Econ Exam

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Automatic Stabilizers are built-in mechanisms within fiscal policy that do not require any additional change in legislation. Their goal is to decrease the amplitude of business cycles. Which of the following do you think are good examples of automatic stabilizers?

Unemployment benefits, Tax rates

Suppose Warren Buffet withdraws $1 million from his checking account at Chase Bank. If the required reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?

-$5 million

Spending multiplier equals...

1 / (1 - MPC), 1/MPS

The formula for Money Multiplier is...

1 / Reserve Ratio

Here in the US we have a ____________ system of taxes.

Progressive

The Federal Open Market Committee consists of the seven members of the ______ , the president of the Federal Reserve Bank of New York, and _ ____.

Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks

A shadow bank is:

Financial firm that is not closely watched or effectively regulated.

what makes bank customers sad

Fractional reserve system

Which type of tax contributes the most to the coffers of the US Treasury

Individual income taxes

Other things being equal, what is the effect of government deficit increases on interest rates?

Interest rates rise

If Rob deposits $300 in currency into his savings account at Bank of America,

M1 decreases

The quantity theory of money can be written as

MV = PY

M1 money supply is increased by

Making loans

Assume the economy is closed and that it is operating at full employment. Which statement is TRUE when the size of the budget deficit decreases?

The interest rate will decrease, leading to an increase in investment and capital formation.

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.

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

by lowering reserves borrowed from the central bank

The federal budget deficit acts as an automatic stabilizer because

government tax revenues decrease during a recession.

The magnitude of the government expenditure multiplier is ________ the magnitude of the tax multiplier.

greater than

Expansionary fiscal policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

higher; higher

If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply, the appropriate fiscal policy response is to

increase taxes

If the Fed buys U.S. government securities from banks, the banks' reserves________ and the federal funds rate ________.

increase; falls

Prior to 2008, if the Fed wanted to raise the federal funds rate, it

instructed the New York Fed to sell government securities in the open market.

The implementation lag for fiscal policy is longer than for monetary policy because

it takes longer for Congress to act than the Fed.

When a commercial bank receives a deposit, it must keep part of the deposit as cash reserves to satisfy its

required reserves.

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

stabilize the economy.

The Federal Reserve was established in 1913 to

stop bank panics by acting as a lender of last resort.

The quantitative easing policies adopted by the Federal Reserve are usually thought of as:

temporary emergency measures.

Control of monetary policy rests with

the Federal Reserve.

The use of fiscal policy to stabilize the economy is limited because

the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.


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