FINAL EXAM ECON 202

If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by:

$12.5 million

Deposit insurance guarantees that the federal government will reimburse depositors up to ________ in each account in each bank should the banks fail.

$250,000

A depreciation of a country's currency is likely to decrease its GDP.

False

An excess demand for money drives interest rates down.

False

An expansionary fiscal policy shifts the aggregate demand curve to the left.

False

For most firms, payments to capital inputs are the biggest cost of doing business in the U.S.

False

The speculative demand for money states that in the long run, people hold on to money because the return to holding bonds and stocks can be negative.

False

One reason why the U.S. government experienced a surplus during Clinton's era was that the U.S. economy was growing.

True

A $100 million increase in government spending causes:

a larger change in equilibrium output in a closed economy than in an open economy.

A checking deposit in a bank is considered ________ of that bank.

a liability

If the government collects taxes using a constant income tax rate t, then an increase in t will result in:

a lower disposable income.

Refer to Figure 9.1. When the price level rises and causes lower consumption expenditures, it is illustrated as:

a move from Point B to Point A, but not a shift of the aggregate demand curve.

A government policy action that moves the economy closer to full employment or potential output is called:

a stabilization policy

Even though banks have been required to keep 10 percent of deposits exceeding $71 million as reserves in 2012, the measured multiplier is only between 2 to 3 because:

bank hold excess reserves and people hold some of their loans in cash are both correct.

If a economy's planned expenditures turn out to be less than production, then inventories will be:

increasing, prompting firms to decrease production in the future.

In the short run, the primary determinant of output of firms is the:

level of demand

The market demand curve is:

negatively sloped

The theory that considers real interest rates and taxes as the important determinants of investment spending is the:

neoclassical theory of investment.

If the economy finds itself at a point where planned spending is equal to output, then we will expect to see:

no change in inventories.

Refer to Table 13.4. If First Charter Bank earns a loss of $100,000, then:

owner's equity will decrease by $100,000.

Fiscal policy refers to:

the spending and taxing policies used by the government to influence the economy.

Refer to Table 11.3. The equilibrium level of aggregate output equals:

$3,000 million

First National Trust has assets of $900,000 and liabilities of $600,000. First National Trust's owners' equity is:

$300,000

Assume that the consumption function is C = 200 + 0.8Y. When Y equals $200, then C equals ________

$360

Refer to Table 5.4. Suppose this economy produces only the two goods X and Y. Nominal GDP in year 2 is:

$360

If an investment projects offers to pay $200 in year 1 and $200 in year 2, and the interest rate is 5%, the investment rule states that you should invest in the project as long as the cost is less than:

$371.9

If the marginal propensity to consume is 0.5, an increase in consumption by $200 will shift the aggregate demand curve horizontally to the right by:

$400

In 2012, estates were taxed only if they exceeded a threshold of ________.

$5 million

Assume there is no government or foreign sector. If the multiplier is 5, a $10 billion increase in investment will cause equilibrium output to increase by:

$50

If the marginal propensity to save is 0.3, the tax multiplier is:

-2.33

Which of the following is true when the US dollar depreciates against the euro?

-it takes fewer euros to buy a dollar -it takes more dollars to buy a euro -It becomes more expensive for Americans to buy goods from Germany. -all of these are correct

An increase in the federal budget deficit during a recession serves as an automatic economic stabilizer because:

-lower personal income translates into a lower tax load and so consumption spending declines slightly less. -lower corporate profits translate into a lower tax load and so investment spending declines slightly less. -increased transfer payments from unemployment insurance partly offset the fall in household income. -all of these are correct

Suppose that consumption expenditures, investment expenditures, and government purchases are 75 billion, 25 million and 20 million, respectively. How large should the GDP be so that the net experts is zero?

120 million

If at a price of $1000, 8 different laptop manufacturers are willing to sell 20 laptops each. If the 8 manufacturers are the only sellers of laptops in the market, then at a price of $1000, there are _______ laptops supplied in the market.

