ECON UTM Final Test
The group that says the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the
Federal Open Market Committee (FOMC)
Paper money in the United States is issued by the
Federal Reserve Banks
A Federal budget deficit EXISTS when
Federal government spending EXCEEDS tax revenues in a given year.
a medium of exchange
If you write a check on a bank to purchase a used car, you are using money primarily as
(chart) Assume that all budget surpluses are used to pay down the public debt. The budget deficit in year 3 is
$100 billion
If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's present public debt is
$275 billion
The Federal Reserve System consists of which of the following?
Board of Governors and the 12 Federal Reserve Banks
The M1 money supply is composed of
Checkable deposits and currency in circulation
Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit
at any level of GDP BELOW $400
(!!!) The amount by which federal tax revenues exceed federal gov. expenditures during a particular year is the
budget surplus
Best example of public investment
construction of highways
The croWding-out effect of expansionary fiscal policy suggests that
increases in government spending financed through borroWing will increase the interest rate and thereby reduce investment.
The reason for the Fed being set up as an independent agency of government is to
protect it from political pressure.
Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy,
tax revenues VARY directly with GDP, but government spending is independent of GDP.
Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400,
the budget will be BALANCED.
A $70 price tag on a sweater in a department store window is an example of money functioning as a
unit of account.
(!!!) The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is
3.9 percent.
The goal of expansionary fiscal policy is to increase
??? real GDP
Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at
AD3 (the highest line)
The public debt is the
Accumulation of all past deficits minus all past surpluses
Currency in circulation is part of
BOTH M1 and M2.
The Social Security program is designed to pay
Current retirees using funds from current contributions
(!!!) A budget surplus means that
Government revenues are greater than expenditures in a given year
Which of the following nations had the highest public sector debt as a percentage of GDP in 2015?
Japan
A CONTRACTIONARY fiscal policy is shown as a
LEFTWARD shift in economy's aggregate demand curve
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
M1 increases and M2 stays the same
(!!!) Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the
M1 money supply will DECLINE and the M2 money supply will remain unchanged.
Which of the following best describes the idea of a political business cycle?
Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
Suppose that the economy is in the midst of a RECESSION. Which would end it and stimulate output GROWTH?
REDUCTIONS in federal tax rates on personal and corporate income
The time that Elapses between the beginning of a Recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n)
REcognition lag.
If you place a part of your summer earnings in a savings account, you are using money primarily as a
STORE of value
Refer to the diagram. Which tax system has the most built-in stability?
T1 (the tallest line)
Fiscal policy is enacted through changes in
Taxation and government spending
(!!!) The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a balanced budget?
Year 1
??? hypothetical economy chart for a balanced budget
Year 1 ($800)
(3 line chart) what combination would most likely cause a shift from AD1 to AD2?
a DECREASE in taxes and and an INCREASE in gov. spending
An appropriate fiscal policy for SEVERE demand-pull inflation is
a tax rate increase.
(!!!) The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the
administrative lag
Fiscal policy refers to the
deliberate changes in GOV. SPENDING and taxes to stabilize domestic output, employment, and the price level.
The value of money varies
inversely with the price level
The amount of money reported as M2
is LARGER than the amount reported as M1.
Contractionary fiscal policy is so named because it
is aimed at REDUCING aggregate demand and thus achieving price stability.
In the United States, the money supply (M1) includes (2 things!!!)
paper currency, and checkable deposits.
The political business cycle refers to the possibility that
politicians will manipulate the economy to enhance their chances of being reelected
When there is INFLATION in the economy, it implies that the
price INDEX is RISING and the purchasing power of money is falling.
One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the
start of the recession and the time it takes to recognize that the recession has started
Money functions as
store of value, unit of account, medium of exchange
The crowding-out effect
the financing of a government deficit increases interest rates and reduces investment spending
One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the
time fiscal action IS TAKEN and the time that the action has its EFFECT on the economy
Stock market price quotations best exemplify money serving as a
unit of account
Built-in stability means that
with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.
