macro final

M2

M1+savings account (everything)

What is the federal government debt?

the value of outstanding bonds issued by the U.S. Treasury

How do banks create money?

by making loans

M1

currency+ checking account+ traveler's checks

fiscal policy in the AD-AS model: what is an expansionary fiscal policy? and a contractionary one?

expansionary: recession (G up T down) contractionary: expansion

What is government revenue?

labor tax

Limits of the fiscal policy: What is the federal government deficit?

Government expenditures>Tax revenue

What are the three tools used by the federal reserve to control the money supply?

-open market operations: purchase treasury securities -discount rate (down) -reserve requirements (down)

What are the Fed's other intermediate targets?

-quantity theory of money:Ms -Inflation target

What are the goals of monetary policy?

1. price stability 2. high employment 3. stability of financial markets and institutions 4. economic growth

Simple deposit multiplier formula

1/RR

What is the quantity theory of money?

=%P(price level), %M, %Y(real gdp)

Which of the following is not a function of​ money? A. Store of value. B. Medium of exchange. C. Commodity. D. Standard of deferred payment. E. Unit of account.

C. commodity

Limits of fiscal policy: What is crowding out?

G up I down

Monetary policy in the AD-AS model: What is a contractionary monetary policy?

Expansion: MS down, Interest Rate up

What is the Fed's dual mandate? Is it achievable?

Inflation and Money No

What is the Fed currently targeting?

Interest Rate: Fed Funds Rate

What determines the equilibrium interest rate in the money market?

Intersection of Money supply and money demand

Unconventional fiscal policy: what are the supply-side effects of a tax simplification?

LRAS shifts right

What are required reserves?

RR=10% of salary

Monetary policy in the AD-AS model: What is an expansionary monetary policy?

Recession

What are the implications for monetary policy?

`Inflation is a monetary phenomenon

Suppose the economy is initially in​ long-run equilibrium. The government enacts a policy to decrease taxes. In the​ short-run, this expansionary fiscal policy will​ cause: A. A shift from AD1 to AD2 and a movement to point​ B, with a higher price level and higher output. B. A shift from SRAS1 to SRAS2 and a movement to point​ B, with a lower price level and higher output. C. A shift from AD2 to AD1 and a movement to point​ C, with a lower price level and the same output. D. A shift from SRAS2 to SRAS1 and a movement to point​ D, with a higher price level and lower output.

a. a shift from AD1 to AD2 and a movement to point B, with a higher price level and higher output

What changes should they make if they decide a contractionary fiscal policy is​ necessary? A. In this​ case, Congress and the president should enact policies that decrease government spending and increase taxes. Your answer is correct. B. In this​ case, Congress and the president should enact policies that increase government spending and increase taxes. C. In this​ case, Congress and the president should enact policies that decrease government spending and decrease taxes. D. In this​ case, Congress and the president should enact policies that increase government spending and decrease taxes.

a. in this case, congress and the president should enact policies that decrease government spending and increase taxes

What do economists mean by the demand for​ money? A. It is the amount of money—currency and checking account deposits—that individuals hold. B. It is the amount of money—currency and checking account deposits—that individuals use to pay for one transaction per day. C. It is the monetary value of total wealth of individuals. D. It is the amount of​ currency, checking account deposits and stocks and bonds that individuals hold.

a. it is the amount of money--currency and checking account deposits--that individuals hold

Which one of the following is not one of the policy tools the Fed uses to control the money​ supply? A. Moral suasion. B. Open market operations. C. Discount policy. D. Reserve requirements.

a. moral suasion

Money serves as a standard of deferred payment when A. payments agreed to today but made in the future are in terms of money. B. it can be easily stored today and used for transactions in the future. C. sellers are willing to accept it in exchange for goods or services. D. All of the above are examples of money serving as a standard of deferred payment.

a. payments agreed to today but made in the future are in terms of money

Money serves as a unit of account when A. prices of goods and services are stated in terms of money. B. it can be easily stored and used for transactions in the future. C. sellers are willing to accept it in exchange for goods or services. D. All of the above are examples of money serving as a unit of account

a. prices of goods and services are stated in terms of money.

