ECON 202 FINAL EXAM 3 Attempt 3

The Great Recession lasted from _________ to _________. a. December 2007; June 2009 b. May 1937; June 1938 c. July 1991; June 1992 d. March 2001; November 2001 e. August 1929; March 1933

a. December 2007; June 2009

If large emerging economies continue to grow rapidly, we can expect U.S. aggregate: a. demand and supply to be unaffected. b. demand to increase. c. demand to decrease. d. supply to decrease. e. supply to increase.

b. demand to increase.

Progressive tax rates, taxes on corporate profits, unemployment compensation, and welfare programs are all examples of: a. automatic balancers. b. monetary policies. c. automatic stabilizers. d. pro-cyclical fiscal policies. e. discretionary fiscal policies.

c. automatic stabilizers.

Injecting new money into the economy eventually causes: a. deflation. b. stagflation. c. inflation. d. unemployment. e. a recession.

c. inflation.

Use the following example to answer the questions that follow: Imagine that you deposit $25,000 in currency (which you had been storing in your closet), into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%. As a result of this deposit, by how much will the bank's reserves increase? a. $31,250 b. $100,000 c. $0 d. $6,250 e. $25,000

e. $25,000

____________ is/are considered a liability on a bank's balance sheet. a. Deposits b. Loans c. U.S. Treasury securities d. Property owned by the bank e. Cash in the vault

a. Deposits

If I were to give cash to my father for his birthday and he deposited the cash into his savings account, which of the following changes would take place? a. M2 would be unchanged. b. M1 would decrease; M2 would increase. c. M1 and M2 would increase. d. M1 and M2 would remain unchanged. e. M1 would increase; M2 would decrease.

a. M2 would be unchanged.

Which of the following explains why resource prices are often the slowest prices to adjust? a. Resource prices are often set by lengthy contracts. b. Resource prices are not reported in the consumer price index (CPI). c. Resource prices are not affected by inflation. d. Resource prices are often set by governments. e. Resource prices are all tied to inflation.

a. Resource prices are often set by lengthy contracts.

When the Fed sells bonds to financial institutions, new money moves directly: a. out of the loanable funds market. b. into the loanable funds market. c. into short-run aggregate supply. d. into the hands of consumers. e. out of the hands of consumers.

a. out of the loanable funds market.

Contractionary monetary policy makes the aggregate demand curve: a. shift to the left. b. become flatter. c. remain static. d. become steeper. e. shift to the right.

a. shift to the left.

All else being equal, people generally prefer __________ in their financial affairs. a. smoothness and predictability b. government intervention c. ups and downs d. uncertainty e. volatility

a. smoothness and predictability

(Final Exam 3 Attempt 3) Refer to the following figure to answer the questions that follow. Based on the figure, an increase in _________ could cause the economy to move from point A to point D. a. the price of oil b. government spending c. taxes d. imports e. labor productivity

a. the price of oil

The value of one's accumulated assets is best defined as: a. wealth. b. net worth. c. income. d. money. e. saving.

a. wealth.

When an economy has a more stable and well-developed financial system, it is reasonable to expect: a. no change in the long-run aggregate supply curve. b. a rightward shift of the long-run aggregate supply curve. c. a downward movement along the long-run aggregate supply curve. d. an upward movement along the long-run aggregate supply curve. e. a leftward shift of the long-run aggregate supply curve.

b. a rightward shift of the long-run aggregate supply curve.

A bank can make loans when: a. excess reserves are less than zero. b. excess reserves are greater than zero. c. excess reserves are equal to zero. d. required reserves are greater than excess reserves. e. required reserves are less than excess reserves.

b. excess reserves are greater than zero.

One difference between the Great Recession and the Great Depression is that: a. very few banks failed during the Great Depression, but many failed during the Great Recession. b. the U.S. government reduced taxes during the Great Recession but raised them during the Great Depression. c. the U.S. government reduced the money supply during the Great Recession but raised it during the Great Depression. d. unemployment was far higher during the Great Recession. e. there was significant inflation during the Great Depression and not during the Great Recession.

b. the U.S. government reduced taxes during the Great Recession but raised them during the Great Depression.

