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Econ Unit 4 test

who is responsible for fiscal policy
Congress and the president
fiscal policy
laws on taxation and government spending designed to influence the economy.
Passive fiscal policy
the federal government allows existing policy to remain unchanged and leaves the laws as they are written.
Active fiscal policy
Congress and the president deliberately attempt to alter the course of the economy through changes in taxation and/or government spending.
revenue
The income from taxes and other income
expendature
Government purchases
expansion
refers to the part in the business cycle when the economy is growing
higher GDP
lower unemployment
higher wages
contraction
refers to the part in the business cycle when the economy is getting smaller
lowet GDP
higher unemployment
recession
occurs when economic activity declines—that is, the economy contracts
declining real income, as measured by real GDP, and rising unemployment.
depression
a severe and long-lasting economic downturn that is worse than a recession.
real GDP
the total market value, expressed in dollars, of all final goods and services produced in an economy in a given year adjusted for inflation.
inflation
a general, sustained upward movement of prices for goods and services in an economy.
the main source of income for the governement
taxes
transfer payments
Cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments. They include Social Security benefits, veterans’ benefits, and welfare

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payments.
how does increased gov spending help the economy
cause businesses to increase production and hire more workers
MV=PQ
money supply x velocity (speed of spending = Price level x quantity
Central bank independence is most strongly linked with which economic outcome?
price stability
Which of the following best describes the relationship between bank reserves, the federal funds rate, and a decrease in interest rates for consumers and business?
If the FOMC uses monetary policy to increase the amount of reserves in the banking system, the federal funds rate will decrease, which will result in generally lower interest rates.
Which of the following is one of the Federal Reserve System’s two policy goals (also called its dual mandate)?
price stability
In the long run, increasing the money supply will most likely lead to which scenario?
inflation
Which interest rate serves as the target for open market operations?
federal funds rate
If the money supply (M) increases while velocity (V) and quantity (Q) remain constant, what will likely happen as a result?
The price level (P) will increase, which means there is inflation.
If the inflation rate were falling and the unemployment rate were high and rising, the FOMC would likely respond by doing which of the following?
Decreasing the federal funds target rate and buying government securities
During a period when unemployment is high and economic growth is stagnant, Federal Reserve policymakers might decide to pursue which type of monetary policy?
Expansionary monetary policy
Which of the Federal Reserve’s monetary policy tools is associated with its role as lender of last resort but is used primarily as a signal of the Fed’s policy intentions?
discount rate
In an economy experiencing a recession, with many unemployed resources, an increase in the money supply (M) would most likely lead to which scenario in the short run?
An increase in the quantity of goods and services produced (Q) and then an increase in the price level (P)
Which monetary policy tool is the Federal Reserve using when it buys and sells government securities?
open market operations
Real GDP has been declining and unemployment has been edging upward. What might the Congress and the president do about this problem?
Decrease taxes and increase gov spending
Generally speaking, if the economy is in an expansionary phase of the business cycle, which of the following are more likely to occur?
falling unemployment rate
rising inflation rate
increasing tax revenue
During a period when unemployment is high and economic growth is stagnant, government policymakers might decide to pursue which one of the following?
expansionary fiscal policy
Economic reports show real GDP is declining and unemployment is on the rise. What are members of Congress likely to do?
decrease taxes and increase spending
Which of the following factors contribute to policy lags?
Recognition of change in the economy
Negotiation of policy
Implementation of policy
Realization of results
What could result as political parties, economists, and lobbyists with differing opinions slow down implementation of fiscal policy actions?
The economic problem could stay the same.
The economic problem could get worse.
The economic problem could go away on its own.
Which of the following would be considered an automatic stabilizer?
Food stamps
Unemployment compensation

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