Macroeconomics

Economics is the study​ of:

choices made when scarcity exists.

A simplified representation of a complex system dealing with economics is known​ as:

an economic model.

Economic​ decision-making often focuses on how a one unit change will impact the system. This type of analysis is known​ as:

marginal analysis.

Ph.D. economists have traditionally been hired​ by:

universities. government agencies. Wall Street firms.

According to the​ article, ___________ is hiring an economist to help its team of economists use existing data to​ "reveal ways to improve the​ company’s service for buyers and​ sellers."

EBay Inc.

The behaviors that these firms are attempting to model are the subject​ of:

microeconomics.

The economic way of thinking is best described as

an analytical framework enabling one to reach informed conclusions.

Suppose a government official is trying to decide whether or not to allow more immigration. Which of the following is not an aspect of the economic way of thinking that would apply in this​ decision-making process?

Flipping a coin.

To which of the following​ household-type(s) does the phrase​ "unlimited wants and limited resources"

​I, II, and III. A​ low-income household II. A​ middle-income household III. A​ high-income household

One reason that economists use microeconomics as the basis of macroeconomic analysis is

that all choices are made by individuals and firms.

The three fundamental economic questions that a nation addresses in order to allocate​ society’s scarce resources include all of the following ​except:

Why will the items be​ produced?

Which of the following is a true statement about​ self-interest as used in the study of​ economics?

Any action can be based on​ self-interest if the person has some reason for the action.

People may appear to use rules of​ thumb, as suggested by the assumption of bounded​ rationality, even though they may really be behaving in a manner suggested by the rationality assumption if

they face persistently predictable range of choices for a period of time.

The ceteris paribus assumption means

other things equal

An economic model is developed from a set of assumptions about consumer behavior and predicts that people will buy less of a good the higher the price of the good. Empirical testing of this model would involve

the collection of data to evaluate the usefulness of the model.

Consider the following statement based on a positive economic analysis that assumes that all other things remain​ constant. Falling gasoline prices will result in additional vacation travel. Which of the following​ (initially assumed​ constant) could occur and thus offset the stated outcome?

An increase in hotel taxes at popular resorts

Economic goods are

goods that are scarce.

Farmer McDonald has 100 acres of land on which he can grow soybeans or corn. An acre of land yields 200 bushels of soybeans or 100 bushels of corn or some combination of both. The accompanying figure refers to farmer McDonald’s

production possibilities curve.

Steve can​ wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. His roommate Mike can​ wash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. The absolute advantage in laundry is held by

Steve

The comparative advantage in meal preparation is held by

Mike

The division of productive activities among persons and regions so that no one individual or region is totally​ self-sufficient is known as

specialization.

Which of the following statements is​ true?

Everyone can benefit when people specialize where they have a comparative advantage and then trade with each other.

Specialization and comparative advantage

A. lead to international trade and overall gains for the nations involved. B. lead to greater output even if you can do everything better than someone else. C.lead to greater productivity.

The inverse relationship between price and quantity demanded is often referred to​ as:

the law of demand.

If prices fall for a particular good then consumers​ will:

buy more units. demand arrow goes down

Other things remaining​ equal, the law of demand says that higher prices will lead to a

smaller quantity demanded and lower prices to a larger quantity demanded.

All of the following pairs of goods are substitutes except

we observe the price of bacon increases and the demand for eggs decreases.

All of the following pairs of goods are complements except

we observe the price of coffee decreases and the demand for tea decreases.

Assume the cost of aluminum used by​ soft-drink companies increases. Which of the following correctly describes the resulting effects in the market for canned soft​ drinks?

II and III. I. The demand for soft drinks decreases. II. The quantity of soft drinks demanded decreases. III. The supply of soft drinks decreases. IV. The quantity of soft drinks supplied decreases.

Which of the following will cause an outward​ (rightward) shift in​ supply?

A technological improvement.

What is the economic effect of price​ ceilings?

An effective price ceiling will lead to a shortage.

According to the​ text, firms encounter rising costs when they attempt to produce more in the same time period. As a​ consequence, they must be offered a higher price to be willing to incur these higher costs. The resulting relationship between price and quantity supplied is

direct​ (or positive) and is called the law of supply.

