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Econ 104 – Flashcard

Q: Reasons that banks are heavily regulated

â¢governments are concerned about the safety of deposits â¢the industry is a principle determinant of aggregate demand â¢bank failures are contagious

Q: Currently in the United States, money is backed by

Everyone\'s willingness to accept it

Chad Lipe

11 June 2020

question

In a market system, the most dangerous types of bankruptcies involve

answer

Financial institutions

question

Reasons that banks are heavily regulated

answer

•governments are concerned about the safety of deposits •the industry is a principle determinant of aggregate demand •bank failures are contagious

question

Bankers business decisions effect the money supply because bankers

answer

Have the ability to create money

question

A bank run involves a large flow of money

answer

Out of depositors accounts

question

In order for barter trades to occur, there must be a

answer

Double coincidence of wants

question

The "efficiency of the payments mechanism" refers to

answer

The ease and speed of exchanging money for goods and services

question

Money is an imperfect store of value when

answer

The rate of inflation is high

question

Liquidity refers to

answer

Ease with which an asset can be converted into cash

question

Fiat money is

answer

Only backed by government decree

question

The primary feature of money is that it serves as

answer

A medium of exchange

question

Currently in the United States, money is backed by

answer

Everyone's willingness to accept it

question

The new $20 bills are being introduced by the U.S. Treasury primarily to diminish

answer

Counterfeiting

question

M1 is

answer

The money supply that includes coins, paper money, travelers checks, conventional checking accounts, and other checkable deposits at banks and savings institutions

question

Electronic cash or E-cards are

answer

Not included in the definition of the money supply

question

"Near monies"

answer

Liquid assets that are close substitutes for money

question

One difference between the assets included in M1 and those added to calculate M2 is that the items in M1 are

answer

More liquid than those to commute M2

question

Example of something included in M1

answer

Travelers checks

question

The M2 definition of the money supply is based on the concept that

answer

Many types of deposits can be used as both payments and stores of value

question

Are "smart cards" or E-cash cards part of the money supply?

answer

No, because they are merely means to transfer checking deposits

question

Due to new methods of electronically transferring assets from savings accounts to checking accounts, many economists favor moving savings accounts from

answer

M2 into M1

question

Under fractional banking, when a bank lends to a customer

answer

The money supply increases

question

Bank regulators are concerned about the safety of depositors because

answer

•bank failures were common throughout most of U.S. History and have even occurred in recent decades •in the absence of federal insurance, depositors would lose their money if a bank failed. •nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank

question

The objective of bank management is to

answer

Strike the appropriate balance between the attraction of bank profits and the need for bank safety

question

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

answer

Means lower profits for banks

question

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the banks reserve position if the required reserve ratio is 20 percent?

answer

$600,000 of required reserves, $400,000 of excess reserves

question

The balance sheet of a solvent bank will show

answer

Assets= liabilities+net worth

question

The government banking regulation that places an upper limit in the money supply is

answer

Reserve requirements on bank deposits

question

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve. The actual money multiplier will be

answer

question

If people begin to hold more cash, the money multiplier process will

answer

Decrease in actual size

question

The Feds principle objective is to

answer

Manage the money supply and interest rates

question

The fed is unlike other central banks in that

answer

has 12 branches

question

The actual control of the Federal Reserve System resides in the

answer

Board of Governors

question

Members of the Board of Governors of the Fed are

answer

appointed by the president for 14-year terms and confirmed by the Senate

question

When the Federal Reserve System was first established, its founders intended the Fed to

answer

provide protection against financial panics by acting as the lender of last resort

question

The European Central Bank, established in 1999, was patterned after the

answer

Federal Reserve, Founded in 1914

question

In practice, money supply and short-term interest rates are determined by the

answer

Federal Open Market Committee

question

The Fed is institutionally independent. A major advantage of this is that monetary policy

answer

is not controlled by politicians

question

If the Fed buys a T-bill from an individual rather than from a bank, the effect on the money supply is

answer

the same

question

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

answer

It will give the bank new reserves

question

The tool most frequently relied on by the Fed is

answer

Open market operations

question

Assume the required reserve ratio is 20 percent and the FOMC orders an open market purchase of $100 million in government securities from member banks. If the oversimplified money multiplier is assumed, then the money supply will

answer

increased by $500 million

question

When the Fed sells a government security to the public, how does it usually receive payment for the security?

