Macro Final Exam #3

The reserve ratio is the ratio of _____.

A bank's reserves to its total deposits.

A decrease in the market interest rate, other things constant, will result in _____.

A movement down along the money demand curve.

Which of the following is most likely to close a recessionary gap in the economy?

An increase in the compensation for government employees.

Which of the following changes will shift the money demand curve rightward?

An increase in the price level.

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that _____.

Automatic stabilizers, once adopted, are built into the structure of the economy.

Revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy are known as _____.

Automatic stabilizers.

In order to meet a deficiency of required reserves, a bank could _____.

Borrow from another bank in the federal funds market.

Asymmetric information in financial markets exists when _____.

Borrowers know more about their ability to repay loans than lenders do.

In the short run, money affects the economy through _____.

Changes in interest rates.

Who argued that the economy should be left to itself to close a recessionary gap?

Classical economics.

Goldsmiths are considered to be the forerunners of modern banks because they _____.

Created money by lending out gold reserves.

In the short run, a decrease in the money supply will lead to a(n) _____.

Decrease in Gross Domestic Product.

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is known as _____.

Discretionary fiscal policy.

Institutions that serve as go-betweens by borrowing from people who have saved to make loans to others are known as _____.

Financial intermediaries.

Which of the following statements is true of a barter system?

In a barter system, an individual offers one good or service to get another good or service.

When the Fed purchases U.S. government securities through the open market, the money supply _____.

Increases, the interest rate falls, and the quantity of money demanded increases.

Specialization of labor means that _____.

Individuals produce goods that they are relatively good at producing and trade for those that they do not produce.

Expansionary fiscal policy _____.

Is a fiscal policy used to close a recessionary gap.

On a bank's balance sheet, the value of its liabilities must equal the value of its _____.

It's assets minus net worth.

M2 consists of _____.

M1 plus savings accounts, small-time deposits, money market mutual funds, and miscellaneous near-monies.

To maximize its profit, a bank will _____.

Minimize excess reserves.

The equilibrium interest rate in a money market is determined by _____.

Money demand and money supply.

Which of the following is associated with the problem of hyperinflation?

People look for alternatives to using money.

Which of these changes is likely to follow when the Fed purchases U.S. government securities?

Planned investment spending will increase.

Which of the following is a component of aggregate demand?

Purchases by the government.

Which of the following policies can be adopted by the Fed in order to stimulate an economy in the short run?

Purchasing U.S. government securities.

Commodity money is something _____.

That has an intrinsic value.

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent, _____.

The bank has $1,000 in additional reserves, of which it can lend $800.

The main source of profit for financial institutions is _____.

The difference between interest paid on deposits and interest received on loans.

The liquidity of an asset indicates _____.

The ease with which it can be converted into cash without a significant loss of value.

Banks earn a profit on the difference between _____.

The interest charged on loans and the interest paid on deposits.

The demand for money is a relationship between _____.

The interest rate and how much money people choose to hold.

How does money function as a unit of account?

The prices of all goods and services are measured in terms of money.

Which of the following is true of credit cards?

They are used to postpone the payment of money.

Which of the following best illustrates the double coincidence of wants?

Tom has something he's willing to trade with Jerry, who wants it; Jerry has something he's willing to trade with Tom, who wants it.

Which of the following is true of a price level increase in an economy?

When the price level increases, the purchasing power of money decreases.