ECON test 3

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Inflation results when​ ______.

the increase in aggregate demand exceeds the increase in potential GDP

​G-20 Leaders Look to Shake off Lingering Economic Troubles The​ G-20 aims to take stock of the economic recovery. One achievement in Pittsburgh could be a deal to require that financial institutions hold more capital. The​ "capital" referred to in the news clip is​ ______. The financial institutions that the​ G-20 might require to hold more capital are​ ______. The requirement to hold more capital can make financial institutions safer because by using more of its own funds and less borrowed​ funds, a financial institution​ ______.

the institutions own funds; banks and insurance companies decreases its risk of insolvency

One of the​ Fed's main policy tools is​ ______.

the last resort​ loan, which means that if a bank is short of​ reserves, it can borrow from the Fed

The quantity of money that the banking system can create is limited by​ _______.

the monetary​ base, desired​ reserves, and desired currency holdings

All of the following events except an increase in​ ______ might cause a​ demand-pull inflation.

the money wage rate

A​ cost-push rise in the price level can arise from an increase in​ _______.

the money wage rate or money prices of raw materials

As we move up along the​ short-run aggregate supply​ curve, ______.

the money wage​ rate, the prices of other​ resources, and potential GDP remain constant

In the long​ run, _________________ adjusts to make the quantity of real money supplied equal the quantity demanded.

the price level

The aggregate demand curve shows the relationship between the quantity of real GDP demanded and​ ______, when everything else remains the same

the price level

A movement along the aggregate demand curve occurs if​ _______.

the price level changes and all other factors remain unchanged

An open market operation is​ ______.

the purchase or sale of securities by the Federal Reserve System in the loanable funds market

The demand for loanable funds is the relationship between​ _____ demanded and the​ _____ when all other influences on borrowing plans remain the same.

the quantity of loanable​ funds; real interest rate

The supply of loanable funds is the relationship between​ _____ supplied and the​ _____ when all other influences on lending plans remain the same.

the quantity of loanable​ funds; real interest rate

A stagflation can turn into a​ cost-push inflation process when​ _______.

the quantity of money persistently increases

When the price level in Mexico rises:

the quantity of real GDP demanded decreases

Everything else remaining the​ same, an increase in aggregate demand increases​ ______.

the quantity of real GDP supplied

The main influences on the quantity of money that people and businesses plan to hold include all of the following except​ ______.

the quantity of reserves

The demand for loanable funds is determined by​ ______. The demand for loanable funds changes when​ ______ changes.

the real interest rate and expected profit; expected profit

As we move up along the​ long-run aggregate supply​ curve, ______.

the real wage rate remains constant

Requirements to hold more capital make banks safer because​ _______.

the requirement to hold more capital makes the possibility of failure less likely

Gross investment is​ ______. Net investment is​ ______.

the total amount spent on new capital; the change in the value of capital

Along the​ long-run Phillips​ curve, _______.

the unemployment rate is constant at the natural unemployment rate

Depository institutions have made innovations that have changed the composition of money in all of the following ways except​ ______.

the use of currency has fallen significantly

The main criticisms of RBC theory include all of the following except​ ______.

real business cycle theory relies too heavily on the role of money in the economy to make its predicitons

The ​crowding-out effect is the tendency for a government budget deficit to raise the​ _____ and​ _____ investment.

real interest rate; decrease

The analysis of macroeconomic performance in the news clip reflects the​ ______ business cycle theory because it discusses​ ______.

real; factors that change potential GDP

​Short-run macroeconomic equilibrium occurs when the quantity of​ _____ demanded equals the quantity of​ _____ supplied at the point of intersection of the​ _____ curve and the​ _____ curve.

real​ GDP; real​ GDP; AD​; SAS

The quantity of desired reserves depends on the level of deposits and is determined by the desired reserve ratio ​- the ratio of​ _____ to​ _____ that the​ _____ plan to hold.

reserves; deposits; banks

Regulators Give Bleak Forecast for Banks Regulators said that they were bracing for an uptick in the number of bank failures. The Fed declined to comment on the health of specific companies but said that Wall Street firms have learned a great deal from Bear Stearns and have reduced leverage and built up their liquidity.​ Today, investment banks are stronger than they were a​ month- and-a-half ago. A​ bank's "balancing​ act" balances​ _______. The​ over-pursuit of profit or underestimation of risk can lead to bank failure because​ _______.

return against risk; some borrowers default and never repay , which can lead to bank insolvency

Which of the following statements illustrate monetary policy​?

the Fed has raised the federal funds rate by .3%

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______.

the LAS curve​; does not change

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______.

the SAS​ curve; increases

If the United States lowers its budget deficit but the governments in other countries do not lower their​ deficits, the world real interest rate​ ______ and the amount that the United States borrows from the rest of the world​ ______.

falls; decreases

The real interest rate​ ______, household saving​ ______,

falls; decreases and investment increases

Suppose if when the United States hits its​ "fiscal cliff," the governments in​ Europe, China, and Japan also were to cut their budget deficits. As a​ result, the world interest rate​ _______. World saving​ _______.

falls; decreases and world investment increases

The price of a bond​ ______ and the interest rate​ ______.

falls; rises

This major event in the global and U.S. loanable funds markets ___________________ the U.S. supply of loanable​ funds, _______________ the U.S. demand for loanable​ funds, and _______________ the amount that the United States borrowed from the rest of the world.

did not change, increased, decreased

The major event in the global and U.S. loanable funds markets in 2009 was the growth of world government budget _____________ . This event ________________ the world real interest​ rate, ___________________ the global supply of loanable funds and ______________ the global demand for loanable funds.

deficits, increased, did not change, increased

An economy experiences​ _______ inflation when​ "wages tend to feed​ inflation."

demand- pull

​"Wages typically track​ inflation, soaring higher when prices take​ off." In this​ situation, the economy is experiencing​ _______ inflation.

demand- pull

​Official: China May Face Heavy Inflation Pressure China is expected to face great inflationary pressure in the future due to higher costs and an abundant global money​ supply, a senior Chinese official said in an article published Tuesday. He said inflation in China is also the result of excessive global liquidity from loose monetary policies adopted by developed​ nations, China's lending​ expansion, and a​ pile-up of outstanding foreign exchange funds. ​China's consumer price index​ (CPI), a main gauge of​ inflation, rose 4.9 percent year on year in​ February, the same level as in January. The CPI data for March is scheduled to be released this week and is estimated to show a rise above 5 percent. China is experiencing a​ ______ inflation caused by​ ______.

demand-pull; loose monetary policy, which increases aggregate demand

In new classical cycle theory​, the rational expectation of the price​ level, which is determined by potential GDP and expected aggregate​ _____, determines the​ _____ and the position of the SAS curve.

demand; money wage rate

U.S. Bank Earnings up​ 21% as Loan Losses​ Decline, FDIC Says FDIC insurance helps to minimize bank failures and bring more stability to the banking system because​ _______.

