Econ final

The short-run Phillips curve is

Downward sloping

An example of automatic fiscal policy is

expenditure for unemployment benefits increasing as economic growth slows.

When the government's expenditures exceed its tax revenues, the budget

has a deficit and the national debt is increasing

Needs-tested spending

increases as unemployment increases

If a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand

increases by more than $100 billion

The structural deficit is the deficit

that would occur at full employment

The national debt can only be reduced if

the federal budget is in surplus

The output gap is the

the percentage deviation of real GDP from potential GDP

When people use all the relevant data and principles of economics to forecast inflation, they are making

"Rational expectation"

If the budget deficit is $50 billion and the structural deficit is $10 billion, the cyclical beficit is

$40 billion

When real GDP is less than potential GDP, there is _____ which leads the unemployment rate to _________.

A recessionary gap;rise

The short-run Phillips Curve is another way of looking at

Aggregate supply

A tax cut that increases the budget deficit results in ______ in the _________ loanable funds.

An increase; demand for

The long-run phillips curve shows the relationship between the inflation rate and the unemployment rate when the economy is

At full employment

Ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government expenditures on goods and services by $100 billon. Then

Both policies would increase aggregate demand but the tax cut has a smaller effect

Automatic stabilizers include

Changes in induced taxes and changes in needs-tested spending

The natural hypothesis asserts that

Changes in the unemployment rate from changes in the inflation rate are temporary

The natural rate hypothesis asserts that

Changes in the unemployment rate from changes in the inflation rate are temporary

When an economy faces an inflationary gap, an appropriate fiscal policy is to

Decrease government expenditure

An increase in income taxes________ employment and ________ potential GDP.

Decreases; decreases

When the Federal Reserve raises the federal funds rate, the quantity of reserves ________, the quantity of money _________, and the quantity of loans _______.

Decreases; decreases; decreases

The gov collects tax revenues of $100 million and has $105 million in outlays. The budget balance is

Deficit of $5 million

If aggregate demand increases, the

Economy moves to a lower inflation rate along its Short-run Phillips curve.

On the long-run Phillips curve, the unemployment rate

Equals the natural unemployment rate, but the inflation rate can be any value

short-run Phillips curve shifts upward when

Expected inflation increases

The balanced budget multiplier is based on the point that the _______ multiplier is larger than the _______ multiplier so that an equal increase in government expenditure and taxes ______ aggregate demand.

Expenditure;tax;increases

The higher the federal funds rate, the _______ the opportunity cost of holding reserves, which _______ the incentive to economize on reserves.

Higher;increases

If an economy is at the short-run equilibrium illustrated by the figure above, a discretionary fiscal policy to adjust the economy to full employment is to

Increase the quantity of money

If government expenditures on goods and services increased by $20 billion, what would happen to aggregate demand?

Increases by more than $20 billion

The natural unemployment rate

Increases when job searches increase

If a tax cut increases aggregate demand more than aggregate supply, real GDP _______ and the price level _________.

Increases; rises

short-run Phillips curve shows the relationship between the

Inflation rate and the unemployment rate

If the Fed lowers the federal funds rate, which of the following occurs?

Investment increases

The federal funds rate

Is a monetary policy target of the federal reserve

In the short run, if the economy is at full employment, then the quantity of real GDP

Is equal to potential GDP, and the unemployment rate is equal to the natural unemployment rate

The national debt

Is the total amount of government debt outstanding

If government expenditures on goods and services increased by $20 billion, what would happen to aggregate demand?

It would increase by more than $20 billion.

The curve that shows the relationship between inflation and unemployment when the economy is at full employment is the

Long-run phillips curve

If the Fed increases interest rates, other things remaining the same, foreigners demand _______ dollars, thereby _________ the exchange rate.

More; increasing

If the Fed is concerned about inflation, it's actions _________ long-term interest rates so that investment __________ and net exports ____________.

Raise; decreases; decrease

According to Okun's Law, for each 1 percentage point that the unemployment rate is above the natural unemployment rate, then

Real GDP is below potential GDP by 2 percent

If the Fed sells U.S. government securities to a bank, the federal funds rate _________ and banks' reserves _________.

Rises;decreases

Along a short-run Phillips curve, the

Short-run cost of lower unemployment is higher inflation

short-run Phillips curve

Shows the tradeoff between the inflation rate and the unemployment rate, and it shifts when the expected inflationary rate changes

Comparing the AS-AD Model and the Phillips curve , we see that

The AS-AD model uses the price level and the Phillips curve the rate of inflation

The long-run Phillips curve shows the relationship between

The inflation rate and the natural unemployment rate

The federal funds rate is

The interest rate banks charge each other on overnight loans

The long-run Phillips curve is a vertical line because

There is no relationship between the natural unemployment rate and the inflation rate

The supply-side effects of a change in taxes on labor income means that _________ in taxes on labor income shifts the ________.

an increase; labor supply curve leftward

Fiscal policies that move the economy toward potential GDP without a change in policy are called

automatic stabilizers

Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income...

both weaken incentives to work and decreases potential GDP

In an open market purchase, the Fed ________ government securities, which ________ bank reserves and ________ the federal funds rate.

buys; increases; lowers

The use of the federal budget to achieve macroeconomic objectives of full employment and sustainable economic growth

called fiscal policy.

Which of the following is NOT an effect from a change in the federal funds rate?

change in government expenditures

Increasing the income tax rate _______ the ________.

decreases; supply of labor