Econ Final Exam 3

Banks are able to create money only when A) interest rates are above 2% b) only a fraction of deposits are held in reserve c) the reserve ratio is 100% d) the Fed sells U.S. government bonds

B) only a fraction of deposits are held in reserve

Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be a. $437.50. b. $71.42. c. $40. d. $428.57

a. $437.50

If the reserve ratio is 10 percent, the money multiplier is a. 10. b. 1/10. c. 9/10. d. 100.

a. 10

based on the quantity equation, if M=150, V=4, and Y=300, then P= a. 2 b. 0.5 c. 8 d. 3

a. 2

there is an excess demand for money at an interest rate of a. 2 percent b. 3 percent c. 4 percent d. none of the above is correct

a. 2 percent

suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1, then it must be the case that a. aggregate demand has decreased b. short run aggregate supply has increased c. aggregate demand has increased d. short run aggregate supply has decreased

a. aggregate demand has decreased

If the economy is at point b, a policy to restore full employment would be a. an increase in the money supply. b. a decrease in government purchases. c. an increase in taxes. d. All of the above are correct.

a. an increase in the money supply.

which of the interest rate decreases, the opportunity cost of holding money a. decreases, so the quantity of money demanded increases b. decreases, so the quantity of money demanded decreases c. increases, so the quantity of money demanded increases d. increases, so the quantity of money demanded decreases

a. decreases, so the quantity of money demanded increases

Which of the following is included in both M1 and M2? a. demand deposits b. savings deposits c. money market mutual funds d. small time deposits

a. demand deposits

Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5% then some firms have a. higher then desired prices, which depresses their sales b. higher than desired prices, which increase their sales c. lower than desired prices, which depressed their sales d. lower than desired prices, which increases their sales

a. higher then desired prices, which depresses their sales

An open-market purchase a. increase the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public b. decreases the number of dollars in the hands of the public and increase the number of bonds in the hands of the public c. increases the number of dollars and the number of bonds in the hands of the public d. decreases the number of dollars and the number of bonds in the hands of the public

a. increase the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public

According to the classical dichotomy, which of the following is influenced by monetary factors? a. nominal wages b. unemployment c. real GDP d. All of the above are correct.

a. nominal wages

When the money supply curve shifts from Ms 1 to Ms 2 a. the equilibrium value of money decreases b. the demand for goods and services will decrease c. the equilibrium price level decreases d. the supply of money has decreased

a. the equilibrium value of money decreases

According to liquidity preference theory, if the price level decreases, then a. the interest rate falls because money demand shifts left. b. the interest rate rises because money supply shifts right. c. the interest rate falls because money demand shifts right. d. the interest rate rises because money supply shifts left.

a. the interest rate falls because money demand shifts left.

When the price level falls a. the interest rate falls, so the quantity of goods and services demand rises b. the interest rate rises, so the quantity of goods and services demand falls c. the interest rate rises, so the quantity of goods and services demand rises d. the interest rate falls, so the quantity of goods and services demand falls

a. the interest rate falls, so the quantity of goods and services demand rises

According to liquidity preference theory, the opportunity cost of holding money is a. the interest rate on bonds. b. the difference between the inflation rate and the interest rate on bonds. c. the inflation rate. d. the cost of converting bonds to a medium of exchange.

a. the interest rate on bonds.

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp rise in the stock market, an increase in government purchases, an increase in the money supply and a decline in the value of the dollar. In the short run a. the price level and real GDP will both rise. b. the price level and real GDP will both fall. c. neither the price leave nor real GDP will change. d. All of the above are possible.

a. the price level and real GDP will both rise.

