macro 11-15
a better indicator for comparative purposes is the ______-to-GDP ratio
debt
An explicit, legislated limit on the amount of outstanding national debt
debt ceiling
the interest required to be paid each year on outstanding debt
debt service
a redistribution of income from taxpayers to bondholders
debt servicing
As the economy slows: • Tax revenues _________. • Unemployment benefits _____. • Other transfer payments _____.
decline, rise, and rise
The following could cause a _________ in demand for the dollar: • U.S. incomes rise faster than foreign incomes. • U.S. prices rise faster than foreign prices. • Foreigners have a decreased need for U.S. goods. • U.S. interest rates become lower than in foreign countries.
decrease
When the Fed sells government bonds to the public, reserves __________, fewer loans can be made, and the money supply shrinks
decrease
As economic growth returns, unemployment compensation and welfare payments __________ and income tax collections __________, each putting a small restraint on economic growth
decrease and increase
If transfer payments decrease, recipients' disposable income falls and spending ___________
decreases
Increase the reserve requirement and: The money multiplier
decreases
Increase the reserve requirement and: • The amount of excess reserves
decreases
a fiscal restraint causes AS to slope upward, so an AD shift left will induce price level ___________
decreases
Keynes: Full employment first, then worry about the ________
deficit
The distinction between the structural and cyclical portions of the budget allow a better analysis of _________ changes
deficit
an explicit, legislated limit on size of the budget deficit.
deficit ceiling
Leads to compromises on how best to use budget deficits
deficit ceilings
Increases in government ___________ puts pressure on interest rate
deficits
Only way to stop debt growth is to eliminate budget _________ that create debt.
deficits
quantities of money the public wants to hold at alternative interest rates
demand for money
Banks perform two essential functions for the macro economy: • Banks transfer money from savers to spenders by lending funds held on __________. • The banking system creates additional money by making loans in ________ of required reserves.
deposit and excess
The creation of transactions deposits by bank lending
deposit creation
four constraints on deposit creation
deposits, willingness to lend, willingness to borrow, regulation
Any decrease in demand for the dollar or increase in supply of the dollar will push the dollar price in euros down. The dollar _____________ in value
depreciates
When the dollar appreciates against the euro, the euro ______________ in value relative to the dollar
depreciates
a fall in the price of one currency relative to another
depreciation
• Caused by a decrease in demand or an increase in supply of the first currency
depreciation
Shifting AS rightward generates ___________ macro outcomes
desirable
desired tax cut =
desired fiscal stimulus/MPC
size of fiscal initiative =
desired shift / multiplier
It can borrow reserves overnight from the Fed and pay interest: the
discount rate
deliberate policy decisions made to expand (or shrink) the structural deficit and give the economy a shot of fiscal stimulus (or fiscal restraint).
discretionary fiscal policy
those elements of the budget not determined by past legislative or executive commitments.
discretionary fiscal spending
Shifting AS leftward: Policies that provide ______________ for suppliers to increase production
disincentives
From a tax cut, Consumers will save a portion of their increased _____________ income
disposable
The direct effect of a tax hike is reduced _______ ________
disposable income
Because tax revenues and government spending are sensitive to economic conditions, budget projections must rely on
economic forcasts
a prohibition on imported goods
embargo
three barriers to trade
embargo, tariff, and quota
Cutting taxes or increasing income transfers puts money in the peoples' hands and __________ the private sector
enlarges
Using fiscal policy to solve macro problems implies that federal expenditures and federal receipts won't always be
equal
Each bank may lend an amount _____ ___ its excess reserves and no more
equal to
The intersection of money demand and money supply (E1 ) establishes the
equilibrium rate of interest
U.S. exporters of goods to Europe get paid in
euros
in an open economy the consumption possibilities in each country can _________ its production possibilities
exceed
_________ reserves are the maximum amount that any bank can lend
excess
- bank reserves in excess of required reserves
excess reserves
Banks choose total reserves for their bank, and any reserves beyond the requirement is called
excess reserves
Private banks earn income by making loans, so they try to fully lend out their
excess reserves
potential deposit creation =
excess reserves x money multiplier
Money acts as a medium of _________. Sellers will accept it as payment for goods and services
exchange
the price of one country's currency in terms of another's; the domestic price of a foreign currency
exchange rate
The standard way to eliminate instability in exchange rates is to adopt fixed _________ __________, where all major trading countries agree to keep the exchange rates between each currency fixed
exchange rates
Monetarists conclude that ____________ monetary policy can't lead us out of recession. The alternative is to ensure a stable and predictable rate of growth in the money supply
expansionary
Cut government _______________ to initiate a multiplier process to achieve the desired fiscal restraint
expenditures
what does G stand for
expenditures
Spending increases raise ______________ (G), and tax cuts decrease ____________ (T); therefore, the budget deficit increases.
expenditures and revenues
At high interest rates, money is ___________ to acquire
expensive
If the discount rate is raised, borrowing reserves from the Fed becomes more
expensive
Economic growth is an ___________ process.
