ECON 2101 Test 4 Review

What is a banking panic

A situation in which many banks experience runs at the same time

Fiscal policy refers to changes in

Federal taxes and purchases that are intended to achieve macroeconomic policy objectives

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase

Government purchases

Congress and the President carry out fiscal policy through changes in

Government purchases and taxes

The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of __________, it also can achieve the goal of _____________ simultaneously

High employment, economic growth

Which one of the following is NOT one of the monetary policy goals of the fed?

Reduce Income inequality

The Federal Reserve's two main monetary policy targets are

The money supply and Interests rates

Which of these variables are the main monetary policy targets of the fed

The money supply and the interest rate

The federal government debt equals

The total value of US treasury bonds outstanding

What is the Fed's "dual mandate"

The two most important goals of the Fed are maintain price stability and high employment, stated in the Employment Act of 1946

The largest and fastest - growing category of federal government expenditures is

Transfer payments

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is _______ so the quantity of money demanded will ________

low; high

Changes in taxes and spending that happen without actions by the government are called

Automatic stabilizers

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

The increase in the amount the government collects in taxes when the economy expands and the decrease in taxes when the economy expands and the decrease in the government collects in taxes when the economy goes into a recession is an example of

Automatic stabilizers

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

Decrease

An increase in individual income taxes _________ disposable income, which ________ consumption spending

Decreases, Decreases

Monetary Policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives

The Federal Reserve's four goals of monetary policy are

Price stability, high employment, economic growth, and stability of financial markets and institutions

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac

Sell bonds to investors and use the funds to purchase mortgages from banks

Government transfer payments include which of following

Social Security and Medicare programs

Government transfer payments include which of the following

Social security and Medicare programs

How does the Fed act to help prevent banking panics

The Fed acts as a lender of last resort, making loans to banks so that they can pay off depositors

Which of the following would be classified as fiscal policy

The federal government cuts taxes stimulate the economy

For the federal deficit to be lowered

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

For the federal deficit to be lowered

The federal governments expenditures must be lower than its tax revenue

If the price level decreases

The money demand curve shifts to the left

If real GDP increases

The money demand curve shifts to the right

An increase in the interest rate causes

A movement up along the curve

The federal funds rate is

The interest rate that banks charge each other for overnight loans

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

federal funds rate

Which of the following is one of the monetary policy goals of the Federal Reserve?

Price stability

Contractionary Monetary Policy on the part of the Fed results in

A decrease in money supply, an increase in Interest Rates and a decrease in GDP

If the government cuts taxes in order to increase aggregate demand, the action is called

A discretionary fiscal policy

To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the

Budget deficit or surplus as a percentage of GDP

Who carries out fiscal policy

Congress and the President

Expansionary monetary policy refers to the _________ to increase real GDP

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

Which of the following would be classified as fiscal policy

Federal taxes and purchases that are intended to achieve macroeconomic policy objectives

An increase in government purchases will increase aggregate demand because

Government expenditures are a component of aggregate demand

An increase in government purchases will increase aggregate demand because:

Government expenditures are component of AD (aggregate demand)

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy the economy back to long-run aggregate supply? an increase in

Government purchases

Which of the following is an objective of fiscal policy

High rates of economic growth

Using the money demand and money supply model, an increase in money demand would

Increase

An increase in the interest rate

Increases the opportunity cost of holding money

Expansionary Fiscal policy involves

Increasing government purchases or decreasing taxes

Expansionary fiscal policy involves

Increasing government purchases or decreasing taxes

The Fed uses policy targets of interest rate and/or money supply because

It can affect the interest rate and money supply directly and these in turn can affect unemployment, GDP growth, and the price level

What do economist mean by the demand for money

It is the amount of money - currency and checking account deposits - that individuals hold

Which of the following would NOT be considered an automatic stabilizer?

Legislation increasing funding for job retraining passed during a recession

Which of the following would not be considered an automatic stabilizer?

Legislation increasing funding for job retraining passed during a recession

What is the advantage of holding money

Money can be used to buy goods, services, or financial assets

An increase in real GDP can shift

Money demand to the right and increase the equilibrium interest rate

What is the disadvantage of holding money

Money, in the form of currency or checking account deposits, earns either no interest or a very low rate of interest

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

decrease; rise; fall