ECON Final
C. unemployment rate that exists when the economy produces potential GDP.
Friedman defined the "natural rate of unemployment" as the A. unemployment rate that exists when the economy has cyclical unemployment. B. unemployment rate that exists when the actual GDP is higher than potential GDP. C. unemployment rate that exists when the economy produces potential GDP. D. unemployment rate that exists when the actual GDP is less than potential GDP.
falling low
General Juan Peron, the former dictator of Argentina, once said of the labor market in his country, "Prices have gone up the elevator, and wages have had to use the stairs." In this situation, real wages in Argentina were _________ . Unemployment was likely to have been relatively _________ .
change in equilibrium real GDP / change in government purchases
Government purchases multiplier
were not correct
They __________correct to think of the Phillips curve as a "policy menu."
1,2,7,9 quiz 6 3,4,21, pretest 4,14,15,18, ch. 17 practice
1,2,7,9 quiz 6 3,4,21, pretest 4,14,15,18, ch. 17 practice
C. principle of a double coincidence of wants.
A baseball fan with a Mike Trout baseball card wants to trade it for a Giancarlo Stanton baseball card, but everyone the fan knows who has a Stanton card doesn't want a Trout card. Economists characterize this problem as a failure of the A. market clearing mechanism. B. irrational exuberance doctrine. C. principle of a double coincidence of wants. D. theory of comparative advantage.
D. is important because maintaining credibility allows a central bank to keep inflation expectations lower.
A central bank's ability to maintain credibility on a policy to keep inflation low A. will cause the government to have a greater ability to increase taxes without reducing aggregate demand. B. does not have any impact on inflation since there are no long-run affects of monetary policy on real GDP. C. is important because credibility gives the central bank the ability to increase interest rates and inflation at the same time. D. is important because maintaining credibility allows a central bank to keep inflation expectations lower.
A. long run effects of contractionary monetary policy.
A downward movement along the long-run Phillips curve could be caused by A. long run effects of contractionary monetary policy. B. long run effects of expansionary monetary policy. C. short run effects of contractionary fiscal policy. D. short run effects of expansionary fiscal policy.
A. short run effects of contractionary monetary policy.
A downward movement along the short-run Phillips curve could be caused by A. short run effects of contractionary monetary policy. B. short run effects of expansionary fiscal policy. C. short run effects of expansionary monetary policy. D. short run effects of lower interest rates.
C. stable prices make it easier to plan for the future, so expectations can be stable, which makes it less
A former Federal Reserve official argued that at the Fed, "the objectives of price stability and low long-term interest rates are essentially the same objective." Source:William Poole, "Understanding the Fed," Federal Reserve Bank of St. Louis Review, Vol. 89,No. 1, January/February 2007, p. 4. This is true because A. stable prices reduce the value of money and therefore money is worth less in the future. B. stable prices create an environment in which it is difficult to plan for the future and more difficult to loan funds. C. stable prices make it easier to plan for the future, so expectations can be stable, which makes it less D. none of the above.
D. when the long-run aggregate supply curve is vertical at potential real GDP, the long-run Phillips curve is vertical at the natural rate of unemployment.
A serious inconsistency exists between a vertical long-run aggregate supply curve and a downward-sloping long-run Phillips curve because A. when the long-run aggregate supply curve is at potential real GDP, it intersects the long-run downward-sloping Phillips curve at the natural rate of unemployment. B. when the long-run aggregate supply curve is horizontal at potential real GDP, the long-run Phillips curve is horizontal at the natural rate of unemployment. C. when the long-run aggregate supply curve is upward rising, the long-run Phillips curve is downward sloping. D. when the long-run aggregate supply curve is vertical at potential real GDP, the long-run Phillips curve is vertical at the natural rate of unemployment.
A. disinflation.
A significant reduction in the inflation rate is called A. disinflation. B. cost-push inflation. C. hyperinflation. D. stagflation.
D. All of the above
According to many economists and policymakers, what other options does the Fed have to improve its credibility with workers, firms, and investors? A. Following the Taylor rule. B. Following a rules strategy. C. Following a discretion strategy. D. All of the above
more than
According to the multiplier effect, an initial decrease in government purchases decreases real GDP by ______ than the initial decrease in government purchases.
B. very important for the Fed's monetary policy because the Fed uses the federal funds rate as a monetary policy target since it can control the rate through open market operations.
Additionally, the federal funds rate is A. very important for the Fed's monetary policy because it is administratively set by the Fed. B. very important for the Fed's monetary policy because the Fed uses the federal funds rate as a monetary policy target since it can control the rate through open market operations. C. very important for the Fed's monetary policy because individual borrowers pay this interest rate for mortgage loans. D. not important for the Fed's monetary policy since households and firms are not directly affected by any adjustment of this rate.
C. lowered; down
After Fed Chairman Paul Volcker began fighting inflation in 1979, workers and firms eventually ____________ their expectations of future inflation, and the short-run Phillips curve shifted ___________. A. raised; up B. raised; down C. lowered; down D. lowered; up
A. agreed with Paul Volcker about the importance of keeping inflation low.
Alan Greenspan A. agreed with Paul Volcker about the importance of keeping inflation low. B. used fiscal policy to keep inflation low. C. disagreed with Paul Volcker about the importance of keeping inflation low. D. None of the above.
B. the asset should be a commodity that has intrinsic value.
An asset would be usable as a medium of exchange for all of the following reasons except: A. the asset should be durable and not lose value due to spoilage. B. the asset should be a commodity that has intrinsic value. C. the asset must be generally accepted by most people. D. the asset should be divisible since goods are valued at different amounts.
D. shifting the aggregate demand curve to the left, reducing real GDP and lowering the price level.
An increase in interest rates affects aggregate demand by A. shifting the aggregate supply curve to the right, increasing real GDP and lowering the price level. B. shifting the aggregate supply curve to the left, decreasing real GDP and increasing the price level. C. shifting the aggregate demand curve to the right, increasing real GDP and lowering the price level. D. shifting the aggregate demand curve to the left, reducing real GDP and lowering the price level.
B. decreases
An increase in the amount of excess reserves that banks keep _________ the value of the real-world deposit multiplier. A. leaves unchanged B. decreases C. eliminates D. increases
B. cause the value of investing in U.S. financial assets to become more desirable to foreign investors.
An increase in the money supply in the U.S. will not A. cause the amount of net exports from the U.S. to increase, as exports rise and imports fall. B. cause the value of investing in U.S. financial assets to become more desirable to foreign investors. C. cause the value of the dollar to decrease relative to other assets. D. cause the U.S. interest rate to decline relative to interest rates in other countries.
B. by an amount greater than the increase in reserves.
An initial increase in a bank's reserves will increase checkable deposits A. by an amount equal to the increase in reserves. B. by an amount greater than the increase in reserves. C. by an amount less than the increase in reserves. D. An initial increase in reserves will decrease checkable deposits.
A. As a percentage of GDP, federal expenditures have increased since 1960.
Are federal expenditures higher today than they were in 1960? A. As a percentage of GDP, federal expenditures have increased since 1960. B. As a percentage of GDP, federal expenditures have decreased since 1960. C. As a percentage of GDP, federal expenditures have remained unchanged since 1960.
C. As a percentage of GDP, federal purchases have decreased since 1960.
Are federal purchases higher today than they were in 1960? A. As a percentage of GDP, federal purchases have remained unchanged since 1960. B. As a percentage of GDP, federal purchases have increased since 1960. C. As a percentage of GDP, federal purchases have decreased since 1960.
be reduced
As a central bank has greater independence from the government, the economy's inflation rate tends to be _________
D. less than the increase in government spending.
As a result of crowding out in the short run, the effect on real GDP of an increase in government spending is often A. more than the increase in government spending. B. unrelated to the increase in government spending. C. equal to the increase in government spending. D. less than the increase in government spending.
