At HOME TEST MOD 6 The Gov

Which is true of the FED?

12 regional Federal Reserve banks

How will bond prices and interest rates change if the Fed increases the money supply by buying Bonds

Bond price increases; rates decrease

A central bank has four tools to implement monetary policy in the economy. Which of the following is one of the tools

Changing reserve requirements

Assume the following describes the economy and point E is the current production level IF the economy is producing at point E, what policy should the President and Congress implement to fix the economic problem?

Contractionary Fiscal policy

Because of the representative democracy we have in the US, which policy will almost never implemented even if it the correct one?

Contractionary Fiscal policy

A central bank has four tools to implement monetary policy in the economy. Which of the following is one of the tools

Open market operations

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

When comparing an increase in government spending G, with an increase in private investment I; which of the following is true

They both increase aggregate demand

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

annual inflationary loss of buying power

A ______________________ means that government spending and taxes are equal.

balanced budget

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

which is not a functions of money in economics

capital for investment

Fiscal policy refers to the:

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow tight monetary policy.

expansionary fiscal policy includes

increase spending on public education

The crowding-out effect of expansionary fiscal policy suggests that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

Assume the following describes the economy and point E is the current production level IF the economy is producing at point E, what is the macro economic problem the economy is facing?

inflation

If the actions above cause large deficits then what may happen to investment spending

may be crowded out

a regressive tax is one for which

means rich people pay a lower part of income earned in taxes earned

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

progressive tax

Mark what is NOT true of the crowding out effect

proves that increasing government is always beneficial

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.

regressive

Which is true of the FED?

run by a Board of Governors

Each year, the government borrows funds from U.S. citizens and foreigners to cover its budget deficits. How does it do this?

selling government bonds and securities (Treasury bonds, notes, and bills)

expansionary fiscal policy includes

tax cuts

When the central bank decides it will sell bonds using open market operations:

the money supply decreases.

When the central bank lowers the reserve requirement on deposits:

the money supply increases and interest rates decrease.

a progressive tax is one that

the tax rates increase as a household's income increases

Assume the following describes the economy and point E is the current production level IF the economy is producing at point E, if the FED implements the correct policy the economic problem what will happen to the Money Supply and interest rates?

Money supply decrease; Interest rates increase

Assume the following describes the economy and point U is the current production level The FED should implement which policy to help the fix the current economic problem

Expansionary Monetary policy

automatic stabilizers cause the correct fiscal policy to happen without Congress or Presidential action. So

IF given time the economy will mainly correct itself

Assume the following describes the economy and point U is the current production level If the FED implements the correct policy to help fix the current economic problem what will happen to the money supply and interest rates

Money supply increase; Interest rates decrease

Assume the following describes the economy and point E is the current production level IF the economy is producing at point E, what policy should the FED implement to fix the economic problem?

Restrictive Monetary Policy

Discretionary fiscal policy is the deliberate changing of what?

Taxing and Spending

Which of the following institutions oversees the safety and stability of the U.S. banking system?

The Federal Reserve

If an economy moves into a recession, causing that country to produce less than potential GDP, then:

automatic stabilizers will cause tax revenue to decrease and government spending to increase.

If the Government is spending more than it is receiving in tax revenue it is running a:

budget deficit

Recurring upswings and downswings in an economy's real GDP over time are called

business cycles.

A central bank that wants to increase the quantity of money in the economy will:

buy bonds in open market operations.

Assume the following describes the economy and point U is the current production level The FED should follow which combination of actions to help fix the current economic problem

buy bonds; lower reserve ratio; lower discount rate and interest on reserves

How are the specific interest rates for the lending and borrowing markets determined?

by the forces of supply and demand

contractionary fiscal policy includes

raise personal taxes

What are the options for the President and congress to reduce inflation

raise taxes; lower Gov spending

Assume the following describes the economy and point E is the current production level IF the economy is producing at point E, what actions should the President and Congress implement to fix the economic problem?

raise taxes; lower government spending

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

reserve requirements

Assume the following describes the economy and point E is the current production level IF the economy is producing at point E, what actions should the FED take to fix the economic problem?

sell bonds; raise reserve ration; raise discount and interest on reserves rate