Econ exam 3

d

Contractionary policies are government stabilization policies intended to decrease: A. population. B. unemployment. C. average labor productivity. D. planned spending.

a

Refer to the figure below. The economy pictured in the figure has a(n) ______ gap with a short-run equilibrium indicated by point ___. A. recessionary; A B. recessionary; B C. recessionary; C D. expansionary; A

a

Prior to January 2000, the demand for money increased as people anticipated Y2K problems. If the Fed had taken no action to offset this increase in money demand, then nominal interest rates would have: A. increased. B. decreased. C. remained constant. D. fallen below real interest rates.

a

Prior to January 2000, the demand for money increased as people anticipated Y2K problems. To offset this increase in money demand, the Fed would have had to ______ the money supply, which would have put ______ pressure on nominal interest rates. A. increase; downward B. increase; upward C. decrease; downward D. decrease; upward

b

Provisions in the law that automatically increase government spending or decrease taxes when real output declines are called: A. autonomous stabilizers. B. automatic stabilizers. C. the marginal propensity to consume. D. the income-expenditure multiplier.

d

Refer to the figure below. The current level of GDP in this economy is ______; the potential level of GDP is ______. A. Y1; Y1 B. Y2; Y2 C. Y1; Y2 D. Y2; Y1

d

Refer to the figure below. The economy pictured in the figure has a(n) ______ gap with a short-run equilibrium combination of the price level and output indicated by point ___. A. recessionary; A B. recessionary; B C. expansionary; C D. expansionary; A

d

5. The decision about whether to change prices frequently or infrequently is an application of the: A. principle of comparative advantage. B. scarcity principle. C. principle of increasing opportunity cost. D. cost-benefit principle.

d

A decrease in stock prices alters the consumption function by: A. increasing the slope. B. decreasing the slope. C. increasing the vertical intercept. D. decreasing the vertical intercept.

c

A recession in Japan ______ the demand for exports from East Asian countries resulting in a reduction in autonomous expenditures in these East Asian countries and a(n) ______ output gap in the East Asian countries. A. reduces; expansionary B. increases; expansionary C. reduces; recessionary D. increases; recessionary

c

A recession in the United States ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output gap in Canada. A. reduces; expansionary B. increases; expansionary C. reduces; recessionary D. increases; recessionary

d

All of the following would be included in planned aggregate expenditure except: A. purchases of services provided by government employees. B. planned changes in inventories. C. sales to foreigners of domestically-produced goods. D. social security payments.

d

All of the following would be included in planned aggregate expenditure except: A. spending on consumer durables. B. planned changes in inventories. C. sales of domestically produced goods to foreigners. D. interest paid on the government debt.

b

An economic expansion in the United States ______ the demand for exports from Mexico resulting in an increase in Mexican autonomous expenditures and a(n) ______ output gap in Mexico. A. reduces; expansionary B. increases; expansionary C. reduces; recessionary D. increases; recessionary

B

As disposable income decreases, consumption: A. increases. B. decreases. C. may either increase or decrease depending on the mpc. D. may either increase or decrease depending on the wealth effect.

A

As disposable income increases, consumption: A. increases. B. decreases. C. may either increase or decrease depending on the wealth effect. D. may either increase or decrease depending on the mpc.

d

Autonomous expenditure is the portion of planned aggregate expenditure that: A. equals aggregate output. B. equals planned spending. C. equals induced expenditure. D. is independent of output.

a

Based on the Keynesian cross diagram, at short-run equilibrium output autonomous expenditure equals ______ and induced expenditure equals ______. A. 1,000; 3,000 B. 1,000; 4,000 C. 3,000; 4,000 D. 4,000; 2,000

b

Based on the Keynesian cross diagram, at short-run equilibrium output, A. there is a recessionary gap. B. there is an expansionary gap. C. output equals potential output. D. firms will be producing more than they can sell.

a

Based on the Keynesian cross diagram, if output equals 5,000, planned aggregate expenditure is ______ output, and firms will ______ production in response. A. less than; decrease B. greater than; decrease C. equal to; not change D. less than; increase

c

Based on the Keynesian cross diagram, short-run equilibrium output equals: A. 3,000. B. 3,250. C. 4,000. D. 4,750.

a

Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to: A. 24,000. B. 6,000. C. 14,000. D. 16,000.

b

Based on the figure, and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending decreases by 1,000, then the new short-run equilibrium output (Y) is equal to: A. 24,000. B. 16,000. C. 14,000. D. 22,000.

b

Based on the figure, if autonomous spending falls from 400 to 200, then the new short-run equilibrium output will equal: A. 1,200. B. 400. C. 600. D. 800.

a

Based on the figure, if autonomous spending increases from 400 to 600, then the new short-run equilibrium output will equal: A. 1,200. B. 400. C. 600. D. 800.

b

Based on the figure, the income-expenditure multiplier equals: A. 0.5. B. 2. C. 5. D. 200.

A

C+Ip +G+NX equals: A. planned aggregate expenditure. B. potential GDP . C. the output gap. D. the income-expenditure multiplier.

D

Changes in autonomous consumption could be the result of: A. changes in disposable income. B. changes in inflation. C. changes in the mpc. D. changes in housing prices.

a

Data on after-tax income and consumption spending for the Adam Smith family are given below: after tax income: $9000 $14,000 $19,000 $24,000 consumption spending: $18,100 $22,600 $27,100 $31,600 Based on these data, the Adam Smith family has a marginal propensity to consume equal to: A. 0.9. B. 0.8. C. 0.75. D. 0.6

d

Data on output and planned aggregate expenditure in Macroland are given below. output (Y): 2000 3000 4000 5000 6000 planned aggregate expenditure (PAE): 2300 3200 4100 5000 5900 Based on these data, the short-run equilibrium level of output is: A. 2,000. B. 3,200. C. 4,100. D. 5,000.

A

Historically speaking, a one-dollar decrease in household wealth will cause consumer spending to fall by: A. $0.03 to $0.07. B. $0.30 to $0.70. C. $3.00 to $7.00. D. $30.00 to $70.00

a

If planned aggregate expenditure (PAE) in an economy equals 1,000 + 0.9Y and potential output (Y*) equals 9,000, then this economy has: A. an expansionary gap. B. a recessionary gap. C. no output gap. D. no autonomous expenditure.

b

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has: A. an expansionary gap. B. a recessionary gap. C. no output gap. D. no autonomous expenditure.

c

If planned aggregate expenditure (PAE) in an economy equals 3,000 + 0.75Y and potential output (Y*) equals 12,000, then this economy has: A. an expansionary gap. B. a recessionary gap. C. no output gap. D. no autonomous expenditure.

c

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Autonomous expenditure equals: A. 320. B. 320 + 0.25Y. C. 290. D. 290 + 0.75Y.

c

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Induced expenditure equals: A. 0.25Y. B. 320 + 0.25Y. C. 0.75Y. D. 290 + 0.75Y.

b

Menu costs are the costs of: A. running a restaurant. B. changing prices. C. increasing aggregate demand. D. changing production.

A

Planned aggregate expenditure (PAE) equals: A. C+Ip+G + NX. B. Cp+I+G + NX. D. C + I + G p +NX .

b

Planned aggregate expenditure is total: A. value added in the economy. B. planned spending on final goods and services. C. income of households, businesses, governments, and foreigners. D. revenue from the sale of goods and services.

c

Planned investment may differ from actual investment because of: A. changes in government purchases and net exports. B. the marginal propensity to consume. C. unplanned changes in inventories. D. fluctuations in preset prices

d

Short-run equilibrium output is the level of output at which actual output: A. equals potential output. B. maximizes firm profits. C. equals real GDP per capita. D. equals planned aggregate expenditure.

c

Suppose that the owner of a local ice cream store, knowing that demand for ice cream is higher when the weather is warmer, always charges a price in cents for a scoop of ice cream that is equal to two times the current outdoor temperature, measured in Fahrenheit (so that if it is 90 degrees outside, the ice cream is $1.80 per scoop). This type of behavior is ______. A. exactly the type of behavior that Keynes believed most firms exhibit. B. known as meeting demand. C. inconsistent with the key assumption upon which the basic Keynesian model is built. D. free from menu costs.

B

The basic Keynesian model is built on the key assumption that: A. menu costs are not significant. B. firms meet the demand for their products at preset prices. C. firms price their products so as to see a preset quantity of output. D. prices are prevented from changing frequently by government regulations.

D

The consumption function is relationship between consumption and: A. planned aggregate expenditure B. total spending C. investment D. disposable income

d

When real output decreases, planned aggregate expenditures decrease because: A. autonomous expenditures increase. B. autonomous expenditures decrease. C. induced expenditures increase. D. induced expenditures decrease.

B

A positive demand shock will shift the ______ curve to the ______. A. AD; left B. AD; right C. AS; left D. AS; right

b

Based on the figure, when PAE = 200 + 0.5Y, short-run equilibrium output equals: A. 1,200. B. 400. C. 600. D. 800.

d

Based on the figure, when PAE = 400 + 0.5Y, short-run equilibrium output equals: A. 1,200. B. 400. C. 600. D. 800.

a

Based on the figure, when PAE = 600 + 0.5Y, short-run equilibrium output equals: A. 1,200. B. 400. C. 600. D. 800.

a

A banking panic is an episode in which: A. depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system. B. commercial banks, fearing Federal Reserve sanctions, unwillingly participate in open-market operations. C. commercial banks, concerned about high interest rates, rush to borrow at the Federal Reserve discount rate. D. depositors, afraid of increasing interest rates, attempt to engage in discount-window borrowing at the Federal Reserve.

