ECN 211 :ECN 211 Final Exam: ECN 211 Final Exam Study Guide Questions & Answers

What is something that is useful for growth in both poor and rich countries? (Ans- Increase in TFP growth Poor countries grow primarily due to TFP growth. (T/F) (Ans- False Countries with high tax rates typically have generous social insurance. (T/F) (Ans- True When taxes are cut, what typically happens to the deficit and debt? (Ans- They both increase After tax cuts, total tax revenue often rises. Which of the following is NOT a reason why this occurs? (Ans- The tax cuts themselves generate revenue.If the national debt continues to increase, the U.S. will likely face a debt crisis similar to Greece in the early 2010s. (T/F) (Ans- False All of the following are reasons to be worried about rising U.S. national debt EXCEPT which? (Ans- It will lead to rising interest rates and, potentially, a crisis. Which of the following is most directly impacted when the Fed engages in open market operations? (Ans- The monetary base When the Federal Reserve engages in expansionary monetary policy, this leads to inflation. (T/F) (Ans- False Hyperinflation fears are typically excessive because (Ans- their probability of occurring is very low. At the Zero Lower Bound, the Federal Reserve loses the ability to stimulate the economy. (T/F) (Ans- TrueGiven the current low interest rate environment, which is the Fed more likely to be successful at? (Ans- Raising rates and slowing the economy Which of the following is most important in the money creation process during significant recessions? (Ans- The Fed Health insurance prices are so high (Ans- - Get the government out of health care - Adopt Medicare for all The trade deficit is high (Ans- - Stop getting ripped off by foreigners - Stop buying foreign goodsOil prices are high (Ans- - Have the government stop drilling restrictions - Cut state gasoline taxes The budget deficit is high (Ans- - Cut government spending (without deficits) - Increase taxes at the top Education outcomes are poor (Ans- - Throw money at it - Keep families together How is money created in the U.S.? (Ans- - Money multiplier: takes some money out of account and loans it out - Banks loaning money increases supplyWhat is the role of the Fed in the money creation process? (Ans- - Makes deals with bank - Buying/selling bonds What is the link between money creation and inflation? (Ans- Inflation grows when the money creation is growing at a faster rate than the ability to create goods and services What are the concerns about inflation? Deflation? (Ans- Inflation: Can interrupt economic activity, prices change frequently when high Deflation: Economies that are depressed because people are not spending money How do countries grow (or fail) in the long term? (AnsGrow: Focus on productivity (increase workers per person and hours worked - short run solution), Physical capital investment (adding tools to create more and better products), Public investment (infrastructure), Human capital (education/training), and Technology Fail: Communism/Socialism, Demand and printing money, Input-led growth, catch-up and post-recession growth, politics