econ 101 final (quizzes)

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which of the following fiscal policy changes would be the most contractionary?

a $10 billion increase in taxes and a $30 billion cut in government purchases

you are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion, (2) investment = $50 billion, (3) government purchases = $100 billion, and (4) net exports = $20 billion. if the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

a decrease in government purchases and an increase in taxes

when successfully implemented, contractionary fiscal policy will cause

a leftward shift of the aggregate demand curve

if you use $1,000 to purchase silver coins, which you plan to keep in a safe, you are using money as

a medium of exchange

the main function of the federal reserve system is to

control the money supply

to keep high inflation from eroding the value of money, monetary authorities in the united states

control the supply of money in the economy

the federal reserve system performs many functions but its most important one is

controlling the money supply

the process by which an increase in government borrowing results is less borrowing by businesses and consumers for private investment is called

crowding out

the M1 measure of money consists of the sum of

currency, checking deposits, and travelers' check

automatic stabilizers in the economy tend to

dampen the irregular swings in real GDP

if the board of governors of the federal reserve system increases the reserve requirement, this change will _____.

decrease the excess reserves of member banks and thus decrease the money supply

the interest rate at which the federal reserve banks lend to commercial banks is called the _____.

discount rate

crowding out may occur because _____ fiscal policy usually involves the government _____ money.

expansionary; borrowing

when personal savings rates are _____, it takes _____ change in government purchases to have a given amount of impact of real GDP

higher; more

the impact of monetary policy on investment spending may be weakened _____.

if the investment demand curve shifts to the right during inflation and to the left during recession

it is costly to hold money because

in doing so, one sacrifices interest income

if government expenditures are increased by $50 billion, assuming all other factors stay constant, we would expect the initial impact of the increased spending to cause real GDP to

increase by $50 billion

assume that the full-employment level of output is $600 and the price level associated with full-employment output is 100. also assume that the economy's current level of output is $550 and, at the price level of 100, current aggregate demand is $450. if the government wants to move the economy back to full-employment level of output and the MPC is 0.9, then it should

increase government purchases by $15

assume that the full-employment level of output is $500, and the price level associated with full-employment output is 100. also assume that the economy's current level of output is $450 and, at the price level of 100, current aggregate demand is $400. if the government wants to move the economy back to the full-employment level of output and the MPC is 0.75 then it should

increase government purchases by $25

suppose that the demand for money increases as people anticipate upcoming economic problems. to offset this increase in money demand, the fed should _____ the money supply, which would put _____ pressure on nominal interest rates.

increase; downward

if the federal reserve system buys government securities from commercial banks and the public, then _____.

it will be easier to obtain loans at commercial banks

when output is below the full employment level of real GDP, the federal reserve banks should _____.

lower the reserve ratio

the most important among the federal reserve district banks in conducting monetary policy is the

new york bank

which of the following government actions would be considered expansionary fiscal policy?

passing a personal tax credit for the purchase of a new automobile

which of the following functions does the federal reserve system not perform?

providing banking services to the general public

the purpose of a contractionary monetary policy is to _____.

raise interest rates and restrict the availability of bank credit

the multiple by which the commercial banking system can expand the supply of money is equal to the

reciprocal of the reserve ratio

assume that the full-employment level of output is $500, and the price level associated with full-employment output is 100. also assume that the economy's current level of output is $450 and at the price level of 100 current aggregate demand is $410. if the government wants to move the economy back to the full-employment level of output and the MPC is 0.75 then it should

reduce taxes by $30

contractionary fiscal policy tends to _____ consumption because it may reduce ______.

reduce; disposable income

when the reserve requirement is increased, the excess reserves of member banks are _____.

reduced and the multiple by which the commercial banking system can lend is reduced

cash held by a bank in its vault is a part of the bank's

reserves

the primary tools the government uses for contractionary fiscal policy are

tax increase and government purchase reductions

monetary policy is determined by _____.

the central bank (the fed)

when a commercial banks borrows from a federal reserve bank, _____.

the commercial bank's lending ability is increased

which of the following statements is true?

the federal reserve does not set the federal funds rate, but it influences it through the use of its open-market operations

assuming that the federal reserve banks sell $40 million in government securities to commercial banks and the reserve requirement is 20%, then the effect will be to reduce _____.

the money supply by potentially $200 million

which of the following varies directly with the interest rate?

the opportunity cost of holding money

which of the following will increase commercial bank reserves?

the purchase of government bonds in the open market by the federal reserve banks

payments made by the government that do not require an exchange of economic activity in return are also known as

transfer payments

which of the following institutions does not provide checkable-deposit services to the general public?

u.s. treasury

when a banker records how many dollars each of his borrowers owes the bank, money is serving as a

unit of account

how many members can serve on the board of governors of the federal reserve system?

7

suppose the government of a country wants to increase the aggregate demand of its economy by $10 billion at all price levels. however, it currently has a balanced budget with no surplus and is unwilling to borrow money to finance fiscal policy. the government could still accomplish its goal by increasing government purchases by _____ and increasing taxes by $10 billion.

$10 billion

a commercial bank has required reserves of $60 million and the reserve ratio is 20%. how much are the commercial bank's checkable-deposit liabilities?

$300 million 60/.20 = 300

financial markets pay close attention to changes in the federal funds rate because these changes _____.

affect other interest rates in the economy

the federal reserve system regulates the money supply primarily by

altering the reserve of commercial banks, largely through sales and purchases of government bonds

when the fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of

being the bankers' bank

to reduce the federal funds rate, the fed can _____.

buy government bonds from the public


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