Econ Macro Final Chapters 9-17
Refer to the diagram to the right. Which of the points in the above graph are possible long run equilibria?
Any points that are on the vertical LRAS line
The Congressional Budget Office reported that federal budget deficits in the United States were likely to increase during the next decade, and due to these higher deficits, "the nation's capital stock ultimately would be smaller, and productivity and income would be lower than would be the case if the debt was smaller." This higher budget deficit would be represented graphically by
a shift in the supply curve for loanable funds to the left
Which of the following would make gold a poor medium of exchange?
a supply that would be difficult to control because of the unpredictability of new gold discoveries
The level of long−run aggregate supply is affected by all of the following except A. changes in the number of workers. B. changes in the capital stock. C. changes in the technology. D. changes in the price level.
D. Changes in the price level
Expansionary monetary policy refers to the ________ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing interest rates.
In a small economy in 2022, aggregate expenditure was $800 million while GDP that year was $850 million. Which of the following can explain the difference between aggregate expenditure and GDP that year?
Firm investment in inventories was grater than anticipated in 2022
Refer to the figure. Suppose the Fed lowers its target for the federal funds rate. Using the basic AD-AS model in the figure, this situation would be depicted as a movement from Part 2
From A to B
How to find T if not provided
G + TR
Consumption. Disposable Income $1,200. $3,000 2,100. 4,000 3,000. 5,000 Given the consumption schedule in the table above, the marginal propensity to save is
The answer is 0.1 because you need to do change in savings divided by change in income so you would need to do 3,000 - 1200 , 4000 - 2100, and 5000 - 3000 and you would get 1800, 1900, and 2000 which they are 100 apart so you then would do the difference in disposable income which is 100 and then you would do 100 / 1000 to get an MPS of .1
During an expansion, how do inflation and unemployment typically change?
Inflation rises and unemployment falls
If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?
Inventories will decline and GDP and employment will rise.
In a closed economy, what is the relationship between saving and investment
Investment is equal to saving
To find the maximum loan of something ex: with required reserve ratio of 10% Assets Liabilities Reserves: + $8,000 Deposits: + $8,000 Refer to the table above. Suppose a transaction changes a bank's balance sheet as indicated in the following T−account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank can make a maximum loan of
So first you would need to find the minimum of the ration which would be Reserve = Deposit x Required reserve ration so it would be 8,000 x 10% = 800 (minimum) Then you would do Loan = Deposit - Required Reserve So it would be 8,000 - 800 = $7,200 (which is the answer)
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A's reserves immediately increase by
Since it is asking what she immediately increases by the answer would just be $10,000
If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential real GDP $14.5 trillion, then government purchases would need to increase by ________ to restore the economy to potential real GDP.
So what you want to do here is 14.5 - 14 which equals .5 then you want to do 500 divided by 2 because .5 trillion = 500 billion and then the answer is 250.
Why does the short run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?
Workers and firms adjust their expectations of wages and prices downward and they accept lower wages and prices
In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
Y - C - T + TR
Private Savings Formula
Y - C - T + TR
If real GDP per capita measured in 2009 dollars was $6,000 in 1950 and $48,000 in 2022, we would say that in 2022, the average American could buy ________ times as many goods and services as the average American in 1950.
You just do the New divided by the old and then that is the number which would be 8
According to the short−run Phillips curve, which of the following would result in low rates of unemployment?
a higher inflation rate
An increase in the interest rate causes
a movement up along the money demand curve.
Using the quantity equation, if the velocity of money grows 5 percent, the money supply grows 10 percent, and real GDP grows at 4 percent, then the inflation rate would be
So you want to use the equation M + V = P + Y So if you fill that in you get 10 + 5 = P + 4 15 = P + 4 P = 11 (which is the answer because P = Inflation)
Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I= $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to the scenario above. Based on the information above, what is the level of public saving? What is the public savings formula?
T - G - TR negative $1 trillion (a deficit of $1 trillion)
When the government runs a deficit, which of the following is true?