Inflation is more harmful to​ people:

living on fixed incomes.

Inflation that is higher than​ 50% per month is known​ as:

hyperinflation

High levels of inflation can lead​ to:

political unrest.

India will sell​ ___________ of rice from the government stockpiles.

5 million tons

Which of the following measures will lower the natural rate of​ unemployment?

More high school graduates enter college without looking for employment right away.

Full employment means

there is a level of unemployment consistent with​ "normal" frictions in the labor market.

According to the circular flow of income and​ output, which of the following is not​ true?

Goods, services and money all flow in one direction since money pays for the goods and services.

The expenditure approach to tabulating GDP

adds up the total amount spent on newly produced domestic goods and services during the year.

Using the expenditures approach to national income​ accounting, which of the following would be counted as investment spending?

A person in California buys a new house.

Which of the following is a true statement about comparing world​ incomes?

Adjusting world incomes for purchasing power gives a more accurate view than using market foreign exchange rates.

Using the expenditures approach to national income​ accounting, which of the following would be counted as consumption?

Residents of New York City buy food every week.

Which of the following statements is ​false?

A society that wants more in the future should consume more of its capital today.

Brazil has a population of about 200​ million, with about 145 million over the age of 15. Of​ these, an estimated 25​ percent, or 35 million​ people, are functionally illiterate. The typical literate individual reads only about two nonacademic books per​ year, which is less than half the number read by the typical literate U.S. or European resident. Answer the following questions solely from the perspective of new growth​ theory:

a. Which of the following best explains the implications of​ Brazil’s literacy and reading rates for its growth prospects in light of the key tenets of new growth theory.

Since the development of human capital is an important determinant of economic​ growth, Brazil’s literacy and reading rates suggests its potential economic growth rate is lower.

b. What types of policies might Brazil implement to improve its growth​ prospects?

It should implement programs narrowly focused on promoting a higher literacy rate and broadly focused on a greater average educational attainment by its residents.

Mexico has a more open economy​ (lower tariff​ barriers) than Nigeria

Thus it would be expected that the average annual per capita growth rate of real GDP would be higher in
Mexico.

Free trade encourages economic growth by

encouraging the more rapid spread of technology.

In the absence of​ well-defined property​ rights, we would likely find

people with fewer incentives to take risks.

Which of the following is not a true statement about the impact of immigration on economic​ growth?

Economists agree that population growth through immigration is a drain on the economy because it lowers per capita GDP.

To encourage economic development a country should do all of the following except

limit the amount of imports allowed in to the country.

Typically, modern developed countries have gone through three stages

Initially countries have most of the population involved in

Secondly, much of the population moves to

Finally, there is a shift toward

agriculture Industry services

Which of the following factors could cause the economy to experience​ supply-side inflation?

Government laws which say that the average work week must be reduced by one hour every year.

In the long​ run, persistent deflation in a growing economy can occur if

increases in the LRAS are proportionately larger than the increases in AD.

An increase in the LRAS curve that is larger proportionately than an increase in the AD curve will lead to

a decrease in the price level and an increase in output.

Which of the following will generate an increase in aggregate​ demand?

Government spending for the onset of a war.

According to the​ real-balance effect, an increase in the price level

reduces an​ individual’s expenditures due to a decrease in the real value of cash balances.

Which of the following will generate an increase in aggregate​ demand?

Government spending for the onset of a war.

An​ economy’s rate of economic growth equals

rate of growth of capital plus rate of growth of labor plus rate of growth in the productivity of capital and labor.

Which of the following will increase labor​ productivity?

Labor has more physical capital to work with.

The rate of growth in the productivity of capital is 1​ percent, the rate of growth of capital is 2​ percent, the rate of growth of labor is 1​ percent, and the rate of growth in the productivity of labor is 3 percent. From this we know that

the rate of economic growth is 7 percent.

Labor productivity is normally measured by

dividing total real domestic output by the number of workers or by the number of labor hours.

A country that saves a larger percentage of GDP than another country​ will, ceteris paribus

experience higher rates of economic growth since there will be more investment.

For economic growth to take​ place, a country must save.​ But, for saving to actually generate economic​ growth,

saving must be channeled into investment.

One of the most important factors for economic growth to take place is that a society must

consume less than they produce.

