Econ Exam 3

have $45 of additional excess reserves.

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement, the bank will

store of value.

If you place a part of your summer earnings in a savings account, you are using money primarily as a

not affect the AD curve.

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will

coins, paper currency, and checkable deposits.

In the United States, the money supply (M1) includes

a store of value, a unit of account, and a medium of exchange.

Money functions as

increase both aggregate demand and aggregate supply.

Other things equal, a reduction in personal and business taxes can be expected to:

decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

Other things equal, appreciation of the dollar

aggregate supply curve would shift to the left.

Other things equal, if the U.S. dollar were to depreciate, the

aggregate supply curve would shift to the left.

Other things equal, if the U.S. dollar were to depreciate, the:

aggregate demand curve would shift to the right.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

The aggregate demand curve

shows the amount of real output that will be purchased at each possible price level.

The aggregate demand curve:

shows the amount of real output that will be purchased at each possible price level.

left by a multiple of the change in investment.

A decline in investment will shift the AD curve to the

left by a multiple of the change in investment.

A decline in investment will shift the AD curve to the:

increase aggregate supply but not change aggregate demand.

A decrease in business taxes will tend to

larger is the economy's MPC.

A tax reduction of a specific amount will be more expansionary the

increases in government spending during recession and tax increases during inflation.

An economist who favored expanded government would recommend

tax cuts during recession and reductions in government spending during inflation.

An economist who favors smaller government would recommend

right by a multiple of the change in net exports.

An increase in net exports will shift the AD curve to the

is aimed at reducing aggregate demand and thus achieving price stability.

Contractionary fiscal policy is so named because it

both M1 and M2.

Currency in circulation is part of

is designed to expand real GDP.

Expansionary fiscal policy is so named because it

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Fiscal policy refers to the

5

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is

$1,000

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are

rightward by $50 billion at each price level.

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift

Aggregate demand decreases because net exports decrease

If the dollar appreciates in value relative to foreign currencies:

Foreign buyers will find U.S. goods become more expensive

If the dollar appreciates relative to foreign currencies, then:

The foreign purchases effect

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes

a unit of account.

If you are estimating your total expenses for school next semester, you are using money primarily as

medium of exchange.

Purchasing groceries using a debit card best exemplifies money serving as a

$75,000.

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of

40

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. The level of productivity in this economy is

$0.75

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. The per-unit cost of production is

increased by $20 billion.

Suppose the federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debtwould have

altering the reserves of commercial banks, largely through sales and purchases of government bonds.

The Federal Reserve System regulates the money supply primarily by

is larger than the amount reported as M1.

The amount of money reported as M2

government spending increases at the expense of private investment.

The crowding-out effect of expansionary fiscal policy suggests that

government borrowing to finance the public debt increases the real interest rate and reduces private investment.

The crowding-out effect suggests that

increase U.S. exports and decrease U.S. imports.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

lower is the monetary multiplier.

The greater the required reserve ratio, the

reducing the current level of investment.

The most likely way the public debt burdens future generations, if at all, is by

the bulk of the public debt is owned by U.S. citizens and institutions.

To say that "the U.S. public debt is mostly held internally" is to say that

it is in a position to make additional loans.

When a commercial bank has excess reserves,

The value of foreign currencies decreased relative to our dollar

When the dollar appreciates relative to foreign currencies, it means that:

expands and commercial bank reserves increase.

Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply

An increase in stock prices that increases consumer wealth.

Which of the following would most likely shift the aggregate demand curve to the right?

an increase in the price level

Which of the following would not shift the aggregate supply curve?

Commercial banks sell government bonds to the public.

Which of the following would reduce the money supply?

A change in the price level.

Which one of the following would not shift the aggregate demand curve?

The real-balances effect

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

Aggregate Demand Curve

downsloping because of the interest-rate, real-balances, and foreign purchases effects.