ECON-1202 Final Exam Study guide

D. All of the above.

In the​ figure, expected inflation is initially at​ 1.5%. When expected inflation increases to​ 4.5%, which of the following will​ occur? A. At the natural rate of​ unemployment, inflation is​ 4.5%. B. Unemployment reaches the natural rate of​ 5%. C. To have​ 3.5% unemployment​ rate, inflation would be​ 7.5%. D. All of the above.

C. It decreases.

In the​ figure, the exchange rate between the Japanese yen and the U.S. dollar increased because demand increased by more than supply. As a​ result, what happens to U.S. real​ GDP? A. It remains constant. B. It increases. C. It decreases. D. The two are unrelated.

D. Increase in real GDP or increase in the price level

In the​ figure, which of the following events is most likely to cause a shift in the money demand​ (MD) curve from MD1 to MD2 ​(Point A to Point ​C)​? A. Increase in real GDP or decrease in the price level B. Decrease in real GDP or decrease in the price level C. Decrease in real GDP or increase in the price level D. Increase in real GDP or increase in the price level

A. Contracts with workers keep wages sticky. D. Workers and firms might not have rational expectations.

Indicate the two main objections to the idea that the​ short-run Phillips curve is vertical. A. Contracts with workers keep wages sticky. B. Wages tend to adjust quickly. C. Any wage rising more quickly than the rate of inflation is actually falling. D. Workers and firms might not have rational expectations.

B. Lower interest rates C. Decrease in the U.S. exchange rate relative to other currencies E. Increased consumer optimism F. Lower taxes

Indicate which of the following would cause a shift in the aggregate demand curve from point A to point C. ​(Mark all that​ apply.) A. Inflation B. Lower interest rates C. Decrease in the U.S. exchange rate relative to other currencies D. Decrease in the price level E. Increased consumer optimism F. Lower taxes

B. real business cycle models.

Models that use​ factors, such as technology​ shocks, to explain fluctuations in real GDP instead of changes in the money supply are called A. real monetary models. B. real business cycle models. C. real technology models. D. monetary business cycle models.

True

Monetary policy has a greater impact in an open economy than it does in a closed economy. True False

D. All of the above

New growth theory suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge​ capital? A. Public education B. Patents C. Subsidies D. All of the above E. A and B only

C. It shifts up such that a given level of unemployment occurs at a higher price level.

When SRAS1 shifts to SRAS2​, the price level increases and the level of real GDP falls. What happens to the​ short-run Phillips curve when the​ short-run aggregate supply curve shifts​ (a supply​ shock)? A. It shifts down such that a given level of unemployment occurs at a higher price level. B. It shifts up such that a given level of unemployment occurs at a lower price level. C. It shifts up such that a given level of unemployment occurs at a higher price level. D. It shifts down such that a given level of unemployment occurs at a lower price level.

A. sells treasury securities increasing interest​ rates, leading to a stronger dollar that lowers net exports in an open economy.

When the Federal reserve uses contractionary monetary policy to reduce​ inflation, it A. sells treasury securities increasing interest​ rates, leading to a stronger dollar that lowers net exports in an open economy. B. buys treasury securities increasing interest​ rates, leading to a weaker dollar that increases net exports in an open economy. C. sells treasury securities decreasing interest​ rates, leading to a stronger dollar that lowers domestic investment in a closed economy. D. buys treasury securities decreasing interest​ rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.

A. Overnight reverse purchase agreement facility C. Term deposit facility E. Interest on reserves

Which of the following Fed monetary policy tools have only been used since the​ 2007-2009 financial​ crisis? ​(Mark all that​ apply.) A. Overnight reverse purchase agreement facility B. Open market operations C. Term deposit facility D. Reserve requirements. E. Interest on reserves

B. Reserve requirements D. Open market operations E. Discount policy

Which of the following are included in the​ Fed's traditional monetary policy​ toolkit? ​(Mark all that​ apply.) A. Interest on reserves B. Reserve requirements C. Term deposit facility D. Open market operations E. Discount policy

C. Changes in monetary policy.

Which of the following will not have an effect on the long−run Phillips curve​? A. Changes in unemployment insurance. B. Changes in demographics. C. Changes in monetary policy. D. Extended periods of high unemployment.

A. an increase in the demand for dollars

Which of the following would cause the dollar to​ appreciate? A. an increase in the demand for dollars B. an increase in the supply of dollars C. a decrease in the demand for dollars D. an increase in the demand for imports from foreign countries

D. Banks borrow and banks lend.

Who borrows money and who lends money at this​ "target interest​ rate"? A. Banks borrow and the Fed lends. B. The Fed borrows and banks lend. C. Banks borrow and investors lend. D. Banks borrow and banks lend.

