question
How will each of the following affect aggregated demand? ("increase AD", "decrease AD", or "movement along AD"
1. an increase in wealth in the economy
2. a decrease in the price level
3. an increase in taxes
4. an increase in imports
5. a decrease in consumer confidence
6. an appreciation of the domestic currency
7. a decrease in foreign incomes
8. an increase in domestic incomes
9. a decrease in interest rates
10. increase in expected future outcomes
11. increase in business taxes
12. decrease in government purchases
1. an increase in wealth in the economy
2. a decrease in the price level
3. an increase in taxes
4. an increase in imports
5. a decrease in consumer confidence
6. an appreciation of the domestic currency
7. a decrease in foreign incomes
8. an increase in domestic incomes
9. a decrease in interest rates
10. increase in expected future outcomes
11. increase in business taxes
12. decrease in government purchases
answer
1. increase C -> increase AD
2. movement along AD
3. decrease C -> decrease AD
4. decrees NX -> decrease AD
5. decrease C -> decrease AD
6. decrease NX -> decrease AD
7. decrease NX -> decrease AD
8. increase C, decrease NX -> probably increase AD
9. increase C, increase I -> increase Add
10. increase C -> increase AD
11. increase I -> increase AD
12. decrease G -> decrease AD
2. movement along AD
3. decrease C -> decrease AD
4. decrees NX -> decrease AD
5. decrease C -> decrease AD
6. decrease NX -> decrease AD
7. decrease NX -> decrease AD
8. increase C, decrease NX -> probably increase AD
9. increase C, increase I -> increase Add
10. increase C -> increase AD
11. increase I -> increase AD
12. decrease G -> decrease AD
question
Suppose the economy is at a short run equilibrium GDP that lies beyond potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?
a. prices will increase
b. short-run aggregated supply will shift to the right
c. unemployment will decrease
d. wages will decrease
e. more than one of the above is correct
a. prices will increase
b. short-run aggregated supply will shift to the right
c. unemployment will decrease
d. wages will decrease
e. more than one of the above is correct
answer
a
would need to be:
b. left
c. increase
d. increase
would need to be:
b. left
c. increase
d. increase
question
Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will __________ exports from the U.S. to Sweden, __________ imports from Sweden to the U.S. and ___________ U.S. aggregate demand.
answer
decrease; increase; decrease
question
Refer to Image 1 in Notes
Suppose the economy is at point A. If there is an increase in consumer confidence, then the economy will move to point ______ in the short run, and point _____ in the long run.
a. C; A
b. B; A
c. B; C
d. D; C
e. D; A
Suppose the economy is at point A. If there is an increase in consumer confidence, then the economy will move to point ______ in the short run, and point _____ in the long run.
a. C; A
b. B; A
c. B; C
d. D; C
e. D; A
answer
d
question
Refer to Image 1 in Notes
Suppose the economy is at point A. If taxes are cut in the economy, where will the eventful long run equilibrium be?
a. A
b. B
c. C
d. D
Suppose the economy is at point A. If taxes are cut in the economy, where will the eventful long run equilibrium be?
a. A
b. B
c. C
d. D
answer
c
question
Refer to Image 1 in Notes
Suppose the economy is at point A. If there is an unexpected increase in oil prices, then the economy will move to point ______ in the short run, and point _____ in the long run.
a. C; A
b. B; A
c. D; A
d. D; C
e. B; C
Suppose the economy is at point A. If there is an unexpected increase in oil prices, then the economy will move to point ______ in the short run, and point _____ in the long run.
a. C; A
b. B; A
c. D; A
d. D; C
e. B; C
answer
b
question
Refer to Image 1 in Notes
Which of the following is FALSE if the economy id at point D?
a. unemployment is above its natural rate
b. the automatic mechanism will eventually take this economy to point C
c. there is an upward pressure on wages and other input prices
d. inflation is likely to occur in the near future
e. output is above potential output
Which of the following is FALSE if the economy id at point D?
a. unemployment is above its natural rate
b. the automatic mechanism will eventually take this economy to point C
c. there is an upward pressure on wages and other input prices
d. inflation is likely to occur in the near future
e. output is above potential output
answer
a
question
Refer to Image 1 in Notes
Suppose the economy is at point B. Which of the following statements is FALSE?
a. there is a recessionary gap
b. the automatic mechanism will cause the AD curve to shift to the right
c. unemployment is likely above its natural rate
d. actual output is less than the potential output
e. there is pressure on prices to fall
Suppose the economy is at point B. Which of the following statements is FALSE?
a. there is a recessionary gap
b. the automatic mechanism will cause the AD curve to shift to the right
c. unemployment is likely above its natural rate
d. actual output is less than the potential output
e. there is pressure on prices to fall
answer
b
question
Refer to Image 1 in Notes
1. at which point(s) is the output the highest?
2. at which point(s) is unemployment the highest
3. at which point(s) is unemployment equal to its natural rate?
4. at which point(s) is there pressure on wages to rise?
5. at which point(s) is there pressure on wages to fall?
6. at which point(s) is there no pressure on wages to change?
7. at which point(s) is output equal to its long run potential
1. at which point(s) is the output the highest?
2. at which point(s) is unemployment the highest
3. at which point(s) is unemployment equal to its natural rate?
4. at which point(s) is there pressure on wages to rise?
5. at which point(s) is there pressure on wages to fall?
6. at which point(s) is there no pressure on wages to change?
7. at which point(s) is output equal to its long run potential
answer
1. D
2. B
3. A, C
4. D
5. B
6. A, C
7. A, C
2. B
3. A, C
4. D
5. B
6. A, C
7. A, C
question
Assume that the economy is initially in a long run equilibrium. There is then an increase in consumption. As a result, real GDP will ______ in the short run, and _______ in the long run.
a. increase; decrease to its initial value
b. decrease; increase to its initial value
c. increase; increase further
d. decrease; decrease further
e. none of the above are correct
a. increase; decrease to its initial value
b. decrease; increase to its initial value
c. increase; increase further
d. decrease; decrease further
e. none of the above are correct
answer
a
question
If the aggregated demand curve shifts to the left in the short run, then the long-run equilibrium will be at a (relative to the original long run equilibrium):
a. lower price level and same level of output
b. lower price level and lower level of output
c. higher price level and higher level of output
d. higher price level and lower level of output
a. lower price level and same level of output
b. lower price level and lower level of output
c. higher price level and higher level of output
d. higher price level and lower level of output
answer
a
question
Suppose the economy is in long run equilibrium. If there is an increase in the nation's capital stock as well as an increase in optimism about future business conditions, then we would expect that in the short run, real GDP:
a. will fall and the price level might rise, fall, or stay the same
b. will rise and the price level might rise, fall or stay the same
c. may rise, fall or stay the same and the price level will rise
d. may rise, fall or stay the same and the price level will fall
a. will fall and the price level might rise, fall, or stay the same
b. will rise and the price level might rise, fall or stay the same
c. may rise, fall or stay the same and the price level will rise
d. may rise, fall or stay the same and the price level will fall
answer
b
question
Consider the mythical economy of "Nelsonville". Suppose that, in 2009, real GDP was $14 trillion and the price level was 150. In 2010, real GDP was $13 trillion and the price level was 160. What must have happened in Nelsonville? (assumes nelsonville is always in a short run equilibrium)
a. AD must have decrease
b. SRAS must have decreased
c. SRAS must have increase
d. AD must have increase
a. AD must have decrease
b. SRAS must have decreased
c. SRAS must have increase
d. AD must have increase
answer
b
question
Assume that the economy is initially in a long equilibrium. There is then an increase in consumption. As a result, real GDP will _______ in the short run, and ________ in the long run
a. increase; decrease to its initial value
b. decrease; increase to its initial level
c. increase; increase further
d. decrease; decrease further
e. none of the above is correct
a. increase; decrease to its initial value
b. decrease; increase to its initial level
c. increase; increase further
d. decrease; decrease further
e. none of the above is correct
answer
a
question
Refer to Image 2 in Notes
The level of savings comes from _______ curve. The level of investment comes form _______ curve.
a. the demand; neither
b. the supply; the demand
c. the demand; the supply
d. neither; the supply
The level of savings comes from _______ curve. The level of investment comes form _______ curve.
a. the demand; neither
b. the supply; the demand
c. the demand; the supply
d. neither; the supply
answer
b
question
Refer to Image 2 in Notes
If the real interest rate is 4%, then the savings is equal to $_______ million, investment is equal to $_______, and the equilibrium quantity of loanable funds is equal to $_______ million
a. 90; 120; 120
b. 120; 120; 120
c. 60; 60; 60
d. 120; 60; 120
e. none of the above
If the real interest rate is 4%, then the savings is equal to $_______ million, investment is equal to $_______, and the equilibrium quantity of loanable funds is equal to $_______ million
a. 90; 120; 120
b. 120; 120; 120
c. 60; 60; 60
d. 120; 60; 120
e. none of the above
answer
b
question
Refer to Image 2 in Notes
The loanable funds market is initially in equilibrium,. Suppose that there is a cultural change in society and people begin to be more frugal than before and this increase their desire to save money. The _________ loanable funds will __________, thereby __________ the equilibrium interest rate and ___________ the equilibrium quantity of loanable funds
a. demand for; fall; decreasing; increasing
b. supply of; rise; decreasing; increasing
c. demand for; rise; increasing; increasing
d.supply of; fall; increasing; decreasing
The loanable funds market is initially in equilibrium,. Suppose that there is a cultural change in society and people begin to be more frugal than before and this increase their desire to save money. The _________ loanable funds will __________, thereby __________ the equilibrium interest rate and ___________ the equilibrium quantity of loanable funds
a. demand for; fall; decreasing; increasing
b. supply of; rise; decreasing; increasing
c. demand for; rise; increasing; increasing
d.supply of; fall; increasing; decreasing
answer
b
question
Refer to Image 2 in Notes
The loanable funds market is initially in equilibrium, as shown in the figure. An increasing in business confidence about the future could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?
