question
How is consumption related to income (Y) in Keynesian theory? Explain the following: C = f (Y). Is this a positive or negative function?
answer
C = A + MPC(Y)
A = Autonomous Consumption
MPC = Marginal Propensity to Consume
This is a positive function
A = Autonomous Consumption
MPC = Marginal Propensity to Consume
This is a positive function
question
What is autonomous consumption? What is induced consumption? What is the MPC?
answer
Autonomous Consumption is the consumption of a household who has zero disposable income. Induced consumption is the MPC times the income of a household. MPC is the increase in consumer spending when disposable income rises by $1.
question
Present the consumption function algebraically and graphically.
answer
C = A + MPC(Y)
question
What is measured on the vertical axis? What is measured on the horizontal axis? What is the slope of the consumption function? What is the vertical intercept of the consumption function?
answer
Consumption is measured on the vertical axis. Income is measured on the horizontal axis. MPC is the slope of the consumption function. Autonomous Consumption is the vertical intercept of the consumption function.
question
Graphically, use the "expenditures approach" to find the economy's "income-expenditure equilibrium Y. What algebraic expression can we use to find Y? Calculate Y. Compare the values for C and Y at Y.
answer
Y = A (1/MPS)
C = Y at Y*
C = Y at Y*
question
What is the multiplier? How will the multiplier change value if the MPS changes? ...if the MPC changes?
answer
The multiplier is the ratio of the total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change. If the MPC increases, then the multiplier will increase.
question
What does the 45o reference line show? How can we find Y* using the 45o reference line? Why is this model often called the "Keynesian Cross"?
answer
...
question
In the first Keynesian model, what do we know about savings at Y? What do we know about savings if Y is below Y? ...is above Y*? Where did Keynes find negative savings, or "dissavings"?
answer
Savings are 0 at Y. If Y is below Y, then savings are negative. If Y is above Y*, then savings are positive. Dissavings is spending more than your income.
question
How is savings related to income (Y) in Keynesian theory? Explain the following: S = f (Y). Is this a positive or negative function?
answer
S = -A +MPS(Y)
-A = Autonomous Savings
MPS = Marginal Propensity to Save
This is a positive function.
-A = Autonomous Savings
MPS = Marginal Propensity to Save
This is a positive function.
question
What is autonomous savings? What is induced savings? What is the MPS? Present the savings function algebraically and graphically.
answer
Autonomous savings is the savings of a household with zero disposable income.Induced savings is the MPS times the income os a household. MPS is the increase in household savings when disposable income rises by $1.
question
What is the slope of the savings function? What is the vertical intercept of the savings function?
answer
MPS is the slope of the savings function. The autonomous savings is the vertical intercept of the savings function.
question
How are the MPC and the MPS related? How are A and -A related?
answer
MPC + MPS = 1
A + (-A) = 0
A + (-A) = 0
question
Graphically, use the "leakages=injections" approach to find Y. Find Y algebraically. Calculate Y*.
answer
0 = -A + MPS(Y*)
question
What specific factors (exogenous factors) could cause consumption to increase (we added debt, real interest rates, and expected future prices to this list)? ....to decrease? How does each factor simultaneously affect savings?
answer
Expected Future Disposable Income. If the expected future disposable income increases, consumption will increase while savings will decrease. If the expected future disposable income decreases, consumption will decrease while savings will increase. Aggregate Wealth. If Aggregate Wealth increases, consumption will increase and savings will decrease. If Aggregate Wealth decreases, consumption will decrease and savings will increase. If debt decreases, consumption will increase and savings will decrease. If debt increases, consumption will decrease and savings will increase. If Real Interest Rate decreases, consumption will increase and savings will decrease. If Real Interest Rate increases, consumption will decrease and savings will increase. If Expected Future Prices increases, consumption will increase and savings will decrease. If Expected Future Prices decreases, consumption will decrease and savings will increase.
