econ exam 2 lenon
response to decrease in gdp
fed use monetary policy to increase aggregate demand so real gdp will increase and price level rises
if aggregate planned expenditure is less than real gdp then
firms inventories will increase and real gdp will decrease as production falls
At points on the AE curve above the 45 degree line, the value of aggregate expenditure is _________ than the value of real GDP.
greater
what is the federal open market committee
made up of 12 individuals that aids the board of governors in conducting monetary policy
expected inflation not perfectly anticipated
money wage rate changed but by a different percentage than the price level. real wage rate changes and there are deviations from full employment.
suppose the consumption function is given by the equation c=100+0.8YD where YD is disposable income. What is the mpc?
0.8
If the quantity of money increases by 1 percent a year, in the long run the change in the price level is ___ percent a year.
1
depository institutions benefits
1. creates liquidity (borrow short lend long) 2. pool risk: a loan might not be repaid 3. low cost of borrowing 4. low cost of monitoring borrowers
in an open economy where the mpc is 0.70 the proportional tax rate is .15 and the marginal propensity to import is .1, what is the value of the spending multiplier?
1/.505 = 1.98
simple money multiplier
1/RRR, where RRR is the required reserve ratio expressed as a decimal; if the required reserve ratio is 10% (0.1), the money multiplier is 1/0.1 = 10. For every $1 deposit the bank has to hold 10 cents.
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.9, and real GDP is $200 billion. Businesses increase investment by $2 billion. Calculate the new real GDP and explain why real GDP increases by more than $2 billion. The new level of real GDP is $___ billion.
220
given an mps of 0.80 if there are no income taxes or imports and prices are constant, then when investment increase by 50 million and prices are fixed, equilibrium gdp would increase by
250 million
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.8, and real GDP is $150 billion. Businesses increase investment by $5 billion. Calculate the multiplier and the change in real GDP. The multiplier is __. The increase in real GDP is $__billion.
5;25
suppose that the money multiplier is 4. if the fed sells government securities in the amount of $2 million, the quantity of money will a. decrease by 8 million b. increase by 500,000 c. decrease by 500,000 d. increase by 8 million
???
commercial bank
A financial institution that accepts demand deposits and makes loans and provides other services for the public
deflation
A persistent or continuing fall in the average price level
thrift institutions
A savings and loan association, mutual savings bank, or credit union.
securities
All of the investments, including stocks, bonds, mutual funds, options, and commodities, that are traded.
loans
An amount of money provide by one party to another with the understanding that the money will be returned, in full, often with interest.
how can deflation be ended
By increasing the growth rate of money. Make the money growth rate exceed the growth rate of real GDP minus the rate of velocity change.
deposits
Checks or cash put into a bank account
monetary policy
Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.
federal fund rate
Interest rate banks charge each other for loans
m2 consists of
M1 plus savings accounts, small-time deposits, money market mutual funds, and miscellaneous near-monies.
Amount (billions of dollars) Small time deposits 425.0 Retail Money Market Funds. 1,201.1 Demand Deposits. 5,108.3 Other Liquid Deposits 12,317.3 Currency 2,215.4 In January 2023, M1 was $_____ billion. In January 2023, M2 was $______ billion.
M1: 19641 M2: 21267.1
equation of exchange
MV = PY where M is the money supply, V is velocity of money, P is the average price level and Y is the real output of goods and services produced in an economy. MV equals total spending. PY equals nominal GDP and also Total Revenue.
present value formula
PV = FV / (1+r)^n
The discount rate is the interest rate that
The Federal Reserve charges when it loans reserves to depository institutions.
Mainstream Business Cycle Theory
Potential GDP (LAS) grows at a steady rate while AD growth fluctuates AD grows faster than LAS = expansion AD grows slower than LAS = contraction Includes Classical, Keynesian, and Monetarist schools of thoughts
federal reserve system
The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates
discount rate
The interest rate on the loans that the Fed makes to banks
total reserves
The sum of a bank's deposits in its reserve account at the Fed and its vault cash
reserve requirement
This is the percentage of their deposits that member banks must keep available in a Federal Reserve Bank.
in the short run, an increase in government expenditure on goods and services ___ real gdp and ______ the price level a. increase;rises b. increases;falls c. decreases;rises d. decreases;falls
a
members of the federal reserve system's board of governors a. hold 14 year staggered terms b. are elected for life c. are a special subcommittee of the senate d. are elected at large by district banks
a
money is created by a. banks making loans and monetizing the loans through the creation of checkable deposits b. banks paying for depositors insurance c. government taxation d. banks taking in deposits
a
reserves are a. cash in a banks vault plus its deposits at federal reserve banks b. gold in a banks vault c. cash in a banks vault plus gold at federal reserve d. cash in a banks vault plus cash carried by customers
a
suppose consumers decrease their consumption expenditure because they worry about their future income. there is a. leftward shift of aggregate demand curve b. upward movement along the aggregate demand curve c. rightward shift of the aggregate demand curve d. downward movement along the agregate demand curve
a
when a depository institution pools risk, it a. spreads loan losses across many depositors so that no one depositor faces high risk b. makes loans to just one firm c. buys short and lends long d. borrows reserves from the federal reserve
a
cost-push inflation
a sustained rise in the price level caused by a leftward shift of the aggregate supply curve. when prices rise due to an increase in the money price of raw materials or an increase in money wage rates.
Keynesian cycle theory
a theory that fluctuations in investment driven by fluctuations in business confidence - summarized by the phrase "animal spirits" - are the main source of fluctuations in aggregate demand
the multiplier effect on real gdp occurs because
an autonomous change in expenditure causes an induced change in consumption expenditure.