exponential
goods and services sold to foreign buyers
exports
trade balance =
exports - imports
What if foreigners no longer want to hold U.S. debt? __________ __________ will be repaid with exports of real goods and services.
external debt
Shifting AS leftward causes negative _________ __________
external shocks
As the money supply shrinks, the price level falls and anticipated inflation decreases, so nominal interest rates ______
fall
If AS shifts right, both elements decrease and the misery index _______ sharply
falls
If the Fed increases reserves by buying bonds, the Fed funds rate
falls
who sets the required reserve ratio
fed
Borrowing reserves by one bank from another is referred to as
federal funds
A market signal of changes in reserve flows is provided by the
federal funds rate
It can borrow excess reserves overnight from another bank and pay interest: the
federal funds rate
the interest rate paid to borrow
federal funds rate
If the market cannot correct imbalances, then the ________ ___________ must.
federal government
The bank's ability to create money is limited by the ________ ________ __________
federal reserve system
As long as foreigners are willing to hold U.S. debt, external ___________ imposes no real cost
financing
policy adjustments designed to counteract small changes in economic outcomes
fine-tuning
which two policies often get entwined
fiscal and supply-side
debt ceiling is another mechanism for forcing Congress to adopt specific _________ _________
fiscal policies
the use of government taxes and spending to alter macroeconomic outcomes
fiscal policy
which policy: Government spending and taxation is used to alter macroeconomic outcomes
fiscal policy
which policy: Tax cuts and increases. Changes in government spending.
fiscal policy
Tax hikes or spending cuts intended to decrease AD (shift AD left).
fiscal restraint
gauged by a decrease in the structural deficit (or increase in the structural surplus)
fiscal restraint
cumulative decrease (horizontal shift) in AD =
fiscal restraint + induced decrease in consumption or multiplier x initial budget cut (fiscal restraint)
If a recessionary GDP gap exists, _________ ___________ could shift the economy back to full-employment GDP
fiscal stimulus
Increased government spending is a form of
fiscal stimulus
Tax cuts or spending hikes intended to increase AD (shift AD to the right).
fiscal stimulus
measured by an increase in the structural deficit (or shrinkage in the structural surplus)
fiscal stimulus
cumulative increase (horizontal shift) in AD =
fiscal stimulus + induced increase in consumption or multiplier x fiscal stimulus
The problem with fixed exchange rates is that the demand for and the supply of each currency will continue to ___________, and a fixed exchange rate does not account for this
fluctuate
The market demand for U.S. dollars represents a market supply of
foreign currency
The Federal Open Market Committee (FOMC) meets every _______ to _______ weeks to review economic performance and to adjust monetary policy as needed.
four to five
Crowding out can occur, especially as the economy gets closer to ______ employment
full
keynesian view: The goal of macro policy is not to balance the budget but to move the economy to _____-employment GDP.
full
total real GDP divided by total population
gdp per capita
real GDP divided by the labor force
gdp per worker
an agreement by countries to fix the price of their currencies in terms of gold.
gold standard
Funds spent on ___________ expenditures cannot be used for other (public or private) expenditures
governemtn
The Keynesian theory of macro instability practically mandates _______ ______
government intervention
how does the rule of 72 work? To find how many years it takes to double GDP, divide 72 by the ________ ________
growth rate
the percentage change in real output from one period to another
growth rate
growth rate of total output =
growth rate of labor force + growth rate of productivity
Less than _______ of government expenditures go to government purchases of goods and services
half
Supply-siders note that ______ tax rates destroy the incentive to work and produce, which ends up reducing output.
high
two limits on monetary restraint
high expectations and global money
Lower prices = ________ yields
higher
Tariffs (taxes on imported goods) make input costs _________ which increases the cost of U.S. production
higher
If people prefer to hold onto cash, the deposit creation process will be severely __________
hindered
which direction is a cumulative increase in AD
horizontal
Supply-siders encourage investments in
human capital
an increase in labor skills means more
human capital
the knowledge and skills possessed by the workforce
human capital
what form of AS: Upward sloping AS curve, "blended" from the other two
hybrid AS
Most growth policy tools are _________ with the supply-side tools
identical
__________ restrictions make it more difficult to overcome skill shortages in the labor market.
immigration
In 2019, the United States __________ $3 trillion worth of goods and services and ___________ $1.6 trillion in goods and $0.9 trillion in services
imported and exported
goods and services purchased from international sources
imports
Fostering new entrepreneurship and improving the quality of continuing management is an example of
improved management
better use of available resources in the production process
improved management
Individuals automatically are placed into a lower _______ tax bracket when their incomes fall.
income
payments to individuals for which no current goods or services are exchanged
income transfers
If AS shifts left, both elements ___________ and the misery index rises sharply
increase
If both V and Q are stable, any __________ in M in the long-run only increases P
increase
Shifting AS rightward: Policies that provide incentives for suppliers to ____________ production.
