final exam question
Ignoring any supply-side effects, to close an inflationary gap of $100 billion with a government expenditure multiplier of 5, the government could
decrease government expenditure on goods and services by $20 billion.
a change in the price level brings a ____ the aggregate supply curve , NOT a _____ the aggregate supply curve
movement along; shift in
when the domestic price level increases, exports decrease and imports increase. other things stay the same, this is
movement upward along the aggregate demand curve
Moving along the aggregate supply curve
only when the prices changes
The output gap is the
percentage deviation of real GDP from potential GDP.
While the Fed has a "dual mandate" of goals to achieve, most economists believe that in the long run the single key role is attaining
price stability
The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland lowers the target federal funds rate by 1 percentage point, the central bank will conduct an open market ________ of government securities of ________ to ________ the supply of reserves.
purchase; $25 billion; increase
In order to reduce inflationary pressure on the economy, what fiscal policy can the government use?
raise taxes
If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that ________ the federal funds rate and ________ aggregate demand.
raises; decreases
The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.
recessionary; increase; decrease
if investment increases by $1 million, then the aggregate (total) demand curve shifts
rightward by more than $1 million
The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $25 billion, then the federal funds rate will
rise to 6 percent a year.
if the money wage rate rises, the AS curve shift leftward.
the AS curve shift leftward
The figure above shows aggregate demand curves. Based on the figure above, the aggregate demand curve will shift from AD0 to AD1 when
the Federal Reserve lowers the interest rate.
During a inflationary gap,
the aggregate demand curve and aggregate supply curve intersect at a level of real GDP that exceeds pot
if the AD curve shifts rightward while the AS curve and Potential GDP don't change then
the expansion phase of the business cycle occurs
One problem with the ripple effect from the Fed's monetary policy is
the fact that the monetary policy transmission process is long and drawn out.
what happens when the price level is low?
the lower the price level, the greater the quantity (amount) of real GDP demanded
a change in any of the following factors except____ shifts the aggregate demand curve
the money wage rate
In the short run, when the Fed increases the federal funds rate,
the real interest rate rises and investment decreases.
if people's expectations about future income improve so they think their future income will be higher than previously believed, then the AD curve
will shift rightward because people will increase spending now.
A change in the federal funds rate ________ the supply of loanable funds, ________ the long-term real interest rate, and ________ investment.
affects; affects; affects
if potential GDP increases
aggregate (total) supply increases
The government expenditure multiplier is used to determine the
amount aggregate demand is affected by a change in government expenditure.
The federal budget is defined as
an annual statement of expenditures and tax revenues of the U.S. government.
if taxes are cut there is
an increase in aggregate (total) demand and the AD shifts rightward
Cost-push inflation might initially result from
an increase in the cost of resources
during the late 1960's, U.S. defense spending increased as the United States fought in Vietnam. This increase in government expenditure on goods and services most likely creates
an inflationary gap. (happens when the economy is operating above full capacity) Real GDP> Potential GDP unemployment rate < natural rate of employment
The Fed ________ influence the real interest rate in the short run and ________ influence the real interest rate in the long run.
can; cannot
a rise in the price level
decrease the quantity of real GDP demanded
If the Fed fears inflation, it ________ by ________ government securities
decreases aggregate demand; selling
When the Fed raises the federal funds rate, the consumption expenditure ________ and investment ________.
decreases; decreases
A cut in the income tax rate ________ the tax wedge and ________ employment, saving, and investment.
decreases; increase
An increase in the income tax ________ potential GDP by shifting the labor ________ curve ________.
decreases; supply; leftward
the government collects tax revenues of $100 million and has $105 million in outlays. the budget balance
deficit of $5 million
If the Federal Reserve decreases the Federal funds rate, other short-term interest rates ________ and the exchange rate ________.
demand for money.
The k-percent rule, an example of a money targeting rule, relies on a relatively stable
demand for money.