question
If households decide to spend more at each level of income, what will happen to the C and S functions (this alters the intercepts of both functions, but leaves the MPS and MPC unchanged)? How will Y* change as a result? ...if households decide to save more?
answer
If Households decide to spend more at each level of income, the intercept, A, will increase, and Y will increase as a result. If Households decide to spend less at each level of income, the intercept, A, will decrease, and Y will decrease as a result.
question
If the MPC increases, what will happen to the C and S functions (this leaves the intercepts of both functions unchanged)? How will Y* change as a result? ....if the MPC declines?
answer
If MPC increases, the slope of the C function will increase and the slope of the S function will decrease, and Y will increase as a result. If MPC declines, the slope of the C function will decrease and the slope of the S function will decrease, and Y will increase as a result.
question
What is meant by "autonomous" investment spending? In reality, is investment spending typically stable or unstable? Explain.
answer
Autonomous Investment Spending is the amount of investment spending a consumer does.
question
Add I to our algebraic and graphical methods of determining (Y). Calculate Y (the "income-expenditure equilibrium" also represents real GDP).
answer
Y* = (A + I)/MPS
question
What is the value of the vertical intercept of our aggregate expenditures function when we add investment spending? What is the total amount of autonomous spending? What is the slope of the aggregate expenditures function?
answer
The vertical intercept of our aggregate expenditures function is autonomous consumption plus investment spending. The total amount of autonomous spending is the autonomous consumption plus investment spending. The slope of the aggregate expenditures function is MPC.
question
What are the values for C, S, and I at Y*?
answer
C + I = Y and S = 0 at Y
question
Calculate the change in Y* when there is a change in aggregate expenditures using the expenditures approach.
answer
change in Y* = (change in autonomous spending)/MPS
question
What specific factors (exogenous factors) would cause investment spending to increase? ...to decrease?
answer
Interest Rate. If the interest rate decreases, investment spending will increase. if the interest rate increases, investment spending will decrease. Expected Future Real GDP. If the Expected Future Real GDP growth increases, investment spending will increase. If the Expected Future Real GDP decreases, investment spending will decrease. Production Capacity. If the production capacity decreases, investment spending will increase. If the production capacity increases, investment spending will decrease.
question
What is the "accelerator principle" and how does it relate to investment spending?
answer
A higher growth rate of Real GDP leads to higher planned investment spending, but a lower growth rate of Real GDP leads to lower planned investment spending.
question
What is measured on the horizontal and vertical axes for AD and AS?
answer
Real GDP
question
Describe the two effects that cause aggregate demand to have a negative slope.
answer
The Wealth Effect is the effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' assets. The Interest Rate Effect is the effect on consumer spending and investment spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' and firms' money holdings.
question
What sectors of the economy are included in aggregate demand? What happens to AD when one of those sectors increases? How would we reposition the AD curve? What happens to AD when one of those sectors declines? How would we reposition the AD curve?
answer
Consumption, Investment Spending, Government Purchases of Goods and Services, and Net Exports are included in aggregate demand. If one of these sectors increase, AD will increase, and we shift the AD curve to the right. If one of these sectors declines, AD will decrease, and we shift the AD curve to the left.
question
How do the phrases "increase in aggregate demand" and "decrease in aggregate demand" relate to those shifts?
answer
An increase in aggregate demand is a rightward shift of the AD curve and a decrease in aggregate demand is a leftward shift of the AD curve.
question
Graphically, demonstrate how we can reconcile the AD curve with Keynes' income-expenditures model. Explain how the two models are related/how they overlap.
answer
In Keynes' Income-Expenditures Model, the AE curve is the planned aggregate spending for an amount of Real GDP at the same price level. In the AD curve, the AD curve is downward sloping and shows the Price Level as a function in Real GDP.
question
Is the price level endogenous or exogenous in the AD model?
answer
Endogenous
question
Is the price level endogenous or exogenous in Keynes' model?
