Term
which of the following will not result in a shif in the AD curve?
An unplanned increase in inventories
An unexpected increase in interest rates
An unexpected increase in the exchange rate
An unexpected increase in taxes |
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Definition
an unplanned increase in inventories
unplanned changes in inventories are not demanded and are not part of AD at all, so they do not shift the cuve. Instead, unplanned changes in inventories are the gap between panned expenditures (AD) and actual production (AS). Chagnes in interest rates shift AD because they affect borrowing by firms. Changes in exchange rates shift AD becaues they affect the trade balance. And finally tax increases affect Consumption under certain circumstances and so tax changes may shift AD as well |
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Term
The Aggregate Expenditure multiplier is larger if:
Imports make up a small share of consumptions expenditures
All of the above
Income taxes are larger
Households are rational |
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Definition
Imports make up a small share of consumption expenditures
The multiplier effect exists if a temporary change in income causes a change in consumption, which causes another change in income by the firms and households that sold those consumption goods, which causes another change in consumption by those household that sold those consumption goods, which causes another change in consumption by those household and so on. The more of the change in consumption goods is spent on imports, the smaller the secondary impact of domestic incomes and therefore the small the secondary impact on consumption and so on. If households are rational then there is no multiplier effect. If income taxes are large then any change in income has a small impacet on disposable income, and so there is a small impact on Consumption (smaller multiplier) |
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Term
Which of the following will not result in a shif in the Aggregate Supply
An increase in capital stock?
An increase in employment?
An increase in wages?
An increase in MFP? |
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Definition
and increase in employment
The AS curve plots the changes in GDP the result from the short-run endogenous response of employment to price changes. MFP, K, and wages are assumed constant along the AS curve; any change in MFP, K or wages will shift the curve. A change in L (or L*) is a movement along AS. |
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Term
Which of the following will not result in a shift in the long-run aggregate suppply curve?
An incrase in the capital stock?
and increase in mfp?
an increase in wages?
an increase in full employment? |
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Definition
an increase in wages
Only shifts when GDP (MFP,K,L) changes |
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Term
According to our model, increases in AD temporarily cause..
All of the above?
GDP to increase?
Infation?
Real wages to fall? |
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Definition
All of the above
As AD rises, inventories fall unexpectedly and firms increase their hiring to meet the increase in demand. As L increases, mpl falls (because of diminishing returns) and so real wages fall (under perfect competition). Holding nominal wages constant in the short run, this means that price must rise (inflation) as GDP rises. |
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Term
According to our model, increases in MFP always cause
GDP to increase?
Real wages to fall?
inclation?
All of the above |
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Definition
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Term
All other things being equal, in increase in foreign MFP will likely cause
World interest rates to rise and an increase in both US consumption and investment followed by increasing US prices?
Workd interest rates to rise and a reduction in both US Consumption and Investment, followed by increasing US prices?
World interest rates to rise and a reduction in both US consumption and investment, followed by falling US prices?
World interest rates to rise and an increase in both US Consumption and Investment spending, followed by falling US prices? |
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Definition
| World interest rates to rise and a reduction in both US Consumption and Investment, followed by falling US prices |
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Term
Population growth:
Has an ambiguous effect on aggregate prices because both AD and AS will increase, but output will increase unambiguously?
Prices increase because of increased scarcity of goods, output increases unambiguously because there are more resources to produce goods and services?
Has an ambiguous effect on both Aggregate prices and Aggregate Output because of diminishing returnt to both utility and production? |
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Definition
| Has an ambiguous effect on Aggregate Prices because both AD ans AS will increase, but output will increase unambiguously |
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Term
A houseing crisis could cause a recession for any of the following reasons except:
New construction is part of investment spending, and that would likely fall?
Net exports would likely fll as a restul of reduced demand for dollars?
firms would likely decide to reduce their inventories in anticipation of fallin future demand?
