Econ 2 Final - Modules 9-13

What is a step a bank can take to protect itself from loan defaults which can lead to recessions?

A bank can diversify its loans.

How can a bank strategize to protect itself from loan default levels that will potentially create recessions?

A bank could diversify its loans by lending to a variety of customers.

In the figure, the increase in expenditure is the vertical increase from ________. AE0 to AE1 AE1 to the Keynesian Cross AE0 to the Keynesian Cross

AE0 to AE1

How do rising tax rates affect tax revenue over time according to the Laffer curve?

At first tax revenue increases but then falls as tax rates reach certain levels.

Why are banks susceptible to potential bank runs?

Banks keep only fractional funds available, a much higher customer demand to withdraw funds in a short period of time may generate customer panic.

Which is true of banks' deposits?

Banks lend out most, but not all, of the deposits to earn income.

Why are bank runs in the United States relatively scarce since the 1930s?

Because of the guarantees that depositors will receive a portion, if no all, of their money from the FDIC deposit insurance.

Neoclassical economists have a tendency to put more emphasis on long-term growth than on fighting recession. Why is this the case?

Because over the long run, recessions end.

Which of the following is a true statement about Say's Law in the neoclassical zone pictured in the above graph?

Because the LRAS is at full output it is creating demand and shifts of the AD curve have little to no effect on supply output.

When organizations need money, they often borrow through what main method?

Bonds

What are the components included in aggregate demand?

Consumption, investment, government spending, and net exports.

What is an example of a security?

Credit cards

Consider national income, which statement is accurate about the function of export and imports in it?

Exports and imports are horizontal lines with imports being negative as it relates to real GDP.

How are all financial markets linked indirectly or directly?

Financial markets whether directly or indirectly have access to both borrowing funds and saving funds through various financial vehicles.

What is true about the expenditure multiplier?

GDP changes when the aggregate expenditure changes.

What would economic conditions potentially be like in the U.S if the Federal Reserve did not regulate fiscal policy, monitor banks and provide services for banks?

In the economy, transactions would likely be more costly and less efficient.

Of the following descriptions, which characteristic is a true statement about money?

It must represent value.

Which of the following scenarios would be MOST beneficial to a bank?

Kim and Micah decide to move most of their money from a checking account into a savings account.

How does monetary policy affect the market?

Monetary policy has an indirect impact on aggregate demand.

An example of a financial market is the ________.

NASDAQ Stock Market

In order to bring the economy back to its potential GDP/full employment level, what is vital to remember when calculating the spending multiplier in order to discover the amount of government spending needed?

Need to remember that Y (national income) = AE (aggregate expenditure).

What are some of the unexpected events in a economy that can contribute moving toward a national deficit rather than a surplus?

Personal income decreases and income taxes decline.

What is one of the cornerstones on which neoclassical economics is built?

Prices and wages will adjust in a flexible manner.

An example of a regressive tax is a/an

Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000.

If the country of Switzerland has its economy operating at its potential GDP, but plans to expand its output levels, according to neoclassical thinking, what would increase the country's outputs?

Technological improvements

The ________ is responsible for monitoring the money supply and the general stability and safety of the U.S. banking system.

The Federal Open Market Committee (incorrect)

What is the term used when the income=expenditure line (i.e. the 45 degree line) and the aggregate expenditure line are combined on a graph?

The Keynesian Cross

If an economist is using the macroeconomic theory that low inflation may be associated with high unemployment, and high inflation may contribute to low unemployment, what theory is the economist considering?

The Keynesian Phillips curve tradeoff.

How does an economist know if the economy is experiencing an inflationary gap?

The equilibrium level of GDP is greater than potential GDP.

Of these statements about the potential GDP line, which is incorrect?

The potential GDP line makes the assumption that it is at less than full employment of its physical capital and labor.

Money creation in the United States results from which of the following?

The process of multiple banks' lending out deposits.

What is meant by a bank if a loan defaults?

There are customers who do not repay their loans.

What is one of the main differences between a bank and a credit union?

