ECON 25200 FInal

The immediate-short-run aggregate supply curve represents circumstances where:

A) both input and output prices are fixed.

The multiplier is useful in determining the:

A) change in GDP resulting from a change in spending

In the United States, the money supply (M1) includes

A) coins, paper currency, and checkable deposits.

The aggregate demand curve is:

A) downsloping because of the interest-rate, real-balances, and foreign purchases effects.

Prices and wages tend to be: A) flexible both upward and downward. C) flexible downward, but inflexible upward. B) inflexible both upward and downward. D) flexible upward, but inflexible downward.

A) flexible upward, but inflexible downward.

The immediate-short-run aggregate supply curve is:

A) horizontal

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

A) increase aggregate demand

If the MPC is 0.70 and investment increases by $3 billion, the equilibrium GDP will

A) increase by $10 billion

In the diagram, a shift from AS1 to AS3 might be caused by a(n):

A) increase in the prices of imported resources.

A decrease in interest rates caused by change in the price level would cause a(n)

A) increase in the quantity of real domestic output demanded

The purchasing power of money and the price level vary

A) inversely.

The Federal Reserve System

A) is basically an independent agency.

A fractional reserve banking system

A) is susceptible to bank "panics" or "runs."

Graphically, cost-push inflation is shown as a:

A) leftward shift of the AS curve.

The claims of the owners of a firm against the firm's assets are called

A) net worth.

The equilibrium level of GDP is associated with:

A) no unintended changes in inventories.

Currency held in the vault of First National Bank is:

A) not counted as part of the money supply

The goldsmith's ability to create money was based on the fact that

A) paper money in the form of gold receipts was rarely redeemed for gold.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

A) rightward by $50 billion at each price level.

If Trent's MPC is .80, this means that he will:

A) spend eight-tenths of any increase in his disposable income

When the economy is at full employment

A) the actual and the cyclically adjusted budgets will be equal.

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

A) the price level is inflexible downward and a recession has occurred.

Other things equal, if the required reserve ratio was lowered

A) the size of the monetary multiplier would increase

The shape of the immediate-short-run aggregate supply curve implies that:

A) total output depends on the volume of spending.

Refer to the figure. The consumption schedule indicates that:

A) up to a point consumption exceeds income but then falls below income.

To say money is socially defined means that

A) whatever performs the functions of money extremely well is considered to be money.

Which of the following is a true statement?

A. An initial increase in aggregate demand may cause a further increase in aggregate demand because higher prices mean higher incomes.

Most modern banking systems are based on:

A. fractional reserves

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are:

B) $1,000

Ig = Ig + 80 S = -80 + 0.4Y The equations refer to a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). In equilibrium, consumption will be ?

$320

MPC+MPS =

1

MPC =

1 - MPS

In a private closed economy _____ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _____

A) actual; planned

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

A) aggregate demand curve would shift to the right.

Other things equal, if the U.S. dollar were to depreciate, the:

A) aggregate supply curve would shift to the left.

When commercial banks use excess reserves to buy government securities from the public:

C) new money is created.

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves:

A) are $20,000.

The members of the Federal Reserve Board:

A) are appointed for 14-year terms.

As disposable income goes up, the:

A) average propensity to consume falls.

In a fractional reserve banking system,

A) banks can create money through the lending process.

When the commerical bank has excess reserves

C) it is in a position to make additional loans.

The multiplier is:

1/(MPS)

Which of the following statements best describes the 12 Federal Reserve Banks?

A) They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

An appropriate fiscal policy for severe demand-pull inflation is

A) a tax rate increase.

The accompanying table gives data for a commercial bank or thrift. In row 3, the number appropriate for space W is

A) $32,000.

If S = -60 + .25Y and Ig = 60, where S is saving, Ig is gross investment, and Y is gross domestic product (GDP), then the equilibrium level of GDP is:

A) $480

Ig = Ig + 80 S = -80 + 0.4Y The equations refer to a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). In equilibrium, saving will be

A) $80

The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y I = Io = 30 In equilibrium, the level of saving will be ?

A) 30

In the diagram, the economy's immediate-short-run AS curve is line ______, its short-run AS curve is _____, and its long-run AS curve is line ______.

A) 3; 2; 1

S=-20+0.4Y Ig=25-3i The equations refer to a private closed economy, where Ig is gross investment, S is saving, i is the real interest rate and Y is gross domestic product (GDP). In equilibrium the level of consumption will be ?

A) 65

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. After a deposit of $10 billion of new currency into a checking account in the banking system, excess reserves will increase by

A) 9 Billion

Which of the following would most likely shift the aggregate demand curve to the right?

A) An increase in stock prices that increases consumer wealth

All else equal, a large decline in the real interest rate will shift the:

A) Investment schedule upward

Which of the following is not part of the M2 money supply?

A) Large-denominated time deposits

Assuming no other changes, if balances in money market deposit accounts increase by $50 billion and small-denominated time deposits decrease by $50 billion, the: A. M1 and M2 money supplies will not change. B. M2 money supply will increase. C. M1 money supply will decline. D. M2 money supply will increase and the M1 money supply will decrease.

