ECON test 3
Inflation results when ______.
the increase in aggregate demand exceeds the increase in potential GDP
G-20 Leaders Look to Shake off Lingering Economic Troubles The G-20 aims to take stock of the economic recovery. One achievement in Pittsburgh could be a deal to require that financial institutions hold more capital. The "capital" referred to in the news clip is ______. The financial institutions that the G-20 might require to hold more capital are ______. The requirement to hold more capital can make financial institutions safer because by using more of its own funds and less borrowed funds, a financial institution ______.
the institutions own funds; banks and insurance companies decreases its risk of insolvency
One of the Fed's main policy tools is ______.
the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed
The quantity of money that the banking system can create is limited by _______.
the monetary base, desired reserves, and desired currency holdings
All of the following events except an increase in ______ might cause a demand-pull inflation.
the money wage rate
A cost-push rise in the price level can arise from an increase in _______.
the money wage rate or money prices of raw materials
As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
In the long run, _________________ adjusts to make the quantity of real money supplied equal the quantity demanded.
the price level
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______, when everything else remains the same
the price level
A movement along the aggregate demand curve occurs if _______.
the price level changes and all other factors remain unchanged
An open market operation is ______.
the purchase or sale of securities by the Federal Reserve System in the loanable funds market
The demand for loanable funds is the relationship between _____ demanded and the _____ when all other influences on borrowing plans remain the same.
the quantity of loanable funds; real interest rate
The supply of loanable funds is the relationship between _____ supplied and the _____ when all other influences on lending plans remain the same.
the quantity of loanable funds; real interest rate
A stagflation can turn into a cost-push inflation process when _______.
the quantity of money persistently increases
When the price level in Mexico rises:
the quantity of real GDP demanded decreases
Everything else remaining the same, an increase in aggregate demand increases ______.
the quantity of real GDP supplied
The main influences on the quantity of money that people and businesses plan to hold include all of the following except ______.
the quantity of reserves
The demand for loanable funds is determined by ______. The demand for loanable funds changes when ______ changes.
the real interest rate and expected profit; expected profit
As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
Requirements to hold more capital make banks safer because _______.
the requirement to hold more capital makes the possibility of failure less likely
Gross investment is ______. Net investment is ______.
the total amount spent on new capital; the change in the value of capital
Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate
Depository institutions have made innovations that have changed the composition of money in all of the following ways except ______.
the use of currency has fallen significantly
The main criticisms of RBC theory include all of the following except ______.
real business cycle theory relies too heavily on the role of money in the economy to make its predicitons
The crowding-out effect is the tendency for a government budget deficit to raise the _____ and _____ investment.
real interest rate; decrease
The analysis of macroeconomic performance in the news clip reflects the ______ business cycle theory because it discusses ______.
real; factors that change potential GDP
Short-run macroeconomic equilibrium occurs when the quantity of _____ demanded equals the quantity of _____ supplied at the point of intersection of the _____ curve and the _____ curve.
real GDP; real GDP; AD; SAS
The quantity of desired reserves depends on the level of deposits and is determined by the desired reserve ratio - the ratio of _____ to _____ that the _____ plan to hold.
reserves; deposits; banks
Regulators Give Bleak Forecast for Banks Regulators said that they were bracing for an uptick in the number of bank failures. The Fed declined to comment on the health of specific companies but said that Wall Street firms have learned a great deal from Bear Stearns and have reduced leverage and built up their liquidity. Today, investment banks are stronger than they were a month- and-a-half ago. A bank's "balancing act" balances _______. The over-pursuit of profit or underestimation of risk can lead to bank failure because _______.
return against risk; some borrowers default and never repay , which can lead to bank insolvency
Which of the following statements illustrate monetary policy?
the Fed has raised the federal funds rate by .3%
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
If the United States lowers its budget deficit but the governments in other countries do not lower their deficits, the world real interest rate ______ and the amount that the United States borrows from the rest of the world ______.
falls; decreases
The real interest rate ______, household saving ______,
falls; decreases and investment increases
Suppose if when the United States hits its "fiscal cliff," the governments in Europe, China, and Japan also were to cut their budget deficits. As a result, the world interest rate _______. World saving _______.
falls; decreases and world investment increases
The price of a bond ______ and the interest rate ______.
falls; rises
This major event in the global and U.S. loanable funds markets ___________________ the U.S. supply of loanable funds, _______________ the U.S. demand for loanable funds, and _______________ the amount that the United States borrowed from the rest of the world.
did not change, increased, decreased
The major event in the global and U.S. loanable funds markets in 2009 was the growth of world government budget _____________ . This event ________________ the world real interest rate, ___________________ the global supply of loanable funds and ______________ the global demand for loanable funds.
deficits, increased, did not change, increased
An economy experiences _______ inflation when "wages tend to feed inflation."
demand- pull
"Wages typically track inflation, soaring higher when prices take off." In this situation, the economy is experiencing _______ inflation.
demand- pull
Official: China May Face Heavy Inflation Pressure China is expected to face great inflationary pressure in the future due to higher costs and an abundant global money supply, a senior Chinese official said in an article published Tuesday. He said inflation in China is also the result of excessive global liquidity from loose monetary policies adopted by developed nations, China's lending expansion, and a pile-up of outstanding foreign exchange funds. China's consumer price index (CPI), a main gauge of inflation, rose 4.9 percent year on year in February, the same level as in January. The CPI data for March is scheduled to be released this week and is estimated to show a rise above 5 percent. China is experiencing a ______ inflation caused by ______.
demand-pull; loose monetary policy, which increases aggregate demand
In new classical cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate _____, determines the _____ and the position of the SAS curve.
demand; money wage rate
U.S. Bank Earnings up 21% as Loan Losses Decline, FDIC Says FDIC insurance helps to minimize bank failures and bring more stability to the banking system because _______.
depositors know that money they have deposited with a bank will be repaid
The required reserve ratio is the minimum percentage of _____ that _____ are required to hold as reserves.
deposits; depository institutions
The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______
desired reserve ratio; excess reserves
A new Classical view is that business cycle fluctuations are the _____ responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of _____.