D. a permanent​ trade-off between unemployment and inflation.

Economists who believed that the Phillips curve represented a structural relationshipLOADING... believed that the curve represented A. a cyclical​ trade-off between unemployment and inflation. B. no​ trade-off between unemployment and inflation. C. a temporary​ trade-off between unemployment and inflation. D. a permanent​ trade-off between unemployment and inflation.

B. incorrect. The supply of loanable funds is determined by household saving.

Evaluate the following​ statement: ​"Saving money is not lending. How can it​ be? When I save my​ money, I put it in a bank. I​ don't loan it out to someone​ else." The statement is A. correct. Depositing money in a bank is neither saving nor borrowing. B. incorrect. The supply of loanable funds is determined by household saving. C. correct. Depositing money in a bank is​ borrowing, not saving. D. incorrect. The supply of loanable funds is determined by​ firms' willingness to borrow.

False

Expansionary monetary policy lowers interest rates and forces a real appreciation of the dollar in international currency markets. True False

C. Point C

In the​ figure, at what point is the inflation rate​ stable? That​ is, at what point can we refer to the inflation rate as the nonaccelerating inflation rate of​ unemployment? A. Point A B. Point B C. Point C D. None of the above

B. d

look carefully at at the following list a. The coins in your pocket. b. The funds in your checking account. c. The funds in your savings account. d. Your Citibank Platinum MasterCard. Which of the things above is NOT included in the M1 definition of the money​ supply? ​(Mark all that​ apply.) A. a B. d d Your answer is correct. C. b D. c

D. principle of a double coincidence of wants

A baseball fan with a Mike Trout baseball card wants to trade it for a Manny Machado baseball​ card, but everyone the fan knows who has a Machado card​ doesn't want a Trout card. Economists characterize this problem as a failure of the A. market clearing mechanism. B. irrational exuberance doctrine. C. theory of comparative advantage. D. principle of a double coincidence of wants

A. ​increase; increase

A government budget surplus from reduced government spending​ (no change in net​ taxes) will​ ________ the level of investment in the economy and​ ________ the level of total saving​ (private plus​ public) in the economy. A. ​increase; increase B. ​decrease; increase C. ​increase; decrease D. ​decrease; decrease

B. a sudden increase in the price of an important natural​ resource, resulting in a leftward shift of the SRAS curve.

A supply shock is A. an increase in the rate of inflation as a result of expansionary fiscal​ policy, resulting in a leftward shift of the SRAS curve. B. a sudden increase in the price of an important natural​ resource, resulting in a leftward shift of the SRAS curve. C. an increase in potential GDP caused by a government expenditure​ multiplier, resulting in a leftward shift of the AD curve. D. an increase in both the inflation and the unemployment rates that may sometimes result in a rightward shift of the SRAS curve. Stagflation is a combination of inflation and recession. Stagflation occurs when a supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP.

D. increase the demand for the currency.

According to a 2013 article on Top Forex​ News: ​"[India's] central bank raised interest rates yesterday in order ... to support the weakening currency​ (the Indian​ rupee)." ​Source: "RBI Raises​ Rates, Rupee​ Stronger," topforexnews.com, July​ 16, 2013. Higher interest rates strengthen a currency because they A. increase the supply of the currency. B. decrease the supply of the currency. C. decrease the demand for the currency. D. increase the demand for the currency.

C. vertical

According to the​ "rational expectations" school of thought in​ macroeconomics, the short−run Phillips curve is​ ________ in face of anticipated changes in monetary policy. A. horizontal B. negatively sloped C. vertical D. positively sloped

A. cause the dollar to depreciate increasing net exports

An expansionary monetary policy in the United States should A. cause the dollar to depreciate increasing net exports B. cause the dollar to appreciate increasing net exports C. decrease the dollar price of imports. D. decrease net exports.

A. less than the increase in government spending.

As a result of crowding out in the short​ run, the effect on real GDP of an increase in government spending is often A. less than the increase in government spending. B. more than the increase in government spending. C. equal to the increase in government spending. D. unrelated to the increase in government spending.

