Econ Final

One potential problems 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

A

Savers may prefer to use financial intermediaries rather than lending directly to borrowers because financial intermediaries: A: Reduce the cost of gathering information about borrowers B: Have a monopoly on lending C: Increase the risk of lending D: Offer higher rates of return than available elsewhere

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

A

Nominal Interest Rate must ______ if the public is to be persuaded to hold extra money

Decline

Holding other factors constant, if new environmental regulations increase firm's cost of operating capital, then the real interest rate will _______ and the equilibrium quantity of national saving and investment will _______

Decrease; Decrease

Both consumption spending and planned investment spending ______ when the real interest rate increases

Decreases

When the supply of reserves increases, the federal funds rate ________

Decreases

The amount of wealth an individual chooses to hold in the form of money is that individuals ________ ______ ______

Demand for Money

A higher real interest rate __________ firms from making capital investments

Discourages

Because an increase in the nominal interest increases the opportunity cost, which reduces quantity of money demanded, the money demand curve slopes _________

Down

A ________ real interest rate encourages higher planned spending by households and firms, while ________ real interest rates reduces spending

Lower; Higher

Value added =?

Market Value - Cost of inputs purchased from other firms

Velocity = ?

Nominal GDP / Money Stock

The ________ interest rate is the "price" of holding money (or opportunity cost), so by controlling the quantity of the money supplied, the Fed also controls the _______ interest rate.

Nominal Interest Rate

Real interest rate = ?

Nominal Interest Rate - Rate of Inflation

What are the three factors that affect the demand for money?

Nominal Interest Rate, Real Output, Price Level

Real Interest Rate =?

Nominal Interest rate / Inflation rate

If the quantity supplied of money exceeds the quantity demanded of money, people will ______ bonds which will cause bonds prices to ______ and the nominal interest rate to ______ until the QD and QS of money are equal A: Buy; rise; fall B: Sell; fall; fall C: Sell; rise; fall D: Buy; fall; rise

A

In the basic Keynesian model, a tax increase: A: Reduces short-run equilibrium output B: Increases short-run equilibrium output C: Reduced potential output D: Increases potential output

A

Two types of bias that tend to cause the CPI to overstate the "true" rate of inflation are the ______ bias and the _____ bias A: Substitution; quality adjustment B: Price; quantity C: Aggregation; price D: Quality adjustment; price adjustment

A

Which of the following would increase the consumption component of U.S GDP? A: You purchase a vacation at Disney World in Florida B: A business purchases Disney World vacations as rewards for the firm's best salespeople C: Disney World purchases tires for the monorail from a firm in Ohio D: A french man purchases a vacation at a Disney theme park in France

A

Cyclical Unemployment =?

Actual rate of unemployment - Natural Unemployment

The money demand curve related the ___________ to the _________

Aggregate Quantity of Money Demanded; Nominal Interest Rate

Despite some problems with equating GDP with economic well-being, higher real GDP per person does imply greater economic well being because it tends to be positively associated with : A: Crime, pollution, and economic inequality B: Better education, health, and life expectancy C: Poverty, depletion of nonrenewable resources, and congestion D:Unemployment, availability of goods and services, and better education

B

Economic activity moves from a period of expansion to a _______ and then moves into a period of _______ until it reaches a ______ A: Peak; expansion; tough B: Peak; recession; trough C: Trough; expansion; peak D: Trough; recession, peak

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

B

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that: A: Peanut butter and jelly are complements B: Peanut butter and jelly are substitutes C: Peanut butter and jelly are normal goods D: Peanut butter and jelly are inferior goods

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

Reserve Deposit Ratio =?

Bank Reserves / Deposits

Bank Deposits =?

Bank Reserves / Desired Deposit Ratio

Bank Deposits = ?

Bank Reserves / Desired Reserve-Deposit Ratio

________ panic is news or rumors of the imminent bankruptcy of one or more banks leads bank depositors to rush to withdraw their funds

Banking Panic

Real GDP uses prices from the ______ year

Base

Changes in government purchases affect planned spending: A: Only when there is expansionary gap B: Autonomously C: Directly, by changing autonomous expenditures D: Indirectly, by changing induced expenditures

C

GDP is a measure of an economy's A: Domestic price level B: Level of unemployment C: Total output D: Domestic Productivity

C

If you have a comparative advantage in a particular task, then: A: You are better at it than other people B: You give up more to accomplish that task than do others C: You give up less to accomplish that task than do others D: You have specialized in that task, while others have not

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 choose to hold in the form of money D: The amount of income an individual chooses to hold in the form of money

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

C

Money Supply = ?

Currency held by the public + Bank Reserves / Desired reserve - deposit ratio

Nominal GDP uses prices from ______ year

Current

Saving =?

