ECON 2101 Exam 3 – Flashcards
Unlock all answers in this set
Unlock answersquestion
Bank Reserves Include what?
answer
Vault Cash and deposits with the federal reserve
question
How do banks create money?
answer
Banks create checking account deposits when making loans from excess reserves
question
How many board of governors of the federal reserve are there?
answer
7
question
Open market operations refer to the purchase or sale of ******** to control the money supply.
answer
U.S. Treasury securities by the federal reserve
question
What are the three main monetary policy tools used by the federal reserve to manage the money supply?
answer
Open Market Operations, Discount Policy, and reserve requirements
question
What is the main tool the Federal Reserve uses to conduct monetary policy?
answer
Open Market Operations
question
A decrease in the discount rate ******* bank reserves and ******** the money supply if banks respond appropriately to the change in rate.
answer
Increase, Increase
question
A decrease in the reserve requirement ******* bank reserves and ***** the money supply
answer
Increase, Increase
question
If Whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?
answer
Store of Value
question
The purchase of Treasury securities by the Federal Reserve will, in regards to the quantity of reserves held by banks?
answer
Increase the quantity of reserves held by banks
question
To decrease the money supply, the federal reserve could...
answer
Conduct an open market sale of Treasury securities
question
The M1 Measure of the money supply equals?
answer
Currency plus checking account balances plus travelers checks
question
What function of money would be violated if inflation were high?
answer
Store of Value
question
In economics, money is defined as?
answer
Any asset people generally accept in exchange for goods and services
question
What is a unit of account, in regards to the three functions of money?
answer
It is an amount something is worth
question
What is a medium of exchange, in regards to the three functions of money?
answer
It is a way of exchanging good and services for money.
question
What does M2 include that M1 does not?
answer
Savings Accounts, CD's, Money Market Accounts
question
What are discount rates?
answer
The interest rate the Federal Reserve charges on discount loans
question
What are discount loans?
answer
Loans the federal Reserve makes to banks
question
What is a bank run and what is an example?
answer
A situation in which many depositors simultaneously decide to withdraw money from a bank (e.g. Stock market Crash in the 30's)
question
What is it called when the federal reserve buys or sells short term government bonds?
answer
Open Market Operations
question
What is A model that explains short-run fluctuations in real GDP and the price level?
answer
Aggregate demand and aggregate supply Model
question
What is A curve that shows the relationships between the price level and the quantity of real GDP demanded by households, firms, and the government?
answer
Aggregate Demand Curve
question
What is A curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied from firms?
answer
Short Run Aggregate Supply
question
What is the most important variable determining the consumption of households
answer
Current Income
question
As it pertains to consumption, if income rises what happens to consumption?
answer
It will also rise
question
How to you determine household wealth?
answer
It is the difference between the value of it assets and the value of its debts
question
What effect is how a change in price level effects Investment.
answer
Interest Rate Effect
question
What effect is the How a change in price effects consumption ?
answer
The Wealth Effect
question
What effect is how a change in the price level effects Net Exports?
answer
The international trade effect
question
What happens to net exports, as the price level rises?
answer
Net exports fall
question
What happens to net exports as the price level drops
answer
Net exports rise
question
As it pertains to investment, a lower price will decrease the interest rate and do what to investment spending?
answer
increases investment spending
question
As it pertains to investment, a higher price will increase the interest rate and do what to investment spending?
answer
Decrease investment Spending
question
The Aggregate demand curve will shift if what happens?
answer
any of the factors effecting GDP increase or decrease (C+I+G+NX)
question
The aggregate demand curve will experience a movement along the curve if ?
answer
price changes.
question
What are the actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives?
answer
Monetary Policy
question
What are changes in Federal taxes and purchases that are intended to achieve macroeconomic policy objectives?
answer
Fiscal Policy
question
An increase in net exports will do what to the ADC?
answer
increase the ADC
question
What is an unexpected event that causes the short-run aggregate supply curve to fall.
answer
Supply Shock
question
What is a combination of inflation and recession, usually resulting form a supply shock.
answer
Stagflation
question
What shows the relationship between the price level and quantity of real GDO demanded?
answer
Aggregate demand curve
question
What effect is happens when the price level falls, the real value of household wealth rises?
answer
The Wealth Effect
question
If aggregate demand increases, what may of caused it?
answer
An increase in government purchases
question
What effect does higher personal income taxes have on aggregate demand?
answer
Decreases Aggregate Demand
question
What effect does changes in the price level have on aggregate supply in the long run?
answer
It does not affect it
question
Stagflation occurs when?
answer
Inflation rises and GDP falls
question
When is unemployment at its natural rate?
answer
In the long run
question
Which aggregate supply curve has a positive slope?
answer
The short run only
question
Full-Employment GDP is also known as?
answer
Potential GDP
question
What is the slope of the long run aggregate supply curve?
answer
It is vertical
question
What effect will deflation have on the quantity of real GDP demanded?
answer
It will Increase it
