Macro

in order to lower the federal funds rate, the Fed ___ government securities in open market operations, so that banks' reserves ___ and the quantity of money ___

buys; increase; increases

in order to lower the federal funds rate, the Fed ___ government securities in open market operations, so that banks' reserves ___ and the quantity of money ____

buys; increase; increases

in order to lower the federal funds rate, the Fed ____ government securities in open market operations, so that banks' reserves ____ and the quantity of money ____

buys; increase; increases

in order to lower the federal funds rate, the fed ______government securities in open market operations so that banks' reserves _______ and the quantity of money _______

buys; increase; increases

to fight a recession, an appropriate monetary policy would be that the Fed conducts an open market operation that _____ government securities, _____ the federal funds rate, and ___ aggregate demand

buys; lowers; increases

to fight a recession, an appropriate monetary policy would be that the Fed conducts an open market operation that ______ government securities ______ the federal funds rate and _______ aggregate demand

buys; lowers; increases

the federal budget

can have a deficit, a surplus or a balance

Consumer confidence in the economy falls, and as a result, aggregate demand decreases. As real GDP falls below potential GDP, if the Fed followed Friendman's k-percent rule, the Fed would

continue allowing the quantity of money to grow at "k" percent

consumer confidence in the economy falls and as a result aggregate demand decreases. As real GDP falls below potential GDP, if the Fed followed Friendman's k-percent rule, the Fed would

continue allowing the quantity of money to grow at "k" percent

consumer confidence in the economy falls, and as a result, aggregate demand decreases. As real GDP falls below potential GDP, if the Fed followed Friendman's k-percent rule, the Fed would

continue allowing the quantity of money to grow at "k" percent

assume the federal government raises taxes (a contractionary fiscal policy) if the tax increase affects AS and AD equally then real GDP will ______ and the price level will ____

decrease; be unchanged

assumed the federal government raises taxes (a contractionary fiscal policy). if the tax increase affects AS and AS equally, then real GDP will _____ and the price level will _____

decrease; be unchanged

when the exchange rate falls, imports ______ and exports _____

decrease; increase

need-based spending ____ during an expansion and ____ during a recession which leads to larger budget deficits during the ______ phase of the business cycle

decrease; increases; recession

if the fed fears inflation, it______ by _____ government securities

decreases aggregate demand; selling

if the government reduces expenditure on goods and services by $30 billion, then aggregate demand

decreases by more than $30 billion and real GDP decreases

an increase in income taxes ___ employment and ___ potential GDP

decreases; decreases

an increase in income taxes _____ employment and ____ potential GDP

decreases; decreases

an increase in income taxes___ employment and ___ potential GDP

decreases; decreases

Need-based spending ____ during an expansion and ____ during a recession, which leads to larger budget deficits during the ___ phase of the business cycle

decreases; increases; recession

need-based spending ____ during an expansion and ____ during a recession, which leads to larger budget deficits during the ___ phase of the business cycle

decreases; increases; recession

need-based spending _______ during an expansion and _____ during a recession, which leads to larger budget deficits during the _____ phase of the business cycle

decreases; increases; recession

need-based spending____ during an expansion and ____ during a recession which leads to larger budget deficits during the _____ phase of the business cycle

decreases; increases; recession

a decrease in monetary base ___ and the quantity of money, the interest rate ____ and the quantity of money demanded ____

decreases; rises; decreases

increasing the income tax rate ______ the ______

decreases; supply of labor

suppose the economy is an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of

decreasing taxes and/or increasing government expenditure

suppose the economy is in an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of

decreasing taxes and/or increasing government expenditure

suppose the economy is in an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of

decreasing taxes and/or increasing government expenditures

in 2010 the US government had tax revenues of $2703 billion and outlays were $3973 billion. the budget

deficit was 1270 billion

government tax revenues _____ during an expansion and ____ during a recession which leads to larger budget deficits during the _____ phase of the business cycle

NOT-decrease; decrease; expansion

when the exchange rate falls, imports ___ and exports ___

NOT-decrease;decrease

increasing the income tax rate ___ the ____

NOT-decreases; demand for labor

a decrease in monetary base _____ the quantity of money, the interest rate _____ and the quantity of money demanded

NOT-decreases; rise; increase

needs-tested spending

NOT-is directing government spending and taxes to states that need the most help NOT-is giving tax cuts to wealthy people so they will increase their spending

if the fed raises the federal funds rate, which of the following happens?

