question

When the government deliberately alters its level of spending and/or taxes in order to achieve specific national economic goals, it exercises?

answer

discretionary fiscal policy.

question

Which of the following would shift the aggregate demand curve to the right?

answer

An increase in government spending

question

Fiscal policy refers to the?

answer

adjustment of government spending and taxes in order to achieve certain national economic goals.

question

Fiscal policy to solve short-run economic problems supports the Keynesian notion of?

answer

an active government role in the economy.

question

If the economy experiences an inflationary gap and the government wants to accelerate the adjustment to the long-run equilibrium, it should?

answer

reduce aggregate demand by cutting government spending or raising taxes.

question

Refer to the above figure. If the relevant aggregate demand curve is AD2, what is the current economic situation?

answer

Recessionary gap

question

Refer to the above figure. If the relevant aggregate demand curve is AD2, what is the current economic situation?

answer

Inflationary gap

question

The concept that increased government spending will lead to lower investment and consumer spending is called the?

answer

crowding-out effect.

question

Supply-side economics focuses on tax cuts to stimulate?

answer

aggregate supply by increasing production.

question

According to the Laffer curve, increases in the tax rate will lead to a(n)?

answer

initial increase in tax revenues, followed by a decrease in tax revenues.

question

The idea that creating incentives for individuals and firms to increase productivity leads to an increase in long-run aggregate supply is?

answer

supply-side economics.

question

The period between the recognition of a problem and the implementation of a policy to solve the problem is?

answer

the action time lag.

question

Which of the following are lags with which fiscal policy makers must cope?

answer

-Recognition time lags -Action time lags -Effect time lags

question

The recognition time lag recognizes that it takes time?

answer

to collect information about the state of the economy.

question

Once either expansionary or contractionary fiscal policy is undertaken?

answer

a time lag exists between implementation and the results of the policy.

question

When fiscal policy is used, time lags are variable and last anywhere from?

answer

1-3 years.

question

One characteristic of built-in or automatic stabilizers is that?

answer

they require no new legislative action by Congress to have an effect.

question

When real GDP falls, which of the following will automatically occur?

answer

A decrease in income tax revenues

question

Provisions that cause changes in government spending and taxes that do not require action of the President or Congress are called?

answer

automatic stabilizers.

question

All of the following are automatic stabilizers except?

answer

discretionary increases in government spending.

question

Fiscal policy is implemented by?

answer

the federal government.

question

Other things being equal, a reduction in taxes will?

answer

cause an increase in aggregate demand due to increases in consumption, investment, or net exports.

question

Which of the following statements about the budget deficit is true?

answer

It is a flow variable.

question

If the government's spending exactly equals its revenues during a budget year, that government is?

answer

balancing its budget.

question

How does the federal government finance a budget deficit?

answer

It borrows funds by selling Treasury bonds.

question

The public debt can be thought of as?

answer

accumulated budget deficits and surpluses.

question

Which of the following statements is true about the difference between the public debt and the government budget deficit?

answer

The public debt for this year will increase or decrease depending upon whether there is a government budget deficit or a government budget surplus.

question

When was the last year that the United States had a budget surplus?

answer

2001

question

Expressing the U.S. federal budget deficit as a percentage of gross domestic product (GDP)?

answer

helps economists to understand the size of the deficit relative to the size of the economy.

question

According to the textbook, approximately what percentage of U.S. net public debt is held by foreign residents?

answer

50%

question

The difference between the gross public debt and the net public debt is?

answer

all government interagency borrowing.

question

In order to evaluate relative changes in the net public debt, economists must?

answer

compare it to the nation's real GDP.

question

Borrowing to finance the increases in government expenditures?

answer

-reduces current private investment expenditures. -increases interest rates. -reduces growth in the nation's private capital stock.

question

Which of the following statements has usually held true about the relationship between trade deficits and government budget deficits?

answer

There is a positive relationship between trade deficits and budget deficits.

question

What is the short-run effect of increased deficit spending on an economy that is experiencing a recessionary gap?

answer

Aggregate demand increases, and the gap closes.

question

Guaranteed benefits under government programs such as Social Security or Medicare are called?

