Econ 202 Test 3

If $500,000 in new taxes is raised and spent on building a new school and $300,000 in private spending would have been spent anyway, how much is added to short-run aggregate demand?

$200,000

For each depositor name on an account, the FDIC guarantees up to:

$250,000.

How many regional banks compose the Federal Reserve System

12

The members of the Board of Governors of the Federal Reserve are appointed for: 4 years.

14 years.

If a $500 increase in reserves ultimately leads to a $2,000 increase in the money supply, the money multiplier is:

4.

Refer to the table. For the multiple deposit expansion process described in this table, what is the required reserve ratio in this banking system?

8%

A decrease in money supply growth will cause the:

AD curve to shift to the left.

In the best case scenario, the Federal Reserve is most successful at counteracting a negative:

Correct Answer AD shock.

Which statement pertains to the condition of crowding out?

Government raises taxes by $300 million to finance new spending on highway construction, resulting in a decrease in investment spending by $270 million.

Which statement does NOT limit the effectiveness of fiscal policy?

Government spending and taxes have little effect on aggregate demand.

What will happen when banks decide to increase their reserve ratios?

The money supply will contract.

Deflation is:

a decrease in prices; that is, a negative inflation rate.

The case when an increase in government spending isn't large enough to significantly increase aggregate demand is called:

a drop in the bucket.

Compared with a closed economy, an increase in the growth rate of the money supply in an open economy increases aggregate demand by a:

arger amount only in the short run.

Which could be sources of funding for a government that wants to increase government expenditures?

both taxes and borrowing

When the Fed conducts open market purchases, it:

buys government securities.

If an increase in government spending of $100 million causes an increase in aggregate spending of less than $100 million, we call this phenomenon:

crowding out.

Monetary policy is a _____ means of popping a bubble, because monetary policy _____ push down the price of specific commodities.

crude; can't

Paying a higher interest rate on reserves held at the Fed will tend to:

decrease the money supply

If the Federal Reserve made the decision to increase the money supply in the United States, this would lead to:

depreciation of the U.S. dollar relative to other currencies.

significant decrease in the rate of inflation is called:

disinflation.

Reserves held by banks are mainly held in the form of:

electronic claims.

Examples of expansionary fiscal policy include increases in:

government spending.

The disinflation experiment reduced inflation in the United States, but at the cost of:

high unemployment.

Suppose the central bank targets a low rate of unemployment. If a negative real shock occurs, the real growth rate will be:

higher if the central bank counters the shock than if it does not react.

A problem that makes fiscal policy less effective is that:

higher taxes or increased borrowing to fund government spending can reduce aggregate demand.

A trade deficit occurs when the value of a country's:

imports exceeds the value of its exports.

An increase in U.S. government spending tends to:

increase U.S. interest rates and increase the U.S. capital account surplus.

To reduce the money supply in the economy, the Fed would:

increase the discount rate.

When a negative real shock hits the economy, in the absence of any monetary intervention:

inflation decreases, but real growth increases.

In the absence of monetary intervention following a negative shock to aggregate demand:

inflation, real growth, and nominal wage growth will all decrease.

he discount rate is the

interest rate banks pay when they borrow directly from the Fed.

Uncertainty drives people away from:

investment spending and toward more liquid assets.

When an economy experiences a negative real shock, fiscal policy:

is generally not appropriate.

Following the terrorist attacks of September 11, 2001, the Federal Reserve increased:

its lending to banks.

A trade deficit might indicate a problem of:

low saving.

Fiscal policy is more effective in affecting economic activity if:

many resources are unemployed.

A negative shock to AD will cause the growth rate of real GDP to increase in:

neither the short run nor the long run.

If $1 U.S. buys 90 Japanese yen and a computer that costs $800 U.S. is priced at 90,000 Japanese yen, then the computer in Japan is:

overpriced by 18,000 Japanese yen.

Consumers are more likely to spend tax rebates that they believe are:

permanent.

When Koreans buy stock on the NYSE:

portfolio investment in the United States increases.

What is the rate at which you exchange the goods and services of one country for the goods and services of another?

real exchange rate

Suppose a country's official reserves do not change. If it has a $20 billion deficit in its current account, then it must also have a $20 billion:

surplus in its capital account.

The possibility that the failure of one bank affects the performance of other banks is called:

systemic risk.

_____ puts more spending in the hands of the private sector, while _____ put more spending in the hands of the government.

tax cut; increased government expenditures

The Federal Reserve can influence the economy by shifting:

the AD curve.

When a German automaker opens a new plant in Alabama:

the U.S. capital account surplus increases and the U.S. current account surplus decreases.

The macroeconomic case for government spending is strongest when:

the government faces some immediate emergency.

The United States currently has a net _____ with the rest of the world.

trade deficit

Most people run a private:

trade surplus with their employer and a trade deficit with the rest of the economy.