Econ Final Exam
If the real money supply is $500 billion and the money supply grows by 2%, then real seignorage is: -$25 trillion -$1 trillion -$10 billion -$1 billion
$10 billion
If the money supply grows by 4% and the real money supply is $100 billion, real seignorage is: -$4 billion -$25 billion -$400 billion -$2.5 trillion
$4 billion
If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 2%, the opportunity cost of holding the checking account as money is: -zero -0.02% -1% -2%
1%
A 20% increase in the aggregate price level will increase the quantity of money demanded by: -20% -the money multiplier -10% -half of the money multiplier.
20%
To lower the short-term interest rate, the Federal Reserve can: -buy Treasury bills -sell Treasury bills -tell the banks to make more loans -tell the banks to make fewer loans
buy Treasury bills
The Federal Open Market Committee has decided that the federal funds rate should be 0.5% rather than the current rate of 1.25%. The appropriate open market action is to _____ Treasury bills to _____ money _____. -buy; decrease; demand -buy; decrease; supply -sell; decrease; demand -buy; increase; supply
buy; increase; supply
All of the following factors will shift the money demand curve EXCEPT: -changes in inflation. -changes in the real GDP. -changes in the aggregate price level. -changes in the interest rate
changes in the interest rate
Which of the following is NOT a tool of fiscal policy? -changing taxes -government transfers -government purchases of goods and services -changes in money supply
changes in the money supply
The aggregate demand curve is negatively sloped in part because of the impact of interest rates on: -potential output -net exports -consumption and investment spending -government purchases
consumption and investment spending
If the marginal propensity to consume is 0.75 and taxes increase by $30 billion, real GDP will: -increase by exactly $30 billion -decrease by exactly $30 billion -decrease by less than $120 billion -decrease by more than $120 billion
decrease by less than $120 billion
If the price level rises by 10%, the purchasing power of $10,000 will: -increase to 11,000 -decrease to 9,000 -decrease to 1,000 -remain constant
decrease to 9,000
A decrease in the supply of money will lead to a(n)_______ in equilibrium real GDP and a ___________ equilibrium interest rate. -increase; higher -increase; lower -decrease; lower -decrease; higher
decrease; higher
An increase in the supply of money will lead to a(n)___________ in the equilibrium interest rate and a(n)__________ in real GDP. -increase; increase -increase; decrease -decrease; increase -decrease; decrease
decrease; increase
Given an inflationary gap, the Federal Reserve will use monetary policy to _____ real GDP and _____ the interest rate. -increase; increase -increase; decrease -decrease; increase -decrease; decrease
decrease; increase
If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should ___________ taxes by _________: -decrease; more than $25 billion -decrease; less than $25 billion -increase; more than $25 billion -increase; less than $25 billion
decrease; more than $25 billion
Contractionary monetary policy: -is appropriate during a recessionary gap -decreases aggregate demand -increases aggregate demand -helps solve the problem of unemployment
decreases aggregate demand
A contractionary fiscal policy either ___________ government spending or ___________ taxes. -increases; increases -decreases; increases -increases; decreases -decreases; decreases
decreases; increases
An increase in real aggregate spending will shift the money: -demand curve rightward -demand curve leftward -supply curve rightward -supply curve leftward
demand curve rightward
Now that fast food places such as McDonald's are accepting credit card payments, the: -demand for money has increased -demand for money has decreased -demand for money has not been affected -supply of money has increased, as some cash is unused
demand for money has decreased
The money demand curve is ________ because a lower interest rate _______ the opportunity cost of holding money: -upward-sloping; increases -downward-sloping; increases -upward-sloping; decreases -downward-sloping; decreases
downward-sloping; decreases
Suppose actual aggregate output is equal to the potential output; the actual unemployment rate is: -equal to the natural rate of unemployment. -higher than the natural rate of unemployment. -zero. -equal to the cyclical rate of unemployment
equal to the natural rate of unemployment.
