ECON 202 Exam 3

The federal reserve is the :

Federal governments bank, central bank, and bankers bank

Which of the following is not a function of the fed?

Making routine loans directly to small business

What they do:

serve as lender of last resort

conduct monetary policy

regulate and supervise part of us financial system

support the payment system

Main thing the fed does is…

Conducts monetary policy to promote maximum employment and stable prices (dual mandate)

The board of governors of the fed has:

7 members appointed by the president, serving 14 year terms

How many regional banks are there?

12

Which cities have district banks?

What is the Federal Open Market Committee? (FOMC)

Located inside the fed, creates monetary policy

Who is the current chair of the board of governors?

Jerome H. Powell

Which asset would you classify as most liquid?

Currency

What part of the money supply does the Fed have direct control over?

The monetary base

What is the monetary base?

Total reserves held at the fed

True or false:

If the Fed wants to decrease interest rates, it should buy bonds

True

True or false:

The interest rate that the fed charges to commercial banks when thye borrow money from the fed is called the federal funds rate

False

If the fed buys bonds in the open market, which of these will likely not happen?

Short term interest rates will increase

The key difference between quantitative easing and a typical open market purchase is taht quantitative easing:

Involves longer term government securities

________ refers to the feds sale of securities with the agreement that it will repurchase the securities from the buyer at a later date

reverse repo

Quantitative easing refers to:

the fed buys longer term government bonds or other securities to push down longer term interest rates, especially when short term rates are already very low

The federal reserve can influence the economy by shifting the:

Aggregate Demand Curve

Expansionary policy aims to __________ AD.

Shift out

Which is more difficult for the Fed to respond to through monetary policy tools?

Negative real shocks

What is a reason it might be hard for the Fed to restore AD in the face of negative real shocks?

The fed operates in real time

Deflation is a:

A negative growth rate

If the Fed overreacts to a negative spending shock by increasing money growth too much:

both real gdp growth and inflation will increase more than the fed prefers

If the fed wishes to avoid short run increase in unemployment rate, the correct response to a negative AD shock would be:

Increase in money supply growth

Increased uncertainty will cause the AD to what?

Shift inward

Implementation lag takes how long?

6 to 18 months

A monetary contraction is MOST successful when:

market participants expect the central bank to carry through with its tough stance

True or false:

Monetary policy cannot simultaneously achieve a high real growth rate and lower the inflation rate

True

What does most FICA tax fall on?

Workers

What is the largest source of tax for the government?

Individual Income Taxes

That tax rate paid on an additional dollar of income is the ___________ tax rate.

marginal

The U.S. income tax system is?

Progressive - the more income you earn, the more you pay

Medicare covers who?

The elderly

Medicaid covers who?

The poor and disabled

What group does the largest amount of federal dollars go to?

The elderly

What is the government deficit?

When spending is greater than revenue

Which statement correctly distinguishes the budget deficit from the national debt?

Budget deficit - one year shortfall of spending over revenue

National debt - total amount government owes. accumulated total of past deficits

When does debt-to-gdp ratio rise?

When debt increases quickly, or gdp grows slowly

Fiscal policy affects which curve?

AD

Fiscal policy is best described as what?

Government expenditure, borrowing, and taxation to influence the business cycle

How does fiscal policy respond to a recession?

Reducing taxes and raising government spending

An decrease in taxes and an increase in government spending does what to the AD?

Shifts it to the right

A rise in taxes or fall in government spending does what to AD?

Shifts it to the left

The multiplier effect is the:

subsequent consumer spending that increases AD as a result of expansionary policy

New government spending financed by government borrowing is MOST likely to be effective when"?

The private sector is reluctant to spend

What is crowding out?

Occurs when government borrowing or taxation reduces private consumption or investment

Ricardian equivalence is?

Households may save a tax cut if they expect future taxes to rise to pay for todays borrowing

What are examples of automatic stabilizers?

Food stamps, unemployment benefits, and income taxes

Fiscal policy is MOST effective in keeping both inflation and real growth stable when there is a:

negative shock to aggregate demand

True or false:

Fiscal policy works to restore negative real shocks

False