Macro Springtest3 prep fed funds
When the Fed buys short-term Treasury securities, short-term interest rates: A. fall B. rise C. could rise or fall D. stay the same
A. fall
In the short run, an increase in government spending growth will cause the real GDP growth to: A. increase. B. decrease. C. remain unchanged. D. become unpredictable.
A. increase
FICA:
-Federal Income Contribution Tax -fund for social security
Limits on Fiscal Policy:
-borrowing -raise taxes
If the Fed wants to increase money supply:
-buy bonds -deposits of sellers increase -bank loans increase -so money supply increases
The Federal Reserve System:
-dual mandate (increase employment and stable prices) -two customers (banks and government)
Two categories of fiscal policy during recessions:
-governments spend more money -governments cut taxes
Open market operations and interest rates:
-if the Fed buys bonds --> demand of bonds increases, price of bonds increase so interest rates drop -if the Fed sells bonds --> supply of bonds increases, price of bonds decreases, so interest rates rise
Conclusion:
-if the Fed buys bonds: supply of loans increases and demand of loans increases -if the Fed sells bonds: supply of loans decreases and demand of loans decreases
Fiscal Policy Best Case Scenarios:
-increase government spending and cut taxes OR -decrease government spending and raise taxes
Tax Revenue:
-individual income tax -social security and medicare act -corporate income tax -excise tax -other
Expansionary Monetary Policy:
-one that seeks to increase the size of the money supply -buy bonds and securities -lower the discount rate -lower the reserve requirement ratio
Contractionary Monetary Policy:
-one that seeks to reduce the size of the money supply -sell bonds & securities -raise the discount rate -raise the reserve requirement ratio
How does the Fed control money supply?
-open market operations -discount rate lending -reserve requirement ratio and interest payment to the Fed
Purposes of taxes:
-public goods -redistribution -pigovian tax (increase efficiency)
Relevant Lags:
-recognition lag -implementation lag -effectiveness lag -evaluation and adjustment lag
A Matter of Timing:
-relevant lags -automatic stabilizer
If the Fed wants to decrease money supply:
-sell bonds -deposits of sellers decrease -bank loans decrease -so money supply decreases
Government Spending:
-social security -medicare and medicaid -defense department -discretionary -interest -other
Difficulties Faced by the Fed:
-the Fed must operate in real time when most of the data about the economy is unknown -the Fed's control over $ supply is incomplete and subject to uncertain lags
Money Multiplier (MM):
-the amount of money supply expands with each dollar increase in monetary base -MM = 1 / RR
Uncertain Lags:
-the monetary policy typically affects the economy with a lag of 6 to 18 months -banks are not willing to lend $ (undershoot) -the economy recovers before the monetary policy has an affect (overshoot) --> undesired inflation
When should we use fiscal policy?
-when people are otherwise afraid to spend their money -when dealing with aggregate demand shock
M1:
1 + 3 (cash + checkable deposits)
Different Means of Payment:
1. cash (paper bills & coins) 2. the reserve held by banks at the Fed 3. checkable deposits (checks, checking account, debit card) 4. money market mutual funds, savings accounts, small time deposit
A decreae in money supply growth will cause the: A. AD curve to shift inward B. SRAS curve to shift inward C. Solow growth curve to shift inward D. price level to fall
A. AD curve to shift inward
In the best case scenario, the Federal Reserve is mot successful at counteracting a negative: A. AD shock B. SRAS shock C. shock to the Solow growth curve D. none of the answers are correct
A. AD shock
In the New Keynesian model, suppose the Fed reacts to an economic shock and quickly restores the economy to the Solow growth rate. The shock was most likely: A. an aggregate demand shock B. a real shock C. a productivity shock D. all of the above
A. an aggregate demand shock
If the Fed wishes to lower interest rates, it should: A. conduct an open market purchase B. conduct an open market sale C. raise the discount rate D. do nothing
A. conduct an open market purchase
When using fiscal policy to fight a recession, the government will: A. decrease taxes and/or increase government expenditures B. increase taxes and/or decrease government expenditures C. institute technological advancement in the economy D. decrease government expenditures
A. decrease taxes and/or increase government expenditures
When the Federal Reserve makes an open market purchase, the reserves of the banking system will: A. increase B. decrease C. remain constant D. become difficult to predict
A. increase
Ideal fiscal policy will: A. increase aggregate demand in bad times and pay off the bills in good times. B. decrease aggregate demand in bad times and pay off the bills in good times. C. decrease aggregate demand in good times and pay off the bills in bad times. D. increase aggregate demand in good times and pay off the bills in bad times.
