Economics Test 11-14

Which of the following is not an important role of the Federal Reserve

oversee macroeconomic policies outside the U.S.

Which of the following descriptions is excluded from being a function of money

price level, measurement of wealth, unit of scale

An interest rate is the _______ and the reward for lending money.

price of borrowing money

The Federal Reserve's monetary policy tools include all the following EXCEPT

printing money

A goal of monetary policy is

promoting economic growth

A contradictory monetary policy reduces GDP by

raising interest rates and discouraging investment and consumption spending

The proportion of deposits that banks are legally required to deposit with the central bank are called

reserve requirements

If the Fed wants to decrease the quantity of money in the economy, it can

sell bonds

Bank supervision consists mostly of...

setting minimum reserve requirements ensuring bank net worth remains positive, and setting restrictions on investments.

A liability in a bank's T-account is..

something owed by the bank

An asset in a bank's T account is _______.

something that the bank owes someone else

Sales taxes are...

weighted as a percentage of the value of the purchase

Which number is higher?

U.S. Federal Debt

Which of the following typically rises during a recession?

Unemployment

The most liquid source of money is _____.

M1

How did the banking industry turn the home loans they made into investments for other consumers?

They "bundled" good and bad loans together and told investors that it was sure money maker because everyone pays back home loans

Credit is...

a tool for buying things you cannot afford to pay for all at once

In order to increase the level of aggregate demand in the economy, the government can use ______ in the form of _____

an expansionary fiscal policy; an increase in government spending

If the Fed lowers the reserve requirement, then the results will be..

an increase in the availability of credit

Banks USA consistently makes riskey loans to small businesses. When a recession hits, Banks USA faces

an increased probability of facing a bank run by depositors

Which of the following are type of debt

credit cards

Which of the following does not affect aggregate demand?

Crop failures due to weather events

Which of the following describes a progressive tax?

Income tax with a 10% tax ratio on low income households and 20-30% tax ratios on higher income households

Which of the following aptly describes the mission of the Federal Reserve Bank?

the government's private bank

A government annually collects $320 billion in tax revenue and allocates $80 billion to education spending. What percentage of this government 's budget is spent on education?

25%

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of lending are completed is..

50 million

What is a step a bank can take to protect itself from loan defaults which can lead to recessions?

A bank can diversify its loans

SHORT ANSWER: List and explain the four functions of money in a society.

A unit of account - ruler by which other accounts are measured A medium of exchange - money acts as an intermediary between the buyer and the seller A store of value - money will hold its value A standard of deferred payment - money is usable today to make purchases, it must also be acceptable to make purchases today that will be paid in the future

SHORT ANSWER: Explain the process by which banks "create money" using the fractional reserve system in the US economy.

Banks create money by loans out deposits to borrowers, creating a multiplier effect on the money supply.

What was one thing that caused the Great Recession?

Banks had sold too many mortgage-backed securities that were supported by risky mortgages

Why are banks susceptible to potential bank runs?

Banks keep only fractional funds available, a much higher consumer demand to withdraw funds in a short period of time may generate consumer panic

SHORT ANSWER: List and briefly describe the major tools of monetary policy in the Federal Reserve System's possession.

Change the discount rate, change the reserve requirements, open market operations, and interests on reserves.

Which of the following is an inaccurate statement about the banking system?

Competition between private banks and the central bank is what limits interest rates

Expansionary fiscal policy might include which of the following?

Reduction of taxes or increased government spending

SHORT ANSWER: Explain the US marginal tax brackets systems. You can highlight the theory and justification behind the system and/or how taxes are calculated using marginal rates.

The overall federal tax system is progressive. It is a disproportionate burden for people with low income

Which tool might the Fed use to boost the economy during a recession?

buying government securities

If a debit card is used for a purchase, it is like using..

cash.

Which of the following actions by the Fed will increase the money supply?

decreasing the reserve requirement and buying bonds

When the government passes a new law that explicitly increases overall tax rates and reducing spending levels, it is enacting:

discretionary and contractionary

Fiscal Policy is concerned with which of the following?

government expenditure changes

What happens to the money supply if the Fed lowers the discount rate?

it increases

Banks that go bankrupt have a _______ net worth.

negative

If a bank does not have enough assets to pay back its liabilities, then

the bank is insolvent

Which of the following is an example of what backs flat money

trust that the public has that it can be exchanged for services and good