Macroeconomics Exam #3

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Ch. 30, 31, & 33

Discretionary Fiscal Policy Refers to

International changes in taxes & government expenditures made by Congress to stabilize the economy

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60b by

Increasing taxes by $20b

Currency in circulation is part of

Both M1 & M2

The cyclically-adjusted budget refers to

The size of the Federal government's budget surplus or deficit when the economy is operating at full employment.

What percent of the U.S. public debt is held by Federal agencies and the Federal Reserve?

43%

By placing money in a savings account, one is using money primarily as

Store of value

Asset demand for money is most closely related to money functioning as a

Store of value

The desire to hold money for transactions purposes arise because

Receipts of income and expenditures are not perfectly synchronized

Total demand for money curve will shift to the right as a result of

An increase in nominal GDP

MPS in an economy=.1; then govt. could shift the aggregate demand curve rightward by $40b by

Increasing govt. spending by $4b

Bond price falls

Interest rate rises

What will increase commercial bank reserves?

The purchase of govt. bonds in the open market by the Fed. Reserve Bank

Example of NOT a tool of monetary policy

Change in banking law

Commercial bank borrows from Fed. Reserve Bank in it's district

Commercial bank reserves are increased

Fed. reduce legal reserve ratio

Lower interest rates, an expanded GDP, and a higher rate of inflation

Federal funds rate is the interest rate that ____ charge(s) _____.

banks; other banks

According to the Taylor rule

If inflation rises by 15 point above its target, then the Fed. should raise the real Fed. funds rate by .5% point

Fed. Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to

Sell govt. securities, lower reserve requirements, lower the discount rate, and increase the amount of reserves available through term auction facility

(Reserves) - (Loans) =

Excess reserves

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