Econ Exam 2
In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ________________ structure allowed fewer people to afford homes and that the ________________ structure was safer to the health of the overall economy.
traditional; traditional
A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was
uncertainty concerning the outcome of the 2008 presidential election.
The "exotic" mortgage instrument of recent years is exemplified by the
"interest-only" mortgage
With a reserve ratio of 10%, the banking system can create ____ with each dollar of deposits.
$10
Since the global recession of 2008 and the Troubled Asset Relief Program (TARP), U.S. total public debt as a share of GDP has hovered around
100%
When comparing the severity of recessions since World War II economists focus on the ones in
1982 and 2007-2009
If the reserve ratio is .20, the money multiplier can be as high as
5
When the Federal Reserve loans money to banks, the rate it charges banks with excellent credit is the
50
In 2007, the least affordable places to live tended to be located disproportionately in
California
M1 includes
Cash + coin (currency) + checking accounts
The ______ decides monetary policy.
Federal Open Market Committee
M2 includes
M1 + savings accounts + small CDs
Which monetary aggregate is the broadest?
M2
Off-budget
Parts of the budget designated by Congress as separate from the normal budget. Programs that operate with their own revenue sources and have trust funds; Social Security, Medicare, and the Postal Service are examples
TARP was created during the Presidency of
President George W. Bush
Many years ago, the traditional mortgage loan structure specified
a down payment of 20%
Nondiscretionary fiscal policy
a set of policies that are built into the system to stabilize the economy
Liquidity Trap
a situation where zero or near zero interest rates do not stimulate borrowing
A significant adverse supply-side shock to the U.S. economy in mid-2008 came from
a tripling of world crude oil prices
Short-run contractionary fiscal policy would result in
aggregate demand moving to the left
The Federal Reserve's purchase of AIG stock was
an example of both the wisdom and problems associated with its political independence
Many years ago, the traditional mortgage loan structure specified
an initial loan-to-value ratio of 80%
Which of the following would qualify as an aggregate supply shock?
an unexpected decrease in oil prices
The Federal Funds Rate is the rate at which
banks lend to one another to meet reserve requirements
Expansionary monetary policy includes
buying bonds, lowering the discount rate, or lowering the reserve ratio
The monetary base includes
cash held by banks and by the public plus deposits at the Federal Reserve.
Which monetary aggregate is the least broad?
cash held by the public
An increase in the target for the federal funds rate would be an example of
contractionary monetary policy
The 2003 tax rebate is an example of
discretionary fiscal policy
A political problem with discretionary fiscal policy is the
expansionary bias
Between 2001 and 2003 the Federal Reserve cut interest rates 12 times. This is an example of
expansionary monetary policy
One of the most, if not the most severe recession since World War II began in the
fall of 2007
Discretionary fiscal policy
government spending and tax changes enacted at the time of the problem to alter the economy
An increasing portion of the U.S. national debt is held by
government trust funds
Discretionary fiscal policies that increase aggregate demand tend to result in
higher real GDP and a higher price level
Non-discretionary fiscal policies that increase aggregate demand tend to result in
higher real GDP and a higher price level
Home price escalation in the U.S. during 2005 fueled booms in
home building and home equity lines of credit
In January of 2006, the Federal Reserve
increased its target federal funds rate by a larger amount than it had in several years.
Discretionary fiscal policies that increase aggregate demand tend to result in
increased spending on unemployment insurance, food stamps and Medicaid
Among the most important demand side factors explaining homes prices would be the
level of mortgage interest rates
If an adverse shock reduces the level of aggregate demand, it is likely to lead to
lower real GDP and a lower price level
The stimulus package proposed by the Bush Administration in early 2008 relied upon
making permanent the 2003 income tax rate cuts, as well as tax rebates to taxpayers.
Money is useful because it serves as a
medium of exchange
In the recession of 2007-2009, the Net Change in Employment was
negative during every month of 2008
In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ________________ structure increased homeownership rates and that the ________________ structure was riskier to the health of the overall economy.
newer; newer
In comparing the traditional way of structuring mortgages and the newer structure of providing mortgages that securitized them and insured those securities with credit default swaps, it is clear that the ________________ structure allowed more people to afford homes and that the ________________ structure was safer to the health of the overall economy.
newer; traditional
The portion of the Obama stimulus package that bolstered state Medicaid plans is best thought of as
nondiscretionary fiscal policy
The Federal Reserve's long standing tools include
open market operations, changing the level of the targeted interest rate, and changing the reserve ratio
On-budget
parts of the budget that rely entirely or mostly on general revenue
Political business cycle
politically motivated fiscal policy use for short-term gains just prior to elections
Which of the following are goals for monetary policy?
preventing boom and bust cycles in the economy
When the Federal Reserve loans money to banks, the rate it charges banks with excellent credit is the
primary credit rate
The stimulus package implemented by the Bush Administration in 2008 included
rebates to individual taxpayers of $600 per individual and $1200 per married couple
To signal its intention to restrict credit availability, the Federal Reserve
reduces the discount rate by ¼ of a percentage point
A Peace dividend
results from the reduction in defense spending as a war is concluded.
Contractionary monetary policy includes
selling bonds, raising the discount rate, or raising the reserve ratio
A factor tending to slow the U.S. economy early in the recession of 2007-2009 was
sharply rising crude oil prices
Compared to the U.K. and Germany the debt as a percentage of GDP in the US is
somewhat smaller
Money is useful because it serves as a
store of value
The property of money that allows us not to worry about "using it before it spoils" is called the
store of value
Major causes of the increase in U.S. federal budget deficits between 2001 and 2008 were
tax cuts, and spending on homeland security, the war in Iraq and the war in Afghanistan.
Operating budget
that part of the federal budget devoted to spending on goods and services that will be used in the current year
Capital budget
that part of the federal budget devoted to spending on goods that will last several years
In which of the decades below was the deficit as a percentage of GDP the largest?
the 1980s
The institution that governs monetary policy is
the Federal Reserve
A factor that might have contributed to the weakening of the U.S. economy in 2007-2009 was
the impending expiration of the Bush Tax Cuts of 2003
TARP was
the name given to the bank bailouts
Reserve Ratio
the percentage of every dollar deposited in a checking account that a bank must maintain in reserves
A decreasing portion of the U.S. national debt is held by
the public
The Federal Reserve expanded their traditional tools set in the 2007-2009 recession to include
the purchase of mortgage backed securities
Federal Funds Rate
the rate at which banks borrow from one another to meet reserve requirements
Which of the following would be an example of discretionary fiscal policy at work in 2001 through 2003?
the tax cuts of 2001 and 2003
By 2006 and 2007, foreclosure rates in some previously-booming states such as Nevada and Colorado were
three times the national average