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Directed Reading Questions
Chapters 11, 12, 18, 13, 14, and 15
Chapter 11
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What are the determinants of aggregate demand?
What causes the consumer spending component of aggregate demand to shift?
What causes the investment spending component of aggregate demand to shift?
What causes the government spending component of aggregate demand to shift?
What causes the net exports spending component of aggregate demand to shift?
What determines aggregate supply and causes it to shift?
What are the three ranges in the Keynesian aggregate supply schedule? What is
the significance of each range of the aggregate supply schedule?
Demand-pull and cost-push inflation.
Chapter 12
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What does fiscal policy entail?
How do changes in government spending impact aggregate demand differently
than changes in taxes? (pages 190-193)
What is the tax multiplier and how does it differ from the spending multiplier?
What is the goal of expansionary fiscal policy?
When should the government enact expansionary fiscal policy?
What actions are included in expansionary fiscal policy?
What is the goal of contractionary fiscal policy?
When should the government enact contractionary fiscal policy?
What actions are included in contractionary fiscal policy?
What is the balanced budget multiplier? Why does it occur? (page 193)
What problems keep discretionary fiscal policy from being 100% successful in
eliminating macroeconomic problems?
What is the “crowding out” effect?
How are federal government budget deficits linked to the balance of trade deficit?
What is the difference between demand-pull inflation and cost-push inflation?
How does supply-sided fiscal policy differ from Keynesian demand based fiscal
policy?
What is the goal of supply-sided fiscal policy?
What are the built-in stabilizers (also known as the automatic stabilizers or
nondiscretionary fiscal policy)?
What are the advantages of the built-in stabilizers compared to discretionary fiscal
policy?
What are the disadvantages of the built-in stabilizers compared to discretionary
fiscal policy?
Chapter 18
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What is the difference between a federal government budget deficit and the
federal (national, public) debt?
What is the difference between an annually balanced budget, a cyclically balanced
budget, and functional finance? Which of these philosophies supports the use if
Keynesian fiscal policy?
What is (are) the advantage (the advantages) of the national debt?
What are the disadvantages of the national debt?
Chapter 13
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What is money
What are the functions of money?
What elements are included in the M1 definition of the U.S. money supply?
What elements are included in the M2 definition of the U.S. money supply?
What gives U.S. money its value?
What is “fiat money”?
What is the Federal Reserve System (the Fed)?
What is the Federal Reserve Board of Governors and what is its (their) function?
What is the Federal Open Market Committee? What is its function?
What are the functions of the District Federal Reserve Banks?
Chapter 14
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What are the two main functions of commercial banks (and all other financial
institutions)?
What is the fractional reserve system?
How does a commercial bank create money via the lending process?
How much money can a single commercial bank safely lend? Why shouldn’t a
bank lend more than this amount?
How much money can the entire banking system lend? What determines the
maximum amount that the banking system can lend?
Chapter 15
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What are the three tools of monetary policy?
Which of the three monetary policy tools is the strongest?
Which of the three monetary policy tools does the Fed use most frequently?
How do open market operations impact a bank’s ability to lend money and how
do open market operations impact the supply of money?
What is the goal of an easy money policy?
When should the Fed enact an easy money policy?
What actions are included in an easy money policy?
What is the goal of a tight money policy?
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When should the Fed enact a tight money policy?
What actions are included in a tight money policy?
What are the advantages of monetary policy compared to fiscal policy?
What problems may keep monetary policy from being 100% successful in
eliminating macroeconomic problems?