A. increase aggregate demand in bad times and pay off the bills in good times.
Which of the following is the largest source of tax revenue for the U.S. federal government? A. individual income tax B. Social Security and Medicare taxes C. corporate income tax D. estate taxes
A. individual income tax
Consider the New Keynesian model where some prices are slow to adjust. Beginning at equilibrium in a AD-SRAS model, an increase in consumer optimism will initially cause: A. inflation and real growth to increase B. inflation to increase and real growth to decrease C. inflation to increase and real growth to remain unchanged D. inflation and real growth to remain unchanged
A. inflation and real growth to increase
Consider the New Keynesian model where some prices are slow to adjust. Beginning at equilibrium in a AD-SRAS model, an unexpected increase in the money supply growth will cause: A. inflation and real growth to increase in the short run B. inflation to increase and real growth to decrease in the short run C. inflation to increase and real growth to remain unchanged in the short run D. inflation and real growth to remain unchanged
A. inflation and real growth to increase in the short run
The discount rate is the: A. interest rate banks pay when they borrow directly from the Fed B. overnight lending rate from one major bank to another C. interest rate on short-term Treasury securities D. ratio of reserves to deposits
A. interest rate banks pay when they borrow directly from the Fed
The time it takes Congress to propose and pass a plan for fiscal policy is called the A. legislative lag. B. recognition lag. C. adjustment lag. D. effectiveness lag.
A. legislative lag.
An example of a negative real shock is a rapid increase in: A. oil prices B. money supply growth C. government debt D. housing prices
A. oil prices
Social Security is run on a ______ basis. A. pay-as-you-go B. trust fund C. prepaid D. contract
A. pay-as-you-go
The multiplier effect is the: A. subsequent consumer spending that increases AD from expansionary fiscal policy B. subsequent consumer spending that increases AD from contractionary fiscal policy C. increase in GDP from an increase in the money supply and decrease in taxes D. increase in GDP from increased consumer savings and private investment
A. subsequent consumer spending that increases AD from expansionary fiscal policy
Open market operations occur when: A. the Fed buys and sells government bonds B. the Fed loans money to banks and other financial institutions when no one else will C. banks become insolvent D. banks are illiquid
A. the Fed buys and sells government bonds
What part of the money pyramid does the Fed have direct control over? A. the monetary base B. M1 C. the monetary base plus M1 D. M2
A. the monetary base
The Federal Reserve typically affects the real rate of interest in: A. the short run only B. the long run only C. both the short run and the long run D. neither the short run nor the long run
A. the short run only
If a negative real shock affects the Solow growth rate and the Fed responds by lowering the money supply growth rate, then the economy will experience: A. too little real growth and low inflation B. too little real growth and high inflation C. high real growth and low inflation D. high real growth and high inflation
A. too little real growth and low inflation
In response to a real economic shock, the Fed's monetary policy action will lead to: A. unemployment and inflation moving in the opposite directions B. real GDP growth and inflation moving in the opposite directions C. aggregate demand and real GDP moving in the opposite directions D. the Solow growth rate and inflation rate in the opposite directions
A. unemployment and inflation moving in the opposite directions
In the short run, a monetary contraction leads to increased unemployment because: A. wages and prices are sticky B. wages and prices are flexible C. wages are sticky, while prices are flexible D. wages are flexible, while prices are sticky
A. wages and prices are sticky
Which of the following provides an automatic stabilizer when the economy is declining? A. welfare and transfer programs B. regressive tax system C. money supply D. government bonds
A. welfare and transfer programs
Liquid Asset:
An asset that can be used for payments or quickly and without loss of value, be converted into assets that can be used for payment
Suppose the Fed carries out an open market purchase and credits the account of a bank by $160,000. Further suppose that RR is 10%. By how much is the money supply expected to change? A. $160,000 B. $1.6 million C. $16 million D. $1.76 million
B. $1.6 million
The government's bank and also the bankers' bank in the United States is called the: A. central bank B. Federal Reserve System C. Bank of America D. Bank of the United States
B. Federal Reserve System
Unemployment insurance is an example of I.fiscal policy. II.an automatic stabilizer. III.a transfer payment. A. I and II only B. I, II, and III C. II and III only D. I and III only
B. I, II, and III
Monetary policy can be difficult for the Fed to design because of: I. the political pressure from Congress II. changing market expectations and confidence III. imprecise data about the sizes of shocks and policy responses A. I and II B. II and III C. I and III D. I, II, and III
B. II and III
Which of the following statements is correct? A. M1 is always larger than M2 B. M2 is always larger than M1 C. M1 is larger than M2 during recessions, while M2 is larger than M1 during expansions D. M2 is larger than M1 during recessions, while M1 is larger than M2 during expansions
B. M2 is always larger than M1
The problem with fiscal policy that is created because of the recognition, legislative, implementation, effectiveness, and the evaluation and adjustment lags is called: A. crowding out. B. a matter of timing. C. a drop in the bucket. D. a real shock.
