Macroeconomics Test 4

U.S. Treasury deposits at the Federal Reserve Banks are:

A liability of the Federal Reserve Banks and an asset for the U.S. Treasury

Which of the following product-groups is a leading export of the United States?

Agricultural products

The major purpose of the Federal Reserve buying government securities in open market operations is to:

Allow banks to increase their lending

The primary reason commercial banks must keep required reserves on deposit at the Fed is to:

Allow the Fed to control the amount of bank lending

Loans of the Federal Reserve Banks to commercial banks are:

An asset of the Federal Reserve Banks and a liability for commercial banks

A bank is in the position to make loans when required reserves:

Are less than actual reserves

A bank's net worth is equal to its:

Assets minus its liabilities

Dumping is the sale of a product in a foreign market:

At a price below its domestic price or cost of production

Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks?

Bank purchases of Treasury bonds from the Fed

What is one significant consequence of fractional reserve banking?

Banks are vulnerable to "panics" or "bank runs"

Tariffs and import quotas would benefit the following groups, except:

Consumers of the product

The main tools that the Fed can use to alter the reserves of commercial banks are the required-reserve ratio and the following, except:

Exchange rate

The lending ability of commercial banks increases when the:

Fed buys securities in the open market

The interest rate that banks charge one another for the loan of excess reserves is the:

Federal funds rate

Fractional reserve banking refers to a system where banks:

Hold only a fraction of their deposits in their reserves

The transactions demand for money is least likely to be a function of the:

Interest rate

The fractional reserve system of banking started when goldsmiths began:

Issuing paper receipts in excess of the amount of gold held

One major component of money supply M1 is part of a bank's:

Liabilities

The interest rate will fall when the:

Quantity of money supplied exceeds the quantity of money demanded

A maximum limit set on the amount of a specific good that may be imported into a country over a given period of time is called a:

Quota

The benefits to trading nations based on comparative advantage accrue from:

Specialization and trading

What other economic process needs to accompany international trade, for nations to benefit from such trade?

Specialization in production

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

$300 million

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be:

4

Money is "created" when:

A bank grants a loan to a customer

When cash is deposited in a checkable-deposit account at a bank, there is:

An increase in the bank's liabilities

A bank can get additional excess reserves by doing any of the following, except:

Buying Treasury securities from the Fed

A nation with abundant capital resources tends to be an exporter of:

Capital-intensive products

If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will:

Decrease the excess reserves of member banks and thus decrease the money supply

An increase in the money supply, ceteris paribus, usually:

Decreases the interest rate and increases aggregate demand

Maximum checkable-deposit expansion in the banking system is equal to:

Excess reserves times the monetary multiplier

A trade deficit refers to a situation where:

Exports are less than imports

When a nation starts opening up to international trade, it will see falling prices for

Goods that it imports

Specialization and trade between individuals or between nations leads to:

Higher total output

Which of the following Fed actions increases the excess reserves of commercial banks?

Lower the reserve ratio

The Federal Reserve alters the amount of the nation's money supply by:

Manipulating the size of excess reserves held by commercial banks

An excise tax on imported items is known as a(n

Tariff

A tariff is a:

Tax

The ratio at which nations will exchange one product for another is known as the:

Terms of trade

The NAFTA established a free-trade area and eliminated trade barriers between:

The U.S., Mexico, and Canada

When bankers hold excess reserves:

The money-creating potential of the banking system decreases

When the interest rate falls, the:

Total amount of money demanded increases

A consumer holds money to meet spending needs. This would be an example of the:

Transactions demand for money

Lowering the reserve ratio:

Turns required reserves into excess reserves

If a nation exports a product, then the price of that product in the nation:

Will rise above the domestic (no-trade) equilibrium price