econ quizzes

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand?

$50 billion

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

increasing taxes by $20 billion.

If bond prices decrease, then the

interest rate increases.

A bank's net worth is equal to its

assets minus its liabilities.

The direct trade of goods and services for other goods and services is called

barter

Suppose a supply shock unexpectedly increased real GDP. With no changes to the price level or money supply, we can expect

the velocity of money to increase.

Use the following diagram of the market for money to answer the next question. The downward slope of the money demand curve Dm is best explained in terms of the

transactions demand for money.

The economy is in a recession. The government enacts a policy to increase purchases by $2 billion. The MPC is 0.8. What would be the full increase in real GDP from the change in government purchases at a given price level?

10 billion

Answer the next question based on the following list of factors that are related to the aggregate demand curve. (1) Real-Balances Effect (2) Household Expectations (3) Interest-Rate Effect (4) Personal Income Tax Rates (5) Profit Expectations (6) National Income Abroad (7) Government Spending (8) Foreign Purchases Effect (9) Exchange Rates (10) Degree of Excess Capacity A change in net export spending would most likely be caused by changes in

7 and 8?

Which of the following statements is true?

A model that has correctly predicted events for the past several years will not be wrong in the future.

A lender need not be penalized by inflation if the

ender correctly anticipates inflation and increases the nominal interest rate accordingly.

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that

help offset changes in GDP.

The real-balances effect on aggregate demand suggests that a

higher price level will decrease the real value of many financial assets and therefore cause an increase in spending.

An increase in the money supply is likely to reduce

interest rates

If the Federal Reserve System buys government securities from commercial banks and the public, then

it will be easier to obtain loans at commercial banks.

Money eliminates the need for a coincidence of wants in trading primarily through its role as a

medium of exchange.

f the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds to ______ the money supply.

purchase; increase

The purpose of a contractionary monetary policy is to

raise interest rates and restrict the availability of bank credit.

In the short run, a decrease in planned investment will

raise the unemployment rate and reduce the rate of inflation.

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for

setting the Fed's monetary policy and directing the purchase and sale of government securities.

Use the following table to answer the next question. YearUnemployment Rate (%)Inflation Rate (%)14.03.024.52.535.02.045.53.055.02.5 Based on this data, we can conclude

the Phillips Curve model is correct.

What is meant by the velocity of money?

the number of times a dollar is used to make purchases

Using fiscal policy to stabilize the economy is difficult because

there are time lags involved in the use of fiscal policy.

When the price level decreases,

there is a decrease in consumer spending that is sensitive to changes in interest rates.

Use the following table to answer the next question. the size of the M2 money supply

$2,054 billion.

Use the information in the following table to answer the next question. The amount of investment that will be forthcoming in this economy at equilibrium is

$500

the Federal Reserve System was established by the Federal Reserve Act of

1913

Use the following graph to answer the next question. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, it would bring the economy to

P1 and Q3.

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1,000. If the price of this bond increases by $2,500, the interest rate in effect will

decrease by 2 percentage points

The interest rate will fall when the

demand for money increases.

An expected increase in the prices of consumer goods in the near future will

increase (or shift right) in aggregate demand now.

Which of the following items are included in money supply M2 but not M1?

savings deposits

Which would most likely increase aggregate supply?

an increase in productivity

A country's government plans a $2 billion increase in government purchases in hopes of increasing real GDP in the economy by $40 billion. The plan would work if the MPS for this economy is

0.05

Assume that the full-employment level of output is $2,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,900 and at the price level of 100 current aggregate demand is $1,820. If the government moves the economy back to the full-employment level of output by reducing taxes by $60, then the MPC equals

0.75

Use the following table to answer the next question. YearUnemployment Rate (%)Inflation Rate (%)14.03.024.52.535.02.045.53.056.04.5 Based on this data, which years reflect a short-run change in aggregate demand?