A) M1 and M2 money supplies will not change.

S=-20+0.4Y Ig=25-3i The equations refer to a private closed economy, where Ig is gross investment, S is saving, i is the real interest rate and Y is gross domestic product (GDP). If the real interest rate is 5 (percent), investment will be ?

B) $10 and the equilibrium GDP will be $75.

Refer to the above diagram for a private closed economy. The equilibrium level of GDP is:

B) $300

Refer to the given data. The marginal propensity to consume is

B) 0.80

The accompanying table gives data for a commercial bank or thrift. In row 4, the number appropriate for space Z is

B) 10,000

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

B) 12 percent.

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines

B) 4 and 3

Which of the following statements is correct?

B) A bank's liabilities plus its net worth equal its assets.

The group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) is the:

B) Federal Open Market Committee (FOMC).

In the U.S. Economy, the money supply is controlled by the

B) Federal Reserve System

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

B) Great Depression

Which of the follwing is correct? A) APC+MPC = APS+MPS B) MPC+MPS = APC+APS C) APC-APS = MPC-MPS D) APC+MPS = APS+MPC

B) MPC+MPS = APC+APS

During the financial crisis of 2007-2008, the Federal Reserve

B) Served as a lender of last resort to both solvent and insolvent firms

Suppose that unintended increases in inventories are occurring in a mixed closed economy. We can surmise that:

B) T + Sa > Ig + G.

The most important determinant of consumer spending is:

B) The Level of Income

The cyclically adjusted budget refers to

B) The size of the Federal government's budgetary surplus or deficit when the economy is operating at full employment

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

B) Weath Effect

Which of the following does NOT shift the aggregate demand curve?

B) a change in the price level

If for some reason households become increasingly thrifty, we could show this by:

B) an upshift of the saving schedule

The federal funds market is the market in which

B) banks borrow reserves from one another on an overnight basis.

Which one of the following is presently a major deterrent to bank panics in the United States

B) deposit insurance

The level of aggregate expenditures in the private closed economy is determined by the:

B) expenditures of consumers and businesses.

Expansionary fiscal policy is so named because it:

B) is designed to expand real GDP

Payment of interest on the U.S. public debt

B) is thought to increase income inequality.

If the monetary authorities want to reduce the monetary multiplier, they should:

B) raise the required reserve ratio.

Graphically, demand-pull inflation is shown as a:

B) rightward shift of the AD curve along an upsloping AS curve.

In an aggregate expenditures diagram, a lump-sum tax (T) will:

B) shift the C + Ig + Xn line downward by an amount equal to T × MPC.

The aggregate supply curve (short run)

B) slopes upward and to the right.

An economist who favors smaller government would recommend:

B) tax cuts during recession and reductions in government spending during inflation

A recessionary gap is

B) the amount by which equilibrium GDP falls short of full-employment GDP

If business taxes are reduced and the real interest rate increases:

B) the level of investment spending might either increase or decrease.

The investment demand curve portrays an inverse (negative) relationship between:

B) the real interest rate and investment.

When the receipts given by goldsmiths to depositors were used to make purchases:

B) the receipts became in effect paper money

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

B) wage contracts.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

B) will also shift upward

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

C) $5,000.

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. After the deposit of $10 billion of new currency, the maximum amount by which this commercial banking system can expand the supply of money by lending is

C) $90 billion.

Actual investment is $62 billion at an equilibrium output level of $620 billion in a private closed economy. The average propensity to save at this level of output is ?

C) 0.10

The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y I = Io = 30 In equilibrium, level of consumption spending will be ?

C) 195

If the MPC in an economy is .75, a $1 billion increase in taxes will ultimately reduce consumption by:

C) 3 Billion

The table gives the data for a private closed economy. The MPS is:

C) 3/10

The Board of governors of the federal reserve has:

C) 7 members

If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by:

C) 9 Billion

The MPC can be defined as the fraction of a:

C) A change in income that is spent

Which if the following is correct? A) APC + MPS = 1 B) APS + MPS = 1 C) APC + APS = 1 D) APS+ MPC = 1

C) APC + APS = 1

In which of the following sets of circumstances can we confidently expect inflation?

C) Aggregate supply decreases and aggregate demand increases.

Which of the following would NOT shift the aggregate supply curve

C) An increase in the price level

Refer to the given diagram. The marginal propensity to consume is equal to:

C) CB/AB

Dissaving occurs where: A) income exceeds consumption. B) saving exceeds consumption. C) consumption exceeds income. D) saving exceeds income.

C) Consumption exceeds income

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because:

C) Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may:

C) Not be possible due to the minimum wage law.

Which one of the following is true about the U.S. Federal Reserve System?

C) There are 12 regional Federal Reserve Banks.

The real-balances effect indicates that

C) a higher price level will decrease the real value of many financial assets and therefore reduce spending.

An inflationary expenditure gap is the amount by which:

C) aggregate expenditures exceed the full-employment level of GDP

Refer to the data for a fictional economy. The changes in the budget conditions between 1999 and 2000 best reflect:

C) an expansionary fiscal policy.

