ECON HW 5/6- AFTER EXAM 2

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automatic stabilizer

a tool of fiscal policy that increases or decreases automatically depending on changes in GDP and personal income

monetary base is called high-powered money because each unit of the base that is issued leads to the creation of more money.

is called high-powered money because each unit of the base that is issued leads to the creation of more money.

monetary policy

managing the economy by altering the supply of money and interest rates not so easy because of lags in the effect of policy (impact lag) and uncertainty about the state of the economy (recognition lag), economic models, and expectations fairly long time for changes in monetary policy to have an impact on the economy- Interest rates change quickly, but output and inflation barely respond in the first four months after the change in money growth

primary government budget deficit

primary government budget deficit, which excludes net interest payments a measure of the deficit that excludes government interest payments from total outlays; equal to government purchases of goods and services plus transfers minus tax revenues primary deficits= outlays - net interest - tax revenues = gov. purchases + transfers - tax reveneues =(G+TR)- TR total deficit tells the amount the government must borrow to cover all its expenditures - The primary deficit tells if the government's receipts are enough to cover its current purchases and transfers - The primary deficit ignores interest payments, because those are payments for past government spending current deficit and primary current deficit usually move together over time

Suppose the deficit-to-GDP ratio is −0.01, the change in the debt-to-GDP ratio is −0.028, and the growth rate of nominal GDP is 0.03. Part 2 Then the debt-to-GDP ratio is enter your response here. (Report your answer rounded to two decimal places.) Suppose the growth rate of nominal GDP were to change to 0.00. Part 4 Then the change in the debt-to-GDP ratio would change to enter your response here. (Report your answer rounded to three decimal places.)

-.028= -.01 - ( total debt/ nominal GDP x .03) =.6 Then the change in the debt-to-GDP ratio would change to −.01 Note that slower growth of GDP leads to a larger increase (or smaller decrease) in the debt-to-GDP ratio.

For a given real exchange rate, how are a country's net exports affected by an increase in foreign income? Part 4 A. An increase in foreign income leads foreigners to buy more goods, including exported goods, so net exports increase. Your answer is correct. B. An increase in foreign income leads foreigners to buy fewer goods, including exported goods, so net exports decline. C. An increase in foreign income leads people to buy more goods, including imported goods, so net exports decline. D. An increase in foreign income leads people to buy fewer goods, including imported goods, so net exports increase.

. An increase in foreign income leads foreigners to buy more goods, including exported goods, so net exports increase.

1.) The U.S. government's 2009 stimulus package was heavily weighted toward government expenditures, and its projected impact sparked much debate between Keynesian and classical economists. 2.) In the context of the standard IS-LM model, Keynesians disagreed with classical economists and projected that the stimulus package would yield a relatively __________ increase in output due to the __________ of prices in the short run. A. small; inflexibility B. large; inflexibility Your answer is correct. C. small; flexibility D. large; flexibility Part 4 3.) Because the classical version of the IS-LM model envisioned a wealth effect, it ended up concurring with the Keynesian version that temporary increases in government spending would lead to higher output. Part 5 4.) The latest research regarding the size of the government spending multiplier suggests the multiplier is greatest when the economy is A. in recession and the zero lower bound constrains monetary policy. Your answer is correct. B. expanding and the zero lower bound constrains monetary policy. C. expanding and the zero lower bound is not constraining monetary policy. D. in recession and the zero lower bound is not constraining monetary policy.

1) Government expenditures & much 2) B. Large; inflexibility 3) wealth effect 4) A. in recession and the zero lower bound constrains monetary policy.

In the economy, the following statistics describe the money supply: CU = $750 billion RES = $50 billion DEP = $1,500 billion Part 2 Given these data, calculate the amount of the monetary base: BASE = $800800 billion Part 3 Calculate the quantity of the money supply: M = $22502250 billion Part 4 Calculate the ratio of reserves to deposits: res = . 0333.0333 (carry out to four decimals) Part 5 Calculate the ratio of currency to deposits: cu = . 5.5 (carry out to four decimals) Part 6 Calculate the money multiplier: mm = 2.81272.8127 (carry out to four decimals) Part 7 Now, suppose a shock causes banks to change the amount of reserves they hold relative to deposits, so that res changes from 0.0333 to 0.0366. Suppose that when this happens, both cu and BASE do not change. However, the change in res will affect mm, M, CU, RES, and DEP. Calculate the new value of the money multiplier: mm = 2.79542.7954 (carry out to four decimals) Part 8 Now, calculate the new value of the money supply: M = $2236.322236.32 billion Part 9 Very challenging: Calculate the new amount of bank deposits: DEP = $enter your response here billion

1. BASE=CU+RES 2. M=CU+DEP 3. .res= RES/DEP 4. CU= CU/DEP 5. mm= (cu+1)/(cu+res) 6. mm=(cu+1)/(cu+res) 7.M=mm x BASE 8.res= RES/DEPcu=CU/DEPBASE=cu+res 9. CU=.6667(1522)10.$84RES= .0556(1522)

For a given real exchange rate, how are a country's net exports affected by an increase in domestic income? Part 2 A. An increase in domestic income leads people to buy more goods, including imported goods, so net exports decline. B. An increase in domestic income leads foreigners to buy more goods, including exported goods, so net exports increase. C. An increase in domestic income leads people to buy fewer goods, including imported goods, so net exports increase. D. An increase in domestic income leads foreigners to buy fewer goods, including exported goods, so net exports decline.

A. An increase in domestic income leads people to buy more goods, including imported goods, so net exports decline.

ne reason that PPP may not hold for Big Macs across the world is that Part 2 A. Big Macs are not exactly the same product around the world. Your answer is correct. B. The patent on Big Macs was stolen by other firms in other countries. C. McDonald's is a different company in different countries. One reason that PPP may not hold directly, but only after adjusting for differences in per-capita GDP, is that Part 4 A. richer countries can afford to pay more for a Big Mac than poorer countries. B. people in poorer countries value Big Macs more, so McDonald's charges them more. C. wages paid to McDonald's workers vary with the country's GDP per capita.

