Econ Exam 3
Traditionally, government has used _____________ to influence _____________.
. taxing and spending; the demand side of the economy
A commercial bank creates money when it does all the following except ______
A. decreases its excess reserves B. makes loans C. creates deposits D. puts cash in its ATMs Answer: D Currency inside of a bank is not money, regardless of whether the currency is in a teller's till or is in an ATM.
The Fed's policy tools include all the following except _______.
A. required reserve ratio and open market operations B. quantitative easing C. discount rate D. taxing banks' deposits at the Fed Answer: D Answer D is not a Fed policy tool.
Rick withdraws $500 from his savings account, keeps $100 as currency, and deposits $400 in his checking account.
M1 increases by $500 and M2 does not change.
The federal government's major outlay in its budget is_______ and its major source of revenue is _______.
Social Security and other benefits; personal income taxes
If the economy is at full employment and the Fed increases the quantity of money, _______.
aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise
When potential GDP increases, _______.
aggregate supply increases
Needs-tested spending is _______ fiscal policy because it _______.
automatic; increases in recession and decreases in expansion
Starting from full-employment equilibrium, an increase in aggregate demand
causes an inflationary gap.
An increase in expected future income increases ________.
consumption expenditure, which increases current aggregate demand
An increase in taxes combined with a decrease in government purchases would
decrease AD.
An economic bust or severe downturn in the Japanese economy will likely result in a(n)
decrease in U.S. exports and U.S. aggregate demand
Deficit reduction will tend to
decrease real output in the short run, but increase real output in the long run.
Contractionary fiscal policy consists of
decreased government spending and increased taxes.
The money multiplier ______
decreases if banks increase their desired reserve ratio
When taxes are increased, disposable income _____________, and hence consumption _____________
decreases; decreases
Macroeconomic equilibrium occurs when the quantity of real GDP _______ equals the quantity of _______.
demanded; real GDP supplied
A government expenditure multiplier _______.
exceeds 1
A commodity or token is money if it is ________.
generally accepted as means of payment
. A massive increase in interstate highway construction will affect aggregate demand through which sector?
government purchases, increase
Budget deficits are created when
government spending exceeds its tax revenues.
In the short run, expansionary fiscal policy can cause a rise in real GDP
in combination with a rise in the price level.
If our exports of final goods and services increase more than our imports, other things being equal, aggregate demand will (X-M) (2-3) = -1 (4-4) = 0
increase
Consumption ______________ with any ___________________.
increases, increase in income
U.S. national debt _______ when the federal government's _______
increases; outlays exceed tax revenue
When government debt is financed internally, future generations will
inherit higher taxes
A reduction in personal income taxes, other things being equal, will
leave consumers with more disposable income. (Income after taxes) increase aggregate demand
Commercial banks' assets include ________.
loans to individuals and businesses and government securities
Discretionary fiscal policy to stimulate the economy includes _______
lowering the tax rate paid by households with middle incomes
Automatic fiscal policy _______
operates as the economy moves along its business cycle
An open market _______ of $100 million of securities ______.
purchase; increases bank reserves
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a _______.
rising price level and demand-pull inflation
Investment (I) includes
the amount spent on new factories and machinery.
Money in the United States today includes _______
the currency in people's wallets, stores' tills, and the bank deposits that people and businesses own
If U.S. budget deficits (which require the borrowing of funds) raise interest rates and attract investment funds from abroad,
the foreign exchange value of the dollar will appreciate, and U.S. net exports will decrease.
Aggregate supply increases when ________.
the money wage rate falls
The quantity of real GDP demanded increases if _______
the price level falls
