MCRO

·         Government’s attempt to control the aggregate level of spending in the economy is called 

·          the level of income toward which the economy gravitates in the short run because of the cumulative cycles of declining or increasing production

the level of income that the economy technically is capable of producing without generating accelerating inflation

The key idea in Keynesian economics is 

Keynesian economists focus 

·         where the SAS and AD curves intersect. Long-run equilibrium is where the AD and LAS curves intersect.

·         the change in government spending or taxes—works by providing a deliberate countershock to offset unexpected shocks to the economy.

is upward sloping because, while for the most part firms in the United States adjust production to meet demand instead of changing price, some firms will raise prices when demand increases.

vertical at potential output.

·         when available resources, capital, labor, technology, and/or growth-compatible institutions increase.

 takes a laissez-faire approach, 

believes the economy is self-regulating. 

takes an interventionist approach

·         believes that equilibrium output can remain below potential output.

·         Five important shift factors of AD are

If government spending increases by 20, by how much does the AD curve shift out?  

·        input prices constant; no prices are assumed held constant on the LAS curve.

works through its influence on credit conditions and the interest rate in the economy.

shifts the AD curve out to the right 

AD curve in to the left.

nominal income will be split between changes 

If the economy is significantly above potential output, once long-run equilibrium is reached, monetary policy affects only 

Expansionary monetary policy increases

a policy that increases the money supply and decreases the interest rate

a policy that decreases the money supply and increases the interest rate.

a type of banker’s bank whose financial obligations underlie an economy’s money supply

the Fed’s chief body that decides monetary policy
 

is composed of 12 regional banks
 

is the most important policy-making body Vault cash, deposits at the Fed, plus currency in circulation make up the monetary base open market operations — the Fed’s buying and selling of government securities .

the percentage the Federal Reserve Bank sets as the minimum
amount of reserves a bank must have.

the interest rate banks charge one another for Fed funds

the market in which banks lend and borrow reserves, is highly efficient

When the Fed buys bonds

the shortfall of revenues under payments. 

an excess of revenues over payments 

The government finances its deficits by 

the part of a budget deficit that would exist even if the economy were at its potential level of income .

the part of the deficit that exists because the economy is operating below its potential level of output.

also known as the cyclical deficit
 

Above its potential

below its potential

the deficit determined by looking at the difference between expenditures and receipts. 

the nominal deficit adjusted for inflation.

accumulated deficits minus accumulated surpluses

  Which group has ultimate control over the U.S. economy? 

 When a government intervenes in an economy in a way that influences the relationship between households and businesses, it is

  Per capita real output would most likely increase if

 In 2006, U.S. real GDP increased by 3.3 percent. Based on this information, we can infer that the U.S. experienced

  The Bureau of Economic Analysis is responsible for which of the following?

   The Federal Reserve will most likely _______ the money supply when the economy is experiencing a recession

 The AD curve 

  Suppose output exceeds potential output and a contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce 

  According to the AS/AD model, an expansionary monetary policy

According to Keynes, the economy could become stuck at a low income level if 

The Classical economists argued that: 

 When the Federal Reserve targets a higher interest rate, this change in policy involves open market 

 When the Federal Reserve sells bonds, the 

 Who buys and sells in the Federal Reserve funds market? 

   The Federal fund rate is always _______ compared to the discount 

 If the multiplier effect is 4, a $15 billion increase in government expenditures will shift the AD curve 

Suppose the money multiplier in the U.S. is 4. If the Federal Reserve wants to expand the money supply by 600 it should: 

 When the government runs a deficit, it will

 Deficits may be desirable in the short run if they

1.             The structural deficit

 Government debt is defined as

According to comparative advantage, specialization means that a country is producing the goods 

  Globalization represents 

 If the U.S. wants to strengthen the value of the dollar, it should use

Which of the following would most likely cause an increase in the supply of dollars? 

  Suppose a basket of goods costs 60,000 pesos in Mexico. If, at the existing exchange rate, it costs less than 60,000 pesos to buy the same basket of goods in the U.S., then purchasing power parity implies that the

  If a basket of goods costs $10 in the U.S. and 100,000 rubles in Russia, then purchasing power parity will exist if the exchange rate between the ruble and the dollar is 

A quota differs from a tariff in that quotas

Threats to put tariffs on a nation in an attempt to get that nation to reduce its restrictions on trade are called