PSU ECON 104 L08-L12

If the required reserve ratio is 12%, what is the value of the simple deposit multiplier? Please round to 2 decimal places.

8.33 1 / 12% = 8.33

Europe experiences an economic boom. Assuming all else remains constant, this would be represented as a movement from

A to B

Refer to the figure above. Holding all else constant, a decrease in the value of a country's currency relative to other currencies would be represented by a movement from __________.

AD1 to AD2

The French fall in love with California wines and triple their purchases of this beverage. Assuming all else remains constant, this would be represented as a movement from

D to C

If the short-run aggregate supply increases by less than the long-run aggregate supply, then, at the short-run equilibrium

GDP will be below potential GDP.

Which of the following would be considered expansionary monetary policy? Select all that apply.

Lowering the reserve requirements, lowering the discount rate, open market purchases

Currently, out of the listed options, the largest category of outlays for the U.S. is:

Mandatory Spending

Which of the following would be considered contractionary monetary policy? Select all that apply.

None of the three policies listed are considered contractionary monetary policy.

Which of the following would be considered expansionary monetary policy? Select all that apply.

None of the three policies listed are considered expansionary monetary policy.

What are the old tools of monetary policy?

Open Market Operations, Discount Policy, Reserve Requirements

Holding all else constant, when the price level decreases, what happens to the aggregate expenditure line?

Shifts up

One limitation of monetary policy is the time in which it takes for the Federal Reserve to meet and decide on which policy is necessary—even if they are aware of the type of policy needed. It also takes time for changes to interest rates to get through the system. This limitation is known as:

The Implementation Lag

Which of the following is an example of foreign direct investment in China?

The U.S. company Wal-Mart buys a warehouse in Shanghai.

If the balance of the current account in the United States is -$800 billion, which of the following is most likely to be true?

The balance on the financial account is positive.

True or false Expansionary fiscal policy should raise the exchange rate of the dollar.

True

A decrease in United States net foreign direct investment would occur if

U.S. citizens have decreased their building or purchasing of facilities in foreign countries.

A central bank like the Federal Reserve in the United States can help banks survive a bank run by

acting as a lender of last resort.

In the basic AD-AS model, a decrease in government expenditures will shift ________ to the _________.

aggregate demand; left

Historical societies used precious metals such as gold or silver as money. This would be an example of a

commodity money.

If the economy is in an expansion due to an increase in aggregate demand, the Federal Reserve will want to conduct _________ monetary policy which will __________ overall output and _________ the price level back to its original point.

contractionary; lower, lower

Assume that the economy is in an expansion above potential GDP. If policymakers implement an contractionary fiscal policy but underestimate the size of the multiplier, the new equilibrium level of GDP is likely to

decrease and go below potential GDP.

According to the basic AD-AS model, a decrease in government expenditures will ________ the price level and _________ level of real GDP.

decrease; decrease

Holding all else constant, open market sales would result in a ___________ interest rate and a ________ shift in the aggregate demand curve.

higher; leftward

A decrease in capital outflows from the United States will

increase the balance on the financial account.

Suppose the economy is in long-run equilibrium and there is an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.

increase; decrease to its initial value

M2 is ________ M1.

less liquid than

Fiat money, by definition, has

little to no intrinsic value and is authorized by the central bank or governmental body.

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally

more difficult than with monetary policy.

M1 is _________ M2.

more liquid than

It is ________ difficult to effectively time fiscal policy than monetary policy because ________.

more; fiscal policy takes longer to implement

Refer to the figure above. Holding all else constant, an increase in the price level would be represented by a movement from __________.

point A to point B

Crowding out refers to a decline in ________ as a result of an increase in ________.

private expenditures; government purchases

Looking at a basic AD-AS model and holding all else constant, if the FOMC conducts open market purchases, we would see the price level ________ and the real GDP _______.

rise; rise

If the MPC is 0.74 and taxes increase by $682, holding all else constant, real GDP will change by _____ according to the multiplier effect. Please round to 2 decimal places. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.

-1,941.08 -MPC / 1-MPC x tax increase

If the MPC is 0.64, what is the value of the tax multiplier? Please round to 2 decimal places. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.

-1.78 MPC / 1-MPC

The United States is divided into ____ Federal Reserve Districts.

12

If the required reserve ratio is 17% and you deposit $786 of cash into a bank, what is the maximum amount the money supply could increase by? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

3,837.53 786 / 17% = 4,623.53 4, 623.53 - 786 = 3,837.53

Refer to the figure above. Holding all else constant, a decrease in consumers' expected future income would be represented by a movement from __________.

