Econ 401 Exam 4- Marc Herold UNH 2019

All are examples of demand shocks, EXCEPT a(n): A.) increase in commodity prices. B.) increase in government expenditure. C.) tax increase. D.) reduction in money supply.

A

The Federal Reserve System was created in: A.) 1857. B.) 1873. C.) 1913. D.) 1971.

C

AS Curve can move left or right

-y pot stays the same -Change in input prices, the supply curve shifts up. Examples of that: energy prices increased a lot and shortages in the food market

Shifts of the AS Curve (Shift Variables)

- A lot more inputs - Better Inputs- more effective and more efficient - Technological change

Three Purposes of Money

1. to be a medium of exchange 2. measuring value 3. an asset

2 Ways Commercial Banks can Borrow Funds

1.) Discount Rate 2.) Federal Funds Rate

Effects on the AS Curve

1.) Input prices (AS curve goes north) 2.) Productivity changes- reduce costs (AS curve goes south) 3.) Taxes Increase (AS curve moves north) 4.) If inputs become more productive- the quality of labor increases (the AS curve shifts down)

5 Characteristics as something that can serve as money (medium of exchange)

1.) It has to be acceptable. 2.) It has to be divisible. Ex: Quarters, Dimes, Twenty Dollar bills, etc. 3.) It has to be durable. 4.) It has to be portable 5.) It has to be assayable.

5 Points of Our Macro Level

1.) The equilibrium is where AD intersects with AS 2.) It is hard for the government to do anything about the AD curve, easier for them to move AS 3.) The expenditure multiplier is stronger than the tax multiplier 4.) The expenditure multiplier is a done deal 5.) Closing Gaps

Quantity Adjusting Markets

1.)What Technological Change allowed a retailer to do: Italian Apparel company which pioneered "Just In Time Production." The company connected their stores all around the world to an information processing center in New Jersey. It was connected to the clothing place in Italy. They could predict the output of batches. 2.) The different types of workers (look at notes for the diagram) 3.) Oligopolies- a few big producers

When did the Government issue paper money as we know it?

1861

Federal Budget Balance

>0 is a deficit =0 is balanced <0 is a surplus

Currency in circulation includes cash: I. held by the public II. in the vaults of commercial banks III. in the vault of the Federal Reserve A.) I only. B.) III only. C.) II only. D.) I, II, and III.

A

If the Federal Reserve increases the discount rate, the: A.) money supply is likely to decrease. B.) money supply is likely to increase. C.) federal funds rate must decrease. D.) money supply is not likely to change.

A

Suppose that the U.S. government doubles its spending on health care. Which is most likely to occur? A.) The aggregate demand curve shifts right, output increases, and prices increase. B.) The short-run aggregate supply curve shifts right, output increases, and prices decrease. C.) The aggregate demand curve shifts left, output decreases, and prices decrease. D.) The short-run aggregate supply curve shifts left, output decreases, and prices increase.

A

Tennessee Valley Authority

A relief, recovery, and reform effort that gave 2.5 million poor citizens jobs and land. It brought cheap electric power, low-cost housing, cheap nitrates, and the restoration of eroded soil.

A major problem with bank runs is that they: A.) cause both inflation and interest rates to fall. B.) spread to other banks. C.) cause inflation, because the money moves so fast in the economy. D.) cause interest rates to fall.

B

Bank reserves are: A.) gold kept in the bank's vault. B.) the fraction of deposits kept in the form of very liquid assets. C.) the deposits lent to finance illiquid investments. D.) the fraction of deposits kept in gold with the Federal Reserve.

B

As a result of a sharp decrease in aggregate demand between 1929 and 1933, real GDP in 1933 was _________ its 1929 level. A.) 50 percent above B.) 100 percent below C.) 27 percent below D.) 29 percent above

C

In the short run, a positive demand shock: A.) reduces aggregate output and the aggregate price level. B.) increases aggregate output and the aggregate price level. C.) increases aggregate output and reduces the aggregate price level. D.) reduces aggregate output and increases the aggregate price level.

B

Money is anything that: A.) can be converted into gold with relatively little loss in value. B.) serves as a medium of exchange for goods and services. C.)is traded in the stock market. D.)can be converted into silver with relatively little loss in value.

B

The Federal Reserve: A.) was established by Ronald Reagan during the recession of 1982. B.) was created in 1913 in response to the Panic of 1907. C.) conducts fiscal policy for state governments. D.) was created by Franklin Delano Roosevelt to disburse funds for the Works Progress Administration.

B

The Panic of 1907 was caused by: A.) excessive investment in collateralized debt obligations. B.)trusts' losses due to their unsuccessful stock market speculation. C.)trusts' memberships in the New York Clearinghouse. D.)national banks issuing too much currency.

