Fiscal Policy
Who does fiscal policy?
Congress
Who does Monetary policy?
The Fed
WHat graph is used to talk about money?
The money market
What does GDP stand for?
Gross domestic product.
If the U.S. dollar appreciates relative to the euro, what is most likely to occur?
U.S. imports from Europe will become cheaper.
What are the tools that are used to fix gaps in fiscal policy?
Increasing and/ or decreasing of taxes and government spending.
What is a tool used by the Federal Reserve to influence the money supply?
Purchasing government bonds
In the short run, if the economy is operating below full employment and the government decides to increase its spending, what would most likely occur in the AD-AS model?
The Aggregate Demand curve shifts right, and output increases.
What could increase the GDP of a country?
An increase in consumer spending on domestic goods
If the central bank of a country announces a policy to decrease its interest rates, what is the most likely immediate effect on its currency in the foreign exchange market?
The currency will depreciate, as lower interest rates reduce the returns on investments in that currency.
The U.S. government has recently implemented an expansionary fiscal policy, increasing government spending and cutting taxes.What is the most likely outcome of this policy in the short run?
An increase in aggregate demand due to higher disposable income.
Which of the following actions by the Federal Reserve is most likely to decrease inflation in the short run?
Raising the federal funds rate and selling government securities
If the government implements a policy that leads to increased efficiency in resource allocation, what would most likely occur on the PPC?
The economy moves to a point inside the curve, but closer to the curve.
If a country experiences a significant increase in exports while other factors remain unchanged, what will most likely happen to its GDP?
GDP will increase because net exports are a component of GDP.
If the U.S. government imposes tariffs on imported goods, what is the most likely immediate effect on the value of the U.S. dollar in the foreign exchange market?
The U.S. dollar will appreciate due to a decrease in imports.
What action is most likely to be used by the government to address a recession in an economy?
Increasing government spending and decreasing taxes
What graphs are used for monetary policy?
Either an AS AD graph or money market graph
In the loanable funds market, if the government increases its borrowing to finance a budget deficit, what is most likely to occur?
The demand for loanable funds shifts right, causing interest rates to rise.
If a country’s GDP is increasing but its unemployment rate is also rising, what might be the most likely explanation?
The economy is growing, but the growth is not creating enough jobs.
If a country’s central bank implements a policy of quantitative easing (QE), what is the most likely effect on its currency in the foreign exchange market?
The currency will depreciate as QE increases the money supply, leading to lower interest rates.
In an economy experiencing high inflation, what fiscal policy actions would most likely reduce inflationary pressures without exacerbating unemployment?
Decrease government spending and increase taxes
Assume the economy is experiencing a period of low economic growth and falling inflation. If the Federal Reserve decides to use monetary policy to stimulate the economy, which of the following actions is most likely to occur?
The Federal Reserve lowers the federal funds rate and buys government securities.
In an economy experiencing a recessionary gap, the central bank decides to implement an expansionary monetary policy. What sequence of events is most likely to occur in the AD-AS and the Money Market graph?
The central bank lowers the federal funds rate, shifting the Aggregate Demand curve right, and the money supply increases, causing interest rates to fall.
If a country’s GDP rises due to increased government spending on infrastructure, but inflation also increases, what is the most likely explanation?
The increase in spending boosts aggregate demand, causing demand-pull inflation.
If the central bank of a country raises its interest rates, but at the same time, the country's political stability is uncertain due to upcoming elections, what is the likely outcome for the country's currency in the short term?
The currency may depreciate if political instability raises concerns about economic performance, outweighing the effect of higher interest rates.