A. Big Macs are not exactly the same product around the world. C. wages paid to McDonald's workers vary with the country's GDP per capita.

A.The program has very bad incentive effects, because the marginal tax rate for any income earned below $10,000 is 100%.

How does the monetary base differ from the money supply? A. The monetary base is equal to all money held in banks. B. The monetary base is zero, because the reserve ratio is zero. C. The monetary base equals the money supply. D. The money supply equals the monetary base times the money multiplier.

D. The money supply equals the monetary base times the money multiplier.

Which system is better may thus depend on the circumstances If large benefits can be gained from increased trade and integration, and when countries can coordinate their monetary policies closely, then fixed exchange rates may be desirable Countries that value having independent monetary policies, either because they face different macroeconomic shocks or hold different views about the costs of unemployment and inflation than other countries, should have a floating exchange rate

If large benefits can be gained from increased trade and integration, and when countries can coordinate their monetary policies closely, then fixed exchange rates may be desirable Countries that value having independent monetary policies, either because they face different macroeconomic shocks or hold different views about the costs of unemployment and inflation than other countries, should have a floating exchange rate

Incentive effects of fiscal policy

Incentive effects of fiscal policy - Average versus marginal tax rates Average tax rate = total taxes / pretax income Marginal tax rate = taxes due from an additional dollar of income

Inflation targeting-

Inflation targeting - Under inflation targeting, the central bank announces targets for inflation over the next 1 to 4 years - The major disadvantage of inflation targeting is that inflation responds to policy actions with a long lag, so it is hard to judge what policy actions are needed to hit the inflation target and hard for the public to tell if the central bank is doing the right thing, so central banks may miss their targets badly, losing credibility Fed uses several strategies associated with inflation targeting, including providing forecasts to the public

Targeting the federal funds rate

Rate charged by banks on overnight loans Targeted by the Federal Reserve through the discount rate and open market operations Correlated with consumer and business interest rates Changes in the money supply change the interest rate (price of money) The Fed can influence interest rates only by actively entering the market for federal government securities -A rightward or leftward shift in the demand curve for reserves -Lead the central bank to shift the supply curve of reserves so that the federal rate does not change -With the result that non-borrowed reserves fluctuate

Rules v. Discretion

Monetarists and classical macroeconomists advocate the use of rules- Rules make monetary policy automatic, as they require the central bank to set policy based on a set of simple, pre-specified, and publicly announced rules New arguments for rules suggest that rules are valuable even if the central bank has a lot of information and forms policy wiselyThe new arguments suggest that rules improve the credibility of the central bankThe credibility of the central bank influences how well monetary policy works Keynesian economists support discretion- Discretion means the central bank looks at all the information about the economy and uses its judgment as to the best course of policy- Discretion gives the central bank the freedom to stimulate or contract the economy when needed; it is thus called activist- Since discretion gives the central bank leeway to act, while rules constrain its behavior, Keynesians argue that there may be a trade-off between credibility and flexibility- To be credible, a rule must be nearly impossible to change- But if a rule cannot be changed, what happens in a crisis situation?

Question content area Part 1 The money supply is $6,000,000 currency held by the public is $1,000,000, and the reserve-deposit ratio is 0.050. Using the above information, determine Deposits: $5,000,0005,000,000 Part 2 Bank reserves: $250,000250,000 Part 3 Monetary base: $12500001250000 Part 4 Money multiplier: 4.84.8 (enter your response rounded to two decimal places). Part 5 In a different economy, vault cash is $1,200,000, deposits by depository institutions at the central bank are $5,000,000, the monetary base is $11,000,000, and bank deposits are $18,000,000. Using the above information, determine Bank reserves: $6,200,0006,200,000 Part 6 Currency held by the public: $48000004800000 Part 7 Money supply: $2280000022800000 Part 8 Money multiplier: 2.072.07 (round to two decimal places)

Money = currency held by the public + deposits deposits= money - currency held by public reserves = reserve ratio x deposits monetary base= currency held by the public = reserves monetary multipler mm: cu= .2 (CU/DEP) res= RES/DEP =.05 mm=(cu+1)/(cu+res)= .2+1/.2+.05= 1.2/.25=4.8 reservers = value cash= deposits by instiituion monetary base = currency + reserves currency= MB- R Money supply= currency + deposits money multipler= money supply/ monetary base m1/B =mm= 2.07

Describe how a recession in one country may be transmitted to other countries. Part 4 A. A recession in one country reduces the money supply of other countries, shifting their LM curves up and to the left. B. A recession in one country increases the net exports of other countries, shifting their IS curves down and to the left. C. A recession in one country reduces the net exports of other countries, shifting their IS curves down and to the left. D. A recession in one country increases the money supply of other countries, shifting their LM curves up and to the left.

Option C is correct answer, A recession in one country reduces the net exports of other countries, shifting their IS curves down and to the left and transmitt recession in other country also

Laffer curve

Overall, it appears that the U.S. economy was on the left side of the Laffer curve A relationship between the tax rates and tax revenues that illustrates that high tax rates could lead to lower tax revenues if economic activity is severely discouraged.

