Macroeconomics Final 3

Fiscal policy revolves around whose budget?

Federal budget

Taxes in the United States are automatic stabilizers in that

Tax revenues increase when income increases, thus offsetting some of the increase in aggregate demand.

If a person writes a check on a Tulsa bank to purchase a new Oldsmobile, he/she is primarily employing money as: - A medium of exchange - A store of value - A measure of value - All of the above

All of the above

Expansionary fiscal policy involves

An increase in government spending and/or decrease in tazes

Classical employment theory holds that - wages are flexible upward and downward in the long run - an excess of saving over investment at any given interest rate will cause the interest rate to fall. - unemployment will cause wages and prices to decline. - all of the above

- wages are flexible upward and downward in the long run - an excess of saving over investment at any given interest rate will cause the interest rate to fall. - unemployment will cause wages and prices to decline. ALL OF THE ABOVE

If the aggregate supply curve is horizontal - There are unemployed resources - The economy is inside the production possibilities frontier - It is impossible to increase output without driving up prices, by putting unemployed resources to work. - All of the choices are correct

-There are unemployed resources - The economy is inside the production possibilities frontier - It is impossible to increase output without driving up prices, by putting unemployed resources to work. ALL THE CHOICES ARE CORRECT

When government expenditures in a given year exceed revenues there exits

A budget deficit

If aggregate demand shifts from AD2 to AD4

Both output and price level will rise

Supply side economist believe that, in general...

By lowering tax rates we can raise tax revenue

How did Keynes think that we could get out of the Great Depression?

By spending

The main job of the Fed is

Control the growth rate of the money supply

Recently there has been high unemployment in the steel industry due to a recession. What type of unemployment is the steel industry experiencing?

Cyclical unemployment

Theoretically monetary and fiscal policy have...

Different means to the same goals

A person who has not worked in six months and has given up looking for work is officially classified as...

Discouraged

As the economy contracts, tax revenues _________ and transfer payments ______________.

Fall; rise

Classical economics was based on the belief that...

Full employment was the natural state of the economy and that government should not interfere with private market forces of supply and demand.

Which of the following is not part of M1? -Dolla bills - Demand deposits -Travelers Checks -Gold

Gold

A budget deficit exists when

Government spending exceeds government tax revenue

Each of the following supports the classical theory of employment exceptL - Say's Law - Wage price flexibility - The interest mechanism - Government spending programs

Government spending programs

The longest and least predictable lag affecting the effectiveness of monetary policy is the

Impact lag

Which of the following is true? - To fight a depression, Keynes said that the government should spend money on carefully chosen projects. - According to Keynes, an equilibrium below full employment was a rare occurrence. - Keynes suggested that savers save and investors invest for different reasons. -Keynes believed the economy was basically stable.

Keynes suggested that savers save and investors invest for different reasons

The only school of economics that could be constructed as advocating big government is who?

Keynesian

The classical economists believed in

Laissez-faire

Discretionary fiscal policy entails what?

Legislative changes in spending or tax policies

During recessions who would tend to call for more government spending?

Liberals

During inflationary periods who would tend to call for more taxes?

Liberals (in today's vernacular)

Which is true? M1 is part of M2, but M2 is not part of M3. M1 is not part of M2, but M2 is part of M3. M1 is part of M2, and M2 is part of M3.

M1 is part of M2, and M2 is part of M3

Which statement is true? M1 is larger than M2 M2 is larger than M1 M1 = M2 M1 is sometimes larger and sometimes smaller than M2

M2 is larger than M1

Keyesians tend to believe that

Massive government spending and tax cuts are cures for the recession

What is the main job of money?

Medium of exchange

In general liberlas favor _________ government and conservatives favor ___________ government

More; less

If aggregate demand shifts from AD1 to AD2

Output rises and price level remains the same

According to Slavin, which statement is false? -Foreigners are holding an increasing percentage of national debt. -The national debt rises substantially during war. -Over the next 50 years we will have to pay off most of the national debt - Non of the statements are false.

Over the next 50 years we will have to pay off most of the national debt

Two ways to lower the deficit

Raise taxes and lower government spending

According to Keynesian economic thought, during times of inflation we should

Raise taxes and run budget surpluses

According to most Keynesian economists, budget deficits are appropriate during

Recessions, but not inflations

The vertical portion of the AS curve

Represents the maximum output level for a given time period.

A major advantage of automatic stabilizers is that they

Require no legislative action by Congress to be made effective.

As the interest rate declines the amount of money the public tends to borrow

Rises

Monetary policy is conducted by who?

Solely the federal reserve

To fight depression, Keynes said that the government should...

Spend a lot of money

A song contains the lyrics "These jobs are leaving... and they ain't coming back" is an example of what type of unemployment?

Structural unemployment

The classical economist holds that interest rates are set by

Supply and demand

The main priority of who was lowering taxes?

Supply-siders

A "conservative" economist who advocates an active fiscal policy would recommend...

Tax cuts during recession and reductions in government spending during inflation.

Which of the following is not an example of an automatic stabilizer? -Social Security payments -Unemployment compensation -Tax hikes that enable a balanced budget -Progressive personal income tax rates -Unemployment benefits

Tax hikes that enable a balanced budget

The speculative motive for holding money is what?

The desire to hold money instead of other assets in anticipation of changes in economic conditions

If aggregate demand shifts from AD4 to AD5

The price level will rise and output will remain unchanged

Which statement is true? - The public debt is larger than our GDP - The public debt is the sum of our deficits minus our surpluses over the years since the beginning of the country. - We have had budget deficits only during recession years and wartime -None of these statements are true

The public debt is the sum of our deficits minus our surpluses over the years since the beginning of the country.

To the monetarists, the most important thing was

The rate of growth of the money supply

The discount rate refers to

The rate of interest that the Fed charges on loans to commercial banks and thrift institutions.

When inflation occurs what happens to the value of money?

The value of money decreases

John Maynard Keynes said that people have three motives for holding money. What are they?

Transactions Precautionary Speculative

Classical theory of employment

We will occasionally have some unemployment, but our economy will automatically move back toward full employment.

The classical economist believed that recessions

Would cure themselves

The Keynesian point of view suggests that

demand creates its own supply

The use of government spending and taxation for the purpose of stabilizing the economy is called

fiscal policy