a. the real interest rate is 3% and the quantity of loanable funds is $90 million
b. the real interest rate is 5% and the quantity of loanable funds is $150 million
c. the real interest rate is 5% and the quantity of loanable funds is $90 million
d. the real interest rate is 3% and the quantity of loanable funds is $150 million
The loanable funds market is initially in equilibrium, as shown in the figure. An increasing in business confidence about the future could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?
a. the real interest rate is 3% and the quantity of loanable funds is $90 million
b. the real interest rate is 5% and the quantity of loanable funds is $150 million
c. the real interest rate is 5% and the quantity of loanable funds is $90 million
d. the real interest rate is 3% and the quantity of loanable funds is $150 million
answer
b
question
Refer to Image 3 in Notes
If the table represents all the investments available to the economy and the interest rate is 4.5%, what will be the level of investment in the economy?
a. $100
b. $200
c. $300
d. $400
e. $500
If the table represents all the investments available to the economy and the interest rate is 4.5%, what will be the level of investment in the economy?
a. $100
b. $200
c. $300
d. $400
e. $500
answer
c
question
Refer to Image 3 in Notes
If the table represents all the investments available to the economy and the interest rate is 5.5%, what will be the level of investment in the economy?
a. $100
b. $200
c. $300
d. $400
e. $500
If the table represents all the investments available to the economy and the interest rate is 5.5%, what will be the level of investment in the economy?
a. $100
b. $200
c. $300
d. $400
e. $500
answer
b
question
Of the government's budget increases, then the ________ curve loanable funds will shift to the ________ and the equilibrium interest rates will _________.
a. supply; right; fall
b. demand; right; rise
c. supply; left; rise
demand; left; fall
a. supply; right; fall
b. demand; right; rise
c. supply; left; rise
demand; left; fall
answer
b
question
Which of the following policies/events results in an increase in the equilibrium quantity of loanable funds?
a. a decrease in investment spending
b. savers feel less uncertainty about the future
c. technological progress makes capital more productive
d. the economy enters a recession making firms less likely to expand their operations
e. more than one of the above
a. a decrease in investment spending
b. savers feel less uncertainty about the future
c. technological progress makes capital more productive
d. the economy enters a recession making firms less likely to expand their operations
e. more than one of the above
answer
c
a decreases DLF
b decreases SLF
d. decreases DLF
a decreases DLF
b decreases SLF
d. decreases DLF
question
Consider a technological advance which makes capital more productive. In the loanable funds framework, this will lead to an increase in the equilibrium quantity of savings. Which of the following best explains this increase?
a. the supply of loanable funds shifts to the right, causing an increase in savings
b. the supply of loanable funds shifts to the left, causing an increase in savings
c. the demand for loanable funds shifts to the left, putting upward pressure on the real interest rate. This higher real interest rate causes the quantity of the loanable funds supplied to increase
d. the demand for loanable funds shifts to the right, putting upward pressure on the real interest rate. This higher real interest rate causes the quantity of the loanable funds supplied to increase
e. none of the above. this is a trick question. the equilibrium quantity of loanable funds increases, but not the equilibrium quantity of savings does not
a. the supply of loanable funds shifts to the right, causing an increase in savings
b. the supply of loanable funds shifts to the left, causing an increase in savings
c. the demand for loanable funds shifts to the left, putting upward pressure on the real interest rate. This higher real interest rate causes the quantity of the loanable funds supplied to increase
d. the demand for loanable funds shifts to the right, putting upward pressure on the real interest rate. This higher real interest rate causes the quantity of the loanable funds supplied to increase
e. none of the above. this is a trick question. the equilibrium quantity of loanable funds increases, but not the equilibrium quantity of savings does not
answer
d
question
Which of the following would you expect to decrease the equilibrium interest rate?
a. there is an increase in social assistance programs from the government that provide payments to the elderly
b. a decrease in the profitability of investment projects firms are considering
c. an increase in the budget deficit
d. a decrease in the percentage if income that households save
e. more than one of the above is correct
a. there is an increase in social assistance programs from the government that provide payments to the elderly
b. a decrease in the profitability of investment projects firms are considering
c. an increase in the budget deficit
d. a decrease in the percentage if income that households save
e. more than one of the above is correct
answer
b
a decreases SLF
c increases DLF
d decreases SLF
a decreases SLF
c increases DLF
d decreases SLF
question
If the government changed the tax code in a way that simultaneously increase the profitability of investment spending and reduced the incentive to save, then which of the following will happen with certainty?
a. increase in the real interest rate
b. decrease in the equilibrium quantity of savings
c. decrease in the equilibrium quantity of loanable funds
d. increase in the equilibrium quantity loanable funds
e. more than one of the above will happen with certainty
a. increase in the real interest rate
b. decrease in the equilibrium quantity of savings
c. decrease in the equilibrium quantity of loanable funds
d. increase in the equilibrium quantity loanable funds
e. more than one of the above will happen with certainty
answer
a
b, c, d, are all possible but not certain
b, c, d, are all possible but not certain
question
Refer to Image 4 in Notes
Which of the following is consistent with the changes depicted in the graph?
a. new government tax policy increases the profitability of new investment spending
b. a recession decreases the profitability of new investment spending
c. an economic expansion increases the profitability of new investment spending
d. the wealth of savers risk
e. more than one of the above is correct
Which of the following is consistent with the changes depicted in the graph?
a. new government tax policy increases the profitability of new investment spending
b. a recession decreases the profitability of new investment spending
c. an economic expansion increases the profitability of new investment spending
d. the wealth of savers risk
e. more than one of the above is correct
answer
b
graph depicts DLF decreasing
a increases DLF
c increases DLF
d increases SLF
graph depicts DLF decreasing
a increases DLF
c increases DLF
d increases SLF
question
Consider the following two events
Event 1. Because interest rates fall from 5% to 4%, the local bakery decides to borrow more money and buy a new oven.
Event 2. Because a local bike shop os optimistic about the future of the economy, the shop decides to borrow money and build a new store.
In the loanable funds market, Event 1 is __________ and Event 2 is _____________
a. a shift of the demand for loanable funds curve; a shift of the supply of loanable funds curve
b. a shift of the demand for loanable funds curve; a movement along the demand of loanable funds curve
c. a movement along the demand of loanable funds curve; a shift of the demand for loanable funds curve
d. a movement along the supply of loanable funds curve; a shift of the supply of loanable funds curve
Event 1. Because interest rates fall from 5% to 4%, the local bakery decides to borrow more money and buy a new oven.
Event 2. Because a local bike shop os optimistic about the future of the economy, the shop decides to borrow money and build a new store.
In the loanable funds market, Event 1 is __________ and Event 2 is _____________
a. a shift of the demand for loanable funds curve; a shift of the supply of loanable funds curve
b. a shift of the demand for loanable funds curve; a movement along the demand of loanable funds curve
c. a movement along the demand of loanable funds curve; a shift of the demand for loanable funds curve
d. a movement along the supply of loanable funds curve; a shift of the supply of loanable funds curve
answer
c
question
Refer to Image 5 in Notes
As we move from the initial equilibrium to the final equilibrium, which of the following occurs?
a. the equilibrium level of saving falls
b. the interest rate falls
c. the equilibrium level of the investment spending falls
d. the interest rate rises
e. More than one of the above
As we move from the initial equilibrium to the final equilibrium, which of the following occurs?
a. the equilibrium level of saving falls
b. the interest rate falls
c. the equilibrium level of the investment spending falls
d. the interest rate rises
e. More than one of the above
answer
e
a, c, and d all occur
a, c, and d all occur
question
in a closed economy, national savings will be:
a. lower than the private savings if the government runs a deficit
b. higher than the private savings if the government runs a deficit
c. equal than the private savings if the government runs a deficit
d. lower than the private savings if the government runs a surplus
a. lower than the private savings if the government runs a deficit
b. higher than the private savings if the government runs a deficit
c. equal than the private savings if the government runs a deficit
d. lower than the private savings if the government runs a surplus
answer
a
question
Refer to Image 6 in Notes
Suppose a transaction changes a banks balance sheet as indicated in the following t-account, and the reserve ration is 10%.
As a result of the transaction, the bank can make a maximum loan of
a. $0
b. $1,980
c. $2,000
d. $1,800
e. $200
Suppose a transaction changes a banks balance sheet as indicated in the following t-account, and the reserve ration is 10%.