D

A demand shock is a change in planned spending that is: A. caused by changes in output. B. caused by changes in the inflation rate. C. caused by changes in output and changes in the real interest rate. D. not caused by changes in output or changes in the inflation rate.

c

A fiscal policy action to close a recessionary gap is to: A. increase taxes. B. decrease transfer payments. C. increase government purchases. D. increase the marginal propensity to consume.

b

A fiscal policy action to close a recessionary gap is to: A. increase taxes. B. increase transfer payments. C. decrease government purchases. D. decrease the marginal propensity to consume.

c

A fiscal policy action to close an expansionary gap is to: A. decrease taxes. B. increase transfer payments. C. decrease government purchases. D. increase the marginal propensity to consume.

a

A fiscal policy action to close an expansionary gap is to: A. increase taxes. B. increase transfer payments. C. decrease government purchases. D. decrease the marginal propensity to consume.

c

A higher real interest rate ______ investment spending and ______ consumption spending. A. increases; increases B. increases; decreases C. decreases; decreases D. decreases; increases

b

A higher real interest rate ______ saving and ______ consumption spending. A. increases; increases B. increases; decreases C. does not change; does not change D. decreases; increases

a

A large decrease in oil prices is an example of: A. a positive inflation shock. B. a negative inflation shock. C. inflation inertia. D. excessive aggregate spending.

b

A large increase in oil prices is an example of: A. a positive inflation shock. B. a negative inflation shock. C. inflation inertia. D. excessive aggregate spending.

a

A leftward shift of the AS curve indicates: A. a decrease in aggregate supply. B. an increase in aggregate supply. C. a decrease in D. an increase in potential GDP

d

A low rate of expected inflation tends to lead to a ___ rate of actual inflation and a high rate of expected inflation tends to lead to a ____ rate of actual inflation. A. high;high B. high;low C. low; low D. low; high

d

A lower real interest rate ______ saving and ______ consumption spending. A. increases; increases B. increases; decreases C. does not change; does not change D. decreases; increases

A

A negative demand shock will shift the ______ curve to the ______. A. AD; left B. AD; right C. AS; left D. AS; right

a

A reserve requirement set by the Federal Reserve is the: A. minimum ratio of reserves to bank deposits that commercial banks are allowed to maintain. B. maximum ratio of reserves to bank deposits that commercial banks are allowed to maintain. C. minimum amount of currency banks must hold in their vaults. D. maximum amount of currency banks are allowed to hold in their vaults.

c

A sudden change in the normal behavior of inflation, unrelated to the nation's output gap, is called: A. short-run equilibrium. B. long-run equilibrium. C. an inflation shock. D. inflation inertia.

D

A sudden increase in household wealth is an example of a ______ demand shock, which shifts the AD curve to the ______. A. negative;left B. positive;left C. negative; right D. positive; right

c

All of the following are reasonable arguments against adopting a zero inflation target EXCEPT that a zero inflation target: A. makes the undesirable effects of deflation more likely B. prevents the central bank from achieving a negative real interest rate. C. is not consistent with long-run price stability D. based on the CPI would not generate true price stability because of CPI measurement problems

b

An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ______ in the inflation rate, leading to a(n) ______ in output. A. increase;increase B. increase; decrease C. decrease; increase D. decrease; decrease

c

An example of a negative inflation shock is: A. an increase in interest rates. B. an increase in government purchases. C. a significant rise in oil prices. D. a tax increase.

d

An increase in aggregate supply is usually shown by a ______ shift of the AS curve. A. inverse B. upward C. leftward D. rightward

b

An increase in the aggregate demand for goods and services will result in an increase in the amount of output firms are willing to produce, and this increase in output is accompanied by: A. a decrease in the inflation rate. B. an increase in the inflation rate. C. a decrease in nominal GDP D. an increase in potential GDP.

b

An increase in the interest rate directly affects ______, but also has an indirect effect on ______ because of its effect on exchange rates. A. planned consumption and investment; government spending B. planned consumption and investment; net exports C. net exports; planned consumption and investment D. net exports; government spending

c

An inflation shock is: A. the level of inflation consistent with output in a recessionary gap. B. the level of inflation consistent with output in an expansionary gap. C. a sudden change in the normal behavior of inflation, unrelated to the nation's output gap. D. a change in the inflation rate generated by excessive aggregate spending.

b

Any target value of the nominal interest rate chosen by the Federal Reserve implies a specific value for ______. A. potential output B. the money supply C. government purchases D. the budget deficit

b

Any value of the money supply chosen by the Federal Reserve implies a specific value for ______. A. potential output B. the nominal interest rate C. government purchases D. the budget deficit

d

As the available technology improves, ______ shifts to the _____. A. aggregate demand;left B. aggregate demand;right C. aggregate supply; left D. aggregate supply; right

d

As the number or quality of available resources improves, ______ shifts to the _____. A. aggregate demand;left B. aggregate demand;right C. aggregate supply; left D. aggregate supply; right

c

As the quality of available resources becomes worse: A. aggregate demand falls B. aggregate demand rises C. aggregate supply falls D. aggregate supply rises

b

Automatic stabilizers are provisions in the law which create automatic ______ in government spending or ______ in taxes when real output declines. A. increases; increases B. increases; decreases C. no change; no change D. decreases; decreases

b

Bank depositors will not lose their deposits in a banking panic if: A. there is fractional reserve banking. B. there is 100% reserve banking. C. there is a central bank. D. the actual reserve/deposit ratio equals the desired reserve/deposit ratio.

c

Based on the figure, if the economy is in short-run equilibrium with output equal to 16,000, then there is ______, and ______ could return the economy to potential output (Y*). A. an expansionary gap; a decrease in autonomous expenditures of 1,000 B. an expansionary gap; a decrease in autonomous expenditures of 4,000 C. a recessionary gap; an increase in autonomous expenditures of 1,000 D. a recessionary gap; an increase in autonomous expenditures of 4,000

a

Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is ______, and ______ could return the economy to potential output (Y*). A. an expansionary gap; a decrease in autonomous expenditures of 1,000 B. an expansionary gap; a decrease in autonomous expenditures of 4,000 C. a recessionary gap; an increase in autonomous expenditures of 1,000 D. a recessionary gap; an increase in autonomous expenditures of 4,000

b

Based on the figure, the income-expenditure multiplier in the economy illustrated equals: A. 0.75 B. 4 C. 4,000 D. 1,000

c

Based on the information in the table, if the public had not decided to hold more currency in 1932, but the actions of the Federal Reserve and the banks remained the same, the money supply at the end of 1932 would have been: december 1931: -currency held by public in billions: $4.59 -reserve deposit ratio: 0.095 -bank reserves (in billions): $3.11 -money supply in billions: $37.3 december 1932: -currency held by public in billions: $4.82 -reserve deposit ratio: 0.095 -bank reserves in billions: $3.18 - money supply in billions: $34.0 A. $33.8 billion B. $34.2 billion C. $35.9 billion D. $36.1 billion

b

Based on the information in the table, the total amount of bank deposits decreased from ______ to ______ over the course of 1932. december 1931: -currency held by public in billions: $4.59 -reserve deposit ratio: 0.095 -bank reserves (in billions): $3.11 -money supply in billions: $37.3 december 1932: -currency held by public in billions: $4.82 -reserve deposit ratio: 0.095 -bank reserves in billions: $3.18 - money supply in billions: $34.0 A. $37.3 billion; $32.7 billion B. $32.7 billion; $29.2 billion C. $34.2 billion; $30.8 billion D. $37.3 billion; $34.0 billion

c

Based on the information in the table, we can conclude that, in 1932, each of the following events occurred except: december 1931: -currency held by public in billions: $4.59 -reserve deposit ratio: 0.095 -bank reserves (in billions): $3.11 -money supply in billions: $37.3 december 1932: -currency held by public in billions: $4.82 -reserve deposit ratio: 0.095 -bank reserves in billions: $3.18 - money supply in billions: $34.0 A. The public increased the amount of currency it held. B. Banks were keeping more of their deposits in reserves, and making fewer loans. C. The Federal Reserve conducted open-market sales of U.S. government bonds. D. The Federal Reserve injected reserves into the banking system.

a

Based on the information in the table, what quantity of reserves did the Federal Reserve inject into the economy in 1932? december 1931: -currency held by public in billions: $4.59 -reserve deposit ratio: 0.095 -bank reserves (in billions): $3.11 -money supply in billions: $37.3 december 1932: -currency held by public in billions: $4.82 -reserve deposit ratio: 0.095 -bank reserves in billions: $3.18 - money supply in billions: $34.0 A. $0.30 billion B. $0.23 billion C. $0.16 billion D. $0.07 billion

a

Based on the information in the table, what quantity of reserves would the Federal Reserve have had to inject into the economy in 1932 to prevent the money supply from falling, given that the public increased the amount of currency it held and that banks increased the reserve-deposit ratio? december 1931: -currency held by public in billions: $4.59 -reserve deposit ratio: 0.095 -bank reserves (in billions): $3.11 -money supply in billions: $37.3 december 1932: -currency held by public in billions: $4.82 -reserve deposit ratio: 0.095 -bank reserves in billions: $3.18 - money supply in billions: $34.0 A. $0.30 billion B. $0.66 billion C. $0.89 billion D. $3.54 billion

d

Because an increase in the nominal interest rate raises the opportunity costs of holding money, the money demand curve: A. shifts to the right. B. shifts to the left. C. slopes upward. D. slopes downward.

c

Because the Fed determines the money supply, the: A. money supply curve is downward sloping. B. money supply curve is upward sloping. C. money supply curve is vertical. D. money supply curve is horizontal.

c

Changes in consumption and planned investment spending due to changes in the real interest rate alter: A. the money supply. B. money demand. C. autonomous expenditures. D. induced expenditures.

b

Changes in government purchases affect planned spending _____, and changes in taxes and/or transfers affect planned spending _______. A. directly;directly B. directly; indirectly C. directly; not at all D. indirectly; indirectly

c

Changes in government purchases affect planned spending: only when there is A. an expansionary gap. B. autonomously. C. directly, by changing autonomous expenditures. D. indirectly, by changing induced expenditures

d

Changes in planned spending not caused by changes in output or the inflation rate will shift the: A. aggregate supply curve B. Keynesian cross. C. potential output line. D. aggregate demand curve.