A government will have a primary current deficit that is smaller than its primary deficit if government investment is positive

TRUE - graph- primary current def is like always under current def

The monetary base equals

The Federal Reserve's balance sheet and open-market operations - The monetary base equals banks' reserves plus currency held by the nonbank public

Monetary Policy in the Great Recession-

The Zero Lower Bound The Fed expanded the amount of assets it held, engaging in quantitative easing - Buying long-term Treasury securities was designed to reduce long-term interest rates - Buying securities from Fannie Mae and Freddie Mac was designed to support the housing market

money multiplier during severe financial crises

The money multiplier during the Great Depression - The money multiplier is usually fairly stable, but it fell sharply in the Great Depression- The decline in the multiplier was due to bank panics, which affected the multiplier in two ways- People became mistrustful of banks and increased the currency-deposit ratio ( - Banks held more reserves, in anticipation of bank runs, which raised the reserve-deposit ratio money multiplier during the financial crisis of 2008- The worldwide financial panic in fall 2008 caused the money multiplier to decline sharply, especially because of a sharp rise in the reserve-deposit ratio

The international transmission of business cycles- What would be the effect on Japan of a recession in the United States? The decline in U.S. output would reduce demand for Japanese exports, shifting the Japanese I S curve down and to the left In a Keynesian model, or in the classical misperceptions model, this leads to recession in Japan In a classical (R B C) model, the decline in net exports wouldn't affect Japanese output- A similar effect could occur because of a shift in preferences (or trade restrictions) for Japanese goods

The decline in U.S. output would reduce demand for Japanese exports, shifting the Japanese I S curve down and to the left In a Keynesian model, or in the classical misperceptions model, this leads to recession in Japan In a classical (R B C) model, the decline in net exports wouldn't affect Japanese output- A similar effect could occur because of a shift in preferences (or trade restrictions) for Japanese goods

The growth of the government debt

The growth of the government debt - The deficit is the difference between expenditures and revenues in any fiscal year - The debt is the total value of outstanding government bonds on a given date - The deficit is the change in the debt in a year ΔB = nominal government budget deficit (15.3) B = nominal value of government bonds outstanding Change in debt-G D P ratio = [deficit/nominal G D P] - [(total debt/nominal G D P) × growth rate of nominal G D P] - So two things cause the debt -G D P ratio to rise A high deficit relative to G D PA slow rate of G D P growth

central bank credibility

achieve central bank credibility besides targeting money growth or inflation- Increasing the central bank's reputation as an inflation fighter The central bank could improve its reputation by establishing inflation goals and meeting them Increasing central bank independence The Level of belief and trust the public has for the central bank. High credibility helps the economy

In theory, the effect on the money supply would be ambiguous . But, in practice, the money supply fell as a result of the changes in the monetary base and multiplier.

ambiguous, fell

the rate at which two currencies can be traded is the nominal exchange rate between the two currencies.

between two currencies, , is the number of units of foreign currency that can be purchased with one unit of the domestic currency.

27)Suppose the money supply was $350 million last year, and increases to $380 million this year. The price level equals 1.10. How much did the government earn in seignorage last year, if the economy is an all currency economy with constant real output and real interest rate, and a constant rate of money growth and inflation? $2727 million (Round to the nearest million dollars.) Part 2 If the price level was 1.60 instead, how much did the government earn in seignorage? $1919 million (Round to the nearest million dollars.)

https://www.chegg.com/homework-help/questions-and-answers/suppose-money-supply-350-million-last-year-increases-380-million-year-price-level-equals-1-q28214018 Seigniorage is expressed as change in Money supply/money supply x money supply/price = (380 M - 350 M)/350 M * (350 M/1.10) = 27 million dollars In case the price level is 1.60, the revenue earned is (380 M - 350 M)/350 M * (350 M/1.60) = 18.75 million = 19 million dollars approximately

Taylor rule

in the 1960s and 1970s when the Fed set the federal funds rate below the rule's suggestion inflation rose; when the Fed set the federal funds rate fairly close to the rule's suggestion in the 1990s, inflation was stable A rule developed by John Taylor that links the Fed's target for the federal funds rate to economic variables

Reserve requirements

the Fed forces banks to hold reserves of about 10% of the value of their transactions deposits (less for small banks)- The Fed could change the money supply by changing reserve requirements but seldom does so because reserve requirements have a large impact on both the money supply and bank profits rules set by the Federal Reserve that determine the required reserve ratio for banks

Automatic stabilizers and the full-employment defic

the full-employment deficit is a measure of what the government budget deficit would be if the economy were at full employment So the full-employment deficit does not change with the business cycle, only with changes in government policy regarding spending and taxation

How would each of the following events affect the U.S. money supply? 1. Banks decide to hold more excess reserves. (Excess reserves are reserves over and above what banks are legally required to hold against deposits.) This would cause ___________ in the money supply. 2. People withdraw cash from their bank accounts for Christmas shopping. This would cause _________ in the money supply. 3. The Federal Reserve sells gold to the public. This would cause ________ in the money supply. 4. The Federal Reserve reduces the interest rate it pays on deposits of depository institutions held at the Fed. This would cause _________ in the money supply .5. A financial crisis leads people to sell many of their stocks and deposit the proceeds in bank accounts, which are federally insured. This would cause ________ in the money supply. 6. The Federal government sells $20 billion of new government bonds to the Federal Reserve. The proceeds of the sale are used to pay government employees. This would cause __________ in the money supply. 7. The Federal Reserve sells some of its government securities in Tokyo for yen. This would cause ___________ in the money supply.

1. a decrease 2. a decrease 3. a decrease 4. an increase 5. an increase 6. an increase 7. no change

What happened to the volatility of the short-term interest rate between 1979 and 1982?A. It increased substantially.B. It stayed about the same.C. It decreased substantially.

A (it increased substantially)

How does the use of inflation targeting improve central bank credibility? A. The public can easily observe whether the central bank has achieved its goals. B. Inflation targeting requires the use of the Taylor rule, which locks in the central bank's credibility. C. Since inflation targeting prevents deflation, the zero bound is ruled out, enhancing the central bank's credibility. D. The public knows that inflation will never rise above its target.