Which of the following is correct? a.The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms. b.The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. c.The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. d.The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms.

a.The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

An increase in the MPC a.increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. b.decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. c.increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. d.decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

a.increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

The bank of Pleasantville's reserve ratio is a) 15.7 percent b) 6.0 percent c) 6.4 percent d) 16.7 percent

b) 6.0

Which of the following statements is correct? a. all items that are included in M2 are included also in M1 b. all items that are included in M1 are included also in M2 c. savings deposits are included in both M1 and M2 d. credit cards are included in both M1 and M2

b. all items that are included in M1 are included also in M2

Which of the following events would shift money demand to the right? a. neither an increase in the interest rate nor an increase in the price level b. an increase in the price level, but not an increase in the interest rate c. an increase in the interest rate, but not an increase in the price level d. an increase in the interest rate or an increase in the price level

b. an increase in the price level, but not an increase in the interest rate

The existence of money leads to a. a higher standard of living, but not a greater specialization b. greater specialization and to a higher standard of living c. greater specialization in production, but not to a higher standard of living d. neither greater specialization nor to a higher standard of living

b. greater specialization and to a higher standard of living

Aggregate demand shifts right when the federal reserve a. rises personal income tax b. increases the money supply c. institutes an investment tax credit d. all of the above are correct

b. increases the money supply

A bank has a 20 percent reserve requirement, $80,000 in loans, and has loaned out all it can given the reserve requirement a. it has $6,400 in deposits b. it has $10,000 in deposits c. it has $9,600 in deposits d. it has $1,600 in deposits

b. it has $10,000 in deposits

According to liquidity preference theory, a decrease in the price level shifts the a. money demand curve rightward, so the interest rate decreases. b. money demand curve leftward, so the interest rate decreases. c. money demand curve leftward, so the interest rate increases. d. money demand curve rightward, so the interest rate increases.

b. money demand curve leftward, so the interest rate decreases.

Higher inflation makes relative prices a. less variable, making it less likely that resources will be allocated to their best use. b. more variable, making it less likely that resources will be allocated to their best use. c. more variable, making it more likely that resources will be allocated to their best use. d. less variable, making it more likely that resources will be allocated to their best use.

b. more variable, making it less likely that resources will be allocated to their best use.

A goal of monetary policy and fiscal policy is to a. offset the shifts in aggregate demand and thereby eliminate unemployment. b. offset shifts in aggregate demand and thereby stabilize the economy. c. enhance the shifts in aggregate demand and thereby increase economic growth d.enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.

b. offset shifts in aggregate demand and thereby stabilize the economy.

When production costs rise, a. the aggregate demand curve shifts to the left. b. the short-run aggregate supply curve shifts to the left. c. the short-run aggregate supply curve shifts to the right. d. the aggregate demand curve shifts to the right.

b. the short-run aggregate supply curve shifts to the left.

In the long run, money demand and money supply determine a. neither the value of money nor the real interest rate. b. the value of money but not the real interest rate. c. the value of money and the real interest rate. d. the real interest rate but not the value of money.

b. the value of money but not the real interest rate.

The long-run aggregate supply curve shifts left if a. the capital stock increases. b. there is a natural disaster. c.the government removes some environmental regulations that limit production methods. d. None of the above is correct.

b. there is a natural disaster.

High and unexpected inflation has a greater cost a. for those who borrow than for those who save. b.for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation. c. All of the above are correct. d. for those who hold a little money than for those who hold a lot of money.

b.for those who have fixed nominal wages than for those who have nominal wages that adjust with inflation.

If the relevant money-demand curve is the one labeled MD 1, then the equilibrium value of money is a. 2 and the equilibrium price level is 0.5. b. 0.5 and the equilibrium price level cannot be determined from the graph. c. 0.5 and the equilibrium price level is 2. d. 2 and the equilibrium price level cannot be determined from the graph.

c. 0.5 and the equilibrium price level is 2.

Assume the MPC is 0.72. The multiplier is a. 1.39. b. 2.57. c. 3.57. d. 4.53.

c. 3.57.