Which of the following statements is ​false?

A society that wants more in the future should consume more of its capital today.

Total capital is the sum of

physical capital and human capital.

On a national​ basis, higher saving rates eventually mean higher living standards in the long​ run, all other things held constant.

True

Improvements in ______ productivity, all other things being​ equal, lead to _________ economic growth and higher living standards. One fundamental determinant of the rate of growth is the rate of _________ . To have more consumption in the​ future, we have to __________ rather than consume. In​ general, countries that have had higher rates of _______ have had higher rates of growth in per capita real GDP.

labor; greater; saving; save; saving

What is economic​ growth?

Economic growth is increases in per capita real GDP measured by its rate of change per year.

Why are politicians and economists concerned about the economic growth rate in the​ U.S.?

Small differences in the rate of economic growth can make large differences in the standard of living over time.

Economic growth as it is currently measured

A. does not consider​ spiritual, cultural or social difficulties that may arise from growth. B. understates actual economic growth since it does not adjust for changes in leisure. C. does not account for how increased per capita income is distributed across income groups.

Real standards of living can only go up with positive economic growth.

False

All of the following are benefits of economic growth except

urban congestion

If the average annual rate of economic growth is 4​ percent, approximately how long will it take for the​ nation’s per capita real GDP to​ double?

17.5 years

Economic growth can be defined as the increase in _____ real​ GDP, measured by its rate of change per year.
The _____ of economic growth are reductions in​ illiteracy, poverty, and illness and increases in life spans and political stability. The
costs
of economic growth may include environmental​ pollution, alienation, and urban congestion.

Small​ percentage-point differences in growth rates lead to ______ differences in per capita real GDP over time.

per capita; benefits; costs; large

According to the new growth theory

knowledge about how to produce goods and services is an important source of economic growth.

New growth theory differs from traditional growth theory in that

traditional theory did not explain what causes improvements in​ technology, but new growth theory does.

The new growth theory argues that

technology must be considered a separate factor of production that is sensitive to economic incentives.

Economic growth is positively related to all of the following except

import tariffs

There are predictions that computers may become as powerful as the human brain by 2030.

True

According to new growth​ theory, more technological advances will occur when the rewards are greater.

True

In the United​ States, a patent gives the inventor of a product the exclusive right to​ make, use, or sell the product for 50 years.

False

For every 1 percent increase in the stock of research and development in the United​ States, productivity in the rest of the world

increases by about 0.25 percent.

Nations with high tariff barriers have tended to have higher average annual rates of real GDP per capita growth since 1965.

False

An innovation is the same thing as an invention.

False

According to economist Paul​ Romer, ideas are what drive economic growth.

True

The knowledge and skills that people in the workforce acquire through​ education, on-the-job​ training, and​ self-teaching is referred to as

human capital.

New growth
theory argues that the greater the​ rewards, the more rapid the pace of technology. And greater rewards spur research and development.
The openness of a​ nation’s economy to international
trade
seems to correlate with its rate of economic growth.
Invention and innovation are not the same thing.
Inventions
are useless until
innovation
transforms them into goods and services that people find valuable.
According to
new growth
​theory, economic growth can continue as long as we keep coming up with new ideas.
Increases in
human
capital can lead to greater rates of economic growth. These come about by increased​ education, on-the-job​ training, and​ self-teaching.

…

Population growth generally

encourages technological progress that increases economic growth.

Limiting the immigration of highly educated professionals hurts U.S. economic growth because

it restricts the supply of high human capital workers and the new ideas they could potentially generate. it restricts the knowledge base of the workforce.

According to new growth​ theorists, increased population growth rates can lead to faster economic growth because

the larger the market the more incentive there is to innovate.

According to Julian​ Simon,

legal and illegal immigrants have a positive effect on the welfare of American citizens.

Government enforced property rights are crucial to economic growth because they

provide incentives for capital accumulation and entrepreneurial activity. B. encourage people to save knowing their wealth will not be arbitrarily confiscated. C. make the returns to​ risk-taking relatively more certain.

Which of the following statements is not​ true?

Property rights encourage people to take fewer​ risks, making the economy more secure.

Entrepreneurship functions better when

a system of private property rights permits entrepreneurs to capture the rewards from their entrepreneurial activities.

