macro 11-15

¡Supera tus tareas y exámenes ahora con Quizwiz!

a better indicator for comparative purposes is the ______-to-GDP ratio

debt

An explicit, legislated limit on the amount of outstanding national debt

debt ceiling

the interest required to be paid each year on outstanding debt

debt service

a redistribution of income from taxpayers to bondholders

debt servicing

As the economy slows: • Tax revenues _________. • Unemployment benefits _____. • Other transfer payments _____.

decline, rise, and rise

The following could cause a _________ in demand for the dollar: • U.S. incomes rise faster than foreign incomes. • U.S. prices rise faster than foreign prices. • Foreigners have a decreased need for U.S. goods. • U.S. interest rates become lower than in foreign countries.

decrease

When the Fed sells government bonds to the public, reserves __________, fewer loans can be made, and the money supply shrinks

decrease

As economic growth returns, unemployment compensation and welfare payments __________ and income tax collections __________, each putting a small restraint on economic growth

decrease and increase

If transfer payments decrease, recipients' disposable income falls and spending ___________

decreases

Increase the reserve requirement and: The money multiplier

decreases

Increase the reserve requirement and: • The amount of excess reserves

decreases

a fiscal restraint causes AS to slope upward, so an AD shift left will induce price level ___________

decreases

Keynes: Full employment first, then worry about the ________

deficit

The distinction between the structural and cyclical portions of the budget allow a better analysis of _________ changes

deficit

an explicit, legislated limit on size of the budget deficit.

deficit ceiling

Leads to compromises on how best to use budget deficits

deficit ceilings

Increases in government ___________ puts pressure on interest rate

deficits

Only way to stop debt growth is to eliminate budget _________ that create debt.

deficits

quantities of money the public wants to hold at alternative interest rates

demand for money

Banks perform two essential functions for the macro economy: • Banks transfer money from savers to spenders by lending funds held on __________. • The banking system creates additional money by making loans in ________ of required reserves.

deposit and excess

The creation of transactions deposits by bank lending

deposit creation

four constraints on deposit creation

deposits, willingness to lend, willingness to borrow, regulation

Any decrease in demand for the dollar or increase in supply of the dollar will push the dollar price in euros down. The dollar _____________ in value

depreciates

When the dollar appreciates against the euro, the euro ______________ in value relative to the dollar

depreciates

a fall in the price of one currency relative to another

depreciation

• Caused by a decrease in demand or an increase in supply of the first currency

depreciation

Shifting AS rightward generates ___________ macro outcomes

desirable

desired tax cut =

desired fiscal stimulus/MPC

size of fiscal initiative =

desired shift / multiplier

It can borrow reserves overnight from the Fed and pay interest: the

discount rate

deliberate policy decisions made to expand (or shrink) the structural deficit and give the economy a shot of fiscal stimulus (or fiscal restraint).

discretionary fiscal policy

those elements of the budget not determined by past legislative or executive commitments.

discretionary fiscal spending

Shifting AS leftward: Policies that provide ______________ for suppliers to increase production

disincentives

From a tax cut, Consumers will save a portion of their increased _____________ income

disposable

The direct effect of a tax hike is reduced _______ ________

disposable income

Because tax revenues and government spending are sensitive to economic conditions, budget projections must rely on

economic forcasts

a prohibition on imported goods

embargo

three barriers to trade

embargo, tariff, and quota

Cutting taxes or increasing income transfers puts money in the peoples' hands and __________ the private sector

enlarges

Using fiscal policy to solve macro problems implies that federal expenditures and federal receipts won't always be

equal

Each bank may lend an amount _____ ___ its excess reserves and no more

equal to

The intersection of money demand and money supply (E1 ) establishes the

equilibrium rate of interest

U.S. exporters of goods to Europe get paid in

euros

in an open economy the consumption possibilities in each country can _________ its production possibilities

exceed

_________ reserves are the maximum amount that any bank can lend

excess

- bank reserves in excess of required reserves

excess reserves

Banks choose total reserves for their bank, and any reserves beyond the requirement is called

excess reserves

Private banks earn income by making loans, so they try to fully lend out their

excess reserves

potential deposit creation =

excess reserves x money multiplier

Money acts as a medium of _________. Sellers will accept it as payment for goods and services

exchange

the price of one country's currency in terms of another's; the domestic price of a foreign currency

exchange rate

The standard way to eliminate instability in exchange rates is to adopt fixed _________ __________, where all major trading countries agree to keep the exchange rates between each currency fixed

exchange rates

Monetarists conclude that ____________ monetary policy can't lead us out of recession. The alternative is to ensure a stable and predictable rate of growth in the money supply

expansionary

Cut government _______________ to initiate a multiplier process to achieve the desired fiscal restraint

expenditures

what does G stand for

expenditures

Spending increases raise ______________ (G), and tax cuts decrease ____________ (T); therefore, the budget deficit increases.

expenditures and revenues

At high interest rates, money is ___________ to acquire

expensive

If the discount rate is raised, borrowing reserves from the Fed becomes more

expensive

Economic growth is an ___________ process.

