Exam 4 Econ

Table: Money Measure Components, June 2010) Based on the table, M1 for June 2010 was:

$1,737.4 billion

When the MPC is .75, a decrease in net taxes of $100 billion will increase the equilibrium level of real GDP by

$300 billion

Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. What is the change in his bank's required reserves?

$375

Suppose that a bond's total interest payments are $400 and its yield is 5%. How much is this bond's price?

$8,000

What is the yield on a bond sold for $1,850 and paying $25.50 in interest annually?

1.38%

According to the table, the number of people in the labor force is: Employed 85 Unemployed seeking work 25 Discourage workers 15 Retired 10

110

Suppose the Bureau of Labor Statistics collects the data presented in the following table: If 2010 is the base year, then the consumer price index for 2012 is:

125.

According to the table, what is the unemployment rate of this economy?

14.3%

Using the equation of exchange, if the money supply is $4 trillion, the price level is 2, and the level of output (real GDP) is $6 trillion, then the velocity of money is:

3

If the marginal propensity to consume is 3/4, the simple multiplier is

4

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price: A) falls to $875. B) falls to $800. C) rises to $1,125. D) falls to $700.

A) falls to $875.

Which one of the following will cause the supply of loanable funds curve to shift leftward? A) lowering of firms' expectations about the economy B) an increase in government regulations that make plant expansion difficult C) an increase in asset prices leading to a decrease in purchases of stocks and bonds D) an increase in the government deficit

D) an increase in the government deficit

Which of the following is NOT a policy tool of the Federal Reserve? A) reserve requirement ratio B) the discount rate C) open market operations D) fiscal policy

D) fiscal policy

One strength of the use of discretionary fiscal policy is the timing lags.

False

In the equation of exchange, if M = $1.5 trillion, V = 7, and P = 1.05, then:

Q = $10 trillion

During the 1970s, when handheld calculators became popular and replaced slide rules in performing computations, workers in the slide rule industry lost their jobs. These workers' unemployment status is:

Structural

Which of the following will increase aggregate demand? A) a decrease in government spending B) an appreciation of the dollar C) a decrease in the price level D) a decrease in taxes

a decrease in taxes

Which one of the following will cause the demand of loanable funds curve to shift rightward? a. businesses are more confident in the future of the economy b. household's wealth increases c. an increase in asset prices leading to a decrease in purchases of stocks and bonds d. an increase in government regulations that make plant expansion difficult

a. businesses are more confident in the future of the economy

Quantitative easing refers to the process whereby the Federal Reserve:

buys securities to stimulate the economy.

M1 includes:

cash, demand deposits, and other checkable deposits.

In the short run, changes in the money supply will NOT change output according to:

classical economists.

When the economy is operating at the natural rate of unemployment:

cyclical unemployment is zero.

(Figure: Laffer Curve 3) A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point _____ in the graph.

d

Assume that the reserve requirement is 20% and the Federal Open Market Committee buys a $100,000 bond. The money supply:

increases by a maximum of $500,000

Generally, economists believe that monetary policy should focus on price stability in the _____ run and output or income in the _____ run.

long; short

In a liquidity trap:

monetary policy is ineffective in changing income and output.

Financial institutions:

reduce information costs, reduce transaction costs, and diversify assets.

When the Fed wants to decrease the money supply, it will

sell bonds.

If the Fed wants to raise the interest rate, it will ______ bonds, which ________ bond prices.

sell; lowers

All of these are considered monetary policy lags EXCEPT

speculation lag

In the equation of exchange, if M = $2 trillion, P = 1.5, and Q = $8 trillion:

the velocity of money (V) = 6.

What are the primary functions of money?

unit of account, medium of exchange, store of value

Which one of the following will cause the supply of loanable funds curve to shift rightward?

workers fear that unemployment will increase

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price:

falls to $875.

Institutions that acquire funds from savers and then lend those funds to borrowers are called:

financial intermediaries.

In counteracting a negative supply shock, the Fed could achieve ______ by using ______ monetary policy.

full employment but not price stability; expansionary

Suppose that government spending decreases by $200 billion and that the marginal propensity to consume equals 0.80. The equilibrium level of real GDP will decrease by

$1,000 billion

If the reserve requirement ratio is 20%, the money multiplier is:

5

When the long-run aggregate supply curve is drawn as a vertical line, the theorist is assuming that:

the economy tends to full employment in the long run.

When the long-run aggregate supply curve is drawn as a vertical line, the theorist is assuming that:

the economy tends to move toward full employment in the long run

Sumit deposits $1,500 cash into his checking account. The reserve requirement ratio is 25%. What is the change in his bank's excess reserves?