A fall in the price level _______ the nominal interest rate in the short run. A. does not change B.lowers C.raises
b
A means of payment is a method of _____ a debt. A. creating B. settling C. transferring D. paying interest on
b
Classical macroeconomists recommend _______. A. policies that actively offset changes in long-run aggregate supply that result in negative economic growth B. policies that minimize the disincentive effects of taxes on employment, investment, and technological change C. policies that actively offset changes in aggregate demand that bring recession D. an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand
b
Depository institutions pool risk by using funds obtained from _______ depositors to make loans to _______ borrowers. A. few; few B. many; many C. many; few D. few; many
b
because the short run aggregate expenditure model assumes that the price level is ____, its predicted effect of changes in autonomous expenditure on equilibrium output is _____ than the prediction of the ad/sas model a. flexible;greater b. fixed;greater c. flexible;less d. fixed; less
b
Currency consists of _____. A. smart cards B. U.S. government bonds C. notes (dollar bills) and coins D. checking account deposits
c
Unplanned reserves are a bank's _____ reserves minus its _____ reserves. A. revenue; capital B. capital; revenue C. actual; desired D. desired; actual
c
currency drain ratio
currency / total deposits
A reason for the difference in the values between the countries may be _______. A. the larger size of China's population B. the trade imbalance between China and the United States C. incomes are higher in the United States D. U.S. consumers are more confident about the future
d
Why does the business cycle occur? The business cycle occurs because _______. A. potential GDP is increasing, and increases in aggregate demand cannot keep pace with increases in long-run aggregate supply B. the government is constantly trying to produce an inflationary gap, but expenditures in the economy cannot keep pace with the government's agenda C. the Fed is constantly increasing the quantity of money D. aggregate demand and short-run aggregate supply fluctuate, but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP
d
checking deposits at banks are a. money only because they are insured by FDIC b. not money until they are converted c. not money because they are an intagible asset d. money
d
depository institutions a. make profit by changing government for their services b. make zero profit but receive compensation by the government because their services are so valuable c. make profit accounting to how the Fed pays them d. make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans
d
New Keynesian Cycle Theory
emphasizes the fact that today's money wage rates were negotiated at many past dates, which means that past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
Along the 45 degree line, aggregate expenditure ________ real GDP.
equals
autonomous consumption is that portion of consumption expenditure that is not influenced by
income
As required reserve ratio decreases the money multiplier and money supply
increase
open market purchase
increase supply of reserves, federal funds rate falls
open market purchase from the fed _____ money supply
increases
demand pull inflation
increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand. real gdp > potential gdp. decreases short run aggregate supply.
economic growth __________
is an increase in potential gdp as long run aggregate supply curve shifts rightward
At points on the AE curve below the 45 degree line, the value of aggregate expenditure is ______ than the value of real GDP
less
discount window loans
loans the federal reserve makes to banks, fed lowers the discount rate and reserves go up because banks borrow more which expands the money supply.
cash assets
notes and coins in its vault or its deposit at the Federal Reserve
Dual Mandate of the Fed
price stability and high employment
consequences of deflation
redistributes income and wealth, lowers real gdp and employment, and diverts resources from production
when actual inflation is higher than expected inflation
redistribution of income from employee to employer
when actual inflation is less than expected inflation
redistribution of income from employer to employee
tools of monetary policy
reserve requirement, discount rate, open market operations
technological progress will
shift both the LAS and SAS curves rightward
in the mainstream business cycle theory, the money wage rate is
sticky
present value
the amount of money you would need to deposit now in order to have a desired amount in the future
open market operations
the buying and selling of government securities to alter the supply of money
Liquidiity
the ease with which an asset can be converted into a medium of exchange
quantitative easing
the introduction of new money into the money supply by a central bank. large scale asset purchases. increase liquidity in banking system and reduce long term interest rate.
currency
the notes and coins held by individuals and businesses
expected inflation
when inflation is anticipated the money wage rate changes to keep up with the anticipated inflation. ad curve shifts right, increasing price level, money wage rate increases and sas curve shifts left.
quantitative tightening
when the Fed sells longer-term government bonds or other securities. reducing balance sheet and monetary base of the fed
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied _______ and there is a movement up along the _______ aggregate supply curve. A. does not change; long-run B. decreases; long-run C. does not change; short-run D. increases; short-run
a
If the trend rate of change of velocity is 1 percent a year, potential GDP grows by 4 percent a year, and the money growth rate is 2 percent a year, what is the trend inflation rate? A. -1 percent a year B. 7 percent a year C. 1 percent a year D. -5 percent a year
a
In times of recession, the Fed _______ the interest rate and _______ the quantity of money. A. lowers; increases B. raises; decreases C. raises; increases D. lowers; decreases
a
2. Why can cryptocurrencies be considered as money? Cryptocurrencies can be considered as money when they are _______. A. increasingly acceptable as a means of payment B. more available than national currencies C. regulated in crypto exchanges by central banks D. a good store of value especially during times of rapid inflation
a
A depository institution creates liquidity by _______. A. borrowing short and lending long B. borrowing long and lending short C. paying high interest rates on deposits D. eliminating high-risk loans
a
A depository institution is a _______. A. financial firm that takes deposits from households and firms B. financial firm that has three types of liabilities—cash liabilities, securities, and loans C. commercial institution that practices 100 percent reserve banking D. bank's bank and a public authority that conducts the nation's monetary policy
a
A monetarist is a macroeconomist who believes that the economy is self-regulating and that it will normally operate _____, provided that monetary policy is not erratic and that the pace of _____ is kept steady. A. at full employment; money growth B. at full employment; economic growth C. below full employment; technological growth D. above full employment; technological growth
a
A movement along the aggregate demand curve occurs if _______. A. the price level changes and all other factors remain unchanged B. government expenditure or the interest rate change, and the price level remains the same C. the price level, the exchange rate or foreign income change, and the full-employment quantity of labor remains the same D. expectations about future inflation or future income change, and the money wage rate remains the same
a
Aggregate planned expenditure is the sum of planned _____. A. consumption expenditure, investment, government expenditure, and exports minus imports B. consumption expenditure, savings, net taxes, and net exports C. borrowing in the loanable funds market by households, firms, government, and the rest of the world D. aggregate demand and aggregate supply
a
