ECO 202 EXAM 2
Household wealth
Increases in household wealth increases consumption spending increasing AD curve
If Irving Fisher was correct in his prediction about the value of velocity , then the quantity equation can be written to solve for the inflation rate as follows:
Inflation rate=Growth rate of the money supply-Growth rate of real output
Jill makes a deposit into her savings account at the local bank with 100$ in cash. As a result this transaction,
M1 will decrease by 100
What is a "classic type of run'?
Many depositors simultaneously decide to withdraw their money from a bank.
If the economy is initially at full employment equilibrium, then an increase in aggregate demand causes ___________ in real GDP in the short run and _______ in the price level in the long run
an increase; an increase
Which of the following is usually the cause of stagflation?
a supply shock as a result of an unexpected increase in the price of a natural resource.
Stagflation occurs when
a supply shock shift the SRAS to the left, increasing the price level and decreasing actual GDP.
In the basic AD-AS model, a decrease in interest rates will in the short run lead to______ in real GDP and _______ in the price level.
an increase; an increase
In the static aggregate demand-aggregate supply model, a decrease in interest rates will in the short run lead to _______ in real GDP and ______ in the price level.
an increase; an increase
In the basic AD-AS model. a decrease in oil prices will in the short run lead to__________in real GDP and _____ in the price level.
an increase; a decrease
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
In the basic aggregate demand and aggregate supply model, a decrease in the expected price level (a decrease in inflationary expectations) would in the short run lead to ______ in real GDP and ____ in the price level.
an increase; a decrease
Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. which of the following will happen in the short run?
unemployment will decline
Stagflation is a
combination of inflation and recession
Expected Profitability
increase in expected profitability increases investment spending increasing AD curve
An increase in interest rates will cause a _________ the aggregate demand curve
leftward shift of
An increase in state income taxes will cause a ______ the aggregate demand curve
leftward shift of
In the AD- AS model, the long run automatic adjustment mechanism to potenial GDP in the long run from a level of real GDP above potential GDP occurs as nominal wages_______, shifting the short-run aggregate supply curve to the _______.
rise;left
A faster income growth in other countries will cause a ______ the U.S aggregate demand curve
rightward shift of
An increase in government purchases will cause ______the aggregate demand curve
rightward shift of
The simple deposit multiplier equals
the ratio of the amount of deposits created by banks to the amount of new reserves,the inverse or reciprocal of the required reserve ratio, the formula used to calculate the total increase in checking account deposits from an increase in bank reserves.
The aggregate demand-aggregate supply model considers
the demand (spending) side and the supply (producer) side of the economy
whereas in the long run, an automatic mechanism brings
the economy back to potential GDP but the price level remains higher
When the Federal Reserve purchases Treasury securities in the open market,
the sellers of such securities deposit the funds in their banks and bank reserves increase
The aggregate demand curve shows the relationship between
the price level and the quantity of real GDP demanded by households,firms, and the government
The short run aggregate supply curve shows the relationship in the short run between
the price level and the quantity of real GDP supplied by firms
The quantity theory of money is better able
to explain the inflation rate in the long run
Increase in Aggregate Demand Long run: 1.Real GDP 2.Unemployment rate 3.Price level 4.Recession? 5.Inflation
1. No change 2. No change 3.Up 4.No 5. yes
Increase in short-run aggregate supply Short run: 1.Real GDP 2.Unemployment rate 3.Price level 4.Recession? 5.Inflation
1. Up 2. Down 3.Down 4.No 5.No
Decrease in short-run aggregate supply. Short run: 1.Real GDP 2.Unemployment rate 3.Price level 4.Recession? 5.Inflation
1. Up 2. Up 3.Up 4.Yes 5.Yes
Increase in Aggregate Demand Short run: 1.Real GDP 2.Unemployment rate 3.Price level 4.Recession? 5.Inflation
1. Up 2.Down 3.Up 4.No 5.Yes in the short run
Decrease in Aggregate Demand Long run: 1.Real GDP 2.Unemployment rate 3.Price level 4.Recession? 5.Inflation
1. no change 2.no change 3. down 4. no 5. deflation
Decrease in Aggregate Demand Short run: 1.Real GDP 2.Unemployment rate 3.Price level 4.Recession? 5.Inflation
1.Down 2.Up 3.Up 4.Yes 5.Deflation
Suppose a bank has 100 million in checking account deposits with no excess reserves and the required reserve ration is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent,then the bank will now have excess reserves of
5 million
There are____members of the Board of Governors, who the President of the United States appoints to _____. One of the Board members is appointed Chairman for______.
7;14yr nonrenewable terms;a 4 year renewable term
What is price deflation?
A fall in the price level
In the basic AD-AS model, which of the following would cause a recession?
A decrease in expected future profits by businesses
In the static AD-AS model, which of the following would cause deflation?