B. The federal funds rate

As the figure to the right​ indicates, the Fed can affect both the money supply and interest rates.​ However, in recent​ years, the Fed targets interest rates in monetary policy more often than it does the money supply. Which interest rate does the Fed​ target? A. The​ long-term nominal interest rate B. The federal funds rate C. The discount rate D. The​ short-term real interest rate

B. expansionary fiscal policy and contractionary monetary policy.

Both interest rate and exchange rate will be increased by A. expansionary monetary policy and contractionary fiscal policy. B. expansionary fiscal policy and contractionary monetary policy. C. expansionary fiscal policy and contractionary fiscal policy. D. expansionary monetary policy and contractionary monetary policy.

A. Business investment projects B. The value of the dollar C. Consumption of durable goods

Changes in interest rates affect aggregate demand Which of the following is affected by changes in interest rates​ and, as a​ result, impacts aggregate​ demand? ​(Mark all that​ apply.) A. Business investment projects B. The value of the dollar C. Consumption of durable goods D. Government spending

D. All of the above.

Consider the figure to the right. Why does the​ short-run aggregate supply curve​ (SRAS) slope​ upward? A. Firms and workers fail to predict changes in the price level. B. Contracts keep wages​ "sticky". C. Prices of final goods rise more quickly than the prices of inputs. D. All of the above. E. A and B only.

C. It increased by less than indicated by a multiplier with a constant price level.

Consider the figure. An increase in government spending shifted the aggregate demand curve from AD1 to AD2. As a​ result, both price level and real GDP increased. What can be​ said, however, about the increase in real​ GDP? A. It increased by more than indicated by a multiplier with a constant price level. B. It increased by the same amount as indicated by a multiplier with a constant price level. C. It increased by less than indicated by a multiplier with a constant price level. D. None of the above.

C. No. The Fed cannot target both the money supply and the interest rate simultaneously.

Consider the figure. Can the Fed achieve a​ $900 billion money supply ​(MS​) AND a​ 5% interest rate​ (point C​)? A. No. The Fed does not control the money supply. B. Yes. Controlling the money supply sets the interest rate. C. No. The Fed cannot target both the money supply and the interest rate simultaneously. D. Yes. The Fed can target the money supply or the interest rate.

E. Both A and B

Consider the figures below and determine which is the best description of what causes the shift from AD1 to AD2. A. Example A shows a contractionary monetary policy. The price level and real GDP both fall. B. Example B shows an expansionary monetary policy. The price level and real GDP both rise. C. Example A shows an expansionary monetary policy. The price level rises and real GDP falls. D. Both examples show expansionary monetary policy. The price level and real GDP both rise. E. Both A and B

A. Example​ (A): Expansionary fiscal policy. Example​ (B): Contractionary fiscal policy.

Consider the figures below. Determine which combination of fiscal policies shifted AD1 to AD2 in each figure and returned the economy to​ long-run macroeconomic equilibrium. A. Example​ (A): Expansionary fiscal policy. Example​ (B): Contractionary fiscal policy. B. Example​ (A): Contractionary fiscal policy. Example​ (B): Contractionary fiscal policy. C. Example​ (A): Contractionary fiscal policy. Example​ (B): Expansionary fiscal policy. D. Example​ (A): Expansionary fiscal policy. Example​ (B): Expansionary fiscal policy.

A. Example​ (A): Increase government spending Example​ (B): Increase taxes

Consider the figures to the right. Which of the following combinations of specific fiscal policy will return the economy to​ long-run macroeconomic equilibrium​ (point C)? That​ is, what policy will move aggregate demand from AD2 to AD2, (policy) in the second​ period? A. Example​ (A): Increase government spending Example​ (B): Increase taxes B. Example​ (A): Decrease government spending Example​ (B): Decrease taxes C. Example​ (A): Increase taxes Example​ (B): Increase government spending D. Example​ (A): Decrease government spending Example​ (B): Decrease government spending

A. Wealth effect B. Interest rate effect

Consider the​ downward-sloping aggregate demand​ (AD) curve to the right. Which of the following results in a movement from point A to point B​ (a movement up along the AD​ curve) or from point A to point C​ (a movement down along the AD​ curve)? ​(Mark all that​ apply.) A. Wealth effect B. Interest rate effect C. Multiplier effect D. Inflation effect

part 1: A. Short run effects of contractionary monetary policy. part 2: C. Long run effects of contractionary monetary policy.

Consider the​ long-run Phillips curve and the​ short-run Phillips curve in the graph at right. part 1:A movement from point A to point B could be caused by A. Short run effects of contractionary monetary policy. B. Short run effects of lower interest rates. C. Short run effects of expansionary fiscal policy. D. Short run effects of expansionary monetary policy. part2:A movement from point A to point C could be caused by A. Long run effects of expansionary monetary policy. B. Short run effects of expansionary fiscal policy. C. Long run effects of contractionary monetary policy. D. Short run effects of contractionary fiscal policy.

