econ final

As market interest rates rise...

A. a bank's opportunity cost of holding reserves rises

a negative real shock leads to...

A. an increase in the inflation rate but a decrease in the real GDP growth rate

if prices are perfectly flexible, the economy will always be growing...

A. at its potential rate

an increase in the reserve ratio means that banks want to...

A. become more liquid

when the fed sells government bonds, the reserves of the banking system...

A. decrease, so the money supply decreases

FIGURE: long- run aggregate supply curves which of the following can explain a shift to the right?

A. development of new technology

Figure: aggregate demand shifts Suppose the economy is initially a point A in the diagram. if an increase in investment spending causes a shift of the AD curve from AD1 to AD4(to the right), then the government can avoid a short-run increase in inflation by:

A. increasing taxes so that the AD curve shifts back to AD1

critics of stabilization policy argue that...

A. policy affects aggregate demand quickly, but the effects on aggregate demand are long-lived

as a result of an increase in the growth rate of the money supply...

A. real GDP growth increases only in the short run, and the inflation rate increases in both the short run and the long run

After a pair of wars in the late seventeenth and early eighteenth centuries, French-British relations decayed to the point that England began putting high tariffs on french wines. A large part of the support for this law came from british brewers and distillers who feared the return of french competition after the wars. these tariffs help explain why, to this day, the english prefer beer over wine. of the arguments against free trade, which seems most likely to apply here, given the information provided.

A. saving domestic jobs

the federal reserve can influence the economy by shifting...

A. the AD curve

other things the same, which of the following responses would we expect from an increase in U.S. interest rates

A. your aunt puts money in her savings account.

which of the following correctly explains the crowding-out effect?

B. An increase in government expenditures increases the interest rate and so reduces investment spending

During a recession, consumers hold more money by cutting back on their spending, resulting in ____ in inflation and ____ in real growth

B. a decrease; a decrease

suppose there is a tax decrease. to stabilize output, the federal reserve could...

B. decrease the money supply

which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

B. increase government expenditures

the most important tax rate for determining an individual's incentive to work is the ___ tax rate

B. marginal

An unexpected increase in export growth is a...

B. positive AD shock

why is wasteful spending by the government difficult to control?

B. providing decision makers with necessary information and creating incentives to control costs are both difficult to achieve

suppose the economy is in a long-run equilibrium. if the government increases its expenditures, eventually, the increase in aggregate demand causes price expectations to...

B. rise. this rise in price expectations shifts the short-run aggregate supply curve to the left.

fiscal policy is MOST effective in keeping both inflation and real growth stable when there is a:

B. shock to aggregate demand

in the figure, assume that the initial real growth rate of the economy is 3% when a negative aggregate demand shock shifts the AD curve from AD1 to AD2. As a result of the Fed's policy response, the AD curve shifts to AD5 in the short run. which of the following is TRUE about the Fed's policy response

B. the Fed responded too much to the shock

As part of the american recovery and reinvestment act, $7 million was earmarked to build a bridge over a railroad crossing so that 168 Nebraska town residents wouldnt have to wait for the trains to pass. which of the following best explains why this proposal was passed?

B. the cost were highly diffused, while the benefits were very concentrated

two reasons that there was considerable waste in U.S. government spending in Iraq and Afghanistan were that:

B. the desires of the Iraq and Afghan people were not clearly known to decision makers in the united states and american taxpayers could not easily monitor the U.S. spending in Iraq and Afghanistan

workers bear at least a majority, if not all, of the burden of the employers' share of FICA and Medicare tax payments because the:

B. workers would have earned higher wages without the tax payments

in the Fed credits Alex's checking account with $8,000 and Alex's bank decides to keep the entire $8,000 in the form of reserves instead of lending it out, how much does the money supply increase?

C. $8,000

when consumers suddenly become more pessimistic about the economy, a negative aggregate demand shock shifts the...

C. AD curve to the left, reducing the real growth rate in the short run

if the Federal Reserve offsets a negative shock to aggregate demand with increased money growth...

C. both inflation and real GDP growth will rise compared to if the Fed had not acted.

government spending is a more effective policy tool when:

C. consumers are pessimistic and not spending

which policy would the Fed's Board of Governors choose following a negative real shock if they are more concerned about inflation than unemployment?

C. decrease the money supply to shift the aggregate demand curve to the left

suppose the economy is growing faster than its long-run potential growth rate. to bring the real growth rate back to the long-run potential rate, the Fed should...

C. engage in actions to raise interest rates

in 1970, 1.3 barrels of oil were used to produce $1,000 of GDP. in 2004, it took only 0.64 barrel of oil to do the same. what implications does this have for econimc fluctuations in the united states today?

C. spikes in oil prices will not have as sever an impact on the U.S. economy today as they did in the 1970s

figure: monetary policy assume that the economy is initially at point Y in the graph. if the Fed took the appropriate action with monetary policy but banks were slow to lend, then:

C. the Fed action would be partially effective and the economy would move to point Z.

if the Fed buys government bonds, which will likely NOT increase?

C. the federal funds rate

suppose the federal government incurred a $1 billion deficit in 2011. what was true of the national debt?

C. the national debt increased by $1 billion

Figure: aggregate demand and fiscal policy in the best-case scenario, an economy in a recession at point Y would use fiscal policy to increase spending growth to:

D. 10%

In the distinguishes gentleman, eddie murphy plays a con man with a name similar to that of a long-running congressional representative. when the politician dies, Murphy runs for office using the politician's name: jeff johnson. Hes careful not to go on camera but uses taglines in commercials such as "johnson: the name you trust." He eventually achieves a slim victory. how does murphys character use voter ignorance to win the election?

D. He's expecting most voters to neither investigate him too much nor know that their congressman died.

if a baker observes an increase in demand for bread, should the baker increase output or raise prices?

D. It depends on whether the change in demand id driven by inflation or by a stronger preference for bread

if the economy is hit by a negative real shock that reduces real GDP growth below its long-run potential rate, what is the appropriate monetary policy to move real GDP growth back to the long-run rate without raising inflation?

D. No monetary policy can achieve this goal

which of the following would NOT shift the long-run aggregate supply curve?

D. an increase in the money supply

during the internet revolution in the late 1900s, a positive real shock shift ed in the long-run aggregate supply curve to the right, which led to...

D. an increase in the real growth rate and a decrease in the inflation rate

to increase the money supply in the economy, the Fed would...

D. carry out open market purchases and/or decrease the interest rates

when the Fed buys U.S. government bonds to affect the money supply, it is...

D. conducting an open market purchase

suppose there was a large increase in net exports. if the Fed wanted to stabilize output, it could...

D. decrease the money supply, which will increase interest rates

which of the following will NOT shock aggregate demand so that it shifts to the left?

D. decreased import growth

when the Fed supplies "too much" monetary stimulus in the face of a negative aggregate demand shock...

D. inflation, real growth, and nominal wage growth all increase

disinflation is more painful when the central bank:

D. is not credible

which of the following is NOT consistent with points along the long-run aggregate supply curve?

D. real output growth is negatively related to inflation

type owes $100,000, but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000. if these are all the assests and liabilities that Tyler has, Tyler is...

D. solvent but illiquid

Figure: Monetary Policy Assume that the economy is initially at point Y in the graph. if the Fed took the appropriate action with monetary policy but overestimated how serious the recession is, then:

D. the Fed would overshoot and the economy would move to point W.