ECON 2301 Exam 4 Study Guide 2
What is meant by proportional tax?
A tax that is a flat percentage of income earned, regardless of level of income.
What name is given to a tax based on the income of all forms received by individuals?
Individual income tax
Which category of the money supply would you be contributing to if you invest in money market funds?
M2
Which of the following refers to policy that involves altering the quantity of money and thus affecting the level of interest rates and the extent of borrowing?
Monetary policy
What term is used to describe where the deposits of many investors are pooled together and invested in a safe way like short-term government bonds?
Money market funds
What term is used to describe the proportion of its deposits that a bank is legally required to deposit with the central bank?
Reserve requirement
If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as
S + (M - X) = I + (G - T)
What is meant by open market operations?
The central bank buying or selling bonds to influence the quantity of money and the level of interest rates.
_________________________ are included in the aggregate amount of MI money currently in circulation.
Traveler's checks
Which of the following refers to the common way in which market values are measured in an economy?
Unit of account
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the
aggregate demand curve will shift to the right.
Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?
an acreage
The federal government levies _____________________________ on people who pass assets ____________________________, either after death or during life.
an estate and gift tax; to the next generation
When the interest rate in an economy decreases, it is most likely as a result of
an increase in the government budget surplus or a decrease in its budget deficit.
If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger.
an inflationary increase in the price level
If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then
automatic stabilizers will decrease government spending and increase tax revenue.
A central bank that wants to increase the quantity of money in the economy will
buy bonds in open market operations.
How are the specific interest rates for the lending and borrowing markets determined?
by the forces of supply and demand
When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view?
central bank prints more money
When government borrowing soaks up available financial capital and leaves less for private investment in physical capital, the result is known as ____________.
crowding out
If loans become far less available, sectors of the economy that ____________________________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.
depend on borrowed money
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.
double coincidence of wants
If the government initiates an expansionary monetary policy at the same time that its budget deficit increases, then the interest rate will __________________.
either increase or decrease
If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?
expansionary
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, it will
follow tight monetary policy.
There are two main sources of demand for financial capital: private sector investment and _____________.
government borrowing
By June, 2010, the U.S. government owed $13.6 trillion dollars ________________ that, over time, has remained unpaid.
in accumulated government debt
If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.
increase or decrease
When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant
investment will decrease if savings also remains constant.
When banks hold excess reserves because they don't see good lending opportunities,
it negatively affects expansionary monetary policy.
In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.
medium of exchange
Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget surplus increases by 100, then
private savings will decrease by 100 .
Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget deficit increases by 50, then
private savings will increase by 50
If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is
progressive.
The quantity of money in an economy and the _____________________ are inextricably intertwined.
quantity of credit for loans
The quantitative easing policies adopted by the Federal Reserve are usually thought of as
temporary emergency measures.
Why do banks use a T-account?
the T-account separates assets on the left from liabilities on the right
When the central bank lowers the reserve requirement on deposits,
the money supply increases and interest rates decrease.
According to the basic quantity equation of money, if price and output fall while velocity increases,
the quantity of money will fall.
When increasing oil prices cause aggregate supply to shift to the left, then
unemployment and inflation increase.
