PSU ECON 104 Exam 3

Assume you take $2,300 from your checking account and transfer it to your savings account. How much will M1 change by?

-2300

Assume you take $1,464 in cash and deposit it into your checking account. Holding all else constant, how much will M1 change by?

0

If the MPC is 0.61 and taxes decrease by $702, holding all else constant, real GDP will change by _____ according to the multiplier effect.

1098

The United States is divided into ____ Federal Reserve Districts.

12

If the required reserve ratio is 5% and you deposit $761 of cash into a bank, what is the maximum amount the money supply could increase by?

14459

Consider the following information for a simple economy. Assume there are no traveler's checks. Currency is equal to $731, checking account balances are equal to $1,530, savings account balances are equal to $1,939, small-denomination time deposits are equal to $2,856, and money market fund shares are equal to $959. What does M1 in this simple economy equal to?

2261

Assume a government starts with zero debt. This government then runs an annual deficit for 9 years of $2,548. At the end of those 9 years, what would be amount of the government debt?

22932

If the MPC is 0.74, what is the value of the spending multiplier?

3.85

Assume the required reserve ratio is 12%, the amount of deposits in a bank are $1,306, and the bank is holding $628 in reserves. How many of those reserves are excess reserves?

471.28

If the required reserve ratio is 12% and you deposit $595 of cash into a bank, what is the maximum amount the total deposits could increase by?

4958.33

Assume the required reserve ratio is 8%, the amount of deposits in a bank are $1,112, and the bank is holding $651 in reserves. What is the maximum amount of additional loans this bank can make?

562.04

If the required reserve ratio is 12%, what is the value of the simple deposit multiplier?

8.34

Which of the following would be considered a fiscal policy action? Select all that apply. Tax incentives are offered to encourage the purchase of fuel-efficient cars. A tax cut is designed to stimulate spending during a recession. The Federal Reserve increases interest rates during an expansion. Spending on an international conflict is increased to promote homeland security.

A tax cut is designed to stimulate spending during a recession.

Consumer confidence in the economy has fallen. How will this affect aggregate demand and equilibrium in the short run?

Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall.

If whole avocados were used as a society's money, which of the following functions would be the hardest to satisfy? a unit of account. a store of value. a standard of deferred payment. a medium of exchange.

a store of value

If the short-run aggregate supply increases by less than the long-run aggregate supply, then, at the short-run equilibrium

GDP will be below potential GDP.

One limitation of monetary policy is the time in which it takes for the Federal Reserve to notice the economy has moved away from equilibrium. For example. Perhaps the unemployment rate is stable but the inflation rate has started to increase month-over month. The Fed may be unsure if the economy has already entered an expansion. This limitation is known as:

The Recognition Lag

A central bank like the Federal Reserve in the United States can help banks survive a bank run by

acting as a lender of last resort

In the basic AD-AS model, a decrease in government expenditures will shift ________ to the _________.

aggregate demand; left

In the basic AD-AS model, short-run expansionary fiscal policy will shift ________ to the _________.

aggregate demand; right

Economies where goods and services are traded directly for other goods and services are called ________ economies.

barter

Historical societies used precious metals such as gold or silver as money. This would be an example of a

commodity money

If the economy is in an expansion due to an increase in aggregate demand, the Federal Reserve will want to conduct _________ monetary policy which will __________ overall output and _________ the price level back to its original point.

contractionary; lower, lower

Assume that the economy is in an expansion above potential GDP. If policymakers implement an contractionary fiscal policy but overestimate the size of the multiplier, the new equilibrium level of GDP is likely to

decrease yet stay above potential GDP

According to the basic AD-AS model, an increase in taxes will ________ the price level and _________ level of real GDP.

decrease; decrease

A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out.

decrease; increase

On the long-run aggregate supply curve, a decrease in the price level

has no effect on the quantity of real GDP supplied.

Contractionary monetary policy results in a ___________ interest rate and a ________ shift in the aggregate demand curve.

higher; leftward

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

Suppose the economy is in macroeconomic equilibrium and the Federal government pursues contractionary fiscal policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement to

the left

If stricter immigration laws are imposed and many foreign workers in a country are forced to go back to their home countries

the long-run aggregate supply curve will shift to the left.

