Econ 1202: Final

If the Fed conducts an open-market sale, bank reserves _____, and the money supply is likely to _____.

decrease; decrease

As you know, Aggregate demand and our GDP level is made up of all spending in the household, business, government and net export sectors. Which one of these sectors is the largest and about what percentage of GDP does it take up?

household with about 70%

(Figure: Short- and Long-Run Equilibrium II) Use Figure: Short- and Long-Run Equilibrium II. If the economy is in short-run macroeconomic equilibrium at E1, it is in a(n):

inflationary gap

(Figure: An Increase in Aggregate Demand) Use Figure: An Increase in Aggregate Demand. Assume that the economy is initially in long-run equilibrium at YP and P1. Now suppose that there is an increase in the level of government purchases at each price level. This will:

shift the aggregate demand curve from AD1 to AD2.

(Scenario: First National Bank) First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault, and $5 million in government bonds. If the minimum reserve ratio is 20%, how much is the bank required to keep in reserves?

$16 million

The reserve requirement is 20%. Oleg receives $1,000 as a graduation present and deposits the money in his checking account. The bank does NOT want to hold excess reserves. How much of the $1,000 deposit can the bank lend out?

$800

(Figure: The Market for Loanable Funds with Government Borrowing) Use Figure: The Market for Loanable Funds with Government Borrowing. After an increase in government borrowing, the equilibrium interest rate will rise from 6% to _____%, and the amount of private savings will _____.

8; rise

(Figure: Supply and Demand in the Peach Market) Use Figure: Supply and Demand in the Peach Market. The market is in equilibrium at point C. Suppose most people drink peach juice in the afternoon with champagne. What will be the new equilibrium point in the peach juice market if a law banning alcohol passes?

D (P3 and Q1) point

Classify each government policy according to whether it encourages or discourages convergence Which phrase best characterizes the speed with which convergence takes place?

Encourages: public education, high education subsides, public investment in infrastructure, tax breaks for research and development Discourages: increase in government borrowing, increases in corporate tax rates, increases in income tax rates Slowly over many years

Which of the following statements is not true about the financial stsyem?

Historically, recessions that have been caused by disruptions in the financial system have been mild

Which one of the following statements is true about the US Government's net debt as a percentage of GDP?

In the last six years it has increased from 77% to about 120%.

Which of the following statements is true about the measure of Real GDP Per Capita?

It is a measure of a country's standard of living and most of the world's countries with the highest real per capita GDP are not the countries with the biggest economies.

The table contains data on the relationship between physical capital per worker and real GDP per worker. Graph the data A 0,0 B 100, 400 C 250, 700 D 400, 800 Based on the table and the graph, which is true of marginal productivity of physical capital (MPK)?

MPk is positive

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose excessive rainfall destroys one-third of the nation's radish crop. Which panel BEST illustrates how this will affect the market for radishes?

S1 faded, S2 vibrant, D over both

(Figure: Shifts of the AD-AS Curves) Use Figure: Shifts of the AD-AS Curves. A decrease in wages in the short run is illustrated by panel:

SRAS1 faded, SRAS 2 vibrant, AD 1 over both

Which of the following statements about the 12 member banks of the Fed is incorrect?

The Treasury Secretary of the US appoints all of the 9 board of directors for each bank..

There were a number of causes of the financial crisis of 2008. As we discussed, one major cause of this crisis was the increasing use of mortgage backed securities. How did this change the way banks issued mortgages for houses?

The existance of these mortgage backed securities changed the underwriting behavior of banks. The focus was not creating safe mortgages anymore, rather the motivation was to make as many mortgages as possible so they could sell them through these mortgage backed securities

Which group within the Fed meets eight times a year to decide on the direction of Monetary policy?

The federal open market committee

Which one of the following statements is true regarding the inflation that we experienced during the 1960's and 1970's?

The inflation in the 1960's was demand pull related and the inflation rate in the 1970's was cost push related

How can we show the impact of expansionary Monetary Policy using the Loanable Funds Market Model?

The supply curve will shift to the right thus lowering the rate

How can we show the impact of contractionary Monetary Policy using the Loanable Funds Market Model?

