11:373:101 Lecture Notes - Lecture 18: Monetary Policy, Aggregate Demand, Xm Satellite Radio

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ivoryant268

18 Jul 2017

School

Rutgers University

Department

Environmental and Business Economics

Course

11:373:101

Professor

P Gottlieb

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Document Summary

Monetary policy efforts to stabilize economy by affecting the supply of money and credit. Open market transactions buying or selling bonds. Fiscal policy efforts to stabilize economy by changing taxes and government spending. Fiscal of or pertaining to the public treasury or revenues. Actual gdp = c + g + i + (x - m) = aggregate demand . Expansionary policy actions increase aggregate demand and gdp. Contractionary policy actions decrease aggregate demand and gdp. Increasing economy"s capacity to produce in long run supply side. Gdp can be part of both policies (demand side and supply side) Short-term putting people back to work, etc. Changes in supply of money and credit cause changes in some components of aggregate demand. C + g + i + (x - m) = actual gdp. Monetary policy can affect c and i. And can indirectly affect x - m (cid:1445)ability and willingness(cid:1446)

Related Questions

In an effort to move the economy out of a recession, the federal government would engage in expansionary economic policies. Respond to the following points in your paper on the actions the government would take to address expansionary fiscal and monetary policies:

Expansionary Fiscal Policy:

Explain the actions the federal government would take while engaging in expansionary fiscal policy in terms of the following:

The necessary change in taxes and government spending,

The effect on aggregate demand, GDP, and employment.

Expansionary Monetary Policy:

The three tools the Federal Reserve Bank (The Fed) uses when conducting monetary policy are the required reserve ratio, the discount rate, and open market operations.

Explain the actions of the Fed in regard to the three tools.

When the required reserve ratio is increased or decreased

When the discount rate is increased or decreased

Buying or selling government securities when conducting expansionary monetary policy

Explain how these actions would affect the money supply, interest rates, spending, aggregate demand, GDP, and employment.

raspberrygoose799

1. Discretionary fiscal policy refers to:

A. Any change in government spending or taxes that destabilizes the economy.

B. The authority that the President has to change personal income tax rates.

C. Intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

D. The changes in taxes and transfers that occur as GDP changes.

2. Countercyclical discretionary fiscal policy calls for:

A. Surpluses during recessions and deficits during periods of demand-pull inflation.

B. Deficits during recessions and surpluses during periods of demand-pull inflation.

C. Surpluses during both recessions and periods of demand-pull inflation.

D. Deficits during both recessions and periods of demand-pull inflation.

3. Contractionary fiscal policy is so named because of it:

A. Involves a contraction of the nation's money supply.

B. Necessarily reduces the size of government.

C. Is aimed at reducing aggregate demand and thus achieving price stability.

D. Is expressly designed to expand real GDP.

brownsea-lion330

5. Fiscal policy is enacted through changes in

A. interest rates and the price level.

B. the supply of money and foreign exchange.

C. unemployment and inflation

D. taxation and government spending.

6. In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

A. increase taxes by $16 billion.

B. increase taxes by $24 billion.

C. decrease government spending by $10 billion.

D. decrease government spending by $16 billion.

7. If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

A. contractionary fiscal policy.

B. no change in fiscal policy.

C. expansionary fiscal policy.

D. countercyclical fiscal policy.

8. Most economists believe that fiscal policy is:

A. better than the monetary policy for "fine-tuning" the economy.

B. better than the monetary policy for month-to-month stabilization.

C. not as good as the monetary policy for month-to-month stabilization.

D. not very good at pushing the economy in a particular direction.

9. An increase in the legal reserve ratio

A. increases the money supply by increasing excess reserves

B. decreases the money supply by decreasing excess reserves

C. increases the money supply by decreasing excess reserves

D. decreases the money supply by increasing excess reserves

10. The discount rate is the rate of interest at which

A. Federal Reserve Banks lend to commercial banks

B. savings and loan associations lend to some builders

C. Federal Reserve Banks lend to large corporations.

D. commercial banks lend to large corporations

11. Which of the following actions by the Fed most likely increase commercial bank lending?

A. raising the reserve ratio

B. increasing the federal funds rate target

C. reducing the interest paid on excess reserves held at the Fed

D. selling bonds to commercial banks and the public

12. Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ______, which will ______ investment spending.

A. decrease; decrease

B. decrease; increase

C. increase; increase

D. increase; decrease

sapphirecrow883

11:373:101 Lecture Notes - Lecture 18: Monetary Policy, Aggregate Demand, Xm Satellite Radio

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