Econ Final
depreciation of the dollar will tend to
increase the prices of the goods Americans import, but decrease the price to foreigners of the goods Americans export. An increase in the dollar price of foreign currency
Keynes's model of the demand for money has the important implication that velocity is not constant, but instead is _________ related to interest rates, which fluctuate substantially.
positively
Tom Atoe grows fruits and vegetables for home consumption. This activity is:
productive but is excluded from GDP because no market transaction occurs.
At the $180 billion equilibrium level of income, saving is $38 billion in a private closed economy. Planned investment must be:
$38 billion.
Actual investment is $62 billion at an equilibrium output level of $620 billion in a private closed economy. The average propensity to save at this level of output is:
0.10
The part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country.
Financial account
Which one of the following, other things equal, will directly alter the U.S. balance of trade
A decrease in U.S. goods exports
An unexpected increase in total spending will cause an increase in GDP:
A. if prices are sticky.
Empirical studies suggest that:
A. labor productivity has declined throughout U.S. history. B.TECHNOLOGICAL ADVANCES ACCOUNT FOR ABOUT 40 PERCENT OF U.S. PRODUCTIVITY GROWTH C. the achieving of economies of scale is the most important factor in U.S. economic growth. D. all U.S. economic growth from between 2001 and 2007 can be attributed to increases in the quantity of labor
Which of the following is a difference between "quantitative easing" and ordinary open-market operations? A. There is no difference between the two policy tools. B. Open-market operations are done in order to lower interest rates; quantitative easing is merely intended to increase bank reserves. C. Quantitative easing is focused exclusively on U.S. government bonds; open-market operations also include the buying and selling of debt issued by government agencies and government-sponsored entities D. Open-market operations involve forward commitment; quantitative easing is intentionally vague to maintain flexibility
B
Most economists agree that the immediate cause of most business cycle variation is:
B. an unexpected change in the level of total spending.
10. The production of durable goods varies more than the production of nondurable goods because:
B. durables purchases are postponable.
the foreign purchases of assets in US less American purchases of assets abroad in a year
Balance on capital account
How do banks create money?
Banks create money by taking in deposits and making loans; more deposits, the more loans they can make; more loans, more $$ in economy
Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason?
Banks create money to make sure they can cover withdrawals.
Part of the Balance of payments where all exports and imports are recorded
Current Account
A Federal budget deficit that is caused by a recession and the consequent decline in tax revenues.
Cyclical deficit
what is net domestic investment
Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period, after deducting capital depreciation. gross investment -depreciation = net invesmtent
Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies
FALSE
Factors that can increase labor productivity
Increase or make capital better 1% increase in capital per hour of labor brings a 1/2 percent increase in labor productivity
Which of the following statements is correct for a private closed economy?
Saving equals planned investment only at the equilibrium level of GDP.
Inflation reduces the purchasing power of a person's income and savings.
TRUE
Which of the following would most likely move the economy into a recession in the short term?
The central bank printing less money than was anticipated.
Studies show that the demand curve for peas has shifted. Which of the following explanations would you reject first?
The price of peas has changed (Q is asking which one is NOT - price does not shift curves, only allows for movement along)
What is the purpose of quantitative easing?
To inject money directly into the economy following a fall in aggregate demand to boost spending and maintain the inflation target
Research studies indicate that
US producers gain more from tariffs than US consumers lose
When will quantitative easing be used?
When interest rates are at 0% and can't be lowered any further
6 In the United States, the money supply (M 1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.
a
A contraction of the money supply: A. increases the interest rate and decreases aggregate demand. B. increases both the interest rate and aggregate demand. C. lowers the interest rate and increases aggregate demand. D. lowers both the interest rate and aggregate demand.
a
According to the purchasing power parity theory of exchange rates: A. a dollar, when converted to other currencies at the prevailing floating exchange rate, has the same purchasing power in various countries. B. in equilibrium, national currencies have equal value in terms of gold. C. the higher a nation's price level in terms of its own currency, the greater is the amount of foreign exchange it can obtain for a unit of its currency. D. nominal currency values will tend to equalize (become 1 = 1) in the long run
a
In the equation of exchange, the level of aggregate expenditures is indicated by: A. MV . B. MV /Q . C. PM . D. MV /P
a
The MPC for an economy is: A. the slope of the consumption schedule or line. B. the slope of the savings schedule or line. C. 1 divided by the slope of the consumption schedule or line. D. 1 divided by the slope of the savings schedule or line.
