Econ Final Multiple Choice
If the balance of payments on financial account is $25, the balance of payments on goods and services is -$20, and the statistical discrepancy in the financial account is $2, then net international transfer payments and net international factor income are: A) -$7. B) -$5. C) $7. D) $47.
A) -$7.
The idea that a 1% increase in the output gap will decrease the unemployment rate by 0.5% is known as: A) Okun's law. B) Phillip's law. C) Greenspan's law. D) Keynes's law.
A) Okun's law.
To put an end to the vicious cycle of bank failures during the early 1930s: A) President Franklin Roosevelt declared a bank holiday, temporarily closing all banks. B) the Federal Reserve System was established. C) a system of shadow banks was developed to replace the troubled commercial banks. D) the government nationalized all commercial banks.
A) President Franklin Roosevelt declared a bank holiday, temporarily closing all banks.
When the dollar value of the Swiss franc was very high following the financial crisis in 2008: A) Swiss exports were more expensive in the United States. B) Swiss exports were less expensive in the United States. C) the Swiss National Bank sold Swiss francs to increase its value. D) the Swiss National Bank bought francs to decrease its value.
A) Swiss exports were more expensive in the United States.
When the value of a pound sterling changes from US$1.50 to US$2, it follows that the: A) U.S. dollar has depreciated. B) British pound has depreciated. C) U.S. dollar has appreciated. D) value of a U.S. dollar has gone from £0.5 to £0.6.
A) U.S. dollar has depreciated.
When borrowers don't respond to short-term interest rates of zero, the economy is experiencing: A) a liquidity trap. B) hyperinflation. C) an asset bubble. D) maturity transformation.
A) a liquidity trap.
When the output gap is negative, the actual unemployment rate is: A) above the natural rate. B) below the natural rate. C) equal to the natural rate. D) The actual and natural unemployment rates are not related to the output gap.
A) above the natural rate.
All of the following are regulations designed to prevent bank runs EXCEPT: A) asset bubbles. B) capital requirements. C) reserve requirements. D) provisions that allow banks to borrow from the Fed's discount window.
A) asset bubbles.
Depository banks: A) borrow on a short-term basis from depositors and lend on a long-term basis to others. B) borrow on a long-term basis from depositors and lend on a long-term basis to others. C) borrow on a short-term basis from depositors and lend on a short-term basis to others. D) borrow on a long-term basis from depositors and lend on a short-term basis to others.
A) borrow on a short-term basis from depositors and lend on a long-term basis to others.
The Fed usually responds to a recession by: A) buying short-term government debt from banks. B) selling short-term government debt to banks. C) raising interest rates. D) increasing reserve requirements.
A) buying short-term government debt from banks.
The difference between commercial banks and investment banks is that: A) commercial banks accept deposits from customers, while investment banks trade financial assets but don't accept deposits. B) commercial banks are not allowed to make profits, while investment banks are allowed to profit from buying and selling financial assets. C) commercial banks cannot own financial assets, while investment banks are able to own a wide variety of financial assets. D) commercial banks are a type of shadow bank, while investment banks are not.
A) commercial banks accept deposits from customers, while investment banks trade financial assets but don't accept deposits.
After a banking crisis, when the Federal Reserve buys government securities to increase the money supply and decrease interest rates: A) consumers and businesses may not respond by increasing their spending because of debt overhang. B) consumers and businesses usually borrow too much and spend too much, causing inflation. C) banks may fear runs, so they hold on to excess reserves rather than lending them to consumers and businesses. D) consumers and businesses may not respond because the recession has increased the value of their assets so much that they don't need to borrow money in order to buy more.
A) consumers and businesses may not respond by increasing their spending because of debt overhang.
When the Fed conducts open market purchases from banks, interest rates: A) decrease. B) increase. C) remain constant. D) fluctuate randomly.
A) decrease.
The dollar has (Scenario: Exchange Rates) Refer to the information provided in the scenario: A) depreciated. B) appreciated. C) been revalued. D) not been affected for use in international trade.
A) depreciated.
A floating exchange rate is: A) determined by the market. B) set by government. C) set by the International Monetary Fund. D) determined by the United Nations.
A) determined by the market.
Fiscal stimulus is: A) expansionary fiscal policy, such as increases in government spending and tax cuts designed to reduce unemployment and increase output. B) expansionary fiscal policy, such as increases in government spending and tax cuts designed to increase unemployment and decrease output. C) contractionary fiscal policy, such as decreases in government spending and tax increases designed to reduce budget deficits. D) contractionary fiscal policy, such as decreases in government spending and tax increases designed to increase budget deficits.
A) expansionary fiscal policy, such as increases in government spending and tax cuts designed to reduce unemployment and increase output.
If a country has a current account deficit, it must have a: A) financial account surplus. B) balance of payment surplus. C) financial account deficit. D) balance of payments deficit.
A) financial account surplus.
If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and if the U.S. interest rate is 5% while the Japanese interest rate is 2%: A) financial inflows will reduce the U.S. interest rate. B) financial outflows will reduce the Japanese interest rate. C) the interest rate gap between the United States and Japan will grow. D) financial inflows will increase the U.S. interest rate.
A) financial inflows will reduce the U.S. interest rate.
Contractionary fiscal measures, such as less government spending and tax increases designed to reduce budget deficits, are called: A) fiscal austerity. B) fiscal stimulus. C) automatic stabilizers. D) maturity transformation.
A) fiscal austerity.
(Figure: The Loanable Funds Model in the U.S. Market) Refer to the information in the figure. If the actual interest rate is higher than 4% in the U.S. market, then the quantity supplied of loanable funds will be ______ the quantity of loanable funds demanded. A) greater than B) less than C) equal to D) unrelated to
A) greater than
After the 2008 financial crisis, proponents of fiscal austerity argued that the primary problem for the United States and Europe was: A) high levels of government deficits and debt that eroded investor confidence. B) powerful labor unions that kept wages too high. C) unemployment. D) inflation.
A) high levels of government deficits and debt that eroded investor confidence.
A current account deficit is generally a result of: A) imports exceeding exports. B) U.S. purchases of bonds issued by foreign corporations. C) a large amount of U.S. purchases of foreign real estate. D) exports exceeding imports.
A) imports exceeding exports.
According to the principle of purchasing power parity, the 2001 devaluation of the Argentinean peso: A) increased the inflation rate in Argentina relative to the inflation rate in the United States. B) made Argentinean imports from the United States cheaper. C) decreased the inflation rate in Argentina relative to the inflation rate in the United States. D) had no impact on the Argentinean inflation rate.
A) increased the inflation rate in Argentina relative to the inflation rate in the United States.