In the absence of​ well-defined property​ rights, we would likely find

people with fewer incentives to take risks.

Population growth can have both a positive and a negative impact on economic growth.

True

In​ general, the more securely private property rights are​ assigned, the more capital accumulation there will be.

True

The economic development of a country is dependent on all of the following except

promoting protectionist barriers.

The development of modern rich nations can be characterized by three​ stages:

agricultural​ stage, followed by manufacturing​ stage, and lastly the tertiary stage.

To encourage economic development a country should do all of the following except

limit the amount of imports allowed in to the country.

Developing countries should

focus on production based on comparative advantage.

For​ modern, rich​ nations, the three stages of development​ (in order of​ occurrence) are

agriculture, manufacturing, and services.

Which of the following factors are highly related to the pace of economic​ development?

limiting protectionism B. developing an educated population C. establishing a system of property rights

Total expenditures for domestically produced goods and services consist of

consumer​ spending, business​ spending, government​ spending, and net foreign spending.

Which one of the following is not a component of total​ expenditures?

Merchandise inventories.

What determines the total value of annual U.S.​ GDP?

The spending and production decisions of​ consumers, firms,​ governments, and foreigners.

The total of all planned real expenditures in the economy is

aggregate demand

The aggregate demand curve

shows planned purchase rates of goods and services at various price levels.

The aggregate demand curve slopes downward because of the

real-balance, interest rate and open economy effects.

According to the​ real-balance effect, an increase in the price level

reduces an​ individual’s expenditures due to a decrease in the real value of cash balances.

According to the interest rate​ effect, an increase in the price level

increases nominal interest rates. B. reduces borrowing and spending. C. reduces the aggregate quantity of goods and services demanded.

Which of the following will generate an increase in aggregate​ demand?

Government spending for the onset of a war.

The U.S. aggregate demand curve would shift to the left if

the Federal Reserve Board caused the real interest rate to increase.

The aggregate demand curve would shift to the right as a result of

a drop in the foreign exchange value of the dollar.

All of the following would cause the aggregate demand curve to shift except

price level changes.

In an open​ economy, the total value of GDP is based on the spending decisions of​ individuals, firms,​ governments, and foreign residents.

True

As more economic development​ occurs,

he population growth rate decreases.

The model of​ long-run equilibrium

is the same as the Classical Model.

One of the main conclusions of​ Say’s Law was that

if people supply goods in order to then demand​ goods, there can be no overproduction in a market economy and full employment will be the normal state of affairs.

Which of the following best exemplifies​ Say’s Law?

The production of a​ $4000 plasma TV set creates demand for other goods and services valued at​ $4000.

Say’s Law fits best in the ______since this philosophy placed great importance on _______to determine the _________.

Classical Theory;aggregate supply; level of output.

Suppose that aggregate demand were to increase due to a weaker dollar. Which of the following would be the​ result?

inflation only

​Say’s law asserts that

supply created its own demand

Which of the following is not one of the four major assumptions of the classical​ model?

People suffer from money illusion.

The classical economists believed that the leakage of saving would be matched by the injection of business investment.

True

The lower the rate of​ interest, the​ ________ profitable it is to invest and the​ ______ the level of desired investment.

more; higher

The level of employment in an economy determines its real GDP.

True

If an excess quantity of labor is supplied at a particular wage​ level, the wage level

must be above equilibrium

According to the classical​ model, if the economy starts at full employment an increase in aggregate demand will cause all of the following to occur except

a decrease in wage rates.

The extent to which real GDP responds to changes in the price level along the​ short-run aggregate supply curve is largely determined by

A. the speed with which input prices adjust and people become more fully informed. B. the ability of firms to hire additional​ inputs, particularly workers. C. the ability of firms to use existing workers and capital more intensively.

Which of the following might also yield the outcome shown by your​ diagram?

A and B only. Increase in productivity. A decrease in raw materials prices.raw materials prices.

In considering the forces which may increase an​ economy’s real GDP in the long​ run, which of the following will NOT play a​ role?

Lower wages for labor.

The Modern Keynesian​ short-run aggregate supply curve is best described by which of the following​ statements?

It is very flat at low levels of real​ GDP; increases slightly as real GDP​ grows; and becomes very steep as real GDP surpasses full employment.

