macro exam 2

If the marginal propensity to consume (MPC) is 0.9, by how much will $200 of tax cut increase equilibrium aggregate output?

$1,800

If the marginal propensity to consume (MPC) is 0.9, by how much will $200 of government spending (G) increase aggregate output (Y)?

$2,000

How much will $500 in new government spending (G) change equilibrium aggregate output (Y) if the marginal propensity to save (MPS) is 0.2?

$2,500

The aggregate consumption function is 𝐶 = 800 + 0.8𝑌𝑑. If income is $2,500 and net taxes are $300, consumption equals

$2,560

If the reserve requirement is 10%, a new deposit of $2,000 leads to a potential increase in the money supply of:

$20,000

Suppose the required reserve ratio is 8%, the banking system has $2,000 in total reserves, and is loaned-up. The deposits in the banking system must be

$25,000

The Italian economy can be characterized by Equation 9.1. EQUATION 9.1: C = 300 + 0.8Yd G = 500 T = 250 I = 200 Refer to Equation 9.1. At the equilibrium level of output in Italy, saving equals

$450

Anna deposits $2,000 cash into her checking account. The required reserve ratio is 25%. What is the change in this bank's required reserves? What is the change in this bank's excess reserves? Assume that the bank did not lend any amount.

$500;$1500

According to the Saving/Investment approach to equilibrium, if government spending (G) is $5 trillion, business investment (I) is $4 trillion, and taxes (T) are $3 trillion, how much is savings (S) in a closed economy?

$6 trillion

Refer to Figure 11.2. This economy reaches capacity at

$900 billion

if the MPC is 0.7, the tax multiplier is

-2.33

Refer to Table 1. The required reserve ratio based on the information provided below must be_______. Details: Table 1. Suppose that at a point in time the 1st Bank of Kennesaw has the deposits volume of $15,000 and the loans to its customers amount to $13,000. The net worth to its owners is $1,000. In addition, the bank is currently loaned-up and its total reserves are $3,000. The Balance Sheet of the bank is shown below.

20%

In 2016, the city of Canfield collected $550,000 in taxes and spent $470,000. In 2016, the city of Canfield had a

budget surplus of $80,000

Which of these is a liability for a bank?

deposits made by a firm

Assume initially that market interest rates are 6% and the bondholder is receiving a $60 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 10%, the bond price_______

falls to $600

Money is _______ when it has no intrinsic value, but it is nonetheless accepted as money because the government has decreed it to be money.

fiat money

What determines the slope of the aggregate supply curve is

how fast the price of factors of production respond to changes in the price level.

Fiscal policy refers to the idea that total economic output and unemployment can be affected by changes:

in government spending and taxes

To decrease the price level the government could adopt policies that

increase aggregate supply and decrease aggregate demand

Assume that the MPS is 0.25. Full employment is considered to be at aggregate output level of $800 billion. Currently, the aggregate output is $700 billion. What should the government do to achieve full employment, while also maintaining the federal budget balanced (not increasing the deficit)?

increase government spending and taxes by $100 billion

Assume that the MPS is 0.25. Full employment is considered to be at aggregate output level of $900 billion. Currently, the aggregate output is $800 billion. What should the government do to achieve full employment?

increase government spending by $25 billion

As a government analyst you are asked to evaluate two fiscal policies and estimate which of them would more favorably impact aggregate output (Y). In the first case the government spending (G) will increase by $100. In the second case the taxes (T) will decline by $100. MPC is 0.75. Which policy would you choose and why?

increase in government spending; yields higher aggregate output by $100.

Assume that the MPC is 0.75. Full employment is considered to be at the aggregate output level of $200 billion. Currently, the aggregate output is $320 billion. Which fiscal policy the government should choose to achieve full employment?

increase taxes by 40 billion

Which of the following factors does NOT determine the shifts in the aggregate supply curve:

increased prices on health insurance

automatic stabilizers include all of the following EXCEPT

increased research and development

Refer to Figure 11.5. As a result of an increase in government spending, the equilibrium interest rate ________ and the equilibrium output level ________.

increases; increases

__________ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy.

increasing; increasing; lowering

Difference between planned aggregate expenditures and aggregate output at full capacity (GDP at full employment) is called___________

inflationary gap

Under a cyclically balanced budget, a government should _____ when the economy is growing and _____ when GDP is declining.

