Intro to Macroeconomics
econ 121, uic, macroeconomics
Terms in this set (35)
an increase in the nominal interest rate would...
encourage people to hold smaller money balances
What composes of the M2 money supply?
M1, saving deposits, time deposits, and money market mutual funds
which of the following will increase interest rates in the short run?
a. a decrease in reserve requirements
b. the sale of bonds by the Federal Reserve in the open market
c. a decrease in real GDP
d. an increase in the price level
the sale of bonds by the Federal Reserve in the open marekt
If the banking system has $50 billion in excess reserves, and the required reserve ratio is 25%, what is the maximum amount by which the money supply can be increased?
If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?
a. a decrease in the real interest rate
b. a decrease in real GDP
c. an increase in real GDP
d. an increase in inflation
a decrease in real GDP
Which policy would be the most appropriate if the economy is operating beyond its long-run potential capacity?
a shift to a more restrictive monetary policy
If the Fed fears an economic downturn, it would be mostly likely to...
encourage banks to provide loans by lowering the discount rate
the velocity of money is the...
average number of times a dollar is used to buy goods and services included in GDP
In the long run, the primary effect of rapid monetary growth will most likely lead to...
An expansionary monetary policy is most likely to increase real output...
when the economy is operating at less than full-employment capacity
What is the primary tool the Fed uses to control the supply of money?
open market operations
when the Fed lowers the discount rate, it makes it...
cheaper for banks to obtain additional reserves by borrowing from the Fed
What would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?
buy US securities
an increase in the money supply...
lowers the interest rate, causing a decrease in investment and an increase in GDP
During 2001-2004, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, what is the most likely short-run impact of this policy?
an increase in aggregate demand and real GDP
the demand curve for money...
shows the amount of money that households and businesses wish to hold at various rates of interests
Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?
higher price level
A shift to a more expansionary monetary policy will generally _____ in the short run, but if the rapid monetary expansion persists, the long-run result will be____
expand output and employment; inflation
the adaptive expectations hypothesis implies that people...
expect the next period to be pretty much like the recent past
the time period between when economic conditions change and when policy makers are aware of the change is called the...
Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?
a. Policy planners do not know whether a tax cut is expansionary or restrictive.
b. Policy makers need to know what economic conditions will be like 12 to 24 months into the
future, and this is extremely difficult to forecast accurately.
c. Policy planners are reluctant to implement expansionary fiscal policy even during a serious
d. Public choice theory suggests that elected political officials will generally favor restrictive
policy makers need to know what the economic conditions will be in 12-24 months into the future, and this is extremely difficult to forecast accurately
Which of the following is a widely-used and closely-watched forecasting tool concerning the future direction of the macro-economy?
the index of leading indicator
Systematic overestimation or underestimation of inflation will...
occur under adaptive expectations but under rational expectations
starting from an initial long-run equilibrium, under the adaptive expectations hypothesis, a shift to a more expansionary policy will increase....
prices bu not real output in the short-run
economic growth is important because expansion in the output of goods and services...
makes it possible for individuals to consumer mores and achieve higher-living standard
the major sources of economic growth are...
gains from trade, entrepreneurial discovery, and investment
for a country to double its per capita income very 20 years, it would have to sustain an annual economic growth rate equal to...
open trade between two nations would...
leave the production possibilities unchanged and increase their consumption possibilities
opportunity costs differ among nations primarily because...
nations have different endowments of land, labor skills, capital, and technology
the law of comparative advantage explains why a nation will benefit from trade when...
it exports goods for which it is a low-opportunity cost producer, while importing those for which it is a high-opportuniy cost producer
suppose there are only two goods in the world, wheat and shoes. If it is true that with its vast resources the US would produce both more wheat and shoes than Brazil....
both countries will be able to gain from specialization and trade as ing as relative costs of producing the two goods are different in Brazil than in the US
If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price...
the country will be an exporter of the good
Compared to the no-trade situation, when a country exports a good...
domestic producer gains, domestic consumer lose, and the gains outweigh the losses
as a result of a tariff on an imported good,
domestic producers are better off because they sell more goods at a higher price
an import quota on a product protects domestic industries by...
reducing the foreign supply to the domestic market, and thereby, raising the domestic price