A. money supply curve will shift to the right.
As a result of the open market purchase, the A. money supply curve will shift to the right. B. money demand curve will shift to the left. C. money demand curve will shift to the right. D. money supply curve will shift to the left.
increase increases
As expectations of inflation increase, firms and workers _______ wages and prices, therefore inflation ________
shift to the right D. the real wage paid by employers and received by workers will decrease.
As expectations of inflation increase, the short-run Phillips curve will ___________ If inflation increases beyond expectations of inflation, A. the real wage paid by employers and received by workers will remain the same. B. the real wage paid by employers and received by workers will increase. C. the nominal wage for both employers and workers will increase. D. the real wage paid by employers and received by workers will decrease.
A. Federal funds rate
As of 1993, the Fed sets targets for which of the following in order to achieve price stability and high employment? A. Federal funds rate B. M1 definition of the money supply C. M2 definition of the money supply D. Discount rate
D. The federal funds rate
As the figure to the right indicates, the Fed can affect both the money supply and interest rates. However, in recent years, the Fed targets interest rates in monetary policy more often than it does the money supply. Which interest rate does the Fed target? A. The long-term nominal interest rate B. The short-term real interest rate C. The discount rate D. The federal funds rate
C. consumption, investment, and net exports decrease; aggregate demand decreases.
As the interest rate increases, A. consumption increases but investment and net exports decrease; aggregate demand remains unchanged. B. consumption, investment, and net exports increase, and aggregate demand increases. C. consumption, investment, and net exports decrease; aggregate demand decreases. D. consumption, investment, and net exports fall but government spending increases, and aggregate demand increases.
increase $115.2 (96*1.2)
Assume the tax multiplier is estimated to be 1.2 and the aggregate supply curve has its usual upward slope. Suppose the government lowers taxes by $96 million. Aggregate demand will _________ by $________ million. (Enter your response rounded to one decimal place.)
2.5 (1/1-0.60) -1.5 (1 - 1/1-0.60) 1
Assuming a fixed amount of taxes and a closed economy and that the marginal propensity to consume equals 0.60, calculate the value of the following multipliers. Be sure to use a negative sign (-) to show if a multiplier has a negative value. The government purchases multiplier equals ____ (enter your response rounded to one decimal place). The tax multiplier equals ____enter your response rounded to one decimal place). The balanced budget multiplier equals ____ (enter your response rounded to one decimal place).
B. The money supply grows at a faster rate than real GDP.
Based on the quantity theory of money, if velocity is constant, inflation is likely to occur when: A. The money supply grows at a slower rate than real GDP. B. The money supply grows at a faster rate than real GDP. C. The money supply and inflation are unrelated. D. The money supply grows at the same rate as real GDP.
incorrect does not
Consider the following statement: "The Fed has an easy job. Say it wants to increase real GDP by $200 billion. All it has to do is increase the money supply by that amount." The statement is ________ because an increase in the money supply ________ affect real GDP directly.
B. Business investment projects C. Consumption of durable goods D. The value of the dollar
Changes in interest rates affect aggregate demand. Which of the following is affected by changes in interest rates and, as a result, impacts aggregate demand? (Mark all that apply.) A. Government spending B. Business investment projects C. Consumption of durable goods D. The value of the dollar
A. a discretionary fiscal policy.
Congress and the president enact a temporary cut in payroll taxes. This is an example of A. a discretionary fiscal policy. B. not a fiscal policy. C. an automatic stabilizer.
C. the 1930s as a result of the Great Depression.
Congress broadened the Fed's responsibility since A. World War I. B. 1987 when Alan Greenspan was appointed the chair of the Fed. C. the 1930s as a result of the Great Depression. D. the end of World War II.
C. the 1930s as a result of the Great Depression.
Congress broadened the Fed's responsibility since A. World War I. B. the end of World War II. C. the 1930s as a result of the Great Depression. D. 1987 when Alan Greenspan was appointed the chair of the Fed
D. end the instability created by bank panics by acting as a lender of last resort.
Congress passed legislation to create the Federal Reserve System in 1913 in order to A. end the instability created by a savings and loan fiasco that occurred during that time. B. end the instability created by a huge crude oil price hike during that time. C. take the monetary control over the economy away from the Treasury Department. D. end the instability created by bank panics by acting as a lender of last resort.
A. It increased by less than indicated by a multiplier with a constant price level.
Consider the figure to the right. An increase in government spending shifted the aggregate demand curve to the right. As a result, both price level and real GDP increased. What can be said, however, about the increase in real GDP? A. It increased by less than indicated by a multiplier with a constant price level. B. It increased by the same amount as indicated by a multiplier with a constant price level. C It increased by more than indicated by a multiplier with a constant price level. D. None of the above.
C. included in neither the M1 definition of the money supply nor in the M2 definition.
Credit cards are A. included in both the M1 and the M2 definitions of the money supply. B. included in the M2 definition of the money supply, but not in the M1 definition. C. included in neither the M1 definition of the money supply nor in the M2 definition. D. included in the M1 definition of the money supply, but not in the M2 definition.
C. A person's money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debts.
Distinguish among money, income, and wealth. A. A person's money is the currency in the pocket, income is the earning and wealth is equal to asset value. B. A person's money is the currency plus all bank accounts owned, income is equal to the earning from work and wealth is equal to the profit from investment. C. A person's money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debts. D. A person's money is the currency held and the earning from work, income is equal to the bank balance and wealth is equal to the profit from investment.
D. Yes, due to crowding out.
Does government spending ever reduce private spending? A. No, due to crowding out. B. No, they are unrelated. C. Yes, due to reduced interest rates. D. Yes, due to crowding out.
grows shrinks
Each year that the federal government runs a deficit, the federal debt _________.Each year that the federal government runs a surplus, the federal debt __________
D. represented a structural relationship in the economy that would not change as a result of policy changes.
Economists during the early 1960s thought of the Phillips curve as a "policy menu" because they thought that the Phillips curve A. represented a relationship that did not depend on consumers and firms and could change over time. B. represented a direct relationship between unemployment and inflation in the short run. C. presented policymakers with a reliable menu of combinations of unemployment and inflation. D. represented a structural relationship in the economy that would not change as a result of policy changes.
B. a permanent trade-off between unemployment and inflation.
Economists who believed that the Phillips curve represented a structural relationship believed that the curve represented A. a cyclical trade-off between unemployment and inflation. B. a permanent trade-off between unemployment and inflation. C. no trade-off between unemployment and inflation. D. a temporary trade-off between unemployment and inflation.
C. growth rate of the money supply determines the rate of inflation.
Evidence shows that the quantity equation is correct over the long run, which implies that the A. growth rate of inflation leads to growth in GDP. B. growth rate of the velocity of money causes the level of prices to change. C. growth rate of the money supply determines the rate of inflation. D. growth rate of GDP causes most of the change in the money supply.
D. automatic stabilizers.
Government spending and taxes that increase or decrease without any actions taken by the government are referred to as A. discretionary fiscal policy. B. government expenditures. C. monetary policy. D. automatic stabilizers.
D. they often borrow short term, sometimes as short as overnight, and invest the funds in longer-term investments.
How can investment banks be subject to liquidity problems? Investment banks can be subject to liquidity problems because A. they borrow from households and firms in the form of checking and savings deposits. B. they are highly regulated and are taxed very heavily. C. they often borrow long term, sometimes as long as thirty years, and invest the funds in shorter-term investments. D. they often borrow short term, sometimes as short as overnight, and invest the funds in longer-term investments.
