Ch 13, 14, 16

Which of the following is a driving force underlying economic growth?

entrepreneurial discovery and production of improved products

The value (purchasing power) of each unit of money

is inversely related to the general level of prices.

The equation of exchange states that

velocity multiplied by money supply equals real output times the price level.

Are "smart cards" or E-cash cards part of the money supply?

No, because they are merely means to transfer checking deposits.

Which of the following is the primary tool the Fed uses to control the supply of money?

Open market operations.

What has happened to the world's economy over the past 200 years?

There has been economic growth, less poverty, and longer life spans.

To move up the income ladder and achieve high-income status, countries must

have sustained economic growth

The successful introduction and adoption of a new product or process is called

innovation.

If a nation is going to achieve and sustain a high rate of economic growth, it must

have a mechanism capable of attracting savings and channeling them into wealth-creating projects.

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will

increase and the money supply will eventually increase

During the past 1000 years, the income per person of the world has

increased by approximately tenfold during the past 200 years, but there was only a small increase during the 800 years prior to 1800.

During the past 200 years, income per person has

increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800.

In the long-run, the primary effect of rapid monetary growth is

inflation

Though many assets can be used as a store of value, money is a particularly attractive method to store value because

it is the most liquid of all assets

Investment in both physical and human capital tends to enhance economic growth because it generally

makes it possible for individuals to produce more goods and services per hour worked

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

prices

Measured in 1990 dollars, the GDP per person of the world was $667 in 1820. By 2003, the world's income per person had risen to

$6,516, nearly ten times the level of 1820.

Which of the following lists two things that both decrease the money supply?

Make open market sales and raise the reserve requirement ratio.

The velocity of money is

GDP divided by the money supply

An increase in real per capita income will generally lead to

a cleaner environment and more time for recreation

If you have a checking account at a local bank, your bank account there is

a liability of the bank and an asset to you.

The Fed's sale of U.S. government securities in its open market operations constitutes

a restrictive policy because it lowers the amount of total reserves in the banking system.

When a nation's institutional environment is more favorable, it will

all of the above.

Which of the following would be most likely to improve the standard of living of the residents of a less-developed country?

an increase in expenditures on education and capital investment

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

an increase in that bank's excess reserves

Which of the following will be classified as a liability on the balance sheet of a commercial bank?

checking deposits of customers

Comparisons of the link between the growth of the money supply and inflation indicate that

countries with high rates of monetary growth also experience high inflation.

The replacement of older products by newer improved ones is called

creative destruction

The "rule of 70" is a simple rule

(70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates.

Of the $400 billion in face value of U.S. currency in circulation, what percent is estimated to reside outside the U.S?

60%

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820, but by 2003, life expectancy had risen to

64 years

Which of the following is important if a country is going to achieve and sustain high rates of economic growth?

All of the above.

Suppose the economy is in long-run equilibrium at the level of potential output. What will be the long-run effect of an expansionary monetary policy?

Both a higher price level and a higher level of real output

If the Fed raises the discount rate, what happens to reserves and the money supply?

Both decrease.

Which of the following is true for the world as a whole?

During the 800 years between 1000 and 1800, the increases in both world income per person and life expectancy at birth were small, but both of these indicators have increased sharply during the past 200 years.

Which of the following would be most likely to help the residents of a nation produce a larger output and consume a wide variety of products at economical prices?

Free trade.

Which of the following is inconsistent with the view that Fed monetary policy was excessively expansionary during 2010-2013?

Growth of nominal GDP during 2010-2012 at a rate similar to that of recent decades.

Which of the following is true?

Growth of output is necessary for the growth of income.

Which of the following is true about tax rates and economic growth?

High tax rates will tend to drive investment funds and highly productive citizens to other countries where tax rates are lower.

Which of the following policies would be most likely to reduce the efficiency of a country's economic organization?

Imposition of tariffs and other barriers limiting international trade.

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

In the short run, an unanticipated increase in the money supply will exert its primary impact on

If the political leaders of a country want to promote economic growth, which of the following policy alternatives would be most effective?

Low taxes, a monetary policy consistent with long-run price stability, and the abolition of price controls and trade restrictions.

"Every major contraction in the U.S. economy has either been created or greatly exacerbated by monetary instability. Every major inflation has been caused by monetary expansion." Which of the following economists made this statement?

Milton Friedman

Which of the following would be most likely to improve the standard of living of a less-developed country?

More foreign investment, attracted by the expectation of economic and political stability.

Which of the following lists two things that both decrease the money supply?

