Econ Final
In an effort to stop the US recession of 2007-2009, the federal government
Sent additional funding to state and local governments
Which of the following types of unemployement exist at the NRU?
Structural and frictional unemployment
If a family's MPC is 0.7, it means that the family is
Saving 30 percent of the additional income
If the national income of trading partners increase, then US
aggregate demand increases because net exports increase
The graph representing the relationship between the price level and Real GDP supplied is known as the
aggregate supply curve
Which one of the following might offset a crowding-out effect of financing a large public debt
an increase in public investment
As disposable income increases
both consumption and saving increase
An increase in both personal income taxes and business taxes can be expected to
decrease both aggregate demand and aggregate supply
By requiring automakers to install catalytic converters in vehicles the government is trying to address the problem of
negative externality
The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits
of commercial banks are unchanged, but their reserves increase.
When the required reserve ratio is increased, the excess reserves of banks are
reduced and the multiple by which the commercial banking system can lend is reduced.
Answer the question on the assumption that the legal reserve ratio is 20 percent. Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $500 of securities from individuals, who deposit the cash in checking accounts. As a result of the given transactions, reserves in the banking system will
remain unchanged.
In a reverse repo transaction,
the Fed borrows money from financial institutions.
If people expected that a fiscal policy in the form of a tax cut was temporary the this policy's effect on the economy would tend to be
weaker
The spending multiplier is calculated as
1/MPS
If real GDP in a particular year is $80 billion and nominal GDP is $240 billiion, the GDP price index for that year is
300
Assuming the total population is 100 million, the civilian labor force is 50 million and 3 million workers are unemployed, how many are employed?
47 million
Which of the following best describes the cause-effect chain of a restrictive monetary policy?
A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
Suppose a family's total consumption exceeds its total disposable income. This means that its
APC is greater than 1
Which combination of factors would increase aggregate demand (AD)?
An increase in consumer wealth and a decrease in interest rates
In the United States, monetary policy is the responsibility of the
Board of Governors of the Federal Reserve System
Trailblazer bicycle store sold a mountain bike to Johnson in March of 2012, but the bike was produced in June of 2011. This bicycle is counted as
GDP of 2011
When there is overproduction of a good
The marginal cost of the good exceeds its marginal benefit
Which of the following represents the most expansionary fiscal policy?
a $40 billion tax cut
Which one of the following would NOT shift the AD curve?
a change in the price level
Cost-push inflation may be caused by
a negative supply shocks
Upon learning that his auto transmission is about to fail, Ray sells his car to an unsuspecting buyer. This circumstance illustrates the
adverse selection program
The purpose of an expansionary monetary policy is to shift the
aggregate demand curve rightward.
The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits
and reserves of commercial banks both decrease.
If the economy were encountering a severe recession, proper monetary and fiscal policies would call for
buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.
Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,
commercial bank reserves are increased by $10,000.
The largest component of national income is
compensation of employees
Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 3% of Real GDP to a surplus of 1% of Real GDP the government is engaging in
contractionary fiscal policy
An increase in the legal reserve ratio
decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier.
If the consumer price index changes from 333 to 300 from one year to the next, there would be
deflation of 10 percent
Inflation
does not affect social security recipients
The interest rate that banks charge one another on overnight loans is called the
federal funds rate.
The crowding-out effect of government spending suggests that
government spending increases, but at the expense of less private investment
Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to
hold more of those excess reserves in its reserve account at the Fed, reducing the amount it is willing to lend.
The real balance effect (RBE) says that a decrease in the price level will
increase the purchasing power of money and cause increase in spending
Discretionary fiscal policy refers to
intentional changes in taxes and government expenditures made my Congress to stabilize the economy
An efficiency loss (DWL)
is measured as the combined loss of consumer surplus and producer surplus from over- or underproduction
The unemployment rate is interpreted as the percentage of the
labor force that is not employed
Which of the following tools of monetary policy is considered the most important on a day-to-day basis?
open-market operations
Inflation means that
prices on average are rising, although some particular prices may be falling
Which of the following actions by the Fed would cause the money supply to increase?
purchases of government bonds from banks
The purpose of a restrictive monetary policy is to
raise interest rates and restrict the availability of bank credit.
The discount rate is the interest
rate at which the Federal Reserve Banks lend to commercial banks.
