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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
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.
The desire to hold money for transactions purposes arise because
Receipts of income and expenditures are not perfectly synchronized
MPS in an economy=.1; then govt. could shift the aggregate demand curve rightward by $40b by
Increasing govt. spending by $4b
What will increase commercial bank reserves?
The purchase of govt. bonds in the open market by the Fed. Reserve Bank
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
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
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