A. there is a movement from A to B. A. there is a movement from A to C.

Consider the​ per-worker production function graph. If there is an increase in capital per hour​ worked, holding technology​ constant, then A. there is a movement from A to B. B. there is a movement from D to C. C. there is a movement from A to C. D. there is a movement from B to D. If there is an increase in​ technology, holding constant the quantity of capital per hour​ worked, then A. there is a movement from A to C. B. there is a movement from A to B. C. there is a movement from C to D. D. there is a movement from D to B.

part 1D. when U.S. firms and households want foreign currencies so that they can buy goods and services produced in those foreign countries. part 2 D. if the interest rate and other conditions in the foreign countries are lucrative for U.S. firms and households to invest dollars.

Foreign households and foreign firms demand U.S. dollars in exchange for foreign currency for all of the​ following, except Part 1 A. when foreign firms and households want to invest in the United States either through foreign direct investment or through foreign portfolio investment. B. when currency traders want dollars because they expect that the value of the dollar in the future to be greater than its current value. C. when foreign firms and households want dollars so that they can buy goods and services produced in the United States. D. when U.S. firms and households want foreign currencies so that they can buy goods and services produced in those foreign countries. part 2 U.S.households and U.S. firms supply U.S. dollars in exchange for foreign currency A. when foreign firms and households want dollars so that they can buy goods and services produced in the United States. B. when U.S. consumers and firms want to buy goods and services that are not produced in a foreign country. C. if U.S. currency speculators become convinced that the future value of the foreign currency will be lower relative to the dollar. D. if the interest rate and other conditions in the foreign countries are lucrative for U.S. firms and households to invest dollars.

part 1 C. automatic stabilizers. part 2A. The president and Congress reduce tax rates to increase the amount of investment spending. B. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. E. The government provides stimulus funds to repair roads and bridges to increase spending in the economy.

Government spending and taxes that increase or decrease without any actions taken by the government are referred to as A. discretionary fiscal policy. B. government expenditures. C. automatic stabilizers. D. monetary policy. Part 2 Which of the following are examples of discretionary fiscal​ policy? ​(Check all that​ apply.) A. The president and Congress reduce tax rates to increase the amount of investment spending. B. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. C. Additional taxes are collected as the economy experiences an increase in income resulting from economic growth. D. A state government borrows money to finance the building of a new bridge. E. The government provides stimulus funds to repair roads and bridges to increase spending in the economy. F. The government spends more on the military to provide assistance to England after a natural disaster.

B. Changes in the price level do not affect the level of GDP in the long run.

How does a decrease in the price level affect the quantity of real GDP supplied in the long​ run? A. In the long​ run, a decrease in the price level decreases​ inflation, which will decrease real GDP. B. Changes in the price level do not affect the level of GDP in the long run. C. In the long​ run, a decrease in the price level increases​ inflation, which will decrease real GDP. D. In the long​ run, a decrease in the price level will increase real GDP.

B. The​ Fed's policies will be inflationary.

If the Federal Reserve attempts to continue reducing unemployment by manipulating monetary​ policy, which of the following would you expect to​ see? A. The Fed will reduce the natural rate of unemployment. B. The​ Fed's policies will be inflationary. C. The rate of inflation will fall as the Fed tries to reduce the unemployment rate. D. The​ Fed's policies will be deflationary.

A. Procyclical policy

If the Federal Reserve is late to recognize a recession and implements an expansionary policy too​ late, the result could be an increase in inflation during the beginning of the next phase. Even though the goal had been to reduce the severity of the​ recession, the poor timing caused another​ problem: inflation. This is an example of what type of​ policy? A. Procyclical policy B. Tight policy C. Countercyclical policy D. Fiscal policy

A. the dollar has depreciated.

If the exchange rate changes from​ $2.00 = £1 to​ $2.01 = £​1, then A. the dollar has depreciated. B. the dollar has appreciated. C. the British pound has depreciated. D. the British pound has stayed constant in value.

