Test 3 study macro

A tight monetary policy includes

The Fed sells bonds in open market

According to ________________, in the long run, changes in the money supply will NOTchange the output

classical economists, Keynesians, Monetarists

Sami deposits $200 cash into his checking account. The reserve requirement is 10%. Whatis the change in the bank's required reserves?

$20

multiplier from mpc

1/(1-MPC)

Which of the following entitle owners to a share of profits

Stocks

Monetary policy is LEAST effective in reversing

Supply-push inflation (Supply Shock)

Which type of fiscal policy takes longer to affect the economy?

Supply-side

money multiple

1/reserve requirement

The federal reserve system includes

12 regional banks, board of governors with 7 members each serving a 14 year term, and the federal open market committee which oversees open market operations

How much does a government need to spend additionally to close a $20 trillion recessionarygap given marginal propensity to consume = 0.8?

4 trillion

If inflation is 3%, the target inflation rate is 2%, and the economy is 3% below its long-runoutput, what is the Fed funds target rate using the Taylor rule?

4%

In a cashless society, the reserve requirement is 20%, and excess reserve banks choose to hold is 5%, the potential money multiple is____, and the leakage-adjusted money multiple is

5; 4

Bonds

A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate: The city issued bonds to raise money for putting in new sewers.

Which of the following is true of a central bank that employs inflation targeting?

A target rate of annual inflation is maintained by expanding or contracting the money supply

What role(s) are fulfilled by financial institutions?

All the above

Which economists believe that because the economy will always self-adjust, intervention is unnecessary?

Classical economists

What is the function of a central bank?

Conduct monetary policy, Ensure that the financial system is stable, and provide service to commercial banks, depositary institutions, and the federal government

a decrease in govt. spending, increase in taxes, and decrease in transfer payments

Contractionary fiscal policy

When current output is beyond potential output, the Federal Reserve (the Fed) is likelyto enact_____ and the federal government is likely to enact_______

Contractionary monetary policy; contractionary fiscal policy

examples of discretionary spending

Defense, education, training, scientific research, student loans, technology, national parks and monuments, law enforcement, environmental cleanup, housing

Automatic stabilizers do NOT include:

Education spending

Increase in govt spending and decrease in taxes

Expansionary fiscal policy

A central bank can use ________and a central government can use __________ to shiftaggregate demand curve to the right

Expansionary monetary policy; expansionary fiscal policy

One of the monetary policy goals is to promote economic growth with low inflation

False

discretionary spending

Federal spending on programs that are controlled through the regular budget process

If the reserve requirement is 20%, then a $10 increase in deposits means that the moneysupply

Has the potential to increase by $50

If a bond has a face value of $1,000 and has a 10% coupon rate, how much is the bondworth after interest rates increase to 5%?

If a bond has a face value of $1,000 and has a 10% coupon rate, how much is the bondworth after interest rates increase to 5%?

Tax revenue will decrease and government spending will:

Increase during a recession

What is an automatic stabilizer?

It is a program or policy that counteracts the business cycle without any new government action required.

Suppose the government runs a larger budget deficit. What happens to loanable fundsand interest rates?

Loanable funds fall and interest rates rise

M2 includes

M1, savings deposits, money market deposits, and money market mutual funds.

Which asset is the most liquid?

Money

Is Medicare discretionary spending?

No

In the equation of exchange, if M = $6 trillion, V = 4, and P = 3, then

Real GDP = $8 trillion

mandatory spending

Required govt spending by permanent laws

Examples of mandatory spending

Social Security, Medicare, Medicaid, Interest on Debt

Suppose the Federal Reserve raises interest rates. Which situation would MOST likelytrigger such a policy move?

The economy is producing beyond its potential GDP

Which statement correctly describes the sequence that explains how an expansionary monetary policy impacts an economy?

The policy lowers interest rates; lower interest rates increase investment; and higher investment increases aggregate demand, which impacts output and the price level.

Decision lag

The time it takes Congress and the administration to decide on a policy once a problem is recognized.

recognition lag

The time it takes for policy makers to recognize the existence of a boom or a slump.

Information lag

The time policymakers must wait for economic data to be collected, processed, and reported. Most macroeconomic data are not available until at least one quarter (three months) after the fact.

If monetary policy is loose, which will NOT occur

The value of the dollar will rise

What is discretionary spending?

Things paid for AFTER all of the mandatory spending is done.

If Jack withdraws $1000 cash from his checking account, the bank's assets decrease by$1000 and its liabilities decrease by $1000

True

Policymakers should use monetary policy and fiscal policy to counter business cycles

True

The provisions, members of the Federal Reserve Board serve 14-year terms and cannot bereappointed, help ensure that the Federal Reserve is free to take the long view and not be overlyinfluenced by short-term political considerations.

True

bond sales represent a large fraction of finance in the us: t o f

True

Which of the following is NOT a component in the equation of exchange in classical economics?

Unemployment rate

Which of the following tools is the Fed MOST likely to use to deal with amacroeconomic problem?

Using open market operations

crowding out

a decrease in investment that results from government borrowing

Demand-side fiscal policy

a plan to stimulate aggregate demand

The national debt is:

deficit accumulated over time

A target rate of annual inflation is mantained by

expanding or contracting the money supply

Time lags affect monetary policy more than fiscal policy

false

expansionary fiscal policy

fiscal policy that increases aggregate demand

supply side fiscal policy focuses on:

focuses on shifting the lras to the right

Automatic stabilizers refer to

government spending and taxes that automatically increase or decrease along with the business cycle

Tight Fiscal Policy

higher tax and lower spending

A barter system tends to work only

in primitive economies without money

as MPC increases, the multiplier

increases

tax revenues

money that the government receives from taxation

tax multiplier

mpc/(1-mpc)

The federal reserve mainly uses ___ To influence money

operation market operations

supply-side fiscal policy

provides incentives to producers to increase aggregate supply

Contractional Fiscal Policy

reduces aggregate demands

Required reserves

reserves that a bank is legally required to hold, based on its checking account deposits

How can the fed raise the federal fund rate?

sell bonds in open market, increase discount rate, increase reserve requirements

expansionary fiscal policy would

shift the AD curve to the right

Laffer Curve

shows the relationship between the size of the tax and tax revenue

If the federal reserve increases the money supply

the federal funds rate will fall (inflation)

the federal reserve rarely uses ___ to influence money

the reserve requirement

half of tax revenue comes from income tax: t o f

true