econ hw
Suppose the fed carries out an open market purchase and credits the account of a bank by $160000 further suppose that the reserve ratio is 10% by how much is the money supply expected to change
$1.6 million
If banks keep one-eighth of their deposits in the form of reserves and the Fed credits Alex's bank account with $8000 how much does the money supply increase?
$64000
Bank A has $100 million in deposits $15 million in required reserves and $85 million in loans Bank A's reserve ratio is
15%
If the federal government spends 12% of the GDP and collects revenues of 10% of GDP what is the deficit as a percentage of GDP
2%
The social security program in the United states is financed by:
FICA tax revenue
A negative real shock causes the economy's:
SRAS and LRAS curves to shift inward
As market interest rates rise:
a bank's opportunity cost of holding reserves rises
People holding more cash because of a decrease in consumer confidence would cause:
a decrease in both the growth rate of output and inflation
The united states federal government has:
a progressive income tax system
Money is
anything that is widely accepted as a means of payment
In the short run if the federal reserve responds to a negative real shock with an increase in money supply growth the inflation rate will increase because of
both the real shock and the increase in money growth
To increase the money supply in the economy the fed would
carry out open market purchases and/or lower the discount rate
If the fed wishes to lower interest rates it should
conduct an open market purchase
Low interest rates are a signal that
credit is easy and it is a good idea to borrow money
M1 refers to
currency plus checkable deposits
Crowding out is the BLANK in private spending that occurs when government BLANK spending
decrease increases
An increase in government spending can reduce real GDP growth if:
decreases in private spending more than offset the increase in government spending
Reserves held at the fed are
electronic claims that can be converted into currency if the bank wishes
The federal reserve is the:
federal government's bank central bank and bankers bank in the U.S.
Examples of expansionary fiscal policy include increases in:
government spending
A problem that makes fiscal policy less effective is that:
higher taxes or increased borrowing to fund government spending can reduce aggregate demand.
In the short run an increase in government spending growth will cause the inflation rate to:
increase
The tax deduction for interest paid on home mortgages tends to:
increase housing prices
To fight a recession, the federal government can:
increase its spending
In order for fiscal policy to effectively offset a 1$ million decrease in consumer spending the government would most likely have to:
increase spending by less than $1 million
To reduce the money supply in the economy the fed would
increase the discount rate
Many economists worry about the federal reserve overstimulating the economy because such overstimulation will lead to rising
inflation
If the fed adheres to a strict "money growth rule" of 3% what happens if the velocity growth drops
inflation real growth and nominal wage growth all decrease
If households use tax rebate checks to pay off their existing debt (such as credit cards and mortgages) this type of fiscal stimulus:
is likely to have a negligible impact on aggregate demand
Fiscal policy is:
less effective in dealing with real shocks as with aggregate demand shocks
The tax rate paid on an additional dollar of income is the:
marginal tax rate
The amount by which the money expands with each additional dollar in reserves is the
money multiplier
When banks take on too much risk with hope that the fed will eventually bail them out a condition of BLANK exists
moral hazard
Under a progressive tax system tax payments will BLANK if a person's income doubles
more than double
Under fractional reserve banking banks hold
only a fraction of deposits in reserve lending the rest
The U.S. tax system is:
progressive
Rank the major means of payment from the largest to the smallest amount of dollars
savings deposits money market mutual funds small time deposits
An increase in money growth will cause the economy's AD curve to
shift outward
The multiplier effect is the:
subsequent consumer spending that increases AD from expansionary fiscal policy
Which of the following is true when measuring the role of the government in an economy by the amount of its government spending
the amount of government spending understates the role of the government in an economy because of the effects of government policies on economic activity
Which of the following descriptions of the "government deficit" is incorrect
the deficit is caused by a shortage of tax revenue
When a recession is caused by a real shock an expansionary fiscal policy will result in an increase in:
the inflation rate which is higher than the increase in the growth rate
Commercial banks make profits primarily through
the interest differential between deposits and loans
What will happen when banks decide to increase their reserve ratios
the money supply will contract
Suppose the federal government incurs a $1 billion deficit in 2011 Which of the following is true of the national debt
the national debt increases by $1 billion
The marginal tax rate is:
the tax rate paid on an additional dollar of income
Fiscal policy is most effective when:
there are many unemployed resources