Econ Test 3

  1. If an economy has a structural deficit and a cyclical deficit, one can conclude that
    - fiscal policy is expansionary

    - The public debt is rising
  2. In 2005, federal government spending was what percentage of GDP?
  3. In 2005, federal government tax revenues were what percentage of GDP?
  4. In 2005, the top 1 percent of income earners in the United States paid_____ percent of federal income taxes.
  5. What are 4 examples of discretionalry fiscal policy?
    1 - Congress raises taxes

    2 - Congress lowers taxes

    3 - Congress increases spending

    4 - Congress decreases spending
  6. Unemployment compensation benefits is an example of
    automatic fiscal policy
  7. Suppose that the income tax rate rises as taxable income rises.

    If taxable income rises in the economy, the "higher tax rate at a higher taxable income" is an example of
    automatic fiscal policy
  8. Keynesians would propose discretionary contractionary fiscal policy if
    the economy was in an inflationary gap
  9. Which economist is known for arguing that current taxpayers will likely leave bequests to their heirs for the purpose of paying higher future taxes?
    Robert Barro
  10. The Laffer curve shows what 4 things?
    1 - as tax rates rise, tax revenues rise

    2 - as tax rates fall, tax revenues fall

    3 - as tax fall, tax revenues rise

    4 - as tax rates rise, tax revenues fall.
  11. What is the formula to get tax revenues?
    Tax revenues = Tax base x (average) Tax rate

    (average tax rate is equal to an individual's tax payment divided by his or her taxable income [tax payment/taxable income] )
  12. Suppose the government attempts to stimulate the economy by increasing purchases without increasing taxes.

    What can be a statements most likely to be accepted by someone who believes in crowding out?
    the government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended.
  13. Fiscal policy is likely to be ineffective at removing the economy from a recessionalry gap if
    there is complete crowding out
  14. According to __________ economists, current consumption may fall as a result of ______________ fiscal policy
    - new classical

    - expansionary
  15. Who said, "High tax rates are followed by attempts of ingenious men to beat them as surely as snow is followed by little boys on sleds"?
    Arthur Okun
  16. If the percentage decrease in the tax rate is greater than the percentage increase in thaxable income, then
    tax revenues will decrease
  17. Fiscal policy can be effective at removing the economy from a ______________
    recessionary gap
  18. If there is complete crowding out, fiscal policy is likely to be ineffective at ____________
    removing the economy from a recessionary gap
  19. New classical economist argue that individuals will link expansinary fiscal policy to higher future taxes and...
    decrease their current consumption and increase saving as a result.
  20. The change in Real GDP equals ____________ by the change in _____________
    - the multipliers multiplied

    - autonomous spending
  21. In 2005, the average American working ______ days to pay all federal, stae, and local taxes.
  22. The ___________ tax rate is equal to the change in one's tax payment divided by the change in one's taxable income.
  23. On the ________ __________ portion of the Laffer curve, a cut in tax rates will raise tax revenues.
    Downward - Sloping
  24. Tax revenues are equal to the tax base multiplied by the average ______ ______
    tax rate
  25. ________ __________ refers to the decrease in private expenditures that occurs as a consequence of increased government spending and/or the greater financing needs of a budget defict.
    Crowding out
  26. If chalk is widely accepted for purposes of exchange than
    - chalk is money

    - we would observe people using chalk to buy their weekly groceries
  27. Money is valuable because
    people are willing to accept it in payments for goods and services
  28. A common measurement in which values are expressed is referred to as a
    unit of account
  29. M1 is comprised of

    checkable deposits

    traveler's check
  30. A credit card is
    not considered money
  31. Reserves equal
    bank deposits at the Fed + vault cash
  32. If deposits in Bank A total $15 million and the required-reserve ration is 10 percent, then excess reserves equal
    13.5 million

    you multiply the Total amount by the percentage. then subtract the answer from the total amount.

    15 million x .10 = 1,500,000

    15,000,000 - 1,500,000 = 13,500,000
  33. Which of the following required-reserve rations would allow a bank the least amount of lanable funds?