exponential

goods and services sold to foreign buyers

exports

trade balance =

exports - imports

What if foreigners no longer want to hold U.S. debt? __________ __________ will be repaid with exports of real goods and services.

external debt

Shifting AS leftward causes negative _________ __________

external shocks

As the money supply shrinks, the price level falls and anticipated inflation decreases, so nominal interest rates ______

fall

If AS shifts right, both elements decrease and the misery index _______ sharply

falls

If the Fed increases reserves by buying bonds, the Fed funds rate

falls

who sets the required reserve ratio

fed

Borrowing reserves by one bank from another is referred to as

federal funds

A market signal of changes in reserve flows is provided by the

federal funds rate

It can borrow excess reserves overnight from another bank and pay interest: the

federal funds rate

the interest rate paid to borrow

federal funds rate

If the market cannot correct imbalances, then the ________ ___________ must.

federal government

The bank's ability to create money is limited by the ________ ________ __________

federal reserve system

As long as foreigners are willing to hold U.S. debt, external ___________ imposes no real cost

financing

policy adjustments designed to counteract small changes in economic outcomes

fine-tuning

which two policies often get entwined

fiscal and supply-side

debt ceiling is another mechanism for forcing Congress to adopt specific _________ _________

fiscal policies

the use of government taxes and spending to alter macroeconomic outcomes

fiscal policy

which policy: Government spending and taxation is used to alter macroeconomic outcomes

fiscal policy

which policy: Tax cuts and increases. Changes in government spending.

fiscal policy

Tax hikes or spending cuts intended to decrease AD (shift AD left).

fiscal restraint

gauged by a decrease in the structural deficit (or increase in the structural surplus)

fiscal restraint

cumulative decrease (horizontal shift) in AD =

fiscal restraint + induced decrease in consumption or multiplier x initial budget cut (fiscal restraint)

If a recessionary GDP gap exists, _________ ___________ could shift the economy back to full-employment GDP

fiscal stimulus

Increased government spending is a form of

fiscal stimulus

Tax cuts or spending hikes intended to increase AD (shift AD to the right).

fiscal stimulus

measured by an increase in the structural deficit (or shrinkage in the structural surplus)

fiscal stimulus

cumulative increase (horizontal shift) in AD =

fiscal stimulus + induced increase in consumption or multiplier x fiscal stimulus

The problem with fixed exchange rates is that the demand for and the supply of each currency will continue to ___________, and a fixed exchange rate does not account for this

fluctuate

The market demand for U.S. dollars represents a market supply of

foreign currency

The Federal Open Market Committee (FOMC) meets every _______ to _______ weeks to review economic performance and to adjust monetary policy as needed.

four to five

Crowding out can occur, especially as the economy gets closer to ______ employment

full

keynesian view: The goal of macro policy is not to balance the budget but to move the economy to _____-employment GDP.

full

total real GDP divided by total population

gdp per capita

real GDP divided by the labor force

gdp per worker

an agreement by countries to fix the price of their currencies in terms of gold.

gold standard

Funds spent on ___________ expenditures cannot be used for other (public or private) expenditures

governemtn

The Keynesian theory of macro instability practically mandates _______ ______

government intervention

how does the rule of 72 work? To find how many years it takes to double GDP, divide 72 by the ________ ________

growth rate

the percentage change in real output from one period to another

growth rate

growth rate of total output =

growth rate of labor force + growth rate of productivity

Less than _______ of government expenditures go to government purchases of goods and services

half

Supply-siders note that ______ tax rates destroy the incentive to work and produce, which ends up reducing output.

high

two limits on monetary restraint

high expectations and global money

Lower prices = ________ yields

higher

Tariffs (taxes on imported goods) make input costs _________ which increases the cost of U.S. production

higher

If people prefer to hold onto cash, the deposit creation process will be severely __________

hindered

which direction is a cumulative increase in AD

horizontal

Supply-siders encourage investments in

human capital

an increase in labor skills means more

human capital

the knowledge and skills possessed by the workforce

human capital

what form of AS: Upward sloping AS curve, "blended" from the other two

hybrid AS

Most growth policy tools are _________ with the supply-side tools

identical

__________ restrictions make it more difficult to overcome skill shortages in the labor market.

immigration

In 2019, the United States __________ $3 trillion worth of goods and services and ___________ $1.6 trillion in goods and $0.9 trillion in services

imported and exported

goods and services purchased from international sources

imports

Fostering new entrepreneurship and improving the quality of continuing management is an example of

improved management

better use of available resources in the production process

improved management

Individuals automatically are placed into a lower _______ tax bracket when their incomes fall.

income

payments to individuals for which no current goods or services are exchanged

income transfers

If AS shifts left, both elements ___________ and the misery index rises sharply

increase

If both V and Q are stable, any __________ in M in the long-run only increases P

increase

Shifting AS rightward: Policies that provide incentives for suppliers to ____________ production.

