ECON test 2 ACC aye
In the above figure what is the short run equilibrium real GDP and the short run equilibrium price level
$13.5 and 10
MPS formula
1-MPC
Which of the following is not an asset of the Federal Reserve
Federal reserve notes
A reason the government expenditure multiplier is larger than one is because
Government expenditure generates changes in consumption expenditure
What, according to neoclassical growth theory, is the fundamental cause of economic growth?
Growth results from technological advances, which are determined by chance
The aggregate demand curve
Has a negative slope
The US's government budget
Has mostly been in deficit during the past 30 years
The aggregate expenditure curve shows
How planned aggregate expenditure and real GDP are related
Autonomous consumption is that portion of consumption expenditure that is not influenced by
Income
Disposable income is
Income minus taxes plus transfer payments
Demand pull inflation is an inflation that results from an initial
Increase in aggregate demand
If the slope of the AE curve increases, the multiplier
Increases
A government that currently has a budget deficit can balance its budget by
Increasing tax revenues by more then it increases outlays
The sum of the components of aggregate expenditure That vary with real GDP is called
Induced expenditures
The magnitude of the tax multiplier ___________ the magnitude of the government expenditure multiplier.
Is smaller than
The structural surplus
Is the government budget surplus that would exist if the economy was at potential GDP
The Federal open market committee
Is the main policy making organ of the Federal reserve
Gross investment
Is the purchase of a new capital
The long run aggregate supply curve
Is vertical
A banks required reserves are calculated by multiplying
It's deposits by the required reserve ratio
Which of the following shifts the aggregate demand curve rightward?
an increase in the quantity of money
Fiscal policy involves
the use of tax and spending policies by the government.
The slope of the consumption function is
Less than one
The definition of M2 includes
M1, saving deposits, and time deposits
Which of the following is true?
MPS+MPC=1
The largest component of the fiscal imbalance is
Medicare
velocity of circulation formula
Nominal GDP/ quantity of $
Credit cards are
Not part of money because they represent a load of money to the user
The largest source of government revenues is
Personal income taxes
In the very short run, the components of aggregate planned expenditure that depend on the level of real GDP are
Plan consumption expenditure and planned imports
The slope of the aggregate expenditure curve Equals the change in
Planned expenditure divided by the change in real GDP
In this very short term, in the keynesian model, which of the following is fixed and does not change when GDP changes
Planned investment
The consumption function shows a
Positive(direct) Relationship between consumption expenditure and disposable income
The long run aggregate supply curve is vertical because
Potential GDP is independent of the price level
All the following are government outlays except
Purchases of corporate bonds
In the above figure, at the point where AD equals SAS
Real GDP exceeds potential GDP
in the long run
Real GDP is equal to potential GDP
The Federal Reserve system
Regulates the nations financial institutions and conducts the nations monetary policy
A discretionary fiscal policy is a fiscal policy that
Requires action by the Congress
One characteristic of automatic fiscal policy is that it
Requires no legislative action by Congress to be made effective
According to the inter-temporal substitution effect, when the price level increases, the interest rate
Rises and the quantity real GDP demand decreases
If Demand pull inflation occurs when the economy is already at potential GDP, then following the initial increase in aggregate demand, the
SAS curve shifts leftward
In the above figure as the economy adjust towards equilibrium, the
SAS curve will shift leftward
When disposable income is zero, consumption is $2000. Then
Saving= -$2000
The Fed buys $100 million of government securities from bank A. What is the effect on the Federal Reserve's balance sheet?