160

Refer to Table 11.6. In this example, the government spending multiplier is:

2

If the money multiplier is 4, the required reserve ratio is:

25%

Which choice is true?

A higher interest rate causes lower investment, lower demand, and lower real GDP.

Refer to Figure 10.1 to answer this question. Suppose that the economy were at point A, and the government increases government spending. In the short run, the economy will move to point:

C

Suppose there are three economies with 3 different consumption functions: Country A: C = 100 + 0.8Y Country B: C =200 +0.75 Y Country C: C =75 +0.9Y In which of these countries is the multiplier the largest?

Country C

Figure 4.4 illustrates the demand for guitars. Assume that guitars and guitar strings are complements. A decrease in the price of guitar strings would bring about a movement from:

D1 to D2

Which of the following is not included in "Entitlement and mandatory spending"

Defense

Which of the following is not included in "Entitlement and mandatory spending"?

Defense

Refer to Figure 9.6. In the short run, an improvement in the technology will move the equilibrium to:

Equilibrium A to H

Which of the following is true when the US dollar appreciates against the euro?

It takes fewer dollars to buy the euro.

During the 1980s. firms from ____________ were accused of dumping VCR's in Europe.

Korea

Saving account balances are included in:

M2 only

Can you the aggregate demand curve slope upwards?

No

Do most infant industries become as efficient as their international competition?

No. this rarely happens

The multiplier-accelerator model was first developed by:

Paul Samuelson.

Which of the following statements is correct?

The Fed can change GDP by changing the money supply.

According to the application, what is the difference between a VAT and a sales tax?

The VAT is already embedded in the price of the good, while sales tax are paid upon purchase

________ is a curve that shows the relationship between the price level and the quantity of real GDP demanded.

The aggregate demand curve

When the Fed conducts open market operations, the Fed buys and sells government securities to:

The private sector

Which of the following is not true?

The selling of government securities to pay for a deficit spurs private investment spending.

A decrease in the discount rate will increase the money supply.

True

A large increase in oil prices will cause the short-run aggregate supply curve to shift left.

True

A prolonged budget deficit when the economy is at full employment will eventually crowd out investment spending.

True

According to the Application, the reason why the problem caused by securitization was exposed was because the housing boom ended.

True

According to the Solow Model, an increase in technology will always result in an increase in output.

True

An increase in the price level increases the transaction demand for money

True

Refer to Figure 11.3 to answer the following questions. Suppose the economy is initially at point d. A decrease in consumer confidence will move the economy back to equilibrium at point:

a

The accelerator theory describes the impact of:

a change in future GDP on investment.

Broadly defined, investments are:

actions that create a cost today but provide benefits in the future.

The economy moves from a short-run equilibrium to the long-run equilibrium through:

adjustments in wages and prices

A decrease in government purchases shifts the ________ curve to the ________.

aggregate demand; left

Based on what you learned from the application, which industries are negatively affected by global warning?

agriculture and light manufacturing in poor countries

Refer to Figure 9.3. Which of the following causes the economy to move from Point A to Point E in the short run?

an oil embargo that increases the price of oil sharply

Which of the following would cause an increase in GDP?

an open market purchase

In a production function that is graphed with output on the y-axis and labor on the x-axis, an increase in the labor stock is illustrated as:

an upward movement along the production function

A reduction in the British interest rate relative to the U.S. interest rate will cause a(n):

appreciation of the dollar and a depreciation of the British pound.

Commercial banks:

are financial intermediaries that lend funds and accept deposits.

The two sides of a banks balance sheet are labeled:

assets and liabilities

Because taxes and transfer payments such as unemployment insurance act to change GDP without the need for policymakers to take explicit action, then these taxes and transfer payments are called:

automatic stabilizers.

The level of consumption in the economy when the level of income is zero is called:

autonomous consumption.