___________ can eliminate recognition lags and implementation lags and thereby alleviate some concerns of destabilizing fiscal policy. a. Discretionary fiscal policy b. Expansions c. Automatic stabilizers d. Monetary policy e. Recession

c. Automatic stabilizers

Which of the following explains expansionary monetary policy in the long run? a. Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well, causing the economy to expand. b. Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product (GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred. c. Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred. d. Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred. e. Expansionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract.

c. Expansionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium where no real changes to GDP have occurred.

Depending on how fiscal policy is implemented, it can affect: a. only aggregate supply. b. only aggregate demand. c. both aggregate demand and aggregate supply. d. neither aggregate demand nor aggregate supply. e. monetary policy.

c. both aggregate demand and aggregate supply.

Suppose a prolonged war in a country destroys 30% of the capital stock. In the long run, the price level will _________ as _________. a. increase; short-run aggregate supply decreases b. decrease; both long-run and short-run aggregate supply decrease c. increase; both long-run and short-run aggregate supply decrease d. decrease; long-run aggregate supply decreases e. remain unchanged; long-run aggregate supply decreases

c. increase; both long-run and short-run aggregate supply decrease

Printing more paper money doesn't affect the economy's long-run productivity or its ability to produce; these outcomes are determined by: a. institutions only. b. technology only. c. resources, technology, and institutions. d. resources only. e. resources and technology only.

c. resources, technology, and institutions.

A supply shock causes a shift in: a. aggregate demand. b. aggregate demand and short-run aggregate supply. c. short-run aggregate supply. d. short-run and long-run aggregate supply. e. long-run aggregate supply.

c. short-run aggregate supply.

When aggregate demand is high enough to drive unemployment below the natural rate: a. there is upward pressure on the price level and the government may want to conduct expansionary fiscal policy. b. the economy is slipping into a recession and the government may want to conduct expansionary fiscal policy. c. there is upward pressure on the price level and the government may want to conduct contractionary fiscal policy. d. there is downward pressure on the price level and the government may want to conduct contractionary fiscal policy. e. there is downward pressure on the price level and the government may want to conduct expansionary fiscal policy.

c. there is upward pressure on the price level and the government may want to conduct contractionary fiscal policy.

The purchase of existing U.S. Treasury securities by the Federal Reserve: a. will increase the amount of U.S. Treasury securities held at banks. b. will decrease the money supply. c. will increase the money supply. d. will have no effect on the money supply. e. will decrease the reserves at banks.

c. will increase the money supply.

(Final Exam 3 Attempt 3) Refer to the following figure to answer the questions that follow. According to the figure, contractionary monetary policy will cause an economy that is initially at full-employment output to go from equilibrium __________ to equilibrium __________ in the short run. a. A; C b. C; B c. A; D d. C; D e. A; B

d. C; D

(Final Exam 3 Attempt 3) Refer to the following figure to answer the questions that follow. Based on the figure, a negative supply shock is best represented by a movement from: a. C to D. b. A to D. c. C to B. d. D to A. e. A to B.

d. D to A.

The first of two significant fiscal policy initiatives enacted by the government during the Great Recession, signed in February 2008 by President George W. Bush, was the: a. American Stimulus Act of 2008. b. Economic Tax Rebate Act of 2008. c. Economic Recovery and Reinvestment Act of 2008. d. Economic Stimulus Act of 2008. e. American Recovery and Reinvestment Act of 2008.

d. Economic Stimulus Act of 2008.

What will economists today likely state should have been done to limit the severity of the Great Depression? a. The Fed should have done more to decrease the inflation at the onset. b. The Fed should have done more to decrease the money supply at the onset. c. The Fed should have reacted more quickly to decrease the money supply. d. The Fed should have done more to offset the decline in the money supply at the onset. e. The Fed should have waited longer before trying to raise the money supply.

d. The Fed should have done more to offset the decline in the money supply at the onset.

Supply-side fiscal policy will lead to: a. an outward rotation of the long-run aggregate supply curve. b. an inward rotation of the long-run aggregate supply curve. c. a leftward shift of the long-run aggregate supply curve. d. a rightward shift of the long-run aggregate supply curve. e. a rightward shift of the aggregate demand curve.

d. a rightward shift of the long-run aggregate supply curve.

