HW #5

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

rightward by $50 billion at each price level

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve

To reduce money supply, the Fed should:

sell government bonds to the public

Other things equal, an improvement in productivity will:

shift the aggregate supply curve to the right

The aggregate demand curve:

shows the amount of real output that will be purchased at each possible price level

The aggregate supply curve:

shows the various amounts of real output that businesses will produce at each price level

To cope with recession, the monetary authority should consider the following monetary policy:

the Fed can buy government bonds from the public and the banks

The difference between M1 and M2 is that

the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances

Monetary policy involves changing:

the money supply to affect aggregate demand

In defining money as M1, economists exclude time deposits because:

they are not directly or immediately a medium of exchange

A $70 price tag on a sweater in a department store window is an example of money functioning as a:

unit of account

When aggregate demand declines, wage rates may be downwardly inflexible at least for some time, because of:

wage contracts

Which of the following is the basic economic policy function of the Federal Reserve Banks?

controlling the supply of money

AS shifting to the right could be caused by a(n):

decrease in the prices of domestic resources

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This relationship best describes how the progressive income tax system:

Serves as an automatic stabilizer for the economy

The stimulus package enacted by the Federal government in 2009 was intended to:

Shift the aggregate demand curve to the right

One timing problem with fiscal policy to counter a recession is an "operational lag" that occurs between the:

Time fiscal action is taken and the time that the action has its effect on the economy

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

Wage constraints

In a private closed economy, saving and investment are, respectively:

a leakage and an injection

When economists say that money serves as a unit of account, they mean that it is:

a monetary unit for measuring and comparing the relative values of goods

Other things equal, if the national income of a major trading partner of the United States declines, the U.S.:

aggregate demand curve would shift to the left

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right

The interest-rate effect suggests that:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending

The short-run aggregate supply curve represents circumstances where:

input prices are fixed, but output prices are flexible

The value of money varies:

inversely with the price level

Governments usually impose tariffs on imports to protect ______ at the expense of_____:

domestic firms, domestic consumers

Planned investment is $30 billion at the $100 billion equilibrium level of output in a closed, private economy. Saving must be:

equal to $30 billion.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports

Other things equal, a reduction in personal and business taxes can be expected to:

increase both aggregate demand and aggregate supply.

The immediate-short-run aggregate supply curve represents circumstances where:

both input and output prices are fixed

The money supply is backed:

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

In the United States, the money supply (M1) is comprised of:

coins, paper currency, and checkable deposits

Lower Opportunity Cost =

comparative advantage

Not included in M1 or M2

Large denomination time deposits, stock certificates, money market mutual funds held by businesses, currency held in bank vaults

An economy is experiencing a high rate of inflation. The government wants to reduce aggregate demand by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government cut its spending to achieve its objective?

$9 billion

The goal of expansionary fiscal policy is to increase:

Aggregate demand

AS shifting to the left could be caused by:

All of the above

What would happen to the average market price and the quantity of automobiles purchased by American consumers as a result of a U.S. tariff on imported automobiles?

Average price would go up, but quantity would go down

The basic policy-making body in the U.S. banking system is the:

Board of Governors of the Federal Reserve

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:

Discretionary Fiscal Policy

If the Congress passes legislation to decrease taxes to counter the effects of a recession, then this would be an example of a(n):

Expansionary fiscal policy

The American Recovery and Reinvestment Act of 2009 is a clear example of:

Expansionary fiscal policy

A $20 bill is a:

Federal Reserve Note

Actions by the Federal government that increase the progressivity of the tax system:

Increase the effect of automatic stabilizers