When the U.S. dollar price of a foreign currency rises: A) it becomes cheaper for foreigners to buy U.S. goods. B) it becomes cheaper for us to buy foreign goods. C) foreign goods go down in price. D) we need fewer dollars to buy the foreign currency.
A) it becomes cheaper for foreigners to buy U.S. goods.
In the early 1990s, banking crises occurred in Finland, Sweden, and Japan because: A) of real estate bubbles in each country. B) the central banks of these countries were prohibited from conducting monetary policy. C) the value of the euro fell to historically low levels. D) there were many runs on banks.
A) of real estate bubbles in each country.
A credit crunch causes a recession because: A) potential borrowers can't get loans or must pay very high interest rates, so they cut back on spending. B) banks have a surplus of funds to loan, so interest rates fall to very low levels. C) unemployment falls to very low levels, causing a problem of inflation. D) interest rates are so low that investors' incomes fall, and they decrease their spending.
A) potential borrowers can't get loans or must pay very high interest rates, so they cut back on spending.
By acting as a lender of last resort, the central bank: A) prevents a loss of confidence in banks and avoids bank runs. B) is able to keep interest rates high so that spending increases. C) is increasing the amount of reserves that a bank is required to hold. D) may keep inflation low, but will likely cause unemployment to increase.
A) prevents a loss of confidence in banks and avoids bank runs.
In a vicious cycle of deleveraging, financial institutions: A) sell assets at a deep discounts. B) sell assets at unreasonably high prices. C) buy assets at deep discounts. D) buy assets at unreasonably high prices.
A) sell assets at a deep discounts.
To stabilize the banking crisis in Ireland: A) the Irish government guaranteed all bank debt. B) the European Union central bank revalued the euro. C) the European Union central bank devalued the euro. D) the Irish government declared a bank holiday for several weeks.
A) the Irish government guaranteed all bank debt.
The recession that began in 1929 turned into the Great Depression primarily because of: A) the banking crisis. B) the beginning of W orld W ar II. C) taxes that were too low to finance the new government programs that became necessary during the Depression. D) powerful labor unions that demanded high wages and generous benefits.
A) the banking crisis.
(Table: International Transactions) Refer to the information in the table. The merchandise trade balance is: A) $51,000. B) $48,000. C) $46,000. D) $2,000.
B) $48,000.
(Table: Balance of Payment) Refer to the table Balance of Payments. In this case, the country's balance of payments on goods and services is: A) $375 billion. B) -$375 billion. C) $4,045 billion. D) $355 billion.
B) -$375 billion.
During the early 1930s, approximately _______ of the banks in the United States failed. A) 75% B)40% C) 10% D) 3%
B) 40%
The spread between the interest rates on 10-year bonds issued by the governments of Italy and Spain and the interest rates on 10-year bonds issued by _______ is a measure of risk. A) Great Britain B) Germany C) Ireland D) France
B) Germany
Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which of the following illustrates the difference and/or similarities between these two transactions? A) Only Tom will actually receive U.S. dollars as a result of this transaction. B) The sale of the bond to the customer in Britain creates a liability, while the sale of the oranges does not. C) Both sales create an asset for the United States. D) Both sales create a liability for the United States.
B) The sale of the bond to the customer in Britain creates a liability, while the sale of the oranges does not.
Debt overhang is the result of: A) maturity transformation. B) a vicious cycle of deleveraging. C) falling unemployment. D) rising inflation.
B) a vicious cycle of deleveraging.
Before the Great Depression in the 1930s, the government: A) nationalized all banks that were close to failure. B) allowed banks to fail, believing that free-market forces should be allowed to work. C) lent money to banks that were in poor financial condition. D) guaranteed deposits of individuals.
B) allowed banks to fail, believing that free-market forces should be allowed to work.
Suppose that Europeans begin to view the United States as a more attractive investment opportunity. Which of the following is likely to occur? A) a depreciation of the dollar, which will raise U.S. exports B) an appreciation of the dollar, which will discourage Europeans from buying American goods and services C) a depreciation of the dollar, which will lower U.S. exports D) a depreciation of the dollar, which will make Europeans buy more American products
B) an appreciation of the dollar, which will discourage Europeans from buying American goods and services
The value of a euro goes from US$1.25 to US$1.50. The euro has (Scenario: Exchange Rates) Refer to the information provided in the scenario: A) depreciated. B) appreciated. C) been devalued. D) not been affected for use in international trade.
B) appreciated.
Economists summarize a country's transactions with other countries with a(n) _____ account. A) circular flow B) balance of payments C) exchange rate D) purchasing power parity
B) balance of payments
In a bank run: A) the bank has a surplus of deposits and must turn customers away . B) bank customers try to withdraw their deposits. C) the bank runs out of money to lend to customers. D) the bank runs out of profitable investments for the funds of its depositors.
B) bank customers try to withdraw their deposits.
French exports to the United States will(Scenario: Exchange Rates) Refer to the information provided in the scenario: A) be cheaper. B) be more expensive. C) be unaffected. D) increase.
B) be more expensive.
In a credit crunch: A) interest rates are so low that savers decrease the quantity of available loanable funds. B) borrowers are forced to pay very high interest rates or may not be able to borrow at all. C) unemployment is usually very low and the growth rate of output is very high. D) the spread becomes negative.
B) borrowers are forced to pay very high interest rates or may not be able to borrow at all.
An American deposits $10,000 in an account in a London bank. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____. payments, this transaction causes the balance on the _____ account to _____. A) financial; increase B) financial; decrease C) current; decrease D) current; increase
B) financial; decrease
Expansionary fiscal measures, such as more government spending and tax cuts designed to reduce unemployment, are called: A) fiscal austerity. B) fiscal stimulus. C) automatic stabilizers. D) maturity transformation.
B) fiscal stimulus.
Which of the following is an action of central banks and governments to lessen the severity of a banking crisis? A) establishing shadow banks B) government guarantees of bank deposits C) encouraging asset bubbles D) opening a liquidity trap
B) government guarantees of bank deposits
(Figure: AD-AS) Refer to the AD-AS diagram. Suppose the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. Now, suppose that the SRAS1 will shift to SRAS2, because: A) real wages rise in the long run. B) nominal wages rise in the long run. C) the real money supply rises in the long run. D) aggregate real output rises in the long run.
B) nominal wages rise in the long run.
Disinflation: A) involves eliminating inflation in an economy. B) policy often results in plunging the economy into a major recession. C) occurs as a result of a policy makers' attempts to correct a major recession. D) results in a fall in the unemployment rate.
B) policy often results in plunging the economy into a major recession.
Government's right to print money to finance deficits is referred to as: A) open-market sales. B) seigniorage. C) fiat money implementation. D) crowding out.
B) seigniorage.
