ECON 2301 Final Review (Ch. 8-13, 15, 22)

If checkable deposits in Bank A total $300 million and the required reserve ratio is 10 percent, then required reserves at Bank A equal

$30.0 million

If reserves increase by $7 million and the required reserve ratio is 12%, what is the resulting change in checkable deposits (or the money supply), assuming that there are no cash leakages and that banks hold zero excess reserves?

$58.33 million

Refer to Exhibit 34-9. For country X, the opportunity cost of producing one unit of good B is __________ unit(s) of good A.

10

Refer to Exhibit 34-7. Assume that the current price of X is $25 (which includes a $10 tariff on imports of product X). Americans purchase ______ units of X from U.S. producers and import _______ units of X from abroad.

10; 30

When the MPC = 0.6, the multiplier is

2.50

Refer to Exhibit 34-7. Assume that the current price of X is $25 (which includes a $10 tariff on imports of product X). The government collects tariff revenue on product X in the amount of

300

If the multiplier is 5, then the MPC must be

4/5

Refer to Exhibit 10-3. The multiplier is

5

In 2009, the top 25 percent of income earners in the U.S. (by the size of their taxable incomes) paid about __________ percent of the total federal income taxes.

87

Refer to Exhibit 11-4. If a persons taxable income is $50,000, how much does he pay in taxes?

9250

Refer to Exhibit 9-7. Which point is representative of the economy in a recessionary gap?

A

Which of the following questions is false? Purchasing power and the price level are inversely related. The real balance effect refers to the change in the purchasing power of dollar-denominated assets as a result of a change in the price level. The aggregate demand curve slopes downward because of the real balance, interest rate, and international trade effects. A change in the quantity demanded of Real GDP is directly brought about by a change in interest rates.

A change in the quantity demanded of Real GDP is directly brought about by a change in interest rates.

__________ flows from government to households.

A transfer payment

How does the classical position on saving differ from Keynes's position?

Classical position: saving is directly related to the interest rate. Keynes's position: at times, saving may be inversely related to the interest rate.

A consumption function is a statement that shows the relationship between interest rates and consumption.

FALSE

According to classical economists, Say's law applies to a barter economy, but it does not apply to a money economy.

FALSE

Moral hazard occurs when the parties on once side of the market, who have information not known to others, self select in a way that adversely affects the parties on the other side of the market.

FALSE

Nonactivists argue against the use of discretionary monetary policy and rules-based monetary policy.

FALSE

The interest rate that the Fed pays on reserves acts as a ceiling on the federal funds rate.

FALSE

To an economist, the terms "money" and "wealth" are synonyms.

FALSE

When the Federal Open Market Committee (FOMC) votes on policy, it does so in the following order: the chair votes first, the vice chair votes second, and the remaining FOMC members vote based on their seniority at the Fed.

FALSE

When the economy is in a recessionary gap, the labor market is experiencing a surplus.

FALSE

Refer to Exhibit 9-5. Point G on graph (2) corresponds to which point(s) on graph (1)?

I or L

Refer to Exhibit 10-5. When TE is $300 billion, what happens to inventories?

Inventories will fall below optimum levels.

Starting from short-run equilibrium, the following occurs: the money supply increases and labor productivity increases. What is the effect on the price level and Real GDP in the short run?

Real GDP rises and the effect on the price level cannot be determined.

If labor productivity rises at the same time that there is a beneficial supply shock, what is the effect on short-run aggregate supply (SRAS)?

SRAS rises

Which of the following represents a double coincidence of wants?

Smith has what Jones wants and Jones has what Smith wants.

According to your text, in 2011 the top 1 percent of income earners in the U.S. earned more than $343,923.

TRUE

One of the arguments in favor of trade restrictions is the foreign export subsidies argument.

TRUE

The price of old (or existing) bonds and interest rates have an inverse relationship.

TRUE

To expand the money supply the Fed could lower the required reserve ratio, lower the discount rate, or purchase government securities.

TRUE

When the Federal Reserve system was being created, some people thought that there should be as few district banks as possible to enhance efficiency and for ease of operation.

TRUE

With a progressive income tax, as real income rises, one's tax burden rises more than proportionally.

TRUE

Which of the following describes a change that the Federal Reserve made in response to the financial crisis of 2007-2009?

The Fed extended the lender of last resort function to institutions other than banks.

Which of the following statements is false? The classical economists believed that government should manage the economy. The classical economists believed in a policy of laissez-faire. The classical economists believed that the economy was self-regulating. The classical economists believed equilibrium output would be full-employment output.

The classical economists believed that government should manage the economy.

Which of the following statements is true? The economy can operate outside (or beyond) its institutional PPF and its physical PPF, but only for a short while. The economy can operate outside its physical PPF, if only for a short while, but can never operate outside its institutional PPF. The economy can operate outside its institutional PPF, if only for a short while, but can never operate outside its physical PPF. The economy can never operate outside its institutional PPF or its physical PPF, even for a short while. none of the above

The economy can operate outside its institutional PPF, if only for a short while, but can never operate outside its physical PPF.

