Macro Economics Exam 3

no change in long run GDP and employment

An economy is operating at long-run equilibrium. What is the most likely result of an aggressive expansionary fiscal policy?

the quantity supplied of loanable funds decreases

As the real interest rate falls:

$4 billion

Assume that the reserve requirement is 20%. A bank has $20 billion in demand deposits. How much money does the bank have to keep in reserves?

directly increased by $4 million and has the potential to be increased by another $12 million.

Assume the government requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction the supply of money is:

$9000

Assume the reserve requirement is 10% and all banks are fully loaned up. If a new deposit of $10,000 is made into Bank X, with this deposit Bank X can make new loans of:

decrease

At Christmas, people tend to draw money out of their checking accounts to pay for Christmas presents. As a result, the money multiplier will:

components of the federal budget that counter the effects of the business cycle without explicit intervention by the president or congress

Automatic stabilizers are:

rise; more

If interest rates rise, the burden of a nation's public debt will ______ and it will be ________ difficult to service its debt.

lower the reserve requirement, lower the discount rate, and conduct and open market purchase

If the Fed wanted to use all three of its primary tools to increase the money supply, it should:

is called fiat money

If the government decrees that bottle tops will be treated as money, then a bottle top:

has the potential to increase by $2000

If the reserve equipment is 25%, then a $500 increase in deposits means that the money supply:

4

If the reserve requirement is 25%, the potential money multiplier is:

unit of account

If you are estimating the amount you plan to spend on vacation, money is serving as a:

decrease its money supply

In February 2010, the Central Bank of Brazil raised reserve requirements. By raising reserve requirements, Brazil was attempting to:

Washington, D.C.

In which city is the Federal Reserve's Board of Governors?

supply of; left

Suppose the government implements a policy reducing the rewards earned by savers. In this case the _______ loanable funds shifts _______.

interest rates will rise

The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases:

Overseeing the buying and selling of government securities in the open market

The Federal Open Market Committee is responsible for:

removing the dollar bill from circulation

The U.S. General Accounting Office (GAO) has concluded that _________ would help the introduction of a dollar coin be successful.

investors; downward sloping

The demand curve for loanable funds represents ______ and is _______.

interest payment divided by yield

The price of a bond is equal to:

Beige Book

The report that compiles economic conditions collected by the Federal Reserve regional bank is called the:

A customer receives $3.05 in change and returns the next day to make another purchase.

Which is an example of money being used as a store of value?

giving tax breaks to firms that undertake research and development

Which measure is an example of a supply-side fiscal policy?

Demand Deposits

Which of the following assets is the MOST liquid?

money

Which of the following assets is the MOST liquid?

Foreign deposits in American banks aren't counted in the actual money multiplier

Which of the following does NOT explain why the actual money multiplier and the potential money multiplier are different?

Higher marginal tax rates tend to depress economic activity.

Which of the following is TRUE regarding the possible effects of a tax change?

Members of the Federal Reserve Board cannot be reappointed

Which of the following is a provision of the Federal Reserve Act or subsequent legislation that contributes to the independence of the Fed?

The Federal Reserve System is subject to Congressional oversight

Which of the following is a provision of the Federal Reserve Act or subsequent legislation that weakens the independence of the Fed?

cutting spending on the military

Which of the following is an example of contractionary fiscal policy?

demand deposits

Which of the following is included in M1?

The unemployment compensation program pays out more money as unemployment rates rise.

Which of the following measures is NOT an example of discretionary fiscal policy?

buying government bonds

Which of the following measures would increase the money supply?

Near monies are more liquid than M1

Which of the following statements about M2 is INCORRECT?

The Federal Reserve is considered to be an independent central bank

Which of the following statements is CORRECT?

The money you contribute to FICA is yours, to be given back to you when you retire.

Which statement is NOT true?

M1 went down by $5000, but M2 was unchanged.

Yolanda took $5000 from her checking account and put the money in her savings account at the same bank.

increasing; increasing; decreasing

_________ government spending, ___________ transfer payments, and ___________ taxes all increase aggregate demand.

a federal deficit was $1 trillion, economic growth was 4%, and inflation was zero.

A functional finance economist would say do nothing if:

increases the ability of banks to make loans

A lower reserve requirement:

deficit spending has reduced the perceived cost of current government operations.

According to public choice economists, the federal government has expanded because:

drops; buys back; buys

According to the government budget constraint equation, when the government runs a surplus, three things can happen: the money supply ______, the government _______ bonds, or the government ______ assets.

speculation lag

All of the following are considered monetary policy wages EXCEPT:

certificates of deposit; blue-chip stocks

Among the following options, the least risky portfolio is 50% _______ and 50% ________.