A fixed exchange rate is: A) determined by the market. B) set by government. C) set by the International Monetary Fund. D) determined by the United Nations.
B) set by government.
As a consequence of the Irish banking crisis: A) the budget surplus of the Irish government is growing to record levels. B) the Irish government has to pay high interest rates on money it borrowed in international markets, and its solvency is in question. C) unemployment fell to less than 3%. D) Ireland has been forced to leave the European Union.
B) the Irish government has to pay high interest rates on money it borrowed in international markets, and its solvency is in question.
Open-economy macroeconomics is the branch of economics that deals with: A) reducing regulations on business. B) the relationships between economies of different nations. C) reducing employment discrimination. D) the provision of financial information to investors.
B) the relationships between economies of different nations.
A major drawback of adopting a floating exchange rate is the: A) opportunity cost associated with the accumulation of foreign exchange reserves. B) uncertainty about the value of goods traded internationally. C) increased discipline brought on monetary policy. D) distorted incentives imposed on the normal flow of imports and exports.
B) uncertainty about the value of goods traded internationally.
(Figure: International Capital Flows) Refer to the information in the figure. Assume that each country's loanable funds market is such that its equilibrium interest rate is 4%. Which of the following is likely to be the next logical step to reconcile the apparent disequilibrium in both markets, assuming that assets and liabilities are viewed as homogenous? A) Capital outflow from the United States will lower U.S. interest rates. B) Capital outflow from Britain will lower interest rates in Britain. C) Capital outflow from Britain will raise interest rates in Britain. D) Capital inflow to the United States will raise U.S. interest rates.
C) Capital outflow from Britain will raise interest rates in Britain.
What did the panic of 1893 in the United States and the Swedish banking crisis of 1991 have in common? A) Each was followed by a period of record high growth rates of real GDP. B) Both were ended by aggressive monetary policies of the central bank. C) Each was followed by a deep recession and slow recovery. D) Both were caused by a real estate bubble.
C) Each was followed by a deep recession and slow recovery.
Between 1990 and 2007, the Mexican peso fell against the U.S. dollar by almost three-fourths of its original value. However, economists have concluded that this did not result in the price of Mexican products expressed in dollars to fall by two-thirds. Which of the following is the explanation for this apparent paradox? A) Interest rates in the United States were increasing. B) Inflation in the United States was moving up steadily. C) The inflation rate in Mexico over that same period was higher than that of the United States. D) The real exchange rate had fallen.
C) The inflation rate in Mexico over that same period was higher than that of the United States.
When the value of the euro changes from $1.30 to $1.20, it follows that: A) European Union imports from the United States increase. B) U.S. exports to the European Union increase. C) U.S. imports from the European Union increase. D) European Union exports to the United States decrease.
C) U.S. imports from the European Union increase.
If a government fixes the exchange rate ________ the market equilibrium, there will be a shortage of the domestic currency and a tendency for the exchange rate (U.S. dollars per unit of the domestic currency) to ________. A) below; fall B) above; rise C) below; rise D) above; fall
C) below; rise
When shadow banks engage in maturity transformation, they raise funds by ___________ and invest in _________. A) issuing stock; stock of other companies B) selling bonds; Treasury bills C) borrowing in short-term credit markets; longer-term speculative investments D) borrowing in long-term credit markets; short-term speculative investments
C) borrowing in short-term credit markets; longer-term speculative investments
A shadow bank engages in maturity transformation by: A) accepting short-term deposits from businesses and making short-term loans to commercial banks. B) accepting long-term deposits from businesses and making long-term loans to commercial banks. C) borrowing money short term and lending or investing long term. D) borrowing money long term and lending or investing short term.
C) borrowing money short term and lending or investing long term.
Maturity transformation can be done: A) by depository banks but not by shadow banks. B) by shadow banks but not by depository banks. C) by both depository banks and shadow banks. D) by neither depository banks nor shadow banks.
C) by both depository banks and shadow banks
Fiscal austerity is: A) expansionary fiscal policy, such as increases in government spending and tax cuts designed to reduce unemployment and increase output. B) expansionary fiscal policy, such as increases in government spending and tax cuts designed to increase unemployment and decrease output. C) contractionary fiscal policy, such as decreases in government spending and tax increases designed to reduce budget deficits. D) contractionary fiscal policy, such as decreases in government spending and tax increases designed to increase budget deficits.
C) contractionary fiscal policy, such as decreases in government spending and tax increases designed to reduce budget deficits.
A situation in which borrowers cannot find credit or must pay very high interest rates for loans is called a: A) liquidity trap. B) zero-bound limit. C) credit crunch. D) stagflation.
C) credit crunch.
Which of the following are regulations intended to prevent bank runs? A) the Sherman Anti-Trust law B) regulation Q, which prohibits banks from paying interest on demand deposits C) deposit insurance D) maturity transformation
C) deposit insurance
(Figure: The Loanable Funds Model in the U.S. Market) Refer to the information in the figure. If the actual interest rate is equal to 4% in the U.S. market, then the quantity supplied of loanable funds will be ______ the quantity of loanable funds demanded. A) greater than B) less than C) equal to D) unrelated to
C) equal to
Proponents argued that fiscal stimulus was appropriate after the 2008 financial crisis because most major economies had: A) low unemployment and low inflation. B) low unemployment and high inflation. C) high unemployment and low inflation. D) high unemployment and high inflation.
C) high unemployment and low inflation.
The purpose of open market purchases is to: A) decrease the government budget deficit. B) increase the government budget deficit. C) increase consumer and investment spending. D) decrease consumer and investment spending.
C) increase consumer and investment spending.
If a financial institution is systemically important: A) it is an important part of the Federal Reserve banking system. B) it is affected more than the average financial institution by the business cycle. C) its activities have the potential to create a banking crisis. D) it is not allowed to engage in maturity transformation.
C) its activities have the potential to create a banking crisis.
If a country's current account is positive: A) its financial account is also positive. B) its balance of payments is positive. C) its financial account is negative. D) its balance of payments is negative.
C) its financial account is negative.
The threat of a financial crisis in 2011 and 2012 was based on problems with: A) home loans in Germany. B) political instability in France. C) public debt problems in southern Europe and Ireland. D) striking labor unions in northern Europe.
C) public debt problems in southern Europe and Ireland.
Following the banking crises of the early 1930s: A) real GDP and the price level increased at a rapid pace. B) real GDP increased and the price level decreased. C) real GDP and the price level both decreased. D) real GDP decreased and the price level increased.
C) real GDP and the price level both decreased.
The exchange rate is the: A) interest rate differential between countries. B) balance of trade differential between countries. C) relative price of currencies between countries. D) relative price of gold between countries.
C) relative price of currencies between countries.