    5 percent
    10 percent
    12 percent
    15 percent
    15 percent
  34. The banking system increases the money supply by
    creating checkable deposits
  35. Suppose that the excess reserves in Bank A increase by $3,000.

    If the required-reserve ration is 20 percent, what is the maximum change in demand deposits brought about by the banking system?

    Excess reserves = reserves - required excess reserves

    E.R. = R - R.E.R.

    3,000 = R - .20

    • R x .20 = 3,000 = 15,000
    • .20 = .20
  36. If Smith takes $1,000 out of her wallet and deposits it in a bank, what happens?
    the composition of the money supply changes
  37. If Jones takes $1,000 out of his checking account in the bank and puts it in his wallet what happens?
    the composition of the money supply changes
  38. What can a change in the composition of the money supply do?
    it can change the size of the money supply
  39. The simple deposit multiplier is
    the reciprocal of the required-reserve ratio.

    • 1
    • r
  40. If there is a change in the composition of the money supply such that there is more currency outside banks and less chekcable deposits, the money supply
  41. If the required-reserve ratio is 20 percent, the simple deposit multiplier is

    1/.20 = 5
  42. Bank A has deposits of $10,000 and reserves of $3,600.

    If the required-reserve ratio is 20%, the bank has exess reserves of
    R.R. = r x Checkable deposits

    R.R. = .20 x $10,000 = 2,000

    E.R. = R. - R.R.

    E.R. = 3,600 - 2,000 = $ 1,600
  43. What is a unit of account?
    a common measurement in which values are expressed
  44. Money market mutual funds invest in ________
    short-term, highly illiquid assets
  45. The more new reserves that enter the banking system, ___________
    The greater the money suppy will be, ceteris paribus
  46. Two people have a _________ _______ ___ _______ if what the first person wants is what the second person has, and what the second person wants is what the first person has.
    double conincidence of wants
  47. __________ equal bank deposits at the Feds plus vault cash

    R = Bank Deposits @ Feds + Vault Cash
  48. Under a _____ ______ banking system, banks create money by holding on reserve only a fraction of the money deposited with them and leding the remainder.
    Fractional Reserve
  49. If the required-ration is 10 percent, the simple deposit multiplier is _____
    • 1 = 10
    • .10
  50. Money has value because of its
    general acceptability
  51. ____ persons sit on the FOMC
  52. When a check is written on an account at Bank C ans is deposited in Bank D, the reserve account of ________ will fall while reserves of the entire banking system _______
    - Bank C

    - remain unchanged
  53. Suppose the public begins to withdraw a lot of currency from the banking system. The Fed could offset the effect on the money supply by
    buying government securities
  54. A bank is less likely to borrow reserves from the Fed when the _________ rises relative to the ________
    - discount rate

    - federal funds rate
  55. An open market purchase occurs when
    the Fed buys government securities from another bank
  56. The Fed
    1 - serves as a fiscal agent for the Treasury

    2 - is a lender of last resort
  57. The Fed bagan operation in
  58. If the Fed purchases government securities from a commercial bank, what will happen?
    1 - The Fed will increase the bank's reserves on deposit at the Fed

    2 - The assets (government securities) of the Fed will increase
  59. The Fed considers the ability of a bank to borrow from it a
  60. Open market sales ________
    reduce the money supply
  61. The _________________ is composed of the members of the Board Governors, among others
    Federal Open Market Committee
  62. Open market purchases ___________
    increase money supply
  63. A _________ in the discount rate will lower the money supply and a _________ in the required-reserve ratio will raise the money supply
    - rise

    - decline
  64. The interest rate that one bank charges another bank is called the ____________
    federal funds rate
  65. The president of the Federal Reserve Bank of __________ is always a member of the FOMC
    New York
  66. An ________ _______ ________ occurs when the Fed buys government securities from a bank.
    Open Market Purchase
  67. If one bank borrows from another bank, the money supply will _______ _______
    remain unchanged.
Card Set
Econ Test 3
Econ Test 3