D

Changes in planned spending that shift the aggregate demand curve are those: A. caused by changes in output. B. caused by changes in the inflation rate. C. caused by changes in output and changes in the real interest rate. D. not caused by changes in output or changes in the inflation rate.

d

Changes in taxes and transfers affect planned spending: A. only when there is an expansionary gap. B. autonomously. C. directly, by changing induced expenditures. D. indirectly, by changing disposable income and, consequently, consumption.

b

Changes in the expected rate of inflation will: A. not shift the AS curve. B. shift the AS curve leftward or rightward. C. cause the AS curve to become vertical. D. cause the AS curve to become downward-sloping.

a

Firms that face menu costs react to a sustained increase in demand by: A. increasing output and then raising the price of their output. B. charging higher prices, without necessarily increasing the amount of output they are willing to sell. C. charging lower prices, while simultaneously increasing the amount of output they are willing to sell. D. increasing output and then reducing the price of their output.

d

Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year. The company purchases $300,000 worth of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave's Mirror Company equals ______ and planned investment equals _______. A. $250,000; $150,000 B. $300,000; $200,000 C. $550,000; $450,000 D. $650,000; $550,000

a

Deposit insurance is a system in which the government guarantees that: A. depositors will not lose any money even if their bank goes bankrupt. B. people can have deposits at commercial banks. C. commercial banks will not go bankrupt. D. commercial banks will not lose any deposits.

b

Due to menu costs, many firms in the economy will increase their output: A. only after they raise the price at which they are willing to sell their output. B. before raising the price at which they are willing to sell their output. C. instead of raising the price at which they sell their output. D. or raise the price at which they sell their output, but never both.

a

During the Christmas shopping season, the demand for money increases significantly. If the Fed takes no actions to offset the increase in money demand, then nominal interest rates will: A. increase. B. decrease. C. remain constant. D. equal the real interest rates.

a

During the Christmas shopping season, the demand for money increases significantly. To offset the increase in money demand, the Fed must ______ the money supply, which will put ______ pressure on nominal interest rates. A. increase; downward B. increase; upward C. decrease; downward D. decrease; upward

c

During the Great Depression in the United States between 1929 and 1933, banks'reserve/ deposit ratio ______ and the amount of currency held by the public ____, while the money supply ______. A. increased; increased; increased B. decreased; decreased; decreased C. increased; increased; decreased D. decreased; decreased; increased

d

Expansionary policies are government stabilization policies intended to increase: A. population. B. unemployment. C. average labor productivity. D. planned spending.

b

Federal Reserve actions that increase nominal interest rates and decrease the money supply: A. close a recessionary gap. B. close an expansionary gap. C. raise the rate of inflation. D. raise bond prices.

b

Financial markets pay close attention to changes in the federal funds rate because these changes: A. directly affect a large volume of loans. B. indicate the Fed's plans for monetary policy. C. indicate commercial bank lending policies. D. directly affect the interest payments on the national debt.

c

Firms do not change prices frequently because: A. there are legal prohibitions against doing so. B. it is easier to change the quantity of capital used in production. C. it is costly to do so. D. customers will refuse to patronize firms that change prices frequently.

A

Firms suddenly becoming pessimistic about future business prospects is an example of a ______ demand shock, which would shift the AD curve to the ______. A. negative; left B. positive; left C. negative; right D. positive; right

b

For a given inflation rate, if a resolution of international disputes leads to a cutback in government military spending, then the ______ shifts _____. A. aggregate demand curve; right B. aggregate demand curve; left C. aggregate supply curve; left D. aggregate supply curve; right

a

For a given inflation rate, if a rise in the stock market makes consumers more willing to spend, then the ______ shifts _____. A. aggregate demand curve; right B. aggregate demand curve; left C. aggregate supply curve; left D. aggregate supply curve; right

b

For a given inflation rate, if a stock market crash makes consumers less willing to spend, then the ______ shifts _____. A. aggregate demand curve; right B. aggregate demand curve; left C. aggregate supply curve; left D. aggregate supply curve; right

A

For a given inflation rate, if bright prospects for the future of the economy cause businesses to increase spending on new capital, then the ______ shifts _____. A. aggregate demand curve; right B. aggregate demand curve; left C. aggregate supply curve; left D. aggregate supply curve; right

B

For a given inflation rate, if concerns about future weakness in the economy cause businesses to reduce their spending on new capital, then the ______ shifts _____. A. aggregate demand curve; right B. aggregate demand curve; left C. aggregate supply curve; left D. aggregate supply curve; right

a

For a given inflation rate, if increasing threats to domestic security cause the government to increase military spending, then the ______ shifts _____. A. aggregate demand curve; right B. aggregate demand curve; left C. aggregate supply curve; left D. aggregate supply curve; right

b

For an economy starting at potential output, a decrease in autonomous expenditure in the short run results in a(n): A. expansionary output gap. B. recessionary output gap. C. increase in potential output. D. decrease in potential output.

b

For an economy starting at potential output, a decrease in planned investment in the short run results in a(n): A. expansionary output gap. B. recessionary output gap. C. increase in potential output. D. decrease in potential output.

a

For an economy starting at potential output, an increase in autonomous expenditure in the short run results in a(n): A. expansionary output gap. B. recessionary output gap. C. increase in potential output. D. decrease in potential output.

a

For an economy starting at potential output, an increase in planned investment in the short run results in a(n): A. expansionary output gap. B. recessionary output gap. C. increase in potential output. D. decrease in potential output.

c

For the past 40 years, the Federal Reserve has expressed policy in terms of a target value for: A. bank reserves. B. the Federal Reserved discount rate C. the federal funds rate. D. open market operations.

d

Government policies intended to decrease planned spending and output are called ______ policies. A. aggregate B. monetary C. fiscal D. contractionary

d

Government policies intended to increase planned spending and output are called ______ policies. A. aggregate B. monetary C. fiscal D. expansionary

d

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps, are called ______ policies. A. structural B. cyclical C. productivity D. stabilization

a

Graphically, long-run equilibrium occurs at the intersection of the aggregate demand curve and: A. the aggregate supply curve and potential output. B. the planned aggregate expenditure line. C. the aggregate supply curve. D. potential output.

c

Graphically, short-run equilibrium occurs at the intersection of the aggregate demand curve and: A. the aggregate supply curve and potential output. B. the planned aggregate expenditure line. C. the aggregate supply curve. D. potential output.

a

High expected inflation leads to ____ increases in wages and costs and to ____ actual inflation. A. large; high B. large;low C. small; low D. small; high

c

Higher nominal interest rates ______ the amount of money demanded and a higher price level ______ the amount of money demanded. A. increase; increases B. increase; decreases C. decrease; increases D. decrease; decreases

c

Higher nominal interest rates ______ the amount of money demanded and higher real income ______ the amount of money demanded. A. increase; increases B. increase; decreases C. decrease; increases D. decrease; decreases

a

Higher real income ______ the demand for money and a higher price level ______ the demand for money. A. increases; increases B. increases; decreases C. decreases; increases D. decreases; decreases

a

House prices in the U.S. increased dramatically _____, and decreased dramatically ______. A. from 2001 to 2006; from 2007 to 2009 B. from 2007 to 2009; from 2001 to 2006 C. from 2001 to 2009; from 2006 to 2007 D. from 2006 to 2009; from 2001 to 2006

d

If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will ______ their loans based on current deposits, and the money supply will _____. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

a

If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may ______ their loans and deposits, and the money supply may _____. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease

b

If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals: A. 0.1. B. 0.9. C. 1.0. D. 9.0.

b

If firms sell less output than expected, planned investment: A. is greater than actual investment. B. is less than actual investment. C. equals actual investment. D. equals zero.