efficient; technological change
If inflation is expected, _______.
either a cost-push inflation nor a demand-pull inflation occur
Long-run macroeconomic equilibrium occurs when real GDP _____ potential GDP - equivalently, when the economy is on its _____ curve.
equals; LAS
The quantity theory of money is the proposition that when real GDP _____ potential GDP, an increase in the quantity of money brings _____ percentage increase in the _____.
equals; an equal; price level
A below full-employment equilibrium is an equilibrium in which potential GDP _____ real GDP.
exceeds
When potential GDP _____ real GDP, the output gap is called a recessionary gap.
exceeds
An above full-employment equilibrium is an equilibrium when real GDP _____.
exceeds potential GDP
Households make saving decisions by considering all of the following factors except _______.
expected profit
The consequences of deflation include all of the following except _______.
falling real wage rates for workers with long-term wage contracts
The economy returns to a full-employment equilibrium as the money wage rate __________
falls
If governments in other countries lower their budget deficits but the U.S. government does not lower its deficit, the world real interest rate _________ the U.S. supply of loanable funds _________________ the U.S. demand for loanable funds ___________________ and the amount that the United States borrows from the rest of the world _________________
falls, does not change, does not change, increases
When Mexico increases the quantity of money, Mexico's aggregate demand ______.
increases and its AD curve shifts rightward
In Keynesian cycle theory, fluctuations in _____ driven by fluctuations in business confidence - summarized by the phrase "animal spirits" - are the main source of fluctuations in _____.
investment; aggregate demand
Stagflation ______.
is a combination of recession and inflation
From the Fed's Minutes Members expected real GDP growth to be moderate over coming quarters and then to pick up very gradually, with the unemployment rate declining only slowly. With longer-term inflation expectations stable, members anticipated that inflation over the medium run would be at or below 2 percent a year. FOMC members are predicting that the U.S. economy ______.
is on a short-run Phillips curve to the right of the LRPC and will move leftward up along the SRPC
From Paper-Clip to House, in 14 Trades A 26-year-old Montreal man appears to have succeeded in his quest to barter a single, red paperclip all the way up to a house. It took almost a year and 14 trades. Barter ______ a means of payment. When trading on e-Bay, barter _______.
is; is not as efficient as money because barter requires a double coincidence of wants
A central bank performs all of the following functions except ______.
it provides general banking services for businesses and individual citizens
During times of uncertainty, it might be necessary for a bank to hold large cash reserves and to have a large percentage of its assets purchased by its own capital because ______.
its depositors may decide to make large withdrawals
RBC theorists believe the when-to-work effect is _________
large
To increase its assets to $2.3 trillion in 2008, the Fed used ______.
last resort loans
Net worth is the total market value of what a financial institution has _____ minus the market value of what it has _____.
lent; borrowed
Suppose the Fed increases the quantity of money. In the long run, supply and demand in the ______ market determines the real interest rate. The ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.
loanable funds; price level
The three main types of markets for financial capital are _______.
loan markets, bond markets, and stock markets
Economic growth results when there are increases in ______.
long run aggregate supply
At full employment, a decrease in the government budget deficit _______ the real interest rate and _______ investment.
lowers; increases
The Federal Open Market Committee is the Fed's _____ committee.
main policy making
Banks create money by ______.
making loans
Depository institutions pool risk because they use funds obtained from ______ depositors to make loans to ______ borrowers.
many; many
Money is any commodity or token that is generally acceptable as a ______.
means of payment
Money serves as a ______.
medium of exchange, which means that it is generally accepted in exchange for goods and services
The required reserve ratio is the ______.
minimum % of deposits that depository institutions are required to hold as reserves
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment.
money wage rate
The money multiplier is the ratio of the change in the quantity of ______ to the change in the quantity of ______.
money; monetary base
In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve. In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new classical; new Keynesian
The demand for money is the relationship between the quantity of money demanded and the _____, when all other influences on the amount of money that people wish to _____ remain the same.
nominal interest rate; hold
Cash in Citibank's cash machines _____________ Coins inside a vending machine __________ Your Visa card ______________ Your loan to pay for school fees ________________
not money; money; not money; not money
Currency consists of _____.
notes (dollar bills) and coins
Saving is the amount of income that is _____ in net taxes or spent on _____ goods and services.
not paid; consumption
1. What are the three largest items in China's budget? The three largest items in China's budget are _____, _____, and _____.
other items; education; social security and unemployment
Examples of physical capital are ______. Examples of financial capital are ______.
ovens used by Pizza Hut and lawn mowers used by Larry's Mowing; bonds issued by Wal-Mart and stocks issued by Boeing
Wealth is the value of all the things that people _____.
own
A stock is a certificate of _____ and claim to the _____ that a firm makes.
ownership; profits
Rapid inflation in Brazil in the early 1990s caused the cruzerio to lose its ability to function as money. Which of the following commodities do you think would most likely have taken the place of the cruzeiro in the Brazilian economy?
packs of cigarettes because they are a good medium of exchange
Which of the following statements illustrate fiscal policy?
the US gov has proposed a hike in the corporate tax rate
The loanable funds market is ______.
the aggregate of all the individual financial market
China Cuts Banks' Reserve Ratios The People's Bank of China made a long-awaited move to boost lending in the country's slowing economy with the announcement that it would lower the required reserve ratio by 50 basis points from February 24. The cut will bring the ratio down to 20.5 percent for the largest banks. A lower required reserve ratio increases bank profits because ______.
the banks hold fewer reserves
Net taxes are taxes paid to the government minus _____.
the cash transfers received from gov
Read the news clip, then answer the following questions. Aggregate demand will increase if ______.
the effect of the tax rebates and the change in the foreign exchange rate outweigh the effect of the housing, credit, and financial crises
Along the short-run Phillips curve, ______.
the expected inflation rate and the natural unemployment rate are constant
The velocity of circulation is the average number of times a dollar of money is used annually to buy ______. The formula used to measure the velocity of circulation, V, is ______, where P is the price level, Y is real GDP, and M is the quantity of money.
