econ hw

Suppose the fed carries out an open market purchase and credits the account of a bank by $160000 further suppose that the reserve ratio is 10% by how much is the money supply expected to change

$1.6 million

If banks keep one-eighth of their deposits in the form of reserves and the Fed credits Alex's bank account with $8000 how much does the money supply increase?

$64000

Bank A has $100 million in deposits $15 million in required reserves and $85 million in loans Bank A's reserve ratio is

15%

If the federal government spends 12% of the GDP and collects revenues of 10% of GDP what is the deficit as a percentage of GDP

2%

The social security program in the United states is financed by:

FICA tax revenue

A negative real shock causes the economy's:

SRAS and LRAS curves to shift inward

As market interest rates rise:

a bank's opportunity cost of holding reserves rises

People holding more cash because of a decrease in consumer confidence would cause:

a decrease in both the growth rate of output and inflation

The united states federal government has:

a progressive income tax system

Money is

anything that is widely accepted as a means of payment

In the short run if the federal reserve responds to a negative real shock with an increase in money supply growth the inflation rate will increase because of

both the real shock and the increase in money growth

To increase the money supply in the economy the fed would

carry out open market purchases and/or lower the discount rate

If the fed wishes to lower interest rates it should

conduct an open market purchase

Low interest rates are a signal that

credit is easy and it is a good idea to borrow money

M1 refers to

currency plus checkable deposits

Crowding out is the BLANK in private spending that occurs when government BLANK spending

decrease increases

An increase in government spending can reduce real GDP growth if:

decreases in private spending more than offset the increase in government spending

Reserves held at the fed are

electronic claims that can be converted into currency if the bank wishes

The federal reserve is the:

federal government's bank central bank and bankers bank in the U.S.

Examples of expansionary fiscal policy include increases in:

government spending

A problem that makes fiscal policy less effective is that:

higher taxes or increased borrowing to fund government spending can reduce aggregate demand.

In the short run an increase in government spending growth will cause the inflation rate to:

increase

The tax deduction for interest paid on home mortgages tends to:

increase housing prices

To fight a recession, the federal government can:

increase its spending

In order for fiscal policy to effectively offset a 1$ million decrease in consumer spending the government would most likely have to:

increase spending by less than $1 million

To reduce the money supply in the economy the fed would

increase the discount rate

Many economists worry about the federal reserve overstimulating the economy because such overstimulation will lead to rising

inflation

If the fed adheres to a strict "money growth rule" of 3% what happens if the velocity growth drops

inflation real growth and nominal wage growth all decrease

If households use tax rebate checks to pay off their existing debt (such as credit cards and mortgages) this type of fiscal stimulus:

is likely to have a negligible impact on aggregate demand

Fiscal policy is:

less effective in dealing with real shocks as with aggregate demand shocks

The tax rate paid on an additional dollar of income is the:

marginal tax rate

The amount by which the money expands with each additional dollar in reserves is the

money multiplier

When banks take on too much risk with hope that the fed will eventually bail them out a condition of BLANK exists

moral hazard

Under a progressive tax system tax payments will BLANK if a person's income doubles

more than double

Under fractional reserve banking banks hold

only a fraction of deposits in reserve lending the rest

The U.S. tax system is:

progressive

Rank the major means of payment from the largest to the smallest amount of dollars

savings deposits money market mutual funds small time deposits

An increase in money growth will cause the economy's AD curve to

shift outward

The multiplier effect is the:

subsequent consumer spending that increases AD from expansionary fiscal policy

Which of the following is true when measuring the role of the government in an economy by the amount of its government spending

the amount of government spending understates the role of the government in an economy because of the effects of government policies on economic activity

Which of the following descriptions of the "government deficit" is incorrect

the deficit is caused by a shortage of tax revenue

When a recession is caused by a real shock an expansionary fiscal policy will result in an increase in:

the inflation rate which is higher than the increase in the growth rate

Commercial banks make profits primarily through

the interest differential between deposits and loans

What will happen when banks decide to increase their reserve ratios

the money supply will contract

Suppose the federal government incurs a $1 billion deficit in 2011 Which of the following is true of the national debt

the national debt increases by $1 billion

The marginal tax rate is:

the tax rate paid on an additional dollar of income

Fiscal policy is most effective when:

there are many unemployed resources