AD2 to AD1

Suppose the economy is in an expansion and the Federal government pursues contractionary fiscal policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

B to C

Suppose the economy is in macroeconomic equilibrium and the Federal government pursues contractionary fiscal policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

C to D

The appreciation of the euro is represented as a movement from which point to which point? Select all that apply.

C to D B to D

Suppose that the U.S. government deficit decreases, causing interest rates in the United States to fall relative to those in the European Union. Assuming all else remains constant, how would this be represented?

Demand would decrease and the economy moves from C to D.

Which of the following is a new tool of monetary policy as mentioned in this lesson?

Interest rate paid on reverse repurchasing agreements

Canada runs a current account surplus with the United States. Which of the following must be true about Canada's balance of payments with the United States?

It must run a financial account deficit.

When a local restaurant accepts your $20 bill when you purchase a to-go order of pasta, the $20 bill serves as:

a medium of exchange.

If whole avocados were used as a society's money, which of the following functions would be the hardest to satisfy?

a store of value.

Changes in the price level

do not affect the level of aggregate supply in the long run.

Assume the economy is currently experiencing stagflation. If monetary policy actions result in the output level returning to the original level, economics would say the FOMC conducted _______ monetary policy.

dovish

Automatic stabilizers refer to

government spending and taxes that automatically increase or decrease along with the business cycle.

According to the basic AD-AS model, an increase in government expenditures will ________ the price level and _________ level of real GDP.

increase; increase

Holding all else constant, a decrease in the interest paid on reserves and the interest paid on repurchasing agreements would result in a ___________ federal funds rate and a ________ shift in the aggregate demand curve.

lower; rightward

If the Federal Reserve thinks there needs to be more economic activity due to higher levels of unemployment, they can attempt to ________ interest rates to ______ the access to liquidity.

lower; speed up

Net foreign investment minus net foreign portfolio investment is equal to

net foreign direct investment.

Net foreign investment is equal to

net foreign portfolio investment plus net foreign direct investment.

When the price level rises from 105 to 120, the level of real GDP supplied rises from $70 billion to $90 billion. This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.

positive; short-run

Long-run macroeconomic equilibrium occurs when

the aggregate demand and short-run aggregate supply curves intersect at a point on the long-run aggregate supply curve.

If foreign holdings of U.S. dollars decrease, holding all else constant,

the balance on the U.S. financial account will decrease.

If foreign holdings of U.S. dollars increase, holding all else constant

the balance on the U.S. financial account will increase.

When a foreign investor buys a bond issued in the United States

the balance on the financial account increases.

Which of the following is an example of discretionary fiscal policy?

the stimulus payments passed by Congress in 2020 to combat the COVID-19 recession

Keynesian economists believe that prices are fairly ________ and are _________ policy intervention.

sticky; in favor of

The Federal Reserve was established in 1913 to

stop bank panics by acting as a lender of last resort.

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives.

taxes; expenditures (purchases)

The balance of payments includes all of the following accounts except

the national debt account.

Currency speculators believe that the value of the euro will decrease relative to the dollar. Assuming all else remains constant, how would this be represented?

Supply would decrease, demand would increase and the economy moves from D to A to C.

Currency speculators believe that the value of the euro will increase relative to the dollar. Assuming all else remains constant, how would this be represented?

Supply would increase, demand would decrease and the economy moves from B to C to D.

Assume a government starts with zero debt. This government then runs an annual deficit for 11 years of $1,658. At the end of those 11 years, what would be amount of the government debt? Please round to 2 decimal places if needed. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.

18,238

If the price level in the U.S. is 128, the price level in Mexico is 118, and the real exchange rate is 21.55 pesos (Mexico's currency) per dollar, what is the nominal exchange rate from the U.S. perspective? Please round to two decimal places and do not include the "pesos per dollar". For example, if your answer was 5.675 pesos per dollar, you would only enter 5.68.

19.87 128 / 118 = 1.084745.. 21.55 / 1.084745.. = 19.87

True or false: Contractionary monetary policy and expansionary fiscal policy both reduce net exports in an open economy.

True

Consider the following information for a simple economy. Assume there are no traveler's checks. Currency is equal to $550, checking account balances are equal to $1,613, savings account balances are equal to $1,518, small-denomination time deposits are equal to $2,279, and money market fund shares are equal to $542. What does M1 in this simple economy equal to? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

2,163

If the price level in the U.S. is 125, the price level in Mexico is 122, and the real exchange rate is 22.12 pesos (Mexico's currency) per dollar, what is the nominal exchange rate from the U.S. perspective? Please round to two decimal places and do not include the "pesos per dollar". For example, if your answer was 5.675 pesos per dollar, you would only enter 5.68.

