Econ 201 Test 3

The shift of the Short-run aggregate- supply curve from SRAS1 to SRAS2

Could be caused by a decrease in the expected price level

If the economy starts at point A a short-run fall in output would be consistent with a movement to point

D

which of the Long-run aggregate supply curves is consistent with a recession

LRAS3

An Increase in Government Purchases will

Shift aggregate demand from AD1 to AD2

economists use the term "money" to refer to

Those types of wealth that are regularly accepted by sellers in exchange for goods and services

The quantity theory of money

can explain both moderate inflation and hyperinflation

the wealth effect stems from the idea that a higher price level

decreases the real value of households' money holdings

the interest-rate effect

depends on the idea that decreases in interest rate increase the quantity of goods and services demanded

Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3

a decrease in the price level

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. on their respective balance sheets, this loan is

an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate demand curve

as the price level increases, the interest rate rises, so spending falls

an assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year

his real salary has fallen and his nominal has risen

Which of the following shifts aggregate demand to the left

households decide to save a larger fraction of their income

Most economists believe that classical theory describes the world

in the long run

monetary neutrality implies that an increase in the quantity of money will

increase the price level

in a fractional-reserve banking system, a bank

keeps only a fraction of its deposits in reserves

a central bank's (or altering) of the money supply is known as

monetary policy

the goal of the monetary policy and fiscal policy is to

offset shifts in aggregate demand and thereby stabilize the economy

If the current rate is 2 percent

people will sell more bonds, which drives interest rates up

An increase in the money supply might indicate that the fed had

purchased bonds in an attempt to reduce the federal funds rate

according to the Classical dichotomy, which of the following is not influenced by monetary factors?

real GDP

the supply of money increases when

the Federal Reserve purchases bonds

Derek decides to forego a major appliance purchase and save the money. He transfer $2100 from his checking account to his money market mutual fund. As a result of this transfer

M1 decreases by $2,100 and M2 stays the same

Other things the same, Continued technological progress and continued increases in the money supply would ambiguously lead to

Rising real GDP only

The Fisher effect

Says there is a one for one adjustment of the nominal interest rate to the inflation rate

The "yardstick" people use to post prices and record debts is called

a unit of account

According to liquidity preference theory, the opportunity cost of holding money is

the interest rate on bonds

when the Fed sells government bonds

the money supply decreases and the federal funds rate increases

when the money supply increases

interest rates fall and so aggregate demand shifts right

the position of the long run aggregate supply curve

is determined by resources usage and technology

While a television news reporter might state that " Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows

"Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent"

Below are pairs of GDP growth Rates and unemployment rates. Economists would be shocked to see most of these pairs in the U.S. Which pair of GDP growth Rates and unemployment rates is Realistic

3 percent, 5 percent

If the reserve ratio is 15 percent, the money multiplier is

6.7

A decrease in taxes would move the economy from C to

B in the short run and A in the long run

When the fed decreases the discount rate, banks will

Barrow more from the Fed and lend more to the public. The money supply increases

according to the classical model, which of the following would double if the quantity of money doubled?

Both price and nominal income

you receive money as payment for babysitting your neighbors' children. this best illustrates which function of money?

Medium of exchange

People had been expecting the price level to be 140 but it turns out to be 138. Johnson family restaurants increases the number of workers it employs. what could explain this

Neither sticky wage theory nor sticky price theory

In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. in 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?

Nominal and real tuition were both higher in 2011

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Nominal income increased, but their real income decreased

The theory of liquidity preference is most helpful in understanding

The interest rate effect

If the federal open Market Committee decides to increase money supply, then the Federal Reserve

creates dollars and use them to purchase government bonds from the public

when we say that economic fluctuations are "irregular and unpredictable," we mean that

recessions do not occur at regular intervals

if wages are sticky, then a greater than expected increase in the price level

reduces the real costs of production, so aggregate quantity of goods and services rise

Investment is a

small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP

When the Consumer price index falls from 110 to 100

there is deflation of 9.1% and the value of money increases

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserves. Its deposits amount to

$45,600

suppose the federal reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve Requirment is 10 percent, how much more money can banks create if they lend out the remaining amount?

$50 billion

As we move from one point to another along the money demand curve MD1

The price level is held fixed at P1

on the graph that depicts the theory of liquidity preference

The supply-of-money curve is vertical

Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1, then it must be the case that

aggregate demand has decreased

suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to

decrease consumption, shown by shifting the aggregate- demand curve to the left

For a given real interest rate, a decrease in the inflation rate would

increases the after-tax real interest rate and so increase savings

other things the same, if reserve requirements are increased, the reserve ratio

increases, the money multiplier decreases, and the money supply decreases

the Sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,

production is less profitable and employment falls

on a bank's T-account, which are part of the banks assets

reserves but not deposits made by its customers

the supply of money is determined by

the Federal Reserve System

In the long run, money demand and money supply determine

the price level, but not the real interest rate

Under the quantity theory of money, when the money market is drawn with the value of money on the vertical

the quantity of money demanded but not the quantity of money supplied

If the money supply is MS2 and the value of money is 2, then

the quantity of money supplied is greater than the quantity demanded, the price level will rise

the Fed can influence unemployment in

the short run, but not in the long run

when taxes increase, consumption

decreases as shown by a shift of the aggregate demand curve to the left

in a certain economy, when income is $500, consumer spending is $375. the value of the multiplier for this economy is 5. it follows that, when income is $510, consumer spending is

$383

If the multiplier is 6, then the MPC is

.83

If p denotes the price of goods and services measured in terms of money, then

1/P represents the value of money measured in terms of goods and services

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

1/R

Suppose the relevant money-supply curve is the one labeled MS1, also suppose the economys real GDP is 30,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately.

6.0

Which of the following events could explain a shift of the money- demand curve from MD1 to MD2

None of the above is correct

When the price level falls, the number of dollars needed to buy a representative basket of goods

decrease, so the value of money rises