If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply -expansionary; decreasing -expansionary; increasing -contractionary; decreasing -contractionary; increasing
expansionary; increasing
If the demand for money is $100 billion and the supply of money is $200 billion, then the interest rate will: -fall. -rise. -remain unchanged. -be in equilibrium
fall
A recessionary gap can be closed by ___________ wages that shift the ______________. -falling; SRAS curve rightward -falling; LRAS curve rightward -falling; SRAS curve leftward -rising; SRAS curve rightward
falling; SRAS curve rightward
In the long run, nominal wages are: -sticky downward but flexible upward -sticky upward but flexible downward -sticky both upward and downward -flexible, because contracts and informal agreements are renegotiated in the long run
flexible, because contracts and informal agreements are renegotiated in the long run
A change in __________ has the most DIRECT effect on aggregate demand -taxes -interest rates -the money supply -government spending
government spending
If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is _____ than money supplied. -less than -greater than -equal to -It is impossible to predict which is greater, money demanded or money supplied
greater than
An increase in the demand for money with no change in supply will lead to _________ in the equilibrium quantity of money and __________ in the equilibrium interest rate. -no change; a rise -no change; a fall -a decrease; a rise -an increase; a fall
no change; a rise
When actual output is above potential output over time: -nominal wages will increase, and the short-run supply curve will shift to the right. -nominal wages will increase, and the short-run supply curve will shift to the left. -the aggregate demand curve will shift to the right. -the short-run aggregate supply curve will shift to the right
nominal wages will increase, and the short-run supply curve will shift to the left
To close an inflationary gap with fiscal policy, the government could: -reduce budget allocations to interstate highway maintenance -increase federal subsidies to state universities -lower the corporate income tax rate -raise the average amount awarded for a disability pension
reduce budget allocations to interstate highway maintenance
If there has been a downward movement along the fixed short-run Phillips curve, the _____ curve has shifted to the _____. -AD; left -AD; right -SRAS; left -SRAS; right
AD; left
If there has been an upward movement along the fixed short-run Phillips curve, the __________ curve has shifted to the ____________. -SRAS; left -SRAS; right -AD; right -AD; left
AD; right
Which of the following is NOT one of the reasons that the Japanese tend to keep large amounts of cash? -Banks have invested heavily in credit card technology -Japan has a low crime rate -Interest rates in Japan have been below 1% since the 1990s -Japans retail sector is dominated by mom-and-pop stores that don't accept credit cards
Banks have invested heavily in credit card technology
The demand for money is higher in Japan than in the United States because: -telecommunications and information technology is more advanced in the United States than in Japan -Japanese consumers use credit cards more than people in the United States -Japanese interest rates are higher than those in the United States -Japanese interest rates are lower than those in the United States
Japanese interest rates are lower than those in the United States
If the short-run Phillips curve has shifted upward, the _____ curve has shifted to the _____. -AD; right -AD; left -SRAS; right -SRAS; left
SRAS; left
If the short-run Phillips curve has shifted downward, the _____ curve has shifted to the _____. -SRAS; left -SRAS; right -AD; left -AD; right
SRAS; right
__________________ depicts a trade-off between unemployment and inflation -the Phillips curve -Keynes's Law -the multiplier -the Friedman curve
The Phillips curve
A decrease in the demand for money would result from: -an increase in income -a decrease in real GDP -an increase in the price level -an increase in nominal GDP
a decrease in real GDP
A decrease in the demand for money would result from: -an increase in income -an increase in the real GDP -a decrease in the price level -an increase in nominal GDP
a decrease in the price level
The wealth effects suggests: -a positive relationship between the price level and consumption spending -that price level changes do not affect real wealth -a negative relationship between the price level and consumption spending -that when the price level increases, the real value of money increases also
a negative relationship between the price level and consumption spending
Which of the following is NOT an example of government purchases of goods and services? -a federal prosecutors salary -new pavement for an interstate highway -a surgeons bill reimbursed under the Medicare program -equipping U.S. air marshals with electroshock weapons
a surgeons bill reimbursed under the Medicare program
*Which of the following will shift the short-run aggregate supply curve to the RIGHT? -a widespread decrease in commodity prices -an increase in nominal wages -a decrease in productivity -a decrease in government purchases of goods and services
a widespread decrease in commodity prices
A recessionary gap occurs if: -actual real GDP is less than potential output -actual real GDP is greater than potential output -actual real GDP is equal to potential output -unemployment is less than the natural rate
actual real GDP is less than potential output
The long-run aggregate supply curve is vertical because in the long run: -technological progress outpaces raises in nominal wages. -all factors of production increase. -the price of labor is flexible, while the price of physical capital is fixed. -all prices are flexible
all prices are flexible
Suppose that a presidential candidate who promised large personal income elected. Which of the following is most likely? -a decrease in short-run aggregate supply -a decrease in aggregate demand -an increase in short run aggregate supply -an increase in aggregate demand
an increase in aggregate demand
The short-run aggregate supply curve would shift to the left for all the following reasons except: -a decrease in productivity -an increase in nominal wages -an increase in interest rates -an increase in the price of commodities used for production
an increase in interest rates
When the Federal Reserve buys Treasury bills, this leads to: -a decrease in the money supply. -an increase in the money supply. -an increase in short-term interest rates. -an increase in the Federal Reserve funds rate
an increase in the money supply.