Households would be able to borrow less against the values of their homes, so Consumption spending would likely fall |
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Definition
| Net exports would likely fall as ar esult of reduced demand for dollars |
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Term
reduved demand for US assets would likely cause (all other things being equal)
A. A depreciation of the dollar
B. Lower Investment but an increase in the Trade Balance
C. Ambiguous price effects
D. All of the above |
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Definition
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Term
The aggregate expenditure multiplier is larger if:
A. Households are myopic
B. Imports make up a small share of consumption
C. All of the above
D. Households are credit-constrained |
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Definition
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Term
The following statement is true:
A. AD shifts only households are irrational
B. AD falls as income rises
C. AD is always lower if households are irrational
D. AD shifts by more if households are credit-constrained |
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Definition
| AD shifts by more if households are credit-constrainted |
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Term
The level of output the economy can produce in the long run is referred to as:
A. All these choices
B. Full-employment output
C. The natural rate of output
D. Potential output |
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Definition
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Term
All of the following are included in the category "Government Expenditures" except
A. Imports of goods used by the government
B. Spending on U.S. troops stationed overseas
C. State spending on roads and schools
D. Social Security payments |
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Definition
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Term
The Twin Deficit relationship between government budget deficits and trade deficits will not occur if
A. Domestic residents buy all of the newly-issued government debt (bonds)
B. The country does not have access to international capital markets
C. Households are rational (forward-looking) and without credit constraints
D. The twin deficit relationship won't occur if any of these are true. |
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Definition
| The twin deficit relationship won't occur if any of these are true |
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Term
Crowding out of private investment by government will not occur if
A. Crowding out won't occur if any of these are true
B. Households are rational and without credit constraints
C. The country is large enough to affect world loan scarcity
D. The country has access to international capital markets |
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Definition
| Households are rational and without crdit constraints |
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Term
An example of an automatic stabilizer is
A. All of these are examples of automatic stabilizers
B. A transfer that automatically adds a share to each person's income when income is falling
C. A tax that automatically takes a share of each person's income when income is rising
D. Something that reduces the size of the business cycle without requiring a counter-cyclical policy response |
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Definition
| All of these are examples of automatic stabilizers |
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Term
The U.S. Social Security system is a "pay as you go system". This means that
A. Current social security payments to the elderly are expected to be paid for, on average, by social security tax collection of those same individuals when they were young.
B. Current social security payments to the elderly are expected to be paid for, on average, by income tax collection of the young.
C. Current social security payments to the elderly are expected to be paid for, on average, by current social security tax collection from the young.
D. Current social security payments to the elderly are expected to be paid for, on average, by future generations of the young. |
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Definition
| Current social securty payments to the elderly are expected to be paid for, on avererage, by current social security tax collection from the young |
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Term
The Social Security Trust Fund
A. Is a charitable trust of money donated in the 1930's that was designed to help support social security in years in which payments out of the System exceed payments into the System.
B. Is the amount by which the social security system is now already in debt
C. Is the sum of surpluses acquired over the years in the "pay as you go" system. |
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Definition
| Is the sum of surpluses acquired over the years in the "pay as you go" system |
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Term
Gresham's Law predicts that
A. The form of a commodity money that offers the least utility as a consumption good is the one that will be used as money.
B. Cigarettes are no longer acceptable as currency because they offer too much utility as a commodity.
C. Paper money that is convertible into a commodity will always be preferred to actual use of the commodity to buy goods and services.
D. Debasement will always undermine a commodity money system. |
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Definition
| The form of a commodity money that offers the least utility as a consumption good is the one that will be used as money |
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Term
Money is defined as anything that is a
A. Unit of account
B. Store of value
C. All of these things are requirements of money
D. Means of Payment |
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Definition
| All of these things are requirements of money |
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Term
Of the following, the greatest threat to a fiat money system is:
A. Clipping
B. Inflation
C. A fall in the price of commodities
D. Government budget deficits |
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Definition
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Term
M2 is preferred over M1 as a measure of money because it
A. Does a better job of measuring liquidity
B. Has a more predictable velocity
C. All of these reasons
D. Does a better job of predicting inflation |
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Definition
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Term
M2 includes (i.e. this is not an exclusive list)
A. All fiat and deposit moneys
B. M1 plus all fiat money held in the U.S.
C. M1 plus savings and time deposits
D. M1 plus all fiat money held overseas |
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Definition
| M1 plus savings and time deposits |
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Term
In the Quantity Theory of Money equation, velocity is defined as
A. How many loans a bank makes in a given time period
B. How quickly money falls when dropped from a helicopter
C. The rate of increase in the speed at which money falls when dropped from a helicopter
D. The number of times money changes hands during the relevant time period |
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Definition
| The number of times money changes hands during the relevant time period |
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Term
According to the Quantity Theory of Money,
A. Fiscal Policies have no long-run impact on inflation
B. All of the above
C. In the long run, inflation is always caused by Money growth
D. Monetary policy has no long-run impact on GDP |
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Definition
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Term
Which of the following is an example of money as a store of value?
A. "This year the economy produced $400 billion of output."
B. "I have $50 hidden under my mattress."
C. "The price of a loaf of bread is $1.15."
D. "The value of an hour of leisure time equals the wage rate." |
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Definition
| "I have $50 hidden under my mattress" |
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Term
Which of these items is NOT part of M1?
A. Travelers checks
B. Savings accounts
C. Transactions (checking) accounts
D. Currency in circulation |
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Definition
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Term
The supply of money increases when:
A. Banks make loans
B. The government distributes Social Security checks
C. Currency is withdrawn from an account
D. Goods and services are bought |
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Definition
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Term
Serena has a transactions account at Socorro Bank. She writes a check for $250 and gives it to Billy, who has an account at Brownville Bank. Billy deposits the check in his account. The required reserve ratio is 0.20. This transaction has which of the following effects?
A. Decreases the excess reserves in Socorro Bank by $250
B. Increases the total reserves of Brownville Bank by $250
C. Decreases the money supply by $250
D. Increases the money supply by $250 |
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Definition
| Increases the total reserves of Brownville Bank by $250 |
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Term
The deposit of $500 of currency when the required reserve ratio is 0.20 has which of the following IMMEDIATE effects?
A. Increases the bank's excess reserves by $400
B. Increases the transactions accounts in the bank by $400
C. Increases the money supply by $500
D. Increases the bank's required reserves by $400 |
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Definition
| Increases the bank's excess reserves by $400 |
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Term
The money multiplier process would come to a halt if:
A. The banks' reserves were entirely cash in their vaults
B. No one borrowed from a bank
C. Individuals held no currency and made all their transactions with checks
D. The assets of banks equaled their liabilities |
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Definition
| No one borrowed from a bank |
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Term
If the economy is in recession, one counter-cyclical monetary policy tool the Federal Reserve could use would be to
A. Lower the required reserve ratio, thus increasing the deposit multiplier, increasing bank loans to households and firms, lowering world interest rates, and stimulating AD by increasing both C and I. Lower rates in the U.S. would also decrease demand for U.S. assets and so the dollar would depreciate, causing the trade balance also to increase, further stimulating AD.
B. Lower the required reserve ratio, which would increase bank loans to households and firms, causing more loans to be made with any temporary change in disposable income, raising the aggregate expenditure multiplier and stimulating AD by increasing C.
C. Raise the required reserve ratio, thus increasing the deposit multiplier, increasing bank loans to households and firms, lowering world interest rates, and stimulating AD by increasing both C and I. Lower rates in the U.S. would also decrease demand for U.S. assets and so the dollar would depreciate, causing the trade balance also to increase, further stimulating AD.
D. Raise the required reserve ratio, which would increase bank loans to households and firms, causing more loans to be made with any temporary change in disposable income, raising the aggregate expenditure multiplier and stimulating AD by increasing C. |
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Definition
| Lower the required reserve ratio, thus increasing the deposit multiplier, increasing bank loans to households and firms, lowering world interest rates, and stimulating AD by increaseing both C and I. Lower rates in the US would also decrease demand for US assets and so the dollar would depreciate, causing the trade balance also to increase, further stimulating AD |
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Term
Question How many regional Federal Reserve banks are there in the U.S.?
A. 50
B. 51
C. 13
D. 12 |
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Definition
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Term
Complete the following argument: "The FOMC is often described as having two policy goals. Officially, however, they are supposed to achieve stabile unemployment, stabile prices, and stabile exchange rates.
A. Because the U.S. is a small economy, very little attention is paid to price stability."
B. The first and second policy goals are linked through the labor market graph."
C. The FOMC is incapable of affecting unemployment in the short or long run, and so they effectively have just the second and third policy goal."
D. The second and third policy goals are linked through the purchasing power parity equation, and so stability in one implies stability in the other." |
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Definition
| the second and third policy foals are linked through the purchasing power parity equation, and so stability in one implies stability in the other |
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Term
An increase in the required reserve ratio will cause
A. banks to reduce lending in order to increase their reserves. Lower lending will cause loans to become scarcer. Domestic loan scarcity will cause the dollar to appreciate as foreigners demand more U.S. assets to take advantage of higher U.S. rates of return. As the dollar appreciates, the trade balance will fall.
B. banks to reduce lending in order to increase their reserves. Banks compensate for the fall in domestic lending by increasing loans overseas; the demand for foreign currency increases and foreign currencies appreciate. This causes the domestic dollar to depreciate and the trade balance to improve.
C. banks to reduce lending in order to increase their reserves. Lower lending will cause loans to become scarcer. If the country is small enough, they will not have access to international capital markets and that loan scarcity will translate into lower Consumption and Investment Spending.
D. Banks to reduce lending in order to increase their reserves. If the U.S. is large enough to affect world loan scarcity, then the decreased demand for loans will cause interest rates to fall. The fall in world rates will absorb some of the shock caused by lower investment demand and borrowing will rise somewhat, though remaining at a lower level than initially |
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Definition
| Banks to reduce lending in order to incrase their reserves. Lower lending will cause loans to vecome scarcer. Domestic loan scarcity will cause the dollar to appreciate as foreigners demand more US assets to take advantage of higher US rates or return. As the dollar appreciates, the trade balance will fall |
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Term
A decrease in the federal funds rate
A. is set by the FOMC in order to stimulate inter-bank borrowing. If banks can pay less for a loan in the federally-regulated inter-bank market, then their costs fall and they will, under perfect competition, be forced to charge a lower lending rate. This allows firms to take on projects with lower marginal productivities of capital and Investment spending increases.