A

If firms sell less than expected, actual investment increases because _____, which is counted as investment. A. the unsold goods are added to inventory B. the government buys the unsold goods C. the unsold goods are distributed to poor households D. households buy the unsold goods are bargain prices

A

If firms sell more output than expected, planned investment: A. is greater than actual investment. B. is less than actual investment. C. equals actual investment. D. equals zero.

c

If households and firms expect higher rates of inflation, the ______ curve will shift _____. A. AD; rightward B. AS; rightward C. AS; leftward D. AD; until it becomes vertical

d

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 35,000, what real interest rate must the Federal Reserve set to bring the economy to full employment? A. 2 percent B. 3 percent C. 4 percent D. 5 percent

b

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y - 20,000r, and potential output equals 36,000, what real interest rate must the Federal Reserve set to bring the economy to full employment? A. 2 percent B. 3 percent C. 4 percent D. 5 percent

d

If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap. A. recessionary; raise B. recessionary reduce C. recessionary; not change D. expansionary; raise

b

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap. A. recessionary; raise B. recessionary; reduce C. recessionary; not change D. expansionary; raise

d

If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap. A. recessionary; raise B. recessionary reduce C. recessionary; not change D. expansionary; raise

b

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ______ to eliminate any output gap. A. increase by 100 B. decrease by 100 C. increase by 1,000 D. decrease by 1,000

c

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*) equals 9,000, then taxes must be increased by approximately ______ to eliminate any output gap. A. 90 B. 100 C. 111 D. 1,000

c

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, the mpc equals 0.9, and potential output (Y*) equals 9,000, then transfers must be decreased by approximately ______ to eliminate any output gap. A. 90 B. 100 C. 111 D. 1,000

a

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ______ to eliminate any output gap. A. increase by 200 B. increase by 1,000 C. increase by 5,000 D. decrease by 200

c

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ______ by approximately ______ to eliminate any output gap. A. decreased; 250 B. decreased; 200 C. increased; 250 D. increased; 200

a

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be ______ by approximately ______ to eliminate any output gap. A. decreased; 250 B. decreased; 200 C. increased; 250 D. increased; 200

d

If short-run equilibrium output equals 20,000 and potential output (Y*) equals 25,000, then this economy has a(n) ______ gap that can be closed by _________. A. recessionary; increasing taxes B. expansionary; increasing transfer payments C. expansionary; increasing government purchases D. recessionary; increasing government purchases

c

If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ______ gap that can be closed by _________. A. expansionary; decreasing taxes B. expansionary; increasing transfer payments C. expansionary; decreasing government purchases D. recessionary; increasing government purchases

b

If the Fed wishes to increase nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply. A. sale; increases B. sale; decreases C. sale; does not change D. purchase; increases

d

If the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply. A. sale; increases B. sale; decreases C. purchase; decreases D. purchase; increases

b

If the Federal Reserve is currently paying 0.75% interest on bank reserves, but then increases that interest rate to 1%, banks may decide to hold ______ reserves, and the money supply may _____. A. more; increase B. more; decrease C. fewer; increase D. fewer; decrease

c

If the Federal Reserve is currently paying 1% interest on bank reserves, but then reduces that interest rate to 0.5%, banks may decide to hold ______ reserves, and the money supply may _____. A. more; increase B. more; decrease C. fewer; increase D. fewer; decrease

b

If the Federal Reserve sets a target nominal interest rate, it can: A. independently set a target money supply. B. only set a money supply target that is consistent with the nominal interest rate target. C. achieve this target with any arbitrary supply of money. D. shift the money demand curve to the right.

d

If the Federal Reserve wants to decrease the money supply, it should: A. decrease reserve requirements. B. decrease the discount rate. C. decrease the interest that it pays on reserves. D. conduct open-market sales.

c

If the Federal Reserve wants to increase the money supply, it should: A. increase reserve requirements. B. increase the discount rate. C. conduct open-market purchases. D. increase the interest that it pays on reserves.

c

If the income-expenditure multiplier equals 2.5 and a 1 percent increase in the real interest rate reduces autonomous spending by 200 units, then a 1,000 unit expansionary gap can be eliminated by ______ the real interest rate by ______ percent. A. increasing; 2.5 B. increasing; 4.0 C. increasing; 2.0 D. decreasing; 2.0

d

If the income-expenditure multiplier equals 4, and a 1 percent increase in the real interest rate reduces autonomous spending by 100 units, then a 1,000 unit recessionary gap can be eliminated by ______ the real interest rate by ______ percent. A. increasing; 10.0 B. increasing; 4.0 C. increasing; 2.5 D. decreasing; 2.5

c

If the interest rate in the U.S. falls, U.S. financial assets become ______ attractive to buyers and the ______ U.S. dollars will fall. A. more; demand for B. more; supply of C. less; demand for D. less; supply of

a

If the interest rate in the U.S. rises, U.S. financial assets become ______ attractive to buyers and the ______ U.S. dollars will rise. A. more; demand for B. more; supply of C. less; demand for D. less; supply of

c

If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a ______ increase in consumption. A. $13.33 B. $25 C. $75 D. $133

b

If the nominal interest rate is above the equilibrium value, then the quantity demanded of money is ______ than the quantity supplied of money, bond prices will ____, and the nominal interest rate will ____. A. greater; fall; increase B. less; rise; decrease C. greater; rise; increase D. less; fall; increase

a

If the nominal interest rate is below the equilibrium value, then the quantity demanded of money is ______ than the quantity supplied of money, bond prices will ____, and the nominal interest rate will ____. A. greater; fall; increase B. greater; fall; decrease C. greater; rise; increase D. less; fall; increase

a

If the quantity supplied of money exceeds the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to ______ until the quantity demanded and quantity supplied of money are equal. A. buy; rise; fall B. sell; fall; fall C. sell; rise; fall D. buy; fall; rise

a

If the quantity supplied of money is less than the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to ______ until the quantity demanded and quantity supplied of money are equal. A. sell; fall; rise B. sell; fall; fall C. sell; rise; fall D. buy; fall; rise

c

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Autonomous expenditure equals: A. 990. B. 940. C. 900. D. 890.

c

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Induced expenditure equals: A. 0.20Y. B. 990 + 0.20Y. C. 0.80Y. D. 900 + 0.80Y.

b

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals: A. 990 + 0.20Y. B. 900 + 0.80Y. C. 940 + 0.80Y. D. 990 + 0.80Y.

b

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The slope of the expenditure line is: A. 0.20. B. 0.80. C. 0.90. D. 0.99.

b

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is: A. 890. B. 900. C. 940. D. 990.

d

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Planned aggregate expenditure equals: A. 290 + 0.25Y. B. 320 + 0.25Y. C. 320 + 0.75Y. D. 290 + 0.75Y.

B

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals: A. 1,000 B. 1,160. C. 1,280. D. 1,440.

b

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The slope of the expenditure line is: A. 0.25. B. 0.75. C. 290. D. 320.

c

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. The vertical intercept of the expenditure line is: A. 0.25. B. 0.75. C. 290. D. 320.

c

In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired (and current) reserve/deposit ratio is 15 percent. If commercial banks borrow 100 econs in reserves from the Central Bank through discount window lending, then the money supply in Macroland will ______, assuming that the public does not wish to change the amount of currency it holds. A. increase to 3,133 econs B. increase to 4,100 econs C. increase to 4,667 econs D. decrease to 1,900 econs

a

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives planned aggregate expenditure (PAE)? A. [790 - 700r] + 0.8Y B. [790 - 700r] C. [910 - 700r] D. [910 - 700r] + 0.8Y

b

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives autonomous expenditures? A. 0.8Y B. [790 - 700r] C. [910 - 700r] D. [760 - 700r

d

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, what would be the impact on autonomous expenditures of a one-percentage-point increase in the real interest rate? A. Autonomous expenditures would increase by 35 units. B. Autonomous expenditures would decrease by 70 units. C. Autonomous expenditures would decrease by 35 units. D. Autonomous expenditures would decrease by 7 units.

b

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, what would be the impact on induced expenditures of a one-percentage-point increase in the real interest rate? A. Induced expenditures would increase by 35 units. B. Induced expenditures would not change. C. Induced expenditures would decrease by 35 units. D. Induced expenditures would decrease by 7 units.

c

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, what would be the impact on short-run equilibrium output of a one-percentage-point increase in the real interest rate, assuming the income-expenditure multiplier equals 5? A. Short-run equilibrium output would increase by 35 units. B. Short-run equilibrium output would decrease by 700 units. C. Short-run equilibrium output would decrease by 35 units. D. Short-run equilibrium output would decrease by 7 units.

c

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r Ip = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression below gives induced expenditures? A. [910-700r] B. [790-700r] C. 0.8Y D. 0.2Y

a

In a short-run Keynesian model where the marginal propensity to consume is 0.5, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, government purchases must be: A. increased by $1 billion. B. decreased by $1 billion. C. increased by $0.5 billion. D. increased by $2 billion.

d

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 2 percent (0.02). If potential output equals 8,000, the central bank must ______ the interest rate to close the ______ gap. A. lower; expansionary B. lower; recessionary C. raise; recessionary D. raise; expansionary

b

In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y -20,000r, the interest rate is currently 5 percent (0.05). If potential output equals 11,750, the central bank must ______ the interest rate to close the ____________ gap. A. reduce; expansionary B. reduce; recessionary C. raise; recessionary D. raise; expansionary

c

In response to the 2007-2009 recession, the Economic Stimulus Act of 2008, under President Bush, was composed of approximately _____; the American Recovery and Reinvestment Act, under President Obama, was composed of approximately ______. A. one-fourth tax cuts and three-fourths spending increases; two-thirds tax cuts and one-third spending increases B. half tax cuts and half spending increases; only spending increases C. two-thirds tax cuts and one-third spending increases; one-fourth tax cuts and three-fourths spending increases D. only tax cuts; half tax cuts and half spending increases

a

In the Keynesian cross diagram, the 45-degree line represents the short-run equilibrium condition that: A.Y = PAE. B. PAE = C+I +G+NX. C. Ip. D. Y*=Y.

c

In the Keynesian cross diagram, the ______ line shows the relationship between planned aggregate expenditure and output, and the ______ line represents the condition that planned aggregate expenditure and output are equal. A. consumption function; 45-degree B. 45-degree; consumption function C. expenditure; 45-degree D. 45 degree; expenditure

d

In the Keynesian cross diagram, the vertical intercept of the expenditure line equals ______ and the slope of the expenditure line equals _____. A. induced expenditures; autonomous expenditures B. autonomous expenditures; induced expenditures C. planned spending; unplanned spending D. autonomous expenditures; the mpc

b

In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in short-run equilibrium output. A. a $1 billion increase B. a greater than $1 billion increase C. no change D. a $1 billion decrease

b

In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-run equilibrium output. A. a $5 billion increase B. a greater than $5 billion decrease C. no change. D. a $5 billion decrease

