ECON Final (Questions from videos)

Fiscal policy can be offset by the actions of each of the following EXCEPT: A. businesses. B. consumers. C. Congress. D. The Federal Reserve.

C

A real shock is shown in the AD/AS model as: A. a shift in the AD curve only. B. a shift in the LRAS curve only. C. a shift in the LRAS, SRAS, and AD curves. D. a shift in both the LRAS and SRAS curves.

D

Are comic books money? A. Yes, because the way economists define money, basically everything is money. B. Yes, because comic books can easily be traded for goods and services. C. No, because money cannot be something with intrinsic value, which comic books have. D. No, because selling a comic book takes work and provides an uncertain amount of funds.

D

Are saving accounts money? A. No, because counting saving accounts as money would double-count that money. B. No, because they technically can't be used to buy goods and services. C. Yes, because they can be used to buy goods and services. D. Yes, even though they technically can't be used to buy goods and services.

D

The economy is: A. complex, and it operates under uncertain rules. B. complex, though it operates under clear rules. C. simple, and it operates under clear rules. D. simple, though it operates under uncertain rules.

A

Which of these is NOT one of the definitions of money supply mentioned in the video? A. M0 B. M1 C. M2 D. MB

A

The pitfalls of a strict money supply rule can be avoided if the Fed: A. targets velocity growth. B. targets nominal GDP growth. C. targets money supply growth. D. targets real GDP growth.

B

The tools of monetary policy: A. are limited in number and never change. B. continue to evolve as the economy changes. C. are all equally effective since they all do basically the same thing. D. have been used in the same basic ways for a hundred years.

B

9. The combination of shocks hitting an economy is: A. usually known to policymakers before they decide what action to take. B. hard to see without looking at lots of economic data. C. difficult to identify because they are so numerous. D. irrelevant as long as the rates of inflation and real growth are known.

C

Banking panics are especially dangerous because: A. they can lead to other panics, such as retail panics. B. the government will respond by seizing all banking assets. C. they can start easily and spread quickly. D. the banking sector employs about 25% of workers in the United States.

C

The "fiscal multiplier" is the ripple effect of subsequent: A. increases in spending following an initial increase in government spending. B. increase rate changes following a change to the federal funds rate. C. increases in lending following an initial increase in bank reserves. D. private-sector layoffs following an initial layoff in the public sector.

A

The effectiveness of expansionary fiscal policy is directly proportional to the level of _______ in the economy. A. efficiency B. inefficiency C. inflation D. employment

B

What do consumers sometimes do that makes expansionary fiscal policy less effective? A. Spend all of the money they get from a tax cut B. Save all the money they get from a tax cut C. Increase investment spending in response to rising interest rates D. Reduce investment spending in response to rising interest rates

B

What is included in MB that is not included in either M1 or M2? A. currency B. reserve deposits C. savings accounts D. checking accounts

B

What will happen to unemployed retail workers if the government is unable to target stimulus spending at the retail sector? A. Most will become discouraged and leave the labor force. B. They may eventually find work after government spending works its way through the economy. C. They may eventually find work after the Fed reduces tax rates, increasing household consumption spending. D. They will remain permanently unemployed unless they find work in another sector of the economy.

B

Economists typically define money as: A. anything in which its value can be inflated. B. a means of payment that lacks intrinsic value. C. currency that is issued by a central bank. D. a widely accepted means of payment.

D

Fiscal policy that occurs naturally without the need for legislation is known as: A. lag-free automatic fiscal policy. B. monetary policy. C. targeted fiscal policy. D. an automatic stabilizer.

D

How much additional money will be created if you deposit a $200 check into your bank, which holds a 10% reserve ratio? A. $200 will be created since your checking account balance has increased by $200 B. $180 since the bank will keep 10% of your $200 check in reserves and lend the other 90% C. $2,000 since the money multiplier will be equal to 10 and reserves have increased by $200 D. No money will be created since the $200 check does not represent an increase in reserves

D

In a "reverse repurchase agreement," the Fed: A. takes on assets besides T-Bills in exchange for T-Bills. B. takes on T-Bills in exchange for other assets besides T-Bills. C. takes on T-Bills in exchange for reserves. D. takes on reserves in exchange for T-Bills.

D

In addition to keeping interest rates too low for too long, the Fed also: A. overestimated the importance of the housing sector for the whole economy. B. kept government spending too high for too long in the years leading up to the recession. C. ran too great of a budget surplus in the years leading up to the recession. D. underestimated the impact of a decline in the housing sector on the whole economy.

D

In order to impact aggregate demand and the economy, the Fed needs to be able to influence: A. every measure of the money supply. B. MB only. C. MB and M1 D. M1 and M2.

