econ exam 3
a monetary policy target is a variable that a) the fed can affect directly b) equals one of the fed's main policy goals c) the fed has no ability to change d) the fed cannot affect directly
a
commodity money a) has value independent of its use as money b) has little to no value independent of its use as money c) is backed by a valuable commodity such as gold d) can be used to purchase commodities, but not services
a
how does an increase in gov spending affect the aggregate expenditure line? a) it shifts the aggregate expenditure line upward b) it shifts the aggregate expenditure line downward c) it increases the slope of the aggregate expenditure line d) it decrease the slope of the aggregate expenditure line
a
monetary policy could be pro cyclical if the federal reserve a) is late recognizing that a recession has begun and conducts expansionary monetary policy b) is quick to recognize that a recession has begun and conducts expansionary monetary policy c) is late to recognizing that a recession has begun and does not conduct expansionary monetary policy d) is quick to recognize that a recession has begun and does not conduct expansionary monetary policy
a
refer to figure above. The movement from point A to point B in the money market would be cause by a) an increase in the price level b) a decrease in real GDP c) an open market sale of treasury securities by the federal reserve d) an increase in the required reserve ration by the federal reserve
a
refer to figure above. if economy is at point A, the appropriate monetary policy by the federal reserve would be to a) loer intererst rates b) raise interest rates c) lower income taxes d) raise income taxes
a
refer to figure above. in the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will a) buy treasury bills b) sell treasury bills c) neither buy nor sell treasury bills d) want to hold more money
a
which of the following describes what the fed would do to pursue and expansionary monetary policy a) use open market operations to buy treasury bills b) use open market operations to sell treasury bills c) use discount policy to raise the discount rate d) raise the reserve requirement
a
US net export spending rises when a) the price level in the US rises relative to the price level in other countries b) the growth rate of US GDP is slower than the growth rate of GDP in other countries c) the value of the US dollar increases relative to other currencies d) the inflation rate is higher in the US relative to other countries
b
a stock market boom which causes stock prices to rise should cause a) a decease in consumption spending b) an increase in consumption spending c) a decrease in wealth d) a decrease in net export spending
b
an increase in the price level causes a) the money demand curve to shift to the left b) the money demand curve to shift to the right c) a movement up along the money demand curve d) a movement down along the money demand cure
b
fiat money is generally issued by a) private banks b) central banks c) brokerage firms d) major multinational corporations
b
if the bank of Waterloo receives a $10,000 deposit and the reserve requirement is 10 percent, how much can the bank loan out (assuming that before the deposit this bank is just meeting its legal reserve requirement) a) $1000 b) $9000 c) $10,000 d) $11,000
b
on the 45 degree line diagram, for points that lie below the 45 degree line a) planned aggregate expenditure is greater than GDP b) planned aggregate expenditure is less than GDP c) planned aggregate expenditure is equal to GDP d) planned aggregate expenditure is less than aggregate income
b
the money demand curve, with the interest rate on the vertical axis, has a a) positive slope b) negative slope c) zero slope d) positive slope for low level of money demand, and a negative slope for high levels of money demand
b
the more excess reserves banks choose to keep a) the larger the deposit multiplier b) the smaller the deposit multiplier c) the higher the required reserve ratio d) the lower the required reserve ratio
b
the situation in which short-term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as a) the Taylor rule b) the liquidity trap c) a zero-sum game d) an interest rate panic
b
using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to a) decrease b) increase c) not change d) increase, then decrease
b
t/f Monetary policy is conducted by the US treasury department
false
t/f The amount of national income the economy equals the money supply in an economy
false
t/f The fed can directly lower the inflation rate
false
t/f if planned investment is greater than actual investment, then aggregate expenditure is less than GDP
false
t/f Money will fail to serve as a medium of exchange if it ceases to be a store of value.
true
t/f The marginal propensity to consume is the slope of the consumption functions
true
t/f The quantity equation becomes the basis for a theory when we assume that velocity of money is constant.