As a result of the transaction, the bank can make a maximum loan of
a. $0
b. $1,980
c. $2,000
d. $1,800
e. $200
answer
d
question
Suppose you deposit $2,000 into Bank of America and that the reserve ratio is 10%. How does this affect the bank's balance sheet?
a. required reserves rise by $2,000
b. deposits rise by $1,000
c. reserves rise by $200
d. excess reserves rise by $1,800
e more than one of the above is correct
a. required reserves rise by $2,000
b. deposits rise by $1,000
c. reserves rise by $200
d. excess reserves rise by $1,800
e more than one of the above is correct
answer
d
question
Refer to Image 7 in Notes
Assume that a bank's initial balance is in the table, and that the reserve ration is 10%. If someone deposits $100,000 into this bank, it will:
a. have $120,000 in excess reserves
b. be in a position to make a maximum of $100,000 of new loans
c. be in a position to make a maximum of $200,000 of new loans
d. have required reserves of $50,000
e. more than one of the above is correct
Assume that a bank's initial balance is in the table, and that the reserve ration is 10%. If someone deposits $100,000 into this bank, it will:
a. have $120,000 in excess reserves
b. be in a position to make a maximum of $100,000 of new loans
c. be in a position to make a maximum of $200,000 of new loans
d. have required reserves of $50,000
e. more than one of the above is correct
answer
a
d would have to be 30,000 to be correct
d would have to be 30,000 to be correct
question
if the Fed raises the interest rate, this will ________ prices and _________ real GDP in the short run.
a. reduce; lower
b. increase; lower
c. increase; raise
d. reduce; raise
a. reduce; lower
b. increase; lower
c. increase; raise
d. reduce; raise
answer
a
question
in the short run, contractionary monetary policy on the part of the Fed results in:
a. a decrease in the money supply, a decrease in interest rates, and a decrease in GDP
b. an increase in the money supply, an increase in interest rates, and an increase in GDP
c. a decrease in the money supply, an increase in interest rates, and a decrease in GDP
d. an increase in the money supply, a decrease in interest rates
a. a decrease in the money supply, a decrease in interest rates, and a decrease in GDP
b. an increase in the money supply, an increase in interest rates, and an increase in GDP
c. a decrease in the money supply, an increase in interest rates, and a decrease in GDP
d. an increase in the money supply, a decrease in interest rates
answer
c
question
Suppose that today the actual Federal Funds Rate is 0.40% and the Federal Reserves Bank's target for the Federal Funds Rate is 0.25%. What is the Federal Reserve Bank likely to do?
a. engage in open market sales, which will increase the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
b. engage in open market purchases, which will increase the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
c. engage in open market purchases, which will decrease the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
d. engage in open market sales, which will decrease the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
e. none of the above -- since the Federal Funds Rate is directly set by the Federal Reserve, it will simply lower the rate
a. engage in open market sales, which will increase the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
b. engage in open market purchases, which will increase the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
c. engage in open market purchases, which will decrease the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
d. engage in open market sales, which will decrease the amount of reserves in the banking system and put downward pressure on the Federal Funds Rate
e. none of the above -- since the Federal Funds Rate is directly set by the Federal Reserve, it will simply lower the rate
answer
b
question
if households in the economy decide to take money out of checking accounts deposits and put this money into savings accounts this will:
a. decrease M1 and not change M2
b. decrease M1 and increase M2
c. increase M1 and decrease M2
d. decrease M1 and decrease M2
a. decrease M1 and not change M2
b. decrease M1 and increase M2
c. increase M1 and decrease M2
d. decrease M1 and decrease M2
answer
a
question
Refer to Image 8 in Notes
Consider the movement from point A to point B in the money market. Which of the following is TRUE?
a. if the Fed is effectively employing stabilization policy in this graph, then it must have believed that there was an inflationary gap in the macro economy
b. a possible cause of this is change from A to B is a decrease in the required reserve ration
c. this movement shows that people wish to hold on to more money as the interest rates rise
d. a possible cause of this change from A to b is open market purchases by the Fed
e. more than one of the above is correct
Consider the movement from point A to point B in the money market. Which of the following is TRUE?
a. if the Fed is effectively employing stabilization policy in this graph, then it must have believed that there was an inflationary gap in the macro economy
b. a possible cause of this is change from A to B is a decrease in the required reserve ration
c. this movement shows that people wish to hold on to more money as the interest rates rise
d. a possible cause of this change from A to b is open market purchases by the Fed
e. more than one of the above is correct
answer
a
question
Refer to Image 9 in Notes
The movement from point A to point B in the money market could be caused by:
a. an increase in real GDP
b. an open market sale of treasury securities by the federal reserve
c. an increase in the required reserve ratio by the federal reserve
d. an increase in the price level
e. more than on the of above is correct
The movement from point A to point B in the money market could be caused by:
a. an increase in real GDP
b. an open market sale of treasury securities by the federal reserve
c. an increase in the required reserve ratio by the federal reserve
d. an increase in the price level
e. more than on the of above is correct
answer
e
a and d could cause this
a and d could cause this
question
Which of the following is an appropriate policy for the federal reserve to pursue if it wants to increase money supply?
a. raise the discount rate
b. buy u.s. treasury bonds
c. lower taxes
d. raise the reserve requirement
e. more than one of the above answers is correct
a. raise the discount rate
b. buy u.s. treasury bonds
c. lower taxes
d. raise the reserve requirement
e. more than one of the above answers is correct
answer
b
question
with a reserve ratio of 20%, an increase in the reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of
a. $8,000
b. $2,000
c. $20,000
d. $50,000
e. $100,000
a. $8,000
b. $2,000
c. $20,000
d. $50,000
e. $100,000
answer
d
question
if the reserve ration is 10%, and the banks do not hold excess reserves, when the Fed buys $10 million dollars of bonds form the public, bank reserves
a. increase initially by $1 million and the money supply eventually increases by $10 million
b. decrease initially by $10 million and the money supply eventually decreases by $100 million
c. decreases initially by $1 million and the money supply eventually increases by $10 million
d. increases initially by $10 million and the money supply eventually increases by $100 million
a. increase initially by $1 million and the money supply eventually increases by $10 million
b. decrease initially by $10 million and the money supply eventually decreases by $100 million
c. decreases initially by $1 million and the money supply eventually increases by $10 million
d. increases initially by $10 million and the money supply eventually increases by $100 million
answer
d
question
Refer to Image 10 in Notes
If the economy is at point !, the appropriate stabilizing monetary policy by the federal reserve would be to:
a. raise interest rate
b. raise income taxed
c. lower income taxes
d. lower interest rates
e. more than on of the above is correct
If the economy is at point !, the appropriate stabilizing monetary policy by the federal reserve would be to:
a. raise interest rate
b. raise income taxed
c. lower income taxes
d. lower interest rates
e. more than on of the above is correct
answer
a
question
Refer to Image 1 in Notes
Suppose the economy is at point B. If the federal engages in open market purchases, we should expect to see output _________ services _________, and employment __________
a. increase; decrease; increase
b. increase; increase; decrease
c. decrease; not change; not change
d. not change; increase; not change
e. non of the above
Suppose the economy is at point B. If the federal engages in open market purchases, we should expect to see output _________ services _________, and employment __________
a. increase; decrease; increase
b. increase; increase; decrease
c. decrease; not change; not change
d. not change; increase; not change
e. non of the above
answer
b
question
Refer to Image 1 in Notes
Suppose the economy is at point B. The automatic mechanism will take the economy to point ______, while expansionary policy (either monetary or fiscal) will take the economy to point _________.
a. A; A
b. C; A
c. C; C
d. D; C
e. A; C
Suppose the economy is at point B. The automatic mechanism will take the economy to point ______, while expansionary policy (either monetary or fiscal) will take the economy to point _________.
a. A; A
b. C; A
c. C; C
d. D; C
e. A; C
answer
e
question
Refer to Image 1 in Notes
Suppose the economy is at point B. The automatic mechanism will take the economy to point _________, while the expansionary policy (either monetary or fiscal) will take the economy to point __________.
a. A; A
b. C; A
d. D; C
e. A; C
Suppose the economy is at point B. The automatic mechanism will take the economy to point _________, while the expansionary policy (either monetary or fiscal) will take the economy to point __________.
a. A; A
b. C; A
d. D; C
e. A; C
answer
e
question
Refer to Image 11 in Notes
Suppose that this economy begins at E1 and the central bank engages in expansionary monetary policy. According to the classical theory of inflation, in the long run, the economy will move to ________ and the price level will be _________.
a. E3; P3
b. E1; P2
c. E4; P2
d. E2; P3
Suppose that this economy begins at E1 and the central bank engages in expansionary monetary policy. According to the classical theory of inflation, in the long run, the economy will move to ________ and the price level will be _________.
a. E3; P3
b. E1; P2
c. E4; P2
d. E2; P3
answer
a
question
which of the following is likely to occur if there is 10% inflation over the next year and it is perfectly anticipated?
a. there will not be any "menu lists"
b. real interest rates will increase by 10%
c. wealth will be redistributed from the lenders to borrowers
d. nominal wages will increase by 10%
e. more than one of the above is correct
a. there will not be any "menu lists"
b. real interest rates will increase by 10%
c. wealth will be redistributed from the lenders to borrowers
d. nominal wages will increase by 10%
e. more than one of the above is correct
answer
d
question
unexpectedly high inflation causes which of the following?
