ECON 1A CH 11-14

At a macroeconomic level, the theory of rational expectations points out that if the ______________________ is vertical over time, then people should rationally expect this pattern. GDP Phillips curve aggregate demand curve aggregate supply curve

aggregate supply curve

From a neoclassical viewpoint, government should focus less on: long-term growth. controlling inflation. aggregate supply. cyclical unemployment.

cyclical unemployment

Banks typically come under financial stress because of: the money multiplier effect. a widespread decline in the value of their assets. diversification of loan assets. risks associated with extraordinary economic gains.

a widespread decline in the value of their assets.

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide. a medium of exchange a double coincidence of wants interrelated banking the usefulness of money

a double coincidence of wants

Aggregate demand is more likely to _________________ than aggregate supply in the short run. shift substantially remain unchanged decrease substantially increase slightly

shift substantially

Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities? $600 million $110 million $200 million $90 million

$600 million

Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal? $20 million $620 million $1.22 billion $920 million

$620 million

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy? 5 10 20 1

10

Question 3 1 / 1 pts _______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment. The foreign price effect Stagflation Full employment GDP The interest rate effect

Full employment GDP

Question 4 1 / 1 pts graph11-11.png (AS-AD curve in keynesian part (leftish) of curve) Referring to the above diagram, which of the following is a true statement? Macroeconomic policy will be needed to address rising inflation. There is sufficient aggregate demand to cause inflationary pressures. The equilibrium in the economy is at a level of output above full employment. There is insufficient aggregate demand to reach full employment.

There is insufficient aggregate demand to reach full employment.

A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of: cyclical unemployment. real unemployment. aggregate demand. inflationary pressures.

aggregate demand.

In order to shift the vertical supply curve to the left, which of the following would have to occur? increase in productivity breakdown of key market institutions expansion of potential GDP flexible wage and price adjustments

breakdown of key market institutions

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions. sticky wage and price sticky wage Keynesian coordination

coordination

The process of banks making loans in financial capital markets is intimately tied to the: redistribution of wealth. financial stress levels of banks. creation of money. home construction industry.

creation of money.

Which of the following would be classified in the M1 category of the money supply? savings deposits money market deposit demand deposits certificates of deposit

demand deposits

If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow. depend on borrowed money typically generate extraordinary gains make loans to financial capital markets failed to diversify risk

depend on borrowed money

If markets throughout the global economy all have flexible and continually adjusting prices, then: all market-oriented economies will implement coordinated wage reductions. each economy will always head for its natural rate of unemployment. each economy must shift in aggregate demand and create additional employment. all changes in prices and wages will create additional employment.

each economy will always head for its natural rate of unemployment.

Question 4 1 / 1 pts (Phillips curve where pt B in lower right) Refer to the graph shown below. At point B: economic growth it low or even negative. output is expanding. unemployment is very low. businesses may raise prices.

economic growth it low or even negative.

If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result? excess supply natural rate of unemployment coordinated wage reductions depression

excess supply

In an AD/AS diagram, an increase in structural unemployment will: shift AS to the right. have no effect on AS or AD. shift AS to the left. shift AD to the left.

have no effect on AS or AD.

Which of the following is omitted in a barter transaction? trade medium of exchange store of value money

money

The sum of all the income received for contributing resources to GDP is called ___________________. national income (Y) national revenue (Y) marginal income (X) marginal revenue (X)

national income (Y)

The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment? market forces Keynesian neoclassical flexible wage and price

neoclassical

Question 1 1 / 1 pts The term "full employment GDP" is synonymous with which of the following? aggregate GDP Keynesian zone macroeconomic equilibrium potential GDP

potential GDP

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP. potential GDP and aggregate supply potential GDP and aggregate demand levels of output and aggregate supply levels of wages and aggregate demand

potential GDP and aggregate supply

Suppose that productivity growth in an economy over a two-year period has fallen to less than 2% per year, causing a severe recession. From the neoclassical view, which of the following will be more important in these circumstances? an increase in the annual unemployment rate supply and demand in the labor market the problem of cyclical unemployment the growth rate of long-term productivity

the growth rate of long-term productivity

Question 24 1 / 1 pts If aggregate supply is vertical, then aggregate demand does not affect: either wages or prices. the causes of inflationary changes in price level. the quantity of output. inflationary pressures that accompanies any rise in output.

the quantity of output.

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets? $1.3 billion $1.7 billion $970 million $470 million

$970 million

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy? 5 1 20 10

20

The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. National Income After-tax income Consumption I+G+X Minus Imports Aggregate Expenditures 100 104 200 300 400 500 600 What does consumption equal when income equals 600? 104 324 374 540

374

The following table shows the aggregate supply and demand data for a country. Price Level Aggregate Demand Aggregate Supply 200 10,000 4,000 300 9,000 6,000 400 8,000 8,000 500 7,000 9,000 600 6,000 9,500 700 5,000 9,800 800 4,000 9,900 What is the equilibrium price level? 200 400 500 800

400

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by? 50 100 200 750

750

If aggregate supply is vertical, then which of the following statements must be true? Aggregate demand does not affect the quantity of output. Aggregate demand does not cause inflationary changes in price level. Inflation will accompany any rise in output. Inflation creates greater social benefits.

