ECON 212 Final

Answer the question based on the following sequence of events involving fiscal policy: The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. Economists reach agreement that the economy is moving into a recession. A tax cut is proposed in Congress. The tax cut is passed by Congress and signed by the president. Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The recognition lag of fiscal policy is reflected in events

1 and 2

Which of the given countries would be high-income countries (IACs), according to the World Bank?

B & C

Which of the following is characteristic of DVCs?

a large percentage of the labor force is in agriculture

An appropriate fiscal policy for a recession is to

all of the above

Which of the following does not explain what backs the money supply in the United States?

backed up by gold

The amount by which federal government expenditures exceed revenues in any year is a

budget deficit.

The money supply is backed:

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

Which of the following is not a tool of monetary policy?

changes in banking laws

In the United States, the money supply (M1) includes

coins, paper money, checkable deposits, and savings deposits.

The U.S. public debt

consists of the historical accumulation of all past federal deficits and surpluses.

The group of three economists who provide fiscal policy recommendations to the president is the

council of economic advisors

The intent of contractionary fiscal policy is to

decrease aggregate demand

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to _________blank, which will _________blank investment spending.

decrease increase

Other things equal, an excessive increase in the money supply will

decrease the purchasing power of each dollar.

The goal of contractionary fiscal policy is to decrease

demand pull

The goal of fiscal policy is to achieve

economic growth

If Congress adjusted the U.S. tax system so that taxes were more progressive, the

economy would become more stable

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n)

expansionary fiscal policy

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with

expansionary fiscal policy.

In the U.S. economy, the money supply is controlled by the

federal reserve system

Paper money (currency) in the United States is issued by the

federal reserve system

Foreign aid to the DVCs has been criticized

for all of these reasons.

The purpose of a restrictive monetary policy is to

increase interest rates to rein in spending.

If the Fed wants to discourage bank lending, it will

increase the interest paid on reserve balances held at the Fed.

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

The Federal Reserve System

is basically an independent agency.

The World Bank

lends money to developing nations for basic infrastructure projects such as dams, irrigation, health and sanitation, communications, and transportation.

In 2020, the Fed began to

let banks decide for themselves how big their reserves against withdrawals should be.

The very poorest low-income DVCs typically have relatively

low eco high pop

Small loans to entrepreneurs and small business owners in DVCs are referred to as

microcredit

If the inflation rate was on target at 2 percent and the unemployment rate was 3.4 percent, the Fed would likely adopt a(n)

neutral

If the inflation rate is at its target rate of 2 percent and the unemployment rate is close to or at the target rate of 3.5 percent, the Fed would likely choose

neutral money

Which of the following is a tool of monetary policy?

open-market operations

The three main tools of monetary policy are

open-market operations, forward guidance, and changing the administered interest rates.

When economists refer to capital flight, they are speaking of an

outflow of financial capital from a certain country.

The political business cycle refers to the possibility that

politicians will manipulate the economy to enhance their chances of being re-elected.

Increases in the total real output of many DVCs do not increase the nation's standard of living because

population increases may dissipate the increase in real output.

A tax whose average tax rate remains constant as the taxpayer's income increases or decreases is a

proportional tax.

Which of the following is a tool of monetary policy?

providing forward guidance

An economy's infrastructure refers to its:

public capital goods, such as roads, schools, and power facilities.

The discount rate is the interest

rate at which the Federal Reserve Banks lend to commercial banks

The goal of expansionary fiscal policy is to increase

real GDP

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

reductions in federal tax rates on personal and corporate income.

The effect of expansionary fiscal policy is shown as a

rightward shift in the economy's aggregate demand curve.

Infrastructure is best illustrated by

school buildings and highways.

Money functions as:

store of value, unit of account, medium of exchange

An appropriate fiscal policy for severe demand-pull inflation is

tax rate increase

Which of the following is a tool of monetary policy?

telling the public how they (the Fed) intends to manage monetary policy

Quantitative easing refers to

the Fed buying longer-term bonds to reduce longer-term interest rates.