Securities increased by hundred million dollars in reserves of bank A increased by hundred million dollars
In the short run, and increase in government expenditure will
Shift the aggregate demand curve right ward and increase real GDP
The federal government debt is equal to the
Some of past budget deficits minus the sum of past budget surpluses
When a depository institution pools risk, it
Spreads loan losses across many depositors so that no one depositor faces a high degree of risk
The Laffer curve is the relationship between
Tax rates in tax revenue
An example of automatic fiscal policy is when
Tax revenues decrease as real GDP decreases
The discount rate is the interest rate
That the fed charges on its last resort loans
The structural deficit is the deficit
That would occur at full employment
An aggregate supply Curve depicts the relationship between
The price level in the aggregate quantity supplied
The supply of real GDP is a function of
The quantities of labor, capital and the state of technology
The quantity theory of money predicts how changes in
The quantity of money affect the price level
Changes in all of the following shift the supply curve of loanable funds except
The real interest rate
A rise in the price level changed aggregate demand because
The real value of people's wealth decreases and so they decrease their consumption
The monetary base is
The sum of federal reserve notes, coins, and depository institutions deposits at the Federal Reserve
A money market mutual fund is
A depository institution that sell shares and buys securities such as US treasury bills
If bank A holds $200 in reserves, deposits are $1000, and the desired reserve ratio is 15%, how much are excess reserves?
$50
If the marginal propensity to save is .6, then the marginal propensity To consume is
. 4
When big deposits increase from $1 million-$2 million, banks required reserves increased from $100,000-$200,000. The required reserve ratio is
.10
When disposable income increases from $7 trillion to $7.5 trillionconsumption expenditure increase from $6.5 trillion to $6.9 trillion. The MPS is equal to
.2
When disposable income increases from $6 trillion to 6.5 trillion $, the consumption expenditure increase from $5.5 trillion to 5.9 trillion $. The MPC equals
.8
Based on the data in the table above what is the value of M2?
8587 billion dollars
The expenditure multiplier equals
1/(1-slope of AE curve)
If the MPC is .9 and there are no income taxes or imports, the multiplier for change in autonomous expenditure equals
10
In the above figure, when the economy is in a long run equilibrium, the price level will be
120
If required reserves or $150 in deposits are $1000, what is the required reserve ratio?
15%
If nominal GDP is $12 trillion, the price level is 120, and the quantity of money is $4 trillion, what is the velocity of circulation?
3
If there are no taxes or imports and MPC equals .67, the multiplier is
3
Which of the following does not describe a function of money
A hedge against inflation
Along the long run Phillips curve
Actual inflation is equal to expected inflation
The long run Phillips curve shows the relationship between the inflation rate and the Unemployment rate when the
Actual inflation rate equals the expected inflation rate
At equilibrium expenditure
Aggregate planned expenditure equals real GDP
A fall in income that results in a decrease in tax revenues is an example of
Automatic fiscal policy
The majority of money is created when
Banks make loans
In the Keynesian model of aggregate expenditure assumes that
Both individual firms prices in the price level are fixed
Reserves are
Cash in a banks vault plus it's deposits are federal reserve banks
The MPC is equal to
Change in C divided by a change in YD
MPC formula
Change in consumption expenditure/ change in disposable income
The marginal propensity to save equals D
Change in savings resulting from a one dollar change in disposable income
If the government has a balance budget, the total amount of government debt is
Constant
Disposable income is divided into
Consumption and saving
The A.D. curve shows the sum of
Consumption expenditure, investment, government expenditures on good and services, and net imports
All the following are part of fiscal policy except
Controlling the money supply
The real interest rate
Create a movement upward along the demand for loanable funds curve
A rise in the real interest rate
Creates a movement upward along to demand for loanable funds curve
In the United States today, money consists of
Currency and deposits at banks
If the economy is capital stock decreases over time
Depreciation exceeds gross investment
Federal reserve policy tools include all the following except
Desired reserve ratio's
Real GDP is the same thing as
Disposable income
What is the key idea of classical growth theory that leads to the dismal outcome?
