Econ final exam review

If the required reserve ratio is 10%, actual reserves are $10 million, and currency in circulation is equal to $20 million, M will at most be equal to-

$120 million

If the marginal propensity to consume is .75 then a $100 increase in investment will result in a maximum increase in equilibrium rGDP of-

$400

Assume marginal propensity to consume out of disposable income is .8 and that the government taxes all income at a constant rate of 30%. If gross income increases by $100, consumption will initially increase by-

$56

(Will be a chart on test) When does dissaving occur?

$620

(Will be a chart on test) What is the marginal propensity to consume for this economy?

.2

Frictional unemployment occurs when-

A worker voluntarily quits a job to search for a better one

If the value if the US dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run?

Aggregate demand will decrease

An increase in the price level will cause-

An increase in the demand for money

A rightward shift of the short run Phillips curve is most likely due to-

An increase in the expected rate of inflation

Public policy that generates an unexpected increase in consumer prices will inflict short run costs on all of the following except-

Borrowers

An increase in which of the following will most likely increase productivity?

Capital stock

Assume the reserve requirement for demand deposits is 20%, that banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to commercial banks, the total money supply will-

Decrease by $50,000

Which will lead to a depreciation of a nations currency?

Decreased real interest rates in the nation compared with the rest of the world

The natural rate of unemployment is defined as the-

Economy's long run equilibrium rate of unemployment

US government bonds are purchased by Japanese investors and this is included in Japan's-

Financial account (formerly called capital accounts)

For an economy that's operating inside its production possibilities curve, which of the following is true?

It can increase the production of both goods

Which of the following is true of the opportunity cost of holding cash?

It increases as the interest rate rises

Which of the following is true of the Phillips curve?

It's downward sloping in the short run, but vertical in the long run

(Would be a graph on this q) stagflation will be caused by-

Leftward shift in the short run aggregate supply curve only

If the central bank raises the required reserve ratio, the money multiplier and the money supply. Will change

Money multiplier decreases, money supply decreases

(Would be a graph with 3 different production possibilities curves) If the current curve in PPC1(in the middle) what change indicates a recession?

Movement from point Y to point Z (aka a shift left)

Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand?

Net exports increase, AD increases

If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?

No change in the number of workers, decreased unemployment rate

If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?

Nominal interest rate decreases and employment is indeterminate

In the long run, an increase in AD due to an expansion in the money supply will increase-

Nominal output and price level

The short run aggregate supply curve would be vertical if-

Nominal wages adjust immediately to changes in the price level

Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level?

Output will increase and price level is indeterminate

The counselor price index (CPI) is criticized for-

Overstating the true burden of inflation because it doesn't recognize consumers ability to substitute goods and services as prices change

Increases in the real per capita income of a country are most closely associated with increases in-

Productivity

As a component of aggregate demand, investment refers to the-

Purchase of new equipment and additional inventories

In the short run, government deficit spending will most likely

Raise nominal interest rates

If wages and prices are perfectly flexible and inflation is correctly anticipated, then an expansionary monetary policy will affect the real output and price level in which of the following ways?

Real output has no change, price level increases

If AD is growing faster than long run aggregate supply, the federal reserve is most likely to-

Sell securities on the open market

(Would be a graph with this q) Starting with equilibrium point R, which shifts in long run and short run impact of a demand pull inflation-

Short run: r to m, long run: r to n

Assume country A exports one bushel of wheat in exchange for 2.5 bushels of corn from country B. If the terms of trade are beneficial to both countries-

The cost of producing a bushel of wheat in country A is less than 2.5 bushels of corn

Country A's growth rate per capita GDP has been consistently higher than that of country B. Which of the following factors can account for these differences in the per capita GDP growth rates?

The labor force of country A is becoming more skilled then the labor force of country B

Rational expectations theory suggests that people-

Use all available information in forming their expectations about future inflation

Which of the following will cause an increase in AD?

a decrease in income taxes

Which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates?

a decrease in taxes and an open market purchase of government securities by the central bank

*graph would be pictured* A graph that shows two aggregate demand curves that has a shift to the left from AD1 to AD2 could be cause by-

a decrease in the money supply

Suppose country A is experiencing high inflation relative to country B, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market?

a depreciation of country A's currency

What is the LEAST likely to promote economic growth?

an increase in consumption of nondurable goods

If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full employment level?

an increase in government spending

Which of the following will most likely cause an increase in real output in the long run?

an increase in immigration from abroad

Inflation occurs when there is a sustained increase in-

average price levels

Which of the following actions by the federal reserve of the US will increase the money supply?

buying government bonds on the open market

An increase in spending in an economy will cause a multiplied increase in gross domestic product because-

consumption increases as income increases

What is the most liquid asset?

currency

What is the main benefit of trade between countries?

each country can consume beyond its constraints of resources and productivity

If the production of technology of a good improves and at the same time the number of consumers willing and able to buy in the good in the market increases, what will happen?

equilibrium quantity will increase

Assume the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16%-8%, the money supply will-

increase by less than double

If the economy is in a severe recession, which policy action is the most appropriate?

increasing the money supply and government spending

An increase what would result in an increase in aggregate supply?

labor force participation rate

How will a contraction in the money supply most likely change nominal interest rate and aggregate demand in the short run?

nominal interest rate will increase and aggregate demand will decrease

An increase in international value of the US dollar will most likely benefit-

retired US citizens living overseas on their social security checks

Potential gross domestic product will decrease under which conditions?

the country's annual depreciation is less than its annual gross investment

How will an increase in government spending affect the demand for money and nominal interest rates?

the demand for money will increase and the nominal interest rate will increase

In the circular flow diagram of a market economy, which of the following supplies the factors of production?

the household sector

If the velocity of money is constant and the aggregate supply curve is vertical, a doubling of the money supply would most likely result in a doubling of what?

the price level

What is the most fundamental issue economics addresses?

the use of scarce resources