answer
Exogenous
question
Which curve shifts if the price level changes? How? Which curve has the price level inside the model? What happens along the AD curve if the price level changes? Explain.
answer
The Keynes Curve shifts up if the price level decreases and down if the price level increases. The AD curve has price level inside the model. If the price level increases, we move up the AD curve. If the price level decreases, we move down the AD curve.
question
Graphically, present the three ranges of aggregate supply. When can we expand production in the economy without upward pressure on the price level? ....with some pressure on prices? ...with full pressure on prices?
answer
During the depression range, the AS curve is a straight horizontal line, and we can expand production in the economy without upward pressure on the price level. During the intermediate range, the AS curve slopes upward, and we can expand production in the economy with some pressure on prices. During the classical range, the AS curve is a straight vertical line near capacity and we can expand production in the economy with full pressure on prices.
question
Which of the three segments of AS represents Keynes' theory? Which of the three segments of AS represents Classical theory? How did those two segments of AS relate to the short run and to the long run at the time of this theoretical debate?
answer
The Depression Range represents Keynes' Theory. The Classical Range represents the classical theory. The Classical Theory focused on the long run and the Classical Range represents price levels at capacity while Keynes' Theory focused on the show run and the Depression Range represents trying to get out of the slump focusing on the short run.
question
What specific exogenous factors would cause AS to shift to the right (increase in aggregate supply)? ... to the left (decrease in aggregate supply)?
answer
A decrease in comedy prices, a decrease in nominal wages, and an increase in worker productivity would cause AS to shift to the right. An increase in comedy prices, an increase in nominal wages, and a decrease in worker productivity would cause AS to shift to the left.
question
How do the phrases "increase in aggregate supply" and "decrease in aggregate supply" relate to those shifts?
answer
An increase in aggregate supply is a rightward shift in the AS curve. A decrease in aggregate supply is a leftward shift in the AS curve.
question
Given a fixed AS curve, how will the price level and real GDP be affected when AD shifts to the right in each of the three ranges/segments of AS?
answer
In the Depression Range, the Real GDP would increase but the price level would be unchanged when the AD curve shifts to the right. In the Intermediate Range, the Real GDP and the price level would both increase when the AD curve shifts to the right.
question
Given a fixed AD curve, how will the price level and real GDP be affected when AS shifts to the right?
answer
The Price Level will decrease and the Real GDP will increase when the AS curve shifts to the right.
question
Present "demand-pull inflation" graphically. Does demand-pull inflation occur in all three ranges of AS? Explain when it occurs and when it doesn't occur. Do both of our economy's problems (unemployment and inflation) worsen, do both improve, or does one improve and the other problem worsen? Explain.
answer
...
question
Present "cost-push inflation" graphically. Which side of the economy causes cost-push inflation? Do both of our economy's problems (unemployment and inflation) worsen, do both improve, or does one improve and the other problem worsen? Explain.
answer
...
question
.Review the Employment Act of 1946. What did this act do? How did that act change the role of the federal government in the economy?
answer
The Employment Act of 1946 made it the responsibility of the federal government to stabilize the economy and created the council of economic advisors and the joint economic committee.
question
Who has the constitutional authority to perform discretionary fiscal policy? What is discretionary fiscal policy?
answer
The federal government has the authority to perform discretionary fiscal policy. Discretionary Fiscal Policy is fiscal policy that is the result of deliberate actions by policy makers rather than rules.
question
What three specific things could Congress do to perform expansionary fiscal policy? ... contractionary fiscal policy? When would expansionary policy be appropriate? When would contractionary policy be appropriate?
answer
Congress can increase government purchases of goods and services, cut taxes, and increase government transfers to perform expansionary fiscal policy. Congress can reduce government purchases of goods and services, increase taxes, and reduce government transfers to perform contractionary fiscal policy. Expansionary Fiscal Policy would be appropriate during a recession. Contractionary Fiscal Policy would be appropriate when the economy is facing inflation.