T < G + TR
Which of the following is a true statement regarding the economic growth model's predictions and how it actually affects the real world?
Te growth model predicts that poor countries should catch up with rich countries, but developing countries are not catching up to lower --- income industrialized countries as a group
A higher inflation rate can lead to lower unemployment if ________ mistakenly expect the inflation rate to be lower than it turns out to be.
both workers and employers
Economies where goods and services are traded directly for other goods and services are called _________ economies.
barter economies
The substitution bias in the consumer price index refers to the idea that consumers ______ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.
change; over estimates
A good can serve as money only if
citizens accept the good as a means of payment for transactions and debts.
Silver is an example of a
commodity money
Which of the following price indices comes closest to measuring the cost of living of the typical household?
consumer price index
Which of the following is counted as a liability for a bank?
customer deposits
When housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements ________ as many households found it ________ to borrow against the value of their homes.
declined; harder
If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would
decrease because you do 120 - 100 / 100 then 140 - 120 / 120 then compare if the second one is smaller than it is a decrease.
In the dynamic model of AD−AS in the diagram to the right, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely
decrease interest rates because point B has a higher price level than point A
To combat a recession with discretionary fiscal policy, Congress and the president should
decrease taxes to increase consumer disposable income
An increase in the price level results in a(n) ___________ in the quantity of real GDP demanded because ___________.
decrease; a higher price level reduces consumption, investment, and net exports
Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will _____________ exports from the U.S. to Sweden and __________ U.S. aggregate demand.
decrease; decrease
If technological change increases the profitability of new investment for firms, then the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.
demand; right; rise
Active changes in tax and spending by government intended to smooth out the business cycle are called ________, and changes in taxes and spending that occur passively over the business cycle are called ________.
discretionary fiscal policy; automatic stabilizers
Technological improvements are more likely to occur if
entrepreneurs are compensated for taking risks with higher profits.
The tax multiplier equals the change in ________ divided by the change in ________.
equilibrium real GDP; taxes
An increase in aggregate demand results in a(n) ________ in the ________.
expansion; short run
The actual real wage is lower than the expected real wage if
expected inflation is less than actual inflation
In the graph to the right, suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B. Which of the following policies could Congress and the president use to move the economy to point C?
increase government purchases
In the graph to the right, suppose the economy in Year 1 is at point A and is expected in Year 2 to be at point B. Which of the following policies could Congress and the president use to move the economy to point C? Switch points B and C on the graph
increase income taxes
From an initial long−run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long−run aggregate supply, then the Federal Reserve would most likely
increase interest rates
increases in price level
increase the quantity of money needed for buying and selling
An increase in the interest rate should _______ the demand for dollars and the value of the dollar, and net exports should _________.
increase; decrease
Suppose the government wants to maintain a balanced budget. To achieve this goal, when the economy falls into recession government would need to ________ taxes, which would cause aggregate demand to ________.
increase; decrease
A policy that offers parents a tax reduction based on how much they are saving for their children's college education should _________ the equilibrium level of loanable funds and _____________ the rate of long term growth.
increase; increase
Tax reduction and simplification should ________ long−run aggregate supply and ________ aggregate demand.
increase; increase
A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments _________.
increase; rise; fall
During the recession phase of the business cycle,
interest rates are usually falling
Goods that have been produced but not yet sold are referred to as
inventories
The cost to firms of changing prices
is called a menu price
The federal funds rate
is determined by the supply and demand for bank reserves
if the point is on the long run Phillips curve we can insist that
it is the point where the unemployment rate equals the natural unemployment rate.
Refer to the diagram to the right. Based on the per-worker production function, if the economy raises capital per hour worked from $35,000 to $40,000, by how much will real GDP per hour worked increase?
just read the graph should be an easy question but the answer would be 150 because the ya axis is Real GDP and not the x axis.
