Econ

Under which condition would the Fed be most likely to engage in its role as the lender of last resort? A. if a lack of confidence in the financial system causes savers to withdraw money from banks B. when record amounts of student loans are paid back before interest rates rise C. when throngs of borrowers apply for loans as the housing market picks up D. when a stock market crash causes people to sell their stocks and purchase bank CDs instead

A. if a lack of confidence in the financial system causes savers to withdraw money from banks

If the amount of money in circulation is $50 billion and the nominal GDP is $200 billion, the velocity of money is a. 4. b. 0.25 c. 0.75 d. 2.

a. 4.

An increase in the nominal interest rate would a. encourage people to hold smaller money balances. b. cause the real interest rate to decline .c. force the Fed to reduce the money supply. d. encourage people to hold larger money balances.

a. encourage people to hold smaller money balances.

If the velocity of the M1 money supply is 4 and nominal GDP is $200 billion, the stock of money in circulation must be a. $100 billion. b. $25 billion. c. $50 billion. d. $800 billion.

c. $50 billion. (m)(v)=(p)(q) 200/4=50

In the long run, the primary effect of rapid monetary growth is a. an increase in real output. b. lower nominal interest rates. c. inflation. d. reduced unemployment.

c. inflation.

If the economy is in an inflationary boom, the Fed would most likely a. encourage banks to provide loans by raising the discount rate. b. restrict bank lending by lowering the federal funds rate. c. restrict bank lending by selling government securities d. encourage banks to provide loans by selling government securities.e. encourage banks to provide loans by buying government securities.

c. restrict bank lending by selling government securities

If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion, the velocity of money is a. 0.5. b. 4. c. 8. d. 2.

d. 2.

During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy? a. a reduction in the long-run rate of inflation b. an increase in the rate of unemployment c. a reduction in the growth of employment d. an increase in aggregate demand and real GDP

d. an increase in aggregate demand and real GDP

If the economy is in an inflationary boom, the Fed would most likely a. decrease bank reserves by lowering the discount rate. b. decrease bank reserves by lowering the legal reserve requirement. c. increase bank reserves by buying government securities d. decrease bank reserves by selling government securities. e. increase bank reserves by raising the discount rate.

d. decrease bank reserves by selling government securities.

an ____ in govt spending, a ____ domestic currency, and ____ interest rates will shift a country's aggregate demand to the left

decrease; stronger; higher

New classical economists believe that an increase in deficit financing by the government will a. increase consumption. b. reduce government spending. c. reduce future taxes. d. increase savings.

increase savings.

Esteban's annual salary is $80,000, of which he saved $20,000. When he received his bonus of $10,000, he spent $8,000 on home renovations and saved the remaining $2,000. Which statement is TRUE? A. Esteban's average propensity to consume increased. B. Esteban's average propensity to consume decreased. C. Esteban's average propensity to consume cannot be calculated. D. Esteban's average propensity to consume stayed the same.

A. Esteban's average propensity to consume increased.

Which of these is NOT a financial intermediary in the market for loanable funds? A. a school B. an insurance company C. mutual funds D. credit unions

A. a school

An economy is expected to produce higher profits for business owners at the same time that the country's stock market surges. What changes can be expected in the country's market for loanable funds? A. an increase in demand and a decrease in supply B. increases in both demand and supply C. decreases in both demand and supply D. a decrease in demand and an increase in supply

A. an increase in demand and a decrease in supply

The U.S. economy is currently experiencing high unemployment and low inflation. To lessen the unemployment problem, the Federal Reserve could A. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. B. sell bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs. C. lower the discount rate, thereby enabling banks to increase liquidity, lend more money, decrease the money supply, stimulate spending, and create jobs. D. raise the reserve requirement, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

A. buy bonds through open market operations, thereby enabling banks to lend more money, increase the money supply, stimulate spending, and create jobs.

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction, the supply of money is A. directly increased by $4 million and has the potential to be increased by another $12 million. B. directly increased by $4 million and has the potential to be increased by another $8 million. C. directly reduced by $4 million and has the potential to be reduced by another $12 million. D. not directly affected but has the potential to be increased by a total of $12 million.

A. directly increased by $4 million and has the potential to be increased by another $12 million.

Changes in taxes first cause changes in _____, and thus the government tax multiplier is _____ than the government spending multiplier. A. disposable income; smaller B. disposable income; larger C. aggregate spending; larger D. aggregate spending; smaller

A. disposable income; smaller

Assume taxes increase by $200 and the marginal propensity to consume is 0.75. Equilibrium income would be likely to A. fall by $600. B. remain the same. C. rise by $800. D. by $800.

