Macro Test 3. Chapters 13, 15, 16
As the recession persisted into 2009, the unemployment rate in the United States rose to ________, the highest rate since the recession of 1981-1982 and the second highest since the Great Depression.
10 Percent
If the reserve requirement ratio (RR) is 0.20, the simple deposit multiplier is
5
The long run adjustment to a negative supply shock results in
short run aggregate supply shifting to the right.
the problem causing most recessions is too little
spending
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
Long-run macroeconomic equilibrium occurs when
the aggregate demand and short-run aggregate supply curves intersect at a point on the long-run aggregate supply curve.
Where the aggregate demand curve and the short-run aggregate supply curve intersect,
the economy is in short-run macroeconomic equilibrium.
which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?
Aggregate demand and potential real GDP decrease continuously.
If the economy is falling below 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
government purchases
The M2 measure of the money supply equals
M1 plus savings account balances plus small - denomination time deposits plus non-institutional money market fund shares
Congress and the president carry out fiscal policy through changes in
government purchases and taxes
Economies where goods and services are traded directly for other goods and services are called ________ economies.
Barter
Open market operations refer to the purchase or sale of ______ to control the money supply.
U.S. Treasury securities by the Federal Reserve
Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. Which of the following will happen in the short run?
Unemployment will decline.
Which of the following describes what the Fed would do to pursue an expansionary monetary policy?
Use open market operations to buy Treasury bills.
After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level and ________ the unemployment rate as they return to their original levels.
increase: decreases
Suppose the economy is in long-run equilibrium and there is an increase in investment. As a result, real GDP will__________ in the short run, and _________ in the long run.
increase; decrease to its initial value
a decrease in the reserve requirement ______ bank reserves and ______ the money supply
increase; increase
A decrease in the discount rate ______ bank reserves and ______ the money supply if banks respond appropriately to the change in the rate.
increases; increases
Expansionary fiscal policy involves
increasing government purchases or decreasing taxes.
Stagflation occurs when
inflation rises and GDP falls.
Which of the following is not a function of the Federal Reserve System or the "Fed"?
insuring deposits in the banking system
Contractionary monetary policy on the part of the Fed results in
a decrease in the money supply, an increase in interest rates, and a decrease in GDP.
Which of the following would be most likely to induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in
investment spending
A bank will consider a car load to a customer ______ and a customers checking account to be _______
an asset; a liability
Which of the following is considered a negative supply shock?
an unexpected decrease in the refining capacity for oil
Tax cuts on business income increase aggregate demand by increasing
business investment spending
The purchase of Treasury securities by the Federal Reserve will, in general,
not change the quantity of reserves held by banks.
to combat a recession with discretionary fiscal policy, Congress and the president should
decrease taxes to increase consumer disposable income
an increase in interest rates
decreases investment spending on machinery, equipment, factories, consumption spending on durable goods, and net exports.
By making exchange ________, money allows for ________ and higher ________.
easier: specialization; productivity
The three main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations. discount policy. and reserve requirements
Dollar bills in the modern economy serve as money because
people have confidence that others will accept them as money.
An increase in aggregate demand causes an increase in ______ only in the short run, but causes an increase in _______ in both the short run and the long run.
real GDP; the price level
Expansionary fiscal policy will
shift the aggregate demand curve to the right
The required reserves of a bank equal its ______ the required reserve ratio.
Deposits multiplied ratio
Expansionary monetary policy refers to the _____ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing the interest rates.
______ of unemployment during _______ make it easier for workers to ________ wages.
Low levels: an expansion: negotiate higher
A decrease in individual income taxes _____ disposable income, which _____ consumption spending.
Increases; increases
The seven members of the Board of Governors of the Federal Reserve are appointed by
The president
The largest proportion of M1 is made up of
checking account deposits
to decrease the money supply, the Federal Reserve could
conduct an open market sale of Treasury securities
Fiat money has
little to no intrinsic value and is authorized by the central bank or governmental body.
Contractionary fiscal policy to prevent GDP from rising above potential real GDP would cause the inflation rate to be ______ and real GDP to be ______.
lower; lower
Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism in which the Fed can affect the economy through monetary policy?
lowers the interest rate, the firms increase investment spending