(Final Exam 3 Attempt 3) Use the following graph to answer the questions that follow. This graph depicts an economy where aggregate demand has decreased, with no change in either short-run aggregate supply (SRAS) or long-run aggregate supply (LRAS). As a result of aggregate demand decreasing, we can see that the price level ________ and real gross domestic product (GDP) _________. a. remained unchanged; increased b. decreased; remained unchanged c. increased; decreased d. decreased; decreased e. increased; increased

d. decreased; decreased

When an economy experiences economic growth: a. the aggregate demand curve shifts to the left. b. the long-run aggregate supply curve is unaffected. c. the short-run aggregate supply curve shifts to the left. d. the long-run aggregate supply curve shifts to the right. e. the long-run aggregate supply curve shifts to the left.

d. the long-run aggregate supply curve shifts to the right.

All else being equal, an increase in _________ would shift the long-run aggregate supply curve to the left. a. government spending b. economic growth c. the unemployment rate d. the rate at which capital depreciates e. the inflation rate

d. the rate at which capital depreciates

During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because: a. housing prices increased dramatically. b. the U.S. government increased the supply of money. c. there was an increase in the U.S. population. d. there was a severe decline in stock prices. e. the U.S. government decreased taxes.

d. there was a severe decline in stock prices.

During the Great Recession, the unemployment rate climbed as high as _________ and remained around 8% _________ months after the recession began. a. 20%; 12 b. 25%; 8 c. 15%; 75 d. 35%; 80 e. 10%; 60

e. 10%; 60

(Final Exam 3 Attempt 3) Use the following graph to answer the questions that follow. This graph depicts an economy where aggregate demand has decreased, with no change in either short-run aggregate supply (SRAS) or long-run aggregate supply (LRAS). During the Great Depression, the aggregate price level and real gross domestic product (GDP) both decreased, as depicted in the graph. Unemployment increased to record levels. Which of following best explains why this happened? a. A sudden increase in oil prices caused inflation and a deep recession. b. A rapid decline in housing prices led to problems in the loanable funds market and a recession. c. A sharp recession followed the United States abandoning the gold standard. d. A significant decline in military spending following the end of a war led to a recession. e. A stock market crash, large numbers of bank failures, an increase in tax rates, and a tight money supply caused a recession.

e. A stock market crash, large numbers of bank failures, an increase in tax rates, and a tight money supply caused a recession.

Which of the following best summarizes the main causes of the Great Recession? a. Oil-producing countries deliberately raised the price of petroleum, leading to inflation and a deep recession. b. The end of overseas war efforts led to a deep decrease in federal spending, which reduced employment and caused a recession. c. The stock market collapsed following the end of a bubble in technology stock prices, which caused a decrease in investment spending and a recession. d. The Federal Reserve raised short-term interest rates very high in an effort to decrease inflation, which also drove the economy into a recession. e. The collapse of housing prices led to decreased wealth and significant problems in financial markets, as well as a decrease in expected income and a stock market collapse.

e. The collapse of housing prices led to decreased wealth and significant problems in financial markets, as well as a decrease in expected income and a stock market collapse.

Which of the following would cause an increase in long-run aggregate supply? a. Firms and workers expect the price level to rise. b. The price level increases. c. The price level decreases. d. Firms and workers expect the price level to fall. e. The stock of capital increases.

e. The stock of capital increases.

Prior to the Great Depression, U.S. stock prices decreased dramatically. This would tend to cause: a. long-run aggregate supply to decrease. b. long-run aggregate supply to increase. c. short-run aggregate supply to increase. d. aggregate demand to increase. e. aggregate demand to decrease.

e. aggregate demand to decrease.

Which of the following is NOT considered part of M2? a. traveler's checks b. money c. currency d. checkable deposits e. credit cards

e. credit cards

All else being equal, as the population ages and many people leave the labor force: a. long-run aggregate supply will be unaffected. b. the unemployment rate will rise. c. aggregate demand must rise. d. the price level will fall. e. long-run aggregate supply will fall.

e. long-run aggregate supply will fall.