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econ lol – Flashcards

Marlon Riddle

8 July 2022

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With voluntary exchange,

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Both the buyer and seller are better off.

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A person in the civilian labor force falls into one of two categories:

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Unemployed or employed

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A person is unemployed if he

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Is a member of the civilian labor force, out of work, and actively seeking work.

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In a market economy, what is produced is ultimately determined by

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Consumers

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Gross domestic product is

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The market value of final goods and services produced within a country during a time

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Which of the following transactions would be included in GDP?

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Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

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General Motors Corporation (a U.S. -based firm) produces a Saab vehicle in Sweden, and sells it in the United States. In which country's GDP is it included?

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Sweden because it was produced there.

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GDP says

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Geography matters

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GNP says

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Citizenship matters

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A firm purchases $400,000 worth of raw materials and pays wages and salaries of $100,000 and dividends of $200,000. If the firm sells its output for $1 million, the firm's value added to GDP is

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$600,000

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If there are 10 job losers, 12 job leavers, 13 reentrants, and 12 new entrants, then there are ___________ employed persons.

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Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. This country had

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$52.4 billion of exports and $44.1 billion of imports

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Which of the following would increase the GDP of the United States?

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A resident of Germany buys a software program form a company in Washington.

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Which of the following transactions would be included in this year's GDP?

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Johnson rents a five-year-old house form Smith

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One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?

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GDP increase by $6.00

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Greg, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

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Included in U.S. GNP, but it is not included in U.S. GDP

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The unemployment due to the time it takes for unemployed people to locate a job utilizing their transferable skills is called _______________ unemployment.

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Frictional

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Double counting in the resource cost-income approach to GDP refers to

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Counting the total value of a final output in addition to the value of the inputs used to make

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Suppose that the consumer price index (CPI) was 160 in 2007 and 166 in 2008, inflation during 2008 was

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3.75 percent

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If the consumer price index (CPI) was 120 at year end 2008 and 126 at year end 2009, inflation during 2009 was approximately

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5 percent

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Suppose that the consumer price index at year end 2008 was 140 and by year end 2009 had risen to 150. What was the inflation rate during 2009?

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7.1 percent

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Which of the following will mostly likely occur during the contractionary phase of a business cycle?

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The sales of most business decline, and the unemployment rate rises

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Which of the following will most likely occur during the expansionary phase of a business cycle?

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Real GDP rises, and unemployment falls

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The recessionary phase of the business cycle is characterized by

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Decreasing real output and increasing unemployment

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Economist usually use the term "recession" to refer to

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Two or more consecutive quarters of declining real GDP

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Sally is on temporary layoff from her factory job. If Sally participates in the BLS survey, she will be classified as

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Unemployed and in the labor force

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Macroeconomists define "consumption" as

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Purchases by household sector

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Mallory Trammell is a homemaker. Last week, she was busy with her normal household chores. She is

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Not a member to the labor force

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The population (age 16 and over) of Economic Land is 100 million; 5 million are unemployed, and 70 million hold jobs. The labor force participation rate in Economic Land is

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75 percent

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Louise is unemployed due to a decrease in the demand for workers with knowledge of a certain word processing language. This is an example of

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Structural unemployment

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The type of unemployment resulting from the fact that labor market information is less than perfect is called

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Frictional unemployment

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The type of unemployment that occurs because of a recession is called

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Cyclical unemployment

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Economist define full employment as the level of employment that result when

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The rate of unemployment is normal, considering both frictional and structural factors

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When full employment is present in the United States,

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Approximately 95 percent of the labor force will be employed.

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Structural unemployment is the result of

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Non-transferable job skills

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Frictional unemployment

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Is the result of transferable job skills

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A recession is always part of a

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Contraction

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Depreciation refers to a decrease in the value of a good caused by

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Wear and tear of capital goods over time

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Leisure is

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A good that is not counted in GDP

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National income equals

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Compensation of employees + self-employment income + corporate profits + rental income + interest

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GDP is computed by using

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Current- year prices

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Net exports equals

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The difference between exports and imports

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If a person is waiting to be called back to a job from which she has been laid off, how is she classified?

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As an unemployed persons

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The expenditure approach to measuring GDP sums

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Consumption, gross private domestic investment, government purchases, and net exports

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A dynamic, changing economy will

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Experience frictional and structural unemployment

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The unemployment due to changes in the type of skills employers require is called ___________ unemployment.

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Structural

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The number of employed persons plus the number of unemployed persons equals the number persons

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In the civilian labor force

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Jones lost his job in industry A, but he has skills that can be transferred to industry B (which is currently hiring). Smith Lost a job in industry C, but his skills cannot be transferred to industry B or to any other industry. Jones is _______________ unemployed and Smith is _____________ unemployed.