increase
The following could cause an __________ in demand for the dollar: • Foreign incomes rise faster than U.S. incomes. • Foreign prices rise faster than U.S. prices. • Foreigners have an increased need for U.S. goods. • U.S. interest rates become higher than in foreign countries.
increase
When the Fed buys government bonds from the public, reserves __________, more loans can be made, and the money supply grows
increase
Individual income tax cut: disposable income would ___________, causing increased _____________ spending
increase and consumption
As a recession begins, unemployment compensation and welfare payments __________ and income tax collections ___________, each stimulating economic growth in a small way
increase and decrease
Corporate tax cut: profits would ____________, spurring increased _____________ spending
increase and investment
what are three fiscal policy tools for fixing a weak economy
increase government purchases cut taxes increase transfer payments
tax elasticity of supply =
%change in quantity supplied / % change in tax rate
If the increase in G and the decrease in T are the same size, the balanced budget multiplier, therefore, equals
1
money multiplier =
1/required reserve ratio
the fed consists of how many federal reserve banks
12
The Federal Reserve System (or the Fed) was created in
1913
High marginal tax rates provide a disincentive to: • _________ their earnings impacts labor supply. • Start or expand a business impacts ______________. • Increase investment spending impacts ____________ investment.
increase, entrepreneurship, and corporate
At 3.5% growth rate, GDP will double in about _____ years
20
about ____% of the budget is discretionary fiscal spending
20
Foreigners hold _____% of debt
29
State and local governments hold __% of debt
3
_________ government borrowing reduces the availability of funds for private sector.
increased
__________ interest payments use up taxes collected that no longer can be used for other government expenditures
increased
Borrowed funds to finance the stimulus must be paid for in the future by ___________ taxes or ____________ spending, both fiscal restraint tools
increased and reduced
Tax cuts or increased government spending, or a combination of the two, ___________ the size of the budget deficit.
increases
When a debt ceiling is reached, Congress usually ___________ it
increases
When there is a deficit, the national debt
increases
after a fiscal stimulus, AS slopes upward, so an AD shift right will induce price level ___________
increases
Leftward shift of AS: __________ both inflation and unemployment and output ________
increases and decreases
The Fed may limit deposit creation by ___________ reserve requirements.
increasing
Fiscal stimulus and easy money will reduce unemployment but increase ____________
inflation
If AD is too much, ___________ arises.
inflation
Too much fiscal stimulus? This may rapidly lead to excessive spending and
inflation
The message of the upward-sloping AS curve is that demand-side policies alone can never succeed completely; they will always cause some unwanted __________ or ___________
inflation or unemployment
Too little fiscal restraint? The economy may continue to be
inflationary
the output at which inflationary pressures intensify; the point on the AS curve where slope increases sharply
inflationary flashpoint
We must maintain, improve, expand, and in some cases replace our public _____________
infrastructure
An underperforming economy produces at a point _______ the PPC
inside
The market determines the "price" of money, or the
interest rate
three determinants of shift in AD
internal market forces external shocks fiscal policy
Redistributes income from import-competing firms to exporting firms
international trade
The following threats may inhibit _____________: • Increasing government regulation. • Increasing inflation. • Increasing budget deficits and "crowding out." • Increased business taxes
investment
The goal is to expand ___________ spending, which increases the capacity to produce. This will shift AS to the right
investment
what are the three views of AS
keynesian AS, Monetarist AS, and Hybrid AS
____________ believe that changing interest rates are the critical policy lever to shift aggregate demand
keynesians
to close the inflationary GDP gap who would decrease AD by raising taxes and cutting government spending
keynesians
to close the recessionary GDP gap who would increase AD by tax cuts or spending increases. Also, decrease interest rates to spur investment
keynesians
Continuing advances in education and skills training have greatly increased the quality of U.S. _______
labor
The fiscal restraint needed to close the GDP gap must be __________ than the gap
larger
The fiscal stimulus needed to close the GDP gap must be __________ than the gap because AS slopes upward
larger
If the government runs a surplus, tax revenues are greater than government expenditure and adds to the __________ in the circular flow. This results in a drag on the economy
leakage
Excessive regulation is costly to producers and will shift AS to the
left
Government regulations of international trade also influence AS. • When production costs rise, AS shifts
left
High marginal tax rates will shift AS to the
left
When AS shifts right, the Phillips curve shifts _________
left
as aggregate demand moves up and right on the aggregate supply curve, the inflation- unemployment trade-off shifts ______ on the phillips curve
left
• By changing reserve requirements, the Fed can directly alter the ___________ __________ of the banking systeme
lending capacity
Rising interest rates also increase the borrowing costs of government, leaving ______ room in government budgets for financing new projects
less
The initial spending injection can be _______ than the size of the tax cut
less
Since there is no initial new input of spending, a tax cut contains _____ fiscal stimulus than a ______________ spending increase of the same size
less and government
The assets of a bank always equals its
liabilities
What the bank is obligated to pay to others.