question
Graphically, demonstrate how expansionary policy would affect the aggregate expenditures function. Graphically, demonstrate how expansionary policy would affect aggregate demand.
answer
Expansionary Policy would push the aggregate demand curve to the right, because government purchases of goods and services are increasing, and would increase aggregate demand.
question
Graphically, demonstrate how contractionary policy would affect the aggregate expenditures function. Graphically, demonstrate how contractionary policy would affect aggregate demand.
answer
Contractionary Policy would push the aggregate demand curve to the left, because government purchases of goods and services are decreasing, and would decrease aggregate demand.
question
What are automatic stabilizers? List the automatic stabilizers that exist in the U.S. and how they go into effect when the economy contracts. ...when the economy expands.
answer
Automatic stabilizers is government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary with the economy expands. Taxes, and government transfers are automatic stabilizers.
question
Does Congress need to pass legislation for automatic stabilizers to go into effect? Explain why or why not.
answer
Congress does not need to pass legislation for automatic stabilizers to go into effect because these automatic stabilizers automatically occur.
question
Describe the increase in the U.S. federal government's budget deficit when the Great Recession began. How did automatic stabilizers contribute to changes in federal tax revenue and to federal government expenditures?
answer
The U.S. federal government's budget deficit increased from just $160 billion to $1.4 trillion. Revenue fell sharply while some expenditures, especially unemployment benefits, rose.
question
Which level of government---federal or state and local---accounts for most government employment?
answer
State and local governments account for most government employment
question
What types of services do most state and local government employees deliver to the public? Give examples.
answer
Most state and local government employees deliver essential services to the public, such as schoolteachers, police officers, and firefighters.
question
What happened to state and local government employment from 2009 through 2013?
answer
There were large cuts in state and local government employment from 2009 through 2013, mainly layoffs of teachers, in the face of falling revenues.
question
Why did most state and local governments find it necessary to layoff large numbers of their employees during the Great Recession? Explain.
answer
Falling revenues made it necessary for state and local governments to lat off large numbers of their employees during the Great Recession.
question
Describe each of the three time lags encountered when enacting fiscal policy. What is the estimated time of each lag?
answer
Recognition Lag - realizing the recessionary or inflationary gap by collecting and analyzing economic data; usually lasts months
Administrative Lag - develop a plan; usually lasts months
Operational Lag - implement the action plan; can last a long time
Administrative Lag - develop a plan; usually lasts months
Operational Lag - implement the action plan; can last a long time
question
What is "crowding-out"? Does this make fiscal policy weaker or stronger? Explain.
answer
Crowing out is when the government's borrowing crowds out investment spending, which increases interest rates and reduces the economy's long-run rate of growth, which makes fiscal policy weaker.
question
What are the components of M1? Why are other financial assets excluded from M1? Why are credit cards not included in M1?
answer
The components of M1 are currency, checkable deposits, and traveler's checks. Other financial assets are not included in M1 because it is not checkable. Credit cards are not included in M1 because credit cards are not checkable.
question
What are the functions of money?
answer
Medium of Exchange - an asset that individuals use to trade for goods and services rather than consumption
Store of Value - a means of holding purchasing power over time
Unit of Account - the commonly accepted measure individuals use to set prices and make economic calculations
Store of Value - a means of holding purchasing power over time
Unit of Account - the commonly accepted measure individuals use to set prices and make economic calculations
question
What is the difference between "commodity money" and "commodity-backed money? What is the difference between those types of money systems and "fiat money"?
answer
Commodity Money has inartistic value in other uses while Commodity-Backed Money has no inartistic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods. Fiat Money is widely accepted while Commodity Money and Commodity-Backed Money are not widely accepted.
question
What "backs" the U.S. dollar? Is it gold?
answer
Paper backs the U.S. dollar.
question
Describe the Federal Reserve system. How many districts are in the Fed system? Which district includes the Detroit metropolitan area? What legislation created the Fed? When was this law passed?
