Final

Front 1

Keynes emphasized that because there is no automatic adjustment back to full employment:

Back 1

Equailibrum GDP might be less than full employment.
A recession might occur
Cyclical unemployment could persist

Front 2

Appreciate fiscal policy precription for the government to follow

Back 2

Deficit reduction when there is excess AD

Front 3

Which of the following policies will definitely increase the budget defict, while achieving greater fiscal stimulus?

Back 3

Greater government expenditure and lower taxes

Front 4

If full-employment output exceeds desired spending, greater deficit spending will result in a:

Back 4

larger inflationary gap

Front 5

In order to reduce the debt

Back 5

The government should spend less than it collects in tax revenues

Front 6

Discretionary expenditure accounts for appox

Back 6

1/5 or 20% of the federal budget

Front 7

Automatic stabilizers tend to stabilize the level of economic activity because they:

Back 7

Increase spending during recessions and reduce spending during inflationary period.

Front 8

The size of the cyclical deficit depends on:

Back 8

The inflation rate
Cyclical unemployment
The expansion and contraction of macro economy

Front 9

The crowing out effect refers to a decrease in:

Back 9

Consumption or investment as a result of an increase in government borrowing

Front 10

If the government reduces some of the national debt and as a result households have more money to spend, this can result in:

Back 10

Crowding in

Front 11

Characteristic of money

Back 11

Medium of exchange
Store of value
Standard of value

Front 12

Money is functioning as a standard of value when you

Back 12

Use it to compare two houses that are different prices

Front 13

The narrowest definition of money supply

Back 13

Currency in currulation
Transactions accounts
Traveler's checks

Front 14

Currency held by the public, balances in transactions accounts, plus balance in most savings accounts and money market mutual funds added together is:

Back 14

M2

Front 15

The different components of the money supply reflect:

Back 15

Variations in liquidity and accessi ility of assets

Front 16

One of the main functions of banks is:

Back 16

Creating money

Front 17

Banks make loans to:

Back 17

Business for new plant and equipment
Consumers for new homes and cars
The government for its projects

Front 18

If bank consumers decided as a group to pay off their loans and not takeout any new loans

Back 18

The money supply would decrease

Front 19

Why do banks try to keep their holdings low

Back 19

To maximize profits

Front 20

Monetary policy involves the use of money and credit controls to

Back 20

Shift the aggregate demand curve

Front 21

Which of the following would be true for the banking system if there were no government regulations?

Back 21

The money supply would be determined by individual banks
Depositors would bear all the risks of bank failures
The money supply would be subject to abrupt changes

Front 22

The minimum amount of reserves a bank is required to hold is:

Back 22

Reserve Requirement

Front 23

Tools available to the Fed for controlling money supply

Back 23

Reserve Requirement
Discount rate
Open market operations

Front 24

Change in the reserve requirement causes a change in

Back 24

The money multiplier
The leading capacity of the banking system
Excess reserve

Front 25

An increase in the discount rate

Back 25

Signals the Fed to restrain money growth

Front 26

Idle funds

Back 26

Portfolio decision

Front 27

The Fed buys bonds from the public, it

Back 27

Increases the flow of reserves to the banking system

Front 28

Bond

Back 28

Promise to repay borrowed funds

Front 29

Rate of return on a bond

Back 29

Yield

Front 30

Market demand for money

Back 30

Precautionary demand
Transactions demand
Speculative demand

Front 31

Equilibrium rate of interest

Back 31

The fed can change it by changing the money supply

Front 32

What should happen to the equilibrium interest rate and the corresponding rate if investment if the Fed decreases the discount rate?

Back 32

Equilibrium interest rate should decrease and equilbrium rate of investment should increase

Front 33

Sequence of events when restrictive monetary policy is implemented

Back 33

The money supply decreases, interest rate increases, investments decrease, AD drecreases.

Front 34

Equation of exchange

Back 34

MV= PQ

Front 35

Monetatists views

Back 35

A reduction in M can leave real output unaffected
The velocity of money is stable
Changes in M may cause changes in P

Front 36

Real interest rate equation

Back 36

Nominal - inflated

Front 37

Liquity trap

Back 37

An increase in the money supply does not affect interest rates

Front 38

Result of stageflation

Back 38

Decrease in AS

Front 39

An aggregate supply curve that is always vertical is most consistent with which view

Back 39

Monetarist

Front 40

The closer the economy is to capacity (full employment) the greater the risk that fiscal or monetary stimulus will cause

Back 40

An increase in the price level

Front 41

Phillips Curve

Back 41

Shows the tradeoff between unemployment and inflation rates

Front 42

Phillips curve shift factors

Back 42

An earthquake
Improving infrastructure
Excessive govt regulations

Front 43

To reduce unemployment and inflation on the Phillups curve

Back 43

AS must shift right

Front 44

Examples of Supply side policy

Back 44

Lowering marginal tax rates
Improving infrastucture
Eliminating excessive OSHA regulations

Front 45

Progressive tax system

Back 45

Higher marginal tax rate at highter invome levels