D

In the Keynesian model, consumption depends on: A. whether the government has a budget surplus or deficit. B. potential output. C. the natural rate of unemployment. D. disposable income.

b

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm: A. changes prices to meet the demand. B. changes production levels to meet the demand. C. changes prices and production levels to meet demand. D. changes prices, but holds production levels constant, to meet the demand.

b

In the basic Keynesian model all of the following are true except: A. planned consumption always equals actual consumption. B. planned investment always equals actual investment. C. planned government spending always equals actual government spending. D. planned net exports always equal actual net exports.

a

In the basic Keynesian model, a decline in autonomous spending: A. reduces short-run equilibrium output. B. increases short-run equilibrium output. C. reduces potential output. D. increases potential output.

a

In the basic Keynesian model, a decrease in government purchases: A. reduces short-run equilibrium output. B. increases short-run equilibrium output. C. reduces potential output. D. increases potential output.

a

In the basic Keynesian model, a decrease in transfer payments: A. reduces short-run equilibrium output. B. increases short-run equilibrium output. C. reduces potential output. D. increases potential output

b

In the basic Keynesian model, a tax cut: A. reduces short-run equilibrium output. B. increases short-run equilibrium output. C. reduces potential output. D. increases potential output.

a

In the basic Keynesian model, a tax increase: A. reduces short-run equilibrium output. B. increases short-run equilibrium output. C. reduces potential output. D. increases potential output

b

In the basic Keynesian model, an increase in government purchases: A. reduces short-run equilibrium output. B. increases short-run equilibrium output. C. reduces potential output. D. increases potential output

b

In the basic Keynesian model, an increase in transfer payments: A. reduces short-run equilibrium output. B. increases short-run equilibrium output. C. reduces potential output. D. increases potential output

b

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will: A. reduce production. B. increase production. C. increase planned aggregate expenditure. D. decrease planned aggregate expenditure.

a

In the short run, with predetermined prices, when output is greater than planned aggregate expenditure, firms will: A. reduce production. B. increase production. C. increase planned aggregate expenditure. D. decrease planned aggregate expenditure.

c

In the short run, with predetermined prices, when output is greater than planned aggregate expenditures: A. potential output is greater than short-run equilibrium output. B. potential output is less than short-run equilibrium output. C. planned investment is less than actual investment. D. planned investment is greater than actual investment.

d

In the short run, with predetermined prices, when output is less than planned aggregate expenditure: A. potential output is greater than short-run equilibrium output. B. potential output is less than short-run equilibrium output. C. planned investment is less than actual investment. D. planned investment is greater than actual investment.

b

In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, government purchases must be: A. increased by $1 billion. B. decreased by $1 billion. C. decreased by $0.5 billion. D. decreased by $2 billion.

d

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, taxes must be: A. increased by $1 billion. B. decreased by $1 billion. C. increased by $1.33 billion. D. decreased by $1.33 billion.

c

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, transfers must be: A. increased by $1 billion. B. decreased by $1 billion. C. increased by $1.33 billion. D. decreased by $1.33 billion.

c

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, taxes must be: A. increased by $1 billion. B. decreased by $1 billion. C. increased by $1.33 billion. D. decreased by $1.33 billion.

d

In the short-run Keynesian model where the marginal propensity to consume is 0.75, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, transfers must be: A. increased by $1 billion. B. decreased by $1 billion. C. increased by $1.33 billion. D. decreased by $1.33 billion.

d

In the short-run Keynesian model, if the mpc equals 0.8, then to decrease planned aggregate spending by $30 billion at any output level, government spending must be decreased by ______ or net taxes must be increased by _____. A. $30 billion; $30 billion B. more than $30 billion; more than $30 billion C. less than $30 billion; less than $30 billion D. $30 billion; more than $30 billion

d

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____. A. $20 billion; $20 billion B. more than $20 billion; more than $20billion C. less than $20 billion; less than $20 billion D. $20 billion; more than $20 billion

d

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be: A. increased by $1 billion. B. decreased by $1 billion. C. increased by more than $1 billion. D. increased by less than $1 billion.

d

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be: A. increased by $10 billion. B. decreased by $10 billion. C. increased by more than $10 billion. D. decreased by less than $10 billion.

d

In the short-run, if the Federal Reserve increases interest rates, then consumption and investment ______, planned aggregate expenditure ______, and short-run equilibrium output _______. A. increase; increases; increases B. increase; increases; decreases C. increase; decreases; decreases D. decrease; decreases; decreases

d

Induced expenditure is the portion of planned aggregate expenditure that: A. equals aggregate output. B. equals planned spending. C. equals autonomous expenditure. D. depends on output.

d

Inflation inertia is the result of the behavior of ____ and the existence of ______. A. the central bank; automatic stabilizers B. real and nominal interest rates; an output gap C. autonomous aggregate demand; the Fed's policy reaction function D. inflation expectations; long-term wage and price contracts

b

Inflation inertia is the tendency for inflation to: A. equal zero. B. change relatively slowly from year to year. C. decrease when the Fed increases interest rates. D. increase when the Fed decreases interest rates.

b

Innovations in the United States, such as credit cards, debit cards, and ATMs have: A. increased the demand for money. B. decreased the demand for money. C. had no impact on the supply or demand for money. D. increased the supply of money.

c

Low expected inflation leads to ____ increases in wages and costs and to ____ actual inflation. A. large;high B. large;low C. small; low D. small; high

b

Lower nominal interest rates ______ the amount of money demanded and a lower price level ______ the amount of money demanded. A. increase; increases B. increase; decreases C. increase; does not change D. decrease; decreases

b

Lower nominal interest rates ______ the amount of money demanded and lower real income ______ the amount of money demanded. A. increase; increases B. increase; decreases C. increase; does not change D. decrease; decreases

d

Lower real income ______ the demand for money and a lower price level ______ the demand for money. A. increases; increases B. increases; decreases C. increases; does not change D. decreases; decreases

a

One drawback in using fiscal policy as a stabilization tool is that fiscal policy: A. affects potential output as well as planned aggregate expenditure. B. effects are frequently offset by automatic stabilizers. C. is too flexible to use to close output gaps. D. is not useful for dealing with prolonged episodes of recession.

d

One of the serious drawbacks of the deposit insurance system in the United States is that: A. bank failures continue to occur regularly. B. the system took away the Federal Reserve's ability to conduct open-market operations. C. the system took away the Federal Reserve's ability to change reserve requirements. D. if insured intermediaries make many bad loans, the taxpayers may be responsible for covering the losses.

a

One potential problem with using fiscal policy to close recessionary output gaps is that: A. sustained government deficits can be harmful to long-run economic growth. B. decreased government spending can cause inflationary pressure to build. C. reductions in interest rates can reduce savings and, therefore, investment. D. it may be offset by automatic stabilizers.

b

One problem with using monetary policy to address "bubbles" in asset markets is that: A. the Federal Reserve is better than financial market professionals at identifying bubbles B. monetary policy is not a very good tool for addressing the problem of inappropriately high asset prices C. reducing the real interest rate to deal with the bubble could lead to inflation D. the Federal Reserve is not interested in stabilizing output

a

One problem with using monetary policy to address "bubbles" in asset markets is that: A. doing so presupposes that the Federal Reserve is better than financial-market professionals at identifying bubbles. B. monetary policy is well-suited for addressing the problem of inappropriately high asset prices. C. reducing the real interest rate to deal with the bubble could lead to inflation. D. the Federal Reserve is not interested in stabilizing output.

d

Refer to the figure below. Based on the diagram, if potential output equals 5,000 and the real interest rate is 1%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. A. a recessionary; raise B. a recessionary; reduce C. an expansionary; reduce D. an expansionary; raise

c

Refer to the figure below. Based on the diagram, if potential output equals 5,000 and the real interest rate is 3%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. A. a recessionary; raise B. a recessionary; reduce C. no output; not change D. an expansionary; raise

b

Refer to the figure below. Based on the diagram, if potential output equals 5,000 and the real interest rate is 5%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. A. a recessionary; raise B. a recessionary; reduce C. no output; not change D. an expansionary; raise

d

Refer to the figure below. Based on the diagram, if potential output equals 8,000 and the real interest rate is 2%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. A. a recessionary; raise B. an expansionary; reduce C. no output; not change D. an expansionary; raise

c

Refer to the figure below. Based on the diagram, if potential output equals 8,000 and the real interest rate is 4%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. A. a recessionary; raise B. a recessionary; lower C. no output; not change D. an expansionary; raise

b

Refer to the figure below. Based on the diagram, if potential output equals 8,000 and the real interest rate is 6%, then there is ______ gap and the Fed must ______ the real interest rate so that output will equal potential output. A. a recessionary; raise B. a recessionary; reduce C. no output; not change D. an expansionary; raise

c

Refer to the figure below. Based on the diagram, the nominal interest rate equals ______ and the money supply equals ____. A. 7%; 300 B. 1%; 500 C. 5%; 500 D. 3%; 700

d

Refer to the figure below. If the Federal Reserve wants to lower the interest rate to 3%, it must ______ the money supply to _____. A. increase; 300 B. decrease; 300 C. increase; 900 D. increase; 700

b

Refer to the figure below. If the Federal Reserve wants to raise the interest rate to 7%, it must ______ the money supply to _____. A. increase;300 B. decrease; 300 C. increase; 900 D. increase; 700

c

Refer to the figure below. If the Federal Reserve wants to set the nominal interest rate at 1%, it must conduct open market ______ to set the money supply at _____. A. purchases; 300 B. sales; 100 C. purchases; 900 D. sales; 900

b

Refer to the figure below. If the Federal Reserve wants to set the nominal interest rate at 9%, it must conduct open market ______ to set the money supply at _____. A. purchases; 100 B. sales; 100 C. purchases; 900 D. sales; 900

c

Refer to the figure below. Long-run equilibrium in this economy: A. will be impossible to achieve. B. could occur if AD shifts downward to the left. C. could occur if AS shifts downward and to the right. D. will occur only if AD shifts upward to the right.