Deflation is caused by _______. A. aggregate demand increasing at a persistently slower rate than aggregate supply B. aggregate demand increasing at a persistently faster rate than aggregate supply C. a slowdown in the growth rate of the quantity of money D. a slowdown in the growth rate of potential GDP
a
Equilibrium expenditure comes about because firms change their _______ in response to unplanned changes in _______. A. production; inventories B. prices; inventories C. prices; production D. inventories; production
a
For a given increase in aggregate demand, the steeper the slope of the short-run aggregate supply curve, the _______ is the increase in the price level and the _______ is the multiplier effect on real GDP in the short run. A. larger; smaller B. smaller; smaller C. smaller; larger D. larger; larger
a
Give some examples of fiscal policy that increase aggregate demand. Examples of fiscal policy that increase aggregate demand include ______. A. an increase in government expenditure, a decrease in taxes, and an increase in transfer payments B. a decrease in taxes and an increase in the quantity of money C. a decrease in taxes and a decrease in interest rates D. an increase in transfer payments and an increase in interest rates
a
How can deflation be ended? Deflation can be ended by _______. A. increasing the growth rate of the quantity of money B. increasing the quantity of money C. decreasing the velocity of circulation D. increasing the growth rate of potential GDP
a
If real GDP and aggregate expenditure are less than equilibrium expenditure, what happens to firms? inventories? How do firms change their production? And what happens to real GDP? Firms' inventories decrease, ... ... so they ______ production, and real GDP ______. A. increase; increases B. decrease; increases C. increase; decreases D. decrease; decreases
a
If real GDP increases by $2 million and potential GDP increases by $3 million and the marginal propensity to import is 0.2, by how much do imports change? A. Imports increase by $400,000. B. Imports decrease by $400,000. C. Imports decrease by $200,000. D. Imports increase by $600,000
a
M2 consists of _____ plus _____ and _____. A. M1; small-denomination time deposits; money market mutual funds B. fiat money; debts; checkable deposits C. M1; debts; money market mutual funds D. regular expenses; mortgages; individual retirement accounts
a
Other things remaining the same: A decrease in real GDP _______ the nominal interest rate in the short run. A decrease in the money supply _______ the nominal interest rate in the short run. A. lowers; raises B. raises; lowers C. raises; raises D. lowers;
a
Potential GDP increases when _______. A.the full dash employment quantity of labor increases the full-employment quantity of labor increases B.inflation decreases inflation decreases C.the price level falls the price level falls D.the money wage rate increases
a
Reserves consist of the currency in the _____ plus the balance on its _____ account at _____. A. bank's vaults; reserve; a Federal Reserve Bank B. savings account; money market; an investment bank C. checking account; certificate of deposit; a Federal Reserve Bank D. market; reserve; a savings bank
a
Rising gasoline, electricity, and natural gas prices can lead to _______ inflation. Increasing household spending can lead to _______ inflation. A. cost-push; demand-pull B. cost-pull; demand-push C. cost-push; cost-push D. demand-push; demand-pull
a
Suppose the Fed buys $50 million of government securities from the Bank of America. Do the Fed's total assets and total liabilities change? Do the Bank of America's total assets and total liabilities change? The Bank of America's total assets _______ and its total liabilities _______. A. do not change; do not change B. decrease by $50 million; do not change C. increase by $50 million; decrease by $50 million D. decrease by $50 million; increase by $50 million
a
The MPS in the United States is _______ than the MPS in China, and the MPC in the United States is _______ than the MPC in China. A. smaller; larger B. smaller; smaller C. larger; larger D. larger; smaller
a
The U.S. price level rises. This event _______. A. increases the quantity of real GDP supplied B. increases short-run aggregate supply C. decreases the quantity of real GDP supplied D. increases long-run aggregate supply
a
The change in the quantity of money if the monetary base increases by $1 billion is _______. A. $3.2 billion B. $3.6 billion C. $0.32 billion D. $1 billion
a
The demand for money is the relationship between the quantity of money demanded and the _____, when all other influences on the amount of money that people wish to _____ remain the same. A. nominal interest rate; hold B. quantity of output; spend C. real wage rate; spend D. real interest rate; hold
a
The events which could have changed short-run aggregate supply from SAS Subscript 0 to SAS Subscript 1 are _______. A. a rise in the money wage rate or a rise in the money price of any other factor of production B. a rise in the interest rate or a decrease in the quantity of money C. an increase in taxes or a decrease in government expenditures D. a decrease in expected future profits or an increase in expected inflation
a
The federal funds rate is the _____ rate on _____ loans. A. interest; interbank B. interest; federal government C. exchange; federal government D. exchange; interbank
a
The increase in personal consumption expenditures and exports _______ aggregate demand. The increase in imports _______ aggregate demand. A. increases; decreases B. increases; increases C. increases; has no effect on D. decreases; decreases
a
The interest on reserve rate is the interest rate that _____ on ______. A. banks earn; their reserves held at the Fed B. banks; their vault cash C. governments pay; loans from the Fed D. depository institutions pay; reserves held at the Fed
a
The marginal propensity to import is equal to _______. A. the change in imports divided by the change in real GDP, other things remaining the same B. imports minus exports C. disposable income minus consumption expenditure minus saving divided by real GDP D. the change in net imports divided by the change in disposable income, other things remaining the same
a
The marginal propensity to save is _______. A. the fraction of a change in disposable income that is saved B. equal to the slope of the 45° line C. the percentage of a household's income that is not spent on consumption goods and services D. greater than the slope of the 45° line
a
The multiplier is the amount by which the change in ______ expenditure is magnified or multiplied to determine the change in _______. A. autonomous; equilibrium expenditure and real GDP B. induced; equilibrium expenditure and real GDP C. autonomous; inventories D. induced; inventories
a
The relationship between saving and _____, other things remaining the same, is called the saving function. A. disposable income B. the price level C. aggregate demand D. consumption expenditure
a
The supply of money is the relationship between the quantity of money supplied and the _____, when all other influences on the amount of money that the Fed and banks wish to _____ remain the same. A. nominal interest rate; create B. real interest rate; create C. price level; hold D. quantity of output; lend
a
We calculate the marginal propensity to consume as _______, and the marginal propensity to save as _______. A. ΔC÷ΔYD; ΔS÷ΔYD B. ΔC÷ΔY; ΔS÷ΔY C. 0; 1 D. 1; 0
a
What does the multiplier determine? For every dollar increase in ______ expenditure, the multiplier determines the increase in real GDP. A. autonomous B. induced C. consumption
a
When aggregate planned expenditure is less than real GDP, inventories are _______, so production _______ and inventories return to their target level as the economy moves to equilibrium expenditure. A. above target; decreases B. below target; increases C. below target; decreases D. above target;
a
Which of the following economies is facing a stagflation? A. The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level. B. The Fed is purchasing government securities to lower the interest rate. C. The Chinese economy is facing a rising labor cost. D. Japan has announced an increase in public expenditure.
