202 final exam
At the beginning of 2009, a government had a total debt of $540 billion dollars. It ended 2009 with a $6 billion dollar budget surplus. In 2010, its budget surplus reached $8 billion dollars. What is the total debt of the government equal to at the end of 2010 assuming the goal of government is to have a balanced budget? A. $526 billion B. $540 billion C. $0 D. $14 billion
A. $526 billion
Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities? A. $600 million B. $110 million C. $200 million D. $90 million
A. $600 million
If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from: A. Sarah's M1 funds. B. the smart card company's M1 funds. C. the smart card company's M2 funds. D. Sarah's M2 funds.
A. Sarah's M1 funds.
When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is: A. following a loose monetary policy. B. following a tight monetary policy. C. following a contractionary monetary policy. D. reversing quantitative easing.
A. following a loose monetary policy.
A central bank that desires to reduce the quantity of money in the economy can: A. raise the reserve requirement. B. buy bonds in open market operations. C. lower the discount rate. D. engage in quantitative easing.
A. raise the reserve requirement.
The term _____ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds. A. reserve ratio B. reserve funds C. term deposits D. bond reserves
A. reserve ratio
At the beginning 2010, the government of Norway had no debt and held $180 billion dollars in its sovereign fund. To stimulate its economy during 2011, Norway's government plans to spend $35 billion more than it will collect in tax revenue and in 2012, its spending will exceed tax revenues by $25 billion. What will the total government debt equal at the end of 2012? A. $60 billion B. $0 C. $120 billion D. $180 billion
B. $0
Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal? A. $120 million B. $270 million C. $1.02 billion D. $970 million
B. $270 million
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: A. a loose monetary policy. B. a contractionary monetary policy. C. a expansionary monetary policy. D. a quantitative easing policy.
B. a contractionary monetary policy.
Which of the following events would cause interest rates to increase? A. lower tax rates B. a higher discount rate C. lower reserve requirements D. an open market operation to buy bonds
B. a higher discount rate
Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond? A. by noting a decrease in net worth B. by increasing its reserves C. its balance sheet will be unchanged D. it can make more loans with increased loan assets
B. by increasing its reserves
A typical _____ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes. A. expansionary B. contractionary C. discretionary D. standardized
B. contractionary
If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is: A. regressive. B. progressive. C. proportional. D. optional.
B. progressive
When inflation begins to climb to unacceptable levels in the economy, the government should: A. use contractionary fiscal policy to shift aggregate demand to the right. B. use contractionary fiscal policy to shift aggregate demand to the left. C. use expansionary fiscal policy to shift aggregate demand to the right. D. use expansionary fiscal policy to shift aggregate demand to the left.
B. use contractionary fiscal policy to shift aggregate demand to the left.
A government collects $700 billion annually tax revenue. Each year it allocates $130 billion to interest payments that it must pay on its accumulated debt. What percentage of annual tax revenue is allocated to make these interest payments? A. 17.15% B. 28.75% C. 18.57% D. 27.58%
C. 18.57%
When increasing oil prices cause aggregate supply to shift to the left, then: A. unemployment and inflation decrease. B. unemployment decreases and inflation increases. C. unemployment and inflation increase. D. unemployment increases and inflation decreases.
C. unemployment and inflation increase.
With respect to measuring the money supply, which of the following terms describes a checking account? A. demand certificates B. currency deposits C. cash certificates D. demand deposits
D,. demand deposits
The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely: A. keep track of whether money is flowing in or out of the bank. B. buy bonds to increase the size of its reserve assets. C. reduce the quantity of money and loans on the balance sheet. D. borrow for the short term from the central bank.
D. borrow for the short term from the central bank.
When the Federal Reserve announces that it is implementing a new interest rate policy, the will be affected. A. real interest rate B. consumer lending rate C. nominal interest rate D. federal funds rate
D. federal funds rate
The market where loans are made to borrowers is called the: A. secondary loan market. B. money market. C. loan market. D. primary loan market.