true
t/f if planned aggregate expenditure is less than real GDP, some firms will experience unplanned increases in inventories
true
t/f when the federal reserve increases the money supply, people spend more because interest rates fall
true
t/f if the rate of growth in real GP exceeds the rate of growth in the money supply, the quantity theory of money predicts a price deflation
true
refer to table above. given the consumption schedule in the table above, the marginal propensity to consume it a) .1 b) .3 c) .6 d) .9
d
a farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money? a) medium of exchange b) unit of account c) store of value d) standard of deferred payment
c
a general formula for the multiplier is a) 1/(1-MPS) b) 1/(MPC) c) 1/(MPS) d) 1/(MPC-1)
c
actual investment will equal planned investment only when a) there is an unplanned increase in inventories b) there is an unplanned decrease in inventories c) there is no unplanned change in inventories d) companies have no inventories
c
if an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then a) the multiplier is .1 b) the multiplier is 1 c) the multiplier is 10 d) the multiplier is 100
c
if national income increase by $75 million and consumption increases by $15 million, the marginal propensity to consume is a) 5 b) .75 c) .20 d) .15
c
refer to table above. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of a) $0 b) $400 c) $3,600 d)$4,000
c
refer to the figure above. suppose that the level of GDP associated with point N is potential GDP. If the US economy is currently at point K, then a) firms are operating above capacity b) the economy is at full employment c) the economy is in a recession d) the level of unemployment is equal to the natural rate
c
the federal reserve can directly affects its monetary policy ________, which then affects its monetary policy ________ a) goals, targets b) goals; tools c) targets; goals d) targets; tools
c
the simple deposit multiplier is the ration of the amount of a) new reserves created by the banks to the amount of deposits b) new reserves created by the banks to the amount of loans c) deposits created by the banks to the amount of new reserves d) loans issued by the banks to deposits created by the banks
c
when the fed embarked on a policy known as quantitative easing, they a) slowly lowered the federal funds rate target until it was equal to zero b) reduced the required reserve ration by one-quarter point per month for 12 months c) Bought longer-term securities than are usually bought in open market operations d) opened up lending to primary dealers, commercial banks, and investment banks
c
when the federal reserve system was established in 1913, its main policy goal was a) encourage strong economic growth b) promoting price stability c) preventing bank panics d) keeping employment high
c
which of the following is true? a) national income= consumption+savings-taxes b)national income= consumption-savings-taxes c) national income= consumption+savings+ taxes d) national income=consumption-savings+ taxes
c
Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, gov purchases are $10 million, and net exports spending is $2 million. What is GDP? a) $15 million b) $23 million c) $25 million d) $27 million
d
John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending a) this will increase investment spending in the short run and expand the economy in the long run b) the economy will benefit in the short run but the effect will not last into the long run c) this will have a major negative impact on the economy in both the short run and in the long run d) they may make themselves worse off by causing aggregate expenditure to fall, thereby pushing the economy into a recession
d
dollar bills in the modern economy serve as money because a) they are backed by the gold stored in Fort Knox b) they can be redeemed for gold by the central bank c) they have value as a commodity independent of their use as money d) people have confidence that others will accept them as money
d
if credit card balances rise in the economy, then M1 will ______ and M2 will _____- a) increase; increase b) not change; increase c) decrease; increase d) not change; not change
d
the M2 measure of the money supply equals a)savings account balances plus small denomination time deposits plus traveler's checks b) savings account balances plus small denomination time deposits plus non-institutional money market fund shares c) M1 plus savings account balance plus small denomination time deposits d) M1 plus savings account balances plus small denomination time deposits plus non institutional money market fund shares
d
the key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by a) investment spending b) export spending c) gov spending d) level of aggregate expenditure
d
the sale of treasury securities by the federal reserve will, in general a) not change the money supply b) not change the quantity of reserves held by banks c) increase the quantity of reserves held by banks d) decrease the quantity of reserves held by banks
d
typically, a bank's largest asset is its a) reserves b) holding of securities c) deposits of its customers d) loans
d
which of the following is not a function of the federal reserve system of the "fed" a) acing as a lender of last resort b) acting as a banker's bank c) performing check clearing services d) insuring deposits in the banking system
d