Econ-110 exam 3

Negative inflation is called

Deflation

Which of the following is NOT given in the video as an example of a real shock?

high inflation

What other name does Professor Tabarrok give to the economy's long-run potential growth rate?

the Solow growth rate

Which of the following is not one of the possible causes of price changes as revealed through the quantity theory of money

A change in interest rates

What shifts the short-run aggregate supply curve?

A change in the expected rate of inflation

What is the journey a dollar goes on

A dollar is received and then spent by different people

If prices were rising at 5% per year during a recession, which of the following responses from firms would help facilitate the economic recovery, protect worker morale, AND reduce the firm's real labor costs?

A nominal wage increase of 3%

Which of the statements is the best explanation for why the dynamic AD has this shape

A proportional increase in inflation for every decrease in the growth rate is required to keep the growth in spending constant

What do points on a particular ad curve have in common

A specified rate of spending growth

The aggregate demand curve shows combinations of

Inflation and real gdp growth

If the growth rate of the money supply were 4% and the growth rate of the velocity of money were 2%, then which of the following could be a point on the aggregate demand curve?

Inflation of 3% and real growth of 3%

Which of these is NOT one of the definitions of money supply mentioned in the video?

M0

In order to impact aggregate demand and the economy, the Fed needs to be able to influence:

M1 and M2.

Which of the following is true about M1 and M2?

M2 includes saving deposits and money market mutual funds, but M1 does not.

Prof tab summarizes the outcome of the quantity theory of money by says by that when ___, prices must ___.

More money chases the same amount of goods and services; rise

From 1983 to 2016, prices in the us have

More than doubled

How did the Zimbabwean hyperinflation end

Mugabe legalized transactions in foreign currencies

How much additional money will be created if you deposit a $200 check into your bank, which holds a 10% reserve ratio?

No money will be created since the $200 check does not represent an increase in reserves.

Do any of the fundamental factors depend on the rate of inflation?

No, at least not in the long run.

Which of the following is correct?

Nominal GDP growth = inflation + real GDP growt

In the quantity theory of money when you multiply m times v you get

Nominal gdp

In the quantity theory of money when you multiply p times y you get

Nominal gdp

How long does it take for the rate to adjust when the Fed announces a change to its target for the federal funds rate?

Sometimes it adjusts before the Fed even takes any action.

What happens in the long run after an increase in government spending growth?

The AD curve shifts back to its original position.

How do we show the short-run impact of an increase in spending growth in our aggregate demand and aggregate supply model?

The AD curve shifts to the right, and inflation and real growth both increase along the SRAS curve.

Which of the following summarizes the limitations of monetary policy?

The Fed has a lot of control over just one interest rate, and interest rates influence economic activity in the short run only.

What was the most significant cause of the Great Depression?

a series of negative aggregate demand shocks

Each of the following caused a real shock that contributed to the Great Depression EXCEPT:

a stock market crash.

The long-run aggregate supply curve is:

a vertical line.

Economists typically define money as

a widely accepted means of payment.

The Federal Reserve is powerful because it can influence _______ through its control over _______.

aggregate demand; the money supply

Which of the following asset would be considered money?

an asset that can be easily converted into a widely-used means of payment with little loss in value

What causes inflation?

an increase in the money supply

The short-run aggregate supply curve is:

an upward-sloping curve that intersects the aggregate demand curve and the long-run aggregate supply curve.

In normal times, the actual money multiplier in the United States is:

approximately equal to 3

Wages that are "sticky":

are stuck where they are and fail to adjust downwards in a recession.

As pessimism grew following the stock market crash of 1929:

bank depositors began to worry about banks failing, and they rushed to withdraw their money.

The Fed conducts reverse repurchase agreements with:

banks and financial institutions other than banks.

If the Fed wanted to use open market operations to reduce interest rates, it would:

buy T-bills from banks.

You can think of velocity as:

how often money changes hands.

The key to a country's economic growth is combining _______ with _______.

human and physical capital; ideas and good institutions

Changes in the growth rate of the velocity of money can't permanently shift the AD curve because:

in the long run, the inflation rate is determined by the money supply growth rate.

When banks use the money they receive from deposits to make loans, they:

increase the money supply through the money multiplier.

In conducting quantitative easing, the Fed may decide to purchase mortgage securities to do all of the following EXCEPT:

influence average home prices.

The Fed's communication:

is itself an important tool of monetary policy.

When Economist Truman Bewley surveyed managers about their employment decisions during a recession, he found that:

it is easier to fire some workers and leave the wages of the other workers unchanged.

