AGEC 217 || QUESTIONS AND 100% ACCURATE
ANSWERS.
Among the functions of money are correct answers to act as a medium of exchange, a unit of
account, and a store of value
In the consumption function, if disposable income is unchanged, a decrease in the marginal
propensity to consume will correct answers decrease consumption spending.
When the Federal Reserve uses open market operations and buys Treasury bonds from banks,
correct answers banks sell the bonds for money, the money supply increases, and the real interest
rate goes down.
To use open market operations to decrease the money supply, the Federal Reserve would correct
answers sell Treasury bonds to banks.
A tax hike during a recession will correct answers decrease disposable income, decrease
consumer spending, decrease aggregate demand, and decrease equilibrium output.
Using fiscal policy to offset recessions presents a number of problems to policymakers,
including correct answers the fact that households may save their tax cuts rather than spend
them, and added spending on infrastructure sometimes takes years to plan.
Suppose we measure the correlation between the Federal Reserve's federal funds interest rate and
the unemployment rate. We find that the correlation coefficient is +0.23 during 1961-86, and -
0.77 during 1987-2017. This implies that correct answers The Fed followed no consistent policy
during 1961-86, and counter-cyclical policy during 1987-2017.
Suppose our model produces a hypothesis, that increases in the money supply cause decreases in
the real federal funds interest rate. We calculate a correlation between this money supply growth
and the real federal funds rate for a period of years, and find a correlation of -0.08. This is
evidence that correct answers rejects the hypothesis that increases in the money supply reduce
the real federal funds rate.
Budget Director Lewis Douglas feared that Federal budget deficits would cause inflation. He
reasoned that correct answers big, continuing deficits would require selling Treasury bonds to the
Federal Reserve, which would print money to buy them. The added money would lead to
inflation.
In 1933 President Franklin Roosevelt declared a "bank holiday." He did this because correct
answers bank runs were causing widespread bank failures, so he closed the banks to allow time
to adopt new policies.
Which of the following did the Federal government use to hold down inflation during World
War II. correct answers Price controls and rationing.
, Wars often create rapid expansions of output, and high inflation, because correct answers
governments increase their purchases of military goods, which increases aggregate demand, but
pay for these goods by printing money, which adds to inflation.
The reform in the Social Security system passed in 1983 created "crowding in." This means that
correct answers taxes were increased, which reduces income and money demand. This decreases
the real interest rate, which increases investment, which increases potential output growth in the
long run.
Consider the following paragraph from a Federal Reserve policy statement:
Information received since the Federal Open Market Committee met in July suggests that
economic activity has been expanding at a moderate pace. Some indicators of labor market
conditions have shown further improvement in recent months, but the unemployment rate
remains elevated. Household spending and business fixed investment advanced, and the housing
sector has been strengthening, but mortgage rates have risen further and fiscal policy is
restraining economic growth. Apart from fluctuations due to changes in energy prices, inflation
has been running below the Committee's longer-run objective, but longer-term inflation
expectations have remained stable.
Which of the following statements best describes the Fed's view of aggregate demand? correct
answers Consumer spending and business investment are increasing aggregate demand, but
rising interest rates and government spending cuts are slowing aggregate demand growth.
Here's a typical report about the economy, published after data on one of the major economic
indicators is released. Read the following excerpts from "U.S. Economy Gained 126,000 Jobs in
March, an Abrupt Slowdown in Hiring," New York Times, April 3, 2015, and answer the
question.
The yearlong streak of robust monthly job creation was broken on Friday with the Labor
Department's report that employers added just 126,000 workers in March, a marked slowdown in
hiring that echoed earlier signs that sluggish business investment and punishing weather were
exacting a toll on the economy.
The unemployment rate held steady at 5.5 percent. Hourly wages, in one of the few bright spots
in the report, rose 0.3 percent for private sector workers in March, after a meager 0.1 percent rise
in February. But hours worked were down slightly, so overall paychecks were left essentially
flat.
The slowdown in job creation reinvigorated th correct answers Consumers didn't shop because of
the winter cold, and snow and ice raised the cost of transporting goods from factories to retail
stores.