a
The aggregate expenditures model is built upon which of the following assumptions? A. Prices are fixed. B. The economy is at full employment. C. Prices are fully flexible. D. Government spending policy has no ability to affect the level of output.
a
The level of aggregate expenditures in the private closed economy is determined by the: A. expenditures of consumers and businesses. B. intersection of the saving schedule and the 45-degree line. C. equality of the MPC and MPS. D. intersection of the saving and consumption schedules
a
The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar by gold and silver. D. by gold reserves representing a fraction of the total value of dollars in circulation.
a
When the Fed sells bonds, the: A.Federal funds rate increases .B. reserve requirement falls. C. discount rate increases. D. discount rate decreases
a
Which of the following does not explain what backs the money supply in the United States? A. It is backed by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the federal government. D. It is relatively scarce
a
Which of the following explanations argues that the Great Recession resulted from asset-price bubbles caused by euphoria and debt-fueled speculation? A. Minsky explanation. B. Austrian explanation. C. Stimulus explanation. D. Structural explanation.
a
the amount of reserves that a commercial bank can lend and still be able to satisfy the reserve requirement
excess reserves
The concept of net domestic investment refers to
a) the amount of machinery and equipment used up in producing the GDP in a specific year. b) the difference between the market value and book value of outstanding capital stock. c) gross domestic investment less net exports. d) TOTAL INVESTMENT LESS THE AMOUNT OF INVESTMENT GOODS USED UP IN PRODUCING THE YEAR'S OUTPUT.
If the growth of real GDP is sluggish-- that is, below trend-- in order to stimulate the economy policymakers may choose to:
a. increase taxes b. INCREASE THE MONEY SUPPLY c. decrease the money supply d. decrease government spending
As disposable income increases, consumption spending
a. increases by the same amount b. decreases by the same amount c. INCREASES BY LESS THAN THE INCREASE IN DISPOSABLE INCOME d. decreases by less than the increase in disposable income e. does not change at all
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.
http://ezto.mheducation.com/13252703216803196681.tp4?REQUEST=SHOWmedia&media=image028.png Refer to the diagram for a private closed economy. At the $300 level of GDP:
aggregate expenditures and GDP are equal.
At equilibrium real GDP in a private closed economy: aggregate expenditures and real GDP are equal.
aggregate expenditures and real GDP are equal.
for a private closed economy and unintended decline in inventories suggest that
aggregate expenditures exceed GDP
(check diagram in doc) The MPC and MPS in the economy: A. are .4 and .6 respectively. B. are .6 and .4 respectively. C. are .8 and .2 respectively. D. cannot be determined from the information given.
b
Answer the question on the basis of the following information for a private closed economy. Assume that for the entire business sector of the economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and similarly an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range. Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is: 68 A. shows a direct relationship between the interest rate and investment. B. is also the investment demand curve. C. is indeterminate. D. implies a direct (positive) relationship between the interest rate and the level of GDP.
b
Following the Great Recession that ended mid-2009, by December 2012: A. employment had reached prerecession levels. B. employment was still 3.4 million below prerecession levels. C. the unemployment rate was still around 10 percent. D. unemployment had fallen below its lowest prerecession rate.
b
If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will: A. fall, causing households and businesses to hold less money. B. rise, causing households and businesses to hold less money. C. rise, causing households and businesses to hold more money. D. fall, causing households and businesses to hold more money.
b
John Maynard Keynes created the aggregate expenditures model based primarily on what historical event? A. Bank panic of 1907. B. Great Depression. C. Spectacular economic growth during World War II. D. Economic expansion of the 1920s.
b
The transactions demand for money is most closely related to money functioning as a: A. unit of account. B. medium of exchange. C. store of value. D. measure of value
b
Viewed through the aggregate expenditures model, the U.S. recession of 2007-2009 resulted mainly from: A. a fall in the average propensity to save. B. insufficient aggregate expenditures. C. reduced government spending. D. increased taxes.
b
When deriving the aggregate demand (AD) curve from the aggregate expenditures model, an increase in U.S. product prices would cause an increase in: A. the value of household wealth and lower consumption expenditures. B. interest rates and lower investment expenditures. C. exports and imports. D. U.S. resource prices and an increase in aggregate supply.
b
Which of the following would contribute to a U.S. balance of payments deficit? A. Kawasaki builds a motorcycle manufacturing plant in Kansas City. B. U.S. tourists travel in large numbers to Europe. C. A wealthy Mexican citizen builds a mansion in Beverly Hills. D. Zaire pays interest on its debt to the United States.
b
During periods of rapid inflation, money may cease to work as a medium of exchange:
because people and businesses will not want to accept it in transactions.
