Econ Exam 3

Traditionally, government has used _____________ to influence _____________.

. taxing and spending; the demand side of the economy

A commercial bank creates money when it does all the following except ______

A. decreases its excess reserves B. makes loans C. creates deposits D. puts cash in its ATMs Answer: D Currency inside of a bank is not money, regardless of whether the currency is in a teller's till or is in an ATM.

The Fed's policy tools include all the following except _______.

A. required reserve ratio and open market operations B. quantitative easing C. discount rate D. taxing banks' deposits at the Fed Answer: D Answer D is not a Fed policy tool.

Rick withdraws $500 from his savings account, keeps $100 as currency, and deposits $400 in his checking account.

M1 increases by $500 and M2 does not change.

The federal government's major outlay in its budget is_______ and its major source of revenue is _______.

Social Security and other benefits; personal income taxes

If the economy is at full employment and the Fed increases the quantity of money, _______.

aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise

When potential GDP increases, _______.

aggregate supply increases

Needs-tested spending is _______ fiscal policy because it _______.

automatic; increases in recession and decreases in expansion

Starting from full-employment equilibrium, an increase in aggregate demand

causes an inflationary gap.

An increase in expected future income increases ________.

consumption expenditure, which increases current aggregate demand

An increase in taxes combined with a decrease in government purchases would

decrease AD.

An economic bust or severe downturn in the Japanese economy will likely result in a(n)

decrease in U.S. exports and U.S. aggregate demand

Deficit reduction will tend to

decrease real output in the short run, but increase real output in the long run.

Contractionary fiscal policy consists of

decreased government spending and increased taxes.

The money multiplier ______

decreases if banks increase their desired reserve ratio

When taxes are increased, disposable income _____________, and hence consumption _____________

decreases; decreases

Macroeconomic equilibrium occurs when the quantity of real GDP _______ equals the quantity of _______.

demanded; real GDP supplied

A government expenditure multiplier _______.

exceeds 1

A commodity or token is money if it is ________.

generally accepted as means of payment

. A massive increase in interstate highway construction will affect aggregate demand through which sector?

government purchases, increase

Budget deficits are created when

government spending exceeds its tax revenues.

In the short run, expansionary fiscal policy can cause a rise in real GDP

in combination with a rise in the price level.

If our exports of final goods and services increase more than our imports, other things being equal, aggregate demand will (X-M) (2-3) = -1 (4-4) = 0

increase

Consumption ______________ with any ___________________.

increases, increase in income

U.S. national debt _______ when the federal government's _______

increases; outlays exceed tax revenue

When government debt is financed internally, future generations will

inherit higher taxes

A reduction in personal income taxes, other things being equal, will

leave consumers with more disposable income. (Income after taxes) increase aggregate demand

Commercial banks' assets include ________.

loans to individuals and businesses and government securities

Discretionary fiscal policy to stimulate the economy includes _______

lowering the tax rate paid by households with middle incomes

Automatic fiscal policy _______

operates as the economy moves along its business cycle

An open market _______ of $100 million of securities ______.

purchase; increases bank reserves

Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a _______.

rising price level and demand-pull inflation

Investment (I) includes

the amount spent on new factories and machinery.

Money in the United States today includes _______

the currency in people's wallets, stores' tills, and the bank deposits that people and businesses own

If U.S. budget deficits (which require the borrowing of funds) raise interest rates and attract investment funds from abroad,

the foreign exchange value of the dollar will appreciate, and U.S. net exports will decrease.

Aggregate supply increases when ________.

the money wage rate falls

The quantity of real GDP demanded increases if _______

the price level falls