macro ch 13
what is the correct order in expansionary monetary policy process? i. short-term interest rates fall ii. consumption and investment rise iii. labor demand curve shifts to the rights iv. long-term interest rates fall
1, 4, 2, 3
if the Fed wished to decrease the money supply to slow the economy, it will conduct
an open market sale of bonds
the federal funds rate is the rate
at which banks lend to each other
taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called
automatic stabilizers
the Oct. 2008 government bailout of financial Institutions has been criticized for
benefiting the wealthy
if the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in
contractionary monetary policy
an increase in government spending causes private spending to fall; what phenomenon is described in this situation?
crowding out
countercyclical monetary policy slows down the growth rate of an economy during an expansion by shifting the labor ________ curve to the _______.
demand' left
countercyclical fiscal policy stimulates an economy during a recession by shifting the labor ________ curve to the ________.
demand; right
economists _______ with regard to how recessions should be handled.
do not have consensus
the tax multiplier equals the change in
equilibrium GDP/change in taxes
the Fed has been criticized for ________ as a result of the financial crisis of 2008-2009.
expanding the money supply too much
government policies that increase aggregate demand are called
expansionary policies
what will not result in expansionary monetary policy?
government purchases
contractionary monetary policy could impact fiscal policy due to
higher interest rates on the debt
a fiscal policy of subsidizing wages will lead to a(n) ________ in ________
increase; labor demand
if the Fed wants to stimulate the economy, it will
lower short-term interest rates
the American Recovery and Reinvestment Act of 2009 is a clear example if
expansionary fiscal policy
what would be a fiscal policy the government might want to use if the economy is operating at too high a level of output?
increasing income taxes
during the mid-to-late 1970s the economy was experiencing both high inflation and high unemployment; the Fed adopted policy of
increasing interest rates to combat the inflation
one problem associated with the recent fiscal stimulus designed to move the economy out of the 2009 recession is
it contributed to higher budget deficits
the Taylor rule for federal funds rate targeting does what?
it links the Fed's long-run target for the federal funds rate to specific economic values
how did the FOMC react to the recession of 200-2009?
the FOMC reduced the target for the federal funds rate steadily in 2008
what is true about using fiscal policy to stabilize the economy?
the delay caused by the legislative process if typically longer for fiscal policy and for monetary policy
if the FOMC orders the trading desk to sell Treasury securities
the money supply curve will shift to the left and the equilibrium interest rate will rise
many economists believe that tinkering with the economy via fiscal policy is not effective due to
the presence of lags