D

Negative real shocks and negative demand shocks: A. commonly come together. B. are shown in the AD/AS model in the same way. C. usually do not happen at the same time. D. have the same basic causes.

A

Professor Cowen's objection to fiscal policy spending by government is: A. the government may rush to start stimulus spending and not spend money in the most effective way possible. B. the government may put too much thought into the spending projects and confuse stimulus spending with industrial policy. C. households and businesses might realize that the boost in spending is from the government and simply save the income they receive. D. the government may not have enough money available to do an appropriate amount of spending.

A

Quantitative easing involves the Fed swapping: A. money for assets other than T-bills. B. money for T-bills. C. T-bills for different T-bills. D. T-bills for assets other than T-bills.

A

A monetary offset occurs when: A. the central bank responds to expansionary fiscal policy with contractionary monetary policy. B. the central bank responds to expansionary fiscal policy with expansionary monetary policy. C. the central bank responds to contractionary monetary policy with contractionary fiscal policy. D. the central bank responds to expansionary monetary policy with contractionary fiscal policy.

A

About what percent of the government's budget is authentic discretionary spending? A. 20% B. 35% C. 65% D. 10%

A

During a recession, the ideal stimulus is all of the following EXCEPT: A. theoretical. B. targeted. C. temporary. D. timely.

A

Fiscal policy occurs when: A. the government changes its plan for spending and taxing. B. the Federal Reserve makes changes to the federal budget. C. the government changes its plan for the money supply. D. the government raises or lowers nominal interest rates.

A

If the economy is at full employment, then an increase in government spending: A. would simply crowd out private spending. B. would have too large an impact on real growth. C. would cause deflation, which would increase unemployment. D. is the right fiscal policy response.

A

If the government saved during an economic boom by increasing taxes or decreasing spending, this would be: A. contractionary fiscal policy. B. expansionary monetary policy. C. expansionary fiscal policy. D. contractionary monetary policy.

A

In theory, fiscal policy should: A. increase aggregate demand in bad times and pay off the bill in good times. B. increase aggregate demand in bad times and increase aggregate supply in good times. C. reduce aggregate demand in bad times and take the profits in the good times. D. increase aggregate demand in bad times and increase inflation in good times.

A

The Federal Reserve is: A. the United States' central bank. B. a Congressional committee. C. another name for the U.S. Treasury. D. the largest commercial bank in the U.S.

A

Which of the following is NOT one of the lags that makes timely fiscal policy difficult? A. Business Cycle lag B. Recognition lag C. Legislative lag D. Implementation lag

A

Citizens and investors in Argentina interpreted the government's fiscal stimulus response to the country's financial crisis as: A. a bad sign and drastically increased their spending and investing as a result. B. a bad sign and drastically reduced their spending and investing as a result. C. a good sign and drastically increased their spending and investing as a result. D. a good sign and drastically reduced their spending and investing as a result.

B

Fiscal policy can: A. reveal the need for long-term restructuring of the economy. B. cause a slowdown in an on-going long-term restructuring of the economy. C. sometimes be necessary for a long-term restructuring of the economy. D. provide an opportunity to speed up an already on-going restructuring of the economy. Incorrect. The problem is that government may not be fully aware of ongoing long-term restructuring in the economy.

B

In general, fiscal policy is used to: A. make business cycle booms bigger and busts smaller. B. even out the booms and the busts in the business cycle. C. to reverse the pattern of booms and busts in the business cycle. D. make business cycle booms and busts both bigger.

B

The best case scenario for fiscal policy is during a: A. boom caused by an aggregate demand shock. B. recession caused by an aggregate demand shock. C. boom caused by a real shock. D. recession caused by a real shock.

B

Which of the following describes the behavior of politicians implementing fiscal policy? A. They spend in bad times because they can, and they spend in good times because they have to. B. They spend in bad times because they have to, and they spend in good times because they can. C. They save in bad times because they have to, and they save in good times because they can. D. They save in bad times because they can, and they save in good times because they have to.

B

Which of the following did NOT happen during the 2008-09 financial crisis? A. Deposit insurance was extended to all accounts. B. The Fed quickly raised interest rates to stop the flow of easy credit. C. The Fed became the majority owner of the insurance company AIG. D. The U.S. Treasury guaranteed trillions of dollars in money market funds.

B

Which of the following is given in the video as an example of a negative real shock to the economy? A. A technological advance that increases investment B. A rapid rise in the price of oil C. A decrease in consumer confidence D. A stretch of very bad weather

B

Which of the following occurs when consumers decide to save every penny of a tax cut, knowing that this tax cut must be financed by future tax increases? A. Keynesian offset B. Ricardian equivalence C. Fiscal balancing D. Animal spirits

B

hich of these is NOT an element of fiscal policy? A. Government spending B. Interest rates C. Taxes D. Government borrowing

B

Businesses may reduce their investment spending following expansionary fiscal policy because: A. as the economy's growth rate increases, profits rise without the need for new investments. B. profits fall as expansionary fiscal policy slows the economy. C. increased government spending will drive up interest rates. D. the government will take advantage of all the good investment opportunities.