A. The public can easily observe whether the central bank has achieved its goals.

1.) Under a pay-as-you-go system, as described in the article, the payroll taxes paid by today's workers A. pay for the benefits of those receiving benefits today. B. pay interest on loans taken out to pay for workers' future retirement needs. C. are spent on other non-Social Security programs today. D. are set aside for those same workers when they retire. 2.) Which of the following statements accurately represents dates given in the Application box? A. In 2016, Social Security is scheduled to start spending more tax revenue than it takes in. B. The Social Security trust fund is scheduled to be exhausted by 2034. C. In 2034, payouts from Social Security as a percentage of GDP are scheduled to increase sharply. D. In 2021, payouts from Social Security are estimated to exceed tax revenues by about 1.3% of GDP. 3.) One of the possible fixes for Social Security would be an increase in taxes. Which of the following, based on the Application box, is a downside to this method? A. Increases in taxes distort labor supply decisions. B. Increases in taxes could pay for future recipients but not current recipients. C. Increases in taxes would have to be invested in high-risk choices like the stock market. D. None of the above are mentioned in the Application box as a possible downside.

A. pay for the benefits of those receiving benefits today. B. The Social Security trust fund is scheduled to be exhausted by 2034. A. Increases in taxes distort labor supply decisions.

1.) During the Great Depression, A. the currency-deposit ratio rose, the reserve-deposit ratio rose, and the money multiplier fell. B. the currency-deposit ratio rose, the reserve-deposit ratio rose, and the money multiplier rose. C. the currency-deposit ratio fell, the reserve-deposit ratio fell, and the money multiplier fell. D. the currency-deposit ratio fell, the reserve-deposit ratio fell, and the money multiplier rose.

A. the currency-deposit ratio rose, the reserve-deposit ratio rose, and the money multiplier fell.

Which of the following is NOT an example of government capital? Part 2 A. ten-year Treasury bonds B. public hospitals C. roads D. schools Which of the following is NOT an example of government capital? A. ten-year Treasury bonds B. public hospitals C. schools D. roads Which type of government capital does the U.S. government mostly invest in?equipment Which type of government capital do state and local governments mostly invest in? structures

A. ten-year Treasury bonds equipement structures

An automatic stabilizer is a provision in the budget that causes A. government spending to rise or taxes to fall automatically when GDP falls. B. an increase in the money supply automatically when GDP falls. C. government spending to fall or taxes to rise automatically when GDP falls. D. a decrease in the money supply automatically when GDP falls. For proponents of antirecessionary fiscal policies, what advantage do automatic stabilizers have over other types of taxing and spending policies? The advantage of automatic stabilizers over legislated changes in spending and taxes is that they _____, while legislation _____. A. cause the real interest rate to decline; causes the real interest rate to rise B. can be coordinated with monetary policy; cannot be coordinated with monetary policy C. occur quickly; takes a long time to put in place D. take a long time to put in place; occurs quickly

A. government spending to rise or taxes to fall automatically when GDP falls. C. occur quickly; takes a long time to put in place

Automatic stabilizers

Automatic stabilizers and the full-employment deficit Automatic stabilizers cause fiscal policy to be countercyclical by changing government spending or taxes automatically One example is unemployment insurance, which causes transfers to rise in recessions The most important automatic stabilizer = income tax system, since people pay less tax when their incomes are low in recessions, and they pay more tax when their incomes are high in booms

Average versus marginal tax rates

Average versus marginal tax rates Example: Suppose taxes are imposed at a rate of 25% on income over $10,000 - For someone earning less than $10,000, the marginal tax rate and average tax rate are both zero - Anyone earning over $10,000 would have a marginal tax rate of .25 - Someone earning $18,000 would pay ($18,000 - $10,000) × .25 = $2,000 in taxes, so he or she would have an average tax rate of 11.1% - Someone earning $50,000 would pay ($50,000 - $10,000) × .25 = $10,000 in taxes, so he or she would have an average tax rate of 20% - Someone earning $100,000 would pay ($100,000 - $10,000) × .25 = $22,500 in taxes, so he or she would have an average tax rate of 22.5%

average tax rate increases

Average versus marginal tax rates The distinction between average and marginal tax rates affects people's decisions about how much labor to supply - If the average tax rate increases, with the marginal tax rate held constant, a person will increase labor supply - The higher average tax rate causes an income effect - With lower income, a person consumes less and wants less leisure, so he or she works more - The labor supply curve shifts right

Question content area Part 1 What effects does expansionary monetary policy have on the nominal exchange rate in both the short and long run? Part 2 A. In both the short run and the long run, the nominal exchange rate appreciates. B. In both the short run and the long run, the nominal exchange rate depreciates. Your answer is correct. C. In the short run, the nominal exchange rate depreciates, but in the long run, the nominal exchange rate returns to its original level. D. In the short run, the nominal exchange rate appreciates, but in the long run, the nominal exchange rate returns to its original level.

B. In both the short run and the long run, the nominal exchange rate depreciates. Your answer is correct.

What generally happens to both government budget surpluses (as a percent of GDP) in recessions? A. In recessions, the budget surpluses of both Federal and state & local governments generally increase. B. In recessions, the budget surpluses of both Federal and state & local governments generally decrease. Your answer is correct. C. In recessions, the budget surpluses of both Federal and state & local governments generally do not change much compared with expansions. D. In recessions, the budget surpluses of both Federal and state & local governments generally increased prior to the 1980s but decreased after the 1980s. Which level of government has budget surpluses (as a percent of GDP) that are more affected by the business cycle? A. State and local governments B. The Federal government

B. In recessions, the budget surpluses of both Federal and state & local governments generally decrease. B. The Federal government

