MacroEcon Final

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from using _____ money to using _____ money.

commodity, commodity-backed

Suppose the economy is in a recessionary gap. A $100 billion _____ is likely to increase real GDP by the largest amount.

increase in government purchases

The cyclically adjusted budget deficit fluctuates _____ the actual budget deficit.

less than

Which of the following fiscal policies would make a budget surplus larger or a budget deficit smaller?

lower government transfers

If the Federal Reserve wants to increase the money supply, it could:

lower the reserve requirement

Expansionary Fiscal policies:

make the budget surplus smaller

When the Fed decreases the reserve requirement, banks lend _____ of their deposits, which leads to a(n) _____ in the money supply.

more; increase

The money multiplier is equal to:

the ratio of the money supply to the monetary base

Suppose the reserve ratio is 20%. If Sam deposits $500 in his checking account, his bank can increase loans by:

$400

If the marginal propensity to save is 0.25, investment spending is $700 million, and the government increases its purchases of goods and services by $100 million, then real GDP increases by:

$400 million

If a bank has deposits of $100,000, cash in its vault of $10,000, and $15,000 on deposit at the Federal Reserve and if the required reserve ratio is 20%, then the bank:

has excess reserves of $5000

Since 1964, the budget deficit _____ of GDP

has never been more than 12%

Spending promises made by governments that are effectively a debt, despite the fact that they are not included in the usual debt statistics, are known as:

implicit liabilities

An increase in the supply of money will lead to a(n) ____ in equilibrium real GDP and a ____ equilibrium interest rate

increase ; lower

According to the text, the public debt of the U.S. federal government at the end of fiscal year 2013 equaled about:

$12 trillion

If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and $15,000 on deposit at the Federal Reserve, then its reserve ratio is:

25%

Which of the following about bank runs is FALSE?

Bank runs typically happen only to small banks with few financial assets.

In the basic equation of nation income accounting, GDP = C + I + G + X - IM, the goverment directly controls ______ and influences ______ through fiscal policy

G; C and I

A government can pay off its debt if:

GDP grows faster than the debt

In the long run a change in the money supply will affect: I. the interest rate. II. real GDP. III. prices.

III only

The primary difference between M1 and M2 is that:

If you transfer $1,000 from your savings account to your checking account:

An individual who decides to hold money instead of other assets:

Is giving up the interest that other assets could have earned

Do economists believe that the budget should be balanced each fiscal year?

No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well

The largest source of federal tax revenues is

Personal Income taxes

The Federal Open Market Committee has decided that the federal funds rate should be 2% rather than the current rate of 1.5%. The appropriate open market action is to _____ Treasury bills to _____ money ______

Sell; decrease; supply

Example of Government Transfer

Social Security payments to retired auto workers

The budget balance is calculated as:

T - G - TR

Which of the following statements is FALSE?

The taylor rule sets the federal funds rate on the basis of only past inflation rates, wheras inflation targeting is based on a target interest rate and business cycles

Monetary policy affects aggregate demand through changes in: consumer and investment spending

When the central bank announces the desired inflation rate and sets policy to reach that rate, it is using: inflation targeting

Which one of the following events will NOT decrease the demand for money

an increase in the aggregate price level

An increase in the money supply causes ____ in output in the short run and ____ in output in the long run.

an increase; no change

Fiscal Policies that require no government action but that are expansionary when the economy contracts and contractionary when the economy expands are known as

automatic stabilizers

The federal funds rate is the interest rate at which

banks borrow from other banks with excess reserves

When the Fed uses quantitative easing, it is

buying longer-term government debt

Changes in the budget balance:

can be both the result of and the cause of changes in the economy

Which of the following is a component of BOTH the monetary base and the money supply?

currency in circulation

If the marginal propensity to consume is 0.75 and taxes increase by $30 billion, real GDP will:

decrease by less than $120 billio

A decrease in the supply of money will lead to a(n) ____ in equilibrium real GDP and a(n) _____ in equilibrium interest rates.

decrease; increase

The federal budget tends to move toward _____ as the economy ____.

deficit, contracts

The money demand curve is____ because the opportunity cost of holding money is_____ related to the interest rate.

downward-sloping; directly

If the demand for money is $100 billion and the supply of money is $200 billion, then the interest rate will:

fall

Other things equal, rising interest rates lead to a _____ in investment spending and a _____ in _____ spending

fall; fall; consumer

The reserve ration is the:

fraction of deposits that banks hold in their vaults plus their deposits at the Federal Reserve.

Given an inflationary gap, the Federal reserve will use monetary policy to _____ interest rates and ______ aggregate demand

increase; decrease

An increase in the supply of money with no change in demand will lead to a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest rate

increase; fall

If the Federal Reserve conducts an open-market purchase bank reserves _____ and the money supply _______.

increase; increases

When the Fed decreases the discount rate, banks are likely to _____ their lending and the money supply _____.

increase; increases

When the budget is in deficit, the government generally:

increases the public debt

Expansionary monetary policy ____ the money supply, _____ interest rates and ____ consumption and investment spending

increases, decreases, increases

One of the shortcomings of fiscal policy is that:

it has time lags, so sometimes it may end up destabilizing the economy.

When the actual output is above potential output overtime:

nominal wages will increase and the short-run supply curve will shift to the left.

A sale of Treasury bills by the Federal Reserve_____ interest rates and ____ the money supply

raises; reduces

If the economy is at potential output and the Fed decreases the money supply, in the LONG run real GDP will likely:

remain the same

The three main monetary policy tools are:

reserve requirements, the discount ratem and open-market purchases

If the target rate of interest is higher than the equilibrium interest rate, the federal reserve will _____ Treasury bills in the open market, _____ the supply of money, and ______ the interest rate to the target rate.

sell; decrease; raise

If inflation increases from 2% to 5%, the money demand curve will:

shift to the right.

An example of an automatic stabilizer is:

tax receipts rising when GDP rises

Bank reserves are:

the fraction of deposits kept in the form of very liquid assets.

When the Federal Reserve decreases bank's reserves through an open-market operation:

the monetary base decreases, loans decrease, and the money supply decreases

"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate?

unit of account

The money supply curve is

vertical

The cyclically adjusted budget balance is an estimate of

what the budget balance would be if real GDP were exactly equal to potential output

If congress places a $5 tax on each ATM transaction. there will likely be:

a shift to the right of the money demand curve

A change in government transfers shifts the aggregate demand curve by _____ than a change in government spending for goods and services and has a _____ effect on real GDP.

less; smaller

To increase the money supply, the central bank could:

lower the discount rate

All of the following are roles of money EXCEPT a:

measure of wealth

Money used to buy a ticket to a football game is functioning primarily as a:

medium of exchange

Monetary neutrality implies that in the long run:

monetary policy does not affect the level of economic activity.

If interest rates are at the zero lower bound:

monetary policy is ineffective

The _____ multiplier is equal to _____.

money; 1 divided by the required reserve ratio

Suppose that the economy enters a recession and real GDP falls. All else equal, we would expect:

the money demand curve to shift inward