a
Why isn't all consumption expenditure induced expenditure? All consumption is not induced expenditure because _______. A. even a person with no income must buy life's necessities B. consumers save C. some purchases are made using credit cards D. even with no income a person enjoys some luxuries
a
You observe that unplanned inventories are increasing. You predict that there will be _______. A. a recession B. a business cycle C. a peak D. an expansion
a
aside from being a means of payment, other functions of money are a. medium of exchange, unit of account, and store of value b. medium of exchange and the ability to buy goods and services c. pricing, contracts and store of value
a
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment. A. money wage rate B. real wage rate C. quantity of money D. interest rate
a
money market mutual fund
a fund that pools money from small savers to purchase short-term government and corporate securities
stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
Deflations are usually unanticipated, and among other things, unanticipated deflation brings all of the following except _______. A. a redistribution of income and wealth B. falling real wage rates for workers with long-term wage contracts C. a decrease in real GDP D. a decrease in employment
b
Economic growth results from _______. A. the decisions of the Federal Reserve to cut interest rates, which increase long-run aggregate supply B. a growing supply of labor and increasing labor productivity, which increase long-run aggregate supply C. a falling nominal wage rate, which increases short-run aggregate supply D. a rising exchange rate, which increases aggregate demand
b
If aggregate demand grows faster than potential GDP, ______ gap emerges and if it grows more slowly than potential GDP, ______ gap emerges. A. neither an inflationary nor a recessionary; a recessionary B. an inflationary; a recessionary C. a recessionary; an inflationary D. neither an inflationary nor a recessionary; neither an inflationary nor a recessionary
b
In Keynesian cycle theory, fluctuations in _____ driven by fluctuations in business confidence—summarized by the phrase "animal spirits"—are the main source of fluctuations in _____. A. investment; aggregate supply B. investment; aggregate demand C. interest rates; real GDP D. interest rates; inflation rates
b
Keynesian macroeconomists recommend _______. A. policies that minimize the disincentive effects of taxes on employment, investment, and technological change B. policies that actively offset changes in aggregate demand that bring recession C. policies that actively offset changes in long-run aggregate supply that result in negative economic growth D. an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand
b
Stagflation is a combination of a _______ in the price level and _______ in real GDP. A. rise; an increase B. rise; a decrease C. fall; an increase D. fall; a decrease
b
Starting from a full-employment equilibrium, an increase in aggregate demand _______, and creates _______ gap. A. decreases real GDP below potential GDP; a recessionary B. increases real GDP above potential GDP; an inflationary C. decreases real GDP below potential GDP; an inflationary D. increases real GDP above potential; a recessionary
b
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and _______ when everything else remains the same. A. the quantity of real GDP supplied B. the price level C. expected future income, inflation, and profits D. the interest rate
b
The best forecast available, which is based on all the relevant information is called _______. A. a rational forecast B. a rational expectation C. a correct forecast D. a correct expectation
b
The business cycle is actually a continuous series of different ______. A. potential GDP values B. short-run macroeconomic equilibriums C. full-employment equilibriums D. nominal GDP values
b
The combination of a rising _____ and decreasing _____ is called stagflation. A. unemployment rate; productivity B. price level; real GDP C. interest rate; productivity D. price level; consumption expenditure
b
The decrease in investment _______ aggregate demand. The decrease in government expenditure _______ aggregate demand. A. increases; has no effect on B. decreases; decreases C. has no effect on; decreases D. decreases; increases
b
The defining feature of the classical view of macroeconomics is that the economy is _______. A. rarely at full employment B. self-regulating and always at full employment C. driven by expectations called "animal spirits" D. constantly bombarded by shocks that arise from the uneven pace of technological change
b
The main assets of the Fed are _______. The Fed's assets are _______. A. gold and foreign exchange and loans to banks; the backing for the monetary base B. U.S. government securities and mortgage-backed securities; the backing for the monetary base C. currency and reserves of depository institutions; the uses of the monetary base D. U.S. government securities, mortgage-backed securities, and currency; the sources of the monetary base
b
The money multiplier can be calculated as _______, where C is currency, D is deposits, and R is banks' reserves. A. C/D÷(C/D + R/D) B. (1 + C/D)÷(R/D + C/D) C. (C/D + R/D)÷(1 + R/D) D. (C/D + R/D)÷(1 + C/D)
b
The money multiplier is the ratio of the change in the quantity of _______ to the change in the quantity of _______. A. currency; bank deposits B. money; monetary base C. money; bank deposits D. M1; M2
b
The multiplier increases when the marginal propensity to consume _______. A. equals the marginal propensity to save B. increases C. decreases D. becomes negative
b
The multiplier increases when the marginal propensity to import _______ or the income tax rate _______. A. increases; decreases B. decreases; decreases C. increases; increases D. decreases; increases
b
The output gap in the graph is _______ because _______. A. a below full-employment gap; the unemployment rate is greater than the natural rate B. a recessionary gap; potential GDP exceeds real GDP C. an inflationary gap; potential GDP exceeds real GDP D. a deflationary gap; the only way for the economy to return to full employment is for the price level to fall
b
