ECON 285 Final

18) If the economy is in a recession then the government should increase government spending or decrease taxes. A. True B. False

A. True

Fiat money is accepted as means of payment because of government declaration. A. True B. False

A. True

If the government announces a big tax cut, which of the following would occur? A. A rightward shift of the aggregate demand curve B. A leftward shift of the aggregate demand curve C. A rightward shift of the aggregate supply curve D. A leftward shift of the aggregate supply curve

A. A rightward shift of the aggregate demand curve

10) If there is an excess supply of money then there is also A. An excess demand for bonds B. An excess supply of bonds C. An excess demand for money D. None of the above

A. An excess demand for bonds

8) If the interest rate is high do households want to hold more of their wealth in bonds or money? A. Bonds B. Money C. Can not determine

A. Bonds

20) Stagflation occurs when A. Output decreases and price level increases B. Both output and price level increases C. Output increases and price level decreases D. Both output and price level increase

A. Output decreases and price level increases

The Fed's open market operations involve A. buying and selling of government bonds B. changes of the discount rate C. setting the required reserve ratio D. buying and selling corporate bonds E. a policy of last resort used to avert a financial crisis

A. buying and selling of government bonds

The standard measure of the money stock, M1, refers to A. checking account balances, traveler's checks, and cash in the hands of the public B. cash in the hands of the public, demand deposits, and small time deposits C. cash in the hands of the public, savings-type account balances, and traveler's checks D. savings-type account balances, small time deposits, and checking account deposits E. the sum of the cash in the hands of the public

A. checking account balances, traveler's checks, and cash in the hands of the public

The money demand curve is A. downward sloping B. upward sloping C. horizontal D. vertical E. has an inverted V-shape

A. downward sloping

In the aggregate demand-aggregate supply model, an increase in the price level will A. increase money demand, raise the interest rate, reduce aggregate expenditure, and decrease equilibrium real GDP B. decrease money demand, lower the interest rate, increase aggregate expenditure, and increase real GDP C. increase the money supply, lower the interest rate, increase aggregate expenditure, and increase real GDP D. decrease the money supply, raise the interest rate, reduce aggregate expenditure, and decrease real GDP E. not change money supply, money demand or the interest rate, but will shift the aggregate demand curve to the right

A. increase money demand, raise the interest rate, reduce aggregate expenditure, and decrease equilibrium real GDP

If the Fed wants to lower the interest rate, it will A. increase the money supply B. decrease the money supply C. increase money demand D. decrease money demand E. simply set a lower market interest rate

A. increase the money supply

Which of the following is not included in the M1 money stock? A. money market funds B. demand deposits C. checking account deposits D. traveler's checks E. cash in the hands of the public

A. money market funds

If the Fed wishes to increase the interest rate, it can do so by A. selling bonds B. buying bonds C. increasing the money supply D. setting a higher prime lending rate E. encouraging the public to buy bonds

A. selling bonds

The vertical aggregate supply curve in the long run is consistent with A. the classical model B. the short run macro model C. a typical firm's supply curve D. a positive demand shock E. a negative demand shock

A. the classical model

If a bank holds $2000 in demand deposits and the required reserve ratio is 0.15, how much can the bank lend out? A. $2,000 B. $1,700 C. $300 D. $150 E. $2,300

B. $1,700

If RRR is .15 and DD are $140,000, how much money can the bank lend out? A. $21,000 B. $119,000 C. $26,000 D. $114,000

B. $119,000

If the Fed sells $4000 in second-hand bonds and demand deposits decrease by $20,000 then what is the required reserve ratio? A. .15 B. .20 C. .30 D. .10

B. .20

If the Federal Reserve sells $1,500 in bonds and the resulting money supply change is $7,500, what is the required reserve ratio? A. 5.0 B. 0.2 C. 0.1 D. 0.4 E. 0.8

B. 0.2

16) The aggregate demand curve tells us equilibrium price level at each level of GDP. A. True B. False

B. False

If CPI decreases the money demand curve shifts rightwards. A. True B. False

B. False

The institution charged with creating and regulating the U.S. money supply is the A. U.S. Treasury B. Federal Reserve System C. Department of Commerce D. Department of Weights and Measures E. U.S. Mint

B. Federal Reserve System

19) An increase in world oil prices is called a A. Demand Shock B. Negative Supply Shock C. Negative Demand Shock D. Positive Supply Shock

B. Negative Supply Shock

If the price of oil increases the aggregate supply curve A. Remains the same B. Shifts upwards C. Shifts rightwards D. Shifts downwards

B. Shifts upwards

If a war interrupted oil production, which of the following would most likely happen in the short run? A. Unit costs would decrease and there would be an upward movement along the aggregate supply curve. B. Unit costs would increase and the aggregate supply curve would shift upward. C. Unit costs would increase and the aggregate supply curve would shift downward. D. Unit costs would decrease and the aggregate supply curve would shift upward. E. Unit costs would increase and there would be movement along the aggregate supply curve.

