Econ final
Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 10 percent, and excess reserves amount to $5 billion. What is the level of deposits?
$2,950 billion
A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute
$250 to nominal GDP
What was the root cause of the 2008 financial crises
A drop in housing prices
A decrease in the purchases of a US government 10 year T-notes by the Chinese would result in
A higher yield on US government 5 year T-notes
If the FOMC orders a purchase of government securities from member banks, where does it usually get the money to pay for the securities?
Adding the purchase amount to banks reserves
Explain the crowding out effect
An increase in government expenditures increases the interest rate and so reduces investment spending.
How much is the total quantity of excess reserves in the US banking system?
Around 1.2 trillion
The short run aggregate demand and aggregate supply curve intersect
At a point which may or may not be equal to potential GDP
In 2007, which US firm showed the first indication of significant problems in the financial sector?
Bear Stearns
During the great recession, velocity decreased. This means that the rate at which money changed hands
Decrease. A decrease in velocity decreases the price level.
Warren Buffet recently said that what makes real estate such a good investment is the 30 year mortgage. What did he mean by that?
If nominal interest rates increase you are still locked in for 30 years at the rate when the loan was taken out, if they go down the loan can be paid off and a new loan taken out.
Monetary neutrality implies that an increase in the quantity of money will
Increase the price level
If the Fed conducts open-market sales, which of the following increases?
Interest rates
If the price of an item increases, what happens to the demand for that item?
It doesn't change
How has the M0 (Monetary base) changed since 2008?
It has increased
What is the slope of the consumption function?
Less than 1 but greater than 0
What actions were not taken by the Federal Reserve in order to stimulate the economy during the Great Recession
Lowering required reserves on checking accounts.
An increase in U.S. net exports would shift US aggregate demand
Rightward. In an attempt to stabilize the economy, the government could raise taxes.
Suppose the economy is in long-run equilibrium. According to the misconceptions of Lucas, If the government increases it's expenditures, eventually the increase of aggregate demand causes inflation expectations to
Rise. the rise in inflation expectations shifts the short run aggregate supply curve up.
Why did the Federal Reserve use an unconventional monetary policy during the Great Recession?
The federal funds rate was at 0%
T or F: Americans have a higher standard of living than Indonesians because american workers are more productive than Indonesian workers
True
Keynes thought investment spending could be changed by
a change in bond prices
Since the great recession, the quantity of money as measured by M1 has been
about tripled
A recession is a period during which
aggregate demand and production falls while unemployment rises
During a recession, according to keynes
aggregate demand and production falls while unemployment rises
Real interest rates
can be positive or negative, and can be influenced by the federal reserve
According the Keynesian model of aggregate supply and demand, a fiscal policy that increases taxes or decreases government spending will in the short run cause a
decrease in real gdp and a decrease in inflation
Technological change can shift the aggregate supply curves outward. If, at the same time, the government decreases spending, the most likely outcome of these two factors is a
decrease in the inflation rate
An increase in the supply of 10 year T-Notes would
decrease the demand of 5 year T-Notes
"Crowding Out" may
decrease the effectiveness of government spending
If the aggregate supply curve is flat,
expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation
usually the Federal Reserve has conducted policy by setting a target for the
federal funds rate
If the government uses stabilization policies to reduce inflation, the economy may have to suffer
higher rates of unemployment
Contractionary fiscal policy may have some undesirable consequences. Among these is
higher unemployment
An increase in investment spending will
increase the stock of physical capital
If the aggregate demand curve moves to the right more rapidly than aggregate supply,
inflation will tend to increase.
The main purpose of expansionary monetary policy is to
insure deposits
The Federal Reserve will tend to tighten monetary policy when
it thinks inflation is too high today, or will become too high in the future.
"Fiscal Policy" is the federal government's plan for
spending and taxes, designed to influence the level of aggregate demand
The long run aggregate supply curves shifts right if
technology improves
The relationship between consumer spending and disposable income is
the consumption function
One good argument for some inflation is
the probability off the zero bound problem is reduced
If the wage rate was "sticky", what would you expect to happen if the demand for labor decreased?
unemployment
If the Federal reserve wants to decrease the monetary base (M0), it can
use open market operations to sell bonds