ECO201 Exam 3 (March 26, 2024)

Question 1

The Fed funds rate increases when the Fed sells _____ ____

Answer 1

treasury bonds

Question 2

The Fed sells treasury bonds which decreases the ____ ____

Answer 2

money supply

Question 3

What happens to wages if equilibrium GDP is greater than full-time employment GDP?

Answer 3

The wages will rise and aggregate supply will fall

Question 4

What happens to wages if equilibrium GDP is less than full-time employment?

Answer 4

The wages will fall and aggregate supply will rise

Question 5

What causes change to potential (full-time employment) GDP?

Answer 5

-more people -better technology -more education

Question 6

The proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it (the change in consumption in relation to the change in income)

Answer 6

marginal propensity to consume

Question 7

The proportion of an aggregate raise in pay that a consumer saves rather than spending it on goods and services (the change in saving in relation to the change in income)

Answer 7

marginal propensity to save

Question 8

measures how GDP increases/decreases when the government increases/decreases spending in the economy

Answer 8

spending multiplier

Question 9

any increase/decrease in tax affects consumption only

Answer 9

tax multiplier

Question 10

money being loaned out and put back in

Answer 10

money multiplier

Question 11

amount of money at the bank (required amount + excess reserves)

Answer 11

total reserves

Question 12

deposits the bank can loan out

Answer 12

excess reserves

Question 13

deposits that the bank has to keep on hand

Answer 13

required reserves

Question 14

percentage of deposits that the bank has to keep on hand and can’t loan out

Answer 14

reserve requirement ratio

Question 15

MD/MS graph

Answer 15

y axis = interest rate
x axis = money
MD is downward sloping
MS is straight vertical line

Question 16

only the Fed can ____ the money supply

Answer 16

change

Question 17

What shifts MD?

Answer 17

income, wealth, spending needs, safety, trust in bonds, interest, prices

Question 18

How can the Fed change the money supply?

Answer 18

-by lowering reserve requirement, buying bonds
-by raising the reserve requirement, selling bonds

Question 19

What shifts aggregate demand?

Answer 19

any change in C, I, G, NX ; not related to price

Question 20

What shifts aggregate supply?

Answer 20

better technology, change in wages, skill of labor force, costs of inputs, anything that could affect political policy

Question 21

What relationship is shown by the aggregate demand curve?

Answer 21

the price level and the quantity of real GDP demanded by​ households, firms, and the government

Question 22

What relationship is shown by the aggregate supply curve?

Answer 22

the price level and the quantity of real GDP supplied by firms

Question 23

the ___ ____ refers to the effect that a change in the price level has on wealth and, therefore, consumption. An increase int he price level decreases the real value of household wealth, which decreases consumption

Answer 23

wealth effect

Question 24

The ___-____ ____ refers to the effect that a change in the price level has on interest rates and, therefore, consumption. An increase in the price level raises interest rates, which decreases investment spending and consumption spending, particularly on durable goods.

Answer 24

interest-rate effect

Question 25

The ____-____ ____ refers to the effect that a change in the price level has on spending on exports and imports. An increase in the domestic prive level makes U.S. exports more expensive and foreign imports less expensive, which decreases net exports.

Answer 25

international-trade effect

Question 26

a good used as money that also has value independent of its use as money

Answer 26

commodity money

Question 27

paper currency is ___ ___, which has no value except as money

Answer 27

fiat money

Question 28

the buying and selling of Treasury securities by the Federal Reserve

Answer 28

open market operations

Question 29

the ________ ____ _____ shows the relationship between the price level and the level of planned aggregate expenditures by households, firms, and the government

Answer 29

aggregate demand (AD) curve

Question 30

the ___ ___ ______ ____ shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms

Answer 30

short-run aggregate supply (SRAS) curve

Question 31

The ___ __ _____ ___ is a vertical line because in the long run, real GDP is always at its potential level and is unaffected by the price level

Answer 31

long-run aggregate supply (LRAS) curve

Question 32

a combination of inflation and recession, usually resulting from a supply shock

Answer 32

stagflation

Question 33

the Fed’s 4 monetary policy goals

Answer 33

price stability, high employment, stability of financial markets and institutions, economic growth

Question 34

the interest rate banks charge each other for overnight loans

Answer 34

federal funds rate

Question 35

this policy lowers interest rates to increase consumption, investment, and net exports; increases real GDP and the price level

Answer 35

expansionary monetary policy

Question 36

this policy raises interest rates to decrease consumption, investment, and net exports; reduces both real GDP and the inflation rate below what they’d be in the absence of policy

Answer 36

contractionary monetary policy

Question 37

links the Fed’s target for the federal funds rate to economic variables

Answer 37

the Taylor rule

Question 38

price level doesn’t matter to

Answer 38

long run growth

Question 39

effects of the SRAS curve shifting to the left

Answer 39

HIGHER COSTS; productivity decreases, input prices rise, regulatory and tax costs increase, higher expected inflation

Question 40

effects of the SRAS curve shifting to the right

Answer 40

LOWER COSTS; productivity increases, input prices fall, regulatory and tax costs fall, lower expected inflation

Question 41

the number of times in a year that an “average” dollar gets spent on goods and services

Answer 41

velocity