Final review MC

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. therefore, the federal reserve decided to pursue a policy to increase the rate of economic growth. Which policy changes by the fed would reinforce each other to achieve that objective?

buying gov securities and lowering the discount rate

Which would be considered to be one of the factors that shifts the aggregate supply curve in the short run? A change in

technology

Deflation refers to a situation where

price level falls, and could be caused by a shift of AD to the left

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

price level for the vertical axis and aggregate supply for the horizontal axis

Changes in which of the following would shift the aggregate supply curve?

productivity

If at a particular price level, real output form producers is greater than real output desired by purchasers, then there will be a general

surplus and the price level will fall

Which of the following will increase commercial bank reserves?

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 reserve ratio

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

time the need for the fiscal action is recognized and the time the the action is taken

In an economy, the government wants to increase aggregate demand by $150 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.2 then it could increase government spending by

$30

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 1100 and the price level of 100 current aggregate demand is 1250. If the government moves the economy back to the full employment level of output by reducing government expenditure by 50 then the expenditures multiplier equals

5

which of the following best describes the cause and effect chain of an contractionary monetary policy

A decrease in the money supply will raise the interest rates, decrease investment spending nd decrease aggregate demand and GDP

refer to 6: If current output is Q1: and full employment output is Q3, then in the long run the short aggregate supply schedule is

AS3

Refer to 3: In the diagrams, AD1 and AD1 are the before curves. Assuming Q1 is full- employment output, inflation is depicted by

C

What combination would most likely cause a shift from AD1 to AD2

a decrease in taxes and an increase in government spending

Which of the following effects best explains the downward slope of the aggregate demand curve?

an interest rate effect

Most economist believe that monetary policy is

better than fiscal policy for month to month stabilization

If the dollar appreciates in value relative to foreign currencies aggregate demand

decreases because net exports decrease

If the fed sells government securities to the general public in the open market the

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 feds

In an effect to increase economic growth the government could decrease taxes, thus effectively increasing households' disposable income. We would expect this to

increase aggregate demand

There is general agreement among economist that a proposed fiscal policy should be evaluated for its

potential positive and negative effects on long run productivity and growth

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 exports = 20 billion. If the full employment level of GDP for this economy is 700 billion then what combination of actions would be most consistent with closing the GDP gap here?

increase government spending and reduce taxes

With demand pull inflation in the short run, there will be an

increase in real GDP -----OR--------- rightward shift in the aggregate demand curve

A decrease in input productivity will

increase the equilibrium price level, because the supply curve shifts leftward

The real balances effect on aggregate demand suggests that a

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