a. lenders receive a lower real interest rate than they expected
b. borrowers pay a higher real interest rate than they expected
c. neither borrowers nor lenders lose
d. both lenders and borrowers gain
e. more than one of the above is correct
a. lenders receive a lower real interest rate than they expected
b. borrowers pay a higher real interest rate than they expected
c. neither borrowers nor lenders lose
d. both lenders and borrowers gain
e. more than one of the above is correct
answer
a
question
according to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be:
a. 4%
b. 6%
c. 8%
d. 6/2% or 3%
e. 2%
a. 4%
b. 6%
c. 8%
d. 6/2% or 3%
e. 2%
answer
a
question
Mary has $1,000 and is considering purchasing a $1,000 bond that pays 7% interest per year. Mary decides not to buy the bond and holds the $1,000 as cash. If the inflation rate is 4%, the opportunity cost of holding the $1,000 as money is:
a. $30.00
b. $110.00
c. $40.00
d. $70.00
a. $30.00
b. $110.00
c. $40.00
d. $70.00
answer
d
question
Gabriela deposits $1,000 in a saving account that pays an annual interest rate of 6%. Over the course of a year the inflation rate is 2%. At the end of the year Gabriela has:
a. $80 more in her account, and her purchasing power has increased about $60
b. $40 more in her account, and her purchasing power has increased about $60
c. $40 more in her account, and her purchasing power has increased about $40
d. $60 more in her account, and her purchasing power has increased about $40
e. $60 more in her account, and her purchasing power has increased about $20
a. $80 more in her account, and her purchasing power has increased about $60
b. $40 more in her account, and her purchasing power has increased about $60
c. $40 more in her account, and her purchasing power has increased about $40
d. $60 more in her account, and her purchasing power has increased about $40
e. $60 more in her account, and her purchasing power has increased about $20
answer
...
question
you borrow $10,000 form a bank for 1 year at nominal interest rate of 5%. The CPI over that year rises from 150 to 155. What is the approximate real interest rate you are paying?
a. -10%
b. 0%
c. 10%
d. 1.67%
e. -3.3%
a. -10%
b. 0%
c. 10%
d. 1.67%
e. -3.3%
answer
d
question
sticky wages reduce the ability of free market forces to help the economy recover from a recession. Which of the following inflation rates would make real wages less sticky, ad thus allow for a quicker adjustment?
a. 2%
b. 0%
c. -2%
a. 2%
b. 0%
c. -2%
answer
a
question
Which of the following will not increase LRAS?
a. An increase in the capital stock
b. An improvement in technology
c. An increase in the price level
d. An increase in the labor stock
a. An increase in the capital stock
b. An improvement in technology
c. An increase in the price level
d. An increase in the labor stock
answer
c
question
Which of the following statements is true?
a. The government has a harder time counteracting leftward shifts in AD than in AS because shifts in AD both raise prices and reduce output.
b. The government has a harder time counteracting leftward shifts in AS than in AD because shifts in AS raise prices and output.
c. The government has a harder time counteracting leftward shifts in AD than in AS because shifts in AD raise prices and output.
d. The government has a harder time counteracting leftward shifts in AS than in AD because shifts in AS both raise prices and reduce output.
a. The government has a harder time counteracting leftward shifts in AD than in AS because shifts in AD both raise prices and reduce output.
b. The government has a harder time counteracting leftward shifts in AS than in AD because shifts in AS raise prices and output.
c. The government has a harder time counteracting leftward shifts in AD than in AS because shifts in AD raise prices and output.
d. The government has a harder time counteracting leftward shifts in AS than in AD because shifts in AS both raise prices and reduce output.
answer
d
question
Whenever AD or AS shifts and puts the economy out of long-run equilibrium, AS has a natural tendency to shift in such a way as to bring the economy back into long-run equilibrium. If the economy always eventually comes back to long-run equilibrium, the reason that the government even tries to implement policies to bring the economy into equilibrium is that:
a. politicians feel that it will be advantageous to take some action.
b. the appropriate government response can eliminate the short-run effect on prices but does little to speed up the process of reducing unemployment.
c. the appropriate government response can eliminate the long-run effect on prices and can speed up the process of reducing unemployment.
d. businesses expect the government to take some action.
a. politicians feel that it will be advantageous to take some action.
b. the appropriate government response can eliminate the short-run effect on prices but does little to speed up the process of reducing unemployment.
c. the appropriate government response can eliminate the long-run effect on prices and can speed up the process of reducing unemployment.
d. businesses expect the government to take some action.
answer
c
question
The demand curve for an individual good slopes downwards because:
a. as the price of the good rises, people purchase less of the good, assuming the price of all other goods is fixed.
b. as the price of the good rises, the inflation rate rises and people purchase less of the good.
c. a rise in the price level will reduce the real value of income, causing people to reduce their consumption.
d. a rise in the price level will lead to rising inflation and this will reduce consumption spending.
a. as the price of the good rises, people purchase less of the good, assuming the price of all other goods is fixed.
b. as the price of the good rises, the inflation rate rises and people purchase less of the good.
c. a rise in the price level will reduce the real value of income, causing people to reduce their consumption.
d. a rise in the price level will lead to rising inflation and this will reduce consumption spending.
answer
a
question
The aggregate demand curve slopes downwards because:
a. as the price of the good rises, people purchase less of the good, assuming the price of all other goods is fixed.
b. as the price of the good rises, the inflation rate rises and people purchase less of the good.
c. a rise in the price level will reduce the real value of income, causing people to reduce their consumption.
d. a rise in the price level will lead to rising inflation and this will reduce consumption spending.
a. as the price of the good rises, people purchase less of the good, assuming the price of all other goods is fixed.
b. as the price of the good rises, the inflation rate rises and people purchase less of the good.
c. a rise in the price level will reduce the real value of income, causing people to reduce their consumption.
d. a rise in the price level will lead to rising inflation and this will reduce consumption spending.
answer
c
question
What are the four components of GDP?
answer
Investment
Government spending
Consumption
Net exports
Government spending
Consumption
Net exports
question
In 2009, during the height of the U.S. financial crisis, real GDP fell 3.5 percent and the Consumer Price Index fell from 215.3 to 214.9. Was this recession likely caused by a shift in aggregate demand or aggregate supply?
This recession was likely caused by _____________
This recession was likely caused by _____________
answer
a decrease in aggregate demand
question
When the long-run aggregate supply curve shifts, the short-run aggregate supply curve _______ in the ______ direction.
answer
always shifts; same
question
If the citizens of a country want to increase the rate of economic growth, they should focus their efforts on shifting the __________ aggregate supply curve(s) to the ___________.
answer
the long run; right
question
Temporary policy interventions using increased government spending in response to economic shocks are generally more effective at counteracting _________ shocks than ______________ shocks.
answer
negative demand-side; negatively supply-side
question
Nonprice changes in consumption, investment, government spending, or net exports:
a. decrease inflation and increase GDP.
b. shift the aggregate demand curve.
c. do not affect aggregate demand.
d. cause a movement along the aggregate demand curve.
a. decrease inflation and increase GDP.
b. shift the aggregate demand curve.
c. do not affect aggregate demand.
d. cause a movement along the aggregate demand curve.
answer
b
question
In the long run, changes in price ____________ aggregate supply. As a result, the long-run aggregate supply curve is _________/
answer
don't affect; vertical
question
If a negative demand-side shock and a temporary negative supply-side shock occur simultaneously, what will be the short-run effects on price level and output?
The new level of output _________.
The new price level ____________
The new level of output _________.
The new price level ____________
answer
will be lower; cannot be determined
question
Anything that causes the cost of production to temporarily decrease will cause the _________ supply curve(s) to __________. Ceteris paribus, this will temporarily ____________ output and ___________ the price level.
answer
the short run; shift right; increase; decrease
question
Suppose a country is in the midst of a serious recession with high unemployment and large government deficits. The president suggests that in times like this the government has the obligation to "tighten its belt" and cut spending since so many families around the country have to do the same thing. In this case, a decrease in government spending will:
answer
-decrease the price level and costs.
checked
-eventually cause a rightward shift of SRAS.
-push AD to the left and decrease output.
checked
-eventually cause a rightward shift of SRAS.
-push AD to the left and decrease output.
question
For each of the following shocks, say whether it is a demand-side shock or a supply-side shock.
1. Consumer confidence falls
2. Government spending increases:
3. The price of foreign goods increases
4. The price of oil increases:
5. A cyclone destroys manufacturing plants:
1. Consumer confidence falls
2. Government spending increases:
3. The price of foreign goods increases
4. The price of oil increases:
5. A cyclone destroys manufacturing plants:
answer
1. demand side shock
2. demand side shock
3. demand side shock
4. supply side shock
5. supply side shock
2. demand side shock
3. demand side shock
4. supply side shock
5. supply side shock
question
Refer to Image 14 in Notes
1. Suppose a revolution in Iran results in a significant reduction in the world's supply of oil.
This will:
a. reduce output and lower the price level.
b. increase output and lower the price level.
c. increase output and raise the price level.
d. reduce output and raise the price level.
2. Suppose the government takes no action to help the economy.
Eventually, the price level ___________ and output ____________ .
3. Suppose, instead, the government decides to take action to help the economy because they are worried about a high level of unemployment.
You can recommend:
a. raising taxes and/or cutting spending.
b. raising taxes and/or raising spending.
c. cutting taxes and/or cutting spending.
d. doing nothing.
e. cutting taxes and/or raising spending.
4. If the U.S. government makes the appropriate policy response, what happens to the price level and output in the long run.
