ECON TEST 4

In the AS-AD model sources of inflation can be:

both demand and supply shocks

Where Y is GDP, C is consumption, I is investment, G is government spending, and there is no international trade, national saving equals:

Y − C − G.

In a fractional-reserve banking system, the reserve/deposit ratio equals

less than 100 percent.

If the Fed wishes to reduce nominal interest rates, it must engage in an open market ______ of bonds that ______ the money supply.

purchase; increases

When a bank's actual reserve-deposit ratio exceeds its desired reserve-deposit ratio, the bank will

make more loans.

When actual output exceeds potential output there is ____ output gap and the rate of inflation will tend to ____.

an expansionary; increase

If the natural rate of unemployment equals 6 percent and the actual rate of unemployment equals 5 percent, then cyclical unemployment equals

-1 percent.

The four components of planned aggregate expenditure are

consumption, planned investment, government purchases, and net exports.

If Alex deposits $1,000 from her paycheck into her checking account and, at the same time, increases her credit card balance by $1,500, then her saving is ______, and her wealth ______.

−$500; decreases by $500

in AS-AD model a supply shock with monetary policy accommodation moves:

both SRAS and AD curves

If the nominal interest rate is above the equilibrium value, then the quantity demanded of money is _____ than the quantity supplied of money and the nominal interest rate will _____.

less; decrease

If inflation does not adjust rapidly in the short run, then when the Federal Reserve increases the nominal interest rate, the real interest rate in the short run will

increase.

Graphically short-run equilibrium occurs at the intersection of the aggregate demand curve and the

short-run aggregate supply line.

When real output increases, planned aggregate expenditures increase because

induced expenditures increase.

Three macroeconomic factors that affect the demand for money are

the nominal interest rate, real income, and the price level.

In the Keynesian cross diagram, the ______ line shows the relationship between planned aggregate expenditure and output, and the ______ line represents the condition that planned aggregate expenditure and output are equal.

expenditure; 45-degree

When the Fed sells government securities, the banks'

reserves will decrease and lending will contract, causing a decrease in the money supply.

In the short-run Keynesian model, to close a recessionary gap of $1 billion government purchases must be

increased by less than $1 billion.

Where Y is GDP, C is consumption, I is investment, (G ) is government spending, (T ) is net taxes, and there is no international trade, public saving equals

T − G.

Saving is a/an ______ and wealth is a/an ______.

flow; stock

Nominal GDP divided by the money stock equals

velocity

A recession occurs when ______, when _______, or when both of these occur.

potential output grows slowly; actual output falls below potential output

If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will _____ their loans based on current deposits, and the money supply will _____.

decrease; decrease

Starting from long-run equilibrium, a favorable inflation shock results in a short-run equilibrium with _____ inflation and _____ output.

lower; higher

Autonomous expenditure is the portion of planned aggregate expenditure that

is independent of output.

In an open-market purchase the Federal Reserve ______ government bonds from the public and the supply of bank reserves ______.

buys; increases

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.60, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals

740.

The three functions of money are

serving as a medium of exchange, unit of account, and store of value.

When the Fed engages in an open market sale, the money supply _____ and the nominal interest rate _____.

decreases; increases