Econ Final

Which of the following is considered contractionary fiscal policy? A) Congress increases the income tax rate. B) Congress increases defense spending. C) Legislation allows a college tuition deduction from federal income taxes. D) The New Jersey legislature cuts highway spending to balance its budget.

A) Congress increases the income tax rate.

If the tax multiplier is -1.5 and a $200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.) A) a $300 billion decrease in GDP B) a $300 billion increase in GDP C) a $30 billion increase in GDP D) a $133.33 billion decrease in GDP

A) a $300 billion decrease in GDP

Which of the following assets is most liquid? A) dollar bill B) bond C) savings account D) stock

A) dollar bill

What is the difference between federal purchases and federal​ expenditures? A. Federal purchases require that the government receives a good or service in return, whereas federal expenditures include transfer payments. B. Federal purchases and federal expenditures both require that the government receives a good or service in return. C. Federal purchases require that the government receives a good or service in return, whereas federal expenditures exclude transfer payments. D. The difference between federal purchases and federal expenditures is so small that it is generally ignored.

A. Federal purchases require that the government receives a good or service in return, whereas federal expenditures include transfer payments.

The M2 definition of the money supply includes A. M1, savings accounts, small time deposits, and money markets. B. M1, savings accounts, small time deposits, money markets, and credit cards. C. savings accounts, mutual funds, small time deposits, and credit cards. D. M1, savings accounts, mutual funds, and credit cards.

A. M1, savings accounts, small time deposits, and money markets.

The budget balance tends to decline during a recession because A. a tax revenue automatically declines. B. transfer payments automatically decline. C. government spending automatically declines. D. the government must cut spending as tax revenue automatically declines.

A. a tax revenue automatically declines.

Which of the following causes a positive demand shock? A. an increase in wealth B. a pessimistic consumer expectations C. a decrease in government spending D. an increase in taxes

A. an increase in wealth

An attempt to reduce inflation requires​ _____________ fiscal​ policy, which causes real GDP to​ _________ and the price level to​ __________. A. contractionary; fall; fall B. contractionary; rise; fall C. expansionary; rise; rise D. expansionary; rise; fall

A. contractionary; fall; fall

Contractionary monetary policy attempts to aggregate demand by interest rates. A. decrease; increasing B. increase; decreasing C. decrease; decreasing D. increase; increasing

A. decrease; increasing

Which of the following actions can the Fed take to decrease the equilibrium interest rate? A. increase the money supply B. increase money demand C. decrease the money supply D. decrease money demand

A. increase the money supply

Which of the following is not counted in M1? A) checking account balances B) credit card balances C) travelers' checks D) currency in circulation

B) credit card balances

Refer to the Figure above. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and no fiscal or monetary policy is pursued, then at point B A) the unemployment rate is very low. B) firms are operating below capacity. C) the economy is above full employment. D) income and profits are rising.

B) firms are operating below capacity.

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 equilibrium? An increase in A) the money supply and a decrease in interest rates. B) government purchases. C) oil prices. D) taxes.

B) government purchases.

Refer to the Figure above. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely A) decrease government spending. B) increase government spending. C) lower interest rates. D) increase taxes.

B) increase government spending.

It is ________ difficult to effectively time fiscal policy than monetary policy because ________. A) more; fiscal policy can be quickly decided and changed B) more; fiscal policy takes longer to implement C) less; monetary policy takes longer to decide and change D) less; monetary policy takes longer to implement

B) more; fiscal policy takes longer to implement

When the economy is experiencing a recession, automatic stabilizers will​ cause: A. transfer payments to decrease and tax revenues to decrease. B. transfer payments to increase and tax revenues to increase. C. transfer payments to increase and tax revenues to decrease. D. transfer payments and tax revenues to be unaffected.

C. transfer payments to increase and tax revenues to decrease.

Which of the following would be considered a fiscal policy action? A) The Fed increases the money supply. B) Tax incentives are offered to encourage the purchase of fuel efficient cars. C) Spending on the war in Afghanistan is increased to promote homeland security. D) A tax cut is designed to stimulate spending during a recession.

D) A tax cut is designed to stimulate spending during a recession.

In the definition of the money​ supply, where do credit cards​ belong? A. Both M1 and M2. B. M1. C. M2. D. Credit cards are not included in the definition of the money supply.

D. Credit cards are not included in the definition of the money supply.

Bank reserves include which of the following? I. currency in bank vaults II. bank deposits held in accounts at the Federal Reserves III. customer deposits in bank checking accounts A. I only B. II only C. III only D. I and II only

D. I and II only

When you use money to purchase your lunch, money is serving which role(s)? I. medium of exchange II. store of value III. unit of account A. I only B. II only C. III only D. I and III only

D. I and III only

The higher the tax​ rate, the larger the multiplier effect. True False

False

Which of the following is the best example of using money as a store of value? A. A customer pays in advance for $10 worth of gasoline at a gas station. B. A babysitter puts her earnings in a dresser drawer while she saves to buy a bicycle. C. Travelers buy meals on board an airline flight. D. You use $1 bills to purchase soda from a vending machine.

B. A babysitter puts her earnings in a dresser drawer while she saves to buy a bicycle.

What is fiscal​ policy? A. Fiscal policy can be described as changes in interest rates to achieve macroeconomic policy objectives. B. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives. C. Fiscal policy can be described as changes in interest rates and taxes to achieve macroeconomic policy objectives. D. Fiscal policy can be described as changes in government spending and interest rates to achieve macroeconomic policy objectives.

B. Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives.