The supply of loanable funds curve will shift to the left thus increasing the rate

Which of the following best defines a financial intermediary?

a financial institution that transforms investor funds into financial assets

Sub-Saharan Africa is poor mainly because:

a political instability and civil wars

(Figure: Policy Alternatives) Use Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a), and the government does not intervene, the result will likely be:

a shift of ARAS 1 to SRAS2

Ruritania's Ministry of Economics has considered various plans to stimulate economic growth in the kingdom. Which proposal would have the best chance of success? Which source of productivity growth does the best proposal directly influence?

a. To increase the general level of skills in the labor force, provide more on-the-job training for workers who have not completed secondary education. b. human capital

If a government runs large budget deficits over consecutive years, with the public debt growing _____ GDP, the ratio of debt to GDP will _____.

faster than; increase

Currency in the United States today is _____ money.

fiat

People who are changing jobs are counted in _____ unemployment

frictional

Suppose that the economy is in a recessionary gap. To move aggregate output closer to potential output, the BEST fiscal policy option is to:

increase government purchases

(Figure: Shift of the Aggregate Demand Curve) Use Figure: Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 may result from a(n):

increase in the total quantity of consumer goods and services demanded

(Figure: AD-AS Model I) Use Figure: AD-AS Model I. If the economy is at point X, the appropriate monetary policy is to:

increase the money supply and decrease interest rates

(Figure: Short-Run Determination of the Interest Rate) Use Figure: Short-Run Determination of the Interest Rate. If the money supply is represented by MS2, and the central bank sells Treasury bills, then in the short run, the interest rate will:

increase to R1

High unemployment typically leads to political pressure to increase the benefit period for unemployment insurance. In a standard analysis, doing so will:

increase unemployment

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market.

increases

Which factor is the MOST widely accepted measure of economic growth over time?

increases in real GDP per capita

(Figure: Fiscal Policy Choices) Use Figure: Fiscal Policy Choices. If the government uses discretionary fiscal policy in the economy depicted in panel (a) when real GDP is Y1, government spending is likely to be _____, and taxes are likely to be _____.

increases; cut

Suppose you transfer $500 from your savings account to your checking account. With this transaction, M1 _____ and M2 _____.

increases; stays the same

Expansionary fiscal policy includes:

increasing government spending

A firm does NOT want to borrow money for a project when the:

interest rate is higher than the expected rate of return on the project.

Which of the following is a correct statement about Demand Pull Inflation?

it is a result of a shift of the aggregate demand curve and with it we see an inverse relationship between inflation and unemployment

Which of the following is a correct statement about Cost Push inflation?

it is a result of a shift of the aggregate supply curve and with it we see a positive relationship between inflation and unemployment

An example of human capital is a person's:

job skills

Spaghetti and lasagna are substitutes. Holding all other things constant, this means that if the price of spaghetti increases, the demand for:

lasagna will increase

Contractionary fiscal policy shifts the aggregate demand curve to the _____ and is used to close a(n) _____ gap.

left; inflationary

a bank run occurs when:

many bank customers try to withdraw their funds at one time.

Fiat money is

money backed by a government's decree that it be accepted as a means of payment.

Four types of financial intermediaries are:

mutual funds, pension funds, life insurance companies, and banks

Productivity is declining when

population growth exceeds real GDP growth

Which of the following government policy actions would have a negative impact on economic growth?

reducing subsides to building roads, seaports, and information networks

(Figure: The Market for Loanable Funds II) Use Figure: The Market for Loanable Funds II. An increase in government borrowing will shift the demand curve for loanable funds to the _____, causing the interest rate to _____.

right increase

An increase in perceived business opportunities will generally _____ the demand curve for loanable funds.

right-shift

The banking crisis of 1907 that preceded the Great Depression and the banking crisis in 2008 were both caused by:

risky speculation in real estate and stock market

(Figure: The Supply of Apple TV Rentals) Use Figure: The Supply of Apple TV Rentals. An increase in the price of online movie rentals would result in the change illustrated by the move from:

s to t (panel c?)