If the government collects taxes using a constant income tax rate t, then the adjusted marginal propensity to consume (adjusted MPC) is:

b ( 1 - t )

If the government collects taxes using a constant income tax rate t, then the adjusted marginal propensity to consume (adjusted MPC) is:

b ( 1 - t ).

Recall Application 3, "Oil Supply Disruptions, Speculation and Supply Shocks," to answer the following questions: According to the Application, the actions of oil speculations will:

benefit the economy because it smooths out the changes in the prices of oil

An increase in the marginal propensity to save will:

cause the consumption function to be flatter.

An increase in the marginal propensity to consume will:

cause the consumption function to be steeper.

Which of the following assets is easiest to make transactions with?

checking deposits

The gold standard is an example of which type of a monetary system?

commodity money system

Although running a budget deficit during a recession should not be a source of concern, running a budget deficit when there is no recession is a bad policy due to:

crowding out

Which of the following is considered a liability to a bank?

customer deposits

Assume that total deposits in the banking system are $200 million. If the required reserve ratio is increased, then the money supply will:

decrease

Suppose that in the United States people begin to spend a smaller fraction of their income on imports. This would cause the multiplier to:

decrease

Suppose that the required reserve ratio is 0.4. If a customer withdraws $10 million from a bank, then the money supply could potentially:

decrease by $25 million.

According to the Laffer curve, higher tax rates will result in lower tax revenues if:

economic activity is severely discouraged.

A person who is currently actively looking for a job, but has a job that pays for 5 hours a week only is classified by the BLS as:

employed

As the population of the United States becomes older, which component of the Federal Spending would increase the most?

entitlements and mandatory spending

Refer to Figure 14.2. At an interest rate of 8%, there is:

excess supply of money and the interest rate will decline.

Replacing the personal income tax with a consumption tax would:

favor wealthy and high income individuals

Those who believed in Say's Law believe that saving will:

find its way to investors and ultimately will also be spent.

An example of a good that has auction prices is:

fresh fish

The largest category of discretionary federal spending is:

funding for the Defense Department

Which of the following government policies is not considered a fiscal policy?

government policies regarding money supply in the economy

Which of the following will not lead to greater economic growth?

government taxation of the private sector in order to engage in consumption spending

A monetary system in which gold backs up paper money is called:

the gold standard

A variable is considered procyclical if it moves:

in the same direction as real GDP

A variable is considered procyclical if it moves:

in the same direction as real GDP.

Traveler's checks are:

included in M2

A decrease in the price level will:

increase consumption and increase output demanded.

Monetary neutrality implies that an increase in the money supply will:

increase in price level

If the marginal propensity to import is 0.2, then a $1,000 decrease in income will:

increase net exports by 200

The tax cuts enacted during the first term of President Reagan were designed primarily to:

increase the supply of output.

Refer to Figure 9.5. Suppose the economy is a point B. A large ________ in the supply of labor leads to a shift from ________ to ________.

increase; AS1; AS2

Refer to Figure 9.5. Suppose the economy is a point B. A large ________ in the price of crude oil leads to a shift from ________ to ________.

increase; AS1; AS0

A depreciation of the U.S. dollar will likely cause U.S. exports to ________ and U.S. imports to ________.

increase; decrease

Nobel laureate Franco Modigliani found that increases in wealth cause:

increases in autonomous consumption.

Because GDP must be divided among competing demands in the economy, we should expect:

increases in government expenditure to reduce private investment when the economy is in full employment

Disposable income:

increases when income increases

In an open economy, a country can accelerate growth by:

increasing the trade deficit and importing investment goods.

Actions by business today that have costs today and provide benefits in the future are:

investments

Which of the following is not a function of the Federal Reserve?

issue new Treasury bonds

Though a powerful tool, the reserve requirement is seldomly used by the Fed to control the money supply because:

it causes significant disruptions in the banking system.