1 2 and 3

Answer the next question based on the following list of factors that are related to the aggregate demand curve. (1) Real-Balances Effect (2) Household Expectations (3) Interest-Rate Effect (4) Personal Income Tax Rates (5) Profit Expectations (6) National Income Abroad (7) Government Spending (8) Foreign Purchases Effect (9) Exchange Rates (10) Degree of Excess Capacity Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending?

1 and 3

Use the following list of factors that are related to the aggregate demand curve to answer the next question. (1) Real-Balances Effect (2) Household Expectations (3) Interest-Rate Effect (4) Personal Income Tax Rates (5) Profit Expectations (6) National Income Abroad (7) Government Spending (8) Foreign Purchases Effect (9) Exchange Rates (10) Degree of Excess Capacity Which of the above factors best explain the downward slope of aggregate demand curve?

1,3,8

If the monetary multiplier is 6, then the reserve requirement must be

1.67

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve. The deposit increases the loan capacity of the bank by

10800

An economy is experiencing a high rate of inflation. The government wants to reduce aggregate demand 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

The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $100, what will be the interest rate yield to a new buyer of the bond?

16.7%

In the graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. If the interest rate was 4 percent, the asset demand for money would be

200

Use the following table, which shows the aggregate demand and aggregate supply schedule for a hypothetical economy, to answer the next question. Real Domestic Output Demanded (in billions)Price Level (index value)Real Domestic Output Supplied (in billions)$500350$3,5001,0003003,0001,5002502,5002,0002002,0002,5001501,5003,0001001,000 If the quantity of real domestic output demanded increased by $1,000 at each price level, the new equilibrium price level and quantity of real domestic output would be

250 and $2,500.

Answer the next question based on the following balance sheet for the First National Bank. If the reserve requirement is 15 percent, First National Bank can make new loans of up to

32000

The graph shows the supply and demand for money where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following a decrease in the transactions demand for money?

B

Use the graph to answer the following question: The horizontal axis is labeled quantity of investment and the vertical axis is labeled interest rate. Four parallel decreasing lines are labeled Demand 0, Demand 1, Demand 2, and Demand 3. Demand 2 has two points marked from left to right as B and A. Demand 3 has two points marked from left to right as C and D. If the market for investment is initially in equilibrium at point A, but then implementation of fiscal policy causes crowding out to occur, the equilibrium in the market will likely

C

Use the following graph to answer the next question. Assume the economy is initially located on AD0 and AS0. An increase in resource prices would result in price ________ and real domestic output ________.

E;B

Use the following figure for the federal funds market to answer the next question. If the Fed supplies $200 billion in reserves, the equilibrium prime rate is

It is undetermined with the information given.

The most important among the Federal Reserve district banks in conducting monetary policy is the

NY bank

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as

a unit of account.

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the

asset demand for money.

If the Fed buys government securities from commercial banks in the open market

commercial banks give the securities to the Fed, and the Fed increases the banks' reserves.

The aggregate demand curve shows the

direct relationship between the price level and the quantity of real GDP produced.

The interest rate that banks charge one another for the loan of excess reserves is the

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

government regulation.??

The real-balance effect pertains to the effect of

price changes on aggregate demand, while the wealth effect refers to the impact of changes in wealth on aggregate demand.

An aggregate supply curve represents the relationship between the

price level and the buying of real domestic output.??

If the economy falls into a recession, automatic stabilizers will cause

tax receipts to fall and government spending to rise.

The equation of exchange shows the relationship between

the supply and demand of money.

when interest rate falls

transactions demand for money increases.

Disequilibrium in the money market is mainly corrected via a change in

bond prices

Which of the following is an example of an economic investment?

building a new bank office

Answer the next question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond falls by $200, the interest rate will

rise by 2.5 percentage points.

When the Federal Reserve seeks to raise the targeted federal funds rate, it

sells government securities to decrease the excess reserves available for overnight loans.

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to

increase aggregate demand.

an increase in investment and government purchases can be expected to shift the aggregate expenditures curve

upward and the aggregate demand curve rightward.

