macro ch 13

what is the correct order in expansionary monetary policy process? i. short-term interest rates fall ii. consumption and investment rise iii. labor demand curve shifts to the rights iv. long-term interest rates fall

1, 4, 2, 3

if the Fed wished to decrease the money supply to slow the economy, it will conduct

an open market sale of bonds

the federal funds rate is the rate

at which banks lend to each other

taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called

automatic stabilizers

the Oct. 2008 government bailout of financial Institutions has been criticized for

benefiting the wealthy

if the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in

contractionary monetary policy

an increase in government spending causes private spending to fall; what phenomenon is described in this situation?

crowding out

countercyclical monetary policy slows down the growth rate of an economy during an expansion by shifting the labor ________ curve to the _______.

demand' left

countercyclical fiscal policy stimulates an economy during a recession by shifting the labor ________ curve to the ________.

demand; right

economists _______ with regard to how recessions should be handled.

do not have consensus

the tax multiplier equals the change in

equilibrium GDP/change in taxes

the Fed has been criticized for ________ as a result of the financial crisis of 2008-2009.

expanding the money supply too much

government policies that increase aggregate demand are called

expansionary policies

what will not result in expansionary monetary policy?

government purchases

contractionary monetary policy could impact fiscal policy due to

higher interest rates on the debt

a fiscal policy of subsidizing wages will lead to a(n) ________ in ________

increase; labor demand

if the Fed wants to stimulate the economy, it will

lower short-term interest rates

the American Recovery and Reinvestment Act of 2009 is a clear example if

expansionary fiscal policy

what would be a fiscal policy the government might want to use if the economy is operating at too high a level of output?

increasing income taxes

during the mid-to-late 1970s the economy was experiencing both high inflation and high unemployment; the Fed adopted policy of

increasing interest rates to combat the inflation

one problem associated with the recent fiscal stimulus designed to move the economy out of the 2009 recession is

it contributed to higher budget deficits

the Taylor rule for federal funds rate targeting does what?

it links the Fed's long-run target for the federal funds rate to specific economic values

how did the FOMC react to the recession of 200-2009?

the FOMC reduced the target for the federal funds rate steadily in 2008

what is true about using fiscal policy to stabilize the economy?

the delay caused by the legislative process if typically longer for fiscal policy and for monetary policy

if the FOMC orders the trading desk to sell Treasury securities

the money supply curve will shift to the left and the equilibrium interest rate will rise

many economists believe that tinkering with the economy via fiscal policy is not effective due to

the presence of lags