ECON FINAL!!! (WE MADE IT)
Which of the following effects best explains the downward slope of the aggregate demand curve - an interest-rate effect -a substitution effect - an expectations effect - a multiplier effect
- an interest-rate effect
automatic stabilizers smooth fluctuations in the economy because they produce changes in the governments budget that - reinforce changes in GDP - produce a standardized budget - produce a cyclically-adjusted budget - help offset changes in GDP
- help offset changes in GDP
When government spending is increased, the amount of the increase in aggregate demand primarily depends on - incomes taxes - the average propensity to consume - the size of the multiplier - exchange rates
- the size of the multiplier
In an economy it costs $1,500 to produce 2,000 units of output. If the costs increase to $2,500, then the per unit cost of production will have increased from: - $0.75 to $1.25 - $0.75 to $1.00 - $0.80 to $1.33 - $1.33 to $1.75
- $0.75 to $1.25
The economy is in recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending at a given price level? - $8 billion - $16 billion - $6 billion - $10 billion
- $10 billion
Assume that the full-employment level of output is $600 and the price level associated with full employment output is 100. Also assume that the economy's current level of output is $550 and, at the price level of 100, current aggregate demand is $465. If the government wants to move the economy back to the full employment level of output and the MPC is 0.9, then it should reduce taxes by - $15 - $135 - $50 - $5
- $15
In an economy, the government wants to increase aggregate demand by $150 billion at each price level to decrease real GDP and reduce inflation. If the MPS is 0.2, then it could decrease government spending by: - $20 billion - $40 billion - $40.50 billion - $30 billion
- $30 billion
If the Fed reduced the reserve requirement from 20% to 16%, excess reserves in the commercial banking system would increase by ______________ and the monetary multiplier would rise to _____________. - $10 billion; 10 - $10 billions; 5 - $40 billion; 12.5 - $40 billion; 6.25
- $40 billion; 6.25
Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .75, how much will the change in investment increase aggregate demand? - $50 billion - $12 billion - $33.3 billion - $80 billion
- $80 billion
Which of the following effects best explains the downward slope of the aggregate demand curve - an expectation effect - an interest-rate effect - a substitution effect - a multiplier effect
- an interest-rate effect
Assume that there is a 25% reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of - $800 million, and also by $800 million if the securities are purchased directly from commercial banks - $600 million, but by $800 million if the securities are purchased directly from commercial banks - $800 billion, but only by $600 million if the securities are purchased directly from commercial banks - $600 million, and also by $600 million securities are purchased directly from commercial banks
- $800 billion, but only by $600 million if the securities are purchased directly from commercial banks
An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective - $12 billion - $16 billion - $9 billion - $6 billion
- $9 billion
Assume that the full-employment level of output is $1,000 and the price level associated with full employment output is 100. Also assume that the economy's current level of output is $1,100 and, at the price level of 100, current aggregate demand is $1,200. If the government wants to move the economy back to the full employment level by reducing government expenditures by $50, then the expenditures multiplier equals - 5 - 4 - 10 - 2
- 4
If the fed supplies $300 billion in reserves, the equilibrium federal funds rate is - undeterminable with the information given - 6.0 % - 5.0% - 5.5%
- 5.0%
If current Q1 and full-employment output is Q3, then in the long run the long run the short aggregate supply is - AS1 - AS3 - AD - AS2
- AS3
if the Fed sells government securities to the general public in the open market, the - the public gives. the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will decrease their reserves at the Fed - Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed - Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed - the public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will increase their reserves at the Fed
- Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed
Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to - P2 and Q2 - P1 and Q3 - P2 and Q4 - P1 and Q1
- P1 and Q3
If the federal funds market is at equilibrium point B and the federal reserves decides to change the rate by a percentage point in order to reduce the changes of the economy going into recession, the supply of funds curve will have to shift to - Sf1 - Sf2 - Sf3 - Sf4
- Sf4
Which of the following fiscal policy changes would be the most contractionary - a $30 billion increase in taxes and a $10 billion cut in government spending - a $40 billion increase in taxes - a $20 billion increase in taxes and a $20 billion cut in government spending - a $10 billion increase in taxes and a $30 billion cut in government spending
- a $10 billion increase in taxes and a $30 billion cut in government spending
Which of the following fiscal policy changes would be the most expansionary - a $40 billion tax cut - a $40 billion increase in government spending - A $10 billion tax cut and $30 billion increase in government spending - a $20 billion tax cut and $20 billion increase in government spending
- a $40 billion increase in government spending
Which combination of factors would most likely decrease aggregate demand? - a decrease in consumer wealth and an increase in net exports - an increase in household indebtedness and an increase in net exports -a decrease in business taxes and an increase in profit expectations - a decrease in personal taxes and an increase in government spending.
