eco final
increased, so it would increase production.
According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had
unemployment benefits.
An example of an automatic stabilizer is
increased consumption, which shifts the aggregate-demand curve right.
Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire
because unemployment is high, wages will be bid down and short-run aggregate supply will shift right.
Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually
increase the money supply.
Suppose there is a tax increase. To stabilize output, the Federal Reserve will
decrease the money supply, which will increase interest rates.
Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could
buy bonds to lower interest rates.
Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could
purchases or by lowering the discount rate.
The Fed can increase the money supply by conducting open-market.
conducting open market operations
The Fed's primary tool to change the money supply is
conducting open market operations.
The Fed's primary tool to change the money supply is
leftward. In an attempt to stabilize the economy, the government could increase expenditures.
A reduction in U.S net exports would shift U.S. aggregate demand
real wealth rises, interest rates fall, and the dollar depreciates.
The aggregate quantity of goods and services demanded changes as the price level falls because
consumption, investment, and net exports
Changes in the price level affect which components of aggregate demand?
to fall and taxes to rise.
During periods of expansion, automatic stabilizers cause government expenditures
he U.S. price level and real GDP to rise.
Economic expansions in Europe and China would cause
aggregate demand right.
From 1995 to 1999 there was a dramatic rise in stock prices. If this rise made people feel wealthier, then it would have shifted
aggregate demand right.
From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted
decreases and aggregate demand shifts left.
If the Fed conducts open-market sales, the money supply
sell bonds to lower the money supply.
If the Federal Reserve decided to raise interest rates, it could
less from the Fed so reserves decrease.
If the discount rate is raised then banks borrow
decrease which shifts aggregate demand left.
If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exports
is lower and output is the same as the original long-run equilibrium.
If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level
$14,000 of new money.
If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to
10
If the reserve ratio is 10 percent, the money multiplier is
$500 of new money in the economy.
If the reserve ratio is 20 percent, then $100 of new reserves can generate
will initially see reserves increase by $500. must increase required reserves by $50. will be able to use this deposit to make new loans amounting to $450
If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $500, it
aggregate demand increases, which the Fed could offset by selling bonds.
If the stock market booms, then
aggregate demand decreases, which the Fed could offset by purchasing bonds.
If the stock market crashes, then
keeps only a fraction of its deposits in reserve.
In a fractional-reserve banking system, a bank
increases both the money multiplier and the money supply.
In a fractional-reserve banking system, a decrease in reserve requirements
the federal funds rate.
In recent years, the Federal Reserve has conducted policy by setting a target for
increase, and aggregate demand to shift left.
In the short run, a decrease in the money supply causes interest rates to
the Federal Reserve and involves changing the money supply.
Monetary policy is determined by
increases, the money multiplier decreases, and the money supply decreases.
Other things the same, if reserve requirements are increased, the reserve ratio
he price level is higher and real GDP is the same.
The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.Refer to Stock Market Boom 2015. How is the new long-run equilibrium different from the original one?
aggregate demand shifts right
The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.Refer to Stock Market Boom 2015. Which curve shifts and in which direction?
interest rate at which banks lend reserves to each other overnight.
The federal funds rate is the
banks charge one another for loans.
The federal funds rate is the interest rate that
offset shifts in aggregate demand and thereby stabilize the economy.
The goal of monetary policy and fiscal policy is to
the price level and leave real output unchanged.
The long-run effect of an increase in household consumption is to raise
purchase of U.S. government bonds.
The most common method employed by the Fed to increase the money supply is the
commodity money has intrinsic value but fiat money does not.
The primary difference between commodity money and fiat money is that
sell government bonds or increase the discount rate.
To decrease the money supply, the Fed can
increase the discount rate. increase the reserve requirement. sell government bonds.
To decrease the money supply, the Fed could
decrease the discount rate.
To increase the money supply, the Fed could
decrease, so the money supply decreases.
When the Fed sells government bonds, the reserves of the banking system
less foreign currency, and so buys fewer foreign goods.
When the dollar depreciates, each dollar buys
investment spending rises.the interest rate falls.people want to hold less money.
When the price level falls
falls, so they buy less.
When the price level increases, the real value of people's money holdings
the New York Federal Reserve Bank
Which of the following entities actually executes open-market operations?
aggregate demand shifts right
Which of the following would cause prices and real GDP to rise in the short run?
an increase in the money supply
Which of the following would cause prices and real GDP to rise in the short run?
