Macroeconomics ch. 13-16
imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. as a result of Kristy's deposit, Bank A RESERVES IMMEDIATELY increase by
$10,000
imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. as a result of Kristy's deposit, Bank A's REQUIRED RESERVES increase by...
$2,000
imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Bank A can make a MAXIMUM LOAN of
$8,000
imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. as a result of Kristy's deposit, Bank A's EXCESS RESERVES increase by.
$8,000
refer to the diagram to the right. give the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?
1.8%
in the diagram 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%
according to the quantity theory of money, if the money supply grows at 20% and real GDP grows at 5% then the inflation rate will be
15 percent
The basic aggregate demand and aggregate supply curve model help explain...
short term fluctuations in real GDP and the price level
Fiscal policy is defined as changes in federal _____________ and ____________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment
taxes; expenditures
the smaller the fraction of an investment financed by borrowing,
the SMALLER the potential return and potential LOSS on that investment
in 2008, the Treasury and Federal Reserve took action to save large financial forms such as Bear Stearns and AIG from failing. which of the following is one reason why these measures were taken
the bankruptcy of a large financial firm would force the firm to sell its holdings and securities, which could cause other firms that hold these securities to also fail
in the dynamic model AD-AS in the diagram to the right, 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
when the aggregate demand curve and the short run aggregate supply curve intersect...
the economy is in the short-run macroeconomic equilibrium
which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?
the end of the housing bubble
when the Fed increases the money supply,
the interest rate rate and this stimulates investment spending.
monetary policy refers to the actions the Federal Reserve takes to manage
the money supply and interest rates to pursue its economic objectives
then seven members of the Board of Governors of the Federal Reserve are appointed by
the president
When the Fed uses contractionary policy
the price level rises LESS than if would if the Fed did not pursue policy.
the major shortcoming of the barter economy is
the requirement of a DOUBLE COINCIDENCE of wants
The more excess reserves banks choose to keep,
the smaller the deposit multiplier
the quantity theory of money was derived from the quantity equation by asserting that
the velocity of money was fixed
why does the short run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?
workers and firms adjust their expectations of wages and price DOWNWARD and they ACCEPT the lower wages and prices
in the figure to the right. suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy. using the staticAD-AS model, this situation would be depicted as a movement from
C to B
the M2 measure of supply equals
M1 PLUS SAVINGS ACCOUNT account balances plus small- denomination time deposits plus non institutional MONEY MARKET FUND SHARES
interest rates in the economy have fallen. how will this affect aggregate demand and equilibrium in the short run?
Aggregate demand will RISE, the equilibrium price level will RISE, and GDP will RISE.
congress and the president carry out fiscal policy through changes in
government purchases and taxes
automatic stabilizers refer to
government spending and TAXES that automatically increase or decrease along with the business cycle
commodity money
has value independent of its use as money
open market operations refer to the purchase or sale of ________ to control the money supply
U.S. Treasury securities by the Federal Reserve.
lowering the interest rate will
increase investment project by firms
the purchase of Treasury securities by the Federal Reserve will, in general
increase the quantity of reserves held by banks
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
the largest source of federal government revenue in 2014 wa
individual income taxes
in the dynamic aggregated demand and aggregate supply model, if AD shifts faster than AS then...
inflation occurs
Which of the following is not a function of the Federal Reserve System or the "Fed"?
insuring deposits in the banking system
Most recessions in the united states since world war 2 have begun with
a decline in residential construction
a financial asset is considered________ if it can be sold in a secondary market
a security
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.
by the 2000s, an important change in the mortgage market had occurred when ____________ became significant participants in the secondary market for mortgages
investment banks
if households choose to take some fraction of each check they deposit and hold it as currency, then the simple deposit multiplier __________________ the real world multiplier.
is greater than
at the beginning of the recession in 2007-2009, real GDP in the United States was ______________ potential GDP, and in June 2009, real GDP was ________________ potential GDP
above: below
a central bank like the Federal Reserve in the United States can help banks survive a bank run y
acting as a lender of last resort
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
money is
an ASSET that people are willing to accept in exchange for goods and services
a bank will consider a car loan to a customer _____________ and a customer's checking account to be _______________
an asset; a liability
the process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as
an automatic mechanism
which of the following will shift the aggregate demand curve to the right, ceteris paribus?
an increase in net exports
the international trade effect states
an increase in the price level will LOWER NET EXPORTS
in the figure to the right, suppose the economy is initially at point A. the movement of the economy to point B as shown on the graph illustrates the effect of which of the following policy actions by the Federal Reserve?