C. When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands.
How do the banks "create money"? A. Banks buy bonds in the open market and gain reserves; this excess reserve holding increases the money supply. B. When there is a decrease in checking account deposits, banks lose reserves and reduce their loans, and the money supply expands. C. When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands. D. Banks sell bonds in the open market and lose reserves; the excess cash holding by households increases the money supply.
D. All of the above.
How does a budget deficit act as an automatic stabilizer and reduce the severity of a recession? A. Transfer payments to households increase. B. Consumers spend more than they would in the absence of social insurance programs, like unemployment. C. During recessions, tax obligations fall due to falling wages and profits. D. All of the above.
D. In this case, Congress and the president should enact policies that increase government spending and decrease taxes
If Congress and the president decide an expansionary fiscal policy is necessary, what changes should they make in government spending or taxes? A. In this case, Congress and the president should enact policies that decrease government spending and decrease taxes. B. In this case, Congress and the president should enact policies that increase government spending and increase taxes. C. In this case, Congress and the president should enact policies that decrease government spending and increase taxes. D. In this case, Congress and the president should enact policies that increase government spending and decrease taxes
C. the money supply curve will shift to the left, and the equilibrium interest rate will rise.
If the FOMC orders the trading desk to sell Treasury securities, A. the money supply curve will shift to the right, and the equilibrium interest rate will rise. B. the money supply curve will shift to the left, and the equilibrium interest rate will fall. C. the money supply curve will shift to the left, and the equilibrium interest rate will rise. D. the money supply curve will shift to the right, and the equilibrium interest rate will fall.
B. use an expansionary monetary policy to lower the interest rate and shift AD to the right.
If the Fed believes the economy is about to fall into recession, it should A. use an expansionary fiscal policy to increase the interest rate and shift AD to the right. B. use an expansionary monetary policy to lower the interest rate and shift AD to the right. C. use its judgment to do nothing and let the economy make the self adjustment back to potential GDP. D. use a contractionary monetary policy to lower the interest rate and shift AD to the left.
B. use an expansionary monetary policy to lower the interest rate and shift AD to the right.
If the Fed believes the economy is about to fall into recession, it should A. use its judgment to do nothing and let the economy make the self adjustment back to potential GDP. B. use an expansionary monetary policy to lower the interest rate and shift AD to the right. C. use an expansionary fiscal policy to increase the interest rate and shift AD to the right. D. use a contractionary monetary policy to lower the interest rate and shift AD to the left.
A. use a contractionary monetary policy to increase the interest rate and shift AD to the left.
If the Fed believes the inflation rate is about to increase, it should A. use a contractionary monetary policy to increase the interest rate and shift AD to the left. B. use a combination of tax increases and spending cuts to keep the budget balanced. C. use a contractionary fiscal policy to increase the interest rate and shift AD to the left. D. use an expansionary monetary policy to lower the interest rate and shift AD to the right.
D. use a contractionary monetary policy to increase the interest rate and shift AD to the left
If the Fed believes the inflation rate is about to increase, it should A. use an expansionary monetary policy to lower the interest rate and shift AD to the right. B. use a contractionary fiscal policy to increase the interest rate and shift AD to the left. C. use a combination of tax increases and spending cuts to keep the budget balanced. D. use a contractionary monetary policy to increase the interest rate and shift AD to the left
C. use expansionary monetary policy.
If the Fed wants to move from a point on the short-run Phillips curve representing high unemployment and low inflation to a point representing lower unemployment and higher inflation, then it should A. use a combination of expansionary monetary and fiscal policies. B. use expansionary fiscal policy. C. use expansionary monetary policy. D. use contractionary monetary policy.
A. buy U.S. Treasury securities
If the Federal Open Market Committee (FOMC) decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to A. buy U.S. Treasury securities. B. sell stocks. C. buy stocks. D. sell U.S. Treasury securities
E. A and B only.
If the government increases expenditure without raising taxes, this will A. increase the budget deficit and require the government to borrow additional funds. B. cause the interest rate to increase, thereby, reducing private investment and crowding out the private sector. C. cause a decrease in the domestic exchange rate which will increase exports and decrease imports. D. All of the above. E. A and B only.
7% (8-3+2)
If the money supply is growing at a rate of 8 percent per year, real GDP (real output) is growing at a rate of 3 percent per year, and velocity is growing at 2 percent per year instead of remaining constant, what will the inflation rate be? __%. (Enter your response as an integer value.)
5%
If the money supply is growing at a rate of 8 percent per year, real GDP (real output) is growing at a rate of 3 percent per year, and velocity is constant, what will the inflation rate be? __%. (Enter your response as an integer value.)
300,000
If the required reserve ratio is 0.05, the maximum increase in checking account deposits that will result from an increase in bank reserves of $15,000 is $________ (Enter your response as an integer.)
increase by $100 remain the same
If you move $100 from your savings account to your checking account, then M1 will _________ and M2 will ____________
D. shift the money supply curve to the right. D. where the new money supply curve intersects the original money demand curve.
Imagine a graph shows equilibrium in the money market. The equilibrium interest rate is determined at point E where the downward-sloping money demand and vertical money supply curves intersect. Suppose the Fed wants to lower the equilibrium interest rate. To lower the equilibrium interest rate, the Fed will take actions that will A. shift the money supply curve to the left. B. shift the money demand curve to the right. C. shift the money demand curve to the left. D. shift the money supply curve to the right. The new equilibrium will be A. where the original money supply curve intersects the original money demand curve. B. where the new money supply curve intersects a new money demand curve. C. anywhere along the new money supply curve. D. where the new money supply curve intersects the original money demand curve.
A. A bank run involves one bank; a bank panic involves many banks.
In a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?" A. A bank run involves one bank; a bank panic involves many banks. B. A bank run is a local issue; a bank panic is a national issue. C. A bank run is a U.S. issue; a bank panic is an international issue. D. A bank run involves many banks; a bank panic involves one bank.
A. both inflation and unemployment worsened. different than was not
In a speech in September 1975, then Fed chairman Arthur Burns said the following: "There is no longer a meaningful trade-off between unemployment and inflation. In the current environment, a rapidly rising level of consumer prices will not lead to the creation of new jobs...Highly expansionary monetary and fiscal policies might, for a short time, provide some additional thrust to economic activity. But inflation would inevitably accelerate- a development that would create even more difficult economic problems than we have encountered over the past year." Burns's views in this speech are ________________ the views at the Fed in the late 1960s. When Burns refers to "the current environment," he means the 1970s, a period in which A. both inflation and unemployment worsened. B. inflation decreased but unemployment increased. C. inflation increased but unemployment decreased. D. both inflation and unemployment improved. Therefore, during the 1970s, there ______________ a trade-off between unemployment and inflation.
B. Households, firms, and banks.
In addition to the Federal Reserve Bank, what other economic actors influence the money supply? A. The U.S. President and Vice President. B. Households, firms, and banks. C. The U.S. Senate and the U.S. House of Representatives. D. The U.S. Mint and the U.S. Treasury.
