ECON exam 4

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

Choose the statement about money that is correct

A. Money acts as a store of value in the sense that it can be held and exchanged later for goods and services.Money acts as a store of value in the sense that it can be held and exchanged later for goods and services.

Following the change in aggregate​ supply, the new macroeconomic equilibrium is at​ ______. If potential GDP is​ $1 trillion, the economy has​ _______ gap.

A. point A​; a recessionary

Which of the following items are examples of fiscal policy that increase aggregate​ demand?

An increase in government​ expenditure, a decrease in​ taxes, and an increase in transfer payments

A bank maximizes its​ stockholders' wealth by​ ______.

C. lending for long terms at high interest rates and borrowing from depositors and others

If the Fed makes an open market sale of​ $1 million of securities to a​ bank, the​ bank's reserves​ ______.

Excess reserves​ ______. -decrease; decrease Bank deposits​ ______ and the quantity of money​ ______. -decrease; decreases

All of the following are elements in the structure of the Fed EXCEPT the

Executive Council to the Governor.

Choose the correct statement.

Inflation is a tax on holding money.

Ari takes ​$1100 from his savings account and deposits the ​$1100 in his money market fund. What is the immediate change in M1 and​ M2?

M1 does not change and M2 does not change.

Choose the statement about the Fed that is correct.

The FOMC meets approximately every six weeks to review the state of the economy

​________ the quantity of money in the United States.

The Federal Reserve System regulates

Choose the correct statement..

The increased uncertainty of inflation misallocates resources.

A midyear burst of​ minimum-wage increases starts on July 1 On July​ 1, 2016, the minimum wage will increase in 14 U.S.​ cities, states and​ counties, and in the District of Columbia. In San​ Francisco, the minimum wage will rise to​ $13.00 by 2018.

The rise in the minimum wage​ _______. -decreases aggregate supply because​ firms' costs increase If the rise in the minimum wage increases the natural unemployment​ rate, potential GDP​ ______ and aggregate supply​ ______. -decreases; decreases further

If the Fed increases the discount​ rate,

a bank pays a higher interest rate if they borrow money from the FED

Your bank manager tells you that she does not create​ money; she just lends what is deposited. Explain why she is wrong and how she creates money. The banking system creates money because​ ______.

a bank that has excess reserves can make loans. When a bank creates a​ loan, the bank increases the balance of the​ borrower's account and that increase in deposits is new money

Which of the following can start an​ inflation?

a decrease in aggregate supply an increase in aggregate demand

Inflation can be started by

a decrease in aggregate supply or an increase in aggregate demand.

Which of the following are examples of monetary policy that decrease aggregate​ demand?

a decrease in the quantity of money and an increase in interest rates

An increase in the money wage rate leads to`

a leftward shift of the aggregate supply curve.

Money serves the function of being​ ______.

a medium of​ exchange, which means that it is generally accepted in return for goods and services

When the U.S. price level​ rises, ______.

a movement up along the AD curve occurs and the quantity of U.S. real GDP demanded decreases

In the​ figure, the economy is at an equilibrium with real GDP of​ $13 trillion and a price level of 110. At this point there is

a recessionary gap

The gap in the graph is​ ______ because​ ______.

a recessionary​ gap; potential GDP exceeds real GDP

The events which could have changed​ short-run aggregate supply from AS0 to AS1 are​ ______.

a rise in the money wage rate or a rise in the money price of any other factor of production

The Board of Governors of the Federal Reserve is

a seven member board, each one serving a 14−year term

Excess reserves are the

amount of reserves held over what is desired.

Fed starts buying government debt The Fed announced that it would buy up to​ $300 billion in Treasury securities over the next six months from big government​ "primary" securities​ dealers, such as Barclays​ Capital, Banc of America​ Securities, and Citigroup Global Markets. ​ What type of transaction is the​ Fed's purchase of government securities from securities​ dealers? With no other​ actions, will these transactions change the quantity of​ money? If​ so, will they increase or decrease the quantity of​ money? This transaction is an example of​ ______. With no other​ actions, these transactions will​ ______ the quantity of money.

an extraordinary crisis​ measure; increase

Demand−pull inflation starts with

an increase in aggregate demand

Demand pull inflation can be started by

an increase in govt expenditure

Cost−push inflation can start with

an increase in oil prices

Aggregate demand decreases if monetary policy​ ______ the quantity of money and​ ______ interest rates.

decreases; increases

The Fed decreases the quantity of money. In the short​ run, the quantity of money demanded​ ______ and the nominal interest rate​ ______.

decreases; rises

When cost−push inflation​ starts, real GDP​ ________ and the unemployment rate​ ________

decreases; rises

Over the business​ cycle, factors such as the quantity of​ capital, human capital and technology

grow but do not fluctuate as much as the quantity of labor employed.