the goods and services that make up GDP; V = (P ×Y) ÷M
The news article draws attention to the long-term problems of ______.
the growth of U.S. government debt and U.S. international debt
According to RBC theory, the main source of economic fluctuations is a decrease in ______
productivity growth
The functions of depository institutions include all of the following except ______.
providing insurance on loans
The Federal Reserve (usually called the Fed) is the central bank of the United States, a _____ authority whose main role is the regulation of _____.
public; banks and money
A central bank is a banks bank and a _____ authority that regulates a nation's depository institutions and conducts _____ policy, which means that it adjusts the _____ and influences _____________
public; monetary; quantity of money in circulation; interest rates
In September 2007 before the financial crisis and recession, the Fed had assets of $800 billion, mainly short-term government securities. In June 2012 after two rounds of quantitative easing, the Fed's assets totaled $2,600 billion. Many of those assets were long-term securities and not all of them were government securities. Choose the statement that is incorrect.
quantitative easing decreased bank reserves
A government budget deficit _______________ the demand for loanable funds.
increases
A government budget surplus ___________________ the supply of loanable funds.
increases
Choose the correct statement.
"slowing growth" can reduce inflationary pressure if aggregate demand growth slows
Using a Federal grant of $150,000, a research lab buys equipment for $75,000 that has depreciated by $11,000 after two years. Calculate gross investment and net investment.
$75,000; $64,000.
If the monetary base increases by $1 million and the quantity of money increases by $2.5 million, then the money multiplier is _____.
2.5
Choose the correct statements. 1. Most people know the price of gum comma so it could serve as money because it is a unit of account. 2. Because most people buy gum comma it can be used as money because it is a useful tool in barter. 3. Gum does not serve as money because it is not a good store of value. 4. Gum does not serve as money because it is not generally accepted in exchange for goods and services
3 & 4 are correct
An economy is at potential GDP and the price level is 100 in the figure. If aggregate demand unexpectedly increases, the inflation rate is ______.
3 percent a year
The following items are (approximate) facts about the U.S. economy: bullet• In 2005, the nominal interest rate on bonds was 5 percent a year and the real interest rate was 2 percent a year. Investment was $2.7 trillion and the government budget deficit was $0.5 trillion. bullet• By 2009, the real interest rate had increased to 5 percent a year, but the nominal interest rate was unchanged at 5 percent a year. Investment had crashed to $1.8 trillion and the government budget deficit had climbed to $1.8 trillion. Assume that the private demand for and private supply of loanable funds did not change between 2005 and 2009. What was the inflation rate in 2005 and 2009? How do you know? The inflation rates in 2005 and 2009 were _____ percent and _____ percent respectively because the inflation rate equals _____ . The price of a bond _____ between 2005 and 2009 because the _____.
3; 0; nominal interest rate minus real interest rate remained unchanged; nominal interest rate remained unchanged
1. Calculate the short-run equilibrium real GDP and price level. The short-run equilibrium real GDP is ________ billion and the price level is _______.
575; 110
If the annual interest paid on a $500 loan is $25, the nominal interest rate is _____ percent per year. If the nominal interest rate is 5 percent per year and the inflation rate is 2 percent a year, the real interest rate is _____ per year.
5; 3
An increase in current income taxes ______ the supply of loanable funds today because it ______.
decreases; decreases disposable income, which decreases saving
A rational expectation is a forecast that results from the use of all the relevant data and _____.
economic science
Consider the following events. Event 1: Growth in the world economy slows. Event 2: The world price of oil rises. Event 3: U.S. labor productivity declines. Choose the statement that is correct.
A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events.
Choose the statement that is incorrect about the Eurozone economy.
A rise in the expected inflation rate shifts the short-run Phillips curve rightward
3. How does the government budget influence aggregate demand?
An increase in the goverment budget increases aggregate demand.
Choose the statement about the long-run Phillips curve that is incorrect.
An unexpected increase in aggregate demand shifts the long-run Phillips curve rightward
According to the Ricardo-Barro effect, a government budget deficit ______ the real interest rate.
has no effect on
Starting at point A, the initial effect of a cost-push inflation is a move to point ______. As a cost-push inflation spiral proceeds, it follows the path ______.
B; E, G, I
A cost-push rise in the price level will initially move the economy to point ______ and to point ______
C when the money prices of raw materials rise; D when aggregate demand increases
Starting at point A, the initial effect of a demand-pull inflation is a move to point ______. As a demand-pull inflation spiral proceeds, it follows the path ______.
C; E, H, I
Explain the effect of each of the following events on Canada's aggregate demand The United States experiences strong economic growth.
Canada's aggregate demand increases
4. How does the government budget influence aggregate supply?
Capital expenditure on transportation and expenditure on healthcare and education increase human capital and therefore increase aggregate supply.
Which of the following is money?
Charlie's checking account deposit at the Bank of America.
Choose the correct statement.
Commercial banks are financial institutions that accept deposits, provide payment services, and make loans to firms and households.
Choose the statement that is incorrect.
Deposits are not money because you cannot settle a debt with a deposit.
Choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money.
Which of the following statements about the monetarist view of the macroeconomy is incorrect?
Left alone, the economy rarely operates at full employment.
Choose the statement that is incorrect.
Liquid assets have a higher interest rate than securities.
Starting at point A, the initial effects of an expected inflation is a movement to point ______. As an expected inflation proceeds, it follows the path ______.
E; I
The central bank of the United States is the ______.
Federal Reserve System
The monetary base is the sum of _______. The monetary base is equal to _______.
Federal Reserve notes, coins, and depository institution deposits at the Fed; the liabilities of the Fed plus coins issued by the Treasury
The quantity theory of money tells us that _______.
a change in the money growth rate brings an equal change in the inflation rate
Choose the statement that is incorrect.
If a financial institution's net worth is positive, the institution must be solvent and liquid.
Choose the statement that is incorrect.
In a deflation, the inflation rate is positive but decreasing in consequent years.
