Final Exam Review

Question 0

The point on a business cycle when the real GDP stops falling is the:

Answer 0

Business cycle trough

Question 1

The business cycle measures:

Answer 1

Short run fluctuations in economic activity

Question 2

Inflation adjusted price formula:

Answer 2

New price = Previous Price x (Current Price Level/Previous Price Level)

Question 3

The consumer price index reflects the:

Answer 3

Changes in the price goods and services typically purchased by consumers.

Question 4

When the GDP is above full employment output, cyclical unemployment:

Answer 4

Is negative

Question 5

A shortcoming in using real GDP as a measure if a nation’s well-being is that it does not measure changes in:

Answer 5

environmental quality

Question 6

An increase in expected future prices causes:

Answer 6

a decrease in SRAS

Question 7

If other countries sink into a recession, in the short run, output in the U.S. will ______ and the price level will ______.

Answer 7

decrease; decrease

Question 8

In the short run, if housing values fall, then there will be an ______ in the equilibrium price level and a ______ in the equilibrium level of real GDP.

Answer 8

increase; decrease

Question 9

An increase in general price level will lead to _______ the SRAS curve as firms ______ output.

Answer 9

an upward movement along; increase

Question 10

When the price level rise and U.S. goods become relatively more expensive thank foreign goods, there will be ________ the AD curve.

Answer 10

an upward movement along

Question 11

During economic expansions, outlays ______ and tax revenue ______.

Answer 11

decrease; increase

Question 12

Because short run output is greater than full employment output, in long run we would expect the price level to:

Answer 12

rise

Question 13

A decrease in foreign income would cause a _______ of the AD curve.

Answer 13

leftward shift

Question 14

Suppose the gov’t permanently reduces spending in an effort to reduce the budget deficit. In the new long run equilibrium, output will ______ and the price level will ______.

Answer 14

remain unchanged, decrease

Question 15

An increase in AD is beneficial in the short run because _____, but harmful in the long run because _____.

Answer 15

the unemployment rate falls; the price level rises.

Question 16

During normal economic times, unemployment in France and Germany tends to be ____________ than in the United States mainly because of ____________.

Answer 16

higher; labor market regulations

Question 17

Natural unemployment is:

Answer 17

the sum of structural and frictional unemployment.

Question 18

When foreign income rises, U.S. aggregate:

Answer 18

demand will shift to the right.

Question 19

If firms and workers expect the price level to fall, this causes an ________ in short-run aggregate supply.

Answer 19

increase

Question 20

A decrease in aggregate demand will generate _______ in real GDP and _______ in the price level in the short run.

Answer 20

a decrease; a decrease

Question 21

Suppose a major technological advance increases productivity in the economy. What is the effect of this on equilibrium GDP and the equilibrium price level in the long run?

Answer 21

GPD will increase and the price level will decrease.

Question 22

Suppose the stock market crashes. In the short-run we would expect the equilibrium price level to _________ and the equilibrium level of real GDP to _______.

Answer 22

decrease, increase

Question 23

If there is an increase in expected income, this would cause an ______ the aggregate demand curve.

Answer 23

upward movement

Question 24

An increase in the value of the dollar will __________ exports and __________ imports.

Answer 24

decrease; increase

Question 25

__________ would cause a rightward shift of the aggregate demand curve.

Answer 25

An increase in expected income

Question 26

You read a study that predicts that rising oil prices projected for this summer are certain to fuel inflation.
Having taken an economics class, due to this expected change in prices, you predict that spending today will
_________ and aggregate demand today will _________.

Answer 26

increase; increase

Question 27

If the value of a dollar increases, aggregate demand will:

Answer 27

shift left.

Question 28

Shifts in the long-run aggregate supply curve are caused by:

Answer 28

changes in labor productivity.

Question 29

If inflation turns out to be higher than expected, this will:

Answer 29

shift short-run aggregate supply to the left.

Question 30

Suppose advances in computer technology lead to a surge in worker productivity. In the long run, output will
_________ and the price level will _________.

Answer 30

increase; decrease

Question 31

A severe drought hits a country and reduces farm output by 50%. In the short run, this will __________ output and
__________ employment.

Answer 31

decrease; decrease

Question 32

Payments to Social Security recipients is considered as ________ government spending.

Answer 32

mandatory

Question 33

M1 Formula

Answer 33

M1 = Currency + Checkable Deposits

Question 34

M2 Formula

Answer 34

M1 + saving deposits + money market mutual funds + CD’s

Question 35

Deposits Formula

Answer 35

Loans + Reserves = Deposits

Question 36

Required Reserves Formula

Answer 36

= rr x deposits

Question 37

Excess Reserves Formula

Answer 37

= reserves – required reserves

Question 38

Simply Money Multiplier Formula

Answer 38

mm = 1/rr

Question 39

Change in Money Supply Formula

Answer 39

= mm x initial injection

Question 40

The largest component of M2 is:

Answer 40

savings deposits

Question 41

The maximum amount the bank can hold as loans is:

Answer 41

the amount of excess reserves

Question 42

The purchase of existing U.S. Treasury securities by the Federal Reserve will ______ the money supply.

Answer 42

increase

Question 43

Central banks can use monetary policy to:

Answer 43

reduce interest rates

Question 44

By shifting aggregate demand, monetary policy can affect __________ and __________.

Answer 44

real gross domestic product (GDP); unemployment

Question 45

The idea that the money supply does not affect real economic variables is:

Answer 45

money neutrality