Macro Final
decrease, decrease
A ______ in the discount rate and a _______ in interest rate of reserves will both increase the money supply
3.5, 2
A bank savings account earning 3.5% interest. One year later, the money is taken out and you notice that while the money was earning interest, prices rose 1.5%. You earned a nominal interest rate of __% and a real interest rate of _%
left
A natural disaster would make the long run aggregate supply curve shift
5, 1
A real interest rate of _% and an inflation rate of _% create a nominal interest rate of 6%
fallen, risen
A worker gets a $100 per month raisee. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year. His real salary has ______ and his nominal salary has _____
increase, decrease
According to liquidity preference theory, an increase in the price level causes the interest rate to ________, which ________s the quantity of goods and services demanded
interest rate on bonds
According to liquidity preference theory, the opportunity cost of holding money is the
nominal, real
According to quantity theory of money, if the money supply increases by 5%, then _____ GDP would rise by 5%, and ____ GDP would be unchanged
nominal, real
According to the assumptions of the quantity theory of money, if the money supply increases by 5% then _____ GDP would rise by 5%, and _____ GDP would be unchanged.
negatively, independent
According to the theory of liquidity preference, money demand is __________ (negatively/positively) related to the interest rate, while the money supply is ___________ of the interest rate.
demand, downward
According to the theory of liquidity preference, the ______ for money is represented by a ________-sloping line on a supply-and demand graph
classical dichotomy
According to this, nominal wages, price level, and nominal GDP are affected by MONETARY FACTORS
increases, decreases
An increase in government spending ______ the interest rate and so investment spending _______
more, rises
An increase in the price level induces consumers to hold ____ money, so they lend less, and the interest rate ____.
less, falls
An increase in the price level makes consumers feel ____ wealthy, so the quantity of goods and services demanded ____
no
Are credit cards included in M1?
falls, more
As the price level rises, the value of money _____, so people must hold ____ money to purchase goods and services
1764.71
Assets Liabilities ____________________________ Reserves $4,250 Deposits $50,000 Loans $45,750 If all banks in the economy have the same reserve ratio at this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by $_______ 150 (reserve incr.)/4,250 (existing res.) = n/50000(deposits)
rise, 1200
Banking system currently has $100 bill of reserves, none of which are excess. People hold only deposits and no currency, reserve requirement is 10%. If Fed lowers the reserve req. to 5% and at the same time buys $10 bill worth of bonds, then the money supply will ____ by $____ billion
yes
Can the fed conduct monetary policy?
yes
Can the fed serve as a bank regulator?
Fisher Effect
Changes in money supply don't affect real variables
fiscal/monetary, price level
Changes in the interest rate shift aggregate demand if they are caused by ______ or ________ policy, but not if they are caused by changes in the _____ _____
yes
Do bank's deposits at the federal reserve count as part of the bank's reserves?
recessions
During ______s, workers are laid off, factories are idle, and firms may find they are unable to sell all they produce
consumption, investment
During recessions, ________ and ________ spending fall
money
Economists use the term _____ to refer to those types of wealth that are regularly accepted by sellers in exchange for goods and services
increase, increase, decreases
Explains the crowding out effect: An ________ in government spending ______ the interest rate and so _______ investment spending
decrease, increasing
If Congress raises taxes (which makes the money supply go down) to balance the federal budget, then to prevent unemployment and a recession the Fed Should ______ interest rates by ________ the money supply
4
If M=3,000, P= 2, and Y=6,000, what is velocity? velocity formula: V= (PxY)/M
a
If a bank desires to hold no excess reserves, the reserve requirement is 8%, and it receives a new deposit of $500, a. Required reserves increase by $40 b. total reserves initially increase by $460 c. it will be able to make a new loan of up to $492 d) all of the above
decreases
If money demand increases, interest rate _________
inflation
If nominal rate is larger than the real rate, there is
deflation
If nominal rate is smaller than the real rate, there is
increases, interest rates
If the Fed conducts open market purchases, investment spending _______ but ______ _____ do not.
more, rise
If the Fed increases the interest rate on bank deposits at the Fed, banks will want to hold _____ reserves, so the reserve ratio will ____
decreases, 8
If the Fed increases the reserve ratio from 5% to 12.5%, then the money multiplier _________ from 20 to _.
4937.5
If the banking system currently has 400 billion in reserves, the reserve requirement is 8% and excess revenues amount to 5 billion, what is the level of deposits? (in billions) Remember the simple algebra equation %/100 = x/n
2/3
If the multiplier is 3, then the MPC is
360
If the multiplier is 6 and if there is no crowding out, then a $60 billion increase in govt spending causes aggregate demand to increase by _____ billion Remember its the MULTIPLIER effect
12000
If the reserve ratio is 5%, then $600 of additional reserves can create up to $______ of new money. Remember the %/100 formula
12000
If the reserve ratio is 5%, then $600- of additional reserves can create up to $ _____ of new money 600/n = 5%/100%
decreases, buying
If the stock market crashes, then aggregate demand _______, which the Fed could offset by ______ bonds.
low, rises
If there is inflation, then a firm that has kept its price fixed for some time will have a ____ relative price. Relative price variability _____ as the inflation rate rises.
lowers, rises
If wages are sticky, then a greater than expected increase in the price level _______ the real costs of production, so the aggregate quantity of goods and services _____
fall, decrease
Increase in household saving causes consumption to ____ and aggregate demand to _____
M1, M2
John and Jane, going on vacation, withdraw $2500 from their savings account to purchase $2500 in traveler's checks. As a result, __ increases by 2500 and __ stays the same.
