Exam 13: Countercyclical Macroeconomic Policy

Scenario: The following table shows the initial balance sheets of Bank A and the Fed. Suppose that the Fed then buys $10 million in bonds from Bank A. -Refer to the scenario above.After this transaction,Bank A's deposits ________ and reserves ________.

Which among the following will happen if the Fed buys bonds from a private bank?

If the Fed wants to increase the federal funds rate through open market operations,it will ________.

If nominal wages are downwardly rigid,a countercyclical policy during a recession leads to ________.

Quantitative easing is likely to lead to a(n)________ in the economy.

If the Fed is able to maintain an expansionary monetary policy for a long period of time,then ________.

What do countercyclical fiscal and monetary policies have in common? i.They are both used to reduce economic fluctuations. ii.They both work by shifting the labor supply curve.

Scenario: The following figure shows the federal funds market. Assume that the market of reserves is in equilibrium at point (R₀, i₀). -Refer to the scenario above.If the Fed undertakes an open market purchase of bonds,________.

Countercyclical policies can be ________ and ________.

The quantity theory of money implies that over the long run,the inflation rate will ________.

Scenario: The following figure shows the federal funds market. Assume that the market of reserves is in equilibrium at $500 billion in reserves and a 3 percent federal funds rate. -Refer to the scenario above.Suppose the Fed wants to raise the federal funds rate by 2 percent.To do this,the Fed will have to ________.

Suppose the inflation rate target is zero and the long-run federal funds target is also zero.If the federal funds rate set using the Taylor rule is 1.5 percent and inflation rate is 3 percent,the output gap is ________.

The primary tool of monetary policy is ________.

A ________ in long-term interest rates ________ households' demand for durable goods.

Why would policymakers target a reduction in GDP growth by using contractionary policies? i.The Fed fights inflation by increasing interest rates,which in turn causes a reduction in employment as a by-product. ii.Excessive optimistic sentiments about the economy can result in an unsustainable economic expansion.

The aggregate price level is likely to rise if ________.

What is "pork barrel spending"?

Which of the following economic variables is affected when the government adopts a countercyclical fiscal policy?

A fiscal policy of subsidizing wages will lead to a(n)________ in labor supply and a(n)________ in labor demand.

Which of the following is likely to happen if the government raises tax rates?