When constructing a production function between labor and output, which is drawn on the x-axis?

labor

The required reserve ratio is 10%. If the banks hold excess reserves, then the money multiplier is:

less than 0.10

Today, bank runs are:

uncommon because of the presence of deposit insurance.

Which of the following assets is the least liquid?

real estate

Refer to Figure 9.1. A reduction in government spending causes:

the aggregate demand curve to shift from AD1 to AD0.

During the 1930s, politicians did not use fiscal policy to counter the Great Depression because:

they feared the consequences of government budget deficits.

The reason why individuals have money demand when their inflation expectations increase is because:

they need more money in their pockets when prices go up so they can buy the same goods and services

According to the application, which of the following is an example of authoritarian institutions?

tightly controlled oligarchies

In the long run, an increase in the money supply will cause output:

to remain the same.

One major lesson that we learn from the circular flow diagram that:

total income in the economy must always equal total spending

Refer to Figure 14.1. Which demand for money decreases when income decreases and causes a movement from Point A to Point E?

transactions demand for money

In the long run, the aggregate supply curve is:

vertical at the full employment level of GDP.

The Republic Bank has $2 million in deposits and $250,000 in reserves. If the required reserve ratio is 10%, excess reserves are equal to:

$50,000

If Jack received a $1,000 bonus and his marginal propensity to save is 0.15, his consumption rises by ________ and his saving rises by ________.

$850; $150

Refer to Table 11.2. At an aggregate output level of $200, the unplanned inventory change is:

-$150

Refer to Table 11.2. At an aggregate output level of $600, the unplanned inventory change is:

-$50

If the marginal propensity to consume is 0.95, the tax multiplier is:

-19

Taxes are reduced by $50 billion and income increases by $1,000 billion. The value of the tax multiplier is:

-20

If the MPC is 0.9, then the tax multiplier is:

-9

A rightward shift in the aggregate demand curve can be caused by

-a decrease in taxes -an increase in government spending -an increase in the money supply -all of the above

Which of the following is a determinant of firms' investment and employment decisions?

-cost of capital -expectations of future economic conditions -interest rates -all of these are correct

M1 excludes which of the following?

-demand deposits -currency held by the public -traveler's checks -NONE of the above

Which of the following is an investment (broadly defined)?

-education -purchase of capital equipment -a purchase of ownership of a company -all of these are investments

If the price of a stock equals the present value of expected future dividend payments, then the price of the firm's stock would be expected to decrease when:

-firms predicts lower profits in the future -the government intends to increase the tax collected from the firm -competition increases -all the above can cause the price to decrease

Which of the following is a function of the district Federal Reserve Banks?

-provide advice on monetary policy -participate in monetary policy decision-making -act as a liaison between the Fed and the banks in their district -all of the following are correct

In order to provide liquidity to the economy after the September 11, 2001, terrorist attacks against the United States, the Fed:

-purchased government securities in the marketplace. -increased the length of the "Federal Reserve float." -increased direct lending to commercial banks. all of these

The Kennedy administration endorsed substantial tax cuts because:

-tax rates were very high, compared to tax rates today. -the economy was considered to be below its full employment level. -the unemployment rate was considered to be above its natural rate. -All of these

In the most basic model of the economy, equilibrium output is achieved when:

-the C + I line intersects the 45 degree line. -C + I equals output. -there is no change in inventories. -All of these are correct.

Refer to Figure 8.2 The increase in the equilibrium capital stock from K2 to K3 was brought about by:

an improvement in technology.

A rightward shift in the aggregate demand curve cannot be caused by:

an increase in taxes.

