Chapter 11

Question 0

Money supply and interest rates generally set by central bank or finance ministry

Answer 0

Monetary policy

Question 1

Government taxation and expenditures generally set by legislative and executive branches

Answer 1

Fiscal policy

Question 2

New equilibrium is reached the effect of the original change in spending has worked its way through economy the Total amount of increase in GDP is greater than the amount of original increase in spending

Answer 2

Multiplier affect of increase in aggregate demand

Question 3

Cuts in taxes and increases in government spending– positive multiplier effect–

Answer 3

Expansionary fiscal policy

Question 4

Tax increase or cut in government spending–shifts AD curve left– negative multiplier effect

Answer 4

Contractionary fiscal policy

Question 5

Reason to be cautious about fiscal policy changes

Answer 5

1. Tends to cause inflation
2. Margin of error in estimating
3. Complicated by different policies for funding it

Question 6

Buying and selling of bonds on open market. Central bank sells bonds, banks and other financial institutions give up some cash. Buying bonds has opposite effect on financial system reserves and is primary technique for expanding money supply

Answer 6

Open market operations

Question 7

Increase in money supply and a fall In interest rates

Answer 7

Expansionary monetary policy

Question 8

Decrease in money supply and rise in interest rates

Answer 8

Contractionary monetary policy

Question 9

Describes changes in trade deficit that are caused by change in exchange rate

Answer 9

Adjustment process

Question 10

For reducing current account deficit is one that turns expenditures away from foreign produced goods -exchange rate depreciation is an example alternative type is trade barrier

Answer 10

Expenditure switching policies

Question 11

Contractionary fiscal or monetary policies that cut overall level of demand in economy

Answer 11

Expenditure reducing policies