economics final
What is the correct order of the following events in a typical expansionary monetary policy process?
1. Short-term interest rates fall 2. Long-term interest rates fall 3. Consumption and Investment rise 4. Labor demand curve shifts to the right
fiscal policy
Government policy that attempts to manage the economy by controlling taxing and spending.
Which of these statements about interest rates and inflation is true?
If there is zero inflation, the nominal interest rate is equal to the real interest rate
What does the Taylor rule do?
It links the Fed's long-run target for the federal funds rate to specific economic variables
Who used the concepts of animal spirits and sentiment to explain economic fluctuations?
John Maynard Keynes
What are the three functions that money serves in an economy?
Medium of exchange, store of value and unit of account
However, government programs can suffer from?
Policy waste and lags
The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the
Quantity theory of money
What are the automatic and discretionary components of fiscal policy?
The automatic components do not require deliberate action on the part of the government, while the discretionary components do.
What does it mean to say that an economic fluctuation involves the co-movement of many aggregate macroeconomic variables?
These variables grow or contract together during booms and recessions.
Why do policymakers generally prefer to target low levels of inflation (e.g., 2 percent) rather than zero inflation?
To limit the possibility of deflation.
Velocity is defined as
V = (P x Q) / M
Hyperinflation
a doubling of the price level within three years.
The multiplier is:
an economic mechanism that causes an initial shock to be amplified by follow-on effects.
If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct a
an open market sale of bonds
What are economic expansions?
are defined as the periods between recessions
Quantative theory of money
assumes that the ratio of money supply to nominal GDP is exactly constant.
When do economic expansions start?
at the end of one recession and continues until the start of the next recession.
federal funds rate is the rate?
at which banks lend to each other.
An increase in government spending causes private spending to fall. What phenomenon is described in this particular situation?
crowding out
A sustained decrease in the average level of prices and wages in the economy is
deflation
tax multiplier equals the change in?
equilibrium GDP divided by the change in taxes.
What does crowding out mean
government borrowing causes private investment and consumption to decrease
Fiat money
has no intrinsic value
what does real business theory do?
it emphasizes the role of changing productivity and technology in causing economic fluctuations.
The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of
m1
Credit cards are
not part of the money supply
What does the national income identity show?
output is a function of consumption, investment, government spending, and net exports.
According to the quantity theory of money, the growth rate of money supply equals
the growth rate of nominal GDP
What is inflation?
the growth rate of the overall price level in the economy.
What are economic fluctuations?
short-run changes in the growth of GDP.
