principals of macro Extra credit 4

Extra credit 4

The nominal exchange rate is the

rate at which a person can trade the currency of one country for another

Which of the following is not a tool of monetary policy?

Option C

 increasing the government budget deficit

Which government agency is responsible for conducting monetary policy in the U.S.?

The Federal Reserve

An open market purchase decreases reserves in the banks and lowers the federal funds rate.

False

Due to long lags associated with both fiscal and monetary policy, critics of active policy argue that such policies may destabilize the economy rather than help it.

True

Which of the following does NOT add to U.S. GDP?

The federal government sends a Social Security check to your grandmother.

An increase in the money supply shifts the aggregate-supply curve to the right.

false

Which of the following policy actions shifts the aggregate-demand curve to the left?

Option C

an increase in taxes

Suppose that some people are counted as unemployed when, to maintain unemployment compensation, they search for work only at places where they are unlikely to be hired. If these individuals were counted as out of the labor force instead of as unemployed, then

both the unemployment rate and labor-force participation rate would be lower

Proponents of active stabilization policy believe when GDP falls below its natural rate, the government should use expansionary monetary or fiscal policy to prevent or reduce a recession.

True

The inflation rate is defined as the

Option C

percentage change in the price level from the previous period.

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

True

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,

market prices

Multiplier effect is the additional shifts in AD that result when fiscal policy increases income and thereby increases consumer spending.

True

Both monetary policy and fiscal policy affect aggregate demand.

true

Other things the same, a higher interest rate induces people to

save more, so the supply of loanable funds slopes upward.

A tax cut by the government is an example of contractionary fiscal policy.

false

Fiscal policy is the setting of the level of government spending and taxation by government policymakers.

true

A reduction in investment caused by an increase in interest rate, which in turn is caused by a fiscal expansion, is called the crowding out effect.

true