Your grandfather tells you that he earned $7,000 per year in his first job in 1961. You earn $35,000 per year in your first job in 2022. You know that average prices have risen steadily since 1961. You earn
less than 5 times are much as your grandfather in terms of real income
Which of the following is an asset for the bank?
loans
When the economy enters a recession, your employer is unlikely to reduce your wages because ________ during a recession.
lower wages increase your incentive to find employment elsewhere
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be _________.
lower; lower
When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a
medium of exchange
Rising Prices erode the value of money as a _______ and as a _________.
medium of exchange; store of value
The real interest rate equals the nominal interest rate ________ the inflation rate.
minus
The quantity theory of money predicts that, in the long run, inflation results from the
money supply growing at a faster rate than real GDP
According to the quantity theory of money, deflation will occur if the
money supply grows at a slower rate than real GDP
The quantity equation states that the
money supply times the velocity of money equals the price level times real output.
If wages and prices adjust slowly, we would expect expansionary monetary policy to be
more likely to affect the unemployment rate.
Since 1900, real GDP in the U.S. has grown
more rapidly than the population
It is ________ difficult to effectively time fiscal policy than monetary policy because ________.
more; fiscal policy takes longer to implement
An increase in the price level will
move the economy up along a stationary aggregate demand curve
An increase in the price level will
move the economy up along a stationary short run aggregate supply curve
If households in the economy decide to take money out of checking account deposits and hold it as currency, this will initially
not change M1 and not change M2
If credit card balances rise in the economy, then M1 will ________ and M2 will _________.
not change; not change
If you transfer all of your currency to your checking account, then initially, M1 will _______ and M2 will ________.
not change; not change
Which of the following would most likely suffer the least from the costs of inflation?
persons whose income rises more rapidly than inflation
Crowding out refers to a decline in ________ as a result of an increase in ________.
private expenditures; government purchases
In the figure on the right, if the economy in Year 1 is at point A and is expected in Year 2 to be at point B, then the appropriate monetary policy by the Federal Reserve would be to
raise interest rates because B has a higher price level than A
Enforcing property rights in an economy will
raise the level of investment
Year Potential Real GDP Real GDP Price Level 2022. $18.0 trillion. $18.0 trillion. 150 2023. $18.5 trillion. $18.8 trillion. 154 Consider the hypothetical information in the table for potential real GDP, real GDP, and the price level in 2022 and in 2023 if Congress and the president do not use fiscal policy. If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2023, which of the following will be lower than if Congress and the president had taken no action?
real GDP and the inflation rate
Year. Potential Real GDP. Real GDP. Price Level 2022. $18.0 trillion. $18.0 trillion. 150 2023. $18.5 trillion. $18.2 trillion. 152 Consider the hypothetical information in the table for potential real GDP, real GDP, and the price level in 2022 and in 2023 if Congress and the president do not use fiscal policy. If Congress and the president use fiscal policy successfully to keep real GDP at its potential level in 2023, which of the following will be higher than if Congress and the president had taken no action?
real GDP and the inflation rate
A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.
real GDP; the price level
If real GDP per capita in the United States is $8,000, what will real GDP per capita in the United States be after 5 years at an annual growth rate of 3.2%?
the formula should be 8,000(1 + 3.2/100)^5 and the answer would be 9,365
U.S. net export spending rises when
the growth rate of the U.S. GDP is slower than the growth rate of GDP in other countries
In the long run, the Federal Reserve can control which of the following?
the inflation rate
What two factors are the keys to determining labor productivity?
the level of technology and quantity of capital per hour worked
Suppose a developing country receives more machinery and capital equipment as foreign entrepreneurs increase the amount of investment in the economy. As a result,
the long run aggregate supply curve will shift to the right
If stricter immigration laws are imposed and many foreign workers in the United States are forced to go back to their home countries,
the long-run aggregate supply curve will shift to the left.
The Federal Reserve's two main monetary policy targets are
the money supply and interest rates
The real interest rate is equal to ________.
the nominal interest rate adjusted for inflation
The rule of 70 states that
the number of years it takes an economy to double in size is 70 divided by the growth rate.