D. To increase the money supply, the Fed buys bonds on the open market, which increases bank reserves.
In response to problems in financial markets and a slowing economy, the Federal Open Market Committee (FOMC) began lowering its target for the federal funds rate from 5.25 percent in September 2007. Over the next year, the FOMC cut its federal funds rate target in a series of steps. Writing in the New York Times, economist Steven Levitt observed, "The Fed has been pouring more money into the banking system by cutting the target federal funds rate to 0 to 0.25 percent in December 2008." How does lowering the target for the federal funds rate "pour money" into the banking system? A. To increase the money supply, the Fed decreases taxes, which increases consumer spending. B. To increase the money supply, the Fed sells bonds on the open market, which increases bank reserves. C. To increase the money supply, the Fed increases government spending, which increases aggregate demand. D. To increase the money supply, the Fed buys bonds on the open market, which increases bank reserves.
B. To decrease the federal funds rate, the Fed must increase the money supply.
In response to problems in financial markets and a slowing economy, the Federal Open Market Committee (FOMC) began lowering its target for the federal funds rate from 5.25 percent in September 2007. Over the next year, the FOMC cut its federal funds rate target in a series of steps. Writing in the New York Times, economist Steven Levitt observed, "The Fed has been pouring more money into the banking system by cutting the target federal funds rate to 0 to 0.25 percent in December 2008." What is the relationship between the federal funds rate falling and the money supply increasing? A. Cutting the federal funds rate increases the money supply. B. To decrease the federal funds rate, the Fed must increase the money supply. C. Cutting the federal funds rate increases bank reserves, which increases the money supply. D. Cutting the federal funds rate increases saving, which increases the money supply.
decreases
In the figure to the right, the opportunity cost of holding money ______________when decreasing the interest rate on the money demand curve.
decreases
In the figure to the right, the opportunity cost of holding money __________when decreasing the interest rate on the money demand curve.
D. All of the above.
In the figure to the right, when the money supply shifted to the right, the equilibrium interest rate fell from 4% to 3%. Why? A. Initially, firms hold more money than they want relative to other financial assets. B. Increased demand for Treasury securities drives up their prices. C. Increased demand for Treasury securities drives down their interest rate. D. All of the above.
A. Increase in real GDP or increase in the price level
In the figure to the right, which of the following events is most likely to cause a shift in the money demand (MD) curve to the right? A. Increase in real GDP or increase in the price level B. Decrease in real GDP or decrease in the price level C. Decrease in real GDP or increase in the price level D. Increase in real GDP or decrease in the price level
D. Both (a) and (c).
In the graph of the money market shown on the right, what could cause the money demand curve to shift to the right? A. An increase in the price level B. A reduction in the interest rate. C. An increase in real GDP. D. Both (a) and (c).
C. The Fed decreases the money supply by deciding to sell U.S. Treasury securities.
In the graph of the money market shown on the right, what could cause the money supply curve to shift to the left? A. The Fed decreases the money supply by raising interest rate. B. Congress increases the money supply. C. The Fed decreases the money supply by deciding to sell U.S. Treasury securities. D. The Fed increases the money supply by deciding to purchase U.S. Treasury securities.
B. The central bank has been increasing the target interest rate at regular intervals and it is now at its highest level in eight years.
Inflation in the developing country of Terbia has been rising over the last few years and is currently at a very high level. Two stock market analysts, Stanley Durro and Michelle Thompson, are discussing the possible causes of inflation. Michelle thinks that the real reason why prices are rising is because Terbia's economy is expanding. Stanley disagrees. He argues that the inflation is not demand driven; on the contrary, too much money in the economy is increasing the price level. Which of the following, if true, would weaken Stanley's claim that the inflation is driven by an excess supply of money? A. The level of inflation recorded in Terbia is lower than most of its neighboring countries. B. The central bank has been increasing the target interest rate at regular intervals and it is now at its highest level in eight years. C. Investment in long-term time deposits has declined in the last two years. D. Employment in the agricultural sector has fallen even as agricultural output has increased. E. Firms in Terbia have reported an increase in the level of unplanned inventories.
correct would not believed in the stable trade-off relation manifested in the Phillips curve.
In 1968, Herbert Stein, who would later serve on President Nixon's Council of Economic Advisors, wrote, "Some who would opt for avoiding inflation would say that in the long run such a policy would cost little, if any, additional unemployment." Stein's statement was ________ . Most economists in 1968 ________ have agreed with him because they __________________________________
C. Yes, because fiscal policy and monetary policy are separate things.
Is it possible for Congress and the president to carry out an expansionary fiscal policy if the money supply does not increase? A. Yes, because the government can expand the money supply itself. B. No, because without an expansion of the money supply, the government cannot spend more money. C. Yes, because fiscal policy and monetary policy are separate things. D. Uncertain, because it depends on the response of investment and consumption to the interest rate.
A. c & e
Look carefully at the following list. a. The coins in your pocket. b. The funds in your checking account. c. The funds in your savings account. d. The traveler's check that you have left over from a trip. e. Your Citibank Platinum MasterCard. Which of the things above are NOT included in the M1 definition of the money supply? A. c & e B. a & b C. b & e D. d & e
D. other assets can also be used to make transactions to buy goods and services.
M1 includes more than just currency because A. the government wants to be able to quote that there is a large amount of money in the economy. B. the federal mint makes a profit from printing currency as dollar bills. C. people hold money as other stores of value such as savings accounts and money market mutual funds. D. other assets can also be used to make transactions to buy goods and services.
B. the long-run Phillips curve is vertical, there is no trade-off between unemployment and inflation in the long run.
Milton Friedman argued that the Phillips curve did not represent a permanent trade-off between unemployment and inflation, since A. the long-run Phillips curve is horizontal, there is no trade-off between unemployment and inflation in the long run. B. the long-run Phillips curve is vertical, there is no trade-off between unemployment and inflation in the long run. C. the long-run Phillips curve is downward sloping, there is a trade-off between unemployment and inflation in the long run. D. there is no difference between the long-run and the short-run Phillips curves.
inflation
Money is an imperfect standard of deferred payment because ___________causes the value of money to decrease over time.
A. payments agreed to today but made in the future are in terms of money.
Money serves as a standard of deferred payment when A. payments agreed to today but made in the future are in terms of money. B. it can be easily stored today and used for transactions in the future. C. sellers are willing to accept it in exchange for goods or services. D. All of the above are examples of money serving as a standard of deferred payment.
A. prices of goods and services are stated in terms of money.
Money serves as a unit of account when A. prices of goods and services are stated in terms of money. B. sellers are willing to accept it in exchange for goods or services. C. it can be easily stored and used for transactions in the future. D. All of the above are examples of money serving as a unit of account.
C. the rate of inflation should be low, such as 1% to 3%, and should be fairly consistent
One of the goals of the Federal Reserve is price stability. For the Fed to achieve this goal, A. prices should not be increasing and the inflation rate should be near zero percent. B. the inflation rate should be consistent but the rate of inflation can be zero, low (such as 1-3%), or high (such as 8-10%). C. the rate of inflation should be low, such as 1% to 3%, and should be fairly consistent. D. the level of unemployment should be low, less than 6%, and the inflation rate should be near zero percent.
D. supply-side economics.
Policy that is specifically designed to affect aggregate supply and increase incentives to work, save, and start a business, by reducing the tax wedge is called A. labor economics. B. tax-and-spend economics. C. demand-side economics. D. supply-side economics.
B. are, as of now, unclear and require more careful study.
Research conducted by Edward Prescott of Arizona State University, and Edward Glaeser of Harvard University along with Bruce Sacerdote of Dartmouth College indicate that the effects of supply-side policies A. are clearly defined and substantial. B. are, as of now, unclear and require more careful study. C. have little or no effect at all. D. are clearly defined and small.
C. A contractionary fiscal policy involves the decrease of government purchases and/or an increase in taxes in order to decrease aggregate demand.