The quantity theory of money is that in the _______, an increase in the quantity of money brings an equal percentage _______. A. long run; increase in the nominal interest rate B. long run; increase in the price level C. short run; increase in the price level D. long run; decrease in the price level
b
The velocity of circulation is the average number of times a dollar of money is used annually to buy ______. The formula used to measure the velocity of circulation, V, is ______, where P is the price level, Y is real GDP, and M is the quantity of money. A. stocks and bonds; V = (P÷Y)×M B. the goods and services that make up GDP; V = (P×Y)÷M C. foreign goods and services; V = (P×Y)÷M D. the goods and services that make up GDP; V = (P÷Y)×M
b
To increase the quantity of money, the Fed can _______. A. make an open market sale, and raise the discount rate and the interest on reserves rate B. make an open market purchase, and lower the discount rate and the interest on reserves rate C. make an open market sale, and lower the discount rate and the interest on reserves rate D. make an open market purchase, and raise the discount rate and the interest on reserves rate
b
Toyota and Honda build additional plants in the United States. This event _______ short-run aggregate supply and _______ long-run aggregate supply. A. increases; does not change B. increases; increases C. does not change; does not change D. does not change; increases
b
What is the effect of a change in the supply of money in the long run? In the long run, an increase in the supply of money _______. A. increases real GDP, employment, the real interest rate, and the price level B. does not change real GDP, employment, and the real interest rate. The price level rises C. increases the price level and the real interest rate. Real GDP and employment don't change D. increases the demand for money, and the nominal interest rate may rise, fall, or remain the same
b
When the Fed lowers the interest rate, _______. A. consumption expenditure and investment decrease, which decreases aggregate demand and real GDP decreases B. consumption expenditure and investment increase, which increases aggregate demand and the price level rises C. short-run aggregate supply decreases and the price level rises D. aggregate demand increases and short-run aggregate supply decreases, and the price level rises
b
Why are checks, debit cards, and credit cards not money? A. Checks, debit cards, and credit cards are not currently considered as money. Eventually economists expect that they will be included as components of M2. B. Checks and debit cards are not money. They are instructions to the bank to transfer money from one account to another. A credit card is not money. It is an ID card that allows you to take out a loan. C. Debit cards and credit cards are never money because they are not issued by the Federal Reserve. A check is money in the short run before the recipient deposits it but in the long run a check is not money. D. In the short run, checks and debit cards are money until the transaction is finalized. In the long run, checks and debit cards are not money. A credit card is never money. It is an ID card that allows you to take out a loan.
b
an increase in currency held outside the banks is a. wealth b. a currency drain c. a currency surplus
b
depository institutions are good at minimizing a. risky borrowers b. costs of monitoring borrowers c. liquidity
b
if the price level doubles a. the demand for money drops by half b. the demand for money doubles c. the supply for money drops by half d. none of the above
b
m1 is a measure of a. money and includes both checkable deposits and retail money market mutual funds b. money and includes both currency and checkable deposits c. money and includes both retail money market mutual funds and currency
b
suppose the economy is initially on the demand for money curve MD1. what is the effect of an increase in the use of credit cards? a. demand for money curve shifts rightward. b. demand for money curve shifts leftward. c c. there would be movement upward along the demand curve
b
unemployment caused by people voluntarily leaving their jobs is called a. cyclical b.. frictional c. seasonal
b
when money is accepted as payment in a market transaction, it is functioning as a. unit of account b. medium of exchange c. store of value
b
Firms' inventories increase, ... ... so they _______ production, and real GDP _______. A. increase; increases B. decrease; decreases C. decrease; increases D. increase; decreases
b
A rational expectation is a forecast that results from the use of all the relevant data and _____. A. a logical conclusion B. economic news C. economic science D. economic intuition
c
An above full-employment equilibrium is an equilibrium when real GDP _____. A. equals the interest rate B. equals the price level C. exceeds potential GDP D. equals potential GDP
c
An inflation that is kicked off by an increase in _____ is called cost-push inflation. A. aggregate supply B. productivity C. costs D. aggregate demand
c
An inflation that starts because _____ is called demand-pull inflation. A. aggregate supply increases B. the cost of production increases C. aggregate demand increases D. the interest rate rises
c
As we move up along the short-run aggregate supply curve, _______. A. potential GDP increases B. the money wage rate and the prices of other resources change by the same percentage C. the money wage rate, the prices of other resources, and potential GDP remain constant D. the real wage rate, the prices of other resources, and potential GDP remain constant
c
Business investment is a component of _______ aggregate expenditure. When it increases, the AE curve _______ and equilibrium expenditure increases. A. autonomous; becomes steeper B. induced; becomes steeper C. autonomous; shifts upward D. induced; shifts upward
c
Choose the correct statement about money. A.Money in the United States today is made up of notes and coins held by individuals and businesses. Money in the United States today is made up of notes and coins held by individuals and businesses. B.Upper A work of art is an example of money because it can act as a store of value. A work of art is an example of money because it can act as a store of value. C. Deposits are money because they can be used to make payments. D.Money is a completely stable store of value.