C

Expansionary fiscal policy in response to a negative real shock: A. will only increase real growth and inflation a little. B. might increase inflation a little but will increase real growth a lot. C. might increase real growth a little but will increase inflation a lot. D. will increase both real growth and inflation a lot.

C

Expansionary fiscal policy is incapable of solving the underlying problem of a negative real shock. Which of the following problems also makes it difficult to use fiscal policy to combat a negative real shock? A. The problem of timeliness of fiscal policy B. The problem of crowding out of private spending C. All of these problems make it difficult. D. The problem of targeting fiscal policy

C

Fiscal policy can have an immediate negative effect if: A. a government's credibility is high and its debt is low. B. a government's credibility is high and its debt is high. C. a government's credibility is low and its debt is high. D. a government's credibility is low and its debt is low.

C

How people respond to fiscal policy: A. is fairly mechanical and appears to conform closely to the predictions of macroeconomic models. B. depends on whether the fiscal policy is financed from borrowing or from budget surpluses. C. depends on their evaluation of the state of the economy and their expectations about the future. D. generally reveals consistent irrationality and poorly-formed expectations about the future.

C

If labor and capital are underemployed, then an increase in government spending: A. would have no impact on GDP. B. would increase GDP by exactly the increase in government spending. C. would increase GDP by more than the increase in government spending. D. would increase GDP by less than the increase in government spending

C

If many of the workers who become unemployed as a result of a recession are retail workers: A. they will return to employment once the government announces its stimulus and consumer confidence returns. B. the retail sector is likely to remain permanently smaller. C. the government likely will be unable to target its stimulus spending for these workers. D. the government will have to rely on targeting "retail-ready" projects for stimulus spending.

C

In order to work well, fiscal policy must be all of the following EXCEPT: A. targeted. B. timely. C. tax-related. D. temporary.

C

One of the dangers of growing government debt is that: A. it makes monetary policy more difficult by tying up more of the money supply in loans to the government. B. it pushes down interest rates which can lead to overspending by households and businesses. C. more of the budget goes to pay interest on the debt, making it harder to act in a future recession. D. debts have to be repaid with future income.

C

Professor Cowen suggests that, in practice, fiscal policy is not ideal because: A. voters typically expect the federal government to balance its budget even during a recession. B. elected officials have an incentive to raise taxes even when the appropriate fiscal policy response is to cut taxes. C. the federal government continually has budget deficits rather than having surpluses when the economy is healthy. D. political infighting makes it unlikely that Congress will ever approve a budget, let alone approve fiscal policy actions.

C

Ricardian equivalence probably describes: A. all people, since people are rational. B. nobody, since nobody is actually rational. C. some people, but not most people. D. most people, but not all people.

C

The main idea behind using fiscal policy to combat a recession is: A. the government will make up for the decreased saving in the economy, preventing a downward spiral. B. the government will supplement the increased saving in the economy, contributing to an upward spiral. C. the government will make up for the decreased spending in the economy, preventing a downward spiral. D. the government will supplement the increased spending in the economy, contributing to an upward spiral.

C

What are the two ways that the government can use fiscal policy to replace spending in a recession? A. By reducing interest rates or by cutting taxes B. By spending money on government projects or by increasing the money supply C. By spending money on government projects or by cutting taxes D. By spending money on government projects or by reducing interest rates

C

What is the essence of the problem of timeliness with fiscal policy? A. Often there is not enough time to spend all of the money that fiscal policies have authorized. B. If fiscal policy is enacted too quickly, it might not be very well thought out. C. In order for fiscal policy to have an impact and prevent a recession, it needs to happen very quickly. D. The government's budget calendar is very strict and fiscal policy can only be done at certain times in the year.

C

Which of the following demonstrates the ideal use of expansionary fiscal policy? A. The government slowly hires unemployed workers and puts them to work on permanent projects that continue long after the economy recovers. B. The government quickly hires already-employed workers and puts them to work on projects that are finished as the economy recovers. C. The government quickly hires unemployed workers and puts them to work on projects that are finished as the economy recovers. D. The government quickly hires unemployed workers and puts them to work on permanent projects that continue long after the economy recovers.

C

Which of the following is NOT mentioned as a difficulty the Fed faces when trying to affect aggregate demand in the short run? A. Lack of direct control B. Lagged results C. Sticky wages and prices D. Incomplete data

C

Which of these descriptions of a recession does Professor Cowen use in the video? A. "An increase in government spending crowds out private spending and investment." B. "A negative real shock has reduced the economy's potential growth rate." C. "The fundamental factors of production are underused." D. "High inflation makes price signals hard to interpret."