depositors know that money they have deposited with a bank will be repaid

The required reserve ratio is the minimum percentage of​ _____ that​ _____ are required to hold as reserves.

deposits; depository institutions

The ratio of reserves to deposits that a bank plans to hold is its​ ______. If a bank has​ $10 million in actual reserves and​ $8 million in desired​ reserves, then it has​ ______

desired reserve​ ratio; excess reserves

A new Classical view is that business cycle fluctuations are the​ _____ responses of a​ well-functioning market economy that is bombarded by shocks that arise from the uneven pace of​ _____.

efficient; technological change

If inflation is​ expected, _______.

either a​ cost-push inflation nor a​ demand-pull inflation occur

​Long-run macroeconomic equilibrium occurs when real GDP​ _____ potential GDP​ - equivalently, when the economy is on its​ _____ curve.

equals; LAS

The quantity theory of money is the proposition that when real GDP​ _____ potential​ GDP, an increase in the quantity of money brings​ _____ percentage increase in the​ _____.

equals; an​ equal; price level

A below​ full-employment equilibrium is an equilibrium in which potential GDP​ _____ real GDP.

exceeds

When potential GDP​ _____ real​ GDP, the output gap is called a recessionary gap.

exceeds

An above​ full-employment equilibrium is an equilibrium when real GDP​ _____.

exceeds potential GDP

Households make saving decisions by considering all of the following factors except​ _______.

expected profit

The consequences of deflation include all of the following except​ _______.

falling real wage rates for workers with​ long-term wage contracts

The economy returns to a​ full-employment equilibrium as the money wage rate __________

falls

If governments in other countries lower their budget deficits but the U.S. government does not lower its​ deficit, the world real interest rate _________ the U.S. supply of loanable funds _________________ ​the U.S. demand for loanable funds ___________________ ​and the amount that the United States borrows from the rest of the world _________________

falls, does not change, does not change, increases

When Mexico increases the quantity of​ money, Mexico's aggregate demand​ ______.

increases and its AD curve shifts rightward

In Keynesian cycle theory​, fluctuations in​ _____ driven by fluctuations in business confidence​ - summarized by the phrase​ "animal spirits"​ - are the main source of fluctuations in​ _____.

investment; aggregate demand

Stagflation​ ______.

is a combination of recession and inflation

From the​ Fed's Minutes Members expected real GDP growth to be moderate over coming quarters and then to pick up very​ gradually, with the unemployment rate declining only slowly. With​ longer-term inflation expectations​ stable, members anticipated that inflation over the medium run would be at or below 2 percent a year. FOMC members are predicting that the U.S. economy​ ______.

is on a​ short-run Phillips curve to the right of the LRPC and will move leftward up along the SRPC

From​ Paper-Clip to​ House, in 14 Trades A​ 26-year-old Montreal man appears to have succeeded in his quest to barter a​ single, red paperclip all the way up to a house. It took almost a year and 14 trades. Barter​ ______ a means of payment. When trading on​ e-Bay, barter​ _______.

is; is not as efficient as money because barter requires a double coincidence of wants

A central bank performs all of the following functions except​ ______.

it provides general banking services for businesses and individual citizens

During times of​ uncertainty, it might be necessary for a bank to hold large cash reserves and to have a large percentage of its assets purchased by its own capital because​ ______.

its depositors may decide to make large withdrawals

RBC theorists believe the​ when-to-work effect is _________

large

To increase its assets to​ $2.3 trillion in​ 2008, the Fed used​ ______.

last resort loans

Net worth is the total market value of what a financial institution has​ _____ minus the market value of what it has​ _____.

lent; borrowed

Suppose the Fed increases the quantity of money. In the long​ run, supply and demand in the​ ______ market determines the real interest rate. The​ ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.

loanable​ funds; price level

The three main types of markets for financial capital are​ _______.

loan​ markets, bond​ markets, and stock markets

Economic growth results when there are increases in​ ______.

long run aggregate supply

At full​ employment, a decrease in the government budget deficit ​ _______ the real interest rate and ​ _______ investment.

lowers; increases

The Federal Open Market Committee is the​ Fed's _____ committee.

main policy making

Banks create money by​ ______.

making loans

Depository institutions pool risk because they use funds obtained from​ ______ depositors to make loans to​ ______ borrowers.

many; many

Money is any commodity or token that is generally acceptable as a​ ______.

means of payment

Money serves as a​ ______.

medium of​ exchange, which means that it is generally accepted in exchange for goods and services

The required reserve ratio is the ​______.

minimum % of deposits that depository institutions are required to hold as reserves

Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the ​ _____ changes in step with the price level to maintain full employment.

money wage rate

The money multiplier is the ratio of the change in the quantity of​ ______ to the change in the quantity of​ ______.

money; monetary base

In​ ______ cycle​ theory, the rational expectation of the price​ level, which is determined by potential GDP and expected aggregate​ demand, determines the money wage rate and the position of the SAS curve. In​ ______ cycle​ theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.

new​ classical; new Keynesian

The demand for money is the relationship between the quantity of money demanded and the​ _____, when all other influences on the amount of money that people wish to​ _____ remain the same.

nominal interest​ rate; hold

Cash in Citibank's cash machines _____________ Coins inside a vending machine __________ Your Visa card ______________ Your loan to pay for school fees ________________

not money; money; not money; not money

Currency consists of​ _____.

notes​ (dollar bills) and coins

Saving is the amount of income that is​ _____ in net taxes or spent on​ _____ goods and services.

not​ paid; consumption

1. What are the three largest items in​ China's budget? The three largest items in​ China's budget are​ _____, _____, and​ _____.

other​ items; education; social security and unemployment

Examples of physical capital are​ ______. Examples of financial capital are​ ______.

ovens used by Pizza Hut and lawn mowers used by​ Larry's Mowing; bonds issued by​ Wal-Mart and stocks issued by Boeing

Wealth is the value of all the things that people​ _____.

own

A stock is a certificate of​ _____ and claim to the​ _____ that a firm makes.

ownership; profits

Rapid inflation in Brazil in the early 1990s caused the cruzerio to lose its ability to function as money. Which of the following commodities do you think would most likely have taken the place of the cruzeiro in the Brazilian​ economy?

packs of cigarettes because they are a good medium of exchange

Which of the following statements illustrate fiscal policy​?

the US gov has proposed a hike in the corporate tax rate

The loanable funds market is​ ______.

the aggregate of all the individual financial market

China Cuts​ Banks' Reserve Ratios The​ People's Bank of China made a​ long-awaited move to boost lending in the​ country's slowing economy with the announcement that it would lower the required reserve ratio by 50 basis points from February 24. The cut will bring the ratio down to 20.5 percent for the largest banks. A lower required reserve ratio increases bank profits because​ ______.

the banks hold fewer reserves

Net taxes are taxes paid to the government minus​ _____.