Select the answer below that best corrects the following statement: "A contractionary fiscal policy involves a decrease in government purchases or a decrease in taxes." A. An expansionary fiscal policy involves the increase of government purchases and/or an increase in taxes in order to decrease aggregate demand. B. An expansionary fiscal policy involves the decrease of government purchases and/or a decrease in taxes in order to increase aggregate demand. C. A contractionary fiscal policy involves the decrease of government purchases and/or an increase in taxes in order to decrease aggregate demand. D. A contractionary fiscal policy involves the increase of government purchases and/or a decrease in taxes in order to decrease aggregate demand.
D. An expansionary fiscal policy involves the increase of government purchases and/or a decrease in taxes in order to increase aggregate demand.
Select the answer below that best corrects the following statement: "An expansionary fiscal policy involves an increase in government purchases or an increase in taxes." A. A contractionary fiscal policy involves the decrease of government purchases and/or a decrease in taxes in order to decrease aggregate demand. B. An expansionary fiscal policy involves the decrease of government purchases and/or an increase in taxes in order to increase aggregate demand. C. A contractionary fiscal policy involves the increase of government purchases and/or an increase in taxes in order to decrease aggregate demand. D. An expansionary fiscal policy involves the increase of government purchases and/or a decrease in taxes in order to increase aggregate demand.
increased decreased
Since the 1950s, total government expenditures, as a percentage of GDP, have ___________ and total government purchases, as a percentage of GDP, have ___________
A. automatic stabilizers.
Some spending and taxes increase or decrease with the business cycle. This event often has an effect on the economy that is similar to fiscal policy and is called A. automatic stabilizers. B. monetary policy. C. transfer payments. D. discretionary fiscal policy.
B. An expansionary monetary policy would decrease interest rates and thus reduce the extent of crowding out.
Suppose that at the same time Congress and the president pursue an expansionary fiscal policy, the Federal Reserve pursues an expansionary monetary policy. How might an expansionary monetary policy affect the extent of crowding out in the short run? A. An expansionary monetary policy would only affect the extent of crowding out in the long run. B. An expansionary monetary policy would decrease interest rates and thus reduce the extent of crowding out. C. An expansionary monetary policy would increase interest rates and thus increase the extent of crowding out. D. An expansionary monetary policy would have no effect on the extent of crowding out.
$140 (700/5) $175 (700/4)
Suppose that real GDP is currently $13.3 trillion and potential real GDP is $14.0 trillion, or a gap of $700 billion. The government purchases multiplier is 5.0, and the tax multiplier is 4.0. Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP? Government spending will need to be increased by $____ billion. (Enter your response rounded to the nearest whole number.) Holding other factors constant, by how much will taxes have to be cut to bring the economy to equilibrium at potential GDP? Taxes will need to be cut by $____ billion. (Enter your response rounded to the nearest whole number.)
$300 billion
Suppose the government increases expenditures by $30 billion and the marginal propensity to consume is 0.90. By how will equilibrium GDP change? The change in equilibrium GDP is: $_____ billion. (Round your solution to one decimal place.)
$-360 billion (90 - 90/0.2)
Suppose the government increases taxes by $90 billion and the marginal propensity to consume is 0.80. By how will equilibrium GDP change? The change in equilibrium GDP is: $______ billion. (Round your solution to one decimal place and include the minus sign if necessary.)
B. $1,000 billion increase (50/0.05)
Suppose the reserve requirement is 5%. What is the effect on total checkable deposits in the economy if bank reserves increase by $50 billion? A. $10 billion increase B. $1,000 billion increase C. $250 billion increase D. $50 billion increase
B. M1 remains unchanged.
Suppose you decide to withdraw $100 in currency from your checking account. What is the effect on M1? Ignore any actions the bank may take as a result of your having withdrawn the $100. A. M1 increases by $100 as a result of additional currency in circulation. B. M1 remains unchanged. C. M1 decreases by $100 as a result of lower checking deposits. D. None of the above occur.
8,000 (2,000/0.20 - 2,000)
Suppose you deposit $2,000 cash into your checking account. By how much will the total money supply increase as a result when the required reserve ratio is 0.20? The change in the money supply is: $_______ (enter your result rounded to the nearest dollar).
change in equilibrium real GDP / change in taxes
Tax multiplier
A. it can affect the interest rate and the money supply directly and these in turn can affect unemployment, GDP growth, and the price level.
The Fed uses policy targets of interest rate and/or money supply because A. it can affect the interest rate and the money supply directly and these in turn can affect unemployment, GDP growth, and the price level. B. the inflation rate is controlled by Congress and the White House. C. it is difficult to set a target for the unemployment rate, which constantly fluctuates. D. the target for the GDP growth rate is set by Congress.
C. Interest rates.
The Federal Reserve cannot affect the unemployment rate directly; therefore, the Fed typically uses the following as its policy target: A. Inflation. B. Taxes. C. Interest rates. D. Government expenditures.
B. rose from 6% to 10% during the period of the Volcker disinflation.
The unemployment rate A. remained unchanged at 6% during the period of the Volcker disinflation. B. rose from 6% to 10% during the period of the Volcker disinflation. C. fell from 10% to 6% during the period of the Volcker disinflation. D. rose from 6% to a higher rate in the beginning of the Volcker disinflation, but as the public started using rational expectations, the unemployment rate fell back to 6%.
C. The goal of financial market stability means that the Fed tries to ensure that asset prices, such as stock prices, increase at a very high rate so investors can make more money.
The Federal Reserve has multiple economic goals for monetary policy to achieve, However, it can be difficult to manage all of the goals at once. Which of the following is not true regarding the multiple goals of the Fed? A. Having dual goals of high employment and economic growth does not create many issues because most of the time when the economy experiences economic growth, the economy also achieves higher rates of employment. B. As the Fed tries to ensure economic growth, it can also focus on financial market stability because efficient financial markets make it easier for investment to occur and create additional economic growth. C. The goal of financial market stability means that the Fed tries to ensure that asset prices, such as stock prices, increase at a very high rate so investors can make more money. D. Achieving the goals of price stability and economic growth can be difficult because often the forces that lead to economic growth also can make prices increase at a rate higher than the Fed would desire.
A. not a fiscal policy.
The Federal Reserve sells Treasury securities. This is an example of A. not a fiscal policy. B. an automatic stabilizer. C. a discretionary fiscal policy.
C. M1, savings accounts, small time deposits, and money markets.
The M2 definition of the money supply includes A. M1, savings accounts, mutual funds, and credit cards. B. savings accounts, mutual funds, small time deposits, and credit cards. C. M1, savings accounts, small time deposits, and money markets. D. M1, savings accounts, small time deposits, money markets, and credit cards.
B. Inverse relationship
The Phillips curve was developed by A.W. Phillips in 1957 and shows the relationship between unemployment and inflation. The curve, shown at the right, indicates what type of relationship between the two variables? A. No relationship B. Inverse relationship C. Direct relationship D. Positive relationship
B. fiat money.
The U.S. dollar can best be described as A. commodity-backed money. B. fiat money. C. commodity money. D. reserve money
12 7 4
The United States is divided into ___ Federal Reserve Districts. The Federal Reserve Bank's Board of Governors consists of ___ members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a ___ year, renewable term as the chairman.
short-term nominal interest rate
The ___________ is considered the most relevant interest rate when conducting monetary policy.
B. many U.S. dollars are held outside of the country by foreigners.
The amount of U.S. currency outstanding averages to about $2,800 per person in the U.S. This large amount of currency per person can be partially explained because A. most people carry large quantities of currency in their wallets and purses. B. many U.S. dollars are held outside of the country by foreigners. C. rich people hold massive amounts of currency in vaults and safes, which makes the average large. D. All of the above.