increase

The following could cause an __________ in demand for the dollar: • Foreign incomes rise faster than U.S. incomes. • Foreign prices rise faster than U.S. prices. • Foreigners have an increased need for U.S. goods. • U.S. interest rates become higher than in foreign countries.

increase

When the Fed buys government bonds from the public, reserves __________, more loans can be made, and the money supply grows

increase

Individual income tax cut: disposable income would ___________, causing increased _____________ spending

increase and consumption

As a recession begins, unemployment compensation and welfare payments __________ and income tax collections ___________, each stimulating economic growth in a small way

increase and decrease

Corporate tax cut: profits would ____________, spurring increased _____________ spending

increase and investment

what are three fiscal policy tools for fixing a weak economy

increase government purchases cut taxes increase transfer payments

tax elasticity of supply =

%change in quantity supplied / % change in tax rate

If the increase in G and the decrease in T are the same size, the balanced budget multiplier, therefore, equals

1

money multiplier =

1/required reserve ratio

the fed consists of how many federal reserve banks

12

The Federal Reserve System (or the Fed) was created in

1913

High marginal tax rates provide a disincentive to: • _________ their earnings impacts labor supply. • Start or expand a business impacts ______________. • Increase investment spending impacts ____________ investment.

increase, entrepreneurship, and corporate

At 3.5% growth rate, GDP will double in about _____ years

20

about ____% of the budget is discretionary fiscal spending

20

Foreigners hold _____% of debt

29

State and local governments hold __% of debt

3

_________ government borrowing reduces the availability of funds for private sector.

increased

__________ interest payments use up taxes collected that no longer can be used for other government expenditures

increased

Borrowed funds to finance the stimulus must be paid for in the future by ___________ taxes or ____________ spending, both fiscal restraint tools

increased and reduced

Tax cuts or increased government spending, or a combination of the two, ___________ the size of the budget deficit.

increases

When a debt ceiling is reached, Congress usually ___________ it

increases

When there is a deficit, the national debt

increases

after a fiscal stimulus, AS slopes upward, so an AD shift right will induce price level ___________

increases

Leftward shift of AS: __________ both inflation and unemployment and output ________

increases and decreases

The Fed may limit deposit creation by ___________ reserve requirements.

increasing

Fiscal stimulus and easy money will reduce unemployment but increase ____________

inflation

If AD is too much, ___________ arises.

inflation

Too much fiscal stimulus? This may rapidly lead to excessive spending and

inflation

The message of the upward-sloping AS curve is that demand-side policies alone can never succeed completely; they will always cause some unwanted __________ or ___________

inflation or unemployment

Too little fiscal restraint? The economy may continue to be

inflationary

the output at which inflationary pressures intensify; the point on the AS curve where slope increases sharply

inflationary flashpoint

We must maintain, improve, expand, and in some cases replace our public _____________

infrastructure

An underperforming economy produces at a point _______ the PPC

inside

The market determines the "price" of money, or the

interest rate

three determinants of shift in AD

internal market forces external shocks fiscal policy

Redistributes income from import-competing firms to exporting firms

international trade

The following threats may inhibit _____________: • Increasing government regulation. • Increasing inflation. • Increasing budget deficits and "crowding out." • Increased business taxes

investment

The goal is to expand ___________ spending, which increases the capacity to produce. This will shift AS to the right

investment

what are the three views of AS

keynesian AS, Monetarist AS, and Hybrid AS

____________ believe that changing interest rates are the critical policy lever to shift aggregate demand

keynesians

to close the inflationary GDP gap who would decrease AD by raising taxes and cutting government spending

keynesians

to close the recessionary GDP gap who would increase AD by tax cuts or spending increases. Also, decrease interest rates to spur investment

keynesians

Continuing advances in education and skills training have greatly increased the quality of U.S. _______

labor

The fiscal restraint needed to close the GDP gap must be __________ than the gap

larger

The fiscal stimulus needed to close the GDP gap must be __________ than the gap because AS slopes upward

larger

If the government runs a surplus, tax revenues are greater than government expenditure and adds to the __________ in the circular flow. This results in a drag on the economy

leakage

Excessive regulation is costly to producers and will shift AS to the

left

Government regulations of international trade also influence AS. • When production costs rise, AS shifts

left

High marginal tax rates will shift AS to the

left

When AS shifts right, the Phillips curve shifts _________

left

as aggregate demand moves up and right on the aggregate supply curve, the inflation- unemployment trade-off shifts ______ on the phillips curve

left

• By changing reserve requirements, the Fed can directly alter the ___________ __________ of the banking systeme

lending capacity

Rising interest rates also increase the borrowing costs of government, leaving ______ room in government budgets for financing new projects

less

The initial spending injection can be _______ than the size of the tax cut

less

Since there is no initial new input of spending, a tax cut contains _____ fiscal stimulus than a ______________ spending increase of the same size

less and government

The assets of a bank always equals its

liabilities

What the bank is obligated to pay to others.

