Download fiscal policy - Doral Academy Preparatory

FISCAL POLICY:
1. When would Congress engage in a CONTRACTIONARY fiscal policy? What could
Congress do to supposedly restrict (or contract) the economy?
With up or down arrows, indicate the effect on each item due to a contractionary fiscal policy:
G
C
Ig
AD
I.R.
Price Levels
$ value
Xn
GDP
2. When would Congress engage in an EXPANSIONARY fiscal policy? What could Congress
do to supposedly expand the economy?
With up or down arrows, indicate the effect on each item due to an expansionary fiscal policy:
G
C
Ig
AD
I.R.
Price Levels
$ value
Xn
GDP
MONETARY POLICY:
1. When would the Federal Reserve engage in a CONTRACTIONARY monetary policy?
What could the Fed do to restrict (or “tighten”) the economy?
With up or down arrows, indicate the effect on each item due to a tight monetary policy:
RR
Sm
I.R.
Ig
AD
Price Levels
$ value
Xn
C
Ig
AD
GDP
2. When would the Federal Reserve engage in an EXPANSIONARY monetary policy? What
could the Fed do to expand (or “loosen”) the economy?
With up or down arrows, indicate the effect on each item due to an easy monetary policy:
RR
Sm
I.R.
Ig
AD
Price Levels
$ value
1
Xn
C
Ig
AD
1. If the reserve requirement is 25 percent and banks hold no excess reserves, an open market
sale of $400,000 of government securities by the Federal Reserve will
(A) increase the money supply by up to $1.6 million
(B) decrease the money supply by up to $1.6 million
(C) increase the money supply by up to $300,000
(D) increase the money supply by up to $100,000
(E) decrease the money supply by up to $100,000
2. Which of the following is true when the velocity of money falls?
(A) An increase in the money supply will have less effect on nominal gross
national product.
(B) A change in the money supply will affect output only.
(C) The Federal Reserve will decrease the money supply.
(D) Output will be greater for a given money supply.
(E) The public will increase its holdings of assets other than money.
3. What is the Federal Funds Rate? How does the Fed increase the Federal Funds Rate?
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