Macroeconomics Final (part 2)

Bond prices and interest rates are directly or positively related. -True -False

False

A $20 bill is a: - Treasury note. - Treasury bill. - Federal Reserve Note. - gold certificate.

Federal Reserve Note.

The sale of government bonds by the Federal Reserve Banks to commercial banks will: - decrease aggregate supply. - increase aggregate supply. - increase aggregate demand. - decrease aggregate demand.

decrease aggregate demand.

Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a(n): - export subsidy. - voluntary export restriction. - protective tariff. - import quota.

import quota.

Smith Barney, Charles Schwab, and Merrill Lynch are all primarily: - insurance companies. - securities firms. - mutual fund companies. - investment banks.

insurance companies.

Which of the following represents the most expansionary fiscal policy? - A $10 billion increase in government spending. - A $10 billion tax increase. - A $10 billion decrease in government spending. - A $10 billion tax cut.

A $10 billion increase in government spending.

The Federal Reserve System: - is an agency of the executive branch of the federal government. - is basically an independent agency. - has the same status as the Supreme Court. - has the status of a congressional committee.

is basically an independent agency.

In the United States, monetary policy is the responsibility of the: - U.S. Congress. - Department of Commerce. - Board of Governors of the Federal Reserve System. - U.S. Treasury

Board of Governors of the Federal Reserve System.

What does it mean when economists say that home buyers are "underwater" on their mortgages? - Buyers are paying interest rates substantially higher than current market interest rates, creating interest payments that create financial hardship. - Buyers are financially incapable of repaying their mortgages and bankruptcy is inevitable. - Buyers owe more on their mortgage than the properties are worth. - Buyers are purchasing homes on flood plains and are highly susceptible to financial losses.

Buyers owe more on their mortgage than the properties are worth.

Which of the following does not explain what backs the money supply in the United States? - It is relatively scarce. - It is backed by gold. - It is designated "legal tender" by the federal government. - It is widely accepted in transactions.

It is backed by gold.

Other things equal, a reduction in income taxes would: - increase government spending and increase aggregate demand. - reduce productivity and reduce aggregate supply. - increase the supply of money and reduce investment. - increase consumption and increase aggregate demand.

increase consumption and increase aggregate demand.

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the: - federal funds rate. - discount rate. - short-term rate. - prime rate.

discount rate.

The demand for federal funds is: - downsloping. - horizontal. - vertical. - upsloping.

downsloping.

NAFTA: - benefits workers in the participating nations but hurts consumers by raising prices. - has increased the standard of living in the North African member nations. - allows completely unrestricted movement of goods, services, and resources between the member nations. - has reduced most trade barriers between Canada, Mexico, and the United States.

has reduced most trade barriers between Canada, Mexico, and the United States.

Suppose the United States sets a limit on the number of tons of sugar that can be imported each year. This is an example of a(n): - revenue tariff. - protective tariff. - import quota. - voluntary export restriction.

import quota.

Federal Reserve Notes in circulation are: - neither an asset nor a liability as viewed by the Federal Reserve Banks. - part of M1 but not of M2. - an asset as viewed by the Federal Reserve Banks. - a liability as viewed by the Federal Reserve Banks.

a liability as viewed by the Federal Reserve Banks.

When economists say that money serves as a unit of account, they mean that it is: - a means of payment. - a monetary unit for measuring and comparing the relative values of goods. - a way to keep wealth in a readily spendable form for future use. - declared as legal tender by the government.

a monetary unit for measuring and comparing the relative values of goods.

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that: - a nation's production possibilities line lies to the right of its trading possibilities line. - a nation's production possibilities and trading possibilities lines coincide. - the production possibilities curves of any two nations are identical. - a nation's trading possibilities line lies to the right of its production possibilities line.

a nation's trading possibilities line lies to the right of its production possibilities line.

The Federal Reserve System regulates the money supply primarily by: - altering the reserve requirements of commercial banks and thereby the ability of banks to make loans. - altering the reserves of commercial banks, largely through sales and purchases of government bonds. - controlling the production of coins at the U.S. mint. - restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply.

altering the reserves of commercial banks, largely through sales and purchases of government bonds

Other things equal, if the supply of money is reduced: - investment spending will increase. - the demand for money will increase. - bond prices will fall. - the interest rates will fall.

bond prices will fall.

Currency in circulation is part of: - M1 only. - neither M1 nor M2. - both M1 and M2. - M2 not including M1.

both M1 and M2.

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: - buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit. - buying government securities, raising the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary surplus. - selling government securities, raising the reserve ratio, lowering the discount rate, increasing interest paid on reserves held at Fed banks, and a budgetary surplus. - buying government securities, reducing the reserve ratio, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

buying government securities, reducing the reserve ratio, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit.

The largest component of the money supply (M1) is: - stock certificates. - currency in circulation. - checkable deposits. - currency in bank vaults.

checkable deposits.

In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should: - encourage private investment by reducing corporate income taxes. - discourage personal saving by reducing the interest rate on government bonds. - increase tax rates and/or reduce government spending. - increase government expenditures.

increase tax rates and/or reduce government spending.

A protective tariff will: - increase the sales of foreign exporters. - increase the welfare of domestic consumers. - increase the price and sales of domestic producers. - create an efficiency gain in the domestic economy.

increase the price and sales of domestic producers.

