ECON FINAL and exam 3

If aggregate demand increases in the intermediate range of the aggregate supply curve then the:

price level rises and real GDP rises.

The aggregate supply curve indicates the:

quantity of goods and services producers will supply at different price levels.

When the Fed reduces the money supply, it will cause a decrease in aggregate demand because:

real interest rates will rise, lowering business investment and consumer spending.

The seven members of the Board of Governors serve 14-year terms to:

reduce political influence.

The spending multiplier can be described as

the ratio of the change in Aggregate Demand to the initial change in spending

According to Keynesians, an increase in the money supply will have its least impact on GDP when the aggregate demand curve intersects:

the vertical portion of the aggregate supply curve.

Comparing how many dollars it takes to attend college each year to annual earnings on a job represents the use of money as a:

unit of account.

Which of the following compose the reserves of a commercial bank (count as reserves as defined by the Fed)?

vault cash and deposits of the bank with the Federal Reserve

In the aggregate demand and supply model, the:

vertical axis measures the overall price level

Keynesian analysis stresses that a tax cut that increases the government's budget deficit or reduces its budget surplus:

will stimulate aggregate demand and, thereby, promote employment in a recession.

(Note that this is a money multiplier question:) Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 cash deposit, then, excluding the $1,000 initial deposit, the banking system can increase the money supply by:

$1,000.

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of:

$10,000.

If the spending multiplier is 3 and the desired amount of increase in Aggregate Demand (or real GDP at a constant price level) is $90 million, then by how much would government spending have to increase?

$30 million

If the spending multiplier is 3 and the desired amount of increase in Aggregate Demand (or real GDP at a constant price level) is $90 million, then by how much would government spending have to increase?

$30 million.

If the MPC is 0.80, and if the goal is to increase real GDP demanded at a constant price level by $200 million (that is, shift the AD curve to the right by $200 million), then by how much would government spending have to change to generate this increase in real GDP?

$40 million.

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 deposit, then its excess reserve balance will be:

$900.

The Federal Reserve System was founded in:

1913.

If the marginal propensity to consume (MPC) is 0.75, the value of the spending multiplier is:

4

If the marginal propensity to consume (MPC) is 0.75, the value of the spending multiplier is:

4.

How will an increase in the world price of crude oil influence the economy of an oil-importing country such as the United States traditionally was?

Aggregate supply will decrease, leading to a decrease in real GDP

How will an increase in the world price of crude oil influence the economy of an oil-importing country such as the United States traditionally was?

Aggregate supply will decrease, leading to a decrease in real GDP.

Exhibit 15-4 Coffee and tea output (pounds per hour) Country Coffee Tea Brazil 10 5 China 8 8 If specialization were carried out by each country in Exhibit 15-4 on the basis of comparative advantage, then:

Brazil would produce coffee and China would produce tea.

Which of the following correctly describes the difference between commodity money and fiat money?

Commodity money is either made out of a valuable commodity like silver or gold, or is redeemable for a valuable commodity. Fiat money is not.

Which definition of the money supply includes credit cards?

Credit card balances are not included in money supply.

Which of the following statements is true?

Deficits are financed by the government issuing for sale more government securities.

Which of the following is the most frequently used tool the Fed uses to control the supply of money (reality check: this was most clearly true before the financial crisis of 2008-9)?

open market operations

Each year, the president must submit a budget proposal to Congress by

February.

The theory of comparative advantage suggests that nations should produce a good if they:

If the opportunity cost of producing cheese is higher in Greece than it is in Italy, then:

If India has an absolute advantage in rug production when compared to England, then:

India uses fewer resources to produce rugs than England.

If the opportunity cost of producing cheese is higher in Greece than it is in Italy, then:

Italy should specialize in producing cheese.

What is the difference between the federal budget deficit and the national debt?

The budget deficit is the amount by which expenditures exceed revenues in a particular year, while the national debt is the cumulative effect of all past budget deficits and surpluses.

Which of the following statements is true

The current U.S. national debt is over $19 trillion.

Conclusion Ch13.1 b

The national debt includes the Social Security trust fund, and as a result, federal budget deficits are reduced or budget surpluses are raised.

To finance a federal budget deficit, the U.S. Treasury borrows by selling

Treasury bills. b. Treasury notes. c. Treasury bonds. d. All of the above answers are correct. D

When measured as a percentage of GDP, the U.S. national debt reached its highest levels as a result of

World War II.

If a country has a lower opportunity cost of producing oranges, then this is:

a comparative advantage.

In the classical range of the aggregate supply curve, greater spending for consumer and investment goods results in:

a higher price level

n the classical range of the aggregate supply curve, greater spending for consumer and investment goods results in:

a higher price level.

Suppose the United States decides to impose a $1,000 tax on every Japanese minivan when it is brought into the United States to be sold. This is an example of

a tariff.