B

When banks borrow and lend reserves from each other, they are participating in the ______ market. A.) money B.) federal funds C.) long-term capital D.) subprime mortgage

B

Which would cause a shift in the short-run aggregate supply curve? A.) the price level B.) a change in commodity prices C.) changes in aggregate demand D.) the quantity of real output supplied

B

Running federal budget deficits contributes to a rising national debt, but the debt is reduced in real terms when inflation exists. Explain why this is the case.

Because inflation reduces debt

Classical's

Believe markets are self correcting

A negative short-run supply shock: A.) reduces both aggregate output and the aggregate price level. B.) increases aggregate output and reduces the aggregate price level. C.) reduces aggregate output and increases the aggregate price level. D.) increases both aggregate output and the aggregate price level.

C

According to the Glass-Steagall Act of 1933: A.) there was no difference between commercial banks and investment banks. B.) commercial banks could create and trade financial assets, such as stocks and bonds. C.) investment banks could create and trade financial assets, such as stocks and bonds, but commercial banks could not trade stocks and bonds. D.) investment banks could accept deposits, which were covered by deposit insurance.

C

An event that shifts the aggregate demand curve is called a(n): A.) demand expectation. B.) interest rate effect of an aggregate price level change. C.) demand shock. D.) wealth effect of an aggregate price level change.

C

An example of a double coincidence of wants is a(n): A.) car dealer who wants a new employee, finding a car mechanic who wants money. B.) electronics store owner who wants car repairs, finding a car mechanic who wants money. C.) car mechanic who wants a TV, finding an owner of an electronics store who wants a car repaired. D.) car dealer who wants a TV, finding an electronics store owner who wants money.

C

An upward-sloping short-run aggregate supply curve indicates that increases in: A.) government spending will increase aggregate supply. B.) aggregate demand will increase aggregate supply. C.) the overall price level will increase the amount of aggregate output supplied by firms. D.) the overall price level will decrease the amount of aggregate output supplied by firms.

C

During the Great Depression, the United States moved to the: A.) left along its aggregate demand curve. B.) right along its aggregate demand curve. C.) left along its short-run aggregate supply curve. D.) right along its short-run aggregate supply curve.

C

If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and $15,000 on deposit at the Federal Reserve, then its reserve ratio is: A.) 12.5 percent. B.) 10 percent. C.) 25 percent. D.) 5 percent.

C

In the United States, financial crises have often resulted in: A.) more competition in the financial industry. B.) no changes in the financial industry, since such crises are rare. C.) increased calls for legislation for greater financial regulation. D.) less financial regulation.

C

The short-run aggregate supply curve is positively sloped because: A.)wages and other costs of production respond immediately to changes in prices. B.)workers are willing to work for lower wages rather than be laid off. C.)higher prices lead to higher profit and higher output. D.) profit is lower when prices increase, so output decreases.

C

The short-run aggregate supply curve may shift to the right if: A.) commodity prices rise. B.) personal income taxes decrease. C.) productivity increases. D.) nominal wages increase.

C

When demand declined in the Great Depression of 1929-1933 the GDP deflator: A.) increased by 26 percent. B.) decreased by 15 percent. C.) decreased by 26 percent. D.) increased by 15 percent.

C

Which asset is an example of money? A.) baseball signed by a famous player B.) valuable work of art C.) $20 bill in your pocket D.) shares of stock in a profitable company

C

Which asset is the MOST liquid? A.) $50 Amazon.com gift certificate B.) economics textbook C.) $50 bill D.) 100 shares of Microsoft stock

C

Which would likely cause the short-run aggregate supply curve to shift to the left? A.) decrease in the price of imported oil B.) decrease in consumer spending C.) increase in the price of imported oil D.) increase in consumer spending

C

FOMC

Carries out the buying and selling of bonds for the Federal Reserve

The Panic of 1907

Caused by mistrust for and lowered confidence in bankers.

Change in Money Equation

Change in Direct Deposits New/Revenue

Two Schools of Economics

Classical's and Keynesian's

Three types of banks

Commercial banks, savings and loans, credit union

A decrease in energy prices will: A.) increase the quantity of aggregate output demanded. B.) decrease aggregate demand. C.) decrease the quantity of aggregate output supplied in the short run. D.) increase short-run aggregate supply.

D

An increase in aggregate demand will generate _______ in real GDP and _______ in the price level in the short run. A.) no change; an increase B.) an increase; no change C.) a decrease; no change D.) an increase; an increase

D

An increase in investment leads to _______ in the price level and _______ in real GDP in the short run. A.) an increase; no change B.) a decrease; no change C.) no change; no change D.) an increase; an increase

D

An increase in the price of imported oil leads to a: A.) positive supply shock. B.) positive demand shock C.) . negative demand shock. D.) negative supply shock.