c

Refer to the figure below. Long-run equilibrium in this economy: A. will be impossible to achieve. B. could occur if AD shifts upward to the right. C. could occur if AS shifts upward and to the left. D. will occur only if AD shifts downward to the left.

b

Refer to the figure below. Suppose that the economy is initially in equilibrium with output Y2 and inflation rate of 3. An increase in military spending will generate: A. a recessionary gap. B. an expansionary gap. C. disinflation. D. hyperinflation.

a

Refer to the figure below. Suppose the economy is in a short-run equilibrium at output Y1 and inflation rate 2. The economy is currently experiencing ______, and the correct fiscal policy response to this situation, to return the economy to potential GDP, is to ______. A. a recessionary gap; increase government spending B. an expansionary gap; decrease government spending C. a recessionary gap; increase taxes D. an expansionary gap; decrease taxes

c

Refer to the figure below. Suppose the economy is in a short-run equilibrium at output Y1 and inflation rate 2. The economy is currently experiencing ______, and the correct monetary policy response to this situation, to return the economy to potential GDP, is to ______. A. a recessionary gap; raise taxes B. an expansionary gap; cut taxes C. a recessionary gap; increase the money supply D. an expansionary gap; decrease the money supply

b

Refer to the figure below. Suppose the economy is in a short-run equilibrium at output Y3 and inflation rate 2. The economy is currently experiencing ______, and the correct fiscal policy response to this situation, to return the economy to potential GDP, is to ______. A. a recessionary gap; increase government spending B. an expansionary gap; decrease government spending C. a recessionary gap; increase taxes D. an expansionary gap; decrease taxes

d

Refer to the figure below. Suppose the economy is in a short-run equilibrium at output Y3 and inflation rate 2. The economy is currently experiencing ______, and the correct monetary policy response to this situation, to return the economy to potential GDP, is to ______. A. a recessionary gap; raise taxes B. an expansionary gap; cut taxes C. a recessionary gap; increase the money supply D. an expansionary gap; decrease the money supply

a

Refer to the figure below. Suppose the economy is initially in equilibrium with output Y2 and inflation rate of 3. An increase in military spending will: A. shift AD from AD2 to AD1. B. shift AD from AD1 to AD2. C. shift AS from AS2 to AS1. D. shift AS from AS1 to AS2.

c

Refer to the figure below. The current level of GDP in this economy is ______; the potential level of GDP is A.Y1; Y1 B. Y2; Y2 C. Y1; Y2 D. Y2; Y1

d

Refer to the table below. The amount of currency held by the public ______, and the amount of reserves held by banks ______. It must be the case that, in 1932, the Federal Reserve ______. december 1931: -currency held by public in billions: $4.59 -reserve deposit ratio: 0.095 -bank reserves (in billions): $3.11 -money supply in billions: $37.3 december 1932: -currency held by public in billions: $4.82 -reserve deposit ratio: 0.095 -bank reserves in billions: $3.18 - money supply in billions: $34.0 A. increased; also increased; increased the discount rate B. decreased; also decreased; kept the rate of inflation low C. decreased; increased; performed open-market operations D. increased; also increased; injected reserves into the economy

c

Regarding the fiscal policy responses to the 2007-2009 recession, the Congressional Budget Office (CBO) found that: A. the Bush Administration's fiscal policy worked, but the Obama Administration's did not. B. the Obama Administration's fiscal policy worked, but the Bush Administration's did not. C. both the Bush Administration's fiscal policy and the Obama Administration's fiscal policy worked. D. neither the Bush Administration's fiscal policy nor the Obama Administration's fiscal policy

c

Shifts in ______ can push the economy out of long-run equilibrium. A. the AD curve only B. the AS curve only C. either the AD curve or the AS curve D. the PAE line only

c

Shifts in ______ can return the economy to long-run equilibrium. A. the AD curve only B. the AS curve only C. either the AD curve or the AS curve D. the PAE line only

D

Shocks to _______ require the Fed to choose between inflation and output stability, while shocks to _______ do not require the Fed to choose between inflation and output stability A. the stock market; aggregate demand B the stock market; aggregate supply C. aggregate demand; aggregate supply D. aggregate supply; aggregate demand

b

Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ______gap in the short run and ____inflation and ____output in the long run. A. expansionary; higher; potential B. recessionary; lower; potential C. expansionary; higher; higher D. recessionary; higher; potential

a

Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ______gap in the short run and ____inflation and ____output in the long run. A. expansionary; higher; potential B. expansionary; lower ;potential C. expansionary; higher; higher D. recessionary; higher; lower

b

Starting from long-run equilibrium, a negative inflation shock results in a short-run equilibrium with ___ inflation and ____ output. A. higher; higher B. higher; lower C. higher; potential D. lower; lower

c

Starting from long-run equilibrium, a positive inflation shock results in a short-run equilibrium with ___ inflation and ____ output. A. higher; higher B. higher; lower C. lower; higher D. lower; lower

b

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n) _____ gap and inflation will _____. A. recessionary; increase B. recessionary; decrease C. expansionary; decrease D. expansionary; increase

a

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will shift the ______ curve to the left and generate ______. A. aggregate demand; a recessionary output gap B. aggregate supply; a recessionary output gap C. aggregate demand; an expansionary output gap D. aggregate supply; an expansionary output gap

d

Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will generate a(n) _____ gap and inflation will _____. A. recessionary; increase B. recessionary; decrease C. expansionary; decrease D. expansionary; increase

c

Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will shift the ______ curve to the right and generate ______. A. aggregate demand; a recessionary output gap B. aggregate supply;a recessionary output gap C. aggregate demand; an expansionary output gap D. aggregate supply; an expansionary output gap

b

Starting from potential output, if firms become less optimistic about the future and decide to decrease their investment in new capital, then this will generate a(n) _____ gap and inflation will _____. A. recessionary; increase B. recessionary; decrease C. expansionary; decrease D. expansionary; increas

a

Starting from potential output, if firms become less optimistic and decide to decrease their investment in new capital, then this will shift the ______ curve to the left and generate ______. A. aggregate demand; a recessionary output gap B. aggregate supply; a recessionary output gap C. aggregate demand; an expansionary output gap D. aggregate supply; an expansionary output gap

d

Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will generate a(n) _____ gap and inflation will _____. A. recessionary; increase B. recessionary; decrease C. expansionary; decrease D. expansionary; increase

c

Starting from potential output, if firms become more optimistic and decide to increase their investment in new capital, then this will shift the ______ curve to the right and generate ______. A. aggregate demand; a recessionary output gap B. aggregate supply;a recessionary output gap C. aggregate demand; an expansionary output gap D. aggregate supply; an expansionary output gap

d

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following except: A. a negative demand shock. B. a negative inflation shock. C. a decrease in government spending. D. a decrease in the inflation rate.

b

Suppose the economy is currently operating at potential output; a recessionary gap may be caused by each of the following except: A. a negative demand shock. B. a positive inflation shock. C. an increase in taxes. D. a decrease in the money supply.

b

Suppose the economy is currently operating at potential output; an expansionary gap may be caused by each of the following except: A. a positive demand shock. B. a negative inflation shock. C. a decrease in taxes. D. an increase in the money supply.

d

Suppose the economy is currently operating at potential output; an expansionary gap may be caused by each of the following except: A. a positive demand shock. B. a positive inflation shock. C. an increase in government spending. D. an increase in the inflation rate.

c

Suppose the stock market crashed, wiping out $5 trillion of household wealth. Consistent with economic models based on historical trends, consumption spending might fall by as much as, but probably not more than: A. $35 billion. B. $200 billion. C. $350 billion. D. $2 trillion.

d

Technological improvements: A. decrease aggregate demand B. increase aggregate demand C. decrease aggregate supply D. increase aggregate supply

b

The AD curve ______ because, holding all else constant, an increase in ______ causes C, I A. slopes downward; real GDP B. slopes downward; the inflation rate C. slopes upward; real GDP D. is horizontal; the inflation rate

a

The AD curve can be shifted by: A. both fiscal and monetary policy. B. neither fiscal nor monetary policy. C. fiscal policy only. D. monetary policy only.

a

The AD curve slopes downward because an increase in ______ causes ______ to fall, which in turn causes real GDP to fall. A. the inflation rate; planned spending B. planned spending; the inflation rate C. real GDP; planned spending D. real GDP; the unemployment rate

c

The AS curve slopes upward because: A. all firms will increase their prices in response to an increase in aggregate demand, but some will increase their output and others will decrease their output. B. all firms will increase their prices, but not their output in response to an increase in aggregate demand. C. some firms will increase their prices and their output in response to an increase in aggregate demand. D. all firms will increase their prices and their output in response to an increase in aggregate demand.

c

The AS curve slopes upward because: A. firms generally sell their products at preset prices. B. relaxing the assumptions of the Keynesian model allows us to develop a more realistic model where firms no longer care about prices. C. many firms raise their prices when aggregate demand has increased. D. inflation is higher in goods-producing industries than service-producing industries.

