Econ Review
3 only (An increase in labor productivity)
1. A big cut in the price of imported oil 2. An increase in the money supply 3. An increase in labor productivity 4. A decline in the GDP of the USA 5. A big rise in nominal wages. Refer to the information above to answer this question. Which of the listed economic events will cause an increase in both the aggregate supply and in the Long Aggregate Supply (LAS) curve?
B) buying Treasury securities from the Fed.
A bank can get additional excess reserves by doing any of the following except. A) borrowing from other banks. B) buying Treasury securities from the Fed. C) receiving additional deposits. D) borrowing from the Fed.
the Subway sandwich Tony ate for lunch.
A good that would be counted as consumption in GDP would be:
the public debt can be easily refinanced by issuing new bonds.
A major reason that the public debt cannot bankrupt the federal government is because
short-run aggregate supply curve up (to the left).
A sharp increase in oil prices along with a decline in labor productivity decline will likely shift the:
D) None of these would be included in GDP.
An activity that would not be included in GDP would be: A) cleaning your house. B) a sweater you knit for your roommate for her birthday. C) getting tomatoes from your garden and making salsa with them. D) None of these would be included in GDP.
Dm-Dt=Asset Demand
Asset Demand for Money on graph
There is a recessionary gap of $173 billion.
Assume an economy is currently in equilibrium with Real GDP at $1,627 billion. If potential Real GDP (LAS) is $1,800 billion, which of the following is true?
decrease by 1.5 percent
If real GDP is 2 percent below potential GDP and the inflation rate is 1 percent, then according to the Taylor rule, the Fed should make the real federal funds rate
Bank A's excess reserves
If the Fed buys $1 million in government securities from Bank A, then the immediate effect of this transaction is an increase in
decrease by $5 billion.
If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would
shifted the AD curve to the left.
In 1968, the government instituted a 26 percent income tax surcharge. In terms of the AS/AD model, this change should have:
banks' loan officers when they grant loans
In essence, which of the following groups "creates" money?
more effective in a restrictive direction than they are in an expansionary direction.
Monetary policy actions by the Fed are
a full-employment, noninflationary level of total output.
The fundamental objective of monetary policy is to assist the economy in achieving
interest rate
The transactions demand for money is least likely to be a function of the
A good or service that is consumed by the end user and does not require any further processing
What is a final good
a product used to produce a final good or finished product, also referred to as a consumer good.
What is an intermediate good?
the quickness with which it can be used
What is one of the advantages of monetary policy over fiscal policy?
Banks can create money through lending their reserves.
What is one significant characteristic of fractional reserve banking?
6% (Nominal rate of interest minus inflation)
What is the real rate of interest if the nominal rate of interest is 10% and the rate of inflation is 4%?
required reserves will increase.
When a bank grants a loan to a customer who then keeps the funds in her checking account at that bank, the bank's
an increase in the bank's liabilities.
When cash is deposited in a checkable-deposit account at a bank, there is
excess reserves of the banking system will decrease.
When people withdraw money from their deposits in the banking system, the
an increase in consumer wealth and a decrease in interest rates
Which combination of factors would most likely increase aggregate demand?
Federal Open Market Committee
Which group is responsible for the policy decision of changing the money supply?
B) Defense spending.
Which of the following is not an automatic stabilizer? A) Unemployment benefits. B) Defense spending. C) Progressive income taxes. D) Welfare payments.
B) The purchasing power of people's savings will increase.
Which of the following is not an effect that occurs when the general price level in our economy increases? A) Foreign buyers will buy less of our output, and we tend to import more. B) The purchasing power of people's savings will increase. C) Our net exports will tend to decrease. D) The interest rate will also tend to increase.
Credit card balances are part of M2 but not part of M1
Which of the following is not true about the use of a credit card?
D) The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase.
Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves? A) A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment. B) A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment. C) The money supply is decreased, which increases the interest rate and causes investment spending, output, and employment to decrease. D) The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase.
Less government expenditure and higher taxes.
Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint? A) Less government expenditure and lower taxes. B) More government expenditure and higher taxes. C) Less government expenditure and higher taxes. D) More government expenditure and lower taxes.
D) A bank can grant loans to customers only if it has excess reserves.
Which of the following statements is correct? A) When borrowers repay bank loans, the money supply is increased. B) When borrowers take out bank loans, the money supply is decreased. C) A single bank can legally lend an amount equal to its total reserves. D) A bank can grant loans to customers only if it has excess reserves.
B) open-market operations
Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks? A) check collection B) open-market operations C) required reserve ratio D) issuing currency
asset to the depositor and a liability to the bank
A checkable deposit at a commercial bank is a(n)
$100,00 (1,000,000 x 0.1)
A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are
A) The skills of the frictionally unemployed are no longer in demand.
Frictional unemployment can be distinguished from other types of unemployment in that we assume all of the following except A) The skills of the frictionally unemployed are no longer in demand. B) The frictionally unemployed possess the necessary education and skills to become employed. C) There is an adequate demand for labor to employ the frictionally unemployed. D) Search time is relatively short for frictionally unemployed persons.