answer

by accepting checks on bank accounts

question

Example of something that will lower interest rates in the short run?

answer

a decrease in real GDP

question

Interest rates rose in the second quarter of 1999. What happened to bond prices during this time?

answer

They decreased

question

The concept of "lender of last resort" is that when

answer

commercial banks are hesitant to lend, the Fed will step in and increase reserves

question

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

answer

does not know how banks will respond to discount rate changes

question

Example of what will increase interest rates in the short run

answer

open market sales by the Fed

question

If the Fed were to increase the money supply at the same time the government was increasing taxes, we could expect

answer

a decrease in the interest rates but the effect on real GDP is indeterminant

question

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

answer

When equilibrium real GDP is at potential real GDP

question

After the attacks of September 11, 2001, the proper policy response was

answer

expansionary monetary and fiscal policy

question

Which of the following is the formula for velocity?

answer

Velocity=nominal GDP/M

question

Which is likely to be larger, the velocity of M1 or M2?

answer

M1, because M2 is a larger number

question

A look at the historical data indicates that velocity for M1

answer

has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years

question

The quantity theory of money assumes that

answer

changes in velocity are so small that velocity can be considered constant

question

If credit cards were suddenly ruled illegal and were no longer used, the most likely effect would be a decrease in the

answer

velocity of circulation

question

As the price level rises, the demand for money

answer

increases because more money is needed for each transaction

question

The principle factor determining velocity is the

answer

frequency with which paychecks are distributed

question

If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

answer

It will increase

question

When comparing the keynesian and monetarist approaches, the only substanstive difference is that

answer

the Keynesian equation leads to a prediction of real GDP, the monetarist equation leads to a prediction of nominal GDP.

question

The major limitation of both the Keynesian approach and the monetarist approach is that both

answer

are ways of studying the aggregate demand curve, but to learn anything about the price level and output, and aggregate supply curve must be included in the analysis

question

According to the simple quantity theory of money, a change in the money supply of 9.6 perecent would lead to a

answer

9.6 percent change in nominal GDP

question

Contractionary fiscal policy

answer

reduces the quantity of money demanded, reduces interest rates, and increases investment spending

question

For Keynesian economists to incorporate monetary policy into their models, they must know

answer

how the money supply affects interest rates

question

Which of the following is the Keynesian view of the sequance of cause and effect of monetary policy?

answer

M, r, I, Y

question

It is often reported that by financial news reports that higher interest rates reduce automobile sales. If this is true, we can expect

answer

monetary policy to be more effective

question

A major advantage of monetary policy over fiscal policy is that monetary

answer

Policy can be put into effect more quickly

question

The optimal time for the implementation of contractionary fiscal policy would be

answer

before inflation accelerated

question

One of the problems with fixed targets for the money supply is that

answer

demand for money does not grow smoothly and predictably

question

If the Fed decides to target money supply growth, it must be prepared to accept

answer

Interest rate volatility

question

If the aggregate supply curve is flat

answer

expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation

question

Economists maintain that

answer

*The aggregate supply curve is nearly horizontal at low levels of real GDP *The aggregate supply curve is nearly vertical at very high levels of real GDP *Any change in aggregate demand will have most of its effects on output when economic activity is low, but on prices when the economy is near full employment

question

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

answer

Is near full employment and the aggregate supply curve is vertical

question

When will stabilization policy be most effective in combating recessions?

answer

When AS is flat

question

What role does ideology play in the debate on stabilization?

answer

A large role, because there are conservative and liberal economists

question

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

answer

A discretionary-based monetary policy regime

question

After September 11, 2001, both Republicans and Democrats agreed on the need for some type

answer

Stimulus package to counteract recession

question

To maintain a balanced budget during the sag in personal spending in 2000-2001 could cause a(n)

answer

decrease in aggregate demand and recession

question

If the U.S. government decided to pay off the national debt by creating money in a few years. what would most likely be the most likely effect?

