Test 2 Questions Econ
Suppose the economy portrayed by the figure below experiences a national security related surge in defense expenditures. How does the market equilibrium change?
AD shifts to the right along AS curve
An open market purchase of government bonds by the Federal Reserve results in _________ in the supply of money and _________ in interest rates
Increase, decrease
Automatic stabilizers include all of the following EXCEPT: Increased research and development. All of the answers are correct. Transfer payments. Tax revenues.
Increased research and development.
______ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy.
Increasing; increasing; lowering
Difference between planned aggregate expenditures and aggregate output at full capacity
Inflationary gap
If the money multiplier increased, what probably happened to the reserve requirement? Hint: Recall the formula for money multiplier: Money multiplier=1/Reserve requirement
It decreased.
__ is/are the buying and selling of U.S. government securities
Open market operations
According to the full aggregate expenditures model, which will have the greater stimulus effect on the economy: the same amount increase in government spending or decrease in taxes?
The increase in government spending will have the greater stimulus effect on the economy.
Which of these is a description of an automatic stabilizer of the economy?
When the economy declines, tax receipts decrease
The short-run aggregate supply curve is upward sloped to indicate what?
a positive relationship between the aggregate output and aggregate price level.
The 12 Federal Reserve banks and their branches do all of the following except:
accept deposits from U.S. citizens
Related to the Economics in Practice on p. 230: In the simple "Keynesian" view, if planned aggregate expenditure and aggregate demand exceed capacity output, there is
an inflationary gap and price level rises
if the (actual) reserve ratio is less than the reserve requirement, excess reserves __________
are negative.
Which of these is a liability for a bank? a loan to a firm required reserves deposits made by a firm excess reserves
deposits made by a firm
Money is _______ when it has no intrinsic value, but it is nonetheless accepted as money because the government has decreed it to be money.
fiat money
Fiscal policy refers to the idea that total economic output and unemployment can be affected by changes:
in government spending and taxes.
To decrease the price level the government could adopt policies that
increase aggregate supply and decrease aggregate demand.
Long run aggregate supply curve _____
is vertical because all prices (both input and output prices) change at the same rate in the long run.
The aggregate supply curve is ________ sloped in the short run, but _______ in the
positively; vertical
Under a cyclically balanced budget, a government should _____ when the economy is growing and _____ when GDP is declining
raise taxes; raise spending
Which of the following would cause the short-run aggregate supply curve to shift to the right?
retired workers reentering the labor force
Jane has a savings account into which she puts money every month so she will eventually have enough money for a down payment on a house. This is an example of which function of money?
store of value
What is the reserve ratio?
the percentage of a bank's total deposits held in reserve, either as cash in the vault or as deposits at the Federal Reserve
Coal is used as a source of energy in many manufacturing processes. Assume a long strike by coal miners reduced the supply of coal and increased the price of coal. This would cause
the short-run aggregate supply curve to shift to the left
Serving as a ______ is a function of money that gives us a yardstick by which we can measure and compare the values of a wide variety of goods and services.
unit of account
How will an increase in the aggregate output (Y) impact the Fed's decision to change the interest rate r?
will increase interest rate
