TCU FINANCE ANSWERS AND QUESTIONS SET A+
✔✔The selling and buying of US government securities like US treasury bills - ✔✔Open
Market Operations
✔✔______ securities to increase the monetary base and lower interest rates, and
______ to decrease the monetary base and raise interest rates. - ✔✔Buy; sell
✔✔Type of monetary policy that increases the total supply of money in the economy
rapidly; traditionally used to combat unemployment in a recession by lowering interest
rates - ✔✔Expansionary Policy
✔✔Type of monetary policy that decreases the total money supply, or increases it
slowly; policy involves raising interest rates to combat inflation - ✔✔Contractionary
Policy
✔✔What is the IS-LM-FE model? - ✔✔o IS - Goods market equilibrium
o LM - Money market equilibrium
o FE - Labor market equilibrium
✔✔Investment and saving equilibrium; downward sloping; shifts to the right when
spending (for reasons other than interest rates) - ✔✔Goods Market Equilibrium (IS)
✔✔Liquidity preference (demand for money) and money supply equilibrium; upward
sloping; shift down and right when money supply is increased - ✔✔Money Market
Equilibrium (LM)
✔✔Equates labor demand and labor supply equilibrium; full employment; shifts to right
as population increases - ✔✔Labor Market Equilbrium
✔✔The total amount of goods and services demanded in the economy at a given
overall price level and in a given time period - ✔✔Aggregate Demand
, ✔✔Calculation for Aggregate Demand. - ✔✔AD = C + I + G + NX
C = consumption
I = investment
G = government spending
NX = net export; (X-M)
-X = total exports
-M = total imports
✔✔If the AD curve shifts to the left it is an economic ____________, while a shift to the
right represents economic ______________. - ✔✔Contraction; expansion
✔✔The total supply of goods and services provided within an economy at a given
overall price level in a given time period - ✔✔Aggregate Supply
✔✔What are 4 things that can shift the AS curve? - ✔✔-Changes in size and quality of
labor
-Innovations
-Increases in wages
-Inflation
✔✔Determined by the productive resources available to meet demand and by the
productivity of factor inputs (labor, land and capital). - ✔✔Long-Run Aggregate Supply
✔✔Aggregate Supply Curve.
In the short run, producers respond to higher demand (and prices) by bringing _______
inputs into the production process and increasing the utilization of their existing inputs. -
✔✔More
✔✔True/False: the SRAS does not respond to changes in price. - ✔✔False (does
respond)
✔✔Why is the LRAS curve vertical? - ✔✔Because it is assumed to be independent of
prices (i.e. it is determined by other factors besides demand and prices)
✔✔What are 2 causes of inflation? - ✔✔-Aggregate demand being more than aggregate
supply
-Over expansion of the money supply
✔✔True/False: Low interest rates correspond with high levels of money supply and
allow for more investment in big business and new ideas which eventually leads to
unsustainable levels of inflation as cheap money is available. - ✔✔True
✔✔The selling and buying of US government securities like US treasury bills - ✔✔Open
Market Operations
✔✔______ securities to increase the monetary base and lower interest rates, and
______ to decrease the monetary base and raise interest rates. - ✔✔Buy; sell
✔✔Type of monetary policy that increases the total supply of money in the economy
rapidly; traditionally used to combat unemployment in a recession by lowering interest
rates - ✔✔Expansionary Policy
✔✔Type of monetary policy that decreases the total money supply, or increases it
slowly; policy involves raising interest rates to combat inflation - ✔✔Contractionary
Policy
✔✔What is the IS-LM-FE model? - ✔✔o IS - Goods market equilibrium
o LM - Money market equilibrium
o FE - Labor market equilibrium
✔✔Investment and saving equilibrium; downward sloping; shifts to the right when
spending (for reasons other than interest rates) - ✔✔Goods Market Equilibrium (IS)
✔✔Liquidity preference (demand for money) and money supply equilibrium; upward
sloping; shift down and right when money supply is increased - ✔✔Money Market
Equilibrium (LM)
✔✔Equates labor demand and labor supply equilibrium; full employment; shifts to right
as population increases - ✔✔Labor Market Equilbrium
✔✔The total amount of goods and services demanded in the economy at a given
overall price level and in a given time period - ✔✔Aggregate Demand
, ✔✔Calculation for Aggregate Demand. - ✔✔AD = C + I + G + NX
C = consumption
I = investment
G = government spending
NX = net export; (X-M)
-X = total exports
-M = total imports
✔✔If the AD curve shifts to the left it is an economic ____________, while a shift to the
right represents economic ______________. - ✔✔Contraction; expansion
✔✔The total supply of goods and services provided within an economy at a given
overall price level in a given time period - ✔✔Aggregate Supply
✔✔What are 4 things that can shift the AS curve? - ✔✔-Changes in size and quality of
labor
-Innovations
-Increases in wages
-Inflation
✔✔Determined by the productive resources available to meet demand and by the
productivity of factor inputs (labor, land and capital). - ✔✔Long-Run Aggregate Supply
✔✔Aggregate Supply Curve.
In the short run, producers respond to higher demand (and prices) by bringing _______
inputs into the production process and increasing the utilization of their existing inputs. -
✔✔More
✔✔True/False: the SRAS does not respond to changes in price. - ✔✔False (does
respond)
✔✔Why is the LRAS curve vertical? - ✔✔Because it is assumed to be independent of
prices (i.e. it is determined by other factors besides demand and prices)
✔✔What are 2 causes of inflation? - ✔✔-Aggregate demand being more than aggregate
supply
-Over expansion of the money supply
✔✔True/False: Low interest rates correspond with high levels of money supply and
allow for more investment in big business and new ideas which eventually leads to
unsustainable levels of inflation as cheap money is available. - ✔✔True