answer

Rapid inflation

question

The government should not attempt to balance the budget if

answer

*The economy is in a recessionary gap *Actual GDP is below full-employment GDP *Unemployment is rising

question

If the economy is in an inflationary gap, and the government attempts to balance the budget, the effect will be to

answer

Continue inflationary pressures

question

If the president and Congress agree to balance the budget during a recession, then the appropriate monetary policy is

answer

Increase the growth of the money supply

question

If in a fiscal year 2001, the federal government receives $1,990 billion in revenues and spends $1,875 billion for goods and services, the national debt will

answer

Decrease by $115 billion

question

Compared to the size of GDP in 2004, the national debt was approximately

answer

one-third as large

question

A chart of the ratio of national debt to GDP from 1915 to 2001 would show

answer

Significant increases from 1980 to 1995

question

The net national debt is smaller than the gross national debt because

answer

Some debt is held by government agencies

question

With no change in fiscal policy, the budget

answer

Deficit will rise during a recession and fall during a boom

question

A Recessionary gap causes national debt to increase because

answer

Income tax receipts drop off markedly

question

If the inflation rate falls, what will happen to the budget deficit?

answer

It will fall, because interest payments will fall

question

The U.S. government need never default on its debt because

answer

It can raise the funds it needs to repay by taxation, and it can print money to repay

question

The policy mix that the Clinton administration sought in early 1993 was a

answer

Smaller budget deficit and looser monetary policy

question

Budget deficits are inflationary when

answer

The economy is at full employment and the aggregate supply curve is vertical

question

The central bank is said to monetize the deficit when it

answer

Purchases the bonds that the government issues

question

If the Fed is increasing its holdings of government bonds at the same the federal deficit is increasing

answer

the debt is being monetized

question

The decisions on the part of the government to increase spending by $5 billion will have the largest impact on aggregate demand when the spending is financed by the sale of bonds to

answer

The Fed

question

Reason why the Fed might decide to monetize the deficit?

answer

to keep interest rates low

question

Crowding out can best be defined as

answer

Government deficits increase interest rates and decrease investment

question

Economists who argue in favor of rapid deficit reduction claim that deficit reduction will

answer

Reduce crowding out, increase investment, and increase AS

question

In the late 1990s, the more than expected increases in tax revenues were the result of

answer

Rapid economic growth

question

The economy's self-correcting mechanism to eliminate a recessionary gap relies on

answer

Falling wage rates that shift the aggregate supply curve outward

question

Demand-side inflation differs from supply-side inflation due to

answer

demand-slide inflation has higher output; supply-slide inflation has lower output

question

Aggregate supply tends to grow because

answer

*There are more workers in the economy every year *There is more capital in the economy every year *Technology tends to improve every year

question

If the aggregate supply curve is vertical, the short-run Phillips curve will

answer

Also be vertical

question

The Phillips curve is built on the assumption that business fluctuations are

answer

From the demand side

question

One reason why the Phillips curve "broke down" is

answer

Most of the inflation of the 1970's was from the supply side

question

The recent rapid advance in computer technology is one of the reasons given for the shift of the

answer

Aggregate supply curve outward

question

After September 11, 2001, President George W. Bush believed in the need for a fiscal stimulus. The proper fiscal policy to reflect this could include a(n)

answer

Increase in government purchases

question

What are policies that would increase total expenditures but still reduce unemployment?

answer

*Decrease taxes *Increase government spending *Increase transfer payments

question

The central idea of supply-side tax cuts is that certain types of tax cuts will increase

answer

Aggregate Supply

question

A proponent of supply-Side economics would advocate

answer

Reducing income taxes on saving

question

The primary goals of supply-side economics is to

answer

Reduce inflation and increase growth at the same time

question

A reduction in the capital gains tax, often advocates by portents of supply-side economics, is supposed to stimulate

answer

Investment Spending

question

Critics of supply-side economics argue that a major flaw is

answer

*The small magnitude of supply-side effects *The large size of demand-size effects *Increased income inequality

question

One objection to supply-side tax cuts is that demand-side changes

answer

Are larger than supply-side changes

question

If the demand-side effect of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)

answer

Increase in output and prices

question

Capital gains tax cuts inevitable benefit

answer

High-income stock owners

question

Tax cuts associated with supply-side economics often lead to increased

answer

Federal budget deficits

question

Since the supply-side tax cuts of the 1980s

answer

There has been no evidence that supply-side incentives increase saving or the labor supply

question

A Keynesian economist would expect a supply-side tax cut to shift

answer

Only the aggregate demand curve outward

question

When did we begin experience a negative growth rate during current recession?