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Frictionally; structurally

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If a person worked at least 15 hours per week as an "unpaid" worker on a family farm house is classified?

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As an employed person

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In many large retail stores, price markdowns are now determined by computer. The "head manager" who used to make these decisions personally became __________________ unemployed.

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Structurally

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The four key markets that coordinate the circular flow of income are:

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Goods and services, resources, loanable funds and foreign exchange

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If the price level in the current period is higher than what buyers and sellers anticipated

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Profit margins will be attractive and firms will expand output.

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Saving is

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After-tax income that is not spent on consumption.

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As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.?

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Consumption and net exports would decline.

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The aggregate demand curve is downward sloping because

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At lower price levels, net exports increase, causing an increase in quality demanded of goods and services.

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Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the goods and services market represents

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Real output or real GDP

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For an economy, aggregate demand equals

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Consumption plus investment plus government purchases plus (exports minus imports)

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Other things the same, a decrease in the price level makes the dollar people held worth

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More, so they are willing to spend more.

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If scientific research produces a technological breakthrough in the production of memory, then

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Business cost will fall, profits will improve and production will increase.

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The aggregate supply curve indicates the

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Quantity of goods and services producers will supply at different price levels

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When an economy is in a long run equilibrium

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The actual and natural rates of unemployment will be equal.

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The actual rate of unemployment will be greater than the natural rate of unemployment when

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The actual output is less than the economy's potential output.

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An unexpected sharp reduction in inflation will most likely result in

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A temporary increase in unemployment and a decline in real output.

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The "loanable funds market" is a term used by economists to describe the

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Market that coordinates the borrowing and lending of individuals and firms.

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The price that a person must pay in order to acquire purchasing power now rather than in the future is called

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The interest rate

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The nominal (money) rate of interest

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Is the real rate of interest plus the inflationary premium

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The money interest rate may be misleading indicator of real borrowing costs when

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The inflation rate is high

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Suppose people anticipate inflation will be 5 percent during the next several years. If the real rate of interest is 4 percent, the money rate of interest must be

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9 percent

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Which of the following will most likely accompany an unanticipated increase in aggregate demand?

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An increase in real output

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Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

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An increase in the general level of prices

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When output is less than the economy's long-run capacity, which of the following is most likely to occur?

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Reduction in real interest rates and real resource prices.

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An anticipated change is an economic occurrence that

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Is foreseen by most economic participants.

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An unanticipated economic event is change that

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Catches most people by surprise.

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If a currency depreciates a country's net export

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Rise and AD increases

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If a currency appreciates a country's net export

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Fall and AD decreases

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If Asian economies suffer a serious economic slump, U.S. net exports will

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Decrease and AD will shift leftward

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Which of the falling will lead to an increase in aggregate demand in the United States?

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An increase in wealth due to a substantial appreciation in the value of stocks

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Which of the following factors would increase aggregate demand in the good and service market?

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Increased optimism on the part of consumers and businesses.

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Other things constant, a reduction in the real interest rate will

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Induce businesses to increase their level of investment.

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Within the framework of the AD/AS model, if consumers and investors become more pessimistic about the future direction of the economy, this will lead to a

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Decrease in aggregate demand

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An increase in the consumer sentiment index indicates that consumers are

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Become more optimistic abut their future income and employment prospects.

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An increase in the exchange rate value of the U.S. dollar, relative to the Japanese yen, will cause U.S. imports from Japan to

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Increase and exports to Japan to decrease.

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If the exchange rate value of the dollars depreciates relative to other currencies, we would expect

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U.S. exports to increase.

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An improvement in technology would shift which of the following curve(s)?

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Short-run and long-run aggregate supply.

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When an economy is in a recession

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The unemployment rate will rise above it's natural rate.

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The 1930s were a period of

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Depressed economic conditions and prolonged high rates of unemployment

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An analysis of housing prices between 1987 and 2008 indicated that prices

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Increased sharply in the five years leading up to the housing bust in 2007

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During 1979 - 2005, the mortgage default rate

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Was generally between 1 and 2 percent

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Which of the following is most central to the understanding of the economic crisis of 2008?

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The housing boom (2001-2005) and bust (2007-2008)

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The persistence of budget deficits during the last several decades is not surprising because politicians will find

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Budget deficits more attractive than budget surpluses

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Other things being constant, countries with higher rates of saving

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Will have higher rates of investment and growth

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The supply-side effects of a reduction in taxes are the result of

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Increased attractiveness of productive activity relative to leisure and tax avoidance

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The tax reductions increases in defense expenditures, and budget deficits of the 1980s are characteristics of

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Expansionary fiscal policy

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According to the crowding-out theory, expansionary fiscal policy will lead to

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Higher interest rates, an appreciated dollar, and reduced net exports

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Crowding out refers to the situation in which

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Borrowing by the federal government raises interest rates and causes firms to invest less

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Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?