C

Why might the Federal Reserve take an action that reverses expansionary fiscal policy? A. In order to fight the unemployment caused by the expansionary fiscal policy B. In order to fight the deflation caused by the expansionary fiscal policy C. In order to fight the inflation caused by the expansionary fiscal policy D. To demonstrate its independence from the government

C

If the government funds increased spending by borrowing: A. the interest rate in the loanable funds market will decrease. B. the average tax rates for households will increase. C. the interest rate in the loanable funds market will increase. D. the average tax rates for households will decrease.

CC

Is there a tradeoff between fiscal policy that is timely and fiscal policy that is targeted? A. No, the video gives several examples of timely fiscal policy that was targeted. B. Yes, because it takes a very long time to decide what the targets should be. C. Yes, because the industries that need help also move the slowest. D. Yes, because it's hard to create targeted fiscal policy quickly.

D

Professor Cowen says that fiscal policy would make more sense if we: A. relied more heavily on tax cuts than we currently do for fiscal policy. B. ran government budget deficits in years in which the unemployment rate was high. C. used a combination of tax cuts and increases in government spending. D. actually had government budget surpluses in years in which the economy was in good health.

D

The Fed can influence: A. the budget of the federal government. B. the household savings rate. C. U.S. tax rates. D. the U.S. money supply.

D

The Great Recession of 2008-09 was an ideal case for fiscal policy because: A. a healthy financial sector improves the timeliness of expansionary fiscal policy. B. targeting and timeliness are less important when a recession is the result of the bursting of an asset bubble. C. the most-easy-to-target sectors were those that were the most affected by unemployment. D. targeting and timeliness are less important when a recession is very severe and lasts a long time.

D

The goal of expansionary fiscal policy is to: A. increase the money supply. B. cool off the economy. C. reduce interest rates. D. stimulate the economy.

D

What happens when consumers in the economy start to spend less, perhaps because they become worried about the future? A. Savings rises, causing increases in investment that boost GDP. B. The demand for dollars falls, causing the exchange rate to fall and exports to rise. C. Prices fall, causing consumers to start spending again. D. The incomes of other people fall, causing those people to spend less as well.

D

What is the essence of the problem with targeting with fiscal policy? A. In order to meet interest rate targets, fiscal policy must be enacted very quickly. B. It is difficult for the government to determine the target unemployment rate. C. Economic data takes time to analyze, so the government may not know when the economy has reached its target. D. The government may not have projects ready that will employ the people who are unemployed.

D

What steps did the Federal government take to stimulate the American economy when the recession of 2008-09 hit? A. It raised both taxes and spending. B. It raised taxes and cut spending. C. It cut both taxes and spending. D. It cut taxes and raised spending.

D

Which of the following describes the final lag that impacts expansionary fiscal policy? A. It takes time for policy makers to agree on a solution to the problem. B. It takes time for policymakers to recognize that there is a problem. C. It takes time for government to spend large amounts of money. D. It takes time for government spending to ripple through the economy.

D

In what way may the Fed have contributed to the housing bubble? A. By inflating housing prices in the early 2000s B. By investing heavily in mortgage-backed securities C. By making credit cheaper with a low Federal funds rate D. By causing unemployment with low money supply growth

C

. The tools of the Federal Reserve: A. sometimes rely on other actors, such as banks, who can sometimes be unreliable. B. are easy to use and usually have predictable, standardized effects. C. sometimes rely on other actors, such as banks, whose actions can be easily predicted. D. tend to be politically unpopular and thus are rarely used to their full capability.

A

An insolvent institution has: A. liabilities that exceed its assets. B. assets that exceed its liabilities. C. assets that exceed its equity. D. equity that exceeds its liabilities.

A

Economic data: A. are sometimes revised months or years after their initial release. B. are never fully reliable, even after years of revisions. C. tend to be completely reliable and accurate when first reported. D. are meaningless if not interpreted by a policymaker with good instincts.

A

Fighting inflation and fighting sluggish growth require: A. opposite actions from policy makers. B. fiscal and monetary policy actions, respectively. C. monetary and fiscal policy actions, respectively. D. similar actions from policy makers.

A

How long does it take for the Fed's actions to have their intended effect? A. 6—18 months B. 19—24 months C. 25—36 months D. 0—5 months

A

If the Fed wanted to use open market operations to reduce interest rates, it would: A. buy T-bills from banks. B. sell T-bills to banks. C. issue T-bills on behalf of banks. D. grant banks permission to issue T-bills.

