Econ test 3

open market operations refer to the buying and selling of ____ by the______ to control the money supply

treasury securities; federal reserve

true or false at a long run macroeconomic equilibrium, real GDP is always equal to potential GDP

true

a central bank can help stop a bank panic by

acting as a lender of last resort

short-run macroeconomic equilibrium occurs when

aggregate demand and short-run aggregate supply intersect

interest rates in the economy have risen. How will this affect aggregate demand and equilibrium in the short run?

aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall

money is

an asset that people are willing to accept in exchange for goods and sevrices

which of the following would cause the short-run aggregate supply curve to shift to the left

an increase in inflation expectations

which of the following will shift the aggregate demand curve to the left, ceteris paribus

an increase in interest rates

which of the following best describes the "interest rate effect"

an increase in the price level raises the interest rate and chokes off investment and consumption spending

which of the following is considered a negative supply shock

an unexpected increase in the price of natural gas

which of the following is an appropriate policy for the fed to pursue if it wants to increase the money supply

buy US treasury bills

which of the following tools of monetary policy is used the least often

changing the required reserve ratio

gold is an example of

commodity money

M1 includes

currency in circulation, checking account, and travelers' checks

if households in the economy decide to take money out of checking account deposits and put this money into savings accounts, this will initially

decrease M1 and not change M2

a fractional reserve banking system is one in which banks hold less than 100% of _____ in reserves

deposits

a bank's largest liability is its

deposits of its customers

the portion of _____ that a bank does not loan out or spend on securities is known as

deposits; reserves

when the price level in the US rises relative to the price level of other countries, _____ will rise, _____ will fall, and _____ will fall

imports, exports, and net exports

if a bank receives a $20 million discount loan from the federal reserve, then the bank's reserves will

increase by $20 million

lowering the discount rate will

increase reserves, encourage banks to make more loans, and increase the money supply

if the required reserve ratio is 5%, then the simple deposit multiple is

20

last week, 13 Mexican pesos could purchase one US dollar. This week, it takes 11 pesos. This change in value of the dollar will _____ exports from the US to Mexico and ____ US aggregate demand

increase, increase

if you liquidate $3000 of your money market mutual fund and transfer the funds to your checking account, then initially, M1 will _____ and M2 will _____

increase; not change

Katrina destroyed oil and natural gas refining capacity in the Gulf. This subsequently drove up natural gas, gasoline, and heating oil prices. As a result, this should

shift the short-run aggregate supply curve to the left

the ______ curve has a positive slope because as prices of final goods and services rise, price of inputs rise more slowly

short run aggregate supply

if technological change occurs in the economy,

the long run aggregate supply curve will shift to the right

if the economy receives an influx of new workers from immigration...

the long-run aggregate supply curve will shift to the right

according to the quantity theory of money, inflation is caused by

the money supply growing faster than real GDP

changes in _____ do not affect the level of aggregate supply in the long run

the price level

Ceteris Paribus, in the long run, a negative supply shock causes

the price level to rise initially, and then return to its lower level

an increase in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run?

the price level will rise, and the level of real GDP will be unaffected

a bank's assets are

things owned by or owed to the bank

a bank's liabilities are

things the bank owes to someone else

which of the following is not a reason why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services?

unions are successful in pushing up wages

which of the following is a function that money serves?

unit of account, store in value, medium of exchange

a banks holds its reserves as _____ and _____

vault cash; deposits at the federal reserve

why does the short-run aggregate supply curve shift to the left in the long run, following an increase in aggregate demand?

workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices

with a required reserve ratio of 20 percent, an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of

$50,000

if the bank receives a $10,000 deposits, and the reserve requirement is 10 percent, how much can the bank loan out?

$9,000

suppose a bank has $100million in checking account deposits with no excess reserves and the required reserve ratio is 1-%. If the federal reserve raises the required ratio to 15%, then the bank will now have excess reserves of

-$5 million

the quantity equation states that

M*V=P*Y

the narrowest official definition of the money supply is

M1

a major source of inefficiency in barter economies is that they require

a double coincidence of wants to exchange

stagflation is often a result of

a negative supply shock

by making exchange _____, money allows for _____ and higher ______

easier; specialization; productivity

long-run macroeconomic equilibrium occurs when aggregate demand _____ short-run aggregate supply and they _____ the long-run supply curve

equals; interact at a point on

suppose you deposit $2,000 into a bank whose RR is 10%. How does this affect the bank's balance sheet?

excess reserves rise by $1,800

which of the following is a true statement

excess reserves= actually reserves-required reserves

which of the following is not a tool the fed uses to manage the money supply

expanding and contracting deposit insurance

if the rate of growth in real GDP exceeds the rate of growth in the money supply, the quantity theory of money predicts inflation true or false

false

a person's wealth is the same as his income true or false

flase

a barter economy is an economy where

goods and services are exchanged for other goods and services

fiat money

has no or very little value except as money

how do changes in income tax policies affect aggregate demand?

higher taxes reduce disposable income, consumption, and aggregate demand

if the fed lowers the reserve requirement, then this

increases excess reserves, encourages banks to make more loans, and increases the money supply

If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?

it is a vertical line at $600 billion

which is not one of the criteria necessary for a commodity to make a suitable medium of exchange

it should have intrinsic value

a baks largest asset is its

loans

the ______ curve is vertical

long-run aggregate supply

the automatic mechanism _____ the price level in the case of _____ and ______ the price level in the case of _____

lowers; recession; raises; expansion

a decrease in the price level will

move the economy down along a stationary aggregate demand curve

a decrease in the price level will

move the economy down along a stationary short-run aggregate supply curve

credit card balances are

not a part of the money supply

if households in the economy decide to take money out of checking account deposits and hold it as currency, this will initially

not change M1 and not change M2

bank panics have largely disappeared in the US because

of deposit insurance

the aggregate demand curve shows the relationship between the _____ and _____

price level; quantity of real GDP demanded

according to the "wealth affect", when the ____ falls, the _____ rises

price level; real value of household wealth

a decrease in the aggregate demand causes a decrease in _____ only in the short run, but uses a decrease in _____ in both the short run and the long run

real GDP; the price level

a decrease in aggregate demand results in a/an ______ in the _______

recession; short-run

M2 is M1 plus

savings account, money market deposit accounts, small-denomination time deposits, and non institutional money market fund shares

the process of bundling financial assets together and buying and selling these bundles in secondary financial market is called

securitization

if the federal open market committee wants to decrease the money supply through open market operations it will

sell US treasury securities

which of the following is not a major function of the federal reserve system?

setting income tax rates

suppose the economy is at a short run equilibrium GDP that lies above potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP

short-run aggregate supply will shift to the left

the basic aggregate demand and aggregate supply curve model helps explain _____ fluctuations in real GDP and the price level

short-term

the ______ the reserve ratio, the _____ the simple deposit multiplier

smaller; larger

if rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience

stagflation

net worth is

the difference between a firm's assets and liabilities

liquidity is defined as

the ease with which a given asset can be converted to a medium of exchange

the discount rate is

the interest rate the fed charges to banks for loans from the fed