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The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall

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Which of the following is true?

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The FDIC sets the reserve requirements for commercial banks

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Advocates of the crowding-out effect maintain that the large budget deficits during the recession of 2008-2009

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Will lead to a slower recovery than would have been the case if government borrowing had been more restrained

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According to new classical economists, the most appropriate policy during a recession would be for the government to

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Do nothing

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New classical economists believe that an increase in deficit financing by the government will

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Increase savings

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New classical economists stress that an increase in government expenditures financed by borrowing rather than taxes will

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Affect the timing of taxes but not their magnitude

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As the marginal propensity to consume (MPC) decreases, the spending multiplier

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Decreases

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As the marginal propensity to consume (MPC) increases, the spending multiplier

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Increases

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Which of the following most accurately indicates the political incentive to spend and/or tax?

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Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes

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According to the Keynesian view, the proper response to a severe recession would be

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An increase in government spending financed by borrowing

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According to non-Keynesians, how will an increase in government spending financed by borrowing during a recession affect recovery?

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Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery

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Supply-side economics stresses that

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Changes in marginal tax rates, exert important effects on real output and employment

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Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

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It is difficult to properly time discretionary changes in fiscal policy

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Which of the following is an important insight of Keynesian analysis?

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When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output than when the economy is operating at near full employment

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A major advantage of built in or automatic stabilizers is that they

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Require no Congressional action to be effective

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The 1930s were a period of

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Depressed economic conditions and prolonged high rates of unemployment

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The Keynesian model provided an explanation for

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The prolonged unemployment of the 1930s

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Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because

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Powerful trade unions and large corporations made wages highly inflexible

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In the Keynesian view, equilibrium takes place when

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The level of total spending in the economy is equal to current output

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Within the framework of the Keynesian model,

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Changes in output rather than changes in price direct the economy to equilibrium

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Keynesian analysis indicates that an unexpected decline in aggregate demand will lead to

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An increase in inventories and a reduction in output

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When aggregate demand exceeds current output, Keynesian analysis indicates that

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Unplanned inventory reductions will cause output to fall

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The marginal propensity to consume is defined as the

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Proportion of any change in income that is spent on consumption

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The primary tool of fiscal policy is

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The federal budget

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A balanced budget is present when

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Government revenues equal government expenditures

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When the federal government is running a budget deficit,

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Government expenditures exceed government revenues

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If the federal government is running a budget surplus,

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It will be able to reduce its outstanding debt

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Changes in government spending and/or taxes as the result of legislation is called

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Discretionary fiscal policy

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Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called

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Countercyclical fiscal policy

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Unemployment compensation payments

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Rise during a recession and thereby help stimulate consumption

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When an economy dips into recession, automatic stabilizers will tend to

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Enlarge the budget deficit (or reduce the surplus)

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When an economy expands into an economic boom, automatic stabilizers will tend to

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Reduce the budget deficit (or increase the surplus)

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Long lags make discretionary policy less effective because

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By the time the impact of policy is felt, the problem may have been corrected by market forces

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Higher standards of living are the result of

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An increase in the availability of goods and services that people value

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Public choice analysis indicates that politicians will find

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Budget deficits more attractive than budget surpluses

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Both Keynesian and non-Keynesians now recognize

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The difficulties involved in timing discretionary changes in fiscal policy in a stabilizing manner

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Which of the following is most likely to increase the incentive to invest, produce, and employ others?

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A reduction in tax rates

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Within the framework of the AD-AS model, an increase in savings by households will

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Increase the supply of loanable funds and reduce interest rates

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Since the mid-1980s, the debt-to-income ration of American households

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Has rapidly increased

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When families are heavily indebted and have little or no savings,

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They are in a poor position to deal with unanticipated expenses

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As measured by the budget deficit as a share of GDP, fiscal policy was

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More expansionary during the 1980s than the 1990s

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Keynesian critics would argue the expansion in government debt during a recession would lead to

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Higher future interest payments and tax rates

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According to the paradox of thrift, if many families decide to save an additional $200 a month, this would lead to

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A reduction in total output and little or no increase in total savings

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A person's marginal tax rate determines the percentage of

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Additional earnings that the individual is permitted to keep

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Money is

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Whatever is generally accepted in exchange for goods and services

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In the United States, the purchasing power of money is determined by

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The value of U.S. treasury bonds that back each unite of currency.

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Which of the following in not a part of the M1 money supply?

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Outstanding balances on credit cards.

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Ordinary commercial banks can expand the supply of money by

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Using a portion of their deposits to extend additional loans.

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Why did the monetary base increase rapidly during the economic crisis of 2008?

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The Fed increased both its purchase of assets and quantity of loans extended.

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One advantage of a money system compare to a barter system is that

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Money is more efficient.

