Chapter 9 Econ Test Review
businesses are laying off workers and GDP goes down
Under what circumstances might the Federal Reserve enact an easy money policy?
large government borrowing
What causes the crowding-out effect?
its ability to levy taxes and borrow money
What gives the federal government its enormous power to influence demand through spending?
They might produce growing inflation.
What is a major concern about Fed policies that lower interest rates and increase lending?
the process by which money enters into circulation
What is money creation?
Federal agencies propose spending
What is the first step in the federal budget process?
a budget that increases government spending and reduces taxes
What kind of government budget best reflects an expansionary fiscal policy?
Banks would call in loans.
What would be likely to happen if the Fed raised reserve requirements?
People with limited savings could not afford to wait for the market, on its own, to restore equilibrium.
When John Maynard Keynes said, "In the long run we are all dead," what serious economic point was he making?
It estimates government revenue and authorizes government spending for each year.
Which explains the role of the federal budget in fiscal policy?
automatic stabilizers
Which of the following has most likely played a role in changing in the pattern in annual GDP changes between 1920 and the present?
open market operations
Which of the following is a basic tool the Fed can use to implement monetary policy?
foreign ownership of debt
Which of the following is considered a problem associated with a large national debt?
Milton Friedman
Which of these economists believed strongly in monetarism, the idea that the money supply is the most important factor in economic performance?
Milton Friedman
Whose economic ideas and beliefs most closely match this statement: "Let the free enterprise system solve economic problems, not the government"?
They are interest rates on short-term loans.
Why do the discount rate, federal funds rate, and prime rate have a limited impact on the long-term growth of the economy?
The Federal Reserve can enact monetary policy more quickly than the federal government can enact fiscal policy.
Why does inside lag affect fiscal policy more than monetary policy?
Monetary policy takes effect slowly, and business cycles are hard to predict.
Why is it difficult to time the use of monetary policy to control business cycles?
It can cause inflation.
Why might it be a bad idea to create money to cover budget deficits?
even out the business cycle
The use of the right monetary policy tools at the right time can help
The economy.
Fiscal policy is the use of government spending and revenue to influence
through a tax cut
How did President Reagan apply supply-side economics to promote economic recovery in the 1980s?
Their funding is dictated by law, so policy-makers cannot change spending on them.
How do entitlement programs affect the creation of the federal budget?
A deficit adds to the debt.
How might a budget deficit be related to the national debt?
by stimulating the economy, increasing revenues, and decreasing the deficit
How might lowering income taxes during an economic downturn decrease the national debt?