ECO Exam 4 Word Scramble

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Question	Answer
A liquid asset is:	When the government conducts fiscal policy, it makes up for a decrease in with:
In a fractional reserve banking system, banks hold only a fraction of their	deposits as reserves.
If a $500 increase in reserves ultimately leads to a $2,000 increase in the money supply, the reserve ratio is:	0.25.
When the Fed buys short-term Treasury securities, short-term interest rates	fall.
.The Term Auction Facility involves the Federal Reserve:	providing reserves to banks through an auction
When a bank has short-term liabilities that are greater than its short-term assets, but overall its assets are greater than its liabilities, the bank is considered:	solvent and illiquid
Which is a limitation of monetary policy in stabilizing the economy?	Monetary policy is subject to uncertain lags.
Suppose the tax rate on the first $20,000 of income is 0%; 10% on the next $20,000 earned; and 20% on any additional income earned. The average tax rate for a person earning $35,000 is:	4.3%.
The alternative minimum tax:	is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes.
Whereas covers the elderly, covers the poor and the disabled	Medicare; Medicaid
Fiscal policy can best be defined as the use of	government expenditure, borrowing, and taxation to influence the business cycle
Which of these would help a government fight a recession?	cutting taxes
When the government conducts fiscal policy, it can make up for a decrease in −→C with:	an increase in −→G
What are the four major limits to fiscal policy?	crowding out, a drop in the bucket, a matter of timing, and real shocks
The U.S. Social Security tax (FICA) is an example of a:	regressive tax
Which is not a function of the Federal Reserve?	providing loans to small businesses
Which is not included in the U.S. money supplies M1 and M2?	bond mutual funds
To increase the money supply in the economy, the Fed would:	carry out open market purchases and/or lower the discount rate.
Which is an example of quantitative easing by the Federal Reserve?	The Fed purchases $50,000 worth of long-term government bonds
What is the overnight lending rate from one bank to another?	the Federal Funds rate
Systemic risk is present when	the failure of one financial institution will bring down other institutions as well.
The best type of negative shock for the Federal Reserve to respond to is a negative shock to:	AD.
. An increase in money growth will cause the inflation rate to increase in:	both the short run and the long run
The largest source of revenue for the U.S. federal government is	the individual income tax.
The FICA tax burden is:	borne more by the employee even though the employer contributes an equal dollar amount.
During what period did this economy experience deflation?	2003 to 2005
During what period did this economy experience disinflation?	2001 to 2005
The purpose of FICA taxes is to fund:	Social Security payments.
.The time between which an economic shock is recognized and when the government passes a plan to carry out a policy response is called the:	recognition lag
This economy initially begins at point A and a negative supply shock takes it to point Y. If the Fed reacts by increasing money growth by 9%, this would take the economy to:	point V
This economy initially begins at point A and a negative supply shock takes it to point Y. Taking the economy back to the original LRAS curve would require:	an inflation rate much greater than 16%
Debt held outside the U.S. government is called the:	national debt held by the public
Which statement pertains to the condition of crowding out?	Government raises taxes by $300 million to finance new spending on highway construction, resulting in a decrease in investment spending by $270 million.
Why did the tax rebate of $78 billion in 2008 have few net stimulus benefits?	Consumers used much of the rebate to pay off existing debt.
The annual difference between federal spending and revenues is called the:	national deficit.
What is the setting of the 1988 Christmas movie “Die Hard?”	Nakatomi Plaza
The Federal Reserve can influence the economy by shifting:	the AD curve.
Which asset would you classify as being most liquid?	demand deposits
The main difference between M1 and M2 is that:	M2 includes some less liquid assets in addition to the assets in M1
If the reserve ratio is 4%, the money multiplier is	25
Suppose the reserve ratio is 20% for all banks. If the Fed increases bank reserves by $200, then the money supply will:	increase by $1,000.
The Federal Reserve's major tool(s) to control the money supply is(are)	open market operations, discount rate lending, and paying interest on reserves.
To increase the money supply in the economy, the Fed would:	carry out open market purchases and/or lower the discount rate.
To reduce the money supply in the economy, the Fed would:	increase the discount rate
Which is an example of quantitative easing by the Federal Reserve?	The Fed purchases $50,000 worth of long-term government bonds.