Typically a credit union is owned and run by its members.

When does a budget surplus occur?

When government tax revenues exceed government spending.

When real GDP is less than potential GDP, the economy is experiencing

a GDP gap.

In 2016, the federal government spent $200 billion but collected $180 billion in taxes, therefore in 2016, the government accumulated

a budget deficit of $20 billion.

Financial contagion may results in lost integrity in the entire financial system. To prevent this from happening, the Fed may

act as the lender of last resort to make short-term emergency loans, as needed.

A vertical AS curve means that in the long run, the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of:

aggregate demand.

A key part of the Income-Expenditure model is understanding that as GDP (or national income) rises, so does ________.

aggregate expenditure

Which of the following are types of debt?

credit cards

M1, the narrowest of the Fed's money supply definitions include(s)

currency in circulation.

Which of the following is likely to lead to economic growth in the long term?

new highways to serve new neighborhoods and business parks

Which of the following makes up the largest share of federal tax revenues comes?

payroll taxes (for Social Security & Medicare)

A country's government should ________ when inflation begins to climb to unacceptable levels in the economy.

shift aggregate demand to the left by using contractionary fiscal policy

An expansionary monetary policy increases investment and consumption spending, which

shifts the AD curve to the right and increases equilibrium GDP.

What is the shape of the intermediate zone of the AD-AS curve?

upward-sloping

The potential GDP line is a ________ on the Keynesian Cross diagram which indicates GDP at its potential on the horizontal axis.

vertical line

Making a purchase with credit means

you are adding to your debt.

Consumption still exists even if income is zero because ________.

people still have basics needs they must meet

The ability to pay principle of taxation holds that

people with more income should pay more taxes.

The Federal Reserve's monetary policy tools include all the following EXCEPT

printing money.

Keynes argued that the ________ was unable to keep the economy at full employment. As a result, ________ should take an active role in managing the economy.

private sector; government

A goal of monetary policy is

promoting economic growth.

If the Fed ultimately wants to raise interest rates in the economy, then it should

raise the discount rate.

Aggregate demand is influenced by the government in through what significant ways?

raising or lowering tax rates; decreasing or increasing spending

If Congress passed a new budget that increased taxes it would

reduce the gross domestic product to a new equilibrium as aggregate demand shifted to the left.

A contractionary or tight monetary policy

reduces borrowing.

Corporate stock ________.

represents ownership in a firm.

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

reserve requirement

An open market purchase of US Treasury bonds by the central bank will ________ credit conditions for private firms.

restrict (incorrect)

An interest rate is the price of borrowing money and the ________.

reward for lending money

If the Fed raises reserves requirements, then interest rates will ________ and the money supply will ________.

rise; decrease

When the supply of loanable funds shifts its position to the right, interest rates will ________ because loanable funds will be ________.

rise; scarcer (incorrect)

The main sources of state and local revenue include property tax,

sales tax, and federal government assistance.

Jontel got a raise, which may help the economy since

she will likely consume more goods and services.

Fill in the blanks. According to the Keynesian perspective, the government ________ play a role in managing the macroeconomy ________.

should; when the aggregate demand does not match the aggregate supply

An asset in a bank's T-account is ________.

something owned by the bank

Say's Law:

states supply creates its own demand.

According to the graph, which is a true statement? An increase in AE0 to AE11 creates a smaller increase in equilibrium output. An increase in AE0 to AE11 creates the same increase in equilibrium output. An increase in AE0 to AE11 creates a new equilibrium.

An increase in AE0 to AE11 creates a new equilibrium.

What is the best explanation for the relatively horizontal area of the short run aggregate supply curve?

An increase in aggregate demand when the economy is operating below potential output causes real output to grow, with little or no effect on the price level.

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is illustrated by the

Keynesian Phillips curve tradeoff.

An example of a bank liability is ________.

a loan made to a customer (incorrect)

How federal government taxing and spending affects aggregate demand is

a major concern of fiscal policy.

