Final Macroeconomic
Which of the following assets is the most liquid
A $50 bill
If the economy were suffering from an inflationary gap government should follow
A contractionary policy which would shift the AD curve to the left
The aggregate demand curve would shift to the left for all the following reasons except
A fall in consumers wealth
When an economy experiences stagflation it is usually caused by a
A negative supply shock
A negative demand shock can cause
A recessionary gap
An example of an automatic stabilizer that works when the economy contracts is
A rise in government transfer as more people receive unemployment insurance benefits
If the marginal propensity to save is .25 investment spending is $700 million and the government increase its purchase of goods and services by $100 million, then real GDP increase by
$400 million
If the multiplies equals 4 then the marginal propensity to save must equal to
.25
The money multiplier is equal to
1 divided by the reserve ratio
The multiplies is
1/[1-MPC]
If the MPS = .1 then the value of the multiplier equals
10.
A bank run occurs when
Many bank deposits are trying to withdraw their funds from the banks
If the MPC is .8 then the multiplier is
5.
When government decrease government spending the
AD curve will shift to the left
Raising taxes shifts the
Aggregate demand curve to the left
A recessionary gap is when
Aggregate output is below potential output
The intersection of SRAS with AD indicates
An economy experiencing a recessionary gap
Which of the following will shift the short run aggregate supply curve to the right
An economy wide decrease in commodity price
A rise in labor productivity is most likely to result in
An increase in aggregate supply
An economy is currently in the midst of a recession. An example of a government policy aimed at moving the economy back to potential GDP is
An increase in government spending on infrastructure improvements
Which of the following is an expansionary fiscal policy
An increase in unemployment benefits
Money is
Any assets that has a positive value
Government spending and taxation rules that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are know as
Automatic stabilizers
The tool of monetary policy with which the federal reserve buys and sells give bonds is called
Moral suasion
The federal funds rate is the interest rate at which
Banks borrow from other banks with excess reserve
If the economy is currently in a recessionary gap real GDP will be _____ potential output
Below
When the federal government finances a deficit the government may
Borrow funds
The components of aggregate demand are
C (consumption) I (investment) G (government)expenditures and X- IM (net exports)
Money that has value apart from its use as money is
Commodity money
The available balance on a credit card is not money because
Credit cards create liabilities
During the great depression the united states
Moved to the left along its aggregate curve
The current level of real GDP lies above potential GDP. An appropriate fiscal policy would be to ____ which will shift the____curve to the___
Decrease government purchase AD Left
Suppose the economy is experiencing a recessionary gap. To move equilibrium aggregate output closer to the level of potential output the best fish all policy is to
Decrease taxes
The difference between budget deficit and government debt is that
Deficit is the amount by which government spending exceeds tax revenues whereas debt is the amount the government owes
Currency in the United States today is _____ money
Fait
Money that the government has ordered to be accepted as money is
Fait money
Because of the multiplier effect an increase in government spending $200 billion will increase aggregate output by less than that amount
False
Because of the multiplier effect an increase in government spending of $200 billion will increase aggregate output by less than that amount
False
When faced with recessionary gap, the government can increase taxes and cut spending to close it
False
In the United States the institution that is charged with determining the size of the monetary base and with regulating the banking system is the
Federal Reserve
When banks borrow and lend reserve from each other they are participating in the ____market
Federal funds
The reserve ratio is the
Fraction of deposits that banks hold in their vaults plus their deposits at the federal reserve
Fait money
Has advantages over commodity backed money
Expansionary fiscal policy
Increase aggregate demand
A positive demand shock will
Increase the aggregate price level and the aggregate output
The point where the long run aggregate supply curve intercepts the horizontal axis
Is the economy potential output
One of the shortcomings of fiscal policy is that
It has time lags and sometimes it may end up destabilizing the economy as a result of these lags
Which is not considered one of the three chief characteristics of money
It's a highly illiquid asset
The government has a budget deficit if
It's total revenues are less than its total expenditures
Banks create money when they
Make loans
The MPS plus the MPC must equal
One
The level of output in the long run is known as
Potential output
Profit per unit equals
Price per unit minus cost per unit
Suppose the MPC = .8 and the government cuts by $40 billion. Which of the following will be the likely effect
Real GDP will expand by $160 billion
The major tools of monetary policy available to the federal reserve system include
Reserve requirements open market operations and the discount rate
The national debt ___ in years in which the federal government incurs a ____
Rises Deficit
Money is anything that
Serves as a medium of exchange for goods and services
The aggregate demand curve
Slopes downward
The function of money are
Store of value unit of account and medium of exchange
An example of an automatic stabilizer is
Tax receipts rising when GDP rises
The aggregate supply curve shows the relationship between
The aggregate price level and the quantity of aggregate output supplied
The aggregate demand curve shows the relationship between the aggregate price level and
The aggregate quantity of output demanded
The marginal propensity to consume is
The change in consumer spending divided by the change in aggregate disposable income
Bank reserves are
The fraction of deposits kept in the form of liquid assets
Bank reserves are
The fraction of deposits kept in the form of very liquid assets
The reserve ratio is
The fraction of its deposits that a bank holds as reserves
Aggregate demand will shift to the right if
The government purchases increase
The larger the amount of outstanding public debt
The larger the fraction of the federal budget deficit that must be devoted to interest payments
The government has almost eliminated the possibility of bank runs by instituting protective measures all of the following are such measures except
The loan guarantees
If the federal reserve increase the discount rate
The money supply is likely to decrease
If the economy is at equilibrium below potential output
There is a recessionary gap and expansionary fiscal policy is appropriate
If the economy is at equilibrium above potential output
There is an inflationary gap and contractionary fiscal policy is appropriate
Banks don't lend out all of the funds placed in their hands by depositors because
They have to satisfy any depositor who want to with draw funds
Banks don't lend out all of the funds deposited because
They have to satisfy any depositor who wants to withdraw funds
Banks can lend money because
They know not everyone wants their deposits back at the same time
The medium of exchange functions mean that money is used
To pay for goods and services
A negative supply shock raises the production costs and decrease the quantity producers are willing to supply at any given price level
True
Deflation was a big problem in the Great Depression
True
Expansionary fiscal policy pushes the aggregate demand curve to the right
True
Fiscal policy is the use of taxes government transfer or government purchase to shift the aggregate demand curve
True
Most economists oppose an annually balanced budget because it would undermine automatic stabilizer
True
One of the lags associated with fiscal policy is the time it takes to recognize that the economy has developed a recessionary or inflationary gap
True
Stagflation is the combination of inflation and falling aggregate output
True
Taxes increase GDP rises this is an example of an automatic stabilizer
True
The larger the marginal propensity to consume the larger is the multiplier
True
Most economists believe that a balanced budget would
Undermine the role of taxes and transfer as automatic stabilizer
The short run aggregate supply curve is
Upward slopping
The long run aggregate supply curve is
Vertical