Econ final prep

The demand for loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds.

A) downward; investors; increasing

.If the rate of interest is below the equilibrium rate, there will be an _______ money and the interest rate will _______.

A) excess demand for; rise

. If the economy is at point h because of an open market purchase by the Federal Reserve and no further monetary policy is implemented, in the long run:

A) nominal wages will increase, shift SRAS to SRAS', decrease real GDP, and increase the price level.

When an individual decides to hold money instead of other assets:

A) that individual is giving up the interest that could have been earned by holding other types of assets.

. If during 2007 the interest rate on 1-month Treasury bills was 2.5% and during 2008 the interest rate on 1-month Treasury bills was 2%, one would conclude that:

A) the opportunity cost of holding money decreased.

The money demand curve is:

B) downward-sloping because the opportunity cost of holding money rises as the interest rate rises.

The federal funds rate is the interest rate on ______, and it is controlled by the _________.

B) reserves that banks lend to each other; Federal Open Market Committee

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.

wealth; aggregate demand; downward

If commodity prices rise, which of the following will take place

SRAS curve will shift to the left.

The aggregate supply curve shows the relationship of prices

and the output producers are willing to provide.

The _______ the _______, the _______ the multiplier.

bigger; MPC; bigger

During the Great Depression

both consumption and investment decreased.

Changes in taxes and government transfers shift the aggregate demand curve ______ government purchases

by less than

The Great Depression was caused by _______ shocks, and the recession of 1979-82 was caused by ______ shocks

demand; supply

The guarantee by the FDIC to reimburse bank customers up to $250,000 per deposit in the event of bank problems is called

deposit insurance

Investment spending

fluctuates more than consumption.

Budget deficits almost always

increase when unemployment increases and fall when unemployment falls

Using monetary policy to address a recessionary gap created by a supply shock involves _________ to _________

increasing the amount of money in circulation; lower the unemployment rate

When the central bank announces the inflation rate that it is trying to achieve and sets policy to reach that rate, it is using:

inflation targeting.

Government purchases of goods and services differ from changes in taxes and transfer payments because government purchases of goods and services

influences aggregate demand directly while changes in taxes and transfer payments influence aggregate demand indirectly.

If the Fed increases the quantity of money in circulation:

interest rates decrease, investment increases, and the aggregate demand curve shifts to the right

The accelerator principle states that:

investment spending by firms is positively related to the expected future growth of real GDP.

Expansionary fiscal policies

make the budget surplus smaller.

There is a _______ relationship between the amount of loanable funds demanded and the rate of interest

negative

If all prices, including the nominal wage, rate double in the long run, then aggregate output supplied would

remain unchanged

Which curve is easier to shift

the aggregate demand curve

Suppose that the stock market crashes. Which of the following is most likely to occur

the aggregate demand curve shifts to the left

The aggregate demand curve shows the relationship between the aggregate price level and:

the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world

The larger the amount of outstanding public debt:

the larger the fraction of the federal budget deficit that must be devoted to interest payments

The short-run aggregate supply curve illustrates

the positive relationship between the aggregate price level and aggregate output supplied.

The marginal propensity to consume is equal to

the ratio of the change in consumer spending to the change in aggregate disposable income

Government borrowing will not crowd out private investment spending if:

unemployment is high and the fiscal expansion causes an increase in incomes and saving at each interest rate.

Crowding out negatively affects the economy by:

reducing private investment spending on physical capital.

The cost of reducing greenhouse gas emissions by 60% to 80% by 2050 is estimated to be _______ of real GDP per capita.

1% to 2%

Raising taxes shifts the

aggregate demand curve to the left.

. Assume the money supply doubles, followed by a doubling of the wage rate and the price level. Under these circumstances, we can safely conclude which of the following?

) Nominal output will double, but real output will remain unchanged.

An increase in the aggregate price level:

) increases the demand for money.

The relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world is called:

aggregate demand.

In response to a negative supply shock, the government decreases taxes. The most likely result of the government's tax decrease is

a decrease in unemployment and an increase in the aggregate price level

The negative relationship between the aggregate price level and aggregate output demanded gives the aggregate demand curve

a downward slope

Inventory investment is

a part of unplanned investment spending and may either be positive or negative.

If nominal wages fall, then the short-run aggregate

supply curve shifts to the right