Macro Econ Cumulative #2

Suppose that the consumers reduce consumption by \$200 billion this year and the government spends \$100 billion less this year. Other things constant, what happens to the supply of loanable funds compared to last year?

It shifts right by \$300 billion

Suppose that interest rates rise unexpectedly. Suppose also that IBM announces that revenues from last quarter were down, but that the decline was exactly what the public and analysts had expected. According to the efficient market hypothesis, which of these events would cause the price of IBM stock to change?

Only the interest rate rising

Assuming the money velocity, V, is constant; the economy produces only one good, cars. In 2016, the economy has enough resources to produce Y = 300 cars; the money supply is \$600,000, and each car sells for \$10,000. Nominal GDP is:

\$3,000,000 and V = 5

On a bank's T-account, which are part of the bank's assets?

reserves but not deposits made by its customers

All of the following tend to reduce the price of a bond, other things equal, except,

Shorter term

If a corporation's stock has a high price-earnings ratio, it might indicate either that the stock is overvalued or that people expect the corporation to grow in the future.

True

Other things the same, if prices fell when firms and workers were expecting them to rise, then

employment and production would fall.

If aggregate demand shifts right beyond the natural rate of output, YN, then in the short run

firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

Which of the following would not be included in aggregate demand?

government's tax collections.

A bank has a 10 percent reserve ratio, \$36,000 in loans, and has loaned out all it can given its reserve ratio. This bank

has \$40,000 in deposits.

Other things equal, an unexpected fall in the price level results in some firms having

higher than desired prices, which decreases their sales.

Open-market purchases by the Fed make the money supply

increase, which makes the value of money decrease.

According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had

increased, so it would increase production.

In the context of aggregate demand and aggregate supply, the price-wealth effect refers to the idea that, when the price level decreases, the real wealth of households

increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.

A lower interest rate induces people to

invest more, so the demand of loanable funds slopes upward

The amount of unemployment that an economy normally experiences is called the

natural rate of unemployment.

If money demand decreases and the Federal Reserve want to keep interest rates constant, it could

sell bonds to decrease the money supply.

Which of the following shifts aggregate demand to the left?

stock market wealth falls.

Suppose aggregate demand shifts left; this can be caused by:

the Fed decreases the money supply

An advance in technological knowledge will shift

the SRAS to the right and the LRAS to the right

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

the interest rate to fall, so aggregate demand shifts right.

In 2009, towards the end of the Great Recession, some people became discouraged and quit looking for work. Other things equal, when they quit looking for work, then according to the BLS

the labor force and the unemployment rate would both fall.

The smaller the MPC,

the smaller the fiscal multiplier

The primary reason people hold money is

to use it as a medium of exchange.

Which of the following does not help reduce frictional unemployment?

unemployment insurance paid to workers who lose their jobs

If output is above its natural rate, then according to sticky-wage theory

workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.

All of the following are part of national savings except,

Purchase of a new house

Suppose a one-year zero-coupon bond has a face value of \$5000. If your alternative return is 2% the most you will pay for this bond (rounded to the nearest dollar) is

$4902

According to the Gordon Growth Model of stock prices if dividends are constant at \$1, the risk-adjusted discount rate is 6% and the expected growth rate of the firm's dividends is 4% then the price of the stock is

$50 a share

Suppose 25 million people are employed, 3 million people are unemployed, 1 million are discouraged workers, and 1 million people are not seeking employment. What is the unemployment rate?

10.7%

If the finding rate is 20% and the separation rate is 4% then the labor flow model of unemployment says the unemployment rate is

16.7%

Suppose that the real interest rate is 4%, the inflation rate is 2%, and the tax rate is 25%. What is the after-tax real interest rate?

2.5%

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

3 percent

Private savings is Sp = -100 + 10r, government spending on goods is 200, taxes are 500 and transfers are 100. If investment is I = 250 - 20r then in equilibrium in the loanable funds market the interest rate is

5%, private saving = -50, and investment = 150

Other things equal, if government spending increases

A. national savings rises B. consumption falls C. investment falls D. Choices a and b are correct E. Choices b and c are correct **E

Recall that fiscal policy involves a multiplier effect and a crowding out effect. An increase in government expenditures changes aggregate demand more, If a \$1,000 increase in income leads to an \$800 increase in consumption expenditures, then the marginal propensity to consume is

D. 0.8 and the multiplier is 5 H. the larger the MPC and the weaker the influence of income on money demand.

A professor of physics gets a \$200 a month raise. She figures that with her new monthly salary she can buy the same number of goods and services she bought last year.

Her real salary has stayed constant and her nominal salary has risen.

If tomorrow currency were \$1000 higher than today and if tomorrow saving deposits were \$500 higher than today, then tomorrow M1 would be

\$1,000 higher and M2 would be \$1,500 higher than today.

If the reserve ratio is 5 percent, then, other things equal, \$600 of additional reserves can create as much as

\$12,000 of new money.

If the marginal propensity to consume is 0.60, the government increases expenditures by \$300 billion and crowding out equals \$100 billion, how much does aggregate demand shift by?

\$650 billion

Which of the following policies would be advocated by proponents who want to return output to the natural rate when the economy is experiencing severe unemployment?

an increase in government purchases

Paper dollars

are fiat money and gold coins are commodity money.

To decrease the federal funds rate, the Fed would

buy bonds, which increases the money supply.

When the Fed conducts an open-market purchase, the Fed

buys government bonds, and in so doing increases the money supply.

The idea that nominal variables are affected by the quantity of money and that money is largely not important for understanding the determinants of real variables is called the

classical dichotomy.

Suppose local governments eliminate their sales taxes, other things equal. As a result:

consumption rises and the aggregate demand curve shifts right

If the Fed sells government bonds to the public, then reserves

decrease and the money supply decreases.

If the consumers and businesses decide to hold more currency and fewer deposits in banks, bank reserves

decrease and the money supply eventually decreases.

Assume that Congress increases the government budget deficit. As a result, the aggregate demand (and output) increase. To stabilize the economy, and keep real GDP close to the natural rate, the Fed should:

decrease the money supply to increase interest rates and decrease aggregate demand

Deflation

decreases prices and reduces the ability of debtors to pay off their debts.

If you deposit \$100 of currency into a demand deposit at a bank, this action by itself

does not change the money supply

If over time the nominal wage rises and the real wage falls, then

dollar wages rose but the price level rose by a larger percentage.