the tax cuts d. Only the increased funding for states
c
Other things the same, a higher interest rate induces people to a. invest less, so the supply of loanable funds slopes downward. b. invest more, so the supply of loanable funds slopes upward. c. save more, so the supply of loanable funds slopes upward. d. save less, so the supply of loanable funds slopes downward.
c
Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits? a. $4,995 billion b. $5,000 billion c. $4,937.5 billion d. $5,062.5 billion
c
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run? a. Prices rise; output rises. b. Prices rise; output falls. c. Prices fall; output falls. d. Prices fall; output rises.
c
The First Bank of Roswell Assets Reserves $30,000 Loans $170,000 Liabilities Deposits $200,000 Refer to Table 29-3. If the bank faces a reserve requirement of 6 percent, then the bank a. is in a position to make new loans equal to a maximum of $12,000. b. has excess reserves of $30,000. c. is in a position to make new loans equal to a maximum of $18,000. d. has excess reserves of $12,000.
c
The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is a. $7 billion and consumption is $7 billion. b. $6 billion and consumption is $7 billion. c. $6 billion and consumption is $6 billion. d. $7 billion and consumption is $6 billion.
c
While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, " a more precise account of the Fed's action would be as follows: a. "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent. " b. "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent. " c. "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent. " d. "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount. "
c
When the Fed buys government bonds, the reserves of the banking system a. increase, so the money supply decreases. b. decrease, so the money supply decreases. c. decrease, so the money supply increases. d. increase, so the money supply increases.
d
If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by a. buying bonds. This buying would reduce reserves. b. selling bonds. This selling would increase reserves. c. buying bonds. This buying would increase reserves. d. selling bonds. This selling would reduce reserves.
d
Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have available to lend out if it decides to hold only required reserves? a. $9,000 b. $26,190 c. $27,190 d. $27,000
d
Suppose the economy is initially in long-run equilibrium. Then suppose there is a reduction in military spending. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the long run? a. Output and the price level are unchanged from their initial values. b. Prices rise; output is unchanged from its initial value. c. Output rises; prices are unchanged from the initial value. d. Prices fall; output is unchanged from its initial value. e. Output falls; prices are unchanged from the initial value.
d
The discount rate is a. the interest rate banks pay on the public's deposits. b. the interest rate the public pays when borrowing from banks. c. the interest rate the Fed pays on reserves. d. the interest rate the Fed charges on loans to banks. e. the interest rate paid by banks at the Term Auction Facility.
d
The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2 a. causes the economy to experience stagflation. b. causes the economy to experience an increase in the unemployment rate. c. could be caused by an outbreak of war in the Middle East. d. could be caused by a decrease in the expected price level.
d
The short-run equilibrium is defined by the given AD and SRAS curves. Which of the long-run aggregate-supply curves is consistent with the economy being in a recession? a. LRAS1 b. LRAS2 c. Both LRAS1 and LRAS3 d. LRAS3
d
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for a. the slope of long-run aggregate supply. b. shifts in the aggregate-demand curve. c. the slope of short-run aggregate supply. d. the slope of the aggregate-demand curve.
d
When the government's budget deficit increases the government is borrowing a. more and public savings increases. b. less and public savings increases. c. less and public savings falls. d. more and public savings falls.
d
Which of the following would shift the aggregate-demand curve to the left? a. A decline in the stock market b. An increase in taxes c. A decrease in government spending d. All of the above
d
You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______. a. medium of exchange, store of value, unit of account b. store of value, medium of exchange, unit of account c. medium of exchange, unit of account, store of value d. store of value, unit of account, medium of exchange
d