In the long run, the price level ___________ and output ___________ .
1. Suppose a revolution in Iran results in a significant reduction in the world's supply of oil.
This will:
a. reduce output and lower the price level.
b. increase output and lower the price level.
c. increase output and raise the price level.
d. reduce output and raise the price level.
2. Suppose the government takes no action to help the economy.
Eventually, the price level ___________ and output ____________ .
3. Suppose, instead, the government decides to take action to help the economy because they are worried about a high level of unemployment.
You can recommend:
a. raising taxes and/or cutting spending.
b. raising taxes and/or raising spending.
c. cutting taxes and/or cutting spending.
d. doing nothing.
e. cutting taxes and/or raising spending.
4. If the U.S. government makes the appropriate policy response, what happens to the price level and output in the long run.
In the long run, the price level ___________ and output ___________ .
answer
1. d
2. returns to its initial value; returns to its initial value
3. e
4. increases; returns to its initial value
2. returns to its initial value; returns to its initial value
3. e
4. increases; returns to its initial value
question
Refer to Image 15 in Notes
1. Suppose a summer of perfect weather in the Midwest leads to record harvests of corn, wheat, and soybeans.
This will:
a. reduce output and lower the price level.
b. increase output and lower the price level.
c. increase output and raise the price level.
d. reduce output and raise the price level.
2. Suppose the government takes no action to help the economy.
Eventually, the price level ___________ and output ____________ .
3. If the U.S. government reacts to the record harvests by increasing taxes or decreasing spending, what happens to the price level and output in the long run?
In the long run, the price level _________ and output ____________
4. The problem associated with the government reacting to the record harvests by increasing taxes or decreasing spending is:
a. unemployment will increase.
b. the deficit will increase.
c. the price level will increase.
d. the inflation rate will increase.
1. Suppose a summer of perfect weather in the Midwest leads to record harvests of corn, wheat, and soybeans.
This will:
a. reduce output and lower the price level.
b. increase output and lower the price level.
c. increase output and raise the price level.
d. reduce output and raise the price level.
2. Suppose the government takes no action to help the economy.
Eventually, the price level ___________ and output ____________ .
3. If the U.S. government reacts to the record harvests by increasing taxes or decreasing spending, what happens to the price level and output in the long run?
In the long run, the price level _________ and output ____________
4. The problem associated with the government reacting to the record harvests by increasing taxes or decreasing spending is:
a. unemployment will increase.
b. the deficit will increase.
c. the price level will increase.
d. the inflation rate will increase.
answer
1. b
2. returns to its initial value; returns to its initial value
3. decreases ; returns to its initial value.
4. a
2. returns to its initial value; returns to its initial value
3. decreases ; returns to its initial value.
4. a
question
If unemployment is high and spending is sluggish, what type of fiscal policy should be enacted?
a.Expansionary fiscal policy, which includes decreases in government spending or increases in taxes, which will shift AD to the right
b. Contractionary fiscal policy, which includes decreases in government spending or increases in taxes, which will shift AD to the left
c. Contractionary fiscal policy, which includes increases in government spending or decreases in taxes, which will shift AD to the right
d. Expansionary fiscal policy, which includes increases in government spending or decreases in taxes, which will shift AD to the right
a.Expansionary fiscal policy, which includes decreases in government spending or increases in taxes, which will shift AD to the right
b. Contractionary fiscal policy, which includes decreases in government spending or increases in taxes, which will shift AD to the left
c. Contractionary fiscal policy, which includes increases in government spending or decreases in taxes, which will shift AD to the right
d. Expansionary fiscal policy, which includes increases in government spending or decreases in taxes, which will shift AD to the right
answer
d
question
A government will run a budget surplus when government purchases and transfer payments ___________ tax revenues.
answer
are less than
question
What is the relationship between the deficit and public debt?
a. Deficit is the ratio of debt to surplus.
b. Debt is the product of GDP and transfer payments.
c. Deficit is the sum of all debt and surpluses.
d. Debt is the sum of all deficits and surpluses.
a. Deficit is the ratio of debt to surplus.
b. Debt is the product of GDP and transfer payments.
c. Deficit is the sum of all debt and surpluses.
d. Debt is the sum of all deficits and surpluses.
answer
d
question
The king of a small monarchy decrees an income tax cut in order to stimulate the economy. However, rather than spend the additional income from the tax cut, the citizens end up saving most of it. This incident __________ Ricardian equivalence theory.
answer
supports
question
During a recession, government often pursues expansionary fiscal policy. How does this affect budget balances?
a. Deficits increase as spending rises and revenues fall.
b. Surpluses decrease as spending falls and revenues fall.
c. Deficits decrease as spending rises and revenues fall.
d. Surpluses increase as spending rises and revenues fall.
a. Deficits increase as spending rises and revenues fall.
b. Surpluses decrease as spending falls and revenues fall.
c. Deficits decrease as spending rises and revenues fall.
d. Surpluses increase as spending rises and revenues fall.
answer
a
question
Which of the following items would likely contribute to the current government budget deficit?
answer
-Involvement in a war
-A tax cut
-An increase in the rate of unemployment
-A tax cut
-An increase in the rate of unemployment
question
Taxpayers are clamoring for their government to be more responsible and many strongly support a balanced-budget amendment. This would mean the country could no longer spend more than it takes in each year. A balanced-budget amendment will:
answer
-force the government to cut back on its spending.
- reduce the cost of borrowing.
-limit the flexibility of the government in engaging in expansionary fiscal policy.
- reduce the cost of borrowing.
-limit the flexibility of the government in engaging in expansionary fiscal policy.
question
The purpose of contractionary fiscal policy is to _________ ___________, whereas the purpose of expansionary fiscal policy is to _________ ___________
answer
reduce; aggregated demand; increase; aggregated demand
question
Is government debt good or bad for the economy and the nation as a whole? Government debt:
answer
-pushes the burden of the debt onto future generations.
-can cause crowding out which increases interest rates.
-gives the government the flexibility to respond to economic conditions by changing its spending.
-must be repaid, causing government interest payments.
-can cause crowding out which increases interest rates.
-gives the government the flexibility to respond to economic conditions by changing its spending.
-must be repaid, causing government interest payments.
question
It is possible for a nation's government to run a budget deficit in some years but not have national debt if the economy initially had a(an):
a. contractionary fiscal policy in place.
b. surplus at least as large as the deficit.
c. expansionary fiscal policy in place.
d. surplus smaller than the deficit.
a. contractionary fiscal policy in place.
b. surplus at least as large as the deficit.
c. expansionary fiscal policy in place.
d. surplus smaller than the deficit.
answer
b
question
After the collapse of the U.S. housing market, what happened to actual GDP compared to potential GDP?
a. Actual GDP was less than potential GDP.
b. Actual GDP finally equaled potential GDP after years of expansion.
c. Actual GDP is unrelated to the U.S. housing market collapse.
d. Actual GDP exceeded potential GDP.
a. Actual GDP was less than potential GDP.
b. Actual GDP finally equaled potential GDP after years of expansion.
c. Actual GDP is unrelated to the U.S. housing market collapse.
d. Actual GDP exceeded potential GDP.
answer
a
question
The best fiscal policy for a country suffering from high inflation is:
a. contractionary fiscal policy, which includes decreasing taxes or increasing spending.
b. expansionary fiscal policy, which includes increasing taxes or decreasing spending.
c. expansionary fiscal policy, which includes decreasing taxes or increasing spending.
d. contractionary fiscal policy, which includes increasing taxes or decreasing spending.
a. contractionary fiscal policy, which includes decreasing taxes or increasing spending.
b. expansionary fiscal policy, which includes increasing taxes or decreasing spending.
c. expansionary fiscal policy, which includes decreasing taxes or increasing spending.
d. contractionary fiscal policy, which includes increasing taxes or decreasing spending.
answer
d
question
If in some year a nation's budget deficit is $9.49 trillion and government spending is $12.26 trillion, how much must it have earned in tax revenue this year?
It must have earned $________ trillion in tax revenue this year.
It must have earned $________ trillion in tax revenue this year.
answer
2.77
question
Assuming that unemployment is high and spending is low, answer the following questions.
1. Should the government pursue expansionary or contractionary fiscal policy?
____________ fiscal policy
2. What will the appropriate policy do to the aggregate demand curve? Will it shift to the right or to the left?
3. Through which component(s) of aggregate demand (Consumption, Investment, Government Spending, or Net Exports) will the change occur?
1. Should the government pursue expansionary or contractionary fiscal policy?
____________ fiscal policy
2. What will the appropriate policy do to the aggregate demand curve? Will it shift to the right or to the left?
3. Through which component(s) of aggregate demand (Consumption, Investment, Government Spending, or Net Exports) will the change occur?
answer
1. expansionary
2. to the right
3. consumption, government spending, investment
2. to the right
3. consumption, government spending, investment
question
Time lags can impede the effectiveness of fiscal policy. Select the source of the time lag for each of the following situations.
1. The parliament in a European country passes a massive infrastructure development appropriation to stimulate the economy. However, the engineering firms in the country become backlogged with the extra work.
2. Congress passes a tax cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases over tax cuts.
3. In September, the Bureau of Labor Statistics revises the unemployment numbers from July.
4. Congress passes a fiscal policy bill that sends block grants to states for economic development. However, some of the state legislatures cannot agree on how to allocate the money, so the funds sit idle in a special account.