How would you characterize the movement of the money multiplier from 1995 to 2005? A. It had a generally upward trend. B. It was fairly stable. This is the correct answer. C. It had a generally downward trend. D. It trended up from 1995 to 2000 and trended down from 2000 to 2005. What happened to the money multiplier in the Great Recession? A. It declined very sharply. B. It was fairly stable. C. It rose very sharply. D. It rose moderately. What happened to the currency-to-deposit ratio from 1959 to 1987? A. It generally trended up. B. It was fairly stable. C. It generally trended down. Your answer is correct. D. It was fairly stable from 1959 to 1980, then trended up from 1980 to 1987. Part 7 What happened to the currency-to-deposit ratio from 1988 to 1999? A. It generally trended up. Your answer is correct. B. It was fairly stable from 1959 to 1980, then trended up from 1980 to 1987. C. It generally trended down. D. It was fairly stable. What happened to the reserve-to-deposit ratio between 1959 and 2008? A. It was fairly stable. B. It generally trended down. Your answer is not correct. C. It generally trended up. D. It trended down from 1959 to 1985, then trended up from 1986 to 1993, then trended down from 1993 to 2008. This is the correct answer. Part 10 What happened to the reserve-to-deposit ratio in the Great Recession? A. It declined very sharply. B. It rose very sharply. Your answer is correct. C. It rose moderately. D. It was fairly stable.

B. It was fairly stable. A. It declined very sharply.

A constitutional amendment has been proposed that would force Congress to balance the budget each year (that is, outlays must equal revenues in each year). How would a balanced-budget amendment affect the following, if in the absence of such an amendment the Federal government would run a large deficit? a. The use of automatic stabilizers. A. automatic stabilizers would not be affected at all B. automatic stabilizers would be neutralized C. automatic stabilizers would work even better b. The ability of Congress to "smooth" taxes over time. A. taxes would not be smooth over time, as the government would have to raise taxes when times were good and reduce taxes when times were bad B. tax smoothing would not be affected C. taxes would not be smooth over time, as the government would have to raise taxes when times were bad and reduce taxes when times were good c. The ability of Congress to make capital investments. A. Congress could not borrow for investment, which fails to recognize that capital formation would help future generations B. Congress would have to ask foreign governments to invest in America C. The private sector would efficiently provide all the investment the government needs to undertake

B. automatic stabilizers would be neutralized C. taxes would not be smooth over time, as the government would have to raise taxes when times were bad and reduce taxes when times were good A. Congress could not borrow for investment, which fails to recognize that capital formation would help future generations

Compared with most other OECD countries, how high is the ratio of U.S. government spending to GDP? Part 2 A. the highest of all OECD countries B. lower than most other OECD countries C. about average D. higher than most other OECD countries

B. lower than most other OECD countries

What are the variables that determine the recommended fed funds rate according to the Taylor rule? A. inflation over the past five years, the deviation of output from the level of full-employment output, and the deviation of recent inflation from its target of 2% B. recent inflation, the deviation of output from the level of full-employment output, and the deviation of recent inflation from its target of 2% Your answer is correct. C. inflation over the past five years, the growth rate of output, and the deviation of recent inflation from its target of 2% D. recent inflation, the growth rate of output, and the deviation of recent inflation from its target of 2%

B. recent inflation, the deviation of output from the level of full-employment output, and the deviation of recent inflation from its target of 2% Your answer is correct.

Why is an overvalued currency a problem? A. the central bank will have to reduce the interest rate B. the central bank will have to buy the currency with official reserve assets Your answer is correct. C. the central bank will have to sell the currency and gain official reserve assets D. the central bank will have to impose capital controls

B. the central bank will have to buy the currency with official reserve assets Your answer is correct.

What happened to the volatility of the short-term interest rate after 1982?A. It increased relative to the 1979-to-1982 period.B. It stayed about the same as it was from 1979 to 1982.C. It declined relative to the 1979-to-1982 period.

C (It declined relative to the 1979-to-1982 period)

From about 1960 to the early 1980s, how would you characterize the overall trend in Federal government expenditures as a percent of GDP? A. Federal government expenditures as a percent of GDP were generally stable from 1960 to the early 1980s. B. Federal government expenditures as a percent of GDP generally increased from 1960 to about 1970, then generally decreased from about 1970s to the early 1980s. Your answer is not correct. C. Federal government expenditures as a percent of GDP generally increased from 1960 to the early 1980s. This is the correct answer. D. Federal government expenditures as a percent of GDP generally decreased from 1960 to the early 1980s. What was the general trend in Federal receipts from 2000 to 2009? A. Federal receipts were generally stable from 2000 to 2009. B. Federal receipts generally increased from 2000 to 2005 and decreased from 2005 to 2009. C. Federal receipts generally decreased from 2000 to 2009. D. Federal receipts generally increased from 2000 to 2009. What happened to both state and local government expenditures and receipts as a percent of GDP from 1950 to 2009? A. Both state and local government expenditures and receipts as a percent of GDP were generally stable from 1950 to 2009. B. Both state and local government expenditures and receipts as a percent of GDP generally trended down from 1950 to 2009. C. Both state and local government expenditures and receipts as a percent of GDP generally trended up from 1950 to 1980 and generally trended down from 1980 to 2009. D. Both state and local government expenditures and receipts as a percent of GDP generally trended up from 1950 to 2009. Which level of government runs larger overall deficits as a percent of GDP? A. State and local governments B. Federal government

C. Federal government expenditures as a percent of GDP generally increased from 1960 to the early 1980s. This is the correct answer. C. Federal receipts generally decreased from 2000 to 2009. D. Both state and local government expenditures and receipts as a percent of GDP generally trended up from 1950 to 2009. B. Federal government

Define inflation tax (also called seignorage). A. The inflation tax arises when the government increases statuatory marginal tax rates when inflation increases. B. The inflation tax arises when the government declines to sell inflation-indexed bonds. C. The inflation tax arises when the government raises revenue by printing money. D. The inflation tax arises when the government taxes nominal interest income instead of real interest income. How does the government collect the inflation tax, and who pays it? A. The government collects the inflation tax by printing money to purchase goods and services; the tax is paid by anyone who buys goods and services. B. The government collects the inflation tax by increasing excise taxes on goods and services; the tax is paid by anyone who holds money. C. The government collects the inflation tax by printing money to purchase goods and services; the tax is paid by anyone who holds money. Your answer is correct. D. The government collects the inflation tax by increasing excise taxes on goods and services; the tax is paid by anyone who buys goods and services. Can the government always increase its real revenues from the inflation tax by increasing money growth and inflation? A. Yes, because even though the inflation rate is high, it generates a rapid economic expansion, increasing real money demand enough that seignorage revenue increases. B. No, because a high enough inflation rate causes the real money supply to fall enough that seignorage revenue begins to fall when inflation increases. Your answer is correct. C. No, because a high enough inflation rate causes a severe recession, so seignorage revenue decreases. D. Yes, no matter how high the inflation rate is, seignorage revenue rises when inflation increases, though at a decreasing rate.

