Econ Final

Card Set Information

Econ Final
2014-12-09 01:55:53

econ final
Show Answers:

  1. According to the text, in many respects, the single most power economic policymaker in the US is
    The federal reserve
  2. What are monetary policy goals?
    • Keep unemployment rates low
    • prevent high rates of inflation
  3. The monetary policy tool that involves the buying and selling of government bonds is
    Open-market operations
  4. Expansionary monetary policy
    when the economy is in recession and unemployment is a problem. The goal of expansionary monetary policy is to reduce unemployment. Therefore the tools would be an increase in the money supply. To increase the money supply the federal government can:  Buy government bonds(open market purchase)  Lower the interest rate  Lower the reserve ratio
  5. Contractionary monetary policy
    when economy is in expansion and inflation is a problem. The goal of contractionary monetary policy is to reduce inflation. Therefore the tool would be the decrease in the money supply. To decrease the money supply the federal reserve can:  Sell government bonds(an open market sell)  Raise the interest rate  Raise the reserve ratio
  6. If the economy experiences a recessionary gap. Expansionary monetary policy will ___ real GDP and ___ price level.
    increase; increase
  7. When the Fed sells bonds in the open market, we can expect
    Bon prices to fall and interest rates to rise.
  8. Change in the money supply brough about by an open market purchase will...
    Lower interest rate, lower exchange rate, increase demand for investment and net exports
  9. High interest rates in the US would ___ the demand for US dollars in the foreign exchange market. In turn, this will lead to a(n) ___ in the exchange rate, and US net exports would ____
    Increase; increase; fall
  10. If inflation is a threat, Fed will conduct monetary policy aimed at ___ the interest rate which will then shift AD to the ____.
    Increasing; left
  11. Instruments of fiscal policy
    rebate on payroll taxes, education tax credits, unemployment insurance benefits
  12. The government purchases compenet of aggregate demand includes
    • All purchases by government agencies of goods and services produced by firms
    • direct production by government agencies
  13. Public investment expenditure for highways, schools, and national defense is included in which component of GDP?
    Government purchases
  14. Payments to households that do not require anything in exchange are called
    Transfer payments
  15. Medicade, welfare payments, and temporary assistance to needy families are
    Transfer payments
  16. Transfer payments typically
    Fall during expansionary periods and rise during recessionary periods
  17. Government has a budget surplus if
    its total revenues are greater than its total expenditures
  18. The sum of all past federal deficits minus any surpluses is called
    National debt
  19. If the federal budget is initially balanced and government expenditures remain constant, then an increase in GDP will ___ tax revenues and create a budget ____
    Increase; surplus
  20. How do you calculate national debt?
    Debt minus surplus
  21. Personal income taxes and transfer payments
    Act as automatic stabilizers
  22. A transfer payment that rises automatically during a recession is
    unemployment compensation
  23. During an expansion, what occurs because of automatic stabilizers?
    • Income tax revenues tend to rise
    • The government's budget deficit tends to fall or its budget surplus tends to rise
  24. Changes in expenditures and taxes that occur through automatic stabilizers
    Do not shift the AD curve
  25. Discretionary fiscal policy refers to
    Deliberate government efforts to stabilize the economy through government spending and taxes
  26. What's the difference between fiscal and monetary policy?
    • Fiscal policy is government action
    • Monetary is the Fed action
  27. Contractionary fiscal policy includes
    increasing taxes and decreasing government expenditures
  28. Expansionary fiscal policy shifts the AD curve
    to the right and is used to close recessionary gap
  29. An inflationary gap can be closed with
    using a policy action such as a reduction in government purchases
  30. implementation lag for discretionary fiscal policy
    the time it takes to secure bureaucratic approval for policy actions
  31. An expanionary fiscal policy is likely to
    increase borrowing by the Treasury through the sale of bonds
  32. Expansionary fiscal policy leads to
    higher interest rates which increase the demand for a nation's currency, and causes its exchange rate to rise
  33. The term "crowding out" refers to the phenonmenon that occurs when increased government spending
    leads to interest rates which reduces private investments
  34. Crowding out
    When government finances its spending with taxes, and crowds out smaller businesses with less money
  35. Historical relationship between inflation and unemployment
    Stagflation, recovery, philips cycle
  36. Understanding Philips Curve
    Increasing inflation means unemployment goes down (inversely related)
  37. Policies to move along Philips curve
  38. A to B - Contractionary policy (examples of)
    • B to A - Expansionary policy (examples of)
    • Reducing unemployment
  39. Reasons for structural unemployment
    • New trade, comparative advantage
    • New technology, like fast trak
    • Changes in consumer preferences
  40. Classical economists
    Economy will fix itself
  41. Keynes
    long run - everyone is dead
  42. Monetarists
    • increase money supply at a steady rate, to allow for growth. GDP to go up, not as a policy for stabilization, just to keep up with increasing output.
    • Stabilization policies will destabilize