$1,125

What is real GDP in 2014 dollars using 2013 prices? (#1 in ch 6)

$250

Assume the reserve requirement ratio is 10% and all banks are fully loaned up. If a new deposit of $10,000 is made into Bank X, with this deposit Bank X can make new loans of:

$9,000.

Using the equation of exchange, if the money supply is $4 trillion, the price level is 2, and the level of output (real GDP) is $6 trillion, then the velocity of money is ___.

3

If the reserve requirement is 20%, the money multiplier is:

5

Last year, the consumer price index (CPI) was 115 while the consumer price index for this year is 125. The rate of inflation is:

8.7%

Jennifer received news that she is getting a 5% raise. However, the Bureau of Labor Statistics just reported that prices are rising by 7%. Based on the given information, which of the following is true? A. Jennifer is losing purchasing power by 2%. B. Jennifer's purchasing power will rise by 2%. C. Inflation has no impact on purchasing power. D. Jennifer's purchasing power will rise by 7%.

A. Jennifer is losing purchasing power by 2%.

1. (Figure: Effects of Policy Shifts) If government spending increases, shifting aggregate demand from _____ to _____, aggregate output will increase from _____ to _____.

AD0; AD1; Q0; Qf

Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. Based on that information, which of these is true? A) M1 and M2 both rose by $5,000. B) M1 went down by $5,000, but M2 was unchanged. C) Neither M1 nor M2 changed because the transfer was done at the same bank. D) Both M1 and M2 were reduced by $5,000

B) M1 went down by $5,000, but M2 was unchanged

5. (Figure: Market for Loanable Funds 2) If households decide to save a larger portion of their income because they fear job loss due to a recession, the loanable funds supply curve will shift from _____ to _____, and the new equilibrium will be at point _____, holding demand constant at D0.

B) S0; S1; b

Which of the following is the LEAST liquid?: A) money in a savings account B) a Picasso painting C) a U.S. Treasury bond D) $100 in cash

B) a Picasso painting

The _____ is the central bank of the United States.

Federal Reserve System

Which of the following measures is an example of an expansionary fiscal policy? A) Decreasing government spending B) Reducing welfare payments C) Increasing unemployment compensation D) Raising Taxes

Increasing unemployment compensation

All of the following are tools of fiscal policy except one. Which is the exception? a. Government spending b. Taxes c. Interest rates d. Transfer payments

Interest Rates

Which action is the Fed most likely to take to curb inflation (decrease AD)?

The Fed will sell securities in the open market

The use of money as a medium of exchange helps reduce the inefficiencies inherent in:

a barter economy

Which is NOT one of the three basic functions of money?

a means to collect taxes

(Figure: Shifts in SRAS and AD) If the economy is at short-run equilibrium point b because of a negative supply shock, the Federal Reserve could enact an expansionary monetary policy, thus shifting the new equilibrium to point _____. As a result of this, the price level would _____ and real output would _____.

c; further increase; increase

In the short run, changes in the money supply will NOT change output according to

classical economists

(Figure: Determining Fiscal Policy) The best discretionary fiscal policy option is:

expansionary fiscal policy that leads to full employment.

In times of economic downturn the Fed will engage in ____ monetary policy by ____ bonds.

expansionary; buying

A lower interest rate increases consumption, investment, and __________, which ___________ aggregate demand.

exports; increases

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered:

frictionally unemployed.

Monetary policy involves all of these EXCEPT: increases in bank reserves. increases in buying securities. increases in interest rates. increases in personal taxes.

increases in personal taxes

A lower reserve requirement:

increases the ability of banks to make loans.

The financial panic and credit freeze in late 2008 pointed to the Fed's important role as a:

lender of last resort

Jordan Meadows lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents. According to the Bureau of Labor Statistics, Jordan is:

not in the labor force.

The main tool of monetary policy is:

open market operations

The main tool of monetary policy is:

open market operations.

Tight monetary policy refers to the Federal Reserve:

raising interest rates, usually to fight inflation

Which of the following is an example of contractionary fiscal policy? A. reducing military spending B. building a new interstate highway C. increasing federal spending to renovate college campuses D. sending taxpayers a $600 rebate

reducing military spending

A reduction in the interest rate causes consumption and investment to _____, which shifts the aggregate demand curve _____.

rise; rightward

Automatic stabilizers are designed so that as income falls:

spending does not fall as much as income

If there is a general rise in fear of the financial system:

the actual multiplier will fall.

(Figure: Market for Loanable Funds) The graph shows the supply and demand for loanable funds. If the market interest rate is 3%:

there will be an excess supply of funds