The modern Keynesian Model assumes that

that prices respond to changes in aggregate demand but not fully.

Since the modern Keynesian Model allows for some price​ response, the aggregate supply curve

is upward sloping.

Suppose that the wage rate of labor increased temporarily. The result of this would be best described by

a decrease in the​ short-run aggregate supply curve only.

Suppose that there is a​ temporary, but significant increase in oil prices in an economy with an​ upward-sloping SRAS curve. As a policy response to this​ short-lived but sudden increase in oil​ prices, a central bank

cannot stabilize both the price level and the real GDP simultaneously.

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD.
If there is a decrease in the money supply​, which of the following is the best description of the outcome in the​ economy?

Aggregate demand decreases.

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. Given that there is a decrease in the money supply​, the new short run position of the economy finds itself in is termed

a recessionary gap.

Suppose that the value of the US dollar​ ($) yesterday was​ $1 = 4 yen. Today the exchange rate changed such that​ $1 = 5 yen.
Given that the US​ $ has​ appreciated, the aggregate demand in the United States should

shift to the left.

Given that the US​ $ has​ appreciated, the​ short-run aggregate supply in the United States should

shift to the right

Suppose that the value of the US​ $ yesterday was​ $1 = 4 pesos. Today the exchange rate changed such that​ $1 = 8 pesos. One can say the

US​ $ appreciated.

An appreciation of the US​ $ should result in

a lower price level but the impact on the level of real GDP depends on the magnitude of the shifts in the aggregate demand and​ short-run aggregate supply curves.

In the Keynesian​ model, if disposable income were to increase households would

increase both their consumption and saving.

The relationship between the MPC and the MPS indicates that the entire increase in household disposable income

is distributed between consumption and saving.

In the Keynesian model equilibrium national income

equals planned​ consumption, investment,​ government, and net export expenditures.

If real GDP falls below total planned expenditures the economy will see

production and employment increases.

Which of the following statements is true when considering an economy with an​ upward-sloping short-run aggregate supply​ curve?

The multiplier has more impact when the economy is experiencing a recessionary gap compared to an inflationary gap.

The multiplier is weakened in inflationary gaps because of

rapid price level increases.

Suppose that aggregate demand were to decrease due to a stronger dollar. Which of the following would be the​ result?

Deflation only

Suppose that Congress enacts a significant tax cut with the expectation that this action will stimulate aggregate demand and push up real GDP in the short run. In​ fact, however, neither real GDP nor the price level changes significantly as a result of the tax cut. This outcome can be explained by all of the​ following, except one. Which one of the following is the​ exception?

Automatic stabilizers.

The Congressional​ meetings, discussions,​ arguments, debates over fiscal policy and the subsequent signing or vetoing by the President of a bill are part of the

action time lag.

Which of the following statements is true when considering time​ lags?

Time lags in fiscal policy can be extremely long and may take several years before any impact is felt.

During normal​ times, fiscal policy probably achieves most of its impact through

the workings of automatic stabilizers.

In early​ 2008, it appeared that the U.S. economy was either in a recession or growing very slowly. President Bush announced a program of tax rebates. This program can be described as​ ___________ and was intended to​ ______________.

discretionary fiscal​ policy; increase consumer spending

Which of the following is not a source of funding available to​ governments?

Stock sales.

The federal government has its best opportunity to lower its national debt when it has

a budget surplus.

a. ​Previously, the government operated with a balanced​ budget, but recently there has been a sudden increase in federal tax collections. The net public debt

decreases

The federal government had been operating with a very small annual budget deficit until three successive hurricanes hit the Atlantic​ Coast, and now government spending has risen substantially. The net public debt

increases

c. The General National Mortgage​ Association, a federal government agency that purchases certain types of home​ mortgages, buys U.S. Treasury bonds from another government agency. The net public debt

remains unchanged

What is the relationship between the gross public debt and the net public​ debt?

The net public debt only included government debt held by the public.

If federal budget deficits ​increase, then a part of that deficit

will be financed by foreign dollar​ holders, who will buy fewer U.S.​ exports, thus increasing the U.S. trade deficit.

