MACRO TEST 4 REVIEW 15/16

Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to..

increase.

_____________ is considered contractionary fiscal policy.

Congress increases the income tax rate

Expansionary monetary policy refers to the ___________ to increase real GDP

Federal Reserve's increasing the money supply and decreasing interest rates.

_____________ will lead to a decrease in the equilibrium interest rate in the economy?

a decrease in GDP

Which of the following would cause the money demand curve to shift to the left?

a decrease in real GDP.

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of..

automatic stabilizers

Which of the following will lead to a decrease in the equilibrium interest rate in the economy? a.) an increase in the price level. b.) an increase in the discount rate. c.) a decrease in GDP d.) a sale of government securities by the Fed. e.) an increase in the reserve requirement.

c.) a decrease in GDP

Using the money demand and money supply model, an open market purchase of Treasury securities by the Fed would cause the equilibrium interest rate to

decrease.

An economic expansion tends to cause the federal budget deficit to _____ because tax revenues _____ and government spending on transfer payments _____.

decrease; rise; fall.

The interest rate that banks charge other banks for overnight loans is the

federal funds rate.

Congress and the president carry out fiscal policy through changes in _______

government purchases and taxes.

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively _____ and real GDP to be relatively _____.

higher; higher

Using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to..

increase.

An increase in the interest rate:

increases the opportunity cost of holding money.

The money demand curve has a

negative slope because an increase in the interest rate decreases the quantity of money demanded.

To reassure investors who were unwilling to buy mortgages in the secondary market, the US congress used 2 government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant Mortgages, Frannie Mae and Freddie Mac

sell bonds to investors and use the funds to purchase mortgages from banks.

The Fed can increase the federal funds rate by

selling Treasury bills, which decreases bank reserves.

By the height of the housing bubble in 2005 and early 2006, lenders had greatly loosened the standards for obtaining a mortgage loan, issuing many mortgages requiring very small down payments to ____ borrowers and ___ borrowers who stated—but did not document—their incomes.

sub-prime; "Alt-A"

For the federal deficit to be lowered,

the federal government's expenditures must be lower than its tax revenue.

The monetary policy target the Fed focuses primarily on today is..

the interest rate.

The Federal Reserve's two main monetary policy targets are:

the money supply and interest rates.

The federal government debt equals..

the total value of US Treasury bonds outstanding.

The Fed's four monetary policy goals are..

- Price Stability - High Employment - Economic Growth - Stability of Financial markets and institutions.