d

The Board of Governors consists of ______ governors appointed for staggered ______ terms. A. 5;12-year B. 5;14-year C. 7; 12-year D. 7; 14-year

a

The Federal Open Market Committee makes decisions about ______ policy. A. monetary B. fiscal C. banking D. deposit insurance

c

The Federal Reserve System first began operations in: A. 1789. B. 1865. C. 1914. D. 1934

B

The Federal Reserve System is: A. a group of twelve commercial banks. B. the central bank of the United States. C. the agency of the U.S. government that insures commercial bank deposits. D. the branch of the U.S. Treasury that keeps the U.S. gold reserves.

a

The Federal Reserve can decrease the money supply by: A. increasing reserve requirements. B. decreasing the discount rate. C. introducing deposit insurance. D. conducting open market purchases

a

The Federal Reserve can increase the money supply by: A. reducing reserve requirements. B. increasing the discount rate. C. eliminating deposit insurance. D. conducting open market sales.

c

The Federal Reserve can: A. simultaneously set independent money supply and nominal interest rate targets. B. only target the nominal interest rate, not the money supply. C. only set a money supply target that is consistent with a nominal interest rate target, and vice versa. D. only target the money supply, not the nominal interest rate.

b

The Federal Reserve consists of ______ regional banks, ______ governors on the Board of Governors, and ______ voting members of the Federal Open Market Committee. A. 7; 12; 12 B. 12; 7; 12 C. 12; 7; 19 D. 14; 7; 21

a

The Federal Reserve discount rate is the rate of interest charged on loans from ______ to _____. A. the Federal Reserve;commercial banks B. the Federal Reserve; the U.S. Treasury C. commercial banks; the Federal Reserve D. the U.S. Treasury; commercial banks

a

The Great Recession was the result of: A. two negative demand shocks. B. a negative demand shock and a negative inflation shock. C. two positive inflation shocks. D. a negative demand shock and a positive inflation shock.

d

The U.S. Congress instituted a system of deposit insurance for banks in: A. 1789. B. 1865. C. 1913. D. 1934.

b

The ______ is the interest rate commercial banks pay to the Fed; the ______ is the interest rate commercial banks charge each other for short-term loans. A. federal funds rate;discount rate B. discount rate; federal funds rate C. nominal interest rate; real interest rate D. nominal interest rate; prime rate of interest

B

The aggregate demand curve shifts when there are changes in: A. the inflation rate. B. planned spending that are not caused by changes in output or the inflation rate. C. planned spending that are caused only by changes in output or the inflation rate. D. real GDP.

d

The aggregate demand curve shows the relationship between planned spending and the: A. nominal interest rate. B. real interest rate. C. unemployment rate. D. inflation rate.

d

The aggregate supply curve shows the relationship between the amount of output firms want to produce and the ______. A. nominal interest rate B. real interest rate C. unemployment rate D. inflation rate

b

The aggregate supply curve will shift rightward in response to: A. an increase in the expected rate of inflation. B. a decrease in the expected rate of inflation. C. an increase in potential GDP. D. a decrease in potential GDP.

A

The assumption that firms meet the demand for their products at preset prices is the key assumption upon which ______ is built. A.the basic Keynesian model B. Okun's Law C. the supply and demand model D. quantity equation for money

d

The benefit of holding money is _______, while the opportunity cost of holding money is _______. A. the nominal interest rate; the fees charged by banks B. the nominal interest rate; its usefulness in carrying out transactions C. increased income; lost purchasing power D. its usefulness in carrying out transactions; the nominal interest rate

b

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____. A. businesses and households; upward B. businesses and households; downward C. government and businesses; downward D. government and businesses; upward

d

The central bank of the United States is: A. Bank of America. B. Bank of the United States. C. Bank One. D. the Federal Reserve System.

D

The decision about how much money to hold is an application of the: A. scarcity principle. B. principle of comparative advantage. C. equilibrium principle. D. cost-benefit principle.

b

The decision about the forms in which to hold one's wealth is called the ______ decision. A. Taylor B. portfolio allocation C. Fisher effect D. life-cycle

c

The demand for money is: A. unlimited, since people want to hold as much money as possible. B. limited by the amount of currency printed by the government. C. the amount of wealth an individual chooses to hold in the form of money. D. the amount of income an individual chooses to hold in the form of money.

a

The economy is in long-run equilibrium: A. when the AD and AS curves intersect at potential output, Y*. B. when the AD and AS curves intersect, regardless of the level of output. C. when the AD and AS curves become vertical. D. only when the business cycle is eliminated.

b

The economy is in short-run equilibrium: A. when the AD and AS curves intersect at potential output Y*. B. when the AD and AS curves intersect at a level of real GDP that is above or below Y*. C. when the AD and AS curves become vertical. D. at the peak of the business cycle.

d

The effect on short-run equilibrium output of a one-unit increase in autonomous expenditure is called: A.the marginal propensity to consume. B.average labor productivity. C.Okun's law. D.the income expenditure multiplier.

c

The equilibrium quantity of money in circulation is determined by: A. the interaction of an upward-sloping money supply curve and a downward-sloping money demand curve. B. the nominal interest rate, real income, and the price level. C. the Federal Reserve. D. the decentralized interactions between households and businesses.

b

The expenditure line in the Keynesian cross diagram represents the: A. equilibrium condition that Y = PAE. B. relationship between planned expenditure and output. C. relationship between consumption and after-tax disposable income. D. equilibrium condition that Y = Y*.

b

The fact that output gaps will not last indefinitely, but will be closed by rising or falling prices is the economy's: A. short-run equilibrium property. B. self-correcting property. C. income-expenditure multiplier. D. long-run equilibrium property.

d

The federal funds rate is the interest rate on short-term loans made by: A. the Federal Reserve to commercial banks. B. the federal government to the Federal Reserve. C. the Federal Reserve to the federal government. D. commercial banks to other commercial banks.

d

The four components of planned aggregate expenditure are: A. spending on domestic goods, domestic services, foreign goods, and foreign services. B. spending on durable goods, inventory investment, government debt, and net exports. C. consumption, planned investment, government transfers, and net interest. D. consumption, planned investment, government purchases, and net exports

a

The income-expenditure multiplier arises because one person's additional spending becomes another person's additional income that will generate additional: A. spending. B. autonomous expenditure. C. menu costs. D. cyclical unemployment.

a

The income-expenditure multiplier leads to greater than one-for-one changes in output when autonomous spending changes because: A. the direct changes in spending change the income of producers which leads to additional changes in spending. B. multiple deposits are generated when new reserves are produced through fractional reserve banking. C. autonomous spending supports more output than induced spending. D. planned changes in inventories signal producers to adjust the level of output.

b

The interest rate that commercial banks charge each other for very short-term loans is called the: A. prime rate. B. federal funds rate. C. Federal Reserve discount rate. D. commercial paper rate.

c

The interest rate the Federal Reserve charges commercial banks to borrow reserves is called the ______ rate. A. Fed funds B. prime C. discount D. Federal

a

The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output. A. larger; larger B. larger; smaller C. smaller; smaller D. smaller; larger

A

The largest component of planned aggregate expenditure is: A. consumption B. investment C. government purchases D. exports

b

The marginal propensity to consume (mpc) is the: A. amount by which disposable income increases when consumption increases by $1. B. amount by which consumption increases when disposable income increases by $1. C. percentage by which consumption increases when disposable income increases by 1 percent. D. percentage by which disposable income increases when consumption increases by 1 percent.

d

The money demand curve relates ______ to the ________. A. the aggregate quantity of money demanded; aggregate demand B. aggregate demand; nominal interest rate C. the aggregate quantity of money demanded; price level D. the aggregate quantity of money demanded; nominal interest

c

The money demand curve will shift to the left if: A. the nominal interest rate increases. B. the nominal interest rate decreases. C. ATM machines are introduced. D. the price level increases.

d

The money demand curve will shift to the left if: A. the nominal interest rate increases. B. the nominal interest rate decreases. C. the price level increases. D. real income decreases.

d

The money demand curve will shift to the left if: A. the nominal interest rate increases. B. the nominal interest rate decreases. C. the price level increases. D. the price level decreases.

b

The money demand curve will shift to the right if: A. the nominal interest rate increases. B. real income increases. C. A TM machines are introduced. D. the price level decreases

c

The money demand curve will shift to the right if: A. the nominal interest rate increases. B. the nominal interest rate decreases. C. the price level increases. D. the price level decreases.

a

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through: A. conducting open-market operations. B. changing the Federal Reserve discount rate. C. changing bank reserve requirement ratios. D. changing interest rates.

c

The opportunity cost of money is: A. the time spent going to the bank to withdraw funds. B. the fees charged by banks to provide checking services. C. the nominal interest rate D. the price level.

d

The portion of planned aggregate expenditure that is independent of output is called ______ expenditure. A. potential B. planned C. actual D. autonomous

c

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult: A. for government to finance deficit spending. B. to fight inflation. C. for businesses and consumers to borrow money. D. to shift the PAE line downward.

c

The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, the ensuing financial crisis: A. made it difficult for government to finance deficit spending. B. led to widespread inflation. C. increased the level of uncertainty about the future. D. shifted the PAE line upward.

a

The self-correcting property of the economy means that output gaps are eventually eliminated by: A. rising or falling prices. B. falling prices only. C. increasing or decreasing potential output. D. government policy.

b

The self-correcting tendency of the economy means that falling inflation eventually eliminates: A. expansionary gaps. B. recessionary gaps. C. exogenous spending. D. unemployment.

a

The self-correcting tendency of the economy means that rising inflation eventually eliminates: A. expansionary gaps. B. recessionary gaps. C. exogenous spending. D. unemployment.

c

The seven Fed governors, the president of the Federal Reserve Bank of New York, and four of the presidents of the other regional Federal Reserve Banks constitute the: A. National Monetary Commission. B. Board of Governors. C. Federal Open Market Committee. D. Federal Reserve System.

d

The seven leaders of the Federal Reserve System headquartered in Washington, D.C. constitute the: A. Federal Reserve Bank of Washington,D.C. B. Federal Open Market Committee. C. Federal Economic Advisory Board. D. Board of Governors.