Stagflation may result from: -an increase in the supply of money -a decease in the supply of money -an increase in the price of oil -a decrease in the price of oil
an increase in the price of oil
The short-run Phillips curve shows: -a direct relationship between unemployment and inflation. -an inverse relationship between unemployment and inflation. -consequences of the misperceptions theory. -the optimal level of employment
an inverse relationship between unemployment and inflation
The interest earnings one gives up to hold more liquid assets are: -an opportunity cost -a transaction cost -an asset of the company -a liability of the company
an opportunity cost
The short-run aggregate supply curve slopes upward because a ___________ aggregate price level leads to _____________. -higher; lower output as costs of production increase -higher; higher output, since most production costs are fixed in the short run -lower; higher output, since production costs tend to fall in the short run -lower; higher profit and higher productivity
higher; higher output, since most production costs are fixed in the short run
For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100 billions government purchases of goods and services is larger than the multiplier effect of a tax cut of $100 billion because: -the government pays a higher price than households for the same goods and purchases -production of the goods and services the government purchases has a bigger impact on real GDP than production of consumer goods -many households fail to file their income tax and claim their refund -in the first round of spending only $90 billion of the tax cut will be spent and $10 billion will be saved, while the entire $100 billion of government purchases will be spent
in the first round of spending only $90 billion of the tax cut will be spent and $10 billion will be saved, while the entire $100 billion of government purchases will be spent
An increase in the supply of money with no change in demand will lead to a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest rate. -increase; rise -increase; fall -decrease; rise -decrease; fall
increase; fall
To close a recessionary gap using monetary policy, the Federal Reserve should _____ the money supply to _____ investment and consumer spending and shift the aggregate demand curve to the _____. -increase; increase; left -decrease; decrease; left -increase; increase; right -decrease; decrease; right
increase; increase; right
According to the interest rate effect, an increase in the price level causes people to __________ their money holdings, which ___________ interest rates and _____________ investment spending. -increase; increases; decreases -decrease; increases; decreases -increase; decreases; decreases -decrease; decreases; increases
increase; increases; decreases
An increase in the supply of money will lead to a(n) _____ in equilibrium real GDP and a _____ equilibrium interest rate. -increase; higher -increase; lower -decrease; higher -decrease; lower
increase; lower
Stagflation is a combination of _____ unemployment and _____ inflation. -increasing; increasing -decreasing; decreasing -increasing; decreasing -decreasing; increasing
increasing; increasing
A long-run Phillips curve has a(n) _____ slope because _____. -negative; there is a positive relationship between the output gap and the nonaccelerating inflation rate of unemployment (NAIRU) -infinite; any unemployment rate below the NAIRU leads to ever-accelerating inflation -zero; there is a positive relationship between expected inflation and unemployment -positive; any unemployment rate above the NAIRU leads to ever-accelerating inflation
infinite; any unemployment rate below the NAIRU leads to ever-accelerating inflation
The inflation tax is equal to: -inflation multiplied by the demand for money. -inflation multiplied by the nominal money supply. -the money supply divided by the price level. -the nominal money supply divided by inflation.
inflation multiplied by the demand for money.