Prime Interest Rate
benchmark interest rate that banks use as a reference point for a wide range of loans to businesses and individuals
In a private closed economy, when aggregate expenditures exceed GDP:
business inventories will fall.
Banks create money when they: A. allow loans to mature. B. accept deposits of cash. C. buy government bonds from households. D. sell government bonds to households.
c
Evidence of a chronic balance of payments deficit is: A. a decline in amount of the nation's currency held by other nations. B. an excess of exports over imports. C. diminishing reserves of foreign currencies. D. an increase in the international value of the nation's currency.
c
More than half the growth of real GDP in the United States is caused by: A. a falling price level. B. the reallocation of labor from manufacturing to agriculture. C. increases in the productivity of labor. D. the use of fewer inputs of labor.
c
The aggregate expenditures model and the aggregate demand curve can be reconciled because, other things equal, in the aggregate expenditures model: A. changes in the price level have no effect on the equilibrium level of GDP. B. an increase in the price level increases the real value of wealth. C. the level of aggregate expenditures and therefore the level of real GDP vary inversely with the price level. D. the level of aggregate expenditures and therefore the level of real GDP vary directly with the price level.
c
The asset demand for money is most closely related to money functioning as a: A. unit of account. B. medium of exchange. C. store of value. D. measure of value.
c
The level of aggregate expenditures in a mixed open economy is comprised of: A. C a + I g + X n . B. C a + I g + G + T + X n . C. C a + I g + X n + G . D. C a + G .
c
Value added refers to: A. any increase in GDP that has been adjusted for adverse environmental effects. B. the excess of gross investment over net investment. C. the difference between the value of a firm's output and the value of the inputs it has purchased from others. D. the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.
c
Studies show that:
costs of trade barriers don't exceed their benefits creating more efficiency and domestic equipment
If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal): both U.S. imports and U.S. exports to rise. B. both U.S. imports and U.S. exports to fall. C. U.S. exports to fall and U.S. imports to increase. D. inflation to occur.
d
In response to the Great Recession, Congress extended the maximum period for drawing unemployment benefits from 26 to 99 weeks. While this was done to help workers financially and to help the economy by stimulating demand, it had what unintended consequence? A. It significantly increased the rate of inflation. B. It drove the unemployment rate lower than the lowest prerecession rate. C. It encouraged millions of unemployed workers to return to school, driving up projected future rates of labor productivity. D. It prompted inefficiently long searches that kept the unemployment rate higher.
d
The M 2 money supply includes: A. stock certificates. B. currency in bank vaults. C. the cash value of life insurance policies. D. individual shares in money market mutual funds.
d
as interest rates rise, demand for money
decreases
the factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the
determinants of aggregate demand
if at some level of GDP the economy is experiencing an unintended decrease in inventories
domestic output will increase
The demand for money curve shows the relationship between the interest rate and the quantity of money demanded, and is
downward sloping
suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent real GDP. the government is engaging in a(n)
expansionary fiscal policy
Subprime mortgage loans are so named because the rates charged are below the prime interest rate. True or False
false
Quantitative easing cycle
federal reserve buys loans→banks loan money to businessman→interests rates go down→people spend money→stimulates economy. Short sited—causes inflation, devalues US dollar, younger citizens have to pay back debt
Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is:
fictionally unemployed.
there must always be a balance of a nation's
international payments
Quantitative easing
is a policy in which a bank convinces the public that it will keep interest rates very low by providing substantial reserves for as long as is necessary to avoid deflation.
Value added
is the market value of a firm's output less the value of the inputs the firm has bought from others
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:
multiplier effect.
In a private closed economy, when aggregate expenditures equal GDP:
planned investment equals saving
If aggregate expenditures exceed GDP in a private closed economy:
planned investment will exceed saving.
increase in labor productivity can
shift production function upward
Other things equal, an improvement in productivity will:
shift the aggregate supply curve to the right.
excise taxes on imported goods, may be imposed for purposes of revenue or protection
tariffs
if the economy has a cyclically adjusted budget surplus, this means that
tax revenues would exceed government expenditures if full employment were achieved.
the cyclically adjusted budget refers to
the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment
If the economy adds to its inventory of goods during some year:
this amount should be included in calculating that year's GDP.
The determinants of the demand for money balances are the __________ demand, the __________ demand, and the __________ demand.
transactions; precautionary; asset.
the cyclically adjusted budget tells us
what the size of the federal budget deficit or surplus would be if the economy was at full employment.
total demand for money (money supply)
where the Dm and Sm curves meet
