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ECON 100 Exam 2 || WITH SOLUTIONS GRADED A+!!
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monetary policy correct answers changes in the supply of money and the availability of credit to promote price stability, full employment and economic growth monetary policy correct answers the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and c...

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  • August 19, 2024
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  • 2024/2025
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ECON 100 Exam 2 || WITH SOLUTIONS GRADED A+!!
monetary policy correct answers changes in the supply of money and the availability of credit
to promote price stability, full employment and economic growth

monetary policy correct answers the actions undertaken by a central bank, such as the Federal
Reserve, to influence the availability and cost of money and credit to help promote national
economic goals

federal reserve correct answers the central bank of the U.S.: dual mandate to maintain full
employment and keep prices stable; this is achieved by controlling the money supply; it is an
independent bank which means the government does not control it; "bank for banks"

t correct answers t/f if the Federal Reserve is fighting unemployment and declining GDP, it
wants to increase the money supply (buys bonds)

t correct answers t/f if the Federal Reserve is fighting inflation, it wants to decrease the
money supply (sell bonds)

t correct answers t/f anyone with money can buy bonds

t correct answers t/f the U.S. Treasury issues bonds

expansionary monetary policy correct answers Fed buys securities -> bank deposits increase -
> banks have more money to lend -> money supply increases -> money supply increases thus
savings and investment increases

contractionary monetary policy correct answers Fed sells securities -> bank deposits decrease
-> banks have less money to lend -> money supply decreases thus savings and investment
decreases

fiscal policy correct answers changes in federal government spending or tax revenues
designed to promote full employment, price stability and economic growth

multiplier effects correct answers increases spending by consumers, businesses or
government becomes income for someone else; when this person spends the income, it
becomes income for someone else and so on leading to increased production

t correct answers t/f debates about fiscal policy: how large are the multiplier effects? how fast
does fiscal policy work? how is fiscal policy affected by international events? (if other
countries have problems, it affects the U.S. how does fiscal policy affect the national debt and
interest rates? (it will increase the national debt if the government continues to spend more
than it has)

national debt correct answers total amount owed by the national government; accumulated
difference between annual budget deficits and surpluses (currently $17 trillion)

budget deficit correct answers occurs when government spending is greater than government
income in a given year (approximately $750 billion)

, budget surplus correct answers occurs when government income is greater than government
spending in a given year

Keynesian theory correct answers recessions and depressions can occur because of too little
aggregate demand for goods and services; inflation can occur because of too much aggregate
demand for goods and services; government can influence macroeconomic activity by
influencing aggregate demand through fiscal and monetary policies; fiscal policy (changes in
government spending and taxes) is more powerful than monetary policy (changes in the
money supply and interest rates); monetary policy affects investment spending through
interest rates; Keynesian believes that fiscal policy is more effective than monetary policy

New Classical theory correct answers the government's power to influence the
macroeconomy is limited and often ineffective; consumers, business leaders, and investors
are intelligent decision makers and take the effects of government policies into account when
deciding on their behavior; people's actions often offset the effects of government fiscal and
monetary policies; monetarists believe the government should increase the money supply 3 to
5% a year and do no more; Rational expectation theorists emphasize the role of forward-
looking expectations in affecting economic growth, inflation and unemployment; monetary
and fiscal policies affect expectations and have unanticipated secondary effects that make
these policies ineffective

supply side fiscal policy correct answers idea that fiscal policy may directly affect
investment, not just consumption

t correct answers t/f multiplier effect and supply side fiscal policy may directly affect
investment, not just consumption

intermediate good correct answers good used to produce final product

inflation correct answers a rise in the general or average price level of all the goods and
services produced in an economy

consumer price index (CPI) correct answers a price index that measures the cost of a fixed
basket of consumer goods and services and compares the cost of this basket in one time
period with its cost in some base period; changes in the CPI are used to measure inflation

t correct answers t/f index number is equal to current-year cost divided by base-year cost
multiplied by 100

nominal prices correct answers the exchange value of goods, expressed in terms of a unit of
account such as the dollar or the euro

real prices correct answers prices of goods and services compared to the prices of other goods
and services; costs of goods and services measured in terms of other commodities

t correct answers t/f inflation is equal to the percent change in nominal price - the percent
change in real price

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