liabilities
The portion of the money demand curve that is horizontal; people are willing to hold unlimited amounts of money at some low interest rate
liquidity trap
Banks create money by making
loans
By increasing the money supply (causing a surplus), the Fed tends to __________ the equilibrium rate of interest.
lower
The Fed can induce people to buy bonds from them by offering to sell them at a _______ price
lower
With an inflationary gap, interest rates are likely to be high. A decrease in the money supply will ______ nominal interest rates
lower
To increase the money supply, the Fed can: • _________ reserve requirements. • ________ the discount rate. • Buy _______ in open market operations
lower, reduce, and bonds
Supply-siders emphasize a reduction in ___________ tax rates for both workers and firms
marginal
the tax rate imposed on the latest earned (marginal) dollar of income
marginal tax rate
accepted as payment for goods and services (and debts).
medium of exchange
Anything that serves all the following purposes (3) can be thought of as money
medium of exchange, store of value, and standard of value
three examples of deregulation in the factor market
minimum wage, mandatory benefits, and occupational health and safety
the sum of inflation and unemployment rates.
misery index
___________ believe that expanding the money supply at a steady, predictable rate is the critical policy tool
monetarists
to close the inflationary GDP gap who would reduce the money supply
monetarists
to close the recessionary GDP gap who would say fiscal policy doesn't matter so long as the velocity of money is constant. The appropriate response is patience
monetarists
the use of money and credit controls to influence macroeconomic outcomes
monetary policy
which policy: Open market operations. Changes in reserve requirements. Changes in discount rates.
monetary policy
which policy: The Fed's Board of Governors uses money and credit controls to influence macroeconomic outcomes
monetary policy
A tactic of _________ _________ is to increase aggregate demand (AD) by lowering interest rates.
monetary stimulus
A bank makes a loan, creating
money
a tool that greatly simplifies market transactions
money
anything generally accepted as a medium of exchange
money
the quantity of money people are willing and able to hold (demand) increases as interest rates fall, and vice versa.
money demand
Money is a commodity that is traded in a marketplace, the
money market
the amount of deposit dollars that the banking system can create from $1 of excess reserves
money multiplier
If spending increases when the money supply grows, then the Fed should focus on the _______ ________, not interest rates
money supply
what percent of gdp are great britain exports
30%
The private sector holds ___% of debt
32
Today ____ percent of the workforce has completed four years of college
35
Federal agencies (e.g., the Federal Reserve and the Social Security Administration) hold _____% of all outstanding Treasury bonds
36
M2 is _______ times larger than M1
4
One board member is appointed by the president to serve as chairman of the fed for _____ years
4
The federal government collects nearly $____ trillion a year in tax revenues, nearly ______ of which comes from individual income taxes
4 and half
In 1978 Congress set goals of ____% unemployment, ____% inflation, and ____% economic growth
4, 3, and 4
M2 stands for
money supply
currency held by the public, plus balances in transactions accounts.
money supply (M1)
M1 plus balances in savings accounts and money market mutual funds
money supply (M2)
mv = pq means
money supply x velocity of its circulation = price level x quantity of output
Economic growth means ________ of the people's wants and needs will be satisfied.
more
an increase in the ratio of capital to labor means
more physical capital
Monetary stimulus will be _______ effective if long-term interest rate changes mirror short-term rate changes.
most
initial increase in consumption =
mpc x tax cut
Reduced government spending will have a ___________ impact on AD
multiplied
Fiscal stimulus will set off the _____________ process.
multiplier
People must reduce consumption and saving to pay the added taxes which will trigger the negative ____________ effect and AD will shift to the ________
multiplier and left
cumulative change in spending =
multiplier x initial change in consumption
the end result is that both countries can now consume a greater combination of goods
mutual gains
the accumulation of many years of running budget deficits
national debt
two other arguments used to restrict trade
national security and dumping
the long-term rate of unemployment is determined by structural forces in labor and product markets.
natural rate of unemployment
If a bank has no excess reserves, it can make ___ more loans
no
are external shocks predictable
no
do mutual gains occur in a closed economy
no
does a closed economy have international trade
no
the interest rate we actually see and pay.
nominal interest rate
the use of product standards, licensing restrictions, restrictive procurement practices, and safety regulations to deter the qualification of products to be imported.
nontariff barriers
The short-run goal is to achieve full employment, to move the economy to a point ______ the PPC
on
The Fed funds rate is a highly visible signal of Federal Reserve _________ _________ operations
open market
The objective of ________ _________ operations is to alter the price of bonds, raising or lowering their yields, to make them more or less attractive as investments
open market
the principal mechanism to directly alter the reserves of the banking system
open market operations
If people hold cash as M1, the forgone interest they could have earned is the __________ __________ of money people choose to hold
opportunity cost
The burden of the debt is really the __________ ___________ (crowding out) of deficit financed government activity
opportunity cost
conflict between the benefit and the cost of a policy option
opportunity cost
Budget deficits arise when government __________ (spending) exceed __________ (receipts).
