Joey's handy dandy econ final study guide part 3, Ch. 16-17

A stronger euro is less favorable for:

American tourists traveling in France.

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

Social Security payments are a form of __ and available to __

Automatic stabilizers; current retirees using funds from current contributions

If the U.S. Congress passes legislation to raise taxes to control inflation, what kind of policy is this?

Contractionary fiscal policy

Who would demand U.S. dollars in the foreign exchange market?

Foreigners wishing to purchase U.S goods and services (Learning Objective: Define "foreign exchange market")

What causes the "crowding-out effect"?

Government borrowing and spending (Learning Objective: Understand how fiscal policy and monetary policy are interconnected)

To maintain a balanced budget during a recession, what should the government do?

Increase taxes, decrease transfer payments, and/or decrease government spending. (Learning Objective: Describe how the federal government can use discretionary fiscal policy to stabilize the economy)

If the yen appreciates in value, then:

It is more expensive for Americans to buy Japanese products but cheaper for Japanese to buy American goods. (Explain how appreciating or depreciating currency affects exchange rates)

How is the value of a fixed exchange rate determined?

It is set by official government policy. (Learning Objective: Differentiate among a floating exchange rate, a soft peg, a hard peg, and a merged currency)

Which of the following is a TRUE statement about arguments for and against requiring a balanced federal budget in the U.S.?

One argument against a required balanced federal budget is that sometimes it is necessary or beneficial to run large budget deficits in the short-run. (Learning Objective: Understand the arguments for and against requiring the U.S. federal budget to be balanced)

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

Who prepares and passes the federal budget?

The President and Congress

What does a declining national debt indicate?

The government is receiving more money in taxes than it spends in a year. (Learning Objective: Explain the U.S. federal budget in terms of annual debt and accumulated debt)

What do goods like gasoline, tobacco, and alcohol typically share in common?

They are all subject to government excise taxes.

If the U.S. dollar weakens, which of the following parties will benefit?

U.S firms selling in Europe

The most commonly traded currency in foreign exchange markets is the:

U.S. dollar.

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.

contractionary

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

The _____________________________ is the largest market in the world economy.

foreign exchange market

If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase or decrease

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

progressive tax

A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.

proportional tax

If South Dakota's governor reports a budget surplus in 2011, that state government likely:

received more in taxes than it spent in that year.

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is

regressive

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

shorter than

U.S. firms and households wishing to invest in stocks in a German company are ___ in the foreign exchange market

suppliers of U.S. dollars (Learning Objective: Explain supply and demand for exchange rates)

Chinese firms wishing to purchase American goods and services are ___ in the foreign exchange market.

suppliers of yuan (Learning Objective: Explain supply and demand for exchange rates)

If a nation merges its currency with another nation to create a single currency, what must it give up?

the ability to determine its own nationally-oriented monetary policy

When Mataeo buys Euros through _________________________, he will use his U.S. dollars to pay for them.

the foreign exchange market

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

weakening; less

Which of the following groups would NOT participate in the foreign exchange market?

Canadian parents purchasing children's toys that were manufactured in China. (This group would not be participating in the foreign exchange market, which involves using one currency to purchase another. In this case, parents may be the beneficiaries of the system, but they are not direct participants.)

How can a budget deficit be reduced?

Decreasing government spending and/or increasing taxes (Learning Objective: Describe how the federal government can use discretionary fiscal policy to stabilize the economy)

Examine the following policies and determine which would decrease the level of aggregate demand.

Decreasing in government spending and increasing in taxes (Learning Objective: Explain how contractionary fiscal policy can shift aggregate demand and influence the economy)

How is the value of a flexible exchange rate determined?

Determined by demand and supply in the foreign exchange market (Learning Objective: Differentiate among a floating exchange rate, a soft peg, a hard peg, and a merged currency)

If the euro appreciates relative to the U.S. dollar, then:

The dollar will depreciate relative to the euro (Learning Objective: Explain how appreciating or depreciating currency affects exchange rates)

The _____________ is an example of a large-scale common currency.

euro

People or firms use one currency to purchase another currency at the

foreign exchange market

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

swings in exchange rates

Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.

taking a management responsibility