Background Monetary and Fiscal

Select the tools of Expansionary Monetary Policy

• Decrease the Fed. Funds Rate

  Decrease the Reserve Req.

  Buy Bonds

• Increase the Fed. Funds Rate

  Increase the Reserve Req.

  Sell Bonds

The MPC is .5, what is the multiplier?

• 4

• 5

• 2

• 1

The MPC is .8, and the government spends $10B, what is the total change in GDP?

• 20B

• 10B

• 50B

• 100B

Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ?

• GDP will increase by a maximum of $200 million.

• GDP will increase by a maximum of $180 million

• GDP will decrease by a maximum of $180 million.

• GDP will decrease by a maximum of $20 million.

Translate the meaning of...

Assume a country is operating below full employment.....

• The economy is in a recessionary gap.

• The economy is in an inflationary gap.

Translate:

Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves.....

• Draw the AS/AD graph and include, AS,AD, and LRAS

• Draw the recessionary gap in the long run.

Assume a country is operating below full employment, what fiscal policy action can restore full employment?

Draw the Phillips Curve: show Inflationary and Recessionary Gaps

Select the tools of Contractionary Monetary Policy

• Decrease the Fed. Funds Rate

  Decrease the Reserve Req.

  Buy Bonds

• Increase the Fed. Funds Rate

  Increase the Reserve Req.

  Sell Bonds

Which effect does Expansionary Monetary Policy have on interest rates and Aggregate Demand

• The Nominal Interest Rate decreases investment and consumer spending increases, Agg. Demand increases

• The Nominal Interest Rate increases

  investment and consumer spending decreases which decreases Agg. Demand