answer
There are 12 districts in the Federal Reserve System. District 7 includes the Detroit metropolitan area. Congress created the Federal Reserve System in 1913.
question
How are members of the Federal Reserve Board of Governors chosen? How long is the standard term in office for a Governor? Under what circumstances can a Governor remain for longer than the standard term in office? Explain. Are members pressured by the public, or by the President and members of Congress? Why or why not?
answer
The members of the Federal Reserve Board of Governors are appointed by the President of the United States and confirmed by the Senate. The standard term in office for a Governor is 14 years. A Governor can remain for longer than the standard term in office if the member was appointed to serve the remainder of another member's uncompleted term. Members are not pressured because they serve 14-year terms.
question
What is the Open Market Committee? Describe its membership. How often does this group meet?
answer
The Open Market Committee is the committee that makes decisions about monetary policy. It consists of 12 members, the Federal Reserve Board of Governors, the President of the Federal Reserve Band of New York, and the other four members are selected from the Presidents of the other 11 Federal Reserve Banks on a rotating basis. The Open Market Committee meets eight times every year.
question
How is the Federal Reserve funded? Does it rely on the President, Congress, or tax dollars for funding? Explain.
answer
The Federal Reserve does not receive funding directly from Congress or the Government, in order to maintain its "independence" from political influence, but receives a large portion of its revenues from interest on the U.S. government securities that it holds.
question
Who is the current Chairman of the Board of Governors? Who served as the previous Chairman?
answer
Jerome Powell is the current Chairman of the Board of Governors. Janet Yellen served as the previous chairman.
question
List and describe the five functions of the Federal Reserve.
answer
The Federal Reserve conducts the nation's monetary policy, promotes the stability of the financial system, promotes the safety and soundness of individual financial institutions, fosters payment and settlement system safety and efficiently, qnd promotes consumer protection and community development.
question
What is a "fractional reserve" system of banking?
answer
When you deposit money into a bank account, the bank is required to hold a part of it in its value as cash
question
What are actual, required, and excess reserves? Why would a bank want to loan out its excess reserves? Why would society want a bank to keep part of a customer's deposit in the vault? What is the required reserve ratio?
answer
Actual reserves are the required reserves plus the excess reserves. A bank would want to loan out its excess reserves for consumer loans. Society would want a bank to keep part of a consumer's deposit in the vault in order to allow consumers to withdraw part of his/her funds. The required reserve ratio is 20%.
question
What is the money (or monetary) multiplier? How would an increase or decrease in the required reserve ratio impact the money multiplier?
answer
The money multiplier is the ratio of the money supply to the monetary base. An increase in the required reserve ratio would decrease the money multiplier and a decrease in the required reserve ratio would increase the money multiplier.
question
How can an individual bank create M1? What is the maximum amount of M1 an individual bank can create?
answer
An individual bank can create M1 up to the excess reserve capacity.
question
Describe how the entire banking system creates M1. What is the maximum amount of M1 the entire banking system can create?
answer
The entire banking system can create M1 up to its original ER capacity * Monetary Multiplier
question
What is monetary policy?
answer
Monetary Policy is deliberate management of money supply as seen by the federal reserve
question
How would the Fed change the required reserve ratio for expansionary monetary policy? ...for contractionary policy?
answer
The Fed would decrease the required reserve ratio for expansionary monetary policy. The Fed would increase the required reserve ratio for contractionary monetary policy.
question
How does a change in the required reserve ratio affect excess reserves? How does a change in the required reserve ratio affect the money multiplier? How often does the Fed change the required reserve ratio?
answer
An increase in the required reserve ratio decreases excess reserves and a decrease in the required reserve ratio increases excess reserves. An increase in the required reserve ratio would decrease the money multiplier and a decrease in the required reserve ratio would increase the money multiplier. The Fed rarely changes the required reserve ratio.
question
What is the discount rate? How would the Fed change the discount rate for expansionary monetary policy? ...for contractionary monetary policy?
