ECON UTM Final Test

The group that says the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the

Federal Open Market Committee (FOMC)

Paper money in the United States is issued by the

Federal Reserve Banks

A Federal budget deficit EXISTS when

Federal government spending EXCEEDS tax revenues in a given year.

a medium of exchange

If you write a check on a bank to purchase a used car, you are using money primarily as

(chart) Assume that all budget surpluses are used to pay down the public debt. The budget deficit in year 3 is

$100 billion

If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's present public debt is

$275 billion

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks

The M1 money supply is composed of

Checkable deposits and currency in circulation

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit

at any level of GDP BELOW $400

(!!!) The amount by which federal tax revenues exceed federal gov. expenditures during a particular year is the

budget surplus

Best example of public investment

construction of highways

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.

The reason for the Fed being set up as an independent agency of government is to

protect it from political pressure.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy,

tax revenues VARY directly with GDP, but government spending is independent of GDP.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400,

the budget will be BALANCED.

A $70 price tag on a sweater in a department store window is an example of money functioning as a

unit of account.

(!!!) The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is

3.9 percent.

The goal of expansionary fiscal policy is to increase

??? real GDP

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD3 (the highest line)

The public debt is the

Accumulation of all past deficits minus all past surpluses

Currency in circulation is part of

BOTH M1 and M2.

The Social Security program is designed to pay

Current retirees using funds from current contributions

(!!!) A budget surplus means that

Government revenues are greater than expenditures in a given year

Which of the following nations had the highest public sector debt as a percentage of GDP in 2015?

Japan

A CONTRACTIONARY fiscal policy is shown as a

LEFTWARD shift in economy's aggregate demand curve

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

M1 increases and M2 stays the same

(!!!) Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the

M1 money supply will DECLINE and the M2 money supply will remain unchanged.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Suppose that the economy is in the midst of a RECESSION. Which would end it and stimulate output GROWTH?

REDUCTIONS in federal tax rates on personal and corporate income

The time that Elapses between the beginning of a Recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n)

REcognition lag.

If you place a part of your summer earnings in a savings account, you are using money primarily as a

STORE of value

Refer to the diagram. Which tax system has the most built-in stability?

T1 (the tallest line)

Fiscal policy is enacted through changes in

Taxation and government spending

(!!!) The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a balanced budget?

Year 1

??? hypothetical economy chart for a balanced budget

Year 1 ($800)

(3 line chart) what combination would most likely cause a shift from AD1 to AD2?

a DECREASE in taxes and and an INCREASE in gov. spending

An appropriate fiscal policy for SEVERE demand-pull inflation is

a tax rate increase.

(!!!) The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

administrative lag

Fiscal policy refers to the

deliberate changes in GOV. SPENDING and taxes to stabilize domestic output, employment, and the price level.

The value of money varies

inversely with the price level

The amount of money reported as M2

is LARGER than the amount reported as M1.

Contractionary fiscal policy is so named because it

is aimed at REDUCING aggregate demand and thus achieving price stability.

In the United States, the money supply (M1) includes (2 things!!!)

paper currency, and checkable deposits.

The political business cycle refers to the possibility that

politicians will manipulate the economy to enhance their chances of being reelected

When there is INFLATION in the economy, it implies that the

price INDEX is RISING and the purchasing power of money is falling.

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

start of the recession and the time it takes to recognize that the recession has started

Money functions as

store of value, unit of account, medium of exchange

The crowding-out effect

the financing of a government deficit increases interest rates and reduces investment spending

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the

time fiscal action IS TAKEN and the time that the action has its EFFECT on the economy

Stock market price quotations best exemplify money serving as a

unit of account

Built-in stability means that

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.