The Q-Theory of investment:

links investment spending to stock prices

Refer to Figure 10.1 to answer this question. Which of the following fiscal policies would move the economy from point B to point A?

lower taxes

Refer to Figure 14.5. Assume the interest rate equals 8%. If the money supply shifts exogenously from to M1, what can the Fed do to bring the money market back to equilibrium at M0?

lower the discount rate

Some costs associated with anticipated inflation are:

menu and shoe-leather costs

The development of money as a medium of exchange makes trade easier because:

money eliminates the "double coincidence of wants" problem

Which of the following would not be counted as part of M1?

money market accounts

Assume that the required reserve ratio is 25%. If the Fed buys $5 million worth of government bonds from the public, the maximum change in the money supply is:

more than 5 million.

Rank these three wage rates in the order of least sticky to most sticky: minimum wage workers, nurses, movie stars.

movie stars, nurses, minimum wage workers

Refer to Figure 12.2 to answer the question. Which of the following components of GDP most closely resembles Series B (countercyclical)?

net exports

If the quantity of money demanded equals the quantity of money supplied, then the interest rate will:

nominal interest rate

In the money market, the demand and supply of money determine the equilibrium:

nominal interest rate.

Hyperinflation causes inefficiency in the economy because:

people spend all their time hunting for bargains

Refer to Figure 9.6. Suppose the equilibrium is at point A. An oil embargo which raises the price of oil would move the equilibrium to:

point E

Firms react to unplanned increases in inventories by:

reducing output

In an economy with no government or foreign sector, it is always true that:

saving equals investment

Refer to Figure 14.4. If the Fed wants to raise the economy's market interest rate from 6 percent to 8 percent, and the reserve ratio is 10 percent, then it needs to ________.

sell $20 in government bonds

An increase in government spending will:

shift the aggregate expenditure line upwards and increase equilibrium output.

When the economy is in a boom, the intersection between the:

short run AS and the AD occurs at an output level higher than potential output.

When generating a political business cycle, a politician chooses lower unemployment in the ____________ over inflation and crowding out in the ____________

short run; long run

The aggregate demand curve:

slopes downward.

The seven members of the board of governors are appointed to 14-year terms by:

the President of the United States.

The boom period of the late 1990s was a good example of:

the Q-theory of investment at work.

An increase in taxes or a decrease in spending will cause:

the aggregate demand curve to the left

An increase in taxes or a decrease in spending will cause:

the aggregate demand curve to the left.

Expansionary fiscal policy shifts:

the aggregate demand curve to the right.

If the capital stock remains fixed while the supply of labor increases, it is likely that

the average product of labor will fall.

Inside lags associated with fiscal policy are due to all of the following, except:

the delayed response of the firms to a tax cut.

If Say's Law holds true, then if the economy produced $10 trillion this year:

the demand for goods and services also equals $10 trillion.

Suppose an automobile maker producing a certain kind of car suddenly experiences an increase in the demand for the car. In the short run:

the demand for steel goes up but the steel prices remain the same.

Suppose an automobile maker producing a certain kind of car suddenly experiences an increase in the demand for the car. In the short run:

the demand for steel goes up but the steel prices remain the same.

The Kennedy administration was not concerned about the possible negative effect of large tax cuts because:

the ensuing federal deficit was projected to disappear as higher tax revenues would follow from faster GDP growth.

If the economy is in long run equilibrium at full employment, the level of overall economic activity is not affected by changes in the price level due to:

the fact that prices and input costs change simultaneously and in the same direction.

Which of the following did not cause the budget deficit to grow larger since 2001?

the fast growing economy since 2003

Refer to Figure 15.3. At full employment equilibrium, investment would decrease from $18 million to $15 million if:

the government reduces taxes.

With the use of growth accounting, which of the following helps explain why the growth rate in the United States has been positive during the 1900s?

the increase in capital per worker

The present value of a payment to be received in the future is lower than the nominal value of that payment in the future as long as:

the interest rate is positive.

The number of people unemployed equals:

the labor force minus the number of people employed

The consumption function describes the relationship between consumption expenditures and:

the level of income.

The aggregate supply curve depicts the relationship between:

the level of prices and the total quantity of goods and services that firms supply.