liabilities

The portion of the money demand curve that is horizontal; people are willing to hold unlimited amounts of money at some low interest rate

liquidity trap

Banks create money by making

loans

By increasing the money supply (causing a surplus), the Fed tends to __________ the equilibrium rate of interest.

lower

The Fed can induce people to buy bonds from them by offering to sell them at a _______ price

lower

With an inflationary gap, interest rates are likely to be high. A decrease in the money supply will ______ nominal interest rates

lower

To increase the money supply, the Fed can: • _________ reserve requirements. • ________ the discount rate. • Buy _______ in open market operations

lower, reduce, and bonds

Supply-siders emphasize a reduction in ___________ tax rates for both workers and firms

marginal

the tax rate imposed on the latest earned (marginal) dollar of income

marginal tax rate

accepted as payment for goods and services (and debts).

medium of exchange

Anything that serves all the following purposes (3) can be thought of as money

medium of exchange, store of value, and standard of value

three examples of deregulation in the factor market

minimum wage, mandatory benefits, and occupational health and safety

the sum of inflation and unemployment rates.

misery index

___________ believe that expanding the money supply at a steady, predictable rate is the critical policy tool

monetarists

to close the inflationary GDP gap who would reduce the money supply

monetarists

to close the recessionary GDP gap who would say fiscal policy doesn't matter so long as the velocity of money is constant. The appropriate response is patience

monetarists

the use of money and credit controls to influence macroeconomic outcomes

monetary policy

which policy: Open market operations. Changes in reserve requirements. Changes in discount rates.

monetary policy

which policy: The Fed's Board of Governors uses money and credit controls to influence macroeconomic outcomes

monetary policy

A tactic of _________ _________ is to increase aggregate demand (AD) by lowering interest rates.

monetary stimulus

A bank makes a loan, creating

money

a tool that greatly simplifies market transactions

money

anything generally accepted as a medium of exchange

money

the quantity of money people are willing and able to hold (demand) increases as interest rates fall, and vice versa.

money demand

Money is a commodity that is traded in a marketplace, the

money market

the amount of deposit dollars that the banking system can create from $1 of excess reserves

money multiplier

If spending increases when the money supply grows, then the Fed should focus on the _______ ________, not interest rates

money supply

what percent of gdp are great britain exports

30%

The private sector holds ___% of debt

32

Today ____ percent of the workforce has completed four years of college

35

Federal agencies (e.g., the Federal Reserve and the Social Security Administration) hold _____% of all outstanding Treasury bonds

36

M2 is _______ times larger than M1

4

One board member is appointed by the president to serve as chairman of the fed for _____ years

4

The federal government collects nearly $____ trillion a year in tax revenues, nearly ______ of which comes from individual income taxes

4 and half

In 1978 Congress set goals of ____% unemployment, ____% inflation, and ____% economic growth

4, 3, and 4

M2 stands for

money supply

currency held by the public, plus balances in transactions accounts.

money supply (M1)

M1 plus balances in savings accounts and money market mutual funds

money supply (M2)

mv = pq means

money supply x velocity of its circulation = price level x quantity of output

Economic growth means ________ of the people's wants and needs will be satisfied.

more

an increase in the ratio of capital to labor means

more physical capital

Monetary stimulus will be _______ effective if long-term interest rate changes mirror short-term rate changes.

most

initial increase in consumption =

mpc x tax cut

Reduced government spending will have a ___________ impact on AD

multiplied

Fiscal stimulus will set off the _____________ process.

multiplier

People must reduce consumption and saving to pay the added taxes which will trigger the negative ____________ effect and AD will shift to the ________

multiplier and left

cumulative change in spending =

multiplier x initial change in consumption

the end result is that both countries can now consume a greater combination of goods

mutual gains

the accumulation of many years of running budget deficits

national debt

two other arguments used to restrict trade

national security and dumping

the long-term rate of unemployment is determined by structural forces in labor and product markets.

natural rate of unemployment

If a bank has no excess reserves, it can make ___ more loans

no

are external shocks predictable

no

do mutual gains occur in a closed economy

no

does a closed economy have international trade

no

the interest rate we actually see and pay.

nominal interest rate

the use of product standards, licensing restrictions, restrictive procurement practices, and safety regulations to deter the qualification of products to be imported.

nontariff barriers

The short-run goal is to achieve full employment, to move the economy to a point ______ the PPC

on

The Fed funds rate is a highly visible signal of Federal Reserve _________ _________ operations

open market

The objective of ________ _________ operations is to alter the price of bonds, raising or lowering their yields, to make them more or less attractive as investments

open market

the principal mechanism to directly alter the reserves of the banking system

open market operations

If people hold cash as M1, the forgone interest they could have earned is the __________ __________ of money people choose to hold

opportunity cost

The burden of the debt is really the __________ ___________ (crowding out) of deficit financed government activity

opportunity cost

conflict between the benefit and the cost of a policy option

opportunity cost

Budget deficits arise when government __________ (spending) exceed __________ (receipts).