the cash transfers received from gov

Read the news​ clip, then answer the following questions. Aggregate demand will increase if​ ______.

the effect of the tax rebates and the change in the foreign exchange rate outweigh the effect of the​ housing, credit, and financial crises

Along the​ short-run Phillips​ curve, ______.

the expected inflation rate and the natural unemployment rate are constant

The velocity of circulation is the average number of times a dollar of money is used annually to buy​ ______. The formula used to measure the velocity of​ circulation, V​, is​ ______, where P is the price​ level, Y is real​ GDP, and M is the quantity of money.

the goods and services that make up​ GDP; V​ = ​(P ×Y​) ÷M

The news article draws attention to the​ long-term problems of​ ______.

the growth of U.S. government debt and U.S. international debt

According to RBC​ theory, the main source of economic fluctuations is a decrease in​ ______

productivity growth

The functions of depository institutions include all of the following except​ ______.

providing insurance on loans

The Federal Reserve​ (usually called the​ Fed) is the central bank of the United​ States, a​ _____ authority whose main role is the regulation of​ _____.

public; banks and money

A central bank is a banks bank and a​ _____ authority that regulates a​ nation's depository institutions and conducts​ _____ policy, which means that it adjusts the​ _____ and influences​ _____________

public; monetary; quantity of money in circulation; interest rates

In September 2007 before the financial crisis and​ recession, the Fed had assets of​ $800 billion, mainly​ short-term government securities. In June 2012 after two rounds of quantitative​ easing, the​ Fed's assets totaled​ $2,600 billion. Many of those assets were​ long-term securities and not all of them were government securities. Choose the statement that is incorrect.

quantitative easing decreased bank reserves

A government budget deficit _______________ the demand for loanable funds.

increases

A government budget surplus ___________________ the supply of loanable funds.

increases

Choose the correct statement.

"slowing growth" can reduce inflationary pressure if aggregate demand growth slows

Using a Federal grant of​ $150,000, a research lab buys equipment for​ $75,000 that has depreciated by​ $11,000 after two years. Calculate gross investment and net investment.

$75,000; $64,000.

If the monetary base increases by​ $1 million and the quantity of money increases by​ $2.5 million, then the money multiplier is​ _____.

2.5

Choose the correct statements. 1. Most people know the price of gum comma so it could serve as money because it is a unit of account. 2. Because most people buy gum comma it can be used as money because it is a useful tool in barter. 3. Gum does not serve as money because it is not a good store of value. 4. Gum does not serve as money because it is not generally accepted in exchange for goods and services

3 & 4 are correct

An economy is at potential GDP and the price level is 100 in the figure. If aggregate demand unexpectedly​ increases, the inflation rate is​ ______.

3 percent a year

The following items are​ (approximate) facts about the U.S.​ economy: bullet• In​ 2005, the nominal interest rate on bonds was 5 percent a year and the real interest rate was 2 percent a year. Investment was​ $2.7 trillion and the government budget deficit was​ $0.5 trillion. ​ bullet• By​ 2009, the real interest rate had increased to 5 percent a​ year, but the nominal interest rate was unchanged at 5 percent a year. Investment had crashed to​ $1.8 trillion and the government budget deficit had climbed to​ $1.8 trillion. Assume that the private demand for and private supply of loanable funds did not change between 2005 and 2009. What was the inflation rate in 2005 and​ 2009? How do you​ know? The inflation rates in 2005 and 2009 were​ _____ percent and​ _____ percent respectively because the inflation rate equals​ _____ . The price of a bond ​ _____ between 2005 and 2009 because the​ _____.

3; 0; nominal interest rate minus real interest rate remained​ unchanged; nominal interest rate remained unchanged

1. Calculate the​ short-run equilibrium real GDP and price level. The​ short-run equilibrium real GDP is ________ billion and the price level is _______.

575; 110

If the annual interest paid on a​ $500 loan is​ $25, the nominal interest rate is​ _____ percent per year. If the nominal interest rate is 5 percent per year and the inflation rate is 2 percent a​ year, the real interest rate is​ _____ per year.

5; 3

An increase in current income taxes​ ______ the supply of loanable funds today because it​ ______.

decreases​; decreases disposable​ income, which decreases saving

A rational expectation is a forecast that results from the use of all the relevant data and​ _____.

economic science

Consider the following events. Event​ 1: Growth in the world economy slows. Event​ 2: The world price of oil rises. Event​ 3: U.S. labor productivity declines. Choose the statement that is correct.

A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events.

Choose the statement that is incorrect about the Eurozone economy.

A rise in the expected inflation rate shifts the​ short-run Phillips curve rightward

3. How does the government budget influence aggregate​ demand?

An increase in the goverment budget increases aggregate demand.

Choose the statement about the​ long-run Phillips curve that is incorrect.

An unexpected increase in aggregate demand shifts the​ long-run Phillips curve rightward

According to the​ Ricardo-Barro effect, a government budget deficit​ ______ the real interest rate.

has no effect on

Starting at point A​, the initial effect of a​ cost-push inflation is a move to point​ ______. As a​ cost-push inflation spiral​ proceeds, it follows the path​ ______.

B; E, G, I

A​ cost-push rise in the price level will initially move the economy to point​ ______ and to point​ ______

C when the money prices of raw materials rise; D when aggregate demand increases

Starting at point A​, the initial effect of a​ demand-pull inflation is a move to point​ ______. As a​ demand-pull inflation spiral​ proceeds, it follows the path​ ______.

C; E, H, I

Explain the effect of each of the following events on​ Canada's aggregate demand The United States experiences strong economic growth.

Canada's aggregate demand increases

4. How does the government budget influence aggregate​ supply?

Capital expenditure on transportation and expenditure on healthcare and education increase human capital and therefore increase aggregate supply.

Which of the following is money​?

Charlie's checking account deposit at the Bank of America.

Choose the correct statement.

Commercial banks are financial institutions that accept​ deposits, provide payment​ services, and make loans to firms and households.

Choose the statement that is incorrect.

Deposits are not money because you cannot settle a debt with a deposit.

Choose the correct statement.

Deposits are​ money, checks are not​ money, and credit cards are not money.

Which of the following statements about the monetarist view of the macroeconomy is ​incorrect?

Left​ alone, the economy rarely operates at full employment.

Choose the statement that is incorrect.

Liquid assets have a higher interest rate than securities.

Starting at point A​, the initial effects of an expected inflation is a movement to point​ ______. As an expected inflation​ proceeds, it follows the path​ ______.

E; I

The central bank of the United States is the​ ______.

Federal Reserve System

The monetary base is the sum of​ _______. The monetary base is equal to​ _______.

Federal Reserve​ notes, coins, and depository institution deposits at the​ Fed; the liabilities of the Fed plus coins issued by the Treasury

The quantity theory of money tells us that​ _______.

a change in the money growth rate brings an equal change in the inflation rate

Choose the statement that is incorrect.