Trough to peak
How is a business cycle expansion measured
coins and currency in circulation + checkable deposit + traveler's checks
How to find M1 Supply
M1 + savings deposits + money market funds + certificates of deposit + other time deposits
How to find M2 Supply
Worse off since his nominal wage fell faster than the price level did.
If a price index changed from 150 in 2008 to 148.5 in 2009, while Jim Bob's nominal wage fell from $25 to $24, then Jim Bob is
money market mutual funds
People can generally get the following items at their commercial banks, except
GDP/Population
Per Capita Real GDP equals
10.0 percent. (unemployed people divided by labor force)......labor force is 40 million, 36 million are employed, 4 million are not, 4/40=0.1
Suppose that in a population of 50 million persons, 40 million are in the labor force, 36 million are employed, 2 million are classified as unable to work, and 1 million are classified as unwilling to work. The unemployment rate is
sell government securities in the open market, do bond reverse-repos, and cut government spending
Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate?
sets policy on the sale and purchase of government bonds by the Fed
The Federal Open Market Committee (FOMC)
controlling the money supply
The Federal Reserve System performs many functions, but its most important one is
reducing the discount rate
The Federal Reserve can increase aggregate demand by
peak to trough.
The duration of a recession is measured from
the Federal Reserve buys government securities in the open market.
The level of GDP, ceteris paribus, will tend to increase when
open-market operations.
The purchase and sale of government securities by the Fed is called
25 percent
The purchasing power of the dollar would fall by 20 percent if the price index rises by
real GDP.
The purpose of an expansionary monetary policy is to increase
lower price level will increase the real value of many financial assets and therefore cause an increase in spending.
The real-balances effect on aggregate demand suggests that a
the money supply M1 does not change, but its composition changes.
When cash is withdrawn from a checkable-deposit account at a bank,
Cost-push inflation
When natural disasters, such as hurricanes on the U.S. Gulf Coast or an earthquake in Japan, disrupt supply chains and push up the costs of production, this may result in
to the right by $60 billion.
If the multiplier is 4, a $15 billion increase in government expenditures will shift the AD curve:
$35,714 per person. (10 trillion divided by 280 million)
If the real U.S. GDP was $10 trillion in 2000 and the U.S. population was 280 million, the per capita real GDP would have been closest to
raise the real federal funds rate by half of a percentage point.
According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and real GDP rises by 1 percent above potential GDP, then the Fed should
the purchase of government securities in the open market and an increase in government spending
Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?
federal funds market
Banks can lend their excess reserves to other banks in the
The major components of money supply M1
Currency and checkable deposits are
D) Do not actively seek employment although they desire to be employed.
Discouraged workers A) Are counted as part of total unemployment. B) Are workers who are unhappy in their jobs. C) Are part of the labor force. D) Do not actively seek employment although they desire to be employed.
a cut in personal and business taxes
Refer to the graph. Which of the following changes will shift AD1 to AD2?
increase by $4,600,000 (increase by number in problem)
Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 balance before this deposit. The reserves of First
control the supply of money in the economy
To keep high inflation from eroding the value of money, monetary authorities in the United States
Structurally unemployed (unemployment resulting from industrial reorganization)
Tom worked at NASA for 13 years. In the 14th year, his job was automated, resulting in him losing his job. He looked for a new job for 18 months before finding a job in a different line of work that paid less. During his 18-month job search, Tom was considered to be
By dividing 70 by the annual rate of inflation.
Using the "rule of 70", how can we find the number of years it will take for prices to double?
D) an interest-rate effect
Which of the following effects best explains the downward slope of the aggregate demand curve? A) a multiplier effect B) a substitution effect C) an expectations effect D) an interest-rate effect
bank purchases of Treasury bonds from the Fed
Which of the following factors can contribute to a reduction in the money supply?
D) A decrease in the deficit during an expansion.
Which of the following is a possible effect of automatic stabilizers on the federal budget? A) An increase in the structural deficit during recessions. B) A decrease in the deficit during recessions. C) An increase in the deficit when there is AD excess. D) A decrease in the deficit during an expansion.
200,000 balance in the checking account of Main Street Trading Corp. (physical currency and coin, demand deposits, travelers checks, other checkable deposits and negotiable order of withdrawal accounts)
Which of the following is included as part of the M1 money supply
aggregate demand decreases because net exports decrease.
If the dollar appreciates in value relative to foreign currencies,
aggregate demand increases because net exports increase.
If the national incomes of our trading partners increase, then our
1, 3, and 8 (Real-Balances Effect, Interest-Rate Effect, Foreign Purchases Effect )
1. Real-Balances Effect 2.Household Expectations 3. Interest-Rate Effect 4. Personal Income Tax Rates 5. Profit Expectations 6. National Incomes Abroad 7. Government Spending 8. Foreign Purchases Effect 9. Exchange Rates 10. Degree of Excess Capacity -Answer the question based on the accompanying list of factors that are related to the aggregate demand curve. Which of the factors best explain the downward slope of aggregate demand curve?
asset demand for money (money kept as a store of value for later use)
A wealthy executive is holding money, waiting for a good time to invest in the stock market. This action would be an example of the
M1 increases and M2 stays the same
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