B. the Phillips curve is vertical.

If, in the long run, real GDP returns to its potential level, then in the long run, A. the Phillips curve is upward-sloping. B. the Phillips curve is vertical. C. the Phillips curve represents a structural relationship. D. the Phillips curve disappears

D. Both A and B above are true.

In January​ 2021, the​ working-age population of the United States was 260.9 million. The​ working-age population is divided into those in the labor force​ (160.2 million) and those not in the labor force​ (100.7 million). The labor force is divided into the employed​ (150.0 million) and the unemployed​ (10.1 million). Those not in the labor force are divided into those not available for work​ (93.6 million) and those available for work​ (7.1 million).​ Finally, those available for work but not in the labor force are divided into discouraged workers​ (0.6 million) and those currently not working for other reasons​ (6.5 million). Use this data to help determine which one of the following statements is​ true: A. The unemployment rate is 10.1 million/160.2 million×100=6.3%. B. The labor force participation rate is 160.2 million/260.9 million×100=61.4%. C. The labor force is 260.9 million. D. Both A and B above are true.

B. ​Households, firms, and banks.

In addition to the Federal Reserve​ Bank, what other economic actors influence the money​ supply? A. The U.S. President and Vice President. B. ​Households, firms, and banks. C. The U.S. Mint and the U.S. Treasury. D. The U.S. Senate and the U.S. House of Representatives.

D. All of the above.

In the figure to the​ right, when the money supply increased from MS1 to MS2​, the equilibrium interest rate fell from​ 4% to​ 3%. Why? A. Increased demand for Treasury securities drives down their interest rate. B. Increased demand for Treasury securities drives up their prices. C. ​Initially, firms hold more money than they want relative to other financial assets. D. All of the above.

A. Removing supply bottlenecks is the key to reducing inflation in Terbia.

Inflation in the developing country of Terbia has been rising over the last few years and is currently at a very high level. Two stock market​ analysts, Stanley Durro and Michelle​ Thompson, are discussing the possible causes of inflation. Michelle thinks that the real reason why prices are rising is because​ Terbia's economy is expanding. Stanley disagrees. He argues that the inflation is not demand​ driven; on the​ contrary, too much money in the economy is increasing the price level. Which of the following statements are Michelle and Stanley most likely to disagree​ with? A. Removing supply bottlenecks is the key to reducing inflation in Terbia. B. In a developing​ economy, when aggregate demand is​ increasing, inflation is likely to occur. C. ​Terbia's growth prospects could be adversely affected by the high level of inflation. D. Purchasing power of​ Terbia's currency has been declining over the last few years. E. An increase in interest rates is likely to reduce consumption demand and therefore inflation.

B. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the​ real-world multiplier.

In​ 2008, the required reserve ratio for a​ bank's first​ $9.3 million in checking account deposits was zero. It was 3 percent on deposits between​ $9.3 million and​ $43.9 million, and 10 percent on deposits above​ $43.9 million. In most​ cases, and for​ simplicity, we assume that the required reserve ratio is 10 percent on all deposits.​ Therefore, the simple deposit multiplier is 10. Is the​ real-world deposit multiplier greater​ than, less​ than, or equal to the simple deposit​ multiplier? A. Greater. Inflation plays a large role in the increase in checkable deposits. B. Less. The simple deposit multiplier is a model with assumptions that keep it higher than the​ real-world multiplier. C. Equal. There is no difference between the two. D. None of the above. They are very different concepts.

B. Real​ GDP, because it is a better indicator of changes in a​ country's production of goods and services.

In​ 2019, before the arrival of the​ Covid-19 pandemic in​ Mexico, according to an article in the Wall Street Journal​, ​"The central bank​ [of Mexico] expects gross domestic product will expand between​ 0.8% and​ 1.8% this​ year." ​Source: Anthony​ Harrup, "Bank of Mexico Cuts 2019 Economic Growth​ Estimate," Wall Street Journal​, May​ 29, 2019. Is it likely that the forecast the newspaper cited is of nominal GDP or of real​ GDP? Briefly explain. A. Real​ GDP, because it is a better indicator of changes in how much an economy consumes. B. Real​ GDP, because it is a better indicator of changes in a​ country's production of goods and services.

D. B to A.

Italians cut back on smoking and cut their demand for American cigarettes in half. Assuming all else remains​ constant, this would be represented as a movement from A. D to C. B. B to C. C. A to D. D. B to A.

B. more important than increases in physical capital in explaining​ long-run growth.

One of the lessons from the economic growth model presented in this chapter is that technological change is A. equally as important as increases in physical capital in explaining​ long-run growth. B. more important than increases in physical capital in explaining​ long-run growth. C. only possible in countries that have already attained a high level of real GDP per capita. D. less important than increases in physical capital in explaining​ long-run growth.

