1.Examine whether the following items are built-in stabilizers or discretionary changes.
(a) Unemployment benefits
(b) Tax cuts
(c) An increase in government spending on road work
(d) Progressive tax system
2. What fiscal policy is most likely to be invoked during a period of recession and high unemployment? A period of rapid inflation?
3. Use the figures in the table below to answer the following questions.
|Small time deposits
Money-market mutual funds held by businesses
Savings deposits, including money-market deposit accounts
Money-market mutual funds held by individuals
(a) What is the value of M1?
(b) What is the value of M2?
4. Answer the next questions based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 25%. All figures are in billions of dollars.
|Assets||Liabilities + Net Worth|
|Checkable deposits $300
Stock shares 700
(a) What is the amount of excess reserves in this commercial banking system?
(b) What is the maximum amount that the money supply can be expanded?
(c) If the reserve ratio fell to 20%, what is now the maximum amount that the money supply can be expanded?
5.Describe how changes in the Fed’s major policy tool leads to expansionary and restrictive monetary policies.