Use the following table to answer the next question. YearUnemployment Rate (%)Inflation Rate (%)14.03.024.52.535.02.045.53.056.04.5 Based on this data, the Phillips Curve is

upward sloping

Assume that the reserve requirement for the commercial banks is 25 percent. If the Federal Reserve Banks buy $3 billion in government securities, the lending ability of the commercial banking system will increase by

$12 billion.

You are given the following information about the economy: the nominal interest rate = 8 percent; the real rate of interest = 6 percent. The inflation premium is

2 percent

Use the following graph to answer the next question. Which line represents the long-run aggregate supply curve?

4

Use the information in the following table to answer the next question. The equilibrium interest rate in this economy is

4 percent

Which of the following fiscal policy changes would be the most expansionary?

A $40 billion increase in government purchases

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Input prices have increased.

Use the following graph for the federal funds market to answer the next question. The horizontal axis is labeled quantity of reserves and from left to right lists Q f3, Q f1, and Q f2. The vertical axis is labeled federal funds rate (percent) and from bottom to top lists i f2, i f1, and i f3. Demand curve, D t is a decreasing line that intersects three parallel and horizontal supply lines drawn from i f2, i f1, and i f3 at the vertical axis, labeled S f2, Sf1, and S f3, respectively. D t intersects S t3 at data point (Q f3, i t3), S f1 at data point (Q f1, i f1), and S f2 at data point (Q f2, i f2). Dotted vertical lines connect the three points of intersection to the horizontal axis. If the Fed wants the federal funds rate to be at if1, what quantity of reserves do they need to make available to banks?

Qf3

Use the following market-for-money diagrams to answer the next question. If the Federal Reserve increased the stock of money, the

S curve would shift rightward and the equilibrium interest rate would fall.

Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves?

The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase.

The Federal Reserve System regulates the money supply primarily by

altering the reserves of commercial banks, largely through sales and purchases of government bonds.

Answer the next question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. Suppose the Fed wants to reduce the money supply by $400 billion to drive up interest rates and dampen inflation. Assuming that the money multiplier is operating to full effect, to accomplish the desired reduction, the Fed could

buy $40 billion of U.S. securities from the banks.

To reduce the federal funds rate, the Fed can

buy government bonds from the public.

Inflation caused by a rise in the prices of inputs is referred to as

cost push inflation

When oil and energy prices rise, the economy tends to experience

cost push inflation

Fiscal policy is sometimes initiated on the advice of the

council of economic advisors

Use the following given market-for-money diagrams to answer the next question.The total demand for money is shown by

d3

Due to automatic stabilizers, when the nation's total income rises, government transfer payments

decrease and tax revenues increase

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ______, which will ______ investment spending.

decrease; increase

If the interest rate rises from 2 percent to 3 percent, the supply of money must have

decreased by. 50 billion

Money functions as a store of value if it allows you to

delay purchases until you want the goods.

Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from its regional Federal Reserve Bank. The interest rate on the loan is called the

discount rate.

Use the following table to answer the next question. YearUnemployment Rate (%)Inflation Rate (%)14.03.024.52.535.02.045.53.056.04.5 Consider years 1, 2, and 3. Based on this data, the Phillips Curve is

downward sloping

The demand curve for federal funds is

downward-sloping, because higher interest rates discourage commercial banks from borrowing federal funds, but lower rates encourage borrowing.

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's MPC is small.?

Answer the next question on the basis of the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1,250, the interest rate will

fall to 8 percent

Which of the following is not a characteristic of cost-push inflation?

falling unemployment

n increase in the aggregate expenditures schedule

increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

If the national incomes of our trading partners increase, then our aggregate demand

increases because net exports increase.

The transactions demand for money is least likely to be a function of the

interest rate.

If net exports decrease by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift

leftward by $40 billion at each price level.

Use the following graph to answer the next question. Which line in the graph above would best illustrate the transactions demand for money curve?

line 3

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that a(n)

ncreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

1. In the short run there is ______ relationship between the unemployment rate and the rate of inflation.

negative

The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the

prime rate

A newspaper headline reads: "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

reduce inflationary pressures in the economy.