NOT-real GDP increases NOT- the real interest rate falls

the structural deficit is the deficit

NOT-that does not increase the national debt NOT- during an expansion

as contrasted to the mainstream view, Keynesian economists believe that ______ than mainstream economists believe

NOT-the burden of government debt on future generations is larger

as contrasted to the Keynesian view, mainstream economists belive that ___ than Keynesian economists believe

NOT-the multiplier effect is larger

discretionary fiscal policy is defined as fiscal policy

NOT-triggered by the state of the economy

the supply-side effects of a change in taxes ob labor income means that____ in taxes on labor income shifts the _____

an increase; labor supply curve leftward

ignoring any supply-side effects, suppose the government is considering cutting taxes by $100 billion or increasing government and services by $100 billion. Then

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

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 billion. Then

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

in the United States for the year 2012, the federal government had a _____ so the national debt was _____

budget deficit; increasing

if the fed fears a recession, it

buys government securities

the national debt is the amount

of debt outstanding that arises from past budget deficits

when the Fed lowers the federal funds rate, which of the following economic variables responds most rapidly?

other short-term interest rates

in order to reduce inflationary pressure on the economy, what fiscal policy can the government use

raise taxes

when there is a threat of inflation in the economy, the Fed can ___ the federal funds rate to ___ aggregate demand and ___ the price level

raise; decrease; decrease

when there is a threat of inflation in the economy, the Fed can ____ the federal funds rate to ___ aggregate demand and ___ the price level

raise; decrease; decrease

the fed is concerned about inflation, its policy will ____ US short-term interest rates and in the foreign exchange market, lead to the value of the US dollar _____

raise; rising

a government budget deficit _____ the _______ interest rate and crowds out private investment which _____ real GDP growth

raises; real; slows

if the fed's policies aim to increase aggregate demand, the fed must fear

recession

when the Fed fears inflation, the Fed _____ government securities , so that the federal funds rate ____- and the quantity of money _____

sells; rises; decreases

the magnitude of the tax multiplier is ____ the magnitude of the government expenditure multiplier

smaller than

needs-tested spending is best described as

spending on programs that entitle qualified persons and businesses to receive benefits

automatic changes in tax revenue and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic

stabilizers

automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic

stabilizers

automatic changes in tax revenues and expenditures that occure as a result of fluctuation in real GDP are referred to as automatic

stabilizers

the actual budget deficit is equal to the

structural deficit plus the cyclical deficit

the government has a budget surplus if

tax revenues are greater than outlays

discretionary monetary policy is defined as policy

that is based on the judgements of policymakers

induced taxes are defined as taxes

that vary with real GDP

what two parts of the government determine the federal budget?

the congress and the president

discretionary monetary policy is monetary policy that is based on

the judgement of the monetary policymakers about the current needs of the economy

one problem with the ripple effect from the Feds' monetary policy is

the tight relationship between that the federal funds rate has to aggregate spending

in late 2007, the Fed began a series of cuts in the federal funds rate. Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was

to avoid a recession

in late 2007, the fed began a series of cuts in the federal funds rate. because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was

to avoid a recession

inflation targeting requires that the central bank

NOT-adopt a k-percent rule for the inflation rate NOT-avoid changing the amount of the monetary base

a tax cut that increases the budget deficit results in ____ in the ___ loanable funds

an increase; demand for

a tax cut that increases the budget deficit results in _____ in the ____ loanable funds

an increase; demand for

the structural surplus

is the government budget surplus that would exist if the economy was at full employment

a reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP that

it is difficult to know whether real GDP is above above or below potential GDP

a reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that

it is difficult to know whether real GDP is above or below potential GDP

which monetary policy rule needs a stable demand for money to work well?

k-percent rule

an increase in taxes on labor income shifts the labor supply curve ___ and the ___

leftward; after-tax wage rate falls

if the fed follows the taylor rule and the economy goes into a recession, the fed would

lower the federal funds rate

if the fed is concerned about a possible recession it ____the federal funds rate, which ____ the quantity of reserves and ____ the amount of banks loans

lowers; increases; increases

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

has a deficit and the national debt is increasing

when the governments' expenditures exceed its tax revenues, the budget

has a deficit and the national debt is increasing

suppose the fed raises the federal funds rate. put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards:

i-ii-iii-iv

how could an expansionary fiscal policy increase real GDP and lower the price level

if aggregate increases more than aggregate demand increases

how could an expansionary fiscal increase real GDP and lower the price level?

if aggregate supply increases more than aggregate demand increases

how could an expansionary fiscal policy increase real GDP and lower the price level?

if aggregate supply increases more than aggregate demand increases

which of the following are TRUE regarding Milton Friendman's k-percent money targeting rule?

ii and iii- this rule sets the growth rate of the quantity of money and for this policy to work well, the velocity of circulation must be stable

needs-tested spending

includes transfer payments such as food stamps and unemployment benefits

as contrasted to the keynesian view, mainstream economists believe that ______ than Keynesian economists believe

NOT- real GDP growth rate is larger

suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation rate is 4 percent. In this case, the real after-tax rate is

2.0 percent

as contrasted to the keynesian view, mainstream economists believe that _____ than keynesian economists believe

NOT- the multiplier effect is larger

if the income tax rate is 20 percent and the tax rate on consumption expenditure is 15 percent, then the tax wedge is

35 percent

inflation targeting requires that the central bank

NOT- use a short-term interest rate as its policy instrument

a fall in the federal funds rate leads to

NOT-a decrease in investment

a fall in the federal funds rate leads to

NOT-a rise in the real interest rate NOT-a decrease in the quantity of money

the last US president to be in office when the government had a budget surplus was

