Econ 201 Test 3
The shift of the Short-run aggregate- supply curve from SRAS1 to SRAS2
Could be caused by a decrease in the expected price level
If the economy starts at point A a short-run fall in output would be consistent with a movement to point
D
which of the Long-run aggregate supply curves is consistent with a recession
LRAS3
An Increase in Government Purchases will
Shift aggregate demand from AD1 to AD2
economists use the term "money" to refer to
Those types of wealth that are regularly accepted by sellers in exchange for goods and services
The quantity theory of money
can explain both moderate inflation and hyperinflation
the wealth effect stems from the idea that a higher price level
decreases the real value of households' money holdings
the interest-rate effect
depends on the idea that decreases in interest rate increase the quantity of goods and services demanded
Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3
a decrease in the price level
A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. on their respective balance sheets, this loan is
an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply
Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate demand curve
as the price level increases, the interest rate rises, so spending falls
an assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year
his real salary has fallen and his nominal has risen
Which of the following shifts aggregate demand to the left
households decide to save a larger fraction of their income
Most economists believe that classical theory describes the world
in the long run
monetary neutrality implies that an increase in the quantity of money will
increase the price level
in a fractional-reserve banking system, a bank
keeps only a fraction of its deposits in reserves
a central bank's (or altering) of the money supply is known as
monetary policy
the goal of the monetary policy and fiscal policy is to
offset shifts in aggregate demand and thereby stabilize the economy
If the current rate is 2 percent
people will sell more bonds, which drives interest rates up
An increase in the money supply might indicate that the fed had
purchased bonds in an attempt to reduce the federal funds rate
according to the Classical dichotomy, which of the following is not influenced by monetary factors?
real GDP
the supply of money increases when
the Federal Reserve purchases bonds
Derek decides to forego a major appliance purchase and save the money. He transfer $2100 from his checking account to his money market mutual fund. As a result of this transfer
M1 decreases by $2,100 and M2 stays the same
Other things the same, Continued technological progress and continued increases in the money supply would ambiguously lead to
Rising real GDP only
The Fisher effect
Says there is a one for one adjustment of the nominal interest rate to the inflation rate
The "yardstick" people use to post prices and record debts is called
a unit of account
According to liquidity preference theory, the opportunity cost of holding money is
the interest rate on bonds
when the Fed sells government bonds
the money supply decreases and the federal funds rate increases
when the money supply increases
interest rates fall and so aggregate demand shifts right
the position of the long run aggregate supply curve
is determined by resources usage and technology
While a television news reporter might state that " Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows
"Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent"
Below are pairs of GDP growth Rates and unemployment rates. Economists would be shocked to see most of these pairs in the U.S. Which pair of GDP growth Rates and unemployment rates is Realistic
3 percent, 5 percent
If the reserve ratio is 15 percent, the money multiplier is
6.7
A decrease in taxes would move the economy from C to
B in the short run and A in the long run
When the fed decreases the discount rate, banks will
Barrow more from the Fed and lend more to the public. The money supply increases
according to the classical model, which of the following would double if the quantity of money doubled?
Both price and nominal income
you receive money as payment for babysitting your neighbors' children. this best illustrates which function of money?
Medium of exchange
People had been expecting the price level to be 140 but it turns out to be 138. Johnson family restaurants increases the number of workers it employs. what could explain this
Neither sticky wage theory nor sticky price theory
In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. in 2011 tuition was $12,000 and the price index was 320. Which of the following is correct?
Nominal and real tuition were both higher in 2011
Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her
Nominal income increased, but their real income decreased
The theory of liquidity preference is most helpful in understanding
The interest rate effect
If the federal open Market Committee decides to increase money supply, then the Federal Reserve
creates dollars and use them to purchase government bonds from the public
when we say that economic fluctuations are "irregular and unpredictable," we mean that
recessions do not occur at regular intervals
if wages are sticky, then a greater than expected increase in the price level
reduces the real costs of production, so aggregate quantity of goods and services rise
Investment is a
small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP
When the Consumer price index falls from 110 to 100
there is deflation of 9.1% and the value of money increases
A bank's reserve ratio is 5 percent and the bank has $2,280 in reserves. Its deposits amount to
$45,600
suppose the federal reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve Requirment is 10 percent, how much more money can banks create if they lend out the remaining amount?
$50 billion
As we move from one point to another along the money demand curve MD1
The price level is held fixed at P1
on the graph that depicts the theory of liquidity preference
The supply-of-money curve is vertical
Suppose the economy starts at Z. If changes occur that move the economy to a new short run equilibrium of P1 and Y1, then it must be the case that
aggregate demand has decreased
suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to
decrease consumption, shown by shifting the aggregate- demand curve to the left
For a given real interest rate, a decrease in the inflation rate would
increases the after-tax real interest rate and so increase savings
other things the same, if reserve requirements are increased, the reserve ratio
increases, the money multiplier decreases, and the money supply decreases
the Sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,
production is less profitable and employment falls
on a bank's T-account, which are part of the banks assets
reserves but not deposits made by its customers
the supply of money is determined by
the Federal Reserve System
In the long run, money demand and money supply determine
the price level, but not the real interest rate
Under the quantity theory of money, when the money market is drawn with the value of money on the vertical
the quantity of money demanded but not the quantity of money supplied
If the money supply is MS2 and the value of money is 2, then
the quantity of money supplied is greater than the quantity demanded, the price level will rise
the Fed can influence unemployment in
the short run, but not in the long run
when taxes increase, consumption
decreases as shown by a shift of the aggregate demand curve to the left
in a certain economy, when income is $500, consumer spending is $375. the value of the multiplier for this economy is 5. it follows that, when income is $510, consumer spending is
$383
If the multiplier is 6, then the MPC is
.83
If p denotes the price of goods and services measured in terms of money, then
1/P represents the value of money measured in terms of goods and services
If R represents the reserve ratio for all banks in the economy, then the money multiplier is
1/R
Suppose the relevant money-supply curve is the one labeled MS1, also suppose the economys real GDP is 30,000 for the year. If the money market is in equilibrium, then the velocity of money is approximately.
6.0
Which of the following events could explain a shift of the money- demand curve from MD1 to MD2
None of the above is correct
When the price level falls, the number of dollars needed to buy a representative basket of goods
decrease, so the value of money rises