What changes should they make if they decide a contractionary fiscal policy is​ necessary? A. In this case, Congress and the president should enact policies that decrease government spending and decrease taxes. B. In this case, Congress and the president should enact policies that decrease government spending and increase taxes. C. In this case, Congress and the president should enact policies that increase government spending and increase taxes. D. In this case, Congress and the president should enact policies that increase government spending and decrease taxes.

B. In this case, Congress and the president should enact policies that decrease government spending and increase taxes.

What will happen to the money supply and the equilibrium interest rate if the Federal Reserve sells Treasury securities? A. Money supply will increase and the equilibrium interest rate will increase. B. Money supply will decrease and the equilibrium interest rate will increase. C. Money supply will increase and the equilibrium interest rate will decrease. D. Money supply will decrease and the equilibrium interest rate will decrease.

B. Money supply will decrease and the equilibrium interest rate will increase.

Why might increasing taxes as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing​ inflation? A. The government has more concentrated power than the Fed. B. The legislative process experiences longer delays than monetary policy. C. The legislative process works quickly. D. The economy may have already slowed.

B. The legislative process experiences longer delays than monetary policy.

Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will be A. an increase of $100 million. B. an increase of more than $100 million. C. an increase of less than $100 million. D. an increase of either more than or less than $100 million, depending on the MPC.

B. an increase of more than $100 million.

Which of the following is an example of expansionary fiscal policy? A. increasing taxes B. increasing government purchases C. decreasing government transfers D. decreasing interest rates

B. increasing government purchases

Which of the following is a goal of monetary policy? A. zero inflation B. price stability C. increased potential output D. decreased actual real GDP

B. price stability

The fraction of bank deposits that is required to held as reserves is the A. reserve ratio. B. required reserve ratio. C. excess reserve ratio. D. reserve requirement.

B. required reserve ratio.

A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out. A) increase; decrease B) decrease; decrease C) decrease; increase D) increase; increase

C) decrease; increase

A change in which of the following will shift the money demand curve? I. the aggregate price level II. real GDP III. the interest rate A. I only B. II only C. I and II only D. I, II and III

C. I and II only

Which of the following causes a negative supply shock? I. a technological improvement II. increasing productivity III. an increase in oil prices A. I only B. II only C. III only D. I and III only

C. III only

After September​ 11, 2001, the federal government increased military spending on wars in Iraq and Afghanistan. Is this increase in spending considered fiscal​ policy? A. Yes. Fiscal policy refers to changes in government spending and taxes. B. Yes. Increases in defense spending are designed to achieve macroeconomic policy objectives. C. No. The increase in defense spending after that date was designed to achieve homeland security objectives. D. No. Fiscal policy refers to changes in interest rates and the money supply.

C. No. The increase in defense spending after that date was designed to achieve homeland security objectives.

Which of the following changes would be the most likely to reduce the size of the money multiplier? A. a decrease in the required reserve ratio B. a decrease in excess reserves C. an increase in the cash holding by consumers D. a decrease in bank runs

C. an increase in the cash holding by consumers

Which of the following is the most liquid monetary aggregate? A. M1 B. M2 C. dollar bills D. checking accounts

C. dollar bills

When banks make loans to each other, they charge the A. prime rate. B. discount rate. C. federal funds rate. D. mortgage rate.

C. federal funds rate.

The total debt of the U.S. federal government A. is the same as the public debt. B. is measured by the difference between the government's revenue and spending for a particular year. C. increases when the government runs a budget deficit. D. decreases when the government runs a budget deficit.

C. increases when the government runs a budget deficit.

Suppose that the economy is currently at potential​ GDP, and the federal budget is balanced. If the economy moves into​ recession, what will happen to the federal​ budget? A. If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures decrease and tax revenues increase. B. If the budget is balanced at potential GDP and the economy moves into recession, then the budget will remain balanced as government expenditure increases and tax revenue decreases will exactly offset each other. C. If the budget is balanced at potential GDP and the economy moves into recession, then the budget will remain balanced as government expenditure decreases and tax revenue decreases will exactly offset each other. D. If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures increase and tax revenues decrease.

D. If the budget is balanced at potential GDP and the economy moves into recession, then there will be a budget deficit as government expenditures increase and tax revenues decrease.

Which can be changed more​ quickly: monetary policy or fiscal​ policy? A. Fiscal policy can be changed more quickly than monetary policy. Fiscal policy has much shorter delays due to the smaller number of legislators involved. B. Fiscal policy can be changed more quickly than monetary policy. Monetary policy has much longer delays due to the larger number of legislators involved. C. Monetary policy can be changed more quickly than fiscal policy. Fiscal policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy. D. Monetary policy can be changed more quickly than fiscal policy. Monetary policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy.

D. Monetary policy can be changed more quickly than fiscal policy. Monetary policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change policy.

The dynamic aggregate demand and aggregate supply model allows for a more realistic examination of monetary policy over the basic aggregate supply and aggregate demand model by allowing the economy in the dynamic model to A. use both fiscal and monetary policy. B. experience changes in the price level and changes in net exports. C. experience changes in aggregate demand when the Fed changes the money supply. D. experience continuous inflation and experience long-run economic growth.

D. experience continuous inflation and experience long-run economic growth.

In the United States, the dollar is A. backed by silver. B. backed by gold and silver. C. commodity money. D. fiat money

D. fiat money

An increase in the money supply will lead to which of the following in the short run? A. higher interest rates B. decreased investment spending C. decreased consumer spending D. increased aggregate demand

D. increased aggregate demand

The quantity of money demanded rises (that is, there is a movement along the money demand curve) when A. the aggregate price level increases. B. the aggregate price level falls. C. real GDP increases. D. short-term interest rates fall.

D. short-term interest rates fall.