Under certain conditions, goats, coins, and checks can all be used as payments. In economic terms these things are all considered ________.

a medium of exchange

In order to increase the level of aggregate demand in the economy, the government can use ________ in the form of ________.

an expansionary fiscal policy; an increase in government spending

An example of a progressive tax would be

an income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.

From a banks perspective, demand deposits are considered a(n) ________.

asset

In describing what adaptive expectations means to a friend, you explain that in order to make their economic condition forecasts, agents ________.

consider only current information and ignore the past

If Deondre gets a raise at work, his disposable income will increase and he will be likely to

consume more goods and services.

The ________ is a graphical relationship between income and consumer spending.

consumption function

In the 1980s the U.S. Central Bank had the goal of increasing the interest rate and decreasing the money supply. To implement its goal the Central Bank uses a ________ monetary policy.

contractionary

In an attempt to boost the economy, the government's expansionary fiscal policy would include which of the following?

cutting tax rates

Keynes believed that the government should ________ to get the economy out of recession:

decrease taxes and/or increase government spending.

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

When the government passes a new law that explicitly increases overall tax rates and reduces spending levels, it is enacting:

discretionary and contractionary

The goal of the government of Swansia last year was to increase the level of aggregate demand by reducing tax rates. What fiscal policy type did Swansia use?

discretionary and expansionary

The government decides to increase its spending by $6 billion. Over time the real GDP increased by $9 billion. The expenditure multiplier is ________ 1.5.

equal to

Equilibrium in financial markets occurs at an interest rate where the quantity of loanable funds demanded is

equal to the quantity of loanable funds supplied.

The law of demand in the loanable funds market predicts a

fall in consumer credit card use if the interest rate rises.

During a recession, what is a traditional tool used by the Fed to boost the economy?

open market operations

Banks create money through which of the following processes?

lending money

The income-expenditure model illustrates when what is out of balance or inefficient?

levels of output or national income

When ________ are inefficient or off balance, using the income-expenditure model reveals this inefficiency.

levels of output or national income

Which of the lines represents the C + I stacked functions?

line 2

Which line represents the C + I + G stacked functions in the graph?

line 3

What is the definition of credit?

Credit is a way to purchase goods or services now when you cannot afford to pay for it all at once with cash.

Which of the following does NOT affect aggregate demand?

Crop failures due to weather events.

Gloria earns $30,000 per year. The income tax rate on incomes below $20,000 is 10 percent. The rate on income between $20,001 and $35,000 is 15 percent. Which of the following is true?

Gloria's marginal income tax rate is 15 percent.

If the economy is experiencing an inflationary gap, the equilibrium level of GDP is

greater than potential GDP.

The government decides to increase its spending by $3 billion. Over time the real GDP increased by $12 billion. The expenditure multiplier is ________ 3.5.

higher than

Banks are financial intermediaries because they

link savers who deposit money and borrowers who seek loans.

The definition of ________ is the ease with which an asset can be used to buy a service or a good.

liquidity

The ease with which an asset can be used to buy a good or service is the asset's

liquidity.

If the Fed wants to increase the quantity of money in the economy, it can

lower the reserve requirement.

An expansionary or loose monetary policy

lowers interest rates.

One of the goals of monetary policy is

maintaining price stability.

When there is a Keynesian increase in government purchases it causes a shift in the aggregate demand curve to the right by an amount equal to

the increase in government purchases times the expenditure multiplier.

Quantitative easing can be described as a means of

improving credit conditions for private firms and encouraging them to commit to capital expansion projects.

Assuming the government of country Balistan has a balanced budget requirement and collects $100 million more in taxes than expected in 2016. As a result, the government would have to

increase spending by $100 million.

The government spends $150 million to develop new communication technologies with the aim of

increasing productivity and growth.

Which of the following actions by the Fed will increase the money supply?

increasing the reserve requirement and buying bonds.

Which of the following actions by the Fed will increase the money supply?

increasing the reserve requirement and buying bonds.(incorrect)

An expansionary monetary policy affects aggregate demand

indirectly, by lowering interest rates and increasing the available quantity of loans, which stimulates spending.

