econ final exam

The group that sets the federal reserve system's policy on buying and selling government securities (bills, notes, and bonds) is the

Federal Open Market Committee (FOMC)

A Federal budget deficit exists when

Federal government spending exceeds tax revenues in a given year.

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks

The M1 money supply is composed of

Checkable deposits and currency in circulation

Currency in circulation is part of

both M1 and M2.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

budget surplus

What is the best example of public investment?

construction of highways

The Social Security program is designed to pay

current retirees, using funds from current contributions.

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The reason for the Fed being set up as an independent agency of government is to

protect it from political pressure.

The goal of expansionary fiscal policy is to increase....

real GDP

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n)

recognition lag.

The financing of a government deficit increases rates and, as a result, reduces investment spending. This statement describes

the crowding-out effect

A $70 price tag on a sweater in a department store window is an example of money functioning as a

unit of account.

The federal reserve system is divided into...

12 districts

The public debt is the

Accumulation of all past deficits minus all past surpluses

A budget surplus means that

Government revenues are greater than expenditures in a given year

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

M1 increases and M2 stays the same

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the

M1 money supply will decline and the M2 money supply will remain unchanged.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Fiscal policy is enacted through changes in

Taxation and government spending

The functions of money are to serve as a

Unit of account, store of value, and medium of exchange

If you write a bank to purchase a used car, you are using money primarily as

a medium of exchange

Money functions as

a store of value, a unit of account, and a medium of exchange.

An appropriate fiscal policy for severe demand-pull inflation is

a tax rate increase.

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

administration lag

The fiscal policy refers to the

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

The paper money used in the United States is:

federal reserve banks

The value of money varies...

inversely with the price level

The value of money varies

inversely with the price level.

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

The amount of money reported as M2

is larger than the amount reported as M1.

Which of the following nations had the highest public sector debt as a percentage of GDP in 2015?

japan

a contractionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve.

In the United States, the money supply (M1) includes

paper currency, and checkable deposits.

The political business cycle refers to the possibility that

politicians will manipulate the economy to enhance their chances of being reelected.

When there is inflation in the economy, it implies that the

price index is rising and the purchasing power of money is falling.

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

start of the recession and the time is takes to recognize that the recession has started

If you place a part of your summer earnings in a savings account, you are using money primarily as a

store of value.

Stock market price quotations best exemplify money serving as a:

unit of account

One timing problem in using fiscal policy to counter a recession in the "operational lag" that occurs between the

time fiscal action is taken and the time that the action has its effect on the economy

Built-in stability means that

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.