Econ 218 Test 3

To reduce inflation in response to a negative real shock, the Federal Reserve would

decrease the money growth rate, which would lower both the inflation rate and economic growth rate.

The long-run aggregate supply curve shows that long-run economic growth:

does not depend on the rate of inflation.

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.

In the equation , what does stand for?

inflation

The Federal Reserve acquires its unique powers through its ability to:

issue money

The Federal Reserve acquires its exclusive powers through its ability to

issue money.

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

marginal tax rate

In the AD-AS model, money is not neutral in the short run if:

wages and prices are sticky.

Which is TRUE of the structure of the Fed?

All seven members of the Board of Governors are appointed by the President.

In a recession, automatic stabilizers cause:

a decrease in tax revenues and an increase in government spending.

According to the text, the consensus about the effects of the 2009 fiscal stimulus was that:

a lot of the tax cuts did not turn into consumer spending.

Other things equal, which will result in a larger stimulus, a temporary investment tax rebate or a permanent investment tax rebate?

a temporary investment tax rebate

Suppose the Fed reacts to an economic shock and quickly restores the economy to its long-run potential growth rate. It is most likely that this shock was:

an aggregate demand shock.

When the government conducts fiscal policy, it makes up for a decrease in "C" with:

an increase in "G"

A potential problem with expansionary monetary policy is that banks can:

be unwilling to lend.

(Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Second National Bank can make if it holds only the required reserves?

$338,560

The two lowest marginal tax brackets in the United States are:

10% and 15%.

In which year did the United States have the highest debt-to-GDP ratio

1946

Households in the bottom 20% of the income distribution pay approximately what percent of their income in federal taxes?

4.3%

U.S. government spending on Social Security, defense, Medicare, and Medicaid makes up approximately _____ of federal government spending.

66%

A negative shock to AD will cause the inflation rate to increase in:

neither the short run nor the long run

The housing boom of the 2000s caused a

positive aggregate demand shock

An aggregate demand shock is a:

rapid and unexpected shift in spending

In the AD-AS model, represents the

rate of money supply growth

What part of the money pyramid does the Fed have direct control over?

the monetary base