Which of the following would appear on the liability side of the balance sheet of a commercial bank?
Answer(s): B
Demand and other transaction deposits constitute liabilities for commercial banks because they "owe" depositors the amount of their deposits. Outstanding loans represent assets for commercial banks because the borrower "owes" the bank the principal of the loan plus accrued interest.
A passive budget deficit is a deficit that
Answer(s): D
A passive deficit is a good example of an automatic stabilizer. During a recession, government tax revenues fall and expenditures rise. Thus, the preferred and natural state for the government budget during a recession is to be in a deficit in order to stimulate aggregate demand.
Which one of the following will most likely reduce aggregate supply?
Answer(s): E
An increase in the minimum wage reflects and increase in the cost of a resource, labor. This implies that the SRAS will shift inward because the costs of production are now higher. If the change is permanent, then LRAS will also shift inward.
If the effects of an expansionary macroeconomic policy are accurately anticipated, then
Anticipated macroeconomic policies are ineffective in stimulating aggregate output and employment because market participants create labor contracts which automatically account for rising prices. Thus, employment is not increased because the real wage is constant.
An economy is currently in a state of equilibrium, at full employment. If a sudden supply shock were to decrease aggregate supply, which of the following effects will occur in the short run?
The decrease in the aggregate supply curve will be represented by a movement of the short-run supply curve to the left. In the short run, this will cause an increase in prices since the demand curve does not move. Aggregate demand will fall, unemployment will rise above the natural rate and aggregate output will fall. The total disposable income in the economy will decrease and consumers will liquidate part of their savings to maintain stable consumption. This will decrease the supply of loanable funds, raising interest rates in the short run.
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