answer
The discount rate is the rate of interest the Fed charges on loans to banks. The Fed would lower the discount rate for expansionary monetary policy. The Fed would raise the discount rate for contractionary monetary policy.
question
What is the federal funds rate? How would the Fed change this rate for expansionary monetary policy? ....for contractionary monetary policy?
answer
The federal funds rate is the interest rate at which funds are borrowed and lent in the federal funds market. The Fed would decrease the federal funds rate for expansionary monetary policy. The Fed would increase the federal funds rate for contractionary monetary policy.
question
Why would a bank be interested in borrowing funds in the federal funds market? ....in lending funds in the federal funds market?
answer
...
question
How often does the Fed typically change the discount rate and the fed funds rate?
answer
The Fed does not often change the discount rate and the fed funds rate.
question
How would the Fed use open market operations for expansionary monetary policy? ...for contractionary policy?
answer
The Fed would buy the US government securities for expansionary monetary policy. The Fed would sell the US government securities for contractionary monetary policy.
question
How often does the Fed typically use open market operations?
answer
The Fed uses open market operations the most often.
question
Which is the most commonly used instrument of monetary policy?
answer
Open Market Operations
question
"Dissavings" or negative savings occurs when:
a. Y is greater than the equilibrium level.
b. savings is greater than consumption.
c. savings is greater than Y.
d. consumption is greater than Y.
a. Y is greater than the equilibrium level.
b. savings is greater than consumption.
c. savings is greater than Y.
d. consumption is greater than Y.
answer
D
question
If the MPS increases, the:
a. value of the multiplier also increases.
b. consumption function becomes steeper.
c. MPC also increases.
d. value of the multiplier will decrease.
a. value of the multiplier also increases.
b. consumption function becomes steeper.
c. MPC also increases.
d. value of the multiplier will decrease.
answer
D
question
If autonomous consumption equals 100, and the MPC equals .80, the savings function would be:
a. S = -100 + .20 (Y).
b. S = 100 + .20 (Y).
c. S = -100 + .80 (Y).
d. S = 100 + .80 (Y).
a. S = -100 + .20 (Y).
b. S = 100 + .20 (Y).
c. S = -100 + .80 (Y).
d. S = 100 + .80 (Y).
answer
A
question
When C = A + (MPC) Y, we know that autonomous savings equals:
a. A. c. (MPS) Y.
b. -A. d. (MPC) Y.
a. A. c. (MPS) Y.
b. -A. d. (MPC) Y.
answer
B
question
When wealth increases, we would expect:
a. consumption will increase, while savings decreases.
b. both consumption and savings will decrease.
c. consumption will decrease, while savings increases.
d. both consumption and savings will increase.
a. consumption will increase, while savings decreases.
b. both consumption and savings will decrease.
c. consumption will decrease, while savings increases.
d. both consumption and savings will increase.
answer
A
question
We learn that investment spending declined during a certain year. Which of the following could have caused that decline?
a. there was a decline in the excess capacity of capital (or, the unused portion of capital stock declined).
b. there was an increase in the MPC.
c. expected future disposable income increased.
d. there was an increase in the excess capacity of capital (or, the unused portion of capital stock increased).
a. there was a decline in the excess capacity of capital (or, the unused portion of capital stock declined).
b. there was an increase in the MPC.
c. expected future disposable income increased.
d. there was an increase in the excess capacity of capital (or, the unused portion of capital stock increased).
answer
D
question
The "Keynesian Cross" is used to identify the:
a. point where real GDP (and Y) is equal to nominal GDP.
b. point where real GDP (and Y) is equal to aggregate expenditures.
c. point where C is equal to I.
d. number of workers in the economy.
a. point where real GDP (and Y) is equal to nominal GDP.
b. point where real GDP (and Y) is equal to aggregate expenditures.
c. point where C is equal to I.
d. number of workers in the economy.