answer

entitlements.

question

Today, U.S. government spending on entitlements represents ________ of the total federal budget?

answer

nearly 60%

question

Which is the fastest growing component of the federal government budget?

answer

Spending on entitlements

question

Suppose that the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the short run?

answer

A recessionary gap

question

Government spending that changes automatically without action by Congress is?

answer

a noncontrollable expenditure.

question

The fastest-growing component of the annual federal budgets since 2000 is?

answer

entitlement payments.

question

How does a government budget deficit occur?

answer

A government's spending exceeds its tax revenues.

question

The amount of funds that the Social Security system has loaned the federal government is?

answer

excluded from the net public debt.

question

Other things being equal, what is the effect of deficit spending on interest rates?

answer

Interest rates rise.

question

An entitlement is?

answer

guaranteed benefits under some government programs.

question

When government revenues exceed government outlays in a particular year, this is called?

answer

a budget surplus.

question

Public debt is held as?

answer

Treasury Bills, Treasury Notes, Treasury Bonds, and U.S. Savings Bonds.

question

A system in which the value of currency issued by the government is based entirely on public faith that the currency will be acceptable in trade is?

answer

a fiduciary system.

question

When the Fed wants to undertake open market operations, it?

answer

buys or sells securities through the trading desk at the New York Federal Reserve Bank.

question

The reason we are willing to accept money with no intrinsic value is that?

answer

we have a fiduciary monetary system in which currency has both acceptability and predictability of value.

question

Which of the following would be considered the least liquid asset?

answer

shares of stock

question

Financial intermediation is best defined as the process by which?

answer

financial institutions accept savings from savers and make loans to investors.

question

A business owner applies for a bank loan to launch a fairly low-risk project. After receiving the loan, she cancels the low-risk project and instead uses the borrowed funds for a high-risk venture. This is an example of?

answer

moral hazard.

question

The Federal Open Market Committee (FOMC)?

answer

influences the future growth of the money supply.

question

Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of?

answer

$80.

question

Fractional reserve banking is a system in which?

answer

depository institutions hold a fraction of total deposits in reserve.

question

Which of the following is NOT a function of the Federal Reserve System?

answer

The Fed determines government spending and taxation policies.

question

The FDIC was created because?

answer

there were so many bank failures in the 1930s.

question

An individual who desires the most liquid asset possible will hold?

answer

currency.

question

By affecting the amount of reserves in the banking system, the Fed can?

answer

affect the size of the money supply.

question

A central bank is?

answer

a banker's bank.

question

The opportunity cost of holding money is measured by?

answer

the interest yield that could have been earned by holding some other asset.

question

The central bank for the United States is?

answer

the Federal Reserve System.

question

It is widely believed that the Federal Reserve's most important function is?

answer

to regulate the money supply.

question

The degree to which an asset can be acquired or disposed of without much loss of nominal value or transaction costs is known as?

answer

liquidity.

question

When the Federal Reserve sells a government security to a commercial bank?

answer

the cash reserves of the commercial bank decrease.

question

Possession of information by one party in a financial transaction but not by the other party is?

answer

asymmetric information.

question

To reach the maximum money multiplier, it is assumed that?

answer

all loans get redeposited in a checkable account.

question

The money supply is?

answer

the amount of money in circulation.

question

When you set aside the money you have today in order to purchase goods and services later on, you are using money as a?

answer

store of value.

question

When the price level goes up, the purchasing power of the dollar?

answer

falls.

question

The Federal Reserve System was established in which year?

answer

1913.

question

Money functions as a(n)?

answer

-store of value. -unit of account. -medium of exchange.

question

Financial intermediation is best defined as the process by which?

answer

financial institutions accept savings from savers and make loans to investors.

question

Money is defined as?

answer

anything people generally accept in exchange for goods and services.

question

The designate M1 measure of money consists of?

answer

the most liquid types of money in the U.S. system.

question

The Federal Deposit Insurance Corporation insures?

answer

the deposits held in member banks.

question

In a barter system, we would expect to see?

answer

goods traded directly for other goods and services.

Macro quiz #9

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