A. fall by $600.

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. Its current level of total reserves is _____. If the reserve requirement is increased to 25%, the new level of excess reserves would be _____. A. $25,000; $3,000 B. $12,000; $2,000 C. $15,000; $4,000 D. $30,000; $5,000

B. $12,000; $2,000

If the reserve requirement is 25%, then the potential money multiplier is _____ and the actual money multiplier is _____. A. 250; greater than 250 B. 4; equal to or less than 4 C. 25; greater than 25 D. 25; less than 25

B. 4; equal to or less than 4

Which statement(s) is/are TRUE regarding the paradox of thrift? I. People intend to save less but their actions actually lead to an increase in savings. II. For the paradox of thrift to occur, investment must be positively related to income. III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings. A. I and II only B. II only C. II and III only D. I, II, and III

B. II only

If your goal was to have the largest amount of money in your bank account as possible in two years, which option would you choose? (Assume that the beginning deposit and all interest earnings remain in the account for the full two years.) A. a beginning deposit of $1,010, earning 3% per year B. a beginning deposit of $930, earning 8% per year C. a beginning deposit of $1,000, earning 4% per year D. a beginning deposit of $950, earning 5% per year

B. a beginning deposit of $930, earning 3% per year

Suppose three years ago a nation's inflation rate was 8%, two years ago it was 5%, and last year it was 2%. This nation is undergoing... A. deflation. B. disinflation. C. hyperinflation. D. a drop in its price level.

B. disinflation

f the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap. A. recessionary; increase; $100 B. inflationary; decrease; $100 C. inflationary; decrease; $250 D. recessionary; increase; $250

B. inflationary; decrease; $100

Unanticipated _____ is detrimental to economic growth? A. Neither inflation nor deflation is detrimental to econ growth B.inflation or deflation c. inflation d. deflation

B.inflation or deflation

A bank has $50,000 in deposits from its checking account customers and loans of $49,000. Of the $49,000 loaned out, $43,000 remains in the checking accounts of the loan recipients. The bank has $50,000 cash on hand, and the reserve requirement is 25%. The reserve ratio for this bank is _____, and it _____ meeting its reserve requirement. A. 0.002%; is not B. 186%; is not C. 53.76%; is D. 20%; is

C. 53.76%; is

Suppose the economy is at full employment, and energy prices spike. In the short run, output will _____; in the long run, output will _____. A. remain unchanged; increase B. remain unchanged; decrease C.decrease;remain unchanged D.decrease; increase

C. decrease; remain unchanged

How do changes in inflation expectations impact the short-run aggregate supply curve and the long-run aggregate supply curve? A. Expectations that inflation will rise will cause movements along both curves but would cause neither curve to shift. B.Expectations that inflation will rise will cause short-run and long-run aggregate supply to decrease. C.Expectations that inflation will rise will cause short-run aggregate supply to decrease and long-run aggregate supply to remain constant. D.Expectations that inflation will rise will cause short-run and long-run aggregate supply to increase.

C.Expectations that inflation will rise will cause short-run aggregate supply to decrease and long-run aggregate supply to remain constant.

Which list represents monetary policy actions that are consistent with one another? A. buy government bonds, raise reserve requirements, raise the discount rate B. sell government bonds, raise reserve requirements, lower the discount rate C. sell government bonds, lower reserve requirements, raise the discount rate D. buy government bonds, lower reserve requirements, lower the discount rate

D. buy government bonds, lower reserve requirements, lower the discount rate

As a result of the crowding-out effect, interest rates _____ and private sector borrowing _____. A.decrease; increases B. increase; increases C. decrease; decreases D. increase; decreases

D. increase; decreases

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the _____ lag. A. implementation B. recognition C. decision D. information

D. information

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy? a. an increase in real output b. a decrease in real output c. an improvement in technology, which will stimulate growth in the long run d. an increase in prices proportional to the increase in the money supply

a. an increase in real output

It will be difficult to institute fiscal policy in a stabilizing manner because politicians will find... a. budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion. b. it attractive to increase taxes during a recession, but they will be reluctant to reduce them during an expansion. c. it more attractive to raise taxes than to increase spending. d. budget surpluses attractive during a recession, but they will be reluctant to run budget deficits during an expansion.

a. budget deficits attractive during a recession, but they will be reluctant to run budget surpluses during an expansion.