Raise the discount rate and raise the reserve requirement ratio.

If the Fed lends to member banks, what happens to required reserves, excess reserves, and the money supply?

Required reserves remain the same, excess reserves increase, and the money supply will increase.

In response to a severe recession, the Fed more than doubled the monetary base and pushed short-term interest rates to near zero during 2009-2010. What happened in 2011?

The high rate of unemployment continued.

Suppose you deposit $1,000 into your checking account. If the reserve requirement is 10 percent, what impact does this transaction have?

The money supply increases, The bank's required reserves increase by $100, The bank can make new loans of $900

Why will it difficult for the Fed to use monetary policy to direct the economy back to full employment and price stability from the recession of 2008-2009?

The time lags between changes in monetary policy and when the changes exert an impact on output and prices are long and variable.

Which of the following is true regarding the per person income of the world during the past 1000 years

The world's income per person changed very little during the 800 years prior to 1813, but it has increased by nearly tenfold during the past 200 years.

Which of the following is true regarding the per person income of the world during the past 1000 years?

The world's income per person changed very little during the 800 years prior to 1813, but it has increased by nearly tenfold during the past 200 years.

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

There is initially no change in the supply of money; your bank's excess reserves are reduced by $200.

As the Fed increased the volume of loans to financial institutions in response to the 2008 financial crisis, this resulted in

a vast increase in the monetary base and the excess reserves of the commercial banking system.

Alan Greenspan and Ben Bernanke, former chairmen of the Fed's Board of Governors, believe that the low interest rates of 2003-2014 were primarily the result of

a worldwide savings glut generated by the rapid growth of high-saving Asian economies and the revenue growth of oil producers because of high oil prices during this era.

If the Federal Reserve increases its bond purchases, the short-run effects will be

an increase in the money supply and lower real interest rates.

The per capita income level of the world grew very slowly prior to

around 1800, when per capita GDP began to increase rapidly in some Western countries.

The velocity of money is the

average number of times a dollar is used to buy goods and services included in GDP.

During the second half of 2008 the monetary base was growing far more rapidly than the money supply because

banks were maintaining huge excess reserves

If the public decides to hold more currency and fewer deposits in banks, bank reserves

decrease and the money supply eventually decreases.

When the Fed sells Treasury Bonds on the open market, it will tend to

decrease the money supply, increase interest rates

According to Angus Maddison, a leading authority in the area, world per capita GDP

increased by about 50 percent during the 800 years following year 1000, but it increased by nearly tenfold during the past 200 years.

The legal requirement that commercial banks hold reserves equal to some fraction of their deposits

limits the ability of banks to expand the money supply by extending additional loans

Low rates of inflation are generally associated with

low rates of growth of the quantity of money.

An increase in the money supply

lowers the interest rate, causing an increase in investment and an increase in GDP.

Suppose Laqueta deposits $10,000 of cash into a checking account at a commercial bank. The immediate effect is

no change in the M1 money supply, but in the future, the M1 money supply will tend to expand because the bank now has excess reserves.

When the Fed buys bonds and injects additional reserves into the banking system, this action will

place downward pressure on short-term interest rates

A legal system that protects private property and enforces contracts in an even-handed manner helps promote economic growth because

provides people with a strong incentive to supply others with things that they value at an economical price.

If uncertainty causes commercial banks to increase their holdings of excess reserves, other things constant, this will

reduce the size of the deposit expansion multiplier.

An increase in the discount rate impacts the money supply because it

reduces the incentive of commercial banks to borrow from the Federal Reserve.

When regulations interfere with exchange and limit entry into various businesses and occupations, they will

retard economic progress

If the Federal Reserve wanted to expand the money supply in order to increase output, it should

sell government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise.

When the residents of a nation are free to trade with foreigners, domestic producers will be able to

supply a larger quantity of goods they can produce at a relatively low cost.

Fiat money is money

that has little intrinsic value and is not backed by a commodity.

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

the FDIC

The discount rate is the interest rate

the Federal Reserve charges banking institutions for borrowing its funds.

Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation) and a nominal (and real) interest rate of 4 percent. If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 percent,

the nominal interest rate will rise to 10 percent, but the real interest rate will remain at 4 percent.

The primary source of earnings of commercial banks is income derived from

the use of deposits to extend loans and undertake investments

When individuals and businesses are permitted to trade freely over a larger market area

they will be able to produce a larger output and consume a more diverse bundle of goods.

Compared to a barter economy, using money increases efficiency by reducing

transaction costs.