outlays and revenues
Economic growth is an increase in ________ (real GDP); an expansion of production possibilities __________
output and outward
To achieve large and lasting increases in output, we must push the PPC _________
outward
When there is a surplus, the national debt can be ______ _______
pared down
M1 permits direct ___________ to a third party for goods and services
payment
As the boomers retire, more will go out in Social Security checks than comes in from __________ taxes
payroll
Increasing human capital investment. • Increasing physical capital investment. • Maintaining stable expectations. • Institutional context of a nation's economy. are examples of
policy tools
GDP per capita increases only when GDP growth exceeds ___________ growth.
population
If the labor force grows faster than the ___________, GDP per capita grows and living standards rise
population
Money held for unexpected market transactions or for emergencies
precautionary demand
A tax cut adds no more dollars to the economy. It allows earners to keep more of their current ___________ income
pretax
To a large extent, current revenues and expenditures are the result of decisions made in ________ years
prior
Each bitcoin has a "_______ _____" identifier which you can transfer to another person or firm in payment, without a bank transfer
private key
If the required reserve ratio is 0.20, the money multiplier is 5. An initial deposit of $100 has $80 of excess reserves and potentially can create $_____ of new deposits
400
what percent of gdp are south korean exports
44
It may take _____ to _______ months before market behavior responds to monetary policy.
6 to 12
There are_____ board members appointed to the def board of governors by the president and confirmed by the Senate to serve _____-year terms. Appointments are staggered, to ensure a measure of political independence
7 and 14
what percent of gdp are belgium exports
70
A shortcut method of indicating growth rate is to use the Rule of
72
about ____% of the budget is automatic spending
80
Any increase in ____ directly increases the price level.
AD
Shifting _____ to "fix" stagflation is not possible
AD
The amount by which AD must be reduced to achieve full employment after allowing for price level changes.
AD excess
desired fiscal restraint =
AD excess / multiplier
The amount of additional AD needed to achieve full employment after allowing for price level changes
AD shortfall
desired fiscal stimulus =
AD shortfall/multiplier
When government imposes regulations that directly affect employment and production decisions, it affects the _____ curve
AS
Regulations have good reasons for existing, but shift AS to the left by increasing costs to
producers
in a closed economy : The consumption possibilities in each country must equal its _____________ possibilities
production
what curve shows the short-run limit of production capacity.
production possibilities curve
If deficit-financed government spending crowds out private investment, future generations will bear some of the debt burden: • We will have smaller-than-anticipated __________ capacity. • There will be arguments about achieving an optimal mix of output, as the public sector grows at the expense of the __________ sector.
productive and private
A primary determinant of labor is
productivity
Long-run growth of the labor force has stabilized, so continued growth in real GDP must rely on ___________ growth
productivity
is better measured by output per labor-hour
productivity
If government is divided between the two groups, ________ vs ________, fiscal policy will be delayed by arguments on these policy issues.
public vs private
The essence of money is not its physical form, but its ability to ___________ goods and services
purchase
what two things are a part of government expenditure
purchases and income transfers
The amount of money available (the size of the money supply) affects consumers' ability to purchase goods and services
purchasing power
The value of the dollar is indicated by its
purchasing power
long-term bonds and mortgage-backed securities
quantitative easing
A limit on the quantity of a good allowed to be imported
quota
By decreasing the money supply (causing a shortage), the Fed tends to _____ the equilibrium rate of interest
raise
the nominal rate minus the anticipated inflation rate
real interest rate
Opportunity cost of running up debt are incurred when ______ __________ are used
real resources
A fiscal stimulus package is designed to move the economy out of __________ toward full-employment GDP
recession
Too little fiscal stimulus? The economy may stay in
recession
To close an inflationary GDP gap using monetary policy, _________ the money supply and shift AD ______
reduce and left
what are three fiscal policy tools for fixing an overheated economy
reduce government purchases increase taxes reduce transfer payments
which option of fiscal restraint is politically unpopular
reduced transfer payments
An increase in the required reserve ratio _________ both excess reserves and the money multiplier
reduces
Rightward shift of AS: __________ inflation and unemployment at the same time
reduces
Increase in government expenditures may be offset by ___________ in private spending
reductions
How is the debt usually paid off? • It is usually just _________
refinanced
the issuance of new debt to pay off debt issued earlier
refinancing
If borrowers are __________ to take on more debt, fewer loans will be made
reluctant
the ratio of a bank's required reserves to its total deposits.
required reserve ratio
required reserves =
required reserve ratio x total deposits
the minimum amount of reserves a bank is required to hold (and not loan out).
required reserves
Private banks are required to keep a fraction of deposits "in _________," either as cash or on deposit at the regional Fed bank
reserve
If banks are reluctant to take risks in lending, they will not fully lend out their excess ________
reserves
_____________- consumed by a government expenditure cannot be used to produce other goods and services
resources
A tactic of monetary _________ is to decrease aggregate demand (AD) by lowering interest rates.
