Review Flashcards

1
Q

What is not included in M1 or M2?

A

credit cards

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2
Q

Real GDP =

A

C+I+G+(X-M)
consumption, investment, government spending

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3
Q

X-M is

A

exports minus imports

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4
Q

The discount rate is

A

the interest rate the Fed charges the bank

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5
Q

Money multiplier =

A

1/reserve ratio

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6
Q

If the reserve ratio is 5%, the money multiplier is

A

1/.05 or 20

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7
Q

What is not a function of money?

A

protection against inflation

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8
Q

If the money multiplier is 3, and the Fed wants to increase the money supply by $900,000 it could

A

buy $300,000 worth of bonds

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9
Q

If the Federal Open Market Committee decides to decrease the money supply, it will

A

sell government bonds

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10
Q

Calculate the money stock M1 if the entire economy has
$200 dollars kept in coffee cans and wallets
$400 in saving accounts
$300 in credit card limits
$250 in checking accounts
$500 in gold
$175 in time deposits
$375 in restricted retirement accounts
$800 in money market funds

A

M1 = 850
coffee cans and wallets, saving accounts, checking accounts (liquid)

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11
Q

Calculate the money stock M2 if the entire economy has
$200 dollars kept in coffee cans and wallets
$400 in saving accounts
$300 in credit card limits
$250 in checking accounts
$500 in gold
$175 in time deposits
$375 in restricted retirement accounts
$800 in money market funds

A

M1+175+800 = 1825

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12
Q

While cleaning his apartment, Hakeem finds a $50 bill under the
couch. He deposits the bill in his checking account at Wells Fargo
Bank. The reserve ratio is 10% of deposits. What is the maximum
amount that the money supply could increase?

A

If banks hold 10% in reserve, then money multiplier = 1/R = 1/0.1 = 10
* Maximum possible increase in deposits is 10 × $50 = $500
* But money supply also includes currency, which falls by $50
* Hence, maximum increase in money supply = $450

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13
Q

Maximum Possible Expansion of Deposits

A

1/% * initial deposit

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14
Q

U4 underutilized labor

A

(U+discouraged/LF+discouraged)*100

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15
Q

U5 underutilized labor

A

U+MAW/LF+MAW

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16
Q

Unemployment rate =

A

unemployed/labor force

17
Q

The natural rate of unemployment includes:

A

both frictional and structural unemployment

18
Q

In recent decades, Americans have increased their purchase of stocks
of foreign-based companies. The Americans who have bought these
stocks were engaged in:

A

foreign portfolio investment

19
Q

Over the past century in the United States, real GDP per person has
grown, on average, by about:

A

2% per year

20
Q

CPI =

A

(current basket cost/base basket cost)100

21
Q

Inflation rate =

A

(current CPI-initial CPI/current CPI)100

22
Q

If the marginal propensity to consume (MPC) is 0.5, then the
multiplier is:

A

1/(1-MPC) so 1/1-.5 = 2

23
Q

An example of an automatic stabilizer is:

A

unemployment benefits

24
Q

Which of the following properly describes the interest-rate effect that
helps explain the slope of the aggregate-demand curve?

A

As the price level increases, the interest rate rises, so spending falls

25
When the Fed sells government bonds, the reserves of the banking system:
decrease, so the money supply decreases
26
Opponents of active stabilization policy:
believe that the political process creates lags in the implementation of fiscal policy
27
Fiscal policy
Taxes and government spending
28
Monetary policy
interest rates and money supply
29
The classical dichotomy and monetary neutrality are represented graphically by:
a vertical long-run aggregate-supply curve
30
Quantity Equation:
MV=PY
31
If Y and V are constant and M doubles, the quantity equation implies that the price level:
doubles
32
Shoeleather costs arise when higher inflation rates induce people to:
hold less money
33
In the U.S., taxes are paid on one’s __________ gains/returns. Therefore, a __________ inflation rate encourages more saving.
nominal, low
34