D. primary loan market
When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is _____. A. optional B. proportional C. progressive D. regressive
D. regressive
A government collects $70 billion quarterly in tax revenue. Each year it allocates $15 billion to the justice system and $29 billion for the administrative costs. What percent of its total annual tax revenue is left for allocation to the remaining categories of government spending? A. 84.29% B. 15.71% C. 62.85% D. 37.15%
A. 84.29%
_____ serves society in three functions: medium of exchange, unit of account, and store of value. A. Money B. Currency C. Barter D. A double coincidence of wants
A. Money
_____ pool the deposits of many investors together and invest them in a safe way like short-term government bonds. A. Money market funds B. Savings deposits C. Time deposits D. Certificates of deposit
A. Money market funds
Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result? A. Northern's loan assets increase by $30 million B. Northern's bond assets increase by $30 million C. Northern's net worth changes by $30 million D. the money supply in the economy decreases
A. Northern's loan assets increase by $30 million
The federal government levies _____ on people who pass assets _____, either after death or during life. A. an estate and gift tax; to the next generation B. a regressive tax; to non-family members C. an excise tax; to their children D. a progressive tax; to non-family members
A. an estate and gift tax; to the next generation
The government can use _____ in the form of _____ to increase the level of aggregate demand in the economy. A. an expansionary fiscal policy; an increase in government spending B. a contractionary fiscal policy; a reduction in taxes C. a contractionary fiscal policy; an increase in taxes D. an expansionary fiscal policy; an increase in corporate taxes
A. an expansionary fiscal policy; an increase in government spending
Which of the following is a valid criticism of the use of money as a store of value in modern economies? A. annual inflationary loss of buying power B. money supply is too narrowly defined C. storing money is wasteful D. imperfect as a unit of account
A. annual inflationary loss of buying power
If an economy moves into a recession, causing that country to produce less than potential GDP, then: A. automatic stabilizers will cause tax revenue to decrease and government spending to increase. B. automatic stabilizers will cause tax revenue to increase and government spending to decrease. C. tax revenue and government spending will be higher because of automatic stabilizers. D. tax revenue and government spending will be lower because of automatic stabilizers.
A. automatic stabilizers will cause tax revenue to decrease and government spending to increase.
If loans become far less available, then sectors of the economy that like business investment, home construction, and car manufacturing can be dealt a crushing blow. A. depend on borrowed money B. typically generate extraordinary gains C. make loans to financial capital markets D. failed to diversify risk
A. depend on borrowed money
What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? A. discount rate B. reserve requirement C. Fed rate D. open market rate
A. discount rate
When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting: A. discretionary fiscal policy. B. progressive fiscal policy. C. regressive fiscal policy. D. fiscal policy.
A. discretionary fiscal policy.
Regardless of the outcome in the long run, _____ always has the effect of stimulating the economy in the short run. A. expansionary monetary policy B. contractionary monetary policy C. reverse quantitative easing policy D. tight monetary policy
A. expansionary monetary policy
In an economy with _____, money loses some buying power each year, but it remains money. A. inflation B. currency C. deflation D. a market orientation
A. inflation
Currently, the US government accumulated debt to GDP ratio: A. is lower than its historical high point. B. is higher than it has ever been. C. is lower than it has ever been. D. has remained relatively steady for the past decade.
A. is lower than its historical high point.
If South Dakota's governor reports a budget surplus in 2011, that state government likely: A. received more in taxes than it spent in that year. B. increased the proportional tax level. C. equalized spending and taxes in that year. D. increased the corporate income tax rate.
A. received more in taxes than it spent that year.
The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? A. the money supply in the economy decreases B. Southern's net worth increases by $25 million C. decrease in Southern's bond assets by $25 million D. increase in Southern's loan assets of $25 million
A. the money supply in the economy decreases
When the central bank lowers the reserve requirement on deposits: A. the money supply increases and interest rates decrease. B. the money supply and interest rates decrease. C. the money supply and interest rates increase. D. the money supply decreases and interest rates increase.