c
Choose the correct statement about the LAS curve. A. The LAS shifts rightward when the SAS curve shifts rightward and shifts leftward when the SAS curve shifts leftward. B. The LAS curve shifts rightward when the money wage rate falls. C. The LAS curve is vertical because potential GDP is independent of the price level. D. Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises.
c
Choose the correct statement. A. The quantity of real GDP demanded depends on the quantity of real GDP supplied. B. The higher the price level, the greater is the quantity of real GDP demanded. C. The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports. D. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate.
c
Choose the correct statements. 1. The president of the San Francisco Fed is always a member of the FOMC. 2. The Chicago Fed implements the policy decisions of the FOMC. 3. The FOMC meets approximately every six weeks. 4. FOMC stands for Federal Open Market Committee. A. Statements 2 and 4 are correct. B. Statements 1 and 2 are correct. C. Statements 3 and 4 are correct. D. Statements 1 and 3 are correct.
c
Deflation is a _______. A. one-time fall in the price level B. decrease in a country's exports C. persistently falling price level D. fall in profit expectations
c
Disposable income is aggregate income minus taxes plus _____. A. transfer payments minus saving and minus consumption B. transfer payments minus saving C. transfer payments D. transfer payments minus consumption
c
If actual inflation exceeds expected inflation, then the unemployment rate _______ the natural unemployment rate. If actual inflation is less than expected inflation, then the unemployment rate _______ the natural unemployment rate. A. equals; rises above B. rises above; falls below C. falls below; rises above D. falls below; equals
c
If the monetary base increases by $1 million and the quantity of money increases by $2.5 million, then the money multiplier is _____. A.2 B.1 C.2.5 D.2.8
c
Induced consumption expenditure _______. Autonomous consumption expenditure _______. A. decreases as real GDP increases; increases as real GDP increases B. increases as real GDP increases; decreases as real GDP increases C. varies with real GDP; does not vary with real GDP D. does not vary with real GDP; varies with real GDP
c
The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in _____ divided by the change in government expenditure. A. aggregate demand and aggregate supply B. tax receipts and outlays C. government expenditure and lump-sum taxes D. exports and imports
c
The consumption function is the relationship between consumption expenditure and _____, other things remaining the same. A. aggregate demand B. saving C. disposable income D. the price level
c
The cost of inflation to society includes : I. the opportunity costs of resources used by people to protect themselves against inflation II. the diversion of productive resources to forecasting inflation a. I only b. II only c. both I and II d. neither
c
The currency drain ratio is 0.10 and the banks' reserve ratio is 0.25. Calculate the money multiplier and the change in the quantity of money if the monetary base increases by $1 billion. The money multiplier equals _______. A 3.6 B. 0.28 C 3.1 D. 0.32
c
The discount rate is the interest rate at which _______ that is short of reserves can borrow from the _____. A. the Fed; Bank of International System B. the Fed; government C. a bank; Fed D. a bank; government
c
The equation of exchange is ______ and it is true ______. A. MP = YV; by definition B. MV = PY; in the short run only if the rate of velocity change is approximately equal to zero C. MV = PY; by definition D. MP = YV; in the short run only if the rate of velocity change is approximately equal to zero
c
The government expenditure multiplier equals the change in _____ that results from a change in government expenditure divided by the change in government expenditure. A. aggregate supply B. consumption expenditure C. equilibrium expenditure and real GDP D. investment
c
The main influences on the quantity of money that people and businesses plan to hold include the _______. A. quantity of real money supplied, the nominal interest rate, and the price level B. number of depository institutions in the economy, the decisions of the Federal Reserve, and the real interest rate C. nominal interest rate, real GDP, and financial technology, and the price level D. quantity of reserves in the banking system and financial technology but the demand for money is independent of the price level
c
The marginal propensity to consume is _______. A. the percentage of a household's income that is not saved B. greater than the slope of the 45° line C. the fraction of a change in disposable income that is spent on consumption D. equal to the slope of the 45° line
c
The new Keynesian cycle theory emphasizes the fact that today's money wage rates were negotiated at many past dates, which means that _____ rational expectations of the _____ price level influence the money wage rate and the position of the SAS curve. A. current; current B. past; past C. past; current D. current; pastc
c
U.S. household wealth grew to $136.9 trillion in the first quarter of 2021. Rising stock prices added $3.2 trillion to household financial assets and rising real estate values added $1 trillion. Explain why higher stock prices and higher real estate values are equivalent to saving. Higher stock prices and higher real estate values are equivalent to saving because both increase _______. A. consumption expenditure B. real GDP C. household wealth D. investment
c
What is the effect of an increase in potential GDP? An increase in potential GDP increases _______. A. the money wage rate B. the price level C. both long-run aggregate supply and short-run aggregate supply D. long-run aggregate supply but does not increase short-run aggregate supply unless technology advances
c
When costs increase and the Fed wants to return the economy to full employment, the Fed responds by _______ the quantity of money. If the Fed continually responds to successive increases in costs, a _______ inflation evolves. A. decreasing; cost-push B. increasing; demand-pull C. increasing; cost-push D. decreasing; demand-pull
c
Which of the following is money? A. Paulo's stash of Bitcoin B. Ron's debit card C. Charlie's checking account deposit at the Bank of America D. Jen's credit card
c
Which of the following statements illustrates fiscal policy? A. The Fed has increased its reserve requirement. B. A stronger dollar has lowered U.S. exports. C. The U.S. government has proposed a hike in the corporate tax rate. D. A rise in the expected future profits has increased U.S. investments.
