Macroeconomics exam 3

A decrease in consumer confidence will cause: a downward movement along the aggregate demand curve. the aggregate demand curve to shift to the right. the aggregate demand curve to shift to the left. an upward movement along the aggregate demand curve.

the aggregate demand curve to shift to the left.

If the government were to increase income taxes, we would predict: a downward movement along the aggregate demand curve. the aggregate demand curve to shift to the right. the aggregate demand curve to shift to the left. an upward movement along the aggregate demand curve.

the aggregate demand curve to shift to the left.

If the government lowers taxes by $400 billion, and the MPC is 0.75, the change in GDP will be: $400 billion. $1,600 billion. $300 billion. $1,200 billion.

$1,200 billion.

Fiscal policy is often difficult to successfully implement because there is a lag between the time the policy is chosen and when it gets enacted. a decision must be made without all the relevant information. there is a risk of overshooting or undershooting the goal of full employment. All of these are true.

All of these are true.

If the government enacts contractionary fiscal policy, it: must want to slow economic activity. could increase taxes. expects aggregate demand to decrease. All of these are true.

All of these are true.

The amount of money available in the economy: is called the money supply. is managed by the Federal Reserve. varies depending on what is considered money. All of these are true.

All of these are true.

When the economy produces less than its potential output, it is: in a recession. not in long-run equilibrium. producing a quantity less than the long-run aggregate supply. All of these are true.

All of these are true.

Which of the following is a component of aggregate demand? Consumption Income Taxes Transfer payments

Consumption

Which statement describes the effect of crowding out? Consumption and investment are indirectly affected by changes in government spending. Consumption is directly affected by changes in government spending. Consumption and investment are directly affected by changes in government spending. Consumption and investment are not affected by changes in government spending.

Consumption and investment are indirectly affected by changes in government spending.

When the SRAS curve shifts to the left, the economy faces lower output and higher prices, otherwise known as stagflation. If the government then enacts expansionary fiscal policy, what will be the effect on the economy? Higher output and higher prices Higher output and lower prices Lower output and lower prices Lower output and higher prices

Higher output and higher prices

Which of the following would likely cause the aggregate demand curve to shift to the right? Increased income taxes Increased firm confidence Decreased government spending Increase in the aggregate price level

Increased firm confidence

If the Fed wishes to increase the money supply, what action could it take? It could sell a bond to a bank, receiving money in return which could then be taken out of circulation. It could buy a bond from a bank, giving the bank cash in return which can then be lent out. It could sell a bond to a bank, receiving money in return which could then be lent out to someone else. It could buy a bond from a bank, giving the bank cash in return which is then required to be held as excess reserves.

It could buy a bond from a bank, giving the bank cash in return which can then be lent out.

Suppose the Midwest experiences a major drought, decreasing yields of corn, a major input in gasoline, and an influx of processed foods. How would this be represented in the AD/AS model? The long-run aggregate supply curve would shift to the left. The long-run aggregate supply curve would shift to the right. The short-run aggregate supply curve would shift to the left. The short-run aggregate supply curve would shift to the right.

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

When a nonprice change affects any of the four components of GDP, the: aggregate demand curve will shift. economy will move up or down along the aggregate demand curve. aggregate demand curve will remain unaffected. aggregate supply curve will shift.

aggregate demand curve will shift.

If the government decreases the income tax rate: GDP will aggregate demand will aggregate demand will increase. aggregate supply will increase.

aggregate demand will increase.

A vertical supply curve reflects: aggregate supply in the short run. aggregate supply in the long run. an individual firm's supply curve. an individual industry's supply curve.

aggregate supply in the long run.

If the Fed wishes to slow economic activity, it might actively pursue: expansionary fiscal policy. expansionary monetary policy. contractionary fiscal policy. contractionary monetary policy.

contractionary monetary policy.

Contractionary monetary policy involves actions that _______ the money supply in order to _______ aggregate demand. decrease; decrease increase; decrease decrease; increase increase; increase

decrease; decrease

During times of economic expansion, spending on unemployment insurance: decreases, since more people are able to find work. increases, since wages typically rise during expansions. stays the same, as government spending is unaffected by the business cycle. depends on whether or not the government implements discretionary fiscal policy.

decreases, since more people are able to find work.

In order to change the money supply, the Fed might use all of the following tools except: the discount window. the reserve requirement. open market operations. deficit spending.

deficit spending.

Money has replaced the need to barter, which is: changing the price of goods in response to inflation. using a medium of exchange to purchase goods and services. directly offering a good or service in exchange for some other good or service you want. comparing different goods to create a standard unit of worth.

directly offering a good or service in exchange for some other good or service you want.

When the U.S. price level decreases, we would expect a(n) _______ the aggregate demand curve. downward movement along leftward shift of rightward shift of upward movement along

downward movement along

The stimulus strategy behind tax cuts will only be effective if Ricardian equivalence: holds, and people increase their spending. holds, and people save more. fails to hold, and people increase their spending. fails to hold, and people save more.

fails to hold, and people increase their spending.