outlays and revenues

Economic growth is an increase in ________ (real GDP); an expansion of production possibilities __________

output and outward

To achieve large and lasting increases in output, we must push the PPC _________

outward

When there is a surplus, the national debt can be ______ _______

pared down

M1 permits direct ___________ to a third party for goods and services

payment

As the boomers retire, more will go out in Social Security checks than comes in from __________ taxes

payroll

Increasing human capital investment. • Increasing physical capital investment. • Maintaining stable expectations. • Institutional context of a nation's economy. are examples of

policy tools

GDP per capita increases only when GDP growth exceeds ___________ growth.

population

If the labor force grows faster than the ___________, GDP per capita grows and living standards rise

population

Money held for unexpected market transactions or for emergencies

precautionary demand

A tax cut adds no more dollars to the economy. It allows earners to keep more of their current ___________ income

pretax

To a large extent, current revenues and expenditures are the result of decisions made in ________ years

prior

Each bitcoin has a "_______ _____" identifier which you can transfer to another person or firm in payment, without a bank transfer

private key

If the required reserve ratio is 0.20, the money multiplier is 5. An initial deposit of $100 has $80 of excess reserves and potentially can create $_____ of new deposits

400

what percent of gdp are south korean exports

44

It may take _____ to _______ months before market behavior responds to monetary policy.

6 to 12

There are_____ board members appointed to the def board of governors by the president and confirmed by the Senate to serve _____-year terms. Appointments are staggered, to ensure a measure of political independence

7 and 14

what percent of gdp are belgium exports

70

A shortcut method of indicating growth rate is to use the Rule of

72

about ____% of the budget is automatic spending

80

Any increase in ____ directly increases the price level.

AD

Shifting _____ to "fix" stagflation is not possible

AD

The amount by which AD must be reduced to achieve full employment after allowing for price level changes.

AD excess

desired fiscal restraint =

AD excess / multiplier

The amount of additional AD needed to achieve full employment after allowing for price level changes

AD shortfall

desired fiscal stimulus =

AD shortfall/multiplier

When government imposes regulations that directly affect employment and production decisions, it affects the _____ curve

AS

Regulations have good reasons for existing, but shift AS to the left by increasing costs to

producers

in a closed economy : The consumption possibilities in each country must equal its _____________ possibilities

production

what curve shows the short-run limit of production capacity.

production possibilities curve

If deficit-financed government spending crowds out private investment, future generations will bear some of the debt burden: • We will have smaller-than-anticipated __________ capacity. • There will be arguments about achieving an optimal mix of output, as the public sector grows at the expense of the __________ sector.

productive and private

A primary determinant of labor is

productivity

Long-run growth of the labor force has stabilized, so continued growth in real GDP must rely on ___________ growth

productivity

is better measured by output per labor-hour

productivity

If government is divided between the two groups, ________ vs ________, fiscal policy will be delayed by arguments on these policy issues.

public vs private

The essence of money is not its physical form, but its ability to ___________ goods and services

purchase

what two things are a part of government expenditure

purchases and income transfers

The amount of money available (the size of the money supply) affects consumers' ability to purchase goods and services

purchasing power

The value of the dollar is indicated by its

purchasing power

long-term bonds and mortgage-backed securities

quantitative easing

A limit on the quantity of a good allowed to be imported

quota

By decreasing the money supply (causing a shortage), the Fed tends to _____ the equilibrium rate of interest

raise

the nominal rate minus the anticipated inflation rate

real interest rate

Opportunity cost of running up debt are incurred when ______ __________ are used

real resources

A fiscal stimulus package is designed to move the economy out of __________ toward full-employment GDP

recession

Too little fiscal stimulus? The economy may stay in

recession

To close an inflationary GDP gap using monetary policy, _________ the money supply and shift AD ______

reduce and left

what are three fiscal policy tools for fixing an overheated economy

reduce government purchases increase taxes reduce transfer payments

which option of fiscal restraint is politically unpopular

reduced transfer payments

An increase in the required reserve ratio _________ both excess reserves and the money multiplier

reduces

Rightward shift of AS: __________ inflation and unemployment at the same time

reduces

Increase in government expenditures may be offset by ___________ in private spending

reductions

How is the debt usually paid off? • It is usually just _________

refinanced

the issuance of new debt to pay off debt issued earlier

refinancing

If borrowers are __________ to take on more debt, fewer loans will be made

reluctant

the ratio of a bank's required reserves to its total deposits.

required reserve ratio

required reserves =

required reserve ratio x total deposits

the minimum amount of reserves a bank is required to hold (and not loan out).

required reserves

Private banks are required to keep a fraction of deposits "in _________," either as cash or on deposit at the regional Fed bank

reserve

If banks are reluctant to take risks in lending, they will not fully lend out their excess ________

reserves

_____________- consumed by a government expenditure cannot be used to produce other goods and services

resources

A tactic of monetary _________ is to decrease aggregate demand (AD) by lowering interest rates.