The "dismal outcome" in classical theory is the conclusion that in the long run real GDP per person equals the subsistence level. In classical growth theory, an increase in real GDP per person causes population increases that return real GDP per person to the subsistence level. In the classical growth theory, an increase in income creates a population boom. The increase in population increases the supply of labor. Because of diminishing returns to labor, the increase in the supply of labor lowers the real wage rate and people's incomes. Eventually the real wage rate falls to equal the subsistence level, at which time the population stops growing
Which of the following will occur if the Fed buys $10 million of securities from the University national bank
The Fed will pay by increasing the university national banks deposit account with the fed by $10 million
And open market operation involves
The Federal Reserve's purchase or sale of securities
Which branches of government play a role in the enacting the federal budget
The House of Representatives, the president, and the senate
Which of the following institutions is not a depository institution
The US treasury
Equilibrium expenditure occurs where
The aggregate expenditure curve crosses the 45° line
What is the marginal propensity to consume
The change in consumption expenditure divided by the change in disposable income
What determines the demand for labor, the supply of labor, and labor market equilibrium?
The demand for labor is the relationship between the quantity of labor demanded in the real wage rate. A fall in the real wage rate increases the quantity of labor demanded because of diminishing returns. The demand for labor also depends on productivity. If productivity increases, the demand for labor increases. The supply of labor is the relationship between the quantity of labor supplied in the real wage rate. An increase in the real wage rate increases the quantity of labor supply because more people enter the labor force and the hours supplied per person increases. The real wage address so that the labor market is in equilibrium. If the real wage rate is above(below) its equilibrium there is a surplus(shortage) of labor that then causes the real wage rate to fall(rise). For example, if the real wage rate is above the equilibrium level, there is a surplus of labor so the real wage rate falls until it reaches equilibrium. Equilibrium quantity of employment is the full employment quantity of labor.
The interest rate banks charge other banks for overnight loans is
The federal funds rate
Which of the following institutions is not part of the structure of the Federal Reserve system?
The federal government
Which of the following is not one of the fed's monetary policy tools
The income tax rate
What is the key proposition of new growth theory that makes economic growth persist?
The key proposition that makes growth persist indefinitely in the new growth theory in the assumption that the returns to knowledge and human capital do not diminish. As a result, increases in knowledge do not cause diminishing returns and the incentive to innovate remains high. As people accumulate more knowledge, the incentive to innovate does not fall and so people continue to innovate new and better ways to produce new and better products. This innovation means that economic growth persist indefinitely.
1-MPC equals
The marginal propensity to save
The term "capital" as used in macro economics refers to
The plant, equipment, buildings, and inventories of raw materials and semi finished goods
What is the relationship between the real interest rate, the supply of loanable funds and the demand for loanable funds?
The supply of loanable funds has a positive relationship between the real interest rate and the quantity of loanable funds supplied. In a figure, a supply of loanable funds curve has a positive slope. Similarly, the demand for loanable funds is the relationship between the real interest rate and the amount of loanable funds demanded. In a figure, a demand for loanable funds curve had a negative slope.
A band manager tells you that she doesn't create money. She just lends the money that people deposit. Explain why she's wrong.
Though the manager does not see the entire process, nonetheless the loans the manager makes create more deposits and more money. Point out to the manager the when she makes a loan, the deposits at her bank initially increase. And when the loan is spent, the recipient selling the goods or services that have been purchased will deposit part or all the proceeds in his or her bank. When the recipient makes the deposit, the total amount of the nations deposits increase and, because deposits are part of the nation's money, the quantity of money also increases. However, actions of other economic agents also affect the creation of money. For example, if people decide to hold less currency and more deposits, the immediate effect on the quantity of money is nil. But over time the quantity of money increases because banks gain more(excess) reserves, which are then loaned and then deposited, thereby creating additional deposits and increasing the quantity of money.
Which of the following is not included in the M1 definition of money
Time deposits
The government budget deficit or surplus equals the
Total tax revenue minus total government outlays
On the feds balance sheet, Assets include
US government securities and loans to depository institutions
Equation of exchange states That the price level is equal to
Velocity of circulation multiplied by the quantity of money divided by real GDP
The long run Phillips curve is
Vertical at the natural unemployment rate