Econ Exam 4

If the reserve requirement is 25% and a new deposit leads to a potential increase in the money supply of $4,000, the amount of the new deposit must equal

$1,000.

If the reserve requirement is 10%, a withdrawal of $500 leads to a potential decrease in the money supply of

$5,000.

According to the equation for the Phillips curve, if wages increase by 5% and productivity decreases by 2%, then inflation will be

7%.

Which economists believe that fiscal policy is effective, while monetary policy may be ineffective?

Keynesians

What occurs during a negative demand shock?

Output and price level decrease.

Federal Reserve Chairman Ben Bernanke was not happy about bailing out institutions that had gotten themselves into trouble by taking on too much risk. So, why did the Fed do it?

The Fed feared that failures of very large institutions threatened the stability of the entire financial system.

Which statement concerning the structure of the Federal Reserve System is correct?

The chair and vice chair of the Board of Governors are appointed by the president and confirmed by the Senate for terms of 4 years.

Suppose the monetary authority sets a target of 1% to 2% inflation per year. If the economy experiences deflation, the appropriate monetary policy is

a quantitative easing.

If banks increase excess reserves to increase their ability to absorb a higher rate of defaults, the _____ multiplier will _____.

actual; fall

Which of these will cause the supply of loanable funds curve to shift leftward?

an increase in the government deficit

The demand curve for loanable funds represents _____ and is _____.

borrowers; downward sloping

The idea that a change in the money supply would affect prices but not real GDP is associated with the

classical monetary transmission mechanism.

The 2007-2009 recession can be shown as a combination of a(n) _____ in aggregate demand and _____ in the short-run aggregate supply.

decrease; a decrease

Suppose that while households are deciding to increase savings, the demand by firms for investment funds falls. In the market for loanable funds, the real interest rate will _____ and the quantity of loanable funds will _____.

fall; rise, fall, or stay the same

Which of these is a basic goal of the Federal Reserve System?

full employment

Which of these is NOT a way financial institutions reduce risk?

guaranteeing a high rate of return for all lenders

One of the reasons wages may be sticky is because of

imperfect information.

When the Fed buys bonds, its demand _____ the price of bonds, _____ nominal interest rates.

increases; decreasing

Which of these was NOT a measure taken by the European Central Bank to prevent the financial crises in individual countries from collapsing the Eurozone?

increasing the rate it paid on bank deposits

The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does begin to reduce bond purchases

interest rates will rise.

Some analysts blame the financial crisis of 2007-2009 on Federal Reserve policy. They argue that

low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble.

The dramatic collapse in the price of technology stocks in 2001-2003, coupled with a short recession in 2001, caused the Federal Reserve to _____ interest rates to stimulate _____.

lower; employment

Checking deposits generally have a _____ return on investment than do certificates of deposit because checking deposits are _____ liquid.

lower; more

One major conclusion of the rational expectations theory is that

macroeconomic policy has no impact on GDP, even in the short run.

In the equation of exchange, the term P × Q is the same as

nominal GDP.

Traditional individual retirement accounts (IRAs) are taxed

only when you make withdrawals.

Who will NOT be hurt if the United States monetizes its debt?

people who make fixed mortgage payments

When a financial institution provides a standardized financial product such as a mortgage, it is

reducing transaction costs.

Which list represents monetary policy actions that are consistent with one another?

sell government bonds, raise reserve requirements, raise the discount rate

As inflationary expectations rise, the _____ Phillips curve shifts to the _____.

short-run; right

During 2010-2015, the United States underwent a _____ economic recovery with _____.

slow; persistent unemployment

As the real interest rate falls

the quantity demanded of loanable funds rises.

The discount rate is

the rate regional Federal Reserve banks charge depository institutions to borrow reserves.