restraint

Decreased government spending is a form of fiscal _________

restraint

If an inflationary GDP gap exists, a fiscal __________ could be used to return the economy to full-employment GDP

restraint

what does T stand for

revenue

A reduction in marginal tax rates will shift AS to the

right

Economic growth is also indicated as a __________ shift of long-run AS.

rightward

An increase in demand for funds will cause the price of borrowing, the interest rate, to ______

rise

Thus, total spending (PQ) must _____ if money supply (M) grows and velocity (V) is stable, regardless of interest rates

rise

As the economy grows: • Tax revenues _____ • Unemployment benefits _____ • Other transfer payments _____ • Interest rates could rise, __________ debt payments

rise, fall, fall, and increasing

_________ interest rates make it more costly for consumers or businesses to borrow, and they may cut back

rising

Supply-siders emphasize the importance of __________ for financing more investment and economic growth

saving

Keynesians treat ________ as a deterrent to spending, a leakage

savng

Congress will have to raise taxes, make big cuts in spending, or reduce Social Security payouts to redeem those Treasury _____________

securities

If a bank needs more reserves, it can sell ____________ and deposit the proceeds at a regional Federal Reserve bank

securities

an asset that bears interest, such as a government bond

securities

The Fed has greater influence on ________-term rates

short

five constraints on monetary stimulus

short vs long term rates reluctant lenders liquidity trap low expectations time lags

If interest rates are lower than equilibrium, there is a money

shortage

How much to shift AD to eliminate GDP gaps is indicated by the AD _________ or the AD ___________

shortfall and excess

The camp favoring government solutions to problem would: • Increase government spending to cover an AD _________. • Hike taxes to cover an AD _________

shortfall and excess

The camp that is concerned about excessively large government and thinks that solutions are better left to the private sector would: • Cut taxes to cover an AD _________. • Reduce government spending to cover an AD _________

shortfall and excess

Increase the reserve requirement and: The available lending capacity

shrinks

Since the effect of a change in G is greater than the effect of a change in T, AD would shift by the _______ of the change

size

Each policy tool would alter the economy's mix of consumption and investment and cause a different distribution of income. • One side: ________ tax cut for the rich, ________ tax relief for the poor, and more social programs. • The other side: _____ taxes for businesses and entrepreneurs, ________ the size and scope of government programs

smaller and more cut and reduce

Each person, firm, or country should find what they can produce at a comparative advantage

specialization

Money held for speculative purposes, for later financial opportunities.

speculative demand

___________ a surplus increases the size of the public sector

spending

To move out of recession to full-employment GDP, the primary concern is how much ___________ or _____ ______ should be involved

spending or tax cuts

Monetarists also say that, in the short run Q is

stable

Monetarists assume V is

stable

the simultaneous occurrence of substantial unemployment and inflation

stagflation

serves as a yardstick for measuring the prices of goods and services

standard of value

Because of several time lags in collecting data, the third part of the balance of payments is the __________ ____________, which indeed balances the two accounts

statistical discrepancy

keynesian view: Budget deficits and surpluses are a routine by-product of fiscal policy, caused by a fiscal ___________ to increase AD or a fiscal ___________ to decrease AD

stimulus and restraint

can be held for future purchases

store of value

The ___________- deficit reflects discretionary fiscal policy decisions

structural

federal revenues at full employment minus expenditures at full employment under prevailing fiscal policy

structural deficit

Supply-siders encourage investments in human capital to provide the knowledge and skills needed to reduce

structural unemployment

Market participants can look outside of U.S. money market for loanable funds in foreign __________, banks and ________ markets

subsidiaries and bond

which policy: Tax incentives for saving and investment. Deregulation. Human capital investment. Infrastructure development. Free trade. Immigration.

supply side policy

to close the inflationary GDP gap who would expand productive capacity.

supply siders

The _____________ policy levers require changes in laws and regulations

supply-side

to close the recessionary GDP gap who would cut tax rates and reduce regulation to improve production incentives and long-run development.

supply-side

which policy: The use of tax incentives, (de)regulation and other tools is a long-run policy to provide incentives to work, save, and invest. Marginal tax rates and government regulations must be reduced to get more output without inflation.

supply-side

If interest rates are higher than equilibrium, there is a money

surplus

When revenues exceed outlays, a budget ___________ exists

surplus

When the Treasury receives Social Security funds from payroll deductions, it pays out current retirement benefits and puts the ________- in Treasury securities

surplus

A tax imposed on imported goods

tariff

(taxes on imported goods

tariffs

Supply-siders advocate _____ incentives for investment.

tax

The labor response to a change in tax rates is summarized by the

tax elasticity of supply

adds to disposable income but does not affect the marginal tax rate, so AS does not shift

tax rebate

one-time tax refund

tax rebate

government can create fiscal stimulus by lowering ___________

taxes

Scientific research. • Product development. • Innovations in production techniques are all examples of

technological advancements

development and use of better capital equipment and products.

technological advancements

the rate at which goods are exchanged. The amount of good A given up to get good B in trade

terms of trade

Monetarists suggest that the potential of monetary policy can be express as:

the equation of exchange

the largest and oldest of trade agreements

the general agreement on tariffs and trade

was intended to be another regional trade pact, linking 12 nations that border the Pacific Ocean.

