WGU - D089 - Principles of Economics Exam Questions with Correct Answers 100% Verified By
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What are ways that the amount of money can be created? Banks may hold excess reserves;
customers may withdraw cash, and individuals and firms may not spend their entire loan
How are federal interest rates determined? By the interaction of money demand and money
supply in the money market. Rates adjust to bring the market to an equilibrium at which the
quantity of money demanded and the quantity of money supplied is balanced
How does the Fed target the rate for federal funds? By adjusting the money supply using
open market operations, changing the required reserve, and manipulating the discount rate.
What does an expansionary policy, such as a purchase of government securities by the Fed do?
Tends to push interest rates down, increasing investment and aggregate demand.
What does a contractionary policy, such as a sale of government securities by the Fed do?
Pushes interest rates up, investment down and the aggregate demand curve to the left.
What kind of monetary policy is used during a period of recession? An expansionary policy
What kind of monetary policy is used during a period of inflation? a contractionary policy
What does an expansionary fiscal policy encourage? An increase in economic activity
What type of fiscal policy slows down economic activity as businesses decrease production and
lay off workers? A contractionary policy
How does a a change in government purchases directly affect aggregate demand? Through
government spending
,How does a change in taxes affect aggregate demand? Through a change in consumer
spending or business investment
Over the last 50 years how much have government purchases fluctuated of U.S. GDP?
Around 20%
Where do the bulk of federal revenues come from? Income and payroll taxes
How is the government budget balance determined? It is the difference between
government revenues and government expenditures
What is the national debt? The sum of all past federal deficits minus any surpluses
What are the benefits of running a budget deficit? Stabilizing the economy during business
cycles, enabling large scale infrastructure investments, and provide funding for wars
What are the concerns of running a budget deficit? Crowding out private sector investment,
redistribution of wealth from future to current generations, and inflation
What does the Phillips curve show? The trade-off between unemployment and inflation in
an economy
In what direction should a Phillips curve slope? Down. So higher unemployment means
lower inflation and vice versa
What is the relationship between the rate of inflation and unemployment? It is inverse
What along with the Phillips curve share similar components? Aggregate demand
, What components found in the Phillips curve correspond to the real GDP and price level of
aggregate demand? The rate of unemployment and the rate of inflation
The long run Phillips curve is a ____________ at the natural rate of unemployment? Vertical
line
What shape is the short run Phillips curve? L shaped
What is the hypothetical level of unemployment the economy would experience if aggregate
production where in the long run state? The natural rate of unemployment
What is international trade? The exchange of capital, goods, and services across
international borders or territories
When should countries import goods? If the opportunity cost of producing them abroad is
lower than the opportunity cost of producing them domestically.
What do firms that export have access to? A broader market and the ability to take
advantage of economies of scale
What is the difference between the monetary value of exports and imports in an economy over
a certain period, measured in the currency of that economy? The balance of trade
What do dollars used to purchase imports flow back into the country as? Financial capital
that is used to fund investment and to purchase government debt.
What is the purpose of the World Trade Organization (WTO)? To facilitate trading
worldwide, ensuring that trade flows as smoothly, predictably, and freely as possible.
Experts| Latest Update Guaranteed Success
What are ways that the amount of money can be created? Banks may hold excess reserves;
customers may withdraw cash, and individuals and firms may not spend their entire loan
How are federal interest rates determined? By the interaction of money demand and money
supply in the money market. Rates adjust to bring the market to an equilibrium at which the
quantity of money demanded and the quantity of money supplied is balanced
How does the Fed target the rate for federal funds? By adjusting the money supply using
open market operations, changing the required reserve, and manipulating the discount rate.
What does an expansionary policy, such as a purchase of government securities by the Fed do?
Tends to push interest rates down, increasing investment and aggregate demand.
What does a contractionary policy, such as a sale of government securities by the Fed do?
Pushes interest rates up, investment down and the aggregate demand curve to the left.
What kind of monetary policy is used during a period of recession? An expansionary policy
What kind of monetary policy is used during a period of inflation? a contractionary policy
What does an expansionary fiscal policy encourage? An increase in economic activity
What type of fiscal policy slows down economic activity as businesses decrease production and
lay off workers? A contractionary policy
How does a a change in government purchases directly affect aggregate demand? Through
government spending
,How does a change in taxes affect aggregate demand? Through a change in consumer
spending or business investment
Over the last 50 years how much have government purchases fluctuated of U.S. GDP?
Around 20%
Where do the bulk of federal revenues come from? Income and payroll taxes
How is the government budget balance determined? It is the difference between
government revenues and government expenditures
What is the national debt? The sum of all past federal deficits minus any surpluses
What are the benefits of running a budget deficit? Stabilizing the economy during business
cycles, enabling large scale infrastructure investments, and provide funding for wars
What are the concerns of running a budget deficit? Crowding out private sector investment,
redistribution of wealth from future to current generations, and inflation
What does the Phillips curve show? The trade-off between unemployment and inflation in
an economy
In what direction should a Phillips curve slope? Down. So higher unemployment means
lower inflation and vice versa
What is the relationship between the rate of inflation and unemployment? It is inverse
What along with the Phillips curve share similar components? Aggregate demand
, What components found in the Phillips curve correspond to the real GDP and price level of
aggregate demand? The rate of unemployment and the rate of inflation
The long run Phillips curve is a ____________ at the natural rate of unemployment? Vertical
line
What shape is the short run Phillips curve? L shaped
What is the hypothetical level of unemployment the economy would experience if aggregate
production where in the long run state? The natural rate of unemployment
What is international trade? The exchange of capital, goods, and services across
international borders or territories
When should countries import goods? If the opportunity cost of producing them abroad is
lower than the opportunity cost of producing them domestically.
What do firms that export have access to? A broader market and the ability to take
advantage of economies of scale
What is the difference between the monetary value of exports and imports in an economy over
a certain period, measured in the currency of that economy? The balance of trade
What do dollars used to purchase imports flow back into the country as? Financial capital
that is used to fund investment and to purchase government debt.
What is the purpose of the World Trade Organization (WTO)? To facilitate trading
worldwide, ensuring that trade flows as smoothly, predictably, and freely as possible.