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In the modern U.S. economy, most transaction are made with

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Checking deposits.

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Stores need not accept your check but must accept currency because

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Checks are not money but currency is.

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In order for barter to occur, trader must have a

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Coincidence of wants.

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Which of the following is the best definition of money?

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Anything generally accepted as a payment for goods or repayment of debt.

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If money were not used as a medium of exchange

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The gains from trade would be severely limited

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A barter economy is one in which

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Goods are traded directly for other goods.

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Which of the following assets is most liquid?

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Funds in a checking account

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Money is used as a unit of account. This means

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Money is used to measure the exchange value and costs of goods, services, assets and resources.

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When the interest rate decreases, the opportunity cost of holding money

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Decreases, so the quantity of the money demanded increases

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The value (purchasing power) of each unit of money

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Is inversely related to the general level of prices.

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When the monetary authorities expand the supply of money rapidly,

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Holding money is a poor method of storing value.

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In the United States, the money supply (M1) consists of

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Coins, paper currency, demand deposits, other checkable deposits and traveler's checks.

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Which of the following compose the M2 money supply?

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M1 plus savings deposits, small-denomination time deposits, and money market mutual funds.

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Are outstanding credit card balances counted as part of the money supply?

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No; money is an asset, while the credit card balances are a liability. Thus, they are not including in the money supply figures.

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Which of the following is not a depository institution?

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Finance company

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Modern bankers

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Hold only a fractions of their assets in the form of reserves against their deposits.

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A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

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Fractional reserve banking system.

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Banks are considered a safer place to deposit money now than they were prior to 1933 because

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The creation of the FDIC reduced the likelihood of banks runs.

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The immediate effect of a member bank's sale of the U.S. government securities to the Fed is

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An increase in that bank's excess reserves.

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The conduct of monetary policy is the responsibility of

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The federal reserve system

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What is the length of the term of the member of the Board of Governors of the Federal Reserve System?

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Fourteen years

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Decisions to buy or sell securities at the Fed are made by

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The federal open market committees.

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The primary source of revenue for the federal reserve is

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The interest earned on the bonds held by the Fed.

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Which of the following would cause the money supply in the United States to expand?

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A decrease in reserve requirements

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The discount rate is the interest rate

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The federal Reserve charges banking institution for borrowing its funds

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The federal funds market is the market where

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Commercial banks with excess reserves make loans to commercial banks seeking reserves.

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During the economic crisis of 2008, the Fed acquired the authority to

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Pay interest to commercials banks on their reserve

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If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

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Increase the interest rate on excess reserves encouraging banks to hold excess reserve rather than extend more loans.

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During the financial crisis of 2008, Fed policy

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Approx. double the monetary base

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The three basic functions of money are

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A medium of exchange, a store of value, and unit of account.

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The velocity of money is

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The average number of times one dollar is used to buy goods and services during a year.

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When the actual federal funds rate is substantially below the rate called for by the Taylor rule, this indicates that

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Monetary policy is overly expansionary and a shift toward a ore restrictive policy would be appropriate.

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According to monetarists, which of the following would be most important for control of inflation?

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Keeping the growth rate of the money supply low and steady.

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The cost of holding money balances increases when

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The nominal interest rate increases

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If the federal Reserve sells bonds, the short run effects will be

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A decrease in the money supply and higher real interest rates

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In the short run, an unanticipated shift to a more expansionary monetary policy is most likely to result in

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An increase in employment

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In the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

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A decrease in real interest rate.

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When the Fed buys bonds and injects additional reserves into the banking system, this action will

answer

Place downward pressure on short term interest rates.

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Unanticipated restrictive monetary policy would tend to cause

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Real interest rates to rise

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If the fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?

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An increase in unemployment

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If the Fed seeks to constrain inflation, it would be most likely to

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Sell government bonds to banks in order to reduce the amount of loanable funds.

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If there is a recession, the Fed would most likely

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Increase bank reserves by buying government securities

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If the economy is in an inflationary boom, the Fed would most likely

answer

Restrict bank lending by selling government securities

question

If the economy is in an inflationary boom, the Fed would most likely

answer

Restrict bank lending by selling government securities

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question

With voluntary exchange,

answer

Both the buyer and seller are better off.

question

A person in the civilian labor force falls into one of two categories:

answer

Unemployed or employed

question

A person is unemployed if he

answer

Is a member of the civilian labor force, out of work, and actively seeking work.

question

In a market economy, what is produced is ultimately determined by

answer

Consumers

question

Gross domestic product is

answer

The market value of final goods and services produced within a country during a time

question

Which of the following transactions would be included in GDP?

answer

Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

question

General Motors Corporation (a U.S. -based firm) produces a Saab vehicle in Sweden, and sells it in the United States. In which country's GDP is it included?

answer

Sweden because it was produced there.

