Exam 20: Fiscal Policy and Monetary Policy

A $100 million decrease in government expenditure on goods and services leads to an even larger decrease in aggregate demand because of

The Fed raises the interest rate when it

Define the balanced budget multiplier and explain how it works. In your answer, ignore any supply-side effects.

The annual statement of the outlays, tax revenues, and surplus or deficit of the government of the United States is the federal

If the Fed increases the quantity of money and lowers the federal funds rate, real GDP ________ and the price level ________.

Ignoring any supply-side effects, if government expenditure on goods and services increase by $10 billion and taxes increase by $10 billion, then real GDP ________ and the price level ________.

A hike in the federal funds rate results in ________ in the real interest rate, which leads to ________ in investment.

"Discretionary fiscal policy is a fiscal action initiated by an act of the Federal Reserve, while automatic fiscal policy is a fiscal action induced by the state of the economy." Is the previous statement correct or incorrect? Explain your answer.

When government outlays are less than tax revenues, the government has

Do automatic fiscal stabilizers eliminate business cycles?

Raising the federal funds rate shifts the aggregate demand curve ________, so that real GDP________ and the price level ________.

20.3 Chapter Figures The figure above shows a nation's aggregate demand curve, aggregate supply curve, and potential GDP. -In the figure above, the ________ gap is one trillion dollars. To close the gap, the government can ________ government expenditure and/or ________ taxes.

-An economy is at a short-run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to

List and briefly explain the steps in how monetary policy affects real GDP in the AS/AD model using as your example the case when the Fed eases monetary policy to fight a recession.

The Fed raises the federal funds rate. Which of the following changes occurs most rapidly?

Which of the following is an example of an automatic fiscal policy action?

A reason why discretionary fiscal policy might move the economy away from potential GDP instead of toward potential GDP is that

The law-making time lag is best described as the time that it takes

To fight a recession, the Fed can

In order to help the economy recover from a recession using fiscal policy, the government can ________ so that aggregate demand increases.