The major shortcoming of a barter economy is
the requirement of a double coincidence of wants
Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result,
the short -- run aggregate supply curve will shift to the left as wages increase.
Suppose the Fed used expansionary policy to push short-run equilibrium to point B. If the short-run equilibrium remained at point B long enough, (point B is at the top of the graph not on the long run Phillips curve)
the short-run Phillips curve would shift up
The more excess reserves banks choose to keep
the smaller the deposit multiplier.
Which of the following is an example of discretionary fiscal policy?
the tax cuts passed by Congress in 2001 to combat the recession
What is the natural rate of unemployment?
the unemployment rate that exists when the economy is at potential GDP
Deflation occurs when
there is a decline in the price level
If inflation is positive and is perfectly anticipated,
those that hold paper money lose
You earned $30,000 in 2015, and your salary rose to $80,000 in 2022. If the CPI rose from 82 to 202 between 2015 and 2022, which of the following is true?
to figure it out you do new CPI - Old and then multiply that number by the original salary you earned and if that number is higher than your new salary then you lost money but if it is lower than your new salary increased
At macroeconomic equilibrium,
total spending equals total production.
The largest fastest growing category of federal government expenditures is
transfer payments
Typically, as an economy begins to emerge from a recessionary phase of the business cycle, Part 2
unemployment continues to rise
In the long run,
unemployment is at its natural rate.
If the Fed's policy is contractionary, it will
use open market operations to sell Treasury bills.
Bank reserves include
vault cash and deposits with the federal reserve.
In the long run, the Phillips curve is a ________ at ________.
vertical line; the natural rate of unemployment
Which of the following is a function that money serves?
All of the above, which is unit of account, store of value, and a medium of exchange
Suppose that real GDP for 2021 was $10,000 billion and real GDP for 2022 was $11,000 billion. What is the rate of growth of real GDP between 2021 and 2022?
11,000 - 10000 / 10000 = 10%
If the required reserve ratio is 5 percent, then the simple deposit multiplier is
20 so to understand that its basically like if you have 100 x 5% you get 5 and what times that number would equal 100 which is 20 so that would be the deposit multiplier.
If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from
23.3 years to 17.5 because you just do 70 divided by 3 and then 4
Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is GDP?
27 because GDP = C + I + G + NX
If, in a closed economy, real GDP is $30 billion, consumption is $20 billion, and government purchases are $5 billion, what is total saving in the economy?
5 billion
Refer to the figure. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure, this would be depicted as a movement from
A to B
Refer to the figure. Suppose the economy is in a recession and no policy is pursued. Using the basic AD-AS model in the figure, this situation would be depicted as a movement from
A to E which would be a lower price level on the AD curve and increased GDP
Which of the following is one of the most important benefits of money in an economy? A. Money makes exchange easier, leading to more specialization and higher productivity. This is the correct answer. B. Money allows for the accumulation of wealth. C. Money encourages people to produce all of their own goods (self−sufficiency) and therefore increases economic stability. D. Money allows for the exchange of goods and services.
A. Money makes exchange easier, leading to more specialization and higher productivity.
Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million. Based on this information, which of the following is true?
Aggregate expenditure is equal to GDP. Aggregate expenditure + GDP = C + I + G + NX
If firms find that consumers are purchasing more than expected, which of the following would you expect?
Aggregate expenditure will likely be grater than GDP
Which of the following best describes how banks create money?
Banks create checking account deposits when making loans from excess reserves.
________ are financial securities that represent promises to repay a fixed amount of funds.
Bonds
Refer to the figure. Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising. If contractionary policy is used to move the economy back to long-run equilibrium, this would be depicted as a movement from _______ using the basic AD-AS model in the figure.
C to B
Refer to the figure. Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the basic AD-AS model in the figure, the correct Fed policy for this situation would be depicted as a movement from
C to B, which would be a decrease in price level on SRAS and decrease of Real GDP
The Soviet Union's economy grew rapidly in terms of GDP per hour worked in the 1950s, but eventually this growth slowed. Why did this occur?