answer

First quarter of 2008

question

Cause of Great Recession

answer

*Excessive lending by banks which violated rules *Subprime mortgage defaults *High Leverage

question

If I use $10,000.00 of my own saving and borrow $60,000.00 from a local bank and invest the total amount, my leverage is

answer

7 to 1

question

The main reason as to why the current recession has lasted for so long is due to the

answer

Depressed housing market

question

Obama administration and the Fed have been consistent in fighting current recession in that

answer

The Fed has engaged in excessive lending and administration has increased government spending

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Unlock all answers in this set

Unlock answers

question

In a market system, the most dangerous types of bankruptcies involve

answer

Financial institutions

question

Reasons that banks are heavily regulated

answer

•governments are concerned about the safety of deposits •the industry is a principle determinant of aggregate demand •bank failures are contagious

question

Bankers business decisions effect the money supply because bankers

answer

Have the ability to create money

question

A bank run involves a large flow of money

answer

Out of depositors accounts

question

In order for barter trades to occur, there must be a

answer

Double coincidence of wants

question

The "efficiency of the payments mechanism" refers to

answer

The ease and speed of exchanging money for goods and services

question

Money is an imperfect store of value when

answer

The rate of inflation is high

question

Liquidity refers to

answer

Ease with which an asset can be converted into cash

question

Fiat money is

answer

Only backed by government decree

question

The primary feature of money is that it serves as

answer

A medium of exchange

question

Currently in the United States, money is backed by

answer

Everyone's willingness to accept it

question

The new $20 bills are being introduced by the U.S. Treasury primarily to diminish

answer

Counterfeiting

question

M1 is

answer

The money supply that includes coins, paper money, travelers checks, conventional checking accounts, and other checkable deposits at banks and savings institutions

question

Electronic cash or E-cards are

answer

Not included in the definition of the money supply

question

"Near monies"

answer

Liquid assets that are close substitutes for money

question

One difference between the assets included in M1 and those added to calculate M2 is that the items in M1 are

answer

More liquid than those to commute M2

question

Example of something included in M1

answer

Travelers checks

question

The M2 definition of the money supply is based on the concept that

answer

Many types of deposits can be used as both payments and stores of value

question

Are "smart cards" or E-cash cards part of the money supply?

answer

No, because they are merely means to transfer checking deposits

question

Due to new methods of electronically transferring assets from savings accounts to checking accounts, many economists favor moving savings accounts from

answer

M2 into M1

question

Under fractional banking, when a bank lends to a customer

answer

The money supply increases

question

Bank regulators are concerned about the safety of depositors because

answer

question

The objective of bank management is to

answer

Strike the appropriate balance between the attraction of bank profits and the need for bank safety

question

Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

answer

Means lower profits for banks

question

If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the banks reserve position if the required reserve ratio is 20 percent?

answer

$600,000 of required reserves, $400,000 of excess reserves

question

The balance sheet of a solvent bank will show

answer

Assets= liabilities+net worth

question

The government banking regulation that places an upper limit in the money supply is

answer

Reserve requirements on bank deposits

question

The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve. The actual money multiplier will be

answer

question

If people begin to hold more cash, the money multiplier process will

answer

Decrease in actual size

question

The Feds principle objective is to

answer

Manage the money supply and interest rates

question

The fed is unlike other central banks in that

answer

has 12 branches

question

The actual control of the Federal Reserve System resides in the

answer

Board of Governors

question

Members of the Board of Governors of the Fed are

answer

appointed by the president for 14-year terms and confirmed by the Senate

question

When the Federal Reserve System was first established, its founders intended the Fed to

answer

provide protection against financial panics by acting as the lender of last resort

question

The European Central Bank, established in 1999, was patterned after the

answer

Federal Reserve, Founded in 1914

question

In practice, money supply and short-term interest rates are determined by the

answer

Federal Open Market Committee

question

The Fed is institutionally independent. A major advantage of this is that monetary policy

answer

is not controlled by politicians

question

If the Fed buys a T-bill from an individual rather than from a bank, the effect on the money supply is

answer

the same

question

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

answer

It will give the bank new reserves

question

The tool most frequently relied on by the Fed is

answer

Open market operations

question

answer

increased by $500 million

question

When the Fed sells a government security to the public, how does it usually receive payment for the security?

answer

by accepting checks on bank accounts

question

Example of something that will lower interest rates in the short run?

