Econ quiz 10

Temporary changes to the velocity of money cannot cause business fluctuations. True False

false

When a bank takes your money in deposit, they keep it in a vault with your name on it. True False

false

A positive shock to the long-run aggregate supply curve leads to ___________________ inflation and _______________ real growth. higher, lower lower, lower higher, higher lower, higher

lower, higher

A natural disaster like a hurricane or an earthquake is an example of a _______________________%. aggregate demand shock recession equilibrium impulse real shock

real shock

A(n) ______________________ is a significant, widespread decline in real income and employment.

recession

Economists often consider deposits in savings accounts and money market mutual funds to be money. True False

true

Fear and uncertainty meant investment fell. True False

true

Historically, the Federal Reserve has conducted monetary policy by using open-market operations to target the Federal Funds Rate. True False

true

In the short run, the Federal Reserve can affect real output. True False

true

M1 is currency plus checkable deposits. True False

true

M2 is M1 plus savings deposits, money market mutual funds, and small time deposits. True False

true

Rising nominal wages can improve worker morale. True False

true

Sticky wages mean it takes longer for an economy to adjust to changes. True False

true

The Fed requires banks to keep a certain fraction of their deposits on hand as reserves. True False

true

The Federal Reserve can simply create new money. True False

true

The Great Depression was largely caused by a series of negative aggregate demand shocks. True False

true

The Great Depression was the worst recession in US history. True False

true

The long-run supply curve shows the economy's potential growth rate when all is going well. True False

true

There are shocks to the key growth factors that might at any point change an economy's potential growth rate. True False

true

Waves of bank failures increased fear and uncertainty. True False

true

When workers see that prices are rising more rapidly than they expected, they will demand higher wages. True False

true

When you use a debit card, you transfer funds from your bank account to a seller's bank account. True False

true

During the Great Depression, the stock market fell by ______________________. 30% 20% two-thirds 40%

two-thirds

When labor is unemployed, capital is likely to be ______________________.

unemployed

Economists consider checkable deposits to be money. True False

true

Economists consider currency to be money. True False

true

Economists consider retirement funds like IRAs, 401ks, and 529 plans to be money. True False

false

Economists consider valuable comic books to be money. True False

false

Faster spending growth is immediately reflected in higher inflation. True False

false

Suppose the reserve ratio is 5%. The Federal Reserve then creates $100,000 and uses it to purchase treasury securities from the banking system. The change in the money supply is ________________. The other options are incorrect. $100,000 $50,000 $2,000,000 $5,000

$2,000,000

Suppose the reserve ratio is 20%. The Federal Reserve then creates $10,000 and uses it to purchase treasury securities from the banking system. The change in the money supply is ________________. $20,000 $10,000 $2,000 $50,000 The other options are incorrect.

$50,000

By 1932, economists estimate that the economy's real growth rate was _______________________. 3% -13% -10% 2%

-13%

if the money supply is growing at 4% per year, the velocity of money is not changing, and real economic growth is 3%, then inflation is ____________%. 4 1 0 7 3

1

During the Great Depression, unemployment rose above __________________. 80% 30% two-thirds 40% 20%

20%

If the money supply is growing at 8% per year, the velocity of money is not changing, and real economic growth is 5%, then inflation is ____________%. 3 13 0 8 5

3

During the Great Depression, GDP fell by more than ______________________. 40% 20% 30% two-thirds

30%

If the money supply is growing at 10% per year, the velocity of money is not changing, and inflation is 6%, then real economic growth is ____________%. 10 16 0 6 4

4

If the reserve ratio is 25%, the money multiplier is ________________. 25 1 3 0 4

4

During the Great Depression, more than ____________________ of banks failed. two-thirds 30% 40% 20%

40%

If the rate of spending growth is 5%, then the aggregate demand curve shows us every combination of inflation and real growth that add up to _________%. 4 3 2 5 0

5

If spending is growing at 10% per year and real output is growing at 3% per year, then inflation is ____________% per year. 3 13 7 10

7

Investment fell by ___________________ between 1929 and 1933. 30% 40% 75% 20% two-thirds

75%

Which of the following are limitations on the Fed's ability to influence real output in the short run? lack of direct control All of these are correct. difficulty of defining money lagged results incomplete data

All of these are correct.

A change in the growth rate in the velocity of money means that _______________________. net export growth has risen investment spending growth has risen Any or all of these could have happened. government spending growth has risen consumption spending growth has risen

Any or all of these could have happened.

________________________ are movements around an economy's long-run trend growth rate. Business fluctuations Economic growth episodes aggregate supplies Price controls

Business fluctuations

In the long run, changes in the velocity growth rate are always permanent. True False

false

Rapid shifts in the aggregate demand curve cannot lead to business fluctuations. True False

false

If consumers suddenly become pessimistic about the economy and cut back on spending, this will lead to ______________________. an increase in investment growth an inward shift in long-run aggregate supply a reduction in velocity growth a reduction in money growth

a reduction in velocity growth

A reduction in the money supply in 1929 led to _______________________. higher economic growth a velocity reduction inflation a stock market crash

a stock market crash

Economists typically define money as ______________________________. currency shells a widely-accepted means of payment checkable deposits gold and silver

a widely-accepted means of payment

A country's prosperity depends on _________________________. ideas human capital all of these physical capital institutions

all of these

The Fed has the power to ___________________________. create money spend money on national defense invest in infrastructure spend money on welfare programs

create money

The monetary base consists of ___________________________. currency only checkable deposits banks' reserve deposits at the Fed only currency and banks' reserve deposits at the Fed

currency and banks' reserve deposits at the Fed

According to John Maynard Keynes, "in the long run, we're all ______________."