M1

Currently, ______ is equal to roughly $2.5 trillion, and it is the most liquid part of the money supply.

is acceptable as money because the government has decreed it to be so.

Fiat money:

check cashing centers (does include commercial banks, insurance companies, and pension funds.)

Financial intermediaries include all of the following except:

all government projects were short term

Generational imbalance would not be a problem if:

$1,571.43

If a $1000 bond has a coupon rate of 11% and the market interest rate drops to 7%, what would a person expect to pay for that bond?

there is a movement downward along the supply curve for loanable funds.

If interest rates can provide and incentive not to spend money today, then as interest rates fall:

the federal funds rate will fall

If the federal reserve decides to increase the money supply:

financial intermediaries

Institutions that acquire funds from savers and then lend those funds to borrowers are called:

decision lag

Legislators debate for six months on which spending programs to utilize to manipulate the business cycle. This is an example of the:

medium of exchange

Money used to purchase goods or services is functioning as a:

government securities

Open market operations involve the purchase and sale of:

relationship between economics and political decision making.

Public choice theorists primarily examine the:

coins, banknotes, demand deposits

Rank these components in order from the SMALLEST share of M1 to the largest.

medium of exchange

Sasha buys a pair of shoes for $200. She pays for it with 200, one dollar bills. The dollar bills, in this case, are functioning as a:

promoting economic growth

Sometimes the feds goals conflict, and the fed must emphasize one goal over another. Which of the following is a goal of the Fed that does NOT conflict with its goal of full employment?

$375

Sumit deposits $1500 cash into his checking account. The reserve requirement is 25%. What is the change in his banks required reserves?

crowding out effect

Suppose a government finances its expansionary fiscal policy by borrowing form the public. Joseph is concerned that this will increase the demand for loanable funds, drive up interest rates, and leave less loanable money available for consumers and businesses. Joseph is concerned about the:

rises by $1250

Suppose a perpetuity bond with a face value of $1000 has a 10% coupon rate. If market interest rates fall to 8%, the price of the bond:

Federal Open Market Committee

The __________ oversees the main tool of monetary policy.

contractionary

The fiscal policy that involves reducing government spending , reducing transfer payments, or raising taxes to decrease aggregate demand is called _______.

reserves divided by total deposits

The formula for calculating the reserve ratio is:

makes possible the money creation process, helps prevent bank runs, requires banks to hold a portion of their demand deposits in reserve.

The fractional reserve banking system:

fractional reserve banking system

The idea that banks hold only a portion of deposits and lend the rest out is called the:

foreigners

The interest paid on public debt held by ________ is a real claim on our goods and services.

seven people appointed by the president of the United States

The membership of the Board of Governors of the Federal Reserve System consists of:

keeping tax rates low

The national economic objectives that the FED attempts to achieve include all the following actions EXCEPT:

aggregate demand curve to the right

The solution to simultaneous deflation and unemployment is to shift the:

double coincidence of wants

Thelma grew some carrots in her garden. She needs a winter coat. John has an extra coat he doesn't need but would like to bake some carrot cake. The two find each other and make an exchange. This situation is called the:

a cash deposit by a bank customer and an electronic reserve deposit by the government

There are two ways for money to be initially deposited into the banking system. They include:

Census Bureau

To increase the level of safety in the financial system, financial institutions are regulated by all of the following entities EXCEPT the:

1990s; 1980s

U.S. interest on its national debt, measured as a percentage of GDP, fell during __________ and rose during the _______.

inflation

Using demand side fiscal policy to stimulate aggregate demand when the economy is at full employment will primarily result in:

unit of account, medium of exchange, store of value

What are the primary functions of money?

Additional loanable funds are provided to the market, leading to lower interest rates.

What is likely to happen if the government runs a budget surplus?

federal funds rate

What is the interest rate for money borrowed to satisfy daily reserve requirements?

education subsidies

What type of government spending would be most effective in mitigating the crowding-out effect?

depreciate; now

When a firm can ______ its capital equipment over a shorter period, it cuts its taxes _____.

at; higher

When the economy is at full employment, an expansionary fiscal policy results in a new long-run equilibrium at an output level _______ full employment and a _______ price level.

income tax revenues and transfer payments

Which are examples of automatic stabilizers?

decision lag

Which fiscal policy time lag can occur when the legislative process works slowly?

satisfies the double coincidence of wants if an exchange takes place.

Barter:

less risky; bondholders are less affected by a firm's bankruptcy.

Bonds are considered to be ______ than stocks because _______.