Term
If the Federal Reserve intended to encourage investment and expand the economy, it would ___ government bonds, ___ the money supply, and ___ lower interest rates. This is shown in panel ___.
(EXAM 3 #1) |
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Definition
| buy, increase, lower, (a) |
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Term
| Suppose the economy is operating at an output level of $5,400 billion. Assume furthermore that potential output is $5,000. Which of the following would be necessary to close this inflationary gap if the MPC= .75? |
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Definition
| decrease spending by 100 billion |
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Term
| Banks decide to do away with fees charged to noncustomers when they use another bank's ATM. If the Federal Reserve wants to maintain the same federal funds rate, it should: |
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Definition
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Term
| Suppose the Federal Reserve has set a target for the federal funds rate. If initially the equilibrium interest rate happens to be higher than the target interest rate, then the Federal Reserve should: |
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Definition
| purchase Treasury bills in the open market, increase money supply, shift the supply of money curve to the right, and lower the interest rate to the target rate |
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Term
| To increase the money supply, the central bank could: |
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Definition
| lower the discount rate, make open-market purchases, or lower reserve requirements |
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Term
| The Federal Reserve affects interest rates by: |
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Definition
| open market operations that shift the money supply curve |
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Term
| The Federal Reserve's Open Market Committee has decided that the federal funds rate should buy 2% rather than the current rate of 1.5%. The appropriate open market action is to ___ Treasury Bills to ___ money ___. |
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Definition
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Term
| If the reserve ration is 25% and the money supply increases by $100,000, then the initial reserve injection by the Federal Reserve was: |
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Definition
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Term
| The Federal Reserve's main liabilities are: |
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Definition
| currency and bank reserves |
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Term
| Real GDP equals $400 billion, the government collects 25% of any increase in real GDP in the form of taxes, and the MPC is 0.8. If potential output equals $250 billion, the government could close the ___ gap by decreasing government spending by $___. |
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Definition
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Term
| Automatic stabilizers are government spending and taxation changes that: |
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Definition
| cause fiscal policy to be expansionary when the economy contracts |
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Term
| Suppose you find a $50 bill that you put in a coat pocket last winter. If you deposit it in your checking account: |
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Definition
| there is no change in M1 or M2 |
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Term
| Money that has value apart from its use as money is: |
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Definition
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Term
| A contractionary fiscal policy: |
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Definition
| decrease a government budget deficit or increase a government budget surplus |
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Term
| Consider the economy of Arcadia. The households of Arcadia spend 75% of their income. There are no taxes and no foreign trade. The currency of Arcadia is called the arc. The level of potential output in Arcadia is 600 billion arcs. Suppose that actual output is 700 billion arcs, and the government of Arcadia decides to tax its citizens. To bring the economy to potential out put, the government should: |
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Definition
| increase taxes by 33.33 billion arcs |
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Term
| Suppose an economy is producing real GDP of $300 billion. The potential output is equal to $400 billion, and their MPC is 0.8. Then the government should follow a policy of: |
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Definition
| cutting taxes by $25 billion to bring the economy to potential output |
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Term
| All of the following are roles of money EXCEPT: |
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Definition
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Term
| Congress increases personal income tax rates in order to balance the budget. Which of the following is likely to result? |
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Definition
| automatic stabilizers will decrease the contractionary impact of the decrease in aggregate demand |
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Term
If the reserve ratio is 8% and the banking system does NOT want to hold excess reserves, how much more can be added to the money supply?
(EXAM 3 #19) |
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Definition
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Term
| Government spending and taxation changes that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are known as: |
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Definition
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Term
If the reserve ratio is 25%, loans are:
(EXAM 3 #21) |
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Definition
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Term
| A cyclically adjusted budget balance: |
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Definition
| is an estimate of what the budget balance would be if real GDP were equal to potential output |
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Term
| If the Federal Reserve wants to close an inflationary gap, it will: |
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Definition
| decrease the money supply and raise the interest rate, thus lowering investment spending and GDP. the AD curve will shift to the left |
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Term
| When you are looking at a car's price to decide if you can afford it, you are using money as: |
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Definition
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Term
| The fact that tax receipts fall during a recession: |
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Definition
| reduces the adverse effect of the initial fall in aggregate demand |
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Term
| The reserve ratio is 20% and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does not want to hold excess reserves. What is the maximum expansion in the money supply possible? |
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Definition
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Term
| When actual output is above potential output over time: |
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Definition
| nominal wages will increase, and the short-run supply curve will shift left |
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Term
| If a checking account has an interest rate of 1% and a Treasury Bill has an interest rate of 2%, the opportunity cost of holding the checking account as money is: |
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Definition
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Term
| If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%: |
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Definition
| the quantity of nonmonetary interest-bearing assets demanded is less that the quantity supplied |
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Term
| Suppose the banking system does not hold excess reserves and the reserve ratio is 20%. If Sam deposits $500 cash into his checking account, the banking system can increase the money supply by: |
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Definition
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Term
| Suppose that the budget deficit of a country remains level for five years. Which of the following is true concerning the fiscal stance of this government? |
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Definition
| the federal debt will rise |
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Term
| If the MPC equals 0.9, then the tax multiplier will be: |
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Definition
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Term
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Definition
| provides depositors with assurances that they will receive their deposits even if there are questions about a bank's soundness |
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Term
| The medium of exchange function means that money is used: |
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Definition
| to pay for goods and services |
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Term
| If MPS equals 0.1, then the government spending multiplier has a value of: |
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Definition
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Term
| Suppose a bank has excess reserves of $50 and the reserve ratio is 20%. If Andy deposits $5,000 of cash into his checking account and the bank lends $2,500 to Mollly, the money supply: |
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Definition
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Term
| When a person deposits money in a bank, this: |
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Definition
| creates a liability and an asset for the bank |
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Term
| Suppose that the public holds 50% of the money supply in currency and the reserve requirement equals 20%. Banks hold no excess reserves. A customer deposits $6,000 in her checkable deposit. The money multiplier is: |
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Definition
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Term
| Most economists believe that a balanced budget requirement would: |
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Definition
| undermine the role of taxes and transfers as automatic stabilizers |
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Term
| Other things equal, rising interest rates lead to a: |
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Definition
| fall in investment and consumer spending |
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