When ________ contractionary fiscal policy is the recommended choice.

inflation has reached harmful levels

Contractionary fiscal policy is recommended when

inflation has reached harmful levels.

In a Keynesian cross diagram, what name is given to the distance between an output level that is above potential GDP?

inflationary gap

A midwest bank with new managers and loan officers loaned out large amounts on very risky home loans. The bank sold off some of its real estate assets, but did not have enough to cover its liabilities when the majority of the loans defaulted. The bank is now considered

insolvent.

If an economy was in a recession and the government decided to use a supply side policy to address it, the government would most likely

institute cutting taxes rather than increasing spending by the government.

The discount rate is:

interest rate charged by the Federal Reserve for discount loans.

A bank's T-account includes assets which are

items of value owned by the bank.

Which of the following is true about export and imports as function of national income?

Both are horizontal lines with imports being negative as it relates to real GDP.

Considering the figure, the macro equilibrium occurs where the real GDP (Y) equals ________. $7,000 $6,000 $5,000

$6,000

Using the figure, when the real GDP (Y) equals ________ it is at the macro equilibrium.

$6,000

When looking at the graph of an income-expenditure model where would the macro equilibrium be found?

At the level of GDP where aggregate expenditure equals national income.

________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional changes in legislation.

Automatic stabilizers

To represent the consumption function through algebra, it would be expressed as ________.

C = a + MPC*Y, where a is autonomous consumption (the amount of consumption expenditure when Y = 0), MPC is the marginal propensity to consume, and Y is national income

Which of the following is an inaccurate statement about the banking system?

Competition between private banks and the central bank is what limits interest rates

Other than income, which factor can also shift the entire consumption function?

Consumer expectations about the future

How does the intermediate zone of the AD-AS curve follow Say's law when AD shifts to the right?

SRAS moves closer to potential GDP and increases price level.

Say's Law states that supply creates its own demand. In the neoclassical zone on the graph above, supply is at its potential GDP, at full capacity. When aggregate supplies have reached their full potential output, what happens if demand shifts to the right?

The aggregate demand prices increase as AD shifts to the right.

Which of the following is an example of Say's law?

The automotive industry, in order to create more output, need to focus on increasing production rather than demand.

Of the following examples, which is associated with government spending for investment?

The federal government spends $400 million on fixing airports and upgrading control tower software and technology.

________ is considered the marketspace that bring lenders and borrowers together.

The financial market

Assuming that income tax is the only source of revenue for the government, with tax revenue of $50 billion and government spending totaling $70 billion, which of the following is true of the government's budget?

The government has a budget deficit of $20 billion.

In the figure, ΔY/ΔAE represents the spending multiplier, but how is it represented graphically? The spending multiplier is represented by the decrease in the AE line. The spending multiplier is represented by the increase in the 45 degree line The spending multiplier is represented by the increase in the AE line.

The spending multiplier is represented by the increase in the AE line.

One of the most important components to understand about the Income-Expenditure model is that as GDP (or national income) increases ________ increases as well.

aggregate expenditure

Cigarettes can be used as a form of ________.

barter

Which of the following does NOT qualify as "money"?

barter exchange

A central bank that wants to increase the quantity of money in the economy will

buy bonds in open market operations.

If a macroeconomy experiences a fall in business confidence which has led to less investment in the economy and lower levels of output. Keynesian analysis in the short-run, predicts that the fall in aggregate demand will ________, while the Neoclassical view says ________ in the long-run.

cause higher unemployment; there will be full employment

During an inflationary gap due to overly sufficient aggregate demand, the government should ________ spending by an amount determined by the spending multiplier in an attempt to return the economy to potential GDP/full employment.

decrease

Assume the government has a budget deficit and that the economy is experiencing a recession, tax receipts (collected) by the government are likely to

decrease and increase the budget deficit.

