Econ Exam 2

the aggregate production function exhibits___returns to____ capital

decreasing;physical

Discretionary fiscal policy refers to changes in

government spending or taxes to close a recessioary or inflationary gap

If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is ___ than money supplied.

greater than

An aggregate output level lower than potential output means there will be

high unemployment

Policy to increase the supply of money, hence to lower the interest rate from 6% to 4% is accomplished by action that ___ the ___ Treasury bills

increases; demnad for

If overall spending declines and this the economy contracts, the government could counter this by

increasing gov spending increases the GDP

REVIEW Using monetary policy to address a recessionary gap caused by a supply shock invloves ___ to ____

increasing the money supply; lower the unemployment rate

Among public goods important for economic growth is

political stability

REVIEW If the FED Reserve uses expansionary monetary policy there is a ___ short-run effect on ___, but___

positive short run;real GDP;GDP remains unchanged in the long run

An increase in money supply will increase the

price level

technological change

raises total factor productivity

INCOME EXPENDITURE EQUIL

real GDP = Disposible income Disposible income+ Consumption + Planned investment

The best available measure of the standard of living in a contry is

real GDP per capita

A negative short ru supply shock ___ aggregate output and ____ the aggregate price level

reduces;increases

Which is not a TR

reimbursement of personal income tax withheld from wages

Expansionary fiscal policy shifts the aggregate demand curve to the___ and is used to close a(n)__ gap

right; recessionary

You are at longrun equil. An increase in the level of gov purchases at each price level will

shift the AD curve to the right form AD1 TO AD2

GRAPH An increase in wages in the short run is llustrated by

shift to the right of the SR supply

If int rate is above the equil, there will be an excess____ money and the int rate will___

supply of; fall

REVIEW Short term interest rates

tend to move together

When the unemploymet rate increases, the budget

tends to move into deficit

REVIEW The wealth effect is reflected in

the donward slope in aggregate demand

the biggest global environment issue is

the impact of fossil-fuel consumotion on the world's climate

Opportunity cost definition

the loss of potential gain from other alternatives when one alternative is chosen.

REVIEW Suppose that the economy enters a recession and theRGDP falls. All else equal, we should expect

the money demand curve to shift inward

if the moeny supply increases by 10%, in the long run

the price level increase

REVIEW the aggregate demand curve is negatively sloped because of

the wealth effect of an aggregate price level change

Taylor Rule inflation rate in the econ is 3% and the unemployment gap -2%

an inflationary gap, since the actual gdp exceeds potential real GDP since no one is unemployed

gov should reduce its spending by an amount equal to

(Y1-Yp) TIMES (1-MPC)

WTF IS THIS RGDP is 8000, autonomous consumption is 500, and planned investment spending is 200. MPC is 0.8. If the RGDP is 3000, how much is unplanned invetory investment

-100?

C= 500+ .8YD if YD is 1000 whats is savings

-300

In an economy w no tax or imoirts, if the Y increases by 1000 abs the consumption increases by 600, the MPS is

.40

If planned investment spending is 2 trillion and the innventories decrease by .5 trillion, actual investment spending is

1.5

If a checking accoint has an interest rate of 1% and a treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is:

2%

if the Federal reserve conducts an open market purchase, holding everything else constant, in the long run there will be

an increase in the aggregate price level

HUH A 20% increase in the aggregate price level will increase the quantity demanded by:

20%

If the marginal propensity to save is .3, the size of the multiplier is

3.3

Sweeden had RDGP per capita of 50000 and 2% growth rate Chile 25000 abd 4% growth rate How long will it take for RGDP percapita in the two nations to converge

35yrs

HUH REVIEWWWW Suppose the RGDP of the US is 32000 and its growth rate is 2 % per year. RGDP of China is 4000 with 7% growth rate How many yrs will it take for chinas RGDP to be larger than the US

40 to 45

If the marginal propensity to save is .25, invest,ent spending is 700 million, the gov increases its purchases of goods and services by 100 million, then real gdp increases by

400 (1/MPS)(GOV CHANGE)

Aggregate output beg of yr=31 bil pop beg of yr= 40 mil output growth=5.2 pop growth=2.6 what was the pop at the end of the yr

41 mil

Aggregate autonommous = 450 Aggregate disposible =3000 consumer spending = 2850 what is the aggregate consumption function?

450+.8YD

if the marginal propensity to consume is .8, the multiplier is

5

RGDP is 8000 autonomous consumption is 500 Planned Investment spending is 200 MPC .8 Ho mcuh is planned aggregate spending?

7100

RGDP per capita in the US increased almost ___ times between 1900 and 2010

8

REVIEW ________ will shift the aggregate demand curve

A demand shock

REVIEW Which of the following might cause the equilibrium interest rate to DECREASE to r1

A recession decreases real gdp

Crowding out

A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect. ... This leads to an increase in interest rates.

if the economy is initially at equil and the back chooses to sell Treasury bills____ shit to ___a(n)___ gap

AD2 may; AD1, causing; recessionary

REVIEW Decreasing funding for space exploration will shift the ___ curve to the___

AD; left

___ would likely shift the SRAS curve to the left

An increase in the price oil

REVIEW if disposable income is expected to increase, the aggregate consumption function increase which variable?