The fraction of additional income that is saved is called:

the marginal propensity to save.

A firm sells a corporate bond to:

the public in order to borrow money.

When price of peanuts falls:

the quantity demanded of peanuts increases

Which of the following pairs of events will definitely lead to an increase in the equilibrium interest rate?

the sale of government bonds by the Federal Reserve and an increase in the price level

When output falls below full employment output, we expect that the:

wages and prices decrease as short run aggregate supply curve shifts downward over time.

When output exceeds the full employment level of output, we expect that the:

wages and prices increase as the short-run aggregate supply curve shifts upward over time.

The ________ is one reason why the aggregate demand curve is downward sloping.

wealth effect

If wages are sticky downward, then a decrease in the demand for labor:

will cause more unemployment in the short run

The permanent income view of consumption spending postulate when households receive a tax cut that is deemed temporary, then their consumption spending:

will not change and the tax rebate is saved.

A Fed sale of government bonds will cause a reduction in the interest rate and an increase in the equilibrium quantity of money.

False

According to Keynesian economics, aggregate supply determines the level of economic activity in the economy.

False

According to Keynesian economics, prices and wages determine the level of output in the economy

False

All presidents of the 12 district banks of the Federal Reserve can vote during FOMC meetings

False

All presidents of the 12 district banks of the Federal Reserve can vote during FOMC meetings.

False

An asset that is difficult to convert into money is considered a liquid asset.

False

An increase in the price level increases the speculative demand for money.

False

An unexpected increase in inventories has a positive effect on future production.

False

As the economy expands, unemployment rises, and the result is an increase in unemployment benefits.

False

Higher taxes is an example of an expansionary fiscal policy.

False

Holding other factors constant, an increase in the price level causes the aggregate demand curve to shift to the left.

False

If autonomous consumption (Ca) increases, the slope of the consumption function becomes steeper.

False

If households base their consumption spending on permanent income, then a temporary tax increase will cause a decrease in consumption.

False

If the economy is in long run equilibrium at full employment, an increase in the money supply will lead to a higher aggregate demand and a higher output level in the long run.

False

If there is inflation, real interest rates will be greater than nominal interest rates.

False

Investment is highly procyclical because it decreases during booms and rises during recessions.

False

Refer to Figure 12.2 to answer the question. Series B is a variable that increases when the economy is growing very fast.

False

The discount rate is the interest rate on loans that commercial banks make to the Fed.

False

The federal corporate tax is levied on corporate revenue.

False

The higher your income, the lower your consumption is likely to be.

False

The larger the marginal propensity to consume, the smaller the multiplier.

False

The money multiplier is represented by 1/(1-reserve ratio).

False

The only source of economic growth is growth in the number of workers in the economy.

False

The short run aggregate supply curve is upward sloping and very steep.

False

________ is a monetary system in which the money has no intrinsic value. In this system, the money is backed by the government.

Fiat money

Which of the following individuals are hurt when the economy experiences unanticipated inflation?

Fixed income earners Lenders Savers All of the above are hurt by unanticipated inflation

A government policy that leads to a decrease in aggregate demand is called:

a contractionary policy

Recall Application 2, "Two Approaches to Determining the Causes of Recessions," to answer the following questions: According to the application, a recession can be caused by:

a decrease in ether aggregate demand or aggregate supply.

Which of the following is an example of a Federal Reserve action that increases the money supply?

a decrease in the discount rate

Excess supply in the money market causes:

a decrease in the equilibrium interest rate.

Which of the following increases the real interest rate?

a decrease in the inflation rate, holding the nominal interest rate constant

Refer to Figure 12.1. Which of the following causes a movement from Point A to Point C?

a decrease in the interest rate

Refer to Figure 14.1. Which of the following events cannot cause a movement from Point E to Point A?

a decrease in the interest rate

Refer to Figure 14.1. A movement from Point A to Point B can be caused by:

a decrease in the interest rate.