The multiplier effect means that:

C) an increase in investment can cause GDP to change by a larger amount.

What are mortgage backed securities?

C) bonds backed by mortgage payments

In the financial industry, "securitization" refers to

C) bundling groups of loans, bonds,mortgages, and other financial debts into new securities.

The money supply is backed

C) by the government's ability to control the supply of money and therefore to keep its value relatively stable.

In the United States from 1929 to 1933, real GDP _____________ and the unemployment rate ________________.

C) declined by 27 percent; rose to 25 percent

A decline in disposable income:

C) decreases consumption by moving downward alone a specific consumption schedule.

Fiscal policy refers to the:

C) deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Excess reserves refer to the

C) difference between actual reserves and required reserves.

The investment demand slopes downward and to the right because lower real interest rates:

C) enable more investment projects to be undertaken profitably.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

C) increase U.S. imports and decrease U.S. exports.

Refer to the diagrams. Curve A

C) is an investment demand curve and curve B is an investment schedule.

Graphically, the full employment, low inflation, rapid growth economy of the last half of the 1990's is depicted by a

C) rightward shift of the aggregate demand curve & a rightward shift of the aggregate supply curve

The weatlh effect is shown graphically as a

C) shift of the consumption schedule

If the economy has a cyclically adjusted budget surplus, this means that:

C) tax revenues would exceed government expenditures if full employment were achieved.

The consumption schedule is such that:

C) the MPC is constant and the APC declines as income rises.

Checkable deposits are classified as money because:

C) they can be readily used in purchasing goods and paying debts

The interest-rate effect suggests that

C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

Which of the following are all assets to a commerical bank?

C. vault cash, property, and reserves

Y = GDP

Change in Y= M * Change in C Change in Y= M * Change in I Change in Y= M * Change in G Change in Y = M * Change in Nx or Net exports

MPS (marginal propensity to save) =

Change in savings/change in disposable income

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. The commercial banking system has excess reserves of

D) $0 BILLION

Ig = Ig + 80 S = -80 + 0.4Y The equations refer to a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). The equilibrium GDP will be ?

D) $480

The accompanying table gives data for a commercial bank or thrift. In row 1, the number appropriate for space W is

D) 10

Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be:

D) 10 percent.

The accompanying table gives data for a commercial bank or thrift. In row 2, the number appropriate for space W is

D) 100,000

The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y I = Io = 30 In this economy, the equilibrium level of income (Y) is ?

D) 225

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal polict would be most appropriate if the economy's present aggregate demand curve were at

D) AD3

Which of the following would reduce the money supply?

D) Commercial banks sell government bonds to the public.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

D) Consume is three-fifths

Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n):

D) Contractionary fiscal policy

The aggregate demand curve

D) Shows the amount of real output that will be purchased at each possible price level.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

D) a reduction in Federal tax rates on personal and corporate income

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:

D) both the consumption and saving schedules downward.

In a private closed economy, when aggregate expenditures exceed GDP:

D) business inventories will fall.

An increase in personal income tax rates will cause a(n):

D) decrease in aggregate demand

An appropriate fiscal policy for a severe recession is

D) decrease in taxes

The immediate determinants of investment spending are the:

D) expected rate of return on capital goods and the real interest rate

Refer to the diagram, in which Qf is the full-employment output. If the economy's presentaggregate demand curve is AD2,

D) government should undertake neither an expansionary nor a contractionary fiscal policy.

Other things equal, a 10 percent decrease in corporate income taxes will:

D) have no effect on the location of the investment-demand curve.

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will:

D) increase the price level by more than real output.

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

D) increasing government spending by $4 billion.

The M2 money supply includes:

D) individual shares in money market mutual funds

contractionary fiscal policy is so named because it:

D) is aimed at reducing aggregate demand and thus achieving price stability.

Since 2002, the United States has had:

D) large federal budget deficits.

A bank that has assets of $85 billion and a net worth of $10 billion must have:

D) liabilities of $75 billion.

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

D) m = 1/R.

The foreign purchases effect

D) moves the economy along a fixed aggregate demand curve.

Investment spending in the United States tends to be unstable because:

D) profits are highly variable.

A major advantage of the built-in or automatic stabilizers is that they:

D) require no legislative action by Congress to be made effective.

Money functions as:

D) store of value, unit of account, medium of exchange

An upward shift of the saving schedule suggests

D) that the APC has decreased and the APS has increased at each GDP level.

To say that "the U.S. public debt is mostly held internally" is to say that

D) the bulk of the public debt is owned by U.S. citizens and institutions.

Built-in stability means that:

D) with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

MPC (marginal propensity to consume) =

change in consumption/change in disposable income

APC =

consumption/disposable income

The investment demand slopes downward and to the right because lower real interest rates:

enable more investment projects to be undertaken profitably.

Real interest rate =

nominal interest rate - inflation rate

APS =

savings/disposable income

Other things equal, an improvement in productivity will:

shift the aggregate supply curve to the right.