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ECO202 Final Exam – Questions & Solutions (100%)
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ECO202 Final Exam – Questions & Solutions (100%)
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ECO202 Final Exam – Questions & Solutions (100%)The Federal Reserve defines the monetary policy goal of price stability to
mean an average inflation rate equal to Right Ans - 2 percent
For purpose of monetary policy, which interest rate does the Federal Reserve
target? Right Ans - Federal Funds Rate
During the 2007-2009 financial crisis, the "run" on investment banks took the
form of Right Ans - lenders to investment banks not renewing their short-
term loans
Fiscal Policy is determined by _______ and monetary policy is determined by
_______ Right Ans - The Congress and President; The Federal Reserve
Automatic stabilizers refer to Right Ans - Government spending and taxes
that automatically increase or decrease along with the business curve
The Federal Government debt equals the Right Ans - the accumulation of
past budget deficits minus budget surpluses
A recession tends to cause the federal budget deficit to ________ because tax
revenues ________ and government spending on transfer payments ________.
Right Ans - increase; fall; rise
When a recession causes a budget deficit, an annual balanced-budget
amendment would require the government to enact Right Ans -
contractionary fiscal policy -- a decrease in government spending and/or an
increase in taxes -- to balance the budget
Which of the following statements about the government budget constraint is
TRUE?
I) The government budget constraint shows that a government has two ways
to pay for government spending: taxes or printing money.
II) The government budget constraints does NOT require the government to
have a balanced budget. Right Ans - II
, Which of the following best describes how banks create money?
a) Banks charge fees for providing financial advice
b) Banks create checking account deposits when making loans form excess
reservers
c) Banks charge higher interest rates on loans than they pay on deposits
d) Banks print paper money Right Ans - b
The sale of Treasury securities by the Federal Reserve will Right Ans -
decrease the quantity of reserves held by banks
The real interest rate equals the nominal interest rate ______ the inflation rate
Right Ans - minus
The value of total income for an economy _______ the value of total production
Right Ans - equals
The rule of 70 states that Right Ans - the number of years it takes an
economy to double in size is 70 divided by the growth rate
If cyclical unemployment is eliminated in the economy, then the Right Ans -
economy is considered to be at full employment
On the long-run aggregate supply curve, the unemployment rate equals
Right Ans - the natural rate of unemployment
Which of the following would be the best measure of the standard living of an
economy?
a) producer price index
b) consumer price index
c) real GDP per capita
d) real GDP Right Ans - c
The key idea of the aggregate expenditure model is that in any particular year
the level of GDP is determined by the level of Right Ans - aggregate
expenditure
In the graph of the aggregate expenditure model, what variable is on the
vertical axis? Right Ans - aggregate expenditure
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