Which of the following will not cause the price level to increase in the long run?

a decrease in the money supply

Which of the following will cause the price level to increase in the long run?

a decrease in the money supply

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

a decrease in the required reserve ratio

Refer to Figure 8.3. Which of the following will not move the economy from K1 to K3?

a higher saving rate

Refer to Table 11.3. At an aggregate output level of $3,000 million, the unplanned inventory change is:

0

If the consumption function is C = 80 + 0.6Y, then the marginal propensity to consume equals:

0.6

When the consumption function is expressed as C = 200 + .75(1-t)y where t=0.2, then the adjusted MPC is:

0.6

Refer to Table 13.1. First Commercial Bank's total loans equal $ ________.

1,050,000

If C = 500 + 0.5Y and I = 400, then the equilibrium level of income is:

1,800.

As of 2012, banks have been required to keep ________ percent of deposits exceeding $71 million as reserves.

10

Assume that C= 150 + 0.9Y and I=50. The government spending multiplier is:

10

According to economic data, the last time the U.S. economy experienced a budget surplus was in:

2001

Which of the following units of the measurement would appropriate for a real exchange rate?

3 bushels of Mexican corn per bushel of U.S. corn

Refer to Table 8.3. Diminishing returns to capital most obviously occur between periods ________and ________.

3; 4

If the nominal interest rate is 5 percent and the rate of inflation is 1 percent, then the real interest rate is:

4 percent

The chairperson of the Board of Governors of the Federal Reserve has terms of what length?

4 years

Assuming no government or foreign sector, if the marginal propensity to consume is 0.8, the multiplier is:

5

The money market will be in equilibrium at an interest rate of:

6%

How many governors are included in the Board of Governors of the Federal Reserve?

7

If Julie expects that her salary will increase by 10 percent per year, how many years will it take for her salary to double?

7

The Federal Open Market Committee consists of the:

7 members of the Board of Governors and 5 of the 12 regional bank presidents.

According to the rule of 70, if Variable A grows at x% each year, then Variable A will double in approximately:

70/x years

Refer to Table 13.3. The required reserve ratio is:

8%

The budget deficit was about ________ percent of GDP in 2011.

8.7

According to the multiplier-accelerator model, a downturn in real GDP leads to an even sharper fall in investment.

True

Along the short run supply curve, when the price level rises, there is an increase in aggregate quantity supplied.

True

An increase in the price level lowers the real value of wealth.

True

Bank runs are not common today because of deposit insurance.

True

Excess reserves plus required reserves equal total reserves.

True

For a given interest rate, a higher level of output means an increase in the number of transactions and an increase in the demand for money.

True

Foreign investment can increase a country's capital stock.

True

If households base their consumption spending on permanent income, then a tax increase will decrease consumption only if the tax is deemed permanent.

True

If output is less than aggregate planned expenditures, there will be an unplanned decrease in inventories.

True

In the short run, an increase in the money supply will lead to a higher aggregate demand and a higher price level.

True

Liabilities plus net worth equal assets.

True

Optimistic expectations about the future increase investment spending because they inflate the price of stock shares.

True

Proponents of the estate tax argue that the tax is necessary to prevent "unfair" accumulation of wealth across generations.

True

The existence of lags in implementing fiscal policy can magnify economic fluctuations.

True

The government spending multiplier in a closed economy is the same as the government spending multiplier in an open economy, if the marginal propensity to import equals zero.

True

The higher the marginal propensity to consume, the steeper is the slope of the consumption function.

True

The interest rate determines the present value of a future payment.

True

The marginal propensity to consume can never be equal to zero.

True

When interest rates fall, the present value of a given payment in the future increases

True

According to the accelerator theory of investment, a decrease in the expected future growth rate of real GDP will cause:

current investment spending to decrease.