A

On average in the United States, gift-giving during the Christmas holiday: A. wastes about $20 billion. B. wastes about $100 billion. C. wastes about $40 billion. D. wastes about $50 billion.

A

The Fed acts as lender of last resort: A. when deposit insurance isn't enough or when an institution isn't covered by deposit insurance. B. only when an institution is not covered by deposit insurance but deposit insurance would have been enough. C. for any institution, household, or business, that faces a solvency crisis. D. only when an institution is covered by deposit insurance but deposit insurance isn't enough.

A

The Fed's actions leading up to the Great Recession: A. may have contributed to the housing bubble and made the recession worse. B. may have mitigated the housing bubble and stopped the recession from having been worse. C. may have contributed to falling consumer confidence and made the recession worse. D. may have helped to boost consumer confidence and stopped the recession from having been worse.

A

The Federal Reserve has: A. made some booms and recessions worse rather than better. B. a good track record of only making booms and recessions better. C. made some recessions worse but generally makes booms better. D. made some booms worse but generally makes recessions better.

A

Traditionally, the Fed lends to: A. solvent but illiquid banks. B. insolvent and solvent banks. C. solvent, liquid banks. D. insolvent and illiquid banks.

A

Which of the following is true about monetary policy? A. It is ineffective in the long run and difficult in the short run. B. It is effective in the long run and easy in the short run. C. It is ineffective in the short run and difficult in the long run. D. It is effective in the short run and easy in the long run.

A

Why doesn't GDP change in the long run when the money supply changes? A. Because in the long run, GDP is determined by the fundamental factors of growth, not the money supply. B. Because the money supply changes only in the short run and then returns to its long-run level. C. Because in the long run, GDP is determined by fiscal policy and not by monetary policy. D. Because in the long run, households adjust their savings to counteract any change in the money supply.

A

The Fed conducts reverse repurchase agreements with: A. banks only. B. the federal government only. C. banks and financial institutions other than banks. D. only financial institutions that are not banks, such as the federal government.

C

A bubble happens when: A. asset prices rise for a long time, even during a recession. B. asset prices rise higher and faster than can be explained by the fundamentals. C. asset prices rise faster than can be tracked with traditional statistical tools. D. asset prices rise higher than experts have predicted they would.

B

A reverse repurchase agreement will accomplish all of the following to banks and other financial intermediaries EXCEPT: A. discourage investment elsewhere. B. ensure their solvency. C. give them a higher rate of return on T-Bill holdings. D. drain them of liquid cash.

B

According to Professors Cowen and Tabarrok, the most efficient gift is: A. charitable donations made in someone's name. B. cash. C. paternalistic gifts like mittens. D. books on economics.

B

An illiquid asset is one that is _______ but _______. A. worth a lot in the future; can be sold today at its expected future price B. worth a lot in the future; can only be sold today at a low price C. worth a lot right now; not worth that much in the future, when it can be sold. D. worth a lot right now; cannot be sold until the future, when its value will be higher

B

An increase in the rate of interest paid on reserves would be an example of: A. expansionary policy that increases the demand for reserves and reduces short-term interest rates. B. contractionary policy that increases the demand for reserves and raises short-term interest rates. C. expansionary policy that increases the demand for reserves and raises short-term interest rates. D. contractionary policy that reduces the supply of reserves and raises short-term interest rates.

B

Are checking accounts money? A. No, because checking accounts cannot be traded for goods and services. B. Yes, because checking accounts can be used to buy goods and services. C. No, because checking accounts are not physical money. D. Yes, because the value of a checking account is measured in dollars.

B

For a bank, "reserves" refers to: A. the loans it will call back early if a recession starts. B. the cash it keeps on hand to meet withdrawal requests. C. the part-time workers that will be offered full-time jobs if necessary. D. the cash it lends to households or businesses who want to borrow.

B

For the most part, prior to 2008, banks typically held: A. excess reserves equal to approximately 100% of deposits. B. excess reserves equal to less than 1% of deposits. C. excess reserves equal to between 10 and 20% of deposits. D. absolutely no excess reserves.

B

How does Professor Tabarrok describe a situation in which someone receives a gift that they don't value? A. The incentive problem B. Negative trade C. The knowledge problem D. Negative charity

B

How does the Federal Reserve inject reserves into the banking system? A. By moving reserves between the accounts of different banks B. By creating new money it uses to buy financial assets C. By creating new money it lends directly to households and businesses D. By creating new financial assets it sells in the open market

B

How long does it take for the rate to adjust when the Fed announces a change to its target for the federal funds rate? A. The rate never fully adjusts because the Fed announces planned changes so frequently. B. Sometimes it adjusts before the Fed even takes any action. C. It can take several days or weeks for rates to fully adjust to announced changes from the Fed. D. The rate usually adjusts immediately after the Fed takes action to change the rate.

