ECON 202 FINAL (University of Kentucky; Dellachiesa Fall'16)

The quantity theory of money seeks to explain the connection between money and

prices

According to the quantity theory of money, (holding velocity constant) deflation will occur if the

money supply grows at a slower rate than real GDP.

In the basic aggregate demand - aggregate supply model, a decrease in the price of oil will in the short run lead to ______ in the UNEMPLOYMENT RATE and _____ in the price level.

a decrease; a decrease

___________ in taxes will decrease consumption spending, and _________ in transfer payments will increase consumption spending.

An increase; an increase

Expansionary fiscal policy will

Shift the aggregate demand curve to the right

In the figure above, if the economy is at point A, the appropriate MONETARY POLICY by the Federal Reserve would be to

Lower interest rates

An increase in the government purchases of $200 billion will shift the aggregate demand curve to the right by

More than $200 billion

Technological advances in the economy would shift

both the short-run aggregate supply curve and the long-run aggregate supply curve to the right.

Which of the following would be the best measure of the standard of living?

Real GDP per capita.

Recessions cause the unemployment rate to _____ and the inflation rate to typically _____.

Rise; fall.

Cyclical unemployment is the result of

A slowdown in the economy.

Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called

Structural unemployment

Labor productivity will increase if the ________ increases and ________.

Quantity of capital; technology improves.

If an economy is growing at a rate of 2% per year, approximately how long will it take the economy to double in size?

35 years.

In a production possibilities frontier model, a point inside the frontier is

Productively inefficient.

Which of the following equations correctly measures GDP in an economy?

GDP = G + C + NX + I

Frictional unemployment is the result of

The search process of matching workers with jobs.

When the labor market is at full employment

There is no cyclical unemployment in the economy.

Which of the following describes the accuracy of the Consumer Price Index?

Changes in the CPI overstate the true value of inflation

An example of an intermediate good would be

The rims on a new car.

Consider the date in the table above for a simple economy. The unemployment rate for this simple economy equals

(100/1,100) 100 <or> (Unemployment/(employment+unemployment)) unemployment

Consider the date in the table above for a simple economy. The labor force participation rate for this simple economy equals

(1,100/15,000) 100 <or> ((unemployment+employment)/working-age population) unemployment

An import Tariff

All of the above (Decrease domestic consumption; Increase domestic production; Increase domestic prices; Increase government revenue)

An import Quota

All of the above (Decrease domestic consumption; Increase domestic production; Increase domestic prices; Increase government revenue)

An export subsidy

All of the above (Increase domestic production; Decrease domestic consumption; Increase domestic prices; Decrease government revenue)

A compounded tariff is calculated

As a combination of add valorem and specific tariff

The natural rate of unemployment is made up of

Frictional and structural unemployment.

The Federal Reserve's four goals of monetary policy are

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

For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the

federal funds rate.

During bank panics, banks have liquidity problems because of

the maturity mismatch between their deposits and loans.

Which statement best describes how banks create money?

Banks create checking account deposits when making loans from excess reserves.

In the circular flow model, the value of total income for an economy _______ the value of total production.

equals

M1 includes (ignoring traveler's checks)

currency in circulation and checking account deposits in banks.

M2 includes (ignoring traveler's checks)

currency in circulation, checking account deposits, and savings-type account deposits

During the 2007-2009 financial crisis, the "run" on Investment banks took the form of

lenders to investment banks not renewing their short-term loans.

Deflation can have negative effects on the economy because consumers may

delay spending waiting for the prices to fall further, and higher real interest rates, if the deflation is unexpected, increase the burden on borrowers.

The real rate of interest is the nominal rate _______ the inflation rate.

minus

The federal government debt equals

the total value of U.S. Treasury bonds outstanding.

A recession tends to cause the federal budget deficit to _______ because tax revenues _______ and government spending on transfer payments ______.

increase; fall; rise

In the money demand and money supply model, the opportunity cost of holding money is the

short-term nominal interest rate.

Which of the following would cause the money demand curve to shift to the right?

An increase in real GDP

A depreciation in the value of the U.S. dollar in the foreign exchange market makes imports into the U.S. _______ expensive and makes U.S. exports ______ expensive.

more; less

The demand for U.S. dollars in the foreign exchange market is a derived demand for

U.S. goods, services, and assets.

Which would shift the supply of U.S. dollars to the right?

an increase in foreign interest rates.

Which would shift the demand for U.S. dollars in the foreign exchange market to the left?

a decrease in U.S. interest rates.

Which would case the value of the U.S. dollar in the foreign exchange market to appreciate?

a decrease in foreign interest rates.

Which of the following could cause nominal GDP to increase, but real GDP to decrease?

The price level rises and the quantity of final goods and services produced falls.

In the aggregate expenditure model, the most important factor determining real GDP in any particular year is

total spending on goods and services.

Which statement is true about an increase in unintended inventories in the aggregate expenditure model? An increase in unintended inventories indicates that

total spending has decreased, and will lead to a decrease in total production.

In the aggregate expenditure model, a decrease in foreign real GDP (real GDP in other countries) will case the aggregate expenditure line for the U.S. to shift

down, decreasing U.S. real GDP.

Which of the following would increase the quantity of the money supply?

A decrease in excess reserves held by banks.

Suppose you lend $1,000 at an interest rate of 6%. If the expected real interest rate is 4%, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

less than 2%.

Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve could cause the equilibrium interest rate to

decrease.

Using the money demand and money supply model, a decrease in the required reserve ratio by the Federal Reserve would cause the equilibrium interest rate to

decrease.

Suppose you deposit $2,000 into Bank of America and that the required reserve ratio is 10%. How does this affect Bank of America's balance sheet?

Excess reserves rise by $1,800. *(Bank has to hold 10% of the $2,000, but the rest is available to lend out.)

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%

There is a strong link between changes in the money supply and inflation

in the long run, but not in the short run.

In the aggregate demand - aggregate supply model, an appreciation in the value of the dollar in the foreign exchange market will in the short run lead to _________ in real GDP and ________ in the price level.

a decrease, a decrease

In the aggregate demand - aggregate supply model, which of the following would cause a recession?

An increase in the interest rates by the Fed.