ECON 211 Exam 3 (UNL) Verified Answers

ECON 211 Exam 3 (UNL) Verified Answers countercyclical policies attempt: to reduce the intensity of economic fluctuations & smooth the GDP rate Brainpower Read More expansion policy aims: to reduce the severity of an economic recession by shifting the labor demand curve to the right & "expand" the economic activity (GDP) expansion policy means to: heat up the economy expansion policy: when does a recession occur? when the labor demand curve shifts to the left contractionary policy does what to the economy? slows it down -when it grows too fast -"overheats" contractionary policy shifts the labor demand curve to the.......? left to reduce employment & growth rate of the economy contractionary policy doesn't aim to.... reduce employment so much that the growth becomes negative Why reduce employment & GDP growth? -reduce inflation -reduce risk of extreme contradiction by trying to "cool off" the economy before it "overheats" Counter monetary policy 1. feds lower short-term interest rate & expand access to credit 2. long-term interest rates fall 3. consumption & investment rise; demand for goods & services rise 4. labor demand curve shifts to the right The fed influences funds through..... open market operations The fed transacts with private banks to increase or decrease....... bank reserves The fed can increase the supply of reserves through... open market purchases How much do the reserves fluctuate? between $40 and $80 billion what did the fed do during the recession to decrease interest rates? the fed drastically expanded reserves to $2.5 trillion What tools does the Fed have to impact bank reserves? 1. Changing reserve equipment 2. Interest rate paid on reserves deposited @ the Fed 3. lending from discount window 4. quantitative easing 1. changing reserve equipment the percentage of deposits that must be held as reserves @ the federal reserve 2. interest rate paid on reserves deposited @ the federal reserve the feds started to pay interest on deposits in 2008, now its 0.25% 3. lending from discount window private banks can borrow directly from the feds @ discount window 4. quantitative easing the feds create a large quantity of bank reserves to buy long-term bonds, at the same time, increasing the quantity bank reserves & pushing down the interest rate on long-term bonds Expectations, inflation and monetary policy The effectiveness of monetary policy depends on expectations about interest rates and inflation Formula for Long-term expected real interest rate = (Long-term nominal interest rate) - (Long-term expected inflation rate) contractionary monetary policy is opposite of: the expansionary policy contractionary monetary policy slows down the growth in: bank reserves contractionary monetary policy raises: interest rate contractionary monetary policy reduces borrowing contractionary monetary policy slows growth in the: money supply contractionary monetary policy reduces the rate of inflation contractionary monetary policy flow chart zero lower bound -line that nominal interest rates can't cross Which of the following best describes scarce resources? resources for which the quantity that people want exceeds the quantity that is freely available Economic reasoning implies that economic agents will make decisions: by comparing the costs and benefits of various options Which of following statements correctly highlights the difference between micro and macro micro deals with small parts of the economy, whereas macro deals with aggregate economic performance Which of the following statements is true of optimization economic agents who optimize attempt to choose the best feasible option, given the information that they have A student has two options: she can either surf the web, or work part-time. Working part-time pays her $20 per hour. What is the student's opportunity cost of surfing the web for 5 hours? $100 Suppose the market for cement is such that the govt. does not interfere in price determination but plays an important role in the provision of property rights. While there are a large number of buyers and sellers, everyone conducts transactions at a common market price. Which of the following statements is true about the structure of the cement market? the cement market is free and competitive Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that the seller will: lose almost all of his buyers The demand curve for most goods is normally: downward sloping Which of the following factors will not cause a shift in the demand for a good? a change in the market price of a good Which of the following is likely to lead to a right shift in the supply curve of cotton? an increase in labor productivity due to training programs