B

If a bank customer deposits $100 in cash, and the bank lends $90 of that deposit to another customer by crediting $90 to her account: A. the money supply has increased by $190. B. the money supply has increased by $90. C. the money supply has decreased by $10. D. the money supply has not changed.

B

If people hold onto some money as cash, rather than depositing it into banks: A. this will not affect the size of the money multiplier. B. the money multiplier will be smaller. C. the money multiplier will be zero. D. the money multiplier will be larger.

B

In conducting quantitative easing, the Fed may decide to purchase mortgage securities to do all of the following EXCEPT: A. affect long-term interest rates. B. influence average home prices. C. reduce interest rates on home purchases. D. increase the amount of bank reserves.

B

In order to fight high inflation the Fed should _______; in order to fight high unemployment the Fed should _______. A. increase the growth rate of the money supply; increase the growth rate of the money supply B. decrease the growth rate of the money supply; increase the growth rate of the money supply C. increase the growth rate of the money supply; decrease the growth rate of the money supply D. decrease the growth rate of the money supply; decrease the growth rate of the money supply

B

In the best case scenario, what is the Fed's response to a negative demand shock? A. The Fed will decrease the growth rate of the money supply to offset the negative demand shock. B. The Fed will increase the growth rate of the money supply to offset the negative demand shock. C. The Fed will increase government spending to offset the negative demand shock. D. The Fed will decrease government spending to offset the negative demand shock.

B

Monetary policy is limited in that: A. it can only affect inflation in the long run. B. it can only affect real growth in the short run. C. it can only affect real growth in the long run. D. it can only affect inflation in the short run.

B

Most of the Fed's policy tools impact aggregate demand as a whole. Is there any way that the Fed could have targeted the housing market directly in the mid-2000s? A. Yes, through its power to impact real estate appraisals. B. Yes, through its power to regulate banks. C. No, there is no way the Fed can target a specific industry. D. Yes, through its power to set mortgage interest rates.

B

Prior to 2008, a bank might have borrowed reserves from another bank because: A. banks never borrowed from the Fed. B. it kept its reserves too low and could not meet Fed requirements. C. borrowing reserves from other banks is the only way to gain access to reserves. D. it was in danger of becoming insolvent and collapsing.

B

Professor Tabarrok suggests that monetary policy is both an art and a science because of the complexity of answering all of the following questions EXCEPT: A. how to use monetary policy tools. B. where to apply monetary policy tools. C. when to use monetary policy tools. D. which monetary policy tools to use.

B

Since 2008, excess reserves have increased from: A. $2 billion to almost $3 billion. B. $2 billion to almost $3 trillion. C. $2 trillion to almost $3 trillion. D. $3 billion to almost $2 trillion.

B

The Fed may also lend to insolvent banks, rather than winding them down, in order to: A. keep financial markets guessing about its strategy. B. address the problem of systemic risk. C. keep the money supply from falling too much. D. secure politically powerful allies.

B

The _______ tells us how many additional dollars of deposits are created with each additional dollar of reserves. A. reserve ratio, calculated as 1 divided by the money multiplier, B. money multiplier, calculated as 1 divided by the reserve ratio, C. reserve ratio, calculated as 1 minus the money multiplier, D. money multiplier, calculated as 1 minus the reserve ratio,

B

The cost of stimulating the economy in the 1970s was: A. high inflation and low unemployment for most of the 1980s. B. a severe recession with high unemployment in the 1980s. C. high inflation and high unemployment for most of the 1980s. D. a mild recession with modest unemployment in the 1980s.

B

Which of the following summarizes the "incentive problem" with gift-giving that Professor Tabarrok discusses in the video? A. Gift-giving reduces the incentives for people to rely on market transactions. B. When people choose gifts, they have little incentive to choose carefully. C. When people buy gifts, they have an incentive to overspend to send a signal that they are generous. D. People have little incentive to purchase a gift unless they expect a gift in return.

B

Which of the following would create simultaneous high inflation and high unemployment? A. A positive demand shock B. A negative real shock C. A positive real shock D. A negative demand shock

B

If consumers become less confident and begin to borrow and spend less, what will happen in the dynamic AD/AS model? A. The short-run aggregate supply curve will shift downward. B. The long-run aggregate supply curve will shift to the left. C. The aggregate demand curve will shift to the left. D. The aggregate demand curve will shift to the right.

C

If economic data reveals that inflation is rising, the Fed: A. does not need to know the state of real GDP growth in order to justify increasing the growth rate of the money supply. B. may increase the growth rate of the money supply without really knowing the state of real GDP growth. C. may reduce the growth rate of the money supply without really knowing the state of real GDP growth. D. will also at that time know the state of real GDP growth and can respond accordingly.