c
in response to the pandemic and recession, the fed announced a round of quantitative easing where the fed purchased trillions of dollars of securities. what impact would quantitive easing have on the monetary base? a. it would decrease b. it would not change c. it would increase
c
the relationship between the multiplier and the mpc is a. converging at higher incomes b. that as the mpc increase the value of the multiplier decrease c. that as the mpc increase, so does the value of the multiplier
c
Long-run macroeconomic equilibrium occurs when real GDP _____ potential GDP—equivalently, when the economy is on its _____ curve. A. is less than; AD B. exceeds; LAS C. equals; LAS D. exceeds; SAS
c
Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant. A. nominal GDP; exchange rate B. real GDP; interest rate C. real GDP; price level D. potential GDP; price level
c
A bank manager tells you that she doesn't create money. She just lends the money that people deposit. Explain why she is wrong. The bank manager is wrong because _______. A. the more currency her customers deposit, the greater the incentive for the Fed to authorize her bank to create loans B. when her customers deposit currency in the bank, the quantity of money increases by the amount of the new deposit C. in addition to loaning out the money that people deposit, she also lends what her bank receives from the Fed D. every new loan creates a new deposit, and a new deposit is new money
d
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.9, and real GDP is $200 billion. Businesses increase investment by $2 billion. Calculate the new real GDP and explain why real GDP increases by more than $2 billion. Real GDP increases by more than $2 billion because the increase in investment _______. A. increases the marginal propensity to consume B. enables firms to produce more output C. increases exports D. induces an increase in consumption expenditure
d
An increase in income taxes _______, everything else remaining the same. A. sometimes increases the multiplier and sometimes decreases the multiplier B. makes the multiplier larger C. has no effect on the multiplier D. makes the multiplier smaller
d
An open market purchase _______ the monetary base. An open market sale _______ the monetary base. A. decreases; increases B. increases the quantity of currency, which increases; decreases the quantity of currency, which decreases C. increases; has no effect on D. increases; decreases
d
At equilibrium expenditure, aggregate planned expenditure _______ real GDP. A. exceeds but is moving toward B. is less than but is moving toward C. might exceed or be less than but is moving toward D. equals
d
Depository institutions minimize the cost of monitoring borrowers by _______. A. hiring collection agencies and using them when two payments on a loan are missed B. threatening and enforcing foreclosure on bad debts C. making loans only to households with income that falls within a specified range D. using specialized resources that have a much lower cost than what households would incur if they had to undertake the activity individually
d
Disoposable income is aggregate income minus taxes plus _____. A. transfer payments minus saving and minus consumption B. transfer payments minus consumption C. transfer payments minus saving D. transfer payments
d
During times of uncertainty, it might be necessary for a bank to hold large cash reserves and to have a large percentage of its assets purchased by its own capital because _______. A. it might be forced to make many high-risk loans B. the quantity of U.S. government Treasury bills available for purchase decreases C. people are more likely to withdraw cash from ATMs rather than to write checks D. its depositors may decide to make large withdrawals
d
Examples of monetary policy that decrease aggregate demand include ______. A. a decrease in taxes and a decrease in interest rates B. an increase in transfer payments and an increase in interest rates C. an increase in taxes and a decrease in the quantity of money D. a decrease in the quantity of money and an increase in interest rates
d
Fluctuations in autonomous expenditure bring ______ fluctuations in real GDP. A. opposing B. diminished C. equal D. magnified
d
If the desired reserve ratio and the currency drain ratio increase, the money multiplier _______. A. doesn't change B. increases C. might increase or decrease, but we don't know for sure D. decreases
d
In the long run, the money wage rate _______, short-run aggregate supply _______, and the economy returns to a full-employment equilibrium. A. falls; increases B. rises; increases C. falls; decreases D. rises; decreases
d
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply _______ the price level and _______ potential GDP. A. increases; increases real GDP above B. decreases; decreases real GDP below C. decreases; increases real GDP above D. increases; decreases real GDP below
d
Suppose that the E.U. economy goes into an expansion. Explain the effect of the expansion on U.S. real GDP and unemployment in the short run. In the short run, U.S. real GDP _______. A. decreases and U.S. unemployment increases because U.S. imports from the European Union increase B. increases and U.S. unemployment increases because E.U. imports from the United States increase C. decreases and U.S. unemployment increases because U.S. imports from the European Union increase D. increases and U.S. unemployment decreases because E.U. imports from the United States increase
d
Suppose the Fed buys $50 million of government securities from the Bank of America. Do the Fed's total assets and total liabilities change? Do the Bank of America's total assets and total liabilities change? The Fed's total assets _______ and its total liabilities _______. A. increase by $50 million; do not change B. decrease by $50 million; increase by $50 million C. do not change; do not change D. increase by $50 million; increase by $50 million
d
The Federal Open Market Committee is the _______. A. policy-making committee of the Federal Reserve System that determines the U.S. exchange rate B. Senate committee to which the Federal Reserve chair reports semi-annually C. Congressional committee that makes monetary policy decisions D. main policy-making organ of the Federal Reserve System
d
The central bank of the United States performs many functions, one of which is that it _______. A.provides general banking services for businesses and individual citizens B.provides safety deposit boxes for citizens with assets over $ 200 million C.is responsible for paying all government employees D.is a public authority that regulates a nation's depository institutions
d
The defining feature of the Keynesian view of macroeconomics is that the economy is _______. A. that the quantity of money is the most significant influence on aggregate demand B. constantly bombarded by shocks that arise from the uneven pace of technological change C. self-regulating and always at full employment D. rarely at full employment
d
