Econ 3
economies where goods and services are traded directly for other goods are services are called _____ economies
barter
to offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the federal reserve could
buy Treasury securities
the largest proportion of M1 is made up of
checking account deposits
a decrease in the discount rate ____ bank reserves and ____ the money supply if banks respond appropriately to the change in the rate
increases, increases
if aggregate expenditure is less than GDP how will the economy reach macroeconomic equilibrium
inventories will rise, and GDP and employment will decline
if firms are more optimistic that future profits will rise and remain strong for the next few years, then
investment spending will rise
how does a decrease in government spending affect the aggregate expenditure line
it shifts the aggregate expenditure line downward
fiat money has
little to no intrinsic value and is authorized by the central bank or governmental body
which of the following is one of the most important benefits of money in an economy
money makes exchange easier, leading to more specialization and higer productivity
______ usually increase when the US economy is in a recession and decreases when the US economy is expanding
net exports
on the 45-degree line diagram, for points that lie below the 45- degree line
planned aggregate expenditure is less than GDP
if the central bank can act as a lender of last resort during a banking panic banks can
satisfy customer withdrawal needs and eventually restore he public's faith in the banking system
the aggregate expenditure model focuses on the ____ relationship between real spending and _____
short-run; real GDP
actual investment spending does not include
spending on consumer durable goods
examples of assets that are included in household wealth would be
stocks, bonds, and savings accounts
which of the following functions of money would be violation if inflation were high
store of value
john maynard keynes.............................
this may benefit the economy in the long run, but could be counterproductive in the short run
at macroeconomic equilibrium
total spending equals total production
bank reserves include
vault cash and deposits with the federal reserve
the federal reserve's narrowest definition of the money supply is
M1
open market operations refer to the purchase or sale of _____ to control the money supply
U.S. Treasury securities and the Federal Reserve
if the required reserve ration is 10 percent.........................
$10,000
a general formula for the multiplier is
1/(MPS)
refer to figure: suppose that investment spending increases by $10 million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2. if the MPC is 0.9, then what is the change in GDP
$100 million
refer to scenario above: M2 in this simple economy equals
$21,000
refer to table: given the consumption schedule in the table above, the marginal propensity to save is
0.1
if disposable income increases by $100 million and consumption increases by $90 million then the marginal propensity to consume is
0.9
if inventories decline by more than analysts predict they will decline, this implies that
actual investment spending was less than planned investment spending
in economics, money is defined as
any asset people generally accept in exchange for goods and services
_____ consumption is consumption that does not depend upon the level of GDP
autonomous
if the marginal propensity to save is 0.25 then a $10,000 decrease in disposable income will
decrease consumption by $7,500
the five most important variables that determine the level of consumption are
disposable income, wealth, expected future income, price level, and interest rate
if an increase in autonomous consumption spending of $10 million results in %50 million increase in equilibrium real GDP then
the MPC is 0.8
the slope of the consumption function is equal to
the change in consumption divided by the change in disposable income
refer to figure: if the economy is at a level of aggregate expenditure given by point k
the economy is in equilibrium
the key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by
the level of aggregate expenditure
if an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then
the multiplier is 8
all of the following are true statements about the multiplier except
the multiplier makes the economy less sensitive to changes in autonomous expenditure
which of the following is a true statement about the multiplier
the multiplier rises as the MPC rises
consumption is $5 million, planned investment is $8 million.............
there was an unplanned increase in inventories equal to $2 million