D

The slope of the consumption function: A. is vertical. B. is horizontal. C. equals 1. D. equals the marginal propensity to consume.

c

The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output. A. larger;larger B. larger; smaller C. smaller; smaller D. smaller; larger

c

The tendency for inflation to change relatively slowly from year to year in industrial countries is called: A. the inflation gap B. inflation expectations. C. inflation inertia. D. potential inflation.

C

The tendency of changes in asset prices to affect spending on consumption goods is called the ______ effect. A. income B. substitution C. wealth D. multiplier

d

The two main responsibilities of the Federal Reserve System are to ______ and to ______. A. apprehend counterfeiters; regulate the stock market B. enable banks to make affordable mortgages; control the exchange rate of the U.S. dollar C. insure bank deposits; print currency D. conduct monetary policy; oversee financial markets

a

The two negative demand shocks that caused the Great Recession were: A. declining housing prices and the 2008 financial panic. B. declining housing prices and declining stock prices. C. increasing oil prices and the 2008 financial panic. D. increasing oil prices and declining stock prices.

c

The two parts of planned aggregate expenditure are ______ expenditures and ______ expenditures. A. real;nominal B. inflated; deflated C. autonomous; induced D. positive; normative

A

The two parts of the Keynesian consumption function are consumption that depends on ______ and consumption that depends on _____. A. disposable income; factors other than disposable income B. planned spending; unplanned spending C. real income; nominal income D. money; wealth

B

The vertical intercept of the consumption function equals ______ and the slope equals _____. A. the mpc; autonomous consumption B. autonomous consumption; the mpc C. the unplanned component of consumption; the planned component of consumption D. the planned component of consumption; the unplanned component of consumption

a

Three macroeconomic factors that affect the demand for money are: A. the nominal interest rate, real income, and the price level. B. the nominal interest rate, capital, and labor. C. globalization, skill-biased technological change, and labor mobility. D. capital, labor, and technology.

b

To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must: A. increase. B. decrease. C. not change. D. either increase or decrease depending on the relative shifts of AD and AS.

a

To close a recessionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output. A. reduces; increases; increases B. raises; decreases; increases C. raises; decreases; decreases D. reduces; increases; decreases

d

To close a recessionary gap, the Federal Reserve must ______ real interest rates by ______ the money supply. A. increase; increasing B. increase; decreasing C. decrease; decreasing D. decrease; increasing

c

To close an expansionary gap, the Fed ______ interest rates which ______ planned aggregate spending and ______ short-run equilibrium output. A. raises; increases; increases B. raises; decreases; increases C. raises; decreases; decreases D. reduces; increases; decreases

b

Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy can affect ______ as well as aggregate demand and that fiscal policy is _______. A. consumption; too flexible B. potential output; not flexible enough C. consumption; offset by automatic stabilizers D. potential output; offset by automatic stabilizers

C

Unplanned inventory investment equals zero when: A. planned investment is greater than actual investment. B. planned investment is less than actual investment. C. planned investment equals actual investment. D. expected sales are greater than actual sales.

c

When Argentines increase their savings in U.S. dollars, the U.S. money: A. supply curve shifts left. B. supply curve shifts right. C. demand curve shifts right. D. demand curve shifts left.

A

When actual investment is greater than planned investment: A. firms sold less output than expected. B. firms sold more output than expected. C. the quantity of output sold is the amount the firm expected to sell. D. the economy produces the short-run equilibrium output.

B

When actual investment is less than planned investment: A. firms sold less output than expected. B. firms sold more output than expected. C. the quantity of output sold is the amount the firm expected to sell. D. the economy produces short-run equilibrium output.

a

When actual output equals potential output and the inflation rate is equal to the expected rate of inflation, the economy is said to be in ______ equilibrium. A. long-run B. recessionary C. expansionary D. short-run

c

When actual output equals potential output there is ____ output gap and the rate of inflation will tend to ____. A. an expansionary; increase B. an expansionary; decrease C. no; remain the same D. a recessionary; increase

c

When actual output equals potential output, there is ______ output gap and the inflation rate will ____. A. an expansionary; exceed the expected rate of inflation B. an expansionary; be lower than the expected rate of inflation C. no; be equal to the expected rate of inflation D. a recessionary; exceed the expected rate of inflation

a

When actual output exceeds potential output there is ____ output gap and the rate of inflation will tend to ____. A. an expansionary; increase B. an expansionary; decrease C. no; remain the same D. a recessionary; increase

a

When actual output exceeds potential output, there is ______ output gap and the inflation rate will ____. A. an expansionary; exceed the expected rate of inflation B. an expansionary; be lower than the expected rate of inflation C. no; be equal to the expected rate of inflation D. a recessionary; exceed the expected rate of inflation

c

When actual output is less than potential output, there is ____ output gap and the rate of inflation will tend to ____. A. an expansionary; increase B. an expansionary; decrease C. a recessionary; decrease D. a recessionary; increase

c

When actual output is less than potential output, there is ______ output gap and the inflation rate will ____. A. an expansionary; exceed the expected rate of inflation B. an expansionary; be lower than the expected rate of inflation C. a recessionary; be lower than the expected rate of inflation D. a recessionary; exceed the expected rate of inflation

a

When commercial banks borrow reserves from the Fed, the quantity of reserves in the banking system ______ and, ultimately, the money supply _____. A. increases; increases B. increases; decreases C. decreases; increases D. decreases; decreases

C

When housing prices decrease, household wealth _____, and consumption _____. A. increases; increases B. increases; decreases C. decreases; decreases D. decreases; increases

c

When prices are predetermined, the level of output that equals planned aggregate expenditure is called ______ output. A. the natural rate of B. potential C. short-run equilibrium D. induced

c

When real output increases, planned aggregate expenditures increase because: A. autonomous expenditures increase. B. autonomous expenditures decrease. C. induced expenditures increase. D. induced expenditures decrease.

d

When the Federal Reserve lends reserves to commercial banks, this is an example of: A. a change in reserve requirements. B. an open-market sale. C. an open-market purchase. D. discount window lending.

c

When the economy is in short-run equilibrium, there will be ______ output gap. A. no B. only a recessionary C. either a recessionary or an expansionary D. only an expansionary

a

When the inflation rate decreases, PAE ______, which in turn causes Y to ______ because of ______. A. rises; rise; the income-expenditure multiplier B. rises; fall; the income-expenditure multiplier C. falls; rise; the wealth effect D. falls; fall; the wealth effect

a

When the inflation rate increases, PAE ______, which in turn causes Y to ______ because of ______. A. falls; fall; the income-expenditure multiplier B. falls; rise; the income-expenditure multiplier C. rises; rise; the wealth effect D. rises; fall; the wealth effect

b

When the interest rate in the U.S. falls, U.S. financial assets: A. become more attractive to foreign buyers. B. become less attractive to both foreign and domestic buyers. C. become more attractive to both foreign and domestic buyers. D. become less attractive to domestic buyers and more attractive to foreign buyers.

b

When the interest rate in the U.S. rises, U.S. financial assets: A. become less attractive to foreign buyers. B. become more attractive to both foreign and domestic buyers. C. become less attractive to both foreign and domestic buyers. D. become less attractive to domestic buyers and more attractive to foreign buyers.

a

When using the AD-AS model to understand business cycles, the question, "what are the fundamental causes of business cycles?" can be thought of as the question: A. "what factors move the economy away from long-run equilibrium?" B. "what factors move aggregate demand and aggregate supply in different directions?" C. "what factors increase or decrease potential GDP?" D. "what factors increase or decrease the expected rate of inflation?"

a

Which of the following would be expected to decrease the demand for money in the U.S.? A. Grocery stores begin to accept credit cards in payment. B. The economy enters a boom period. C. Political instability increases dramatically in developing nations. D. Households fear increasing computer glitches will severely limit their ability to use ATMs.

C

Which of the following would be expected to increase the demand for U.S. currency? A. Competition among brokers forces down the commission charge for selling bonds or stocks. B. The economy enters a recession. C. Political instability rises dramatically in developing nations. D. On-line banking allows customers to transfer funds between checking and stock mutual funds 24 hours a day.

a

Which of the following would be expected to increase the demand for money in the U.S.? A. Financial investors become concerned about increasing riskiness of stocks. B. The economy enters a recession. C. Political instability decreases dramatically in developing nations. D. On-line banking allows customers to transfer funds between checking and stock mutual funds 24 hours a day.

c

starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will shift the ___________ curve to the right and generate __________. A. aggregate demand; a recessionary output gap B. aggregate supply; a recessionary output gap C. aggregate demand; an expansionary output gap D. aggregate supply; an expansionary output gap

D

the Board of Governors consists of ____________ governors appointed for staggered ________ - year terms. A. 5;12 B. 5;14 C. 7;12 D. 7;14

d

the slope of the consumption function: A. is vertical B. is horizontal C. equals 1 D. equals the mpc