During the late​ 1970s, prices quoted in terms of the Israeli​ currency, the​ shekel, rose so fast that grocery stores listed their prices in terms of the U.S. dollar and provided customers with​ dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using​ shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation.​ Thus, the U.S. dollar functioned as money in Israel during this period

as a store of value

During the​ 1945-1946 Hungarian​ hyperinflation, when the rate of inflation reached 41.9 quadrillion percent per​ month, the Hungarian government discovered that the real value of its tax receipts was falling dramatically. To keep real tax revenues more​ stable, it created a good called a​ "tax pengö", in which all bank deposits were denominated for purposes of taxation.
​Nevertheless, payments for goods and services were made only in terms of the regular Hungarian​ currency, whose value tended to fall rapidly even though the value of a tax​ pengö remained stable. Prices were also quoted only in terms of the regular currency.​ Lenders, however, began denominating loan payments in terms of tax​ pengös. The tax​ pengö functioned as money in Hungary in 1945 and 1946

as a standard of deferred payment

A​ $1,000 balance in a transactions deposit at a mutual savings bank.
This item is counted in

both M1 and M2

A​ $100,000 certificate of deposit issued by a New York bank.
This item is counted in

neither M1 or M2

A​ $10,000 time deposit an elderly widow holds at her credit union.
This item is counted in

M2 only

A​ $50 traveler’s check.
This item is counted in

both M1 and M2

A​ $50,000 money market deposit account balance.
This item is counted in

M2 only

Jennifer has $1,000 in her checking account.
Is this counted in M1​ only, M2​ only, M1 and​ M2, or​ neither?

M1 and M2

A manager of a savings and loan association responds to reports of a likely increase in federal deposit insurance coverage. She directs loan officers to extend mortgage loans to less creditworthy borrowers. This situation poses

a moral hazard problem

A loan applicant does not mention that a legal judgment in his divorce case will require him to make alimony payments to his​ ex-wife. This situation poses

an adverse selection problem

An individual who was recently approved for a loan to start a new business decides to use some of the funds to take a Hawaiian vacation. This situation poses

a moral hazard problem

Which of the following statements is true when considering central​ banks?

The number of central banks in the world grew enormously after the Great Depression.

Which of the following is a function of the Federal Reserve​ System?

Acting as a lender of last resort to commercial banks.

The Federal Reserve purchases ​$12 million in U.S. Treasury bonds from a bond​ dealer, and the​ dealer’s bank credits the​ dealer’s account. The required reserve ratio is 11 ​percent, and the bank typically lends any excess reserves immediately.
Assuming that no currency leakage​ occurs, calculate how much will the bank be able to lend to its customers following the​ Fed’s purchase. ​$

10.68 million Total Reserves−Required Reserves=Excess Reserves=Loans to its Customers

A bank has ​$269 million in total​ reserves, of which ​$10 million are excess reserves. The bank currently has ​$3.5883 billion in​ loans, ​$0.975 billion in​ securities, and ​$138 million in other assets. The required reserve ratio for transactions deposits is 9 percent.

…

Calculate the sum of this​ bank’s total amount of liabilities and net worth

4.97 billion Total assets=Total reserves+Loans+Securities+Other assets

Calculate the additional amount of loans this bank can make to households and firms.

10 billion Total Reserve−Required Reserve=Excess Reserve

Calculate the current quantity of transactions deposits at this bank.

2.88 billion Transaction deposits: required reserve/required reserve ratio

Stockbrokers monitor the companies after investing funds in​ them, in order to

limit moral hazard

Commercial banks screen their borrowers before a loan can be​ approved, in order to

limit adverse selection

Money market mutual funds combine the savings of many​ individuals, in order to

lower management costs

Using the line drawing tool​, draw a money demand curve on the graph indicating the relationship between the interest rate and the opportunity cost of holding money.
Label the curve Md.

supply curve but actually demand

If the Fed increases the discount​ rate, relative to the federal funds​ rate, then this

would increase the cost of funds for institutions borrowing from the Fed.

a. As a result of the dollar​ appreciation, U.S. net export expenditures will

decrease

b. The aggregate demand curve that could represent the aggregate demand effect of the U.S.​ dollar’s appreciation is

AD2

The real GDP _________ and the price level will
________ as a result of the dollar appreciation.

will decrease; decrease

c. Federal Reserve may take a certain policy action to prevent the​ dollar’s appreciation from affecting equilibrium real GDP in the short run. Which one of the following is not a likely policy action that the Fed will​ take?

