MEXAM 3

If the reserve requirement is 10%, a withdrawal of $500 leads to a potential decrease in the money supply of

$5,000

Assume that Empathy State Bank begins with the balance sheet and is fully loaned-up. This bank's reserve ratio is

0.10

If the marginal propensity to consume is 0.9, then the spending multiplier is

10

Suppose the monetary authority sets a target of 1% to 2% inflation per year. If the economy experiences deflation, the appropriate monetary policy is

A quantitative easing

Expansionary monetary policy shifts the______curve to the_____

AD; right

When the interest rate falls, the value of the U.S. dollar in foreign exchange markets tends to______ and net exports tend to_____

Fall; increase

During cost-push inflation, aggregate output_____ and the aggregate price level_____

Falls; rises

The main policymaking arm of the Fed is the

Federal Open Market Committee

When current real output exceeds potential real output, the Federal Reserve will interest rates in an effort to fight_______

Increase, inflation

Which economists believe that fiscal policy is effective, while monetary policy may be ineffective?

Keynesians

If the amount of regulation in an economy increases, the aggregate supply curve shifts____ and output supplied will____

Left; decrease

The dramatic collapse in the price of technology stocks in 2001-2003, coupled with a short recession in 2001, caused the Federal Reserve to______ interest rates to stimulate_____

Lower, employment

Which statement is correct?

M2 includes M1.

In the equation of exchange, the term P × Q is the same as

Nominal GDP

What occurs during a negative demand shock?

Output and price level decrease.

One reason the amount of real output demanded declines when the aggregate price level rises is the result of a reduction in household wealth called the____ effect.

Wealth

What would cause inflation and employment to increase?

a rightward shift of the aggregate demand curve

Which of these will shift the aggregate supply curve to the right?

an increase in the investment of human capital

The Federal Reserve uses its tools to counteract

booms and recessions

The idea that a change in the money supply would affect prices but not real GDP is associated with the

classical monetary transmission mechanism.

_____ inflation occurs when a supply shock reduces aggregate supply.

cost-push

A(n) ________ in government spending, a ______ domestic currency, and _______ interest rates will shift the aggregate demand curve to the left.

decrease; stronger; higher

All of these are functions of money EXCEPT

defense against inflation.

Open market operations involve the purchase and sale of

government securities

An increase in incomes of the countries that purchase U.S.-made products will cause a(n)______ in the ______ U.S.-made products.

increase; aggregate demand for

Monetary policy, like fiscal policy, is subject to______. lags.

information, implementation, and decision

The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does begin to reduce bond purchases

interest rates will rise.

To say that the Federal Reserve is transparent means that the Fed

is open regarding its monetary policy.

Liquidity refers to how

quickly, easily, and reliably an asset can be converted into a medium of exchange.

Decreased interest rates will shift the aggregate demand curve to the _____ and ______ output demanded.

right; increase

Increased consumer confidence will shift the aggregate demand curve to the and output demanded.

right; increase

Which list represents monetary policy actions that are consistent with one another?

sell government bonds, raise reserve requirements, raise the discount rate

The aggregate demand curve

shows the amount of real GDP that will be demanded at each possible price level.

If Jack Sparrow buries a chest of gold on a deserted island and plans to come back for it later, then the gold is functioning as a

store of value.

The Taylor rule suggests that

the federal funds target rate should be equal to 2% plus the inflation rate plus one-half the inflation gap plus one-half the output gap.

The discount rate is

the rate regional Federal Reserve banks charge depository institutions to borrow reserves.

The long-run aggregate supply curve is vertical because

the economy will gravitate to the position of full employment when all variables are flexible.

If banks increase excess reserves to increase their ability to absorb a higher rate of defaults, the______ multiplier will______

actual; fall