B. Unit costs would increase and the aggregate supply curve would shift upward.

The decline in output at the onset of the Great Depression was caused primarily by A. a positive demand shock B. a negative demand shock C. a positive supply shock D. a negative supply shock E. simultaneous shocks to supply and demand

B. a negative demand shock

A bank's most important service is A. making money B. providing checking account services C. organizing money flowing into accounts D. providing investment advice E. increasing the amount of cash the public holds

B. providing checking account services

A household's quantity of money demanded is defined as A. the amount of income that the household chooses to hold in the form of money, at each possible interest rate B. the amount of wealth that the household chooses to hold as money, rather than as other assets C. the household's desire to have greater financial wealth D. the percentage of each dollar of income that the household wishes to spend E. the total amount the household decides to hold in cash, bonds, and other assets, at each possible interest rate

B. the amount of wealth that the household chooses to hold as money, rather than as other assets

If there is an excess supply of money in the economy, A. there is also an excess demand for money B. there is also an excess demand for bonds C. there is also an excess supply of bonds D. the interest rate will rise E. the Fed must intervene to restore equilibrium

B. there is also an excess demand for bonds

12) If RRR is .25 what is the money multiplier? A. .25 B. 2 C. 4 D. 10

C. 4

Which of the following would be most likely to increase the quantity of money demanded? A. A decrease in real income B. An increase in real income C. A decrease in the interest rate D. An increase in the cost of converting other assets into money E. An increase in the price level

C. A decrease in the interest rate

Who is the current chair of the Fed? A. Ben Bernanke B. Paul Krugman C. Janet Yellen D. John Maynard Keynes

C. Janet Yellen

11) If GDP increases then the money demand curve A. Does not change B. Shifts leftwards C. Shifts rightwards D. Shifts downwards

C. Shifts rightwards

17) If there is an increase in government purchases, what is the effect on the aggregate demand curve? A. No effect B. Can not be determined C. Shifts rightwards D. Shifts leftward

C. Shifts rightwards

14) When there is an increase in spending GDP increases by A. The same amount B. The amount increase multiplied by the money multiplier C. The amount increase multiplied by the expenditure multiplier D. None of the above

C. The amount increase multiplied by the expenditure multiplier

If the Fed conducts an open market sale of bonds, which of the following will happen? A. The interest rate will decrease, the aggregate expenditure line will shift upward and the aggregate demand curve will shift rightward B.The interest rate will decrease, the aggregate expenditure line will shift downward and the aggregate demand curve will shift rightward C.The interest rate will increase, the aggregate expenditure line will shift downward and the aggregate demand curve will shift leftward D. The interest rate will decrease, the aggregate expenditure line will shift upward and the aggregate demand curve will shift leftward E.The interest rate will increase, the aggregate expenditure line will shift downward and the aggregate demand curve will shift rightward.

C. The interest rate will increase, the aggregate expenditure line will shift downward and the aggregate demand curve will shift leftward

What is included in a bank's reserves? A. Vault cash and all demand deposits B. Demand deposits C. Vault Cash and balance held at the Fed D. Checking account balances

C. Vault Cash and balance held at the Fed

The aggregate supply curve A. indicates the markup at which firms are willing to supply a given level of output B. is derived from equilibrium conditions in the money market C. has a positive slope because an increase in real GDP causes an increase in the cost of resources D. is found by summing up the supply curves of all the firms in an economy E. illustrates how a change in the price level affects total output

C. has a positive slope because an increase in real GDP causes an increase in the cost of resources

If the Fed conducts open market purchases, we should expect to see the money supply A. decrease, the interest rate increase, autonomous consumption decrease, business investment decrease, and real GDP decrease B. increase, the interest rate decrease, autonomous consumption decrease, business investment decrease, and real GDP decrease C. increase, the interest rate decrease, autonomous consumption increase, business investment increase, and real GDP increase D. decrease, the interest rate decrease, autonomous consumption increase, business investment increase, and real GDP decrease E. decrease, the interest rate increase, autonomous consumption increase, business investment increase, and real GDP increase

C. increase, the interest rate decrease, autonomous consumption increase, business investment increase, and real GDP increase

In the short-run macro model, an increase in the money supply will A. move the economy to the right along the aggregate expenditure line. B. move the economy to the left along the aggregate expenditure line. C. shift the aggregate expenditure line upward. D. shift the aggregate expenditure line downward. E. cause the aggregate expenditure line to rotate until it is flat.

