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comparative advantage

countries engaged in international trade specialize in production based on

mutually advantageous specialization and trade between A and B may still be possible

If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B

the federal government

fiscal policy is carried out primarily by

changes in taxes and government expenditures made by congress to stabilize the economy

discretionary fiscal policy refers to

deficits during recessions and surpluses during periods of demand-pull inflation

countercyclical discretionary fiscal policy calls for

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level

fiscal policy refers to

involves specific changes in T and G undertaken expressly for stabilization at the option of congress

discretionary fiscal policy is so named because it

is designed to expand real GDP

Expansionary fiscal policy is so named because it

is expressly designed to contract real GDP

contractionary fiscal policy is so named because it

tax cuts during recession and reduction is government spending during inflation

an economist who favors smaller government would recommend

the deficits are incurred during recessions and surpluses during inflations

discretionary fiscal policy will stabilize the economy most when

increase tax rates and/or reduce government spending

in a certain year the aggregate amountt demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $ 20 billion of governmnet purchases. Full-Employment GDP is 120 billion. to obtain price level stability under these conditions the government should

an excess of government expenditures over tax receipts

assume the economy is at full-employment and that investment spending declines dramatically. if the goal is to restore full employment, government fiscal policy should be directed toward

reduce tax rates and/or increase government spending

in a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full employment GDP is $200 billion. to obtain full employment under these conditions the government should

a decrease in tax rates

an appropriate fiscal policy for a severe recession

a tax rate increase

an appropriate fiscal policy for severe demand-pull inflation

federal reserve banks

paper money (currency) in the united states is issued by the

federal reserve system

In the U.S. economy the money supply is controlled by the

federal open market committee

as it relates to Federal Reserve activities, the acronym FOMC describes the

deposit insurance

which one of the following is presently a major deterrent to bank panics in the united states

fractional reserves

most modern banking systems are based on

is susceptible to bank panics

a fractional reserve bank

banks can create money through the lending process

in a fractional reserve bank system

$5,000

a reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are

vertical and the short-run aggregate supply curve is upward sloping

the long-run aggregate supply curves is

nominal wages and other input prices are fully responsive to price-level changes

in terms of aggregate supply, the difference between the long run and the short run is that in the long run

higher price levels create incentives to expand output when resources prices are unresponsive to price-level changes

the short-run aggregate supply curve is upsloping because

nominal wages and other input prices change

other things equal, the short-run aggregate supply curve shifts positions when

the level of real output is the same in the long run regardless of the location of the aggregate demand curve

in the aggregate demand-aggregate supply model

an increase in inflation accompanied by decreases in real output and employment

Stagflation refers to

a dramatic increase in oil prices

which of the following allegedly contributed to the stagflation in the mid 1970's

increase the realized rate of economic growth

the achievement of full employment through time will

outward shift of the production possibilities curve

economic growth can be portrayed as a

neither ensures a nation of an increase in real GDP nor of an increase in real GDP per capita

an outward shift of a nation's production possibilities curve

whatever performs the functions of money extremely well is considered to be money

to say money is socially defined means that

a store of value, a unit of account, and a medium of exchange

money functions as

a unit of account

if you are estimating your total expenses for school next semester, you are using money primarily as

store of value

if you place a part of your summer earnings in a savings account, you are using money primarily as a

a medium of exchange

if you write a check on a bank to purchase a used honda civic, you are using money primarily as

unit of account

a $70 price tag on a sweater in a department store window is an example of money functioning as a

the seven member of the board of governors of the federal reserve system along with the president of the NY federal reserve bank and four other Federal Reserve banks presidents on a rotating basis

the Federal Open Market Committee (FOMC) is make up of

Federal Open Market Committee (FOMC)

the group that sets the federal reserve systems policy on buying and selling government securities (bills, notes and bonds) is the

difference between actual reserves and required reserves

excess reserves refer to the

federal funds rate

overnight loans from one bank to another for reserve purposes entail an interest rate called the

borrowing funds in the federal funds market

a bank temporarily short of required reserves may be able to remedy this situation by

federal funds market

the market for immediately available reserve balances at the federal reserve is known as the

m = 1/R

if m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system

D= E x m

if D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the monetary multiplier then

5

if the reserve ration is 15 percent and commercail bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system will be

higher interest rates, a contracted GDP, and appreciation of the dollar

if the Fed were to increase the legal reserve ration, we would expect

raise the legal reserve ratio

if the monetary authorities want to reduce the monetary multiplier, they should

1

if the reserve ration is 100 percent, the value of the monetary multiplier is

the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems

which of the following represents a change in todays banking policies that should prevent a recurrence of the bank panics of 1930-1933

the widespread conversion of checkable deposits to cash by the public

the bank panics of 1930-1933 and the resulting failures of many banks were caused by

rate at which the federal reserve banks lend to commercial banks

the discount rate is the interest

borrowing from a federal reserve bank

a commercial bank can add to its actual reserves by

federal funds rate

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

Federal Reserve Banks lend to commercial banks

the discount rate is the rate of interest at which

discount rate

projecting that it might temporarily fall short of legally required reserves in the coming days, the bank of beano decides to borrow money from its regional Federal Reserve Bank. the interest rate on the loan is called the

increases its reserves and enhances its ability to extend credit to bank customers

when the fed lends money to a commercial bank, the bank...

less important than open-market operations in implementing monetary policy

changes in the discount rate are ...

consists of the historical accumulation of all Federal government deficits less surpluses

the U.S. public debt

the federal government owes to holders of U.S. securities

the public debt is the amount of money that

treasury bills, treasury notes, treasury bonds, and U.S. savings bonds

the public debt is held as

producing a higher rate of inflation than people expect

government can push the unemployment rate below the natural rate only by

vertical

classical theory sees the aggregate supply curve as being

reduce the price level, but not the levels of output and employment

in classical theory a decline in aggregate demand will

the real output is unrelated to the price level

the classical aggregate supply curve suggests that

Keynesian ideas

the mainstream view of macroeconomic instability is based mainly on

monetary value of all final goods and services produced within a nation in a particular year

the GDP is the

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