Which of the following statements is false?

a. The size of the national debt decreased steadily after World War II. b. The national debt increases in size whenever the federal government has a surplus budget. c. Currently, the size of the national debt is about the same size as it was during World War II. d. All of the answers above are false. D

Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then:

aggregate demand will increase.

In the aggregate demand and supply model, the:

aggregate supply curve is horizontal at full-employment real GDP.

In a commercial bank's T-account, reserves and outstanding loans are recorded as:

assets

The aggregate demand curve is downward sloping because:

at lower price levels, households with savings deposits or cash feel wealthier, causing them to spend more on Consumption spending

The aggregate demand curve is downward sloping because:

at lower price levels, households with savings deposits or cash feel wealthier, causing them to spend more on Consumption spending.

Programs that automatically increase government spending (relative to revenue) during a recession and automatically decrease government spending (relative to revenue) during an economic boom are called:

automatic stabilizers

Programs that automatically increase government spending (relative to revenue) during a recession and automatically decrease government spending (relative to revenue) during an economic boom are called:

automatic stabilizers.

A rightward shift in the aggregate demand curve can be caused by an increase in:

business investment spending.

If there is a recession, the Fed would most likely encourage banks to provide loans by (reality check - this was most clearly the case before the financial crisis of 2008-9):

buying government securities.

The federal funds market is the market where

commercial banks with excess reserves make loans to commercial banks seeking reserves.

If Congress fails to pass a budget before the fiscal year starts, then federal agencies may continue to operate only if Congress has passed a

continuing resolution

Exhibit 10-2 Aggregate supply and demand curves In Exhibit 10-2, the change in equilibrium from E1 to E2 represents: graph on phone

cost-push inflation.

In Exhibit 10-2, the change in equilibrium from E1 to E2 represents:

cost-push inflation.

M1 refers to:

currency held by the public plus checking account balances.

Most of the U.S. national debt is owed to __________. Thus, a rising national debt implies that there will be a future redistribution of income and wealth in favor of __________.

other U.S. citizens, bondholders

Exhibit 10-8 Aggregate demand and supply In Exhibit 10-8, when aggregate demand shifts from AD4 to AD5, the economy experiences: graph on phone

demand-pull inflation

In Exhibit 10-8, when aggregate demand shifts from AD4 to AD5, the economy experiences:

demand-pull inflation

A tariff has the effect of granting ____ a larger share of the domestic market.

domestic producers

When the Fed increases the money supply, interest rates:

fall

Government spending and taxation policy to achieve macroeconomic goals is known as:

fiscal policy.

According to the net exports effect, as the price level falls relative to the rest of the world,

foreigners buy more U.S. goods.

The primary purpose of WTO is to:

foster trade among nations.

A balanced federal government budget is present when:

government revenues equal government expenditures.

Stagflation occurs when the economy experiences:

high unemployment and rapid inflation.

Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation. According to Keynesian theory, which of the following is an appropriate discretionary fiscal policy to use in this situation?

higher taxes

The Fed is often considered the bankers' bank because it:

holds bankers reserves, provides banks with currency and loans, and clears their checks.

Between 1998 and 2001, the federal budget was

in surplus.

When the Fed buys government securities, it:

increases the amount of excess reserves that banks hold, encouraging them to make loans to the general public.

The Keynesian mechanism through which monetary policy affects the price level, real GDP, and employment depends on the impact of the:

interest rate firms pay to borrow money for Investment Spending.

The money supply will grow faster through deposit creation when the required reserve ratio is:

low and banks are able to lend out all of their excess reserves

The unemployment compensation program:

makes recession less severe.

If every person is willing to accept money in payment, rather than goods and services, money serves as a:

medium of exchange.

The sum of past federal budget deficits is the

national debt

The national debt is unlikely to cause national bankruptcy because the:

national debt can be refinanced by issuing new bonds.

With respect to controlling the money supply, the law requires the Fed to take orders from:

no one⎯the Fed is an independent agency.

Along the Keynesian range of the aggregate supply curve, an increase in the aggregate demand curve will increase:

only real GDP.

Income tax collections:

rise during periods of prosperity, thus reduce federal budget deficits.

The Keynesian cause-and-effect sequence predicts that a decrease in the money supply will cause interest rates to:

rise, cutting investment and shifting the AD curve leftward, leading to a decrease in real GDP.

The interest rate in the federal funds market:

rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves.

If the Fed feared inflation and wanted to use all three of its major monetary control tools to decrease the money supply, it would:

sell bonds, increase the discount rate, and increase reserve requirements.

The Fed:

serves as the central bank for the United States.

Other factors held constant, a decrease in resource prices (prices of inputs into production) will shift the aggregate:

supply curve rightward.

What is the "store of value" function of money?

the ability of money to hold value over time

If the fractional reserve system did not exist,

the banking system could not create money.

Which of the following is emphasized by supply-side economics?

the effect of marginal tax rates on aggregate supply

If the fiscal year begins without a budget and Congress fails to pass continuing resolution, then

the federal government shuts down