macro test 3 true/false review

A difference between economic long run and the short run is that prices and wages are sticky in the long run only.

false A difference between economic long run and the short run is that prices and wages are sticky in the short run only.

According to the quantity theory of money, if output is higher, higher real balances are required, and for fixed M this means lower P

true

Along the aggregate demand curve, the money supply and velocity are constant.

true

Demand deposits are funds held in checking accounts.

true

Excess reserves are reserves that banks keep above the legally required amount.

true

If Central Bank A cares only about keeping the price level stable and Central Bank B cares about keeping output at its natural level rapidly, then in response to a decrease in the velocity of money both Central Bank A and Central Bank B should increase the quantity of money.

true

If the long-run aggregate supply curve is vertical, then changes in the aggregate demand affect prices but not level of output.

true

In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then the productive capability of the economy determines real GDP and the money supply determines nominal GDP.

true

People use money as a medium of exchange when they use money to buy goods and services.

true

People use money as a store of value when they hold money to transfer purchasing power into the future.

true

People use money as a unit of account when they use money as a measure of economic transactions.

true

Starting from long-run equilibrium, without policy intervention, the long-run impact of an adverse supply shock is that prices will return to the old level and output will be restored to the natural rate.

true

The aggregate demand curve is the negative relationship between the quantity of output demanded and the price level.

true

The aggregate demand curve tells us possible combinations of P and Y for a given value of M.

true

The banking system creates liquidity.

true

The long-run aggregate supply curve is vertical at the level of output at which unemployment at is natural rate.

true

The use of borrowed funds to supplement existing funds for purposes of investment is called leverage.

true

The value of banks' owners' equity is called bank capital.

true

The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on the money supply.

true

To increase the money multiplier the Fed can lower the interest rate paid on reserves.

true

To make a trade in a barter economy requires a double coincidence of wants.

true

When banks borrow through the Term Auction Facility, the price of borrowing is determined by a competitive bidding process.

true

When the Fed conducts an open-market purchase, it buys bonds from the public.

true

short-run fluctuations in output and employment are called business cycles.

true

According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased increases.

false According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased decreases.

Economists use the term money to refer to earnings from labor.

false Economists use the term money to refer to assets used for transactions.

In a 100 percent reserve banking system, if a customer deposits $100 of currency to a bank, then the money supply increases by $100.

false In a 100 percent reserve banking system, if a customer deposits $100 of currency to a bank, then the money supply remains the same.

In a fractional reserve banking system, banks create money because the wealth of the economy expands when borrowers undertake new debt obligations.

false In a fractional reserve banking system, banks create money because each dollar of reserves generates many dollars of demand deposits.

In the United States, bank reserves consist of currency and demand deposits.

false In the United States, bank reserves consist of vault cash and deposits at the Federal Reserve.

in the long run, the level of output is determined by the interaction of supply and demand.

false In the long run, the level of output is determined by the amount of capital and labor and the available technology.

Money neutrality is a characteristic of the aggregate demand-aggregate supply model in in the short run, but not in the long run.

false Money neutrality is a characteristic of the aggregate demand-aggregate supply model in in the long run, but not in the short run.

oney's liquidity refers to the ease with which loans can be floated.

false Money's liquidity refers to the ease with which money can be converted into goods and services.

Most economists believe that the classical dichotomy holds approximately in the short run but not at all in the long run.

false Most economists believe that the classical dichotomy holds approximately in the long run but not at all in the short run.

Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by increasing the money supply, but at the cost of permanently lower prices.

false Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by increasing the money supply, but at the cost of permanently higher prices.

The most frequently used tool of monetary policy is changes in the discount rate.

false The most frequently used tool of monetary policy is open market operations.

The short-run aggregate supply curve is horizontal at the natural level of output.

false The short-run aggregate supply curve is horizontal at a fixed price level.

To increase the money supply the Fed buys corporate stocks.

false To increase the money supply the Fed buys government bonds.

When GDP growth declines, investment spending typically decreases and consumption spending typically increases.

false When GDP growth declines, investment spending typically decreases and consumption spending typically decreases.