question

Which of the following is true?

answer

-a change in the money wage and other resource prices does not shift the long-run aggregate supply -a shift left of the long-run aggregate supply and potential GDP will also shift the short-run aggregate supply curve left as well -a shift right of the long-run aggregate supply and potential GDP will also shift the short-run aggregate supply curve right (all of the above are true)

question

In the long-run:

answer

real GDP is equal to potential GDP

question

Moving along a short-run aggregate supply curve, resource prices (and other input prices) _____, the money rate wage ______, and potential GDP _______.

answer

do not change; does not change; does not change

question

A fall in the money wage rate (or other input prices) shifts

answer

the SRAS curve rightward but leaves the LAS curve unchanged

question

The long-run aggregate supply (LAS) curve:

answer

is vertical

question

At potential GDP:

answer

unemployment is at its natural rate

question

Aggregate supply describes the behavior of:

answer

producers

question

When talking about aggregate suppl, it is necessary to

answer

distinguish between long-run aggregate supply and short-run aggregate supply

question

the quantity of real GDP supplied (or aggregate production) at different price levels is reflected by the

answer

aggregate supply curve

question

The supply of real GDP is a function of

answer

the quantities of labor,capital and the state of technology

question

For movements along the long-run aggregate supply curve,

answer

the price level and the money wage rate change by the same percentage

question

Factors that shift the long-run aggregate supply and potential GDP rightward include an increase in:

answer

-quantity of labor -quality and quantity of other inputs -quantity of capital (physical capital and human capital -technology (all of the above)

question

An increase in the money wage rate (or of other input prices)

answer

decreases the short-run aggregate supply

question

In the long-run

answer

real GDP is equal to potential GDP

question

______ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erractic

answer

Monetarist

question

______ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment

answer

Keynesian

question

The long-run aggregate supply curve is vertical because

answer

potential GDP is independent of the price level

question

Which of the following events will increase long-run aggregate supply?

answer

an advance in technology

question

The short-run aggregate supply curve is upward sloping because

answer

marginal costs rise with increased output so firms have to receive higher prices to justify their increase in output

question

The short-run aggregate supply curve is upward sloping because

answer

the money wage rate (and other input prices) remains constant so the higher prices makes it profitable for firms to expand production

question

Moving along the short-run aggregate supply curve, _____

answer

the money wage rate, the prices of other resources, and potential GDP remain constant

question

Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decrease real GDP in the short run?

answer

an increase in the price of oil that decreases aggregate supply

question

The short-run aggregate supply curve

answer

has a positive slope

question

A decrease in the price level accompanied by no change in the money wage rate or other input prices leads to _____ movement along the _____ aggregate supply curve

answer

a downward; short-run

question

Which of the following shift the LRAS curve rightward?

answer

an increase in the education level of the labor force

question

Which of the following changes does NOT shift the long-run aggregate supply curve?

answer

a fall in the price level

question

A major technological advance shifts the

answer

long-run and the short-run supply curves rightward

question

If the money price of a resource such as oil falls, then the

answer

SRAS curve shifts rightward

question

A rational expectation is

answer

the best possible forecast based upon all relevant information

question

The forces that generate economic growth are those that shift the

answer

long-run aggregate supply curve rightward

question

suppose the growth rate of the quantity of money increased from 5 percent per year to 8 percent per year

answer

monetarist cycle model

question

The Phillips curve shows the relationship between the

answer

unemployment rate and the inflation rate

question

Demand-pull inflation persists in the long-run because of

answer

continuing increases in the quantity of money by the central band (FED)

question

The long-run Phillips curve

answer

is vertical

question

moving leftward along the short-run Phillips curve indicates

answer

a tradeoff between inflation and unemployment so that higher inflation is related to lower unemployment

question

a key element of the new classical model of the business cycle is

answer

rational expectations

question

New Keynesian economists believe that _____ is influenced by ______

answer

today's economic variables; yesterday's rational expectations of the price level

question

The _____ cycle theory states that only unanticipated or unexpected policy actions or economic events are the main source of business cycles

answer

new classical

question

Which theory emphasizes frequent changes in investment because of "animal spirits" as the main source of economic fluctuations?