E. All of the above are correct.

Part 1 In an opinion column in the Wall Street Journal​, economist Alan Blinder of Princeton University​ asks, "Is the Phillips curve​ dead?" ​Source: Alan S.​ Blinder, "Is the Phillips Curve​ Dead? And Other Questions for the​ Fed," Wall Street Journal​, May​ 3, 2018. a. Why have some economists and policymakers in recent years wondered whether the​ short-run Phillips curve​ trade-off between unemployment and inflation might no longer​ hold? A. Inflation expectations have been well​ anchored, and this stabilization of expectations has weakened the Phillips curve relationship. B. Recent data for the unemployment and inflation rates​ don't show a pattern consistent with the Phillips curve relationship. C. The effects of globalization indicate that the inflation rate is less responsive to the unemployment rate than was true in earlier decades. D. Only A and B are correct. E. All of the above are correct. Part 2 b. Briefly summarize how economists explain what has happened to the​ short-run trade-off between unemployment and inflation. Some economists argue that the employment-population ratio has been trending lower over the past 20 years. As a​ result, there may be more slack in the labor market for a given unemployment rate than was true in earlier years. If the employment-population ratio returns to previous​ levels, the​ short-run relationship between inflation and unemployment may begin to look more like a typical Phillips curve.

A. back to the​ 5% natural rate of unemployment.

Part 1 Suppose a Phillips curve graph illustrates a situation in which the current inflation rate and the expected inflation rate are both 4 percent. The current unemployment rate and the natural rate of unemployment are both 5 percent. Show the effect on the economy of a severe​ (adverse) supply shock. The adverse supply shock will shift the short-run Phillips curve up. As a result of the supply​ shock, the rate of inflation has increased. If the Federal Reserve keeps monetary policy​ unchanged, eventually the unemployment rate will​ be: A. back to the​ 5% natural rate of unemployment. B. lower than the​ 5% natural rate of unemployment. C. higher than the​ 5% natural rate of unemployment. D. zero.

part 1 A. The​ Fed's traditional approach was to enact monetary policies designed to keep the economy at the natural rate of unemployment. part 2 A. The​ Fed's approach of targeting unemployment rates​ changed, as it no longer viewed tight labor markets as an automatic signal of higher inflation.

Part 1 What role did the natural rate of unemployment traditionally play in the​ Fed's approach to monetary​ policy? A. The​ Fed's traditional approach was to enact monetary policies designed to keep the economy at the natural rate of unemployment. B. The​ Fed's traditional approach was to enact monetary policies designed to keep unemployment below the natural rate of unemployment. C. The​ Fed's traditional approach was to enact monetary policies designed to keep inflation​ low, and it did not consider the natural rate of unemployment. D. The​ Fed's traditional approach was to enact monetary policies designed to keep the money supply​ constant, and it did not consider the natural rate of unemployment. Part 2 How did the​ Fed's new monetary policy strategy announced in 2020 affect that​ role? A. The​ Fed's approach of targeting unemployment rates​ changed, as it no longer viewed tight labor markets as an automatic signal of higher inflation. B. The​ Fed's approach of targeting unemployment rates​ changed, as it now viewed tight labor markets as an automatic signal of higher inflation. C. The​ Fed's approach of targeting unemployment rates​ changed, as it now viewed high unemployment as an automatic signal of low inflation. D. The​ Fed's approach of targeting unemployment rates​ changed, as it no longer viewed tight labor markets as an automatic signal of low inflation.

C. the current account plus the financial account.

The balance of payments is equal to A. the current account divided by the financial account. B. the current account times the financial account. C. the current account plus the financial account. D. the current account minus the financial account.

B. Demand would increase and the economy moves from A to B.

Refer to the diagram to the right. Suppose that the U.S. government deficit causes interest rates in the United States to rise relative to those in the European Union. Assuming all else remains​ constant, how would this be​ represented? A. Demand would decrease and the economy moves from B to A. B. Demand would increase and the economy moves from A to B. C. Supply would​ increase, demand would​ decrease, and the economy moves from C to B to A. D. Supply would​ decrease, demand would​ decrease, and the economy moves from B to C to D.

B. an increase in the proportion of income after net taxes used for consumption.

Refer to the diagram to the right. Which of the following is consistent with the​ diagram? A. an increase in household income B. an increase in the proportion of income after net taxes used for consumption. C. an increase in transfer payments to households D. an increase in tax revenues collected by the government

C. D to A.

Refer to the figure. The appreciation of the euro is represented as a movement from A. A to B. B. D to C. C. D to A. D. B to C.

A. Poorer countries should grow more quickly and will be at point A.

Refer to the graph. According to the economic concept of​ catch-up, which of the following is​ CORRECT? A. Poorer countries should grow more quickly and will be at point A. B. Richer countries should grow more slowly and will be at point A. C. Richer countries should grow more quickly and will be at point B. D. Poorer countries should grow more slowly and will be at point B.