the trans-pacific partnership (TPP)

what Organization tries to enforce free-trade rules

the world trade organization

Pork Barrel Politics, Congress members might:

Channel spending to their own districts. • Protect favored projects from cuts. • Steer away from tax hikes or spending cuts before an election.

what four things do the federal reserves banks do

Clearing checks. • Holding bank reserves. • Providing currency. • Providing loans

The balance of payments is divided into three parts: what are the three parts

Current account balance capital account balance statistical descrepency

limitation of fiscal policy? It takes time to: • Recognize that a problem exists. • Develop a policy strategy. • Pass the required legislation. • Implement the policy. • Generate the many steps in the multiplier process.

time lags

Excess reserves =

total reserves - required reserves

excess reserves =

total reserves - required reserves

a negative trade balance

trade deficit

a positive trade balance

trade surplus

Most of M1 are _________ _________ ________

transactions account balances

include checking accounts and travelers checks

transactions accounts

cash and transactions accounts include

transactions accounts and currency

Money held for the purpose of making everyday market purchases

transactions demand

A third option for fiscal restraint is to reduce ___________ payments

transfer

Increasing _________ payments raises recipients' disposable income and spending increases.

transfer

Keep _________ payments from becoming excessive and providing a disincentive for recipients to take a job

transfer

three examples of deregulation in the product market

transportation costs, food and drug standards, and environmental protection

The U.S. Treasury borrows by issuing ________ __________ to lenders who want a safe investment paying out interest

treasury bonds

International trade therefore involves _____ currencies

two

Fiscal restraint and tight money will reduce inflation but increase ________________

unemployment

If AD is too little, ____________ arises

unemployment

The upward-sloped AS curve has a point at which inflation rockets upward as the decrease in ________________ slows

unemployment

Too much fiscal restraint? This may rapidly lead to decreased spending and rising

unemployment

Fiscal policy has a trade-off between

unemployment and inflation

These automatically turn on when someone becomes unemployed.

unemployment benefits

the number of times per year, on average, that a dollar is used to purchase final goods and services

velocity

since the Fed controls the money supply, it is represented by a _______ line

vertical

The national debt creates _________ for bondholders equal to the __________ it creates for the U.S. Treasury

wealth and liabilities

The cyclical deficit: • _______ when GDP growth slows, or inflation increases. • _______ when GDP growth accelerates, or inflation decreases

widens and shrinks

If the increase in G and the decrease in T are the same size, the deficit would/ would not grow

would not

does international trade exist in an open economy

yes

to stop debt growth: Balance the budget (G = T), or • Impose a deficit ceiling that is decreased each year until it reaches _______

zero

Available lending capacity =

Excess reserves × Money multiplier

three incentives to expand investment

Faster depreciation schedules. • Tax credits for new investments. • Lower business taxes

A system where exchange rates are permitted to vary with market supply and demand conditions

Flexible exchange rates (or floating exchange rates)

The goal of fiscal policy is to eliminate _______ gaps by shifting AD

GDP

There are four obstacles to policy success:

Goal conflicts. Measurement problems. Design problems. Implementation problems.

budget deficit =

Government spending - Tax revenues > 0

4 Sources of productivity gains:

Higher skills. • More capital. • Technological advancements. • Improved management.

The International Monetary Fund

IMF

what form of AS: Horizontal AS, when AD curve shifts, output not price changes.

Keynesian AS

_____________ say that changes in the money supply change interest rates, which shifts AD

Keynesians

M2 must be turned into ____ before it can be used to purchase goods and services

M1

M2 =

M1 + savings accounts

money supply (M2) =

M1 plus balances in most savings accounts and money market mutual funds

People hold money in ______ accounts because they can earn some interest on these deposits

M2

initial fiscal stimulus =

MPC x increase in transfer payments

what is the equation of exchange

MV=PQ

what form of AS: Vertical AS, output does not respond to changing price levels

Monetarist AS

____________ say that real output levels are not affected by monetary policy. Only the price level is affected by Fed policy ... and then only by changes in the money supply

Monetarists

PQ is the same as

Nominal GDP

This is the inflation-unemployment trade-off, which is expressed in the __________ curve

Phillips

Government can alter AD by: (three things)

Purchasing more or fewer goods and services. Raising or lowering taxes. Changing the level of income transfers

Required reserves =

Required reserve ratio × Total deposits

The Fed controls the money supply by using three policy tools:

Reserve requirements. • Discount rates. • Open market operations

Potential uses for a budget surplus:

Spend it on goods and services.•Cut taxes.•Increase income transfers.•Pay off old debt ("save it").

who say that tariff reduction on inputs and improvement in the flow of immigrant workers cause production costs fall and AS will shift right

Supply-siders

The accounting ledgers used by banks to track assets and liabilities

T-accounts

The U.S. withdrew from the ______ on President Trump's first day in office

TPP

Is responsible for the Fed's daily activity in financial markets

The Federal Open Market Committee (FOMC)

what does crowding in effect do

They buy more goods and services. • Expands the private sector. • Lowers the demand for funds and the interest rates

Current account balance that includes what three things

Trade balance. • Unilateral transfers. • Net investment income

goal is to eliminate all trade barriers between the countries

U.S.-Mexico-Canada Agreement

Monetarist view: If M increases, P and/or Q must rise, or ____ must fall.