If the economy is at equilibrium above potential output, there is a(n) _____________ gap, and ____________ fiscal policy is appropriate: -recessionary; expansionary -inflationary; contractionary -recessionary;contractionary -inflationary; expansionary
inflationary; contractionary
Government purchases of goods and services___________, while changes in taxes and transfer payments _____________. -are exercises of fiscal policy; are exercises of monetary policy -are exercises of monetary policy; are exercises of fiscal policy -influence aggregate demand directly; influence aggregate demand indirectly -influence aggregate demand indirectly; influence aggregate demand directly
influence aggregate demand directly; influence aggregate demand indirectly
Expansionary monetary policy increases all of the following EXCEPT: -aggregate demand. -GDP and the price level. -consumption spending. -interest rates
interest rates
The interest rate effect is the tendency for changes in the price level to affect: -the quantity of investment demanded and thus interest rates -export demand and thus aggregate demand -interest rates and thus the quantity of investment spending and consumption -real incomes and lead to shifts in potential output
interest rates and thus the quantity of investment spending and consumption
Aggregate demand will increase in all of the following cases EXCEPT when: -household wealth rises but prices are constant. -government purchases of goods rise. -the quantity of money increases. -interest rates increase
interest rates increase
When short-run aggregate supply decreases, it means that the short-run aggregate supply curve shifts to the ___________ and the quantity of aggregate output that producers are willing to supply ___________ -right; decreases -right; increases -left; decreases -left; increases
left; decreases
If the marginal propensity to consume is .9, then the tax multiplier will be: -impossible to determine -greater than 10 -less than 0 -zero, because there is no multiplier
less than 10
*If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is: -less than 4 -equal to 4 -greater than 4 -equal to 0.75
less than 4
An expansionary fiscal policy: -usually decreases a government budget deficit or increases a government budget surplus -may include decreases in government spending -may include increases in taxes -may include decreases in taxes
may include decreases in taxes
An inflationary gap: -is generally regarded as desirable, especially by people living on a fixed income -means that the economy is operating beyond its potential output -means that there are pressures for wages to fall -means that SRAS will soon shift rightward
means that the economy is operating beyond its potential output
Suppose that the unemployment rate rises as the inflation rate declines. This situation is consistent with a movement along the ___________ Phillips curve. -vertical -horizontal -positively sloped -negatively sloped
negatively sloped
The Federal Reserve affects interest rates by: -setting them with regulations. -open market operations that shift the money demand curve. -open market operations that shift the money supply curve. -changing tax rates
open market operations that shift the money supply curve.
The difference between real GDP and potential GDP is known as the: -price gap. -unemployment gap. -output gap. -budget deficit
output gap.
If the Federal Reserve uses expansionary monetary policy there is a _____ short-run effect on _____, but_____. -negative short-run; real GDP; prices remain unchanged in the long run. -positive short-run; real GDP; GDP remains equal to potential GDP in the long run -t positive long-run; real GDP; GDP remains unchanged at its potential level in the short run. -positive short-run; the price level; the aggregate price level remains unchanged in the long run
positive short-run; real GDP; GDP remains equal to potential GDP in the long run
When the output gap is ________, reflecting an inflationary gap, the unemployment rate is ___________ the natural rate of unemployment. -positive; above -negative; below -positive; below -negative; above
positive; below
when the output gap is _______, the unemployment rate is _______ the natural rate. -negative; below -zero; zero -inflationary; above -positive; below
positive; below
The long-run level of output is known as ________ output -recognized -structural -potential -balanced budget
potential
Real seignorage is calculated by the: -real interest rate times the money supply. -rate of growth of the money supply times the real money supply. -real interest rate minus the inflation rate. -rate of growth of the money supply divided by the price index.
rate of growth of the money supply times the real money supply.
If a high inflation rate leads people to _____ their money holdings, this may lead to a further increase in the money supply and _____ inflation. -reduce; lower -increase; lower -reduce; higher -increase; higher
reduce; higher
All of the following are examples of fiscal policy EXCEPT: -government spending on infrastructure to stimulate aggregate demand -reducing the interest rate by increasing the money supply -an economic stimulus package -a $1,500 per family tax rebate
reducing the interest rate by increasing the money supply
Suppose that commodity prices across the economy begin to fall and consumers and firms begin to expect a lower rate of inflation. The SRAScurve will shift to the _____, and the short-run Phillips curve will shift _____. -left; downward -right; downward -left; upward -right; upward
right; downward
If the demand for money is $300 billion and the supply of money is $200 billion, then the interest rate will: -fall. -rise. -remain unchanged -be in equilibrium
rise
The demand curve for money will shift to the right because of a: -fall in the interest rate -rise in real GDP -rise in the interest rate -fall in real GDP
rise in real GDP
According to the aggregate demand curve, when the aggregate price level ____________, the quantity of aggregate output ______________. rises; supplied falls falls; demanded falls rises; demanded falls rises; demanded does not change
rises; demanded falls
The Federal Open Market Committee has decided that the federal funds rate should be 2% rather than the current rate of 1.5%. The appropriate open market action is to __________ Treasury bills to __________ money ____________ -sell; decrease; demand -sell; decrease; supply -buy; decrease; supply -buy; increase; demand
sell; decrease; supply
If the stock of physical capital increases, all other things unchanged, the aggregate demand curve will: -shift to the right -shift to the left -remain constant -become positively sloped
shift to the left
Suppose that consumer expectations improve. The aggregate demand curve will undergo a: -shift to the left. -movement upward. -shift to the right. -movement downward
shift to the right.