- a decrease in consumer wealth and an increase in net exports
With cost-push inflation in the short run, there will be: - increase in employment - a decrease in real GDP - rightward shift in aggregate demand curve - an increase in real GDP
- a decrease in real GDP
Which of the following best describes the cause-and-effect chain of contractionary monetary policy - a decrease in the money supply will lower the interest rate, increasing investment spending, and increase aggregate demand and GDP - a decrease in the money supply will raise the interest rate, increasing investment spending, and decrease aggregate demand and GDP - a increase in the money supply will raise the interest rate, decreasing investment spending, and decrease aggregate demand and GDP - a decrease in the money supply will lower the interest rate, increasing investment spending, and increase aggregate demand and GDP
- a decrease in the money supply will raise the interest rate, increasing investment spending, and decrease aggregate demand and GDP
Which of the following events would most likely reduce aggregate demand - a reduction in business and personal tax rates - a reduction in the amount of existing capital stock - an increase in expected returns on investment - an increase in real interest rates
- an increase in real interest rates
What combination would most likely cause a shift from AD2 to AD1 - An increase in taxes and an increase in government spending - A decrease in taxes and a decrease in government spending - a decrease in taxes and increase in government spending - an increase in taxes and a decrease in government spending
- an increase in taxes and a decrease in government spending
Which of the following best describes the cause and effect chain of an expansionary monetary policy - an increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP - An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP - A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP - A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP
- an increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP
Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion at a time when the reserve ratio is 25 percent. If the reserve ratio is lowered to 20 percent, we can conclude that the - monetary multiplier has decreased - banking system now has excess reserves of $3 billion - maximum money-creating potential of the banking system has been increased by $7 billion - fed has decided that money supply needed to be reduced
- banking system now has excess reserves of $3 billion
the crowding out effect arises when government - borrows in the money market, thus creating am increase in interest rates - lends in the money market, thus decreasing interest rates - lends in the money market, thus increasing interest rates -borrows in the money market, thus decreasing interest rates
- borrows in the money market, thus creating am increase in interest rates
the major problem facing the economy is high unemployment and weak economic growth. the inflation rate is low and stable. Therefore, the federal reserve decides to pursue a policy to increase the rate if economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective - selling government securities and raising the discount rate - buying government securities and raising the reserve ratio - selling government securities and lowering the discount rate - buying government securities and lowering the discount rate
- buying government securities and lowering the discount rate
Which would be considered to be one of the factors that shift the aggregate demand curve in the short run? A change in - resources - productivity - consumer spending - technology
- consumer spending
A decrease in expected future income will - decrease aggregate demand - increase aggregate demand and aggregate supply - increase aggregate supply
- decrease aggregate demand
In an effort to decrease economic growth, the government could increase taxes, thus effectively decreasing households' disposable income. We would expect this to - affect neither aggregate supply nor aggregate demand - increase aggregate demand - decrease aggregate demand - reduce aggregate supply
- decrease aggregate demand
The sale of government bonds by the Federal Reserve Banks to commercial banks will: - increase aggregate supply - increase aggregate demand - decrease aggregate supply - decrease aggregate demand
- decrease aggregate demand
the intent of contractionary fiscal policy is to - increase aggregate demand - decrease aggregate supply - increase aggregate supply - decrease aggregate demand
- decrease aggregate demand
Cost-push inflation is characterized by a(n) - decrease in both aggregate supply and aggregate demand - decrease aggregate supply and no change in aggregate demand - increase in aggregate demand and no change in aggregate supply - increase in aggregate supply and a decrease in aggregate demand
- decrease aggregate supply and no change in aggregate demand
An increase in the price of crude oil would most likely - decrease aggregate demand in the US - increase aggregate demand in the US - increase aggregate supply in the US - decrease aggregate supply in the US
- decrease aggregate supply in the US
suppose that an economy produces $2,400 units of output, employing 60 units of input with a price of $30 per unit. If productivity increased such that 3,000 units 3,000 units are now produced with the quantity of inputs still equal to 60, then per-unit production costs would - decrease and aggregate supply would decrease - increase and aggregate supply would decrease - remain unchanged and aggregate supply would remain unchanged - decrease and aggregate supply would increase
- decrease and aggregate supply would increase
A decrease in government spending will cause a(n): - decrease in the quantity of real output demanded - increase in aggregate demand - decrease in aggregate demand - increase in the quantity of real output demanded
- decrease in aggregate demand
An increase in input productivity will: - shift the aggregate supply curve leftward. - decrease the equilibrium price level, assuming downward flexible prices. - decrease the equilibrium real output. - reduce aggregate demand.