Subprime mortgages are mortgages: A) on which the interest rate is less than the prime rate. B) that are in default. C) that are made to buyers with too little income or too few assets to qualify for a standard mortgage. D) that only the government can make.
C) that are made to buyers with too little income or too few assets to qualify for a standard mortgage.
The inflation tax is: A) the higher tax paid by individuals whose incomes are indexed to inflation. B) the taxes paid during periods of inflation. C) the reduction in the value of money that is held by the public caused by inflation. D) the higher prices consumers pay due to inflation.
C) the reduction in the value of money that is held by the public caused by inflation.
During periods of low inflation, the short-run aggregate supply curve is: A) vertical. B) horizontal. C) upward sloping. D) downward sloping.
C) upward sloping.
A liquidity trap is a situation in which: A) using expansionary monetary policy is not effective because the real interest rate is negative. B) aggregate demand falls because consumers do not have enough liquidity to consume. C) using expansionary monetary policy is not effective because the nominal interest rate is almost zero. D) lenders are trapped by large loans with declining rates of return.
C) using expansionary monetary policy is not effective because the nominal interest rate is almost zero.
Devaluation is reduction in the: A) value of a currency due to inflation. B) value of a currency that is determined in a floating exchange rate system. C) value of a currency that is set under a fixed exchange rate regime. D) rate of inflation of a country.
C) value of a currency that is set under a fixed exchange rate regime.
In Germany, exports (Scenario: Exchange Rates) Refer to the information provided in the scenario : A) will increase, and imports will decrease. B) and imports will increase. C) will decrease, and imports will increase. D) and imports will decrease.
C) will decrease, and imports will increase.
If the exchange rate is $1 = ¥110, a $20,000 Ford truck costs _________ in Japan. A) ¥20,000 B) ¥18,182 C) ¥2.2 million D) ¥3 million
C) ¥2.2 million
The exchange rate for the dollar has changed from (Scenario: Exchange Rates) Refer to the information provided in the scenario: A) €0.25 to €0.50. B) €1.25 to €1.50. C) €0.80 to €0.67. D) €0.67 to €0.80.
C) €0.80 to €0.67.
(Table: Balance of Payment) Refer to the table Balance of Payments. The country's balance of payments on current account is: A) $355 billion. B) -$395 billion. C) $375 billion. D) -$355 billion.
D) -$355 billion.
(Figure: Actual and Natural Rates of Unemployment) Refer to the information in the figure. In 1982, the actual unemployment rate was approximately: A) zero. B) 4%. C) 6%. D) 10%.
D) 10%.
Long-term unemployment is measured by the percentage of the unemployed who have been out of work for: A) a week or longer. B) 6 weeks or longer. C) 20 weeks or longer. D) 27 weeks or longer.
D) 27 weeks or longer.
(Figure: AD-AS Model) Refer to the information in the figure. Suppose the economy is at YE with a price level of P1. Which of the following would represent the new long-run equilibrium position if the aggregate demand curve shifted to the right from AD1 to AD2 as a result of an increase in the money supply? A) YEandP2 B) YE and P1 C) Y1 and P2 D) YE and P3
D) YE and P3
According to the Dodd-Frank bill, shadow banks: A) are prohibited. B) must all be merged with commercial banks. C) are allowed to operate only in other countries. D) are subject to bank-like regulation of their capital and investments.
D) are subject to bank-like regulation of their capital and investments.
Suppose that the equilibrium interest rate in the U.S. market for loanable funds is 3% prior to any international capital flows in the United States. In Japan, the equilibrium interest rate in the Japanese market for loanable funds is 7%. If lenders in both nations believe that loans to foreigners are just as good as loans to their own citizens, we would expect: A) capital to flow from the United States to Japan, making interest rates rise in Japan and interest rates fall in the United States. B) capital to flow from Japan to the United States, making interest rates fall in Japan and interest rates rise in the United States. C) capital to flow from Japan to the United States, making interest rates rise in Japan and interest rates fall in the United States. D) capital to flow from the United States to Japan, making interest rates fall in Japan and interest rates rise in the United States.
D) capital to flow from the United States to Japan, making interest rates fall in Japan and interest rates rise in the United States.
During the financial crisis of 2008, the Fed: A) was closed for a three-week bank holiday by President George W. Bush. B) remained open but was severely limited in its operations. C) was merged with the Treasury Department to increase its power to deal with the crisis. D) expanded its operations by lending to institutions other than commercial banks and buying financial assets other than Treasury bills.
D) expanded its operations by lending to institutions other than commercial banks and buying financial assets other than Treasury bills.
Direct foreign investment means the purchase of: A) shares of stock in foreign companies. B) bonds of a foreign country. C) bank loans in a foreign country. D) factories in a foreign country.
D) factories in a foreign country.
A vicious downward spiral among banks in which each institution's failure increases the likelihood that another will fail is a(n): A) asset bubble. B) maturity transformation. C) multiplier effect. D) financial contagion.
D) financial contagion.
A Brazilian bank buys shares of stock in Intel, an American high-tech company. In the U.S. balance of payments, this transaction causes the balance on the _____ account to _____. A) current; decrease B) current; increase C) financial; decrease D) financial; increase
D) financial; increase
During the banking crisis of the 1930, the Federal Reserve: A) ended the crisis by acting aggressively as a lender of last resort. B) rushed to guarantee the liabilities of failing banks. C) was established to resolve the banking crisis. D) had the legal ability to act as a lender of last resort but failed to do so.
D) had the legal ability to act as a lender of last resort but failed to do so.
Which of the following financial institutions is an example of a shadow bank? A) credit union B) commercial bank C) savings and loan D) hedge fund
D) hedge fund
Which of the following is NOT one of the problems facing almost all major economies after the 2008 financial crisis? A) high unemployment B) low growth of output C) high interest rates on public debt D) inflation
D) inflation
Suppose that the unemployment rate rises at the same time that the inflation rate declines. This situation would be consistent with a movement along the: A) vertical Phillips curve. B) horizontal Phillips curve. C) positively sloped Phillips curve. D) negatively sloped Phillips curve.
D) negatively sloped Phillips curve.
The Dodd-Frank bill affected derivatives by: A) prohibiting them. B) requiring that the issuer guarantee 50% of the purchaser's investment. C) allowing them to be purchased and sold only by the Federal Reserve. D) requiring that they be traded in transparent markets.
D) requiring that they be traded in transparent markets.
Shadow banks offer their customers a higher rate of return than commercial banks because: A) shadow banks can pay interest on deposits, but commercial banks cannot pay interest on deposits. B) shadow banks are allowed to invest in stocks of foreign corporations, while commercial banks can invest only in stocks of American corporations. C) shadow banks must hold more reserves and capital than commercial banks, D) shadow banks are not subject to reserve and capital requirements, but commercial banks must hold reserves and meet capital requirements.