The gap between ______ is the output gap. When _____, the output gap is called an inflationary gap. A. the interest rate and the price level; real GDP exceeds potential GDP B. the price level and the cost; real GDP equals the interest rate C. real GDP and aggregate demand; real GDP equals potential GDP D. real GDP and potential GDP; real GDP exceeds potential GDP
d
The main functions of the Federal Open Market Committee are to _______. A. set the inflation rate and determine the monetary policy actions to be taken by the N.Y. Fed B. determine interest rates to be charged by commercial banks on personal loans and set the federal funds rate C. keep the inflation rate low and stable and minimize unemployment D. review the state of the economy and determine the monetary policy actions to be taken by the N.Y. Fed
d
The mainstream business cycle theory is that ______ grows at a steady rate while ______ grows at a fluctuating rate. Question content area bottom Part 1 A. aggregate demand; potential GDP B. short-run aggregate supply; potential GDP C. potential GDP; short-run aggregate supply D. potential GDP; aggregate demand
d
The monetary base is _______. _______ of the monetary base. A. the sum of currency and the reserves of depository institutions; The Fed's liabilities are the sources and the Fed's assets are the uses B. the total of all currency held in the banking system; The Fed's liabilities are the sources and the Fed's assets are the uses C. the sum of U.S. government securities and mortgage-backed securities held by the Fed; The assets that the Fed holds as U.S. government securities are the uses D. the sum of currency and the reserves of depository institutions; The Fed's assets are the sources and the Fed's liabilities as currency and bank reserves are the uses
d
The multiplier is greater than 1 because the change in autonomous expenditure leads to _______. A. less consumption expenditure B. more investment C. more saving D. more induced expenditure
d
The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______. A. maximize real GDP B. make inventories equal to their target levels C. minimize taxes and maximize transfer payments D. increase real GDP by a given amount
d
The prices of auto parts imported from China rise. This event _______ short-run aggregate supply and _______ long-run aggregate supply. A. does not change; does not change B. decreases; decreases C. increases; does not change D. decreases; does not change
d
The two main official measures of money in the United States today are _______. The two main official measures of money in the United States _______ really money. A. currency and M2; are B. M2 and M3; are not C. M1 and M2; are not D. M1 and M2; are
d
The unemployment rate _______ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to _______. A. falls below; fall B. rises above; rise C. rises above; fall D. falls below; rise
d
The velocity of circulation is the _____ number of times in a _____ that each dollar of money gets used to buy final goods and services. A. average; month B. total; day C. total; year D. average; year
d
The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate _______. A. is non-existent, and the quantity theory of money which was accurate in the past is no longer applicable B. supports the quantity theory, and the money growth rate equals the inflation rate in the long run C. is an inverse relationship that does not correspond to the quantity theory D. supports the quantity theory, but the correlation is not perfect
d
What is the central bank of the United States and what functions does it perform? The central bank of the United States is the _______. A. Bank of the United States B. Bank of America C. Federal Reserve Bank of New York D. Federal Reserve System
d
When potential GDP increases, _______. A. we don't know what the effect is on long-run aggregate supply or short-run aggregate supply B. long-run aggregate supply increases but short-run aggregate supply does not change. The LAS curve shifts rightward and a movement occurs along the SAS curve C. long-run aggregate supply and short-run aggregate supply increase. A movement upward occurs along the LAS curve and along the SAS curve D. long-run aggregate supply and short-run aggregate supply increase. The LAS and the SAS curve shift rightward
d
When real GDP decreases, what occurs in the money market? When real GDP decreases, _______. A. there is a decrease in the quantity of money demanded. The opportunity cost of money increases B. there is an increase in the quantity of money demanded. The opportunity cost of money decreases C. the quantity of money decreases D. a decrease in the demand for money occurs
d
Which of the following statements illustrates monetary policy? A. Some U.S. firms have scrapped outsourcing to China due to rising labor costs. B. The U.S. public debt-to-GDP ratio in 2011 was about 100 percent. C. The U.S. government has increased its spending to boost demand. D. The Fed has raised the federal funds rate by 0.3 percent.
d
depository institutions a. make profit according to how much federal reserve pays them b. make zero profit but receive compensation by the government because their services are so valuable c. make their profit by charging the government for their services d. make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans
d
during periods of inflation, which function of money is most severely affected? a. unit of account b. medium of exchange c. means of payment d. store of value
d
in the very short term, planned investment ___when gdp changes and planned consumption expenditure ____ when gdp changes. a. changes, does not change b. changes;changes c. does not change;does not change d. does not change;changes
d
the consumer price index is a measure of the average prices paid by ____ for a fixed basket of consumer goods and services. a. all consumers b. urban wage earners c,. consumers living in cities with a population greater than 100,000 d. urban consumers
d
the federal reserve has ___ regional federal reserve banks and ___ members of the board of governors a. 7;7 b. 7;12 c. 12;12 d.12;7
d
the main policy making organ of the federal reserve system is the a. board of governors b. federal reserve bank presidence c. joint congressional committee on monetary policy d. federal open market committee
d
when the aggregate demand curve shifts, the steeper the SAS curve the _____ will be a change in the price level and the ______ will be the multiplier a. larger;larger b. smaller;larger c. smaller;smaller d. larger;smaller
d
Cost-push inflation causes stagflation because it occurs when _______. A. the quantity of money decreases B. costs decrease C. the quantity of money increases D. costs increase
d
Short-run macroeconomic equilibrium occurs when the quantity of _____ demanded equals the quantity of _____ supplied at the point of intersection of the _____ curve and the _____ curve. A. output; output; MD; MS B. loanable funds; loanable funds; DLF; SLF C. reserves; reserves; RD; RS D. real GDP; real GDP; AD; SAS
d
open market sale
decrease supply of reserves, federal funds rate increase
As the required reserve ratio increases, the money multiplier and money supply
falls
as interest rate rises, present value _______.
falls