Manor Second Midterm Exam, Spring 2016 Consun 17 True or False extra points as b

Question

Manor Second Midterm Exam, Spring 2016 Consun 17 True or False extra points as bonus points. False questions, 1.5 points each. 34 Multiple choice questions, 2.5 points each. Total points of 110 5 factoring e whether the statement is true or false. Mark your answers clearly L Indicate whether t 1. if short-run equikbrium GDP is above potential GDP, prices will eventually rise. a. True b. False 2. If wages or prices of other inputs change, the aggregate supply curve will shift to another position a. True b. False 3. Money that is backed solely by a government decree is referred to as fiat money a. True b. False 4. One example of qualitative easing, or unconventional monetary policy, is a purchase by the Fed of Treasury bonds a. True b. False 5. To increase the money supply, the Fed purchases government securities from banks, paying for them with nevw a. True b. False 6. Most banks in the United States are owned by the government and operate as nonprofit institutions a. True b. False 7. The demand for reserves will increase at lower levels of GDP a. True b. False s. In our modern economy, the adjustment process necessary to eliminate a recessionary gap is very rapid. a. True pright Cengage Leaming Powered by Cognero

Explanation / Answer

(1) False

This is an expansionary gap where prices rise above potential-GDP level price. So, in longer run, higher price will lower aggregate demand and price will fall.

(2) True

AS curve will shift if input costs change.

(3) True

It's also called legal tender money.

(4) True

(5) True

This open market operation raises money supply.

(6) False

Many banks are non-governmental and privately/publicly owned.

(7) True

When GDP is low, expansionary monetary policy is used, by reducing Federal funds rate. This increases demand for reserves.

(8) False

The transition back from recession takes time due to complexities of today's world.

(9) True

It is a contractionary monetary policy.

(10) True

Unit profit = Unit price - Unit cost

(11) False

Banks are often slow in the adjustment, due to various time lags.

(12) True

Unlike M1, M2 includes saving deposits.

(13) False

These are conventional lending policies.

(14) True

Money multiplier = 1 / Required reserve ratio

(15) True

Higher productivity lowers costs and/or raises output (using same input levels), raising profits.

(16) True

At higher interest rate, cost of a housing mortgage loan increases and people take less of housing mortgage, so home construction activity falls.

(17) True

If all money is held in cash, deposits in bank fall, increasing the Deposit multiplier (= Reserve / Deposits, or Currency / Deposit).

NOTE: First 17 questions are answered.

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