- decrease the equilibrium price level, assuming downward flexible prices.
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to __________, which will ____________ investment spending - increase; increase - decrease; decrease - increase; decrease - decrease; decrease
- decrease; increase
A decrease in investment and government spending can be expected to shift the aggregate expenditures curve - upward and the aggregate demand curve leftward - downward and the aggregate demand curve leftward - upward and the aggregate demand curve rightward - downward and the aggregate demand curve rightward
- downward and the aggregate demand curve leftward
If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the - economy MPS is large - unemployment rate is low - economy MPS is small - economy MPC is small
- economy MPS is small
The lending ability of commercial banks increases when the - fed buys securities in the open market - fed sells securities in the open market - Treasury collects tax revenue - reserve ratio is raised
- fed buys securities in the open market
Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the - consumer price index - prime rate - federal funds rate - discount rate
- federal funds rate
Which would be considered to be one of the factors that shift the aggregate supply curve in the short run? A change in - consumer spending - profit expectations on investment projects - government regulations - personal income taxes
- government regulations
In the diagram, Qf is the full employment output. If the economy's present aggregate demand curve is AD2, the - economy is achieving its maximum possible output - most appropriate fiscal policy is a reduction of government expenditures or an increase of taxes - government should undertake neither an expansionary nor a contractionary fiscal policy - most appropriate fiscal policy is an increase of government expenditures or a reduction of taxes
- government should undertake neither an expansionary nor a contractionary fiscal policy
Assume that the full-employment level of output is $600 and the price level associated with full employment output is 100. Also assume that the economy's current level of output is $550 and, at the price level of 100, current aggregate demand is $450. If the government wants to move the economy back to the full employment level of output and the MPC is 0.9, then it should - increase government expenditures by $15 - increase government expenditures by $50 - increase government expenditures by $5 - increase government expenditures by $150
- increase government expenditures by $15
Assume that the full-employment level of output is $500 and the price level associated with full employment output is 100. Also assume that the economy's current level of output is $450 and, at the price level of 100, current aggregate demand is $400. If the government wants to move the economy back to the full employment level of output and the MPC if 0.75, then it should - reduce government expenditures by $25 - increase government expenditures by $25 - reduce government expenditures by $100 - increase government expenditures by $100
- increase government expenditures by $25
You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion, (2) investment = $50 billion, (3) government purchases = $100 billion, and (4) net export = 20 billion. If the full employment level of GDP for this economy is $700 billion, then what combination of actions would be most consistent will closing the GDP-gap here? - decrease government spending and raise taxes - decrease government spending and lower taxes - increase government spending and taxes - increase government spending and reduce taxes
- increase government spending and reduce taxes
If the board of governors of the federal reserve system increases the required reserve ratio, this change will - decrease the excess reserves of other member banks and thus decrease the money supply - increase the excess reserve of member banks and thus increase the money supply - decrease the excess reserves of member banks and thus increase the money supply - increase the excess reserves of member banks and thus decrease the money supply
- increase the excess reserves of member banks and thus decrease the money supply
A contraction of the money supply - increases both the interest rate and aggregate demand - lowers both the interest rate and aggregate demand - lowers the interest rate and increases aggregate demand - increase the interest rate and decreases aggregate demand
- increase the interest rate and decreases aggregate demand
If the dollar depreciates in value relative to foreign currencies, aggregate demand - increases because C increases - increases because net exports increases - increases because net exports decrease - decreases because C decreases
- increases because net exports increases
What national income in other nations increases, aggregate demand in our economy - increases because our exports will increase - decreases because our exports will decrease - increases because our imports will decrease - decreases because our imports will increase
- increases because our exports will increase
If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by: - increasing government spending by $40 billion - increasing taxes by $4 billion - decreasing taxes by $4 billion - increasing government spending by $4 billion
- increasing government spending by $4 billion
The short-run aggregate supply analysis assumes that - input prices are fixed while product prices are variable - both input and product prices are fixed - both input and product prices are variable - input prices and variable while product prices are fixed.