Which of the following is correct? a. The fed can control the money supply precisely b. The amount of money in the economy does not depend on the behavior of depositors c. The amount of money in the economy depends in part on behavior of banks d. None of the above is correct

c. The amount of money in the economy depends in part on behavior of banks

a reduction in personal income taxes increases aggregate demand through a. an increase in privet savings b. an increase in investment c. an increase in personal consumption d. an increase in national savings

c. an increase in personal consumption

To increase the money supply, the Fed could a. sell government bonds. b. increase the discount rate. c. decrease the reserve requirement. d. None of the above is correct.

c. decrease the reserve requirement.

Most economists believe that money neutrality a. does not hold in the long run. b. does not hold in either the short run or long run. c. does not hold in the short run. d. holds in the short run and the long run.

c. does not hold in the short run.

As the price level falls a. people will want to hold more money, so the interest rate rises. b. people will want to hold less money, so the interest rate rises. c. people will want to hold less money, so the interest rate falls. d. people will want to hold more money, so the interest rate falls.

c. people will want to hold less money, so the interest rate falls.

Inflation can be measured by the a. percentage change in the price of a specific commodity b. change in the price of a specific commodity c. percentage change in the consumer price index d. change in the consumer price index

c. percentage change in the consumer price index

Reserves decrease if the Federal Reserve a. lowers the discount rate or auctions more credit. b. raises the discount rate or auctions more credit. c. raises the discount rate but not if it auctions more credit. d. lowers the discount rate but not if it auctions more credit.

c. raises the discount rate but not if it auctions more credit.

the model of aggregate demand and aggregate supply explains the relationship between a. the price and quantity of a particular good b. unemployment and output c. real GDP and the price level d. wages and employment

c. real GDP and the price level

The fisher effect a. explains how higher money supply growth leads to higher inflation b. says the government can generate revenue by printing money ] c. says there is a one for one adjustment of the nominal interest rate to the inflation rate d. explains how prices adjust to obtain equilibrium in the money market

c. says there is a one for one adjustment of the nominal interest rate to the inflation rate

Liquidity refers to a. how many time a dollar circulates in a given year b. the measurement of the intrinsic value of commodity money c. the ease with which an asset is converted to the medium of exchange d. the measurement of the durability of a good

c. the ease with which an asset is converted to the medium of exchange

If the economy starts at A, a decrease in the money supply moves the economy a. to A in the long run. b. to D in the long run. c. to C in the long run. d. back to A in the long run.

c. to C in the long run.

an decrease in taxes shifts aggregate demand a. to the left. the larger multiplier is, the less it shifts b. to the right. the larger multiplier is, the less it shifts c. to the right. the larger multiplier is, the further it shifts d. to the left. the larger multiplier is, the further it shifts

c. to the right. the larger multiplier is, the further it shifts

The costs of inflation are a. ​shoeleather costs and menu costs. b. ​increased variability of relative prices. c. ​All of the above. d. ​arbitrary redistributions of wealth.

c. ​All of the above.

When the dollar appreciates, U.S. a.net exports rise, which increases the aggregate quantity of goods and services demanded. b.net exports fall, which increases the aggregate quantity of goods and services demanded. c.net exports fall, which decreases the aggregate quantity of goods and services demanded. d.net exports rise, which decreases the aggregate quantity of goods and services demanded.

c.net exports fall, which decreases the aggregate quantity of goods and services demanded.

If the price level increased from 120 to 130, then what was the inflation rate? a. 1.1 percent. b. 7.7 percent. c. 10.0 percent. d. 8.3 percent.

d. 8.3 percent.

Money a. is more efficient than barter. b. makes trades easier. c. allows greater specialization. d. All of the above are correct.

d. All of the above are correct

The Federal Reserve a. was created in 1913. b. is the U.S.'s central bank. c. has other duties in addition to controlling the money supply. d. All of the above are correct.

d. All of the above are correct

Which of the following is correct? a. Economic fluctuations are easily predicted by competent economists. b. Recessions have never occurred very close together. c. Spending, income, and production do not fluctuate closely with real GDP. d. None of the above is correct.

d. None of the above is correct.

Which of the following reduces the interest rate? a. a decrease in government expenditures and a decrease in the money supply b. an increase in government expenditures and a decrease in the money supply c. an increase in government expenditures and an increase in the money supply d. a decrease in government expenditures and an increase in the money supply

d. a decrease in government expenditures and an increase in the money supply

which of the following explains why production rises in most years? a. increases in the labor force b. increases in the capital stock c. advances in technological knowledge d. all of the above are correct

d. all of the above are correct

which of the following is correct concerning the FOMC? a. the members of the board of governors have the majority of the votes b. the New York federal reserve bank district president is always a voting member c. all federal reserve bank presidents attend the meetings d. all of the above are correct

d. all of the above are correct

which of the following shifts short-run aggregate supply right a. an increase in the actual price level b. an increase in the minimum wage c. an increase in the price of oil d. an increase in immigration from abroad

d. an increase in immigration from abroad

The money supply increases when the Fed a. sells bonds. The increase will be larger, the smaller is the reserve ratio. b. sells bonds. The increase will be larger, the larger is the reserve ratio c. buys bonds. The increase will be larger, the larger is the reserve ratio d. buys bonds. The increase will be larger, the smaller is the reserve ratio

d. buys bonds. The increase will be larger, the smaller is the reserve ratio

When prices are falling, economists say that there is a. a contraction. b. disinflation. c. an inverted inflation. d. deflation.

d. deflation.

The Fed can reduce the federal funds rate by a. decreasing the money supply. To increase the money supply it could sell bonds b. decreasing the money supply. To increase the money supply it could buy bonds c. increasing the money supply. To increase the money supply it could sell bonds d. increasing the money supply. To increase the money supply it could buy bonds

d. increasing the money supply. To increase the money supply it could buy bonds

If the economy is at A and there is a fall in aggregate demand a. moves to C b. stays at A c. moves to B d. moves to D

d. moves to D

which of the following shifts aggregate demand to the right a. the price level rises b. the price level falls c. the money supply falls d. none of the above is correct

d. none of the above is correct

Other things the same, if technology increases, then in the long run a. both output and prices are lower. b. both output and prices are higher. c. output is lower and prices are higher. d. output is higher and prices are lower.

d. output is higher and prices are lower.

monetary policy is determined by a. the president and congress and involves changing the money supply b. the president and congress and involves changing government spending and taxation c. the federal reserve and involves changing government spending and taxation d. the federal reserve and involves changing the money supply

d. the federal reserve and involves changing the money supply

In order to maintain stable prices, a central bank must a. keep unemployment low b. maintain low interest rates c. sell indexed bonds d. tightly control the money supply

d. tightly control the money supply

During a recession, unemployment ​ a. ​is equal to the natural rate of unemployment. b. ​is frictional unemployment minus structural unemployment. c. ​decreases. d. ​increases.

d. ​increases.

The Federal Open Market Committee is ​ a. ​in charge of tax collection. b. ​the group that reviews income assistance programs. c. ​the group that sets the amount of government spending. d. ​the group at the Federal Reserve that sets monetary policy.

d. ​the group at the Federal Reserve that sets monetary policy.

Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price level increases from 140 to 147. As a result, a.The number of dollars you receive increases and the purchasing power of the dollars you receive decreases. b.The number of dollars you receive decreases and the purchasing power of the dollars you receive decreases. c.The number of dollars you receive decreases and the purchasing power of the dollars you receive increases. d.The number of dollars you receive increases and the purchasing power of the dollars you receive increases.

d.The number of dollars you receive increases and the purchasing power of the dollars you receive increases.

You put money in the bank. The increase in the dollar value of your savings a.and the change in the number of goods you can buy with your savings are both real variables. b.is a real variable, but the change in the number of goods you buy with your savings is a nominal variable. c.and the change in the number of goods you can buy with your savings are both nominal variables. d.is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable.

d.is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable.