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94 Cards in this Set
- Front
- Back
Deflation occurs when
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prices fall
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During the period between 1900 and 2000, the unemployment rate in the US was highest
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in the 1930s
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The unemployment rate
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has never been zero in the US
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Variables that a model tries to explain are called
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endogenous
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The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:
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in the long run
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Two equivalent ways to view GDP are as the
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total income of everyone in the economy or the total expenditure on the economy's output of goods and services
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All of the following are a stock except
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the number of unemployed people
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All of the following are a flow except
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the government debt
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When a firm sells a product out of inventory, GDP
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is not changed
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In computing GDP
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the value of intermediate goods is included in the market price of the final goods
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An example of an imputed value in the GDP is the
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housing services enjoyed by homeowners
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In principle,the GDP accounts should - but do not - have an imputation for
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rental services of automobiles driven by owners
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Nominal GDP means the value of goods and services is measured in ________ prices.
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current
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The GDP deflator is equal to
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the ratio of the nominal GDP to real GDP
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If nominal GDP is increased by 5% and teh GDP inflator increased by 3%, then real GDP ____ by ____
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increased, 2
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The new chain-weighted measures of real GDP are an improvement over traditional measures because the prices used to compute real GDP are
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never far out of date
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The national income accounts identity, for an open economy, is
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Y = C + I + G + NX
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In the national income accounts, consumption expenditures include all of the following except household purchases of:
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new residential housing
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In the national accounts, all of the following are classified as government purchases except
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payments made to SS recipients
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GNP equals GDP __ income earned domestically by foreigners ___ income that US residents earn abroad.
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minus, plus
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The largest component of national income is
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compensation of employees
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Disposable personal income
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is computed by subtracting personal tax and nontax payments from personal income.
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Prices of items included in the CPI are
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weighted according to the quantity of the item purchased by the typical household.
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The number of households interviewed by the US bureau of labor statistics, a person is not in the labor force if that person:
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is going to school
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The labor force equals the
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number of employed and unemployed individuals
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The employment statistic comupted from the establishment survey do NOT include
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the self-employed
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A worker with two jobs is counted
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once in the household survey, but twice in the establishment survey.
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An estimate of the number of unemployed workers in the economy can be obtained from
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the household survey but not from the establishment survey.
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In the long run, what determines the level of total production of goods and services in an economy?
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the quantity of capital and labor and production technology
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The neoclassical theory of distribution
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is a theory of how national income is divided among the factors of production
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A competitive firm chooses the
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quantity of labor and capital to employ
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The marginal product of labor is
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the additional output produced when one additional unit of labor is added
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The property of diminishing marginal product means that, after a point, when additional quantities of:
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a factor are added when another factor remains fixed, the marginal product of that factor diminishes
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A competitive, profit-maximising firm hires labor until the:
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price of output multiplied by the marginal product of labor equals the wage
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The neoclassical theory of distribution explains the allocation of
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income among the factors of production
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According to Euler's theorem, if competitive firms pay each factor its marginal product and the production funtion has constant returns to scale, the sum of all factor payments will equal:
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total output
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According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their
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marginal productivities
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Since 1960, the US ration of labor income to total income has
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been about 0.7
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National saving is
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private saving plus public saving
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Crowding out occurs when an increase in government spending ___ the interest rate and investment ____.
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Increases, decreases
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If increased immigration raises the labor force, the neoclassical theory of distribution predicts
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the real wage will fall and the real rental price of capital will rise.
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Open-market operations are:
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Federal Reserce purchases and sales of government bonds
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The quantity theory of money assumes that
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velocity is constant
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The Fisher effect assumes that there is a one to one relation between
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the expected inflation rate and the nominal interest rate
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Evidence from the past 40 years in the US shows that when the inflation rate is high, the ___ interest rates tends to be ____.
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nominal, high
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The opportunity cost of holding money is the
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nominal interest rate
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Over the past year, the Federal Reserve's balance sheet has __ and is about __ as it was prior to the financial crisis.