restraint
Decreased government spending is a form of fiscal _________
restraint
If an inflationary GDP gap exists, a fiscal __________ could be used to return the economy to full-employment GDP
restraint
what does T stand for
revenue
A reduction in marginal tax rates will shift AS to the
right
Economic growth is also indicated as a __________ shift of long-run AS.
rightward
An increase in demand for funds will cause the price of borrowing, the interest rate, to ______
rise
Thus, total spending (PQ) must _____ if money supply (M) grows and velocity (V) is stable, regardless of interest rates
rise
As the economy grows: • Tax revenues _____ • Unemployment benefits _____ • Other transfer payments _____ • Interest rates could rise, __________ debt payments
rise, fall, fall, and increasing
_________ interest rates make it more costly for consumers or businesses to borrow, and they may cut back
rising
Supply-siders emphasize the importance of __________ for financing more investment and economic growth
saving
Keynesians treat ________ as a deterrent to spending, a leakage
savng
Congress will have to raise taxes, make big cuts in spending, or reduce Social Security payouts to redeem those Treasury _____________
securities
If a bank needs more reserves, it can sell ____________ and deposit the proceeds at a regional Federal Reserve bank
securities
an asset that bears interest, such as a government bond
securities
The Fed has greater influence on ________-term rates
short
five constraints on monetary stimulus
short vs long term rates reluctant lenders liquidity trap low expectations time lags
If interest rates are lower than equilibrium, there is a money
shortage
How much to shift AD to eliminate GDP gaps is indicated by the AD _________ or the AD ___________
shortfall and excess
The camp favoring government solutions to problem would: • Increase government spending to cover an AD _________. • Hike taxes to cover an AD _________
shortfall and excess
The camp that is concerned about excessively large government and thinks that solutions are better left to the private sector would: • Cut taxes to cover an AD _________. • Reduce government spending to cover an AD _________
shortfall and excess
Increase the reserve requirement and: The available lending capacity
shrinks
Since the effect of a change in G is greater than the effect of a change in T, AD would shift by the _______ of the change
size
Each policy tool would alter the economy's mix of consumption and investment and cause a different distribution of income. • One side: ________ tax cut for the rich, ________ tax relief for the poor, and more social programs. • The other side: _____ taxes for businesses and entrepreneurs, ________ the size and scope of government programs
smaller and more cut and reduce
Each person, firm, or country should find what they can produce at a comparative advantage
specialization
Money held for speculative purposes, for later financial opportunities.
speculative demand
___________ a surplus increases the size of the public sector
spending
To move out of recession to full-employment GDP, the primary concern is how much ___________ or _____ ______ should be involved
spending or tax cuts
Monetarists also say that, in the short run Q is
stable
Monetarists assume V is
stable
the simultaneous occurrence of substantial unemployment and inflation
stagflation
serves as a yardstick for measuring the prices of goods and services
standard of value
Because of several time lags in collecting data, the third part of the balance of payments is the __________ ____________, which indeed balances the two accounts
statistical discrepancy
keynesian view: Budget deficits and surpluses are a routine by-product of fiscal policy, caused by a fiscal ___________ to increase AD or a fiscal ___________ to decrease AD
stimulus and restraint
can be held for future purchases
store of value
The ___________- deficit reflects discretionary fiscal policy decisions
structural
federal revenues at full employment minus expenditures at full employment under prevailing fiscal policy
structural deficit
Supply-siders encourage investments in human capital to provide the knowledge and skills needed to reduce
structural unemployment
Market participants can look outside of U.S. money market for loanable funds in foreign __________, banks and ________ markets
subsidiaries and bond
which policy: Tax incentives for saving and investment. Deregulation. Human capital investment. Infrastructure development. Free trade. Immigration.
supply side policy
to close the inflationary GDP gap who would expand productive capacity.
supply siders
The _____________ policy levers require changes in laws and regulations
supply-side
to close the recessionary GDP gap who would cut tax rates and reduce regulation to improve production incentives and long-run development.
supply-side
which policy: The use of tax incentives, (de)regulation and other tools is a long-run policy to provide incentives to work, save, and invest. Marginal tax rates and government regulations must be reduced to get more output without inflation.
supply-side
If interest rates are higher than equilibrium, there is a money
surplus
When revenues exceed outlays, a budget ___________ exists
surplus
When the Treasury receives Social Security funds from payroll deductions, it pays out current retirement benefits and puts the ________- in Treasury securities
surplus
A tax imposed on imported goods
tariff
(taxes on imported goods
tariffs
Supply-siders advocate _____ incentives for investment.
tax
The labor response to a change in tax rates is summarized by the
tax elasticity of supply
adds to disposable income but does not affect the marginal tax rate, so AS does not shift
tax rebate
one-time tax refund
tax rebate
government can create fiscal stimulus by lowering ___________
taxes
Scientific research. • Product development. • Innovations in production techniques are all examples of
technological advancements
development and use of better capital equipment and products.