an open market sale of Treasury bills
economies where goods and services are traded directly for other goods and services are called
barter
in the diagram to the right, if the economy is year 1 is at point A and is expected to go to point B in year 2. which of the following policies could the federal reserve use to move the economy to point C
buy Treasury bills
in the dynamic model AD-AS in the diagram to the right, 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
which of the following assets is most liquid
money
which of the following is one of the most important benefits of money in an economy
money makes exchange easier, leading to more specialization and higher productivity
the quantity equation states that the
money supply TIMES THE VELOCITY of money equals the price level TIMES real output
the quantity theory of money predicts that, in the long run, inflation results from the
money supply growing at a faster rate than real GDP
an increase in the price level will...
move the economy up along a stationary short run aggregate supply curve
if the amount you owe on your house is greater than the price of the house,you have
negative equity in your house
which of the following is one explanation as to why the aggregate demand curve slopes downward?
decreases in the price level raise real WEALTH and INCREASE CONSUMPTION SPENDING.
the required reserves of a bank equal its __________ the required reserve ratio
deposits multiplied by
active changes in tax and spending by government intended to smooth out the business cycle are called ___________ and changes in taxes and spending that occur passively over the business cycle are called ______________
discretionary fiscal policy; automatic stabilizers
the three main monetary policy tools used by the Federal Reserve to manage money supply are
open money market operations, discount policy, and reserve requirements
Fiscal policy refers to changes in
federal taxes and purchases that are intended to achieve macroeconomic policy objectives
economists estimate that _________ of U.S. currency is outside the United States and held primarily by _______________.
over half; households and firms in countries where there is little confidence in the local currency
dollar bills in the modern economy serve as money because
people have confidence that others will accept them as money
the short run aggregate supply cure has a _________ slope because as prices of ___________ rise, the prices of _________________ rise more slowly
positive, final goods and services, inputs
full employment GDP is also known as
potential GDP
when the Federal Reserve was established in 1913 , its main policy goal was
preventing bank panics
federal reserve Board Chairmen Paul Volcker, Alan Greenspan, and Ben Bernanke all have focused on which of the following as their main goal of monetary policy?
price stability
which of the following explains why mortgages weren't considered securities prior to 1970
prior to 1970, mortgages were rarely resold in the secondary market
with the federal funds rate near zero and he economy still struggling, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. this policy is known as
quantitative easing
in the diagram to the right, if the economy is year 1 is at point A and is expected to go to point B in year 2,then the appropriate monetary policy by the federal reserve would be to
raise interest rates
if the central bank can act as a lender of last resort during a banking panic, banks can
satisfy customer withdrawal needs and eventually restore the public faith in banking system
suppose the economy is in short run equilibrium BELOW potential GDP and Congress and he president lower taxes to move the economy back to long run equilibrium. using the static AD- AS model in the diagram to he right, this wold be depicted as a movement from
A to B
higher personal taxes...
DECREASE aggregate demand
expansionary monetary policy refers to the __________ to increase real GDP
Federal Reserve's increasing the money supply and DECREASING interest rates
if short run aggregate supply increases (shifts to the right) by less than long run aggregate supply, then, at the short run equilibrium..
GDP will be BELOW potential GDP
potential GDP refers to the level of
REAL GDP in the LONG RUN
which of the following is true about the Federal Reserve and its ability to prevent recessions? the Federal Reserve...
cannot realistically fine tune the economy, but seeks to keep recessions SHORTER AND MILDER than they would otherwise be
the level of aggregate supply in the long run is not affected by..
changes in PRICE LEVEL
most payments in the U.S. for goods and services are made using
checking account deposits
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
since the social security system began in 1935, the number of worker per retiree has
continually declined
the M1 measure of money supply equals
currency plus checking account balances plus traveler's checks.
when housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements ____________ as many households found it __________ to borrow against the value of their homes
declined; harder
refer to the diagram to the right. give the economy is at point A in year 1, what will happen to the unemployment rate in year 2?
it will rise
because of the slope of the aggregate demand curve we can say that a decrease in the price level ...
leads to HIGHER level of real GDP demanded
which of the following would not be considered an automatic stabilizer
legislation increasing funding or job retraining passed during a recession
fiat money has
little to no intrinsic value and IS AUTHORIZED by the central bank or government body
if the probability of losing your job remains ________, a recession would be a good time to purchase a home because the fed usually _________ interest rates during this time
low; lowers
in the figure to the right, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to
lower interest rates
if the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?
this will sift the demand curve to the RIGHT
the larges and fastest- growing category of the federal government expenditures is
transfer payments
in October 2008, Congress passed the ____________, under which the Treasury provided funds to banks in exchange for stock
troubled asset relief program (TARP)
(T/F?) Inflation is generally the result of total spending growing faster than total production
true
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.
the statement, "this Dell laptop costs $1,200" illustrates which function of money?
unit of account
which of the following describes what the Fed would do to pursue an expansionary monetary policy
use open market operations to BUY treasury bills