B. a matter of timing.
If the reserve ratio is 10%, then a $100 increase in bank deposits can potentially lead to: A. a decrease of $1000 in the money supply B. an increase of $1000 in the money supply C. a decrease of $90 in the money supply D. an increase of $90 in the money supply
B. an increase of $1000 in the money supply
Suppose there was a decline in business confidence. We would expect the investment schedule to shift ___________, the real interest rate to ___________ and velocity to ___________. A. back; increase; increase B. back; decrease; decrease C. out; increase; increase D. out; decrease; decrease
B. back; decrease; decrease
A potential problem with expansionary monetary policy is that banks can: A. be loaned up prior to open market operations B. be willing to lend C. decide that a recession is best for the economy D. all of the answers are correct
B. be willing to lend
If the Fed overreacts to a negative spending shock by increasing money growth too much: A. both real GDP growth and inflation will decrease more than the Fed prefers B. both real GDP growth and inflation will increase more than the Fed prefers C. real GDP growth will increase more and inflation will increase less than the Fed prefers D. real GDP growth will increase less and inflation will increase more than the Fed prefers
B. both real GDP growth and inflation will increase more than the Fed prefers
An increase in the reserve ratio will ______ banks' ability to make loans. A. increase B. decrease C. not change D. make it more difficult to predict
B. decrease
If the Fed increases reserve requirement ratio, money supply will __________. A. increase B. decrease C. stay the same as before D. wait, what is the Fed
B. decrease
In the short run, a negative real shock will cause output growth to: A. increase B. decrease C. remain unchanged D. become more difficult to predict
B. decrease
Which of the following is not an automatic stabilizer? A. greater access to credit B. defense spending C. progressive tax system D. welfare program
B. defense spending
A tax whose rates remains constant regardless of income level is called A. regressive. B. flat. C. progressive. D. aggressive.
B. flat
In the short run, if the Fed responds to a negative shock by raising the growth rate of money supply, inflation will be: A. lower than the rate without responding to the negative shock B. higher than the rate without responding to the negative shock C. the same as the rate without responding to the negative shock D. lower or higher than the rate without responding to the negative shock, depending on the size of the money supply growth
B. higher than the rate without responding to the negative shock
To fight a recession, the federal government can A. increase interest rates. B. increase its spending. C. increase taxes. D. decrease the discount rate.
B. increase its spending.
To offset the effect of a negative growth in money velocity, the central bank should: A. decrease the growth rate of the money supply B. increase the growth rate of the money supply C. apply a policy that stabilizes the growth in money velocity D. apply a policy that reduces the growth in money velocity
B. increase the growth rate of the money supply
In the case of a negative shock to aggregate demand, the central bank should: A. decrease the rate of growth in the money supply to control inflation B. increase the rate of growth in the money supply to restore spending growth C. decrease the rate of growth in the price level to keep real growth high D. do nothing
B. increase the rate of growth in the money supply to restore spending growth
Discount rate lending occurs when the Federal Reserve: A. buys and sells government bonds B. lends reserves directly to banks C. provides reserves to banks through auction D. buys corporate bonds in lagging sectors of the economy
B. lends reserves directly to banks
As the government builds new schools, the construction workers and material vendors employed on the project spend more in the community where they work. What is the economic term for this effect? A. hastening B. multiplier C. duplicator D. spending
B. multiplier
If the Fed seeks a contractionary monetary policy, what should the Fed do? A. buy bonds on open market B. raise federal discount rate C. lower payment of interest on reserve held by bank at the Fed D. lower reserve requirement ratio
B. raise federal discount rate
Which of the following assets is the least liquid? A. cash B. savings deposits C. checkable deposits D. bank reserves
B. savings deposits
If Ricardian equivalence holds, A. consumption smoothing is less important than when Ricardian equivalence doesn't hold. B. taxpayers respond to lower tax rates today with increased savings today. C. taxpayers respond to lower tax rates today with increased spending today. D. changes in fiscal policy are more likely to have a larger impact on aggregate demand.
