MACROECONOMICS EXAM 5

Government-sponsored financial institutions (such as Fannie Mae or Freddie Mac) channel money back into the economy through the following types of loans and/or asset purchases:

home mortgages

How much will the money supply potentially change by if the reserve ratio = 0.3 and the Federal Reserve buys assets such as government securities worth $4,871?

16,236.67

currency makes up __% of our transactions

40

If the economy develops in an inflationary gap the federal reserve would probably practice

Contractionary monetary policy

If the demand for loans increases then the interest rate will

Decrease

An increase in the money supply tends to make interest rates

Fall

If the demand for loans decreases then the interest rate will

Fall

True or False: If the government were to double taxes on people who earn more than $1 million per year, the deficit would disappear.

False

True or False: If you look at a circular flow chart you will see savers put their money in financial markets, where the money stays until they withdraw it to spend it. This means that our economy shrinks when savings rates rise.

False

True or False: Money creates wealth.

False

True or False: The Bureau of Engraving and Printing controls the size of our money supply

False

True or false: the United States mint controls the size of our money supply

False

True or false: the federal debt (also called the public debt) is the accumulated debt of all household, business firms, and nonprofit institutions in the country

False

True or false: whenever money is moved from one place with Aamir Khan me to another place with an economy (like from my bank account to your bank account), the economy is likely to grow

False

When the federal debt (also called the public debt) increases, which of the following will happen?

Interest rates will rise

If the economy develops an inflationary gap in appropriate action would be for the federal reserve to

Raise the interest rate it pays on Bank reserves held at the Fed

When interest rates fall, investment spending tends to

Rise

What is the opportunity cost of keeping our economy closed until COVID-19 is conquered?

The lost activities (including economic activities) we could have enjoyed

100 million Americans qualify to file their federal tax returns electronically not no explicit charge through apps provided by tax preparation firms such as H&R Block according to your text fewer than 3 million actually use this service mainly because

The opportunity cost of doing so is extremely low It takes taxpayers a lot of time to determine whether they are eligible to use the service Most of these taxpayers have never heard of this program

True or False: The Federal Reserve's liabilities are a part of the economy.

True

True or False: We have to make choices because we are constrained by our budget.

True

True or false: Our money is worthless if people aren't creating valuable things for us to buy

True

True or false: it is hard to reduce the federal debt by reducing government expenditures, because so much of government spending is on non-controllable expenditures such as Social Security and Medicaid

True

The federal government has its best opportunity to lower its national debt when it has-

a budget surplus

Comparative advantage is the ability to produce a good or service at-

a lower opportunity cost than other producers

Who benefits from the process of financial intermediation?

both savers and borrowers

If Martha Stewart is better at ironing shirts than anyone else in the world, and she is better at running her company than anyone else in the world, she shoud-

do the task that she has the lowest opportunity cost for and hire people to do the other task

If the supply of loans decreases then the interest rate will-

increase

If the Federal Reserve raises the interest rate that it pays banks on reserves deposited at the Fed, banks will tend to-

increase their reserve holdings and make fewer loans

If Jessie deposits her savings in a commercial bank, rather than using those funds to buy shares of stock or bonds issued by business firms, then she is engaging in-

indirect finance

Insurance companies get the money they lend out from-

insurance contracts, annuities, and pension plans

When the federal debt (also called the public debt) increases, which of the following will happen, ceteris paribus?

interest rates will rise

How has the Federal Reserve responded to the Covid-19 pandemic?

it has done nothing since it doesnt have good tools to address the economic problems caused by Covid-19 and the government-mandated shutdowns

If the Federal Reserve sells bonds, money will ____ the economy.

leave

The goal of quantitative easing is to stimulate the economy by-

lowering interest rates in particular markets (i.e. housing)

Banks expand the money supply when they-

make loans to their customers

If people are generally willing to accept dollar bills in exchange for goods and services, dollar bills are being used as a-

medium of exchange

Which one of the following is part of M2 but not part of M1?

saving deposits

If the economy develops an inflationary gap, an appropriate action would be for the Federal Reserve to-

sell government securities (or other assets)

Money market mutual funds channel money back into the economy through the following types of loans and/or asset purchases:

short-term credit instruments such as large denomination certificates of deposit, Treasury bills and high grade commercial paper

The total debt held by the public is equal to-

the debt held by the Federal Reserve system plus the debt held by others, such as individuals, business firms, and foreign governments

The opportunity cost of any action is-

the value of the next-highest-ranked alternative

If people decide to hold more of their wealth as currency in their wallets and less as deposits in transactions accounts, the ability of banks to create new money

weakens