(Figure: Shifts in Demand and Supply III) Use Figure: Shifts in Demand and Supply III. The figure shows how supply and demand might shift in response to specific events. Suppose a wet and sunny year increases the nation's strawberry crop by 20%. Which panel BEST illustrates how this event will affect the market for strawberries?

s1 faded s2 vibrant, D over both

_____ is the process of setting up assets by pooling individual loans and selling shares in the pool.

securitization

(Figure: Demand for Bananas) Use Figure: Demand for Bananas. If bananas are a normal good, an increase in the incomes of consumers could be represented as a:

shift from D1 to D2

A general decrease in wages will result primarily in the _____ curve shifting to the _____.

short-run aggregate supply; right

Which one of the following statements about recent oil prices is true?

since the beginning of 2021 the world price of oil has more that doubled

Looking at the present economic issues, why is it true that correcting for today's inflation seems to be the job for monetary policy and not fiscal policy?

the economy has to be slowed down some and that may not be a good political move for politicians in an election year

Suppose the government increases taxes by more than is necessary to close an inflationary gap. What is the MOST likely result?

the economy will move into recession

The time period known as the great moderation refers to which of the following?

the time since the early 1980's to the present where we have seen less volatility in the US annual economic growth rates

(Figure: Demand and Supply of Sugar) Use Figure: Demand and Supply of Sugar. Given the initial equilibrium of S1 and D,any price below _____ will exert pressure for the price to _____.

$25; rise

Suppose that real GDP per capita in the United States is $32,000, while its annual growth rate is 2%, and that real GDP per capita in China is $4,000, while its annual growth rate is 7%. How long will it take China's real GDP per capita to double?

10 years

(Table: Labor Force Distribution) The unemployment rate is _____% employed adults 200mil labor force 208 mil unemployed adults 8 mil adults in the labor force 30mil non-adults population 40mil

3.85

Output per capita in the United States in 2016 was about _____ as high as it was in 1900

8.5 times

According to the latest published figures, what is the present inflation rate in the US?

8.5%

Which one of the following statements about the economic impact of a financial crisis is true?

A recession that is caused by a financial crisis is usually deeper and has a longer recovery.

(Figure: Monetary Policy I) Use Figure: Monetary Policy I. If the economy is initially in equilibrium at E2 and the central bank sells Treasury bills, _____ shift to _____ a(n) _____ gap.

Ad2 will; AD1, causing, recessionary

(Figure: Productivity) Use Figure: Productivity. An improvement in technology, with everything else remaining unchanged, is shown in the diagram as a movement from:

B to C

(Figure: Technological Progress and Productivity Growth) Use Figure: Technological Progress and Productivity Growth. Which change in real GDP is MOST likely to have resulted from an increase in the quality (as well as quantity) of government spending on education?

B to C

(Figure: Supply of Bananas) Use Figure: Supply of Bananas. A rise in the prices of inputs (e.g., labor, fertilizer, and fuel) used to produce and transport bananas could be represented in the figure as a movement from:

C to A

A friend claims that the government should never borrow to finance its expenditures because such borrowing crowds out private investment spending.

No. If the economy is depressed, government borrowing will have little impact on interest rates and could lead to higher incomes.

Which of the following is true about the relationship between expected future inflation and interest rates?

Over time, the level of interest rate closely follows expected future inflation

Which one of the following measures of unemployment is the official measure that is used by the government when it reports the unemployment rate to the public?

U-3

Which one of the following measures of unemployment would have the highest percent value?

U-6

Which one of the following statements describes today's economic situation?

We are now in an inflationary gap that has likely been caused by too much expansionary fiscal and monetary policy during the last two years

Suppose that a presidential candidate who promised large personal income tax increases is elected. Which outcome is MOST likely?

a decrease in aggregate demand

(Figure: Monetary Policy and the AD-SRAS Model) Use Figure: Monetary Policy and the AD-SRAS Model. If the economy is in an inflationary gap at point h, it can move to point i as a result of:

a decrease in the money supply

(Figure: A Money Market) Use Figure: A Money Market. Holding the money supply constant, which of the following might cause the equilibrium interest rate to decrease to r1?

a recession decreases real GDP

Raising taxes shifts the _____ curve to the _____.

aggregate demand; left

Which of the following illustrates cyclical unemployment?

an autoworker is laid off because of a decline in automobile sales caused by a recession.

(Figure: Monetary Policy and the AD-SRAS Model) Use Figure: Monetary Policy and the AD-SRAS Model. The economy may move from point i to point h as a result of:

an increase sin the money supply

When the Fed uses quantitative easing, it is:

buying longer-term government debt

Expansionary monetary policy _____ interest rates and _____ aggregate demand.

decreases; increases

The money demand curve is _____ because the opportunity cost of holding money is _____ related to the interest rate

downward sloping; positively

(Figure: Policy Alternatives) Use Figure: Policy Alternatives. If the economy is in equilibrium at Y1 in panel (a), it is:

in a recessionary gap

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

increase

A rise in labor productivity will MOST likely result in a(n):

increase in aggregate supply

(Figure: AD-AS) Use Figure: AD-AS. Consider an economy that is producing an aggregate output of Y1. The economy faces a(n) _____ gap, which can be closed by _____ fiscal policy.

