Macro
in order to lower the federal funds rate, the Fed ___ government securities in open market operations, so that banks' reserves ___ and the quantity of money ___
buys; increase; increases
in order to lower the federal funds rate, the Fed ___ government securities in open market operations, so that banks' reserves ___ and the quantity of money ____
buys; increase; increases
in order to lower the federal funds rate, the Fed ____ government securities in open market operations, so that banks' reserves ____ and the quantity of money ____
buys; increase; increases
in order to lower the federal funds rate, the fed ______government securities in open market operations so that banks' reserves _______ and the quantity of money _______
buys; increase; increases
to fight a recession, an appropriate monetary policy would be that the Fed conducts an open market operation that _____ government securities, _____ the federal funds rate, and ___ aggregate demand
buys; lowers; increases
to fight a recession, an appropriate monetary policy would be that the Fed conducts an open market operation that ______ government securities ______ the federal funds rate and _______ aggregate demand
buys; lowers; increases
the federal budget
can have a deficit, a surplus or a balance
Consumer confidence in the economy falls, and as a result, aggregate demand decreases. As real GDP falls below potential GDP, if the Fed followed Friendman's k-percent rule, the Fed would
continue allowing the quantity of money to grow at "k" percent
consumer confidence in the economy falls and as a result aggregate demand decreases. As real GDP falls below potential GDP, if the Fed followed Friendman's k-percent rule, the Fed would
continue allowing the quantity of money to grow at "k" percent
consumer confidence in the economy falls, and as a result, aggregate demand decreases. As real GDP falls below potential GDP, if the Fed followed Friendman's k-percent rule, the Fed would
continue allowing the quantity of money to grow at "k" percent
assume the federal government raises taxes (a contractionary fiscal policy) if the tax increase affects AS and AD equally then real GDP will ______ and the price level will ____
decrease; be unchanged
assumed the federal government raises taxes (a contractionary fiscal policy). if the tax increase affects AS and AS equally, then real GDP will _____ and the price level will _____
decrease; be unchanged
when the exchange rate falls, imports ______ and exports _____
decrease; increase
need-based spending ____ during an expansion and ____ during a recession which leads to larger budget deficits during the ______ phase of the business cycle
decrease; increases; recession
if the fed fears inflation, it______ by _____ government securities
decreases aggregate demand; selling
if the government reduces expenditure on goods and services by $30 billion, then aggregate demand
decreases by more than $30 billion and real GDP decreases
an increase in income taxes ___ employment and ___ potential GDP
decreases; decreases
an increase in income taxes _____ employment and ____ potential GDP
decreases; decreases
an increase in income taxes___ employment and ___ potential GDP
decreases; decreases
Need-based spending ____ during an expansion and ____ during a recession, which leads to larger budget deficits during the ___ phase of the business cycle
decreases; increases; recession
need-based spending ____ during an expansion and ____ during a recession, which leads to larger budget deficits during the ___ phase of the business cycle
decreases; increases; recession
need-based spending _______ during an expansion and _____ during a recession, which leads to larger budget deficits during the _____ phase of the business cycle
decreases; increases; recession
need-based spending____ during an expansion and ____ during a recession which leads to larger budget deficits during the _____ phase of the business cycle
decreases; increases; recession
a decrease in monetary base ___ and the quantity of money, the interest rate ____ and the quantity of money demanded ____
decreases; rises; decreases
increasing the income tax rate ______ the ______
decreases; supply of labor
suppose the economy is an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of
decreasing taxes and/or increasing government expenditure
suppose the economy is in an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of
decreasing taxes and/or increasing government expenditure
suppose the economy is in an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of
decreasing taxes and/or increasing government expenditures
in 2010 the US government had tax revenues of $2703 billion and outlays were $3973 billion. the budget
deficit was 1270 billion
government tax revenues _____ during an expansion and ____ during a recession which leads to larger budget deficits during the _____ phase of the business cycle
NOT-decrease; decrease; expansion
when the exchange rate falls, imports ___ and exports ___
NOT-decrease;decrease
increasing the income tax rate ___ the ____
NOT-decreases; demand for labor
a decrease in monetary base _____ the quantity of money, the interest rate _____ and the quantity of money demanded
NOT-decreases; rise; increase
needs-tested spending
NOT-is directing government spending and taxes to states that need the most help NOT-is giving tax cuts to wealthy people so they will increase their spending
if the fed raises the federal funds rate, which of the following happens?
