Econ 3

economies where goods and services are traded directly for other goods are services are called _____ economies

barter

to offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the federal reserve could

buy Treasury securities

the largest proportion of M1 is made up of

checking account deposits

a decrease in the discount rate ____ bank reserves and ____ the money supply if banks respond appropriately to the change in the rate

increases, increases

if aggregate expenditure is less than GDP how will the economy reach macroeconomic equilibrium

inventories will rise, and GDP and employment will decline

if firms are more optimistic that future profits will rise and remain strong for the next few years, then

investment spending will rise

how does a decrease in government spending affect the aggregate expenditure line

it shifts the aggregate expenditure line downward

fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body

which of the following is one of the most important benefits of money in an economy

money makes exchange easier, leading to more specialization and higer productivity

______ usually increase when the US economy is in a recession and decreases when the US economy is expanding

net exports

on the 45-degree line diagram, for points that lie below the 45- degree line

planned aggregate expenditure is less than GDP

if the central bank can act as a lender of last resort during a banking panic banks can

satisfy customer withdrawal needs and eventually restore he public's faith in the banking system

the aggregate expenditure model focuses on the ____ relationship between real spending and _____

short-run; real GDP

actual investment spending does not include

spending on consumer durable goods

examples of assets that are included in household wealth would be

stocks, bonds, and savings accounts

which of the following functions of money would be violation if inflation were high

store of value

john maynard keynes.............................

this may benefit the economy in the long run, but could be counterproductive in the short run

at macroeconomic equilibrium

total spending equals total production

bank reserves include

vault cash and deposits with the federal reserve

the federal reserve's narrowest definition of the money supply is

M1

open market operations refer to the purchase or sale of _____ to control the money supply

U.S. Treasury securities and the Federal Reserve

if the required reserve ration is 10 percent.........................

$10,000

a general formula for the multiplier is

1/(MPS)

refer to figure: suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. if the MPC is 0.9, then what is the change in GDP

$100 million

refer to scenario above: M2 in this simple economy equals

$21,000

refer to table: given the consumption schedule in the table above, the marginal propensity to save is

0.1

if disposable income increases by $100 million and consumption increases by $90 million then the marginal propensity to consume is

0.9

if inventories decline by more than analysts predict they will decline, this implies that

actual investment spending was less than planned investment spending

in economics, money is defined as

any asset people generally accept in exchange for goods and services

_____ consumption is consumption that does not depend upon the level of GDP

autonomous

if the marginal propensity to save is 0.25 then a $10,000 decrease in disposable income will

decrease consumption by $7,500

the five most important variables that determine the level of consumption are

disposable income, wealth, expected future income, price level, and interest rate

if an increase in autonomous consumption spending of $10 million results in %50 million increase in equilibrium real GDP then

the MPC is 0.8

the slope of the consumption function is equal to

the change in consumption divided by the change in disposable income

refer to figure: if the economy is at a level of aggregate expenditure given by point k

the economy is in equilibrium

the key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

the level of aggregate expenditure

if an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then

the multiplier is 8

all of the following are true statements about the multiplier except

the multiplier makes the economy less sensitive to changes in autonomous expenditure

which of the following is a true statement about the multiplier

the multiplier rises as the MPC rises

consumption is $5 million, planned investment is $8 million.............

there was an unplanned increase in inventories equal to $2 million