1. The parliament in a European country passes a massive infrastructure development appropriation to stimulate the economy. However, the engineering firms in the country become backlogged with the extra work.
2. Congress passes a tax cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases over tax cuts.
3. In September, the Bureau of Labor Statistics revises the unemployment numbers from July.
4. Congress passes a fiscal policy bill that sends block grants to states for economic development. However, some of the state legislatures cannot agree on how to allocate the money, so the funds sit idle in a special account.
answer
1. implementation lag
2. formulation lag
3. information lag
4. formulation lag
2. formulation lag
3. information lag
4. formulation lag
question
Indicate whether each of the following is an example of an automatic stabilizer or discretionary fiscal policy.
1. The government increases the top income tax bracket to 35%.
2. The tax rate paid by an individual falls from 20% to 15% when his pay is reduced during a recession.
3. A person qualifies for unemployment compensation when she loses her job during a recession.
4. The government votes to increase military spending.
5. The government collects more tax revenue during an expansion because the stock market is booming.
1. The government increases the top income tax bracket to 35%.
2. The tax rate paid by an individual falls from 20% to 15% when his pay is reduced during a recession.
3. A person qualifies for unemployment compensation when she loses her job during a recession.
4. The government votes to increase military spending.
5. The government collects more tax revenue during an expansion because the stock market is booming.
answer
1. discretionary fiscal policy
2. automatic stabilizer
3. automatic stabilizer
4. discretionary fiscal policy
5. automatic stabilizer
2. automatic stabilizer
3. automatic stabilizer
4. discretionary fiscal policy
5. automatic stabilizer
question
Saabira earns $78,000 a year and pays an average annual tax rate of 15%.
1. Saabira's disposable income is $_________ and the amount of tax she pays to the government is $________.
2. Suppose a recession hits the economy and Saabira's income falls to $60,000 per year due to the fact that she is earning a smaller annual bonus. If she now pays an average annual tax rate of 12%, her disposable income is $__________ and the amount of tax she pays to the government is $___________ .
3. Saabira's annual salary fell by $_________ and her disposable income fell by $__________.
4. In this example, income taxes ________ an automatic stabilizer.
1. Saabira's disposable income is $_________ and the amount of tax she pays to the government is $________.
2. Suppose a recession hits the economy and Saabira's income falls to $60,000 per year due to the fact that she is earning a smaller annual bonus. If she now pays an average annual tax rate of 12%, her disposable income is $__________ and the amount of tax she pays to the government is $___________ .
3. Saabira's annual salary fell by $_________ and her disposable income fell by $__________.
4. In this example, income taxes ________ an automatic stabilizer.
answer
1. 66,300; 11,700
2. 52,800; 7,200
3. 18,000; 13,500
4. are
2. 52,800; 7,200
3. 18,000; 13,500
4. are
question
If in some year a nation's budget deficit is $9.52 trillion and government spending is $12.23 trillion, how much must it have earned in tax revenue this year?
It must have earned $__________ trillion in tax revenue this year.
It must have earned $__________ trillion in tax revenue this year.
answer
2.71
question
The government of a closed economy increases taxes and does not change the level of government spending. As a result, public savings will ___________ and private savings will ____________. If the level of consumption spending does not change, then national savings____________. You may assume the level of income (before tax) in the economy does not
answer
increase; decrease; remain unchanged
question
When Collins Inc. uses the proceeds from issuing bonds to purchase equipment needed to start a new product line, this is an example of:
a. imports.
b. saving.
c. investment.
d. exports.
a. imports.
b. saving.
c. investment.
d. exports.
answer
c
question
If Daisy buys some of the Collins Inc. bonds, her purchase is an example of:
a. exports.
b. imports.
c. saving.
d. investment.
a. exports.
b. imports.
c. saving.
d. investment.
answer
c
question
A major corporation would likely pay _________ interest rate on a loan than would an individual borrower because the individual likely has a __________ risk of default than the corporation.
answer
a lower; a higher
question
Comparing a government bond from a developing country to one from France, the government bond from the developing country will have:
a. less risk, because the chance of default is higher in a nation with higher GDP and growth.
b. less risk, because the chance of default is higher in a nation with lower GDP and growth.
c. more risk, because the chance of default is higher in a nation with lower GDP and growth.
d. more risk, because the chance of default is lower in a nation with lower GDP and growth.
a. less risk, because the chance of default is higher in a nation with higher GDP and growth.
b. less risk, because the chance of default is higher in a nation with lower GDP and growth.
c. more risk, because the chance of default is higher in a nation with lower GDP and growth.
d. more risk, because the chance of default is lower in a nation with lower GDP and growth.
answer
c
question
If a government encourages saving among its citizens, there will be:
answer
-lower interest rates.
-investment and economic growth.
-a higher level of investment.
-investment and economic growth.
-a higher level of investment.
question
In a closed economy, if government spending increases while private savings and taxes remain constant, then investment spending must _________
answer
decrease
question
When businesses spend money on goods and services that are designed to improve the future productivity of the firm, they are engaging in:
a. investment.
b. borrowing.
c. savings.
d. consumption.
a. investment.
b. borrowing.
c. savings.
d. consumption.
answer
...
question
The savings-investment identity tells us:
a. savings always equals investment in an economy with government and trade.
b. savings always equals investment in an economy without government or trade.
-personal savings always equals foreign investment in an economy without government.
-foreign savings always equals foreign investment in an economy with trade.
a. savings always equals investment in an economy with government and trade.
b. savings always equals investment in an economy without government or trade.
-personal savings always equals foreign investment in an economy without government.
-foreign savings always equals foreign investment in an economy with trade.
answer
b
question
When compared to financial investments in debt-based assets (e.g., bonds), financial investments in equity-based assets (e.g., stocks) usually pay _________ rate of return because debt assets typically carry________ level of risk.
answer
a higher; a lower
question
Which of the following events would likely cause the demand for loanable funds (investment) curve to shift to the right?
answer
-Businesses become optimistic about the future of the economy.
-Congress passes laws reducing red tape for small businesses.
-Congress passes laws reducing red tape for small businesses.
question
A country with poorly developed financial markets might have a hard time sustaining economic growth because:
a. economic growth requires a partnership between savers, investors, and government agencies.
b. without a well-developed financial system, government will have to step in to fill the gap. This will be less efficient.
c. savers will not find a safe place to put their funds and investors will not be able to get the funds they need; thus, economic opportunities will be lost.
d. a well-developed financial system can only occur when a country reaches a certain level of economic growth
a. economic growth requires a partnership between savers, investors, and government agencies.
b. without a well-developed financial system, government will have to step in to fill the gap. This will be less efficient.
c. savers will not find a safe place to put their funds and investors will not be able to get the funds they need; thus, economic opportunities will be lost.
d. a well-developed financial system can only occur when a country reaches a certain level of economic growth
answer
c
question
In each of the following examples, name the financial product being described.
1. A family borrows money to pay for a house:
2. A new tech start-up offers investors the ability to purchase a small part of the company to raise needed capital:
3. The U.S. government offers to pay investors a 3 percent return rate next year if they finance its debt today:
1. A family borrows money to pay for a house:
2. A new tech start-up offers investors the ability to purchase a small part of the company to raise needed capital:
3. The U.S. government offers to pay investors a 3 percent return rate next year if they finance its debt today:
answer
1. mortgage
2. stock
3. bond
2. stock
3. bond
question
Categorize each of the following as a type of savings or investment in the economic sense.
1. You buy 100 shares of Apple Computer stock
2. You place part of your income in a mutual fund:
3. A delivery service buys 1,000 new trucks:
4. You put $1,000 in a certificate of deposit, by giving money to the bank in exchange for a set amount of return:
1. You buy 100 shares of Apple Computer stock
2. You place part of your income in a mutual fund:
3. A delivery service buys 1,000 new trucks:
4. You put $1,000 in a certificate of deposit, by giving money to the bank in exchange for a set amount of return:
answer
1. savings
2. savings.
3. investment
4. savings
2. savings.
3. investment
4. savings
question
The chapter discusses three main functions of a banking system. Classify each of the following by the function it best represents.
1. Wyatt can get cash out of the ATM at any time of day or night.
2. Instead of lending all his savings out to one borrower, Xander's bank makes the money in his savings account available to a variety of firms, with different characteristics and risk profiles, wishing to invest.
3. When Yao's car suddenly breaks down, she can quickly withdraw funds from her savings account to pay the mechanic and rent a car.
4. Zirwat can get start-up funds for her new hair salon from a bank, instead of having to find people in her neighborhood willing to lend their extra money.
1. Wyatt can get cash out of the ATM at any time of day or night.
2. Instead of lending all his savings out to one borrower, Xander's bank makes the money in his savings account available to a variety of firms, with different characteristics and risk profiles, wishing to invest.
3. When Yao's car suddenly breaks down, she can quickly withdraw funds from her savings account to pay the mechanic and rent a car.
4. Zirwat can get start-up funds for her new hair salon from a bank, instead of having to find people in her neighborhood willing to lend their extra money.
answer
1. provide liquidity
2. diversify risk
3. provide liquidity
4. intermediary between savers and borrowers
2. diversify risk
3. provide liquidity
4. intermediary between savers and borrowers
question
Suppose government spending was $3.90 trillion, tax revenue was $4.50 trillion, GDP was $14.08 trillion, and total consumer spending was $10.60 trillion.
