Macroeconomics Exam #3

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?
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