ECON midterm 2 (review 4)

Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?

1.8%

In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2?

10%

Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2?

2.7%

In the figure above, AD1, LRAS1 and SRAS1 denote AD, LRAS and SRAS in year 1, while AD2, LRAS2 and SRAS2 denote AD, LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the actual growth rate in GDP in year 2?

7.3%

Suppose the economy is at point C. If investment spending decreases in the economy, where will the eventual long-run equilibrium be?

A

Which of the points in the above graph are possible long-run equilibria?

A and C

Which of the following would be considered a fiscal policy action?

A tax cut is designed to stimulate spending during a recession.

Which of the points in the above graph are possible short-run equilibria?

A, B, C, and D

Ceteris paribus, an increase in interest rates would be represented by a movement from

AD2 to AD1.

Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential

All of the above are correct.

Because of the slope of the aggregate demand curve, we can say that

a decrease in the price level leads to a higher level of real GDP demanded.

The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks

Government transfer payments include which of the following?

Social Security and Medicare programs

To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the

budget deficit or surplus as a percentage of GDP.

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers.

The largest proportion of M1 is made up of

checking account deposits.

The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks.

In the dynamic model of AD-AS in the figure above, 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.

An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

decrease; rise; falls

Automatic stabilizers refer to

government spending and taxes that automatically increase or decrease along with the business cycle.

. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely

increase government spending.

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

increase; fall; rises

Banks can make additional loans when required reserves are

less than total reserves.

The use of fiscal policy to stabilize the economy is limited because

the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.

Bank reserves include

vault cash and deposits with the Federal Reserve.

Full-employment GDP is also known as

potential GDP.

Given the economy is at point A in year 1, what will happen to the price level in year 2?

It will rise.

Given the economy is at point A in year 1, what will happen to the unemployment rate in year 2?

It will rise.

Ceteris paribus, an increase in productivity would be represented by a movement from

SRAS1 to SRAS2.

Ceteris paribus, an increase in the labor force would be represented by a movement from

SRAS1 to SRAS2.

Ceteris paribus, a decrease in the capital stock would be represented by a movement from

SRAS2 to SRAS1.

Open market operations refer to the purchase or sale of ________ to control the money supply.

U.S. Treasury securities by the Federal Reserve

Most recessions in the United States since World War II have begun with

a decline in residential construction.

The impact of crowding out may be the least

during a deep recession.

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue

expansionary fiscal policy.

Fiscal policy refers to changes in

federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B

firms are operating below capacity.

The largest source of federal government revenue in 2016 was

individual income taxes.

In the dynamic model of AD-AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in

inflation higher than what would occur if no policy had been pursued.

The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off

investment and consumption spending.

Which of the following would not be considered an automatic stabilizer?

legislation increasing funding for job retraining passed during a recession

The crowding out of private spending by government spending will be greater the

more sensitive consumption, investment, and net exports are to changes in interest rates.

Ceteris paribus, an increase in the price level would be represented by a movement from

point B to point A.

The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly.

positive; final goods and services; inputs

Potential GDP refers to the level of

real GDP in the long run.

The basic aggregate demand and aggregate supply curve model helps explain

short-term fluctuations in real GDP and the price level

The Federal Reserve plays a larger role than Congress and the president in stabilizing the economy because

the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy.

The seven members of the Board of Governors of the Federal Reserve are appointed by

the President.

In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B

the economy is below full employment.

The largest and fastest-growing category of federal government expenditures is

transfer payments.