Econ Exam
Automatic Stabilizers are built-in mechanisms within fiscal policy that do not require any additional change in legislation. Their goal is to decrease the amplitude of business cycles. Which of the following do you think are good examples of automatic stabilizers?
Unemployment benefits, Tax rates
Suppose Warren Buffet withdraws $1 million from his checking account at Chase Bank. If the required reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?
-$5 million
Spending multiplier equals...
1 / (1 - MPC), 1/MPS
The formula for Money Multiplier is...
1 / Reserve Ratio
Here in the US we have a ____________ system of taxes.
Progressive
The Federal Open Market Committee consists of the seven members of the ______ , the president of the Federal Reserve Bank of New York, and _ ____.
Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks
A shadow bank is:
Financial firm that is not closely watched or effectively regulated.
what makes bank customers sad
Fractional reserve system
Which type of tax contributes the most to the coffers of the US Treasury
Individual income taxes
Other things being equal, what is the effect of government deficit increases on interest rates?
Interest rates rise
If Rob deposits $300 in currency into his savings account at Bank of America,
M1 decreases
The quantity theory of money can be written as
MV = PY
M1 money supply is increased by
Making loans
Assume the economy is closed and that it is operating at full employment. Which statement is TRUE when the size of the budget deficit decreases?
The interest rate will decrease, leading to an increase in investment and capital formation.
To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the
budget deficit or surplus as a percentage of GDP.
Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?
by lowering reserves borrowed from the central bank
The federal budget deficit acts as an automatic stabilizer because
government tax revenues decrease during a recession.
The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.
greater than
Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
higher; higher
If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply, the appropriate fiscal policy response is to
increase taxes
If the Fed buys U.S. government securities from banks, the banks' reserves________ and the federal funds rate ________.
increase; falls
Prior to 2008, if the Fed wanted to raise the federal funds rate, it
instructed the New York Fed to sell government securities in the open market.
The implementation lag for fiscal policy is longer than for monetary policy because
it takes longer for Congress to act than the Fed.
When a commercial bank receives a deposit, it must keep part of the deposit as cash reserves to satisfy its
required reserves.
The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle
stabilize the economy.
The Federal Reserve was established in 1913 to
stop bank panics by acting as a lender of last resort.
The quantitative easing policies adopted by the Federal Reserve are usually thought of as:
temporary emergency measures.
Control of monetary policy rests with
the Federal Reserve.
The use of fiscal policy to stabilize the economy is limited because
the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.
