Econ Final Exam PLAS

Which of the following is NOT a function of money? 1) unit of account 2) medium of exchange 3) acceptability 4) store of value

Acceptability

Suppose you have 2,000 in currency in a shoebox in your room. You deposit the money in a checking account. How will this action affect the M1 and M2 definitions of the money supply?

Both M1 and M2 will remain unchanged.

The measure of M1 includes what?

Currency in circulation Holdings of travelers checks Checking account deposits in banks

Is the federal government increasing spending on rebuilding the New Jersey shore following a hurricane an example of discretionary fiscal policy, not a fiscal policy, or an automatic stabilizer?

Discretionary fiscal policy.

The feds strategy of increasing the money supply and lowing interest rates in order to increase real GDP is called

Expansionary monetary policy

"Crowding out" refers to a situation where..

Government spending increases interest rates and decreases private investment.

Slow growth in aggregate demand leads to..

Higher unemployment and lower inflation.

What do economists mean by the demand for money?

It is the amount of money - currency and checking account deposits - that individuals hold

Is the Federal Reserve selling Treasury securities an example of discretionary fiscal policy, not a fiscal policy, or an automatic stabilizer?

Not a fiscal policy.

Who is responsible for fiscal policy?

The federal government controls fiscal policy.

Milton Friedman argued that the Phillips curve didn't represent a permanent trade-off between unemployment and inflation because..

The long-run Philips curve is vertical, there is no trade-off between unemployment and inflation in the long run.

One of the goals of the Federal Reserve is price stability. For the Fed to achieve this goal...

The rate of inflation should be low, such as 1% to 3%, and should be fairly consistent.

The Phillips curve exhibits the relationship between..

Unemployment and the inflation rates

If workers and firms have rational expectations, they will..

Use all available information when forming their expectations of future inflation, thus, the actual inflation rate will be equal to the expect inflation rate.

If the Fed wants to move from a point on the short-run Philips curve representing high unemployment and low inflation to a point representing lower unemployment and higher inflation, then it should

Use expansionary monetary policy.

How do the banks "create money?"

When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands.

An attempt to reduce inflation requires ________ fiscal policy, which causes real GPD to _____, and the price level to _____.

Contractionary ; fall ; fall

If actual inflation is higher than the expected inflation..

Actual real wage is less than expected real wage : unemployment falls.

Which of the following is a monetary policy tool used by the Federal Reserve Bank? 1) Decreasing the rate at which banks can borrow money from the Fed 2) Buying 500 million worth of government securities, such as Treasury bills 3) Increasing the reserve requirement from 10 percent to 12,5 percent

All of the above

Is the revenue the federal government collects from the individual income tax declining during a recession an example of discretionary fiscal policy, not a fiscal policy, or an automatic stabilizer?

An automatic stabilizer.

Is the total the federal government pays out for unemployment insurance decreasing during an expansion an example of discretionary fiscal policy, not a fiscal policy, or an automatic stabilizer?

An automatic stabilizer.

What is true regarding fiscal policy and monetary policy?

Fiscal policy includes changes in government spending and taxes and is controlled by the federal government. Monetary policy includes changes in the money supply and interest rates and is controlled by the Federal Reserve. Both want to achieve macroeconomic objectives.

Is Congress and the president enacting a temporary cut in taxes an example of discretionary fiscal policy, not a fiscal policy, or an automatic stabilizer?

Fiscal policy.

Which can be changed more quickly: monetary policy or fiscal policy?

Monetary policy can be changed quicker than fiscal policy because it can be changed at any of the FOMC meeting and the smaller number of individuals involved makes it easier to change policy.

What is the advantage of holding money?

Money can be used to buy goods, services, or financial assets.

What are the Fed's main monetary policy targets?

Money supply & interest rates

What is the disadvantage of holding money?

Money, in the form of currency or checking account deposits, earns either no or little interest

Monetary policy is defined as..

The actions the Federal Reserve takes to manage the money supply and interest rates

Why would the Fed intentionally use contractionary monetary policy to reduce real GDP?

The fed intends to reduce inflation, which occurs if real GDP is greater than potential GDP

Suppose that the expected inflation rate increases from 4 percent to 6 percent. What will happen to the short-run Philips curve?

The short-run trade off between unemployment and inflation will be worse than before as the economy moves to a higher short-run Phillips curve.

What iz the natural rate of unemployment

The unemployment rate that exists when the economy produces potential GDP.

Suppose American Bank has 500 in deposits and 200 in reserves and that the required reserve ratio is 10%. Whats true about required reserves?

They are equal to 50$.

The goal of expansionary fiscal policy is..

To increase aggregate demand.