Increasing government spending

Which of the following is a true​ statement?

Both the direct and the indirect effects of an expansionary monetary policy are to increase aggregate demand.

The indirect effect of an increase in the money supply works through

a decrease in the interest rate increasing investment and consumption.

The graph to the right shows the supply and demand for bonds.
Suppose that the Fed conducts an open market operation to increase the money supply.
​1.) Using the line drawing tool​, show the effect on the bond market. Properly label your line.
​2.) Using the point drawing tool​, indicate the new equilibrium​ point, and label it .

As a result of this open market​ operation, the interest rate will

fall

Suppose that initially the money supply is ​$2 ​trillion, the price level equals 44​, the real GDP is ​$6 trillion in​ base-year dollars, and income velocity of money is 12. Then the money supply increases by ​$200 ​billion, while real GDP and income velocity of money remain unchanged.

a. According to the quantity theory of money and prices, calculate the new price level after the increase in money​ supply:

Ms×V=P×Y

b. Calculate the percentage increase in money​ supply:

10% New value of Ms-initial value of Ms/initial value of Ms *100

Calculate the percentage change in the price​ level:

10% New price level-Initial price level/initial price level *100

d. The percentage changes in the money supply is ________ percentage changes in the price level.

equal to the

To implement a credit policy intended to expand liquidity of the banking​ system, the Fed desires to increase its assets by lending to a substantial number of banks. How might the Fed adjust the interest rate that it pays banks on reserves in order to induce them to hold the reserves required for funding this credit policy​ action?

The Fed should _______ the interest rate.

increase

What will happen to the​ Fed’s liabilities if it implements the policy action to induce banks to hold the reserves required for funding its credit​ policy?

The​ Fed’s liabilities will

increase

Suppose that the Fed pursues an expansionary monetary policy.
Which of the following statements best explains the transmission mechanism in an open​ economy?

The decrease in interest rates will cause capital outflow, lowering the value of the dollar and increasing net exports.

In an open​ economy, the net export effect

may offset an expansionary fiscal policy but enhance an expansionary monetary policy.

The Fed acts like a private banking institution when it

provides payment- clearing services to depository institutions

The Fed acts like a government agency when it

supervises depository institutions

Which of the following is not a duty of the a central​ bank?

Guarantee the savings of its citizens.

Due to the​ Gramm-Leach-Bliley Act of 1999

the US government allowed commercial banks to own stock and sell insurance policies.

Which of the following statements is true when considering national banking structures around the​ world?

U.S. businesses only obtain approximately​ 30% of their funds from bank loans compared to​ 65% for European firms.

Which of the following statements is true when considering central​ banks?

The number of central banks in the world grew enormously after the Great Depression.

What is the basic structure of the Federal Reserve​ Bank?

There are 12 district​ banks, a Board of Governors and a Federal Open Market Committee.

Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve​ system?

Some severe banking crises at the end of the 19th century and early 20th century.

Which of the functions of the Federal Reserve is appropriately matched with its correct​ institution?

Holds reserve balances for depository​ institutions; The Federal Reserve Bank.

If you live in​ Atlanta, Georgia, and you purchase a computer in Los​ Angeles, California, while there on​ vacation, which of the following paths would your check take before it finally​ clears?

The check goes from the computer​ store’s bank to the Federal Reserve bank in San​ Francisco, then to the Federal Reserve bank in​ Atlanta, and then to your bank

Which of the following does not describe some of the functions of the Federal Reserve​ Bank?

Acts as a medium of​ exchange, a unit of​ accounting, a store of value and a standard of deferred payment.

When the Fed acts as the lender of the​ "last resort" it means that

the Fed lends to depository institutions it deems should not fail.

Which of the following statements is ​incorrect?

There are a total of 25 Federal Reserve district banks.

When a temporarily illiquid bank which is otherwise in good financial condition borrows money from the Fed in an attempt to prevent a loss of confidence in the bank or in other​ banks, this is an example of the Fed

acting as the lender of last resort.

What are the features of federal deposit​ insurance?