dead

In the long run, changes in spending growth ________________________ the fundamental factors of growth. influence do not change decrease increase

do not change

If the economy slows down, then wages should ____________________ in order to reestablish full employment. fluctuate rise not change fall

fall

If inflation is 4% and Tyrone's wages rise by 3%, Tyrone's real wages have ____________________. risen remained unchanged No answer text provided. fallen

fallen

A reduction in spending growth affects the fundamental factors of production. True False

false

A shock to the banking sector cannot be amplified and transmitted to other sectors. True false

false

Economic growth is a very smooth process. True False

false

Economists consider precious metals like gold and silver to be money. True False

false

In response to real shocks, the economic growth rate ____________________. does not change rises fluctuates falls

fluctuates

A negative shock to the long-run aggregate supply curve leads to ___________________ inflation and _______________ real growth. lower, lower higher, higher lower, higher higher, lower

higher, lower

Monetary policy can influence the economy ______________________________. in neither the short nor long run in the short run only in both the short run and the long run in the long run only

in the short run only

An increase in the supply of money will _________________________. decrease spending increase spending not change spending

increase spending

The National Industrial Recovery Act made the economy __________________________. much more competitive more efficient neither more nor less efficient less efficient

less efficient

The Smoot-Hawley Tariff made the American economy ____________________________. more efficient neither more nor less efficient less efficient Great Again

less efficient

The National Industrial Recovery Act _____________________________. made the Great Depression worse and delayed recovery hastened industrial recovery made America Great Again stimulated investment and led to an eventual exit from the Great Depression

made the Great Depression worse and delayed recovery

The Federal Reserve controls the supply of ___________________. loans money real goods and services interest

money

___________________ explains why people don't get upset about real wage cuts when their nominal wages increase by less than the rate of inflation. price confusion velocity sticky wages money illusion

money illusion

The Dust Bowl was an example of a ________________________. positive aggregate demand shock negative aggregate demand shock positive real shock negative real shock

negative real shock

The sum of the money growth rate and the velocity growth rate is the growth rate in ______________________. real output growth inflation real GDP capital growth nominal GDP

nominal gdp

The Fed has great _____________________, which means it has great _______________________. power, responsibility amounts of money, influence responsibility, power inflation, distortion

power, responsibility

An increase in spending growth will _________________________. raise output growth in the long run but not in the short run leave output growth unchanged raise output growth in the short run and the long run raise output growth in the short run but not in the long run

raise output growth in the short run but not in the long run

In response to an increase in spending growth, ___________________________. real output rises in the short run real output falls in the long run real output rises in the long run real output falls in the short run

real output rises in the short run

Deflation led to further falls in aggregate demand during the Great Depression. True False

true

Suppose your grandmother withdraws $5 from her checking account and puts a $5 bill in your next birthday card. You keep the $5 under your mattress. Your grandmother's action has _________________________. increased taxes not changed the money supply reduced the money supply increased the money supply

reduced the money supply

Suppose spending growth has risen. The inflation rate adjusts slowly. This means that real output growth will ________________________. rise in the long run rise in the short run fall in the long run fall in the short run

rise in the short run

The Fed Chair is arguably the ________________________ person in the US. most responsible most powerful second-most powerful least powerful

second-most powerful

If the spending growth rate falls from 5% to 3%, the aggregate demand curve will ________________________. shift rightward shift leftward remain unchanged fluctuate

shift leftward

Forces that increase spending cause the aggregate demand curve to ___________________________. remain unchanged shift outward shift inward

shift outward

If the spending growth rate rises from 5% to 7%, the aggregate demand curve will ___________________. shift to the left not change shift to the right fluctuate

shift to the right

The aggregate demand curve shows us all the possible combinations of inflation and real growth consistent with a specified rate of _________________. velocity growth spending growth money growth real economic growth

spending growth

When wages don't change very rapidly in response to changing economic conditions, we say that they are ____________________. slippery gloppy sticky drippy

sticky

The Fed has the most direct control over _____________________. aggregate demand M1 M2 the monetary base currency

the monetary base

The most important measures of the money supply are _________________________. the monetary base only M1 only M1, M2, and M3 M2 only the monetary base, M1, and M2

the monetary base, M1, and M2

In the quantity theory of money, the Federal Reserve can influence __________________________ directly. the money supply the price level real output the velocity of money

the money supply

Monetary policy influences ___________________________. all of these are correct ideas political stability honest government the quantity of money

the quantity of money

Monetary policy influences __________________________________. the quantity of money property rights physical capital all of these are correct human capital

the quantity of money

As people adjust their expectations about inflation, ____________________________. all three curves shift the aggregate demand curve shifts nothing changes the short run aggregate supply curve shifts the long run aggregate supply curve shifts

the short run aggregate supply curve shifts

"Reserve deposits" at the Fed are basically banks' "checking accounts" that banks use to pay one another. True False

true

According to the economist Truman Bewley, firms resort to layoffs rather than wage cuts because they are concerned about low morale. True False

true

An asset that can be very easily and quickly converted into a widely-used means of payment without loss of value is usually considered money. True False

true

An increase in velocity means spending has increased because money is changing hands at a faster rate. True False

true

Any asset that is a widely-used means of payment is considered money. True False

true

Bank failures during the Great Depression meant that the economy did not get capital to where it was most valuable as efficiently as it did previously. True False

true

Bank failures during the Great Depression reduced the effectiveness of financial intermediation. True False

true

Banks only keep a fraction of your deposits on reserve. True False

true

Deflation increases the burden of debt. True False

true