The crowding-out effect of expansionary fiscal policy suggests that: - increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. - tax increases are paid primarily out of saving and therefore are not an effective fiscal device. - it is very difficult to have excessive aggregate spending in the U.S. economy. - consumer and investment spending always vary inversely

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

An expansionary monetary policy may be frustrated if the: - investment-demand curve shifts to the left. - investment-demand curve shifts to the right. - saving schedule shifts downward. - demand-for-money curve shifts to the left.

investment-demand curve shifts to the left.

The "eurozone": - is the subset of the EU that uses a common currency. - refers to the common currency used by all European Union members. - is a geographic region in Europe with no national sovereignty, where free trade between European nations is allowed to occur. - is another name for the European Union.

is the subset of the EU that uses a common currency.

The near-money components of M2 are: - more liquid than the M1 components of M2. - less liquid than the M1 components of M2. - highly illiquid. - equally liquid as the M1 components of M2.

less liquid than the M1 components of M2.

If the Fed were to reduce the legal reserve ratio, we would expect: - higher interest rates, a contracted GDP, and a lower rate of inflation. - higher interest rates, a contracted GDP, and a higher rate of inflation. - lower interest rates, an expanded GDP, and a higher rate of inflation. - lower interest rates, an expanded GDP, and a lower rate of inflation.

lower interest rates, an expanded GDP, and a higher rate of inflation.

"Offshoring" refers to: - shifting work overseas that was previously done domestically. - exporting key resources. - importing goods, services, and resources. - stashing money in offshore accounts for the purpose of avoiding taxes.

shifting work overseas that was previously done domestically.

The American Recovery and Reinvestment Act of 2009 was implemented primarily to: - stimulate aggregate demand and employment. - curb the overspending by households that contributed to the Great Recession. - reduce inflationary pressure caused by oil price increases. - bring the federal budget back into balance.

stimulate aggregate demand and employment.

The four main tools of monetary policy are: - the discount rate, the reserve ratio, interest on reserves, and open-market operations. - tax rate changes, changes in government expenditures, open-market operations, and interest on reserves. - changes in government expenditures, the reserve ratio, the federal funds rate, and the discount rate. - tax rate changes, the discount rate, open-market operations, and the federal funds rate.

the discount rate, the reserve ratio, interest on reserves, and open-market operations.

When the reserve requirement is increased: - the excess reserves of member banks are increased. - required reserves are changed into excess reserves. - the excess reserves of member banks are reduced. - a single commercial bank can no longer lend dollar-for-dollar with its excess reserves.

the excess reserves of member banks are reduced.

In defining money as M1, economists exclude time deposits because: - the purchasing power of time deposits is much less stable than that of checkable deposits and currency. - they are not directly or immediately a medium of exchange. - they are not recognized by the federal government as legal tender. - the intrinsic value of time deposits is nil.

they are not directly or immediately a medium of exchange.

Which one of the following might offset a crowding-out effect of financing a large public debt? - A decrease in the money supply. - A decline in net exports. - A decline in public investment. - An increase in public investment.

An increase in public investment.

Which is an example of a nontariff barrier (NTB)? - An export subsidy. - An excise tax on the dollar value of imported goods. - Box-by-box inspection requirements for imported fruit. - An excise tax on the physical volume of imported goods.

Box-by-box inspection requirements for imported fruit.

Which of the following statements is correct? - Built-in stability has eliminated the need for discretionary fiscal policy. - Built-in stability only partially offsets fluctuations in economic activity. - Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. - Built-in stability works in halting inflation, but it cannot alleviate unemployment.

Built-in stability only partially offsets fluctuations in economic activity.

Which of the following is not part of the M2 money supply? - Money market mutual fund balances. - Currency. - Money market deposit accounts. - Large-denominated time deposits.

Large-denominated time deposits.

Which of the following is a difference between "quantitative easing" and ordinary open-market operations? - Open-market operations are done in order to lower interest rates; quantitative easing is merely intended to increase bank reserves. - Open-market operations involve forward commitment; quantitative easing is intentionally vague to maintain flexibility. - Quantitative easing is focused exclusively on U.S. government bonds; open-market operations also include the buying and selling of debt issued by government agencies and government-sponsored entities. - There is no difference between the two policy tools.

Open-market operations are done in order to lower interest rates; quantitative easing is merely intended to increase bank reserves.

When the Fed raises the interest rate paid on reserves, it discourages bank lending. -True -False

True

Which of the following arguments contends that certain industries need to be protected in the interest of national security? - The military self-sufficiency argument. - The diversification-for-stability argument. - The increased domestic employment argument. - The cheap foreign labor argument.

The military self-sufficiency argument.

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier? - Open-market operations. - The federal funds rate. - The discount rate. - The reserve ratio.

The reserve ratio.

Which one of the following is true about the U.S. Federal Reserve System? - There are 12 regional Federal Reserve Banks. - The Open Market Committee is smaller in size than the Federal Reserve Board. - The head of the U.S. Treasury also chairs the Federal Reserve Board. - There are 14 members of the Federal Reserve Board.

There are 12 regional Federal Reserve Banks.

Which of the following statements best describes the 12 Federal Reserve Banks? - They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners. - They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. - They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. - They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.

They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

A change in the reserve ratio will affect both the amount of the banking system's excess reserves and the multiple by which the system can lend on the basis of excess reserves. -True -False

True