Capital per hour worked grew rapidly from 1950 to 1980, but technological change occurred very slowly.
All of the following are components of aggregate expenditure except A. government spending. Your answer is not correct. B. net export spending. C. consumption spending. D.actual investment spending.
D. actual investment spending.
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.
Which of the following is not one of the key services provided by the financial system?
Generating information, liquidity, and risk sharing are all provided by the financial system decreasing taxes
________ is defined as the value of a household's assets minus the value of its liabilities.
Household wealth
In a closed economy,
I = Y - C - G
Given the following economic data, what is the value of investment in a closed economy? Also What is the investment formula Y = $10 trillion C = $5 trillion TR = $2 trillion G = $2 trillion
I = Y - C - G 3 trillion
With a required reserve ratio of 20 percent, an increase in reserves of 10,000 could lead to a maximum increase in checking account deposits in the entire banking system of
In this problem you just do the increase in reserves divided by the reserve ratio to find the entire banking system so it would be 10,000 / .20 which = $50,000 (which is the answer)
Suppose you withdraw $500 from your checking account and bury it in a jar in your backyard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole would drop up by a maximum of
Key word is drop so you would do 500 / .10 which would be $5,000
The most liquid measure of money supply is
M1
How to calculate inflation rates
New - Old / Old
Real GDP (Billions of 2000 dollars) 2019. $8,700 2020. $8,875 2021. $9,000 2022 $9,280 Using the table, what is the approximate average annual growth rate from 2019 to 2022?
New / Old - 1 x 100 for each of the terms than divide by three to get the average annual growth ate which would be 2 %
How to calculate cost of living percentage
New CPI - Old CPI divided by Old CPI times 100 Example: 2021: CPI 100 2022: CPI 113 113 - 100 / 100 = 13%
How to calculate CPI with Market Expenditure
New expenditure divided by old expenditure x 100
When the point is lower than the original point on the supply curve we can concur that
New government regulations decrease the profitability of new investment.
How to find real average earnings
Nominal Average times percentage of CPI then do New - Old divided by Old wages to get the answer Example: Year Nominal Average Hourly Earnings CPI (1982−1984=100) 1965 $2.65 32 2010 22.59 219 Answer: (1965) 2.65 x .32 = 8.28125 (2010) 22.59 x 2.19 = 10.31506849 2010 - 1965 / 1965 = 24.6%
If firms and workers have rational expectations, an expansionary monetary policy will cause the short-run Phillips curve to move from, (the graph is a long run and short run Phillips curve with Point B on the far left and the equilibrium at point A and above point A is point C which is not on the short run curve)
Point A to C
If firms and workers have adaptive expectations, an expansionary monetary policy will cause the short-run equilibrium to move from
Point A to Point B
Refer to the figure. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractionary monetary policy, where would the economy end up in the short run? (point C is above on the same line and Point B is below on the same line)
Point B because you want to get lower inflation rates.
Employees at the university have negotiated a 5 percent increase in wages for the next year, based on their inflation expectations. If inflation is actually 4 percent over the next year, which of the following will occur?
Real wages for the university employees will rise.
Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?
Short-run aggregate supply will shift to the right
________ describes the relationship between consumption spending and disposable income.
The consumption function
Suppose the economy is at point B in the figure. Which of the following is true? We could assume that Point A which falls on the long run curve is the expected point
The expected rate of inflation is 3%
You agree to lend $1,000 for one year at a nominal interest rate of 10%. You anticipate that inflation will be 4% over that year. If inflation is instead 3% over that year, which of the following is true?
The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in inflation
Between 2021 and 2022, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true?
The purchasing power of household income rose between 2021 and 2022
When aggregate expenditure is less than GDP, which of the following is true?
There was na unplanned increase in inventories
How do lower taxes affect aggregate demand?
They increase disposable income, consumption, and aggregate demand.