A. the money supply increases and interest rates decrease.
The money multiplier is equal to the _____ in the economy divided by the original _____. A. total money; quantity of money B. original quantity of reserves; reserve ratio C. quantity of money; total money D. reserve ratio; original quantity of reserves
A. total money; quantity of money
In macroeconomics, a _____ describes the common way in which market values are measured in an economy. A. unit of account B. medium of exchange C. store of value D. unit of exchange
A. unit of account
According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result? A. unpredictable rises and falls in nominal GDP B. monetary policy will become inevitably imprecise C. quantity of credit rises above where it otherwise be D. innovations relating to banking and finance
A. unpredicted rise and falls in nominal GDP
Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of the Stealth bank's liabilities? A. $20 million B. $200 million C. $5 million D. $330 million
B. $200 million
Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal? A. $20 million B. $620 million C. $1.22 billion D. $920 million
B. $620 million
The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy? A. 5 B. 10 C. 20 D.1
B. 10
A government collects $700 billion annually in tax revenue. Each year it allocates $70 billion to the justice system and $130 billion for its own administrative costs. What percentage of annual tax revenue is allocated to these two categories of government spending? A. 37.15% B. 28.57% C. 17.51% D. 27.58%
B. 28.57%
_____ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest. A. Certificates of deposit B. Bonds C. Money market funds D. Time deposits
B. Bonds
The _____ is the institution designed to control the quantity of money in the economy and also to oversee the: A. FOMC; passing of tax and spending bills. B. Central Bank; safety and stability of the banking system. C. FFIEC; day-to-day democratic control of policy. D. FDIC; responsibility for deposit insurance.
B. Central Bank; safety and stability of the banking system.
_____ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called _____. A. Demand deposits; certificates of deposit B. Certificates of deposit; time deposits C. Money market funds; time deposits D. Bonds; term deposits
B. Certificates of deposits; time deposits
In macroeconomics, _____ describes a situation in which two people each want to exchange some good or service that the other can provide. A. a medium of exchange B. a double coincidence of wants C. interrelated banking D. the usefulness of money
B. a double coincidence of wants
Banks typically come under financial stress because of: A. the money multiplier effect. B. a widespread decline in the value of their assets. C. diversification of loan assets. D. risks associated with extraordinary economic gains.
B. a widespread decline in the value of their assets.
Which of the following is considered to be a relatively weak tool of monetary policy? A. quantitative easing B. altering the discount rate C. reserve requirements D. reducing the money supply
B. altering the discount rate
A ______ means that government spending and taxes are equal. A. fiscal budget B. balanced budget C. contractionary fiscal policy D. discretionary fiscal policy
B. balanced budget
In 2010, Microsoft will pay corporate income tax to the federal government based on the company's _____. A. proportional tax rate B. corporate profits C. optional tax rate D. excise profits
B. corporate profits
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _____ will be satisfied. A. balance of trade B. double coincidence of wants C. convenience of exchange D. division of labor
B. double coincidence of wants
If the economy is at equilibrium as shown in the diagram above, then a contractionary monetary policy will A. increase unemployment, but have little effect on inflation. B. increase unemployment and decrease inflation. C. increase output and increase inflation. D. have no effect on output, but increase inflation.
B. increase unemployment and decrease inflation.
The current level of US government accumulated debt, when measured in nominal dollars: A. has reached higher levels in the past. B. is higher than it has ever been. C. is lower than it has ever been. D. has remained steady for the past decade.
B. is higher than it has ever been.
When banks hold excess reserves because they don't see good lending opportunities: A. it negatively affects contractionary monetary policy. B. it negatively affects expansionary monetary policy. C. expansionary monetary policy is unaffected. D. contractionary monetary policy is unaffected.
