Exam 3 ch 8,9,10 eco

equal to the fraction of additional income that is consumed

MPC

equal to the fraction of additional income that is saved

MPS

MPC+MPS=

1

total quantity of goods and services produced in an economy during a given period

Aggregate output is equal to the

total income received by all the factors of production during a given period

Aggregate income equals the

Aggregate output is always

equal to

aggregate income.

Suppose a consumption function is given by the following​ equation:

                                                C= a + bY

where a represents the

y​-intercept

and b represents the slope of the consumption function.

Keynesian theory says that consumption increases less than one-for-one with income.

Given this​ information, what must be true of the consumption​ function?

The consumption function will have a

positive y​-intercept and will be upward sloping.

Suppose a consumption function is given by the following​ equation:

                                               C = a+bY

where a represents the

y​-intercept

and b represents the slope of the consumption function.

Keynesian theory says that consumption increases less than one for one with income.

Given this​ information, what must be true of the slope of the consumption​ function?

The slope of the consumption function

​(b​) will be less than 1 and represents the marginal propensity to consume

The graph illustrates a consumption function that intersects the​ 45-degree line at point A.

According to the​ graph:

(i) Saving is positive

to the right of point A

​

(ii) Saving is negative

to the left of point A

​

(iii) Saving is zero

at point A

Planned investment are those additions to capital stock and inventory that are planned by​ firms, while actual investment includes ​ ____________.

all the actual additions to​ inventories, including unplanned changes.

Actual investment is —————- planned investment in equilibrium.

equal to

At levels of output below​ equilibrium, actual investment will be————-planned investment and at levels of output above​ equilibrium

less than

actual investment will be————planned investment.

greater than

All else​ equal, increasing interest rates will likely———the level of planned investment spending.

decrease

This change in planned investment spending occurs because higher interest rates mean that​

it is more expensive to borrow money to pay for projects.

When the interest rate​ rises, it becomes —————- expensive to borrow and——————- projects are likely to be undertaken.

more , fewer

increasing the interest​ rate, ceteris paribus, is likely to ————- the level of planned investment spending.

reduce

Suppose the planned investment is fixed and independent of income. If households decide to save​ more, saving in the aggregate will ————, but equilibrium income will———. This phenomenon is known as the——-

remain the same

fall

Paradox of thrift

This problem will not arise if————— increases along with saving. Then a new equilibrium can be attained where—————-

planned investment

both income and saving will increase

What are the two equivalent formulas for investment​ multiplier?

1/ MPS and 1/1-MPC

Expansionary fiscal policy is used by the government to

create new jobs in the economy.

Using money as a medium of exchange is more efficient than

barter because

barter requires a double coincidence of wants.

When the government prints money to fund its growing expenditure​ programs, causing the value of money to decrease​ rapidly, it is said to have caused

currency debasement.

Money that also has an intrinsic value in some other use is called

commodity money (gold)

Money that has no intrinsic value is called

fiat money ( us dollars)

When money is used to quote the price of a​ product, it is functioning as a

unit of account.

Barter refers to the direct exchange of goods and services for money.

False

Items used as money that also have intrinsic value in some other use are called

commodity money.

The U.S. dollar is backed by gold.

False

he Committee chose the location of the 12 District Banks​ (many located in the Eastern portion of the United​ States) based on

the​ cities' importance as banking centers in 1913

If the FOMC orders the open market desk to purchase government​ securities,

the money supply will increase​, and the interest rate will decrease.

What institution has formal responsibility for setting U.S. monetary​ policy?

The FOMC​ (Federal Open Market​ Committee)

Which of the following best describe the functions of the Federal Reserve​?

clearing interbank​ payments, regulating the banking​ system, and managing the​ nation's foreign exchange reserves

The FOMC​ (Federal Open Market​ Committee) consists of—— voting members

12

Seven of the members are

the Board of Governors

of the 12 presidents of the Federal Reserve district banks vote on a rotating basis.

4

The president of the NY Federal Reserve Bank

always gets a vote.

When the Fed provides funds to troubled banks that cannot find any other sources of​ funds, it is acting as

the lender of last resort.

Which of the following statements are true regarding the structure of the Federal Reserve​ System? ​(Check all that apply.​)

1) The chair of the Board of Governors is appointed by the president and serves a​ 4-year term.

2)The president of the New York Federal Reserve Bank always has a vote in the Federal Open Market Committee.

3)Each Federal Reserve bank across the country has nine directors.