- input prices are fixed while product prices are variable
If net exports decrease by $4 billion and the economy's MPC is .8, the aggregate demand curve will shift - leftward by $40 billion at each price level - rightward by $20 billion at each price level - leftward by $20 billion at each price level - rightward by $40 billion at each price level
- leftward by $20 billion at each price level
graphically, cost push inflation is shown as - rightward shift of the AS curve - leftward shift the AS curve - rightward shift of the AD curve - leftward shift of the AD curve
- leftward shift the AS curve
The real-balances effect on aggregate demand suggests that a - lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending - higher price level will increase the real value of many financial assets and therefore cause an increase in spending - lower price level will increase the real value of many financial assets and therefore cause an increase in spending - lower price level will decrease the real value of many financial assets and therefore cause an increase in spending
- lower price level will increase the real value of many financial assets and therefore cause an increase in spending
The expenditure multiplier concept of the aggregate-expenditures model - magnifies the shifts of the aggregate demand curve - is not at all relevant in the AD-AS model - explains movement up or down the aggregate demand curve - reserves the shift of the aggregate demand curve
- magnifies the shifts of the aggregate demand curve
Lowering the discount rate has the effect of: - making it less expensive for commercial banks to borrow from central banks - forcing commercial banks to call in outstanding loans from their best customers - turning excess into required reserves - turning required into excess reserves
- making it less expensive for commercial banks to borrow from central banks
Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has: - neither an excess nor a deficiency of reserves - excess reserves of only $.5 billion - excess reserves of $2 billion - a deficiency of reserves of $.5 billion
- neither an excess nor a deficiency of reserves
Most economists believe that fiscal policy is - not as good as monetary policy for month-to-month stabilization - not very good at pushing the economy In a particular direction - better than monetary policy for "fine-tuning" the economy - not used for (short run) month-to-month stabilization
- not as good as monetary policy for month-to-month stabilization
there is general agreement among economists that a proposed fiscal policy should be evaluated for its - contribution to the growth of exports and imports in the economy - potential positive and negative effects on long-run productivity and growth - contribution to the purpose of "fine tuning" the economy - potential positive and negative effects on short-run business indebtedness
- potential positive and negative effects on long-run productivity and growth
An aggregate supply curve represents the relationship between the: - price level and the production of real domestic output - real domestic output brought and the real domestic output sold - price level that producers are willing to accept and the price level buyers are willing to pay - price level and the buying of real domestic output
- price level and the production of real domestic output
Deflation refers to a situation where - the rate of inflation rises, and could be caused by a decrease in aggregate demand - the rate of inflation falls, and could be caused by an increase in net exports - price level falls, and could be caused by a decrease in aggregate supply - price level falls, and could be caused by a shift of AD to the left
- price level falls, and could be caused by a shift of AD to the left
Changes in which if the following would shift the aggregate supply curve - productivity - real interest rates - income tax rates - foreign-exchange rates
- productivity
The goal of expansionary fiscal policy is to increase: - real GDP - unemployment - the price level - aggregate supply
- real GDP
The labels for the axes of an aggregate supply curve should be: - real domestic output for the horizontal axis and price level on the vertical axis - aggregate demand for the vertical axis and real national output for the horizontal axis - real employment for the vertical axis and price level for the horizontal axis - real domestic output for the horizontal axis and aggregate supply for the horizontal axis
- real domestic output for the horizontal axis and price level on the vertical axis
Assume that the full-employment level of output is $500 and the price level associated with full employment output is 100. Also assume that the economy's current level of output is $450 and, at the price level of 100, current aggregate demand is $410. If the government wants to move the economy back to the full employment level of output and the MPC if 0.75, then it should - reduce taxes by $90 - increase taxes by $90 - increase taxes by $30 - reduce taxes by $30
- reduce taxes by $30
An increase in input productivity will: - shift the aggregate supply curve leftward. - reduce the equilibrium price level, assuming downward flexible prices. - reduce the equilibrium real output. - reduce aggregate demand.