At arrow 2, the economy is in ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
an above; right
Shoppers Stimulate Discount Stores The ______ macroeconomic school of thought justifies the policy discussed in this news clip.
Keynesian
Krugman on Monetary and Fiscal Policy Based on this news clip, Paul Krugman most likely follows the ______ school of thought and Ben Bernanke most likely follows the ______ school of thought.
Keynesian or new Keynesian; Keynesian or new Keynesian
Adding Up the Cost of Obama's Agenda Based on this news clip, Barack Obama most likely follows the ______ school of thought and John McCain most likely follows the ______ school of thought.
Keynesian or new Keynesian; classical or new classical
In ______ cycle theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
Keynesian; monetarist
The two main official measures of money in the United States today are ______. The two main official measures of money in the United States ______ really money.
M1 and M2; are
M2 consists of _____ plus _____ and _____ deposits, _____, and other deposits.
M1; savings deposits; small time; money market funds
The equation of exchange is ______ and it is true ______.
MV=PY; by definition
Suppose that Sara withdraws $1,000 from her savings account at the Lucky S&L, keeps $50 in cash, and deposits the balance in her checking account at the Bank of Illinois. The immediate change is ______ in M1 of $1,000 and ______ in M2.
an increase; no change
Choose the statement that is incorrect.
Over the business cycle, aggregate supply fluctuates around potential GDP.
A depository institution creates liquidity by ______.
borrowing short and lending long
Defenders of RBC theory claim all of the following except _______.
RBC theory is consistent with a negligible intertemporal substitution effect
Which of the following is an example of financial capital?
Rachel has taken a loan to buy a new home.
A change in the actual inflation rate brings a movement along the ______. A change in the expected inflation rate brings ______.
SRPC; a shift of the SRPC
Which of the following economies is facing a stagflation?
The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level.
3. What is the Fed concerned about?
The Fed is concerned about how a decrease in government spending might result in lower real GDP
2. What is the Fed expected to do given the current state of the U.S. economy?
The Fed is expected to increase monetary stimulus to lower long-term interest rates, given the current state of the U.S. economy.
Households preferred to buy corporate equities rather than bonds because ______.
corporate equities deliver capital gains, which increases wealth
1. How has the U.S. economy been performing in recent weeks?
The U.S. economy's performance in recent weeks shows that employment is growing and the housing market is recovering
How can the change in U.S. wealth differ from U.S. saving?
The change in wealth includes changes in the prices of assets owned and saving excludes these items.
Choose the statement that is incorrect.
The greater the default risk, the greater is the supply of loanable funds.
Choose the statement concerning firms' investment decisions that is incorrect.
The higher the real interest rate, the greater is the demand for loanable funds, other things remaining the same.
Labor productivity is rising at a rapid rate in China and wages are rising at a similar rate. Choose the statement that is incorrect.
The increase in labor productivity has no effect on short-run aggregate supply.
3. If aggregate demand increases by $50 billion, what is the new short-run macroeconomic equilibrium and the output gap?
The new short-run macroeconomic equilibrium is at a real GDP of $600 billion and a price level of 120. The economy has no output gap.
Choose the statement about the Fed that is incorrect.
The policy decisions of the Federal Open Market Committee are implemented each month by a different Federal Reserve Bank.
Choose the correct statement
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
Geithner Urges Action on Economy Choose the statement that is incorrect
Treasury Secretary Timothy Geithner most likely follows the monetarist school of thought if he thinks that a falling money wage rate will respond quickly to changes in government tax policy.
Choose the correct statement.
When the price of an asset rises, the interest rate falls, everything else remaining the same.
According to the quantity theory of money, in the long run an increase in the quantity of money of 5 percent, brings _____ in the price level.
a 5% increase
The Fed is the lender of last resort, which means that if _____ is short of reserves, it can borrow from the _____.
a bank; Fed
Suppose the economy had been operating at a full- employment equilibrium. After the fall in consumer confidence, the economy moves to ______ equilibrium and ______ gap emerges.
a below full employment; a recessionary
If an economy is at a full-employment equilibrium and a decrease in consumption expenditure occurs, the new short-run equilibrium is _____ and _____ gap emerges.
a below full-employment equilibrium; a recessionary
U.S. Bank Earnings up 21% as Loan Losses Decline, FDIC Says For the 12th straight quarter, U.S. bank profits increased. At $34.5 billion, they were 21 percent higher than a year earlier, and according to the Federal Deposit Insurance Corporation (FDIC), balance sheets were less risky. FDIC Acting Chairman Martin Gruenberg said "Levels of troubled assets and troubled institutions remain high, but they are continuing to improve." The number of institutions on FDIC's list of banks deemed to be at greater risk of collapse fell for a fifth straight quarter. By August, 40 banks had failed in 2012. The FDIC's deposit insurance fund, which protects customer accounts up to $250,000 against bank failure, increased. A bank's attempts to pursue profit can sometimes lead to bank failure because _______.
a combination of all of the above
Choose the correct statement.
a credit card is not a means of payment
So, as the price level rises, there is ______.
a decrease in the quantity of real GDP demanded
A cost-push inflation begins with ______ as the result of an increase in the money wage rate or an increase in the money prices of raw materials.
a decrease in short-run aggregate supply
The effect of this decrease is ______________ in investment demand, ____________ in the demand for loanable funds, and ______________ in the real interest rate.
a decrease; a decrease; a decrease
The effect of this decrease is ______________ in the demand for labor, _____________ in the supply of labor, _____________ in employment, and _____________ in the real wage rate.
a decrease; a decrease; a decrease; a decrease
A rise in the money wage rate with no change in potential GDP creates ______.
a leftward shift of the SAS curve and no change in the LAS curve
A mortgage is _______.
a legal contract that gives ownership of a home to the lender in the event that the borrower fails to meet the agreed loan payments (repayments and interest)
Eurozone Unemployment Hits Record High As Inflation Rises Unexpectedly Eurozone unemployment rose to 10.7 percent. At the same time, Eurozone inflation unexpectedly rose to 2.7 percent a year, up from the previous month's 2.6 percent a year A very high unemployment rate can be accounted for by the Phillips curve model by all of the following except_______.