A decrease in oil prices
Which of the following would cause the aggregate demand curve to shift to the left?
A decrease in real GDP
Which of the following would cause a decrease in real GDP and, if large enough, a recession?
A reduction in consumer confidence that causes aggregate demand to fall
Which of the following would cause an increase in the price level?
A reduction in taxes that increases aggregate demand
Using the Aggregate Demand - Aggregate Supply model, which of the following would cause a recession?
A shift to the left of the aggregate demand curve
Using the Aggregate Demand-Aggregate Supply model, which of the following would cause inflation?
A shift to the left of the aggregate supply curve
In the basic AD-AS model, an increase in income taxes will in the short run lead to_____ in real GDP and______ in the price level.
An decrease; a decrease
In the basic AD-AS model which of the following would cause inflation?
An increase in government purchases
Which of the following scenarios would lead to a reduction in real GDP and may even cause a recession?
An increase in oil price that causes short-run aggregate supply to fall.
Which of the following scenarios would lead to an increase in the price level?
An increase in oil prices that decreases short-run aggregate supply.
Price level increases
Change in price level , LRAS curve will not change
Labor force increases
Change in the productive capacity of the economy, LRAS will shift to the right
Technological change occurs
Change in the productive capacity of the economy, LRAS will shift to the right
There is an increase in the quantity of capital goods
Change in the productive capacity of the economy,LRAS will shift to the right
Which of the following is not a policy tool the Federal Reserve uses to manage the money supply?
Changing income tax rates
As economy moves out and up along a given short-run aggregate supply curve,
Cyclical unemployment decreases
Expected future income
Increase in expected future income increases consumption spending increasing AD curve
Interest Rates (Monetary Policy)
Decrease investment spending and consumption decreasing AD
A higher required reserve ratio____the value of the simple deposit multiplier.
Decreases
Foreign Real GDP
Increase in foreign real GDP increases net exports increasing AD curve
Taxes (Fiscal Policy)
Increase in taxes decreases consumption spending or investment spending decreasing AD curve
Government Purchases(Fiscal Policy)
Increase government purchases increases AD curve
Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?
Required reserves would increase
Why would deposit insurance provide the banking system with protection against runs?
Since most depositors are insured, it is less likely thank panicked buyers will simultaneously withdraw funds.
US has a "Fractional reserve banking system" Why do most depositors seem to be unworried that bank loan out most of the deposits they receive?
The FDIC insures deposits up to 250,000.
Suppose that during one period, the velocity of money is constant during another period, it undergoes large flunctuations. During which period will the quantity theory of money be more useful in explaining changes in the inflation rate?
The period where velocity is constant because when velocity is constant the changes in the money supply can be show to be the main cause of inflation.
Open market operations refer to the purchase or sale of______ to control the money supply.
U.S Treasury securities by the Federal Reserve
Suppose you decide to withdraw 100$ in cash from your checking account. Which one of the following choices accurately shows the effect of this transaction on your bank's balance sheet?
Your bank's balance sheet shows a decrease in reserves by 100$ and a decrease in deposits by 100$.
In the basic AD-AS model, an increase in the expected future price level will in the short run lead to _______ in real GDP,__________ in the unemployment rate and ______ in the price level
a decrease; an increase ; an increase
If the economy adjusts through the automatic mechanism, then a decline in a aggregate demand causes
a recession in the short run and a decline in the price the price level in the long run
A supply shock
a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve
Aggregate demand is comprised of expenditure components that include:
government spending,consumption,investment, and net exports
Long run equilibrium _____ short run equilibrium but short run equilibrium does_____ long run equilibrium
imply, not imply
Saving account balances,small denomination time deposits, and non institutional money market fund shares are?
included only in M2
In the short run, an increase in aggregate demand
increases the price level and actual GDP beyond potential GDP.
The real world money multiplier
is smaller than the simple deposit multiplier because banks keep excess reserves and households hold excess cash
The long run aggregate supply curve
is vertical
A increase in the price level will cause____the aggregate demand curve
movement along
In the basic AD-AS model a decrease in the aggregate demand curve would in the long run lead to ______ in the unemployment rate and ______ in the price level.
no change; a decrease
In the basic AD-AS model, a decrease in the aggregate demand curve in the long run lead to ______ in real GDP and ____ in the price level.
no change; a decrease
According to the quantity theory of money, if velocity does not change, when the money supply of a country what will occur?
nominal GDP will increase
An increase in the expected future price level would shift
only the short-run aggregate supply curve to the left
An increase in aggregate demand causes an increase in_____ only in the short run, but cause an increase in_____ in both the short run and the long run.
real GDP; the price level
When the Federal Reserve sells Treasury securities in the open market,
the buyers of these securities pay for them with checks and bank reserves fall
