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Chapter 15 and 16
Terms in this set (33)
price stability, high employment, economic growth, and stability of financial markets and institutions
The Federal Reserve's four goals of monetary policy are
a decrease in the money supply, an increase in interest rates, and a decrease in GDP.
Contractionary monetary policy on the part of the Fed results in
Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives.
Monetary policy refers to the actions the
negative slope because an increase in the interest rate decreases the quantity of money demanded.
The money demand curve has a
increases the opportunity cost of holding money
An increase in the interest rate
Federal Reserve's increasing the money supply and decreasing interest rates
Expansionary monetary policy refers to the ________ to increase real GDP.
federal funds rate.
The interest rate that banks charge other banks for overnight loans is the
sell bonds to investors and use the funds to purchase mortgages from banks.
To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac
money demand to the right and increase the equilibrium interest rate
An increase in real GDP can shift
lower interest rates.
In the figure to the right, if the economy is at point
the appropriate monetary policy by the Federal Reserve would be to
Using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to
real GDP increased
Refer to the diagram to the right. The money demand curve would move from Money
high employment; economic growth
The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of __________, it also can achieve the goal of ________________ simultaneously.
Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
C to B.
Refer to the diagram. Suppose the economy is in short run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the basic
model, the correct Fed policy for this situation would be depicted as a movement from
the money supply and interest rates
The Federal Reserve's two main monetary policy targets are
Social Security and Medicare programs
Government transfer payments include which of the following?
If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in
B to A
Refer to the diagram. An increase in taxes would be depicted as a movement from _______, using the basic AD−AS model.
legislation increasing funding for job retraining passed during a recession
Which of the following would not be considered an automatic stabilizer?
The federal government cuts taxes to stimulate the economy.
Which of the following would be classified as fiscal policy?
An increase in individual income taxes ________ disposable income, which ________ consumption spending.
increasing government purchases or decreasing taxes.
Expansionary fiscal policy involves
the total value of U.S. Treasury bonds outstanding.
The federal government debt equals
government purchases and taxes.
Congress and the president carry out fiscal policy through changes in
federal taxes and purchases that are intended to achieve macroeconomic policy objectives.
Fiscal policy refers to changes in
government expenditures are a component of aggregate demand.
An increase in government purchases will increase aggregate demand because
high rates of economic growth
Which of the following is an objective of fiscal policy?
budget deficit or surplus as a percentage of GDP
To evaluate the size of the federal budget deficit or surplus over time, it would be best to look at the
The largest and fastest−growing category of federal government expenditures is
The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of
the federal government's expenditures must be lower than its tax revenue.
For the federal deficit to be lowered,
increase; fall; rise
A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments _________.
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