Final econ
Consider the economy of Burgerland, which only produces hamburgers. If the velocity of money is 25, the price of a hamburger is $5, and the quantity of money in the economy is $500, how many hamburgers did Burgerland produce?
2,500
When taxes increase, consumption
decreases as shown by a shift of the aggregate demand curve to the left.
Which of the following shifts short-run, but not long-run aggregate supply right?
a decrease in the expected price level
Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will
have $64,000 in excess reserves.
The federal funds rate is the interest rate that
banks charge one another for loans.
Which of the following shifts aggregate demand to the right?
increases in the profitability of capital due perhaps to technological progress.
The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people were expecting it to rise by 2%, then firms have
lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.
According to the classical dichotomy, when the money supply doubles which of the following doubles?
the price level and nominal GDP
According to the classical dichotomy, when the money supply doubles, which of the following also doubles?
the price level and nominal wages
Suppose the relevant money-demand curve is the one labeled MD1; also suppose the economy's real GDP is 20,000 for the year. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service?
8
Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?
9.1
Which of the following is correct?
A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits.
The position and/or slope of the Supply curve are influenced by
All of the above are correct.
Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?
a movement from Point A to Point B
Starting from point B and assuming that aggregate demand is held constant, in the long run the economy is likely to experience
a rising price level and a falling level of output, as the economy moves to point A.
Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?
an open-market purchase of bonds by the Federal Reserve
a good description of the long run, but not the short run.
high and it turns out to be low.
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable.
Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes
your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?
$5 billion and $50 billion
At a given price level, an increase in which of the following shifts aggregate demand to the right?
All of the above are correct.
Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =
$2,250.
A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of
5 percent.
Interest rates fall and investment falls. Which of the following could explain these changes?
The government repeals an investment tax credit.
A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to
d. $45,600.
On a bank's T-account, which are part of the bank's assets?
reserves but not deposits made by its customers
When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to
spend less so the value of a dollar rises.
If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to
$8,000 of new money.
If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?
$9,000
If the relevant money-demand curve is the one labeled MD1, then the equilibrium value of money is
0.5 and the equilibrium price level is 2.
If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must comply is
13 percent.
If the economy starts at point A, a short-run fall in output would be consistent with a movement to point
D.
Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?
The supply of loanable funds shifted left.
Which of the following is correct concerning recessions?
They tend to be associated with rising unemployment rates.
Other things the same, which bond would you expect to pay the lowest interest rate?
a bond issued by a state with a very good credit rating
Most economists believe that monetary neutrality provides
a good description of the long run, but not the short run.
Other things the same, as the maturity of a bond becomes longer, the bond will pay
a higher interest rate because it has more risk.
The classical dichotomy argues that changes in the money supply
affect nominal variables, but not real variables.
Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1 , then it must be the case that
aggregate demand has decreased.
A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
bond
When the Fed decreases the discount rate, banks will
borrow more from the Fed and lend more to the public. The money supply increases.
ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?
both ABC and JLG
If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in
both the price level and nominal output.
To increase the money supply, the Fed can
buy government bonds or decrease the discount rate
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
buying bonds. This buying would increase the money supply.
When conducting an open-market purchase, the Fed
buys government bonds, and in so doing increases the money supply
During recessions which type of spending falls?
consumption and investment
According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had
decreased, so it would decrease production.
When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money
decreases, so the quantity of money demanded increases.
Monetary neutrality means that a change in the money supply
does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
Aggregate demand shifts right when the Federal Reserve
increases the money supply.
If when the money supply changes, real output and velocity do not change, then a 2 percent increase in the money supply
increases the price level by 2 percent.
A decrease in the price level
increases the quantity of goods and services demanded.
When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money
increases, so the quantity of money demanded decreases.
The Fed can reduce the federal funds rate by
increasing the money supply. To increase the money supply it could buy bonds.
Money is the most liquid asset available because
it is a medium of exchange.
The slope of the demand for loanable funds curve represents the
negative relation between the real interest rate and investment.
For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then
private saving = $10,000 and GDP = $63,000.
The aggregate-demand curve shows the
quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.
The Fed can decrease the money supply by conducting open-market
sales or by raising the discount rate.
Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the
supply of loanable funds to the right, causing interest rates to fall.
A problem that the Fed faces when it attempts to control the money supply is that
the Fed does not control the amount of money that households choose to hold as deposits in banks.
In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then
the government has a budget deficit and investment is 2,000
What is measured along the horizontal axis of the graph?
the quantity of loanable funds
If there is a shortage of loanable funds, then
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
What is measured along the vertical axis of the graph?
the real interest rate
Economists use the word "money" to refer to
those assets regularly used to buy goods and services.
According to the principle of monetary neutrality, a decrease in the money supply will not change
unemployment.