If a financial​ institution's net worth is​ positive, the institution must be solvent and liquid.

Choose the statement that is incorrect.

In a​ deflation, the inflation rate is positive but decreasing in consequent years.

At arrow​ 2, the economy is in​ ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve.

an​ above; right

Shoppers Stimulate Discount Stores The​ ______ macroeconomic school of thought justifies the policy discussed in this news clip.

Keynesian

Krugman on Monetary and Fiscal Policy Based on this news​ clip, Paul Krugman most likely follows the​ ______ school of thought and Ben Bernanke most likely follows the​ ______ school of thought.

Keynesian or new​ Keynesian; Keynesian or new Keynesian

Adding Up the Cost of​ Obama's Agenda Based on this news​ clip, Barack Obama most likely follows the​ ______ school of thought and John McCain most likely follows the​ ______ school of thought.

Keynesian or new​ Keynesian; classical or new classical

In​ ______ cycle​ theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In​ ______ cycle​ theory, fluctuations in both investment and consumption​ expenditure, driven by fluctuations in the growth rate of the quantity of​ money, are the main source of fluctuations in aggregate demand.

Keynesian; monetarist

The two main official measures of money in the United States today are​ ______. The two main official measures of money in the United States​ ______ really money.

M1 and M2; are

M2 consists of​ _____ plus​ _____ and​ _____ deposits,​ _____, and other deposits.

M1; savings deposits; small time; money market funds

The equation of exchange is​ ______ and it is true​ ______.

MV=PY; by definition

Suppose that Sara withdraws​ $1,000 from her savings account at the Lucky​ S&L, keeps​ $50 in​ cash, and deposits the balance in her checking account at the Bank of Illinois. The immediate change is​ ______ in M1 of​ $1,000 and​ ______ in M2.

an​ increase; no change

Choose the statement that is incorrect.

Over the business​ cycle, aggregate supply fluctuates around potential GDP.

A depository institution creates liquidity by​ ______.

borrowing short and lending long

Defenders of RBC theory claim all of the following except ​_______.

RBC theory is consistent with a negligible intertemporal substitution effect

Which of the following is an example of financial capital​?

Rachel has taken a loan to buy a new home.

A change in the actual inflation rate brings a movement along the​ ______. A change in the expected inflation rate brings​ ______.

SRPC; a shift of the SRPC

Which of the following economies is facing a stagflation​?

The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level.

3. What is the Fed concerned​ about?

The Fed is concerned about how a decrease in government spending might result in lower real GDP

2. What is the Fed expected to do given the current state of the U.S.​ economy?

The Fed is expected to increase monetary stimulus to lower ​long-term interest​ rates, given the current state of the U.S. economy.

Households preferred to buy corporate equities rather than bonds because​ ______.

corporate equities deliver capital gains, which increases wealth

1. How has the U.S. economy been performing in recent​ weeks?

The U.S.​ economy's performance in recent weeks shows that employment is growing ​and the housing market is recovering

How can the change in U.S. wealth differ from U.S.​ saving?

The change in wealth includes changes in the prices of assets owned and saving excludes these items.

Choose the statement that is incorrect.

The greater the default​ risk, the greater is the supply of loanable funds.

Choose the statement concerning​ firms' investment decisions that is incorrect.

The higher the real interest​ rate, the greater is the demand for loanable​ funds, other things remaining the same.

Labor productivity is rising at a rapid rate in China and wages are rising at a similar rate. Choose the statement that is incorrect.

The increase in labor productivity has no effect on​ short-run aggregate supply.

3. If aggregate demand increases by​ $50 billion, what is the new​ short-run macroeconomic equilibrium and the output​ gap?

The new​ short-run macroeconomic equilibrium is at a real GDP of ​$600 billion and a price level of 120. The economy has no output gap.

Choose the statement about the Fed that is incorrect.

The policy decisions of the Federal Open Market Committee are implemented each month by a different Federal Reserve Bank.

Choose the correct statement

The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports.

Geithner Urges Action on Economy Choose the statement that is incorrect

Treasury Secretary Timothy Geithner most likely follows the monetarist school of thought if he thinks that a falling money wage rate will respond quickly to changes in government tax policy.

Choose the correct statement.

When the price of an asset​ rises, the interest rate​ falls, everything else remaining the same.

According to the quantity theory of​ money, in the long run an increase in the quantity of money of 5​ percent, brings​ _____ in the price level.

a 5% increase

The Fed is the lender of last resort​, which means that if​ _____ is short of​ reserves, it can borrow from the​ _____.

a bank; Fed

Suppose the economy had been operating at a​ full- employment equilibrium. After the fall in consumer​ confidence, the economy moves to​ ______ equilibrium and​ ______ gap emerges.

a below full employment; a recessionary

If an economy is at a​ full-employment equilibrium and a decrease in consumption expenditure​ occurs, the new​ short-run equilibrium is​ _____ and​ _____ gap emerges.

a below​ full-employment equilibrium; a recessionary

U.S. Bank Earnings up​ 21% as Loan Losses​ Decline, FDIC Says For the 12th straight​ quarter, U.S. bank profits increased. At​ $34.5 billion, they were 21 percent higher than a year​ earlier, and according to the Federal Deposit Insurance Corporation​ (FDIC), balance sheets were less risky. FDIC Acting Chairman Martin Gruenberg said​ "Levels of troubled assets and troubled institutions remain​ high, but they are continuing to​ improve." The number of institutions on​ FDIC's list of banks deemed to be at greater risk of collapse fell for a fifth straight quarter. By​ August, 40 banks had failed in 2012. The​ FDIC's deposit insurance​ fund, which protects customer accounts up to​ $250,000 against bank​ failure, increased. A​ bank's attempts to pursue profit can sometimes lead to bank failure because​ _______.

a combination of all of the above

Choose the correct statement.

a credit card is not a means of payment

​So, as the price level​ rises, there is​ ______.

a decrease in the quantity of real GDP demanded

A​ cost-push inflation begins with​ ______ as the result of an increase in the money wage rate or an increase in the money prices of raw materials.

a decrease in​ short-run aggregate supply

The effect of this decrease is ______________ in investment​ demand, ____________ in the demand for loanable​ funds, and ______________ in the real interest rate.

a decrease; a decrease; a decrease

The effect of this decrease is ______________ in the demand for​ labor, _____________ in the supply of​ labor, _____________ in​ employment, and _____________ in the real wage rate.

a decrease; a decrease; a decrease; a decrease

A rise in the money wage rate with no change in potential GDP creates​ ______.

a leftward shift of the SAS curve and no change in the LAS curve

A mortgage is​ _______.

a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments​ (repayments and​ interest)

Eurozone Unemployment Hits Record High As Inflation Rises Unexpectedly Eurozone unemployment rose to 10.7 percent. At the same​ time, Eurozone inflation unexpectedly rose to 2.7 percent a​ year, up from the previous​ month's 2.6 percent a year A very high unemployment rate can be accounted for by the Phillips curve model by all of the following except​_______.