unit of account
Listing prices for goods sold on your website in dollars is an example of this function of money
demand deposits, traveler's checks, other checkable deposits, currency
M1 includes these 4:
savings deposits, small time deposits, money market mutual funds, everything in M1, miscellaneous
M2 includes these 5:
sticky price
Menu costs help people explain this theory
price level, interest rate
Money demand depends on the _____ _____ and the ______ ____.
positively, quantity
Money growth and inflation are ________ related, which is consistent with the _______ theory of money
4, 8
Money supply in Arkansas is $100 billion. Nominal GDP is $800 billion and real GDP is $200 billion. What are the price level and velocity in Arkansas? Price level is _ and velocity is _ price level: Nominal GDP/Real GDP velocity: Nominal GDP/money supply
nominal
People in the US are required to pay interest on ____ interest earnings
tax on everyone who holds money
Printing money to finance government expenditures imposes
currency, demand deposits, money market mutual funds
Rank the assets from most to least liquid: currency, money market mutual funds, demand deposits
Shoeleather cost
Refers to resources used to maintain lower money holdings when inflation is high
double coincidence of wants
Required when there is no item in an economy that is widely accepted in exchange for goods and services. Required in an economy that relies on barter is a hindrance to the allocation of resources when it is required for trade
Adam, Patrick
Spencer has an eggplant, wants cabbage Adam has a head of lettuce, wants a cucumber Heidi has a tomato, wants an eggplant Patrick wants a cucumber, wants a head of lettuce Which pair has a double coincidence of wants?
fall, lower
Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the money supply to ____. To reduce the impact of this the Fed could _____ the discount rate.
Y rose, V fell
Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P? Quantity of money equation: MxV = P x Y Y rose, V rose Y fell, V fell Y rose, V fell Y fell, V rose
increase, decrease
Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will ________ and the money supply will eventually ________
increase, fall
Suppose there is a surplus in the money market. Could have been caused by an ______ in the money supply. The value of money will ____
decrease
Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would ________ the money supply.
left, right
Tax increases shift aggregate demand ____ while increases in government spending shift aggregate demand _____
purchases, lowering
The Fed can increase the money supply by conducting open market _________ or by ________ the discount rate.
increasing, buy
The Fed can reduce the federal funds rate by ______ the money supply, To do this to the money supply it could ___ bonds.
investment, declines
The ____ component of GDP measures spending on residential construction, business equipment, business structures, and changes in inventory. During recessions it ______ by a relatively large amount. (increases, declines)
Velocity
The average number of times a year a dollar is spent
long
The classical model is the appropriate model for analysis of the economy in the ____ run, because real and nominal variables are essentially determined separately in this run
demand, left
The economy is in long-run equilibrium. then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Aggregate _____ will shift ____
sales, raising
The fed can decrease the money supply by conducting open market _____ or by ______ the discount rate
multiplier
The idea that expansionary fiscal policy has a larger effect on the output is known as the ______ effect.
investment accelerator
The idea that expansionary fiscal policy has a positive effect on investment is known as the
classical dichotomy
The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the ____________
right
The initial impact of an increasing investment tax credit is to shift aggregate demand ____
a
The logic of the multiplier effect applies to a) any change in spending on any component of GDP b) only to changes in government spending c) only to changes in the money supply d) only when the crowding out effect is sufficiently strong
decreased, increase
The long run aggregate supply curve would shift left if the amount of labor available ______ or congress made a substantial ______ in the minimum wage
inflation, 2%
The real interest rate is 4% and the nominal interest rate is 6%. Is there inflation or deflation? What is the inflation/deflation rate? (%) If nominal rate is larger than the real rate, there is inflation If nominal rate is smaller than real rate, there is deflation
increases in money supply growth
The source of hyperinflations is primarily
buys
The supply of money increases when the federal reserve _____ bonds
unit of account, store of value, medium of exchange
The three functions of money:
unit of account
The yardstick people use to post prices and record debts
b
To increase money supply, the Fed could a. sell government bonds b. increase the discount rate c. decrease the reserve requirement d. none of the above
buy, increase
To restore full employment, the federal reserve should ___ government bonds, which will _______ the money supply
true
True/false Money demand would not be shifted to the left by either an increase in the interest rate nor an increase in the price level
interest income, capital gains
US tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of neither ________ ______ or _______ _____
falls, does not
Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then the nominal interest rate _____, but the real interest rate ____ ___
fiat
Us dollars read "this note is legal tender for all debts public and private" This represents that US paper money is ____ money.
more, shoeleather
When inflation rises, people go to the bank ____ often, giving rise to _______ costs (menu, shoe leather, redistribution)
rises
When price level goes down, the value of money _____
falls
When price level goes up, the value of money _____
decreases, increases
When the Fed sells government bonds, the money supply _________ and the federal funds rate _______
rises, falls
When the money market is drawn with the value of money on the vertical axis, if the money supply rises, the price level _____ and the value of money _____
decreases, rises
When the price level falls, the number of dollars needed to buy a representative basket of goods _________, so the value of money _____
increases, falls
When the price level rises, the number of dollars needed to buy a representative basket of goods _________, and so the value of money _____
b
Which of the following responses would we expect from an increase in US interest rates? a) Foreign citizens decide to buy fewer US bonds b) aunt holly puts more money in her savings account c) You decide to purchase a new oven for your cookie factory d) all of the above
no
Would a government's tax collections be included in aggregate demand?
43.75 (%)
You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8% and the inflation rate is 2%, then what is the tax rate?
real, nominal
____ interest rate= ______ interest rate - inflation
nominal, real
______ interest rate= ____ interest rate + inflation
store of value
an item that people can use to transfer purchasing power from the present to the future
yes
can the fed act as a lender of last resort?
no
can the fed convert federal reserve notes into gold?
liquidity
ease with which an asset can be converted into the economy's medium of exchange
commodity money
money that takes the form of a commodity with intrinsic value (ex. gold)
