Econ Final Part 6
Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. The government spending multiplier is:
Correct 5.
An example of a double coincidence of wants is:
a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired.
A decrease in the demand for money would result from:
a decrease in real GDP.
Commodity money is:
a good used as a medium of exchange that has other uses.
All of the following are roles of money EXCEPT:
a measure of wealth.
An example of an automatic stabilizer that works when the economy contracts is:
a rise in government transfers as more people receive unemployment insurance benefits.
An economy is in the midst of a recession. An example of a government policy aimed at moving the economy back to potential GDP is:
an increase in government spending on infrastructure improvements.
An economy that lacks a medium of exchange must use a(n):
barter system.
Included in the M1 definition of money are:
checkable bank deposits.
A government might want to increase aggregate demand to:
close a recessionary gap.
Included in the M2 definition of money is(are):
currency in circulation, money market funds, and travelers' checks.
A decrease in the supply of money will lead to a(n) _______ in equilibrium real GDP and a _______ equilibrium interest rate.
decrease; higher
A reduction in government transfers ________, therefore shifting the aggregate demand curve to the ________.
decreases disposable income and consumption; left
A contractionary fiscal policy either _______ government spending or _______ taxes.
decreases; increases
A change in taxes or a change in government transfers affects consumption through a change in:
disposable income.
A recessionary gap can be closed with:
expansionary fiscal policy.
Currency in the United States today is _______ money.
fiat
A reserve ratio is the:
fraction of deposits that the bank is required to hold.
A cut in taxes ________, therefore shifting the aggregate demand curve to the ________.
increases disposable income and consumption; right
An expansionary fiscal policy either _______ government spending or _______ taxes.
increases; decreases
Contractionary fiscal policy includes:
increasing taxes.
An expansionary fiscal policy:
may include decreases in taxes.
Buying a ticket to a football game with a $20 bill means money is functioning as a:
medium of exchange.
All of the following are responsibilities of the Federal Reserve EXCEPT to:
mint bills and coins.
The Federal Reserve Bank of the United States is:
not exactly part of the U.S. government but not really a private institution either.
The Federal Reserve affects interest rates by:
open market operations that shift the money supply curve.
A sale of bonds by the Federal Reserve:
raises interest rates and reduces the money supply.
A rise in interest rates due to a decrease in the money supply will _______ aggregate demand.
reduce
All of the following are examples of fiscal policy EXCEPT:
reducing the money supply in order to raise the interest rate.
All of the following are sources of federal tax revenue EXCEPT:
sales taxes.
The functions of money are:
store of value, unit of account, and medium of exchange.
An example of an automatic stabilizer is:
tax receipts rising when GDP rises.
Decisions about monetary policy are made by:
the Federal Open Market Committee.
The Federal Reserve controls:
the discount rate, the monetary base, and the reserve ratio.
Fiat money is:
Correct money backed by a government's decree that it be accepted as a means of payment.