The figure above shows an economy aggregate demand curve and aggregate supply curves. Suppose the shift from AD0 to AD1 and from AS0 to AS1 is the result of fiscal policy. If the effect on aggregate demand was larger than the figure above shows, as a result the price level would be ________ 110 and real GDP would be ________ $17 trillion.
higher than; larger than
An economy is at a short-run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to
increase government expenditure and move the economy to a full-employment equilibrium at point b.
which of the following shifts the aggregate supply shift leftward?
increase in money wage rate
If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to
increase taxes and decrease government spending simultaneously.
The supply-side effects show that a tax cut on labor income ________ employment and ________ potential GDP
increase; decrease
The figure above shows the market for loanable funds. The supply of loanable funds curve shifts rightward. The change illustrated in the figure above is part of the transmission process of the Fed's monetary policy. As a result of the increase in the supply of loanable funds, in the short run aggregate demand ________, aggregate supply ________, and potential GDP ________.
increases; does not change; does not change
When the Fed________ the federal funds rate, the opportunity cost of firms' investment ________ and so the quantity of investment ________.
increases; rises; decreases
Potential GDP increased from 4.7 trillion to 16.6 trillion between 1970 and 2013 resulting in economic growth. Also, during this time ________ occurred because ________.
inflation; aggregate demand increased by more than potential GDP
When the government's outlays equal its tax revenues, then the budget
is balanced
The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. In the figure above, to use fiscal policy to move the economy back to potential GDP, the government must increase government expenditure by ________ $1 trillion and/or decrease taxes by ________ $1 trillion.
less than; less than
If the Fed is concerned about a possible recession, it ________ the federal funds rate and, in response, long-term interest rates ________ by a ________ amount than the change in short-term rates
lowers; decrease; smaller
suppose the exchange rate in the year 2010 was 4 yaun per dollar and in 2011 the exchange fell to 3 yaun per dollar. if the Chinese sweater was 120 yuan in both years, the new dollar price in 2011 would be ____ and the Imports of Chinese sweaters would be ________.
$40; Decrease. 4/120= 30 yuan 2010 3/120= 40 yuan 2011
when tax revenues minus outlays is 1. positive, the government has a budget surplus 2. negative, the government has a budget deficit 3. zero, the government has a balanced budget
1,2,3...all correct
The table above gives a nation's government outlays and tax revenues for 2008 through 2012. During which years did the country have a budget deficit?
2010 and 2012
Monetary policy decisions are made by the
Federal Open Market Committee.
Demand-pull inflation starts with a shift of the
AD curve Rightward
If the Fed raises the federal funds rate, eventually the
AD curve shifts leftward, decreasing real GDP and the price level.
If the Fed lowers the federal funds rate, which of the following occurs?
Investment increases.
The ________ view says that fiscal stimulus has a multiplier effect that makes it a ________ tool to fight a deep recession.
Keynesian; powerful
Do automatic fiscal stabilizers eliminate business cycles?
No, but they do moderate business cycles.
a demand-pill inflation consist of____ shifts in the AD curve and _____ shifts in the AS curve
Rightward; Leftward
Which of the following is a problem in pursuing monetary policy?
The lag between a change in the quantity of money and its effect on economic activity may be long.
When tax revenues equal government outlays, the situation is referred to as
a balanced budget
National debt decreases in a given year when a country has
a budget surplus.
the change reflected in the above figure might be a result of. ( the AS curve shifts rightward)
a decrease in money wage rate
During 2010, a country reports that its price level fell and the money wage rate did not change. these changes lead
a higher real wage rate, lower profits, and a decrease in the quantity of real GDP supplied.
Maintaining the growth of the money supply at a constant rate is an example of
a money targeting rule.
The proposal to keep the quantity of money growing at a slow constant rate is an example of
a money targeting rule.
a fall in the price level produces a______ the aggregate supply curve.
a movement downward along
a rise in the price level brings a ________in the buying power of money that____ consumption expenditures and causes the quantity of real GDP demand to______.
fall; decreases; decrease
The monetary policy instrument the Federal Reserve chooses to use is the
federal funds rate
Which of the following is a potential monetary policy instrument for the Fed?
federal funds rate
The government has a budget surplus if
tax revenues are greater than outlays
The structural deficit is the deficit
that would occur at full employment.