To counteract the effects of a recession, policymakers can: reduce government spending. increase government spending. increase tariffs. increase tax rates.

increase government spending

The Federal Open Market Committee: includes all regional bank presidents and the Board of Governors. is the most important policy-making body of the Federal Reserve. is responsible for regulatory oversight and implementation of monetary policy of regional banks. is responsible for monitoring how goods and services are being sold on the open market.

is the most important policy-making body of the Federal Reserve.

The discount window is a: lending facility that allows any bank to borrow reserves from the Fed. lending facility that banks can use at specified times to borrow reserves needed to meet reserve requirements. large banking transaction that is associated with lower risk, and therefore qualifies for lower interest rates. situation in which large banks offer a lower interest rate to attract more borrowers.

lending facility that allows any bank to borrow reserves from the Fed.

Stagflation refers to a situation in which an economy is experiencing _______ economic growth and _______ inflation. high; high low; low high; low low; high

low; high

One of the main roles of a central bank is: managing the nations money supply coordinating the relationship between the banking system and federal government. ensuring that banks provide enough loans. monitoring federal spending.

managing the nations money supply

Fiat money is: any form of money that can be legally exchanged into a fixed amount of an underlying commodity. money created by rule. money used together with the barter of goods. any form of money that trades goods with intrinsic value.

money created by rule.

The smaller the reserve ratio, the: less a bank can loan out. smaller the money multiplier. more the government is able to borrow. more money is created in the economy.

more money is created in the economy.

When the economy experiences inflation, people demand _______ money, shifting the money demand curve to the _______. less; left more; left less; right more; right

more; right

The aggregate demand curve is downward-sloping partly due to the _______ relationship between the price level and _______. positive; net exports negative; net exports positive; government spending negative; government spending

negative; net exports

Open-market operations are: sales or purchases of government securities, by the Fed, to or from banks on the open market. regulations that set the minimum fraction of deposits banks must hold in reserve. lending facilities that allow banks to borrow reserves from the Fed at a discounted interest rate. sales or purchases of financial instruments on the open market.

sales or purchases of government securities, by the Fed, to or from banks on the open market.

Temporary supply shocks: affect prices only. shift the short-run aggregate supply curve. shift the aggregate demand curve. shift the long-run aggregate supply curve.

shift the short-run aggregate supply curve.

A decrease in the price of oil will shift the: short-run aggregate supply curve to the right. aggregate demand curve to the right. short-run aggregate supply curve to the left. long-run aggregate supply curve to the left.

short-run aggregate supply curve to the right.

In the short run, the aggregate supply curve: slopes upward. slopes downward. is perfectly elastic. is perfectly inelastic.

slopes upward.

Sticky wages occur because: the government intervenes in the labor market. the market for labor is competitive. some wages can only be changed at the end of contracts, as opposed to final good prices, which can change anytime. All of these are true.

some wages can only be changed at the end of contracts, as opposed to final good prices, which can change anytime.

A situation in which output decreases while prices increase is often referred to as: stagflation inflation. negative economic growth. a recession.

stagflation

Effective fiscal policy can be difficult to enact because: most of the money is lost to corruption. the economy rarely needs fiscal stimulus. the government lacks all relevant information needed to decide the magnitude of change. All of these are true.

the government lacks all relevant information needed to decide the magnitude of change.

Assuming an economy starts in long-run equilibrium, if the aggregate demand curve were to shift to the left: prices in the economy would increase. output in the economy would increase. the short-run aggregate supply curve would shift to the left. the long-run effect would be a lower price level.

the long-run effect would be a lower price level.

Demand-side shifts change: the price level in the long run, while output eventually returns to its long-run potential level. the output level in the long run, while prices eventually return to their long-run potential levels. the price level in the short run, while output remains unaffected. the output level in the short run, while prices remain unaffected.

the price level in the long run, while output eventually returns to its long-run potential level.

Money is: the set of all assets regularly used to purchase goods and services. the amount of currency in our economy. controlled by the supply and demand of goods and services. anything used to buy goods and services if it is not a good itself

the set of all assets regularly used to purchase goods and services.

The Federal Reserve System consists of: twelve regional banks and a 7-member Board of Governors. a twelve-member Board of Governors and 7 regional banks. twelve regional banks and 7 member banks. twelve member banks and 7 regional banks

twelve regional banks and a 7-member Board of Governors.

In the simple liquidity-preference model, the money supply curve is: vertical, and it moves at the sole discretion of the Fed. horizontal, and it moves at the sole discretion of the Fed. vertical, and it moves when people change their rate of savings. horizontal, and it moves when people change their rate of savings.

vertical, and it moves at the sole discretion of the Fed.