Every economy has a(n) _______ given by the fundamental factors of growth.

potential growth rate

The reason that changes in spending don't immediately flow into changes in inflation is that:

prices and wages are sticky.

In the 1920s, just prior to the start of the Great Depression:

real GDP per capita was growing at 3% per year, and there was no inflation.

If inflation is slow to change after an increase in the growth rate of spending, then:

real growth must increase.

An increase in spending increases nominal and real wages, but as prices rise:

real wages begin to fall.

Bank failures:

represent both a negative aggregate demand shock and a negative real shock.

What is included in MB that is not included in either M1 or M2?

reserve deposits

Economists have:

several different measures of the supply of money.

Sticky wages:

slow economic recoveries and increase the costs that unemployed workers bear.

Sticky wages:

slow the recovery process after a recession.

In the "old days" (prior to 2008), the Fed typically conducted monetary policy by:

targeting the federal funds rate with open market operations.

As a result of "money illusion," people:

tend to be more upset by a decrease in their nominal wage than by a decrease in their real wage.

One explanation given in the video for the fluctuations of an economy's real growth rate around its potential growth rate is:

that there are often shocks to the key growth factors.

In the aggregate demand and aggregate supply model, an increase in the growth rate of the velocity of money differs from an increase in money supply growth rate in that:

the AD curve will eventually shift back to its original position after an increase in velocity growth.

If the government decides to increase spending on defense:

the aggregate demand curve will shift out temporarily.

For a bank, "reserves" refers to

the cash it keeps on hand to meet withdrawal requests.

The long-run aggregate supply curve shows:

the economy's potential growth rate if all is going well.

If the growth rate of velocity changes:

the growth rate of C, I, G, or NX must change.

Another way to describe the growth rate of spending is:

the growth rate of nominal GDP.

If people hold onto some money as cash, rather than depositing it into banks:

the money multiplier will be smaller.

If a bank customer deposits $100 in cash, and the bank lends $90 of that deposit to another customer by crediting $90 to her account:

the money supply has increased by $90.

The first shock that set off the Great Depression was:

the stock market crash of 1929.

Suppose the growth rate of the money supply is 5% per year and the velocity of money is constant. In this case

the sum of inflation and the real growth rate must be 5%.

When the Fed buys T-bills from banks:

the supply of bank reserves rises.

Professor Cowen says that _______ is one of the biggest personal and social costs of a recession.

unemployment

Between 1929 and 1933, _______ dropped by 75%.

vestment spending

As prices in Zimbabwe began to rise:

The gov. Had to print even more money to continue to buy just as many goods as it did before

Which of the following is not one of the three very important principles revealed by the quantity theory of money

The growth rate of the velocity of money is directly responsible for growth in real gdp

Which of the following is not one of the variables in the quantity theory of money

The interest rate

Are saving accounts money?

Yes, even though they technically can't be used to buy goods and services.

An increase in the growth rate of nominal GDP would be displayed in our model as:

a parallel shift of the AD curve outward.

How would a negative real shock be represented in the AS/AD model?

as a leftward shift of the long-run aggregate supply curve that reduces growth and increases inflation

By 1932, the growth rate in the United States was _______, and inflation was _______ .

−13%; −10%

Can changes in the growth rate of the velocity of money create a recession?

Yes, if the change is negative and large enough.

Since 2008, excess reserves have increased from:

$2 billion to almost $3 trillion.

It in a certain economy there are 100 dollar bills that each get spent 5 times in a given year then the velocity of money is equal to

5

What does a bank do with the money that you deposit?

Banks lend most of the money to people who want to borrow.

Inflation occurs when

The average level of prices is going up

Are checking accounts money?

es, because checking accounts can be used to buy goods and services.

In the economy supply and demand are

Always pushing some prices up and other prives down

The equation mv=py is

An identity because it is true by definition

According to the quantity theory of money the only thing that can cause large sustained increases in prices is

An increase in the money supply since real gdp and the velocity of money are relatively stable

Which of the following summarizes the feedback loop discussed in the video

As prices rose faster the gov. Had to print even more money which caused prices to rise even faster.

What role can confidence and fear play in the economy?

Confidence and fear can shift the AD curve outward and inward, respectively.

Why don't firms want to cut nominal wages?

Because they don't want to decrease worker morale

How does the Federal Reserve inject reserves into the banking system?