1. If the economy has no exports or imports, what was the national savings?
2. How much was public savings?
3. How much was private savings?
1. If the economy has no exports or imports, what was the national savings?
2. How much was public savings?
3. How much was private savings?
answer
1. -0.42
2. 0.60
3. -1.02
2. 0.60
3. -1.02
question
Reducing the reserve requirement would have the effect of ________ the money supply.
answer
increasing
question
In the liquidity-preference model, which of the following is true?
a. The money supply decreases as the interest rate decreases.
b. The money supply does not change as the interest rate changes.
c. The money supply decreases as the interest rate increases.
d. The money supply increases as the interest rate increases.
a. The money supply decreases as the interest rate decreases.
b. The money supply does not change as the interest rate changes.
c. The money supply decreases as the interest rate increases.
d. The money supply increases as the interest rate increases.
answer
b
question
The monetary policy used most frequently by the Federal Reserve System is:
a. open-market operations.
b. changes in the money supply.
c. changes in the discount rate.
d. changes in the required reserve ratio.
a. open-market operations.
b. changes in the money supply.
c. changes in the discount rate.
d. changes in the required reserve ratio.
answer
a
question
This tool is the best choice in most circumstances because it is performed on:
a. a daily basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from the Fed.
b. a daily basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from each other.
c. an annual basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from the Fed.
d. an annual basis, doesn't inconvenience the Fed, and doesn't require banks to take loans from the Fed.
a. a daily basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from the Fed.
b. a daily basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from each other.
c. an annual basis, doesn't inconvenience bank managers, and doesn't require banks to take loans from the Fed.
d. an annual basis, doesn't inconvenience the Fed, and doesn't require banks to take loans from the Fed.
answer
a
question
The M1 definition of the money supply tends to be:
a. narrower than M2.
b. less liquid than M2
c. broader than M2.
d. a better definition than M2.
a. narrower than M2.
b. less liquid than M2
c. broader than M2.
d. a better definition than M2.
answer
a
question
When depositors change the way they hold assets this could increase the M1 measure of the money supply while leaving M2 unchanged if depositors:
a. moved assets from savings to checking.
b. made a cash deposit into a savings account.
c. moved assets from checking to savings.
d. made a cash deposit into a checking account.
a. moved assets from savings to checking.
b. made a cash deposit into a savings account.
c. moved assets from checking to savings.
d. made a cash deposit into a checking account.
answer
a
question
Money contributes to economic activity and allows for a more complex society than barter does because:
a. there are many international currencies and this requires a complex system of exchange rates.
b. barter requires a central manager to determine who has what you want and who wants what you have.
c. money is managed by a central bank and can be increased or decreased to influence economic activity.
d. barter is inefficient. Each time you want to make a trade you have to find a partner who has something you want and wants what you have to offer.
a. there are many international currencies and this requires a complex system of exchange rates.
b. barter requires a central manager to determine who has what you want and who wants what you have.
c. money is managed by a central bank and can be increased or decreased to influence economic activity.
d. barter is inefficient. Each time you want to make a trade you have to find a partner who has something you want and wants what you have to offer.
answer
d
question
According to the liquidity-preference model, if the Federal Reserve wants to reduce the interest rate, it should take actions to _________ money supply.
answer
increase
question
What functions does money serve?
answer
- medium of exchange
- unit of account
- store of value
- unit of account
- store of value
question
When we say that the Federal Reserve System is politically independent we mean that the:
a. Federal Reserve Banks cannot accept deposits from the general public.
b. members of the Board of Governors serve long terms and are not elected by popular vote.
c. presidents of the Federal Reserve Banks are appointed and not elected by popular vote.
d. members of the Board of Governors serve short terms and are elected by popular vote.
a. Federal Reserve Banks cannot accept deposits from the general public.
b. members of the Board of Governors serve long terms and are not elected by popular vote.
c. presidents of the Federal Reserve Banks are appointed and not elected by popular vote.
d. members of the Board of Governors serve short terms and are elected by popular vote.
answer
b
question
Which tool of monetary policy is most likely being described by each of the following statements?
1. It's the major way the Federal Reserve System enacts monetary policy:
2. This tool is good for emergency situations that require major, large-scale action:
3. This tool goes through the Federal Reserve's role as lender of last resort:
4. This tool is best for everyday monetary policy:
5. A major disadvantage of this tool is that it requires that banks want to borrow from the Fed:
6. Even if they aren't interested in buying, selling, or borrowing from the Fed, changes in this tool may inconvenience bank managers:
1. It's the major way the Federal Reserve System enacts monetary policy:
2. This tool is good for emergency situations that require major, large-scale action:
3. This tool goes through the Federal Reserve's role as lender of last resort:
4. This tool is best for everyday monetary policy:
5. A major disadvantage of this tool is that it requires that banks want to borrow from the Fed:
6. Even if they aren't interested in buying, selling, or borrowing from the Fed, changes in this tool may inconvenience bank managers:
answer
1. open market operation
2. changing the reserve requirement
3. discount window policy
4. open market operation
5. discount window policy
6. changing the reserve requirement
2. changing the reserve requirement
3. discount window policy
4. open market operation
5. discount window policy
6. changing the reserve requirement
question
Consider a country where all money is currently held as cash and the money supply has a value of $5,000. A banking system is developed, and the residents of the country deposit the $5,000 of cash into the banking system and decide they no longer want to hold any cash. If the reserve ratio is equal to 10%, how much can the $5,000 increase the amount of money in the economy
1. The money supply in the economy will be equal to $__________
2. The banking system has the ability to create $__________ of new money.
1. The money supply in the economy will be equal to $__________
2. The banking system has the ability to create $__________ of new money.
answer
1. 50,000
2. 45,000
2. 45,000
question
Say whether each of the following is classified as part of M1 or M2, or both
1. Checkable deposits:
2. Dollar bills:
3. Money in your checking account:
4. Money in your savings account:
5. Certificates of deposit under $100,000:
6. Traveler's checks:
1. Checkable deposits:
2. Dollar bills:
3. Money in your checking account:
4. Money in your savings account:
5. Certificates of deposit under $100,000:
6. Traveler's checks:
answer
1. M1 and M2
2. M1 and M2
3. M1 and M2
4. M2
5. M2
6. M1 and M2
2. M1 and M2
3. M1 and M2
4. M2
5. M2
6. M1 and M2
question
For each of the following situations, identify whether the Federal Reserve is likely to pursue an expansionary or a contractionary monetary policy.
1. The unemployment rate is at 0.5 percent:
2. The economy is experiencing record growth in GDP:
3. The unemployment rate is at 15 percent:
4. Inflation has reached 10 percent, a recent high
5. A hurricane recently demolished a major city, causing a major recession:
1. The unemployment rate is at 0.5 percent:
2. The economy is experiencing record growth in GDP:
3. The unemployment rate is at 15 percent:
4. Inflation has reached 10 percent, a recent high
5. A hurricane recently demolished a major city, causing a major recession:
answer
1. contractionary
2. contractionary
3. expansionary
4. contractionary
5. expansionary
2. contractionary
3. expansionary
4. contractionary
5. expansionary
question
Which of the following statements are true regarding the differences between M1 and M2?
answer
- All items in M1 are more liquid than all items in M2.
- M2 includes savings deposits, whereas M1 does not.
- M2 represents a broader measure of the money supply compared to M1
- M2 includes savings deposits, whereas M1 does not.
- M2 represents a broader measure of the money supply compared to M1
question
You decide to take $300 out of your piggy bank at home and place it in the bank. If the reserve requirement is 5 percent, how much can your $300 increase the amount of money in the economy?
answer
$5,700
question
Assume that $4.6 million is deposited into a bank with a reserve requirement of 10 percent.
1. What is the money supply as a result?
2. If the government decides to raise the reserve requirement to 20 percent, what is the value of the money supply in this case?
1. What is the money supply as a result?
2. If the government decides to raise the reserve requirement to 20 percent, what is the value of the money supply in this case?
answer
1. 46.00 million
2. 23.00 million
2. 23.00 million
question
The economy is in recession and the Federal Reserve wants to increase the money supply. Should it increase or decrease the following?
1. Reserve requirements:
2. The discount rate:
3. Purchases of bonds in the open market:
1. Reserve requirements:
2. The discount rate:
3. Purchases of bonds in the open market:
answer
1. decrease
2. decrease
3. increase
2. decrease
3. increase
question
John deposits $2,200 into his checking account. If the reserve ratio is 20%, what are the required and excess reserves?
Required reserves: $__________.
Excess reserves: $_________.
Required reserves: $__________.
Excess reserves: $_________.
answer
1. 440
2. 1,760
2. 1,760
question
Consider a country where all money is currently held as cash and the money supply has a value of $7,500. A banking system is developed, and the residents of the country deposit the $7,500 of cash into the banking system and decide they no longer want to hold any cash. If the reserve ratio is equal to 5%, how much can the $7,500 increase the amount of money in the economy?
