Final questions

in the graph, suppose the economy is initially at point A. the movement of the economy to point B as shows illustrates the effect of which of the following actions by the Congress and president?

(fiscal, expansionary) C. a decrease in income taxes

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

A. federal funds rate

the fed uses a core price index, one that excludes food and energy prices to measure inflation. it does so because

A. food and energy prices have wide swings that are not related to the causes of general inflation

suppose the government wants to maintain a balanced budget. to achieve this goal, when the economy falls into recession government would need to _____ taxes, which would cause aggregate demand to ____-

A. increase, decrease

which of the following is true about the federal reserve and its ability to prevent recessions?

A. it cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they otherwise would be

the federal reserve system's four monetary policy goals are:

A. price stability, high employment, economic growth and stability of financial markets and institutions

which of the following characterizes the Fed's ability to prevent recessions?

A. the fed is able to keep a recession shorter and milder than it would otherwise be

the federal reserve responded to the 2008 financial crisis in several ways. which of the following is NOT one of the ways it responded?

A. the fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves

the federal funds rate is

A. the interest rate banks charge each other for over night loans

figure represents the market for coffee grinders. assume the market price is $21 which of the following statements is true?

A. there is a shortage that will cause the price to increase, quantity demanded will then decrease and the quantity supplied will increase until the price = $25

while many analysts defended the actions by the Fed, the critics were concerned that by not allowing large firms to fail,

A. there is an increased likelihood that other firms will engage in risky behavior in the future with expectation they will not also be allowed to fail

scenario: as a result of Kristy's deposit, Bank A can make a max loan of

B. 8,000$ 10,000 x .8

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

B. Budget deficit or surplus as a percentage of GDP

which of the following is NOT counted in M1

B. Credit card balances

a person's wealth

B. equals the value of the person's assets minus liabilities

article summary, when the fed announced it did not expect to raise its benchmark interest rate until 2015, it was referring to the

B. federal funds rate

monetary policy refers to the actions the

B. federal reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives

fiscal policy refers to

B. federal taxes and purchases that are intended to achieve macroeconomic policy objectives

automatic stabilizers refer to

B. government spending and taxes that automatically increase or decrease along the business cycle

an increase in the interest rate

B. increases the opportunity cost of holding money

in the figure, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will

B. sell treasury bills- to the fed

which of the following is the largest category of federal government expenditures?

B. transfer payments

Suppose the economy is in a recession and expansionary monetary policy is pursued. using the status AD_AS model in the figure, this would be depicted as a movement from:

C. A to B

Tax increases on business income decrease aggregate demand by decreasing

C. Business investment spending

for purposes of monetary policy, the federal reserve has targeted the interest rate known as the

C. Federal funds rate

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 _____

C. Higher, higher

economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the _____ effect

C. Multiplier

the increase in government spending on unemployment insurance payments workers who lost their jobs during a recession and the decreases in government spending on unemployment insurance payments to workers during expansion is example of :

C. automatic stabilizers

changes in the federal funds rate usually result in

C. changes in both short term and long term interest rates with more of an effect on short term interest rates

the goals of monetary policy tend to be interrelated. for example, when the fed pursues the goal of _____, it can also achieve the goal of _____ simultaneously.

C. high employment, economic growth

tax reduction and simplification should _____ long-run aggregate supply and ______ aggregate demand

C. increase, increase

expansionary fiscal policy involves

C. increasing government purchases or decreasing taxes

the three categories of federal government expenditures in addition to purchases are

C. interest on the national debt, grants to state and local governments and transfer payments

in the figure, if the economy is at point A, the appropriate monetary policy by the Fed would be to

C. lower interest rates

your roommate is having trouble grasping how monetary policy works. which explanation correctly describes the mechanisms by which the fed can affect the economy? increasing the money supply:

C. lowers the interest rate, and firms increase investment spending

The federal reserve's two main _______ are the money supply and the interest rate

C. monetary policy targets

the money demand curve has a

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

if the fed lowers its target for the federal funds rate, this indicates that

C. the fed is pursuing an expansionary monetary policy

the monetary policy target the Fed focuses primarily on today is

C. the inflation rate

in the figure, the money demand curve would move from M1 to M2 if

C. the real GDP increased

if the absolute value of the tax multiplier =1.6, real GDP is $13 trillion, and potential real GDP is $13.4 trillion, then taxes would need to be cut by ______ to restore the economy to potential real GDP

A. $640 billion 400x1.6 =640

expansionary monetary policy refers to the _______ to increase real GDP.

A. Federal reserves increasing the money supply and decreasing interest rates

if government spending and the price level increase, then

D. the interest rate decreases, consumption increases, and investment spending increases

an increase in individual income taxes _____ disposable income, which ______ consumption spending

D. Decreases, decreases

which of the following is a function that money serves?

D. all of the above are correct, medium of exchange, unit of account, store of value

in the figure, a movement from point A to point B would be caused by

D. an increase in the interest rate

crowding out refers to a decline in _____ as a result of an increase in ______

D. private expenditures, government purchases

in response to already low interest rates dong little to stimulate the economy, the Fed began buying 10-year treasury notes and certain mortgage-backed securities to keep interest rates low, this policy is known as

D. quantitative easing

which of the following best describes supply side economics?

D. tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and therefore, aggregate supply

the M2 measure of the money supply =

M1 plus savings account balances plus small-denominational time deposits plus non institutional money market fund shares