Fiscal Policy: Macroeconomics Chapters 6 & 7

<p>Easy monetary policy, increasing the money supply. (B)</p> Signup and view all the answers

<p>To decrease the money available to curb inflationary pressures. (D)</p> Signup and view all the answers

<p>The multiplier effect is larger when the economy is in a recession. (C)</p> Signup and view all the answers

<p>All workers have jobs and the economy is at its potential GDP. (A)</p> Signup and view all the answers

<p>A shift of the aggregate demand curve to the right. (B)</p> Signup and view all the answers

<p>Keynesians believe that prices are sticky in the short-run, while Neoclassical models emphasize efficiency and long-run equilibrium. (C)</p> Signup and view all the answers

<p>Net exports (D)</p> Signup and view all the answers

<p>A means of debt forgiveness (A)</p> Signup and view all the answers

<p>Portability (C)</p> Signup and view all the answers

<p>The ease with which an asset can quickly be converted into cash (C)</p> Signup and view all the answers

<p>M2 includes assets that are less liquid than those in M1 (B)</p> Signup and view all the answers

<p>National Saving (S) (B)</p> Signup and view all the answers

<p>They function as a financial intermediary, connecting savers and borrowers. (D)</p> Signup and view all the answers

<p>The annual interest payment on a loan as a percentage of the loan amount. (C)</p> Signup and view all the answers

<p>The demand for loanable funds will increase, shifting the demand curve to the right. (A)</p> Signup and view all the answers

<p>The total quantity of goods and services that firms are willing and able to produce at various price levels. (D)</p> Signup and view all the answers

<p>An inflationary gap exists when equilibrium real GDP exceeds potential GDP, and a deflationary gap exists when potential GDP exceeds equilibrium real GDP. (A)</p> Signup and view all the answers

<p>Controlling inflation and promoting stable economic growth (A)</p> Signup and view all the answers

<p>An increase in inflation with no lasting impact on GDP. (C)</p> Signup and view all the answers

<p>To counteract the instability of aggregate demand and achieve full employment. (C)</p> Signup and view all the answers

<p>Decreasing the reserve requirements for commercial banks (B)</p> Signup and view all the answers

<p>To ensure banks have sufficient cash to cover customer withdrawals (D)</p> Signup and view all the answers

<p>Y = C + I + G + NX (B)</p> Signup and view all the answers

<p>The money supply will decrease (C)</p> Signup and view all the answers

<p>Investment decreases because borrowing costs are higher. (B)</p> Signup and view all the answers

<p>To lend money to commercial banks facing liquidity issues (B)</p> Signup and view all the answers

<p>Decisions made by the legislature concerning government spending and tax rates. (A)</p> Signup and view all the answers

<p>Raising the reserve requirement for commercial banks (B)</p> Signup and view all the answers

<p>$80 (C)</p> Signup and view all the answers

<p>$1000 (C)</p> Signup and view all the answers

<p>An increase in taxes results in a decrease in aggregate demand. (B)</p> Signup and view all the answers

<p>To act as financial intermediaries, loaning out deposits (B)</p> Signup and view all the answers

<p>A positive impact, increasing overall economic activity. (A)</p> Signup and view all the answers

<p>Substantial unemployment or deflationary pressures (A)</p> Signup and view all the answers

<p>The reserve requirement set by the central bank (C)</p> Signup and view all the answers

The multiplier effect describes the larger impact on GDP that results from a change in government spending or taxes. The size of the multiplier depends on factors like who receives the stimulus and the overall state of the economy.

The aggregate demand (AD) curve shows the total quantity of goods and services demanded in an economy at different price levels. It slopes downward, indicating that higher prices lead to lower demand.

The short-run aggregate supply (ASSR) curve shows the relationship between the price level and the quantity of goods and services that firms are willing to supply in the short run. It slopes upward, showing that higher prices incentivize firms to produce more.

Neoclassical economics emphasizes the idea that markets are efficient and tend towards equilibrium. In the long run, potential GDP ultimately determines the equilibrium level of output.

Keynesian economics focuses on the presence of sticky prices and falling demand in both labor and goods markets. It argues that government intervention is needed to stimulate the economy during recessions.

The government's use of taxation and spending to influence the economy.

Policies designed to increase output to compensate for an output gap.

Policies intended to reduce output to counter excessive economic expansion.

The percentage of additional income a household consumes instead of saves.

The multiplier effect shows that an initial change in government spending or taxes leads to a larger change in total output.

The multiplier effect shows that an initial change in taxes leads to a smaller change in total output in the opposite direction.

The combined effect of an equal increase in government spending and taxes. The impact on output is uncertain.

Government spending exceeds tax revenue.

Government tax revenue exceeds government spending.

A government budgetary decision made by the legislature.

The amount of money people wish to hold at different interest rates.

The quantity of money that is available in the economy.

The interest rate at which the quantity of money demanded equals the quantity of money supplied.

When the central bank increases the money supply to boost economic activity.

When the central bank reduces the money supply to curb inflation.

A tool that makes exchanging goods and services easier. It allows us to buy things without bartering.

A measure of how quickly an asset can be converted into cash. Highly liquid assets can be easily sold for cash.

The total amount of money in circulation in an economy, excluding money held by banks.

A financial intermediary that takes deposits from individuals and lends money to borrowers, facilitating the flow of funds.

The price borrowers pay to lenders for the use of their money over a specific period. It's expressed as an annual percentage of the loan amount.

This market shows the forces of supply and demand for the money available for lending and borrowing. It determines the equilibrium interest rate.

The source of the supply of loanable funds. It represents the amount of money households and businesses save out of their income.

The source of the demand for loanable funds. It represents the money invested in new capital goods like factories, equipment, and buildings.

The central bank controls the money supply in an economy through various tools.

Quantitative easing refers to a central bank injecting more money into the economy through asset purchases, typically government bonds, to lower interest rates and stimulate borrowing and spending.

Monetary tightening is a central bank's policy to reduce the money supply by raising interest rates. This makes borrowing more expensive and discourages spending to curb inflation.

Open market operations involve a central bank buying or selling government bonds to influence the money supply. Buying bonds injects money, while selling bonds withdraws money.

The discount rate is the interest rate at which commercial banks borrow money from the central bank. Changing this rate influences borrowing costs for banks.

Reserve requirements are the percentage of deposits that banks must hold in reserve, not lending out. Adjusting this ratio affects the amount of money banks can lend.

Commercial banks are financial intermediaries that accept deposits from the public and use them to make loans, playing a crucial role in money creation.

The deposit multiplier effect illustrates how a change in reserves can have a larger impact on the money supply. A smaller reserve requirement leads to a larger multiplier effect.