a movement up along the long-run Phillips curve if the natural unemployment rate increases
Deflation is _______.
a persistently falling price level
The best forecast available, which is based on all the relevant information is called _______.
a rational expectation
If potential GDP is $1 trillion, the economy has __________________ gap.
a recessionary
2. Does the country have an inflationary gap or a recessionary gap and what is its magnitude? The country has _____ gap and its magnitude is $ _____ billion.
a recessionary; 25
In the graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. The events which could have changed short-run aggregate supply from SAS0 to SAS1 are ______.
a rise in the money wage rate or a rise in the money price of any other factor of production
A stock market is a financial market in which shares of stocks of _____ are traded.
corporations
Excess reserves are a bank's _____ reserves minus its _____ reserves.
actual; desired
An inflation that starts because _____ is called demand-pull inflation.
aggregate demand increases
Deflation occurs when _______.
aggregate demand increases at a persistantly slower rate than aggregate supply
Deflation occurs when _______.
aggregate demand increases at a persistently slower rate than aggregate supply
If potential GDP is $1 trillion, the economy has moved to ______________________________ equilibrium.
an above full employment
The economy starts out on the curves AD0 and SAS0. Some events then occur that generate an expected inflation. Which of the following events would not cause an expected inflation?
an expected increase in taxes
A demand-pull inflation begins with _______.
an increase in aggregate demand
In the graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. Some events that could have changed aggregate demand from AD0 to AD1 are ______.
an increase in expected future inflation or an increase in foreign income
Which of the following events might cause a cost-push inflation?
an increase in the money wage rate or an increase in the money prices of raw materials
If aggregate demand grows faster than potential GDP, ______ gap emerges and if it grows more slowly than potential GDP, ______ gap emerges.
an inflationary; a recessionary
A Classical macroeconomist believes that the economy is self-regulating and always _____.
at full employment
A monetarist is a macroeconomist who believes that the economy is self-regulating and that it will normally operate _____,
at full employment; money growth
The velocity of circulation is the _____ number of times in a _____ that each dollar of money gets used to buy final goods and services.
average; year
A central bank is ______. The central bank in the United States is the ______.
a bank's bank and a public authority that regulates a nation's depository institutions and conducts monetary policy; Federal Reserve System
At arrow 1 in the graph, the economy is in ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
a below; left
A type of _____ is a mortgage-backed security, which entitles _____ to the income from a package of mortgages.
a bond; its holder
A problem with using a commodity as money is ______.
a commodity's value changes over time
If the government increases its expenditure on goods and services and as a result, the money wage rate increases, the economy has experienced _______.
a demand-pull rise in the price level
A rise in the price of oil creates _______.
a one-time cost-push rise in the price level
Reserves consist of the currency in the _____ plus the balance on its _____ account at _____.
bank's vaults; reserve; a Federal Reserve Bank
An increase in potential GDP increases ______.
both long-run aggregate supply and short-run aggregate supply
Inflation expectations "become self-fulfilling" because consumers decide to _____, which ______.
buy more goods and services at today's lower prices; increases aggregate demand
If the interest rate is 5 percent, people will ______.
buy bonds, bid up their price, and the interest rate will fall
During 2008, the inflation rate increased and the unemployment rate increased. These events ______.
cannot be explained by a movement along the SRPC because along this curve the inflation rate and unemployment rate move in opposite directions
The Federal Reserve System (the Fed) is the _____ of the United States.
central bank
Risky Assets: Counting to a Trillion Prior to the financial crisis, the Fed held less than $1 trillion in assets and most were in safe U.S. government securities. By mid-December 2008, the Fed's balance sheet had increased to over $2.3 trillion. The massive expansion began when the Fed rolled out its lending program: sending banks cash in exchange for risky assets. The Fed's policy tools include all of the following except ______.
changing government expenditure
A ______ macroeconomist believes that the economy is self-regulating and always at full employment. A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
classical; Keynesian
The monetary base is the sum of _____, _____, and _____ at the Fed.
coins; Federal Reserve notes; banks' reserves
Changes in consumption spending play a large role in the business cycle because _______ accounts for approximately ______ percent of GDP.
consumption expenditure; 70
Pakistan: Is it Cost-Push Inflation? With CPI already spiking 11.8 percent for the first ten months of the fiscal year, the average CPI inflation for the same period last year stood at 22.35 percent. Some economists insist the current bout of inflationary pressures is spawned by increasing prices of fuel, food, raw materials, transportation, construction materials, elimination of energy subsidies, etc as indicated by the spike in the wholesale price index (WPI), which rose 21.99 per cent in April from a year earlier. Pakistan is experiencing ______ inflation.
cost-push
Tight Money Won't Slay Food, Energy Inflation It's important to differentiate between a general increase in priceslong dash—a situation in which aggregate demand exceeds their aggregate supplylong dash—and a relative price shock. For example, a specific shock to energy prices can become generalized if producers are able to pass on the higher costs. So far, global competition has made that difficult for companies, while higher input costs have largely been neutralized by rising labor productivity. Since 2003, core inflation has averaged less than 2 percent a year in the 30 major economies. History also suggests the Fed's gamble that slowing growth will shackle core inflation is a winning wager. The risk is that if U.S. consumers don't believe price increases will slow, growing inflation expectations may become self-fulfilling. The news clip refers to ______ inflation when it discusses rising production costs. "Rising labor productivity" can neutralize the effect on the inflation rate of "higher input costs" because ______.
cost-push; it increases short-run aggregate supply and long-run aggregate supply with no slowdown in aggregate demand growth
An inflation that is kicked off by an increase in _____ is called cost-push inflation.
costs
Stagflation occurs when _______.
costs increase
The main components of money in the United States today are ______.
currency and deposits at banks and other depository institutions
We call the leakage of bank reserves into currency the currency drain, and we call the ratio of _____ to _____ the currency drain ratio.
currency; deposits
Aggregate demand increasesincreases if the exchange rate ______ or foreign income ______.
