Econ104exam3p2 - ECON104 exam 3 review PDF

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ECON104 exam 3 review...

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Which of the following new tool of monetary policy ends up being the floor (minimum) of the federal funds rate range?! Interest rate paid on reserves! Open market operations! Interest rate on reverse repurchasing agreements! Interest rate paid on discount loans (the discount rate)! Interest rate on reverse repurchasing agreements! Which of the following is a new tool of monetary policy as mentioned in this lesson?! Reserve Requirements! Open Market Operations! Interest rate paid on reverse repurchasing agreements! Discount policy! Interest rate paid on reverse repurchasing agreements! What are the old tools of monetary policy?! Open Market Operations, Discount Policy, Reserve Requirements! Contractionary monetary policy results in a ___________ interest rate and a ________ shift in the aggregate demand curve.! higher; leftward! Which of the following would be considered expansionary monetary policy? Select all that apply.! Lowering the discount rate! Lowering the reserve requirements! Open market purchases! None of the three policies listed are considered expansionary monetary policy.! Lowering the discount rate, lowering the reserve requirements, and open market purchases!

Which of the following would be considered contractionary monetary policy? Select all that apply.! Lowering the reserve requirements! None of the three policies listed are considered contractionary monetary policy.! Open market sales! Lowering the discount rate! Open market sales! Holding all else constant, open market purchases would result in a ___________ interest rate and a ________ shift in the aggregate demand curve.! lower; rightward! Holding all else constant, a decrease in the interest paid on reserves and the interest paid on repurchasing agreements would result in a ___________ federal funds rate and a ________ shift in the aggregate demand curve.! lower; rightward! If the economy is in an expansion due to an increase in aggregate demand, the Federal Reserve will want to conduct _________ monetary policy which will __________ overall output and _________ the price level back to its original point.! contractionary; lower, lower! Assume the economy is currently experiencing stagflation. If monetary policy actions result in the output level returning to the original level, economics would say the FOMC conducted _______ monetary policy.!

dovish! Suppose the economy is in a recession and the Fed pursues expansionary monetary policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement to! the right! Looking at a basic AD-AS model and holding all else constant, if the FOMC raises the discount rate, we would see the price level ________ and the real GDP _______.! fall; fall! Looking at a basic AD-AS model and holding all else constant, if the FOMC lowers the discount rate, we would see the price level ________ and the real GDP _______.! rise; rise!

One limitation of monetary policy is the time in which it takes for the Federal Reserve to notice the economy has moved away from equilibrium. For example. Perhaps the unemployment rate is stable but the inflation rate has started to increase month-over month. The Fed may be unsure if the economy has already entered an expansion. This limitation is known as:! The Recognition Lag! Classical economists believe that prices are fairly ________ and are _________ policy intervention.! flexible; opposed to!

Which of the following would be considered a fiscal policy action? Select all that apply.! Tax incentives are offered to encourage the purchase of fuelefficient cars.! A tax cut is designed to stimulate spending during a recession.! The Federal Reserve increases interest rates during an expansion.! Spending on an international conflict is increased to promote homeland security.! A tax cut is designed to stimulate spending during a recession.! Which of the following is an example of discretionary fiscal policy?! a decrease in food stamps issued during an expansion or boom! an increase in income tax receipts with rising income during an expansion! the stimulus payments passed by Congress in 2020 to combat the COVID-19 recession! an increase in unemployment insurance payments during a recession! the stimulus payments passed by Congress in 2020 to combat the COVID-19 recession! Suppose the economy is in macroeconomic equilibrium and the Federal government pursues contractionary fiscal policy. Using the basic AD-AS model in the figure above, this would be depicted as a movement to! the left! In the basic AD-AS model, short-run expansionary fiscal policy will shift ________ to the _________.! aggregate demand; right!

In the basic AD-AS model, a decrease in government expenditures will shift ________ to the _________.! aggregate demand; left! According to the basic AD-AS model, an increase in taxes will ________ the price level and _________ level of real GDP.! decrease; decrease! If the MPC is 0.74, what is the value of the spending multiplier?! 3.85! If the MPC is 0.61 and taxes decrease by $702, holding all else constant, real GDP will change by _____ according to the multiplier effect.! 1098! A(n) ________ in private expenditures as a result of a(n) ________ in government purchases is called crowding out.! decrease; increase! Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally! more difficult than with monetary policy! Assume that the economy is in an expansion above potential GDP. If policymakers implement an contractionary fiscal policy but overestimate the size of the multiplier, the new equilibrium level of GDP is likely to! decrease yet stay above potential GDP!

Assume a government starts with zero debt. This government then runs an annual deficit for 9 years of $2,548. At the end of those 9 years, what would be amount of the government debt?! 22932! If the federal government's expenditures are less than its tax revenues, then! a budget surplus results! Currently, out of the listed options, the largest category of revenues for the U.S. is:! Discretionary Spending! Individual Income Taxes! Mandatory Spending! Corporate Income Taxes! Net Interest Payments! Individual Income Taxes!...