D) shadow banks are not subject to reserve and capital requirements, but commercial banks must hold reserves and meet capital requirements.
The "wholesale" funding that Irish banks used to fund real estate loans came primarily from: A) the European Union central bank. B) long-term, low-interest loans from the Irish government. C) bank deposits of individuals. D) short-term loans from other banks and private investors.
D) short-term loans from other banks and private investors.
The Japanese will demand U.S. dollars in all of the following cases EXCEPT: A) to buy real estate in New York City. B) to buy a GM car in Japan. C) to see a Hollywood movie in Tokyo. D) to invest in Japanese stocks.
D) to invest in Japanese stocks.
After the 2008 financial crisis, policy makers realized that the scope of banking regulation was: A) too narrow, because the Federal Reserve was the only agency with any power to regulate banks. B) too broad, because both depository and shadow banks were overregulated. C) too broad, because market forces, not government regulation, should be allowed to determine the outcome of a financial crisis. D) too narrow, because shadow banks were not subject to much regulation.
D) too narrow, because shadow banks were not subject to much regulation.
A banking crisis occurs: A) whenever there is an asset bubble. B) if shadow banks begin to accept deposits. C) when banks engage in maturity transformation by accepting short-term deposits and converting them into long-term loans or investments. D) when a large part of the depository banking sector or the shadow banking sector fails or threatens to fail.
D) when a large part of the depository banking sector or the shadow banking sector fails or threatens to fail.
If the money supply is $3 billion and inflation is 6%, the inflation tax is: A) $3.18 billion. B) $50 billion. C) $180 million. D) $1.8 billion.
C) $180 million.
According to the classical model of the price level, an increase in the money supply will create: A) inflation with no long-run increase in real GDP. B) inflation and a long-run increase in real GDP. C) no inflation and a long-run increase in real GDP. D) deflation with no long-run increase in real GDP.
A) inflation with no long-run increase in real GDP.
Suppose actual aggregate output is equal to the potential output; the actual unemployment rate is: A) equal to the natural rate of unemployment. B) higher than the natural rate of unemployment. C) zero. D) equal to the cyclical rate of unemployment.
A) equal to the natural rate of unemployment.
If the natural rate of unemployment _________, the NAIRU _________, and the long-run Phillips curve shifts to the left. A) falls; falls B) rises; rises C) falls; rises D) rises; falls
A) falls; falls
Without banks, people would: A) hold more of their wealth as cash. B) hold less of their wealth as cash. C) invest most of their wealth in real estate. D) earn higher rates of return and enjoy more liquidity.
A) hold more of their wealth as cash.
Deflation: A) hurts borrowers and helps lenders. B) helps borrowers and hurts lenders. C) unlike inflation, affects neither borrowers nor lenders. D) has effects on borrowers and lenders that depend on the amount of the loan.
A) hurts borrowers and helps lenders.
(Figure: AD-AS) Refer to the diagram in AD-AS. If our economy has low-level inflation and the Fed uses expansionary monetary policy, the initial effect is that: A) AD1 will shift to AD2 and the economy will move from E1 to E2. B) SRAS1 will shift to SRAS2 and the economy will move from E2 to E3. C) SRAS2 will shift to SRAS1 and the economy will move from E3 to E2. D) AD2 will shift to AD1 and the economy will move from E2 to E1.
A) AD1 will shift to AD2 and the economy will move from E1 to E2.
A negative output gap implies: A) an unemployment rate above the natural rate. B) an unemployment rate below the natural rate. C) an unemployment rate equal to the natural rate. D) an unemployment rate that equals the frictional and structural amounts of unemployment.
A) an unemployment rate above the natural rate.
Since the early 1980s, shadow banks have increased because they: A) are not subject to capital requirements and reserve requirements. B) offer online bill payment to their depositors. C) pay lower interest rates on their deposits than commercial banks. D) offer lower interest rates on their commercial loans than commercial banks.
A) are not subject to capital requirements and reserve requirements.
(Figure: AD-AS) Refer to the AD-AS diagram. Suppose the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. Finally the economy moves to E3. The classical model of price level: A) assumes that the economy moves from E1 to E3 and ignores E2; thus, inflation increases but real GDP remains the same. B) assumes that the economy moves from E2 to E3 and ignores E1; thus, real GDP increases but inflation remains the same. C) assumes that the economy moves from E2 to E3; thus, inflation decreases but real GDP remains the same. D) assumes that the economy moves from E1 to E2 and ignores E3; thus, both inflation and real GDP remain the same.
A) assumes that the economy moves from E1 to E3 and ignores E2; thus, inflation increases but real GDP remains the same.
The problem of debt deflation deepens during an economic slump because: A) borrowers have to reduce spending to pay back burdensome debts. B) the Fisher effect raises the nominal interest rate during a period of deflation. C) lenders have to lower spending in order to accommodate higher returns from loans. D) the zero bound on the nominal interest rate is broken.
A) borrowers have to reduce spending to pay back burdensome debts.
During a liquidity trap: A) monetary policy is ineffective, since nominal interest rates cannot fall below zero. B) the money market is in disequilibrium. C) the only tool that the Federal Reserve finds effective is expansionary monetary policy. D) nominal interest rates will rise regardless of what policy the Federal Reserve pursues.
A) monetary policy is ineffective, since nominal interest rates cannot fall below zero.
(Figure: Classical Model of the Price Level) Refer to the information in the figure. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, real GDP would: A) not change. B) increase from YE to Y1. C) increase from Y1 to YE. D) establish a new potential output.
A) not change.
If actual output growth is 5% when potential output growth is 5%, then the unemployment rate will: A) not change. B) rise. C) fall. D) be zero.
A) not change.
Maturity transformation is converting: A) short-term liabilities into long-term assets. B) short-term liabilities into short-term assets. C) long-term liabilities into long-term assets. D) long-term liabilities into short-term assets.
A) short-term liabilities into long-term assets.
If a central bank pursues an expansionary monetary policy: A) the aggregate price level and level of real GDP will increase in the short run. B) the level of real GDP will increase, but the aggregate price level will stay the same in the long run. C) nominal prices and nominal wages will be unaffected in the long run. D) the aggregate price level will increase and the level of real GDP will decrease in the short run.
A) the aggregate price level and level of real GDP will increase in the short run.
During an inflationary gap: A) the unemployment rate is less than the natural rate of unemployment. B) actual output is less than potential output. C) the unemployment rate is equal to the natural rate of unemployment. D) wages and prices must fall in order to restore the economy to its potential output.
A) the unemployment rate is less than the natural rate of unemployment.