C

One of the problems with a strict monetary policy rule that sets a constant growth rate for the money supply is that when there are large shocks to the economy, the growth rate of _______, causing real GDP growth to slow down. A. the average price level can fall B. the average price level can rise C. the velocity of money can fall D. the velocity of money can rise

C

If the Fed overshoots when responding to a negative demand shock: A. it will cause deflation, which the Fed will fight by reducing the growth rate of the money supply. B. it will cause inflation, which the Fed will fight by increasing the growth rate of the money supply. C. it will cause inflation, which the Fed will fight by reducing the growth rate of the money supply. D. it will cause deflation, which the Fed will fight by increasing the growth rate of the money supply.

C

If you buy a gift without knowing what a person really wants or needs, you have demonstrated: A. the incentive problem of gift-giving. B. the necessity-identification problem of gift-giving. C. the knowledge problem of gift-giving. D. the negative trade problem of gift-giving.

C

In normal times, the actual money multiplier in the United States is: A. sometimes negative during a recession. B. approximately equal to 10. C. approximately equal to 3. D. 0 in the long run and 3 in the short run.

C

8. Which of these demonstrates a negative real shock causing a negative demand shock? A. Fear among businesses causes them to lay off workers, who eventually return to work at lower wages. B. Bad news, like rising oil prices, causes investors to make more new investments, seeking greater profit opportunities. C. Bad news, like rising oil prices, causes people to become pessimistic and to cut back on their spending. D. Fear among businesses causes them to lay off workers, who lose their skills and become permanently less productive.

C

During the Great Recession, the Fed relied on each of the following tools to influence the economy EXCEPT: A. paying interest on reserves. B. reverse repurchase agreements. C. open market operations. D. quantitative easing.

C

High-value, long-term projects benefit from: A. frequent turnover of lenders in the financial sector. B. leveraging illiquid assets. C. long-term relationships between lenders and borrowers. D. high and volatile inflation rates.

C

The Fed tried to reduce unemployment in the years following the recession of 2001 by: A. reducing the growth rate of the money supply. B. increasing government spending on construction projects. C. keeping the Federal funds rate very low. D. raising the reserve requirement for banks.

C

The Fed's communication: A. is irrelevant, all that matters is the actions that it takes. B. is often used as a distraction to hide its true agenda. C. is itself an important tool of monetary policy. D. is the single most important tool of fiscal policy.

C

The Federal Reserve is powerful because it can influence _______ through its control over _______. A. the money supply; aggregate demand B. interest rates; aggregate supply C. aggregate demand; the money supply D. aggregate supply; interest rates

C

What does a bank do with the money that you deposit? A. Banks use the money for ordinary business expenses like paying employees. B. Banks keep your money in a vault in case you return to withdraw it. C. Banks lend most of the money to people who want to borrow. D. Banks use the money to purchase assets like gold and other precious metals.

C

When banks use the money they receive from deposits to make loans, they: A. decrease the money supply through open market operations. B. increase the money supply through open market operations. C. increase the money supply through the money multiplier. D. decrease the money supply through the money multiplier.

C

When the Fed buys T-bills from banks: A. the demand for bank reserves rises. B. the supply of T-bills rises. C. the supply of bank reserves rises. D. the supply of bank reserves falls.

C

Which of the following asset would be considered money? A. An asset that has value and could at some time be accessed in order to make transactions. B. An asset that can be bought or sold using a widely-used means of payment. C. An asset that can be easily converted into a widely-used means of payment with little loss in value. D. An asset that is infrequently used as a means of payment. Correct. For this reason, savings accounts and money market mutual funds are usually counted as money.

C

Which of the following explains why the Fed is able to have a dramatic effect on aggregate demand and real output in the short run? A. price confusion that speeds up the adjustment of real GDP B. money illusion that speeds up the adjustment of the price level C. sticky prices that slow the adjustment of the price level D. sticky wages that slow the adjustment of real GDP

C

Which of the following is true about M1 and M2? A. M1 includes currency, but M2 does not. B. Neither M1 nor M2 includes money market mutual funds. C. M2 includes saving deposits and money market mutual funds, but M1 does not. D. M1 and M2 both include checking accounts and savings accounts.

C

Which of the following is true about the Fed? A. It has a lot of power to affect the inflation rate, but not the unemployment rate. B. It cannot directly affect the economy but it can influence institutions that can affect the economy. C. It has more power to affect the economy than any other institution. D. It has no real power since in the long run, money is neutral.

C

Which of the following is true? A. If high inflation and sluggish growth have the same cause, they will show up in the economic data at the same time. B. Sluggish growth may show up in economic data before high inflation, even if the two have the same cause. C. High inflation may show up in economic data before sluggish growth, even if the two have the same cause. D. If high inflation and sluggish growth have different causes, they cannot show up in the economic data at the same time.

