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- 14) The relationship between monetary policy and the time it takes for policy to change spending is an example of the benefits of "leaning against the wind" why fiscal policy is preferable because it does not suffer from lags. the condition that monetary policy affects the economy almost immediately the problem that monetary policy affects aggregate demand primarily by changing interest rates but it takes time for changes in interest rates to alter spending.44)Which of the following statements is most accurate regarding fiscal policy and monetary policy? Select one: a. Monetary policy can be changed more quickly than fiscal policy. Fiscal policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change fiscal policy. b. Fiscal policy can be changed more quickly than monetary policy. Fiscal policy has much shorter delays due to the smaller number of legislators involved. c. Monetary policy can be changed more quickly than fiscal policy. Monetary policy can be changed at any of the FOMC meetings and the smaller number of individuals involved makes it easier to change monetary policy. d. Fiscal policy can be changed more quickly than monetary policy. Monetary policy has much longer delays due to the larger number of legislators involved.4) Why should the federal government not be required to balance its budget while state and local governments are?
- True or False: Federal spending has grown substantially in recent decades. By world standards, the U.S. government controls a relatively large share of the U.S. economy. A majority of the federal governments revenue Is collected through personal income taxes. Education spending is slightly larger at the federal level than at the state and local level. State and local government spending has not risen much in recent decades. Defense spending is higher now than ever. The share of the economy going to federal taxes has increased substantially over time. Foreign aid is a large portion, although less than half, of federal spending. Federal deficits have been very large for the last two decades. The accumulated federal debt as a share of GDP is near an all-time high.How will cuts in state budget spending affect federal expansionary policy?43)Which one of the following statements is TRUE? Select one: a.“Cowding out” occurs because the Fed increases money supply and lowers interest rate b.“Crowding out” occurs because the Govt increases govt expenditures and this causes private consumption and investment to increase c.Crowding out” occurs because the Govt decreases govt expenditures and this causes private consumption and investment to decrease d.“Crowding out” occurs because the Govt increases govt expenditures and this causes private consumption and investment to decrease
- 34) What will an increase in the tax rate cause6. Do you think that the 14-year nonrenewable terms for governors effectively insulate the Board of Gover- nors from political pressure?10) If aggregate demand shifts left and the President and Congress want to use fiscal policy to reverse the change in output, they could increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level. decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. increase government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will reduce output to below its long-run level. O decrease government expenditures. If by the time policy has been implemented the economy has moved back to long-run equilibrium, then this policy will raise output above its long-run level.
- How and why would the line-item veto influence budget reforms and reduce deficits?1. A law that would force the federal government to balance its budget every year would produce more volatile swings in the business cycle produce more tax revenues increase output and reduce employment in the long run cause the Federal Reserve to increase the monetary base 2. If the Federal Reserve pays commercial banks a higher interest rate on their reserves the monetary base will decrease the required reserve ratio will fall the money supply will decrease banks will increase borrowing from the Discount Window 3. An increase in government expenditures has a larger impact on GDP than a tax cut of the same amount. This occurs because the government makes better spending decisions than consumers consumers do not know how to spend their money consumers spend only part of the tax cut and save the rest government expenditures produces…10) Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment. A) taxes; interest rates B) taxes; expenditures C) interest rates; money supply D) taxes; money supply