ECN 120 Spring 2022 Final

A government program that puts millions of unemployed Americans to work building bridges, roads, and parks would be considered an automatic stabilizer. A.True B.False

false

An increase in the price of oil is likely to shift the short-run aggregate supply curve to the right. A.False B.True

false

Changes in the reserve requirement are the monetary policy tool used most often by the Fed. A.True B.False

false

An individual can reduce financial risk by diversifying investments, that is, by investing in several assets whose possible losses are independent events: True False

true

An increase in the nominal wage will increase potential output. A.False B.True

False

The higher current production capacity is, the higher current planned investment will be. A.False B.True

False

Money is neutral in _____ since it cannot alter _____. A.the long run; real aggregate output B.the short run; price levels C.the short run; real aggregate output D.both the short and long run; price levels Feedback

A.the long run; real aggregate output

In the short run: A.the supply and demand for money determine the interest rate, and the loanable funds market follows the lead of the money market. B.the supply and demand for money determine the interest rate, and the money market follows the lead of the loanable funds market. C.only the supply of money determines the interest rate. D.only the demand for money determines the interest rate.

A.the supply and demand for money determine the interest rate, and the loanable funds market follows the lead of the money market.

Banks are illiquid because: A.their loans are less liquid than their deposits. B.their deposits are less liquid than their loans. C.their liabilities are greater than their assets. D.their assets are greater than their liabilities. Feedback

A.their loans are less liquid than their deposits.

Commodity money is: A.a good used as a medium of exchange that has other uses. B.whatever the government has decreed is money. C.whatever people accept as money. D.money used for commodity futures trading.

A.a good used as a medium of exchange that has other uses.

A 30% increase in the aggregate price level will: A.increase money demand by 30%. B.decrease money demand by 30%. C.increase money demand by the money multiplier. D.not affect the demand for money.

A.increase money demand by 30%.

If overall spending declines and thus the economy contracts, the government could counter this by: A.increasing government spending. B.decreasing government transfers. C.raising tax rates. D.decreasing government spending. Feedback

A.increasing government spending.

Money used to buy groceries is a: A.medium of exchange. B.unit of account. C.store of value. D.reserve of wealth.

A.medium of exchange.

The eurozone is A.the countries that use the euro as their common currency. B.another name for Scandinavia. C.the only countries in Europe that engage in free trade with the United States. D.made up of the communist countries in eastern Europe.

A.the countries that use the euro as their common currency.

Debit cards: A.are not generally accepted as a medium of exchange. B.are considered part of the money supply, since they allow access to a part of the money supply. C.are less liquid than stocks and bonds. D.are a liability for the user of the card.

B.are considered part of the money supply, since they allow access to a part of the money supply.

In the long run, changes in the money supply: A.lower the interest rate. B.don't affect the interest rate. C.have a small but indeterminate impact on the interest rate. D.raise the interest rate.

B.don't affect the interest rate.

A cut in taxes _____, shifting the aggregate demand curve to the _____. A.decreases the marginal propensity to save, increasing consumption; left B.increases disposable income and consumption; right C.decreases government transfers and consumption; right D.increases corporate profits and investment; left

B.increases disposable income and consumption; right

Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that the budget tends to: A.move into a deficit during expansions. B.move into a deficit during recessions. C.remain balanced throughout expansions and recessions. D.move into a surplus during recessions.

B.move into a deficit during recessions.

The balance sheet effect is the: A.change in financial statements when firms buy their own stock. B.change in financial statements when firms borrow money. C.decrease in a firm's net worth from decreasing asset prices. D.increase in a firm's net worth from increasing asset prices.

C.decrease in a firm's net worth from decreasing asset prices

A decrease in the supply of money will lead to a _____ in equilibrium real GDP and a _____ equilibrium interest rate. A.increase; lower B.increase; higher C.decrease; higher D.decrease; lower

C.decrease; higher

Consumer spending will likely fall if: A.government transfers rise or tax rates are lowered. B.the government lowers tax rates. C.the government raises tax rates. D.government transfers rise.