21.59

If the price level in the US is 127, the price level in Mexico is 124, and the nominal exchange rate is 21.39 pesos (Mexico's currency) per dollar, what is the real exchange rate from the U.S. perspective? Please round to two decimal places and do not include the "pesos per dollar". For example, if your answer was 5.675 pesos per dollar, you would only enter 5.68.

21.91

If the price level in the US is 119, the price level in Mexico is 129, and the nominal exchange rate is 24.98 pesos (Mexico's currency) per dollar, what is the real exchange rate from the U.S. perspective? Please round to two decimal places and do not include the "pesos per dollar". For example, if your answer was 5.675 pesos per dollar, you would only enter 5.68.

23.04 119 / 129 = 0.92248.. 0.92248.. x 24.98 = 23.04

Looking at a basic AD-AS model and holding all else constant, if the FOMC conducts open market sales, we would see the price level ________ and the real GDP _______.

fall; fall

Looking at a basic AD-AS model and holding all else constant, if the FOMC raises the discount rate, we would see the price level ________ and the real GDP _______.

fall; fall

Fiscal policy is defined as changes in:

federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

Classical economists believe that prices are fairly ________ and are _________ policy intervention.

flexible; opposed to

On the long-run aggregate supply curve, a decrease in the price level

has no effect on the quantity of real GDP supplied.

Expansionary monetary policy results in a ___________ interest rate and a ________ shift in the aggregate demand curve.

lower; rightward

If the Federal Reserve thinks there needs to be less economic activity due to higher levels of inflation, they can attempt to ________ interest rates to ______ the access to liquidity.

raise; slow down

Which of the following would decrease net exports in the United States?

An American party planner purchases 350 piñatas from Mexico.

In the basic AD-AS model, short-run contractionary fiscal policy will shift ________ to the _________.

aggregate demand; left

Contractionary monetary policy results in a ___________ interest rate and a ________ shift in the aggregate demand curve.

higher; leftward

Holding all else constant, an increase in the discount rate would result in a ___________ interest rate and a ________ shift in the aggregate demand curve.

higher; leftward

Assume you take $1,043 from your checking account and transfer it to your savings account. How much will M1 change by? Make sure you use a negative sign if it is a decrease. Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

-1,043

Assume you take $1,483 from your checking account and transfer it to your savings account. How much will M1 change by? Make sure you use a negative sign if it is a decrease. Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

-1,483

If the MPC is 0.66 and government purchases decrease by $1,681, holding all else constant, real GDP will change by _____ according to the multiplier effect. Please round to 2 decimal places. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.

-4,944.12 1 / 1-MPC x government purchase decrease

Assume you take $1,464 in cash and deposit it into your checking account. Holding all else constant, how much will M1 change by? Make sure you use a negative sign if it is a decrease. Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

0

Consider the following information for a simple economy. Assume there are no traveler's checks. Currency is equal to $654, checking account balances are equal to $1,216, savings account balances are equal to $1,982, small-denomination time deposits are equal to $2,371, and money market fund shares are equal to $744. What does M1 in this simple economy equal to? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

1,870 Currency + Checking (debit accounts)

If the required reserve ratio is 15% and you deposit $598 of cash into a bank, what is the maximum amount the money supply could increase by? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

3,388.67

If the required reserve ratio is 19% and you deposit $727 of cash into a bank, what is the maximum amount the total deposits could increase by? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

3,826.32 727 / 19% = 3,826.32

If the MPC is 0.67, what is the value of the spending multiplier? Please round to 2 decimal places. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.

3.03 1 / 1-MPC

Assume the required reserve ratio is 16%, the amount of deposits in a bank are $1,898, and the bank is holding $605 in reserves. What is the maximum amount of additional loans this bank can make? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

301.32 1,898 x 16% = 303.68 605 - 303.68 = 301.32

Assume the required reserve ratio is 18%, the amount of deposits in a bank are $1,206, and the bank is holding $543 in reserves. How many of those reserves are excess reserves? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

325.92

Assume a government starts with zero debt. This government then runs an annual deficit for 13 years of $2,569. At the end of those 13 years, what would be amount of the government debt? Please round to 2 decimal places if needed. Be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.

