Econ Final

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In an effort to stop the US recession of 2007-2009, the federal government

Sent additional funding to state and local governments

Which of the following types of unemployement exist at the NRU?

Structural and frictional unemployment

If a family's MPC is 0.7, it means that the family is

Saving 30 percent of the additional income

If the national income of trading partners increase, then US

aggregate demand increases because net exports increase

The graph representing the relationship between the price level and Real GDP supplied is known as the

aggregate supply curve

Which one of the following might offset a crowding-out effect of financing a large public debt

an increase in public investment

As disposable income increases

both consumption and saving increase

An increase in both personal income taxes and business taxes can be expected to

decrease both aggregate demand and aggregate supply

By requiring automakers to install catalytic converters in vehicles the government is trying to address the problem of

negative externality

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

of commercial banks are unchanged, but their reserves increase.

When the required reserve ratio is increased, the excess reserves of banks are

reduced and the multiple by which the commercial banking system can lend is reduced.

Answer the question on the assumption that the legal reserve ratio is 20 percent. Suppose that the Fed sells $500 of government securities to commercial banks (paid for out of commercial bank reserves) and buys $500 of securities from individuals, who deposit the cash in checking accounts. As a result of the given transactions, reserves in the banking system will

remain unchanged.

In a reverse repo transaction,

the Fed borrows money from financial institutions.

If people expected that a fiscal policy in the form of a tax cut was temporary the this policy's effect on the economy would tend to be

weaker

The spending multiplier is calculated as

1/MPS

If real GDP in a particular year is $80 billion and nominal GDP is $240 billiion, the GDP price index for that year is

300

Assuming the total population is 100 million, the civilian labor force is 50 million and 3 million workers are unemployed, how many are employed?

47 million

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.

Suppose a family's total consumption exceeds its total disposable income. This means that its

APC is greater than 1

Which combination of factors would increase aggregate demand (AD)?

An increase in consumer wealth and a decrease in interest rates

In the United States, monetary policy is the responsibility of the

Board of Governors of the Federal Reserve System

Trailblazer bicycle store sold a mountain bike to Johnson in March of 2012, but the bike was produced in June of 2011. This bicycle is counted as

GDP of 2011

When there is overproduction of a good

The marginal cost of the good exceeds its marginal benefit

Which of the following represents the most expansionary fiscal policy?

a $40 billion tax cut

Which one of the following would NOT shift the AD curve?

a change in the price level

Cost-push inflation may be caused by

a negative supply shocks

Upon learning that his auto transmission is about to fail, Ray sells his car to an unsuspecting buyer. This circumstance illustrates the

adverse selection program

The purpose of an expansionary monetary policy is to shift the

aggregate demand curve rightward.

The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits

and reserves of commercial banks both decrease.

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for

buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

Assume the legal reserve ratio is 25 percent and the Fourth National Bank borrows $10,000 from the Federal Reserve Bank in its district. As a result,

commercial bank reserves are increased by $10,000.

The largest component of national income is

compensation of employees

Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 3% of Real GDP to a surplus of 1% of Real GDP the government is engaging in

contractionary fiscal policy

An increase in the legal reserve ratio

decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier.

If the consumer price index changes from 333 to 300 from one year to the next, there would be

deflation of 10 percent

Inflation

does not affect social security recipients

The interest rate that banks charge one another on overnight loans is called the

federal funds rate.

The crowding-out effect of government spending suggests that

government spending increases, but at the expense of less private investment

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to

hold more of those excess reserves in its reserve account at the Fed, reducing the amount it is willing to lend.

The real balance effect (RBE) says that a decrease in the price level will

increase the purchasing power of money and cause increase in spending

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made my Congress to stabilize the economy

An efficiency loss (DWL)

is measured as the combined loss of consumer surplus and producer surplus from over- or underproduction

The unemployment rate is interpreted as the percentage of the

labor force that is not employed

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

open-market operations

Inflation means that

prices on average are rising, although some particular prices may be falling

Which of the following actions by the Fed would cause the money supply to increase?

purchases of government bonds from banks

The purpose of a restrictive monetary policy is to

raise interest rates and restrict the availability of bank credit.

The discount rate is the interest

rate at which the Federal Reserve Banks lend to commercial banks.

In response to the 2008 financial crisis, the government began to bail out banks deemed "too big to fail." Critics of this action argued that this would create the prospect of future bail outs and encourage banks to be fiscally irresponsible in the future. This illustrates

the moral hazard problem

If the value of intermediate goods and services were included in GDP,

then GDP would be overstated

The interest-rate effect (IRE) says that an increase in the price level

will increase the demand for money, increase interest rates, and decrease overall spending

The Fed's inability to stimulate the economy by reducing interest rates is known as the

zero lower bound problem.

