Econ test 3 worksheets

How does a change in taxes primarily affect aggregate demand?

A tax change alters disposable income and consumption spending.

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change?

Decrease government purchases of goods and services(spending).

If the government sought to end a recession, which of the following would be an appropriate policy?

Decrease taxes and increase transfer payments.

Decisions regarding purchases and sales of securities by the Fed are made by:

Federal Open Market Committee.

Which group or groups buy U.S. public debt?

Government agencies Private individuals Private institutions

One uniquely American aspect of central banking is that:

the United States has 12 central banks rather than one.

Federal funds market rate is:

the rate charged on loans from one bank to another provided to meet reserve requirement.

Velocity can be defined as:

the turnover rate of money

The primary benefit of the automatic stabilizers is:

they require no new legislative action, but Congress can alter requirements to fit the economic conditions

you are a member of Congress when the economy is in a recession. If your goal is to achieve a fully employed labor force, which of the following fiscal policy scenarios should you follow: a.Eliminate a federal budget deficit or add to a federal budget surplus. b.Increase government purchases/spending, reduce taxes, and/or increase transfer payments. c.Decrease government purchases, increase taxes, and/or cut transfer payments. d.Raise government purchases, raise taxes by more than the increase in government purchases, and decrease transfer payments.

Increase government purchases/spending, reduce taxes, and/or increase transfer payments.

If the Fed sells a U.S. government bond to a bank, what is the effect on the money supply?

It will decrease.

Which of the following is most frequently used when the Fed is attempting to adjust the money supply?

Open market operations

Which of the following is the Fed's most common way to change the money supply?

Open market operations

All decisions of the Fed are subject to approval by:

The board of governors of the federal reserve

If the Fed was to use all of its three most common tools to increase the money supply, it would:

buy bonds, reduce the discount rate, and reduce reserve requirements.

The Federal Reserve banks are owned by:

commercial banks.

The Fed would engage in ____ it wanted to address an inflationary gap.

contractionary monetary policy

If unemployment is the most significant problem in the economy, which of the following actions would be an appropriate fiscal policy response

decrease taxes

if unemployment is the major problem in the economy, which of the following would be an appropriate monetary policy response

decrease the reserve ratio decrease the discount rate buy government bond

Contractionary fiscal policy consists of:

decreased government purchases, increased taxes, decreased transfer payments.

Budget surpluses exist when:

government tax revenues exceed its spending.

The major objective of the Federal Reserve System is to:

help in generating stabilization policies for the economy.

Supply-side economics stress that:

higher tax rates discourage people from working, saving, and investing as much as they would at lower tax rate

A cut in taxes, combined with an increase in transfer payments, would:

increase AD.

Expansionary fiscal policy consists of:

increased government purchases, decreased taxes, increased transfer payments.

If inflation is the major problem in the economy, which of the following would be an appropriate monetary policy response

increasing the discount rate

if inflation is the major problem in the economy, which of the following would be an appropriate monetary policy response

increasing the discount rate

If the monetary authorities persistently expand the money supply at a rapid rate, the probable result will be:

inflation.

Typically, the budget deficit is financed by:

issuing debt.

Which of the following measures is associated with an expansionary fiscal policy?

lowering taxes

The Fed's purchases and sales of government securities are called:

open market operations.

Which of the following would constitute contractionary monetary policy by the Fed?

open market sales of government securities, an increase in the discount rate, and an increase in reserve requirement

When the money supply decreases, other things being equal,

real interest rates rise and investment spending falls.

Supply-side advocates believe that when taxes and regulations are too burdensome, people will:

save less. work less. provide less investment capital

The money supply contracts when the Fed:

sells government securities.