Econ final

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 10 percent, and excess reserves amount to $5 billion. What is the level of deposits?

$2,950 billion

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

$250 to nominal GDP

What was the root cause of the 2008 financial crises

A drop in housing prices

A decrease in the purchases of a US government 10 year T-notes by the Chinese would result in

A higher yield on US government 5 year T-notes

If the FOMC orders a purchase of government securities from member banks, where does it usually get the money to pay for the securities?

Adding the purchase amount to banks reserves

Explain the crowding out effect

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

How much is the total quantity of excess reserves in the US banking system?

Around 1.2 trillion

The short run aggregate demand and aggregate supply curve intersect

At a point which may or may not be equal to potential GDP

In 2007, which US firm showed the first indication of significant problems in the financial sector?

Bear Stearns

During the great recession, velocity decreased. This means that the rate at which money changed hands

Decrease. A decrease in velocity decreases the price level.

Warren Buffet recently said that what makes real estate such a good investment is the 30 year mortgage. What did he mean by that?

If nominal interest rates increase you are still locked in for 30 years at the rate when the loan was taken out, if they go down the loan can be paid off and a new loan taken out.

Monetary neutrality implies that an increase in the quantity of money will

Increase the price level

If the Fed conducts open-market sales, which of the following increases?

Interest rates

If the price of an item increases, what happens to the demand for that item?

It doesn't change

How has the M0 (Monetary base) changed since 2008?

It has increased

What is the slope of the consumption function?

Less than 1 but greater than 0

What actions were not taken by the Federal Reserve in order to stimulate the economy during the Great Recession

Lowering required reserves on checking accounts.

An increase in U.S. net exports would shift US aggregate demand

Rightward. In an attempt to stabilize the economy, the government could raise taxes.

Suppose the economy is in long-run equilibrium. According to the misconceptions of Lucas, If the government increases it's expenditures, eventually the increase of aggregate demand causes inflation expectations to

Rise. the rise in inflation expectations shifts the short run aggregate supply curve up.

Why did the Federal Reserve use an unconventional monetary policy during the Great Recession?

The federal funds rate was at 0%

T or F: Americans have a higher standard of living than Indonesians because american workers are more productive than Indonesian workers

True

Keynes thought investment spending could be changed by

a change in bond prices

Since the great recession, the quantity of money as measured by M1 has been

about tripled

A recession is a period during which

aggregate demand and production falls while unemployment rises

During a recession, according to keynes

aggregate demand and production falls while unemployment rises

Real interest rates

can be positive or negative, and can be influenced by the federal reserve

According the Keynesian model of aggregate supply and demand, a fiscal policy that increases taxes or decreases government spending will in the short run cause a

decrease in real gdp and a decrease in inflation

Technological change can shift the aggregate supply curves outward. If, at the same time, the government decreases spending, the most likely outcome of these two factors is a

decrease in the inflation rate

An increase in the supply of 10 year T-Notes would

decrease the demand of 5 year T-Notes

"Crowding Out" may

decrease the effectiveness of government spending

If the aggregate supply curve is flat,

expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation

usually the Federal Reserve has conducted policy by setting a target for the

federal funds rate

If the government uses stabilization policies to reduce inflation, the economy may have to suffer

higher rates of unemployment

Contractionary fiscal policy may have some undesirable consequences. Among these is

higher unemployment

An increase in investment spending will

increase the stock of physical capital

If the aggregate demand curve moves to the right more rapidly than aggregate supply,

inflation will tend to increase.

The main purpose of expansionary monetary policy is to

insure deposits

The Federal Reserve will tend to tighten monetary policy when

it thinks inflation is too high today, or will become too high in the future.

"Fiscal Policy" is the federal government's plan for

spending and taxes, designed to influence the level of aggregate demand

The long run aggregate supply curves shifts right if

technology improves

The relationship between consumer spending and disposable income is

the consumption function

One good argument for some inflation is

the probability off the zero bound problem is reduced

If the wage rate was "sticky", what would you expect to happen if the demand for labor decreased?

unemployment

If the Federal reserve wants to decrease the monetary base (M0), it can

use open market operations to sell bonds