answer

Keynesian cycle theory

question

In monetarist business cycle theory, the factor leading to a business cycle is changes in

answer

the growth rate of the quantity of money

question

In the real business cycle model, the quantity of money

answer

has no effect on real GDP

question

Whenever the federal government spends more than it receives in tax revenue, then by definition it

answer

runs a budget deficit

question

I equals

answer

S + (T-G) + (M-X)

question

The idea that a government budget deficit decreases private investment sending through higher interest rates is called

answer

the crowding-out effect

question

Comparing the fiscal imbalance for the current generation versus future generations, it is the case that

answer

future generations pay a larger share of the fiscal imbalance

question

In order for the United States to repay its international debt, the United States would need to

answer

have a surplus of exports over imports

question

Automatic stabilizers

answer

are triggered by the business cycle

question

The cyclical deficit is the deficit

answer

during a recession

question

The difference between automatic stabilizers (automatic fiscal policy) and discretionary fiscal policy is that

answer

Congress must pass laws implementing discretionary fiscal policy

question

Real business cycle theory says that the factor leading to the business cycle is changes in

answer

productivity

question

An increase in the natural unemployment rate shifts

answer

both the short-run and the long-run Phillips curves rightward

question

If the government's budget is in surplus even when the economy is at full employment, the surplus is said to be

answer

structural

question

If policy is anticipated or expected, the economy moves from ______ in both the demand-pull inflation model and the recession model

answer

A to C

question

Supply side economics focuses on;

answer

-cutting the high marginal tax rates -cutting government regulation -cutting the size of the government (all of the answers are correct)

question

In the equation of exchange, V represents:

answer

velocity or the turnover of the existing money stock

question

The monetarist school of thought:

answer

believes that velocity is predictable making monetary policy effective

question

Keynesians believe that velocity is

answer

unstable

question

Ceteris paribus, if velocity is decreasing, money demand is:

answer

increasing

question

The monetary rule states that money supply growth should be set equal to the:

answer

long run growth of real GDP

question

P*Q in the equation of exchange equals:

answer

nominal GDP

question

The real business cycle theory proposes that

answer

aggregate demand shocks do not effect the business cycle

question

Taken to its logical conclusions, the real business cycle theory proposes that

answer

actual GDP always equals potential GDP, making all unemployment voluntary

question

Sticky prices and wages are a property of the _____ school of thought

answer

Keynesian

question

Adaptive expectations are a property of the _____ school of thought

answer

monetarist

question

rational expectations are a property of the _____ school of thought

answer

rational expectations/new classical

question

The business cycle is caused by supply side shocks only primarily a productivity slowdown is a property of the _____ school of thought

answer

real business cycle

question

"If policy is anticipated, there is no short-run" is a property of the _____ school of thought

answer

rational expectations/new classical

question

"current economic parameters are determined by past rational expectations" is a property of the _____ school of thought

answer

New Keynesian

question

If decision makers become so pessimistic that all new money injected into the economy by the FED becomes hoarded and not loaned out or spent, we are in a:

answer

liquidity trap

question

As real GDP increases and the economy improves (ceteris paribus) government outlays and expenditures tend to:

answer

decline

question

As real GDP increases and the economy improves (ceteris paribus) government tax revenues tend to:

answer

increase

question

The functions of money are

answer

medium of exchange, unit of account, store of value, and standard of deferred value

question

Monetary policy is controlled by

answer

the Federal Reserve

question

The most important function of money is its role as:

answer

medium of exchange

question

The "double coincidence of wants" problem is

answer

resolved by the use of money

question

During periods of inflation, which function of money is most severely affected?

