Econ Test 3 Koofers Test

Front 1

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, the the federal funds target rate equals the...

Back 1

current inflation rate plus the real equilibrium federal funds rate.

Front 2

If workers and firms have rational expectations, they understand that ______ monetary policy will raise the inflation rate, so actual inflation ________ expected inflation.

Back 2

expansionary

will be equal to

Front 3

An economic expansions tends to cause the federal budget deficit to ________ because tax revenues _____ and government spending on transfer payments _________.

Back 3

decrease

rise

falls

Front 4

An increase in the interest rates causes...

Back 4

a movement along the money demand curve

Front 5

To increase the money supply, the Federal Reserve could...

Back 5

conduct an open-market purchase of Treasury securities.

Front 6

According to the "rational expectations" school of thought in macroeconomics, the short-run Philips curve is _________ in face of anticipated changes in monetary policy.

Back 6

vertical

Front 7

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ______ and real GDP to be relatively ________.

Back 7

higher

higher

Front 8

From an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then the president and the Congress would most likely...

Back 8

decrease taxes

Front 9

The _______ the reserve ratio, the _______ the money multiplier.

Back 9

smaller

larger

Front 10

Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?

Back 10

Real equilibrium GDP will rise

Front 11

Money is..

Back 11

an asset that people are willing to accept in exchange for goods and services

Front 12

The use of fiscal policy to stabilize the economy is limited because...

Back 12

the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way

Front 13

Suppose there is a banking panic. What would happen?

Back 13

the economy would likely enter into a recession

Bank total reserves would decrease.

Individual banks would have to shrink the value of loans they made.

Bank checking account balances would decrease.

Front 14

Monetary policy refers to the actions the Federal Reserve takes to manage...

Back 14

the money supply and interest rates to pursue its economic objectives.

Front 15

If households in the economy decide to take money out of checking account deposits and put this money into savings accounts, this will initial...

Back 15

decrease M1 and not change M2

Front 16

The quantity theory of money predicts that, in the long run, inflation results from the...

Back 16

money supply growing at a faster rate than real GDP

Front 17

The price level in the economy between 2005 and 2006 rose from 100 to 110. Between 2006 and 2007, the price level rose from 110 to 121. How does short-run Philips curve predict the unemployment rate will change as a result?

Back 17

The unemployment rate would not change since there is no change in the rate of inflation.

Front 18

Suppose real GDP is $12.6 trillion and potential GDP is $12.4 trillion. To move the economy back to potential GDP, Congress should...

Back 18

lower government purchases by an amount less than $200 billion.

Front 19

What would be considered an active fiscal policy?

Back 19

A tax cut is designed to stimulate spending passed during a recession

Front 20

If workers and firms expect that inflation will be 3 percent next year, and real wages are not changing over time, by how much will nominal wages increase?

Back 20

3 percent

Front 21

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be...

Back 21

11 percent.

Front 22

The money demand curve has a...

Back 22

negative slope because an increase in the interest rate decreases the quantity of money demanded.

Front 23

If the economy is falling below potential real GDP, what would be an appropriate fiscal policy? An increase in...

Back 23

government purchases.

Front 24

What is a true statement? Excess reserves =

Back 24

actual reserves - required reserves

Front 25

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is less than potential GDP, then the federal funds target rate ____ __ _____ ____ the sum of the current inflation rate plus the real equilibrium federal funds rate.

Back 25

will be less than