Autonomous consuption increases and everything else remains constant ex original 10000+(40000*.07) becomes 12000+(40002*.07)

Contractionary monetary policy

Decreases aggregate demand

REVIEW Which of the following will shift the aggregate consumption function UPWARD

Disposable income rises

stagflation may result from

an increase in the price oil

the effect of a gov deficit is:

Expansionary

Large tech gains often result

From modest as well as large innovations

HUH if the economy is at potentiaal output aned the Fed increases the money supply, in the long run RGDP will likely

Remains the same

If nominal wages fall, in the short run the ___ curve will shift to the ___

SRAS; right

A general decrease in wages reuslts primarily i the ___ curve shifting to the ___

SRAS;right

A decrease in aggregate demand is seen as__ the aggregate demand

Shift to the left in

Long-term interest rates are higher than short-term rates. This reflects a belief that

Short-term rates will rise

REVIEW The higher the production capacity of the economy

The lower is planned investment spending

All of the following will increase the potential output EXCEPT

a decrease in the aggregate prive level

An automatic stabilizer that works when the economy contracts is

a rise in gov transfers as more ppl receive UE insurance benefits

An example of physical capital is

a truck a company purchases for deliveries

An increase in gov pending on healthcare is likleft the to shift the __ curve to the ____

aggregate demand; right

If___, expansionary fiscal policy is most likely to crowd out private spending

aggregate income is billion above its potential level. Practice contractionary policy, increase rates

REVIEW A shift to the right of the short-run aggregate supply curve may be caused by

an increase in PRODUCTIVITY

A rise in labor productivity will most likely result in

an increase in agregate supply

The Aggregate Demand curve is affected by

government spending

The fed want to reduce rate of 1.25 to .5. The appropriate open market action is to ___ Treasury bills to___money_____

buy;increase;supply

To fight inflation, the Federal Reserve should conduct____ monetary policy to ____ interest rates, which will shift the aggregate demand curve to the ___

contractionary;raise;left

REVIEW If the economy is at potential output and the Fed increases the moeny supply, in the SHORT run iterest rates will likely:

decrease

According to the liquidty preference model, a ___ in the money supply shifts the money supply curve to the___ and increases the equilibrium int rate

decrease; left

Suppose the gov increases spending to fund tuition assitance for qualified college students. Automatic stabilizers will ____ the __ effect of the___ in aggregate demand.

decrease;expansionary;increase

REVIEW The money demand curve is __ bc the opportunity cost of holding money is ___ related to the interest rate

downwardsloping;directly

REVIEW if disposible income decreases, then the

economy will move downward along the aggregate expenditures curve

An increase in Gov spending of 300 bil will have ___ effects on the BB and ___ effects on real GDP

equal; unequal

A recessionary gap can be closed with

expansionary fiscal policy

if the economy is in a recessionary gap, the Federal Reserve should conduct___ monetary policy by___ the monetary supply

expansionary; increasing

in the long run, as the economy self-corrects, a decrease i aggregate demand, all other things unchanged, will cause the price level to _____ and potential output to _____.

fall; remain stable

In the income-expenditure model, contractionary monetary polcy leads to ___ interest reates, a(n) ___ in planned investment spending' and a(n)____ in equilibrium GDP

higher;decrease;decrease

if the multipplier and autonomous government spending increases by 100 billion, real GDP will

increase by 400

an expansionary intervention by the government is to

increase its spending

MPC=.8 Potential Output is 800 RGDP=850 Which policy will bring the economy to its potential output

increase taxes by 12.5

household spend 75% if increases in their income no taxes or foreign trade. Potential output is 600. Actual output is 700. To bring the economy to potential output the gov should?

increase taxes by 33.3

The Federal Reserve, has been cutting int rates to stimulate the recessionary economy. Int cuts are supposed to

increase the planned investment spending and theus increase GDP via multiplier

REVIEW When the central bank announces the desired inflation rate and sets policy to reach that rate, it is using

inflation targeting

Suppose that the economy is in long-run macroeconomic equilibrium, there is a(n)___ gap with

inflationary; low unemployment

HUH if the equil int rate in the money market is 5%, at an int rate of 2% the quantity of nonmonetary int-bearing finacial assets demanded is ___ the quantity supplied

less than

Generally, the more liquid an asset is, the

lower its rate of return

An expansionary fiscal policy

may include decreases in taxes

REVIEW A fall in the interest rate makes any investment project

more profiable whether the funds were borrowed or came from retained earnings

REVIEW An increase in the amount of physical capital per worker___, while technological progress____

moves the economy along the aggregate production function; shifts up the aggregate production function

When actual output is above potential output over time

nominal wages will increase, and short-run supply curve will shift to the left

REVIEW The aggreagate supply curve shows the relationship between the aggregate prive level and the aggregate

output supplied

At the income-expenditure equilibrium, __ is zero

unplanned inventory investment