What is the overnight lending rate from one bank to another?	the Federal Funds rate
If the total liabilities of Bank A are less than its total assets but its short-term liabilities are greater than its short-term assets, Bank A is:	illiquid, but solvent.
The risk that the failure of one financial institution can lead to the failure of other financial institutions is called	systemic risk
In the absence of monetary intervention following a negative shock to aggregate demand:	inflation, real growth, and nominal wage growth will all decrease.
What is a reason it might be hard for the Fed to restore aggregate demand in the face of a negative demand shock?	The Fed must operate in real time, when a lot of the data about the state of the economy are unknown
To offset the effect of negative growth in money velocity (-->v), the central bank should	increase the growth rate of the money supply.
Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising:	inflation
One of the Fed's greatest powers is its ability to	boost market confidence
Some economists argue that the Fed should commit to keeping + fixed at a particular value, say 5%. How would this rule require the Fed to respond in the event of a negative spending shock? A negative real shock?	increase ; do nothing
In the long run, a negative real shock will cause output growth to:	decrease
In the long run, a negative real shock will cause the inflation rate to:	increase
What monetary policy philosophy is against tying the hands of the central bank?	discretion
A nominal GDP rule says _____ should always grow at a constant rate.	Mv
In the United States, the marginal tax rate for married couples:	exceeds the average tax rate for most income levels.
The tax rate paid on an additional dollar of income is the:	marginal tax rate
Suppose the tax rate on the first $20,000 of income is 0%; 10% on the next $20,000 earned; and 20% on any additional income earned. A person earning $35,000 pays an income tax of:	$1,500.
The largest spending program for the U.S. federal government is	Social Security
Which of the following statements about the Social Security program is correct?	Women, who generally live longer than men, benefit more from the system.
The money you pay into Social Security goes to	pay current beneficiaries
The U.S. Social Security tax (FICA) is an example of a	regressive tax.
The Medicare program offers health-care benefits for the:	elderly.
The Medicaid program offers health-care benefits for the	poor and disabled.
Suppose you are a married person with one child but your whole family earns less than $20,000 a year. Which of the following will supplement your income?	Earned Income Tax Credit
The maximum amount of time that a person can receive welfare payments is _____ during a lifetime.	5 years
Bill Clinton's administration experienced a federal budget surplus. Which of the following is therefore correct?	The national debt held by the public decreased
Government spending on “interest on the debt” refers to	interest paid to owners of government debt held by the public
When the text refers to the current U.S. national debt, it means the	national debt held by the public
What demographic change in the United States will cause government spending to increase in the next 50 years?	The population older than 65 will grow.
primary tools of fiscal policy are	government expenditure and taxation.
Which of these would help a government fight a recession?	cutting taxes
When falls, the aggregate demand curve:	shifts to the left
When falls, the LRAS c curve	does not move
When the government conducts fiscal policy, it makes up for a decrease in with	an increase in G
Which of the following limits the effectiveness of fiscal policy?	crowding out
What are the four major limits to fiscal policy?	crowding out, a drop in the bucket, a matter of timing, and real shocks
The time between which an economic shock is recognized and when the government passes a plan to carry out a policy response is called the	legislative lag
The time necessary to determine that an economic problem exists is called the:	recognition lag.
The time necessary for Congress to propose and pass a fiscal policy plan is called the	legislative lag
The time necessary for government bureaucracies to carry out a fiscal policy plan is called the	implementation lag.
The time necessary for a fiscal policy plan to have an impact is called the	effectiveness lag
What is the Federal Reserve?	The national bank of the united states 1. Ability to issue money 2. Government Bank (when the government needs a loan, this is where they go.
What does the federal treasury do?	Maintains the bank accounts and manages the borrowing of the united States treasury.
What is the bank's bank?	Large private banks keep their own account of the federal Reserve (manages the nations payment system)
What is money?	Any widely accepted form of payment
what is currency?	paper bills and coins
Are credit cards money?	NO
What are the types if money?	1. Currency 2. Federal Reserve 3. Checkable Deposit 4. Savings deposits money market
What are liquid assets?	Assets that can be used for payments and without the loss of value can be converted into an asset that can be used for payments

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