When an economy has high inflation: A) wage and price stickiness lessen or disappear. B) the Keynesian model of the economy is most relevant. C) wages become more inflexible as workers wait for prices to stabilize. D) changes in the money supply take much longer to affect the inflation rate.
A) wage and price stickiness lessen or disappear.
In economies with persistently high inflation, an increase in the money supply: A) will translate into a proportional increase in the aggregate price level much faster than usual. B) will translate into a proportional increase in the aggregate price level only in the long run. C) will not affect either the aggregate price level or the aggregate output. D) will translate into a proportional increase in the aggregate output much faster than usual.
A) will translate into a proportional increase in the aggregate price level much faster than usual.
(Figure: Short-Run Phillips Curve) Refer to the information in the figure. SRPC1 is based on an expected inflation rate of: A) zero. B) 1%. C) 2%. D) 3%.
A) zero.
An increase in the expected rate of inflation: A) shifts the short-run Phillips curve down. B) shifts the short-run Phillips curve up. C) moves the economy along the short-run Phillips curve to higher rates of inflation. D) moves the economy along the short-run Phillips curve to higher rates on unemployment.
B) shifts the short-run Phillips curve up.
Along a Phillips curve: A) consumption depends on prices. B) the inflation rate varies inversely with the unemployment rate. C) the inflation rate varies directly with the unemployment rate. D) prices and tax rates are directly related.
B) the inflation rate varies inversely with the unemployment rate.
An increase in expected inflation will affect the short-run Phillips curve: A) by shifting it downward; the actual rate of inflation at any given unemployment rate will fall by the same amount. B) by shifting it upward, as a result the actual rate of inflation at any given unemployment rate will also be higher when the expected inflation rate is higher. C) by moving along the same curve, where it equals the actual rate of inflation. D) only if the economy is at the nonaccelerating inflation rate of unemployment.
B) by shifting it upward, as a result the actual rate of inflation at any given unemployment rate will also be higher when the expected inflation rate is higher.
In the short run in periods of low inflation, an increase in aggregate demand from a position of full employment leads to: A) higher prices and higher unemployment. B) higher prices and higher output. C) lower prices and higher output. D) lower prices and higher unemployment.
B) higher prices and higher output.
During the 1950s and 1960s, the short-run Phillips curve for the U.S. economy showed a(n): A) positive relationship between unemployment and inflation. B) inverse relationship between unemployment and inflation. C) positive relationship between interest rates and inflation. D) inverse relationship between interest rates and inflation.
B) inverse relationship between unemployment and inflation.
In the long run, any given percentage increase in the money supply: A) decreases real GDP . B) leads to an equal percentage increase in the overall price level. C) increases real GDP . D) leads to an equal percentage decrease in the unemployment rate.
B) leads to an equal percentage increase in the overall price level.
(Figure: The Great Disinflation) Refer to the information in the figure. In the early 1980s, the inflation rate was beaten down by the Federal Reserve's tight monetary policy. In the short run this policy led to a ______ level of actual output and a ______ rate of unemployment. A) high; high B) low; high C) low; low D) high; low
B) low; high
If the public holds $300 billion in monetary purchasing power and the inflation rate is 5%, then the inflation tax that year is: A) $5 billion. B) $15 billion. C) $60 billion. D) $1500 billion.
B) $15 billion.
According to recent estimates of Okun's law, if the unemployment rate fell by a full percentage point, it would most probably be attributable to a: A) 3% increase in real GDP . B) 2% increase in real GDP . C) 1% increase in real GDP . D) 3% decrease in real GDP .
B) 2% increase in real GDP .
(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to the information in the figure. If the central bank increases the money supply so that aggregate demand shifts from AD1 to AD2, then the inflation rate will be: A) zero. B) 2%. C) 4%. D) 6%.
B) 2%.
The Fed tries to keep the core inflation rate around: A) zero. B) 2%. C) 4%. D) 5%.
B) 2%.
(Figure: Actual and Natural Rates of Unemployment) Refer to the information in the figure. In 1982, the cyclical unemployment rate was approximately: A) zero. B) 4%. C) 6%. D) 10%.
B) 4%.
(Figure: Short-Run Phillips Curve) Refer to the information in the figure. The natural rate of unemployment is: A) 3%. B) 5%. C) 7%. D) 8%.
B) 5%
(Figure: Short-Run Phillips Curve) Refer to the information in the figure. The NAIRU is: A) 3%. B) 5%. C) 7%. D) 8%.
B) 5%.
Okun's law suggests that: A) a 1% increase in a positive output gap increases the unemployment rate by 0.5%. B) a 1% increase in a positive output gap decreases the unemployment rate by 0.5%. C) a 0.5% increase in a positive output gap increases the unemployment rate by 1%. D) a 0.5% increase in a positive output gap decreases the unemployment rate by 1%.
B) a 1% increase in a positive output gap decreases the unemployment rate by 0.5%.
A supply shock caused by an increase in the price of gasoline causes: A) a decrease in output and prices. B) a decrease in output and an increase in prices. C) an increase in output and prices. D) an increase in output and a decrease in prices.
B) a decrease in output and an increase in prices.
Suppose an economy's aggregate price level increases and its aggregate level of real GDP decreases. This could arise from: A) a positive demand shock. B) a negative supply shock. C) a positive supply shock. D) a negative demand shock.
B) a negative supply shock.
Assume that the economy is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment rate even while the economy continues to contract? A) a reduction in the number of discouraged workers B) an increase in the number of discouraged workers C) an increase in the level of employment D) a decrease in the level of employment
B) an increase in the number of discouraged workers
The short-run Phillips curve shows: A) a direct relationship between unemployment and inflation. B) an inverse relationship between unemployment and inflation. C) consequences of the misperceptions theory. D) the optimal level of employment.
B) an inverse relationship between unemployment and inflation.
Shadow banks differ from commercial banks because shadow banks: A) accept deposits only from businesses and state and local governments, not from individuals. B) are not subject to as many regulations as commercial banks. C) are not allowed to pay interest on deposits. D) can operate branches in more than one state.
B) are not subject to as many regulations as commercial banks.
A financial intermediary that provides liquid assets in the form of deposits to savers and uses its funds to finance illiquid investment spending needs of borrowers is a(n): A) insurance company. B) bank. C) pension fund. D) hedge fund.
B) bank.
During periods of deflation _____ will be hurt and _____ will be helped. A) firms; borrowers B) borrowers; lenders C) consumers; firms D) home buyers; home sellers
B) borrowers; lenders
When economists state that there is a zero bound on nominal interest rates, they mean that: A) the real interest rate cannot go below zero. B) the nominal interest rate cannot go below zero. C) the real interest rate can very well be negative. D) the nominal interest rate can always go below zero.
B) the nominal interest rate cannot go below zero.
