Exam 2 Quizzes
The M1 money supply is composed of
Checkable deposits and currency in circulation
Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate?
Selling government securities in the open market and decreasing government spending
If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as
a unit of account
The purchase and sale of government securities by the Fed is called _____.
Open market operations
Crowding out makes fiscal policy more complicated to formulate because it can ________ the theoretical magnitude of the_______ .
Reduce, multiplier effect
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
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 Investment spending would most likely be influenced by changes in
5 and 10
The usual aim of expansionary fiscal policy is to increase
Aggregate demand
Which of the following best describes the cause-and-effect chain of a restrictive monetary policy?
Decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
A restrictive monetary policy is designed to shift the aggregate _____.
Demand curve to the left
Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the _____.
Federal funds rate
Monetary policy is expected to have its greatest impact on _____.
Gross investment
In an effort to stabilize the banking sector and keep banks lending, from October 2008 to September 2009, the Fed _____.
Lowered the federal funds rate
Economic investment refers to _____.
Making new additions to a firm's stock of capital
Money eliminates the need for a coincidence of wants in trading primarily through its role as a
Medium of exchange
As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system
Serves as an automatic stabilizer for the economy
Currency and checkable deposits are
The major components of money supply M1
The intersection of the aggregate demand and aggregate supply curves determines the _____.
equilibrium level of real domestic outputs and prices
Which of the following functions of money enables society to gain the benefits of geographic and labor specialization?
medium of exchange
The three functions of money are
medium of exchange, unit of account, store of value
A policy maker who is concerned with the rate of inflation may not choose to reduce it because _____.
reducing rate of inflation means unemployment rate will increase
Which would most likely shift the aggregate supply curve? A change in the prices of _____.
resources
If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will
rise, causing households and businesses to hold less money
When the reserve requirement is increased, _____.
the excess reserves of member banks are reduced
The concept that an additional dollar of expenditures will result in the creation of more than one dollar's worth of real GDP is called
the multiplier effect
Payments made by the government that do not require an exchange of economic activity in return are also known as
transfer payments
A recession is defined as at least ______ consecutive quarters of decline in real GDP.
two
The long-run aggregate supply curve is _____.
vertical
In the Great Recession of 2007-2009, the stock market values shrank, causing a reverse _____.
wealth effect