question

GDP says

answer

Geography matters

question

GNP says

answer

Citizenship matters

question

A firm purchases $400,000 worth of raw materials and pays wages and salaries of $100,000 and dividends of $200,000. If the firm sells its output for $1 million, the firm's value added to GDP is

answer

$600,000

question

If there are 10 job losers, 12 job leavers, 13 reentrants, and 12 new entrants, then there are ___________ employed persons.

answer

question

Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. This country had

answer

$52.4 billion of exports and $44.1 billion of imports

question

Which of the following would increase the GDP of the United States?

answer

A resident of Germany buys a software program form a company in Washington.

question

Which of the following transactions would be included in this year's GDP?

answer

Johnson rents a five-year-old house form Smith

question

answer

GDP increase by $6.00

question

Greg, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

answer

Included in U.S. GNP, but it is not included in U.S. GDP

question

The unemployment due to the time it takes for unemployed people to locate a job utilizing their transferable skills is called _______________ unemployment.

answer

Frictional

question

Double counting in the resource cost-income approach to GDP refers to

answer

Counting the total value of a final output in addition to the value of the inputs used to make

question

Suppose that the consumer price index (CPI) was 160 in 2007 and 166 in 2008, inflation during 2008 was

answer

3.75 percent

question

If the consumer price index (CPI) was 120 at year end 2008 and 126 at year end 2009, inflation during 2009 was approximately

answer

5 percent

question

Suppose that the consumer price index at year end 2008 was 140 and by year end 2009 had risen to 150. What was the inflation rate during 2009?

answer

7.1 percent

question

Which of the following will mostly likely occur during the contractionary phase of a business cycle?

answer

The sales of most business decline, and the unemployment rate rises

question

Which of the following will most likely occur during the expansionary phase of a business cycle?

answer

Real GDP rises, and unemployment falls

question

The recessionary phase of the business cycle is characterized by

answer

Decreasing real output and increasing unemployment

question

Economist usually use the term "recession" to refer to

answer

Two or more consecutive quarters of declining real GDP

question

Sally is on temporary layoff from her factory job. If Sally participates in the BLS survey, she will be classified as

answer

Unemployed and in the labor force

question

Macroeconomists define "consumption" as

answer

Purchases by household sector

question

Mallory Trammell is a homemaker. Last week, she was busy with her normal household chores. She is

answer

Not a member to the labor force

question

The population (age 16 and over) of Economic Land is 100 million; 5 million are unemployed, and 70 million hold jobs. The labor force participation rate in Economic Land is

answer

75 percent

question

Louise is unemployed due to a decrease in the demand for workers with knowledge of a certain word processing language. This is an example of

answer

Structural unemployment

question

The type of unemployment resulting from the fact that labor market information is less than perfect is called

answer

Frictional unemployment

question

The type of unemployment that occurs because of a recession is called

answer

Cyclical unemployment

question

Economist define full employment as the level of employment that result when

answer

The rate of unemployment is normal, considering both frictional and structural factors

question

When full employment is present in the United States,

answer

Approximately 95 percent of the labor force will be employed.

question

Structural unemployment is the result of

answer

Non-transferable job skills

question

Frictional unemployment

answer

Is the result of transferable job skills

question

A recession is always part of a

answer

Contraction

question

Depreciation refers to a decrease in the value of a good caused by

answer

Wear and tear of capital goods over time

question

Leisure is

answer

A good that is not counted in GDP

question

National income equals

answer

Compensation of employees + self-employment income + corporate profits + rental income + interest

question

GDP is computed by using

answer

Current- year prices

question

Net exports equals

answer

The difference between exports and imports

question

If a person is waiting to be called back to a job from which she has been laid off, how is she classified?

answer

As an unemployed persons

question

The expenditure approach to measuring GDP sums

answer

Consumption, gross private domestic investment, government purchases, and net exports

question

A dynamic, changing economy will

answer

Experience frictional and structural unemployment

question

The unemployment due to changes in the type of skills employers require is called ___________ unemployment.

answer

Structural

question

The number of employed persons plus the number of unemployed persons equals the number persons

answer

In the civilian labor force

question

answer

Frictionally; structurally

question

If a person worked at least 15 hours per week as an "unpaid" worker on a family farm house is classified?

answer

As an employed person

question

In many large retail stores, price markdowns are now determined by computer. The "head manager" who used to make these decisions personally became __________________ unemployed.

answer

Structurally

question

The four key markets that coordinate the circular flow of income are:

answer

Goods and services, resources, loanable funds and foreign exchange

question

If the price level in the current period is higher than what buyers and sellers anticipated

answer

Profit margins will be attractive and firms will expand output.

question

Saving is

answer

After-tax income that is not spent on consumption.

question

As the U.S. price level rises relative to price levels in other countries, what would happen in the U.S.?

