ECON-1010 Chapter Notes - Chapter 10 : Monetary Policy, Aggregate Demand, Potential Output

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emeraldmallard514

26 Nov 2016

School

Vanderbilt University

Department

Economics

Course

ECON-1010

Professor

Driskill Robert

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ECON-1010 Full Course Notes

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Fiscal policy - changes in government taxes and spending that affect the level of gdp. Can be used to stabilize the economy. Increases in government spending or decreases in taxes will increase aggregate demand and shift the curve to the right. Expansionary policies - government policy actions that lead to increases in aggregate demand. Ex. increasing government spending and cutting taxes. Contractionary policies - government policy actions that lead to decreases in aggregate demand. Ex. decreasing government spending and increasing taxes. The nal shift is larger than the initial increase. Government needs to take this into account when creating scal policy. Stabilization policies - policy actions taken to move the economy closer to full employment or potential output. Dif cult to implement stabilization policies for two reasons. There are lags or delays in stabilization policy. Decision makers are often slow to recognize and respond to changes in the economy.

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. If government tax policy requires Jane to pay $28,000 in taxes on an annual income of $200,000 and Mary to pay $10,000 in tax on the annual income of $100,000, then the tax policy is:

		regressive.
		progressive.
		proportional.
		optional.

2. When increasing oil prices cause aggregate supply to shift to the left, then:

		unemployment and inflation decrease.
		unemployment decreases and inflation increases.
		unemployment and inflation increase.
		unemployment increases and inflation decreases.

3. What do goods like gasoline, tobacco, and alcohol typically share in common?

		A progressive tax is imposed on each of them.
		A regressive tax is imposed on each of them.
		They are all subject to government excise taxes.
		They are all subject to government fiscal taxes.

4. When inflation begins to climb to unacceptable levels in the economy, the government should:

		use contractionary fiscal policy to shift aggregate demand to the right.
		use contractionary fiscal policy to shift aggregate demand to the left.
		use expansionary fiscal policy to shift aggregate demand to the right.
		use expansionary fiscal policy to shift aggregate demand to the left.

rubykangaroo105

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

ECON-1010 Chapter Notes - Chapter 10 : Monetary Policy, Aggregate Demand, Potential Output

ECON-1010 Full Course Notes

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