Which of the following changes aggregate supply and shifts the AS​ curve? i. a change in the price of a major resource ii. increases in the amount of capital iii. a change in the money income of consumers

i and ii

When Japanese and European firms establish new plants in​ China, China's aggregate demand​ ______.

increases and​ China's AD curve shifts rightward

How do banks create new deposits by making​ loans, and what factors limit the amount of deposits and loans they can​ create? When a bank makes a​ loan, ______. The amount of loans and new deposits that a bank can create is limited by​ ______.

it creates a new deposit for the person who receives the​ loan; the​ banks' excess​ reserves, the desired reserve​ ratio, and the currency drain ratio

The Federal Open Market Committee is

the main policy making body of the Fed.

The aggregate supply curve shifts rightward when

the money wage rate falls.

An open market operation is​ ______.

the purchase or sale of government securities by the Federal Reserve System in the open market

Which of the following does NOT affect potential​ GDP?

the quantity of money

When the price level in Mexico​ rises, _______.

the quantity of real GDP demanded in Mexico decreases

The greater the desired reserve​ ratio, _______.

the smaller the money multiplier

South​ Korea: Bank reserves raised To rein in​ spending, the Bank of Korea raised the required reserve ratio to 7 percent from 5 percen—the first raise in almost 17 years. With higher required​ reserves, banks will have to cut the amount of loans they make Explain why the higher required reserve ratio means that banks will have to cut the amount of loans they can make.

they have fewer excess reserves with which to make loans

If the Fed changes the quantity of​ money, the immediate effects are on​ ______ and the​ long-run effects are on​ ______.

the​ short-term nominal interest​ rate; the price level and the inflation rate

The price of a bond​ _____ and the interest rate​ ______.

​falls; rises

In December 2001​, currency held by individuals and businesses and​ traveler's checks was ​$589 ​billion; checkable deposits owned by individuals and businesses were ​$593 ​billion; savings deposits were ​$2, 313 ​billion; small time deposits were ​$975975 ​billion; and money market funds and other deposits were ​$982 billion. Calculate M1 and M2 in December 2001.

M1 in December 2001 is ​$1182 billion. M2 in December 2001 is ​$5452 billion.

When Europe trades with Mexico and goes into a recessiona recession​, ​______.

Mexico's exports to Europe decrease ​Mexico's aggregate demand decreases and​ Mexico's AD curve shifts leftward

Think about the banking system and then choose the correct statement.

Money in the United states today is called flat money

The U.S. economy is at full employment when the following events​ occur: 1. A deep recession hits the world economy. 2. The world oil price rises by a large amount. 3. U.S. businesses expect future profits to fall. Which​ event, if​ any, brings​ stagflation?

Stagflation is rise in the price level and a decrease in real GDP. Only Event 2 has this effect.

What is the Fed and what is the​ FOMC?

The FED is the central bank of the United States FOMC meets every 6 weeks to review the state of the economy

An economy has a recessionary gap. With no change in aggregate​ demand, how does the economy return to full​ employment?

The money wage rate​ falls, aggregate supply​ increases, and the price level falls.

Helicopter Money​ Primer: The possible next frontier in quantitative easing Central banks—the ​Fed, the Bank of​ Japan, the European Central​ bank, the​ People's Bank of​ China, and others—have bought trillions of dollars of bonds. The Fed alone has bought​ $4 trillion-worth.

The​ Fed's policy tools include​ ______. -the required reserve​ ratio, discount​ rate, and open market operations To increase its assets to​ $4 trillion, the Fed used​ ______. -large-scale open market operations called quantitative easing

When the Fed engages in open market​ operations, it is buying or selling

U.S. government securities.

The fraction of a​ bank's total deposits that it holds in reserve is the​ ______, and the ratio of reserves to deposits that a bank wants to hold is its​ ______.

actual reserve​ ratio; desired reserve ratio

The business cycle occurs because​ ______.

aggregate demand and aggregate supply​ fluctuate, but they​ don't always fluctuate by the same amount and in the same direction

When investment​ increases, _______

aggregate demand increases and income increases. The increase in income induces an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment

By​ itself, an increase in the price of oil shifts the

aggregate supply curve leftward and does not shift the aggregate demand curve

If the costs of production​ decrease, there is

an increase in aggregate supply and the AS curve shifts rightward.

The costs of inflation do not include​ _______.

an increase in saving and investment

Cost−push inflation can be started by

an increase in the money prices of raw material

Some events that could have changed aggregate demand from AD0 to AD1 are​ ______.

an increase in the quantity of money or an increase in foreign income

In the most recent quarter​ (the fourth 2019​), U.S. real GDP was ​$19.2​trillion, potential GDP was ​$19.1 ​trillion, and the price level measured by the GDP deflator was 113.0 In the fourth quarter of 2019 the output gap was ​______.

an inflationary gap

Starting from a situation of full​ employment, an increase in aggregate demand creates​ ________ and​ ________ the price level

an inflationary gap; raises

If the economy is above full​ employment, there is​ ________ gap and as the economy adjusts toward full employment the price level​ ________.

an inflationary; rises

As the central​ bank, the Federal Reserve System provides banking services to

banks and regulates financial institutions and markets

To increase the quantity of money in the​ economy, the Federal Reserve can

buy government bonds in an open market operation.