C. The inflation tax arises when the government raises revenue by printing money. C. The government collects the inflation tax by printing money to purchase goods and services; the tax is paid by anyone who holds money. Your answer is correct. B. No, because a high enough inflation rate causes the real money supply to fall enough that seignorage revenue begins to fall when inflation increases. Your answer is correct.

Both transfer programs and taxes affect incentives. Consider a program designed to help the poor that promises each aid recipient a minimum income of $10,000. That is, if the recipient earns less than $10,000, the program supplements his income by enough to bring him up to $10,000. Explain why this program would adversely affect incentives for low-wage recipients. A. The program has very good incentive effects, because the marginal tax rate for any income earned below $10,000 is −50%. B. The program has very good incentive effects, because the marginal tax rate for any income earned below $10,000 is 0%. C. The program has very bad incentive effects, because the marginal tax rate for any income earned below $10,000 is 100%. D. The program has very bad incentive effects, because the marginal tax rate for any income earned below $10,000 is 50%. Consider a program with a better incentive effect would be to provide a subsidy to labor income. The program subsidizes labor income at a 25% rate. If a person worked 2000 hours per year at a wage of $4 per hour, to get labor income of $8000, the subsidy would increase the person's wage by 25% to $5 per hour, so he or she would earn $10,000 per year. What are the advantages and disadvantages of this program? A. Advantage: there is a substitution effect toward lower work effort; disadvantage: there is an income effect toward lower work effort. B. Advantage: there is a substitution effect toward greater work effort; disadvantage: there is an income effect toward greater work effort. C. Advantage: there is a substitution effect toward lower work effort; disadvantage: there is an income effect toward greater work effort. D. Advantage: there is a substitution effect toward greater work effort; disadvantage: there is an income effect toward lower work effort.

C. The program has very bad incentive effects, because the marginal tax rate for any income earned below $10,000 is 100%. D. Advantage: there is a substitution effect toward greater work effort; disadvantage: there is an income effect toward lower work effort.

Which of these statements best characterizes the movement of the U.S. federal government debt-GDP ratio since 1939? Part 2 A. The debt-GDP ratio fell sharply in World War II, rose from 1946 to the early 1970s, fell in the 1980s and early 1990s, rose from the mid-1990s to 2000, and has been falling since then. B. The debt-GDP ratio fell sharply in World War II, rose from 1946 to the early 1970s, fell from the 1980s to 2000, and has been rising since then. C. The debt-GDP ratio rose sharply in World War II, declined from 1946 to the early 1970s, rose in the 1980s and early 1990s, declined from the mid-1990s to 2000, and has been rising since then. D. The debt-GDP ratio rose sharply in World War II, declined from 1946 to the early 1970s, rose from the 1980s to 2000, and has been declining since then. Which two factors would both cause the debt-GDP ratio to rise quickly? Part 4 A. a high deficit relative to GDP and a slow rate of GDP growth B. a low deficit relative to GDP and a slow rate of GDP growth C. a high deficit relative to GDP and a fast rate of GDP growth D. a low deficit relative to GDP and a fast rate of GDP growth

C. The debt-GDP ratio rose sharply in World War II, declined from 1946 to the early 1970s, rose in the 1980s and early 1990s, declined from the mid-1990s to 2000, and has been rising since then. A. a high deficit relative to GDP and a slow rate of GDP growth

If changes in monetary policy are reflected primarily by changes in the short-term interest rate, what relationship would you expect to see between the unemployment rate and the short-term interest rate? A. The short-term interest rate should be unrelated to the unemployment rate. B. The short-term interest rate should be positively related to the unemployment rate. C. The short-term interest rate should be negatively related to the unemployment rate. Question content area Part 1 Real-Time Data Analysis Exercise As discussed in the text, if money demand is unstable, the Fed may prefer to target interest rates rather than the money supply itself. When the Fed follows an interest-rate-targeting policy, "Fed watchers" in financial markets and the media typically look to changes in short-term interest rates rather than changes in the money supply to gauge the Fed's intentions. Click the following link to view data on short-term interest rates from FREDopens in a new tab*. Then use the data to answer the following questions. LOADING... Part 2 If changes in monetary policy are reflected primarily by changes in the short-term interest rate, what relationship would you expect to see between the unemployment rate and the short-term interest rate? A. The short-term interest rate should be unrelated to the unemployment rate. B. The short-term interest rate should be positively related to the unemployment rate. C. The short-term interest rate should be negatively related to the unemployment rate. Your answer is correct. Part 3 Let's look at the data on the short-term interest rate and the unemployment rate to see how they are related. Add a new line for the unemployment rate, which is FRED variable UNRATE. LOADING... Part 4 Is the short-term interest rate negatively related to the unemployment rate, as theory suggests? A. Yes. Your answer is correct. B. No. C. The data are inconclusive.

C. The short-term interest rate should be negatively related to the unemployment rate. A.YES

Inflation targeting is Part 2 A. not used in Canada. B. a component of the Taylor rule. C. a strategy for conducting monetary policy. D. required by U.S. law.

