Econ Final
The American Recovery and Reinvestment Act of 2009 was implemented primarily to
boost aggregate demand and get people back to work.
When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift
both the consumption and saving schedules downward.
In the United States, the money supply (M1) includes
coins, paper money, checkable deposits, and savings deposits.
Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n)
contractionary fiscal policy.
Which of the following is the basic economic policy function of the Federal Reserve Banks?
controlling the supply of money
The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the
determinants of aggregate demand.
M1 money supply
includes all currency in circulation plus checkable deposits and savings deposits
The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will
increase U.S. exports and decrease U.S. imports.
If the MPC is 0.7 and investment increases by $3 billion, the equilibrium GDP will
increase by 10 billion
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should
increase government expenditures by $50 billion.
The relationship between the real interest rate and investment is shown by the
investment demand schedule.
Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending
is financed by borrowing.
The amount of money reported as M2
is larger than the amount reported as M1.
If investment decreases by $70 billion and the economy's MPC is 0.5, the aggregate demand curve will shift
leftward by $140 billion at each price level.
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve.
The crowding out effect
the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending
The real interest rate is
the percentage increase in purchasing power that the lender receives on a loan.
To say that coins are "token money" means that
their face value is greater than their intrinsic value.
Refer to the given data. The marginal propensity to consume is
0.80.
Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions (2021)?
26 percent
Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $84,000. The expected rate of return on this tool is
5 percent
The aggregate supply curve (short-run) is upsloping because
per-unit production costs rise as the economy moves toward and beyond its full-employment real output.
If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when
r is greater than i.
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should
reduce taxes by $80 billion.
The most likely way the public debt burdens future generations, if at all, is by
reducing the current level of investment.
Other things equal, an improvement in productivity will
shift the aggregate supply curve to the right.
If you place a part of your summer earnings in a savings account, you are using money primarily as a
store of value.
A $80 price tag on a sweater in a department store window is an example of money functioning as a
unit of account.
The real-balances, interest-rate, and foreign purchases effects all help explain
why the aggregate demand curve is downward-sloping.
A decrease in per-unit production costs will shift the aggregate supply curve leftward.
False
Credit card balances are part of money supply M2.
False
The 12 Federal Reserve Banks are governmentally owned but privately controlled.
False
1 + MPS = MPC, T OR F
False, MPS+MPC=1
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the
Federal Open Market Committee (FOMC).
Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the
M1 money supply will not change.
A contractionary fiscal policy shifts the aggregate demand curve leftward., T or F
TRUE
Refer to the accompanying table. The size of the M2 money supply is
The M2 money supply consists of currency in circulation ($639 billion), checkable deposits ($597 billion), savings deposits ($1,820 billion), small-denominated time deposits ($818 billion), and money market mutual fund balances held by individuals ($512 billion) for a total of $4,386 billion.
Refer to the given table. The value of the dollar in year 2 is
The purchasing power of the dollar varies inversely with the price index (expressed as an index number in hundredths). Use the formula $V = 1 ÷ P: $V = 1 ÷ 1.25 = $0.80.
If the money supply is $160, the equilibrium interest rate will be
Together, the transactions demand for money and the asset demand for money equal the money supply at equilibrium. If the money supply is $160, then add columns (2) and (3) until you find they sum to $160. That occurs at an interest rate of 6 percent.
Refer to the diagram. Which of the following would increase investment while leaving an existing investment-demand curve, say, ID2, in place?
a lower interest rate
The 45-degree line on a graph relating consumption and income shows
all the points at which consumption and income are equal.
Which one of the following will cause a movement up along an economy's saving schedule?
an increase in disposable income
Which of the following fiscal policy actions is most likely to increase aggregate supply?
an increase in government spending on infrastructure that increases private sector productivity
The multiplier effect means that
an increase in investment can cause GDP to change by a larger amount.
Given the expected rate of return on all possible investment opportunities in the economy,
an increase in the real rate of interest will reduce the level of investment.
During periods of rapid inflation, money may cease to work as a medium of exchange
because people and businesses will not want to accept it in transactions.
Economists refer to a budget deficit that exists when the economy is achieving full employment as a
cyclically-adjusted deficit.
The purchase of capital goods, like _________blank consumer goods, can be postponed; it tends to contribute to _________blank in investment spending.
durable; instability
The economy's long-run AS curve assumes that wages and other resource prices
eventually rise and fall to match changes in the price level.
Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n)
expansionary fiscal policy.
The crowding-out effect of expansionary fiscal policy suggests that
increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
If the MPS in an economy is 0.10, government could shift the aggregate demand curve rightward by $100 billion by
increasing government spending by $10 billion.
The average tax rate required to service the public debt is roughly measured by
interest on the debt as a percentage of the GDP.
One can determine the amount of any level of total income that is consumed by
multiplying total income by the APC.
Currency held by banks is part of
neither the M1 nor the M2 definition of the money supply.
Approximately how many commercial banks are now operating in the United States?
about 4,300
Small-denominated time deposits, by definition
are less than $100,000.