The monetary base is the sum of​ _______.

coins, Federal Reserve​ notes, and​ banks' reserves at the Fed

The institutions that make up the banking system are​ ______.

commercial banks, federal reserves, money market funds, thrift institutions

Demand−pull inflation persists because of

continuing increases in the quantity of money

The change in exports and imports​ _______ aggregate demand because​ _______.

decrease; exports increased by less than imports increased

Other things remaining the​ same, a rise in the foreign exchange rate of the U.S. dollar​ ______.

decreases U.S. aggregate demand

In the short​ run, the global expansion​ ______.

decreases U.S. unemployment

When the Chinese yuan strengthens against the U.S.​ dollar, China's aggregate demand​ ______.

decreases and​ China's AD curve shifts leftward

When the United States goes into​ recession, China's aggregate demand​ ______.

decreases and​ China's AD curve shifts leftward

Aggregate demand decreases if expected future​ income, inflation, or profits​ ______. And aggregate demand decreases if fiscal policy​ ______ government expenditure

decreases; decreases

If the price level​ falls, the​ _______.

demand for money decreases and the nominal interest rate falls

When the economy starts to recover from recession and interest rates are​ low, there is a​ "threat of​ inflation" because the​ _______ in a recovery.

demand for money increases

When the price level in Japan rises Japan's aggregate demand​ ______.

does not​ change, but the quantity of real GDP demanded decreases and a movement up along the AD curve occurs

To restore full​ employment, the money wage rate will​ ______. The price level​ _______.

fall and aggregate supply increases​; falls

If the interest rate is 5​ percent, people will sell bonds. Bond prices​ ______ and the interest rate will​ ______.

fall; rise

Along the adjustment path back to full employment with no change in monetary policy or fiscal​ policy, the money wage rate will​ _______ and aggregate​ _______.

fall; supply will increase

The real wage rate​ _____ and unemployment​ _____ in the short run in Event 1.

falls; decreases

The real wage rate​ _____ and unemployment​ _____ in the short run in Event 3.

falls; decreases

The Fed conducts an open market purchase of securities. In the short​ run, the nominal interest rate​ ______. In the long​ run, the value of money​ ______.

falls; falls

The uncertainty costs of inflation cause people to

focus on the short​ run, which decreases investment and slows growth.

As more people in India have access to higher education​ ______ and in the long run​ ______.

human capital​ increases; both potential GDP and aggregate supply increase

In its macroeconomic​ equilibrium, the economy can be producing at i. below full employment. ii. full employment. iii. above full employment.

i,ii, or iii

Suppose the Fed makes an open market purchase of​ $1 million of securities from a bank. The​ bank's reserves​ ______ and its deposits​ ______, so it has excess reserves of​ $1 million.

increase by​ $1 million; do not change

The tax credits​ _______.

increase disposable​ income, which increases consumption expenditure

Bank deposits​ ______ and the quantity of money​ ______.

increase; increases

Reserves in the banking system​ ______. Banks​ ______ loans.

increase; make more

In the short​ run, Event 1​ _____ real GDP and​ _____ the price level.

increase; raises

In the short​ run, Event 3​ _____ real GDP and​ _____ the price level

increase; raises

In the short​ run, when Indian universities increased the number of engineering graduates ​India's aggregate supply​ ______.

increased

South​ Africa's aggregate supply​ ______ when unemployment decreased.

increased

When U.S. businesses established branches in South​ Africa, in the short​ run, South​ Africa's aggregate supply​ ______.

increased

In the short​ run, when U.S. firms moved their IT and data functions to​ India, India's aggregate supply​ ______.

increases

When Mexico increases the quantity of​ money, Mexico's aggregate demand​ ______.

increases and its AD curve shifts rightward

When Japan adopts an expansionary fiscal policy and cuts taxes, Japan's aggregate demand​ ______.

increases and the AD curve shifts rightward

When growth in the Asian economies is strong Japan's aggregate demand​ ______.

increases and the AD curve shifts rightward

Aggregate demand decreases if fiscal policy​ ______ taxes or​ ______ transfer payments.

increases; decreases

Aggregate demand decreases if the exchange rate​ ______ or foreign income ​______.

increases; decreases

Inflation​ ________ the cost of holding money and​ ________ the afterminus−tax real interest rate.

increases; decreases

The increase in the demand for durable goods​ ______ aggregate demand. The increase in​ new-home sales​ ______ aggregate demand.

increases; increases

In the short​ run, Event 2​ _____ real GDP and​ _____ the price level.

increases; lowers

The Fed must continually​ ______ the quantity of money to keep the nominal interest rate low. As a​ result, the inflation rate​ ______ in the long run.

increases; rises

Demand−pull inflation results from continually increasing the quantity of​money, which leads to a continually

increasing aggregate demand

The discount rate is the

interest rate at which the Fed will loan reserves to commercial banks.