Savings banks and credit unions are both examples of which of these?

depository institutions

After 2008, quantitative easing was distinctively different from traditional central bank intervention because it focused on

encourage long-term capital projects and ease mortgage conditions by purchasing long-term government securities.

What is NOT an example of a security?

fiat money

Money that has no significant non-monetary value is called

fiat money.

Silver and gold are examples of what kind of money?

fiat(incorrect)

Keynesian economists believe that the economy needs to be influenced in order to correct itself from the effects of unemployment and inflation. This can be done through ________ policies.

fiscal

Swazilialand is a country where the government mandate is to have a balanced budget each year. This year the government's tax collections brought in $50 million more than expected. Because of the balanced budget mandate, the government has to

increase spending by $50 million.

The Mid-Merica Bank has a precedent of saying 'yes' to almost any loan asked for by customers (households and firms). Because of the large volume of loans it keeps the minimum amount of cash reserves. In addition to these domestic loans, the Mid-Merica Bank has been supplying a large volume of loans to Nigeria's prince and royal family who are in need of money and funds transferring. According to bank regulations the Mid-Merica Bank would receive ________ by bank regulators.

increased scrutiny

A bank holding just over the minimum level of cash reserves with a high volume of loans made to developing countries and a large share of assets in the form of loans to more stable domestic industries and households should receive________.

increased scrutiny by bank regulators

From a neoclassical view, which of the following is least important?

increasing aggregate demand to fight unemployment

Which of the following is least important according to the neoclassical viewpoint?

increasing aggregate demand to fight unemployment

The equilibrium interest rate is the

interest rate at which the quantity of borrowed money equals the quantity of financial capital supplied.

If price changes happen frequently, customers and consumers can become irritated or confused. An example like this is called a ________.

menu cost

By changing interest rates and credit through ________, the Fed addresses economic concerns such as low GDP or high unemployment.

monetary policy

The Fed's efforts to manage interest rates and thus the availability of credit is known as

monetary policy

In financial markets one of the main economics principles present is________.

supply and demand

Keynesians believe the economy is characterized by recessions and inflationary booms which can cause unemployment and inflationary concerns. The solutions to a boom causing inflation (high price levels) is contractionary fiscal policy in the form of ________.

tax increases and decreased government spending

n the country of Memphis, in order to balance the budget this year it's parliament decides to cancel $7 million worth of planned spending on improving highways and national infrastructure. One reason that can be argued against a balanced budget law is

that the benefits from improved infrastructure were forgone.

A bank is operating well if it assumes ________.

there will be borrowers who will not repay their loans in a timely fashion

Assume the following macroeconomic variable ( in $ billion) for an economy: Y = national income = Aggregate Expenditures Aggregate Expenditures = Consumption + Investment + Government Spending + Net Export Assuming that the full employment level in $6,000 billion, determine the change in government spending needed to reach full employment. (Hint: calculate the current GDP, then calculate aggregate expenditures using national income of $6,000 and find the difference) Consumption (80% of disposable or after tax income) + $300 C = $350 + 0.8 (Y - T) Tax (20% of income) T = 0.2 Y Investment $700 Government Spending $1000 Exports $550 Imports 0.1 (Y - T)

$40

Assume the following macroeconomic variable ( in $ billion) for an economy: Y = national income = Aggregate Expenditures Aggregate Expenditures = Consumption + Investment + Government Spending + Net Export Assuming that the full employment level in $6,000 billion, determine the change in government spending needed to reach full employment. (Hint: calculate the current GDP, then calculate aggregate expenditures using national income of $6,000 and find the difference) Consumption (80% of disposable or after tax income) + $300 C = $300 + 0.8 (Y - T) Tax (20% of income) T = 0.2 Y Investment $800 Government Spending $700 Exports $400 Imports 0.1 (Y - T)

$440

If government spending increases by $3 billion and real GDP increases by $4.5 billion, the expenditure multiplier must be ________.

1.5

What is the spending multiplier if the MPC is 62%?

2.63

If the MPC is 75%, what is the spending multiplier?