a movement up along the​ long-run Phillips curve if the natural unemployment rate increases

Deflation is​ _______.

a persistently falling price level

The best forecast​ available, which is based on all the relevant information is called​ _______.

a rational expectation

If potential GDP is​ $1 trillion, the economy has __________________ gap.

a recessionary

2. Does the country have an inflationary gap or a recessionary gap and what is its​ magnitude? The country has​ _____ gap and its magnitude is​ $ _____ billion.

a recessionary; 25

In the​ graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. The events which could have changed​ short-run aggregate supply from SAS0 to SAS1 are​ ______.

a rise in the money wage rate or a rise in the money price of any other factor of production

A stock market is a financial market in which shares of stocks of​ _____ are traded.

corporations

Excess reserves are a​ bank's _____ reserves minus its​ _____ reserves.

actual; desired

An inflation that starts because​ _____ is called ​demand-pull inflation.

aggregate demand increases

Deflation occurs when​ _______.

aggregate demand increases at a persistantly slower rate than aggregate supply

Deflation occurs when​ _______.

aggregate demand increases at a persistently slower rate than aggregate supply

If potential GDP is​ $1 trillion, the economy has moved to ______________________________ equilibrium.

an above full employment

The economy starts out on the curves AD0 and SAS0. Some events then occur that generate an expected inflation. Which of the following events would not cause an expected​ inflation?

an expected increase in taxes

A​ demand-pull inflation begins with​ _______.

an increase in aggregate demand

In the​ graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. Some events that could have changed aggregate demand from AD0 to AD1 are​ ______.

an increase in expected future inflation or an increase in foreign income

Which of the following events might cause a​ cost-push inflation?

an increase in the money wage rate or an increase in the money prices of raw materials

If aggregate demand grows faster than potential​ GDP, ______ gap emerges and if it grows more slowly than potential​ GDP, ______ gap emerges.

an inflationary; a recessionary

A Classical macroeconomist believes that the economy is​ self-regulating and always​ _____.

at full employment

A monetarist is a macroeconomist who believes that the economy is​ self-regulating and that it will normally operate​ _____,

at full employment; money growth

The velocity of circulation is the​ _____ number of times in a​ _____ that each dollar of money gets used to buy final goods and services.

average; year

A central bank is​ ______. The central bank in the United States is the​ ______.

a​ bank's bank and a public authority that regulates a​ nation's depository institutions and conducts monetary​ policy; Federal Reserve System

At arrow 1 in the​ graph, the economy is in​ ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve.

a​ below; left

A type of​ _____ is a ​mortgage-backed security​, which entitles​ _____ to the income from a package of mortgages.

a​ bond; its holder

A problem with using a commodity as money is​ ______.

a​ commodity's value changes over time

If the government increases its expenditure on goods and services and as a​ result, the money wage rate​ increases, the economy has experienced​ _______.

a​ demand-pull rise in the price level

A rise in the price of oil creates​ _______.

a​ one-time cost-push rise in the price level

Reserves consist of the currency in the​ _____ plus the balance on its​ _____ account at​ _____.

bank's vaults;​ reserve; a Federal Reserve Bank

An increase in potential GDP increases​ ______.

both​ long-run aggregate supply and​ short-run aggregate supply

Inflation expectations​ "become self-fulfilling" because consumers decide to​ _____, which​ ______.

buy more goods and services at​ today's lower​ prices; increases aggregate demand

If the interest rate is 5​ percent, people will​ ______.

buy​ bonds, bid up their​ price, and the interest rate will fall

During​ 2008, the inflation rate increased and the unemployment rate increased. These events​ ______.

cannot be explained by a movement along the SRPC because along this curve the inflation rate and unemployment rate move in opposite directions

The Federal Reserve System ​(the Fed) is the​ _____ of the United States.

central bank

Risky​ Assets: Counting to a Trillion Prior to the financial​ crisis, the Fed held less than​ $1 trillion in assets and most were in safe U.S. government securities. By​ mid-December 2008, the​ Fed's balance sheet had increased to over​ $2.3 trillion. The massive expansion began when the Fed rolled out its lending​ program: sending banks cash in exchange for risky assets. The​ Fed's policy tools include all of the following except​ ______.

changing government expenditure

A​ ______ macroeconomist believes that the economy is​ self-regulating and always at full employment. A​ ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.

classical; Keynesian

The monetary base is the sum of​ _____, _____, and​ _____ at the Fed.

coins; Federal Reserve​ notes; banks' reserves

Changes in consumption spending play a large role in the business cycle because​ _______ accounts for approximately​ ______ percent of GDP.

consumption​ expenditure; 70

​Pakistan: Is it​ Cost-Push Inflation? With CPI already spiking 11.8 percent for the first ten months of the fiscal​ year, the average CPI inflation for the same period last year stood at 22.35 percent. Some economists insist the current bout of inflationary pressures is spawned by increasing prices of​ fuel, food, raw​ materials, ​transportation, construction​ materials, elimination of energy​ subsidies, etc as indicated by the spike in the wholesale price index​ (WPI), which rose 21.99 per cent in April from a year earlier. Pakistan is experiencing​ ______ inflation.

cost-push

Tight Money​ Won't Slay​ Food, Energy Inflation ​It's important to differentiate between a general increase in priceslong dash—a situation in which aggregate demand exceeds their aggregate supplylong dash—and a relative price shock. For​ example, a specific shock to energy prices can become generalized if producers are able to pass on the higher costs. So​ far, global competition has made that difficult for​ companies, while higher input costs have largely been neutralized by rising labor productivity. Since​ 2003, core inflation has averaged less than 2 percent a year in the 30 major economies. History also suggests the​ Fed's gamble that slowing growth will shackle core inflation is a winning wager. The risk is that if U.S. consumers​ don't believe price increases will​ slow, growing inflation expectations may become​ self-fulfilling. The news clip refers to​ ______ inflation when it discusses rising production costs. ​"Rising labor​ productivity" can neutralize the effect on the inflation rate of​ "higher input​ costs" because​ ______.

cost-push; it increases​ short-run aggregate supply and​ long-run aggregate supply with no slowdown in aggregate demand growth

An inflation that is kicked off by an increase in​ _____ is called ​cost-push inflation.

costs

Stagflation occurs when​ _______.

costs increase

The main components of money in the United States today are​ ______.

currency and deposits at banks and other depository institutions

We call the leakage of bank reserves into currency the currency​ drain, and we call the ratio of​ _____ to​ _____ the currency drain ratio.

currency; deposits

Aggregate demand increasesincreases if the exchange rate​ ______ or foreign income ​______.

decrease, increase

In a speech at the CFA Society of Nebraska in February​ 2007, William​ Poole, former Chairman of the St. Louis Federal Reserve​ said: U.S. household income has grown considerably since 1984. U.S. saving has​ ______ because wealth has​ ______.

