T3 SG 2 Flashcards
What is the current national unemployment rate?
4.7%
How is Alabama’s unemployment rate compared with the national one?
6.2%
When the Fed increases the Fed Funds target rate, how does this affect T-bill rates, mortgage rates, the prime rate and bond rates?
Interest Rates increase
all interest rates increase
so T-bill rates increase, mortgage rates increase, the prime rate increases, and bond rates increase
When an expansionary policy is implemented, US interest rates will blank
and household spending on durable goods will blank
business investment spending on new equipment will blank
construction spending will blank
the value of the US dollar will blank
exports will blank and imports will blank
NX will blank
AD will blank
GDP will blank
Prices will blank
When an expansionary policy is implemented, US interest rates will decrease
and household spending on durable goods will increase
business investment spending on new equipment will increase
construction spending will increase
the value of the US dollar will depreciate
exports will increase and imports will decrease
NX will increase
AD will increase
GDP will increase
Prices will increase
When an contractionary policy is implemented, US interest rates will blank
and household spending on durable goods will blank
business investment spending on new equipment will blank
construction spending will blank
the value of the US dollar will blank
exports will blank and imports will blank
NX will blank
AD will blank
GDP will blank
Prices will blank
When an contractionary policy is implemented, US interest rates will rise
and household spending on durable goods will decrease
business investment spending on new equipment will decrease
construction spending will decrease
the value of the US dollar will appreciate
exports will decrease and imports will increase
AD will decrease
GDP will decrease
Prices will decrease
What is the “liquidity trap”?
short term rates at 0%
can’t decrease anymore, central bank powerless if interest rates = 0%
When FOMC decides on an expansionary policy,
the NY Federal Reserve Bank will blank T bonds and Bills
The US money supply will blank and interest rates will blank
AD will blank and GDP will blank
When FOMC decides on an expansionary policy,
the NY Federal Reserve Bank will buy T Bonds and Bills
The US money supply will increase and interest rates will decrease
AD will increase and GDP will increase
When FOMC decides on contractionary policy,
the NY Fed Bank will blank T Bonds and Bills
The US money supply will blank and interest rates will blank
AD will blank prices will blank, and GDP will blank
What is the negative effect of acting to lower inflation?
When the FOMC decides on contractionary policy,
the NY Fed Bank will sell T Bonds and Bills
The US money supply will fall and interest rates will increase
AD will decrease prices will decrease, and GDP will decrease
What is a negative effect of acting to lower inflation? a recession and increase in unemployment, higher unemployment
What were causes of the 2007-09 Recession?
low interest rates, even when the economy was strong
the growth of subprime loans
the increase of adjustable rate loans
an increase in the number of loans made to borrowers with low credit scores
the large increase in housing construction and “spec” homes
commercial banks selling their loans to either other financial institutions so they could make more loans
which were actions taken to resolve the financial crisis?
Fed made loans to investment banks
They took over Fannie and Freddie
Increase FDIC coverage to $250K and began to insure money market funds
Made Billion dollar loans to insurance companies who covered the risks of loss by investors who bought mortgage backed securities
Bought stock in financial institutions in order to provide them with financial support
Who implements fiscal policy
congress and president
what tools are used to implement it
tax and government spending
when a recession exists, an appropriate fiscal policy would be to blank taxes and/or blank government spending
decrease taxes
increase government spending
