Econ 202 Ch. 13 and Ch. 14

There are no ____________ in the long- run.

recession

Long-Run Aggregate Supply Curve

-Not effected by the price Represents: -the number of workers (labor) -the capital stock (tractors) -the technology (chainsaws)

The Short- Run Aggregate Supply Curve

-Upward sloping because the higer the price level the more goods and services firms are willing to supply

5 variables that shift the short run aggregate supply curve

1. increases in the labor force and the capitol stock 2. Technological change 3. Expected changes in the future price level 4. Adjustments of workers and firms to errors in past expectations about price level 5. unexpected changes in the price of an important natural resource.

The United States is divided into _________ Federal Reserve Districts. The Federal Reserve​ Bank's Board of Governors consists of _________ members appointed by the president of the U.S. to​ 14-year, ​ non-renewable terms. One of the board members is appointed to a _______ ​year, renewable term as the chairman

12 7 4

With a required reserve ratio of 20​ percent, an increase in reserves of​ $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of A. $2,000. B. $8,000. C. $50,000. D. ​$100,000.

C. $50,000.

What is the​ "shadow banking​ system"? A. Commercial banks making subprime loans to homebuyers. B. Banks that are outside of the Federal Reserve System and thus not subject to regulation. C. Financial firms that raise money from investors and provide it to borrowers. D. Illegal borrowing and lending through the underground economy. The financial firms of the shadow banking system were A. less vulnerable than commercial banks to bank runs because they were not controlled by the Federal Reserve. B. less vulnerable than commercial banks to bank runs because they were selling risky investments such as mortgage backed securities. C. more vulnerable than commercial banks to bank runs because they were more highly leveraged than commercial banks. D. less vulnerable than commercial banks to bank runs because they were less leveraged than commercial banks

C. Financial firms that raise money from investors and provide it to borrowers. C. more vulnerable than commercial banks to bank runs because they were more highly leveraged than commercial banks.

_______ consists of M1 plus other less liquid assets such as deposits in savings and loans and money market mutual funds.

M2

Level of Real GDP in the long-run is called _____________ ________.

Potential GDP

The Aggregate Expenditure Model assumes the ___________ __________ is constant. Only Considers the ________ side of the economy.

Price level (so does not attempt to explain inflation) Demand (spending)

Define Aggregate Supply curve

Shows the effect of changes in the price level on the quantity of goods and services that firms are willing and able to supply.

The Federal Reserve lowers interest rates... This causes a ________________ in consumption and a ________________ in investments shifting the AD line to the ______________.

increase; increase; right

Suppose that Deja owns a​ McDonald's franchise. She decides to move her​ restaurant's checking account to Wells​ Fargo, which causes the changes shown on the following​ T-account. Wells Fargo Assets: Reserves ​ +$100,000 Liabilities: Deposits ​ $100,000 If the required reserve ratio is 0.15 or 15% and Wells Fargo currently has no excess​ reserves, the maximum loan Wells Fargo can make as result of this transaction is?

85000

Define Aggregate Demand Curve ________ side of the economy

A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms & the government Buyer

Define SRAS (Short-run aggregate supply curve)

A curve that shows the relationship in the short run between the price level & the quantity of real GDP supplied by firms

Aggregate Demand & Aggregate Supply model Considers both the demand (spending side) and the ___________ (producer) side of the economy.

A model that seeks to explain the business cycle (short-run fluctuations in real GDP), inflation and to some degree with economic growth. supply

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

A. the sellers of such securities deposit the funds in their banks and bank reserves increase. B. the buyers of these securities pay for them with checks and bank reserves fall.

Which of the following is included in M2 but not​ M1? A. Currency B. Money market deposit accounts in banks C. Traveler's checks D. Checking account deposits at banks

B. Money market deposit accounts in banks

Which one of the following is not one of the policy tools the Fed uses to control the money​ supply? A. Open market operations. B. Moral suasion. C. Reserve requirements. D. Discount policy. Which tool is the most​ important? A. The Fed conducts monetary policy principally by tax cuts and government spending increases. B. The Fed conducts monetary policy principally through discount policy. C. The Fed conducts monetary policy principally by changing the reserve requirement. D. The Fed conducts monetary policy principally through open market operations.

B. Moral suasion. D. The Fed conducts monetary policy principally through open market operations.

In the United​ States, each bank panic in the late nineteenth and early twentieth centuries was accompanied by A. a depression. B. a recession. C. inflation. D. deflation

B. a recession

Which of the following is the largest liability of a typical​ bank? A. Treasury bills B. deposits C. reserves D. loans Which of the following refers to the minimum fraction of deposits banks that are required by law to keep as​ reserves? A. the cash to deposit ratio B. the quantity equation C. the simple deposit multiplier D. the required reserve ratio

B. deposit D. the required reserve ratio

To decrease the money​ supply, the Federal Reserve could A. lower the required reserve ratio. B. raise income taxes. C. raise transfer payments. D. conduct an open market sale of Treasury securities. E. lower the discount rate.

B. raise income taxes.

The Aggregate Expenditure Model seeks to explain the _______________ _______________.

Business Cycle (short run fluctuations in Real GDP from Potential GDP)

Excess reserve: A. are reserves banks keep to meet the reserve requirement. B. are reserves banks keep above the legal requirement. C. are the deposits that banks do not use to make loans. D. are loans made at above market interest rates. Suppose the required reserve ratio is 11​% and a bank has the following balance​ sheet: Assets: Reserves- 2400 Loans-8100 Liabilities: Deposits- 10500 This bank keeps required reserves of ​_______ and excess reserves of ​________.

