Econ Final

According to the Taylor rule, if there is a recessionary gap of 2 percent of potential output and inflation is 4 percent, what real interest rate will the Fed set? 1.5 percent 2 percent 2.5 percent 3 percent

2 percent

If the nominal interest rate is 3% and the inflation rate is 2%, what is the real interest rate? -1% 0% 1% 2%

1%

According to the Taylor rule, if there is an expansionary gap of 2 percent of potential output and inflation is 3 percent, what real interest rate will the Fed set? 1.5 percent 2 percent 2.5 percent 3.5 percent

3.5 percent

Which of the following conclusions is implied by the fact that it costs more than a dollar to buy a British pound? The American economy is stronger than the British economy. An American dollar can be bought for less than a British pound. Imports from China are cheaper in England than in the United States. The British economy is stronger than the American economy.

An American dollar can be bought for less than a British pound.

When the price of a euro in dollars falls, which of the following becomes more likely? A decrease in the number of U.S. tourists in Italy. An increase in the number of unemployed U.S. auto workers. Correct An increase in the amount of U.S. lumber exported to France. A decrease in the number of BMWs imported into the U.S.

An increase in the number of unemployed U.S. auto workers.

A positive AD shock in the short run leads to lower aggregate output with inflationary inertia. lower inflation with inflation inertia. higher aggregate output with inflationary inertia. higher inflation with output inertia.

higher aggregate output with inflationary inertia.

Suppose people realize that the U.S. economy is booming. What happens in the foreign exchange market of U.S. dollars versus euros? The demand curve for dollars shifts right and the supply curve of dollars shifts right. The demand curve for dollars shifts left and the supply curve of dollars shifts left. The demand curve for dollars shifts left and the supply curve of dollars shifts right. The demand curve for dollars shifts right and the supply curve of dollars shifts left.

The demand curve for dollars shifts right and the supply curve of dollars shifts left.

Suppose people realize that the U.S. economy is booming. What happens to the euro/dollar exchange rate? The exchange rate depreciates and the dollar strengthens. The exchange rate depreciates or the dollar weakens. The exchange rate appreciates or the dollar strengthens. The exchange rate appreciates and the dollar weakens.

The exchange rate appreciates or the dollar strengthens.

The supply for U.S. dollars traded in the foreign exchange market comes from U.S. households that want to buy European assets. tourists who want to travel to the U.S. international investors that want to buy American assets. international investors wanting to invest in America.

U.S. households that want to buy European assets.

When do we say that we have reach the zero-lower bound (ZLB)? When the nominal interest rate is close to 0% When the inflation rate is close to 0% When the real interest rate is close to 0% When the unemployment rate is close to 0%

When the nominal interest rate is close to 0%

Zero lower bound refers to a bank with zero excess reserves. a situation where there is little to no inflation. a level below which the Fed cannot further reduce short-term interest rates. the rate that the Federal Reserve is currently paying on bank reserves.

a level below which the Fed cannot further reduce short-term interest rates.

Quantitative easing (QE) refers to a process similar to open-market purchases. a process similar to open-market sales. information that a central bank provides to the financial markets regarding its expected future monetary policy path. lending of reserves by the Federal Reserve to commercial banks.

a process similar to open-market purchases.

In the foreign exchange market of U.S. dollar versus euro, the horizontal and vertical axes respectively measure the amount of euros and the amount of U.S. dollars. amount of U.S. dollars and the amount of euros. exchange rate between the U.S. dollar and the euro and the amount of U.S. dollars. amount of U.S. dollars and the exchange rate between the U.S. dollar and euro.

amount of U.S. dollars and the exchange rate between the U.S. dollar and euro.

Changes in consumption and investment spending due to changes in the real interest rate alter the money supply. money demand. autonomous expenditures. induced expenditures.

autonomous expenditures.

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 _____. increase; increase increase; decrease decrease; increase decrease; decrease

decrease; decrease

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

decrease; increases

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

decrease; increasing

When the Fed engages in an open market sale, the money supply _____ and the nominal interest rate _____. increases; increases increases; decreases decreases; decreases decreases; increases

decreases; increases

An appreciation in the value of the euro/U.S. dollar exchange rate would tend to discourage U.S. tourists from traveling to Europe. discourage Americans from buying European goods and services. discourage Europeans from buying American goods and services. increase the number of dollars that could be bought with a euro.

discourage Europeans from buying American goods and services.

Bank reserves that exceed the reserve requirements set by the central bank are called legal reserves. excess reserves. total reserves. required reserves.

excess reserves.

A negative aggregate demand shock in the short run will cause output to ___________ and inflation to ___________. rise; fall fall; stay the same fall; rise stay the same; rise

fall; stay the same

The interest rate that commercial banks charge each other for very short-term loans is called the prime rate. bank loan rate. federal funds rate. Federal Reserve discount rate.

federal funds rate.

In the aggregate demand and aggregate supply model, the short run aggregate supply curve is ________________ and the long run aggregate supply curve is __________. negatively sloped; positively sloped positively sloped; negatively sloped horizontal; vertical vertical; horizontal

horizontal; vertical

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

increase; decreases

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

increases; decreases

Forward guidance refers to a process similar to open-market purchases. a process similar to open-market sales. information that a central bank provides to the financial markets regarding its expected future monetary policy path. lending of reserves by the Federal Reserve to commercial banks.

information that a central bank provides to the financial markets regarding its expected future monetary policy path.

The demand for U.S. dollars traded in the foreign exchange market comes from international investors wanting to invest in Europe. tourists who want to travel to Europe. firms that want to buy European assets. international investors that want to buy American assets.

international investors that want to buy American assets.

A positive AD shock eventually leads to a long run equilibrium where inflation returns to the potential level and output is higher. output is higher and inflation is lower. output returns to the potential level and inflation is higher. output and inflation remain unchanged.

output returns to the potential level and inflation is higher.

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

portfolio allocation

In reality, the Fed's information is fairly imprecise in regards to unemployment. inflation rates. actual real GDP. potential GDP.

potential GDP.

A negative aggregate demand shock will eventually cause the __________ to close and inflation to be ___________ in the long run. expansionary gap; higher recessionary gap; lower expansionary gap; lower recessionary gap; higher

recessionary gap; lower

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

reduces; increases; increases

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

reducing reserve requirements.

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

slopes downward.

A positive aggregate demand shock may be closed by using an expansionary fiscal or monetary policy. only the federal government. only the central bank. using a tight fiscal or monetary policy.

using a tight fiscal or monetary policy.

Because the Fed determines the money supply, the money supply curve is downward-sloping. upward-sloping. vertical. horizontal.

vertical.