Exam 20: Fiscal Policy and Monetary Policy

After the Fed raises the federal funds rate, the effects on the economy can take up to two years before they occur. Is this statement accurate? Lay out the time path of how an increase in the federal funds rate affects the economy.

When the Fed increases the federal funds rate,

When the government's outlays equal its tax revenue, then the budget

If the Fed increases interest rates, other things remaining the same, foreigners demand ________ dollars thereby ________ the exchange rate.

Which of the following statements about the ripple effects of monetary policy is FALSE? Monetary policy can

A decrease in the federal funds rate

There are four limitations to the effectiveness of discretionary fiscal policy. Which item below is NOT one of these limitations?

Needs-tested spending

If the economy is in an equilibrium with real GDP less than potential GDP, a fiscal stimulus could move the economy toward potential GDP by simultaneously ________ taxes and ________ government expenditures on goods and services.

Discretionary fiscal policy is defined as fiscal policy

Discretionary fiscal policy is a fiscal policy action, such as

If a change in the tax laws leads to a $100 billion decrease in tax revenue, then aggregate demand

-The national debt is the amount

The government collects tax revenue of $100 million and has $105 million in outlays. The budget balance is a

The Fed decreases the quantity of money to counteract

In a recession, needs-tested spending ________ and induced taxes ________.

Ignoring any supply-side effects, how does the magnitude of the government expenditure multiplier compare to the magnitude of the tax multiplier? Explain your answer.

Suppose the economy is in an equilibrium in which real GDP is less than potential GDP. To increase real GDP, the government can use a fiscal stimulus of

Fiscal policies that move the economy toward potential GDP without a change in policy are called

In order for the United States to use discretionary fiscal policy to deal with a recessionary gap,