In response to the 2008 financial crisis, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bail outs and encourage banks to be fiscally irresponsible in the future. This illustrates
the moral hazard problem
If the value of intermediate goods and services were included in GDP,
then GDP would be overstated
The interest-rate effect (IRE) says that an increase in the price level
will increase the demand for money, increase interest rates, and decrease overall spending
The Fed's inability to stimulate the economy by reducing interest rates is known as the
zero lower bound problem.
Suppose there are 10 million part time workers and 90 million full time workers in an economy. If 2 million of the part time workers become full time workers then
the official unemployment rate will remain unchanged
The agency responsible for compiling GDP data is the
Bureau of Economic Analysis
The agency responsible for declaring the start and end of a recession in the
Bureau of Economic Analysis (BEA)
Which of the following will happen when the Federal Reserve buys bonds from the public in the open market and the amount of cash held by the public does not change?
Commercial bank reserves will increase.
MPC and MPS equation
MPC + MPS = 1
Suppose the government finds it can remove a negative GDP gap of $45 billion by increasing government purchases by $18 billion. On the basis of this information, we can that the
MPS in this economy is 0.4
A tax-cut will have a greater effect on GDP if the
MPS is smaller
Why wouldn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?
Negative nominal interest rates would cause people to withdraw their money from banks, reducing what banks could lend out to consumers and businesses.
"Full employment" refers to the situation when there is
No cyclical unemployment
Which of the following is a difference between "quantitative easing" and ordinary open-market operations?
Open-market operations are done to lower interest rates; quantitative easing is done to increase the quantity of bank reserves.
In an economy, for every $10 million decrease in disposable income, consumption decreases by $8 million. It can be concluded that the
Slope of the savings line is 0.2
If the quantity of money demanded exceeds the quantity supplied,
The interest rate will rise
In which of the following sets of circumstances will we expect inflation
aggregate supply decreases and aggregate demand increases
If an economy achieved full employment very mild or no inflation and economic growth, it can be explained by the following
aggregate demand increased and aggregate supply increased
The economy's long-run aggregate supply curve is drawn assuming the following
both input and output prices are flexible and vertical
In fiscal year 2021, government expenditures (G) were $6.8 trillion and tax revenues (T) were $4 trillion. This is referred to as
budget deficit
Inflation caused by an increase in aggregate spending is referred to as
demand-pull inflation
If congress passed new laws significantly decreasing regulations on business, this action would tend to
decrease production costs and shift the AS curve to the right
Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is
directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from the Federal Reserve Bank in its district. The interest rate on the loan is called the
discount rate.
Suppose the government purposely changes in economy's cyclically adjusted budget from a deficit of 0% of Real GDP to a deficit of 3% Real GDP. The government is engaging in
expansionary fiscal policy
The foreign trade effect suggest that an increase in the US price level relative to other countries will
increase US imports and decrease US exports
A decrease in personal income taxes and an increase in business taxes can be expected to
increase aggregate demand and decrease aggregate supply
If the Fed wants to discourage commercial bank lending, it will
increase the interest paid on excess reserves held at the Fed.
Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers?
licensing of medical doctors and surgeons
If the Fed were to reduce the legal reserve ratio, we would expect
lower interest rates, an expanded GDP, and a higher rate of inflation.
Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are
lower, because skilled workers tend to be employed in less cyclically vulnerable industries
Other things equal, if the US dollar appreciates against the Euro, then US
net exports would increase
Discouraged workers are counted as
not in the labor force and therefore the official unemployment rate understates the actual level of unemployment
When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a
repo
Market failures
result in overproduction or underproduction of a good
If investment increases by $10 billion and the economy's MPC is 0.8, the AD curve will shift
rightward by $50 billion at each price level
If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will
rise, causing households and businesses to hold less money
If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to
sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks.
During a severe recession, we would expect output to fall the least for
services and non-durable goods
Dissaving means
that a household is spending more than their current incomes
The largest proportion of the US national debt is held by
the US public
When the economy is at full employment
the actual and the cyclically adjusted budgets will be equal.
Which of the following did not contribute directly to the Great Recession
the bursting of the dot come stock market bubble
The four main tools of monetary policy are
the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.
The crowding out effect is strongest when
the economy is at full employment
Fiscal policy is carried out by
the executive and legislative branches
The national or gross debt is the amount of money that
the federal government owes to holders of US securities
One timing problem in using fiscal policy to counter a recession is the administrative lag that occurs between the
time the need for the fiscal action is recognized and the time that the action is taken
What is the importance of the multiplier effect
turns initial spending into large changes in GDP
Core inflation measures
underlying increases in the CPI after removing volatile food and energy prices
The opportunity cost of holding money
varies directly with the interest rate.