answer
B
question
If the MPC = .80 and total autonomous spending increases from 200 to 250, we know that Y* will increase by:
a. 40
b. 200
c. 250
d. 50
a. 40
b. 200
c. 250
d. 50
answer
C
question
The "wealth" effect explains why:
a. high price levels encourage high demand for goods and services in the economy.
b. we experience demand-pull inflation.
c. high price levels lead to high interest rates.
d. high price levels reduce the spending power of wealth
a. high price levels encourage high demand for goods and services in the economy.
b. we experience demand-pull inflation.
c. high price levels lead to high interest rates.
d. high price levels reduce the spending power of wealth
answer
D
question
Which of the following could cause aggregate supply to shift to the left?
a. commodity prices have increased.
b. consumers expect higher prices in the future.
c. nominal wages have declined.
d. worker productivity has increased.
a. commodity prices have increased.
b. consumers expect higher prices in the future.
c. nominal wages have declined.
d. worker productivity has increased.
answer
A
question
The Detroit Free Press reported economic data for last month. The economy is in the intermediate segment of AS. Last month, the national unemployment rate declined by 0.1% while the price level rose by 2%. What could have happened during that time?
a. AD shifted to the right.
b. AS shifted to the right.
c. AD shifted to the left.
d. AS shifted to the left.
a. AD shifted to the right.
b. AS shifted to the right.
c. AD shifted to the left.
d. AS shifted to the left.
answer
A
question
The economy is in the intermediate segment of AS. Which of the following statements is correct?
a. Demand-pull inflation results in a decrease in the unemployment rate.
b. Cost-push inflation occurs when there is a leftward shift of AD.
c. Cost-push inflation occurs when AS shifts to the right.
d. A rightward shift in AD causes cost-push inflation.
`
a. Demand-pull inflation results in a decrease in the unemployment rate.
b. Cost-push inflation occurs when there is a leftward shift of AD.
c. Cost-push inflation occurs when AS shifts to the right.
d. A rightward shift in AD causes cost-push inflation.
`
answer
A
question
The period of time it takes Congress to decide on fiscal policy is called the _________________ lag, which usually lasts _____________.
a. operational; 1-2 years
b. recognition; 1 year
c. administrative; 1-2 sessions of Congress
d. crowding-out; 1-2 years
a. operational; 1-2 years
b. recognition; 1 year
c. administrative; 1-2 sessions of Congress
d. crowding-out; 1-2 years
answer
C
question
If you are keeping $100 from your last paycheck in a dresser drawer, you are using money as:
a. a medium of exchange.
b. a store of value.
c. a measure of value.
d. commodity money.
a. a medium of exchange.
b. a store of value.
c. a measure of value.
d. commodity money.
answer
B
question
The Federal Reserve Board of Governors is made up of:
a. 14 members chosen by the Senate Banking Committee, and confirmed by the U.S. Senate.
b. 7 members nominated by the President, and confirmed by the U.S. Senate.
c. 12 members from banks across the country, with each member serving a 4 year term.
d. 7 members nominated by the President, with each member serving a 4 year term.
a. 14 members chosen by the Senate Banking Committee, and confirmed by the U.S. Senate.
b. 7 members nominated by the President, and confirmed by the U.S. Senate.
c. 12 members from banks across the country, with each member serving a 4 year term.
d. 7 members nominated by the President, with each member serving a 4 year term.
answer
B
question
If the Fed sells securities in the open market, this action will be seen as:
a. expansionary fiscal policy.
b. expansionary monetary policy.
c. contractionary fiscal policy.
d. contractionary monetary policy.
a. expansionary fiscal policy.
b. expansionary monetary policy.
c. contractionary fiscal policy.
d. contractionary monetary policy.
answer
D
question
For expansionary policy, the Fed would want to:
a. increase the discount rate.
b. lower the discount rate.
c. increase the federal funds rate.
d. sell securities.
a. increase the discount rate.
b. lower the discount rate.
c. increase the federal funds rate.
d. sell securities.
answer
B
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