Macro quizlet unit 4

A bank has $800 million in demand deposits and $100 million in reserves. If the reserve requirement is 10 percent, the bank's excess reserves equal

$20 million

An increase in government spending will affect the demand for money and nominal interest rates in which of the following ways?

Demand for Money- Increase Nominal INterest rates- Decrease

An increase in which of the following will most likely increase productivity?

Capital stock

If the annual interest rate is 5 percent, then the present value of $1.00 received one year from now is closest to

$0.95

Expansionary monetary policy will most likely cause interest rates and investment to change in which of the following ways in the short run?

Interest Rates decrease, Investment increases

Which of the follwong is true of the opportunity costs of holding cash?

It increases as the interest rate rises

Which of the following is true of the Phillips Curve?

It is the downward sloping in the shortrun, but is vertical in the long run

If the central bank raises the equired reserve ratio, the money multiplier and the money supply will change in which of the following ways?

Money multiplier- Decrease Money supply- Decrease

An increase in inflationary expectations will most likely affect nominal interest rates and bond prices in which of the following ways in the short run?

Nominal Interest Rates Increase, Bond Prices decrease

If contractionaty fiscal policy is followed by an expansion monetary policy, nominal interest rate and employment would most likely be affectedin which of the following ways in the short run.

Nominal interest rate- Decrease Employment- Intermediate

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

Nominal interest rate- Increase Aggregate Demand- Decrease

In the long run, an increase in aggregate demand due to an expansion in te money supply will increase

Nominal output and price level

If the reserve requirement is 10 percent and the central bank sells $10,000 in government bonds on the open market, the money supply will

decrease by a maximum of $100,000

A discretionary fiscal policy action to reduce inflation in the short run would be to

increase taxes or decrease govt spending

The transaction demand for money is very closely associated with money's use a

Medium of exchange

If the required reserve ratio is 10 percent, actual reserves are 10 million and currency in circulation is equal to 20 million, M1 will at most be equal to

120 million

Which of the following policies if appropriately sized, would provide expansion during a recession with the smallest change in interest rates?

A decrease in taxes and an open market purchase of governement securities by the central bank

The graph above shows two aggregate demand curves AD1 and AD2, and aggregate supply curves,AS. The shift in the aggregate demand curves from AD1 to AD2 could be caused by

A decrease in the money supply

Which of the following will most likely lead to a decrease in inflationary expectations?

A decrease in the money supply

Which of the following could cause a movement along a country's short-run Phillips curve toward higher unemployment and lower inflation?

A recession in the economies of the nation's major trading partners

Which of the following will lead to a decrease in a nation's money supply?

An increase in reserve requirements

Which of the following policy combinations could reduce a government deficit without changing aggregate demand?

An increase in taxes and an increase in the money supply

An increase in the price level will most likely cause which of the following?

An increase in the demand for money

A rightward shift of the short- run Phillips curve is most likely due to

An increase in the expected rate of inflation

All of the folowing changes will shift the investment demand curve ot the right EXCEPT

An increase in the real interest rate

Public policy that generats an unexpected increase in consumer prices will inflict short- run costs on all of the following EXCEPT

Borrowers

Which of the following actions by the Federal Reserve of United States increases the money supply?

Buying government bonds on the open market

Hyperinflation is typically caused by

Continious expansion of the money supply to finance government budget deficits

Of the following, the most liquid asset is

Currency

Assume that the reserve requirement for demand deposits is 20 percent, that banks hold in excess reserves, and that the public holds no currency. If the central bank sells $100,000 worth of governemtn securities to commercial banks, the total money supply will

Decrease by 50,000

The amount of money that the public wants to hold in the form of cash will

Decrease if interest rates increase

The natural rate of unemployment can be defined as the

Economy's long-run equilibrium rate of unemployment

A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy?

Fiscal policy- Increase taxes Monetary policy- Sell government bonds

A country's government runs a budget deficit in when which of the following occurs in a given year?

Government spending exceeds tax revenues

Which of the following combinations of changes in government spending in taxes is necessarily expansionary?

Government spending- Increase Taxes- Decrease

According to the short run Phillips curve, lower inflation rates are associated with

Higher unemployment rates

Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirements from 16 percent to 8 percent, the money supply will

Increase be less than double

Crowding out is most likely to occur with which of the following changes?

Increase in budget deficit

With an upward sloping short run aggregate supply curve, an increase in governement expenditure will most likely

Increase real gross domestic product

Assume that the Federal Reserve pursues a contractionary monetary policy. Based on the resulting change in the interest rate, what will happen to the international value of the dollar, United States imports, and United States exports?

Increase, Increase, Decrease

If the economy is in a severe recession, which of the following policy actions is most appropriate?

Increaseing the both the money supply and government spending

Which of the following will lead to an increase in the money supply?

Open-market purchase of securities by the central bank

With an upward-sloping aggregate supply curve, an increase in the money supply will affect the price level and real gross domestic product (GDP) in the short run in which of the following ways?

Price Level increases, Real GDP decreases

In the short run, an expansionary monetary policy would most likely result in which of the folowing changes in the price level and real domestic product?

Price Level- Increase Real Gdp- Increase

Suppose that a national government increased deficit spending on goods and services, increasing its demand for loanable funds. IN the long run, this policy would most likely result in which of the following changes in the country?

Real Interest Rate: Increase; Investment: Decrease

In the short run, government deficit spending will most likely

Raise nominal interest rate

Which of the following is a cause of hyperinflation?

Rapid growth of the money supply

If wages are prices are perfectly flexible and inflation is correctly anticipated, than an expansionary monetary policy will affect the real output and price level in which of the following ways?

Real output- Not change Price Level- Increase

An increase in the international value of the United States dollar will most likely benefit

Retired United States citizens living overseas on their social security checks

If a central bank significantly increases its sales of government bonds, it is most likely responding to which of the following?

Rising price levels

If aggregate demand is growing faster than long- run aggregate supply, the Federeal Reserve is most likely to

Sell securities on the open market

According to the graph above and starting with equilibrium point R, which of the follwong shifts identifies, the short runand the long- runimpact of a demand pull inflation?

Short Run- R to M Long Run- R to N

Which of the following combinations of economic policies would be most effective to correct a severe recession?

Taxes decrease, money supply increases

Inflation occurs when there is sustained inccrease in which of the following?

The average price level

Assume that with a proportional tax system, the government always sets the tax rate at a level that yields a balanced budget at full employment. Which of the following is necessarily true?

The national debt will increase in any year the economy operates below full employment.

Which of the following are the most likely short run effects of an increase in government expenditure?

UR- Decrease IR- Increase GDP- Increase

Rational expectations theory suggests that people

Use all available information in forming their expectations about future inflation

Expansionary fiscal policy will most likely result in

an increase in nominal interest rates

When the central bank sells government bonds on the open market, which of the following will most likely increase?

nominal interest rates

Which of the following is a determinant of the amount of money the commercial banking system can create?

reserve requirement