B. the velocity of money.
The average number of times each dollar in the money supply is used to purchase goods and services is called A. the discount rate. B. the velocity of money. C. the fractional reserve system. D. the quantity theory of money.
B. the public plus their checking account balances.
The central bank of a country controls the money supply, which equals the currency held by A. the public plus their checking and saving account balances. B. the public plus their checking account balances. C. banks. D. the public.
C. is the rate that banks charge each other for short-term loans of excess reserves.
The federal funds rate A. equals the discount rate. B. is set by the Federal Reserve Bank. C. is the rate that banks charge each other for short-term loans of excess reserves. D. only matters to banks and has very little impact on individual consumers.
A. the interest rate that banks charge each other for overnight loans.
The federal funds rate is A. the interest rate that banks charge each other for overnight loans. B. the interest rate that the Federal Reserve charges for its loans to banks. C. the required reserve ratio that the Federal Reserve requires banks to maintain. D. the interest rate that the banks charge for loans to its important commercial borrowers.
B. not a fiscal policy.
The federal government changes the required gasoline mileage for new cars. This is an example of A. a discretionary fiscal policy. B. not a fiscal policy. C. an automatic stabilizer.
C. not a fiscal policy.
The federal government increases spending on rebuilding the New Jersey shore following a hurricane. This is an example of A. an automatic stabilizer. B. a discretionary fiscal policy. C. not a fiscal policy.
1 / RR
The formula for the simple deposit multiplier is __________
expansionary fiscal policy higher the same higher lower
The hypothetical information in the following table shows what the situation will be in 2021 if the federal government does not use fiscal policy: (Year, Potential GDP, Real GDP, Price Level) (2020, $18.0 trillion, $18.0 trillion, 120.3) (2021, $18.4 trillion, 18.0 trillion, 122.7) If Congress and the president want to keep real GDP at its potential level in 2021, they should use a ______________, which would mean increasing government spending or cutting taxes If Congress and the president are successful in keeping real GDP at its potential level in 2021, state whether each of the following will be higher, lower, or the same as it would have been if they had taken no action: Real GDP will be ________ Potential real GDP will be ________ The inflation rate will be ________ The unemployment rate will be ________
C. there has been a major increase in the amount of transfer payments the government makes through programs such as Social Security and unemployment insurance.
The major cause of these trends is A. there has been a decrease in income tax rates for most households in the U.S. B. there has been a reduction in the nominal amount of government purchases on military as the U.S. does not engage in military conflicts. C. there has been a major increase in the amount of transfer payments the government makes through programs such as Social Security and unemployment insurance. D. All of the above.
D. controlling the money supply to pursue economic objectives.
The most important role of the Federal Reserve in today's U.S. economy is A. managing the Wall Street investment banking and hedge fund operations. B. balancing the government's budget by increasing taxes and cutting spending. C. negotiating with foreign nations to reduce the enormous trade deficit. D. controlling the money supply to pursue economic objectives.
C. the total value of U.S. Treasury securities outstanding.
The national debt is best measured as A. the total value of stocks issued in a country. B. the value of all debts of private citizens and businesses. C. the total value of U.S. Treasury securities outstanding. D. the difference between federal government spending and federal taxes.
B. the new money supply curve intersects the original money demand curve.
The new equilibrium will be where A. the original money supply curve intersects the original money demand curve. B. the new money supply curve intersects the original money demand curve. C. the new money supply curve intersects a new money demand curve. D. anywhere along the new money supply curve.
A. an automatic stabilizer.
The revenue the federal government collects from the individual income tax declines during a recession. This is an example of A. an automatic stabilizer. B. a discretionary fiscal policy. C. not a fiscal policy.
C. Government spending increases interest rates and decreases private investment.
The term "crowding out" refers to a situation where: A. Fed policy decreases interest rates and increases private investment. B. Fed policy increases interest rates and decreases private investment. C. Government spending increases interest rates and decreases private investment. D. Government spending decreases interest rates and increases private investment.
B. an automatic stabilizer.
The total the federal government pays out for unemployment insurance decreases during an expansion. This is an example of A. a discretionary fiscal policy. B. an automatic stabilizer. C. not a fiscal policy.
D. all of the above
The use of money A. eliminates the double coincidence of wants. B. allows for greater specialization. C. reduces the transaction costs of exchange. D. all of the above
D. a significant reduction in the inflation rate between 1979 and 1989, under the leadership of Fed Chairman Paul Volcker.
The "Volcker disinflation" was A. an episode of stagflation that ravaged the U.S. economy between 1979 and 1989, under the leadership of Fed Chairman Paul Volcker. B. evidence that workers and firms really had rational expectations since they adjusted their expectations of inflation as soon as the Fed's monetary policy announcement was made. C. a deflationary cycle that plagued the economy between 1979 and 1989, under the leadership of Fed Chairman Paul Volcker. D. a significant reduction in the inflation rate between 1979 and 1989, under the leadership of Fed Chairman Paul Volcker.
$1,100
Using the information below compute the M1 money supply. Currency and coin held by the public - $100 Checking account balances - $1,000 Traveler's checks - $10 Savings account balances - $3,200 Small denomination time deposits - $5,000 Money market deposit accounts in banks - $1,000 Noninstitutional money market fund shares - $2,000 The M1 money supply is $________
$13,110
Using the information below compute the M2 money supply. Currency and coin held by the public - $900 Checking account balances - $1,300 Traveler's checks - $10 Savings account balances - $2,900 Small denomination time deposits - $5,000 Money market deposit accounts in banks - $1,000 Noninstitutional money market fund shares - $2,000 The M2 money supply is $________
A. Loans are the largest asset and deposits are the largest liability of a typical bank.
What are the largest asset and the largest liability of a typical bank? A. Loans are the largest asset and deposits are the largest liability of a typical bank. B. Reserves are the largest asset and deposits are the largest liability of a typical bank. C. Cash in its vault is the largest asset and bonds are the largest liability of a typical bank. D. Loans are the largest liability and deposits are the largest asset of a typical bank.
B. The money supply and interest rates
What are the Fed's main monetary policy targets? A. Price stability and economic growth B. The money supply and interest rates C. Taxes and government spending D. High employment and economic growth
A. In this case, Congress and the president should enact policies that decrease government spending and increase taxes.
What changes should they make if they decide a contractionary fiscal policy is necessary? A. In this case, Congress and the president should enact policies that decrease government spending and increase taxes. B. In this case, Congress and the president should enact policies that increase government spending and decrease taxes. C. In this case, Congress and the president should enact policies that decrease government spending and decrease taxes. D. In this case, Congress and the president should enact policies that increase government spending and increase taxes.
A. It is the amount of money--currency and checking account deposits--that individuals hold.
What do economists mean by the demand for money? A. It is the amount of money--currency and checking account deposits--that individuals hold. B. It is the amount of money--currency and checking account deposits--that individuals use to pay for one transaction per day. C. It is the amount of currency, checking account deposits and stocks and bonds that individuals hold. D. It is the monetary value of total wealth of individuals.
C. A situation in which many banks experience runs at the same time.
What is a banking panic? A. A situation in which banks wish to recall all of their loans. B. A situation in which there is no demand for loans, so banks cannot make a profit. C. A situation in which many banks experience runs at the same time. D. A situation in which bank assets exceed liabilities.
A. Contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand.
What is a contractionary fiscal policy? A. Contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand. B. Contractionary fiscal policy includes decreasing government spending and taxes to decrease aggregate demand. C. Contractionary fiscal policy includes increasing government spending and taxes to decrease aggregate demand. D. Contractionary fiscal policy includes increasing government spending and decreasing taxes to decrease aggregate demand.
C. Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand.
What is an expansionary fiscal policy? A. Expansionary fiscal policy includes increasing government spending and taxes to increase aggregate demand. B. Expansionary fiscal policy includes decreasing government spending and taxes to increase aggregate demand. C. Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand. D. Expansionary fiscal policy includes decreasing government spending and increasing taxes to increase aggregate demand.
A. Fiscal policy can be described as changes in government spending and taxes to achieve
What is fiscal policy? A. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives. B. Fiscal policy can be described as changes in interest rates to achieve macroeconomic policy objectives. C. Fiscal policy can be described as changes in interest rates and taxes to achieve macroeconomic policy objectives. D. Fiscal policy can be described as changes in government spending and interest rates to achieve macroeconomic policy objectives.
A. Committing the central bank to achieve an announced level of inflation.
What is inflation targeting? A. Committing the central bank to achieve an announced level of inflation. B. A target that links the Fed's target for the federal funds rate to inflation. C. A policy that attempts to reduce inflation to zero. D. Another name for contractionary monetary policy.
D. A and B only.
What is the Fed doing to increase the credibility of its policies? A. Whenever a change in policy is announced, the change actually takes place. B. Announcing the federal funds target rate. C. Conducting more open market purchases of government securities. D. A and B only.
A. Money can be used to buy goods, services, or financial assets.
What is the advantage of holding money? A. Money can be used to buy goods, services, or financial assets. B. Money held by an individual can be used to measure one's wealth. C. Currency and checking account deposits held by individuals earn substantial interest income. D. An individual pays little or no taxes on the amount of money he holds.
A. Federal purchases require that the government receives a good or service in return, whereas federal expenditures include transfer payments.
What is the difference between federal purchases and federal expenditures? A. Federal purchases require that the government receives a good or service in return, whereas federal expenditures include transfer payments. B. Federal purchases require that the government receives a good or service in return, whereas federal expenditures exclude transfer payments. C. Federal purchases and federal expenditures both require that the government receives a good or service in return. D. The difference between federal purchases and federal expenditures is so small that it is generally ignored.
C. Money, in the form of currency or checking account deposits, earns either no interest or a very low rate of interest.
What is the disadvantage of holding money? A. Money cannot be readily used to buy financial assets. B. Money can be easily stolen or lost. C. Money, in the form of currency or checking account deposits, earns either no interest or a very low rate of interest. D. Money is not very "liquid."
C. the Fed's program to purchase $400 billion in long-term Treasury securities while selling an equal amount of shorter-term Treasury securities.`
What is "Operation Twist"? "Operation Twist" refers to A. the decision of the Congress to increase government spending while cutting taxes. B. the Fed's program to purchase $400 billion in short-term Treasury securities while selling an equal amount of longer-term Treasury securities. C. the Fed's program to purchase $400 billion in long-term Treasury securities while selling an equal amount of shorter-term Treasury securities. D. the Fed's decision to lower the discount rate while increasing open market purchase of short-term Treasury securities
D. buying longer term Treasury securities that are not usually involved in open market operations.
What is "quantitative easing"? Quantitative easing involved the Fed's A. increasing the budget deficit. B. selling longer term Treasury securities that are not usually involved in open market operations. C. increasing the size of the open market purchase of Treasury securities. D. buying longer term Treasury securities that are not usually involved in open market operations.
A. to make discount loans to banks suffering from large withdrawals by depositors.
When Congress established the Federal Reserve in 1913, its main responsibility was A. to make discount loans to banks suffering from large withdrawals by depositors. B. to adjust interest rates. C. to control the money supply. D. to design tax policies.
A. to make discount loans to banks suffering from large withdrawals by depositors.
When Congress established the Federal Reserve in 1913, its main responsibility was A. to make discount loans to banks suffering from large withdrawals by depositors. B. to control the money supply. C. to adjust interest rates. D. to design tax policies.
B. an increase in transfer payments and a decrease in tax revenues.
When actual GDP is below potential GDP the budget deficit increases because of: A. an increase in transfer payments and an increase in tax revenues. B. an increase in transfer payments and a decrease in tax revenues. C. a decrease in transfer payments and a decrease in tax revenues. D. an decrease in transfer payments and an increase in tax revenues.
D. transfer dollars, and therefore purchasing power, into the future.
When money is acting as a store of value, it allows an individual to A. measure the value of goods and services in the economy. B. trade money for goods and services in the economy. C. exchange goods for other goods and services in the economy. D. transfer dollars, and therefore purchasing power, into the future.
buys securities from banks increases
When the Fed conducts an open market purchase, the Fed ________________ and the money supply ___________
decrease
When the Fed conducts an open market purchase, the interest rate should ___________
B. An economic variable that is one of the Federal Reserve goals such as the unemployment rate or real GDP.
When the Fed conducts monetary policy, it uses several policy targets to indicate how effectively policy decisions are working. Which of the following makes it less likely an economic variable would be a good policy target? A. An economic variable can be directly affected by the Federal Reserve. B. An economic variable that is one of the Federal Reserve goals such as the unemployment rate or real GDP. C. An economic variable that affects other variables, such as GDP, that are closely related with Federal Reserve goals. D. An economic variable that has data identified and determined quickly and accurately.
buys sells
When the Federal Open Market Committee (FOMC) decides to increase the money supply, it ______U.S. Treasury securities. If the FOMC wishes to decrease the money supply, it _______U.S. Treasury securities.
A. The money supply will increase.
When the Federal Reserve decreases the required reserve ratio, A. The money supply will increase. B. The money supply will decrease. C. There is no effect on the money supply. D. Not enough information is given.
A. Interest rate.
Which of the following is a monetary policy target used by the Fed? A. Interest rate. B. Growth rate of GDP. C. Unemployment rate. D. Budget deficit.
A. A decrease in the money supply and an increase in the interest rate.
When the Federal Reserve increases the required reserve ratio as a part of a contractionary monetary policy, there is: A. A decrease in the money supply and an increase in the interest rate. B. An increase in the money supply and a decrease in the interest rate. C. A decrease in the money supply and a decrease in the interest rate. D. An increase in the money supply and an increase in the interest rate.
A. the sellers of such securities deposit the funds in their banks and bank reserves increase.
When the Federal Reserve purchases Treasury securities in the open market, A. the sellers of such securities deposit the funds in their banks and bank reserves increase. B. the buyers of these securities pay for them with checks drawn on their bank account and bank reserves increase. C. the public starts buying houses and firms invest in anticipation of bank increasing their reserves. D. the sellers of such securities buy new securities in the open market and there is an increase in bank reserves.
A. the buyers of these securities pay for them with checks and bank reserves fall.
When the Federal Reserve sells Treasury securities in the open market, A. the buyers of these securities pay for them with checks and bank reserves fall. B. the public starts selling houses and firms disinvest in anticipation of banks decreasing their reserves. C. the buyers of such securities buy new securities in the open market and there is a decrease in bank reserves. D. the sellers of such securities deposit the funds in their banks and bank reserves decrease.
B. expands; contracts
Whenever banks gain reserves and make new loans, the money supply ___________; and whenever banks lose reserves, and reduce their loans, the money supply __________. A. expands; expands B. expands; contracts C. contracts; expands D. contracts; contracts
C. The government provides stimulus funds to repair roads and bridges to increase spending in the economy. D. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. F. The president and Congress reduce tax rates to increase the amount of investment spending.
