Econ Exam 2
the aggregate production function exhibits___returns to____ capital
decreasing;physical
Discretionary fiscal policy refers to changes in
government spending or taxes to close a recessioary or inflationary gap
If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is ___ than money supplied.
greater than
An aggregate output level lower than potential output means there will be
high unemployment
Policy to increase the supply of money, hence to lower the interest rate from 6% to 4% is accomplished by action that ___ the ___ Treasury bills
increases; demnad for
If overall spending declines and this the economy contracts, the government could counter this by
increasing gov spending increases the GDP
REVIEW Using monetary policy to address a recessionary gap caused by a supply shock invloves ___ to ____
increasing the money supply; lower the unemployment rate
Among public goods important for economic growth is
political stability
REVIEW If the FED Reserve uses expansionary monetary policy there is a ___ short-run effect on ___, but___
positive short run;real GDP;GDP remains unchanged in the long run
An increase in money supply will increase the
price level
technological change
raises total factor productivity
INCOME EXPENDITURE EQUIL
real GDP = Disposible income Disposible income+ Consumption + Planned investment
The best available measure of the standard of living in a contry is
real GDP per capita
A negative short ru supply shock ___ aggregate output and ____ the aggregate price level
reduces;increases
Which is not a TR
reimbursement of personal income tax withheld from wages
Expansionary fiscal policy shifts the aggregate demand curve to the___ and is used to close a(n)__ gap
right; recessionary
You are at longrun equil. An increase in the level of gov purchases at each price level will
shift the AD curve to the right form AD1 TO AD2
GRAPH An increase in wages in the short run is llustrated by
shift to the right of the SR supply
If int rate is above the equil, there will be an excess____ money and the int rate will___
supply of; fall
REVIEW Short term interest rates
tend to move together
When the unemploymet rate increases, the budget
tends to move into deficit
REVIEW The wealth effect is reflected in
the donward slope in aggregate demand
the biggest global environment issue is
the impact of fossil-fuel consumotion on the world's climate
Opportunity cost definition
the loss of potential gain from other alternatives when one alternative is chosen.
REVIEW Suppose that the economy enters a recession and theRGDP falls. All else equal, we should expect
the money demand curve to shift inward
if the moeny supply increases by 10%, in the long run
the price level increase
REVIEW the aggregate demand curve is negatively sloped because of
the wealth effect of an aggregate price level change
Taylor Rule inflation rate in the econ is 3% and the unemployment gap -2%
an inflationary gap, since the actual gdp exceeds potential real GDP since no one is unemployed
gov should reduce its spending by an amount equal to
(Y1-Yp) TIMES (1-MPC)
WTF IS THIS RGDP is 8000, autonomous consumption is 500, and planned investment spending is 200. MPC is 0.8. If the RGDP is 3000, how much is unplanned invetory investment
-100?
C= 500+ .8YD if YD is 1000 whats is savings
-300
In an economy w no tax or imoirts, if the Y increases by 1000 abs the consumption increases by 600, the MPS is
.40
If planned investment spending is 2 trillion and the innventories decrease by .5 trillion, actual investment spending is
1.5
If a checking accoint has an interest rate of 1% and a treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is:
2%
if the Federal reserve conducts an open market purchase, holding everything else constant, in the long run there will be
an increase in the aggregate price level
HUH A 20% increase in the aggregate price level will increase the quantity demanded by:
20%
If the marginal propensity to save is .3, the size of the multiplier is
3.3
Sweeden had RDGP per capita of 50000 and 2% growth rate Chile 25000 abd 4% growth rate How long will it take for RGDP percapita in the two nations to converge
35yrs
HUH REVIEWWWW Suppose the RGDP of the US is 32000 and its growth rate is 2 % per year. RGDP of China is 4000 with 7% growth rate How many yrs will it take for chinas RGDP to be larger than the US
40 to 45
If the marginal propensity to save is .25, invest,ent spending is 700 million, the gov increases its purchases of goods and services by 100 million, then real gdp increases by
400 (1/MPS)(GOV CHANGE)
Aggregate output beg of yr=31 bil pop beg of yr= 40 mil output growth=5.2 pop growth=2.6 what was the pop at the end of the yr
41 mil
Aggregate autonommous = 450 Aggregate disposible =3000 consumer spending = 2850 what is the aggregate consumption function?
450+.8YD
if the marginal propensity to consume is .8, the multiplier is
5
RGDP is 8000 autonomous consumption is 500 Planned Investment spending is 200 MPC .8 Ho mcuh is planned aggregate spending?
7100
RGDP per capita in the US increased almost ___ times between 1900 and 2010
8
REVIEW ________ will shift the aggregate demand curve
A demand shock
REVIEW Which of the following might cause the equilibrium interest rate to DECREASE to r1
A recession decreases real gdp
Crowding out
A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect. ... This leads to an increase in interest rates.
if the economy is initially at equil and the back chooses to sell Treasury bills____ shit to ___a(n)___ gap
AD2 may; AD1, causing; recessionary
REVIEW Decreasing funding for space exploration will shift the ___ curve to the___
AD; left
___ would likely shift the SRAS curve to the left
An increase in the price oil
REVIEW if disposable income is expected to increase, the aggregate consumption function increase which variable?