decreased; increased due to capital gains

The Fed cutscuts the quantity of money and all other things remain the same. In the short​ run, aggregate demand​ _______.

decreases

Event 3 _________

decreases aggregate demand

The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1​ ______. Event 2​ ______.

decreases aggregate​ demand; decreases​ short-run aggregate supply

The requirement to hold more capital can make financial institutions safer because by using more of its own funds and less borrowed​ funds, a financial institution​ ______.

decreases its risk of insolvency

1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of​ long-run equilibrium, a deep recession​ ______, and a decrease in expected future profits​ ______.

decreases real GDP and lowers the price level; decreases real GDP and lowers the price level

Starting from a position of​ long-run equilibrium, a sharp increase in the world oil price​ ______.

decreases real GDP and raises the price level

An increase in expected future income​ ______.

decreases the supply of loanable funds today because households with larger expected future income will save lessless today

An unexpected increase in aggregate demand​ ______ rate, which is shown by​ ______ the​ short-run Phillips curve.

decreases unemployment and increases the​ inflation; a movement up along

Aggregate demand increasesincreases if fiscal policy​ ______ taxes or​ ______ transfer payments.

decreases; increases

A government budget surplus​ _______ the real interest​ rate, decreases​ ______.

decreases; private saving and increases investment

Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China​ _______ aggregate supply.

decreases​ China's short-run

The​ "average overall increase across the​ board" wage increase​ _______.

decreases​ short-run aggregate supply

The expected inflation rate _____________________

does not change

If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

does not change; long-run

The U.S.​ long-run Phillips curve​ ______ when the expected inflation rate rises. The U.S.​ long-run Phillips curve​ ______ when the natural unemployment rate increases.

does not​ shift; shifts rightward

An economy at a​ full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate​ ______ its natural​ rate, and to return to the​ long-run equilibrium, the money wage rate begins to​ ______.

falls​ below; rise

When the interest rate falls​, other things remaining the​ same, the opportunity cost of holding money​ ______ and​ ______.

falls​; the quantity of money demanded increases

The loanable funds market is the aggregate of all the individual​ _____ markets.

financial

Bonds issued by​ _____ are traded in the bond market.

firms and governments

According to RBC​ theory, the source of the business cycle is​ _______, which result mainly from​ _______.

fluctuations in​ productivity; fluctuations in the pace of technological change

People substitute goods in the ______ for goods in the __________ .

future; present

An open market operation is the purchase or sale of​ _____ -​ _____ - by the​ _____ in the open market.

gov securities; US treasury bills and bonds; NY Fed

Suppose that the business cycle in the United States is best described by RBC theory. An advance in technology increases productivity. The​ when-to-work decision depends on the real interest rate. The​ _____ the real interest​ rate, other things remaining the​ same, the​ _____ is the supply of labor today.

higher; larger

A mortgage is a legal contract that gives ownership of a​ _____ to the​ _____ in the event that the​ _____ fails to meet the agreed loan payments​ (repayments and​ interest).

home; lender; borrower

What are the three sources of global investment​ funds?

household saving, government budget surplus, borrowing from the rest of the world

A depository institution is a financial firm that takes deposits from​ _____.

households and firms

Choose the statement that is incorrect.

if a depository institution fails, its depository are guaranteed up to a max of $250,000 per deposited per bank

The Fed is the lender of last​ resort, which means​ _______.

if depository institutions are short of​ reserves, they can borrow from the Fed

Treasury Yields Fall to​ Two-Week Low Treasury bond prices rose on​ Monday, pushing interest rates down. The interest rate on​ 10-year bonds fell 4 basis points to​ 1.65%. Choose the statement that is incorrect.

if the demand for Treasury bonds increases, , the interest rate on the Treasury bond rises

Getting a​ Raise: Why​ It's Not Happening ​Didn't get a raise this​ year? Blame inflation. American wages​ didn't budge last​ month, according to Labor Department data released Wednesday. And with inflation remaining at near​ zero, experts say it could be quite a while before many workers see their next raise. While stagnant prices are a boon for consumers on supermarket checkout​ lines, they can be hard on​ workers' bottom lines. Wages typically track​ inflation, soaring higher when prices take off. In​ fact, some say wages tend to feed inflation. That was the case in the​ 1970s, when wage growth picked up after prices soared. But pricing pressures are weaker​ today, with the consumer price​ index, a measure of​ inflation, unchanged in July from the previous month. Choose the statement that is incorrect. Starting from a​ long-run equilibrium,​ _______.

if the percentage change in the money wage rate equals the percentage change in the unemployment rate, the economy remains at full employment

Choose the statement that is incorrect.

in a deflation, the inflation rate is positive but decreasing in consequent years

A financial institution is a firm that operates on both sides of the markets for​ _____: It​ _____ in one market and​ _____ in another.

inancial​ capital; borrows; lends

A bank manager tells you that she​ doesn't create money. She just lends the money that people deposit. The bank manager is​ ______ because​ ______.

incorrect; every new loan creates a new deposit

In the news​ clip, productivity gains exceed pay increases because the demand for labor​ ______ than the​ ______ in the supply of labor.

increase by less; increase

Aggregate demand increasesincreases if monetary policy​ ______ the quantity of money and​ ______ interest rates.

increase; decrease

Tax rebates​ ______ aggregate demand and the​ housing, credit, and financial crises​ ______ aggregate demand.

increase; decrease

Aggregate demand increasesincreases if expected future​ income, inflation, or profits​ ______. And aggregate demand increasesincreases if fiscal policy​ ______ government expenditure.

increase; increases

Between 2007 and 2012 the monetary base​ _______.

increased

China Cuts​ Banks' Reserve Ratios The​ People's Bank of China announces it will cut the required reserve ratio. Lowering the required reserve ratio​ ______, which​ ______ the quantity of loans that​ China's banks can make and the quantity of money created.

increases excess​ reserves; increases

Starting from a position of​ long-run equilibrium, an increase in government expenditures​ ______ real GDP and​ ______ the price level.

increases real GDP and raises the price level

Starting from a position of​ long-run equilibrium, a world expansion​ ______, and an increase in expected future profits​ ______.

increases real GDP and raises the price​ level; increases real GDP and raises the price level

A government budget deficit​ occurs, which​ ______. The real interest rate​ ______.

increases the demand for loanable​ funds; rises

A government budget deficit _____________ the demand for loanable funds. The equilibrium real interest rate ________________ ________________ ​increases, and _____________ decreases.

increases, rises, private saving, investment

First​ Call, Inc. is a smartphone company. First Call expects its profit to double next year. If everything else remains the​ same, how does this increase in expected profit influence First​ Call's demand for loanable​ funds? This increase in expected profit​ _______ the demand for loanable funds and brings​ _______ the demand for loanable funds curve.

increases; a rightward shift of

Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______ real​ GDP, and creates​ ______ gap.

