Eco 202 final
M1 things included in definition of money supply
-the coins in your pocket -the funds in your checking account -the traveler's check that you have left over from a trip
A decrease in interest rates by the Federal Reserve will _____the aggregate expenditure line in the AE model, and will ____ the aggregate demand curve in the AD-AS model?
...
An appreciation in the foreign exchange value of the U.S. dollar makes
...
An increase in households' expectations of their future incomes would cause the aggregate expenditure line to shift...
...
As a lender of last resort, a central bank like the Federal Reserve makes loans to "banks" that have
...
Economists consider full employment to occur when
...
On the long-run aggregate supply curve, the cyclical unemployment rate
...
Suppose you deposit $1,000 into Bank of America and that required reserve ratio is 10%. As a result of your deposit, Bank of America can make a loan of...
...
The aggregate demand-aggregate supply model considers
...
The aggregate demand-aggregate supply model seeks to explain
...
The aggregate expenditure model considers the ____ of the economy
...
The aggregate expenditure model focuses on the relationship between ___ in the short run, assuming ____ is constant
...
The aggregate expenditure model seeks to explain
...
The demand for U.S. dollars is a derived demand for
...
Using the money demand and money supply model, which of the following would increase the equilibrium interest rate?
...
Which of the following is a true statement about real and nominal GDP?
...
Which of the following would cause the U.S. dollar to depreciate?
...
Which of the following would cause the money demand curve to shift to the right
...
According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money grows by 1%, then the inflation rate will be
5%
Monetary policy is determined by the ____ and the fiscal policy is determined by ____
Federal Reserve; the president and Congress
Fiscal policy
Includes changes in government spending and taxes and is controlled by the Federal Reserve
Monetary Policy
Includes changes in the money supply and interest rates and is controlled by the Federal Reserve. Both policies are intended to achieve microeconomic objectives
5 things that change SRAS
Labor, capital, technology, oil prices, expected future price level
What is included in M2 but not M1?
Money market deposit accounts in banks
In the static AD-AS supply model, an appreciation in the foreign exchange value of the U.S. dollar will in the short run lead to ____ in the real GDP and ___ in the price level
a decrease; a decrease
what do economists mean by the demand for money?
amount of money-currency and checking account deposits-that the individuals hold
If congress and the president want to keep real GDP at potential level they would use...
an expansionary fiscal policy, which would mean increasing government spending or cutting taxes
The quantity equation (equation of exchange) states that the
an increase in nominal GDP
In the static AD-AS model, which of the following would cause a recession?
an increase in the expected future price level
In the static AD-AS model, an increase in oil prices in the short run lead to _____ in the price level and ____ in the unemployment rate
an increase; an increase
Quantitative easing refers to the Federal Reserve...
buying long-term Treasury notes and bonds, beyond the short-term Treasury bills that the Fed buys in open market operations
deposits
checking, savings, CDs, largest liability
Which of the following would be the best measure of the cost of living?
consumer price index
Using the money demand-money supply model, a decrease in the required reserve ratio would cause the interest rate to...
decrease
An economic expansion tends to cause the federal budget deficit to _____ because tax revenues _____ and government spending on transfer payments_____
decrease; rise; fall
An increase in interest rates...
decreases investment on machinery, equipment, and factories, consumption spending on durable goods, and net exports
The real rate of interest is the nominal interest rate____ the inflation rate
divided by
In the circular flow model, the value of total income for an economy_____ the value of total production
equals
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the
federal funds rate
The short-term unemployment arising from the process of matching workers with jobs is called
frictional unemployment
Savings account balances, small-denomination time deposits, and noninsitutional money market fund shares are...
included only in M2
Using the money demand and money supply model, an increase in real GDP would cause the short-term nominal interest rate to...
increase
In the dynamic AD-AS model, if AD shifts faster than AS...
inflation occurs
loans
largest asset
Why is the Fed sometimes said to have a "dual mandate"?
maintaining price stability and high unemployment are the two MOST IMPORTANT goals of the Fed and are explicitly mentioned in the Employment Act of 1946
what is the advantage of holding money?
money can be used to buy goods, services, and financial assets
what is the disadvantage of holding money?
money in the form of currency or checking account deposits, earns either no interest or a very low rate of interest
What does not affect real GDP directly?
money supply
Money Income Wealth
money-currency held and the checking account balance income-the earning wealth-is equal to the value of assets minus all debts
By keeping real GDP at potential...
real GDP will be higher inflation rate will be higher unemployment rate will be lower
Which is NOT one of the monetary policy goals of the Fed?
reduce income inequality
Monetary Policy
the actions the Federal Reserve takes to manage the money supply and interest rates
Federal Funds Rate
the interest rate that banks charge each other for overnight loans- important for Fed's monetary policy because they use this as a target since it can control the rate through open market operations
According to the quantity theory of money, inflation in the long run is caused by
the money supply growing faster than real GDP
The central bank of a country controls the money supply, which equals the currency held by...
the public plus their checking account balances
The Federal government debt equals
the sum of past budget deficits minus budget surpluses
The government's budget constraint shows that a government has ____ ways to pay for government spending, and these ways are
three; collecting taxes, borrowing by selling bonds, or printing money
why do few economists argue that it would be a good idea to balance federal budget each year?
to keep a balanced budget during a recession, taxes would have to increase and government expenditures have to decrease, which would further reduce aggregate demand and deepen the recession
national debt is best measured as
total value of U.S. Treasury securities outstanding
when the economy is experiencing an expansion automatic stabilizers will cause...
transfer payments to decrease and tax revenues to increase
The government's budget constraints show that a government has ____ ways to finance a budget deficit, and these ways are
two; borrowing by issuing (selling) bonds or printing money
If the Fed believes the inflation rate is about to increase it should...
use a contractionary monetary policy to increase the interest rate and shift AD to the left
If the Fed believes the economy is about to fall into recession it should...
use an expansionary monetary policy to lower the interest rate and shift AD to the right
