Econ 201 Final

If the Fed credits Alex's checking account with $8,000 and Alex's bank decides to keep the entire $8,000 in the form of reserves instead of lending it out, how much does the money supply increase?

$8,000

When consumers suddenly become more pessimistic about the economy, a negative aggregate demand shock shifts the:

AD curve to the left, reducing the real growth rate in the short run.

To increase the money supply in the economy, the Fed would:

Carry out open market purchases and or decrease the interest rate paid on reserves

When the Fed buys U.S. government bonds to affect the money supply, it is:

Conducting an open market purchase

Suppose the economy is growing faster than its long run potential growth rate. to bring the real growth rate back to the long run potential rate, the Fed should:

Engage in actions to raise interest rates

Someone who recently moved to Florida because of its warmer climate will need to spend some time looking for a new job. This is an example of:

Frictional unemployment.

Inflation tends to benefit:

Government.

In The Distinguished Gentleman....

Hes expecting most voters to neither investigate him too much nor know that their congressman died.

You are a policymaker and a lobbyist comes to you, arguing that his industry is important for national security and has important spillover benefits. Why might you be suspicious of his claims?

His industry benefits from tariffs that decrease foreign competition.

If a baker observes an increase in demand for bread, should the baker increase output or raise prices?

It depends on whether the change in demand is driven by inflation or by a stronger preference for bread.

Suppose that congress decided to exempt seniors from paying income tax on labor income. What would happen to the labor force participation rate for seniors?

It would increase.

Which of the following would be considered unemployed?

Janice, who graduated in May, is waiting for her new job to start in July.

Which of the following is considered unemployed?

John, on temporary layoff from his work, awaits recall.

Laws that make it more difficult (and more expensive) to fire workers:

Lead to higher rates of long-term unemployment.

When actual inflation is equal to expected inflation:

Neither borrowers nor lenders are harmed.

If the economy is hit by a negative real shock that reduces real GDP growth below its long run potential rate, what is the appropriate monetary policy to move real GDP growth back to the long run rate without raising inflation?

No monetary policy can achieve this goal.

Why is wasteful spending by the government difficult to control?

Providing decision makers with necessary information and creating incentives to control the costs are both difficult to achieve.

Minimum wage laws and unions tend to:

Raise wages and raise unemployment.

As a result of an increase in the growth rate of the money supply:

Real GDP growth increases only ion the short run, and the inflation rate increases in both the short and long run

Which of the following is NOT consistent with points along the long-run aggregate supply curve?

Real output growth is negatively related to inflation.

When workers lose their jobs and become officially unemployed, the number of people in the labor force:

Remains constant.

Representative John Murphy has secured around $200 million of federal government money for a small airport near Juneburg, Pennsylvania that averages about 30 passengers a day. The costs of this government support:

Represent an external cost paid mostly by taxpayers who will never use the airport.

Tyler owes $100,000, but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000. If these are all the assets and liabilities that Tyler has, Tyler is:

Solvent but illiquid

In 1970, 1.3 million barrels of oil were used to produce $1,000 of GDP. In 2004, it took only 0.64 million barrels of oil to do the same. What implications does this have for economic fluctuations in the United States today?

Spikes in oil prices will not have as severe an impact on the US economy today as they did in the 1970's.

A worker repairing VHS cassette-tape players was laid off because most of his customers have started using DVD players and streaming services. This worker is now:

Structurally unemployed.

The Federal Reserve can influence the economy by shifting:

The AD curve.

As part of the American recovery....

The costs were highly diffused, while the benefits were very concentrated.

Two reasons that there was considerable waste in US government spending in Iraq and Afghanistan were that:

The desires of the Iraqi and Afghan people were not clearly known to decision makers in the US and American taxpayers could not easily monitor the US spending in Iraq and Afghanistan.

If the Fed buys government bonds, which will likely not increase

The federal funds rate

The text states that "inflation is a type of tax." The tax refers to _____ when inflation occurs.

The lower purchasing power of money.