- reduce the equilibrium price level, assuming downward flexible prices.
Graphically, demand-pull inflation is shown as a - leftward shift of a AS curve along a downscoping AD curve - rightward shift of the AD curve along a downward sloping AS curve - rightward shift of the AD curve along an upsloping AS curve - leftward shift of the AS curve along an upsloping AD curve
- rightward shift of the AD curve along an upsloping AS curve
The aggregate supply curve (short run) - graphs as a horizontal line - slopes downward and to the right - graphs as a vertical line - slopes upward and to the right
- slopes upward and to the right
A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to: - save the banking industry - stimulate the economy - reduce inflation - improve the savings rate
- stimulate the economy
A fall in labor costs will cause aggregate - demand to decrease - supply to decrease - supply to increase - demand to increase
- supply to increase
If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a - shortage and price level will rise - shortage and the price level will fall - surplus and the price level will rise - surplus and the price level will fall
- surplus and the price level will fall
Fiscal Policy is enacted through changes in - the supply of money and foreign exchange - taxation and government spending - interest rates and the price level - unemployment and inflation
- taxation and government spending
The level of GDP ceteris paribus, will tend to increase when - reserve requirements are increased - the Federal Reserve buys government securities in the open market - the Federal Reserve sells government securities in the open market - there is an increase in the discount rate
- the Federal Reserve buys government securities in the open market
Changes in intrest rates, ceteris paribus, cause a shift in - the investment demand curve and the aggregate demand curve - the aggregate demand curve, but not the investment curve - either the investment demand curve or the aggregate demand curve - the investment demand curve, but not the aggregate demand curve
- the investment demand curve and the aggregate demand curve
an increase in aggregate supply in the short run will reduce - the price level and increase the real domestic output - the price level and decrease the real domestic output - the real domestic output and have no effect on the price level - the price level and have no effect on real domestic output
- the price level and increase the real domestic output
Which of the following will increase commercial bank reserves - an increase in the discount rate - the purchase of government bonds in the open market by the Federal Reserve Banks - The sale of government bonds in the open market by the federal reserve banks - an increase in the reserve ratio
- the purchase of government bonds in the open market by the Federal Reserve Banks
Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier? - the discount rate - open-market operations - the federal funds rate - the reserve ratio
- the reserve ratio
which if the following will decrease commercial bank reserves - a decrease in the discount rate - a decrease in the reserve ratio - the sell of government bonds in the open market by the federal reserves banks - the purchase of government bonds in the open market by the federal reserves banks
- the sell of government bonds in the open market by the federal reserves banks
One timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the - time fiscal action and the time that the action has its effect on the economy - start of a predicted recession and the actual start of the recession - time the need for the fiscal action is recognized and the time that the action is taken - start of the recession and the time it takes to recognize that the recession has started
- time the need for the fiscal action is recognized and the time that the action is taken
If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy effect on the economy will tend to be - as the multiplier effect would predict - weaker - stronger - the exact opposite of what was intended
- weaker
Assume that the full-employment level of output is $1000 and the price level associated will full-employment output is 100. Also assume that the economy's current level of output is $1,100 and, at the price level of 100, current aggregate demand is $1,250. If the government moves the economy back to the full-employment level of output by reducing government expenditures by $50, then the expenditures multiplier equals -4 -5 -2 -10
-5
In the diagrams, AD1 and AS1 are the "before" curves. Assuming Q1 is full-employment output, inflation is depicted by -Panel (c) only - Panel (b) only - Panel (A) only - Panels (a) and (B)
-Panel (c) only
When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: -fiscal policy -monetary policy -employment policy -incomes policy
-fiscal policy
