Econ Final Questions

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

downward pressures on prices and wages.

According to the Phillips curve, policymakers would reduce inflation but raise unemployment if they

decreased the money supply.

If the Fed conducts open-market sales, the money supply

decreases and aggregate demand shifts left.

The initial impact of an increase in an investment tax credit is to shift aggregate

demand right

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will

fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.

If policymakers decrease aggregate demand, then in the short run the price level

falls and unemployment rises.

The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it

increases income and thereby increases consumer spending.

If the Federal Reserve decreases the growth rate of the money supply, in the long run

inflation is lower while the unemployment rate is unchanged.

The federal funds rate is the

interest rate at which banks lend reserves to each other overnight.

Recessions come at

irregular intervals. During recessions investment spending falls relatively more than consumption spending.

When the Consumer Price Index decreases from 140 to 125

less money is needed to buy the same amount of goods, so the value of money rises

According to the Phillips curve, unemployment and inflation are positively related in

neither the long run nor the short run.

A goal of monetary policy and fiscal policy is to

offset shifts in aggregate demand and thereby stabilize the economy.

In the long run, policy that changes aggregate demand changes

only the price level.

Liquidity preference theory is most relevant to the

short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

the short run, but not the long run.

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

to a lower unemployment rate and a higher inflation rate than policy B.

If the stock market crashes, then

aggregate demand decreases, which the Fed could offset by purchasing bonds.

Which of the following is an example of barter?

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.

Which of the following shifts aggregate demand to the left?

A decrease in the money supply

Which of the following events shifts aggregate demand rightward?

An increase in government expenditures, but not a change in the price level

The classical dichotomy and monetary neutrality are represented graphically by

a vertical long-run aggregate-supply curve.

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

selling bonds. This selling would reduce the money supply.

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______.

store of value, unit of account, medium of exchange

If the multiplier is 3, then the MPC is

2/3

According to the classical dichotomy, which of the following increases when the money supply increases?

The nominal wage

Fiscal policy refers to the idea that aggregate demand is affected by changes in

government spending and taxes.

Fiscal policy affects the economy

in both the short and long run.

If the Federal Reserve increases the rate at which it increases the money supply, then unemployment is lower

in the short run but not in the long run.

In the short run, open-market purchases

increase investment and real GDP, and decrease interest rates.

If taxes fall, then aggregate demand shifts

right, making unemployment lower than otherwise.

If inflation expectations rise, the short-run Phillips curve shifts

right, so that at any inflation rate unemployment is higher in the short run than before.

If the government raises government expenditures, then in the short run, prices

rise and unemployment falls.

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also either a

rise in output or a fall in velocity

The supply of money increases when

the fed makes open-market purchases

The Federal Open Market Committee is ​

the group at the Federal Reserve that sets monetary policy.

The economy will move to a point on the short-run Phillips curve where unemployment is higher if

the inflation rate decreases.

If the Fed increases the money supply,

the interest rate decreases, which tends to raise stock prices.

The principle of monetary neutrality implies that an increase in the money supply will increase

the price level, but not real GDP

Aggregate demand includes

the quantity of goods and services the government, households, firms, and customers abroad want to buy.

How would an increase in the natural rate of unemployment affect the long-run Phillips curve?

It would shift the long-run Phillips curve right.

Which of the following is included in both M1 and M2?

currency, demand deposits, and other checkable deposits

If M = 5,000, P = 5.5, and Y = 9,000, what is velocity?

10

Which of the following would cause stagflation?

Aggregate supply shifts left

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent, " a more precise account of the Fed's action would be as follows:

"Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent. "

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

$10,000 of money

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?

$150

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have available to lend out if it decides to hold only required reserves?

$27,000

Which of the following are vertical?

Both the long-run Phillips curve and the long-run aggregate supply curve

Which of the following functions as both a store of value and a medium of exchange?

Cash but not stocks

Which of the following decreases inflation and increases unemployment in the short run?

Either a decrease in government expenditures by itself or a decrease in the money supply growth rate by itself.

Which of the following would we not expect if government policy moved the economy up along a given short-run Phillips curve?

Jackie gets fewer job offers.

In the short-run an increase in the costs of production makes

Output fall and prices rise.

In which case can we be sure aggregate demand shifts left overall?

People want to save more for retirement and the Fed decreases the money supply.

Which of the following is not a function of money?

Protection against inflation

The price level rises in the short run if

aggregate demand shifts right or aggregate supply shifts left.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right.

In a system of 100-percent-reserve banking,

banks do not influence the supply of money.

A vertical long-run Phillips curve is consistent with

both the conclusion of Friedman and Phelps and the classical idea of monetary neutrality.

Shifts in aggregate demand affect the price level in

both the short and long run.

Which of the following does the Federal Reserve not do?

conduct fiscal policy

If the Federal Open Market Committee decides to increase the money supply, it

creates dollars and uses them to purchase government bonds from the public

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $20 million worth of government bonds, bank reserves

decrease by $20 million and the money supply eventually decreases by $400 million

If the central bank decreases the money supply, in the short run, output

falls so unemployment rises.

If Y and V are constant and M doubles, the quantity equation implies that the price level

doubles

If policymakers expand aggregate demand, then in the long run

prices will be higher and unemployment will be unchanged.

The short-run relationship between inflation and unemployment is often called

the Phillips curve.

An increase in the expected price level shifts

the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.

In the long run, money demand and money supply determine

the value of money but not the real interest rate

The short-run Phillips curve shows the combinations of

unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short- run aggregate supply curve.