C.the government raises tax rates.

Automatic stabilizers act like: A.automatic expansionary fiscal policy when the economy is in inflation. B.an additional multiplier effect. C.automatic contractionary policy when the economy is in a recession. D.automatic expansionary fiscal policy when the economy is in a recession.

D.automatic expansionary fiscal policy when the economy is in a recession.

Money that the government has ordered to be accepted as money is: A.not usable in international transactions. B.convertible paper money. C.commodity money. D.fiat money.

D.fiat money.

Contractionary fiscal policy includes: A.increasing government expenditures. B.decreasing taxes. C.increasing the money supply. D.increasing taxes.

D.increasing taxes.

A $100 million increase in government spending increases equilibrium GDP by: A.$100 million. B.zero. C.less than $100 million. D.more than $100 million.

D.more than $100 million.

Prior to the Civil War: A.the U.S. government issued paper money but only in small quantities. B.all private money issued by banks was of equal value. C.the U.S. government did not allow banks to issue private money. D.the U.S. government did not issue paper money.

D.the U.S. government did not issue paper money.

Bank reserves are: A.the amount of cash that a bank must hold to pay FDIC insurance premiums. B.the entire amount of checkable bank deposits. C.the money in bank vaults only. D.the currency held at bank vaults plus bank deposits at the Federal Reserve. Feedback

D.the currency held at bank vaults plus bank deposits at the Federal Reserve. Feedback

Expansionary monetary policy reduces the interest rate by... a. ...increasing the money supply. b. ...by setting the the interest rate accordingly. c. ...decreasing the money supply.

a. ...increasing the money supply

The zero lower bound for interest rates means that.... a. ...interest rates cannot fall below zero. b. ...there is always the possibility to have negative interest rates. c. ...there is no lower bound for interest rates.

a. ...interest rates cannot fall below zero.

Most monetary policy by the Fed is conducted through.... a. ...open-market operations. b. ...changing the discount rate. c. ...changing the reserve requirements.

a. ...open-market operations.

Most monetary policy by the Fed is conducted through.... a. ...open-market operations. b. ...changing the reserve requirements. c. ...changing the discount rate.

a. ...open-market operations.

The short-run aggregate supply curve is upward sloping due to... a. ...sticky nominal wages. b. ...fully flexible prices. c. ...the wealth and interest rate effect.

a. ...sticky nominal wages.

The interest rate at which banks can borrow from the Fed, is called... a. ...the discount rate. b. ...the bond rate. c. ...the Federal Funds rate.

a. ...the discount rate.

A contractionary fiscal policy: A.decreases a government budget deficit or increases a government budget surplus. B.may include reductions in taxes. C.may include discretionary increases in transfer payments. D.may include increases in government spending. Feedback

a. decreases a government budget deficit or increases a government budget surplus.

The marginal propensity to consume equals the: A.ratio of the change in consumer spending to the change in aggregate disposable income. B.proportion of consumer spending as a function of aggregate disposable income. C.change in savings divided by the change in consumer spending. D.change in savings divided by the change in aggregate disposable income.

a. ratio of the change in consumer spending to the change in aggregate disposable income.

Stagflation is caused by... a. ...a negative supply shock. b. ...a positive demand shock. c. ...a negative demand shock.

a....a negative supply shock.

A demand shock causes the aggregate price level and the aggregate output to move... a. ...in the same direction. b. ....either in the same direction or in the opposite direction. c. ...in the opposite direction.

a...in the same direction.

The output gap describes... a. ...the percentage difference between actual aggregate output and potential output. b. ...the percentage difference between long-run aggregate supply and short-run aggregate supply. c. ...the percentage difference between aggregate supply and aggregate demand.

a...the percentage difference between actual aggregate output and potential output.

