FBP post class ch 2

In the context of monetary policy, which of the following statements is true of money supply?

The M1 money supply includes all currency plus checking accounts and traveler's checks.

In the context of monetary policy, which of the following statements is true of the discount rate?

When the cost of acquiring funds from the Fed is low, interest rates on bank loans tend to fall.

In 1982, the total expenditure of the government of Kargenia, a European country, exceeded its revenue by a substantial amount. This forced the government of Kargenia to borrow funds to meet its legal obligations. In this scenario, the government of Kargenia incurred a _____ in 1982.

budget deficit

Rochester, an Asian country, follows an economic system that facilitates private ownership. The country's economy is based on economic freedom and fair competition. Given this information, the economic system followed by Rochester is _____.

capitalism

Danny is a citizen of Finiz, a North American country. He is able to run his handicraft business without any intervention from the government because Finiz has an economic system that encourages private ownership. He is able to make independent decisions for his business and has the freedom to decide the prices of his products. In this scenario, Finiz most likely has a _____.

capitalist economy

Lefrada, a luxury watchmaker, stops production for three months and lays off 30 employees because of a sharp decline in its sales during the period of recession. The given scenario exemplifies _____.

cyclical unemployment

The country of Trevanvia goes through a period of recession, which leaves a large number of people unemployed due to extensive layoffs by companies. The companies use the strategy of job termination to cut down their costs and reduce their output as the people are now more cautious with their spending. In the given scenario, the layoffs that take place exemplify _____.

cyclical unemployment

A capitalist system depends on fair competition among businesses to:

drive higher quality and lower prices

In the context of the fundamental principles of a free market system, the _____ is associated with the point at which the quantity demanded of a product equals the quantity supplied

equilibrium price

In the context of federal debt, if spending is lower than revenue, the government incurs a budget deficit.

false

Irkholm, a South American nation, experiences an economic downturn that leads to an increase in average prices across the country. The situation becomes more serious when average prices increase more than 50% per month. In the given scenario, Irkholm is experiencing _____.

hyperinflation

______________ is a market structure with just a single producer completely dominating the industry.

monopoly

The government of the South Asian nation of Albana is unable to maintain the electronics business effectively because of slack in management and lack of skilled employees. It sells the business to a company called Ramington Electricals. The company has no association with the government and operates on its own terms. The sale of the government-owned electronics business to Ramington Electricals is an example of _____.

privazation

In a business cycle, the _____________ is the transition period between contraction and expansion.

recovery

In the context of open market operations, when inflation is a concern, the Federal Reserve _____ government securities.

sells

Timothy, a staff member at a university, wants to purchase a house. As he does not have sufficient funds, he is forced to take a loan. Given his low credit score, it is highly unlikely that he will be able to repay the borrowed money. In this scenario, Timothy should apply for a(n) _____

subprime mortgage loan

In the context of price levels, which of the following measures is used by the government to evaluate inflation?

the consumer price index

Ancusia, an East Asian country, was plagued by war and corruption for several years. This led to poor economic conditions, and the government was compelled to borrow funds from other nations. Because of the slow economic growth in the country, the government could repay only 15% of its debts. In this scenario, the amount that the government is yet to repay is known as _____.

the federal debt

The central banking system in the country of Darmos issues a notice to all its commercial banks stating that they must possess funds that are equal to 48% of the deposits held by their customers. In the given scenario, the central banking system's notice exemplifies _____.

the reserve requirement

Gross Domestic Product (GDP) levels tend to be somewhat understated, since they don't include any illegal activities, which can represent a significant portion of some countries' production.

true