Module 15

Consider the above table with data for a country's government budget. Government outlays for the economy equal ____ billion.

$1500

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 1?

$25 billion

When government saving is negative,

The real interest rate increases if the Ricardo-Barro effect does not apply.

Monetary policy goals include 1) maximum employment 2) stable prices 3) moderate long-term interest rates

1, 2 and 3

An instrument rule is based on _____ of the economy while a targeting rule is based on _____ of the economy.

The current state; a forecast

Usually, the Federal Reserve changes its target for the federal funds rate in units of

1/4 of 1 percentage point

The ripple effects that occur when the Fed sells securities in the open market include ______.

A decrease in consumption and investment

Suppose the only revenue taken in by the government is in the form of income tax, and the tax rate is 10 percent. If aggregate income is $800 billion, and government outlays are $100 billion then the government budget has

A deficit of $20 billion

The McCallum rule is an example of

A monetary base instrument rule.

A policy that requires the quantity of money to grow at a constant rate reflects

All the exchange rate rules.

An example of a fiscal policy designed to decrease real GDP is

An increase in taxes

The supply side effects of a cut in tax rates include _____ in the supply of labor and _____ in the supply of capital

An increase; an increase

A fall in income that results in a decrease in tax revenues is an example of ______.

Automatic fiscal policy

The effects of a change in government expenditures is multiplied throughout an economy

Because government expenditure generates changes in consumption expenditure.

In an open market purchase, the Fed ____ government securities, which ____ bank reserves

Buys, increases

Government transfer payments _____ during expansions and _____ during recessions

Decrease; increase

If the Fed lowers the federal funds rate so that the exchange rate falls then imports _____ and exports ______.

Decrease; increase

When the Fed sells U.S. government securities to a bank, the Fed

Decreases the monetary base and raises the federal funds rate

If the government runs a surplus, the total amount of government debt is

Decreasing

The k-percent rule, an example of a money targeting rule, relies on a relatively stable

Demand for money

The purpose of the Employment Act of 1946 was to

Establish goals for the federal government that would promote maximum employment, purchasing power, and production

Historically, the budget deficit has tended to

Increase during a recession

The current (2014) Chairman of the Federal Reserve is

Janet Yellen

The Fed has been instructed to maintain full employment and keeps the price level stable by

Keeping the growth rate of the quantity of money in line with the growth rate of potential GDP.

A decrease in government expenditure shifts the AD curve ________ and a decrease in taxes shifts the AD curve ______.

Leftward; rightward

If the fed follows the Taylor rule and the economy goes into a recession, the Fed would

Lower the federal funds rate

In the short run, _____ in the federal funds rate _____ the price level, and _____ real GDP.

Lowering; increases; increases

The Taylor rule uses three variables to determine the target for the federal funds rate. Which of the following is NOT one of those variables?

Monetary base

All of the following are government outlays EXCEPT

Purchases of corporate bonds

The tendency for private saving to increase in response to growing government deficits is known as the

Ricardo-Barro Effect