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  1. ·         Government’s attempt to control the aggregate level of spending in the economy is called 
    aggregate demand management .
  2. ·          the level of income toward which the economy gravitates in the short run because of the cumulative cycles of declining or increasing production
    ·         equilibrium income
  3. the level of income that the economy technically is capable of producing without generating accelerating inflation
    ·         potential income 
  4. The key idea in Keynesian economics is 
    ·         that equilibrium income fluctuates and can differ from potential income.
  5. Keynesian economists focus 
    ·         on short-run fluctuations and use an activist government approach.
  6. ·         where the SAS and AD curves intersect. Long-run equilibrium is where the AD and LAS curves intersect.
    Short-run equilibrium 
  7. ·         the change in government spending or taxes—works by providing a deliberate countershock to offset unexpected shocks to the economy.
    Fiscal policy
  8. is upward sloping because, while for the most part firms in the United States adjust production to meet demand instead of changing price, some firms will raise prices when demand increases.
    The short-run aggregate supply ( SAS ) curve 
  9. vertical at potential output.
    The long-run aggregate supply ( LAS ) curve 
  10. ·         when available resources, capital, labor, technology, and/or growth-compatible institutions increase.
    The LAS curve shifts out
  11.  takes a laissez-faire approach, 
    A Classical economist
  12. believes the economy is self-regulating. 
    A Classical economist  
  13. takes an interventionist approach
    A Keynesian economist
  14. ·         believes that equilibrium output can remain below potential output.
    A Keynesian economist 
  15. ·         Five important shift factors of AD are
    • o   . Foreign income.
    • o   2. Exchange rates.
    • o   3. The distribution of income.
    • o   4. Expectations.
    • o   5. Monetary and fiscal policies.
  16. If government spending increases by 20, by how much does the AD curve shift out?  
    ·         The AD curve will shift out by more than 20 because of the multiplier.
  17. ·        input prices constant; no prices are assumed held constant on the LAS curve.
    The SAS curve holds
  18. works through its influence on credit conditions and the interest rate in the economy.
    Monetary policy 
  19. shifts the AD curve out to the right 
    expansionary monetary policy shifts the AD curve 
  20. AD curve in to the left.
    contractionary monetary policy shifts 
  21. nominal income will be split between changes 
     in real income and changes in the price level
  22. If the economy is significantly above potential output, once long-run equilibrium is reached, monetary policy affects only 
    nominal income and the price level
  23. Expansionary monetary policy increases
    increases nominal income
  24. a policy that increases the money supply and decreases the interest rate
    expansionary monetary policy 
  25. a policy that decreases the money supply and increases the interest rate.
    Contractionary monetary policy
  26. a type of banker’s bank whose financial obligations underlie an economy’s money supply
    central bank 
  27. the Fed’s chief body that decides monetary policy
    Federal Open Market Committee (FOMC)
  28. is composed of 12 regional banks
    The Federal Reserve System is composed of ____ number of regional banks
  29. is the most important policy-making body Vault cash, deposits at the Fed, plus currency in circulation make up the monetary base open market operations — the Fed’s buying and selling of government securities .
    The Federal Open Market Committee (FOMC
  30. the percentage the Federal Reserve Bank sets as the minimum
    amount of reserves a bank must have.
    reserve requirement 
  31. the interest rate banks charge one another for Fed funds
    Federal funds rate 
  32. the market in which banks lend and borrow reserves, is highly efficient
    Federal funds market 
  33. When the Fed buys bonds
    it is expanding the money supply
  34. the shortfall of revenues under payments. 
    A deficit 
  35. an excess of revenues over payments 
    A surplus
  36. The government finances its deficits by 
    selling bonds to private individuals and to the central bank.
  37. the part of a budget deficit that would exist even if the economy were at its potential level of income .
    structural deficit 
  38. the part of the deficit that exists because the economy is operating below its potential level of output.
    passive deficit 
  39. also known as the cyclical deficit
    The passive deficit 
  40. Above its potential
    is passive
  41. below its potential
    is structural deficit 
  42. the deficit determined by looking at the difference between expenditures and receipts. 
    nominal deficit 
  43. the nominal deficit adjusted for inflation.
    Real deficit 
  44. accumulated deficits minus accumulated surpluses
  45.   Which group has ultimate control over the U.S. economy? 
  46.  When a government intervenes in an economy in a way that influences the relationship between households and businesses, it is
     serving as an economic referee
  47.   Per capita real output would most likely increase if
      real GDP increases and population decreases
  48.  In 2006, U.S. real GDP increased by 3.3 percent. Based on this information, we can infer that the U.S. experienced
    an expansion in 2006
  49.   The Bureau of Economic Analysis is responsible for which of the following?
    Calculating U.S. gross domestic product
  50.    The Federal Reserve will most likely _______ the money supply when the economy is experiencing a recession
  51.  The AD curve 
      will shift by more than initial shift factor when the multiplier is greater than one
  52.   Suppose output exceeds potential output and a contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce 
      a lower price level than would otherwise have occurred
  53.   According to the AS/AD model, an expansionary monetary policy
       decreases interest rates, raises investment, and increases income
  54. According to Keynes, the economy could become stuck at a low income level if 
      declines in aggregate demand and aggregate supply reinforce one another
  55. The Classical economists argued that: 
    if unemployment occurs, it will cure itself because wages and prices will fall.
  56.  When the Federal Reserve targets a higher interest rate, this change in policy involves open market 
    sales of government securities that reduced reserves
  57.  When the Federal Reserve sells bonds, the 
     Federal funds rate increases
  58.  Who buys and sells in the Federal Reserve funds market? 
    Commercial banks and depository institutions
  59.    The Federal fund rate is always _______ compared to the discount 
  60.  If the multiplier effect is 4, a $15 billion increase in government expenditures will shift the AD curve 
     to the right by $60 billion
  61. Suppose the money multiplier in the U.S. is 4. If the Federal Reserve wants to expand the money supply by 600 it should: 
     buy government securities worth 150.
  62.  When the government runs a deficit, it will
     sell bonds to finance the deficit
  63.  Deficits may be desirable in the short run if they
    help to stabilize the economy when the economy falls below potential output
  64. 1.             The structural deficit
    does not change when income changes, but changes only when potential income changes
  65.  Government debt is defined as
      accumulated deficits minus accumulated surpluses
  66. According to comparative advantage, specialization means that a country is producing the goods 
     for which it has a relatively low opportunity cost
  67.   Globalization represents 
    represents the opposite of isolationism
  68.  If the U.S. wants to strengthen the value of the dollar, it should use
     contractionary monetary policy
  69. Which of the following would most likely cause an increase in the supply of dollars? 
     An expansionary fiscal policy that raised U.S. income and increased U.S. imports
  70.   Suppose a basket of goods costs 60,000 pesos in Mexico. If, at the existing exchange rate, it costs less than 60,000 pesos to buy the same basket of goods in the U.S., then purchasing power parity implies that the
    dollar should cost more pesos
  71.   If a basket of goods costs $10 in the U.S. and 100,000 rubles in Russia, then purchasing power parity will exist if the exchange rate between the ruble and the dollar is 
    10,000 rubles per dollar
  72. A quota differs from a tariff in that quotas
    do not generate tax revenues, unlike tariffs
  73. Threats to put tariffs on a nation in an attempt to get that nation to reduce its restrictions on trade are called
    strategic trade policies
Card Set:
2012-06-26 20:14:38

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