Which one of the following is not one of the monetary policy goals of the​ Fed? A. Reduce income inequality. B. Maintain high employment. C. Maintain price stability. D. Maintain stability of financial markets and institutions.

a. reduce income inequality

Milton Friedman argued that the Phillips curve did not represent a permanent​ trade-off between unemployment and​ inflation, since A. the​ long-run Phillips curve is​ vertical, there is no​ trade-off between unemployment and inflation in the long run. B. the​ long-run Phillips curve is downward​ sloping, there is a​ trade-off between unemployment and inflation in the long run. C. there is no difference between the​ long-run and the​ short-run Phillips curves. D. the​ long-run Phillips curve is​ horizontal, there is no​ trade-off between unemployment and inflation in the long run.

a. the long run phillips curve is vertical, there is no trade off between unemployment and inflation in the long run

Based on the quantity theory of​ money, if velocity is​ constant, inflation is likely to occur​ when: A. The money supply grows at a faster rate than real GDP. B. The money supply grows at a slower rate than real GDP. C. The money supply grows at the same rate as real GDP. D. The money supply and inflation are unrelated.

a. the money supply grows at a faster rate than real gdp

What is the difference between automatic stabilizers and discretionary fiscal policy?

automatic stabilizers: automatically happen, recession: expenses up, revenue down discretionary fiscal policy: US Congress legislation, US president executive order

Suppose the economy is initially in​ long-run equilibrium. The Fed decides to increase the required reserve ratio. In the​ short-run, this contractionary monetary policy will​ cause: A. A shift from AD1 to AD2 and a movement to point​ B, with a higher price level and higher output. B. A shift from AD2 to AD1 and a movement to point​ D, with a lower price level and lower output. C. A shift from SRAS2 to SRAS1 and a movement to point​ B, with a lower price level and higher output. D. A shift from SRAS1 to SRAS2 and a movement to point​ A, with a higher price level and the same output.

b. a shift from AD2 to AD1 and a movement to point D, with a lower price level and lower output

Changes in interest rates affect aggregate demand.Which of the following is affected by changes in interest rates​ and, as a​ result, impacts aggregate​ demand? ​(Mark all that​ apply.) A. Government spending B. Consumption of durable goods C. Business investment projects D. The value of the dollar

b. consumption of durable goods c. business investment projects d. the value of the dollar

The U.S. dollar can best be described as A. commodity money. B. fiat money. C. ​commodity-backed money. D. reserve money.

b. fiat money

Which of the following best explains the difference between commodity money and fiat​ money? A. Commodity money is usually authorized by the central​ bank, whereas fiat money has to be exchanged for gold by the central bank. B. Fiat money has no value except as​ money, whereas commodity money has value independent of its use as money. C. All money is commodity​ money, as it has to be exchanged for gold by the central bank. D. Commodity money has no value except as​ money, whereas fiat money has value independent of its use as money.

b. fiat money has no value except as money, whereas commodity money has value independent of its use as money

Which of the following would be the least desirable candidate to be a good medium of​ exchange? A. gold B. milk C. dollar bills D. seashells

b. milk

What is the disadvantage of holding​ money? A. Money cannot be readily used to buy financial assets. B. ​Money, in the form of currency or checking account​ deposits, earns either no interest or a very low rate of interest C. Money can be easily stolen or lost. D. Money is not very​ "liquid."

b. money, in the form of currency or checking account deposits, earns either no interest or a very low rate of interest

The federal government changes the required gasoline mileage for new cars. This is an example of A. a discretionary fiscal policy. B. not a fiscal policy. C. an automatic stabilizer.

b. not a fiscal policy

Which one of the following is not a function of​ money? A. Medium of exchange. B. Open market operation. C. Store of value. D. Unit of account. If something is to be considered as​ money, it has to fulfill _____.

b. open market operation -all four functions

Which of the policy tools the Fed uses is the most​ important? A. The Fed conducts monetary policy principally through discount policy. B. The Fed conducts monetary policy principally through open market operations. C. The Fed conducts monetary policy principally by changing the reserve requirement. D. The Fed conducts monetary policy principally by tax cuts and government spending increases.