answer

Consumption and net exports would decline.

question

The aggregate demand curve is downward sloping because

answer

At lower price levels, net exports increase, causing an increase in quality demanded of goods and services.

question

Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the goods and services market represents

answer

Real output or real GDP

question

For an economy, aggregate demand equals

answer

Consumption plus investment plus government purchases plus (exports minus imports)

question

Other things the same, a decrease in the price level makes the dollar people held worth

answer

More, so they are willing to spend more.

question

If scientific research produces a technological breakthrough in the production of memory, then

answer

Business cost will fall, profits will improve and production will increase.

question

The aggregate supply curve indicates the

answer

Quantity of goods and services producers will supply at different price levels

question

When an economy is in a long run equilibrium

answer

The actual and natural rates of unemployment will be equal.

question

The actual rate of unemployment will be greater than the natural rate of unemployment when

answer

The actual output is less than the economy's potential output.

question

An unexpected sharp reduction in inflation will most likely result in

answer

A temporary increase in unemployment and a decline in real output.

question

The "loanable funds market" is a term used by economists to describe the

answer

Market that coordinates the borrowing and lending of individuals and firms.

question

The price that a person must pay in order to acquire purchasing power now rather than in the future is called

answer

The interest rate

question

The nominal (money) rate of interest

answer

Is the real rate of interest plus the inflationary premium

question

The money interest rate may be misleading indicator of real borrowing costs when

answer

The inflation rate is high

question

Suppose people anticipate inflation will be 5 percent during the next several years. If the real rate of interest is 4 percent, the money rate of interest must be

answer

9 percent

question

Which of the following will most likely accompany an unanticipated increase in aggregate demand?

answer

An increase in real output

question

Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

answer

An increase in the general level of prices

question

When output is less than the economy's long-run capacity, which of the following is most likely to occur?

answer

Reduction in real interest rates and real resource prices.

question

An anticipated change is an economic occurrence that

answer

Is foreseen by most economic participants.

question

An unanticipated economic event is change that

answer

Catches most people by surprise.

question

If a currency depreciates a country's net export

answer

Rise and AD increases

question

If a currency appreciates a country's net export

answer

Fall and AD decreases

question

If Asian economies suffer a serious economic slump, U.S. net exports will

answer

Decrease and AD will shift leftward

question

Which of the falling will lead to an increase in aggregate demand in the United States?

answer

An increase in wealth due to a substantial appreciation in the value of stocks

question

Which of the following factors would increase aggregate demand in the good and service market?

answer

Increased optimism on the part of consumers and businesses.

question

Other things constant, a reduction in the real interest rate will

answer

Induce businesses to increase their level of investment.

question

Within the framework of the AD/AS model, if consumers and investors become more pessimistic about the future direction of the economy, this will lead to a

answer

Decrease in aggregate demand

question

An increase in the consumer sentiment index indicates that consumers are

answer

Become more optimistic abut their future income and employment prospects.

question

An increase in the exchange rate value of the U.S. dollar, relative to the Japanese yen, will cause U.S. imports from Japan to

answer

Increase and exports to Japan to decrease.

question

If the exchange rate value of the dollars depreciates relative to other currencies, we would expect

answer

U.S. exports to increase.

question

An improvement in technology would shift which of the following curve(s)?

answer

Short-run and long-run aggregate supply.

question

When an economy is in a recession

answer

The unemployment rate will rise above it's natural rate.

question

The 1930s were a period of

answer

Depressed economic conditions and prolonged high rates of unemployment

question

An analysis of housing prices between 1987 and 2008 indicated that prices

answer

Increased sharply in the five years leading up to the housing bust in 2007

question

During 1979 - 2005, the mortgage default rate

answer

Was generally between 1 and 2 percent

question

Which of the following is most central to the understanding of the economic crisis of 2008?

answer

The housing boom (2001-2005) and bust (2007-2008)

question

The persistence of budget deficits during the last several decades is not surprising because politicians will find

answer

Budget deficits more attractive than budget surpluses

question

Other things being constant, countries with higher rates of saving

answer

Will have higher rates of investment and growth

question

The supply-side effects of a reduction in taxes are the result of

answer

Increased attractiveness of productive activity relative to leisure and tax avoidance

question

The tax reductions increases in defense expenditures, and budget deficits of the 1980s are characteristics of

answer

Expansionary fiscal policy

question

According to the crowding-out theory, expansionary fiscal policy will lead to

answer

Higher interest rates, an appreciated dollar, and reduced net exports

question

Crowding out refers to the situation in which

answer

Borrowing by the federal government raises interest rates and causes firms to invest less

question

Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?

answer

The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall

question

Which of the following is true?

