Macro Rabon Unit Exam 4

The maximum amount of time that a person can receive welfare payments is _____ during a lifetime.

5 years

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

AD

Why did the tax rebate of $78 billion in 2008 have few net stimulus benefits?

Consumers used much of the rebate to pay off existing debt.

Suppose you are a married person with one child but your whole family earns less than $20,000 a year. Which of the following will supplement your income?

Earned Income Tax Credit

What is the overnight lending rate from one bank to another?

Federal Funds rate

Which statement pertains to the condition of crowding out?

Government raises taxes by $300 million to finance new spending on highway construction, resulting in a decrease in investment spending by $270 million

The main difference between M1 and M2 is that:

M2 includes some less liquid assets in addition to the assets in M1.

Whereas covers the elderly, covers the poor and the disabled

Medicare; Medicaid

Which is a limitation of monetary policy in stabilizing the economy?

Monetary policy is subject to uncertain lags.

A nominal GDP rule says _____ should always grow at a constant rate.

Mv

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

Social Security

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 an example of quantitative easing by the Federal Reserve?

The Fed purchases $50,000 worth of long-term government bonds.

Bill Clinton's administration experienced a federal budget surplus. Which of the following is therefore correct?

The national debt held by the public decreased.

What demographic change in the United States will cause government spending to increase in the next 50 years?

The population older than 65 will grow.

Which of the following statements about the Social Security program is correct?

Women, who generally live longer than men, benefit more from the system.

A liquid asset is:

an asset that can be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments.

When the government conducts fiscal policy, it can make up for a decrease in C with:

an increase in G

When the government conducts fiscal policy, it makes up for a decrease in C with:

an increase in G

Which is not included in the U.S. money supplies M1 and M2?

bond mutual funds

One of the Fed's greatest powers is its ability to:

boost market confidence.

The FICA tax burden is:

borne more by the employee even though the employer contributes an equal dollar amount.

An increase in money growth will cause the inflation rate to increase in:

both the short run and the long run.

To increase the money supply in the economy, the Fed would:

carry out open market purchases and/or lower the discount rate.

What are the four major limits to fiscal policy?

crowding out, a drop in the bucket, a matter of timing, and real shocks

Which of these would help a government fight a recession?

cutting taxes

In the long run, a negative real shock will cause output growth to:

decrease

Which asset would you classify as being most liquid?

demand deposits

In a fractional reserve banking system, banks hold only a fraction of their:

deposits as reserves.

What monetary policy philosophy is against tying the hands of the central bank?

discretion

When C falls, the LRAS curve:

does not move

The time necessary for a fiscal policy plan to have an impact is called the:

effectiveness lag

The Medicare program offers health-care benefits for the:

elderly

In the United States, the marginal tax rate for married couples:

exceeds the average tax rate for most income levels.

When the Fed buys short-term Treasury securities, short-term interest rates:

fall

The primary tools of fiscal policy are:

government expenditure and taxation.

Fiscal policy can best be defined as the use of

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

If the total liabilities of Bank A are less than its total assets but its short-term liabilities are greater than its short-term assets, Bank A is:

illiquid, but solvent.

The time necessary for government bureaucracies to carry out a fiscal policy plan is called the:

implementation lag.

In the long run, a negative real shock will cause the inflation rate to:

increase

Some economists argue that the Fed should commit to keeping M + v fixed at a particular value, say 5%. How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock?

increase M; do nothing

To reduce the money supply in the economy, the Fed would:

increase the discount rate.

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

increase the growth rate of the money supply.

In the absence of monetary intervention following a negative shock to aggregate demand:

inflation, real growth, and nominal wage growth will all decrease.

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising:

inflation.

Government spending on "interest on the debt" refers to:

interest paid to owners of government debt held by the public.

. The alternative minimum tax:

is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes.

The time necessary for Congress to propose and pass a fiscal policy plan is called the:

legislative lag

The time between which an economic shock is recognized and when the government passes a plan to carry out a policy response is called the:

legislative lag.

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

marginal tax rate

The annual difference between federal spending and revenues is called the:

national deficit

The Federal Reserve's major tool(s) to control the money supply is(are):

open market operations, discount rate lending, and paying interest on reserves.

The money you pay into Social Security goes to:

pay current beneficiaries.

The Medicaid program offers health-care benefits for the:

poor and disabled

Which is not a function of the Federal Reserve?

providing loans to small businesses

The Term Auction Facility involves the Federal Reserve:

providing reserves to banks through an auction.

The time necessary to determine that an economic problem exists is called the:

recognition lag.

The U.S. Social Security tax (FICA) is an example of a:

regressive tax.

When c falls, the aggregate demand curve:

shifts to the left

When a bank has short-term liabilities that are greater than its short-term assets, but overall its assets are greater than its liabilities, the bank is considered:

solvent and illiquid

The risk that the failure of one financial institution can lead to the failure of other financial institutions is called:

systemic risk.

The Federal Reserve can influence the economy by shifting:

the AD curve.

What is the overnight lending rate from one bank to another?

the Federal Funds rate

The largest source of revenue for the U.S. federal government is:

the individual income tax