Quantitative tightening refers to

the Fed buying short-term bonds to reduce short-term interest rates.

An interest rate set by a central bank to help it manage market-determined interest rates defines

the adminsterated rate

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes

the crowding out effect

When current government expenditures exceed current tax revenues and the economy is achieving full employment,

the cyclically-adjusted budget has a deficit.

The effective federal funds rate refers to

the equilibrium interest rate determined in the federal funds market.

The public debt is the amount of money that

the federal government owes to holders of U.S. securities.

The difference between M1 and M2 is that

the latter includes small-denominated time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.

Open-market operations refer to

the purchase or sale of government securities by the Fed

Which of the following is not a tool of monetary policy?

the taylor rule and Ig

To say that the Federal Reserve Banks are quasi-public banks means that

they are privately owned but managed in the public interest.

Checkable deposits are classified as money because

they can be readily used in purchasing goods and paying debts

If the inflation rate was 4.9 percent and the unemployment rate was 3.5 percent, the Fed would likely adopt a(n)

tight money policy and raise the IORB and ON RRP.

The international agency that lends money to DVCs for economic development projects is the

world bank

Which of the following describes the vicious circle of poverty?

Low per capita incomes cause low levels of saving and investment, which mean low productivity and therefore low incomes.

Which of the following statements about the Fed's dual mandate is incorrect?

The Fed uses the dual-mandate bullseye chart to make policy decisions.

Refer to the table. Money supply M1 for this economy is - 100 220 10 40 50 180 80 70

160

Refer to the table. Money supply M1 for this economy is- 100 220 10 60 50 180 80 70

180

Refer to the graph. If the initial equilibrium interest rate was 5 percent and the money supply increased by $150 billion, then the new interest rate would be

2%

If the total output of a DVC is $261.9 billion and its population is 96 million, its standard of living is

2,728

Refer to the table. Money supply M1 for this economy is - 110 230 20 70 60 190 90 80

210

Refer to the table. Money supply M1 for this economy is - 120 240 30 60 70 200 100 90

220

Refer to the table. Money supply M1 for this economy is - 125 235 35 75 205 105 95

235

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions (2021)?

26%

Refer to the graph. If the initial equilibrium interest rate was 5 percent and the money supply increased by $100 billion, then the new interest rate would be

3 percent

Refer to the table. The value of the near-monies that are part of M2 is - 100 220 10 60 50 180 80 70

300

Refer to the table. Money supply M2 for this economy is - 100 220 10 60 50 180 80 80

490

Answer the question based on the following sequence of events involving fiscal policy: The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. Economists reach agreement that the economy is moving into a recession. A tax cut is proposed in Congress. The tax cut is passed by Congress and signed by the president. Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The operational lag of fiscal policy is reflected in event(s)

5

Refer to the table. Money supply M1 for this economy is - 120, 240, 30 80 70 200 100 90

75

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

A decrease in the money supply will raise the interest rate, decrease investment spending, decrease aggregate demand, and decrease inflation.

Which of the given countries would be low-income developing countries (DVCs), according to the World Bank?

A only

Which of the following will happen when the Federal Reserve lowers the interest rate paid on reserve balances?

Banks will choose to lend into the money market instead of lending to the Fed.

The central authority of the U.S. banking system is the

Board of Governors of the Federal Reserve.

The three key entities in the Federal Reserve System are the

Board of Governors, 12 Federal Reserve Banks, and the FOMC.

Capital flight refers to

DVC citizens accumulating or investing their savings in the IACs.

In the United States, monetary policy is the responsibility of the

FRS

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the

Federal Open Market Committee (FOMC).

The Federal Reserve System's three administered rates are the

IORB rate, ON RRP rate, and discount rate.

Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?

Offsetting state and local finances

which of the following best describes the built-in stabilizers as they function in the United States?

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.