increases; an inflationary

An open market purchase​ ______ the monetary base. An open market sale​ ______ the monetary base.

increases; decreases

Private saving ___________ and investment ____________

increases; decreases

The increase in investment​ ______ aggregate demand. The decrease in government spending​ _______ aggregate demand.

increases; decreases

Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ real GDP.

increases; decreases a ~stagflation~ is created

The fall in the average weekly wage rate​ ______ short-run aggregate supply and​ ______ long-run aggregate supply.

increases; does not change

Geithner Urges Action on Economy In the short​ run, an increase in business investment​ ______ real GDP and​ ______ the price level.

increases; increases

Geithner Urges Action on Economy In the short​ run, an increase in consumer spending​ ______ real GDP and​ ______ the price level.

increases; increases

In the short​ run, an increase in exports​ ______ real GDP and​ ______ the price level.

increases; increases

Read the news​ clip, then answer the following questions. The increase in the personal consumption expenditures​ ______ aggregate demand. The increase in exports​ ______ aggregate demand.

increases; increases

Real Wages Fail to Match a Rise in Productivity For most of the last​ century, wages and productivitylong dash—the key measure of the​ economy's efficiencylong dash—have risen​ together, increasing rapidly through the 1950s and​ '60s and far more slowly in the 1970s and​ '80s. But in recent​ years, the productivity gains have continued while the pay increases have not kept up. In real business cycle​ theory, an increase in productivity​ ______ the demand for labor by more than it​ ______ the supply of labor.

increases; increases

The fall in the minimum wage​ ______ short-run aggregate supply and​ ______ long-run aggregate supply.

increases; increases

In monetarist cycle theory​, fluctuations in both​ _____, driven by fluctuations in the growth rate of the quantity of​ money, are the main source of fluctuation in aggregate demand.

investment and consumption expenditure

An increase in expected future income _____________ aggregate demand. An increase in the expected future inflation rate ________________ aggregate demand. An increase in expected future profits ________________ aggregate demand.

increases; increases; increases

A government budget deficit​ _______ the real interest​ rate, increases​ ______.

increases; private saving and decreases investment

If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

increases; short-run

Deflation can be ended by​ _______.

increasing the growth rate of the quantity of money

M1 consists of currency held by​ _____ and​ _____, _____, and​ _____ owned by individuals and businesses.

individuals; businesses; traveler's check; checkable deposits

The ​short-run Phillips curve is a curve that shows the relationship between the​ _____ rate and​ _____ when​ _____ and the​ _____ remain constant.

inflation; the unemployment​ rate; the natural unemployment​ rate; expected inflation rate

The ​long-run Phillips curve is the relationship between​ _____ and​ _____ when the economy is at full employment. The​ long-run Phillips curve is a​ _____ line at the​ _____ unemployment rate.

inflation; unemployment; vertical; natural

The federal funds rate is the​ _____ rate on​ _____ loans.

interest; interbank

In the short​ run, the quantity of real money and real GDP are given and the​ ______ adjusts to achieve equilibrium. In the long​ run, supply and demand in the loanable funds market determines the​ ______.

interest​ rate; real interest rate

The new Keynesian cycle theory emphasizes the fact that​ today's money wage rates were negotiated at many past​ dates, which means that​ _____ rational expectations of the​ _____ price level influence the money wage rate and the position of the SAS curve.

past; current

Depository institutions balance risk and return by​ _______.

placing some funds into safe low​ interest-earning assets and other funds into​ high-interest risky assets

Following the change in aggregate​ supply, the new macroeconomic equilibrium is at​ ______.

point A

Following the change in aggregate​ demand, the new equilibrium is at​ ______.

point C

The initial​ short-run aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. Some events change aggregate demand from AD0 to AD1​, and​ short-run aggregate supply from SAS0 to SAS1. The new macroeconomic equilibrium is at​ ______.

point D

Keynesian macroeconomists recommend​ ______.

policies that actively offset changes in aggregate demand that bring recession

Monetarist macroeconomists recommend​ ______.

policies that keep taxes low to avoid disincentive effects that decrease potential GDP

Classical macroeconomists recommend​ ______.

policies that minimize the disincentive effects of taxes on employment, investment, and technological change

A recessionary gap eventually emerges even if aggregate demand remains constant because over time​ ______.

potential GDP increases

The mainstream business cycle theory is that​ ______ grows at a steady rate while​ ______ grows at a fluctuating rate.

potential​ GDP; aggregate demand

The combination of a rising​ _____ and decreasing​ _____ is called stagflation.

price level; real GDP

The sum of​ _____ is called national saving.

private saving and gov saving

The newest theory of the business​ cycle, known as real business cycle theory ​(or RBC​ theory), regards random fluctuations in​ _____ as the main source of economic fluctuations.

productivity

The​ crowding-out effect is the tendency for a government budget deficit to​ ______ the real interest rate and decrease​ ______.

raise; investment

In the long​ run, an increase in the quantity of money​ _______.

raises the price level and lowers the value of money

A government budget deficit​ ______ the real interest rate because​ ______.

raises; the demand for loanable funds increases

The defining feature of the Keynesian view of macroeconomics is that the economy is​ ______.

rarely at full employment

A Keynesian macroeconomist believes that left​ alone, the economy would​ _____ operate at full employment and that to achieve and maintain full​ employment, active help from fiscal policy and monetary policy is required. A modern version of the Keynesian​ view, known as the new Keynesian​ view, holds not only that the money wage rate is​ _____ but also that prices of goods and services are​ _____.

rarely; sticky; sticky

The gap between​ ______ is the output gap. When​ _____, the output gap is called an inflationary gap.

real GDP and potential​ GDP; real GDP exceeds potential GDP

In the short​ run, ______ and​ ______ adjusts to achieve equilibrium.

real GDP determines the demand for money curve and the Fed determines the quantity of real money​ supplied; the nominal interest rate

When​ _____ there is a​ full-employment equilibrium

real GDP equals potential GDP

Aggregate demand is the relationship between the quantity of​ _____ demanded and the​ _____ when all other influences on expenditure plans remain the same.

real GDP; price level

​Short-run aggregate supply is the relationship between the quantity of​ _____ supplied and the​ _____ when the money wage​ rate, the prices of other​ resources, and potential GDP remain constant.

real GDP; price level

Debate on Causes of Joblessness Grows What is the cause of the high unemployment​ rate? One side says there is not enough government spending. The other says​ it's a structural problemlong dash—people who​ can't move to take new jobs because they are tied down to burdensome mortgages or firms that​ can't find workers with the requisite skills to fill job openings. ​______ cycle theory would say that the rise in unemployment is not cyclical but is a change in the natural unemployment rate.

real business

Stagflation is a combination of a​ ______ in the price level and​ ______ in real GDP.