answer

a decrease in real GDP

question

Interest rates rose in the second quarter of 1999. What happened to bond prices during this time?

answer

They decreased

question

The concept of "lender of last resort" is that when

answer

commercial banks are hesitant to lend, the Fed will step in and increase reserves

question

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

answer

does not know how banks will respond to discount rate changes

question

Example of what will increase interest rates in the short run

answer

open market sales by the Fed

question

If the Fed were to increase the money supply at the same time the government was increasing taxes, we could expect

answer

a decrease in the interest rates but the effect on real GDP is indeterminant

question

Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

answer

When equilibrium real GDP is at potential real GDP

question

After the attacks of September 11, 2001, the proper policy response was

answer

expansionary monetary and fiscal policy

question

Which of the following is the formula for velocity?

answer

Velocity=nominal GDP/M

question

Which is likely to be larger, the velocity of M1 or M2?

answer

M1, because M2 is a larger number

question

A look at the historical data indicates that velocity for M1

answer

has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years

question

The quantity theory of money assumes that

answer

changes in velocity are so small that velocity can be considered constant

question

If credit cards were suddenly ruled illegal and were no longer used, the most likely effect would be a decrease in the

answer

velocity of circulation

question

As the price level rises, the demand for money

answer

increases because more money is needed for each transaction

question

The principle factor determining velocity is the

answer

frequency with which paychecks are distributed

question

If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

answer

It will increase

question

When comparing the keynesian and monetarist approaches, the only substanstive difference is that

answer

the Keynesian equation leads to a prediction of real GDP, the monetarist equation leads to a prediction of nominal GDP.

question

The major limitation of both the Keynesian approach and the monetarist approach is that both

answer

are ways of studying the aggregate demand curve, but to learn anything about the price level and output, and aggregate supply curve must be included in the analysis

question

According to the simple quantity theory of money, a change in the money supply of 9.6 perecent would lead to a

answer

9.6 percent change in nominal GDP

question

Contractionary fiscal policy

answer

reduces the quantity of money demanded, reduces interest rates, and increases investment spending

question

For Keynesian economists to incorporate monetary policy into their models, they must know

answer

how the money supply affects interest rates

question

Which of the following is the Keynesian view of the sequance of cause and effect of monetary policy?

answer

M, r, I, Y

question

It is often reported that by financial news reports that higher interest rates reduce automobile sales. If this is true, we can expect

answer

monetary policy to be more effective

question

A major advantage of monetary policy over fiscal policy is that monetary

answer

Policy can be put into effect more quickly

question

The optimal time for the implementation of contractionary fiscal policy would be

answer

before inflation accelerated

question

One of the problems with fixed targets for the money supply is that

answer

demand for money does not grow smoothly and predictably

question

If the Fed decides to target money supply growth, it must be prepared to accept

answer

Interest rate volatility

question

If the aggregate supply curve is flat

answer

expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation

question

Economists maintain that

answer

question

An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

answer

Is near full employment and the aggregate supply curve is vertical

question

When will stabilization policy be most effective in combating recessions?

answer

When AS is flat

question

What role does ideology play in the debate on stabilization?

answer

A large role, because there are conservative and liberal economists

question

The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

answer

A discretionary-based monetary policy regime

question

After September 11, 2001, both Republicans and Democrats agreed on the need for some type

answer

Stimulus package to counteract recession

question

To maintain a balanced budget during the sag in personal spending in 2000-2001 could cause a(n)

answer

decrease in aggregate demand and recession

question

If the U.S. government decided to pay off the national debt by creating money in a few years. what would most likely be the most likely effect?

answer

Rapid inflation

question

The government should not attempt to balance the budget if

answer

*The economy is in a recessionary gap *Actual GDP is below full-employment GDP *Unemployment is rising

question

If the economy is in an inflationary gap, and the government attempts to balance the budget, the effect will be to

answer

Continue inflationary pressures

question

If the president and Congress agree to balance the budget during a recession, then the appropriate monetary policy is

answer

Increase the growth of the money supply

question

If in a fiscal year 2001, the federal government receives $1,990 billion in revenues and spends $1,875 billion for goods and services, the national debt will

answer

Decrease by $115 billion

question

Compared to the size of GDP in 2004, the national debt was approximately

answer

one-third as large

question

A chart of the ratio of national debt to GDP from 1915 to 2001 would show

answer

Significant increases from 1980 to 1995

question

The net national debt is smaller than the gross national debt because

answer

Some debt is held by government agencies

question

With no change in fiscal policy, the budget

answer

Deficit will rise during a recession and fall during a boom

question

A Recessionary gap causes national debt to increase because

answer

Income tax receipts drop off markedly

question

If the inflation rate falls, what will happen to the budget deficit?