B. it negatively affects expansionary monetary policy.
In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment? A. unit of exchange. B. medium of exchange. C. store of value. D. unit of account.
B. medium of exchange
In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects? A. price stability to reinforce effect of deposit insurance B. monitoring asset prices and leverage C. quantitative easing when banks are under stress D. inflation-targeting lender of last resort policies
B. monitoring asset prices and leverage
The time lag for monetary policy is typically _____ the time lag for fiscal policy. A. longer than B. shorter than C. about the same as D. the same as
B. shorter than
When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment budget will show a _____ than the actual budget. A. smaller surplus B. smaller deficit C. larger deficit D. surplus
B. smaller deficit
The quantitative easing policies adopted by the Federal Reserve are usually thought of as: A. short term loans to fill out reserves. B. temporary emergency measures. C. traditional monetary policies. D. a relatively weak tool.
B. temporary emergency measures.
According to the basic quantity equation of money, if price and output fall while velocity increases, then: A. the quantity of money will rise. B. the quantity of money will fall. C. the quantity of money will rise before it falls. D. the quantity of money will rise slowly.
B. the quantity of money will fall.
A government annually collects $230 billion in tax revenue and allocates $70 billion to military spending. What percentage of this government's budget is spent on its military? A. 27.50% B. 36.63% C. 30.43% D. 41.90%
C. 30.43%
If nominal GDP is 1800 and the money supply is 450, then what is velocity? A. 25 B. 4.5 C. 4 D. 22
C. 4
_____ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation. A. Standardized employment budgets B. Discretionary fiscal policies C. Automatic stabilizers D. Budget expenditures
C. Automatic stabilizers
_____ is a completely inadequate mechanism _____ in a modern advanced economy. A. Currency; for providing a medium of exchange B. Money; for providing a store of value C. Barter; for trying to coordinate trades D. Money; to use as a unit of account
C. Barter; for trying to coordinate trades
Which of the following institutions determines the quantity of money in the economy as its most important task? A. U.S. Department of the Treasury B. Federal Open Market Committee C. Central Bank D. Federal Reserve Board of Governors
C. Central Bank
_____ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect. A. Altering the discount rate B. Reserve requirements C. Long and variable time lags D. Quantitative easing
C. Long and variable time lags
If the economy is in recession with high unemployment and output below potential GDP, then _____ would cause the economy to return to its potential GDP. A. a tight monetary policy B. fewer loanable funds C. a loose monetary policy D. higher interest rates
C. a loose monetary policy
What is the name given to the macroeconomic equation MV = PQ? A. basic velocity of money equation B. basic quantity equation of output C. basic quantity equation of money D. basic velocity of price equation
C. basic quantity equation of money
If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then: A. the money multiplier will increase and the supply of money in the economy will decrease. B. both the money multiplier and the supply of money in the economy will decrease. C. both the money multiplier and the supply of money in the economy will increase. D. the money multiplier will decrease and the supply of money in the economy will increase.
C. both the money multiplier and the supply of money in the economy will increase.
The process of banks making loans in financial capital markets is intimately tied to the: A. redistribution of wealth. B. financial stress levels of banks. C. creation of money. D. home construction industry.
C. creation of money.
Which of the following would be classified in the M1 category of the money supply? A. savings deposits B. money market deposit C. demand deposits D. certificates of deposit
C. demand deposits
Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing? A. financial policies B. monetary policies C. fiscal policies D. economic policies
C. fiscal policies
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will: A. follow expansionary monetary policy. B. follow loose monetary policy. C. follow tight monetary policy. D. follow quantitative easing policy.