D

In the late 1970s, the U.S. economy slid to the: A.) left along the aggregate supply curve. B.) right along the aggregate supply curve. C.) right along the aggregate demand curve. D.) left along the aggregate demand curve.

D

Normally the discount rate is _______ the federal funds rate. A.)below B.)equal to C.)triple D.)above

D

Stagflation may result from a(n): A.) decrease in the price of imported oil. B.) decrease in the supply of money. C.) increase in the supply of money. D.) increase in the price of imported oil.

D

The aggregate supply curve shows the relationship between the: A.) level of employment and the quantity of aggregate output supplied. B.) price of money and the quantity of aggregate output supplied. C.) price of oil and the quantity of aggregate output supplied. D.) aggregate price level and the quantity of aggregate output supplied.

D

The three main monetary policy tools are: A.) deposit insurance, discount rate, and money multiplier. B.) interest rates, taxes, and government purchases. C.) currency, near-moneys, and reserve ratio. D.) reserve requirements, the discount rate, and open-market purchases.

D

Which are functions of the Federal Reserve System? I. collecting corporate income tax II. setting personal income tax rates III. holding bank reserves A.) II only B.) I, II, and III C.) I only D.) III only

D

Which statement is TRUE? A.) Deposits are assets for a bank; loans are liabilities. B.) A bank's assets include its loans and its deposits. C.) A bank's liabilities include its loans and its deposits. D.) Deposits are liabilities for a bank; loans are assets.

D

Federal Budget Equation

Government Spending-Total Income*Yield (I THINK)

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

What happens to M1 with the huge increase in use of debit/credit cards (less cash used)?

It will increase, because people are using less cash and all their money is in the banks.

How Commercial Banks make money

Loans

Does having a large national debt/GDP ratio necessarily lead to a slower future economic growth, or not? Please explain.

No, because you could have a large sum of debt, but you could have a growing GDP which makes the ratio smaller or vice versus.

Whats the real alternative fix for the economy?

The World War II cure- a public investment led recovery. Savings equals investment. Most economists want to reduce the public deficit to increase savings. Savings translates into investment and renewed growth.

What were the primary causes of a huge federal deficits during 2001-2006?

There were several things: -Increases in war at the time -Tax cuts and more government expenditures

If the intrinsic value of money rises above its exchange value, what will happen?

There will be more hoarding of coins and eventually money will disappear.

Why are there mostly federal budget deficit years rather than federal budget surplus years?

They're cutting taxes and increasing expenditures

Inflationary or Expansionary Gap

When Y equilibrium is about Y target. Rate of inflation is too high. The government wants to bring down the rate of inflation. This happened after Regan won presidency in 1980.

What happens when theres a change in the stock market began picking up and investors began shifting funds out of the bond markets and into the stock market and the FOMC was already buying bonds?

When bond prices fall, yields go up. When yields go up, bonds are more attractive to those buying them, because the prices go down. More feds are buying bonds.

Recession Gap Equation(ish)

Y equilibrium is smaller than Y target

Philips Curve

a curve that shows the short-run trade-off between inflation and unemployment

Stagflation

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

Hoover Dam Project

a project to employ millions of people to work

Medium of Exchange

an asset that individuals acquire for the purpose of trading goods and services rather than for their own consumption.

Bank Run

an event in which bank customers try to withdraw more money from the bank than the bank can provide.

Automatic Stabilizers

are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

Lump-sum taxes

are taxes that don't depend on the taxpayer's income.

Keynesian's

markets fail and they do not self-correct

yield of a bond

face interest in dollars/price of the bond

discretionary fiscal policy

fiscal policy that is the result of deliberate actions by policy makers rather than rules

Deposit Insurance

guarantees that a bank's depositors will be paid even if the bank can't come up with the funds, up to a maximum amount per account

Positive Supply Shock

increase output, causing prices to fall

Negative Supply Shock

inflation and falling output (bad) and prices rise

Yield of an existing bond

interest of fixed interest divided by price of bond

Social Security

pay as you go program. Very important for elderly people, because now they have an income.

Glass-Stegall Act of 1933

provided for separation of commercial banking and investment banking activities in the United States

Supply Shocks

shift the AS curve- positive will shifts the supply curve down and negative supply shift will shift the supply curve up

Federal Funds Rate (FFR)

the interest rate that banks charge one another to borrow money

M1

the narrowest definition, contains only currency in circulation (also known as cash), traveler's checks, and checkable bank deposits.

OMO (Open Market Operations)

the purchase or sale of government securities

Demand Shocks

things which shift the AD curve outward (positive) and will shift inward if its negative

Civilization Policy

uses the government policy

Recession Gap

where the government wants us (target,) versus where we actually are (equilibrium.)