4

Considering the Keynesian Cross Diagram, the income=expenditure line is also called the ________.

45-degree line

Macro equilibrium in the income-expenditure model occurs where aggregate expenditure is equal to national income; this occurs where the aggregate expenditure schedule crosses the ________.

45-degree line

What is the income=expenditure line called in the Keynesian Cross Diagram?

45-degree line

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of lending are completed is ________.

50 million

Select the following statement that most accurately reflects the banking system?

The banking system leaves a fraction of its deposits in reserves and loans or invest the remainder.

Which of the following is an example of a bank asset?

A loan given to a customer by the bank.

Which of the following examples is excluded from being in the financial market for money?

A neighborhood watch service that charges by the day.

According to the graph, which of the following statements is accurate?

A new equilibrium is created with an increase in AE0 to AE1.

Of the following, which is an example of a type of business investment expenditure?

A producer's durable equipment

What are some of the unexpected events in a economy that can contribute moving toward a national surplus rather than a deficit?

An economy has unexpected growth that increases national payroll tax revenues.

Read through the following scenarios and select the one that would most likely compel the Fed to lower the discount rate.

For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.

Which of the following examples describe a progressive tax?

Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.

Keynes' Law says that demand creates its own supply. In the Keynesian zone of the short-run aggregate supply curve, how is this law supported?

Increasing aggregate demand changes prices relatively little, but does effectively increase aggregate outputs because of the excess capacity in the economy.

Considering that Aggregate Expenditure = C + I + G + (X - M), which function is drawn as a horizontal line?

Investment

Which of the following statements is incorrect regarding the potential GDP line?

It assumes less than full employment of its labor and physical capital.

What actions by a bank increase the probability it may face a bank run?

It is an insolvent bank.

This year the economy is strong and there is every expectation that it will continue to be strong over the next few years. With this confidence in the economy, what would most likely happen to the consumption function?

It will shift the consumption function upward.

If a country experienced a natural disaster which wiped out a quarter of its capital stock, what would happen in the long run to its potential GDP?

It would fall in the short-term and then rise back to pre-disaster levels in the long-term.

The potential GDP line is a vertical line on the ________ indicating where GDP is at potential on the horizontal axis.

Keynesian Cross diagram

What type of economic viewpoint puts an emphasis on long run economic performance?

Neoclassical

________ economists place an emphasis on ________-run economic performance.

Neoclassical; long

In the country of Ovriolio the government has a budget plan to collect taxes in the amount of $15 billion and to spend $12 billion. A surge in production boosts the economy and the government spends $2 billion less than planned and tax collection is up by $1 billion. What are the results of these actions?

Ovriolio's expected budget surplus becomes a $6 billion surplus.

In the Keynesian zone of the aggregate supply curve, how is Keynes' law, where demand creates its own supply, illustrated?

Prices change relatively little with an increasing aggregate demand, but that changing demand does effectively increase aggregate outputs because of the excess capacity in the economy.

If you hear someone say, "If you build (produce) it they will come (purchase)" you know it is a good way to describe ________.

Say's Law

Which of the following example(s) describe a regressive tax?

Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000

How would a balanced budget amendment affect a decision by Congress to grant a tax cut during a recession?

The government would have to make up the revenue either by raising taxes in a different area or cutting spending.

The country of Bagernat's analyzes its economic data and discovers a substantial decrease in the financial capital accessible to private sector companies. What is the most likely cause of this circumstance?

The government's continued extensive borrowing.

Which of the below is true about investment as function of national income?

The investment function can be drawn as a horizontal line.

What are some of the reasons, according to Keynesian analysis, of why economies have recessions and depressions?

The larger macroeconomy tends to adjust slowly to shifts in aggregate demand because of sticky prices.

What is the reasoning behind having the seven Fed Board of Governors remain for 14 years on the Federal Reserve?

The longer terms are to insulate the members from immediate political pressures and have them focus solely on economic solutions for the nation.

Why to the seven Federal Reserve remain for a long time with staggered terms on the Fed Board of Governors?