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increased, three times as large
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Inflation __ the variability of relative prices and ___ allocative efficiency
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increases, decreases
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If nominal wages cannot be cut, then the only way for real wages to fall is by
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inflation
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The concept of monetary neutrality in the classical model means that an increase in the money supply will increase
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nominal interest rates
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The factors most responsible for forecasts of the US government debt spiraling out of control in the next half century are the projected:
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aging of the US population and rising healthcare costs
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According to the traditional view as identified by Mankiw, if taxes are cut without cutting government spending, the the long-term effects will be ___ capital and ___consumption.
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lower, lower
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The possibility of capital flight is likely to be greater at higher levels of government debt because there is a greater
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temptation to default on the debt
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In the US, money supply is determined:
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jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held
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In a system with fractional-reserve banking:
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banks hold reserves equal to a fraction of their deposits
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The money supply will increase if the
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monetary base increases
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When the Fed makes an open market sale, it:
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decreases the monetary base (B)
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Frictional unemployment is unemployment caused by
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the time it takes workers to search for a job
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The minimum wage
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has its greatest impact on teenage unemployment
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During the past 50 years the natural rate of unemployment in the US ___ during the 1970s and 1980s, compared to the 1950s and 1960s, and the ___ during the 1990s, compared to the previous two decades.
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increased, decreased
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Spells of unemployment end whe the unemployed person finds a job or
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withdraws from the labor force
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Discouraged workers are counted as
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out of the labor force
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Business cycles are
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irregular and unpredictable
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Over the business cycle, investment spending __ consumption spending
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is more volatile than
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Okun's law is the __ relationship between real GDP and the ___
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negative, unemployment
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Most economists believe that prices are
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flexible in the long run but many are sticky in the short run
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In the long run, the level of output is determined by
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amoutns of capital and labor and available technology
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The natural level of output is
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the level of output at which unemployment is at its natural level
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The short run refers to a period
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during which prices are sticky and unemployment may occur
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Stabilization policy
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aims at keeping output and unemployment at their natural rates
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In the short run and adverse supplly shock causes
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prices to rise and output to fall
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When firms experience unplanned inventory accumulation, they typically would:
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lay off workers and reduce production
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A short-run expansionary fiscal policy funded by increased debt is expected to___ real GDP in the short-run and result in ___ real GDP in the long-run than would have otherwise occurred.
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increase, lower
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The government-purchases multiplier indicates how much __ change(s) in response to a change in government purchases.
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income
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The simple investment function shows that investment ___ as ___ increases
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decreases, interest rate
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The IS curve shifts when all of the following economic variable change except:
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the interest rate
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The theory of liquidity preferences implies that
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as the interest rate rises, the demand for real balances will fall
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An increase in the real money supply, other things being equal, will shift the LM curve
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downward and to the right
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In the IS-LM model when taxation increases, the change in short-run equilibrium in the usual cases restults in the interest rate ___ and output ___.
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falling, falling
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The spending hypothesis suggest that the great depression was caused by a
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leftward shift int he IS curve.
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A liquidity trap occurs when
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interest rates fall so low that standard monetary policy is no longer effective
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Inflation inertia refers to the idea that inflation
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tends to continue unless something acts to stop it.
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The Phillips curve analysis describe in chapter 13 implies that there is a negative trade-off between inflation and unemployment
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in the short run only
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Expansions can end because of all of the following except
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long length of the expansion
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Coincident indicators of economic activity include all except
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S&P stock index
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In the current situation, the decline in real household wealth can be viewed as contributint to
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a leftward shift in the IS curve
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The Phillips Curve states that the inflation rate depends on all of the following except
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the saving rate
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A two-consecutive-quarter in real GDP
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may or may not occur during a recession
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The official definition of the Great Depression
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does not exist
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The marginal tax rates for the top income bracket are
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proposed by the Obama administration to increase in 2011 to 39.6 percent from 35 percent currently.
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"Finaical intermendiation" refers to
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the process of transferring funds from savers to borrowers and investors
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TARP stands for
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Troubled asset relief program
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The American Recovery and Reinvestment Act (ARRA) is
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a classic expample of expansionary fiscal policy
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If the Fed accomodates an adverse supply shock, outpu falls __ and prices rise __
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less, more
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