B. taxpayers respond to lower tax rates today with increased savings today.
Other things being equal, a decrease in government spending growth causes: A. the DAD curve to shift to the right B. the DAD curve to shift to the left C. the Solow growth curve to shift to the right D. the Solow growth curve to shift to the left
B. the DAD curve to shift to the left
An increase in government spending causes A. a downward movement along the aggregate demand curve. B. the aggregate demand curve to shift to the right. C. the aggregate demand curve to shift to the left. D. an upward movement along the aggregate demand curve.
B. the aggregate demand curve to shift to the right.
Open market operations refer to: A. the buying and selling of stocks in the stock market B. the buying and selling of government bonds by the Fed C. decisions by the Fed to raise or lower interest rates D. decisions by the Fed to increase or decrease the money multiplier
B. the buying and selling of government bonds by the Fed
When the Fed sells government bonds in the open market: A. the monetary base increases and interest rates decrease B. the monetary base decreases and interest rates increase C. both the monetary base and interest rates decrease D. both the monetary base and interest rates increase
B. the monetary base decreases and interest rates increase
When hit with a real negative economic shock, the Fed must make its policy choice between: A. too lower of a growth rate and too high of an unemployment rate B. too low of a growth rate and too high of an inflation rate C. too high of a growth rate and too low wages D. too high of a growth rate and too low of a savings rate
B. too low of a growth rate and too high of an inflation rate
A country has two income tax brackets: people pay 10 percent on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, how much tax does that person pay? A. $5,000 B. $15,000 C. $10,000 D. $7,500
C. $10,000
Under a flat tax system, a person earning an additional 10 percent in income has to pay A. more than 10 percent more in income tax. B. 10 percent less in income tax. C. 10 percent more in income tax. D. the same amount of income tax.
C. 10 percent more in income tax.
If the reserve ratio is 20 percent, the money multiplier equals: A. 2 B. 2.5 C. 5 D. 10
C. 5
If $1 in cash is held in reserve for every $20 of deposits, the reserve ratio is: A. 20 percent B. 10 percent C. 5 percent D. 1 percent
C. 5 percent
Monetary policy by the Fed is estimated to take __________ to have an impact on the economy. A. 2 to 4 months B. 0 to 6 months C. 6 to 18 months D. 18 to 36 months
C. 6 to 18 months
The Federal Reserve's major tools to control the money supply are: I. open market operations II. discount rate lending and the term auction facility III. required reserve ratio and payment of interest on reserves IV. federal funds lending A. I and II B. III and IV C. I, II, and III D. I, II, III, and IV
C. I, II, and III
M2 is: A. currency B. currency plus checkable deposits C. M1 plus savings deposits, money market mutual funds, and small time deposits D. M1 plus savings deposits and large time deposits
C. M1 plus savings deposits, money market mutual funds, and small time deposits
Which of the following is a limitation of monetary policy in stabilizing the economy? A. Central banks have too much control over the money supply B. Most central bank policymakers are controlled by the government C. Monetary policy is subject to uncertain lags D. Central banks have no discretion over policy tools
C. Monetary policy is subject to uncertain lags
______ refers to the Federal Reserve's purchase of longer-term government bonds or other securities. A. An open market purchase B. An open market sale C. Quantitative easing D. Quantitative tightening
C. Quantitative easing
Which of the following curves is not part of the real business cycle model? A. AD B. Solow growth C. SRAS D. none of the above
C. SRAS
Which country had the highest military expenditure in 2010? A. North Korea B. China C. United States D. Russia
C. United States
A decrease in consumers' confidence in banks would lead to ______ in the velocity of money and result in the AD curve shifting to the ______. A. a decrease; right B. an increase; right C. a decrease; left D. an increase; left
C. a decrease; left
Fiscal policies that help an economy in a recession without additional actions by policy makers are called: A. consumption smoothers B. Ricardian equalizers C. automatic stabilizers D. all of the above
C. automatic stabilizers
The discount rate is the interest rate: A. that one bank pays another to borrow overnight B. that the best customers pay a major bank C. banks pay when they borrow directly from the Fed D. that is approximately the daily rate divided by 365
