Exam 3 Flashcards
As discussed in the text and in lecture, if Aggregate Expenditure is different from GDP it is primarily because of ….
A. C
B. I
C. G
D. X-M
b
Which component is the reason why AE may be different from GDP?
A. Durable goods
B. Changes to inventories
C. Imports
D. Equipment and software
b
If AE is greater than GDP, then ________ and the subsequent period _________.
A. Inventories fall; GDP and employment rise
B. Inventories rise; GDP and employment rise
C. Inventories fall; GDP and employment fall
D. Inventories rise; GDP and employment fall
A
Current GDP is $13.5 trillion and full employment output (AKA potential GDP) is $16 trillion. If the MPC is .6 an initial injection of government spending (G) would need to be ____ to successfully fill the gap.
A. $1 trillion
B. $800 billion
C. $800 trillion
D. $2.5 trillion
a
Assume the MPC is .6, and assume the current GDP is $15 trillion. What would be the ultimate impact that an increase in government spending would have on GDP if the initial amount of government spending (the injection) was $800 billion?
A. GDP would increase to $17 trillion
B. GDP would increase to $16.4 trillion
C. GDP would increase to $18.2 trillion
D. GDP would increase to $15.8 trillion
a
In the AD/SRAS/LRAS framework assume we are currently sitting at 9% unemployment. Which of the following is correct?
A. If the Fed reduces the money supply, this will shift SRAS left which is further away from full employment output.
B. If the Fed reduces the money supply, this will shift LRAS right which is closer to full employment output.
C. If the Fed reduces the money supply, this will shift AD right which is further away from full employment output.
D. If the Fed reduces the money supply, this will shift AD left which is further away from full employment output.
d
You are looking at the AD/SRAS/LRAS model. You open up the newspaper and read that consumer confidence has dropped significantly and consumers’ expectations about the future are generally negative. After any/all curves have shifted which will we see?
A. Higher output level
B. Higher price level
C. Lower price level
D. Both a and c but not b
c
In 2001 Alan Greenspan (then chairman of the Fed) lowered interest rates significantly. In the AD/SRAS/LRAS framework this had the effect of…
A. Causing SRAS to shift to the right, increasing output
B. Causing AD to shift the the left, decreasing output
C. Causing LRAS to shift to the right, increasing output
D. None of the above
d
In 2007 the US dollar grew significantly weaker than other countries’ currencies. In terms of Aggregate Expenditure this would have the effect of…
A. Causing X-M to increase, which would ultimately shift AD right
B. Causing X-M to decrease, which would ultimately shift AD left
C. Causing X-M to increase, which would ultimately shift AD left
D. Causing X-M to decrease, which would ultimately shift AD right
a
In 1997 when we experienced the internet and information technology revolution–which could be considered a positive technology shock–we saw (as a result)…
A Output (GDP) decrease and price levels decrease B Output (GDP) decrease and price levels increase C Output (GDP) increase and price levels decrease D Output (GDP) increase and price levels increase
c
Assume the current reserve requirement is 6%. Assume people keep nothing out as currency. Assume a $20,000 initial deposit is made into a bank. If the bank loans out all that it can, and all loans are re-deposited into the same bank, which of the following comes closest to the total amount of deposits–including the initial deposit, taking into account what people keep as currency–once the money has worked its way entirely through the system?
A. $190,000
B. $250,000
C. $333,000
D. $400,000
c
Assume the current reserve requirement is 10%. Assume people keep 15% of their money out as currency. Assume a $10,000 initial deposit is made into a bank. If the bank loans out all that it can, and all loans are re-deposited into the same bank, which of the following comes closest to the total amount of deposits–taking into account what people keep as currency–which comes closest to the total amount of deposits, including the initial deposit, after the more has worked its way through the system?
A. $100,000
B. $46,000
C. $57,500
D. $82,000
b
Which of the following is an incorrect statement?
A. M1 includes traveler’s checks but M2 doesn’t
B. M2 includes money market funds but M1 doesn’t
C. M1 includes currency and coin and so does M2
D. M2 includes savings deposits but M1 doesn’t
a
The reserve requirement is 5% and we know that people keep 15% of their money out of the bank as currency. The multiplier without currency would be _____ and the multiplier with currency would be _______.
A. 20; 5.5
B. 25; 8.25
C. 20; 5.75
D. None
c
Which of the following is correct?
A. US money is fiat money
B. US money is commodity money
C. Fiat money is money that has value in addition to serving as money
D. Actually none is correct
A
Which of the following was not one of the constraints on money creation as discussed in lecture?
A. Willing borrowers
B. Bank regulation
C. Willing lenders
D. Actually all three were constraints on money creation
b
Marginal Propensity to Consume (MPC)
how much of each additional dollar of income you spend on consumption; determines how big the ripple is; the bigger the MPC, the bigger the ripple is
Multiplier #1
1 / (1 - MPC)
Ex: MPC = .75
= 1 / .25 = 4
An additional injection of X dollars will have a cumulative impact of 4*X
Where is the difference between GDP and AE found?
The difference shows up in I because if inventory goes up, then GDP goes up, but that isn’t a good thing because that is stuff we made and didn’t sell
Macroeconomic Equilibrium
When AE = GDP
Assume we are initially sitting where SRAS and AD intersect to the left of full employment output. Now assume that the price of oil falls significantly and quickly. Which will we see after such an event?
A. A higher price level and an increase in output
B. A higher price level and a decrease in output
C. A lower price level and a decrease in output
D. A lower price level and an increase output
d
If what we buy = what we produce (AE = GDP), then…
Inventories are unchanged and the economy is in macroeconomic equilibrium
If what we buy is less than what we produce (AE < GDP) then..
inventories rise and GDP and employment will subsequently decrease
If what we buy is more than what we produce (AE > GDP) then..
inventories fall and GDP and employment will subsequently increase
What drives Aggregate Expenditure?
C:
1. Current Disposable income (income after taxes)
-Income increases; consumption increases
2. Household Wealth (how much you have)
-Household wealth increase; consumption increases
3. Expected Future income
-Exp. future income increases; consumption increases
4. Price Level
-Price Level increases; consumption decreases
5. Interest rate
-IR increases; consumption decreases
I: (Planned Investment)
1. Expectation of future profitability
-Exp of future prof. increases; investment increases
2. Interest rate
-IR increases; investment decreases
3. Taxes
-Taxes increase; investment decreases
4. Cash flow
-Cash flow increases; investment increases
Net Exports:
1. Price level in the US compared to other countries
-Prices in US goes up; net exports decrease
2. Growth rate of US compared to other countries
-Growth (income) in US increases; net exports decrease
3. Exchange rates
-Value of US dollar increase; net exports decrease
On the AD/LRAS/SRAS graph, unemployment is > 5% on the _____ side of the LRAS curve. (below full employment)
left