Ben Bernanke says​ "interest rates will stay​ low" for some time because the Fed is planning to​ ______.

keep the quantity of money growing at a rate that will not increase the nominal interest rate

After the increase in the quantity of​ money, at an interest rate of 77 percent a​ year, people want to hold​ _____ so they​ _____ bonds.

less money than the quantity​ supplied; buy

An​ economy's business cycle is a continuous series over time of different​ ______.

macroeconomic equilibriums

High inflation

makes money function less well as a store of value.

Uncertainty costs arise from inflation because inflation makes longminus−term planning​ ________ so people respond by​ ________ investment.

more​ difficult; decreasing

Following the change in aggregate​ demand, the new equilibrium is at​ ______. If potential GDP is​ $1 trillion, the economy has​ _______ gap

point C​; an inflationary

If the Fed wants to increase the quantity of​ money, it makes an open market​ _______.

purchase

In order to influence the interest​ rate, the Federal Reserve System can immediately adjust the

reserves of the banking system

The automatic adjustment path back to full employment​ (no change in fiscal or monetary​ policy) begins with a​ ______ in the​ _____.

rise; moneywage rate

In the short​ run, the nominal interest rate​ _______.

rises

The real wage rate​ _____ and unemployment​ _____ in the short run in Event 2.

rises; decrease

In the long​ run, the value of money​ ______ and the price level​ ______.

rises; falls

The price of a bond​ _____ and the interest rate​ ______.

rises; falls

The price of a bond​ ______, and the interest rate​ ______.

rises; falls

What is a​ bank's balancing​ act? A bank must balance​ ______ against​ ______

security for​ depositors; profit for stockholders

The voting members of the Federal Open Market Committee consists of the

seven Board of Governor members and five Federal Reserve Bank presidents

An increase in the money wage rate​ ________ and an increase in the money prices of raw materials​ ________.

shifts the AS curve​ leftward; shifts the AS curve leftward

A combination of recession and inflation is called

stagflation

Aggregate​ ______ will​ ______.

supply; decrease

The​ Fed's chief executive is​ ______ and the​ Fed's main policy tools are​ ______.

the Chairman of the Board of​ Governors; required reserve​ ratios, discount​ rate, and open market operations. In unusual​ times, extraordinary crisis measures are an additional tool

When the world economy goes into a strong​ expansion, ______.

the demand for U.S. exports increases and the demand for U.S. real GDP increases

When Congress raises income​ taxes, ______.

the demand for U.S. real GDP decreases and the AD curve shifts leftward

The increase in the quantity of money is determined by​ ______.

the desired reserve ratio and the currency drain ratio. The larger the desired reserve ratio or the currency​ drain, the smaller is the increase in the quantity of money

When the Fed​ ________ securities in an open market​ operation, banks' reserves​ ________ and therefore lending​ ________.

​buys; increase; increases

When the price level in South Africa​ increased, South​ Africa's aggregate supply​ ______

​didn't change, but as the price level increased the quantity of real GDP supplied increased

In the short​ run, when the price level in India increased​ India's aggregate supply​ ______.

​didn't change, but the quantity of real GDP supplied increased

The costs of inflation​ ________ when inflation is more rapid and​ ________ when inflation is more unpredictable.

​increase; increase

When the Fed purchases government​ securities, bank reserves​ ______ and bank deposits​ ______.

​increase; increase

If the Fed purchases the government securities on the open​ market, the quantity of money​ ______ because​ _______.

​increases; bank reserves increase The nominal interest rate​ _______. falls

The quantity of money​ ______ and the nominal interest rate​ ______.

​increases; falls

After the decrease in the quantity of​ money, at an interest rate of 77 percent a​ year, people want to hold​ _____ money so they​ _____ bonds.

​more; sell

The​ ________ the desired reserve​ ratio, the​ ________ the​ ________ in the quantity of money created from an initial increase of​ $100,000 in the monetary base.

​smaller; larger; increase


Kaugnay na mga set ng pag-aaral

CCBA Practice Test 1 - Questions I got right

View Set

Chapter 4- folk and popular culture

View Set

Chapter 26- Narcotics, Narcotic Antagonists, and Antimigraine Agents

View Set

12.8 Contrasting and Relating the Perimeter and Area of shapes

View Set

Rasmussen Pathophysiology Exam 2

View Set