If there is an increase in foreign financial investment in the United States as the result of large U.S. budget deficits and attractive interest yields, a. foreign exchange value of the dollar will appreciate, which will lead to a decrease in net exports and aggregate demand. b. fiscal policy will be more expansionary since there will be no crowding-out effect. c. fiscal policy will be more expansionary since U.S. residents will increase their savings, so they can repay the foreigners in the future. d. foreign exchange value of the dollar will depreciate, which will lead to an increase in net exports and aggregate demand.

a. foreign exchange value of the dollar will appreciate, which will lead to a decrease in net exports and aggregate demand.

Cross country data illustrates that rapid expansion in the supply of money over a lengthy period of time (for example, a decade) leads to a. high rates of inflation. b. an inflow of capital and a high rate of investment .c. rapid growth of real output. d. a low real rate of interest.

a. high rates of inflation.

If real GDP is increasing more rapidly than population, a. per capita real GDP will be increasing. b. population must be declining. c. the general level of prices must be increasing. d. the country will have to export more than it imports.

a. per capita real GDP will be increasing.

Which of the following would be most likely to maintain that spending increases and larger budget deficits would help promote recovery from the recession of 2008-2009? a. proponents of the crowding-out theory b. Keynesian economists c. supply-side economists d. new classical economists

b. Keynesian economists

If the government ran a major budget deficit, and there was no noticeable effect on the level of GDP, this could be taken as evidence of a. Laffer curve effect. b. crowding-out. c. monetary policy ineffectiveness. d. structural deficit.

b. crowding-out.

Unanticipated restrictive monetary policy would tend to cause a. loans to become more available for small businesses. b. real interest rates to rise. c. asset prices to rise. d. the exchange rate value of the dollar to fall (the dollar to depreciate).

b. real interest rates to rise.

Which of the following will increase interest rates in the short run? a. an decrease in reserve requirements b. the sale of bonds by the Federal Reserve in the open market c. a decrease in real GDP d. an decrease in the price level

b. the sale of bonds by the Federal Reserve in the open market

Classical economists believed that a. factors that change the velocity of money usually change rapidly. b. the velocity of money was constant in the short run. c. there was no link between the money supply and prices. d. the velocity of money was unaffected by the frequency of income payments.

b. the velocity of money was constant in the short run.

If a country's budget deficit decreases, then the exchange rate a) rises, which reduces net exports. b) remains the same and net exports remain the same. c) falls, which raises net exports. d) rises, which raises net exports. e) falls, which reduces net exports.

c) falls, which raises net exports.

If the Fed unexpected decreases the money supply, real GDP a. decreases because the resulting increase in the interest rate leads to an increase in investment. b. decreases because the resulting decrease in the interest rate leads to an increase in investment. c. decreases because the resulting increase in the interest rate leads to a decrease in investment. d. increases because the resulting decrease in the interest rate leads to an increase in investment. e. increases because the resulting increase in the interest rate leads to a decrease in investment.

c. decreases because the resulting increase in the interest rate leads to a decrease in investment.

An unanticipated shift to a more restrictive monetary policy by the Fed will a. increase real interest rates, leading to higher asset prices that will stimulate aggregate demand. b. reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand. c. increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand. d. reduce real interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand.

c. increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.

The velocity of money is a. set by the Board of Governors of the Federal Reserve System. b. the rate at which the price index for consumer goods rises. c. the average number of times one dollar is used to buy final goods and services during a year. d. the multiple by which an increase in government expenditures will cause output to rise.

c. the average number of times one dollar is used to buy final goods and services during a year.

Which of the following developments will most likely lead to an increase in the velocity of money? a. a sharp decline in using credit cards b. a decrease in the expected inflation rate c. a decrease in real income d. an increase in money interest rates

d. an increase in money interest rates

A decrease in the nominal interest rate would a. force the Fed to increase the money supply. b. cause households to decrease consumption. c. encourage people to hold smaller money balances. d. encourage people to hold larger money balances.

d. encourage people to hold larger money balances.

Some form of financial distress can become a full-blown recession if risk lead to ____ interest rates and ____ aggregate demand.

higher; decreased

If there is a recession, the Fed would most likely a. decrease bank reserves by lowering the legal reserve requirement. b. increase bank reserves by buying government securities. c. decrease bank reserves by selling government securities. d. increase bank reserves by raising the discount rate. e. decrease bank reserves by raising the discount rate.

increase bank reserves by buying government securities.

If Kelly transfers $500 from her savings account to her checking account, M1 will ______ and M2 will __________

increase; remain the same

in the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in

increased inflation