C. banks pay when they borrow directly from the Fed
If the Federal Reserve offsets a negative shock to aggregate demand with increased money growth: A. inflation will rise but real GDP growth will remain unchanged B. inflation will fall but real GDP growth will remain unchanged C. both inflation and real GDP growth will rise D. both inflation and real GDP growth will fall
C. both inflation and real GDP growth will rise
A decrease in consumption growth will cause inflation to fall in: A. the short run only B. the long run only C. both the short run and the long run D. neither the short run or the long run
C. both the short run and the long run
Government spending becomes a more effective policy tool when: A. the economy is above the Solow growth curve B. the government raises taxes to finance spending C. consumers are pessimistic and not spending D. interest rates in the economy are rising simultaneously
C. consumers are pessimistic and not spending
M1 refers to: A. currency B. currency plus total reserves held at the Fed C. currency plus checkable deposits D. currency, checkable deposits, savings deposits, money market mutual funds, and small time deposits
C. currency plus checkable deposits
When the Fed increase the money supply to counteract a negative shock: A. growth usually returns to the level it was before the shock B. half of the increase is seen in growth and half in inflation C. inflation increases a lot and growth increases a little D. growth remains stuck at the level of the negative real shock
C. inflation increases a lot and growth increases a little
The key difference between quantitative easing and a typical open market purchase is that quantitative easing: A. does not involve the purchase of government securities, while a typical open market purchase involves the purchase of government securities B. involves small-term government securities, while a typical open market purchase involves long-term government securities C. involves longer-term government securities and other securities, while a typical open market purchase involves short-term government securities D. involves state and local government securities, while a typical open market purchase involves federal government securities
C. involves longer-term government securities and other securities, while a typical open market purchase involves short-term government securities
Which of the following assets is the LEAST liquid? A. a mortgage on a house B. recyclable aluminum cans C. knowledge of how to tie one's shoe D. a checkable deposit
C. knowledge of how to tie one's shoe
Monetary policy is: A. equally effective in dealing with real shocks and aggregate demand shocks B. more effective in dealing with real shocks than with aggregate demand shocks C. less effective with dealing with real shocks than with aggregate demand shocks D. totally ineffective in dealing with real shocks or aggregate demand shocks
C. less effective with dealing with real shocks than with aggregate demand shocks
The Federal Reserve is often said to operate under a dual mandate: A. low taxes and stable interest rates B. maximum employment and solvency protection C. maximum employment and price stability D. price stability and stable interest rates
C. maximum employment and price stability
When expansionary fiscal policy increases income and thus consumer spending, the additional increase in AD it causes is called the A. fiscal effect. B. butterfly effect. C. multiplier effect. D. spending effect.
C. multiplier effect.
The money you pay into Social Security goes to: A. an individual account B. a trust that earns interest to help pay your benefits C. pay current beneficiaries D. the investment fund of your choice
C. pay current beneficiaries
The monetary base consists of currency: A. plus checkable deposits B. plus checkable and savings deposits C. plus total reserves held at the Fed D. with the inclusion of coins
C. plus total reserves held at the Fed
The term auction faculty involves the Federal Reserve: A. buying and selling government bonds B. lending reserves directly to banks C. providing reserves to banks through auction D. competing with investment banks for Treasury securities
C. providing reserves to banks through auction
In addition to monetary policy, the Fed also has the power to: A. control the mortgage market B. oversee Treasury transactions C. regulate banks D. monitor the housing market
C. regulate banks
A negative real shock causes the Solow growth curve to A. shift outward. B. become steeper. C. shift inward. D. become flatter.
C. shift inward.
Fiscal policy is most effective in offsetting the effects of A. shocks to the Solow growth curve. B. real shocks. C. shocks to aggregate demand. D. shocks to the short-run aggregate supply curve.
