Macro Final (Set 1 of 3)

Data on the country of Faraway Money Order $450 billion Demand deposits $250 billion Traveler's checks $50 billion Other checkable deposits $300 billion Saving Deposits $500 billion Refer to the table above. What is Imaginary land's M1 money stock?

$1050 billion

Approximately how much currency is outstanding for every person in the US?

$4490

Which of the following is not included in M1?

$500 in your savings account

What is the reserve ratio of Lincoln State Bank?

10%

Bank failures in the U.S. economy in the last 50 years peaked in which year

1989

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

22.5%

Suppose price level decreases, explain why AD has a downward slope through the exchange rate effect.

A decrease in the price level would cause savings to rise. Therefore there will be an excess supply of loanable funds. The excess supply of loanable funds would reduce the interest rate. thereby US dollar would depreciate. As there will less demand by the foreign investors for the US dollars. This will increase the net exports as US goods would become to cheaper abroad. The increase in net exports would increase Y. Therefore, a decrease in price would increase Y, explaining why AD curve has a downward slope.

Which of the following is a reason the aggregate demand curve slopes downward?

As the price level falls, households demand less money, so the interest rate falls. As the interest rate falls spending by firms and households rise. As the price level falls, the interest rate falls so U.S. savers will choose to buy more assets abroad. This increase in net capital outflow causes the exchange rate to fall. The decrease in the exchange rate makes U.S. goods less expensive compared to foreign goods and so net exports rise. As the price level falls, wealth rises, so consumers desire to spend more -All of these choices are correct

What part of real GDP fluctuates most over the course of the business cycle?

Investment

Demand deposits are included in

M1 and M2

Which of the following best illustrates the medium of exchange function of money?

You pay for your oil change using currency.

Demand deposits are a type of

checking account

According to the theory of AD-AS model, changes in the price level affect which components of aggregate demand?

consumption, investment, and net exports

Art transfers $5000 from his checking account to his savings account. This transaction will

decrease M1 and not change M2.

If there is a decrease in aggregate demand which causes a recession, fiscal policies that are typically used to mitigate the effects on output and unemployment include

decrease taxes and increase government spending.

If there is an increase in aggregate demand which will cause high inflation, the Federal Reserve will likely

decrease the money supply.

In the short run, a decrease in consumption spending causes output to ______________ and the unemployment rate to ______________.

decrease; increase

In the short run, a decrease in government spending causes output to _______________ and the unemployment rate to ______________.

decrease; increase

In the short run, a recession in Europe causes U.S. exports and output to _____________ and the unemployment rate to _____________.

decrease; increase

In the short run, an increase in the price of oil causes output to ___________ and inflation to ___________.

decrease; increase

Assume output is initially at the long run level. A decrease in the money supply causes output to __________ in the short run and ___________ in the long run, relative its initial level.

decrease; not change

If the Fed increases the reserve ratio from 5 percent to 20 percent, then the money multiplier

decreases from 20 to 5

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,

households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

If there is a decrease in aggregate demand which causes a recession, the Federal Reserve will likely

increase the money supply.

Other things the same, an increase in the price level causes the interest rate to

increase, the dollar to appreciate, and net exports to decrease.

In the short run, a decrease in the price of oil causes output to _____________ and inflation to____________.

increase; decrease

In the short run, an increase in investment spending causes output to ___________ and the unemployment rate to ____________.

increase; decrease

In the short run, rapid economic growth in Europe causes U.S. exports and output to ___________ and the unemployment rate to _____________

increase; decrease

Assume output is initially at the long run level. An increase in the money supply causes output to __________in the short run and _________ in the long run, relative to its initial level.

increase; not change

An open-market buy/purchase

increases money supply.

If the price level increases,

investment demand decreases and interest rates increase

The variable on the vertical axis of the aggregate demand and aggregate supply model

is a nominal variable. The variable on the horizontal axis is a real variable.

If an economy uses silver as money, then that economy's money

is commodity money.

Which of the following is not included in either M1 or M2?

large time deposit

The classical model is appropriate for analysis of the economy in the

long run, since real and nominal variables are essentially determined separately in the long run.

If the price level falls, the real value of a dollar

rises, so people will want to buy more

To decrease the money supply, the Fed could

sell government bonds. increase the discount rate. increase the reserve requirement. -All of the above are correct.

Most economists use the aggregate demand and aggregate supply model primarily to analyze

short-run fluctuations in the economy

The persistent, long term unemployment caused by long lasting features of the economy is called

structural unemployment

Liquidity refers to

the ease with which an asset is converted to medium of exchange

The discount rate is

the interest rate the Fed charges banks.

In an economy that relies upon barter,

there is no item in the economy that is widely accepted in exchange for goods and services.

Economists use the word "money" to refer to

those assets regularly used to buy goods and services.

Today, bank runs are

uncommon because of FDIC deposit insurance.

Which of the following typically rises during a recession?

unemployment

During recessions

workers are laid off. factories are idle. firms may find they are unable to sell all they produce. -All of the above are correct.