ECON 2101 Exam 3

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

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