Refer to Table 11.2. At an aggregate output level of $200, inventories will:

decrease by 150

Which of the following sequence of events would follow a decrease in the reserve requirement?

decrease interest rate,- increase investment,- increase aggregate demand,- increase real GDP

Suppose the economy is at full employment. An increase in the money supply will ________ in the short run and ________ in the long run.

decrease interest rates, increase the price level

If the Fed wanted to reduce the market interest rate, it could:

decrease the required reserve ratio.

When the economy is in a recession and the stock market plunges, the interest rates ________ and the bond prices ________.

decrease; increase

Because investment is generally procyclical, it usually ________ when the economy ________.

decreases; is in a recession

Which of the following is an example of an expansionary fiscal policy?

decreasing taxes

If a economy's planned expenditures turn out to be greater than production, then inventories will be:

decreasing, prompting firms to increase production in the future.

An increase in the British interest rate relative to the U.S. interest rate will cause a(n):

depreciation of the dollar and an appreciation of the British pound

The interest rate that the banks pay to borrow money from the Fed is the:

discount rate

Which of the following is not a financial intermediary?

district bank of the Federal Reserve System

Financial intermediaries reduce the risk faced by savers through:

diversification of investment projects.

When interest rates are ________, the opportunity cost of holding ________ outside banks is ________.

high; cash; high

Money is an imperfect store of value because of:

inflation

The Fed indirectly controls long-term interest rates by:

influencing market expectations about future short-term interest rates.

In the short run, the formal or informal contracts between firms mean that changes in demand will be reflected primarily in changes in ________.

output

If the capital-labor ratio of an economy decreases, ceteris paribus:

output decrease because of diminishing marginal returns

When we graph the 45 degree line, what are the labels on the x -axis and the y-axis?

output on the x-axis and expenditures on the y-axis

The length of time from when households receive tax rebate checks to the time they spend the checks is part of the:

outside lag

The length of time that the U.S. Treasury Department takes to print and mail tax rebate checks to help the economy out of a recession is part of the:

outside lag

Using data from the 2011 fiscal year, federal income tax and social insurance tax revenues comprise ________ of total federal government revenues.

over 80 percent

If a farmer buys a new tractor from john Deere for use on her cotton farm, it is included in GDP as:

part of private investment

Based on what you learned from the application, which countries are negatively affected by global warning?

poor countries

The relationship between the level of prices and the total quantity of goods and services that firms supply in the short run is:

positive

In theory, the price of a stock equals the:

present value of expected future dividend payments

Auction prices are prices that adjust ________ while custom prices are prices that adjust ________.

quickly; slowly

When we draw the aggregate demand curve, ________ should be on the x-axis and ________ should be on the y-axis.

real GDP; the price level

Which of the following is a function of the Federal Reserve?

regulate banks

If the quantity of money demanded equals the quantity of money supplied, then the interest rate will:

remain constant

The fraction of its deposits that banks keep in the form of reserves as required by law is/are called:

required reserves.

If a firm that chooses to use all of its corporate earnings as dividends, then:

retained earnings equal zero.

All else equal, when the Fed purchases government bonds, the money supply curve shifts to the ________ and the equilibrium interest rate ________.

right; falls

If the economy is in a boom, the prices and wages will ________ causing the short-run AS curve to shift ________ until the economy reaches its long run equilibrium.

rise; left

When you keep your savings in a savings account, you are using money as a(n):

store of value

What kind of active fiscal policy was implemented in early 2008 in response to a slowing economy?

tax rebates and investment incentives

The aggregate demand curve would shift to the left if:

taxes were increased

During the U.S. savings and loan crisis in the 1980s, depositors were saved at the expense of:

taxpayers

If total output grows at 4 percent per year while labor and capital grow at 1.5 percent and 2.1 percent pre year, respectively, then:

technology grew by 0.4 percent per year.

The Asian financial crisis of 1997 was due to the fact:

that loss of confidence in several economies resulted in the massive selling of their currencies

The decisions concerning the money supply are made by:

the FOMC