ECON PRACTICE 4 EXAM

The purchasing power of money and the price level vary:

inversely

Changes in bond prices and interest rate changes are:

inversely related.

Contractionary fiscal policy:

is aimed at reducing aggregate demand to control demand-pull inflation.

Which of the following Fed actions will increase the money supply?

lowering the IORB rate

The transactions demand for money is most closely related to money functioning as a:

medium of exchange.

Open-market operations refer to:

the purchase or sale of government securities by the Federal Reserve.

Anything that increases the government's budget deficit (or reduces its budget surplus) during a recession and increases its budget surplus (or reduces its budget deficit) during an expansion without requiring explicit action by policymakers is called what?

A built-in stabilizer

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the:

Federal Open Market Committee (FOMC).

Which of the following best describes the effects of an expansionary (accommodative) monetary policy?

Lower interest rates will increase investment spending, aggregate demand and GDP in order to fight recession and unemployment.

Which of the following statements is true?

The Federal Reserve does not set the federal funds rate, but it influences it through changes in its administered rates (discount rate, IORB rate, and ON RRP rate).

Expansionary fiscal policy involves:

a decrease in taxes.

When economists say that money serves as a medium of exchange, they mean that it is:

a means of payment.

A $1 increase in government spending will have a greater impact on the equilibrium GDP than will a $1 decrease in taxes because:

a portion of any tax cut will be saved.

If you are estimating your total expenses for school next semester, you are using money primarily as:

a unit of account.

The U.S. federal debt:

consists of the historical accumulation of all past federal deficits.

Discretionary fiscal policy refers to:

deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability.

The interest rate that banks charge one another on overnight loans of currency held on deposit at the Fed is called the:

federal funds rate.

A budget deficit is defined as:

the amount by which total expenditures exceed total revenue in a given year.

The sale of government securities by the Fed will cause:

the money supply to decrease.

The asset demand for money:

varies inversely with the rate of interest.