Aggregate demand does not affect the quantity of output.

____________ is a completely inadequate mechanism ____________________ in a modern advanced economy. Currency; for providing a medium of exchange Money; for providing a store of value Barter; for trying to coordinate trades Money; to use as a unit of account

Barter; for trying to coordinate trades

_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________. Demand deposits; certificates of deposit Certificates of deposit; time deposits Money market funds; time deposits Bonds; term deposits

Certificates of deposit; time deposits

____________________ will not cause a shift of the AS curve in a Keynesian framework. Prices of inputs Changes in input prices Changes in output prices Changes in inputs

Changes in output prices

Question 7 1 / 1 pts 13-43.png (SRAS-AD show SD shifting right) Referring to the diagram above, which of the following is a true statement? Short-run increased output will lower output costs, but demand for higher profits will increase prices. Higher cost levels will result because government will increase taxes as output rises. Higher cost levels of increased output will force an increase in price for the product. Short-run lower output costs will result because government will decrease taxes as output rises.

Higher cost levels of increased output will force an increase in price for the product.

In an AD/AS model, the point where the economy has excess capacity is called the: Keynesian zone of the AS curve intermediate zone of the AS curve neoclassical zone of the AS curve crossing point of the potential GDP line

Keynesian zone of the AS curve

________________ serves society in three functions: medium of exchange, unit of account, and store of value. Money Currency Barter A double coincidence of wants

Money

Question 7 1 / 1 pts _______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________. Keynesian economists; long run Keynesian economists; short run Neoclassical economists; long run Neoclassical economists; short run

Neoclassical economists; long run

Refer to the graph shown below. This graph illustrates a: graph12-38.png Keneyesian Curve. Neoclassical Curve. Phillips Curve. Labor Demand Curve.

Phillips Curve.

In macroeconomics, a _________________ is used to show the relationship between output and the input price level. Phillips curve microeconomic model expenditure-output model Keynesian framework

Phillips curve

From a neoclassical view, which of the following is a true statement? Lower wages will cause an economy-wide increase in the price of a key input. Because wages are flexible, they are unaffected by high rates of unemployment. A surge in aggregate demand ends up as a rise in output, but does not increase price levels. The economy cannot sustain production above its potential GDP in the long run.

The economy cannot sustain production above its potential GDP in the long run.

(SRAS-AD dia showing right shift in AD) Referring to the diagram above, which of the following is a true statement? The increase in supply (Q1 to Q2) may come about because of increased money supply. The increase in output (Q1 to Q2) may come about because of lower levels of taxation. The increase in supply (Q1 to Q2) may result from decreased government spending. The increase in output (Q1 to Q2) may result from increased levels of taxation.

The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

Aggregate demand curves slope downwards for each of the following reasons EXCEPT The wealth effect: As the price level falls, the buying power of people's savings increases and induces them to spend more. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money, raising interest rates and reducing investment spending. The foreign price effect: As the price level falls, U.S. become more attractive to foreigners and domestic residents, increasing net export spending.

The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods.

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________. rising interest rates; diversify its loans rising interest rates; provide loans to a variety of customers an increased reserve requirement; provide loans to a variety of customers an asset-liability time mismatch; diversify its loans

an asset-liability time mismatch; diversify its loans

Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account? a new car an iPod an estate gym membership

an estate

(AS-AD where AS shifts left) The graph above reflects a significant increase in world oil prices. What will the impact on aggregate supply most likely lead to? an increase in economic growth an increase in input prices a decrease in the natural unemployment rate less inflationary pressures

an increase in input prices

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession. decrease; interest rates an increase; domestic investment a decrease; a major trading partner's economy a decrease; a major trading partner's export prices

an increase; domestic investment

Which of the following is a valid criticism of the use of money as a store of value in modern economies? annual inflationary loss of buying power money supply is too narrowly defined storing money is wasteful imperfect as a unit of account

annual inflationary loss of buying power

Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause: at least a slight increase in aggregate demand. a vertical Phillips curve because aggregate supply remains fixed. unemployment to remain constant in the long run. at least a slight increase in unemployment.

at least a slight increase in unemployment.