If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is
To find marginal propensity in this you just do 90 / 100 and then you get the answer which is .9
Currency $1,000 Checking Account Balances 2,000 Savings Account Balances 5,000 Small-Denomination Time Deposits 6,000 Non-institutional Money Market Fund Shares 7,000 Consider the information in the scenario above for a simple economy. M2 in this simple economy equals A. $8,000. B. $21,000. C. $14,000. D. $3,000.
What you need to know for this problem is that M1 = Currency + Checking Account Balances = $1,000 + $2,000 = $3,000, and M2 = M1 + Savings Account Balances + Small Denomination Time Deposits + Non-institutional Money Market Fund Shares, which is $3,000 + $5,000 + $6,000 + $7,000 = $21,000
Consider the following T−account for National City Bank: Assets Liabilities Reserves $10,000 Deposits $100,000 Loans $90,000 If the required reserve ratio is lowered to 8 percent, how much can National City loan out?
What you want to do here is do 10,000 time .8 then subtract that by 10,000 so you get 10,000 x .8 = 8,000 10,000 - 8,000 = 2,000 which is the answer
If there is a change in the ability of a firm to produce a given level of output with a given level of inputs, we say there is
technological change
The broadest measure of the price level that includes all final goods and services is
the GDP deflator
What is human capital?
accumulated knowledge and skills acquired by a worker
Short−run macroeconomic equilibrium occurs when
aggregate demand and short -- run aggregate supply intersect
If the Fed pursues expansionary monetary policy,
aggregate demand will rise, and the price level will rise
Firms in a small economy anticipated that inventories would grow over the past year by $500,000. Over that year, inventories did grow by exactly $500,000. This implies that
aggregate expenditure that year was equal to GDP that year.
Firms in a small economy anticipated that inventories would grow over the past year by $500,000. Over that year, inventories actually grew by only $400,000. This implies that
aggregate expenditure that year was grater than GDP that year.
Investment spending increases during ________, and decreases during ________.
an expansion; a recession
Which of the following will raise consumer expenditures?
an increase in expected future income
If aggregate demand just increased, which of the following may have caused the increase?
an increase in government purchases
In the figure to the right, the movement from point A to point B in the money market would be caused by (no change in quantity of money)
an increase in the price level because the quantity of money remained the same and the interest rate increased
An increase in the real interest rate results in which of the following?
an increase in the quantity of loanable funds supplied
In the figure to the right, the movement from point A to point B in the money market would be caused by
an open market sale of Treasury securities by the Federal Reserve. because the new MS line has a greater quantity of money and a lower interest rate
Which of the following goods would see the largest decline in demand during a recession?
automobiles
An economic growth model
explains changes in real GDP per capita in the long run
If your nominal wage rises more slowly than the price level, we can say your real wage has ________ and the purchasing power of a dollar has ________.
fallen, fallen
Actual real GDP will be above potential GDP if
firms are producing above capacity.
When firms benefit from the results of research and development they didn't pay for, we say firms
free ride
Which of the following would contribute to a sustained high rate of economic growth in the long run in an economy?
growth in capital per hour worked accompanied by technological change
Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
higher; lower
If the MPC is 0.95, then a $10 million increase in disposable income will
increase consumption by 9.5 million
If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long−run aggregate supply? An increase in
taxes
When banks gain ________, they can ________ their loans; and the money supply ________.
reserves; increase; expands
A decrease in expected inflation will
shift the short-run Phillips curve to the left
The aggregate expenditure model focuses on the _____________ relationship between real spending and ______.
short -- run; real GDP
The basic aggregate demand and aggregate supply curve model helps explain ________ fluctuations in real GDP and the price level.
short -- term
The long run adjustment to a negative supply shock results in
short run aggregate supply shifting to the right
If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding all else constant? (Assume the price level stays constant.)
so when the tax multiplier is negative you just want to multiply it by the tax increase so it would be 200 x 1.5 which would equal 300
One difference between stocks and bonds is that
stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond
Which of the following functions of money would be violated if inflation were high?
store of value
If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?
store of value because they can go bad
