Puozza Final Macro

Refer to the figure to the right. Ceteris paribus, an increase in interest rates would be represented by a movement from

AD2 to AD1

Refer to the diagram to the right. An increase in taxes would be depicted as a movement from ______, using the static AD-AS model.

B to A

Expansionary monetary policy refers to the______to increase real GDP

Federal Reserve's increasing the money supply and decreasing interest rate

Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long run rate of growth of

Real GDP

Which of the following would be classified as fiscal policy?

The federal government cuts taxes to stimulate the economy.

How do lower taxes affect aggregate demand?

They increase disposable income, consumption, and aggregate demand.

Spending on the war in Afghanistan is essentially categorized as government purchases. How do increases in spending on the war in Afghanistan affect the aggregate demand curve?

They will shift to the aggregate demand curve to the right.

Which of the following best describes the "wealth effect"?

When the price level falls, the real value of household wealth rises.

which of the following best describes the "wealth effect"

When the price level falls, the real value of household wealth rises.

All of the following would be considering a positive addition to household wealth except

a credit card balance

Most recession in the US since WWII have begun with

a decline in residential construction

When the Federal Reserve increases the required reserve ratio as a part of a contractionary monetary policy, there is:

a decrease in the money supply and an increase in the interest rate

When the Federal Reserve increases the required reserve ratio as a part of a contractionary monetary policy, there is

a decrease in the money supply and an increase in the interest rate.

The situation in which short term interest rates are push dot zero, leaving the central bank unable to lower them further is known as

a liquidity trap

The statement, "My iPhone is worth 300" represents money's function as

a unit of account

A central bank like the federal reserve in the united states can help banks survive a bank run by

acting as lender of last resort

The process of an economy adjusting from a recession back to potential GDP in the long run without any government

an automatic mechanism

If aggregate demand just increased, which of the following may have cause the increase?

an increase in government purchases

If aggregate demand just increases, which of the following may have caused the increase?

an increase in government purchases

Most economists believe that the best monetary policy target is

an interest rate

In economics, money is defined as

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

The increase in the amount the government collects in taxes when the economy expands and the decrease in the amount the government collects in taxes when the economy goes into a recession is an example of

automatic stabilizer

Which of the following about fiat money is false?

backed by gold

Economies where goods and services are trades directly for other goods and serves are called

barter economies

Tax cuts on business income increase aggregate demand by increasing

business investment spending

To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the federal reserve could

buy treasury securities.

Silver is an example of a

commodity money

Fiscal policy is determined by the

congress and president

Which of the following is considered contractionary fiscal policy?

congress increases the income tax rate.

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

Federal government purchases, as a percentage of GDP,

have fallen since the early 1950s

Which of the following is an objective of fiscal policy

high rates of economic growth

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be _______ and real GDP to be _______.

higher; higher

When the price level in the US falls relative to the price level of other countries,____ will fall, ______ will rise, and ______ will rise.

imports, exports, and net exports

Expansionary fiscal policy involves

increasing government purchases or decreasing taxes.

The Federal Reserve cannot affect the price level directly; therefore, the Fed typically uses the following as its policy target:

interest rates

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

A financial asset is considered a security if

it can be sold in a secondary market

Because of the slope of aggregate demand curve we can say that a decrease in the price level

leads to a higher level of real GDP demanded.

Suppose the reserve requirement ratio is .20. If banks are conservative and choose not to loan all of their excess reserves, the real world deposit multiplier is

less than 5

Suppose the reserve requirement ratio is .20. If banks are conservative and choose not to loan all of their excess reserves, the real world deposit multiplier is:

less than 5

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental 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 rate during this time.

low;lowers

In the figure to the right, if the economy is at point A, the appropriate monetary policy by the fewer reserve would be to

lower interest rates

Money's most narrow definition is based on its function as a

medium of exchange

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

money demand

The quantity of money predicts that, in the long run, inflation results from the

money supply growing at a faster rate than real GDP

When the federal reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have

more money than they want to hold

An increase in price level will

move the economy up along a stationary aggregate demand curve

If the amount you owe on your house is greater than the price of the house, you have

negative equity in your house

With a monetary growth rule as proposed by the monetarists, during a recession the rate of growth of the money supply would

not change

If credit card balances rise in the economy, then M1 will________ and M2 will______.

not change;not change

In response to already low interest rates doing little to stimulate the economy, the Fed announced a new program in September 2011 under with it would purchase long term Treasury securities while selling an equal amount of shorter-term Treasury securities. This policy was known as:

operation twist

Refer to the right, ceteris paribus, an increase in price level would be represented by a movement from

point B to point A.