decrease, increase
In a speech at the CFA Society of Nebraska in February 2007, William Poole, former Chairman of the St. Louis Federal Reserve said: U.S. household income has grown considerably since 1984. U.S. saving has ______ because wealth has ______.
decreased; increased due to capital gains
The Fed cutscuts the quantity of money and all other things remain the same. In the short run, aggregate demand _______.
decreases
Event 3 _________
decreases aggregate demand
The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1 ______. Event 2 ______.
decreases aggregate demand; decreases short-run aggregate supply
The requirement to hold more capital can make financial institutions safer because by using more of its own funds and less borrowed funds, a financial institution ______.
decreases its risk of insolvency
1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of long-run equilibrium, a deep recession ______, and a decrease in expected future profits ______.
decreases real GDP and lowers the price level; decreases real GDP and lowers the price level
Starting from a position of long-run equilibrium, a sharp increase in the world oil price ______.
decreases real GDP and raises the price level
An increase in expected future income ______.
decreases the supply of loanable funds today because households with larger expected future income will save lessless today
An unexpected increase in aggregate demand ______ rate, which is shown by ______ the short-run Phillips curve.
decreases unemployment and increases the inflation; a movement up along
Aggregate demand increasesincreases if fiscal policy ______ taxes or ______ transfer payments.
decreases; increases
A government budget surplus _______ the real interest rate, decreases ______.
decreases; private saving and increases investment
Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China _______ aggregate supply.
decreases China's short-run
The "average overall increase across the board" wage increase _______.
decreases short-run aggregate supply
The expected inflation rate _____________________
does not change
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
does not change; long-run
The U.S. long-run Phillips curve ______ when the expected inflation rate rises. The U.S. long-run Phillips curve ______ when the natural unemployment rate increases.
does not shift; shifts rightward
An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate ______ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to ______.
falls below; rise
When the interest rate falls, other things remaining the same, the opportunity cost of holding money ______ and ______.
falls; the quantity of money demanded increases
The loanable funds market is the aggregate of all the individual _____ markets.
financial
Bonds issued by _____ are traded in the bond market.
firms and governments
According to RBC theory, the source of the business cycle is _______, which result mainly from _______.
fluctuations in productivity; fluctuations in the pace of technological change
People substitute goods in the ______ for goods in the __________ .
future; present
An open market operation is the purchase or sale of _____ - _____ - by the _____ in the open market.
gov securities; US treasury bills and bonds; NY Fed
Suppose that the business cycle in the United States is best described by RBC theory. An advance in technology increases productivity. The when-to-work decision depends on the real interest rate. The _____ the real interest rate, other things remaining the same, the _____ is the supply of labor today.
higher; larger
A mortgage is a legal contract that gives ownership of a _____ to the _____ in the event that the _____ fails to meet the agreed loan payments (repayments and interest).
home; lender; borrower
What are the three sources of global investment funds?
household saving, government budget surplus, borrowing from the rest of the world
A depository institution is a financial firm that takes deposits from _____.
households and firms
Choose the statement that is incorrect.
if a depository institution fails, its depository are guaranteed up to a max of $250,000 per deposited per bank
The Fed is the lender of last resort, which means _______.
if depository institutions are short of reserves, they can borrow from the Fed
Treasury Yields Fall to Two-Week Low Treasury bond prices rose on Monday, pushing interest rates down. The interest rate on 10-year bonds fell 4 basis points to 1.65%. Choose the statement that is incorrect.
if the demand for Treasury bonds increases, , the interest rate on the Treasury bond rises
Getting a Raise: Why It's Not Happening Didn't get a raise this year? Blame inflation. American wages didn't budge last month, according to Labor Department data released Wednesday. And with inflation remaining at near zero, experts say it could be quite a while before many workers see their next raise. While stagnant prices are a boon for consumers on supermarket checkout lines, they can be hard on workers' bottom lines. Wages typically track inflation, soaring higher when prices take off. In fact, some say wages tend to feed inflation. That was the case in the 1970s, when wage growth picked up after prices soared. But pricing pressures are weaker today, with the consumer price index, a measure of inflation, unchanged in July from the previous month. Choose the statement that is incorrect. Starting from a long-run equilibrium, _______.
if the percentage change in the money wage rate equals the percentage change in the unemployment rate, the economy remains at full employment
Choose the statement that is incorrect.
in a deflation, the inflation rate is positive but decreasing in consequent years
A financial institution is a firm that operates on both sides of the markets for _____: It _____ in one market and _____ in another.
inancial capital; borrows; lends
A bank manager tells you that she doesn't create money. She just lends the money that people deposit. The bank manager is ______ because ______.
incorrect; every new loan creates a new deposit
In the news clip, productivity gains exceed pay increases because the demand for labor ______ than the ______ in the supply of labor.
increase by less; increase
Aggregate demand increasesincreases if monetary policy ______ the quantity of money and ______ interest rates.
increase; decrease
Tax rebates ______ aggregate demand and the housing, credit, and financial crises ______ aggregate demand.
increase; decrease
Aggregate demand increasesincreases if expected future income, inflation, or profits ______. And aggregate demand increasesincreases if fiscal policy ______ government expenditure.
increase; increases
Between 2007 and 2012 the monetary base _______.
increased
China Cuts Banks' Reserve Ratios The People's Bank of China announces it will cut the required reserve ratio. Lowering the required reserve ratio ______, which ______ the quantity of loans that China's banks can make and the quantity of money created.
increases excess reserves; increases
Starting from a position of long-run equilibrium, an increase in government expenditures ______ real GDP and ______ the price level.
increases real GDP and raises the price level
Starting from a position of long-run equilibrium, a world expansion ______, and an increase in expected future profits ______.
increases real GDP and raises the price level; increases real GDP and raises the price level
A government budget deficit occurs, which ______. The real interest rate ______.
increases the demand for loanable funds; rises
A government budget deficit _____________ the demand for loanable funds. The equilibrium real interest rate ________________ ________________ increases, and _____________ decreases.