As a result of a downturn in the economy, a firm cuts back on workers' hours but does not fire workers. Following Okun's law, this is one reason: A) the relationship between the output gap and the unemployment rate is positive. B) the relationship between the output gap and the unemployment is negative and less than a one-to-one relationship. C) a negative output gap is associated with an unusually low unemployment rate. D) a positive output gap is associated with an unusually high unemployment rate.
B) the relationship between the output gap and the unemployment is negative and less than a one-to-one relationship.
When workers and firms become aware of a rise in the general price level: A) they will not do anything, because they know they are powerless to counter any economic changes. B) they will incorporate higher prices into their expectations of future prices. C) firms with sticky prices will ultimately adjust their prices downward. D) they will agree to renegotiate wage contracts downward.
B) they will incorporate higher prices into their expectations of future prices.
Which of the following is the BEST explanation for an upward-sloping short-run aggregate supply curve? A) Prices are perfectly flexible. B) Wages are perfectly flexible. C) Wages and prices of some goods are sticky in the short run. D) Wages and prices of some goods are flexible in the short run but sticky in the long run.
C) Wages and prices of some goods are sticky in the short run.
Expecting the inflation rate to be 3%, Tony decides to put his savings in a 12-month certificate of deposit yielding a fixed 6% interest rate. If the actual inflation rate is ________, it can be argued that ________ is (are) worse off. A) above 3%; the bank issuing the certificate B) exactly 6%; both the bank and Tony C) below 3%; Tony D) below 3%; the bank issuing the certificate
D) below 3%; the bank issuing the certificate
The liquidity trap is associated with all of the following EXCEPT: A) a large reduction in the demand for loanable funds. B) the nominal interest rate falls to zero. C) monetary policy becomes ineffective. D) fiscal policy becomes ineffective.
D) fiscal policy becomes ineffective
(Figure: Short-Run Phillips Curve) Refer to the information in the figure. SRPC2 is based on an expected inflation rate of: A) zero. B) 1%. C) 2%. D) 5%.
C) 2%.
(Figure: AD-AS Model and the Short-Run Phillips Curve) Refer to the information in the figure. If the central bank increases the money supply so that aggregate demand shifts from AD1 to AD2, then real GDP will increase by: A) zero. B) 2%. C) 4%. D) 6%.
C) 4%.
(Figure: Actual and Natural Rates of Unemployment) Refer to the information in the figure. In 1982, the natural unemployment rate (structural plus frictional) was approximately: A) zero. B) 4%. C) 6%. D) 10%.
C) 6%.
The natural rate of unemployment is 4%, and the economy is producing 95% of its potential output. Okun's law predicts an unemployment rate of: A) 4%. B) 5%. C) 6.5%. D) 9%.
C) 6.5%.
Which of the following accurately describes disinflation? A) It must be accompanied by a decline in the price level. B) The inflation rate rises at a higher rate. C) It is the process of bringing down the inflation that has become embedded in expectations. D) It is a gradual reduction in the price level over time.
C) It is the process of bringing down the inflation that has become embedded in expectations.
Which of the following is an example of maturity transformation? A) Anne sells her house for $200,000 and uses the money to open a bakery. B) Matthew sells his car and uses the money to pay college tuition. C) Justin takes $10,000 from his savings account and uses it to buy some Apple stock. D) Michael closes his checking account at Bank of America and opens a checking account at a local credit union.
C) Justin takes $10,000 from his savings account and uses it to buy some Apple stock.
If the economy is in a liquidity trap: A) both monetary and fiscal policies are effective. B) neither monetary nor fiscal policy is effective. C) monetary policy is effective, but fiscal policy is not. D) fiscal policy is effective, but monetary policy is not.
D) fiscal policy is effective, but monetary policy is not.
If an economy has just had a serious recession but real GDP is expanding once again, we can conclude the unemployment rate will: A) automatically fall. B) automatically rise. C) actually rise, if people who were previously discouraged enter the work force but do not find jobs right away. D) actually fall, if people who were previously discouraged enter the work force but do not find jobs right away.
C) actually rise, if people who were previously discouraged enter the work force but do not find jobs right away.
When an economy has debt deflation: A) aggregate demand increases, since the real debt burden is reduced. B) aggregate demand is not affected, since real variables are not affected. C) aggregate demand decreases as borrowers' real debts increase, which leads to less spending. D) the economy moves quickly to its potential output.
C) aggregate demand decreases as borrowers' real debts increase, which leads to less spending.
If an economy's short-run Phillips curve shifts up, this is most likely due to: A) a change in the inflation rate. B) an increase in the unemployment rate. C) an increase in expected inflation. D) a contractionary fiscal policy.
C) an increase in expected inflation.
A negative output gap is associated with: A) an unusually low unemployment rate. B) a natural rate of unemployment. C) an unusually high unemployment rate. D) no changes in the unemployment rate.
C) an unusually high unemployment rate.
In the classical model, it is thought that the long-run: A) and short-run aggregate supply curves are both upward sloping. B) aggregate supply curve is vertical and the short-run aggregate supply curve is upward sloping. C) and short-run aggregate supply curves are both vertical. D) aggregate supply curve is upward sloping and the short-run aggregate supply curve is vertical.
C) and short-run aggregate supply curves are both vertical.
The measure used by the Fed that excludes food and energy prices is the: A) consumer price index. B) wholesale price index. C) core inflation rate. D) federal funds rate.
C) core inflation rate.
The U.S. government reports a core inflation rate that excludes _____ and _____ prices to remove the volatility of those two sectors from inflation estimates. A) housing; automobile B) steel; housing C) energy; food D) gasoline; housing
C) energy; food
A shadow bank is a: A) branch of the main office of a bank. B) bank that is operated by a shadow government. C) financial firm that is not closely watched or effectively regulated. D) a credit union or a savings and loan institution.
C) financial firm that is not closely watched or effectively regulated.
(Figure: Classical Model of the Price Level) Refer to the information in the figure. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, the price level will: A) not change. B) increase from P1 to P2. C) increase from P1 to P3. D) decrease from P1 to P2.
C) increase from P1 to P3.
If the natural rate of unemployment is 5% and the actual rate of unemployment is 4%: A) disinflation is likely to occur. B) there will be no effect on prices. C) inflation will increase. D) the short-run Phillips curve will shift down.
C) inflation will increase.
Expectations of a higher inflation rate shift the short-run aggregate supply curve to the _________, changing the trade-off between inflation and unemployment. As a result, the short-run Phillips curve shifts _________. A) left; down B) right; up C) left; up D) right; down
C) left; up
Suppose the economy is in long-run equilibrium. The government has just decided to lower income taxes. The long-run impact of this policy will be: A) a decrease in the natural rate of unemployment and an increase in inflation. B) a decrease in the natural rate of unemployment and no change in inflation. C) no change in the natural rate of unemployment and an increase in inflation. D) no change in the natural rate of unemployment and no change in inflation.
