Macro Exam 3 Study Guide
An economy initially at point e experiences a supply shock, causing a shift from SRAS0 to SRAS1. If contractionary monetary policy is implemented to counteract the inflation, what will be the resulting level of aggregate output? Point to the number on the horizontal axis.
110
The figure shows an economy starting in equilibrium at point e. Expansionary monetary policy shifts AD to the right. According to the theory of monetarism, what does the price level become once the economy adjusts in the long run? Point to the answer on the vertical axis.
110
Which circumstance would contribute to a relatively flat slope of the short-run aggregate supply curve?
A high number of vacancies in a shopping mall allows retail tenants to take on larger spaces with no increase in rent.
Which event will shift the aggregate demand curve to the right?
A new government program implemented to eliminate poverty
Which of the following is NOT one of the tools of monetary policy?
Advising the U.S. Congress on budget matters
Which of the following would cause a leftward shift of aggregate demand?
An expectation of increased business regulation and restrictions on the use of technology causes a decrease in investment spending.
What is the monetarist view of macroeconomic policy?
Expansionary monetary policy is effective in the short run but inflationary in the long run.
If the required reserve ratio is 10% and depositor withdraws $500 from his checking account at the bank, the bank's excess reserves will
Fall by $450
When the interact rate falls the value of the US dollar in foreign exchange markets tends to __ and net exports tend to__
Fall, increase
How does a short-run macroeconomic equilibrium differ from the long-run macroeconomic equilibrium?
In the short run, macroeconomic equilibrium can occur at a level of output other than the full-employment level of outpu
when the current real output exceds potential real output, the federal reserve will____ interest rates in an effort to fight___
Increase, inflation
Which event would shift short-run aggregate supply to the right?
Internet technology allows retailers to use just-in-time delivery of merchandise, thereby lowering inventory costs.
Decrease interest rates will shift the aggregate demand curve to the ____ and _____ output demanded
Left; decrease
The dramatic collapse in the price of technology stocks in 2001-2003, coupled with short recession in 2001, caused the Federal Reserve to ____ interest rates to stimulate___
Lower, employment
An increase in resource costs causes a shift of aggregate supply from SRAS0 to SRAS1. Policymakers respond by shifting aggregate demand from AD0 to AD1. On the vertical axis, indicate the final price level after both changes have occurred
P2
In the equation of exchange, if M = $1.5 trillion, V = 7, and P = 1.05, then:
Q = $10 trillion.
On the horizontal axis of the graph, point to the level of aggregate output that would be observed when aggregate demand is at AD1 and the price level is P0.
Q1
Assume that the Empathy State Bank begins with the balance sheet below and is fully loaned up. This bank's reserve ratio is:
Reserve ratio = Reserves/ deposits (2500+7500)/100,00 =0.10
The ____ is positively sloped because some input costs are slow to change
Short-run aggregate supply curve
The money you hold in your bank account is:
a liability for the bank and an asset for you.
What would cause the price level to rise and employment to increase?
a shift to the right of the aggregate demand curve
Open market operations are primarily intended to:
adjust the level of bank reserves to bring the actual federal funds rate in line with the target federal funds rate.
When government spending rises
aggregate demand rises
In a fractional reserve banking system:
all banks are required to hold a fraction of their deposits in reserve.
A reserve requirement of 100% would mean that:
banks could not make loans.
The Fed used its tools to counteract:
booms and recessions
Anika deposits $5,000 into her checking account at a bank that was exactly meeting its reserve requirement prior to this transaction. As a result of the transaction:
both deposits and reserves increase by $5,000, leaving the bank with excess reserves.
At high domestic price levels compared to other countries, Americans:
buy more imported goods
A vertical long-run aggregate supply curve shows that:
changes in the price level do not affect the productive capacity of the economy.
When the Federal Reserve electronically adds reserves to the banking system, the actual expansion of the money supply depends on all of the following EXCEPT the:
cost to the U.S. government of printing currency.
Which of the following factors causes a shift in the aggregate demand curve to the left?
decrease government spending
Liquidity refers to how
easy an asset is to convert immediately to cash without losing value.
If Abigail withdraws $300 cash from her checking account, her bank's assets then:
fall by $300 and liabilities fall by $300.
The Federal Reserve seeks to promote all of the following EXCEPT:
growth of exports
The 2008 decision by the Federal Reserve to pay interest on excess reserves:
has reduced the actual (leakage-adjusted) money multiplier.
A bank can issue a new loan when:
its reserve ratio exceeds the official reserve requirement.
All of these are fuctions of money EXCEPT
liquidity
In responding to the financial crisis, the Federal Reserve:
purchased mortgage-backed securities from banks
High taxes and/or heavy regulation:
raise costs of production so that the aggregate supply curve shifts to the left.
In following a contractionary monetary policy, the Fed would attempt to:
raise interest rates
Increased consumer confidence will shift the aggregate demand curve to the ___ and ___ output demanded.
right; increase
Demand-pull inflation occurs when a:
rightward shift of aggregate demand causes the short-run equilibrium level of output to exceed full employment output.
Which list represents monetary policy actions that are consistent with one another?
sell government bonds, raise reserve requirements, raise the discount rate
The Fed pursues an expansionary monetary policy when it seeks to:
shift aggregate demand to the right.
If Jack Sparrow buries a chest of gold bullion on a deserted island and plans to come back later, then the gold is functioning as a:
store of value
The numeric value of the spending multiplier must be known in order to determine:
the amount of additional spending needed to bring the economy back to full employment from a recession.
A news headline reads "M1 Grows, Interest Rates Hold Steady, Investment Stagnates." This headline suggests that:
the economy is in a liquidity trap.
A policymaker who advocates following a monetary rule is most likely to believe that:
the economy is inherently stable.
The long-run aggregate supply curve is vertical because
the economy will gravitate to the position of full employment when all variables are flexible.
The downward slope of aggregate demand shows a negative relationship between:
the overall level of prices and the amount of output that will be purchased.
The graph shows the supply demand for loanable funds. If the market interest rate is 3%
there will be an excess supply of funds
One reason the amount of real output demanded declines when the aggregate price level rises is the resulting reduction in household wealth, called the:
wealth effect
Contractionary monetary policy intended to fight a negative supply shock:
will reduce inflation but likely increase unemployment.
