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econ 201 spring2010
study of macroeconomics
| Question | Answer |
|---|---|
| THE DEBT TO GDP RATIO WAS HIGHEST IN | WORLD WAR II |
| PHILLIPS TRADE OFF | TRADE OFF BETWEEN OUTPUT AND UNEMPLOYMENT |
| NEW KEYNESIAN BUSINESS CYCLE THEORY ADOPTS... | RATIONAL EXPECTATIONS SO CURRENT EXPECTATIONS ARE BASED ON PAST |
| NEW KEYNESIAN BUSINESS CYCLE THEORY SAYS | BUS CYCLE CAUSED BY STICKY WAGES AND STICKY PRICES |
| NEW CLASSICAL BUSINESS CYCLE THEORY SAYS | IF GOVERNMENT POLICY IS ANTICIPATED BY YOU, YOU WILL NULIFY IT |
| NEW CLASSICAL BUSINESS CYCLE THEORY ALSO CALLED | RATIONAL EXPECTATION THEORY |
| MONETARY RULE BY MILTON FREEMAN | WOULD HAVE TO PUT AWAY MONEY FOR BAD TIMES & SHOULD KEEP A STABLE MONEY SUPPLY |
| WHAT TAX SYSTEM WOULD PETERSON PREFER? | PROPORTIONAL TAX SYSTEM WITH NO EXCEPTIONS |
| DIMINISHING MARGINAL UTILITY OF MONEY | AT THE MARGIN THE VALUE OF MONEY DECLINES AS INCOME GOES UP |
| POTENTIAL GDP IN THE LONG -RUN- AG- SUPPLY | MEANS IT'S THE MAXIMUM SUSTAINABLE LEVEL OF OUTPUT |
| CONTRACTIONARY MONETARY POLICY | CUT MONEY SUPPLY RAISE INTEREST RATES |
| CLASSICAL POLICY OPTIONS FOR INFLATION | CONTRACTIONARY MONETARY POLICY |
| CONTRACTIONARY FISCAL POLICY | CUT GOVERNMENT SPENDING & RAISE TAX RATES |
| KEYNESIAN POLICY OPTION FOR INFLATION | CONTRACTIONARY FISCAL POLICY |
| EXPANSIONARY MONETARY POLICY | INCREASE MONEY SUPPLY & INCREASE INTEREST RATES |
| CLASSICAL POLICY FOR A RECESSION | EXPANSIONARY MONETARY POLICY |
| EXPANSIONARY FISCAL POLICY | CUT TAXES AND INCREASE GOVERNMENT SPENDING |
| KEYNESIAN POLICY OPTION FOR RECESSION | EXPANSIONARY FISCAL POLICY |
| FOMP IS COMPOSED OF _______ & ________ | 7 BOARD OF DIRECTORS & 5 DISTRICT BANK PRESIDENTS |
| CENTRAL BANK FORMED FROM? | BANKING PANIC OF 1907 AND 1929 |
| BOARD OF GOVERNORS CHOOSE _______ & HAVE ____ YEAR TERMS | 7 CHAIRMEN OF THE FED & HAVE 4 YEAR TERMS |
| CENTRAL BANK DEVIDED INTO HOW MANY DISTRICTS? | 12 DISTRICTS |
| POLICY MAKING BODY OF THE FED | BOARD OF GOVERNORS |
| BODY OF THE FED THAT CARRIES OUT POLICY | FOMP |
| 3 PARTS OF SUPPLY SIDE ECONOMICS | (1) LOWER HIGH MARGINAL TAX RATES (2) CUT SIZE OF GOVERNMENT (3) CUT GOVERNMENT REGULATIONS |
| FED RESERVE SYSTEM FOUNDED IN | 1913 |
| BUS CYCLE BEFORE 1913 | NO FISCAL POLICY SO FLUCTUATIONS WERE DRAMATIC |
| SUPPLY SIDE ECONOMICS SHIFT... | LONG RUN AG SUPPLY RIGHT |
| DEMAND PULL INFLATION | CAUSED BY TOO MUCH MONEY IN THE SYSTEM |
| REGULATION Q PROHIBITED | INTEREST RATES ON CHECKING AND REGULATED PAY ON SALES |
| REGULATION Q | INTEREST RATE CEILING: PUT INTO EFFECT FROM 1933-1935 BANKING ACTS |
| HOW INVESTMENT IS FINANCED (EQUATION) | C= S + (T-G) + (M-X) |
| AUTOMATIC STABILIZERS | STABILIZATION POLICY PUT INTO EFFECT BY CONGRESS: TRIGGERED BY BUSINESS CYCLE (KEYNESIAN) |
| THE DISTRICT BANK PRESIDENTS _______ EXCEPT THE ________ | ROTATE EXCEPT THE NEW YORK BRANCH PRESIDENT |
| LABOR HOUR REDUCTION OF 50 BILLION OUT OF 250 BILLION CAUSES... | GDP TO DECREASE BY 1 TRILLION |
| MONETARY BASE | BANKING RESERVES + CURRENCY & CIRCULATION |
| MONETARIST CYCLE THEORY | FLUCTUATIONS IN MONEY SUPPLY CAUSES BUSINESS CYCLE |
