ECO202 EXAM 2
if you think of the aggregate expenditure function as a line on the 45 degree line diagram, the SLOPE would be:
MPC
Calculate Marginal Propensity to Consume (MPC) Point A: Point B: Consumption $2250 $3750 Spending: real GDP: $3000 $5000
MPC= 0.75
when the federal open market committee (FOMC) decides to increase the money supply, it _________ U.S. Treasury Securities. if the FOMC wishes to decrease the money supply, it ___________ U.S. treasury securities.
buys, sells
an initial decrease in a bank's reserves will decrease checkable deposits
by an amount greater than the decrease in reserves
how does an increase in the price level affect the quantity of real GDP supplied in the long run?
changes in the price level do not affect the level of GDP in the long run.
which of the following is not a policy tool the federal reserve uses to manage the money supply?
changing income tax rates
the use of money
eliminates the double coincidence of wants allows for greater specialization reduces the transaction costs of exchange all of the above all of the above
The U.S. dollar can best be described as
fiat money
is the real-world deposit multiplier greater than, less than, or equal to the simple deposit multiplier?
less. the simple deposit multiplier is a model with assumptions that keep it higher than the real-world multiplier.
The amount of U.S. currency outstanding averages to be about $2,800 per person in the U.S. This large amount of currency per person can be partially explained because
many U.S. dollars are held outside of the country by foreigners.
A change in any factor besides price level causes a _______ the short-run aggregate supply curve.
shift in
moving from one line to another risk called a _______ the AD curve
shift in
a $20 trillion increase in planned investment increased the AE line from AE1 to AE2. However, real GDP increased by $40 trillion. Why?
the multiplier effect
The position of the long-run aggregate supply curve is determined by
the number of workers, the amount of capital, and the available technology
We say that the economy as a whole is in macro equilibrium if:
total spending equals total production total spending equals GDP aggregate expenditure equals total production aggregate expenditure equals GDP all of the above all of the above
In the aggregate expenditure model, when is planned investment greater than actual investment?
when there is an unplanned decrease in inventories
What is the effect on real GDP of a $150 billion change in planned investment if the MPC is 0.50?
$300 billion
A figure shows the breakdown of the M1 definition of the money supply in 2015. which area corresponds to the amount of checking account deposits?
(the biggest area) C
If you think of the aggregate expenditure function as a line on the 45 degree-line diagram, the INTERCEPT would be:
- - -- C+i+G+NX
according to the dynamic AD-AS model, what is the most common cause of inflation?
A. AD increases by more than LRAS B. total spending increases faster than total production C. the U.S. Mint prints too much currency D. All of the above E. A and B only E
which of the following will increase planned investment spending on the part of firms
A. a lower real interest rate B. increased optimism about future demand for its product C. increases in the corporate income tax D. all of the above E. A and B only E
The aggregate expenditure model can be written in terms of four spending categories. Which equation shows the relationship between aggregate expenditure and the four spending categories?
AE=C+I+G+NX
Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit.
False. banks must hold a fraction of their deposits as vault cash or with the federal reserve
What is the effect on inventories, GDP, and employment when aggregate expenditure (total spending) exceeds GDP?
Inventories decrease, GDP increases, and employment increases
which of the following is true with respect to Irving Fisher's quantity equation, MxV=PxV?
P= the gap deflator V=PxY/M M=M1 definition of the money supply V= Average number of times a dollar is spent on good and services all of the above all of the above
When potential real GDP is equal to 70, this economy is in ______________ the amount of shortfall in planned aggregate expenditure is equal to:
Recession the vertical distance between AE and the 45 degree line at the level of potential real GDP
Which interest rate does the Fed target?
The federal funds rate
Which of the following is not included in the calculation of total government spending?
Unemployment insurance benefits paid for by the federal government
in a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?"
a bank run involves one bank, a bank panic involves many banks
which of the following is NOT a function of money?
acceptability
which of the following is a monetary policy tool used by the federal reserve bank? decreasing the rate at which banks can borrow money from the federal reserve increasing the reserve requirement from 10% to 12.5% buying $500 million worth of government securities, such as treasury bills all of the above
all of the above
An increase in _________________ will (inc/dec) net exports. the U.S. pic level relative to other countries' price levels the growth rate of U.S. GDP relative to other countries' the exchange rate between the dollar and other currencies
decrease decrease decrease
what is the effect on the following indicators with a contractionary monetary policy? actual real GDP potential real GDP price level unemployment
decreases does not change decreases increases
which of the following is true with hyperinflation?
firms and households avoid holding money can be hundreds/thousands of percentage points per year caused by central banks increasing the money supply at a rate much greater than the growth rate or real GDP all of the above all of the above
in addition to the federal reserve bank, what other economic actors influence the money supply?
households, firms, and banks.
A decrease in ____________ will (inc/dec) consumption the price level household wealth expected future income current disposable income the interest rate
inc dec dec dec inc
credit cards are
included in neither the M1 definition of the money supply nor in the M2 definition
indicate which of the following would cause a shift in the aggregate demand curve from point A to point C. (a shift directly across)
increased consumer optimism lower taxes decrease in the U.S. exchange rate relative to other currencies lower interest rates
Which of the following results in a movement upward along the AD curve?
interest rate effect, wealth effect
The federal funds rate
is the rate that banks charge each other for short-term loans of excess reserves
A change in the price level causes a ________ the short-run aggregate supply curve.
movement along
going downward on a line without skipping to a new line is called a __________ the AD curve
movement along
M1 includes more than just currency because
other assets can also be used to make transactions to buy goods and services.
the __________________ is considered the most relevant interest rate when conducting monetary policy
short term nominal interest rate
what can we expect from the federal reserve bank if it seeks to move the economy in the direction of long-run macroeconomic equilibrium?
the fed will pursue a contractionary monetary policy
Indicate which of the following is correct about the multiplier effect.
the larger the MPC, the more additional consumption that occurs. the multiplier ignores the effect on real GDP of imports, inflation, and interest rates. a decrease in autonomous spending decreases real GDP by a multiple of the change all of the above all of the above
what are the fed's main monetary policy targets?
the money supply and interest rates
according to the quantity theory of money, inflation results from which of the following?
the money supply grows faster than the real GDP