NOT-real GDP increases NOT- the real interest rate falls
the structural deficit is the deficit
NOT-that does not increase the national debt NOT- during an expansion
as contrasted to the mainstream view, Keynesian economists believe that ______ than mainstream economists believe
NOT-the burden of government debt on future generations is larger
as contrasted to the Keynesian view, mainstream economists belive that ___ than Keynesian economists believe
NOT-the multiplier effect is larger
discretionary fiscal policy is defined as fiscal policy
NOT-triggered by the state of the economy
the supply-side effects of a change in taxes ob labor income means that____ in taxes on labor income shifts the _____
an increase; labor supply curve leftward
ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government and services by $100 billion. Then
both policies would increase aggregate demand but the tax cut has a smaller effect
ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billion. Then
both policies would increase aggregate demand but the tax cut has a smaller effect
in the United States for the year 2012, the federal government had a _____ so the national debt was _____
budget deficit; increasing
if the fed fears a recession, it
buys government securities
the national debt is the amount
of debt outstanding that arises from past budget deficits
when the Fed lowers the federal funds rate, which of the following economic variables responds most rapidly?
other short-term interest rates
in order to reduce inflationary pressure on the economy, what fiscal policy can the government use
raise taxes
when there is a threat of inflation in the economy, the Fed can ___ the federal funds rate to ___ aggregate demand and ___ the price level
raise; decrease; decrease
when there is a threat of inflation in the economy, the Fed can ____ the federal funds rate to ___ aggregate demand and ___ the price level
raise; decrease; decrease
the fed is concerned about inflation, its policy will ____ US short-term interest rates and in the foreign exchange market, lead to the value of the US dollar _____
raise; rising
a government budget deficit _____ the _______ interest rate and crowds out private investment which _____ real GDP growth
raises; real; slows
if the fed's policies aim to increase aggregate demand, the fed must fear
recession
when the Fed fears inflation, the Fed _____ government securities , so that the federal funds rate ____- and the quantity of money _____
sells; rises; decreases
the magnitude of the tax multiplier is ____ the magnitude of the government expenditure multiplier
smaller than
needs-tested spending is best described as
spending on programs that entitle qualified persons and businesses to receive benefits
automatic changes in tax revenue and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic
stabilizers
automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic
stabilizers
automatic changes in tax revenues and expenditures that occure as a result of fluctuation in real GDP are referred to as automatic
stabilizers
the actual budget deficit is equal to the
structural deficit plus the cyclical deficit
the government has a budget surplus if
tax revenues are greater than outlays
discretionary monetary policy is defined as policy
that is based on the judgements of policymakers
induced taxes are defined as taxes
that vary with real GDP
what two parts of the government determine the federal budget?
the congress and the president
discretionary monetary policy is monetary policy that is based on
the judgement of the monetary policymakers about the current needs of the economy
one problem with the ripple effect from the Feds' monetary policy is
the tight relationship between that the federal funds rate has to aggregate spending
in late 2007, the Fed began a series of cuts in the federal funds rate. Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was
to avoid a recession
in late 2007, the fed began a series of cuts in the federal funds rate. because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was
to avoid a recession
inflation targeting requires that the central bank
NOT-adopt a k-percent rule for the inflation rate NOT-avoid changing the amount of the monetary base
a tax cut that increases the budget deficit results in ____ in the ___ loanable funds
an increase; demand for
a tax cut that increases the budget deficit results in _____ in the ____ loanable funds
an increase; demand for
the structural surplus
is the government budget surplus that would exist if the economy was at full employment
a reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP that
it is difficult to know whether real GDP is above above or below potential GDP
a reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that
it is difficult to know whether real GDP is above or below potential GDP
which monetary policy rule needs a stable demand for money to work well?
k-percent rule
an increase in taxes on labor income shifts the labor supply curve ___ and the ___
leftward; after-tax wage rate falls
if the fed follows the taylor rule and the economy goes into a recession, the fed would
lower the federal funds rate
if the fed is concerned about a possible recession it ____the federal funds rate, which ____ the quantity of reserves and ____ the amount of banks loans
lowers; increases; increases
when the government's expenditures exceed its tax revenues, the budget
has a deficit and the national debt is increasing
when the governments' expenditures exceed its tax revenues, the budget
has a deficit and the national debt is increasing
suppose the fed raises the federal funds rate. put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards:
i-ii-iii-iv
how could an expansionary fiscal policy increase real GDP and lower the price level
if aggregate increases more than aggregate demand increases
how could an expansionary fiscal increase real GDP and lower the price level?
if aggregate supply increases more than aggregate demand increases
how could an expansionary fiscal policy increase real GDP and lower the price level?
if aggregate supply increases more than aggregate demand increases
which of the following are TRUE regarding Milton Friendman's k-percent money targeting rule?
