Homework questions

If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:

If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:

If actual output exceeds potential output, the economy:

is experiencing an inflationary gap

Refer to the graph shown. During the Reagan Administration (1981 to 1989), tax rates were reduced significantly, while federal defense spending rose by 80 percent. The effect of these policies on the AD curve is best shown as a movement from:

look at hw nov. 2 for graph A to C.

Given a required reserve ratio of 20 percent for all banks, total bank reserves of $300 billion could support maximum deposits of:spending.

1,500 Billion

The formula for the money multiplier is:

1/r where r is the reserve ratio.

A reserve ratio of 0.10 means that a bank can lend an amount equal to:

90 percent of its deposit liabilities.

Refer to the graph shown. Suppose the economy is initially at O but then the Fed adopts an expansionary monetary policy. The immediate effect of this policy will be to move the economy to:

A.

Refer to the graph shown. A policy that cuts government spending would be most appropriate when the economy is at point:

B

In early 2000s, oil prices were rising because of concern about the Iraqi and other situations, along with rapid growth in demand in the Far East. Prices eventually reached over $100 a barrel. How would most economists predict these high prices should affect the U.S. economy in terms of the AD/AS model?

Because oil is an important input in many production processes, the higher prices should shift the short-run aggregate supply curve up (to the left).

According to the structural stagnation hypothesis what is the long-run cause of the recent problems facing the United States?

Globalization.

In the graph shown, an upward shift in the WAS curve:

Lowers the trade deficit because domestic producers are more competitive.

Which of the following statements best describes the figure shown?

The world price level equals the domestic price level.

True or False: An increase in the federal funds rate is a signal that the Fed wants a tighter monetary policy.

True

Refer to the graph shown. According to the globalized AS/AD model, which best represents the world aggregate supply and trade in the 1970s?

WAS2 and the United States had a small trade deficit.

In the graph shown, the country has:

a trade deficit.

Keynesian economic tools are not adequately effective when

a trade-off exists between the rate of unemployment and the rate of inflation.

Which of the following is NOT a reason for liquidity preference?

an equilibrium demand for money

In early 2000s, the dollar depreciated sharply against the euro and the yen. The dollar's depreciation should result in:

an increase in U.S. exports and an outward shift of the U.S. aggregate demand curve.

According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:

both production and prices.

Refer to the graph shown. Monetary policy that shifts the AD curve from AD0 to AD2 is

contractionary.

According to the AS/AD model, an expansionary monetary policy:

decreases interest rates, raises investment, and increases income.

The goldsmith's ability to create money was based on the fact that:

gold receipts were rarely exchanged for gold.

If the economy is caught in a liquidity trap, the appropriate government response is: increase the money supply

government deficit spending

A month ago, you bought a one-year bond with a value of $100 that pays a fixed interest rate of 5 percent per year. The interest rate of the economy was also 5 percent. Today you read in the newspaper that the interest rate in the economy increased to 6 percent. You are holding a bond that is:

less desirable to other investors

The process of packaging a variety of loans together and slicing them up into new financial instruments is called:

securitization.

Suppose the money multiplier in the United States is 2.5. If the Fed wants to reduce the money supply by 1,000 it should:

sell government securities worth 400.

If someone invested in a large quantity of long term bonds and wished to sell them, he/she should

sell immediately if interest rates are expected to rise

From the mid-1980s to 2009, the value of the Japanese yen fell from over 300 yen per dollar to about 100 yen per dollar. Considering the impact of this alone, this would likely:

shift the U.S. AD curve to the right.

If total income in Sweden remains the same but the wage share of income rises, the Swedish AD curve will most likely:

shift to the right.

If I am worried about the price of assets such as bonds falling, I may be more inclined to hold money instead. You hold cash for the:

speculative motive.

Holding money for the transactions motive implies the need to hold money for:

spending.

Open market operations are related to:

the Fed's buying and selling of government securities.