C

Which of the following might lead banks to hold more reserves? A. An increase in the demand for loanable funds B. A decrease in the legal reserve requirement C. Fear that customers will want to withdraw most of their deposits D. Fear that businesses may decide to borrow less to fund investments

C

Which of these is NOT one of the issues that makes it difficult for the Fed to choose the right course of action at the right time? A. The Fed's incomplete and imperfect control of the money supply B. The quality of the data the Fed uses C. The time that it takes for the Fed to decide on a course of action D. The time it takes for Fed action to have an impact

C

Why didn't the huge increase in the money supply that resulted from quantitative easing lead to increases in inflation? A. Because quantitative easing targets nominal GDP growth rates, not inflation rates. B. Because the federal government offset the inflationary pressure by drastically decreasing spending and raising taxes. C. Because quantitative easing increased the monetary base, but not broader definitions of money like M1 and M2. D. Because huge increases in the money supply generally lead to deflation, not inflation.

C

Why is value created when someone buys something for themselves? A. Because the cost to produce the good is greater than the price of the good. B. Because the price of the good is greater than the value of the good to the buyer. C. Because the buyer values the good more than it costs the seller to produce. D. Because the buyer values the good as much as it costs the seller to produce.

C

Professor Cowen suggests that gift-giving can create value for each of the following reasons EXCEPT: A. gift-giving can lower search costs. B. some gifts are given for paternalistic reasons. C. gifts can signal our values or intentions. D. the cost of the gift for the recipient is zero.

D

The Federal Reserve has the power to: A. create banks. B. increase government spending. C. cut taxes. D. create money.

D

Defining what money is: A. is easier to do in the long run than in the short run. B. is the easiest, but least important part of monetary policy. C. is easy to do, which explains why monetary policy is so effective. D. isn't easy, and this makes monetary policy more difficult.

D

Deposit insurance guarantees that: A. depositors will get their deposits back, unless the bank's assets are illiquid. B. depositors will not get their deposits back, unless the bank is solvent and liquid. C. depositors will get their deposits back, unless the bank becomes insolvent. D. depositors will get their deposits back, even if the bank is insolvent.

D

Economists have: A. defined money broadly but still only measure currency in circulation. B. one specific measure of the supply of money. C. no systematic way of measuring the supply of money. D. several different measures of the supply of money.

D

In the "old days" (prior to 2008), the Fed typically conducted monetary policy by: A. buying long-term assets like mortgage-backed securities. B. adjusting government spending and taxation. C. changing the interest rate that it paid banks on their reserves. D. targeting the federal funds rate with open market operations.

D

Large banks in the United States: A. may not keep more than 10% of deposits in reserve. B. are required to keep between 10% and 90% of deposits in reserve. C. are not required to keep any deposits in reserve. D. must keep at least 10% of deposits in reserve.

D

Most economists would agree with which statement about fiscal policy? A. It's useful when few resources are unemployed due to an aggregate demand shock. B. It's useful when a lot of resources are unemployed due to a real shock. C. It's useful when few resources are unemployed due to a real shock. D. It's useful when a lot of resources are unemployed due to an aggregate demand shock.

D

The problem of moral hazard exists when: A. a bank is solvent but many of its assets are illiquid. B. agencies like the Fed act based on politics rather than sound economics. C. the failure of one financial institution can lead to the failure of other institutions. D. people or institutions, who are insured, tend to take on too much risk.

D

What was troubling about the 2001 recession? A. That the unemployment rate peaked as high as it did. B. That it lasted longer than any other modern U.S. recession. C. That its causes have never been sufficiently determined. D. The unemployment rate remained high, even after the recession ended.

D

What would happen if banks decided to stop lending altogether and instead held on to enormous amounts of cash? A. The tools of monetary policy would become less effective in response to high inflation. B. This would not impact the effectiveness of monetary policy. C. The tools of monetary policy would become more effective in response to a recession. D. The tools of monetary policy would become less effective in response to a recession.

D

When someone receives a gift that they don't want: A. it is impossible to determine the cost or value of the gift. B. the cost and value of the gift are both equal to zero. C. the cost of the gift is less than the value. D. the value of the gift is less than the cost.

D

Which of the following summarizes the limitations of monetary policy? A. The Fed is most effective at influencing long-term interest rates but is unable to have a short-run impact on the economy. B. The Fed directly sets all interest rates, but no interest rate has any short-run effect on the economy. C. The Fed can directly influence many different interest rates, but it can only influence them a little bit. D. The Fed has a lot of control over just one interest rate, and interest rates influence economic activity in the short run only.

D