answer

The FDIC sets the reserve requirements for commercial banks

question

Advocates of the crowding-out effect maintain that the large budget deficits during the recession of 2008-2009

answer

Will lead to a slower recovery than would have been the case if government borrowing had been more restrained

question

According to new classical economists, the most appropriate policy during a recession would be for the government to

answer

Do nothing

question

New classical economists believe that an increase in deficit financing by the government will

answer

Increase savings

question

New classical economists stress that an increase in government expenditures financed by borrowing rather than taxes will

answer

Affect the timing of taxes but not their magnitude

question

As the marginal propensity to consume (MPC) decreases, the spending multiplier

answer

Decreases

question

As the marginal propensity to consume (MPC) increases, the spending multiplier

answer

Increases

question

Which of the following most accurately indicates the political incentive to spend and/or tax?

answer

Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes

question

According to the Keynesian view, the proper response to a severe recession would be

answer

An increase in government spending financed by borrowing

question

According to non-Keynesians, how will an increase in government spending financed by borrowing during a recession affect recovery?

answer

Higher future taxes and interest rates will be required to finance the larger debt and this will weaken the recovery

question

Supply-side economics stresses that

answer

Changes in marginal tax rates, exert important effects on real output and employment

question

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

answer

It is difficult to properly time discretionary changes in fiscal policy

question

Which of the following is an important insight of Keynesian analysis?

answer

When widespread unemployment is present, increases in aggregate demand will exert a larger impact on real output than when the economy is operating at near full employment

question

A major advantage of built in or automatic stabilizers is that they

answer

Require no Congressional action to be effective

question

The 1930s were a period of

answer

Depressed economic conditions and prolonged high rates of unemployment

question

The Keynesian model provided an explanation for

answer

The prolonged unemployment of the 1930s

question

Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because

answer

Powerful trade unions and large corporations made wages highly inflexible

question

In the Keynesian view, equilibrium takes place when

answer

The level of total spending in the economy is equal to current output

question

Within the framework of the Keynesian model,

answer

Changes in output rather than changes in price direct the economy to equilibrium

question

Keynesian analysis indicates that an unexpected decline in aggregate demand will lead to

answer

An increase in inventories and a reduction in output

question

When aggregate demand exceeds current output, Keynesian analysis indicates that

answer

Unplanned inventory reductions will cause output to fall

question

The marginal propensity to consume is defined as the

answer

Proportion of any change in income that is spent on consumption

question

The primary tool of fiscal policy is

answer

The federal budget

question

A balanced budget is present when

answer

Government revenues equal government expenditures

question

When the federal government is running a budget deficit,

answer

Government expenditures exceed government revenues

question

If the federal government is running a budget surplus,

answer

It will be able to reduce its outstanding debt

question

Changes in government spending and/or taxes as the result of legislation is called

answer

Discretionary fiscal policy

question

Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called

answer

Countercyclical fiscal policy

question

Unemployment compensation payments

answer

Rise during a recession and thereby help stimulate consumption

question

When an economy dips into recession, automatic stabilizers will tend to

answer

Enlarge the budget deficit (or reduce the surplus)

question

When an economy expands into an economic boom, automatic stabilizers will tend to

answer

Reduce the budget deficit (or increase the surplus)

question

Long lags make discretionary policy less effective because

answer

By the time the impact of policy is felt, the problem may have been corrected by market forces

question

Higher standards of living are the result of

answer

An increase in the availability of goods and services that people value

question

Public choice analysis indicates that politicians will find

answer

Budget deficits more attractive than budget surpluses

question

Both Keynesian and non-Keynesians now recognize

answer

The difficulties involved in timing discretionary changes in fiscal policy in a stabilizing manner

question

Which of the following is most likely to increase the incentive to invest, produce, and employ others?

answer

A reduction in tax rates

question

Within the framework of the AD-AS model, an increase in savings by households will

answer

Increase the supply of loanable funds and reduce interest rates

question

Since the mid-1980s, the debt-to-income ration of American households

answer

Has rapidly increased

question

When families are heavily indebted and have little or no savings,

answer

They are in a poor position to deal with unanticipated expenses

question

As measured by the budget deficit as a share of GDP, fiscal policy was

answer

More expansionary during the 1980s than the 1990s

question

Keynesian critics would argue the expansion in government debt during a recession would lead to

answer

Higher future interest payments and tax rates

question

According to the paradox of thrift, if many families decide to save an additional $200 a month, this would lead to

answer

A reduction in total output and little or no increase in total savings

question

A person's marginal tax rate determines the percentage of

answer

Additional earnings that the individual is permitted to keep

question

Money is

answer

Whatever is generally accepted in exchange for goods and services

question

In the United States, the purchasing power of money is determined by

answer

The value of U.S. treasury bonds that back each unite of currency.

question

Which of the following in not a part of the M1 money supply?

answer

Outstanding balances on credit cards.

