Econ final

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the

Federal Open Market Committee (FOMC)

Paper money (currency) in the United States is issued by the

Federal Reserve Bank

A Federal budget deficit exists when

Federal government spending exceeds tax revenues in a given year.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks

Currency in circulation is part of

both M1 and M2.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

budget surplus.

The M1 money supply is composed of

checkable deposits and currency in circulation.

Which of the following is the best example of public investment?

construction of highways

The Social Security program is designed to pay

current retirees, using funds from current contributions.

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The goal of expansionary fiscal policy is to increase

real GDP

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n)

recognition lag.

Fiscal policy is enacted through changes in

taxation and government spending.

The financing of a government deficit increases interest rates and, as a result, reduces investment spending.

the crowding-out effect.

The functions of money are to serve as a

unit of account, store of value, and medium of exchange.

A $70 price tag on a sweater in a department store window is an example of money functioning as a

unit of account.

Stock market price quotations best exemplify money serving as a

unit of account.

What is one significant consequence of fractional reserve banking?

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

The Federal Reserve System is divided into

12 districts

if actual reserves in the banking system are $40,00 0, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is

12.5

When the legal reserve ratio is 30 percent, the monetary multiplier is

3.33

If actual reserves in the banking system are $50,00 0, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is

5

Suppose a credit union has checkable deposits of $5 00,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are

54000

Which of the following nations had the highest public sector debt as a percentage of GDP in 2015?

Japan

A contractionary fiscal policy is shown as a

Leftward shift in the economy's aggregate demand curve.

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the

M1 money supply will decline and the M2 money supply will remain unchanged.

Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

M2 increases and M1 stays the same

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

f you write a check on a bank to purchase a used car, you are using money primarily as

a medium of exchange.

Money functions as

a store of value, a unit of account, and a medium of exchange.

An appropriate fiscal policy for severe demand-pull inflation is

a tax rate increase.

The public debt is the

accumulation of all past deficits minus all past su rpluses.

33-50The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

administrative lag.

Fiscal policy refers to the

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

Excess reserves refer to the

difference between actual reserves and required reserves

The greater the required reserve ratio, the

lower is the monetary multiplier.

Banks can lend their excess reserves to other banks in the

federal funds market.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

federal funds rate.

Most modern banking systems are based on

fractional reserves.

A budget surplus means that

government revenues are greater than expenditures in a given year

Fractional reserve banking refers to a system where banks

hold only a fraction of their deposits in their res erves.

The value of money varies

inversely with the price level.

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

The amount of money reported as M2

is larger than the amount reported as M1.

The amount of reserves that a commercial bank is required to hold is equal to

its checkable deposits multiplied by the reserve requirement ratio.

In the federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for

overnight

In the United States, the money supply (M1) includes

paper currency, and checkable deposits.

The political business cycle refers to the possibility that

politicians will manipulate the economy to enhance their chances of being reelected.

When there is inflation in the economy, it implies that the

price index is rising and the purchasing power of money is falling.

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

start of the recession and the time it takes to rec ognize that the recession has started

If you place a part of your summer earnings in a savings account, you are using money primarily as a

store of value.

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of

the reserve ratio

Other things equal, if the required reserve ratio was lowered,

the size of the monetary multiplier would increase.

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the

time fiscal action is taken and the time that the a ction has its effect on the economy.

Built-in stability means that

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.