C. a strategy for conducting monetary policy.

How has the Taylor rule performed historically? A. fairly well; when the Fed has set the fed funds rate below that called for by the Taylor rule, inflation has often decreased and when the Fed has followed the Taylor rule, inflation has been stable B. fairly badly; when the Fed has set the fed funds rate below that called for by the Taylor rule, inflation has often been stable and when the Fed has followed the Taylor rule, inflation has often increased C. fairly well; when the Fed has set the fed funds rate below that called for by the Taylor rule, inflation has often increased and when the Fed has followed the Taylor rule, inflation has been stable D. fairly badly; when the Fed has set the fed funds rate below that called for by the Taylor rule, inflation has often decreased and when the Fed has followed the Taylor rule, inflation has often increased

C. fairly well; when the Fed has set the fed funds rate below that called for by the Taylor rule, inflation has often increased and when the Fed has followed the Taylor rule, inflation has been stable

What is the fundamental value of a currency? A. the value of the exchange rate that is determined by the government B. the value of the exchange rate that causes net exports to be zero C. the value of the exchange rate that would be determined by free-market forces of demand and supply without government intervention D. the value of the exchange rate that leads to a real exchange rate of 1

C. the value of the exchange rate that would be determined by free-market forces of demand and supply without government intervention

3.) During the 2008 financial crisis, A. the currency-deposit ratio fell, the reserve-deposit ratio fell, and the money multiplier fell. B. the currency-deposit ratio rose, the reserve-deposit ratio fell, and the money multiplier rose. C. the currency-deposit ratio fell, the reserve-deposit ratio rose, and the money multiplier fell. Your answer is correct. D. the currency-deposit ratio rose, the reserve-deposit ratio rose, and the money multiplier rose.

C. the currency-deposit ratio fell, the reserve-deposit ratio rose, and the money multiplier fell. Your answer is correct.

What is the main disadvantage of inflation targeting? A. The central bank cannot drive the interest rate below zero, so inflation targeting may not be possible. B. The central bank may fool people by stating one inflation target publicly, but having a different one privately. C. The central bank may not know exactly how to change policy to hit its goals and the public may not know at any time if the Fed is engaging in the best policy. D. Inflation targeting requires the use of the Taylor rule, which might not be compatible with stable inflation.

C. The central bank may not know exactly how to change policy to hit its goals and the public may not know at any time if the Fed is engaging in the best policy.

fiscal policy to stabilize the economy

Classicals and Keynesians disagree about using fiscal policy to stabilize the economy Classicals oppose activist policy while Keynesians favor it But even Keynesians admit that fiscal policy is difficult to use- There is a lack of flexibility, because much of government spending is committed years in advance- There are long time lags, because the political process takes time to make changes

Currency unions- A currency union makes sense if a region is an optimum currency area

Currency unions- A currency union makes sense if a region is an optimum currency area Four criteria- Extensive trade- Similar business cycle patterns- Capital and labor mobility- Fiscal transfers for stabilization policy because countries give up their ability to engage in monetary policy

What can a country do about an overvalued currency? A. the country can change the official exchange rate, restrict international transactions, or use expansionary monetary policy Your answer is not correct. B. the country can change the official exchange rate, increase international transactions, or use contractionary monetary policy C. the country can change the official exchange rate, increase international transactions, or use expansionary monetary policy D. the country can change the official exchange rate, restrict international transactions, or use contractionary monetary policy

D. the country can change the official exchange rate, restrict international transactions, or use contractionary monetary policy

.) As a result of those changes during the Great Depression, A. both the monetary base and the money multiplier fell. B. the monetary base fell and the money multiplier rose. C. both the monetary base and the money multiplier rose. D. the monetary base rose and the money multiplier fell.

D. the monetary base rose and the money multiplier fell.

What does saying that a currency is overvalued mean? A. when there is a speculative run B. when the exchange rate is declining C. when the official exchange rate is lower than its fundamental value D. when the official exchange rate is higher than its fundamental value

D. when the official exchange rate is higher than its fundamental value

Discuss four reasons why the Ricardian equivalence proposition isn?t likely to hold exactly. A. Ricardian equivalence might not hold if people do not face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes aren't lump sum. B. Ricardian equivalence might not hold if people do not face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes are lump sum. C. Ricardian equivalence might not hold if people face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes are lump sum. D. Ricardian equivalence might not hold if people face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes aren't lump sum.

D. Ricardian equivalence might not hold if people face borrowing constraints, if they are shortsighted, if they fail to leave bequests, or if taxes aren't lump sum.

Define monetary base: A. The total amount of money held by the non-bank public. B. The total amount of money held by banks as reserves. C. The total amount of money held by the Federal Reserve. D. The total amount of currency held by the non-bank public and money held by banks as reserves. Your answer is correct. E. The total amount of money held by private banks as reserves and the Federal Reserve. F. The total amount of money held by the non-bank public, private banks as reserves, and the Federal Reserve. G. The total amount of currency held by the non-bank public and money held by the Federal Reserve.

D. The total amount of currency held by the non-bank public and money held by banks as reserves. Your answer is correct.

1.) The main goal of the creation of the Term Auction Facility and the Term Securities Lending Facility described in the article was to A. increase the amount of customer deposits covered in the case of a failing bank. B. shift the LM curve rightward. C. "burst the bubble" that existed in the housing market. D. increase the supply of available credit. 2.) Which of the following events was instrumental in turning the financial situation in 2007 and 2008 from what could have been a fairly minor problem to a full-scale crisis? A. Fall in housing prices. B. Rapid and unpredictable increase in stock prices. C. Bankruptcy of Lehman Brothers. D. The shift left and downward of the IS curve. 3.) Which of the following was not an attempt to lessen the impact of the 2008 financial crisis? A. Increases in the amount of FDIC deposit coverage from $100,000 per account to $250,000. B. Efforts to increase the amount of capital available to banks. C. Policies designed to shift the IS curve to the left and downward. D. Making provisions to buy temporarily undervalued financial assets.