33,397

Assume the required reserve ratio is 16%, the amount of deposits in a bank are $1,223, and the bank is holding $668 in reserves. What is the maximum amount of additional loans this bank can make? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

472.32

If the required reserve ratio is 16%, what is the value of the simple deposit multiplier? Please round to 2 decimal places.

6.25

Assume the required reserve ratio is 12%, the amount of deposits in a bank are $1,199, and the bank is holding $749 in reserves. How many of those reserves are excess reserves? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

605.12 1,199 x 12% = 143.88 749 - 143.88 = 605.12

If the required reserve ratio is 9% and you deposit $722 of cash into a bank, what is the maximum amount the total deposits could increase by? Please round to two decimal places and do not include the dollar sign. For example, if your answer is $5678.977 you would enter 5678.98.

8,022.22

Refer to the figure above. Suppose the economy is at point A. If the price of oil increases in the economy, where will the eventual long-run equilibrium be?

A

Refer to the figure above. Suppose the economy is at point C. If net exports decline in the economy, where will the eventual long-run equilibrium be?

A

Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run?

Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.

Currently, out of the listed options, the smallest category of revenues for the U.S. is:

Corporate Income Taxes

Suppose the economy is in a recession and the Fed pursues expansionary monetary policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

D to C

Which of the following new tool of monetary policy ends up being the floor (minimum) of the federal funds rate range?

Interest rate on reverse repurchasing agreements

Which of the following new tool of monetary policy ends up being the ceiling (maximum) of the federal funds rate range?

Interest rate paid on reserves

Italian car exports were hurt in 2009 as a result of the Great Recession. Holding all else constant, how did this decrease in exports affect Italy's aggregate demand curve?

It shifted their aggregate demand curve to the left.

The recession caused by the COVID-19 pandemic made many consumers pessimistic about their future incomes. How does this increased consumer pessimism affect the aggregate demand curve?

It will shift the aggregate demand curve to the left.

Spending on wars, while not considered fiscal policy, is categorized as government purchases. How do increases in spending on wars affect the aggregate demand curve?

It will shift the aggregate demand curve to the right.

Refer to the figure above. Holding all else constant, suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. This would be represented by a movement from __________.

LRAS1 to LRAS2

______________ is action by the Central Bank of a country to manage the interest rate in an economy. ____________ is actions taken by Congress and the President to change government purchases and taxes.

Monetary policy; fiscal policy

Which of the following would be considered contractionary monetary policy? Select all that apply.

Open market sales

Suppose the economy is at full employment and the level of imports, holding all else constant, begins to rise. Which of the following will happen in the short run?

Prices will decline.

A sudden increase in the price of an important input to production occurs. How will this affect short-run aggregate supply and equilibrium in the short run?

SRAS will shift to the left, the equilibrium price level will rise, and the equilibrium level of GDP will fall.

Refer to the figure above. Holding all else constant, if workers and firms both expect that prices will be 2.5% lower next year than they are this year, we would see a by a movement from __________.

SRAS1 to SRAS2

One limitation of monetary policy is that the Federal Reserve cannot force individuals and banks to lend or borrow money even if the interests rate change by a lot. There could be other factors in play besides the interest rates. This limitation is known as:

The Financial System's Strength Uncertainty

Which of the following is not one of the three main reasons for the inverse relationship between AE and price level?

The price-level effect

If the federal government's expenditures are more than its tax revenues, then

a budget deficit results.

In the basic AD-AS model, a decrease in taxes will shift ________ to the _________.

aggregate demand; right

The ______________ model shows the relationship between total spending and total output whereas the __________ model shows the relationship between the price level and real GDP.

aggregate expenditure; aggregate demand-aggregate supply

Economies where goods and services are traded directly for other goods and services are called ________ economies.

barter

A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out.

decrease; increase

Assume the economy is currently experiencing stagflation. If monetary policy actions result in the price level going even higher, economics would say the FOMC conducted _______ monetary policy.

dovish

If the economy is in a recession due to a decrease in aggregate demand, the Federal Reserve will want to conduct _________ monetary policy which will __________ overall output and _________ the price level back to its original point.

expansionary; raise, raise

Holding all else constant, an increase in the interest paid on reserves and the interest paid on repurchasing agreements would result in a ___________ federal funds rate and a ________ shift in the aggregate demand curve.

higher; leftward

Looking at a basic AD-AS model and holding all else constant, if the FOMC lowers the interest rate paid on reserves and reverse repurchasing agreements, we would see the price level ________ and the real GDP _______.

rise; rise

If stricter immigration laws are imposed and many foreign workers in a country are forced to go back to their home countries

the long-run aggregate supply curve will shift to the left.