B. is achieved by raising the required reserve ratio. Banks will be forced to hold more in reserve and so they will obtain these reserves by borrowing in the relatively cheap inter-bank market. Each of these loans in the inter-bank market is part of aggregate Investments and so represents an increase in AD.
C. is achieved by the FOMC ordering regional Federal Reserve Banks to buy government securities, thus increasing the amount of money in circulation and causing private banks to have excess reserves. As banks lend out these excess reserves, interest rates will likely fall in many lending markets. The inter-bank (federal funds) rate will fall as loans become less scarce in that market.
D. is the result of free-market pressures in a world market for loans and so must be the result of a relative change in U.S. productivity. |
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Definition
| is achieved by the FOMC ordering regional Federal Reserve Banks to buy government securities, thus increasing the amount of money in circulation and causing private banks to have excess reserves. As banks lend out these excess reserves, interest rates will likely fall in many lending markets. The inter-bank (bederal funds) rate will fall as loans become less scarce in the market |
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Term
Expansionary monetary policy is likened to "pushing on a string" because
A. All of these are reasons why expansionary monetary policy may be ineffectual
B. if reserves exceed reserve requirements but the economic environment is very risky, then the "excess reserves" may not be lent out to firms and may only be lent out to other banks, who are not risky. The federal funds rate may fall but other lending rates may not.
C. if workers know that the resulting increase in Aggregate Demand will put upward pressure on prices, they will immediately demand higher nominal wages. Thus we immediately move to a long run in which expansionary monetary policy is unable to increase "real variables" (it is like pushing on a string) and only causes inflation in nominal variables (wages and prices increase).
D. expansionary policy causes banks to expect long-term inflation and so they must increase long-term nominal interest rates at the same time that the target federal funds rate on overnight loans might be falling. |
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Definition
| all of these are reasons wy expansionary monetary policy may be ineffectual |
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Term
The most important tool of monetary policy is controlled by:
A. The Board of Governors
B. Governors of the 50 states
C. The U.S. Congress and the president
D. The Federal Open Market Committee |
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Definition
| The Federal Open Market Committee |
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Term
To increase the money supply, the Federal Reserve must:
A. Increase the excess reserves in the banking system
B. Increase the interest rate that banks earn on loans
C. Lower taxes on banks so that they are more profitable
D. Protect banks from bank runs |
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Definition
| Increase the excess reserve in the banking system |
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Term
Which of the following contributes to making the Federal Reserve an "independent" policy-making body?
A. There are 12 different Federal Reserve banks
B. Members of the Board of Governors are appointed for 14-year terms
C. Its role is written into the U.S. Constitution
D. The Federal Reserve has three policy tools: discount rate, required reserve ratio, and open-market operations |
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Definition
| Members of the Board of Governors are appointed for 14-year terms |
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Term
When the Federal Reserve engages in an open-market sale, what is the Federal Reserve selling?
A. Federal government securities
B. Reserves
C. Money
D. Real estate |
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Definition
| Federal government securities |
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Term
The yield on a bond is 20% if:
A. The price is $3,000 and the annual interest payment is $750
B. The price is $2,500 and the annual interest payment is $500
C. The price is $2,000 and the annual interest payment is $500
D. The price is $5,000 and the annual interest payment is $500 |
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Definition
| The price is $2,500 and the annual interest payment is $500 |
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Term
Assume the Federal Reserve sells $200 million of bonds to a bond dealer. The required reserve ratio is 0.10.
Which of the following happens as a result of this bond sale?
A. The federal funds rate increases.
B. The money supply increases.
C. The total reserves in the banking system increase.
D. The required reserve ratio falls. |
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Definition
| The federal fund rate increases |
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Term
Assume the Federal Reserve sells $200 million of bonds to a bond dealer. The required reserve ratio is 0.10.
What happens to the lending capacity of the banking system because of this bond sale?
A. Decreases by $2,000 million
B. Decreases by $1,800 million
C. Decreases by $ 200 million
D. Decreases by $1,200 million |
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Definition
| decreases by $1,800 million |
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Term
The Federal Reserve wants to increase the reserves in the banking system. To do so, it could:
A. Lower the yield on bonds it sells
B. Raise the discount rate on borrowed reserves
C. Increase the price it offers to pay for bonds
D. Print more currency |
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Definition
| Increase the price it offers to pay for bonds |
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