Suppose the federal government incurred a $1 billion deficit in 2011. What was true of the national debt?

The national debt increased by $1 billion.

The "quantity theory of money" describes the relationship" between:

The velocity of money, money supply, real output, and prices.

Why are voters generally considered myopic?

They focus on economic conditions in the year of the election not over the entire term of the presidency.

As market interest rates rise:

a bank's opportunity cost of holding reserves rises.

Deflation is:

a decrease in the average level of prices

During a recession, consumers hold more money by cutting back on their spending, resulting in ______ in inflation and ______ in real growth.

a decrease; a decrease

When the Fed uses the tools of monetary policy, what economic impact is it seeking to accomplish?

a shift of the aggregate demand curve

Which of the following would result from a positive productivity shock?

an increase in the economy's long-run potential growth rate.

A negative real shock leads to:

an increase in the inflation rate but a decrease in the real GDP growth rate.

Which of the following would NOT shift the long run aggregate supply curve?

an increase in the money supply.

During the Internet revolution in the late 1990s, a positive real shock shifted the long-run aggregate supply curve to the right, which led to:

an increase in the real growth rate and a decrease in the inflation rate.

If prices are perfectly flexible, the economy will always be growing:

at its potential rate.

An increase in the reserve ratio means that banks want to:

become more liquid.

The FICA tax burden is:

borne more by the employee even though the employer contributes an equal dollar amount.

If the federal reserve offsets a negative shock to aggregate demand with increased money growth:

both inflation and real GDP growth will rise compared to if the Fed had not acted.

Government spending is a more effective policy tool when:

consumers are pessimistic and not spending.

Which policy would be the Fed's Board of Governors choose following a negative real shock if they are more concerned about inflation than unemployment?

decrease the money supply to shift the aggregate demand curve to the left.

Which of the following will NOT shock aggregate demand so that it shifts to the left?

decreased import growth

Much to the chagrin of some Americans, conventional lightbulbs were effectively banned in 2014, leaving only compact florescent lights....

diffused costs and concentrated benefits.

The labor force consists of:

employed workers and adults who do not have jobs but who are looking for work.

A problem that makes fiscal policy less effective is that:

higher taxes or increased borrowing to fund government spending can reduce aggregate demand.

In the basic model with AD and LRAS curves only, if spending growth is 10% and the Solow growth rate falls from 5% to 3%, then inflation will:

increase from 5% to 7%.

When the Fed supplies "too much" monetary stimulus in the face of a negative aggregate demand shock:

inflation, real growth, and nominal wage growth all increase.

Disinflation is more painful when the central bank:

is not credible

In early 2018, President Trump imposed new tariffs on washing machines produced outside the US because:

low to medium skilled jobs were under pressure from the international production of goods and from the automation of factories.

The most important tax rate for determining an individual's incentive to work is the ______ tax rate.

marginal

Money illusion is:

mistaking changes in nominal prices for changes in real prices.

Two problems with the average price level indicated by the CPI are changes in both the ______ and _____.

mix of goods purchased; quality of goods purchased.

An unexpected increase in export growth is a:

positive AD shock

Given the possibilities for crowding out, expansionary fiscal policy financed through government borrowing is MOST likely to be effective when the:

private sector is reluctant to spend or invest.

Inflation is painful to stop because stopping it:

requires decreasing the growth rate of the money supply, which typically leads to lower growth overall.

Disinflation occurs when the overall price level:

rises at a decreasing rate

After a pair of wars....

saving domestic jobs

Fiscal policy is MOST effective in keeping both inflation and real growth stable when there is a:

shock to aggregate demand.

Without trade restrictions the price of tennis shoes is $30, and with trade restrictions the price of tennis shoes is $45. The difference in the two prices reflects:

the value of the extra resources for domestic production of an additional pair of tennis shoes.

Workers bear at least a majority, if not all, of the burden of the employers' share of FICA and Medicare tax payments because the:

workers would have earned higher wages without the tax payments