C. shocks to aggregate demand.
As the reserve ratio rises: A. a bank's opportunity cost of holding reserves rises B. the interest rate on money will fall C. the money multiplier will decrease D. more loans will be extended
C. the money multiplier will decrease
The average tax rate is: A. the tax rate paid on an additional dollar of income B. higher on people with higher incomes C. the total tax payment divided by total income D. a separate income tax code begun in 1969 to prevent the rich from paying income taxes
C. the total tax payment divided by total income
The Fed's power to influence aggregate demand is constrained by: A. the president and Congress B. contracting fiscal policy C. uncertainty and an inability for everyone to fully understand the complexity of the economy D. the significant amount of U.S. dollars held in foreign reserves
C. uncertainty and an inability for everyone to fully understand the complexity of the economy
Monetary Base:
Cash + Reserve held by the banks
Automatic Stabilizer:
Changes in fiscal policy that stimulates AD in a recession without explicit action by policy makers
Flat tax:
Constant tax rate, regardless of income
If banks keep one-eighth of their deposits in the form of reserves and the Fed credits Alex's bank account with $8,000, how much does the money supply increase? A. $1,000 B. $8,000 C. $16,000 D. $64,000
D. $64,000
If the required reserve ratio is 4%, the money multiplier is: A. 4 B. 16 C. 20 D. 25
D. 25
Increases in government spending are not very effective in offsetting real shocks because increases in government spending shift A. the Solow growth curve. B. demand for loanable funds. C. SRAS. D. AD.
D. AD.
An increase in the money supply typically leads to: I. a decrease in interest rates. II. an increase in investment. III. an increase in AD. IV. a lower overall price level. A. I and III only B. II and III only C. I, II, and IV only D. I, II, and III only
D. I, II, and III only
Checkable deposits are part of A. the monetary base B. M1 C. M2 D. M1 and M2
D. M1 and M2
If the economy is hit by a negative real shock that raises inflation and unemployment, which of the following fiscal policy actions should the government take in order to keep inflation and unemployment stable? A. raise taxes B. increase government spending C. cut taxes D. No government action can achieve those goals.
D. No government action can achieve those goals.
The Federal Insurance Contributions Act tax is used to fund A. unemployment insurance. B. federal defense spending. C. The Federal Deposit Insurance Corporation. D. Social Security payments.
D. Social Security payments.
Which of the following shocks can the Fed deal with most effectively? A. a major oil shock B. a shock to the Solow growth curve C. a shock that shifts the short run aggregate supply curve D. a shock to aggregate demand
D. a shock to aggregate demand
To increase the money supply in the economy, the Fed would: A. increase the discount rate and/or lower the reserve ratio B. carry out open market purchases and/or raise the reserve ratio C. carry out open market sales and/or lower the discount rate D. carry out open market purchases and/or lower the discount rate
D. carry out open market purchases and/or lower the discount rate
The reserve ratio is the ratio of reserves to: A. loans B. vault cash C. net worth D. deposits
D. deposits
Crowding out occurs when A. increases in government spending lead to increases in taxes. B. personal consumption decreases due to an increase in savings. C. overall output is crowded out by lower government spending. D. higher government spending leads to less private spending.
D. higher government spending leads to less private spending.
To restore growth and reduce unemployment in the economy, the Federal Reserve would: A. decrease the money growth rate, which will lower both the inflation rate and economic growth rate B. decrease the money growth rate, which will increase both the inflation rate and economic growth rate C. increase the money growth rate, which will lower both the inflation rate and economic growth rate D. increase the money growth rate, which will increase both the inflation rate and economic growth rate
D. increase the money growth rate, which will increase both the inflation rate and economic growth rate
If the Fed wants to decrease the money supply, it will: A. buy government bonds B. lower the discount rate on lending C. set up the term auction facility D. increase the rate of interest paid on reserves
D. increase the rate of interest paid on reserves
When the Fed supplies "too much" monetary stimulus in the face of a negative aggregate demand shock: A. inflation, real growth, and nominal wage growth all decrease B. inflation increases, but real growth and nominal wage growth decrease C. inflation and nominal wage growth decrease, but real growth increases D. inflation, real growth, and nominal wage growth all increase
D. inflation, real growth, and nominal wage growth all increase
When the government sells more bonds, what else happens? A. interest rates go down and consumer spending rises B. interest rates go down and savings go up C. interest rates go up and consumer spending rises D. interest rates go up and savings go up
D. interest rates go up and savings go up
Fiscal policy: A. occurs when people see that lower taxes today means higher taxes in the future, so instead of spending their tax cut they save it to pay future taxes. B. is the decrease in private spending that occurs when government increases spending. C. is central bank policy on the monetary base, interest rates, and bank reserves that is designed to influence business fluctuations. D. is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.
D. is federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations.
A progressive tax Selected Answer: A. equals the total tax payment divided by total income. B. is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes. C. is the tax rate paid on an additional dollar of income. D. places higher tax rates on people with higher incomes.