b. the Fed conducts monetary policy principally through open market operations

Nobel laureate Milton Friedman and his followers belong to a school of thought known as monetarism. What do the monetarists argue the Fed should​ target? A. The Fed should target NEITHER the interest rate nor the money supply. B. The Fed should target the money​ supply, not the interest​ rate, and that it should adopt the monetary growth rule. C. The Fed should target the interest​ rate, not the money​ supply, and that it should adopt the monetary growth rule. D. The Fed should target BOTH the interest rate and the money supply.

b. the Fed should target the money supply, not the interest rate, and that it should adopt the monetary growth rule

Monetary policy is defined​ as: A. The actions the Federal Reserve takes to manage tax policy and interest rates. B. The actions the Federal Reserve takes to manage the money supply and interest rates. C. The actions Congress takes to manage tax policy and interest rates. D. The actions Congress takes to manage the money supply and interest rates.

b. the actions the Federal Reserve takes to manage the money supply and interest rates

When the Federal Reserve sells Treasury securities in the open​ market, A. the sellers of such securities deposit the funds in their banks and bank reserves decrease. B. the buyers of these securities pay for them with checks and bank reserves fall. C. the buyers of such securities buy new securities in the open market and there is a decrease in bank reserves. D. the public starts selling houses and firms disinvest in anticipation of banks decreasing their reserves.

b. the buyers of these securities pay for them with checks and bank reserves fall

Which of the following is not a viable monetary policy target for the​ Fed? A. The interest rate. B. The money demand C. The inflation rate. D. The money supply.

b. the money demand

When the Federal Reserve purchases Treasury securities in the open​ market, A. the buyers of these securities pay for them with checks drawn on their bank account and bank reserves increase. B. the sellers of such securities deposit the funds in their banks and bank reserves increase. C. the sellers of such securities buy new securities in the open market and there is an increase in bank reserves. D. the public starts buying houses and firms invest in anticipation of bank increasing their reserves.

b. the sellers of such securities deposit the funds in their banks and bank reserves increase

If the Fed believes the economy is about to fall into​ recession, it should A. use its judgment to do nothing and let the economy make the self adjustment back to potential GDP. B. use an expansionary monetary policy to lower the interest rate and shift AD to the right. C. use an expansionary fiscal policy to increase the interest rate and shift AD to the right. D. use a contractionary monetary policy to lower the interest rate and shift AD to the left.

b. use an expansionary monetary policy to lower the interest rate and shift AD to the right

If the Fed wants to move from a point on the​ short-run Phillips curve representing high unemployment and low inflation to a point representing lower unemployment and higher​ inflation, then it should A. use a combination of expansionary monetary and fiscal policies. B. use expansionary monetary policy. C. use contractionary monetary policy. D. use expansionary fiscal policy.

b. use expansionary monetary policy

When the Federal Reserve increases the required reserve ratio as a part of a contractionary monetary​ policy, there​ is: A. An increase in the money supply and an increase in the interest rate. B. An increase in the money supply and a decrease in the interest rate. C. A decrease in the money supply and an increase in the interest rate. D. A decrease in the money supply and a decrease in the interest rate.

c. a decrease in the money supply and an increase in the interest rate

Congress and the president enact a temporary cut in payroll taxes. This is an example of A. an automatic stabilizer. B. not a fiscal policy. C. a discretionary fiscal policy.

c. a discretionary fiscal policy

The revenue the federal government collects from the individual income tax declines during a recession. This is an example of A. a discretionary fiscal policy. B. not a fiscal policy. C. an automatic stabilizer.

c. an automatic stabilizer

When actual GDP is below potential GDP the budget deficit increases because​ of: A. an increase in transfer payments and an increase in tax revenues. B. a decrease in transfer payments and a decrease in tax revenues. C. an increase in transfer payments and a decrease in tax revenues. D. an decrease in transfer payments and an increase in tax revenues.

c. an increase in transfer payments and a decrease in tax revenues

Are federal expenditures higher today than they were in​ 1960? A. As a percentage of​ GDP, federal expenditures have remained unchanged since 1960. B. As a percentage of​ GDP, federal expenditures have decreased since 1960. C. As a percentage of​ GDP, federal expenditures have increased since 1960.

c. as a percentage of gdp, federal expenditures have increase since 1960

Are federal purchases higher today than they were in​ 1960? A. As a percentage of​ GDP, federal purchases have remained unchanged since 1960. B. As a percentage of​ GDP, federal purchases have increased since 1960. C. As a percentage of​ GDP, federal purchases have decreased since 1960.

c. as a percentage of gdp, federal purchases have decreased since 1960

What is fiscal​ policy? A. Fiscal policy can be described as changes in interest rates to achieve macroeconomic policy objectives. B. Fiscal policy can be described as changes in government spending and interest rates to achieve macroeconomic policy objectives. C. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives. D. Fiscal policy can be described as changes in interest rates and taxes to achieve macroeconomic policy objectives.

c. fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives

The term​ "crowding out" refers to a situation​ where: A. Fed policy increases interest rates and decreases private investment. B. Government spending decreases interest rates and increases private investment. C. Government spending increases interest rates and decreases private investment. D. Fed policy decreases interest rates and increases private investment.

c. government spending increases interest rates and decreases private investment

If the economy moves into​ recession, monetarists argue that the Fed should A. increase the federal funds rate. B. keep the money supply fixed. C. keep the money supply growing at a constant rate. D. decrease the money supply.

c. keep the money supply growing at a constant rate

What is the advantage of holding​ money? A. Currency and checking account deposits held by individuals earn substantial interest income. B. Money held by an individual can be used to measure​ one's wealth. C. Money can be used to buy​ goods, services, or financial assets. D. An individual pays little or no taxes on the amount of money he holds.

c. money can be used to buy goods, services, or financial assets

An increase in interest rates affects aggregate demand by A. shifting the aggregate supply curve to the​ right, increasing real GDP and lowering the price level. B. shifting the aggregate supply curve to the​ left, decreasing real GDP and increasing the price level. C. shifting the aggregate demand curve to the​ left, reducing real GDP and lowering the price level. D. shifting the aggregate demand curve to the​ right, increasing real GDP and lowering the price level.

c. shifting the aggregate demand curve to the left, reducing real gdp and lowering the price level

An asset would be usable as a medium of exchange for all of the following reasons ​except: A. the asset should be durable and not lose value due to spoilage. B. the asset should be divisible since goods are valued at different amounts. C. the asset should be a commodity that has intrinsic value. D. the asset must be generally accepted by most people.

c. the asset should be a commodity that has intrinsic value

A double coincidence of wants refers to A. the situation where two parties are involved in a transaction where money is the medium of exchange. B. the idea that a barter economy is more efficient than an economy that uses money. C. the fact that for a barter trade to take place between two​ people, each person must want what the other one has D. the situation in which a good that is used as money also has value independent of its use as money.

c. the fact that for a barter trade to take place between two people, each person must want what the other one has

The​ short-run Phillips curve exhibits a trade-off between inflation and unemployment​, whereas the​ long-run Phillips curve shows no trade-off between inflation and unemployment. Suppose that the expected inflation rate increases from 4 percent to 6 percent. What will happen to the​ short-run Phillips​ curve? A. The economy will go back to equilibrium with a lower inflation rate and a higher unemployment. B. The​ short-run trade-off between uemployment and inflation will be better than before as the economy moves to a lower​ short-run Phillips curve. C. The​ short-run trade-off between uemployment and inflation will be worse than before as the economy moves to a higher​ short-run Phillips curve. D. The real wage will​ fall, unemployment will fall and the economy will go back to equilibrium with an even higher inflation rate.

c. the short run trade off between unemployment and inflation will be worse than before as the economy moves to a higher short run phillips curve

What causes a movement along the money demand?

change in interest rate

Suppose the economy is initially in​ long-run equilibrium. The Fed enacts a policy to buy bonds. In the​ short-run, this expansionary monetary policy will​ cause: A. A shift from AD2 to AD1 and a movement to point​ C, with a lower price level and the same output. B. A shift from SRAS2 to SRAS1 and a movement to point​ D, with a higher price level and lower output. C. A shift from SRAS1 to SRAS2 and a movement to point​ B, with a lower price level and higher output. D. A shift from AD1 to AD2 and a movement to point​ B, with a higher price level and higher output.

d. a shift from AD1 to AD2 and a movement to point B, with a higher price level and higher output

The graph to the right illustrates the static​ AD-AS model. Suppose the economy is initially in​ long-run equilibrium at point A. The government decides to increase taxes. In the​ short-run, this contractionary fiscal policy will​ cause: A. A shift from SRAS1 to SRAS2 and a movement to point​ A, with a higher price level and the same output. B. A shift from AD1 to AD2 and a movement to point​ B, with a higher price level and higher output. C. A shift from SRAS2 to SRAS1 and a movement to point​ B, with a lower price level and higher output. D. A shift from AD2 to AD1 and a movement to point​ D, with a lower price level and lower output.

d. a shift from AD2 to AD1 and a movement to point D, with a lower price level and lower output

Which of the following is NOT a function of​ money? A. Store of value B. Unit of account C. Medium of exchange D. Acceptability

d. acceptability

In the figure to the​ right, when the money supply increased from MS1 to MS2​, the equilibrium interest rate fell from​ 4% to​ 3%. Why? A. Increased demand for Treasury securities drives up their prices. B. ​Initially, firms hold more money than they want relative to other financial assets. C. Increased demand for Treasury securities drives down their interest rate. D. All of the above.

d. all of the above

The use of money A. eliminates the double coincidence of wants. B. reduces the transaction costs of exchange. C. allows for greater specialization. D. all of the above.

d. all of the above

What is inflation​ targeting? A. A policy that attempts to reduce inflation to zero. B. Another name for contractionary monetary policy. C. A target that links the​ Fed's target for the federal funds rate to inflation. D. Committing the central bank to achieve an announced level of inflation.

d. committing the central bank to achieve an announced level of inflation

As the interest rate​ increases, A. ​consumption, investment, and net exports fall but government spending​ increases, and aggregate demand increases. B. ​consumption, investment, and net exports​ increase, and aggregate demand increases. C. consumption increases but investment and net exports​ decrease; aggregate demand remains unchanged. D. ​consumption, investment, and net exports​ decrease; aggregate demand decreases.

d. consumption, investment, and net exports decrease; aggregate demand decreases

Consider the figures below. Determine which combination of fiscal policies shifted AD1 to AD2 in each figure and returned the economy to​ long-run macroeconomic equilibrium. A. Example​ (A): Contractionary fiscal policy. Example​ (B): Contractionary fiscal policy. B. Example​ (A): Contractionary fiscal policy. Example​ (B): Expansionary fiscal policy. C. Example​ (A): Expansionary fiscal policy. Example​ (B): Expansionary fiscal policy. D. Example​ (A): Expansionary fiscal policy. Example​ (B): Contractionary fiscal policy.

d. example A: expansionary fiscal policy example B: contractionary fiscal policy

What is the difference between federal purchases and federal​ expenditures? A. The difference between federal purchases and federal expenditures is so small that it is generally ignored. B. Federal purchases require that the government receives a good or service in​ return, whereas federal expenditures exclude transfer payments. C. Federal purchases and federal expenditures both require that the government receives a good or service in return. D. Federal purchases require that the government receives a good or service in​ return, whereas federal expenditures include transfer payments.

d. federal purchases require that the government receives a good or service in return, whereas federal expenditures include transfer payments

If Congress and the president decide an expansionary fiscal policy is​ necessary, what changes should they make in government spending or​ taxes? A. In this​ case, Congress and the president should enact policies that decrease government spending and increase taxes. B. In this​ case, Congress and the president should enact policies that decrease government spending and decrease taxes. C. In this​ case, Congress and the president should enact policies that increase government spending and increase taxes. D. In this​ case, Congress and the president should enact policies that increase government spending and decrease taxes.

d. in this case, Congress and the president should enact policies that increase government spending and decrease taxes