Currently, out of the listed options, the largest category of revenues for the U.S. is: Discretionary Spending Individual Income Taxes Mandatory Spending Corporate Income Taxes Net Interest Payments

Individual Income Taxes

Which of the following new tool of monetary policy ends up being the floor (minimum) of the federal funds rate range? Interest rate paid on reserves Open market operations Interest rate on reverse repurchasing agreements Interest rate paid on discount loans (the discount rate)

Interest rate on reverse repurchasing agreements

Which of the following is a new tool of monetary policy as mentioned in this lesson? Reserve Requirements Open Market Operations Interest rate paid on reverse repurchasing agreements Discount policy

Interest rate paid on reverse repurchasing agreements

Which of the following would be considered expansionary monetary policy? Select all that apply. Lowering the discount rate Lowering the reserve requirements Open market purchases None of the three policies listed are considered expansionary monetary policy.

Lowering the discount rate, lowering the reserve requirements, and open market purchases

In 1977, Congress amended the Federal Reserve Act and created what is known as the dual mandate. Which of the following two goals are associated with the dual mandate?

Maximum employment and stable prices

What are the old tools of monetary policy?

Open Market Operations, Discount Policy, Reserve Requirements

Which of the following would be considered contractionary monetary policy? Select all that apply. Lowering the reserve requirements None of the three policies listed are considered contractionary monetary policy. Open market sales Lowering the discount rate

Open market sales

Holding all else constant, if the price of oil unexpectedly increases by 15%, we would see a movement to __________.

SRAS go to the left

A sudden increase in the level of technology occurs. How will this affect short-run aggregate supply and the macroeconomic equilibrium?

SRAS will shift to the right, the equilibrium price level will fall, and the equilibrium level of GDP will rise.

Which of the following is not one of the three main reasons for the inverse relationship between AE and price level? The price-level effect The interest-rate effect The wealth effect The international-trade effect

The price-level effect

If the federal government's expenditures are less than its tax revenues, then

a budget surplus results

Holding all else constant, which of the following will shift the aggregate demand curve to the left? a decrease in the real interest rate a decrease in real GDP an increase in business taxes a decrease in future profit expectations of firms

a decrease in future profit expectations of firms

Assume the economy is currently experiencing stagflation. If monetary policy actions result in the output level returning to the original level, economics would say the FOMC conducted _______ monetary policy.

dovish

Looking at a basic AD-AS model and holding all else constant, if the FOMC raises the discount rate, we would see the price level ________ and the real GDP _______.

fall; fall

Classical economists believe that prices are fairly ________ and are _________ policy intervention.

flexible; opposed to

Holding all else constant, a decrease in the interest paid on reserves and the interest paid on repurchasing agreements would result in a ___________ federal funds rate and a ________ shift in the aggregate demand curve.

lower; rightward

Holding all else constant, open market purchases would result in a ___________ interest rate and a ________ shift in the aggregate demand curve.

lower; rightward

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally

more difficult than with monetary policy

M1 is _________ M2.

more liquid than

When the price level rises from 105 to 120, the level of real GDP supplied rises from $70 billion to $90 billion. This ________ relationship represents the ________ relationship between the quantity of real GDP firms are willing to supply and the price level.

positive; short-run

A decrease in aggregate demand results in a(n) ________ in the ________.

recession; short run

Looking at a basic AD-AS model and holding all else constant, if the FOMC lowers the discount rate, we would see the price level ________ and the real GDP _______.

rise; rise

Holding all else constant, a decrease in consumers' expected future income would be represented by a movement to __________.

the left

Holding all else constant, a decrease in the price level would be represented by a movement to __________.

the left

Holding all else constant, a decrease in the value of a country's currency relative to other currencies would be represented by a movement to __________.

the left

Suppose the economy is in a recession and the Fed pursues expansionary monetary policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement to

the right

Which of the following is an example of discretionary fiscal policy? a decrease in food stamps issued during an expansion or boom an increase in income tax receipts with rising income during an expansion the stimulus payments passed by Congress in 2020 to combat the COVID-19 recession an increase in unemployment insurance payments during a recession

the stimulus payments passed by Congress in 2020 to combat the COVID-19 recession