ap macroeconomics unit 5 quizzes
In the long run, changes in the money supply:
affect only the price level but they do not change aggregate output.
An increase in the money supply causes ______ in output in the short run, and _______ in output in the long run.
an increase; no change
Use the " Changes in the Money Supply" Figure 31-2. If the supply of money shifts from S 1 to S 2, the Fed must have _______ government bonds in the open market.
bought
Use the " Money Market I" Figure 31-1. If the money market is initially in equilibrium at point E and the central bank _____ bonds, then the interest rate will:
buys; move toward point L.
The school of economics that dominated economic thinking prior to the Great Depression was the:
classical school
Use the " Classical Model of the Price Level" Figure 32-2. If the central bank increases the money supply such that aggregate demand shifts from AD 1 to AD 2, then, according to this classical model, the SRAS would:
decrease from SRAS 1 to SRAS 2.
The federal budget tends to move toward _____ as the economy ____.
deficit; contracts
The federal funds rate is:
determined in the money market by the supply and demand for money.
Use the " Classical Model of the Price Level" Figure 32-2. If the central bank increases the money supply such that aggregate demand shifts from AD 1 to AD 2, then, according to this classical model, the equilibrium point would:
immediately move from E 1 to E 3.
If the Fed conducts an open market purchase, holding everything else constant:
in the long run, there will be an increase in the aggregate price level.
If the central bank increases the money supply such that aggregate demand shifts from AD 1 to AD 2, then, according to this classical model, the price level would:
increase from P 1 to P 3.
Use the " Changes in the Money Supply" Figure 31-2. Fed policy to increase the supply of money and hence to lower the interest rate from 6% to 4%, is accomplished by action that _______ the _______ government bonds.
increases; demand for
Monetary policy attempts to affect the overall level of spending in the economy by changes in:
interest rates and the quantity of money.
The government has a budget deficit if:
its total revenues are less than its total expenditures.
The economic policy of changing the quantity of money to influence the interest rate and affect overall spending in the economy, is known as:
monetary policy.
Use the " Classical Model of the Price Level" Figure 32-2. If the central bank chooses to provide a large increase in the money supply such that aggregate demand shifts from AD 1 to AD 2, then, according to this classical model, real GDP would:
not change
Suppose the Fed has set a target for the federal funds rate. If initially the equilibrium interest rate happens to be higher than the target interest rate, then the Fed should:
purchase Treasury bills in the open market, increase money supply, shift the supply of money curve to the right, and lower the interest rate to the target rate.
A sale of bonds by the Fed:
raises interest rates and reduces the money supply.
Economists refer to the revenue generated by the government's right to print money as:
seigniorage
The Federal Reserve's Open Market Committee has decided that the federal funds rate should be 2% rather than the current rate of 1.5%. The appropriate open market action is to _____ Treasury bills to _____ the money _____ curve.
sell; decrease; supply
Use the " Money Market I" Figure 31-1. If the money market is initially in equilibrium at point E and the central bank _____ bonds, then the interest rate will:
sells; move toward point H.
The inflation tax is:
the decrease in the real value of money held by the public caused by inflation
Monetizing the debt occurs when:
the fed buys back debt via open market purchases
If the Federal Reserve uses expansionary monetary policy, then:
there is a positive short-run effect on real GDP but GDP remains equal to potential GDP in the long run.
Suppose that U.S. debt is $7 trillion dollars at the beginning of the fiscal year. During the fiscal year, the government spending and government transfers are $2 trillion and tax revenues equal $1.5 trillion. At the end of the fiscal year, the debt is:
$7.5 Trillion
Use the " Classical Versus Keynesian Macroeconomics" Figure 35-1. According to the Keynesian view, if this economy shifts from AD 1 to AD 2, let's say due to a large decline in investment spending by businesses, then:
A. both the GDP and the price level will decrease.
The aggregate supply curve:
A. is vertical in the short run, according to the classical economists, but according to Keynesian theory it is upward rising in the short run.
According to the classical model:
A. prices are flexible, making the aggregate supply curve vertical in the short run.
Historically, governments have turned to seignorage to pay their bills, when:
A. the government lacks the will to reduce the budget deficit by raising taxes or reducing spending.
If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is:
B. $15 billion.
Which of the following is a characteristic of the classical school of economics?
B. It emphasizes the flexibility of wages and prices.
The cyclically-adjusted budget balance is:
B. an estimate of what the budget balance would be if real GDP was exactly equal to potential output.
When the government has a deficit, it will most likely finance the deficit by:
B. borrowing money.
When the output gap is _________, reflecting an inflationary gap, the unemployment rate is _________ the natural rate of unemployment.
B. positive; below
The General Theory of Employment, Interest, and Money was written by:
C. John Maynard Keynes.
Which of the following is likely to be TRUE if actual output is equal to potential output?
C. The actual unemployment rate is equal to the natural rate of unemployment.
A negative output gap is associated with:
C. an unusually high unemployment rate.
Because classical economists stressed mostly the long run, they:
C. perceived the economy as being mostly self-adjusting.
The budget balance is calculated as:
D. T - G - TR
According to Keynesian theory:
D. a decrease in aggregate demand leads to decreases in output and prices.
Assume an economy that is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment rate even while the economy continues to contract?
D. an increase in the number of discouraged workers
Use the " Classical Versus Keynesian Macroeconomics" Figure 35-1. According to the Keynesian view, if this economy shifts from AD 2 to AD 1, let's say due to a large increase in government spending, then:
D. both the price level and the real GDP will increase.
When the government borrows funds in financial markets to pay for budget deficits:
D. private investment spending may be crowded out.
A government would be able to pay off its debt, if:
D. the GDP grows faster than the government's debt.
A cyclically-adjusted budget balance:
E. is an estimate of what the budget balance would be if real GDP were equal to potential output.
If government decides to print money to finance a deficit:
E. people who currently hold money will be penalized as inflation increases.
According to the classical school, the short-run aggregate supply curve is _________, while according to the Keynesian school the short-run aggregate supply curve is _________.
E. vertical; upward-sloping
Expansionary fiscal policies:
NOT move a budget deficit closer to a balanced budget.
Which of the following would be the BEST explanation for an upward-sloping short-run aggregate supply curve?
Wages and prices are sticky in the short run but flexible in the long run.
Use the " AD-AS Model" Figure 32-1. Suppose the economy is currently at YE with a price level of P 1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD 1 to AD 2 as a result of an increase in the money supply?
Y E and P 3