ECON Final

The long-run aggregate supply curve would shift right if the government were to

reduce the minimum wage

Suppose the money supply grew at an average annual rate of 8%, velocity was constant, the nominal interest rate averaged 9%, and output grew at an average annual rate of 3%. According to the Quantity Theory,

inflation averaged 5% per year and the real rate of return was 4%.

When the money supply increases

interest rates fall and so aggregate demand shifts right

In which case we be sure real GDP rises in the short run?

government purchases increase and taxes fall

Jennifer took out a fixed-interest-rate loan when the CPI was 100. She expected the CPI to increase to 103 but it actually increased to 105. The real interest rate she paid is

lower than she had expected, and the real value of the loan is lower than she had expected

Other things the same, an increase in the price level induces people to hold

more money, so they lend less, and the interest rate rises

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

more reserves, so the money multiplier will fall

An increase in the money apply might indicate that the Fed had

purchased bonds to increase banks reserves

The money supply decreases if the Fed

sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.

If the reserve ratio is 6%, then $9,000 of additional reserves can create up to

$150,000 of new money

A bank's reserve ratio is 10 percent and the bank $5,000 in deposits. It reserves amount to

$500

Which of the following would help explain why the aggregate demand curves slopes downward?

A lower price level reduces the interest rate, which encourages greater spending on investment goods

If P = 2 and Y = 1000, then which of the following pairs of values are possible?

All of the above are correct

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement

It has $250 in reserves and $4,750 in loans.

A bank has an 8% reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement

It has $800 in reserves, and $9,200 in loans

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Muckland?

The price level is 4 and velocity is 8.

Which of the following both increase the money supply

a decrease in the discout rate and a decrease in the interest rate on reserves

Which of the following would cause prices and real GDP to rise in the short run?

aggregate demand shifts right

The price level rises in short run if

aggregate demand shifts right or aggregate supply shifts left

In a system of 100-percent-reserve banking

banks do not influence the supply of money

Which of the following decreases in response to the internet-rate effect from an increase in the price level?

both investment and consumption

The Fed increases the reserve requirement, but it wants to offset the effect on the money supply. Which of the following should it do?

buy bonds to increase reserves

According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4% and actual inflation was 2%, then the firm would believe that the relative price of what it produces had

decreased, so it would decrease production

During recession, banks typically choose to hold more excess reserves relative to their deposits. This action

decreases the money multiplier and decreases the money supply

When interest rates fall

firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding

When the price level falls

households want to lend more, so the interest rate falls, making the quantity and services demanded rise

the long-run aggregate supply cure shows that by itself a permanent change in aggregate demand would lend to a long-run change

in the price level, but not output

Other things the same, an increase in the price level causes the interest rate to

increase, the dollar to appreciate, and net exports to decrease

The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth the bonds, what happens to the money supply?

it increases by $200,000

Other things the same, an increase in the price level makes consumers feel...

less wealthy, so the quantity of goods and services demanded falls

The sticky-proce theory of the short-run aggregate supply curves says that if the price level rises by 5% and people were expecting it to rise by 2% then firms have

lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied

Open-market purchases by the Fed

make the price level rise, and make the value of money fall

Other things the same, a decrease in the price level makes consumers feel...

more wealthy, so the quantity of goods and services demanded rises

When the money market is drawn with the value of more on the vertical axis, an increase in the price level causes a

movement to the right along the money demand curve

Which of the following both shift aggregate demand right?

net exports rise for some reason other than a price change and government purchases rise

When money is neutral, which of the following increases when the money supply growth rate increases?

nominal interest rates

If there are floods or droughts or a decrease in the availability of raw materials

output falls in the short run

As the price level falls...

people will want o buy more bonds, so the interest rate falls

The supply of money increases when

the Federal Reserve purchases bonds

When the money market is drawn with the value of more on the vertical axis, if money supply and money demand both shift to the right

the price level rises if money supply shifts farther than money demand

When deflation exists,

the real interest rate is greater than the nominal interest rate

The inflation tax refers to

the revenue a government creates by printing money

When the Fed buys bonds

the supply of money increases and so aggregate demand shifts right

Suppose there is a surplus in the money markt

this could have been created by an increase in the money supply. The value of money will fall.

Metropolis National Bank is currently holding 2% of deposits an excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserve what is the value of the money multiplier

10

Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

10 percent

If the real interest rate is 6% and the price level is falling at a rate of 2%, what is the nominal interest rate?

4 percent

Which of the following costs of inflation can be significant even if the actual inflation and expected inflation are the same?

all of the above are correct

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.

Which of the following shifts long-run aggregate supply right?

an increase in either technology or the human capital stock

Which of the following both shift aggregate demand left?

an increase in taxes and at a given price level consumers feel less wealthy

An increase in the money supply

and an investment tax credit both cause aggregate demand to shift right