The federal budget is balanced and the economy is on the upward-sloping portion of the Laffer curve. Then, tax rates are cut and government purchases are increased. Is a budget deficit inevitable?

Yes, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) lowers tax revenues.

An example of contractionary fiscal policy is

a decrease in government expenditures, or an increase in taxes, or both.

There is an increase in the money supply and the interest rate does not change. This is what happens if

a liquidity trap exists.

An example of expansionary fiscal policy is

an increase in government spending, or a decrease in taxes, or both.

If reserves equal $59 million and vault cash equals $29 million, it follows that

bank deposits at the Federal Reserve equal $30 million.

The Federal Reserve System is the

central bank of the United States.

Transaction costs are best defined as the

costs associated with the time and effort necessary to make an exchange.

Keynes believed that investment is

dependent on a number of factors, including business expectations.

Consumption and disposable income are

directly related.

In contrast to a tariff, a quota does not

generate revenues for government.

The Keynesian aggregate supply curve is

horizontal until Natural Real GDP (QN) and vertical at QN.

If the money market is in the liquidity trap, it is operating in the __________ segment of the __________ demand curve.

horizontal; money

Suppose the multiplier is 4. Ceteris paribus, a change in autonomous spending will change Real GDP more if the aggregate supply curve is __________ than if it is __________.

horizontal; upward sloping

A tariff is a tax on

imports

If the SRAS curve intersects the AD curve to the left of Natural Real GDP, the economy is

in a recessionary gap.

If the economy is currently operating below its institutional production possibilities frontier (institutional PPF), it is

in a recessionary gap.

Suppose the economy's current AD and SRAS curves intersect to the right of Natural Real GDP. Keynesians might advise a policy of tax __________ to shift __________.

increases; AD to the left

If the interest rate increases, the opportunity cost of holding money __________, and the quantity demanded of money __________.

increases; decreases

Assuming no cash leakages and no excess reserves held by banks, a required reserve ratio of 0 percent would mean that the simple deposit multiplier is

infinity

Refer to Exhibit 15-4. In the row of this table containing blank (C), people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

just the right amount; just the right amount

When there is a recessionary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural rate of unemployment.

less than; greater than

According to the Keynesian transmission mechanism, an increase in the money supply will __________ the interest rate, causing a __________ in investment, which then __________ Real GDP.

lower; rise; raises

The store of value function of money refers to the ability of money to

maintain its value over time.

From the Patterns of Sustainable Specialization and Trade (PSST) perspective, expansionary monetary and fiscal policies that are designed to boost aggregate demand

may not work if buyers and sellers are out of sync with one another, and may end up making the economy worse.

Every time the Fed buys or sells on the open market, the __________ changes.

money supply

A change in the quantity demanded of Real GDP is graphically represented as a

movement from one point on the AD curve to another point on the same curve.

Foreign real national income rises. This raises U.S. ___________ which ________ aggregate demand (AD). The AD curve shifts ___________.

net exports; raises; rightward

Refer to Exhibit 34-11. PW is the price that exists in the market before a tariff is imposed and PW + T is the price that exists in the market after a tariff is imposed. Because of the tariff, consumers' surplus falls and producers' surplus rises by the area

none of the above

Refer to Exhibit 34-7. The world price of X is $15. Under a policy of free trade, the U.S. production of X would be

none of the above

One of the reasons why the AD curve slopes downward is that as the

price level falls, purchasing power rises.

A short-run aggregate supply curve shows the

real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.

Compared to barter, money __________ transaction costs, making transactions __________ time-consuming.

reduces; less

Which of the following is not included in M1?

retail money market mutual funds

A decrease in business taxes, causes the expected profitability of investment projects to __________, which then shifts the AD curve to the __________.

rise; right

As the interest rate increases, the opportunity cost of holding money __________ and individuals choose to hold __________ money.

rises; less

If velocity and the money supply are __________________, then when one component of spending rises another component of spending ________________.

rising; may not necessarily fall

Producers' surplus is the difference between the price

sellers receive for a good and the minimum price for which they could have sold the good.

Suppose Americans buy inputs from foreigners. When the price of foreign inputs falls, the U.S. SRAS curve __________, which tends to __________the U.S. price level.

shifts rightward; reduce

Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, it follows that

the SRAS curve will shift to the right and pass through point 3

The Fed can change the money supply by changing

the required reserve ratio.

"Dumping" refers to

the sale of goods abroad at a price below their cost and below the price charged in the domestic market.

Equilibrium in the money market exists when

the supply of money curve intersects the demand for money curve at the prevailing interest rate

Saying that it takes twice as many dollars to buy one ticket for a concert than two tickets for a movie refers to the use of money as a

unit of account

Between the data lag and the legislative lag falls the __________ lag.

wait-and-see