| KEYNESIAN BUSINESS CYCLE THEORY THINKS THAT... | INVESTORS ARE DRIVEN BY ANIMAL SPIRITS |
| WHEN AT POTENTIAL GDP SHOULD BE (FOR STRUCTURAL) | A BALANCED BUDGET |
| WHEN STRUCTURAL HITS POTENTIAL GDP THERE IS A | STRUCTURAL DEFICIT |
| WHEN STRUCTURAL IS AT POTENTIAL THERE IS A.. | STRUCTURAL SURPLUS |
| IF ACTUAL DEFICIT = 0 THEN... | STRUCTURAL = 0 |
| STRUCTURAL BALANCE = 0 IF... | ECONOMY IS AT POTENTIAL GDP |
| STRUCTURAL BALANCES | DIRECT FUNCTION OF LEVEL OF TAX GOVERNMENT ESTABLISHES |
| CURRENT DEBT TO GDP RATIO | 90% |
| CURRENT NATIONAL DEBT | 12 TRILLION |
| RICARDO- BARRO EQUIVALENCE | THEOREM IF THE GOVERNMENT IS BORROWING HUGE SUMS OF MONEY PEOPLE EXPECT TAXES TO RAISE SO SAVINGS RAISE AND NO CHANGE IN INTEREST RATES |
| policy innefectiveness theorem | if policy is anticipated decision makers will nullify government policy |
| movement on phillips curve when policy is anticipated | economy moves from a -> c & no effect |
| the primary source of government revenue in 1929 | property tax |
| the primary source of government revenue in 2001 | transfers from federal government |
| changes in government revenue from 1929-2001 | (1)property tax declined (2)corporate taxes stayed the same (3)sales taxes rose (4) transfers from fed government raised (5) interest taxes rose |
| changes in government expenditures from 1929-2001 | (1) schools stayed the same (2) money spent on roads fell (3) public welfare rose roads were replaced with public welfare |
| major goals of the fed | (1) price stability (2) macro economic stabilization (3) long term growth |
| minor goals of the fed | (1) interest rate stability (2) exchange rates (3) financial market stability |
| most important goal of the fed | price stability |
| goals of the central bank | (1) keep inflation in check (2) maintain full employment (3) moderate the business cycle |
| what is the purpose of the fed when it was founded? | to be a lender of last resorts to bank |
| functions of the fed | (1) fiscal agent of the federal government (2) Regulatory role (3) bankers of bank (4) provide services to the banks (5) carry out macroeconomic stability |
| tools of the fed | (1) discount window (2) open market operations (3) reserve requirement |
| reserve requirement | each large bank with assets over 50 million have to have a reserve of 10% |
| total reserves = | required reserves + excess reserves |
| cure of demand pull inflation | contractionary monetary policy |
| benefits of national debt | (1) used to stabilize business cycle (2) if used wisely can enhance economic growth (3) money we largely owe ourselves |
| costs of national debt | (1) interest expense crowds out domestic spending (2) interest costs crowd out investment (3) income distribution (4) debt that is held abroad is money that HAS to be paid back |
| the structure of the fed | 2 policy making bodies 7 fed board of governors w/14 year terms chooses 1 chairman serve 1 4/year term |
| adverse selection | people who most desperately want a loan are people you don't want to give it too |
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