Macro Test 3 Alhambdi

Credit card balances are

not part of the money supply.

Dollar bills in the modern economy serve as money because

people have confidence that others will accept them as money.

When a financial asset is first sold, the sale takes place in the ________ market, and subsequent sales take place in the ________ market.

primary; secondary

The Federal Reserve was established in 1913 to

stop bank panics by acting as a lender of last resort.

the level of aggregate expenditure.

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by

In an economy with money, as opposed to barter, people are more likely to specialize in the production of goods and services.

True

Most U.S. currency held outside the U.S. banking system is held by foreigners.

True

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

U.S. Treasury securities by the Federal Reserve

The multiplier rises as the MPC rises.

Which of the following is a true statement about the multiplier?

an increase in disposable income

Which of the following will cause a direct increase in consumption spending?

Among potential stores of value, money

has the advantage of being the most liquid asset.

Refer to Table above. Consider the above simplified balance sheet for a bank. If the required reserve ratio is 10 percent, the bank can make a maximum loan of

$2,000.

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

$5,000.

actual investment spending.

All of the following are components of aggregate expenditure except

False

An increase in the price level in the United States will shift the aggregate expenditure line upward.

spending; production

At macroeconomic equilibrium, total ________ equals total ________.

0.1

Consumption (dollars) Dispoasble Income (dollars) $1,200 $3,000 2,100 4,000 3,000 5,000 Refer to Table above. Given the consumption schedule in the table above, the marginal propensity to save is

$27 million

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?

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits, the money multiplier will increase.

False

The Fed has complete control over the money supply.

False

It shifts the aggregate expenditure line downward.

How does a decrease in government spending affect the aggregate expenditure line?

True

If aggregate expenditure is more than GDP, then inventories fall and GDP rises.

Net exports will rise as U.S. exports increase.

If inflation in the United States is lower than inflation in other countries, what will be the effect on net exports for the United States?

True

If planned aggregate expenditure equals GDP, the economy is in macroeconomic equilibrium.

an increase in wealth

If the economy is currently in equilibrium at a level of GDP that is below potential GDP, which of the following would move the economy back to potential GDP?

consumption spending

In the aggregate expenditure model, ________ has both an autonomous component and an induced component.

declines; increases

Investment spending ________ during a recession, and ________ during an expansion.

planned aggregate expenditure is greater than GDP.

On the 45 degree line-diagram, for points that lie above the 45 degree line

Households expect future income to decline.

Refer to Figure above. If the U.S. economy is currently at point N, which of the following could cause it to move to point K?

$100 million

Refer to Figure above. Suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. If the MPC is 0.9, then what is the change in GDP?

False

The marginal propensity to consume measures the average amount of wealth that a consumer spends in a given period of time.

the change in consumption divided by the change in disposable income.

The slope of the consumption function is equal to

A central bank can help stop a bank panic by

acting as a lender of last resort

In economics, money is defined as

any asset people generally accept in exchange for goods and services.

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

A bank's largest liability is its

deposits of its customers.

If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.

increase; not change

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called

securitization.

If the Federal Open Market Committee wants to decrease the money supply through open market operations it will

sell U.S. Treasury Securities.

Which of the following tools of monetary policy is used least often?

setting the required reserve ratio