answer

store of value

question

Money that has value simply because the government declares it so, is called

answer

fiat money

question

If the Fed wants to decrease the quantity of money, it can

answer

sell U.S. government securities

question

M1 includes

answer

currency, checking deposits, and travelers checks

question

The current chairman of the federal reserve is

answer

Ben Bernanke

question

Monetary policy affects real GDP by

answer

changing aggregate demand

question

Liquidity is the

answer

ease with which an asset can be converted into money

question

The definition of M2 includes

answer

time deposits, savings deposits, M1 (all of the answers)

question

Credit cards are

answer

not money

question

When you keep money in a change jar to be used later, what function is it fulfilling?

answer

store of value

question

Depository institutions

answer

make profit from the spread between the interest rate they pay in deposits and the interest rate they receive on loans

question

A depository institution is a firm that takes deposits from _____ and make loans to _____

answer

households and firms; other households and firms

question

An essential characteristics of credit unions is that

answer

they are organized for individuals with a common bond

question

For a commercial bank, the term "reserves"refers to

answer

the cask in its vaults and its deposits at the Federal Reserve

question

Members of the Federal Reserve system's Board of Governors

answer

hold 14-year staggered terms

question

When banks borrow money from the Federal Reserve, these funds are called

answer

discount loans

question

Which Federal Reserve Bank president is always on the Federal Open Market Committee?

answer

New York

question

Which of the following equations represents the equation of exchange?

answer

MV = PY

question

The Federal Open Market Committee (FOMC) is composed of

answer

Presidents of 5 Federal Reserve regional banks and the Board of Governors

question

The sum of currency in circulation and bank reserves is the ____

answer

monetary base

question

Which if the following is a tool that is most used by the Fed to control the quantity of money?

answer

open market operations

question

The nation is divided into ______ Federal Reserve districts, each having a Federal Reserve Bank

answer

12

question

On the Fed's balance sheet, assets include

answer

U.S. government securities and loans to depository institutions

question

Money is created by

answer

banks making loans

question

A bank's required reserves are calculated by multiplying _____

answer

its checking deposits by the required reserve ratio

question

Given a reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of

answer

$80

question

The nation is divided into_____ Federal Reserve districts, each having a Federal Reserve Bank

answer

12

question

Which of the following is one of the Fed's policy goals?

answer

price level stability

question

Open market purchases by the Federal Reserve System

answer

-occur when the Fed wants to decrease the quantity of money -increase bank reserves -raise the federal funds rate (all of the above)

question

The fraction of deposits that banks must keep on hand or at the Federal Reserve is called the

answer

required reserve ratio

question

If the required reserve ratio is 20 percent, the simple deposit multiplier is

answer

5.0

question

"those borrowers who most desperately want loans are the ones who are lease able to repay the loans," is an example of:

answer

adverse selection

question

"Being careless with fire because you have fire insurance," is an example of

answer

moral hazard

question

The _____ method of closing a bank has the greatest moral hazard

answer

purchase and assumption

question

The legislation that overturned the prohibition on interstate banking is

answer

the Riegle-Neal Act (Banking Act of 1994)

question

The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as the:

answer

Glass-Steagall Act (part of the Banking Acts of 1933-1935)

question

The legislation that began the "era of regulation"for banking in the U.S. was

answer

Glass-Steagall Act (part of the Banking Acts of 1933-1935)

question

The legislation that began the "era of deregulation" for banking in the U.S. was

answer

Banking Act of 1980 (DIDMCA)

question

T/F: Before 1980 savings and loans were generally not allowed to offer checking accounts to their customers

answer

true

question

T/F: The banking Act of 2000 deregulated the derivatives market

answer

true

question

T/F: 3-6-3 Rule- Pay savers 3% interest on savings, charge borrowers 6% on loans, and be on the golf course by 3pm

answer

true

question

T/F: The FED was founded in 1913 due to the banking panic of 1907

answer

true

question

T/F: Banks are very sensitive to liquidity problems,more than most other firms in the U.S.

answer

true

question

T/F: Keynesians believe that velocity is stable and predictable, making monetary policy effective

answer

false

question

T/F: the two basic type of money demand is:1) transactions demand 2) asset demand

answer

true

question

T/F: The asset demand for money is a direct function of income

answer

false

Econ 201- Exam Three – Flashcards

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