Final Macroeconomic

Which of the following assets is the most liquid

A $50 bill

If the economy were suffering from an inflationary gap government should follow

A contractionary policy which would shift the AD curve to the left

The aggregate demand curve would shift to the left for all the following reasons except

A fall in consumers wealth

When an economy experiences stagflation it is usually caused by a

A negative supply shock

A negative demand shock can cause

A recessionary gap

An example of an automatic stabilizer that works when the economy contracts is

A rise in government transfer as more people receive unemployment insurance benefits

If the marginal propensity to save is .25 investment spending is $700 million and the government increase its purchase of goods and services by $100 million, then real GDP increase by

$400 million

If the multiplies equals 4 then the marginal propensity to save must equal to

.25

The money multiplier is equal to

1 divided by the reserve ratio

The multiplies is

1/[1-MPC]

If the MPS = .1 then the value of the multiplier equals

10.

A bank run occurs when

Many bank deposits are trying to withdraw their funds from the banks

If the MPC is .8 then the multiplier is

5.

When government decrease government spending the

AD curve will shift to the left

Raising taxes shifts the

Aggregate demand curve to the left

A recessionary gap is when

Aggregate output is below potential output

The intersection of SRAS with AD indicates

An economy experiencing a recessionary gap

Which of the following will shift the short run aggregate supply curve to the right

An economy wide decrease in commodity price

A rise in labor productivity is most likely to result in

An increase in aggregate supply

An economy is currently in the midst of a recession. An example of a government policy aimed at moving the economy back to potential GDP is

An increase in government spending on infrastructure improvements

Which of the following is an expansionary fiscal policy

An increase in unemployment benefits

Money is

Any assets that has a positive value

Government spending and taxation rules that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are know as

Automatic stabilizers

The tool of monetary policy with which the federal reserve buys and sells give bonds is called

Moral suasion

The federal funds rate is the interest rate at which

Banks borrow from other banks with excess reserve

If the economy is currently in a recessionary gap real GDP will be _____ potential output

Below

When the federal government finances a deficit the government may

Borrow funds

The components of aggregate demand are

C (consumption) I (investment) G (government)expenditures and X- IM (net exports)

Money that has value apart from its use as money is

Commodity money

The available balance on a credit card is not money because

Credit cards create liabilities

During the great depression the united states

Moved to the left along its aggregate curve

The current level of real GDP lies above potential GDP. An appropriate fiscal policy would be to ____ which will shift the____curve to the___

Decrease government purchase AD Left

Suppose the economy is experiencing a recessionary gap. To move equilibrium aggregate output closer to the level of potential output the best fish all policy is to

Decrease taxes

The difference between budget deficit and government debt is that

Deficit is the amount by which government spending exceeds tax revenues whereas debt is the amount the government owes

Currency in the United States today is _____ money

Fait

Money that the government has ordered to be accepted as money is

Fait money

Because of the multiplier effect an increase in government spending $200 billion will increase aggregate output by less than that amount

False

Because of the multiplier effect an increase in government spending of $200 billion will increase aggregate output by less than that amount

False

When faced with recessionary gap, the government can increase taxes and cut spending to close it

False

In the United States the institution that is charged with determining the size of the monetary base and with regulating the banking system is the

Federal Reserve

When banks borrow and lend reserve from each other they are participating in the ____market

Federal funds

The reserve ratio is the

Fraction of deposits that banks hold in their vaults plus their deposits at the federal reserve

Fait money

Has advantages over commodity backed money

Expansionary fiscal policy

Increase aggregate demand

A positive demand shock will

Increase the aggregate price level and the aggregate output

The point where the long run aggregate supply curve intercepts the horizontal axis

Is the economy potential output

One of the shortcomings of fiscal policy is that

It has time lags and sometimes it may end up destabilizing the economy as a result of these lags

Which is not considered one of the three chief characteristics of money

It's a highly illiquid asset

The government has a budget deficit if

It's total revenues are less than its total expenditures

Banks create money when they

Make loans

The MPS plus the MPC must equal

One

The level of output in the long run is known as

Potential output

Profit per unit equals

Price per unit minus cost per unit

Suppose the MPC = .8 and the government cuts by $40 billion. Which of the following will be the likely effect

Real GDP will expand by $160 billion

The major tools of monetary policy available to the federal reserve system include

Reserve requirements open market operations and the discount rate

The national debt ___ in years in which the federal government incurs a ____

Rises Deficit

Money is anything that

Serves as a medium of exchange for goods and services

The aggregate demand curve

Slopes downward

The function of money are

Store of value unit of account and medium of exchange

An example of an automatic stabilizer is

Tax receipts rising when GDP rises

The aggregate supply curve shows the relationship between

The aggregate price level and the quantity of aggregate output supplied

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

The aggregate quantity of output demanded

The marginal propensity to consume is

The change in consumer spending divided by the change in aggregate disposable income

Bank reserves are

The fraction of deposits kept in the form of liquid assets

Bank reserves are

The fraction of deposits kept in the form of very liquid assets

The reserve ratio is

The fraction of its deposits that a bank holds as reserves

Aggregate demand will shift to the right if

The government purchases increase

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 government has almost eliminated the possibility of bank runs by instituting protective measures all of the following are such measures except

The loan guarantees

If the federal reserve increase the discount rate

The money supply is likely to decrease

If the economy is at equilibrium below potential output

There is a recessionary gap and expansionary fiscal policy is appropriate

If the economy is at equilibrium above potential output

There is an inflationary gap and contractionary fiscal policy is appropriate

Banks don't lend out all of the funds placed in their hands by depositors because

They have to satisfy any depositor who want to with draw funds

Banks don't lend out all of the funds deposited because

They have to satisfy any depositor who wants to withdraw funds

Banks can lend money because

They know not everyone wants their deposits back at the same time

The medium of exchange functions mean that money is used

To pay for goods and services

A negative supply shock raises the production costs and decrease the quantity producers are willing to supply at any given price level

True

Deflation was a big problem in the Great Depression

True

Expansionary fiscal policy pushes the aggregate demand curve to the right

True

Fiscal policy is the use of taxes government transfer or government purchase to shift the aggregate demand curve

True

Most economists oppose an annually balanced budget because it would undermine automatic stabilizer

True

One of the lags associated with fiscal policy is the time it takes to recognize that the economy has developed a recessionary or inflationary gap

True

Stagflation is the combination of inflation and falling aggregate output

True

Taxes increase GDP rises this is an example of an automatic stabilizer

True

The larger the marginal propensity to consume the larger is the multiplier

True

Most economists believe that a balanced budget would

Undermine the role of taxes and transfer as automatic stabilizer

The short run aggregate supply curve is

Upward slopping

The long run aggregate supply curve is

Vertical