The top policy for Paul Volker when he became chair of the Federal Reserve's Board of Governors in 1979 was

price stability

The Federal Reserves's four goals of monetary policy are

price stability, high employment, economic growth, and stability of financial markets and institutions.

IF the Fed raises or lowers interest too late, it could result in a ______ policy that destabilizes the economy

pro cyclical

In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by

providing finds to banks in exchange for stock.

In response to already low interest rates doing little to stimulate the economy, 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

Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long run rate of growth of

real GDP

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

securitization

Refer to the diagram to the right. When the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will

sell Treasury bills

When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate households and firms will now want to

sell treasury bills

Th Fed can increase the federal funds rate by

selling Treasury bills, which decreases bank reserves.

The Fed can increase the federal funds rate by

selling Treasury bills, which decreases bank reserves.

Government transfer payments include which of the following?

social security and medicare programs

The federal Reserve does not target both the money supply and an interest because

the Fed cannot achieve a target for both money supply and an interest rate at the same time.

According to the quantity theory of money the inflation rate equals

the growth rate of the money supply minus the growth rate of real output

Th monetary policy target the Federal Reserve focuses primarily on today is

the interest rate

What is potential GDP?

the level of real GDP in the long run

Monetarists think that the Fed should use _________ as a target when conducting monetary policy.

the money supply

The major shortcoming of barter economy is

the requirement of a double coincidence of wants.

The quantity theory of money was derived from the quantity equation by asserting that

the velocity of money was fixed

Th largest and fastest growing category of federal government expenditures is

transfer payemtns

When the economy is experiencing an expansion automatic stabilizers will cause

transfer payments to decrease and tax revenues to increase

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

use open market operations to buy Treasury bills.

Soldiers in a WWII prisoner of war camp

used cigarettes as money

Tax cuts on business income______ aggregate demand.

would increase

The formula for the simple deposit multiplier is

1/RR

If the required ration is .20, the maximum increase in checking account deposits will result from an increase in bank reserve of 20,000 is

100,000

Imagine that Kristy deposits 10,000 of currency into her checking account deposits at Bank A and that the required reserve ratio is 20%. As a result of her deposit, Bank A's reserves immediately increase by

10000

According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will

15 percent

Refer to table above. suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of

3600..

Suppose the equilibrium real federal funds rate is 2 percent, the target rate of inflation is 2 percent , the current inflation rate is 4 percent, and Real GDP is 2 percent above potential real GDP. IF the weights for the inflation gap and other output gap are both 1/2, then according to the taylor rule the federal funds target rate equals

8 percent

Congress and the president carry out fiscal policy through changes in

government purchases and taxes

Refer to the diagram to the right. Suppose the fed lowers its target for the federal funds rate. Using the static AD-AS model, this situation would be depicted as a movement from

A to B

The federal reserve's narrowest definition of money supply is

M1

When housing prices fall....

declined; harder

Higher person income taxes

decrease aggregate demand

In countries that have adopted inflation targeting, the inflation rate has typically

decreased

AN increase in individual income taxes______disposable income, which_____ consumption spending.

decreases; decreases

The supporters of monetary growth rule believe that active monetary policy

destabilizes the economy, increasing the number of recession and their severity

Part of the spending on the Caldecott Tunnel project in northern California came from the American Reinvestment and Recovery Act, which is an example of _____ aimed at increasing Real GDP and employment

discretionary fiscal policy

For purposes of monetary policy, the federal reserve has targeted the interest rate known as the

federal funds rate

The taylor rule links the Federal Reserve's target for the

federal funds rate to economic variables.

Fiscal policy refers to changes in

federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

An increase in government purchases will increase aggregate demand because

government expenditures are a component of aggregate demand.