Eco372t week 5 apply fiscal and monetary policy score 98 percent

  

Question 1

The graph below depicts an economy where an increase in aggregate demand has caused inflation. The economy’s current level of real GDP (Y2) is above its long-run equilibrium. This is illustrated by the long-run aggregate supply curve (LRAS) and a price level (P2) above the equilibrium value of Pe. 

Which of the following is an example of an automatic stabilizer that would help this economy move toward full employment again?

multiple choice

A reduction in the average tax rate

An increase in the average tax rate

A decrease in government purchases

A reduced need for government transfer payments

Question 2

For each of the following scenarios, determine which time lag is most likely to result when designing and implementing fiscal policy.

a. The separation of power demonstrated between the legislative and executive branches of government combined with strong partisanship attitude among our elected politicians.

multiple choice 1

Recognition lag

Legislative lag

 Implementation lag

All of these lags

b. The fact that it takes economists working for the National Bureau of Economic Research months to declare the dates of peaks and troughs.

multiple choice 2

Recognition lag

Legislative lag

Implementation lag (Incorrect)

All of these lags

c. The time it takes to design and build new infrastructure after these projects have been passed by the legislature.

multiple choice 3

Recognition lag (Incorrect)

Legislative lag

Implementation lag

All of these lags

Question 3

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n)

Multiple Choice

contractionary fiscal policy.

supply-side fiscal policy.

nondiscretionary fiscal policy.

expansionary fiscal policy.

Question 4

When changes in taxes and government purchases occur in the economy without explicit action by Congress, such changes are referred to as

implicit stabilization.

 cyclical stabilization.

automatic stabilizers.

discretionary fiscal policy.

Question 5

If taxes and government expenses did not vary with income, then income would

Multiple Choice

be less stable.

be more stable.

be closer to potential income.

not change.

Question 6

When the federal government changes purchases and/or taxes to stimulate the economy or rein in inflation, such policy is

Multiple Choice

active monetary policy.

discretionary fiscal policy.

automatic fiscal policy.

active federal policy.

Question 7

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system

Multiple Choice

increases crowding out in the economy.

serves as an automatic stabilizer for the economy.

offsets the timing problem for fiscal policy.

decreases real interest rates in the economy.

Question 8

When the federal government cuts taxes and increases purchases to stimulate the economy during a period of recession, such actions are designed to be

Multiple Choice

expansionary.

contractionary.

passive.

automatic.

Question 9

Due to automatic stabilizers, when the nation’s total income rises, government transfer payments

Multiple Choice

and tax revenues increase.

increase and tax revenues decrease.

decrease and tax revenues increase.

and tax revenues decrease.

Question 10

Which of the following is an example of built-in stability? As real GDP decreases,

Multiple Choice

 income tax revenues decrease and transfer payments increase.

income tax revenues and transfer payments both decrease.

income tax revenues increase and transfer payments decrease.

income tax revenues and transfer payments both increase.

Question 11

One timing problem in using fiscal policy to counter a recession is the “legislative lag” that occurs between the

Multiple Choice

time fiscal action is taken and the time that the action has its effect on the economy.

start of the recession and the time it takes to recognize that the recession has started.

time the need for the fiscal action is recognized and the time that the action is taken.

start of a predicted recession and the actual start of the recession.

Question 12

When the federal government uses taxation and purchasing actions to stimulate the economy it is conducting

Multiple Choice

monetary policy.

 employment policy.

incomes policy.

fiscal policy.

Question 13

Using fiscal policy to stabilize the economy is difficult because

Multiple Choice

there are time lags involved in the use of fiscal policy.

potential income is known.

the effects of policy changes are known with certainty.

the size of the government debt doesn’t matter.

Question 14

Fiscal policy is enacted through changes in

Multiple Choice

the supply of money and foreign exchange.

interest rates and the price level.

unemployment and inflation.

taxation and government purchases.

Question 15

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n)

Multiple Choice

recognition lag.

budget lag.

implementation lag.

legislative lag.

Question 16

Choose the best response for each of the following statements.

a. When the Federal Reserve makes an open market purchase, the Fed:

multiple choice

sells bonds to the public, which decreases the money supply.

buys bonds from the public, which increases the money supply.

sells bonds to the public, which increases the money supply.

buys bonds from the public, which decreases the money supply.

b. If the Fed wants to increase interest rates, it should make an open market sale .

This would decrease the money supply and achieve the increase in interest rates.

Question 17

a. The discount rate is the:

multiple choice 1

interest rate at which banks can borrow reserves from the Federal Reserve.

interest rate at which banks can borrow reserves from other banks.

lowest interest rate that banks can charge for loans to their most creditworthy customers.

lowest interest rate that banks can charge for lending reserves to other banks or financial institutions.

b. If the Fed were to decrease the discount rate, banks will borrow:

multiple choice 2

more reserves, causing a decrease in lending and the money supply.

more reserves, causing an increase in lending and the money supply.

fewer reserves, causing a decrease in lending and the money supply.

fewer reserves, causing an increase in lending and the money supply.

Question 18

The interest rate that the Fed charges on loans made directly to banks is called _____.

Multiple Choice

the prime rate

interest on reserves

the federal funds rate

the discount rate

Question 19

Economic investment refers to _____.

Multiple Choice

postponing purchases of goods and services.

making new additions to a firm’s stock of capital.

selling a financial asset for a gain.

buying a financial asset for a gain.

Question 20

An increase in the money supply, all else held constant, usually _____.

Multiple Choice

decreases the interest rate and decreases aggregate demand

decreases the interest rate and increases aggregate demand

increases the interest rate and decreases aggregate demand

increases the interest rate and increases aggregate demand

Question 21

If the Fed sells government securities to the general public in the open market, the _____.

Multiple Choice

Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed

public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will decrease their reserves at the Fed

public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will increase their reserves at the Fed

Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at

Question 22

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

Multiple Choice

The federal funds rate

The reserve requirement

The discount rate

Open-market operations

Question 23

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the _____.

Multiple Choice

short-term rate

federal funds rate

discount rate

prime rate

Question 24

The purchase and sale of government securities by the Fed is called _____.

Multiple Choice

federal funds market

money market transactions

term auction facility

open market operations

Question 25

The purpose of expansionary monetary policy is to increase _____.

Multiple Choice

real GDP

the GDP gap

interest rates

the inflation rate

Question 26

The discount rate is the interest _____.

Multiple Choice

rate at which commercial banks lend to the public

yield on long-term government bonds

rate at which the Federal Reserve Banks lend to commercial banks

rate at which the central banks lend to the U.S. Treasury

Question 27

Financial markets pay close attention to changes in the federal funds rate because these changes _____.

Multiple Choice

affect other interest rates in the economy

indicate commercial bank lending policies

directly affect the interest payments on the national debt

directly affect a large volume of loans

Question 28

The Fed directly sets _____.The Fed directly sets _____.

Multiple Choice

neither the federal funds rate nor the prime rate

the prime rate but not the federal funds rate

the discount rate and the prime rate

both the federal funds rate and the prime rate

Question 29

Which of the following statements is true?

Multiple Choice

The Federal Reserve does not set the federal funds rate, but it influences it through the use of its open-market operations.

The Federal Reserve sets the federal funds rate.

The Federal Reserve will set a higher target for the federal funds rate if pursuing an expansionary monetary policy.

The Federal Reserve sets the target for the federal funds rate, and then uses the reserve requirement to push banks toward that target.

Question 30

When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the federal funds market _____.

Multiple Choice

increases and the federal funds rate increases

decreases and the federal funds rate increases

decreases and the federal funds rate decreases

increases and the federal funds rate decreases