Which of the following are examples of discretionary fiscal policy? (Check all that apply.) A. Additional taxes are collected as the economy experiences an increase in income resulting from economic growth. B. The government spends more on the military to provide assistance to England after a natural disaster. C. The government provides stimulus funds to repair roads and bridges to increase spending in the economy. D. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate. E. A state government borrows money to finance the building of a new bridge. F. The president and Congress reduce tax rates to increase the amount of investment spending.
B. The Fed acts as a lender of last resort, making loans to banks so that they can pay off depositors.
Which of the following best explains how the Federal Reserve acts to help prevent banking panics? A. The Fed can make it illegal to withdraw deposits from banks, preventing bank panics. B. The Fed acts as a lender of last resort, making loans to banks so that they can pay off depositors. C. The Fed regulates asset markets and prevents damaging speculation. D. The Fed insures deposits of banks and thus reduces the chance of a panic.
C. Fiat money has no value except as money, whereas commodity money has value independent of its use as money.
Which of the following best explains the difference between commodity money and fiat money? A. Commodity money is usually authorized by the central bank, whereas fiat money has to be exchanged for gold by the central bank. B. Commodity money has no value except as money, whereas fiat money has value independent of its use as money. C. Fiat money has no value except as money, whereas commodity money has value independent of its use as money. D. All money is commodity money, as it has to be exchanged for gold by the central bank.
C. Acceptability
Which of the following is NOT a function of money? A. Medium of exchange B. Unit of account C. Acceptability D. Store of value
C. M2 is the best definition of money as a medium of exchange.
Which of the following is not a correct statement about M2? A. M2 is a broader definition of money compared to M1 and currency. B. M2 includes savings accounts, small-denomination time deposits, and money market mutual funds. C. M2 is the best definition of money as a medium of exchange. D. M2 includes all of the assets in M1. .
E. Commodity.
Which of the following is not a function of money? A. Unit of account. B. Medium of exchange. C. Standard of deferred payment. D. Store of value. E. Commodity.
B. The money demand.
Which of the following is not a viable monetary policy target for the Fed? A. The interest rate. B. The money demand. C. The inflation rate. D. The money supply.
C. Real GDP and employment changes from monetary policy actions can move in a countercyclical manner.
Which of the following is not an issue with using active monetary policy to reduce business cycles? A. When the Fed engages in a policy action, it takes time before the action will impact the desired economic variables. B. There is a lag in the Fed getting accurate data and being able to recognize problems existing in the economy. C. Real GDP and employment changes from monetary policy actions can move in a countercyclical manner. D. Active monetary policy can sometimes create procyclical impacts on macroeconomic variables.
D. All of the above.
Which of the following was the Fed's objective in using "quantitative easing" and "Operation Twist"? A. To keep interest rates on 10-year Treasury notes low. B. To keep interest rates on mortgages low. C. To increase aggregate demand. D. All of the above.
D. milk
Which of the following would be the least desirable candidate to be a good medium of exchange? A. seashells B. dollar bills C. gold D. milk
A. Reduce income inequality.
Which one of the following is not one of the monetary policy goals of the Fed? A. Reduce income inequality. B. Maintain high employment. C. Maintain price stability. D. Maintain stability of financial markets and institutions.
D. Moral suasion. A. The Fed conducts monetary policy principally through open market operations.
Which one of the following is not one of the policy tools the Fed uses to control the money supply? A. Reserve requirements. B. Discount policy. C. Open market operations. D. Moral suasion. Which tool is the most important? A. The Fed conducts monetary policy principally through open market operations. B. The Fed conducts monetary policy principally by tax cuts and government spending increases. C. The Fed conducts monetary policy principally by changing the reserve requirement. D. The Fed conducts monetary policy principally through discount policy.
D. The federal government controls fiscal policy.
Who is responsible for fiscal policy? A. Fiscal policy is controlled by market forces. B. The Federal Reserve controls fiscal policy. C. The federal government and the Federal Reserve jointly control fiscal policy. D. The federal government controls fiscal policy.
B. Independent central banks are more effective at fighting inflation.
Why do most economists believe that it is important for a country's central bank to be independent of the rest of the country's central government? A. Independent central banks are able to help governments finance budget deficits. B. Independent central banks are more effective at fighting inflation. C. Independent central banks are more able to stabilize financial markets. D. Independent central banks are able to prevent business cycles.
B. Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to an increase in induced spending.
Why does a $1 increase in government purchases lead to more than a $1 increase in income and spending? A. Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to a decrease in induced spending. B. Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to an increase in induced spending. C. Through the government purchases multiplier, the $1 increase in government spending will lead to a decrease in aggregate demand and national income, which will lead to a decrease in induced spending. D. Through the government purchases multiplier, the $1 increase in government spending will lead to a decrease in aggregate demand and national income, which will lead to an increase in induced spending.
A. maintaining price stability and high employment are the two most important goals of the Fed that are explicitly mentioned in the Employment Act of 1946.
Why is the Fed sometimes said to have a "dual mandate"? The Fed is said to have a" dual mandate" because A. maintaining price stability and high employment are the two most important goals of the Fed that are explicitly mentioned in the Employment Act of 1946. B. the Employment Act of 1946 empowers the Fed to maintain low taxes and high employment. C. the Fed is entrusted by Congress to maintain price stability and low taxes. D. the two most important goals of the Fed are controlling inflation and the budget deficit.
A. In the long run, aggregate supply is vertical.
Why doesn't the Phillips curve represent a permanent trade-off between unemployment and inflation in the long run? A. In the long run, aggregate supply is vertical. B. In the long run, aggregate supply is upward sloping. C. In the long run, aggregate demand sets the price level. D. "In the long run, we're all dead."
B. higher tax brackets will experience an increase in taxable income and thus will work more.
Writing in the Wall Street Journal, Martin Feldstein, an economist at Harvard University, argues that: "behavioral responses" of taxpayers to the cuts in marginal tax rates enacted in 1986 resulted in "an enormous rise in the taxes paid, particularly by those who experienced the greatest reductions in marginal tax rates." What does Feldstein mean by a "behavioral response" to tax cuts? The behavioral response will be that people in A. lower tax brackets will have to pay more tax and thus work less. B. higher tax brackets will experience an increase in taxable income and thus will work more. C. lower tax brackets will experience an increase in taxable income and thus will work less. D. higher tax brackets will experience a decrease in taxable income and thus will work less.
A. increase marginal net-of-tax income, increase the supply of labor and increase total taxes as people work longer hours.
Writing in the Wall Street Journal, Martin Feldstein, an economist at Harvard University, argues that: "behavioral responses" of taxpayers to the cuts in marginal tax rates enacted in 1986 resulted in "an enormous rise in the taxes paid, particularly by those who experienced the greatest reductions in marginal tax rates." Cuts in marginal tax rates will A. increase marginal net-of-tax income, increase the supply of labor and increase total taxes as people work longer hours. B. decrease marginal net-of-tax income, decrease the supply of labor and decrease total taxes as people work less. C. have only demand side effects and will have no supply side effect on labor supply. D. have no measurable impact on saving and investment and therefore will not increase total tax revenue.
Government expenditures
______________represent total government spending including goods, services, grants to state and local governments, and transfer payments.
Government purchases
_____________are spending by the government on goods, services, and factors of production.
B. the lower its inflation rate.
Cross-country evidence supports that the more independent a country's central bank, A. the lower its national debt. B. the lower its inflation rate. C. the higher its inflation rate. D. the higher its national debt.