B. by less than​ $500

Suppose that an increase in capital per hour worked from​ $15,000 to​ $20,000 increases real GDP per hour worked by​ $500. If capital per hour worked increases further to​ $25,000, by how much would you expect real GDP per hour worked to increase if there are diminishing​ returns? A. by more than​ $5,000 but less than​ $20,000 B. by less than​ $500 C. by more than​ $500 but less than​ $5,000 D. by exactly​ $500

A. ​$100 million

Suppose that the Federal Reserve makes a​ $10 million discount loan to First National Bank​ (FNB) by increasing​ FNB's account at the Fed. Complete the following​ T-account to show the impact of this transaction. Assume that before receiving the discount​ loan, FNB had no excess reservesLOADING.... The maximum amount of the​ $10 million that FNB can issue in loans is $10 million. Assume that banks want to keep 10 percent of their deposits as reserves. The maximum total increase in the money supply that can result from the​ Fed's discount loan is A. ​$100 million. B. ​$90 million. C. ​$9 million. D. None of the above.

C. ​AD, SRAS, and LRAS must increase by the same amount.

Suppose that the economy grows from 2023 to 2024 without inflation. Which of the following graphs correctly shows this​ situation? ​(Note: 2024 positions are shown with green dashed​ lines.) part 2 To have growth without​ inflation, which of the following must be​ true? A. Potential GDP must remain constant. B. AD must decrease to reduce inflationary pressure. C. ​AD, SRAS, and LRAS must increase by the same amount. D. There must be no change in SRAS. E. There must be no change in AD.

B. Open market purchase of government securities.

Suppose the economy is in equilibrium in the first period at point A. In the second​ period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium​ (point C) in the second​ period? A. Decrease taxes. B. Open market purchase of government securities. C. Increase the reserve requirement. D. Raise the discount rate.

C. Open market purchase of government securities

Suppose the economy is in equilibrium in the first period at point A. In the second​ period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium​ (point C) in the second​ period? ​ (What policy will increase the price level and increase actual real​ GDP?) A. Decrease taxes B. Increase the reserve requirement C. Open market purchase of government securities D. Increase the discount rate

C. Increase government spending

Suppose the economy is in equilibrium in the first period at point​ (A). In the second​ period, the economy reaches point​ (B). What policy would the federal government likely pursue in order to move AD2 to AD2, policy and reach equilibrium​ (point C) in the second​ period? A. Open market purchase of government securities B. Increase taxes C. Increase government spending D. All of the above

D. All of the above.

The​ (FOMC) Federal Open Market Committee A. determines the target federal funds rate and the direction of open market operation policies. B. includes the Board of Governors and the presidents of the 12 Federal Reserve regional banks​ (though not all are voting​ members). C. makes decisions that are voted on by all 7 members of the Board of Governors but only 5 of the 12 regional bank presidents. D. All of the above. E. A and B only.

C. an increase in interest rates in Mexico and an increase in the value of the peso relative to other currencies.

Suppose the government of Mexico runs a budget deficit. This will result​ in: A. a decrease in interest rates in Mexico and a decrease in the value of the peso relative to other currencies. B. a decrease in interest rates in Mexico and an increase in the value of the peso relative to other currencies. C. an increase in interest rates in Mexico and an increase in the value of the peso relative to other currencies. D. an increase in interest rates in Mexico and a decrease in the value of the peso relative to other currencies.

D. ​$400 billion increase

Suppose the reserve requirement is 15​%. What is the effect on total checkable deposits in the economy if bank reserves increase by ​$60 ​billion? A. ​$60 billion increase B. ​$900 billion increase C. ​$4 billion increase D. ​$400 billion increase

A. Country​ B's living standards will increase much more rapidly in the long run.

Suppose two​ countries, Country A and Country​ B, have a similar real GDP per capita. Country A has an average economic growth rate of​ 2% and Country B has an average economic growth rate of​ 3.3%. In the long​ run, what can we predict about living standards in the two​ countries? A. Country​ B's living standards will increase much more rapidly in the long run. B. Country​ A's living standards will increase much more rapidly in the long run. C. Growth rates are not related to living standards. D. The countries will experience similar increases in their living standards.

A. foreign direct investment.

Technological change is more important to​ long-run economic growth than changes in capital. The easiest way for firms to gain access to new technology is through A. foreign direct investment. B. savings and investment. C. health and education. D. wars and civil strife.