Depository​ institutions’ premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed.

The type of policy making that is not in response to actual or potential changes in overall economic activity is called

passive policy making.

The natural rate of unemployment depends on factors that affect the behavior of both workers and firms. All the following are likely to influence the natural rate of​ unemployment, except

the burden of government debt on the general public.

The natural rate of unemployment in the U.S.

is the rate of unemployment that exists in the long run after everyone in the economy has fully adjusted to changes that have occurred.

The actual rate of unemployment is

greater than the natural rate of unemployment when cyclical unemployment is positive.

Suppose that economists were able to use U.S. economic data to demonstrate that the rational expectations hypothesis is true. In light of​ that, the policy irrelevance proposition will

not be​ valid, since wages and prices of​ non-labor factors of production may adjust sluggishly.

The​ real-business-cycle approach attributes even​ short-run increases in real GDP largely to aggregate supply shocks. Rightward shifts in aggregate supply tend to push down the equilibrium price level. The United States has experienced low but persistent inflation in recent years. This happened because

the increase in aggregate demand was more than the increase in aggregate​ supply, thereby increasing the price level.

The policy irrelevance proposition states that

only unanticipated monetary policy changes can affect real GDP or the unemployment rate.

If prices are sticky in the short​ run, a decrease in aggregate demand will lead to

the largest possible decrease in real GDP.

Because of the effect of sticky prices on real GDP in the short​ run, new Keynesian economists advocate _______ policymaking

active

Which of the following is an argument in favor of passive ​policymaking?

Aggregate demand shocks have little effect in the short run and no effect on real GDP in the long run.

Monetary policy undertaken by the Fed

can be either passive or active policy depending on the reason it is undertaking its action.

Suppose that people who previously had held jobs become structurally unemployed due to establishment of new government regulations during a period in which the inflation rate remains unchanged. Would the result be a movement along or a shift of the​ short-run Phillips​ curve?

A rightward shift of the​ short-run Phillips curve.

Consider a situation in which a future president has appointed Federal Reserve leaders who conduct monetary policy much more erratically than in past years. The consequence is that the quantity of money in circulation varies in a much more unsystematic​ and, hence,​ hard-to-predict manner.
According to the policy irrelevance​ proposition, is it more or less likely that the​ Fed’s policy actions will cause real GDP to change in the short​ run?

More​ likely, since much of the changes in the money supply will be unanticipated.

People called​ "Fed watchers" earn their living by trying to forecast what policies the Federal Reserve will implement within the next few weeks and months. Suppose that Fed watchers discover that the current group of Fed officials is following very systematic and predictable policies intended to reduce the unemployment rate. The Fed watchers then sell this information to​ firms, unions, and others in the private sector. If pure competition​ prevails, prices and wages are​ flexible, and people form rational​ expectations, then the​ Fed’s policies

are likely to have no effect on the unemployment rate.

What is the rational expectations​ hypothesis?

People form their expectations on the values of economic variables based on all available past and current information and their understanding of how the economy functions.

The combination of rational expectations and perfectly competitive markets is best reflected in which of the following​ models?

New Classical.

Which of the following statements about the policy irrelevance proposition is not​ true?

The policy irrelevance proposition implies that the there is a short run change in real​ GDP, but no long run change in real GDP.

According to the rational expectations​ hypothesis, a policy cannot have a​ long-run effect on real GDP or the unemployment rate because

A.people do not persistently make the same mistakes in forecasting the future. B. in the long​ run, people’s expectations will correctly anticipate the effects of any policy action and the public will react in such a way as to nullify the impact of policy. C. the policy will not contain unsystematic qualities in the long run and thus the public will be able to accurately forecast the actions and consequences of policy makers

Suppose that more unemployed people who are classified as part of frictional unemployment decide to stop looking for work and start their own businesses instead. What is likely to happen to each of the​ following, other things being​ equal?

The natural unemployment​ rate: decreases The​ economy’s Phillips​ curve: shifts left

In new Keynesian models of aggregate economic​ activity, "sticky" prices and wages are explained by

the small​ menu-cost and efficiency wage​ theories, respectively.

According to the rational expectations​ hypothesis, an​ individual’s assessment of future economic performance

considers both past performance and current monetary and fiscal policy.