If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would: A decline in the Index of Supplier Deliveries is typically an indicator of a future _____ in economic production, and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury bill is typically an indicator of a future _____ in economic production. A bank run triggered by fear that pushes a bank into actual insolvency represents a classic ⦠Investors with ST liquidity needs and borrowers with LT project horizons. The production functions in both economies exhibit diminishing marginal product of capital. The current banking regulation in the United States holds that the banks and the economy should align in order to protect consumers from the impact of bank runs. To the extent that risky mortgage- backed securities that were sold to buyers who were not fully aware of the risks contributed to the financial crisis of 2008-2009, blame for this action lies with: During the 2008-2009 period, the conventional monetary policy response was to ____ the target deferral funds rate, while the conventional fiscal policy response was to ____ taxes and to ____ government spending. In the solow growth model with population growth but no technological progress, when the economy finds itself at the Golden rule steady state, the marginal product of capital minus the rate of depreciation will equal: Assume that a war reduces a country's labor force but does not directly affect its capital stock. The growth-accounting equation indicates that the contributions to growth of capital, labor, and total factor productivity are: 0.9 percent, 0.7 percent, and 1.4 percent, respectively. In the Solow growth model, if investment exceeds depreciation, the capital stock will________, and output wil _______, until the steady state is attained. (Exhibit: Policy Interaction) Based on the graph, starting from equilibrium at interest rate r3, income Y2, IS1, and LM1, if there is an increase in government spending that shifts the IS curve to IS2, then in order to keep the interest rate. In the IS-LM model when M/P rises, in short-run equilibrium, in the usual case the interest rate _____ and output _______. A bank run occurs when there is a sudden demand to withdraw money from a bank, that the commercial bank struggles to meet. Bank of the United States, central bank chartered in 1791 by the U.S. Congress at the urging of Alexander Hamilton and over the objections of Thomas Jefferson.The extended debate over its constitutionality contributed significantly to the evolution of pro- and antibank factions into the first American political partiesâthe Federalists and the Democratic-Republicans, respectively. If the per-worker production function is give by y=k^1/2, the saving rate(s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: Assume that two economies are identical in every way except that one has a higher saving rate. If the Japanese production function is Cobb-Douglas with capital share 0.3, output growth is 3 percent per year, depreciation is 4 percent per year, and the capital-output ratio is 2.5, the saving rate that is consistent with steady-state growth is: If the per-worker production function is y = Ak, where A is a positive constant, then the marginal product of capital: Assume that an economy described by the solow model is in a steady state with output and capital growing at 3 percent and labor growing at 1 percent. Individual Depositors suffer from ST liquidity needs. An extra unit of capital per worker increases output per worker: (Exhibit: Output, Consumption, and Investment) In this graph, when the capital-labor ratio is OA, AB represents: Investment per worker, and BC represents consumption per worker. Here is a quick Quizlet matching quiz covering ten concepts associated with banking in financial markets Subscribe to email updates from tutor2u Economics Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning. The capital share is 0.3. depository banks, money market managers withhold lending to other financial institutions investment banks, depositors withdraw money from checking accounts investment banks, Federal Reserve raises interest rates depository institutions, Federal Reserve raises interest rates In the solow model with technological progress, the steady-state growth rate of output per effective worker is: If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock: Will be at the same level as in the steady state of the high capital economy. If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing approximately at a rate of: In the Solow growth model with population growth and labor-augmenting technological change, the break-even level of investment must cover, Depreciating capital, capital for new workers, and capital for new effective workers. Check your bank statement once a month. many depositors withdraw cash almost simultaneously. It looks like your browser needs an update. A decrease in the nominal supply, other things being equal, will shift the LM curve: The IS and LM curves together generally determine: Equilibrium levels of income and interest rates are____ related in the goods and services market, and equilibrium levels of income and interest rates are _____ related in the market for real money balances. In the Solow growth model of an economy with population growth but no technological change, if population grows at rate n, then capital in the steady state grows at rate ____, and output grows at rate ____, in the steady state. A bank holiday is a business day during which financial institutions are closed. When a significant quantity of deposits are withdrawn from a bank in a short period of time. many depositors withdraw cash almost simultaneously. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will: Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. Ask your financial institution to notify you when you are close to $0 in your account. Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7(Y - T). Here we give a set of questions. The version of Okun's law studied in Chapter 10 assumes that with no change in unemployment, real GDP normally grows by 3 percent over a year. Depositors leave their deposits in the bank. D. Dividing the bank's net profit after taxes by the sum of the bank's assets and its liabilities A. In the Solow growth model, increases in capital_____ output and _____ the amount of output used to replace depreciating capital. if consumption is given by C=200+0.75(Y-T) and investment is given by I=200-25r, then the formula for the IS curve is: lowers the interest rate and increases income in the short run, but leaves both unchanged in the long run. If the production function exhibits increasing returns to scale in the steady state, an increase in the rate of growth of population would lead to: Growth in total output and growth in output per worker. The Federal Reserve obliges banks to hold a certain amount of cash in reserve so that they never run ⦠Bank run (bank panic) A series of unexpected cash withdrawals caused by a sudden decline in depositor confidence or fear that the bank will be closed by the chartering agency, i.e. Uncommon Because Of FDIC Insurance. An increase in consumer saving for any given level of income will shift the: An economic change that does not shift the aggregate demand curve is a change in: Starting from a short-run equilibrium greater than the natural rate of output, as the economy returns to a long -run equilibrium: output will decrease, but the price level will increase. A situation in which one party to an economic transaction has more knowledge about the transaction than the other is called: Which of the following is an example of moral hazard? Current technology allows large bank depositors to withdraw their funds electronically at a momentâs notice. Commercial banks make money by providing and earning interest from loans such ⦠Over the business cycle, investment spending ______ consumption spending. Both Keynesians and supply-siders believe a tax cut will lead to growth: But Keynesians believe it works through aggregate demand whereas supply- siders believe it works though incentive effects. continuing to employ workers during a recession to ensure they will be available in the recovery. A person with health insurance rides a motorcycle without wearing a helmet. A bank run occurs when a large number of customers withdraw their deposits from a bank at the same time, usually because of fears that a bank is or will become insolvent. Protected property rights; were extractive and authoritarian, Endogenous growth theory rejects the assumption of exogenous. A run on a bank occurs when a large number of depositors, fearing that their bank will be unable to repay their deposits in full and on time, simultaneously try to withdraw their funds immediately. Assume that the economy starts from long-run equilibrium. We hope it helps you all.This Quiz deals with ⦠In the IS-LM model when M remains constant but P rises, in short-run equilibrium , in the usual case the interest rate _____ and output ____. A bank run is typically the result of panic rather than true insolvency. Banking is all about the managing, saving and lending money, credit/ loan and other financial transactions. A difference between the economic long and the short run is that: Demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. Scheduled maintenance: Saturday, December 12 from 3–4 PM PST. If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and E is the stock of knowledge, and the production Y = F(K,(1 - u) EL) exhibits constant returns to scale, then output (Y) will double if: Empirical results justify substantial government subsidies to research based on the finding that the: Private return to research is less than the social return to research. A bank run is the sudden withdrawal of deposits of just one bank. If the demand function for money is M/P = 0.5Y - 100r, then the slope of the LM curve is: If money demand does not depend on the interest rate, then the LM curve is ____, and ____ policy has no effect on output. To ensure the best experience, please update your browser. An illiquid bank can become insolvent when it: Sells assets at fire-sale prices to meet liquidity demands. So even if the bank is healthy, it will not be able to pay all of its depositors at once. Ashoutofârunâ strikes the same fear into most of us as a ⦠A bank provides financial assistance by accepting the deposits from the public and creating credit. Measures of average workweeks and of supplier deliveries (vendor performance) are included in the index of leading indicators, because shorter workweeks tend to indicate ______ future economic activity and slower deliveries tend to indicate ______ future economic activity. We have given the explanation as well. A commercial bank is where most people do their banking. (Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state consumption per worker is: If an economy is in a steady state with no population growth or technological change and the marginal product of capital is less than the depreciation rate: Steady-state consumption per worker would be higher in a steady state with a lower saving rate. (Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E, with price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. The introduction and greater availability of credit cards. Ideally, the purpose of providing funds to insolvent banks beyond required insurance payouts is to: The government purchasing ownership stakes in a faltering financial institution in order to prop up the financial system is an example of: The purpose of the Financial Services Oversight Council, which was created by the Dodd-Frank Act, is to: Coordinate activities of the various regulator agencies. Depositors Rush To Their Bank To Withdraw Their Funds. 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