technological advancements
the rate at which goods are exchanged. The amount of good A given up to get good B in trade
terms of trade
Monetarists suggest that the potential of monetary policy can be express as:
the equation of exchange
the largest and oldest of trade agreements
the general agreement on tariffs and trade
was intended to be another regional trade pact, linking 12 nations that border the Pacific Ocean.
the trans-pacific partnership (TPP)
what Organization tries to enforce free-trade rules
the world trade organization
Pork Barrel Politics, Congress members might:
Channel spending to their own districts. • Protect favored projects from cuts. • Steer away from tax hikes or spending cuts before an election.
what four things do the federal reserves banks do
Clearing checks. • Holding bank reserves. • Providing currency. • Providing loans
The balance of payments is divided into three parts: what are the three parts
Current account balance capital account balance statistical descrepency
limitation of fiscal policy? It takes time to: • Recognize that a problem exists. • Develop a policy strategy. • Pass the required legislation. • Implement the policy. • Generate the many steps in the multiplier process.
time lags
Excess reserves =
total reserves - required reserves
excess reserves =
total reserves - required reserves
a negative trade balance
trade deficit
a positive trade balance
trade surplus
Most of M1 are _________ _________ ________
transactions account balances
include checking accounts and travelers checks
transactions accounts
cash and transactions accounts include
transactions accounts and currency
Money held for the purpose of making everyday market purchases
transactions demand
A third option for fiscal restraint is to reduce ___________ payments
transfer
Increasing _________ payments raises recipients' disposable income and spending increases.
transfer
Keep _________ payments from becoming excessive and providing a disincentive for recipients to take a job
transfer
three examples of deregulation in the product market
transportation costs, food and drug standards, and environmental protection
The U.S. Treasury borrows by issuing ________ __________ to lenders who want a safe investment paying out interest
treasury bonds
International trade therefore involves _____ currencies
two
Fiscal restraint and tight money will reduce inflation but increase ________________
unemployment
If AD is too little, ____________ arises
unemployment
The upward-sloped AS curve has a point at which inflation rockets upward as the decrease in ________________ slows
unemployment
Too much fiscal restraint? This may rapidly lead to decreased spending and rising
unemployment
Fiscal policy has a trade-off between
unemployment and inflation
These automatically turn on when someone becomes unemployed.
unemployment benefits
the number of times per year, on average, that a dollar is used to purchase final goods and services
velocity
since the Fed controls the money supply, it is represented by a _______ line
vertical
The national debt creates _________ for bondholders equal to the __________ it creates for the U.S. Treasury
wealth and liabilities
The cyclical deficit: • _______ when GDP growth slows, or inflation increases. • _______ when GDP growth accelerates, or inflation decreases
widens and shrinks
If the increase in G and the decrease in T are the same size, the deficit would/ would not grow
would not
does international trade exist in an open economy
yes
to stop debt growth: Balance the budget (G = T), or • Impose a deficit ceiling that is decreased each year until it reaches _______
zero
Available lending capacity =
Excess reserves × Money multiplier
three incentives to expand investment
Faster depreciation schedules. • Tax credits for new investments. • Lower business taxes
A system where exchange rates are permitted to vary with market supply and demand conditions
Flexible exchange rates (or floating exchange rates)
The goal of fiscal policy is to eliminate _______ gaps by shifting AD
GDP
There are four obstacles to policy success:
Goal conflicts. Measurement problems. Design problems. Implementation problems.
budget deficit =
Government spending - Tax revenues > 0
4 Sources of productivity gains:
Higher skills. • More capital. • Technological advancements. • Improved management.
The International Monetary Fund
IMF
what form of AS: Horizontal AS, when AD curve shifts, output not price changes.
Keynesian AS
_____________ say that changes in the money supply change interest rates, which shifts AD
Keynesians
M2 must be turned into ____ before it can be used to purchase goods and services
M1
M2 =
M1 + savings accounts
money supply (M2) =
M1 plus balances in most savings accounts and money market mutual funds
People hold money in ______ accounts because they can earn some interest on these deposits
M2
initial fiscal stimulus =
MPC x increase in transfer payments
what is the equation of exchange
MV=PQ
what form of AS: Vertical AS, output does not respond to changing price levels
Monetarist AS
____________ say that real output levels are not affected by monetary policy. Only the price level is affected by Fed policy ... and then only by changes in the money supply
Monetarists
PQ is the same as
Nominal GDP
This is the inflation-unemployment trade-off, which is expressed in the __________ curve
Phillips
Government can alter AD by: (three things)
Purchasing more or fewer goods and services. Raising or lowering taxes. Changing the level of income transfers
Required reserves =
Required reserve ratio × Total deposits
The Fed controls the money supply by using three policy tools:
Reserve requirements. • Discount rates. • Open market operations
Potential uses for a budget surplus:
Spend it on goods and services.•Cut taxes.•Increase income transfers.•Pay off old debt ("save it").