1. The money supply in the economy will be equal to $__________
2. The banking system has the ability to create $___________ of new money.
1. The money supply in the economy will be equal to $__________
2. The banking system has the ability to create $___________ of new money.
answer
1. 150,000
2. 142,500
2. 142,500
question
The real interest rate is equal to the _________ rate minus the __________ rate.
answer
nominal; inflation
question
In general, deflation is:
a. negative inflation.
b. positive inflation.
c. zero inflation.
a. negative inflation.
b. positive inflation.
c. zero inflation.
answer
a
question
Suppose you are currently working for $12 per hour. According to the idea of the neutrality of money, if the aggregate price level tripled, your wage should adjust to become $__________ correct.per hour.
answer
36
question
Some analysts use the short-run and long-run effects on the aggregate demand-aggregate supply model to argue that expansionary monetary policy can't affect employment in the long run because in the short run, monetary policy shifts the aggregate:
a. demand curve to the right, but over time the increase in prices shifts aggregate supply to the left so that GDP will end up going back to its same level of output with a higher price level.
b. demand curve to the left, but over time the increase in prices shifts aggregate supply to the right so that GDP will end up going back to its same level of output with a higher price level.
c. supply curve to the right, but over time the increase in prices shifts aggregate demand to the left so that GDP will end up going back to its same level of output with a higher price level.
d. supply curve to the left, but over time the increase in prices shifts aggregate demand to the right so that GDP will end up going back to its same level of output with a higher price level.
a. demand curve to the right, but over time the increase in prices shifts aggregate supply to the left so that GDP will end up going back to its same level of output with a higher price level.
b. demand curve to the left, but over time the increase in prices shifts aggregate supply to the right so that GDP will end up going back to its same level of output with a higher price level.
c. supply curve to the right, but over time the increase in prices shifts aggregate demand to the left so that GDP will end up going back to its same level of output with a higher price level.
d. supply curve to the left, but over time the increase in prices shifts aggregate demand to the right so that GDP will end up going back to its same level of output with a higher price level.
answer
a
question
Predictable inflation is associated with:
a. menu costs and bracket creep.
b. lending costs and menu costs.
c. bracket creep and shoe leather costs.
d. liquid costs and variable costs.
a. menu costs and bracket creep.
b. lending costs and menu costs.
c. bracket creep and shoe leather costs.
d. liquid costs and variable costs.
answer
c
question
During periods of disinflation, the price level will increase.
answer
true
question
The velocity of money might increase around the holidays because people:
a. decrease their spending, which may mean that each dollar of income is spent fewer times.
b. increase their spending, which may mean that each dollar of income is spent fewer times.
c. decrease their spending, which may mean that each dollar of income is spent more times.
d. increase their spending, which may mean that each dollar of income is spent more times.
a. decrease their spending, which may mean that each dollar of income is spent fewer times.
b. increase their spending, which may mean that each dollar of income is spent fewer times.
c. decrease their spending, which may mean that each dollar of income is spent more times.
d. increase their spending, which may mean that each dollar of income is spent more times.
answer
d
question
If the Federal Reserve wants to avoid inflation in those times, it should:
a. lower the money supply.
b. lower the money demand.
c. increase the money supply.
d. increase the money demand.
a. lower the money supply.
b. lower the money demand.
c. increase the money supply.
d. increase the money demand.
answer
a
question
If the quantity theory of money is represented as MV = PY:
a. expansionary monetary policy can be inflationary if we assume that velocity and real output Y are unchanging.
b. expansionary monetary policy can be inflationary if we assume that velocity is increasing and real output Y is unchanging.
c. contractionary monetary policy can be inflationary if we assume that velocity and real output Y are unchanging.
d. expansionary monetary policy can be inflationary if we assume that velocity is decreasing and real output Y is changing.
a. expansionary monetary policy can be inflationary if we assume that velocity and real output Y are unchanging.
b. expansionary monetary policy can be inflationary if we assume that velocity is increasing and real output Y is unchanging.
c. contractionary monetary policy can be inflationary if we assume that velocity and real output Y are unchanging.
d. expansionary monetary policy can be inflationary if we assume that velocity is decreasing and real output Y is changing.
answer
a
question
The head of a central bank of a major country would likely favor monetary policy that would target which of the following levels of inflation?
a. 1 to 2 percent deflation
b. 6 to 8 percent inflation
c. 10 to 15 percent inflation
d. Zero inflation
e. 2 to 4 percent inflation
a. 1 to 2 percent deflation
b. 6 to 8 percent inflation
c. 10 to 15 percent inflation
d. Zero inflation
e. 2 to 4 percent inflation
answer
e
question
An unexpected increase in the rate of inflation would have the effect of redistributing wealth from ____________ to ___________
answer
savers; bonders
question
Your senators claim that lowering prices would be good for everyone—"Who doesn't like lower prices, after all?" They tell you they plan to lobby for deflation. Falling prices could lead to a bad situation because:
a. they make debt harder to pay back because the real interest rate will be rising, leading to less borrowing and less spending.
b. deflation increases consumption because people like falling prices.
c. deflation decreases the value of savings in real terms.
d. people will expect prices to start rising and will want to spend more before they do.
a. they make debt harder to pay back because the real interest rate will be rising, leading to less borrowing and less spending.
b. deflation increases consumption because people like falling prices.
c. deflation decreases the value of savings in real terms.
d. people will expect prices to start rising and will want to spend more before they do.
answer
a
question
Core inflation is:
a. a measure of inflation that excludes energy and food.
b. a measure of inflation that includes all of the goods the average consumer buys excluding imported goods.
c. a measure of inflation that includes energy and food only.
d. a measure of inflation that includes all of the goods that the average consumer buys.
a. a measure of inflation that excludes energy and food.
b. a measure of inflation that includes all of the goods the average consumer buys excluding imported goods.
c. a measure of inflation that includes energy and food only.
d. a measure of inflation that includes all of the goods that the average consumer buys.
answer
a
question
Headline inflation is:
a. a measure of inflation that includes all of the goods that the average consumer buys.
b. a measure of inflation that includes energy and food only.
c. a measure of inflation that includes all of the goods the average consumer buys excluding imported goods.
d. a measure of inflation that excludes energy and food.
a. a measure of inflation that includes all of the goods that the average consumer buys.
b. a measure of inflation that includes energy and food only.
c. a measure of inflation that includes all of the goods the average consumer buys excluding imported goods.
d. a measure of inflation that excludes energy and food.
answer
a
question
Determine whether the Federal Reserve would pursue contractionary monetary policy, expansionary monetary policy, or no change in policy in each of the following situations.
1. Inflation is 10 percent, above its average of 3 percent in the last several years:
2. The output gap is positive:
3. Unemployment is at a record high:
4. The economy is experiencing full employment:
5. The economy is on the brink of deflation
6. A new technology causes output to surge:
1. Inflation is 10 percent, above its average of 3 percent in the last several years:
2. The output gap is positive:
3. Unemployment is at a record high:
4. The economy is experiencing full employment:
5. The economy is on the brink of deflation
6. A new technology causes output to surge:
answer
1. contractionary monetary policy
2. contractionary monetary policy
3. expansionary monetary policy
4. no change in policy
5. expansionary policy
6. no change in policy
2. contractionary monetary policy
3. expansionary monetary policy
4. no change in policy
5. expansionary policy
6. no change in policy
question
Your dormitory, Griffingate, has appointed you central banker of its economy, which deals in the currency of wizcoins. Assume that the velocity of wizcoins in Griffingate is constant at 10,000 transactions per year. Right now, real GDP is 1,000 wizcoins, and there are 2,000 wizcoins in existence.
1.
M= ________ wizcoins
V= _________ wizcoins
P= __________ wizcoins
2. Now indicate how the other variables will respond to each of the following scenarios, taking each case separately and assuming that velocity remains constant.
a. You increase the money supply to 4,000 and prices increase twofold.
Real GDP = ________wizcoins
b. Start with the initial values. Real GDP drops to 500 wizcoins and the money supply remains constant.
Price level = __________ wizcoins
c. Start with the initial values. Prices increase threefold because of a sudden scarcity of soda, and you decide to keep the supply of wizcoins constant.
Real GDP =___________wizcoins
d. Start with the initial values. You increase the money supply to 5,000 wizcoins and prices rise by 350 percent.
Real GDP = ___________ wizcoins
1.
M= ________ wizcoins
V= _________ wizcoins
P= __________ wizcoins
2. Now indicate how the other variables will respond to each of the following scenarios, taking each case separately and assuming that velocity remains constant.
a. You increase the money supply to 4,000 and prices increase twofold.
Real GDP = ________wizcoins
b. Start with the initial values. Real GDP drops to 500 wizcoins and the money supply remains constant.
Price level = __________ wizcoins
c. Start with the initial values. Prices increase threefold because of a sudden scarcity of soda, and you decide to keep the supply of wizcoins constant.
Real GDP =___________wizcoins
d. Start with the initial values. You increase the money supply to 5,000 wizcoins and prices rise by 350 percent.
Real GDP = ___________ wizcoins
answer
1. 2,000; 10,000; 20,000
2a. 1,000
2b. 40,000
2c. 333
2d. 714
2a. 1,000
2b. 40,000
2c. 333
2d. 714
question
According to the classical theory of inflation, an increase in the money supply would cause ___________ to shift to the _________. Output would ___________ and price level would __________. However, in the long run, __________ would shift to the _________ Output would ___________ and the price level would __________
answer
the aggregated demand curve; right; increase; increase; the short run aggregated supply curve; left; decrease; increase
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