By creating new money it uses to buy financial assets

Any given dollar

Can be spent more than once in a given year

Mugabes new money:

DIDNT increase productivity rates in Zimbabwe.

The velocity of money

Does not change enough to explain large sustained changes in prices

Which of the following might lead banks to hold more reserves?

Fear that customers will want to withdraw most of their deposits

The purchasing power of the Zimbabwean dollar

Fell because there was more money chasing the same goods.

Which of the following is the dynamic version of the quantity theory of money?

Growth in the money supply + growth in the velocity of money = inflation + real growth

Where did Robert mugabe get the money he needed for bribes and payoffs:

He printed it.

Which important question about the variables in the quantity theory of money does the video mention

How do we measure the money supply

Which of the following factors impacts the velocity of money in the economy

How long it takes for a check to clear

Which rewritten version of the quantity theory of money does prof. Taberrok use to discuss the causes of inflation

P=Mv/Y

The inflation rate in the Us

Peaked at around 14% in 1980

Economists measure the average level of prices with a

Price index

How does the aggregate demand and aggregate supply model return to long-run equilibrium after an increase in spending growth?

The SRAS curve shifts up and to the left as inflation expectations adjust.

A price index is

The average price of a large and representative basket of goods and services

Around the year 2000, Robert mugabe needed money to bribe his enemies and reward his political allies, but he faced all of the following problems except:

The central bank refused to print anymore money.

Which of the following is correct?

The money supply growth rate can be changed permanently, but changes in the growth rate of velocity are always temporary.

The inflation rate is measured as

The percentage change in a price index over a period of time

Robert Mugabe is:

The president of zimbabwe.

If the velocity of money and real gdp are not changing then

The rate of inflation must be equal to the growth rate of the money supply

The number of times a dollar gets used in a year is known as the

Velocity of money

The national income spending identity can be expressed as:

Y = C + I + G + NX.

Real goods and services are represented in the quantity theory of money with the variable

Y.

Real shocks to one area of the economy:

can be amplified and transmitted to other areas of the economy.

In the long-run version of the aggregate demand and aggregate supply model, a shift in the aggregate demand curve:

can change the inflation rate, but not the real growth rate.

Professor Tabarrok suggests that the most important thing to understand about the AD curve is that:

changes in spending growth can shift the AD curve.

According to the AD model, a change in the growth rate of spending, or nominal GDP, can come from

changes in the growth rate of the money supply or changes in the growth rate of the velocity of money.

CPI stands for

consumer price index

The tools of monetary policy:

continue to evolve as the economy changes.

An increase in the rate of interest paid on reserves would be an example of:

contractionary policy that increases the demand for reserves and raises short-term interest rates.

For the most part, prior to 2008, banks typically held:

excess reserves equal to less than 1% of deposits.

A reverse repurchase agreement will accomplish all of the following to banks and other financial intermediaries EXCEPT:

ensure their solvency.

Quantitative easing involves the Fed swapping:

money for assets other than T-bills.

The _______ tells us how many additional dollars of deposits are created with each additional dollar of reserves.

money multiplier, calculated as 1 divided by the reserve ratio,

Large banks in the United States:

must keep at least 10% of deposits in reserve.

In the early 1930s, the Federal Reserve caused the largest _______ in U.S. history by _______ 30%.

negative aggregate demand shock; allowing the money supply to plung

Wages for some workers do fall during a recession, but it is often:

only after the worker is fired and gets rehired elsewhere at a lower wage.

During the Great Recession, the Fed relied on each of the following tools to influence the economy EXCEPT:

open market operations.

Changes in real gdp Y are

Not likely the cause of large sustained changes in p since y is relatively stable

Why is price inflation sometimes good in a recession?

Price inflation makes it easier for real wages to fall.

In Zimbabwe at the height of the feedback loop

Prices were increasing by 7.6 billion percent per month.

By world standard inflation in the us is

Relatively low

Data from Peru seem to

Support the quantity theory of money since prices sky rocketed as the money supply skyrocket

Why didn't the huge increase in the money supply that resulted from quantitative easing lead to increases in inflation?

because quantitative easing increased the monetary base, but not broader definitions of money like M1 and M2

Prior to 2008, a bank might have borrowed reserves from another bank because:

it kept its reserves too low and could not meet Fed requirements.

The adjustment back to a long-run equilibrium after a sudden decrease in aggregate demand:

takes a long time, during which the economy is not growing much and many people are unemployed.

In a "reverse repurchase agreement," the Fed:

takes on reserves in exchange for T-Bills.