who say that tariff reduction on inputs and improvement in the flow of immigrant workers cause production costs fall and AS will shift right
Supply-siders
The accounting ledgers used by banks to track assets and liabilities
T-accounts
The U.S. withdrew from the ______ on President Trump's first day in office
TPP
Is responsible for the Fed's daily activity in financial markets
The Federal Open Market Committee (FOMC)
what does crowding in effect do
They buy more goods and services. • Expands the private sector. • Lowers the demand for funds and the interest rates
Current account balance that includes what three things
Trade balance. • Unilateral transfers. • Net investment income
goal is to eliminate all trade barriers between the countries
U.S.-Mexico-Canada Agreement
Monetarist view: If M increases, P and/or Q must rise, or ____ must fall.
V
In the equation of exchange (MV = PQ), Keynesians' fiscal policy relies on changes in ____ while monetarists assume V is ________ and rely on changes in M
V and stable
what is it called when the two countries agree to reduce the volume of trade
Voluntary restraint agreement (VRA)
what percent of gdp are american experts
about 12%
Changes in the money supply may in turn alter spending behavior and thereby shift the __________ _________ curve.
aggregate demand
purchasing power directly affects _______ ________
aggregate demand
bond yield =
annual interest payment / price paid for the bond
Any increase in demand for the dollar or decrease in supply of the dollar will push the dollar price in euros up. The dollar ____________ in value.
appreciates
Caused by an increase in demand or a decrease in supply of the first currency
appreciation
a rise in the price of one currency relative to another
appreciation
Things of value that the bank possesses
assets
those elements of the budget that are a result of decisions made in prior years; said to be "uncontrollable."
automatic spending
a basic countercyclical feature of the federal budget
automatic stabilizers
federal expenditure or revenue item that automatically respond counter-cyclically to changes in national income (GDP)
automatic stabilizers
The fiscal stimulus can come from inducing increased ______________ consumption or ______________ spending
autonomous or investment
a summary record of a country's international economic transactions in a given period of time
balance of payments
assets held by a bank to fulfill its deposit obligations
bank reserves
The entire _______ ________ can increase the volume of loans by the amount of excess reserves multiplied by the money multiplier.
banking system
No money? Transactions would be made using a _________ system
barter
the direct exchange of one good for another, without the use of money.
barter
electronic creations governed by a computer protocol that will maximize the amount available by 2140
bitcoins
a certificate acknowledging a debt and the amount of interest to be paid each year until repayment, an IOU
bond
the rate of return on a bond
bond yeild
If the U.S. Treasury pays off maturing bonds with taxes, it is a redistribution of income from taxpayers to _______________
bondholders
When a Treasury bond matures, new funds are __________- to pay it off
borrowed
Fiscal stimulus funding would most likely be financed by government
borrowing
the amount by which government spending(G) exceeds government tax revenue(T) in a given time period
budget deficit
Banks can/ can not loan out these required reserves
cannot
A primary determinant of labor productivity is ___________ investment
capital
There is a net dollar inflow in the __________ account
capital
what account balance includes : Inflow due to foreign purchases of U.S. assets. • Outflow due to U.S. purchases of foreign assets. • Increase in U.S. official reserves. • Increase in foreign official assets in U.S
capital account balance
_______ is less than half of the M1 money supply
cash
Checking accounts perform the same market functions as ______. Debit cards act much like a _________, so they are money
cash and check
M1
cash and transactions accounts
In an open economy, with international trade, resources are redirected to produce the good in which a ______________ ______________ is held.
comparative advantage
the ability to produce a good at a lower opportunity cost than others
comparative advantage
When you deposit cash or coins in a bank, you are only changing the ____________ of the money supply, not its ______
composition and size
The multiplier effect will stimulate additional rounds of increased ____________ _____________ when there is more government spending
consumer spending
more jobs are __________ due to international trade.
created
____________ bypasses the banks, which weakens the link between the money supply and aggregate demand
crowdfunding
the financing of a project through individual contributions from a large number of people, typically via an internet platform
crowdfunding
Paying off some accumulated debt puts money in the hands of the debt holders
crowding in effect
A reduction in private sector borrowing (and spending) caused by increased government borrowing
crowding out
Borrowing from foreigners eliminates _________ ______
crowding out
There is a net dollar outflow in the __________ account
current
what includes Money flows in the trade balance, and Money flows in investment income, government grants, and private funds transfers
current account balance
Keynesians will _____ taxes to increase AD.
cut
The impact of _________ components (automatic stabilizers) and policy initiatives affect the budget at the same time
cyclical
The structural deficit reflects discretionary fiscal policy decisions. Therefore, part of the deficit arises from __________ changes in the economy; the rest is a result of ___________ fiscal policy.
cyclical and discretionary
that portion of the budget deficit attributable to short-run changes in economic conditions
cyclical deficit