1 Barter transactions involve the use of money.
The use of money as a medium of exchange represents
the most important service that money renders.
3 Currency includes demand
The money supply known as M1 includes all assets that
are good stores of value.
A primary tool of the Federal Reserve System is open market operations.
6 Commercial banks and credit
unions create money in concert with the Fed.
Providing a secure place for savings is not a major
function of financial institutions.
The Fed’s reserve requirement ratio can reduce
the monetary base.
If bankers want to retain reserves of 25% against all deposits, if the Fed issues $100 billion in currency,
and if private individuals keep all money in banks, then once the banks are fully loaned up,
the money supply will consist
of $400 billion in demand deposits.
The Long-run Aggregate Supply Curve that is
compatible with the classical macroeconomic model is
a vertical line at full employment.
When the federal government spends more than it
collects, it must issue more debt or more
Keynesians tend to believe that massive tax cuts and new
government spending are cures for recession.
There are currently 13 Federal Reserve Districts.
One of the 3 tools of the Federal Reserve is fiscal
Monetary policy of the Federal Reserve affects
the monetary base to achieve its goals of rates of inflation and interest.
The buying of securities in the open market by the Federal Reserve will augment the monetary base of the economy.
The selling of securities in the open market by
the Federal Reserve will actually decrease the monetary base by reducing the
amount the banking system will ultimately be
able to lend.
18 The Federal Funds Market is actually monitored and manipulated by
the Federal Reserve, but individuals can actually enter
the market and borrow funds if desired.
The short-run Phillips curve is a curve that
shows the relationship between the inflation rate and
the pure interest rate when the natural rate of unemployment rate and the expected inflation rate remain constant.
When interest rates are rising,
the tendency is for holders of M1 to get out of M1 and move into M2 and
M3 due to the opportunity costs of holding M1.
The science of macroeconomics:
* solved the Great Depression.
*did not solve the Great Depression but kept
the U.S. economy from suffering.
*emerged during the decade of the Great
*did not evolve until after World War II so
had no connection to the Great Depression.
22 The tax cuts passed
by Congress in 2002 to help move the economy more rapidly toward potential GDP are an example of:
*automatic fiscal policy.
*discretionary fiscal policy.
*contractionary fiscal policy.
In the post-World War II period, considerable
growth in total production took place in the
U.S. But at the same time, businesses were dumping their waste into the Great
Lakes with minimal cost to themselves,
significantly polluting the bodies of water as a result. This occurrence is an
*real GDP gives an overly positive view of
* real GDP gives an overly negative view of
* investment would have been a better measure
of total production.
*the pollution counts as a final good.
24 A Phillips curve measures the relationship between:
* the unemployment rate and inflation.
*the level of money wage rates and GDP.
*unemployment and GDP.
*inflation and GDP.
In order for the United States to repay its
international debt, the United States would need to:
* have a current account
*have a surplus of imports over exports.
*have a surplus of exports over imports.
If the CPI was 122.3 at the end of 2007 and 124.5 at the end of 2008, the inflation
rate over these two years was:
* 1.8 percent.
A demand-pull inflation initially is
* increasing real output and a labor
*increasing real output and a labor surplus.
*decreasing real output and a labor
*decreasing real output and a labor surplus.
The labor force is the sum of the:
*working-age population and the number of
*number of employed people and the working-age
*number of employed people and the number of
*total population and the number of
In 2005, Armenia had a real GDP of approximately $4.21
billion and a population of 2.98 million.
In 2006, real GDP was $4.59
billion and population was 2.97 million.
From 2005 to 2006, Armenia’s standard of living ________.
*did not change
*might have increased, decreased, or remained unchanged but
more information is needed to determine which.
According to real business cycle theory, a fall
in the real interest rate ________ current labor supply and ________ current employment.
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