C. it carries out the policy directives of the FOMC.

The Federal Reserve Bank of New York is always a voting member of the FOMC because A. it is the largest of the Federal Reserve districts. B. it always has an employee as a member of the Board of Governors. C. it carries out the policy directives of the FOMC. D. it has the most political affiliations of the Federal Reserve districts.

D. net​ exports, net investment​ income, and net transfers.

The current account records A. only net exports. B. net capital​ flows, net investment​ income, and net transfers. C. only net capital flows. D. net​ exports, net investment​ income, and net transfers. E. net capital flows and net investment income.

C. Quantity of capital per hour worked

The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic​ growth, the economic growth model focuses on the causes of increases in​ long-run labor productivity. What are the key factors that determine labor​ productivity? ​(Mark all that​ apply.) A. Efficiency wages B. Trade C. Quantity of capital per hour worked D. Technological change

B. only net capital flows.

The financial account records A. net capital​ flows, net investment​ income, and net transfers. B. only net capital flows. C. net capital flows and net investment income. D. only net exports. E. net​ exports, net investment​ income, and net transfers

C. money supply growing at a faster rate than real GDP.

The quantity theory of money predicts​ that, in the long​ run, inflation results from the A. velocity of money growing at a faster rate than real GDP. B. money supply growing at a lower rate than real GDP. C. money supply growing at a faster rate than real GDP. D. velocity of money growing at a lower rate than real GDP.

B. in the long run.

There is a strong link between changes in the money supply and inflation A. in neither the short run nor the long run. B. in the long run. C. in the short run. D. in both the short run and the long run.

A. Private saving equals ​$2 trillion and public saving equals ​$2 trillion.

Using the information​ above, what is the value of private saving and public​ saving? A. Private saving equals ​$2 trillion and public saving equals ​$2 trillion. B. Private saving equals ​$10 trillion and public saving equals ​$4 trillion. C. Private saving equals ​$4 trillion and public saving equals ​$10 trillion. D. Private saving equals ​$2 trillion and public saving equals ​$1 trillion.

B. 11 percent.

Using the quantity​ equation, if the velocity of money grows at 5​ percent, the money supply grows at 10​ percent, and real GDP grows at 4​ percent, then the inflation rate will be A. 6 percent. B. 11 percent. C. 19 percent. D. 15 percent.

B. The Fed will pursue an expansionary monetary policy.

What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of​ long-run macroeconomic​ equilibrium? A. The Fed will pursue a contractionary fiscal policy. B. The Fed will pursue an expansionary monetary policy. C. The Fed will pursue a contractionary monetary policy. D. The Fed will pursue an expansionary fiscal policy. If the​ Fed's policy is​ successful, what is the effect on the following​ indicators? Actual real​ GDP: increases Potential real​ GDP: does not change Price​ level: increases ​Unemployment: decreases

B. Provide savings incentives

What can​ low-income countries do in order to increase the amount of loanable funds available to firms for investment projects such as new factories or improved​ technology? A. Increase the interest rate on borrowing B. Provide savings incentives C. Print more money D. All of the above

B. A movement from point A to point C.

What effect does expansionary monetary policy have on equilibrium if consumers have rational​ expectations? A. A movement from point B to point C. B. A movement from point A to point C. Your answer is correct. C. A movement from point A to point B. D. A movement from point C to point A.

B. The discount rate is the rate at which the Fed lends to banks.

What is the discount​ rate? A. The discount rate is the rate at which banks lend to their best customers. B. The discount rate is the rate at which the Fed lends to banks. C. The discount rate is the rate at which auto loans and mortgages are made. D. The discount rate is the rate at which banks lend to each other.

D. The federal funds rate.

What is the name of the​ "target interest​ rate" mentioned in this​ article? A. The prime rate. B. The mortgage rate. C. The discount rate. D. The federal funds rate.

C. definitely rose or​ fell, depending on the population growth rate.

c. Given your answers to parts​ (a) and​ (b), and assuming that the central​ bank's forecast is​ accurate, is it likely that living standards in Mexico rose or fell in​ 2019? Briefly explain. Based on parts​ (a) and​ (b) and assuming the Mexican central​ bank's forecast is​ accurate, living standards in Mexico A. definitely​ fell, since Mexico suffers from government corruption. B. definitely​ rose, since GDP was expected to grow between​ 0.8% and​ 1.8% during the year. C. definitely rose or​ fell, depending on the population growth rate. D. remained the​ same, because there is no correlation between GDP growth rates and living standards.