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period? interest rates exchange rates foreign income MPS

exchange rates

In modern economies, _____________________ receive money from savers and provide funds to borrowers. governments credit unions banks financial intermediaries

financial intermediaries

Which of the following is a distinguishing characteristic of the neoclassical view? increasing price levels will increase the unemployment rate wages and real GDP are sticky over time wages are maintained at original equilibrium flexibility of wages and prices over time

flexibility of wages and prices over time

Which of the following government policies would be supported by neoclassical macroeconomic assumptions? focus on long-term growth and on controlling inflation focus on short-term recession and controlling inflation focus on combating depression and cyclical unemployment focus on real GDP and cyclical unemployment

focus on long-term growth and on controlling inflation

Question 8 1 / 1 pts In an AD/AS diagram, an increase in structural unemployment will: shift AS to the right. have no effect on AS or AD. shift AS to the left. shift AD to the left.

have no effect on AS or AD.

As the aggregate price level in an economy decreases, investment decreases. consumer demand decreases. interest rates decrease. imports decrease.

imports decrease.

Which of the following is most strongly supported by the Keynesian perspective of macroeconomics? inflation is a price that might have to be paid to achieve lower unemployment inflation offers no offsetting gains in terms of higher unemployment more emphasis on economic growth and how labor markets work shifts in unemployment primary determine changes in the price level

inflation is a price that might have to be paid to achieve lower unemployment

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur? change in government policy to decrease in aggregate demand substantial short-term off-setting decrease in output inflationary increase in price level short-run decrease in cyclical unemployment

inflationary increase in price level

Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model? it shifts the AD curve in the long-term it shifts the AD curve in the short-term it shifts the AS curve in the short-term it shifts the AS curve in the long-term

it shifts the AS curve in the long-term

The equilibrium quantity of labor increases and the equilibrium wage decreases when: labor demand shifts to the left, if wages are flexible. labor supply shifts to the left, if wages are flexible. labor demand shifts to the right, if wages are flexible. labor supply shifts to the right, if wages are flexible,

labor supply shifts to the right, if wages are flexible,

The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called: real GDP. potential GDP. aggregate supply. aggregate demand.

potential GDP.

The quantity of money in an economy and the _____________________ are inextricably intertwined. value of assets for loans quantity of credit for loans financial stress in the banking system extraordinary gains that can be made with money

quantity of credit for loans

In an AD/AS model: the GDP deflator always slopes upwards. the potential GDP always slopes downwards. the CPI is shown on the vertical axis. real GDP is shown on the horizontal axis.

real GDP is shown on the horizontal axis

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP? expenditure-output inflationary gap recessionary gap national income (Y)

recessionary gap

The market in which loans are bought and sold is called the: loan market. money market. secondary loan market. primary loan market.

secondary loan market

In the neoclassical view, the economy has a ___________________________ to move back to potential GDP. rational tendency tendency to be unable self-correcting tendency immediate tendency

self-correcting tendency

Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he then uses to make purchases. debit card credit card smart card chip card

smart card

The ____________________ in an AD/AS diagram is most relevant to Say's Law. steep portion of the AS curve AS curve AD curve flat portion of the AS curve

steep portion of the AS curve

When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect? flatter consumption function due to low marginal propensity to tax steeper consumption function due to low marginal propensity to save flatter consumption function due to high marginal propensity to invest steeper consumption function due to high marginal propensity to consume

steeper consumption function due to high marginal propensity to consume

The onset of a trade deficit is most likely supported by a country's: existing trade surplus. strong economic growth. reduction in the balance of trade. increased consumption function.

strong economic growth.

Which of the following will have the greatest influence on the slope of the demand curve in a single market model? wealth effects substitute goods full employment higher wages

substitute goods

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in: mechanical devices. specialized services. computer or other technologies. tangible and/or intangible capital.

tangible and/or intangible capital.

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from: his M1 funds. his M2 funds. the credit card company's M1 funds. the credit card company's M2 funds.

the credit card company's M1 funds.

The money multiplier is equal to the _______________ in the economy divided by the original _________________. total money; quantity of money original quantity of reserves; reserve ratio quantity of money; total money reserve ratio; original quantity of reserves

total money; quantity of money

If Keynes' law applies during economic contractions and Say's law applies during economic expansion, how will the three goals of macroeconomics be affected? determinates of total supply for the economy will be traded-off trade-offs and connections may differ in the short run and the long run the economy will face genuine limits to how much can be produced institutional and market structures will connect factors of production

trade-offs and connections may differ in the short run and the long run

(AS-AD graph crossing at keynesian portion) Refer to the graph above. A government creating economic policy in these circumstances should be most concerned about: unemployment but not inflation. inflation but not unemployment. inflation and unemployment. neither inflation nor unemployment.

unemployment but not inflation.

Say's Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy. potential GDP; value of supply total quantity of goods; price level for output natural rate of unemployment; full employment GDP value of supply; value of demand

value of supply; value of demand

Which of the following is a building block of neoclassical economics? the size of the economy is determined by real GDP sticky wages and prices aggregate demand model wages and prices will adjust in a flexible manner

wages and prices will adjust in a flexible manner