C. follow tight monetary policy.
If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for the year will _____ in proportion to the magnitude of the changes. A. decrease B. increase or decrease C. increase D. decrease because GDP decreased
C. increase
Which of the following is a traditional tool used by the Fed during recessions? A. quantitative easing B. higher interest rates C. open market operations D. coins and paper currency
C. open market operations
A _____ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes. A. proportional tax B. regressive tax C. progressive tax D. excise tax
C. progressive tax
If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is: A. regressive. B. progressive. C. proportional. D. optional.
C. proportional
A _____ is calculated as a flat percentage of income earned, regardless of level of income. A. progressive tax B. regressive tax C. proportional tax D. estate and gift tax
C. proportional tax
Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? A. discount requirements B. deposit requirements C. reserve requirements D. monetary requirements
C. reserve requirements
The market in which loans are bought and sold is called the: A. loan market. B. money market. C. secondary loan market. D. primary loan market.
C. secondary loan market.
When the central bank decides it will sell bonds using open market operations: A. interest rates decrease. B. the money supply increases. C. the money supply decreases. D. the money supply is unaffected.
C. the money supply decreases.
If the economy is producing less than its potential GDP, _____ will show a larger deficit than the actual budget. A. discretionary fiscal policy B. the automatic stabilizers C. the standardized employment budget D. expansionary fiscal policy
C. the standardized employment budget
A government annually allocates $5 billion of its total tax revenue to weather related disaster relief, $21 billion to healthcare and $11 billion to education. If the government's quarterly tax revenue is $33 billion, what percentage of its budget is allocated annually to healthcare? A. 17.50% B. 63.63% C. 25.00% D. 15.90%
D. 15.90%
Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency? A. savings B. money C. M2 D. M1
D. M1
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the: A. aggregate supply curve will shift to the right. B. aggregate supply curve will shift to the left. C. aggregate demand curve will shift to the left. D. aggregate demand curve will shift to the right.
D. aggregate demand curve will shift to the right.
Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of _____ by adopting a strategy that will _____. A. rising interest rates; diversify its loans B. rising interest rates; provide loans to a variety of customers C. an increased reserve requirement; provide loans to a variety of customers D. an asset-liability time mismatch; diversify its loans
D. an asset-liability time mismatch; diversify its loans
If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then: A. government spending and tax revenue will increase because of automatic stabilizers. B. government spending and tax revenue will decrease because of automatic stabilizers. C. automatic stabilizers will increase government spending and decrease tax revenue. D. automatic stabilizers will decrease government spending and increase tax revenue.
D. automatic stabilizers will decrease government spending and increase tax revenue.
A central bank that wants to increase the quantity of money in the economy will: A. raise the discount rate. B. sell bonds in open market operations. C. reverse quantitative easing. D. buy bonds in open market operations.
D. buy bonds in open market operations.
If a country's GDP increases, but its debt decreases during that year, then the country's debt to GDP ratio for the year will _____ in proportion to the magnitude of the changes. A. increase B. decrease because its debt decreased C. increase because GDP increased D. decrease
D. decrease
_____ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check. A. Direct deposits B. Savings deposits C. Time deposits D. Demand deposits
D. demand deposits
If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used? A. discretionary B. contractionary C. standardized D. expansionary
D. expansionary
Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____, but may be unable to do so because such a policy would _____. A. contractionary fiscal policy; lead to a budget deficit B. discretionary fiscal policy; lead to a budget surplus C. contractionary fiscal policy; lead to a budget surplus D. expansionary fiscal policy; lead to a budget deficit
D. expansionary fiscal policy; lead to a budget deficit
If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _____ in proportion to the magnitude of the changes. A. decrease because GDP increased B. increase because its debt increased C. increase D. increase or decrease
D. increase or decrease
Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession? A. increased discount rate B. increased reserves requirements C. open market operations D. quantitative easing
D. quantitative easing
If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is: A. optional. B. progressive. C. proportional. D. regressive.
D. regressive
If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from: A. his M1 funds. B. his M2 funds. C. the credit card company's M1 funds. D. the credit card company's M2 funds.
c. the credit card company's M1 funds.