D. places higher tax rates on people with higher incomes.
The Fed uses each of the following to control the money supply EXCEPT: A. open market operations B. discount rate lending C. paying an interest rate on bank reserves held at the Fed D. prime interest rate lending
D. prime interest rate lending
If the Fed wants to increase the money supply, it will typically: A. raise interest rates B. increase the money multiplier C. extend new loans D. purchase additional government bonds
D. purchase additional government bonds
In working to correct a recession with fiscal policy, the government can: A. wait for wages and prices to become more flexible B. increase the money supply C. increase its expenditures and/or decrease taxes to raise the Solow growth curve D. raise its expenditures and/or lower taxes to increase aggregate demand
D. raise its expenditures and/or lower taxes to increase aggregate demand
If the Fed seeks a contractionary monetary policy, what should the Fed do? A. buy bonds on open market B. lower federal discount rate C. lower payment of interests on reserve held by bank at the Fed D. raise reserve requirement ratio
D. raise reserve requirement ratio
Suppose the government lowered the tax rate. This most likely would result in the saving schedule shifting ___________, a(n) __________ in the velocity of money, and a(n) __________ shift to the dynamic aggregate demand schedule. A. investment; decrease; increase B. investment; increase; decrease C. saving; increase; decrease D. saving; increase; increase
D. saving; increase; increase
A government can finance its spending by A. cutting taxes. B. decreasing interest rates. C. buying bonds. D. selling bonds.
D. selling bonds.
An increase in money supply growth will cause the economy's AD curve to: A. become steeper B. become flatter C. shift inward D. shift outward
D. shift outward
Regarding fiscal stimulus, Republicans tend to favor ______; Democrats tend to favor ______. A. increased government spending; tax cuts B. tax cuts; tax cuts C. increased government spending; increased government spending D. tax cuts; increased government spending
D. tax cuts; increased government spending
Which of the following institutions usually has the most influence over aggregate demand in the United States? A. the Senate Banking Committee B. the U.S. Department of the Treasury C. the Comptroller of the Currency D. the Federal Reserve
D. the Federal Reserve
The marginal tax rate is A. a separate income tax code begun in 1969 to prevent the rich from paying income taxes. B. the total tax payment divided by total income. C. higher on people with higher incomes. D. the tax rate paid on an additional dollar of income.
D. the tax rate paid on an additional dollar of income.
When an economy is adjusting to a recent reduction in the money supply, what is a likely consequence? A. inflation remains high B. growth stays positive C. interest rates continue to rise D. unemployment is high
D. unemployment is high
Why is monetary policy not fully effective in combating a negative supply shock? A. the Fed has no tools with which to stimulate an economy after the Solow growth curves shifts to the left B. when countering a negative supply shock, Fed action will cause deflation C. when countering a negative supply shock, Fed action will raise population growth rate D. when countering a negative supply shock, Fed action will raise inflation
D. when countering a negative supply shock, Fed action will raise inflation
Lender of Last Resort:
Fed loans money to banks and other financial institutions when no one else will
Progressive Tax:
Higher tax rate for people with higher income
Monetary Policy-The Best Case:
If entrepreneurs are pessimistic about the economy, inflation and real growth would decrease
Excise Tax:
Imposed on gasoline, alcohol, cigarettes, etc.
M2:
M1 + 4 (cash + checkable deposits + money market mutual funds)
Ricardian Equivalence:
Occurs when people see that lower taxes today mean higher taxes later so they save their tax cut now to pay future taxes
Responsibilities of the Fed:
Regulate and keep the health of the banking (financial) system -over time: monetary policy and money supply
Discount Rate Lending:
The Fed lends money to banks and other financial institutions
Multiplier Effect:
The additional increase in AD caused when expansionary fiscal policy increases income and thus consumer spending
Crowding Out:
The decrease in private spending or investment that occurs when government increases spending
Quantitative Easing (QE):
The federal reserve buys long-term gov't bonds
Reserve Requirement Ratio (RR):
The fraction of deposits that banks must keep as a reserve
Discout Rate:
The interest rate that banks pay to the Fed when they borrow money directly from the Fed
Federal Funds Rate:
The overnight lending rate from one bank to another
Marginal Tax Rate:
The tax rate paid for additional dollar of income
Average Tax Rate:
The total tax payment divided by total income
Revisiting the AD curve:
To increase money supply: -buy bonds -lower discount rate -lower RR
Money:
Widely accepted means of payment
Fiscal Policy:
federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations