ECON Exam #4
the exchange rate effect is the
inverse relationship between real interest rates and net exports
A budget deficit occurs when
government spending > government revenue
If an economy has a postive output gap of 3% this means..
GDP is 3% above potential GDP
What happens to prices and GDP when productivity increases in the economy?
Prices decrease, and GDP increases
What rises when the economy is expanding
Real GDP growth
Retirement benefits, unemployment benefits, maternity leave benefits, death and funeral benefits, and other benefits are examples of??
Social Insurance
Ceteris Paribus
a Latin phrase that means "all other things held constant"
what leads to a decrease in the price level but an increase in the quantity of output in the economy?
a rise in aggregate supply
Typically business cycles
a. have short and sharp recessions, followed by long and gradual expansions
income taxes are taxes assessed on...?
all income
Which is a narrow indicator? a. consumer price index b. stock price for JP Morgan Chase & Co. c. non-farm payrolls d. real GDI
b. stock price for JPMorgan Chase & Co.
An example of a lagging indicator is a. consumer confidence b. unemployment insurance claims c. business confidence d. the stock market
b. unemployment insurance claims
If a bank's reserves are low it can increase them by..
borrowing from other banks in the overnight loan market
in order to lower output, the federal government engages in ___ fiscal policy, which ___ government spending and ____ taxes.
contractionary; lowers; raises
contractionary monetary policy ___ consumption, investment and net exports; ___ aggregate expenditures; and ____ aggregate demand
decreases; lowers; lowers
what is provided by the federal government
medicare
The broadest measure of economic activity is
real GDP
Why does the federal reserve target inflation rather than unemployment
it would be poor optics for the Fed to intentionally increase unemployment
the higher the GDP deflator of the economy the
lower the real wealth of in the economy more expensive the country's exports
Expanisionary Fiscal Policy ___ taxes, ___ government expenditure, ____ aggregate expenditures, and ____ aggregate demand
lowers; raises; boosts; raises
An inflation- induced monetary policy response to lower interest rates causes a
movement along the same aggregate demand curve
a rise in prices leads to a...
movement up and to the left, along the same aggregate demand curve
the debt effect helps explain the
positive relationship between real interest rates and net exports
when inflation rises above its target rate, the federal reserve will
raise interest rates
If the output gap is positive, then the Federal Reserve will use its floor framework to ____ the interest on excess reserves, borrow ____ money from financial institutions to set the lower bound for the federal funds rate, and ___ the discount rate to set the upper bound for the federal funds rate.
raise the interest on excess reserves, borrow more money, and increase the discount rate.
if the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will ___ the real interest rate to drive ___ consumption and investment
raise the real interest rate ; drive down consumption and investment
If the problem in the economy is contagious higher-than-expected increases in the consumer price index, we expect the Federal Open Market Committee (FOMC) to ___ interest rates to ___ spending today
raise; reduce
If inflation is 4% and a firm gives its workers 1.5% nominal wage raise then... ?
real wages have fallen by 2.5%
suppose that the economy is overheating. one would expect to see real GDP
rise above potential GDP
During a recession one would expect to see the unemployment rate
rise above the equilibrium unemployment rate
an output-induced monetary policy response to lower interest rates causes a
right shift of the aggregate demand curve
ceteris paribus, an increase in investment leads to a:
right shift of the aggregate demand curve
If the economy has an output gap of 0% this means the economy is..
suffering from hyperinflation
What is a regressive tax?
those with less income tend to pay a higher share of their income in taxes
the aggregate demand curve shows the relationship between the price level and the
total quantity of output that buyers collectively plan to purchase
the aggregate supply curve shows the relationship between the price level and the
total quantity of output that suppliers collectively produce.
Aggregate Expenditure
total spending in the economy: the sum of consumption, planned investment, government purchases, and net exports
if a bank decides to print money this can lead to...?
inflation
if congress decides to increase military spending this is an example of..?
discretionary spending
when prices rise in the United States, what is the effect on net exports and aggregate expenditure?
exports become more expensive, imports become cheaper, net exports fall, and aggregate expenditure falls
Mandatory spending is spending that
supports programs that do not get determined annually but instead are set in law
Which of the following statements is true?
taxable income is less than income earned because of deductions
quantitative easing (QE)
the purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand