MACRO ECON FINAL

Suppose a bank has $500,000 in deposits and a required reserve ratio of 10 percent. Then required reserves are Multiple Choice $5,000,000. $500,000. $50,000. $10,000.

$50,000.

Foreign households and institutions hold approximately _____ percent of the U.S. national debt. Multiple Choice 50 33 45 8

33

If the banking system has a required reserve ratio of 25 percent, the money multiplier is Multiple Choice 4.0. 1.25. 0.25. 0.2.

4.0.

Deposit creation occurs when Multiple Choice A bank lends money. A person takes money out of one bank and puts it in another bank. A bank borrows dollars from the Federal Reserve. A person takes money out of the banking system and holds it as cash.

A bank lends money.

The choice of how and where to hold idle funds is Multiple Choice An executive Fed decision. A Fed funds decision. A discount decision. A portfolio decision.

A portfolio decision.

Changing the reserve requirement is Multiple Choice A powerful tool that can cause abrupt changes in the money supply. The most often-used tool on the part of the Fed. A tool that has little impact on the money supply. Effective in changing excess reserves but not the money supply.

A powerful tool that can cause abrupt changes in the money supply.

Policies designed to pay off the national debt will result in: Multiple Choice A higher level of aggregate demand. A redistribution of income but not wealth. A smaller level of aggregate demand Inflation.

A smaller level of aggregate demand

The Federal Open Market Committee includes Multiple Choice All 7 governors and 5 of the regional Reserve bank presidents. 5 of the governors and all of the regional Reserve bank presidents. 12 of the regional Reserve bank presidents plus the chairman of the Fed. All 12 of the governors and all 7 of the regional Reserve bank presidents.

All 7 governors and 5 of the regional Reserve bank presidents.

Members of the Board of Governors are Multiple Choice Elected by the people and confirmed by the president. Appointed by the president and confirmed by the Senate. Selected by each new president at the same time the cabinet is chosen. Appointed by the Senate and confirmed by the House of Representatives.

Appointed by the president and confirmed by the Senate.

A budget surplus is A. An excess of government spending over government revenues in a given time period. B. An excess of government revenues over government expenditures in a given time period. C. Used only in time of war. D. None of the choices are correct.

B. An excess of government revenues over government expenditures in a given time period.

In order to reduce the U.S. debt, A. The government must use deficit spending. B. The government should spend less than it collects in tax revenues. C. There will be a transfer of revenue from bondholders to taxpayers. D. Foreign governments must lend more money to the U.S. government.

B. The government should spend less than it collects in tax revenues.

Deficit spending results whenever the government A. Issues bonds to finance the debt. B. Uses borrowed funds to finance expenditures that exceed tax revenue. C. Refinances the debt. D. None of the choices are correct.

B. Uses borrowed funds to finance expenditures that exceed tax revenue.

Currency in circulation is included in Multiple Choice M1 only. M2 only. Both M1 and M2. None of the choices are correct.

Both M1 and M2.

The Fed can decrease the federal funds rate by Multiple Choice Selling government bonds. Buying government bonds, which causes market interest rates to fall. Simply announcing a lower rate because the Fed has direct control of this interest rate. Changing the money multiplier.

Buying government bonds, which causes market interest rates to fall.

Open market operations involve the Fed Multiple Choice Buying or selling government bonds. Buying or selling shares of stock. Borrowing money from a bank. Lending money to individuals.

Buying or selling government bonds.

Which of the following is an argument against balancing the federal budget? A.The economy will self-adjust so deficit spending is not necessary. B. An increase in government spending and taxes by the same amount does not affect income. C. Doing so may prevent the government from pulling the economy out of recession. D. None of the choices are correct.

C. Doing so may prevent the government from pulling the economy out of recession.

Regional Fed banks are responsible for all of the following except Multiple Choice Holding bank reserves. Providing currency for private banks. Providing loans to private banks. Cashing checks for large nonfinancial corporations.

Cashing checks for large nonfinancial corporations.

Which of the following is not included in the narrowest definition of the money supply or M1? Multiple Choice Currency in circulation. Transactions account balances. Credit card balances. Traveler's checks.

Credit card balances.

When the U.S. Treasury issues new bonds to replace bonds that have matured, it is engaging in Multiple Choice Debt refinancing. Debt servicing. Income transfers. Discretionary fiscal spending.

Debt refinancing.

Banks are required to keep a minimum amount of funds in reserve because Multiple Choice Depositors may decide to withdraw funds at any time. The Fed may decide to withdraw funds at any time. The bank may decide to increase aggregate demand at any time. Borrowers may decide to repay loans ahead of schedule.

Depositors may decide to withdraw funds at any time.

The elements of the federal budget not determined by past legislative or executive commitments are Uncontrollable fiscal spending. Fiscal restraint items. Discretionary fiscal spending. Automatic stabilizers.

Discretionary fiscal spending.

The national debt Multiple Choice Is paid off each fiscal year when the debt is refinanced. Will never be paid off in any given year, but it will be entirely paid off when it is refinanced over a number of years. Will be paid off when the budget is finally balanced. Equals the dollar amount of outstanding U.S. Treasury bonds.

Equals the dollar amount of outstanding U.S. Treasury bonds.

Uncontrollable government spending includes Multiple Choice Interest payments on the national debt. Spending decisions made in the current year. Approximately half of the government spending in the United States. Welfare benefits but not unemployment benefits.

Interest payments on the national debt.

U.S. Treasury bonds owned by U.S. households, institutions, and government entities are referred to as Multiple Choice Debt servicing. Debt refinancing. External debt. Internal debt.

Internal debt.

Which of the following is true about the quantity of money in the U.S. economy? Multiple Choice It is equal to the amount of currency in circulation. It is much greater than the amount of currency in circulation. It is equal to the value of the government's gold reserves. It is equal to the total amount of income.

It is much greater than the amount of currency in circulation.

The current chairman of the Federal Reserve is Multiple Choice Alan Greenspan. Janet Yellen. Jerome Powell. Ben Bernamke.

Jerome Powell.

Savings accounts are included in Multiple Choice M1 only. M2 only. M1 and M2. None of the choices are correct.

M2 only.

Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they Multiple Choice Have time to learn how the Fed operates. Are more likely to make politically acceptable decisions. Make their decisions based on economic, rather than political, considerations. Have enough time to travel to all 12 regional banks.

Make their decisions based on economic, rather than political, considerations.

When money is used to acquire goods and services, it is functioning as a Multiple Choice Medium of exchange. Store of value. Standard of account. Equation of value.

Medium of exchange.

The use of money and credit controls to achieve macroeconomic goals is Multiple Choice Fiscal policy. Monetary policy. Supply-side policy. Eclectic policy.

Monetary policy.

Much of each year's federal budget is considered "uncontrollable" because Multiple Choice It must be spent for purchases, as opposed to transfer payments. Most of the current revenues and expenditures are the result of decisions made in prior years. It is determined by decision makers who do not have the power to change spending and taxes. None of the choices are correct.

Most of the current revenues and expenditures are the result of decisions made in prior years.

The minimum amount of reserves a bank is required to hold is known as Multiple Choice The money multiplier. Total reserves. Excess reserves. Required reserve ratio.

Required reserve ratio.

All of the following are tools available to the Fed for controlling the money supply except Multiple Choice The reserve requirement. The discount rate. Open market operations. Taxes.

Taxes.

Which of the following serves as the central banker for private banks in the United States? Multiple Choice The 12 Federal Reserve banks. The executive branch of government. The legislative branch of the government. The Federal Open Market Committee.

The 12 Federal Reserve banks.

The Federal Open Market Committee is responsible for Multiple Choice The Fed's daily activity in financial markets. Determining broad Fed policy. Providing central banking services to individual banks. Check cashing services for large corporations.

The Fed's daily activity in financial markets.

The Federal Reserve System was created by Multiple Choice The FDIC in 1929. The Federal Reserve Act in 1913. The U.S. Treasury in 1914. The Federal Banking Authority in 1904.

The Federal Reserve Act in 1913.

Which of the following sets the legal minimum reserve ratio? Multiple Choice The commercial banks. The U.S. Treasury. The Federal Reserve. Congress.

The Federal Reserve.

The national debt is Multiple Choice The amount by which tax revenues exceed government spending for a given year. The accumulation of all annual deficit and surplus flows. The amount by which government spending exceeds tax revenues for a given year. A fairly risky asset that pays interest.

The accumulation of all annual deficit and surplus flows.

Which of the following owns the largest portion of the U.S. national debt? Multiple Choice Foreigners. The federal government. The private sector. State and local governments

The federal government.

One of the essential functions a bank performs is that of Multiple Choice Creating money by lending required reserves. Participating in the stock market. Transferring money from savers to borrowers. Purchasing government bonds.

Transferring money from savers to borrowers.

Spending for unemployment compensation and welfare benefits increase automatically Multiple Choice When the economy expands. When the economy goes into recession. When voters make the decision to increase these items. Only when the fiscal year begins.

When the economy goes into recession.