Econ Final
Which of the following would cause the money demand curve to shift to the left?
a decrease in real GDP
According to the short - run Phillips curve, which of the following would result in low rates of unemployment?
a higher inflation rate
An increase in the interest rate causes
a movement up along the money demand curve
Contractionary monetary policy causes
aggregate demand to fall and the price level to fall
If the Fed pursues expansionary monetary policy
aggregate demand will rise, and the price level will rise
Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?
an increase in government purchases
If real GDP exceeded potential real GDP and inflation was increasing, which of the following would be an appropriate fiscal policy?
an increase in taxes
The increase in the amount the government collects in taxes when the economy expands and the decrease in the amount the government collects in taxes when the economy goes into a recession is an example of
automatic stabilizers
Which of the following is considered contractionary fiscal policy?
congress increases the income tax rate
An increase in real GDP
increases the buying and selling of goods and increases the demand for money as a medium of exchange
Which of the following would be considered a fiscal policy action?
A tax cut is designed to stimulate spending during a recession
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives
Expansionary monetary policy refers to the ________________ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing interest rates
Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?
Potential GDP is forecasted to be higher than equilibrium GDP
In which of the following situations would the Fed conduct contractionary monetary policy?
The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP
Which of the following would be classified as fiscal policy?
The federal government cuts taxes to stimulate the economy
Which of the following is true?
The money market model is essentially a model of that determines the short term nominal rate of interest
What is the natural rate of unemployment?
The unemployment rate that exists when the economy is at potential GDP
To combat a recession with discretionary fiscal policy, Congress and the president should
decrease taxes to increase consumer disposable income
An increase in the money supply will
decrease the interest rate
An economic expansion tends to cause the federal budget deficit to __________ because tax revenues ____________ and government spending on transfer payments ___________.
decrease; rise; fall
The government purchases multiplier equals the change in ________ divided by the change in ________.
equilibrium real GDP; government purchases
Crowding out, following an increase in government spending, results from
higher interest rates and higher exchange rate
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
During 1970 - 1997, the US federal government was
in deficit every year
Which of the following would be most likely to induce Congress and the president to conduct contractionary fiscal policy? A significant
increase in inflation
Increases in the price level
increase the quantity of money needed for buying and selling
An increase in the interest rate should _________________ the demand for dollars and the value of the dollar, and the net exports should ______________.
increase; decrease
A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments _________.
increase; fall; rise
Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often
lowers interest rates during recessions
If the Fed buys Treasury bills, this will shift the
money supply curve to the right
The crowding out of government spending by private spending will be greater the
more sensitive consumption, investment, and net exports are to changes in interest rates
The money demand curve has a
negative slope because an increase in the interest rate decreases the quantity of money demanded
According to the short - run Phillips curve, the unemployment rate and the inflation rate are
negatively related
Government deficits tend to increase during
periods of war and recession
The Federal Reserve's four goals of monetary policy are
price stability, high employment, economic growth, and stability of financial markets and institutions.
Crowding out refers to a decline in ________ as a result of an increase in ________.
private expenditures; government purchases
The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect
real interest rates
If the Fed raises the interest rate, this will __________ inflation and __________ real GDP in the short run
reduce; lower
During recessions, government expenditure automatically
rises because of programs such as unemployment insurance and medicaid
The Fed can increase the federal funds rate by
selling Treasury bills, which decreases bank reserves
Fiscal policy is defined as changes in federal _______________ and _________________ to achieve macroeconomics objectives such as price stability, high rates of economic growth, and high employment
taxes; expenditures
The curve showing the short-run relationship between the unemployment rate and the inflation rate is called
the Phillips curve
The monetary policy target the federal reserve focuses primarily on today is
the interest rate
Monetary policy refers to the actions the Federal Reserve takes to manage
the money supply and interest rates to pursue its economic objectives.
The Federal Reserve's two main monetary policy targets are
the money supply and interest rates.
If the Fed pursues expansionary monetary policy then
the money supply with increase, interest rates will fall and GDP will rise
The federal government debt equals
the total value of US treasury bonds outstanding
The largest and fastest - growing category of federal government expenditures is
transfer payments
If the Fed's policy is contractionary, it will
use open market operations to sell Treasury bills.
in the long run, the Phillips curve is a ____________ at _________________
vertical line; the natural rate of unemployment
An increase in the sensitivity of private spending to changes in the interest rate ___________ the government purchases multiplier
will decrease
Automatic stabilizers refer to
government spending and taxes that automatically increase or decrease along with the business cycle
From the 1960s to 2014, transfer payments
have risen from 25 % to about 48% of federal government expenditures
Expansionary fiscal policy will
shift the aggregate demand curve to the right
Historically, the largest US federal budget deficits as a percentage of GDP in the 20th century occurred during
WWI and WWII
If the federal government's expenditures are less than its tax revenues, then
a budget surplus results
The tax multiplier equals the change in ________ divided by the change in ________
equilibrium real GDP; taxes
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the
federal funds rate
The interest rate that banks charge other banks for overnight loans is
federal funds rate
Fiscal policy refers to changes in
federal taxes and purchases that are intended to achieve macroeconomic policy objectives
The federal government debt as a percentage of GDP fell
from 1998 - 2001
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in
government purchases
Expansionary fiscal involves
increasing government purchases or decreasing taxes
The largest source of federal government revenue in 2014 was
individual income taxes
The three categories of federal government expenditures, in addition to government purchases are
interest on the national debt, grants to state and local governments, and transfer payments
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ___________ and real GDP to be _____________.
lower; lower