C) no change in the natural rate of unemployment and an increase in inflation.
Fiat money is: A) money backed by gold. B) money that only the government will accept to pay taxes. C) paper money with no intrinsic value. D) used only in the United States as a medium of exchange.
C) paper money with no intrinsic value.
If a high inflation rate leads people to ______ their money holdings, this may lead to a further increase in the money supply and ______ inflation. A) reduce; lower B) increase; lower C) reduce; higher D) increase; higher
C) reduce; higher
In the long run, an increase in the money supply: A) will increase real GDP and the price level. B) causes people to hold onto large sums of money. C) results in no change in real GDP. D) encourages people to save more money.
C) results in no change in real GDP.
A supply shock: A) moves our economy along the short-run aggregate supply curve. B) moves us along the short-run Phillips curve. C) shifts the short-run Phillips curve. D) shifts the short-run aggregate supply curve but not the short-run Phillips curve.
C) shifts the short-run Phillips curve.
Analysis of the Phillips curve reveals that a __________ in unemployment, like that of the early 1980s, is needed to break the cycle of inflationary expectations. A) permanent increase B) permanent decrease C) temporary increase D) temporary decrease
C) temporary increase
Zimbabwe's economic instability was caused primarily by: A) its joining the Coalition of the Willing in the Iraq war. B) its attempts to join the European Union. C) the government's seizure of the country's farms, which disrupted production. D) its high tariffs on imported goods.
C) the government's seizure of the country's farms, which disrupted production.
The NAIRU is: A) the inflation rate at which the unemployment rate does not change over time. B) a trade-off between unemployment and inflation. C) the unemployment rate at which inflation does not change over time. D) a rate at which it is possible to achieve lower unemployment by accepting higher inflation.
C) the unemployment rate at which inflation does not change over time.
In the long run, when the actual inflation rate gets embedded into people's expectation: A) the trade-off between inflation and unemployment becomes even stronger. B) it is possible to achieve lower unemployment in the long run by accepting higher inflation. C) there is no longer a trade-off between inflation and unemployment. D) actual inflation at any unemployment rate is always higher than expected inflation.
C) there is no longer a trade-off between inflation and unemployment.
Investment banks differ from commercial banks because: A) commercial banks are allowed to advertise, but investment banks are prohibited from advertising. B) commercial banks can have offices only in one state, but investment banks can have offices in many countries. C) commercial banks do not sell foreign currencies, but investment banks do. D) commercial banks accept deposits from customers, but investment banks do not.
D) commercial banks accept deposits from customers, but investment banks do not.
The relationship between the output gap and the unemployment rate can be summarized thus: A) When the output gap is negative, the unemployment rate is below the natural rate. B) When the output gap is zero, the unemployment rate is also zero. C) When there is an inflationary gap, the unemployment rate is above the natural rate. D) When the output gap is positive, the unemployment rate is below the natural rate.
D) When the output gap is positive, the unemployment rate is below the natural rate.
Most of a bank's short-term liabilities are: A) loans from the Federal Reserve. B) loans from the U.S. Treasury. C) loans to its customers. D) deposits of customers' savings.
D) deposits of customers' savings.
(Figure: AD-AS) Refer to the AD-AS diagram. Suppose the economy is initially at E1, where AD1 intersects SRAS1 and LRAS. Now, suppose that the AD1 shifts to AD2. That shift could be due to: A) an increase in the aggregate price level. B) a decrease in government expenditure. C) an increase in tax rates. D) an increase in money supply.
D) an increase in money supply.
(Figure: AD-AS) Refer to the diagram in AD-AS. If our economy is at equilibrium and the Fed uses expansionary monetary policy: A) AD2 will shift to AD1 and the economy will move from E2 to E1. Then very quickly nominal wages will rise, SRAS1 will shift to SRAS2, and the economy will move from E2 to E3. B) SRAS1 will shift to SRAS2 and the economy will move from E2 to E3. Then AD2 will shift to AD1 and the economy will move from E2 to E1. C) SRAS2 will shift to SRAS1 and the economy will move from E3 to E2. Then AD2 will shift to AD1 and the economy will move from E2 to E1. D) AD1 will shift to AD2 and the economy will move from E1 to E2. Then very quickly nominal wages will rise, SRAS1 will shift to SRAS2, and the economy will move from E2 to E3.
D) AD1 will shift to AD2 and the economy will move from E1 to E2. Then very quickly nominal wages will rise, SRAS1 will shift to SRAS2, and the economy will move from E2 to E3.
Which of the following is an example of maturity transformation? A) Jordan borrows $15,000 to buy a car. B) Aaron buys new running shoes and pays for them with his American Express credit card. C) Angela gives Russell $100 in cash for a graduation gift. D) Tyler lends $1,000 to his roommate Nick for a year.
D) Tyler lends $1,000 to his roommate Nick for a year.
When Fed officials worried about the possibility of "Japanification" in the United States, it meant that they were worried that the U.S. economy would: A) grow faster than the economy of Japan after World War II. B) accumulate large trade surpluses, like Japan. C) fall into a period of hyperinflation. D) fall into a deflationary trap.
D) fall into a deflationary trap.
(Figure: Classical Model of the Price Level) Refer to the information in the figure. If the central bank increases the money supply such that aggregate demand shifts from AD1 to AD2, according to this classical model, the equilibrium point would: A) not change. B) immediately move from E1 to E2. C) immediately move from E2 to E1. D) immediately move from E1 to E3.
D) immediately move from E1 to E3.
From 2000 to 2008 Zimbabwe's prices: A) decreased by 50%. B) increased by 50%. C) increased by 100%. D) increased by 80 trillion percent.
D) increased by 80 trillion percent.
To bring disinflation to an economy, policy makers must: A) slow down labor productivity growth. B) increase the money supply in order to release the economy from the liquidity trap. C) keep unemployment below its natural rate for an extended period. D) lower expectations about inflation.
D) lower expectations about inflation.
When inflation is high: A) people will increase their level of real-money holdings. B) people will save more. C) lenders gain at the expense of borrowers. D) people will decrease their level of real-money holdings.
D) people will decrease their level of real-money holdings.
Stagflation is a combination of: A) restrictive trade policies and inflation. B) budget deficits and trade deficits. C) unemployment and higher taxes. D) unemployment and inflation.
D) unemployment and inflation.
A liquidity trap results from the: A) inflation tax. B) expansionary fiscal policy. C) Fisher effect. D) zero bound of the nominal interest rate.
D) zero bound of the nominal interest rate.
