Econ exam #3

Monetary policy

is a central bank's actions and communications that manage the money supply. That includes credit, cash, checks, and money market mutual funds.

Recession gap

is a macroeconomic term which describes an economy operating at a level below its full-employment equilibrium

In an economy with no taxes or imports, if disposable income decreases by 2000 and consumption decreases by $1500 the multiplier is -4

false

The public ratio of debt to GDP for the United States in 2013 was:

more or less the same as that of other wealthy countries

liquidity

Financial liquidity refers to how easily assets can be converted into cash. Assets like stocks and bonds are very liquid since they can be converted to cash within days

higher government transfers or lower taxes make a budget surplus smaller or a budget deficit larger.

True

The reserve requirement is 20%. Leroy receives 1000 as a graduation present and deposits the money in checking account. The bank does not want to hold excess reserves. what is the maximum possible expansion in the money supply as a result of this initial deposit?

$4000

If the multiplier equals 4, then the marginal propensity to save must be equal to:

0.25

Real GDP equals 400 billion, the government collects 25% of any increase in real gdp in the from of taxes, and the marginal propensity to consume is 0.8. what is the value of the multiplier?

2.5

If a bank has deposits of 100,000, loans of 75000, cash on hand of 10,000, and 15000 on deposit at the federal reserve then it's reserve ratio is

25%

If planned aggregate spending rises by 10 billion and the marginal propensity to consume is 0.75 then equilibrium real GDP changes by:

40 billion

if the marginal propensity ti consume is 0.8 than the multiplier is

5

Which function is the one that pertains to the federal reserve system?

Conducting monetary policy, examining and supervising commercial banks in the fed regions, providing liquidity to financial institutions.

If policy makers want to decrease real GDP by 100 billion and the marginal propensity to consume is 0.6, they should ________ government purchases of goods and services by ____________

Decrease; 40 billion

Graphically, a recessionary gap is measured as the:

Difference between actual GDP and potential output

A lump sum tax whose rate increases as income increases

False

A negative supply shock raises production costs and increases the quantity producers are willing to supply at any given price level.

False

A cyclically adjusted budget balance:

Is an estimate of what the budget balance would be if real GDP were equal to potential output.

potential output

Is the level of output that the economy would produce is all prices, including nominal wages, were fully flexible.

A cut on taxes will have the most effect on aggregate demand if it is given to:

People with high marginal propensity to consume.

when the unemployment rate decreases, the budget:

Surplus gets larger or the deficit gets smaller.

If the federal reserve increases the discount rate

The money supply is likely to decrease.

If government spending increases and taxes decrease:

The public debt will increase

Public debt is:

The total debt owed by the government to individuals and institutions outside of government.

Autonoumous spending is an initial change in the desired level of spending by firms, households, or government at a given level of of real GDP.

True

Long Run Market Equilibrium

a perfectly competitive market occurs when marginal revenue equals marginal costs, which is also equal to average total costs.

A wealth effect explains why the

aggregate supply curve slopes downward since changes in aggregate price levels change the purchasing power of peoples assets

If policy makers want to increase real GDP by 100 billion and the marginal propensity to consume is 0.75 they should, ______ taxes by ______

decrease, more than 25 billion

inflationary gap

describes the difference between the current level (GDP) and the anticipated GDP that would be experienced if an economy is at full employment

When wages rise, AS shifts _____ and aggregate price levels _____.

left; rise

Which fiscal policy would make a budget surplus larger or a budget deficit smaller.

lower government transfers

stagflation is usually caused by a ________ shock

negative supply

Stagflation

persistent high inflation combined with high unemployment and stagnant demand in a country's economy.

actual investment equals planned investment

plus unplanned investment

Rising inventories typically indicate _______ unplanned inventory investment and a _________ economy.

positive; slowing

When the federal reserve decreases bank's reserves through an open-market operation.

the monetary bank ,loans, and the money supply decreases

If banks decide to hold some of their excess reserves instead of lending them all out, then:

the money multiplier will be less than 1 divided by the required reserve ratio.