The staggered, longer terms insulate members from current political pressure so they can focus only on economic solutions for the U.S.

A historical example of ________ is when communities used cocoa beans or cowrie shells as a kind of money.

commodity money

How would automatic stabilizer programs, such as unemployment benefits, be affected by a balanced budget amendments?

They would lose flexibility because spending could not increase unless funds were there.

Imagine the economy is defined by the consumption function of C = 200 + 0.9 (Yd) where 200 is autonomous consumption, 0.9 is marginal propensity to consume, and Yd is disposable income (after taxes) and Yd=Y-T, where Y is national income (or GDP) and T=Tax Revenues=0.3Y (0.3 is the avg. income tax rate). Find the macro equilibrium using the following equation Y = C + I + G + (X - M) where C=200 + 0.9(Yd), I=600, G=1000, X=600, M=0.1Y. What is the equilibrium for this economy? [Remember Y=AE]

Y = 5454

In an economy where the money supply and aggregate demand have been decreased by the Central Bank, you know that the Central Bank is using

a contractionary monetary policy.

All else being equal, how does an increase in the federal funds rate affect home loan rates?

home loan rates rise

A major concern of fiscal policy is

how federal government taxing and spending affects aggregate demand.

Which of the following is excluded from being a component of the aggregate expenditure model?

import spending

The GDP gap shrinks

as the economy recovers from recession.

The Fed's seven member ruling board of Governors are

appointed by the president, confirmed by congress, and serve 14-year terms.

Property taxes are

imposed based on ownership of assets such as real estate and autos.

An open market operation increases the money supply when the Federal Reserve

buys bonds from banks, which increases bank reserves.

What takes place when the economy reaches potential GDP and the aggregate supply becomes vertical?.

c, The potential GDP is vertical only in both the income-expenditure model and the traditional AD-AS model.

The M2 money supply consists of everything in the M1 money supply, savings deposits and which of the following?

certificates of deposit

Which is an example of M2 money?

certificates of deposit.

Keynes encourages the use of ________ to return an economy to equilibrium because of the perspective that in the short-run wages and prices are ________.

fiscal policy; rigid

A key distinction between the Keynesian and neoclassical economists is that Keynesians believe the economy exhibits a ________ aggregate supply curve and neoclassicals believe it is ________.

flat; vertical

In the neoclassical view of the economy, expansionary fiscal policy cannot work to raise equilibrium output because

flexible prices will eventually choke off any increase in aggregate demand.

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is

following an expansionary monetary policy.

What factors should equal each other in order to find macro equilibrium in a table?

gdp/national income and aggregate expenditure

Sales taxes are

generally considered to be regressive.

In the figure, the spending multiplier is represented by ΔY/ΔAE and ________. graphically by the increase in the AE line graphically by the decrease in the AE line graphically by the increase in the 45 degree line

graphically by the increase in the AE line

In comparison with an expenditure module, the multiplier effect produces a great change in GDP and therefore its value is ________.

greater than one

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its ________ and its ________.

potential GDP; natural rate of unemployment

The pure Keynesian AD-AS model assumes that for any level of GDP below potential, any change in AD affects real GDP, but NOT the ________.

price level

Ari's income and federal income tax contributions are in the table below. What is the federal income tax in Ari's country? Taxable Income Federal Income Tax Payment 2016 $80,000 $10,000 2017 $94,000 $11,750

proportional.

The proportion of deposits that banks are legally required to deposit with the central bank are called

reserve requirements.

If government borrows to cover budget deficits, and everything else is held constant, what is proposed by the crowding out concept is that ________interest rates ________ spending and borrowing by households and businesses.

rising; discourages

The most limited definition of the Fed's money supply, M1, exclude(s)

savings deposits.

If U.S. goods are relatively cheaper compared with goods of foreign places, then U.S. exports are likely to rise. This would make the aggregate demand curve ________.

shift to the right

The combination of the aggregate expenditure line and the income=expenditure line (i.e. the 45 degree line) is called ________.

the Keynesian Cross