question

Ordinary commercial banks can expand the supply of money by

answer

Using a portion of their deposits to extend additional loans.

question

Why did the monetary base increase rapidly during the economic crisis of 2008?

answer

The Fed increased both its purchase of assets and quantity of loans extended.

question

One advantage of a money system compare to a barter system is that

answer

Money is more efficient.

question

In the modern U.S. economy, most transaction are made with

answer

Checking deposits.

question

Stores need not accept your check but must accept currency because

answer

Checks are not money but currency is.

question

In order for barter to occur, trader must have a

answer

Coincidence of wants.

question

Which of the following is the best definition of money?

answer

Anything generally accepted as a payment for goods or repayment of debt.

question

If money were not used as a medium of exchange

answer

The gains from trade would be severely limited

question

A barter economy is one in which

answer

Goods are traded directly for other goods.

question

Which of the following assets is most liquid?

answer

Funds in a checking account

question

Money is used as a unit of account. This means

answer

Money is used to measure the exchange value and costs of goods, services, assets and resources.

question

When the interest rate decreases, the opportunity cost of holding money

answer

Decreases, so the quantity of the money demanded increases

question

The value (purchasing power) of each unit of money

answer

Is inversely related to the general level of prices.

question

When the monetary authorities expand the supply of money rapidly,

answer

Holding money is a poor method of storing value.

question

In the United States, the money supply (M1) consists of

answer

Coins, paper currency, demand deposits, other checkable deposits and traveler's checks.

question

Which of the following compose the M2 money supply?

answer

M1 plus savings deposits, small-denomination time deposits, and money market mutual funds.

question

Are outstanding credit card balances counted as part of the money supply?

answer

No; money is an asset, while the credit card balances are a liability. Thus, they are not including in the money supply figures.

question

Which of the following is not a depository institution?

answer

Finance company

question

Modern bankers

answer

Hold only a fractions of their assets in the form of reserves against their deposits.

question

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a

answer

Fractional reserve banking system.

question

Banks are considered a safer place to deposit money now than they were prior to 1933 because

answer

The creation of the FDIC reduced the likelihood of banks runs.

question

The immediate effect of a member bank's sale of the U.S. government securities to the Fed is

answer

An increase in that bank's excess reserves.

question

The conduct of monetary policy is the responsibility of

answer

The federal reserve system

question

What is the length of the term of the member of the Board of Governors of the Federal Reserve System?

answer

Fourteen years

question

Decisions to buy or sell securities at the Fed are made by

answer

The federal open market committees.

question

The primary source of revenue for the federal reserve is

answer

The interest earned on the bonds held by the Fed.

question

Which of the following would cause the money supply in the United States to expand?

answer

A decrease in reserve requirements

question

The discount rate is the interest rate

answer

The federal Reserve charges banking institution for borrowing its funds

question

The federal funds market is the market where

answer

Commercial banks with excess reserves make loans to commercial banks seeking reserves.

question

During the economic crisis of 2008, the Fed acquired the authority to

answer

Pay interest to commercials banks on their reserve

question

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

answer

Increase the interest rate on excess reserves encouraging banks to hold excess reserve rather than extend more loans.

question

During the financial crisis of 2008, Fed policy

answer

Approx. double the monetary base

question

The three basic functions of money are

answer

A medium of exchange, a store of value, and unit of account.

question

The velocity of money is

answer

The average number of times one dollar is used to buy goods and services during a year.

question

When the actual federal funds rate is substantially below the rate called for by the Taylor rule, this indicates that

answer

Monetary policy is overly expansionary and a shift toward a ore restrictive policy would be appropriate.

question

According to monetarists, which of the following would be most important for control of inflation?

answer

Keeping the growth rate of the money supply low and steady.

question

The cost of holding money balances increases when

answer

The nominal interest rate increases

question

If the federal Reserve sells bonds, the short run effects will be

answer

A decrease in the money supply and higher real interest rates

question

In the short run, an unanticipated shift to a more expansionary monetary policy is most likely to result in

answer

An increase in employment

question

In the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?

answer

A decrease in real interest rate.

question

When the Fed buys bonds and injects additional reserves into the banking system, this action will

answer

Place downward pressure on short term interest rates.

question

Unanticipated restrictive monetary policy would tend to cause

answer

Real interest rates to rise

question

If the fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?

answer

An increase in unemployment

question

If the Fed seeks to constrain inflation, it would be most likely to

answer

Sell government bonds to banks in order to reduce the amount of loanable funds.

question

If there is a recession, the Fed would most likely

answer

Increase bank reserves by buying government securities

question

If the economy is in an inflationary boom, the Fed would most likely

answer

Restrict bank lending by selling government securities

question

If the economy is in an inflationary boom, the Fed would most likely

answer

Restrict bank lending by selling government securities

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