The _________ the expenditures multiplier effect, the ________ the change needed in government spending to bring about a given amount of increase in real GDP.

smaller,larger

Use the following figure to answer the next question. In the figure, AD2 and AS2 represent the original aggregate supply and demand curves. If Q3 is full-employment output, then AD2 and AS1 best represent a period of

stagflation

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

start of the recession and the time it takes to recognize that the recession has started.

Use the following graph to answer the next question. Which of the following factors does not explain a movement along the AD curve?

the expenditure multiplier effect

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.6, then it would increase government purchases by

$20 billion.

se the following graph, which shows the aggregate demand and aggregate supply schedule for a hypothetical economy, to answer the next question. Real Domestic Output Demanded (in billions)Price Level (index value)Real Domestic Output Supplied (in billions)$500350$3,5001,0003003,0001,5002502,5002,0002002,0002,5001501,5003,0001001,000 If the quantity of real domestic output demanded decreased by $500 and the quantity of real domestic output supplied increased by $500 at each price level, the new equilibrium price level and quantity of real domestic output would be

150 and 2000?

Use the following graph to answer the next question. The horizontal axis is labeled real domestic output and from left to right lists labels as Q1, Q2, and Q3. The vertical axis is labeled price level and from bottom to top lists labels as P1 and P2. Two decreasing curves, AD1 and AD2 intersect an increasing curve, AS. Dashed lines connect the point of intersection of AD1 and AS to Q1 and P1, point of intersection of AD2 and AS through Q2 and P2, and a point at AD2 (to the exact right of the point of intersection of AD1 and AS) to Q3 and P1. If AD1 shifts to AD2, then the equilibrium output increases from

Q1 to Q2 while the price level rises from P1 to P2.??

When the general price level in our economy increases, which of the following effects does not occur?

The purchasing power of people's savings will increase.

Credit card balances are not considered to be money primarily because they

are not part of people's wealth.

Use the following graph, which shows an aggregate demand curve, to answer the next question. If the price level increases from 150 to 250, the real output demanded will

decrease by 200 billion

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that a(n

decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.

The economy's long-run AS curve assumes that wages and other resource prices

eventually rise and fall to match upward or downward changes in the price level.

Use the following graph to answer the next question. In the figure, AD1 and AS1 represent the original aggregate supply and demand curves. If Q1 is full-employment output, then AD2 and AS1 represent a(n)

expansion

Use the following diagrams for the U.S. economy to answer the next question. In graph 1, a decreasing line, AD intersects two increasing curves, AS1 and AS2. Two arrows point from AS1 through AS2 (to the right).In graph 2, a decreasing line, AD intersects two increasing curves, AS2 and AS1. Two arrows point from AS1 through AS2 (to the left).In graph 3, two decreasing lines, AD1 and AD2 intersect an increasing curve, AS. Two arrows point from AD1 through AD2 (to the right).In graph 4, two decreasing lines, AD2 and AD1 intersect an increasing curve, AS. Two arrows point from AD1 through AD2 (to the left). Which of the diagrams best portrays the effects of an increase in resource productivity?

graph 1

Use the following diagrams for the U.S. economy to answer the next question. If the economy is initially at full employment, which of the diagrams best portrays a recession as a result of an increase in the cost of production?

graph 2

Refer to the following graphs. In graph (1), the horizontal axis is labeled nominal output and the vertical axis is labeled relative price.In graph (2), the horizontal axis is labeled real output and the vertical axis is labeled relative price.In graph (3), the horizontal axis is labeled nominal output and the vertical axis is labeled price level.In graph (4), the horizontal axis is labeled real output and the vertical axis is labeled price level. Which of the graphs correctly labels the axes of the AS-AD model?

graph 4

use the following diagrams for the U.S. economy to answer the next question. If the economy is initially at full employment, which of the diagrams best portrays a recession resulting from a decrease in government purchases?

graph 4

When the government increases its borrowing in the loanable funds market, the likely result is ________ loanable funds traded at a ________ interest rate.

more;higher

Use the following graph, which shows an aggregate demand, to answer the next question. If the economy is at point C and the price level increases by 100, then the real balances, interest-rate, and foreign purchases effects will

move the economy to point A.