A recessionary gap occurs when... a. ...actual output does not change. b. ...actual output is below potential output. c. ...actual output exceeds potential output. Feedback

b. ...actual output is below potential output.

In case of a demand shock... a. ...aggregate output and the price level move in opposite directions or in the same direction, it depends. b. ...aggregate output and the price level move in the same direction. c. ...aggregate output and the price level move in opposite directions.

b. ...aggregate output and the price level move in the same direction.

A government can pay off its debt if: A.the ratio of debt to GDP is increasing. B.GDP grows faster than the debt. C.the debt grows faster than GDP. D.GDP and the debt grow at the same rate.

b. GDP grows faster than the debt.

A downward shift in the consumption function can be caused by: A.an increase in the wealth of households. B.a decline in consumer wealth. C.expectations of higher incomes. D.an increase in the marginal propensity to consume.

b. a decline in consumer wealth

An inflationary gap gradually: A.increases short-run aggregate supply. B.decreases short-run aggregate supply. C.increases aggregate demand. D.decreases aggregate demand.

b. decreases short-run aggregate supply.

The long-run aggregate supply curve.... a. ...is horizontal at potential output. b. ...is vertical at potential output. c. ...is upward sloping.

b...is vertical at potential output.

The aggregate demand curve shows... a. ...the relationship between the aggregate price level and the quantity of aggregate output supplied. b. ...the relationship between the aggregate price level and the quantity of aggregate output demanded. c. ...the relationship between the quantity supplied and the quantity of aggregate output demanded.

b...the relationship between the aggregate price level and the quantity of aggregate output demanded.

Monetary and fiscal policy generally affects the... a. ...short run aggregate supply curve. b. ...long-run aggregate supply curve. c. ...aggregate demand curve.

c. ...aggregate demand curve.

In order to increase the money supply, the Fed... a. ...either sells or buys Treasury Bills, it depends. b. ...sell Treasury Bills to commercial banks. c. ...buys Treasury Bills from commercial banks.

c. ...buys Treasury Bills from commercial banks.

In order to change the interest rate in the short-run, the Fed... a. ...changes the money demand. b. ...changes nominal GDP. c. ...changes the money supply.

c. ...changes the money supply.

The aggregate demand curve is... a. ...upward sloping. b. ...vertical. c. ...downward sloping.

c. ...downward sloping.

Inflation targeting occurs when... a. ...the inflation rate is always zero. b. ...the Fed tries to bring down inflation. c. ...the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target.

c. ...the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target.

According to the liquidity preference model, what is determined in the money market is/are... a. ...nominal wages. b. ...real GDP. c. ...the interest rate.

c. ...the interest rate.

What is an advantage of inflation targeting? a. Being able to lower the interest rate to 0. b. Focus on low unemployment. c. Transparency about expected interest rate changes by the Fed.

c. Transparency about expected interest rate changes by the Fed.

A decrease in consumer spending is likely to be caused by: A.an increase in the multiplier. B.an increase in investment spending. C.expectation of an increase in personal income taxes. D.expectation of a decrease in personal income taxes.

c. expectation of an increase in personal income taxes.

Monetary neutrality means... a. ...that changes in the money supply are considered a neutral policy by everybody. b. ...that changes in the money supply will substantially affect the economy in the long-run. c....that changes in the money supply have no real effect on the economy in the long-run.

c....that changes in the money supply have no real effect on the economy in the long-run.

Assuming a positive interest rate, the present value of a future payment is _____ its future dollar amount. A.exactly the same as B.more than C.approximately the same as D.less than

d. Less than

Banks are financial intermediaries that: A.have customer deposits as the primary asset and loans to borrowers as the primary liability. B.are types of mutual funds. C.have customer deposits as the primary asset and that provide liquid assets to lenders. D.provide liquid assets to lenders and long-term financing to borrowers.

d. provide liquid assets to lenders and long-term financing to borrowers.