Macro Final

Money that the government has ordered to be accepted as money is:

fiat money.

If your disposable income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $12,000, your MPC is:

0.6

If the multiplier equals 4, then the marginal propensity to save must equal:

1/4

If the MPC is 0.9, then the government spending multiplier is:

10.

Which of the following is TRUE with respect to the short-run aggregate supply and the long-run aggregate supply?

The economy can be on both curves simultaneously.

True or False: The end of the Great Depression was due largely to increased government spending for World War II.

True.

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 aggregate demand will generate _________________ in real GDP and _________________ in the price level in the short run.

a decrease; a decrease

Expansionary monetary policy causes _______________ in interest rates in the short run and _______________ in interest rates in the long run.

a fall; no change

The SRAS curve is upward sloping because:

a higher aggregate price level leads to higher output since most production costs are fixed in the short run.

In general, a change in the price level, all other things unchanged, causes:

a movement along the aggregate demand curve.

When an economy experiences stagflation, it is usually caused by a:

a negative supply shock.

Raising taxes shifts the:

aggregate demand curve to the left.

An increase in government spending on health care is likely to shift the:

aggregate demand curve to the right.

A recessionary gap is when:

aggregate output is below potential output.

A decrease in the money supply is likely to cause:

an increase in borrowing and interest rates and a decrease in aggregate demand.

An increase in the wealth of households, all other things unchanged, will result in ________________ the aggregate consumption function.

an upward shift in

The discount rate is the interest rate the Federal Reserve charges on loans to:

banks.

Changes in taxes and government transfers shift the aggregate demand curve ______________ government purchases.

by less than

The Federal Reserve System is the ______________ for the United States.

central bank

Discretionary fiscal policy refers to:

changes in government spending or taxes to close a recessionary or inflationary gap.

Included in the M1 definition of money are:

checkable bank deposits.

Monetary policy would affect aggregate demand through changes in:

consumer and investment spending.

Given a recessionary gap, the Federal Reserve will use monetary policy to ________________ interest rates and _______________ aggregate demand .

decrease; increase

Contractionary monetary policy involves:

decreasing the money supply, increasing interest rates, and decreasing aggregate demand.

A change in taxes or change in government transfers affects consumption through a change in:

disposable income.

To expand the money supply, the Federal Reserve would have to do which of the following?

engage in an open purchase of Treasury bills.

If the Federal Reserve wants to increase the monetary base, it might:

engage in an open-market purchase of Treasury bills.

An autonomous increase in aggregate spending:

increases GDP by more than that amount.

Expansionary monetary policy:

increases the money supply, decreases interest rates, and increases consumption and investment.

Stagflation is a combination of:

increasing unemployment and increasing inflation.

The short-run Phillips curve:

is downward sloping because there is a trade-off between inflation and unemployment rates in the short run.

Planned investment spending:

is negatively related to the interest rate.

The federal government's largest source of tax revenue is:

personal income and corporate profit taxes.

The multiplier effect of changes in government transfers is:

less than the multiplier effect of a change in government spending.

An inflationary gap created by a demand shock can be addressed by ________________ to ________________.

lowering government spending; lower the aggregate price level

When you are using money to purchase a new MP3 player, money is serving as a:

medium of exchange.

Monetary neutrality implies that in the long run:

monetary policy does not affect the level of economic activity.

A $100 million increase in government spending increases equilibrium GDP by:

more than $100 million.

The slope of the demand curve for money is:

negative.

In the long run, the aggregate price level has:

no effect on the quantity of aggregate output.

In the long run, inflationary and recessionary gaps are self-correcting because, eventually:

nominal wages rise in order to close an inflationary or fall in order to close a recessionary gap.

The aggregate demand curve is downward sloping because:

of the wealth effect of a change in aggregate price level.

The Federal Reserve affects interest rates by:

open market operations that shift the money supply curve.

The major tools of monetary policy with which the Federal Reserve buys and sells government bonds is called:

open-market operations.

An example of an automatic stabilizer is:

tax receipts rising when GDP rises.

In the long run, the only effect of monetary policy is on:

the aggregate output level.

The aggregate demand curve shows the relationship between the aggregate price level and:

the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world.

Consumer spending will fall if:

the government raises tax rates.

If an economy is in long run equilibrium, at its potential output level, this also means:

the money market is in equilibrium.

If the current level of real GDP lies above potential GDP, then an appropriate fiscal policy would be to ____________, which will shift the AD curve to the ______________.

there is a recessionary gap, and contractionary fiscal policy is appropriate.

The long-run Phillips curve is:

vertical at the nonaccelerating-inflation rate of unemployment (NAIRU).

Since the Federal Reserve has the power to determine the supply of money, the money supply curve in the liquidity preference model is a(n):

vertical line.