Macroeconomics Final Study Set 3

The largest spending program for the U.S. federal government is:

Social Security

The purpose of FICA taxes is to fund:

Social Security payments.

Demand deposits are:

checkable deposits.

Which poses a limit to fiscal policy?

crowding out, the size of government expenditures, and legislative lags

The monetary base (MB) refers to:

currency plus total reserves held at the Fed.

Which of these would help a government fight a recession?

cutting taxes

Which asset would you classify as being most liquid?

demand deposits

The Federal Reserve is the

federal government's bank, central bank, and banker's bank in the United States.

Fiscal policy can BEST be defined as the use of:

government expenditure, borrowing, and taxation to influence the business cycle.

Examples of expansionary fiscal policy include increases in:

government spending

The disinflation experiment reduced inflation in the United States, but at the cost of:

high unemployment

To offset the effect of negative growth in money velocity (), the central bank should:

increase the growth rate of the money supply.

As income rises, the U.S. marginal tax rate:

increases in steps.

What is the largest source of tax revenue for the U.S. federal government?

individual income tax

The Federal Reserve acquires its exclusive powers through its ability to:

issue money.

Which tax rate determines whether it is worth it to work an extra day?

marginal

The tax rate paid on an additional dollar of income is the:

marginal tax rate

A monetary contraction is most successful when it is credible, namely when:

market participants expect the central bank to carry through with its tough stance.

Which institution usually has the most influence over aggregate demand in the United States?

the Federal Reserve

What strict rule did Milton Friedman believe would provide for greater price stability?

Money supply should grow by 3% annually.

Deflation is:

a decrease in prices; that is, a negative inflation rate.

If the Fed sets a target rate of inflation below 4%, it is an example of the Fed using

a monetary policy rule.

The problem associated with too much expansionary monetary policy is:

additional inflation.

Money is best defined as:

anything that is a widely accepted means of payment.

Monetary policy is used to stabilize the economy by changing factors that shift the:

AD Curve

Since the mid-1950s, federal government spending has been about _____ of GDP.

20%

U.S. government spending on Social Security, defense, Medicare, and Medicaid makes up approximately _____ of federal government spending.

63%

The BEST type of negative shock for the Federal Reserve to respond to is a negative shock to:

AD

What is a reason it might be hard for the Fed to restore aggregate demand in the face of a negative demand shock?

The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

Which is NOT a reason so much U.S. currency circulates in other countries?

The Federal Reserve makes loans to other countries.

Ricardian equivalence:

occurs when people see that lower taxes today means higher taxes in the future, so instead of spending their tax cut, they save it to pay future taxes.

The money multiplier equals:

one divided by the reserve ratio.

The U.S. income tax system is:

progressive

Which is NOT a function of the Federal Reserve?

providing loans to small businesses

A tax with lower tax rates applied to people with higher incomes is called:

regressive

The Fed has the most control over:

the monetary base