UW-MADISON ECON 102 FINAL EXAM QUESTIONS & ANSWERS SOLVED 100% CORRECT!

What is Fiscal Policy? - changes in government taxes and spending that affect the level of GDP How does fiscal policy shift aggregate demand to the right? - 1. increases in government spending 2. decreases in taxes How does fiscal policy shift aggregate demand to the left? - 1. Decrease government spending 2. Increase taxes Expansionary polices - government polices that increase aggregate demand Contractionary polices - government polices that decrease aggregate demand When should the government use expansionary polices? - If the current level of GDP is below full employment When should the government use contractionary polices? - If the current level of GPD is above full employment Stabilization polices - policy action to move the economy closer to full employment Why is it hard for the government to use stabilization polices successfully? - 1. Lags (inside and outside) 2. Economists don't know enough Inside lags - the time it takes a policy to formulateOutside lags - the time it takes for the policy to actually work (T or F) Outside lags in fiscal policy are short - T What are the 2 components of Federal spending? - 1. Federal government purchases of good and services 2. Transfer payments Discretionary spending - programs that congress authorizes on a annual basis that are not automatically funded by prior laws. For example, defense spending Entitlement and mandatory spending - spending that congress has authorized by prior law, primarily providing support for individuals. For example, social security What is the largest component of federal revenue? - Individual income taxes Present Value Equation - FV=dollars i=interest rate n=number of years (time) As interest rates increase, the opportunity cost of your fund ___________ - increases Real Rate equation - nominal rate - inflation rate Procyclical - moving in the same direction as real GDP Neoclassical theory of investment - taxes along with real interest rates play a key role in determining investment spending What are the 3 ways a firm can finance money for a project? - 1. Use retained earnings 2. Sell corporate bonds3. Issue and sell new shares of stock Q-theory - high stock prices lead to high investments How many Federal Reserve banks across the United States? - 12 What are the 3 properties of money? - 1. Medium of exchange 2. Unit of account 3. Store of value What are bank assets? - Reserves and loans What are bank liabilities? - Deposits and equity M1 is - the sum of currency in the hands of the public (cash), demand deposits, other checkable deposits, and traveler's checks. If money is used as a mechanism to hold purchasing power for a period of time it is functioning as a.... - Store of Value The short-run aggregate supply curve is relatively flat because - in the short run, prices do not change very much but output may be above, below, or equal to potential output. How long do economists think its the U.S economy to move from the short run to the long run? - None of the above; economists disagree on the answer A rise in the value of a currency is called a(n) - appreciation A bank's reserves is... - the sum of its excess and required reserves, can be held as cash in its vault, and can be held as deposits with the Federal ReserveThe present value of a government bond ________ when interest rates rise. - decreases An open market ________ by the Fed increases the money supply, which leads to ________ interest rates and increased GDP. - purchase; decreased