inflationary; concretionary

Generally, the more liquid an asset is, the

lower its rate of return

To expand the money supply, the Federal Reserve would have to:

make an open market purchase of Treasury bills

When the short-term interest rate _____, the opportunity cost of holding money _____, and the quantity of money individuals want to hold _____.

raises; rises; falls

(Figure: The Money Supply and Aggregate Demand) Use Figure: The Money Supply and Aggregate Demand. If the economy is in an inflationary gap, the Federal Reserve will _____ Treasury bills, which will _____ the money supply and _____ interest rates. This is shown in panel _____.

sell; decrease; rise (b)

Beginning at a macroeconomic equilibrium, when short run aggregate supply for some reason decreases (shifts to the left) we would likely see which of the following occur?

stagflation

According to the efficient markets hypothesis:

stocks are usually neither overpriced nor underpriced

An effective minimum wage that is binding on the market can lead to:

structural unemployment

In the United States during the 1970s, oil prices increased dramatically and shifted:

the SRAS curve to the left

Which of the factors would decrease the rate of frictional unemployment? When the economy is doing well, a significant share of unemployment is frictional.

the advent of the internet, which makes finding avaible jobs easier true

In 1999 the new legislation that in effect killed the Glass Steagall laws on banking that were in effect since 1933 lead to what major event?

the finical crisis of 2008

Every year, more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect:

the money demand curve to shift inward

All else equal, if the required reserve ratio falls:

the money multiplier increases

Which is true if a nation is currently experiencing full employment?

the rate of cynical unemployment is 0%

Banks don't lend out all funds that are deposited because:

they have to satisfy any depositor who wants to withdraw funds.

Which of the following best describes stagflation?

with stagflation we see a positive relationship between inflation and unemployment rate

(Figure: Inflationary and Recessionary Gaps) Use Figure: Inflationary and Recessionary Gaps. Which equation measures an inflationary gap?

y3-Y1

(Figure: Fiscal Policy II) Use Figure: Fiscal Policy II. Suppose that this economy is in equilibrium at E1. If there is an increase in government purchases, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

AD1; right; increase; increase

a. The natural rate of unemployment equals b. Identify whether the actions or scenarios would likely increase or decrease the natural rate of unemployment. i. Increasing the minimum wage ii. Reducing workers' collective bargaining rights iii. Extra financial benefits for the unemployed iv. A large number of young people entering the labor force v. More funding for government worker training programs vi. An increase in union membership vii. An increase in information about job opportunities

a. fritctional unemployment plus structural unemployment i. increase ii. decrease iii. increase iv. increase v. decrease vi. increase vii. decrease

For each example listed, decide if the good is a normal good or an inferior good. Make sure you answer from the perspective of the individual or individuals doing the buying or consuming. a. Billy's mom increases his weekly allowance by $5. As a result, Billy increases the number of apps he downloads on his smartphone. Smartphone apps are a ____ good. b. Susan gets a 15 percent performance bonus at work. She can finally stop eating so many frozen pizzas and eat something more tasty. Frozen pizzas are an ____ good. c. Mike is an appliance salesman. Refrigerator sales in his store have fallen and so has his commission. Mike decides to switch from name brand cereal to generic cereal. Generic cereal is an ____ good. d. Hair stylist Molly loses a few of her clients. Molly cuts back on the number of smoothies she buys during the week. Smoothies are a ___ good.

a. normal b. inferior c. inferior d. normal

During the Obama administration, the development of low‑cost batteries for electric cars received large amounts of federal funding via subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero‑emissions electric vehicles, where there is an upward‑sloping supply curve and a downward‑sloping demand curve. In which direction will demand and supply shift? What will happen to the equilibrium price?

both curves will shift right the price will change ambiguously

Case 1: People realize how fattening bagels are. Case 2: People have less time to make themselves a cooked breakfast.

case 1: Demand shifts left and equilbirumupoint follows case 2: Demand shifts right and equilibrium point follows

(Scenario: Money Supply Changes II) Lucia withdraws $6,000 from her checking account to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. As a result of the withdrawal, required reserves

decrease by $1200

If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.

decrease; increase

Shadow banking:

doesn't look like traditional banking but serves similar purposes while posing significantly more risk