rise; a decrease

As the price level​ rises, interest rates ________ and real wealth ____________

rise; decreases

The demand for loanable funds increases and the supply of loanable funds increases. As a​ result, the equilibrium real interest rate​ ______ and the equilibrium quantity of loanable funds​ ______.

rises, falls, or remains the same; increases

In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium.

rises; decreases

If the interest rate is greater than 4 percent a​ year, the price of a bond​ ______, and the interest rate​ ______.

rises; falls

Suppose if when the United States hits its​ "fiscal cliff," the governments in​ Europe, China, and Japan were to increase their budget deficits. As a​ result, the world interest rate​ _______. World saving​ _______.

rises; increases and world investment decreases

The demand for loanable funds increases and the supply of loanable funds decreases. As a​ result, the equilibrium real interest rate​ ______ and the equilibrium quantity of loanable funds​ ______.

rises; increases, decreases, or remains the same

The economy is in a recession and with incomes​ falling, ________. If the government cuts its budget deficit ​_____ .

saving decreases, which decreases the supply of loanable funds; the demand for loanable funds will decrease and the real interest rate might rise of fall

According to the​ Ricardo-Barro effect, when a government budget deficit occurs​ today, ______.

saving​ increases, the supply of loanable funds​ increases, and the real interest rate does not change

The defining feature of the classical view of macroeconomics is that the economy is​ ______.

self-regulating and always at full employment

In the short​ run, when the Fed decreases the quantity of​ money, people enter the loanable funds market and _________ bonds.

sell

A means of payment is a method of ​ _____ a debt.

settling

If the natural unemployment rate​ increases, the​ long-run Phillips curve​ _______ and the​ short-run Phillips curve​ ______

shifts rightward; shifts rightward

he U.S.​ short-run Phillips curve​ ______ when the expected inflation rate rises. The U.S.​ short-run Phillips curve​ ______ when the natural unemployment rate increases.

shifts​ upward; shifts rightward

Recession? Maybe.​ Depression? Get Real. The unemployment rate during the Great Depression peaked at nearly 25 percent in​ 1933, after an initial spike from 3 percent in 1929 to nearly 8.7 percent in 1930. The unemployment rate is just 5​ percent, only up from 4.5 percent a year ago. Also during the Great Depression there was​ deflation, which is not happening today. The inflation and unemployment trends during the Great Depression can be explained by a movement along the​ ______ Phillips curve that​ ______.

short run; lowers the inflation rate and increases the unemployment rate

When fuel prices risefuel prices rise ​_______. When the price level in India increases​ _______.

short-run aggregate supply​ decreases; the quantity of real GDP supplied increases

A bond is a promise to pay​ _____ sums of money on​ _____ dates.

specified; specified

An economy is at potential GDP when it experiences an increase in costs. The economy experiences​ _______.

stagflation

Choose the correct statements. 1. The President of the United States is a member of the FOMC. 2. The president of the San Francisco Fed is always a member of the FOMC. 3. The FOMC is the main policy dash making organ of the Federal Reserve System. 4. The chairman and the other six members of the Board of Governors are members of the FOMC.

statements 3 & 4 are correct

In mainstream business cycle​ theory, the money wage rate is __________

sticky

A government budget surplus​ occurs, which increases the ______________ loanable funds.

supply of

The​ long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate​ ______.

supports the quantity​ theory, but the correlation is not perfect

Europe's Banks Must Be Forced to Recapitalize E.U. banks must hold more capital. Where private funding is not​ forthcoming, recapitalization must be imposed by E.U. governments. European banks need more capital because​ _______. The​ "capital" that is referred to in the news clip is​ _________.

they risk failing if loans they hold are not repaid or if other assets lose​ value; owners' investment in the bank

When the Fed buys securities from a​ bank, ______.

the​ bank's reserves increase but its deposits do not change

​G-20 Leaders Look to Shake off Lingering Economic Troubles The​ G-20 aims to take stock of the economic recovery. One achievement in Pittsburgh could be a deal to require that financial institutions hold more capital.

the​ institutions' own​ funds; banks and insurance companies

If the natural unemployment rate increases and the expected inflation rate remains​ constant, then​ ______.

the​ long-run Phillips curve shifts rightward and the​ short-run Phillips curve shifts rightward

If the expected inflation rate increases and the natural rate of unemployment remains​ constant, then​ _______.

the​ short-run Phillips curve shifts upward and the​ long-run Phillips curve does not shift

Physical capital is​ ______. Financial capital is​ ______.

the​ tools, instruments,​ machines, buildings, and other items that have been produced in the past and that are used today to produce goods and​ services; the funds that firms use to buy physical capital

A movement​ ______ along the​ short-run Phillips curve occurs when there is an​ ______ increase in aggregate demand.

up; unexpected

Depository institutions minimize the cost of monitoring borrowers by​ ______.

using specialized resources that have a much lower cost than what households would incur if they had to undertake the activity individually

1. The​ "fiscal cliff" is all of the following except ​_________.

what happens whenever the economy enters a recession

Explain the effect of each of the following events on​ Canada's aggregate demand Canada sets new environmental standards that require power utilities to upgrade their production facilities.

​Canada's aggregate demand increases

Explain the effect of each of the following events on​ Canada's aggregate demand. The government of Canada cuts income taxes.

​Canada's aggregate demand increases

Mexico trades with the United States. When the U.S. economy goes into an expansionan expansion​, ​______.

​Mexico's exports to the United States increase​, ​Mexico's aggregate demand increases​, and​ Mexico's AD curve shifts rightward

Michael is an Internet service provider. On December​ 31, 2010​, he bought an existing business with servers and a building worth ​$500,000. During his first year of​ operation, his business grew and he bought new servers for ​$300,000. The market value of some of his older servers fell by ​$150,000. Calculate​ Michael's gross​ investment, net​ investment, and depreciation during 2011.

​Michael's gross investment during 2011 was ​$300,000 ​Michael's depreciation during 2011 was ​$150,000 ​Michael's net investment during 2011 was ​$150,000

A macroeconomic equilibrium in which real GDP equals potential GDP is​ _____ equilibrium. And one in which real GDP exceeds potential GDP is​ _____ equilibrium.

​a full-employment​; an above full-employment

When the​ full-employment quantity of labor​ increases, or the quantity of capital​ increases, or technology advances​ ______.

​long-run aggregate supply and​ short-run aggregate supply increase

A central bank is a​ bank's bank and a​ _____ authority that regulates a​ nation's depository institutions and conducts​ _____ policy, which means that it adjusts the​ _____ and influences​ _____.

​public; monetary; quantity of money in​ circulation; interest​ rates;

The​ ______ interest rate is the opportunity cost of loanable funds because​ ______.

​real; the real interest paid on borrowed funds is the opportunity cost of borrowing and the real interest rate forgone is the opportunity cost of not saving or not lending those funds

The defining feature of the monetarist view of macroeconomics is that the economy​ is______.

​self-regulating and that it will normally operate at full​ employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady


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