raise taxes; raise spending

Assume that the MPC is 0.75. Full employment is considered to be at aggregate output level of $300 billion. Currently, the aggregate output is $380 billion. What should the government do to retain the full employment and overcome the inflationary gap?

reduce spending by $20 billion

Which of the following would cause the short-run aggregate supply curve to shift to the right?

retired workers reentering the labor force

Assume initially that market interest rates are 9% and the bondholder is receiving a $90 coupon payment per year on a bond with a face value of $1,000. If market interest rates decline to 6%, the bond price_______

rises to $1500

Jane has a savings account into which she puts money every month so she will eventually have enough money for a down payment on a house. This is an example of which function of money?

store of value

What is the reserve ratio?

the percentage of a bank's total deposits held in reserve, either as cash in the vault or as deposits at the Federal Reserve

Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause

the short-run aggregate supply curve to shift to the left.

Serving as a ______ is a function of money that gives us a yardstick by which we can measure and compare the values of a wide variety of goods and services.

unit of account

which of these is a description of an automatic stabilizer in an economy?

when the economy declines, tax receipts decrease

Using the Fed rule, answer the following question. How will the Fed react to the increase in price level (P)? Fed rule is described by the formula: 𝑟=𝛼𝑌+𝛽𝑃+𝛾𝑍.

will increase interest rate (r).

How will an increase in the aggregate output (Y) impact the Fed's decision to change the interest rate r? Use the Fed rule, where 𝑟=𝛼𝑌+𝛽𝑃+𝛾𝑍 .

will increase the interest rate

If the (actual) reserve ratio is less than the reserve requirement, excess reserves _______________

are negative

If Sandra has an income of $60,000 and disposable income of $45,000, how much does she pay in taxes?

15,000

Suppose the economy portrayed by the figure below experiences a national security related surge in defense expenditures. How does the market equilibrium change?

AD shifts to the right along AS curve

According to the full aggregate expenditures model, which will have the greater stimulus effect on the economy: the same amount increase in government spending or decrease in taxes?

The increase in government spending will have the greater stimulus effect on the economy.

An increase in aggregate demand when the economy is operating ________ is likely to result in an increase in the overall price level and ________ in output.

at full capacity; no increase

Which of the following is not included in M1?

a $500 bill in your savings account

The short-run aggregate supply curve is upward sloped to indicate what?

a positive relationship between the aggregate output and aggregate price level.

The 12 Federal Reserve banks and their branches do all of the following except:

accept deposits from US citizens

The relationship between the aggregate quantity of output supplied by all firms in an economy and the overall price level is graphed as

aggregate supply curve (AS)

Which of the following will result in a long-run increase in the U.S. GDP (aggregate output)? a) An increase in the U.S. capital stock b) All of the above. c) An increase in innovations in the U.S. d) An increase in the U.S. labor force.

all of the above

Which of the following would shift the aggregate demand curve from AD0 to AD1?

an increase in investment expenditures

An open market purchase of government bonds by the Federal Reserve results in _________ in the supply of money and _________ in interest rates.

an increase; a decrease

Related to the Economics in Practice on p. 230: In the simple "Keynesian" view, if planned aggregate expenditure and aggregate demand exceed capacity output, there is

an inflationary gap and price level rises

The long-run aggregate supply curve _____

is vertical because all prices (both input and output prices) change at the same rate in the long run.

If the money multiplier increased, what probably happened to the reserve requirement?

it decreased

What happens to the money multiplier when the reserve requirement increases from 20% to 25%?

it decreases from 5 to 4

If the money multiplier decreases from 15 to 12, what probably happened to the required reserve ratio?

it increases from 6.67% to 8.33%

M2 is ____ in dollar value than M1; it also contains ____ assets.

larger; less liquid

The level of aggregate output demanded falls when the price level rises, because the resulting increase in the interest rate will lead to

lower investment spending and lower consumption spending.

_____ is/are the buying and selling of U.S. government securities.

open market operations

Refer to Table 9.1. At an output level of $2,000 billion, there is an unplanned inventory change of

positive $100 billion

The aggregate supply curve is ________ sloped in the short run, but _______ in the long run.

positively; vertical