Bill Clinton

the ______ view says that fiscal stimulus has a multiplier effect that makes it a ____ tool to fight a deep recession

Keynesian; powerful

suppose the tax rate on interest income is 25 percent, the real interest rate is 4 percent, and the inflation is 4 percent. In this case, the real after-tax interest rate is

NOT- 3.5 percent

when real GDP is less than potential GDP, there is ____ which leads the unemployment rate to ____

NOT- a recessionary gap; remain at the natural level

in the labor market, the income tax creates a tax wedge which raises the _____ wage rate, reduces that ____ wage rate, and _____employment

NOT- after-tax; before-tax; does not affect

the government expenditure multiplier is used to determine the

NOT- amount aggregate supply is affected by a change in government expenditure

the government expenditure multiplier is used to determine the

NOT- amount private consumption is decreased by government expenditure

when real GDP is less than potential GDP, there is ____ which leads the unemployment rate to _____

NOT- an inflationary gap; rise

in an expansion federal tax revenues increase proportionally more than real GDP without the need for any government policy. This increase in an example of

NOT- automatic monetary policy

in the labor market, the income tax creates a tax wedge which raises the ____ wage rate, reduces the ____ wage rate and ____ employment

NOT- before-tax; after-tax; increases

to change the federal funds rate, the Fed

NOT- changes the income tax rate on interest income NOT-coordinates with banks on establishing the new rate

the supply-side effects of an income tax cut ____ potential GDP _____ aggregate supply

NOT- decrease; increase

government tax revenues ______ during an expansion and and _____ during a recession which leads to larger budget deficits during the ________ phase of the business cycle

NOT- decrease; increase; expansion

if the fed fears inflation it ______ by ____ government securities

NOT- decreases aggregate supply; selling

in an expansion, federal tax revenues increase proportionally more than real GDP without the need for any government policy. This increase is an example

NOT- discretionary monetary policy

the magnitude of the tax multiplier is _____ the magnitude of the government expenditure multiplier

NOT- greater than

automatic stabilizers decrease the impact of a recession on the level of economic activity because they

NOT- increase the quantity of money in circulation NOT- reduce the interest rate and so allows firms to increase level of investment

if the fed fears inflation, it ____ by ___ government securities

NOT- increases aggregate demand; selling NOT- increases aggregate supply: buying

an income tax cut _____ aggregate demand and _____ aggregate supply

NOT- increases; decreases

the federal budget

NOT- is required to balance by law

the main goals of monetary policy include all of the following EXCEPT

NOT- keeping the unemployment rate close to the natural unemployment rate

when tax revenues ______ outlays is negative, then the government has a budget _______

NOT- minus; deficit

when tax revenues equal government outlays, the situation is referred to as

a balanced budget

national debt decreases in a given year when a country has

a budget surplus

if the economy is in equilibrium with real GDP less than potential GDP, there is ____ gap, and a fiscal policy that ____ is appropriate

a recessionary; increases aggregate demand

if the economy is in equilibrium with real GDP less than potential GDP, there is _____ gap, and a fiscal policy that ____ is appropriate

a recessionary; increases aggregate demand

if the fed raises the federal funds rate, which of the following happens

aggregate demand decreases

if the fed raises the federal funds rate, which of the following happens?

aggregate demand decreases

the federal budget is defined as

an annual statement of expenditures and tax revenues of the U.S. government

when the output gap is positive, it represents _____ gap, and when it is negative, it represents _____ gap

an inflationary; a recessionary

when the output gap is positive, it represents ______ gap and when it is negative it represent ______ gap

an inflationary; a recessionary

the Taylor rule is an example of

an instrument rule focused on the federal funds rate

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

automatic stabilizers

equilibrium in the market for bank reserves determines the

federal funds rate

the balanced budget multiplier applies when a $50 billion increase in government expenditure is financed by a $50 billion ___ in tax revenue and the balanced budget multiplier shows that in this case there is ____ effect on aggregate demand

increase; a positive

an income tax cut_____ aggregate demand and _____ aggregate supply

increase; increases

needs-tested spending

increases as unemployment increases

if federal taxes are cut by $10 billion, aggregate demand

increases by $10 billion multiplied by the tax multiplier

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

if government expenditure on goods and services increases by $100 billion, then aggregate demand

increases by more than $100 billion

if a tax cut increases people's labor supply, then the tax cut

increases potential GDP

in the short run, to decrease the interest rate, the Federal Reserve ____ the quantity of money by _____ government securities

increases; buying

in the short run, to decrease the interest rate, the federal reserve ______ the quantity of money by _____ government securities

increases; buying

the supply-side effects show that a tax cut on labor income ____ employment and ____ potential GDP

increases; increases

a $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of

induced changes in consumption expenditures

when the economy is in a recession ____ taxes decrease while _____ spending increases and as a result of the automatic fiscal policy aggregate demand _______

induced; needs-tested; increases

when the economy is in a recession, ___taxes decrease while ____ spending increases and, as a result of this automatic fiscal policy, aggregate demand ____

induced; needs-tested; increases

discretionary fiscal policy is defines as fiscal policy

initiated by an act of Congress