answer

It will fall, because interest payments will fall

question

The U.S. government need never default on its debt because

answer

It can raise the funds it needs to repay by taxation, and it can print money to repay

question

The policy mix that the Clinton administration sought in early 1993 was a

answer

Smaller budget deficit and looser monetary policy

question

Budget deficits are inflationary when

answer

The economy is at full employment and the aggregate supply curve is vertical

question

The central bank is said to monetize the deficit when it

answer

Purchases the bonds that the government issues

question

If the Fed is increasing its holdings of government bonds at the same the federal deficit is increasing

answer

the debt is being monetized

question

The decisions on the part of the government to increase spending by $5 billion will have the largest impact on aggregate demand when the spending is financed by the sale of bonds to

answer

The Fed

question

Reason why the Fed might decide to monetize the deficit?

answer

to keep interest rates low

question

Crowding out can best be defined as

answer

Government deficits increase interest rates and decrease investment

question

Economists who argue in favor of rapid deficit reduction claim that deficit reduction will

answer

Reduce crowding out, increase investment, and increase AS

question

In the late 1990s, the more than expected increases in tax revenues were the result of

answer

Rapid economic growth

question

The economy's self-correcting mechanism to eliminate a recessionary gap relies on

answer

Falling wage rates that shift the aggregate supply curve outward

question

Demand-side inflation differs from supply-side inflation due to

answer

demand-slide inflation has higher output; supply-slide inflation has lower output

question

Aggregate supply tends to grow because

answer

*There are more workers in the economy every year *There is more capital in the economy every year *Technology tends to improve every year

question

If the aggregate supply curve is vertical, the short-run Phillips curve will

answer

Also be vertical

question

The Phillips curve is built on the assumption that business fluctuations are

answer

From the demand side

question

One reason why the Phillips curve "broke down" is

answer

Most of the inflation of the 1970's was from the supply side

question

The recent rapid advance in computer technology is one of the reasons given for the shift of the

answer

Aggregate supply curve outward

question

After September 11, 2001, President George W. Bush believed in the need for a fiscal stimulus. The proper fiscal policy to reflect this could include a(n)

answer

Increase in government purchases

question

What are policies that would increase total expenditures but still reduce unemployment?

answer

*Decrease taxes *Increase government spending *Increase transfer payments

question

The central idea of supply-side tax cuts is that certain types of tax cuts will increase

answer

Aggregate Supply

question

A proponent of supply-Side economics would advocate

answer

Reducing income taxes on saving

question

The primary goals of supply-side economics is to

answer

Reduce inflation and increase growth at the same time

question

A reduction in the capital gains tax, often advocates by portents of supply-side economics, is supposed to stimulate

answer

Investment Spending

question

Critics of supply-side economics argue that a major flaw is

answer

*The small magnitude of supply-side effects *The large size of demand-size effects *Increased income inequality

question

One objection to supply-side tax cuts is that demand-side changes

answer

Are larger than supply-side changes

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If the demand-side effect of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)

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Increase in output and prices

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Capital gains tax cuts inevitable benefit

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High-income stock owners

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Tax cuts associated with supply-side economics often lead to increased

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Federal budget deficits

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Since the supply-side tax cuts of the 1980s

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There has been no evidence that supply-side incentives increase saving or the labor supply

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A Keynesian economist would expect a supply-side tax cut to shift

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Only the aggregate demand curve outward

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When did we begin experience a negative growth rate during current recession?

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First quarter of 2008

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Cause of Great Recession

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*Excessive lending by banks which violated rules *Subprime mortgage defaults *High Leverage

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If I use $10,000.00 of my own saving and borrow $60,000.00 from a local bank and invest the total amount, my leverage is

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7 to 1

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The main reason as to why the current recession has lasted for so long is due to the

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Depressed housing market

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Obama administration and the Fed have been consistent in fighting current recession in that

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The Fed has engaged in excessive lending and administration has increased government spending

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