D. increase the supply of available credit. Your answer is correct. C. Bankruptcy of Lehman Brothers. C. Policies designed to shift the IS curve to the left and downward.

Part 3 A disadvantage of inflation targeting is Part 4 A. that people cannot observe the inflation rate. B. that people do not know what inflation is. C. the inflation rate is not measured well, leaving people uncertain about what the target means. D. it is difficult for the central bank to judge what policy actions are needed.

D. it is difficult for the central bank to judge what policy actions are needed.

1.) If we say that prices of Big Macs in various countries are converging, we mean that they are A. rising. B. falling. C. moving further apart. D. moving closer together. 2.) If the idea of PPPholds true and Big Mac prices converge, we would expect A. both the Canadian dollar and the euro to appreciate. B. the euro to appreciate and the Argentinian peso to depreciate. C. both the Chinese yuan and the Brazilian real to depreciate. D. both the Japanese yen and the Swiss franc to appreciate. 3.) Using the Big Mac prices shown above, if PPP holds more true in the future, we would expect the A. dollar price of Big Macs in Switzerland to fall. B. dollar price of Big Macs in Japan to fall. C. dollar price of Big Macs in the United States to fall. D. dollar price of Big Macs in Brazil to rise. According to the table, the price of a Big Mac in Argentina is lowerthan the price in the U.S. The price in Argentina is 19% higherthan expected after adjusting for GDP per capita.

D. moving closer together. A. both the Canadian dollar and the euro to appreciate. A. dollar price of Big Macs in Switzerland to fall.

Which of these represents an example in which there is a difference between the average tax rate and the marginal tax rate on a person's income. A. no tax on income below $15,000, then a tax at 20% on income above $15,000, for a person with an income of $12,000. B. a tax at 20% on all income, for a person with an income of $75,000. C. a tax at 20% on all income up to $100,000, for a person with an income of $47,000. D. no tax on income below $15,000, then a tax at 20% on income above $15,000, for a person with an income of $30,000. For a constant before-tax real wage, which type of tax rate most directly affects how wealthy a person feels? average tax rate Which type of tax rate affects the reward for working an extra hour? marginal tax rate

D. no tax on income below $15,000, then a tax at 20% on income above $15,000, for a person with an income of $30,000. average tax rate marginal tax rate

composition of outlays and taxes

Deficits and surpluses- When outlays exceed revenues, there is a deficit; when revenues exceed outlays, there is a surplus- deficits= outlays- tax revenues = gov. purchases + transfers + net interest - tax reveneues =(G+TR+INT)- TR

Discount window lending

Discount window lending is lending reserves to banks so they can meet depositors' demands or reserve requirements - The interest rate on such borrowing is called the discount rate - The Fed was set up to halt financial panics by acting as a lender of last resort through the discount window - A discount loan increases the monetary base the lending of reserves by the Federal Reserve to commercial banks

If the marginal tax rate increases

If the marginal tax rate increases, with the average tax rate held constant, a person will decrease labor supply - The higher marginal tax rate causes a substitution effect - With a lower after-tax reward for working, a person wants to work less- The labor supply curve shifts left

Government outlays

U.S. government spending to that of other countries- - United States spends less as a percentage of G D P than almost any other O E C D country the part of the government budget that includes both spending and transfer payments

What happened to the volatility of the long-term interest rate?A. It decreased around 1979 and remained low after 1982.B. It increased around 1979 and remained high after 1982.C. It did not change substantially around 1979 or 1982.

Which of the following changes would definitely lead to an increased demand for dollars? A. the domestic real interest rate decreases and foreign income increases. B. the domestic real interest rate increases and foreign income increases. C. the domestic real interest rate decreases and foreign income decreases. D. the domestic real interest rate increases and foreign income decreases.

b the domestic real interest rate increases and foreign income increases.

Question content area Part 1 How does the IS-LM model for an open economy differ from the IS-LM model for a closed economy? A. International influences may shift the LM curve. B. International influences may shift the FE line. C. International influences may shift the SRAS curve. D. International influences may shift the IS curve.

Which of the following changes would definitely lead to an increased supply for dollars? A. the domestic real interest rate increases and domestic income decreases. B. the domestic real interest rate increases and domestic income increases. C. the domestic real interest rate decreases and domestic income decreases. D. the domestic real interest rate decreases and domestic income increases.

d the domestic real interest rate decreases and domestic income increases.

Tax-induced distortions and tax rate smoothing

higher the tax rate, the greater the distortion Empirical studies suggest that the Federal government has not always smoothed tax rates as much as it could to minimize distortions

https://www.chegg.com/homework-help/questions-and-answers/economy-following-statistics-describe-money-supply-cu-1-000-billion-res-125-billion-dep-4--q19692826

How does an increase in the domestic real interest rate affect the real exchange rate and net exports? Part 6 A. The real exchange rate rises and net exports rise. B. The real exchange rate declines and net exports rise. C. The real exchange rate rises and net exports decline. D. The real exchange rate declines and net exports decline.

i. The real exchange rate rises and net exports decline

Bank runs

if people think a bank will not be able to give them their money, they may panic and rush to withdraw their money, causing a bank run- To prevent bank runs, the F D I C insures bank deposits, so that depositors know their funds are safe, and there will be no need to withdraw their money People were running to banks to take their money out before the bank collapsed when depositors lose confidence in a bank and rush to withdraw their money

You are a policy advisor in a country that has a fixed exchange rate. The country's currency is properly valued. Suddenly, and unexpectedly, the world's demand for the country's goods increases. As a result, the country's net exports _____ and the currency becomes ______.To prevent the country from _____ reserves, you recommend that the country _____ its money supply.

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