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Exam 12: Short-Term Economics Fluctuations: An Introduction

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Question 41

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If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

A) recessionary; raise
B) recessionary reduce
C) recessionary; not change
D) expansionary; raise

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Question 42

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Because the Fed determines the money supply, the:

A) money supply curve is downward sloping.
B) money supply curve is upward sloping.
C) money supply curve is vertical.
D) money supply curve is horizontal.

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Question 43

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In an economy where planned aggregate spending is given by PAE = 5,500 + 0.6Y - 20,000r, the interest rate is currently 5 percent (0.05) . If potential output equals 11,750, the central bank must ______ the interest rate to close the ____________ gap.

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

During the Christmas shopping season, the demand for money increases significantly. To offset the increase in money demand, the Fed must ______ the money supply, which will put ______ pressure on nominal interest rates.

The most important, most convenient, and most flexible way in which the Federal Reserve affects the supply of bank reserves is through:

Lower nominal interest rates ______ the amount of money demanded and lower real income ______ the amount of money demanded.

If the Federal Reserve wants to increase the money supply, it should:

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

The Federal Reserve can increase the money supply by:

The interest rate that commercial banks charge each other for very short-term loans is called the:

If the quantity supplied of money is less than the quantity demanded of money, people will ______ bonds which will cause bond prices to ______ and the nominal interest rate to ______ until the quantity demanded and quantity supplied of money are equal.

The ______ is the interest rate commercial banks pay to the Fed; the ______ is the interest rate commercial banks charge each other for short-term loans.

Because an increase in the nominal interest rate raises the opportunity costs of holding money, the money demand curve:

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ______ gap and the Federal Reserve must ______ real interest rates in order to close the gap.

The demand for money is:

In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired (and current) reserve/deposit ratio is 15 percent. If commercial banks borrow 100 econs in reserves from the Central Bank through discount window lending, then the money supply in Macroland will ______ to ______ econs, assuming that the public does not wish to change the amount of currency it holds.

The Federal Reserve System is:

The seven Fed governors, the president of the Federal Reserve Bank of New York, and four of the presidents of the other regional Federal Reserve Banks constitute the:

Any value of the nominal interest rate chosen by the Federal Reserve implies a specific value for ______.