If the price level decreases, then the aggregate expenditures schedule will shift, and this translates into a

movement down along the aggregate demand curve.

A reduction in personal income taxes will cause

movement upward along the short-run Phillips Curve.

If government finances fiscal policy through additional borrowing, it could affect the loanable funds market by causing

n increase in the demand and an increase in supply for loanable funds.

The short run Phillips Curve shows there is ________ relationship between the unemployment rate and the rate of inflation.

negative

Item11 5points eBookReferences Check my workCheck My Work button is now disabled1 Item 11 Use the following graphs to answer the next question. In the diagrams, AD1 and AS1 are the "before" curves. Assuming Q1 is full-employment output, an expansion is depicted by

panel C only

Use the following graphs to answer the next question. In the diagrams, AD1 and AS1 are the "before" curves. Assuming Q1 is full-employment output, a recession is depicted by

panels A and B

Refer to the graph shown. The horizontal axis is labeled real output and lists L asterisk. The vertical axis is labeled price level. An increasing line, AS intersects two decreasing lines, AD1 and AD2 at points marked as A and C, respectively. A vertical line from L asterisk at the horizontal axis runs parallel to the vertical axis and is labeled LRAS. LRAS intersects AD1 at a point marked as B and the point of intersection of AS and AD2 is marked as C. An economy is in both short- and long-run equilibrium at

point c only?

Refer to the graph shown. The horizontal axis from left to right, lists labels as Y0 and Y1 and the vertical axis has no labels. An increasing line, SRAS1 is drawn parallel to another increasing line, SRAS0. From left to right, SRAS1 has two points labeled, B and D and SRAS0 has two points labeled A and C (exactly below B and D). Two vertical lines from B and D intersect SRAS0 at A and C, respectively, and connects to Y0 and Y1 at the horizontal axis. A decrease in production costs is likely to cause a movement from

point c to d

Use the following graph to answer the next question. The horizontal axis is labeled real domestic output, GDP and from left to right lists labels as Q1, Q2, and Q3. The vertical axis is labeled price level and from bottom to top lists labels as P1 and P2. A decreasing curve, AD intersects an increasing curve, AS at a point marked as g. To the left and below g, is a point marked as e, at AS. To the right and below g, is a point marked as f, at AD. Dashed lines connect point g to the two axes at Q2 and P2, point e to the two axes at Q1 and P1, and point f to the two axes at Q3 and P1. The short-run equilibrium for this economy is at

point g

Which of the following functions does the Federal Reserve System not perform?

providing banking services to the general public

Use the following graph to answer the next question. The horizontal axis is labeled real GDP and from left to right lists Q4, Q1, Q2, and Q3. The vertical axis is labeled price level and from bottom to top lists P1 and P2. Two decreasing lines, AD1 and AD2 intersect an increasing curve, AS at data points (Q1, P1) and (Q2, P2), respectively. Dotted lines from Q1 and P1 connects to the point of intersection of AD1 and AS, from Q3 and P1 through a point at AD2 (to the exact right of the point of intersection of AD1 and AS), from Q2 and P2 through point of intersection of AD2 and AS, and from Q4 and P2 through a point at AD1 (to the exact left of the point of intersection of AD2 and AS). If aggregate demand curve shifts from AD2 to AD1, the effect on real GDP will be a decrease from

q2 to q1?

The labels for the axes of an aggregate supply curve should be

real domestic output for the horizontal axis and price level for the vertical axis.

Suppose an increase in government spending causes the inflation rate to increase, the Phillips Curve suggests

real interest rates will increase.

When crowding out occurs, it ________ the effectiveness of ________ fiscal policy.

reduces; expansionary

The required-reserve ratio is equal to a commercial bank's

required reserves divided by its checkable-deposit liabilities.

Which would most likely shift the aggregate supply curve? A change in the prices of

resources