Autonomous consuption increases and everything else remains constant ex original 10000+(40000*.07) becomes 12000+(40002*.07)
Contractionary monetary policy
Decreases aggregate demand
REVIEW Which of the following will shift the aggregate consumption function UPWARD
Disposable income rises
stagflation may result from
an increase in the price oil
the effect of a gov deficit is:
Expansionary
Large tech gains often result
From modest as well as large innovations
HUH if the economy is at potentiaal output aned the Fed increases the money supply, in the long run RGDP will likely
Remains the same
If nominal wages fall, in the short run the ___ curve will shift to the ___
SRAS; right
A general decrease in wages reuslts primarily i the ___ curve shifting to the ___
SRAS;right
A decrease in aggregate demand is seen as__ the aggregate demand
Shift to the left in
Long-term interest rates are higher than short-term rates. This reflects a belief that
Short-term rates will rise
REVIEW The higher the production capacity of the economy
The lower is planned investment spending
All of the following will increase the potential output EXCEPT
a decrease in the aggregate prive level
An automatic stabilizer that works when the economy contracts is
a rise in gov transfers as more ppl receive UE insurance benefits
An example of physical capital is
a truck a company purchases for deliveries
An increase in gov pending on healthcare is likleft the to shift the __ curve to the ____
aggregate demand; right
If___, expansionary fiscal policy is most likely to crowd out private spending
aggregate income is billion above its potential level. Practice contractionary policy, increase rates
REVIEW A shift to the right of the short-run aggregate supply curve may be caused by
an increase in PRODUCTIVITY
A rise in labor productivity will most likely result in
an increase in agregate supply
The Aggregate Demand curve is affected by
government spending
The fed want to reduce rate of 1.25 to .5. The appropriate open market action is to ___ Treasury bills to___money_____
buy;increase;supply
To fight inflation, the Federal Reserve should conduct____ monetary policy to ____ interest rates, which will shift the aggregate demand curve to the ___
contractionary;raise;left
REVIEW If the economy is at potential output and the Fed increases the moeny supply, in the SHORT run iterest rates will likely:
decrease
According to the liquidty preference model, a ___ in the money supply shifts the money supply curve to the___ and increases the equilibrium int rate
decrease; left
Suppose the gov increases spending to fund tuition assitance for qualified college students. Automatic stabilizers will ____ the __ effect of the___ in aggregate demand.
decrease;expansionary;increase
REVIEW The money demand curve is __ bc the opportunity cost of holding money is ___ related to the interest rate
downwardsloping;directly
REVIEW if disposible income decreases, then the
economy will move downward along the aggregate expenditures curve
An increase in Gov spending of 300 bil will have ___ effects on the BB and ___ effects on real GDP
equal; unequal
A recessionary gap can be closed with
expansionary fiscal policy
if the economy is in a recessionary gap, the Federal Reserve should conduct___ monetary policy by___ the monetary supply
expansionary; increasing
in the long run, as the economy self-corrects, a decrease i aggregate demand, all other things unchanged, will cause the price level to _____ and potential output to _____.
fall; remain stable
In the income-expenditure model, contractionary monetary polcy leads to ___ interest reates, a(n) ___ in planned investment spending' and a(n)____ in equilibrium GDP
higher;decrease;decrease
if the multipplier and autonomous government spending increases by 100 billion, real GDP will
increase by 400
an expansionary intervention by the government is to
increase its spending
MPC=.8 Potential Output is 800 RGDP=850 Which policy will bring the economy to its potential output
increase taxes by 12.5
household spend 75% if increases in their income no taxes or foreign trade. Potential output is 600. Actual output is 700. To bring the economy to potential output the gov should?
increase taxes by 33.3
The Federal Reserve, has been cutting int rates to stimulate the recessionary economy. Int cuts are supposed to
increase the planned investment spending and theus increase GDP via multiplier
REVIEW When the central bank announces the desired inflation rate and sets policy to reach that rate, it is using
inflation targeting
Suppose that the economy is in long-run macroeconomic equilibrium, there is a(n)___ gap with
inflationary; low unemployment
HUH if the equil int rate in the money market is 5%, at an int rate of 2% the quantity of nonmonetary int-bearing finacial assets demanded is ___ the quantity supplied
less than
Generally, the more liquid an asset is, the
lower its rate of return
An expansionary fiscal policy
may include decreases in taxes
REVIEW A fall in the interest rate makes any investment project
more profiable whether the funds were borrowed or came from retained earnings
REVIEW An increase in the amount of physical capital per worker___, while technological progress____
moves the economy along the aggregate production function; shifts up the aggregate production function
When actual output is above potential output over time
nominal wages will increase, and short-run supply curve will shift to the left
REVIEW The aggreagate supply curve shows the relationship between the aggregate prive level and the aggregate
output supplied
At the income-expenditure equilibrium, __ is zero
unplanned inventory investment