Test 4

the corporate income tax rate is increased. this is

part of a contractionary fiscal policy

the individual income tax rate is decreased. this is

part of an expansionary fiscal policy

the federal reserve's four goals of monetary policy are

price stability, high employment, economic growth, and stability of financial markets and institutions

Refer to the diagram to the right. The money demand curve would move from Money demand 1 to Money demand 2 if

real GDP increased

To reassure investors who were unwilling to buy mortgages in the secondary​ market, the U.S. Congress used two government sponsored​ enterprises, Fannie Mae and Freddie​ Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac

sell bonds to investors and use the funds to purchase mortgages from banks

are federal expenditures higher today than they were in 1960?

as a percentage of GDP, federal expenditures have increased since 1960

are federal purchases higher today than they were in 1960?

as a percentage of GDP, federal purchases have decreased since 1960

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

automatic stabilizers

government spending and taxes that increase or decrease without any actions taken by the government are referred to as

automatic stabilizers

problem -> rising inflation policy -> contractionary actions -> ____ or increase taxes result -> real GDP and price level ___

decrease gov't spending, fall

problem -> recession policy -> expansionary Actions -> gov't spending or ____ result -> real gdp and price level ___

decrease taxes, rise

an economic expansion tends to cause the federal budget deficit to _____ because tax revenues _____ and government spending on transfer payments _____

decrease, rise, fall

an increase in individual income taxes _____ disposable income, which ____ consumption spending

decreases, decreases

what is an expansionary fiscal policy?

expansional fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand

the interest rate that banks charge other banks for overnight loans is the

federal funds rate

what is the difference between federal purchases and federal expenditures?

federal purchases require that the government receives a good or service in return federal expenditures include transfer payments

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

fiscal policy refers to changes in

federal taxes and purchases that are intended to achieve macroeconomic policy objectives

what is fiscal policy?

fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives

_______ represent total government spending including goods, services, grants to state and local governments, and transfer payments

government expenditures

an increase in government purchases will increase aggregate demand because

government expenditures are a component of aggregate demand

_________ are spending by the government on goods, services, and factors of production

government purchases

each year that the federal government runs a deficit, the federal debt ____. each year that the federal government runs a surplus, the federal debt _____

grows, shrinks

the largest and fastest - growing category of federal government expenditures is

transfer payments

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

congress and the president carry out fiscal policy through changes in

government purchases and taxes

which of the following are examples of discretionary fiscal policy?

- the government provides stimulus funds to repair roads and bridges to increase spending in the economy - the president and congress reduce tax rates to increase the amount of investment spending - congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate

Refer to the figure. Suppose the economy is in a recession and expansionary fiscal policy is pursued. Using the basic AD-AS model in the​ figure, this would be depicted as a movement from

A to B

Refer to the figure. Suppose the Fed sells Treasury bills in pursuit of contractionary monetary policy. Using the basic AD-AS model in the​ figure, this situation would be depicted as a movement from

C to B

in what ways does the federal budget serve as an automatic stabilizer for the economy?

During a​ recession, there is an increase in government expenditures for transfer payments and a decrease in taxes as wages and profits fall. During an​ expansion, there is a decrease in government expenditures for transfer payments and an increase in taxes as wages and profits rise. Both of these occur automatically and both effects help to stabilize aggregate demand

contractionary monetary policy on the part of the fed results in

a decrease in the money supply, an increase in interest rates, and a decrease in gdp

congress and the president enact a temporary cut in payroll taxes. this is an example of

a discretionary fiscal policy

an increase in the interest rate causes

a movement up along the money demand curve

the revenue the federal government collects from the individual income tax declines during a recession. this is an example of

an automatic stabilizer

the total the federal government pays out for unemployment insurance decreases during an expansion. this is an example of

an automatic stabilizer

some spending and taxes increase or decrease with the business cycle. this event often has an effect on the economy that is similar to fiscal policy and is called

automatic stabilizers

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

what is a contractionary fiscal policy?

contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand

the goals of monetary policy tend to be interrelated. for example, when the fed pursues the goal of ____, it also can achieve the goal of _____ simultaneously.

high employment, economic growth

which of the following is an objective of fiscal policy

high rates of economic growth

what changes should they make if they decide a contractionary fiscal policy is necessary?

in this case, congress and the president should enact policies that decrease government spending and increase taxes.

if congress and the president decide an expansionary fiscal policy is necessary, what changes should they make in government spending or taxes?

in this case, congress and the president should enact policies that increase government spending and decrease taxes.

using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to

increase

using the money demand and money supply model, an open market sale of treasury securities by the federal reserve would cause the equilibrium interest rate to

increase

what actions can congress and the president take to move the economy back to potential GDP

increase government spending or decrease taxes

since the 1950's, total government expenditures, as a percentage of GDP, have ______ and total government purchases, as a percentage of GDP, have _______

increased, decreased

an increase in the interest rate

increases the opportunity cost of holding money

expansionary fiscal policy involves

increasing government purchases or decreasing taxes

which of the following would not be considered an automatic stabilizer

legislation increasing funding for job retraining passed during a recession

in the figure to the right, if the economy is at point A, the appropriate monetary policy by the federal reserve would be to

lower interest rate

an increase in real GDP can shift

money demand to the right and increase the equilibrium interest rate

after september 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. is this increase in spending considered fiscal policy?

no. the increase in defense spending after that date was designed to achieve homeland security objectives.

the federal government changes the required gasoline milage for new cars. this is an example of

not a fiscal policy

the federal government increases spending on rebuilding the new jersey shore following a hurricane. This is an example of

not a fiscal policy

the federal reserve sells treasury securities. this is an example of

not a fiscal policy

defense spending is increased. this is

not part of fiscal policy

families are allowed to deduct all their expenses for daycare from their federal income taxes. this

not part of fiscal policy

the federal reserve lowers the target for the federal funds rate. this is

not part of fiscal policy

government transfer payments include which of the following

social security and medicare programs

what is the difference between the federal budget deficit and federal government debt?

the federal budget deficit is the year-to-year short fall in tax revenues relative to government spending (T<G+TR), financed through government bonds. the federal government debt is the accumulation of all past deficits.

who is responsible for fiscal policy?

the federal government controls fiscal policy

which of the following would be classified as fiscal policy

the federal government cuts taxes to stimulate the economy

for the federal deficit to be lowered,

the federal government's expenditures must be lower than its tax revenue

the federal reserve's two main monetary policy targets are

the money supply and interest rates

the federal government debt equals

the total value of U.S. treasury bonds outstanding

the major cause of these trends is

there has been a major increase in the amount of transfer payments the government makes through programs such as social security and unemployment insurance

why do few economists argue that it would be a good idea to balance the federal budget

to keep a balanced budget during a recession, taxes would have to increase and government expenditures would have to decrease, which would further reduce aggregate demand and deepen the recession.

is it possible for congress and the president to carry out an expansionary fiscal policy if the money supply does not increase

yes, because fiscal policy and monetary policy are separate things

in 2009, congress and the president enacted "cash for clunkers" legislation that paid people buying new cars up to $4,500 if they traded in an older, low gas-milage car. was this piece of legislation an example of fiscal policy?

yes, because the primary goal of the spending program was to stimulate the national economy.