__________ ___________ are payments made to groups or individuals when no good or service is received in return.
Transfer payments
100
What are the two ways the government can implement contractionary fiscal policy?
Decrease government spending and increase taxes
100
__________ is the paper bills and coins that are used to buy goods and services.
Currency
100
What are the 3 mechanisms through which the Fed can implement monetary policy?
1. Open market operations
2. Change required reserve ratio
3. Adjust discount rate
200
What is the total of all accumulated and unpaid deficits?
Debt
200
Assume the economy is in a recession. How can the government use fiscal policy to stimulate the economy?
Increase government spending or decrease taxes
200
What are the three functions of money?
Medium of exchange, unit of account, and store of value
200
In the Phillips curve, what happens to the unemployment rate as the inflation rate increases?
The unemployment rate decreases (note: this only happens in the long run if people have adaptive expectations).
300
The total GDP of Springland was $8 million in 2011. Total Springland debt was $5 million. What was Springland's debt to GDP ratio for 2011?
0.625
300
The MPC is 0.7. What is the spending multiplier?
About 3.3
300
Describe the components of M1 and M2.
M1: currency and checkable deposits (plus traveler's checks)
M2: everything in M1 plus savings deposits, CDs, and money market funds
300
Explain how the Fed can use monetary policy to stimulate demand during a recession.
Three ways:
1. Buy bonds through open market operations
2. Lower the required reserve ratio
3. Lower the discount rate
400
Explain the difference between a budget deficit and a budget surplus.
A budget deficit occurs when government outlays exceed revenues. A budget surplus is the opposite: revenues exceed outlays.
400
Explain the new classical critique of fiscal policy.
The new classical critique asserts that increases in government spending and decreases in taxes are largely offset by increases in savings because people know they'll have to pay higher taxes eventually.
400
The Bank of GSU holds $50 million in deposits. Its required reserve ratio is 15%. What are the bank's required reserves?
$7.5 million
400
Explain the difference between adaptive expectations and rational expectations.
1. Adaptive expectations theory holds that people's expectations of future inflation are based on their most recent experience.
2. Rational expectations theory holds that people form expectations on the basis of all available information.
500
Look at the tax rates on the worksheet. Debbie's annual income for 2015 was $65,000. She had deductions of $10,000. Calculate her tax and tax rate.
Tax: $9,543.775
Tax Rate: About 14.7%
500
Draw the AS-AD curves for an economy that is overheating. Then show how the graph is affected when the government implements fiscal policy by increasing taxes.
On board
500
A commercial bank extends a loan of $10 million. The required reserve ratio is 12.5%. What is the maximum impact this loan can have on the money supply (i.e. what is the most the money supply can increase due to this loan)?
$10 million * (1/.125) = $80 million
500
Draw an AS-AD graph of an economy that is in a recession. Then show what happens if the Fed lowers the discount rate to stimulate demand (draw the loanable funds graph as well).