Current Income - Spending on current assets

A drawback of using market values to aggregate the quantities of goods and services produced in an economy is that: A: Higher-priced items count more B: GDP increases when not all goods are produced in greater quantities C: Market prices generally reflect the economic benefit consumers expect to receive from an item D: Not all economically valuable goods and services are bought and sold in markets

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

D

According to Okun's law, when the output gap is negative, cyclical unemployment: A: Equals structural unemployment B: Equals frictional unemployment C: Is negative D: Is positive

D

Changes in taxes and transfers affect planned spending: A: Only when there is expansionary gap B: Autonomously C: Directly, by changing induced expenditures D: Indirectly, affecting consumption

D

Real GDP measures the _______ of production; nominal GDP measures the ______ of production A: Currents dollar value; physical volume B: Current dollar value; current dollar value C: Current dollar value; market value D: Physical Volume, Current Dollar value

D

The benefit of holding money is ________, while the opportunity cost of holding money is ________ A: The nominal interest rate; the fees charges by the 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

D

The four categories of final uses of GDP are: A: Businesses, firms, governments and foreign sector B: Households, the Federal Reserve, governments, and the foreign sector C: Businesses, corporations, firms, and farms D: Households, firms, governments, and the foreign sector

D

The measure of the cost of a standard basket of goods and services in any period relative to the cost of the same basket of goods and services in the base year is called the: A: Consumption cost calculator B: Consumption Production Index C: Consumer production index D: Consumer price index

D

The money demand curve will shit 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 real wage: A: Measured in current dollars B: Required to maintain a minimum standard of living C: Employers are required to pay workers D: Measured in terms of purchasing power

D

To ensure that a nominal payment represents a constant level of purchasing power overtime, one should: A: Add the price index to it B: subtract the price index from it C: Divide it by the price index D: Increase it by a percentage equal to the rate of inflation for that year

D

_______ is an increase in the price level, while _____ is an increase in the price of one goods in comparison to other goods and services A: Inflation; Hyperinflation B: A relative price increase; inflation C: Hyperinflation; inflation D: Inflation; a relative price increase

D

The _______ is allowed to make loans to banks so during panic, banks could borrow from the _______ to pay off depositors

Fed

More than anything changes in the ________ ______ rate indicated the Fed's plan for monetary policy

Federal Funds Rate

_________ _______ rate is the interest rate commercial banks charge each other for very short-term loans

Federal Funds Rate

Saving is an example of a _______, a measure that is defined per unit of time

Flow

All else being equal, the ________ the nominal interest rate, the higher the opportunity cost of holding money

Higher

For households, the effect of a _______ real interest rate is to increase the reward for saving

Higher

The ______ the price level, the higher the Demand for Money

Higher

National Saving =?

Income - Consumption - Government Purchases

To fix an expansionary gap, _______ the real interest rate

Increase

Holding other factors constant, if oil prices rise relative to the prices of other products, then the real wage of oil workers will ________ and employment of oil workers will ______

Increase; Increase

________ in currency holdings by public and _______ in reserve-deposit both reduce money supply

Increase; Increase

To compensate for the fear of banking panics, banks _______ their desired reserve-deposit ratio, which _______ the quantity of deposits that could be supported by any given level of bank reserves. This change in reserve-deposit ratio also tend to ______ money supply

Increased; reduced, reduce

In the base year, real GDP __________ nominal GDP

Is equal to

Any changes that makes people want to hold less money will shift the curve to the _______

Left

In a fractional-reserve banking system, bank reserves are ________ than deposits

Less

The higher the prevailing nominal interest, the greater the opportunity cost of holding money, hence the _______ money individuals and businesses will demand

Less

The Fed can control money supply in 3 ways. What are they?

Open Market Operations, Discount Window Lending, Directly Affecting Bank Reserves

The _________ ________ Decision is the decision about the forms in which to hold one's wealth

Portfolio Allocation Decision

__________ _______ is an expansionary monetary policy in which central banks buy financial assets from private financial institutions, there by lowering the yield of return of those assets while increasing the money supply

Quantitative Easing

______ GDP is adjusted for inflation

Real GDP

The _______ interest rate is the rate of which the real purchasing power of a financial asset increases overtime

Real Interest Rate

The __________ _______ rate influences saving decisions of households and investment behavior of firms

Real Interest Rate

To fix a recessionary gap, _______ the real interest rate

Reduce

A higher real interest rate ________ consumption spending at each level of income

Reduces

Jessica's marginal cost for producing a pitcher of lemonade is 0.25. Therefore, 0.25 can also be called her: A: Marginal Revenue B: Equilibrium Price C: Reservation Price D: Producers Surplus

Reservation Price

For a given nominal interest rate, any changes that makes people want to hold more money, it will shift the curve to the ______

Right

Because inflation tends to adjust slowly, actions by the Fed to change the nominal interest rate generally lead the real interest rate to change at the ______ amount

Same

Change in wealth =?

Saving + Capital Gains - Capital Losses

Saving rate =?

Saving / Income

Wealth is a ______, Defined at a point in time

Stock

Who controls the real interest rate over the short run?

The Fed

Wealth =?

Value of assets - liabilities