Suppose there are 10 million part time workers and 90 million full time workers in an economy. If 2 million of the part time workers become full time workers then

the official unemployment rate will remain unchanged

The agency responsible for compiling GDP data is the

Bureau of Economic Analysis

The agency responsible for declaring the start and end of a recession in the

Bureau of Economic Analysis (BEA)

Which of the following will happen when the Federal Reserve buys bonds from the public in the open market and the amount of cash held by the public does not change?

Commercial bank reserves will increase.

MPC and MPS equation

MPC + MPS = 1

Suppose the government finds it can remove a negative GDP gap of $45 billion by increasing government purchases by $18 billion. On the basis of this information, we can that the

MPS in this economy is 0.4

A tax-cut will have a greater effect on GDP if the

MPS is smaller

Why wouldn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?

Negative nominal interest rates would cause people to withdraw their money from banks, reducing what banks could lend out to consumers and businesses.

"Full employment" refers to the situation when there is

No cyclical unemployment

Which of the following is a difference between "quantitative easing" and ordinary open-market operations?

Open-market operations are done to lower interest rates; quantitative easing is done to increase the quantity of bank reserves.

In an economy, for every $10 million decrease in disposable income, consumption decreases by $8 million. It can be concluded that the

Slope of the savings line is 0.2

If the quantity of money demanded exceeds the quantity supplied,

The interest rate will rise

In which of the following sets of circumstances will we expect inflation

aggregate supply decreases and aggregate demand increases

If an economy achieved full employment very mild or no inflation and economic growth, it can be explained by the following

aggregate demand increased and aggregate supply increased

The economy's long-run aggregate supply curve is drawn assuming the following

both input and output prices are flexible and vertical

In fiscal year 2021, government expenditures (G) were $6.8 trillion and tax revenues (T) were $4 trillion. This is referred to as

budget deficit

Inflation caused by an increase in aggregate spending is referred to as

demand-pull inflation

If congress passed new laws significantly decreasing regulations on business, this action would tend to

decrease production costs and shift the AS curve to the right

Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is

directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

Projecting that it might temporarily fall short of legally required reserves in the coming days, the Bank of Beano decides to borrow money from the Federal Reserve Bank in its district. The interest rate on the loan is called the

discount rate.

Suppose the government purposely changes in economy's cyclically adjusted budget from a deficit of 0% of Real GDP to a deficit of 3% Real GDP. The government is engaging in

expansionary fiscal policy

The foreign trade effect suggest that an increase in the US price level relative to other countries will

increase US imports and decrease US exports

A decrease in personal income taxes and an increase in business taxes can be expected to

increase aggregate demand and decrease aggregate supply

If the Fed wants to discourage commercial bank lending, it will

increase the interest paid on excess reserves held at the Fed.

Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers?

licensing of medical doctors and surgeons

If the Fed were to reduce the legal reserve ratio, we would expect

lower interest rates, an expanded GDP, and a higher rate of inflation.

Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are

lower, because skilled workers tend to be employed in less cyclically vulnerable industries

Other things equal, if the US dollar appreciates against the Euro, then US

net exports would increase

Discouraged workers are counted as

not in the labor force and therefore the official unemployment rate understates the actual level of unemployment

When the Fed loans money in exchange for government bonds being posted as collateral, this is known as a

repo

Market failures

result in overproduction or underproduction of a good

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

rightward by $50 billion at each price level

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will

rise, causing households and businesses to hold less money

If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to

sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks.

During a severe recession, we would expect output to fall the least for

services and non-durable goods

Dissaving means

that a household is spending more than their current incomes

The largest proportion of the US national debt is held by

the US public

When the economy is at full employment

the actual and the cyclically adjusted budgets will be equal.

Which of the following did not contribute directly to the Great Recession

the bursting of the dot come stock market bubble

The four main tools of monetary policy are

the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.

The crowding out effect is strongest when

the economy is at full employment

Fiscal policy is carried out by

the executive and legislative branches

The national or gross debt is the amount of money that

the federal government owes to holders of US securities

One timing problem in using fiscal policy to counter a recession is the administrative lag that occurs between the

time the need for the fiscal action is recognized and the time that the action is taken

What is the importance of the multiplier effect

turns initial spending into large changes in GDP

Core inflation measures

underlying increases in the CPI after removing volatile food and energy prices

The opportunity cost of holding money

varies directly with the interest rate.


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