A supply shock: -moves our economy along the short-run aggregate supply curve. -moves us along the short-run Phillips curve. -shifts the short-run Phillips curve. -shifts the short-run aggregate supply curve but not the short-run Phillips curve
shifts the short-run Phillips curve.
The _______________ curve shows the positive relationship between the aggregate price level and the quantity of aggregate output supplied when wages and prices are not fully flexible -aggregate demand -short-run aggregate supply -aggregate spending -long-run aggregate supply
short-run aggregate supply
If nominal wages fall, then the short-run aggregate ___________ curve shifts to the _________. -supply; right -supply; left -demand; right -demand; left
supply; right
The opportunity cost of holding money is: -zero. -the interest rate when someone uses a credit card -the difference between interest rates on monetary assets and on nonmonetary assets -the discount rate.
the difference between interest rates on monetary assets and on nonmonetary assets
Potential output is the level of real GDP that: -occurs when the economy has only cyclical unemployment -the economy would produce if all prices, including nominal wages, were fully flexible -occurs when the actual rate of unemployment is zero -the economy would produce if all prices, including nominal wages, were sticky.
the economy would produce if all prices, including nominal wages, were fully flexible
Which of the following is NOT a government transfer payment? -the federal payroll -Social Security -medicare -medicaid
the federal payroll
Along a Phillips curve: -consumption depends on prices. -the inflation rate varies inversely with the unemployment rate. -the inflation rate varies directly with the unemployment rate. -prices and tax rates are directly related.
the inflation rate varies inversely with the unemployment rate.
The quantity demanded of money is negatively related to _________, and the demand for money is positively related to ___________/ -the interest rate; real GDP -the interest rate; unemployment -real GDP; the interest rate -real GDP; the money supply
the interest rate; real GDP
The inflation tax is the effect on the public of: -the higher tax paid by individuals whose incomes are indexed to inflation -the sales taxes paid during periods of inflation -the reduction in the value of money caused by inflation -the higher prices consumers pay due to inflation
the reduction in the value of money caused by inflation
The NAIRU is: -the inflation rate at which the unemployment rate does not change over time. -a trade-off between unemployment and inflation. -the unemployment rate at which inflation does not change over time. -a rate at which it is possible to achieve lower unemployment by accepting higher inflation
the unemployment rate at which inflation does not change over time.
The aggregate demand curve is downward sloping because of: -the inverse relationship between price and quantity demanded -changes in expectation of future prices -unexpected changes in commodity prices -the wealth effect of a change in aggregate price level
the wealth effect of a change in aggregate price level
The long-run Phillips curve shows the relationship between: -potential aggregate output and the natural rate of unemployment at a given rate of expected inflation. -expected inflation and actual inflation after the expectation becomes embedded in people's minds. -the aggregate output and the aggregate price level at a given rate of expected inflation. -unemployment and inflation after expectations of inflation have had time to adjust to experience
unemployment and inflation after expectations of inflation have had time to adjust to experience
An inflationary gap will be eliminated because there is _____________ pressure on wages, shifting the _____________. -downward; long-run aggregate supply curve to the right -downward; long-run aggregate supply curve to the left -downward; aggregate demand curve to the left -upward; short-run aggregate supply curve to the left
upward; short-run aggregate supply curve to the left
The long-run Phillips curve is: -vertical at an unemployment rate equal to the non accelerating inflation rate of unemployment (NAIRU) -horizontal at inflation rate equal to NAIRU -upward sloping, showing that there is no trade-off between unemployment and inflation -downward sloping, showing that there is a trade-off between unemployment and inflation
vertical at an unemployment rate equal to the non accelerating inflation rate of unemployment (NAIRU)