C. are the deposits that banks do not use to make loans. $1155 $945

An increase in the amount of excess reserves that banks keep​ _________ the value of the​ real-world deposit multiplier. A. increases B. eliminates C. decreases D. leaves unchanged Whenever banks gain reserves and make new​ loans, the money supply​ ___________; and whenever banks lose​ reserves, and reduce their​ loans, the money supply​ __________. A. ​expands; expands B. contracts; expands C. expands; contracts D. contracts; contracts

C. decrease C. expands; contracts

​If during a deposit​ expansion, not all money gets redeposited into the banking system and some leaks out as​ currency, then the real world multiplier is A. larger than ​1/RR. B. equal to ​1/RR. C. smaller than ​1/RR. D. not related to ​1/RR.

C. smaller than ​1/RR.

The​ ________ the reserve​ ratio, the​ ________ the money multiplier. A. larger; larger B. smaller; smaller C. smaller; larger D. None of the above are correct.

C. smaller; larger

What are the 4 components of GDP? What is the equation?

Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX) Y = C + I + G + NX

In a speech delivered in June​ 2008, Timothy​ Geithner, then president of the Federal Reserve Bank of New York and later U.S. Treasury​ secretary, said: The structure of the financial system changed fundamentally during the boom. . . .​ [The] non-bank financial system grew to be very large. . . .​ [The] institutions in this parallel financial system​ [are] vulnerable to a classic type of​ run, but without the protections such as deposit insurance that the banking system has in place to reduce such risks. ​Source: Timothy F.​ Geithner, "Reducing Systemic Risk in a Dynamic Financial​ System," Remarks at the Economics Club of New​ York, June​ 9, 2008. a. What did Geithner mean by the​ "non-bank financial​ system"? A. Credit​ unions, savings and​ loans, and other thrift institutions that are not classified as commercial banks but still take deposits and make loans. B. Buyers and sellers of stocks and bonds in asset markets that are outside of the banking system. C. Banks that are outside of the Federal Reserve System and thus not subject to ordinary banking regulations. D. Money market mutual​ funds, hedge​ funds, and other financial firms that raise money from investors and provide it to firms and households. b. What is a​ "classic type of​ run"? A. Many investors decide to sell funds at the same​ time, which runs down the price or value of the asset. B. Many banks simultaneously decide to issue​ mortgage-backed securities, driving down their price. C. Many depositors simultaneously decide to withdraw their money from a bank. D. Many investors decide to purchase funds at the same​ time, which runs up the price or value of the asset. c. Why would deposit insurance provide the banking system with protection against​ runs? A. To be covered by deposit​ insurance, depositors must agree not to withdraw all their funds without notice. B. Deposit insurance guarantees all​ deposits, and thus there is no incentive to withdraw funds. C. Deposit insurance guarantees that banks cannot go out of business by losing deposits. D. Since most depositors are​ insured, it is less likely that panicked buyers will simultaneously withdraw funds.

D. Money market mutual​ funds, hedge​ funds, and other financial firms that raise money from investors and provide it to firms and households. C. Many depositors simultaneously decide to withdraw their money from a bank. D. Since most depositors are​ insured, it is less likely that panicked buyers will simultaneously withdraw funds.

What causes a movement along the aggregate demand (AD) curve?

If price level changes but willingness to spend remains unchanged then this is a movement

Variables that shift the aggregate demand (AD) curve:

Interest Rates (monetary Policy) Government Purchases (Fiscal Policy) Taxes (Fiscal Policy) Expected Future income Expected Profitability Foreign Real GDP Exchange Rate Household wealth

frictionally unemployed

It is the time period between jobs when a worker is searching for or transitioning from one job to another. It occurs when there is a mismatch between the workers and jobs.

higher interest rates shifts the AD line to the __________.

Left

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of

M1

Why is the aggregate demand cure downward sloping?

because when the price decreases the quantity of real GDP increases

Expected future income: Increase in expected future income increase _____________ spending, increase AD curve. Expected Profitability: Increase in expected profitability increases ____________ spending, increasing AD curve. Foreign Real GDP: Increasing in foreign real GDP increases _______ ______ increasing AD Curve

consumption investment Net exports

If households become more pessimistic about their future incomes they are likely to _____________ their current consumption. Shifting the AD line to the left.

decrease

Movement of the short run aggregate supply curve

if the price level changes but the other variables remain unchanged there is a movement of the short run

If households become more optimistic about their future incomes they are likely to ______________ their current consumption. Shifting AD to the right.

increase;

Interest rates: increase in interest rates decrease __________ spending and _____________ spending, decreasing AD curve Government Purchases: Increase in __________ _________ increases AD curve. Taxes: Increase in taxes decrease _____________ spending or ____________ spending, decreasing AD curve.

investment, consumption government purchases Consumption, investment

cyclically unemployed

is a factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will be low because total economic output is being maximized

Structurally unemployed

is a form of unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (also known as the skills gap)

Exchange Rate: Increase in exchange rate decreases _______ _______ decreasing AD curve Household Wealth: Increase in household wealth increases ____________ spending, increasing AD curve

net exports consumption

Stagflation

occurs when the economy has simultaneous high inflation and declining output. Supply shocks, like a large unexpected increase in the price of oil, can cause stagflation.

An increase in government purchases shifts the AD line to the _____________ and a decrease in the government purchases shifts the AD line to the _____________.

right; left