increases, rises, private saving, investment
First Call, Inc. is a smartphone company. First Call expects its profit to double next year. If everything else remains the same, how does this increase in expected profit influence First Call's demand for loanable funds? This increase in expected profit _______ the demand for loanable funds and brings _______ the demand for loanable funds curve.
increases; a rightward shift of
Starting from a full-employment equilibrium, an increase in aggregate demand ______ real GDP, and creates ______ gap.
increases; an inflationary
An open market purchase ______ the monetary base. An open market sale ______ the monetary base.
increases; decreases
Private saving ___________ and investment ____________
increases; decreases
The increase in investment ______ aggregate demand. The decrease in government spending _______ aggregate demand.
increases; decreases
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ real GDP.
increases; decreases a ~stagflation~ is created
The fall in the average weekly wage rate ______ short-run aggregate supply and ______ long-run aggregate supply.
increases; does not change
Geithner Urges Action on Economy In the short run, an increase in business investment ______ real GDP and ______ the price level.
increases; increases
Geithner Urges Action on Economy In the short run, an increase in consumer spending ______ real GDP and ______ the price level.
increases; increases
In the short run, an increase in exports ______ real GDP and ______ the price level.
increases; increases
Read the news clip, then answer the following questions. The increase in the personal consumption expenditures ______ aggregate demand. The increase in exports ______ aggregate demand.
increases; increases
Real Wages Fail to Match a Rise in Productivity For most of the last century, wages and productivitylong dash—the key measure of the economy's efficiencylong dash—have risen together, increasing rapidly through the 1950s and '60s and far more slowly in the 1970s and '80s. But in recent years, the productivity gains have continued while the pay increases have not kept up. In real business cycle theory, an increase in productivity ______ the demand for labor by more than it ______ the supply of labor.
increases; increases
The fall in the minimum wage ______ short-run aggregate supply and ______ long-run aggregate supply.
increases; increases
In monetarist cycle theory, fluctuations in both _____, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuation in aggregate demand.
investment and consumption expenditure
An increase in expected future income _____________ aggregate demand. An increase in the expected future inflation rate ________________ aggregate demand. An increase in expected future profits ________________ aggregate demand.
increases; increases; increases
A government budget deficit _______ the real interest rate, increases ______.
increases; private saving and decreases investment
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve.
increases; short-run
Deflation can be ended by _______.
increasing the growth rate of the quantity of money
M1 consists of currency held by _____ and _____, _____, and _____ owned by individuals and businesses.
individuals; businesses; traveler's check; checkable deposits
The short-run Phillips curve is a curve that shows the relationship between the _____ rate and _____ when _____ and the _____ remain constant.
inflation; the unemployment rate; the natural unemployment rate; expected inflation rate
The long-run Phillips curve is the relationship between _____ and _____ when the economy is at full employment. The long-run Phillips curve is a _____ line at the _____ unemployment rate.
inflation; unemployment; vertical; natural
The federal funds rate is the _____ rate on _____ loans.
interest; interbank
In the short run, the quantity of real money and real GDP are given and the ______ adjusts to achieve equilibrium. In the long run, supply and demand in the loanable funds market determines the ______.
interest rate; real interest rate
The new Keynesian cycle theory emphasizes the fact that today's money wage rates were negotiated at many past dates, which means that _____ rational expectations of the _____ price level influence the money wage rate and the position of the SAS curve.
past; current
Depository institutions balance risk and return by _______.
placing some funds into safe low interest-earning assets and other funds into high-interest risky assets
Following the change in aggregate supply, the new macroeconomic equilibrium is at ______.
point A
Following the change in aggregate demand, the new equilibrium is at ______.
point C
The initial short-run aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. Some events change aggregate demand from AD0 to AD1, and short-run aggregate supply from SAS0 to SAS1. The new macroeconomic equilibrium is at ______.
point D
Keynesian macroeconomists recommend ______.
policies that actively offset changes in aggregate demand that bring recession
Monetarist macroeconomists recommend ______.
policies that keep taxes low to avoid disincentive effects that decrease potential GDP
Classical macroeconomists recommend ______.
policies that minimize the disincentive effects of taxes on employment, investment, and technological change
A recessionary gap eventually emerges even if aggregate demand remains constant because over time ______.
potential GDP increases
The mainstream business cycle theory is that ______ grows at a steady rate while ______ grows at a fluctuating rate.
potential GDP; aggregate demand
The combination of a rising _____ and decreasing _____ is called stagflation.
price level; real GDP
The sum of _____ is called national saving.
private saving and gov saving
The newest theory of the business cycle, known as real business cycle theory (or RBC theory), regards random fluctuations in _____ as the main source of economic fluctuations.
productivity
The crowding-out effect is the tendency for a government budget deficit to ______ the real interest rate and decrease ______.
raise; investment
In the long run, an increase in the quantity of money _______.
raises the price level and lowers the value of money
A government budget deficit ______ the real interest rate because ______.
raises; the demand for loanable funds increases
The defining feature of the Keynesian view of macroeconomics is that the economy is ______.
rarely at full employment
A Keynesian macroeconomist believes that left alone, the economy would _____ operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and monetary policy is required. A modern version of the Keynesian view, known as the new Keynesian view, holds not only that the money wage rate is _____ but also that prices of goods and services are _____.
rarely; sticky; sticky
The gap between ______ is the output gap. When _____, the output gap is called an inflationary gap.
real GDP and potential GDP; real GDP exceeds potential GDP
In the short run, ______ and ______ adjusts to achieve equilibrium.
real GDP determines the demand for money curve and the Fed determines the quantity of real money supplied; the nominal interest rate
When _____ there is a full-employment equilibrium
real GDP equals potential GDP
Aggregate demand is the relationship between the quantity of _____ demanded and the _____ when all other influences on expenditure plans remain the same.
real GDP; price level
Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant.
real GDP; price level
Debate on Causes of Joblessness Grows What is the cause of the high unemployment rate? One side says there is not enough government spending. The other says it's a structural problemlong dash—people who can't move to take new jobs because they are tied down to burdensome mortgages or firms that can't find workers with the requisite skills to fill job openings. ______ cycle theory would say that the rise in unemployment is not cyclical but is a change in the natural unemployment rate.
