Macroeconomics Mann UNL ch.9-12

M2 is ___ in dollar value than M1; it also contains ___ assets

larger; less liquid

crowding out:

leads to higher interest rates

if the marginal propensity to consume is 0.9 by how much will $100 of governemnt spending increase GDP?

$1000

suppose a bank has $1 million in deposits, a reserve requirement of 10% and bank reserves of $300,000. The bank has excess reserves of:

$200,000

if a person borrows $2000 at 5% interest and never makes any payments how much will the loan balance be after 2 years?

$2025

if the reserve requirement is 25% a new deposit of $1000 leads to a potential increase in the money supply of:

$4,000

if the reserve requirement is 10% a withdrawal of $500 leads to a potential decrease in the money supply of:

$5000

suppose the ZZZ Corporation sells a one year coupon bond for $1000 and its coupon payment is $100. the yield is ___. If instead the price of the bond was $500 the yield is___

10%; 20%

if the reservation requirement is 1% what is the money multiplier?

100

the federal reserve system includes ___ regional banks

12

mandatory spending comprises nearly ___ of the federal budget

2/3

the yield of perpetuity bond that has an interest payment of $60 and a price of $1200 is:

5%

a bank has $50,000 in deposits from checking account customers and loans of $49,000. Of the $49,000 loaned out $43,000 remains in the checking accounts if the loan recipients. the bank has $50,000 cash on hand and the reserve requirement is 25%. The reserve ratio is ___ and ___ meeting its reserve.

53.76%; it is

the ___ is the central bank of the United States

Federal Reserve System

rising productivity will increase economic growth and raise the average standard of living, shifting the ___ curve to the ___

LRAS: right

the equation of exchange:

M x V = P x Q

yolanda took $5000 from her checking account and put the money in her savings account at the same bank. Based on that which is true?

Mi went down by $5000 but M2 was unchanged

disposable income is equal to:

Y - T

which of the following is the least liquid?

a Picasso painting

if a government collects $1400 in tax revenue and spends $1600 it has:

a deficit of $200

successful barter in a primitive economy necessitates

a double coincidence of wants

the 12 federal reserve banks and their branches do all the following except:

accept deposits from US citizens

financial intermediaries

banks, mutual funds, and insurance companies which acquire funds from savers and lend them to borrowers

MI includes:

cash; demand deposits; and other checkable deposits

monetary policy

change the reserve requirement

which is not a tool for monetary policy?

chnaging government spending and taxes

contractionary fiscal policy is typically used to:

combat inflation stemming from an overheard economy

legislators debate for 6 months on which spending program to utilize to manipulate the business cycle. This is an example of the

decision lag

assume the taxed increased by $200 and the marginal propensity to consume is 0.75. We would expect:

equilibrium income to fall by $600

the ___ rate is the rate at which banks charge each other for overnight loans, while the ___ rate is the rate which regional Federal Reserve banks charge depository institutions for short term loans

federal funds; discount

the ___ oversees the main tool of monetary policy

federal open market committee

which of these is a basic goal for the federal reserve system?

full employment

open market operations involve the purchase and sale of:

government securities

corpoarte bonds generally have ___ return on investment than do checking deposits because bonds are ___

higher; riskier

liquidity refers to:

how quickly, easily and reliably an asset can be converted into a medium for exchange

the ___ lag can be expected to last 8-24 months

implementation

the ___ lag is the time required to turn fiscal policy into law to have impact on the economy

implementation

suppose the economy is in a recession. To increase demand during discretionary fiscal policy, the government can:

increase government spending or reduce taxes

the largest source of federal government revenue is:

individual income taxes

the ___ lag is the time policy makers must wait fro economic data to be collected, processed, and reported

information

the price of a bond is equal to:

interest payment divided by yield

the reward for saving is called ___ and this variable is placed on the ___ axis of the loanble funds market graph

interest; vertical

the demand curve for loanable funds represents ___ and is ___

investors; downward sloping

Money:

is anything that is accepted in exchange for other goods and services or for payment of debt

the Federal Open Market Committee

is compromised by the board of governors and 5 other regional reserve bank presidents

recognition lag:

it take time to recognize trends in data

reserve ratio:

level of reserves bank holds as a percentage of total deposits reserves divided by deposits

Unit of account:

money is used to compare values of a wide variety of goods and services

what is Fiat money?

money whose value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity (gold)

transfer payments are?

monies paid directly to individual by the government

automatic stabilizers include all of the following except:

national defense spending

___ are examples of discretionary spending

national defense;income security;veterans benefits

if a bank is subject to a reserve requirement of 15% then it is required to:

place 15% of its deposit in the account with its regional federal reserve bank or the vault

Member banks:

private banks that use Federal Reserve services and have voting rights on regional leadership

the ___ is the sum of the past ___

public debt; budget deficits

the ___ lag is the time it takes for policy makers to confirm that the economy is trending in or out of a recssion

recognition

the crowding out effets can drive up interest rate which ___ consumer spending on durable goods and ___ buisness investmet

reduces; reduces

___ government spending ___ transfer payments and ___ taxes are all examples of contractionary fiscal policy

reducing; reducing; raising

the formula for calculating the reserve ratio is:

reserve / total deposits

when government spending increases, the aggregate demand curve shifts to the ___ and the multiplier effect is dampened by a ___in the aggregate price level

right; rise

if the Fed increases the supply of money in the market, bond prices will ___ and interest rate will ___

rise; fall

___ are examples of mandatory spending

social security, interest on the national debt, and medicare

increased government ___ leads to a larger increase in GDP when compared to the same reduction in ___

spending; taxes

if Jack Sparrow buries a chest of gold on a deserted island and plans to come back for it later than the gold is functioning as a:

store of value

suppose the government implaments a policy reducing rewards earned by savers. In this case the ___ loanable funds shifts ___

supply of; left

The Laffer Curve:

tax revenues rise as tax rates increase form 0%, then fall as tax rates increase further

if an expansionary policy pushed output beyond full employment level of GDP:

the SRAS will shift to the left

if there is a general rise in fear for the financial system:

the actual multiplier will fall

___ is the amount by which annual government spending exceeds tax revenues

the budget deficit

cyclically balanced budget

the budget must be balanced over the business cycle by increase in taxes or reductions in spending during booms to offset deficits that occur during recessions

which of these is likely to lead to higher interest rates?

the end of government program that provides taxpayers with additional incentives

the market for loanable funds:

the equilibrium interest rate is determined by borrowers (demand) and lenders (supply)

when workers lose their job, they file for unemployment benefits; therefore government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending in unemployment programs shrinks. Based on that which is correct?

unemployment compensation is a form of an automatic stabilizer

serving as a ___ is a function of money that gives us a yardstick by which we can measure and compare values of a wide variety of goods and services

unit of account

what are the primary functions of money?

unit of account/medium of exchange/store of value

the SRAS curve:

upward sloping because higher prices can temporarily increase output

Fiscal Policy

using government spending and government revenue to influence the economy (altering tax rates)

LRAS curve is:

vertical because output is fixed in the long run, wage and prices are flexible