V

In the equation of exchange (MV = PQ), Keynesians' fiscal policy relies on changes in ____ while monetarists assume V is ________ and rely on changes in M

V and stable

what is it called when the two countries agree to reduce the volume of trade

Voluntary restraint agreement (VRA)

what percent of gdp are american experts

about 12%

Changes in the money supply may in turn alter spending behavior and thereby shift the __________ _________ curve.

aggregate demand

purchasing power directly affects _______ ________

aggregate demand

bond yield =

annual interest payment / price paid for the bond

Any increase in demand for the dollar or decrease in supply of the dollar will push the dollar price in euros up. The dollar ____________ in value.

appreciates

Caused by an increase in demand or a decrease in supply of the first currency

appreciation

a rise in the price of one currency relative to another

appreciation

Things of value that the bank possesses

assets

those elements of the budget that are a result of decisions made in prior years; said to be "uncontrollable."

automatic spending

a basic countercyclical feature of the federal budget

automatic stabilizers

federal expenditure or revenue item that automatically respond counter-cyclically to changes in national income (GDP)

automatic stabilizers

The fiscal stimulus can come from inducing increased ______________ consumption or ______________ spending

autonomous or investment

a summary record of a country's international economic transactions in a given period of time

balance of payments

assets held by a bank to fulfill its deposit obligations

bank reserves

The entire _______ ________ can increase the volume of loans by the amount of excess reserves multiplied by the money multiplier.

banking system

No money? Transactions would be made using a _________ system

barter

the direct exchange of one good for another, without the use of money.

barter

electronic creations governed by a computer protocol that will maximize the amount available by 2140

bitcoins

a certificate acknowledging a debt and the amount of interest to be paid each year until repayment, an IOU

bond

the rate of return on a bond

bond yeild

If the U.S. Treasury pays off maturing bonds with taxes, it is a redistribution of income from taxpayers to _______________

bondholders

When a Treasury bond matures, new funds are __________- to pay it off

borrowed

Fiscal stimulus funding would most likely be financed by government

borrowing

the amount by which government spending(G) exceeds government tax revenue(T) in a given time period

budget deficit

Banks can/ can not loan out these required reserves

cannot

A primary determinant of labor productivity is ___________ investment

capital

There is a net dollar inflow in the __________ account

capital

what account balance includes : Inflow due to foreign purchases of U.S. assets. • Outflow due to U.S. purchases of foreign assets. • Increase in U.S. official reserves. • Increase in foreign official assets in U.S

capital account balance

_______ is less than half of the M1 money supply

cash

Checking accounts perform the same market functions as ______. Debit cards act much like a _________, so they are money

cash and check

M1

cash and transactions accounts

In an open economy, with international trade, resources are redirected to produce the good in which a ______________ ______________ is held.

comparative advantage

the ability to produce a good at a lower opportunity cost than others

comparative advantage

When you deposit cash or coins in a bank, you are only changing the ____________ of the money supply, not its ______

composition and size

The multiplier effect will stimulate additional rounds of increased ____________ _____________ when there is more government spending

consumer spending

more jobs are __________ due to international trade.

created

____________ bypasses the banks, which weakens the link between the money supply and aggregate demand

crowdfunding

the financing of a project through individual contributions from a large number of people, typically via an internet platform

crowdfunding

Paying off some accumulated debt puts money in the hands of the debt holders

crowding in effect

A reduction in private sector borrowing (and spending) caused by increased government borrowing

crowding out

Borrowing from foreigners eliminates _________ ______

crowding out

There is a net dollar outflow in the __________ account

current

what includes Money flows in the trade balance, and Money flows in investment income, government grants, and private funds transfers

current account balance

Keynesians will _____ taxes to increase AD.

cut

The impact of _________ components (automatic stabilizers) and policy initiatives affect the budget at the same time

cyclical

The structural deficit reflects discretionary fiscal policy decisions. Therefore, part of the deficit arises from __________ changes in the economy; the rest is a result of ___________ fiscal policy.

cyclical and discretionary

that portion of the budget deficit attributable to short-run changes in economic conditions

cyclical deficit


Conjuntos de estudio relacionados

Earth In Space Quiz (Lesson 1-8)

View Set

Bài 18: Xe xích lô ở Hà Nội

View Set

Conceptual Physics Final Exam Review

View Set

How to Eat Fried Worms - Ch 5 - 9

View Set

Chapter 3.78-79-Integer Literals

View Set

CompTIA Network + Final Practice Exam Cert Master

View Set

ECON201: Macroeconomics (practice 3)

View Set