I need help for my ECON homework

Assignment 5 answers

1. Government spending, taxes, government spending, taxes

2. contractionary, expansionary, cyclical, less

3. Several, counter, a political

4. False

5. True

6. False

7. C

8. B

9. D The multiplier is equal to 1/(1-MPC). The multiplier is also equal to (change in real GDP/(initial change in spending). With the information you’re given, the multiplier= 1/(1-0.8)= 5. Substituting in the second equation, 5= (change in real GDP)/4. Therefore, the change in real GDP is 20.

10. A (Essentially, it's the movement that's important. If the Year One budget deficit/surplus is -3.0% of GDP and the Year Two deficit/surplus is -1.5% of GDP, the government actually had a surplus in Year Two to account for the "improvement" in deficit. The fiscal policy in Year Two would be contractionary, though there was still a budget deficit. Conversely, if Year One was -2.1% and Year Two was -3.0%, the fiscal policy was actually expansionary. Therefore, if the deficit gets worse, surplus decreases, or GDP goes from surplus to deficit, the policy was expansionary. If the deficit gets better, surplus increase, or GDP goes from deficit to surplus, fiscal policy was contractionary.)

11. 2300, 180

12. 190, 2350

13. (1) recognition lag: it takes time to recognize the need for fiscal policy because it takes time for data to be collected that provides strong evidence of downturns or upturns in the business cycles

(2) administrative lag: it takes time for the US president and Congress to take the appropriate administrative and legal actions to respond to a recognized problem

(3)operational lag: there is the need for time for the policy to become operational and take the desired effect on output or inflation

14. The public debt is owned by various holders of U.S. securities. About 43% of the debt is held by Federal government agencies and the Federal Reserve, while the other 57% is owned by the public (individuals, banks and financial institutions, foreigners, and others such as state and local governments). Foreigners own approximately 29% of the public debt.

15. The debt cannot bankrupt the government because the government can refinance it by selling new bonds and using the proceeds to pay existing bondholders. The government also has the authority to levy taxes to pay the debt.

16. Liquidity, more

17. Currency, checkable deposits

18. Savings, deposit account, small, mutual funds

19. Quasi-public, bankers, central

20. (a) issuing currency (b)setting reserve requirements and holding reserves (c) lending money to banks and thrifts (d) collecting and processing checks (e) serving as a fiscal agent for the Federal government (f) bank supervision (g) controlling the money supply

21. Independent, inflation

22. D

23. B

24. C

25. 1352

26. 6758

27. The money supply is backed (or guaranteed) by the government’s ability to keep the value of money relatively stable. The purchasing power of the US dollar is inversely related to the price level and is defined as the amount of goods and services a unit of money will buy. When the consumer price index increase, the value of the dollar goes down and vice versa.

28. The Board of Governors of the Fed exercises control over the supply of money and the banking system. The US president appoints the seven member of the Board of Governors who serve for 14 years. The president also selects the board chair and vice chair, who serve 4-year terms.

29. The Federal Open Market Committee (FOMC) is responsible for acting on the monetary policy set by the Board of Governors. The FOMC includes the seven members of the Board of Governors, the president of the New York Federal Reserve Bank, plus 4 other presidents of the Federal Reserve banks (who serve on a rotating basis). The FOMC conducts open market operations to buy and sell government securities to control the nation’s money supply and influence interest rates.