ii and iii- this rule sets the growth rate of the quantity of money and for this policy to work well, the velocity of circulation must be stable
needs-tested spending
includes transfer payments such as food stamps and unemployment benefits
as contrasted to the keynesian view, mainstream economists believe that ______ than Keynesian economists believe
NOT- real GDP growth rate is larger
suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent. In this case, the real after-tax rate is
2.0 percent
as contrasted to the keynesian view, mainstream economists believe that _____ than keynesian economists believe
NOT- the multiplier effect is larger
if the income tax rate is 20 percent and the tax rate on consumption expenditure is 15 percent, then the tax wedge is
35 percent
inflation targeting requires that the central bank
NOT- use a short-term interest rate as its policy instrument
a fall in the federal funds rate leads to
NOT-a decrease in investment
a fall in the federal funds rate leads to
NOT-a rise in the real interest rate NOT-a decrease in the quantity of money
the last US president to be in office when the government had a budget surplus was
Bill Clinton
the ______ view says that fiscal stimulus has a multiplier effect that makes it a ____ tool to fight a deep recession
Keynesian; powerful
suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation is 4 percent. In this case, the real after-tax interest rate is
NOT- 3.5 percent
when real GDP is less than potential GDP, there is ____ which leads the unemployment rate to ____
NOT- a recessionary gap; remain at the natural level
in the labor market, the income tax creates a tax wedge which raises the _____ wage rate, reduces that ____ wage rate, and _____employment
NOT- after-tax; before-tax; does not affect
the government expenditure multiplier is used to determine the
NOT- amount aggregate supply is affected by a change in government expenditure
the government expenditure multiplier is used to determine the
NOT- amount private consumption is decreased by government expenditure
when real GDP is less than potential GDP, there is ____ which leads the unemployment rate to _____
NOT- an inflationary gap; rise
in an expansion federal tax revenues increase proportionally more than real GDP without the need for any government policy. This increase in an example of
NOT- automatic monetary policy
in the labor market, the income tax creates a tax wedge which raises the ____ wage rate, reduces the ____ wage rate and ____ employment
NOT- before-tax; after-tax; increases
to change the federal funds rate, the Fed
NOT- changes the income tax rate on interest income NOT-coordinates with banks on establishing the new rate
the supply-side effects of an income tax cut ____ potential GDP _____ aggregate supply
NOT- decrease; increase
government tax revenues ______ during an expansion and and _____ during a recession which leads to larger budget deficits during the ________ phase of the business cycle
NOT- decrease; increase; expansion
if the fed fears inflation it ______ by ____ government securities
NOT- decreases aggregate supply; selling
in an expansion, federal tax revenues increase proportionally more than real GDP without the need for any government policy. This increase is an example
NOT- discretionary monetary policy
the magnitude of the tax multiplier is _____ the magnitude of the government expenditure multiplier
NOT- greater than
automatic stabilizers decrease the impact of a recession on the level of economic activity because they
NOT- increase the quantity of money in circulation NOT- reduce the interest rate and so allows firms to increase level of investment
if the fed fears inflation, it ____ by ___ government securities
NOT- increases aggregate demand; selling NOT- increases aggregate supply: buying
an income tax cut _____ aggregate demand and _____ aggregate supply
NOT- increases; decreases
the federal budget
NOT- is required to balance by law
the main goals of monetary policy include all of the following EXCEPT
NOT- keeping the unemployment rate close to the natural unemployment rate
when tax revenues ______ outlays is negative, then the government has a budget _______
NOT- minus; deficit
when tax revenues equal government outlays, the situation is referred to as
a balanced budget
national debt decreases in a given year when a country has
a budget surplus
if the economy is in equilibrium with real GDP less than potential GDP, there is ____ gap, and a fiscal policy that ____ is appropriate
a recessionary; increases aggregate demand
if the economy is in equilibrium with real GDP less than potential GDP, there is _____ gap, and a fiscal policy that ____ is appropriate
a recessionary; increases aggregate demand
if the fed raises the federal funds rate, which of the following happens
aggregate demand decreases
if the fed raises the federal funds rate, which of the following happens?
aggregate demand decreases
the federal budget is defined as
an annual statement of expenditures and tax revenues of the U.S. government
when the output gap is positive, it represents _____ gap, and when it is negative, it represents _____ gap
an inflationary; a recessionary
when the output gap is positive, it represents ______ gap and when it is negative it represent ______ gap
an inflationary; a recessionary
the Taylor rule is an example of
an instrument rule focused on the federal funds rate
fiscal policies that move the economy toward potential GDP without a change in policy are called
automatic stabilizers
equilibrium in the market for bank reserves determines the
federal funds rate
the balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion ___ in tax revenue and the balanced budget multiplier shows that in this case there is ____ effect on aggregate demand
increase; a positive
an income tax cut_____ aggregate demand and _____ aggregate supply
increase; increases
needs-tested spending
increases as unemployment increases
if federal taxes are cut by $10 billion, aggregate demand
increases by $10 billion multiplied by the tax multiplier
if a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand
increases by more than $100 billion
if government expenditure on goods and services increases by $100 billion, then aggregate demand
increases by more than $100 billion
if a tax cut increases people's labor supply, then the tax cut
increases potential GDP
in the short run, to decrease the interest rate, the Federal Reserve ____ the quantity of money by _____ government securities
increases; buying
in the short run, to decrease the interest rate, the federal reserve ______ the quantity of money by _____ government securities
increases; buying
the supply-side effects show that a tax cut on labor income ____ employment and ____ potential GDP
increases; increases
a $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of
induced changes in consumption expenditures
when the economy is in a recession ____ taxes decrease while _____ spending increases and as a result of the automatic fiscal policy aggregate demand _______
induced; needs-tested; increases
when the economy is in a recession, ___taxes decrease while ____ spending increases and, as a result of this automatic fiscal policy, aggregate demand ____
induced; needs-tested; increases
discretionary fiscal policy is defines as fiscal policy
initiated by an act of Congress