In the​ figure, which of the following events is most likely to cause a shift in the money demand​ (MD) curve from MD1 to MD2 ​(Point A to Point ​C)​? A. Decrease in real GDP or decrease in the price level B. Decrease in real GDP or increase in the price level C. Increase in real GDP or decrease in the price level D. Increase in real GDP or increase in the price level

d. increase in real gdp or increase in the price level

Why is the Fed sometimes said to have a​ "dual mandate"? The Fed is said to have​ a" dual​ mandate" because A. the Employment Act of 1946 empowers the Fed to maintain low taxes and high employment. B. the two most important goals of the Fed are controlling inflation and the budget deficit. C. the Fed is entrusted by Congress to maintain price stability and low taxes. D. maintaining price stability and high employment are the two most important goals of the Fed.

d. maintaining price stability and high employment are the two most important goals of the Fed

A baseball fan with a Mike Trout baseball card wants to trade it for a Giancarlo Stanton baseball​ card, but everyone the fan knows who has a Stanton card​ doesn't want a Trout card. Economists characterize this problem as a failure of the A. irrational exuberance doctrine. B. theory of comparative advantage. C. market clearing mechanism. D. principle of a double coincidence of wants.

d. principle of a double coincidence of wants

Who is responsible for fiscal​ policy? A. The federal government and the Federal Reserve jointly control fiscal policy. B. Fiscal policy is controlled by market forces. C. The Federal Reserve controls fiscal policy. D. The federal government controls fiscal policy.

d. the federal government controls fiscal policy

The national debt is best measured as A. the value of all debts of private citizens and businesses. B. the difference between federal government spending and federal taxes. C. the total value of stocks issued in a country. D. the total value of U.S. Treasury securities outstanding.

d. the total value of US Treasury securities outstanding

When money is acting as a store of​ value, it allows an individual to A. trade money for goods and services in the economy. B. measure the value of goods and services in the economy. C. exchange goods for other goods and services in the economy. D. transfer​ dollars, and therefore purchasing​ power, into the future.

d. transfer dollars, and therefore purchasing power, into the future

Friedman defined the​ "natural rate of​ unemployment" as the A. unemployment rate that exists when the economy has cyclical unemployment. B. unemployment rate that exists when the actual GDP is higher than potential GDP. C. unemployment rate that exists when the actual GDP is less than potential GDP. D. unemployment rate that exists when the economy produces potential GDP.

d. unemployment rate that exists when the economy produces potential gdp

If the Fed believes the inflation rate is about to​ increase, it should A. use an expansionary monetary policy to lower the interest rate and shift AD to the right. B. use a contractionary fiscal policy to increase the interest rate and shift AD to the left. C. use a combination of tax increases and spending cuts to keep the budget balanced. D. use a contractionary monetary policy to increase the interest rate and shift AD to the left.

d. use a contractionary monetary policy to increase the interest rate and shift AD to the left

In the​ figure, the opportunity cost of holding money _______ when moving from Point A to Point B on the money demand curve.

decreases

Consider the figures below and determine which is the best description of what causes the shift from AD1 to AD2. Example (A) A. Example A shows a contractionary monetary policy. The price level and real GDP both fall. B. Example B shows an expansionary monetary policy. The price level and real GDP both rise. C. Example A shows an expansionary monetary policy. The price level rises and real GDP falls. D. Both examples show expansionary monetary policy. The price level and real GDP both rise. E. Both A and B.

e. both A and B

Money is an imperfect standard of deferred payment because _____ causes the value of money to decrease over time.

inflation

Why does money demand have a negative slope?

interest rate up, money down

What shifts the money demand?

real GDP; the price level

Short run phillips curve: What causes a movement along the SRP curve? What shifts the SRP curve?

shift: expectations of higher inflation 1. Expectations of higher inflation rate shift the short-run Phillips curve rightward. 2. Expectations of lower inflation rate shift the short-run Phillips curve leftward. movement: A movement along the short-run Phillips curve is caused by a change in policies: 1. Expansionary policies lead to lower unemployment, but higher inflation (leftward). 2. Contractionary policies lead to lower inflation, but higher unemployment (rightward).

Fiscal policy: What is government expenditure?

transfers + purchases