Econ midterm 5

As the baby boomer generation retires, Social Security payments will have to increase approximately ______ in order to maintain the level of promised benefits.

40%

U.S. government spending on Social Security, defense, Medicare, and Medicaid makes up almost

67 percent of federal government spending.

In 2008 taxpayers used approximately ______ of their tax rebate checks to reduce their current debt instead of increasing their spending.

80%

In which U.S. president's term of office did the federal government run a budget surplus?

Bill Clinton

The Federal Insurance Contributions Act tax is used to fund

Social Security payments.

The second-largest source of revenue for the U.S. federal government is

Social security and Medicare taxes.

Over which of the following definitions of the money supply does the Fed have the most control?

The monetary base

Which country had the highest military expenditure in 2010?

United States

Which of the following is regarded as a policy rule? a) keeping the money supply growth rate consistent with a given inflation rate b) adjusting policy actions to deal with the nature of the economic shocks c) changing the money supply growth with discretion d) making policy on the fly

a) keeping the money supply growth rate consistent with a given inflation rate

Open market operations involve the Federal Reserve

buying and selling government bonds

Ideal fiscal policy will

increase aggregate demand in bad times and pay off the bills in good times.

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising

inflation.

The time it takes Congress to propose and pass a plan for fiscal policy is called the

legislative lag.

The tax rate paid on an additional dollar of income is called the

marginal tax rate.

When expansionary fiscal policy increases income and thus consumer spending, the additional increase in AD it causes is called the

multiplier effect.

Government spending in the United States is

not likely to fall in the future, given the aging population.

The macroeconomic case for government spending is strongest when

the government faces some immediate emergency.

The largest source of revenue for the U.S. federal government is

the individual income tax.

What are the three main sources of funds for the U.S. federal government?

Individual income taxes, corporate income taxes, and Social Security and Medicare taxes.

Whereas ______ covers the elderly, ______ covers the poor and the disabled.

Medicare; Medicaid

Suppose that the unemployed are mostly construction workers by profession. Which government spending project will most effectively target unused labor resources?

Renovating the nation's highway system.

In the dynamic AS-AD diagram, a tight monetary policy shifts the

AD curve to the left

Increases in government spending are not very effective in offsetting real shocks because increases in government spending shift

AD.

Fiscal policy lags

are generally longer than monetary policy lags.

Uncertainty drives people away from

investment spending and toward more liquid assets.

Because the United States has a fractional reserve banking system, banks must hold

less than 100 percent of deposits as reserves.

Nearly one-third of the total U.S. national debt is held by

other agencies in the federal government.

The federal funds rate is the

overnight lending rate from one major bank to another.

Which of the following provides an automatic stabilizer when the economy is declining?

welfare and transfer programs.

Quantitative easing occurs when the

Fed buys long-term securities.

If an increase in government spending of $100 million causes an increase in real GDP of less than $100 million, we call this phenomenon

crowding out.

Monetary policy is a ______ means of popping a bubble, because monetary policy ______ push down the price of specific commodities.

crude; can't

Which of the following is NOT true of the Federal Reserve System? a) It regulates the nation's money supply. b) It serves as the bankers' bank. c) It maintains the bank account of the U.S. Treasury. d) It carries out policies passed by the federal government.

d) It carries out policies passed by the federal government.

The multiplier concept is important because it shows

how small changes in government spending may have large impacts on overall output.

Paying a higher interest rate on reserves held at the Fed will tend to

decrease the money supply

Originally the alternative minimum tax was supposed to

ensure a minimum tax payment among super rich households.

Fiscal policy refers to the change in

government spending or taxes in an attempt to influence the overall economy.

The effective reserve ratio is determined primarily by

how liquid banks wish to be.

The advocates of discretion for the Fed's role think that the Fed's adjustments on average push the economy in the

right direction and lower GDP volatility.

The risk that the failure of a few large financial institutions can affect the entire financial system is called

systemic risk.

The crowding out effect of fiscal policy refers to

the decrease in private spending as a result of higher government spending.

Social Security and Medicare primarily transfer wealth to

the elderly

When the Fed sells government bonds in the open market,

the monetary base decreases and interest rates increase

When facing a real shock, a central bank will encounter a dilemma that forces it to choose between

too low a rate of growth or too high a rate of inflation.

In September 2010, after most of the funds from the American Recovery and Reinvestment Act of 2009 had been spent,

unemployment remained at 9.6%.

A bank becomes insolvent when the

value of a bank's loans falls so far that the bank can no longer pay back its depositors.