real business
Stagflation is a combination of a ______ in the price level and ______ in real GDP.
rise; a decrease
As the price level rises, interest rates ________ and real wealth ____________
rise; decreases
The demand for loanable funds increases and the supply of loanable funds increases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises, falls, or remains the same; increases
In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium.
rises; decreases
If the interest rate is greater than 4 percent a year, the price of a bond ______, and the interest rate ______.
rises; falls
Suppose if when the United States hits its "fiscal cliff," the governments in Europe, China, and Japan were to increase their budget deficits. As a result, the world interest rate _______. World saving _______.
rises; increases and world investment decreases
The demand for loanable funds increases and the supply of loanable funds decreases. As a result, the equilibrium real interest rate ______ and the equilibrium quantity of loanable funds ______.
rises; increases, decreases, or remains the same
The economy is in a recession and with incomes falling, ________. If the government cuts its budget deficit _____ .
saving decreases, which decreases the supply of loanable funds; the demand for loanable funds will decrease and the real interest rate might rise of fall
According to the Ricardo-Barro effect, when a government budget deficit occurs today, ______.
saving increases, the supply of loanable funds increases, and the real interest rate does not change
The defining feature of the classical view of macroeconomics is that the economy is ______.
self-regulating and always at full employment
In the short run, when the Fed decreases the quantity of money, people enter the loanable funds market and _________ bonds.
sell
A means of payment is a method of _____ a debt.
settling
If the natural unemployment rate increases, the long-run Phillips curve _______ and the short-run Phillips curve ______
shifts rightward; shifts rightward
he U.S. short-run Phillips curve ______ when the expected inflation rate rises. The U.S. short-run Phillips curve ______ when the natural unemployment rate increases.
shifts upward; shifts rightward
Recession? Maybe. Depression? Get Real. The unemployment rate during the Great Depression peaked at nearly 25 percent in 1933, after an initial spike from 3 percent in 1929 to nearly 8.7 percent in 1930. The unemployment rate is just 5 percent, only up from 4.5 percent a year ago. Also during the Great Depression there was deflation, which is not happening today. The inflation and unemployment trends during the Great Depression can be explained by a movement along the ______ Phillips curve that ______.
short run; lowers the inflation rate and increases the unemployment rate
When fuel prices risefuel prices rise _______. When the price level in India increases _______.
short-run aggregate supply decreases; the quantity of real GDP supplied increases
A bond is a promise to pay _____ sums of money on _____ dates.
specified; specified
An economy is at potential GDP when it experiences an increase in costs. The economy experiences _______.
stagflation
Choose the correct statements. 1. The President of the United States is a member of the FOMC. 2. The president of the San Francisco Fed is always a member of the FOMC. 3. The FOMC is the main policy dash making organ of the Federal Reserve System. 4. The chairman and the other six members of the Board of Governors are members of the FOMC.
statements 3 & 4 are correct
In mainstream business cycle theory, the money wage rate is __________
sticky
A government budget surplus occurs, which increases the ______________ loanable funds.
supply of
The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate ______.
supports the quantity theory, but the correlation is not perfect
Europe's Banks Must Be Forced to Recapitalize E.U. banks must hold more capital. Where private funding is not forthcoming, recapitalization must be imposed by E.U. governments. European banks need more capital because _______. The "capital" that is referred to in the news clip is _________.
they risk failing if loans they hold are not repaid or if other assets lose value; owners' investment in the bank
When the Fed buys securities from a bank, ______.
the bank's reserves increase but its deposits do not change
G-20 Leaders Look to Shake off Lingering Economic Troubles The G-20 aims to take stock of the economic recovery. One achievement in Pittsburgh could be a deal to require that financial institutions hold more capital.
the institutions' own funds; banks and insurance companies
If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
Physical capital is ______. Financial capital is ______.
the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services; the funds that firms use to buy physical capital
A movement ______ along the short-run Phillips curve occurs when there is an ______ increase in aggregate demand.
up; unexpected
Depository institutions minimize the cost of monitoring borrowers by ______.
using specialized resources that have a much lower cost than what households would incur if they had to undertake the activity individually
1. The "fiscal cliff" is all of the following except _________.
what happens whenever the economy enters a recession
Explain the effect of each of the following events on Canada's aggregate demand Canada sets new environmental standards that require power utilities to upgrade their production facilities.
Canada's aggregate demand increases
Explain the effect of each of the following events on Canada's aggregate demand. The government of Canada cuts income taxes.
Canada's aggregate demand increases
Mexico trades with the United States. When the U.S. economy goes into an expansionan expansion, ______.
Mexico's exports to the United States increase, Mexico's aggregate demand increases, and Mexico's AD curve shifts rightward
Michael is an Internet service provider. On December 31, 2010, he bought an existing business with servers and a building worth $500,000. During his first year of operation, his business grew and he bought new servers for $300,000. The market value of some of his older servers fell by $150,000. Calculate Michael's gross investment, net investment, and depreciation during 2011.
Michael's gross investment during 2011 was $300,000 Michael's depreciation during 2011 was $150,000 Michael's net investment during 2011 was $150,000
A macroeconomic equilibrium in which real GDP equals potential GDP is _____ equilibrium. And one in which real GDP exceeds potential GDP is _____ equilibrium.
a full-employment; an above full-employment
When the full-employment quantity of labor increases, or the quantity of capital increases, or technology advances ______.
long-run aggregate supply and short-run aggregate supply increase
A central bank is a bank's bank and a _____ authority that regulates a nation's depository institutions and conducts _____ policy, which means that it adjusts the _____ and influences _____.
public; monetary; quantity of money in circulation; interest rates;
The ______ interest rate is the opportunity cost of loanable funds because ______.
real; the real interest paid on borrowed funds is the opportunity cost of borrowing and the real interest rate forgone is the opportunity cost of not saving or not lending those funds
The defining feature of the monetarist view of macroeconomics is that the economy is______.
self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