C. shift the aggregate expenditure line upward.

Open market sales of bonds by the Federal Reserve drain reserves from the banking system and shift A. the allocation of wealth between bonds and stocks B. the economy toward a trough in the business cycle C. the money supply curve leftward D. reserves to nonmember banks E. the demand for money curve leftward

C. the money supply curve leftward

In what year was the Federal Reserve System created? A. 1790 B. 1861 C. 1879 D. 1913 E. 1935

D. 1913

f the price level is increasing and output is falling, which of the following could be the reason? A. A negative demand shock B. A positive supply shock C. A positive supply shock combined with a positive demand shock D. A negative supply shock E. A positive demand shock.

D. A negative supply shock

If the interest rate dropped, what would be the effect on spending? A. Spending on automobiles would decrease. B. Business spending on new capital would decrease. C. Spending on consumer durables would decrease. D. Business spending on new factories would increase. E. Spending on new homes would decrease.

D. Business spending on new factories would increase.

13) Which of the following counts as cash? I. Travelers Checks II. Credit Cards III. Personal Checks IV. Stocks V. Paper Currency A. II, V, I B. I, V, IV C. II, IV, III, V D. III, I, V

D. III, I, V

If the RRR is .3 and the Fed purchases $1,200 in second-hand bonds what is the effect on demand deposits? A. Increases by $360 B. Decreases by $3600 C. Decreases by $450 D. Increases by $4000

D. Increases by $4000

The Fed purchases $5,000 in second-hand bonds. What happens to money supply and the interest rate? A. Money supply and the interest rate increases B. Money supply decreases while the interest rate increases C. Money supply and the interest rate decreases D. Money supply increases and the interest rate decreases

D. Money supply increases and the interest rate decreases

Gold, silver and furs, when used as money, are referred to as A. fiat money B. precious money C. paper currency D. commodity money E. exchange money

D. commodity money

In the short-run macro model, a decrease in the money supply will A. move the economy to the right along the aggregate expenditure line B. move the economy to the left along the aggregate expenditure line C. shift the aggregate expenditure line upward D. shift the aggregate expenditure line downward E. not affect the aggregate expenditure line

D. shift the aggregate expenditure line downward

Which of the following statements about interest rate determination is most accurate? A. In both the long run and the short run, the interest rate is determined in the market for loanable funds. B. In both the long run and the short run, the interest rate is determined in the money market. C.In the short run the interest rate is determined in the market for loanable funds, and in the long run it is are determined in the money market. D.In the short run the interest rate is determined in the money market, and in the long run it is determined in the market for loanable funds. E. The interest rate is determined through an interaction between the money market and the loanable funds market.

D.In the short run the interest rate is determined in the money market, and in the long run it is determined in the market for loanable funds.

Which of the following is an accurate description of the aggregate demand curve? A. It is the sum of all individual demand curves for all products B. It shows all price levels at which firms' unit costs equal their percent markups. C. It is the curve decided upon by the voters. D. It shows the relationship between firms' unit costs and their percentage markups. E. It shows the equilibrium level of GDP associated with price level.

E. It shows the equilibrium level of GDP associated with price level.

If a new insect invasion devastates crops all across the United States, which of the following would most likely occur in the short run? A. Unit costs would decrease and the economy would move upward along the aggregate supply curve. B. Unit costs would increase and the aggregate supply curve would shift downward. C. Unit costs would increase and there would be movement along the aggregate supply curve. D. Unit costs would decrease and the aggregate supply curve would shift upward. E. Unit costs would increase and the aggregate supply curve would shift upward.

E. Unit costs would increase and the aggregate supply curve would shift upward.

Which of the following is an open market purchase? A. When private individuals sell government bonds B. When the Fed sells government bonds C. When private individuals purchase government bonds D. When bond dealers buy government bonds from the fed E. When the Fed buys government bonds

E. When the Fed buys government bonds

If the interest rate decreases, there will be A. a movement leftward from one point on the money demand curve to another point on the same curve B. no change in the quantity of money demanded C. a leftward shift of the entire money demand curve caused by a demand shock D. a rightward shift of the entire money demand curve E. a movement rightward from one point on the money demand curve to another point on the same curve

E. a movement rightward from one point on the money demand curve to another point on the same curve

The money market achieves equilibrium when A. individuals no longer want to spend their money B. the price of bonds rises by an appropriate amount C. buyers and sellers agree on a price for commodities D. speculative balances are reduced to a minimum E. individuals who hold bonds are satisfied with what they are holding

E. individuals who hold bonds are satisfied with what they are holding

In the short-run macro model, an open-market purchase of bonds by the Fed will A. raise the interest rate, reduce spending, and increase output B. raise the interest rate, reduce spending, and decrease output C. lower the interest rate, reduce spending, and decrease output D. lower the interest rate, increase spending, and decrease output E. lower the interest rate, increase spending, and increase output

E. lower the interest rate, increase spending, and increase output

The money supply is A. positively related to the interest rate B. negatively related to the interest rate C. positively related to income D. negatively related to income E. set by the Fed and therefore independent of the interest rate and income

E. set by the Fed and therefore independent of the interest rate and income