Macro final Sinclair college

If the reserve ratio is 10% and a bank accepts $50,000 in demand deposits from the public, then it would have to keep _________ as reserves.

$5,000

In macroeconomics, input prices are assumed to be inflexible or even fixed in the ______ _______

1. Short 2. Run

The ________ Federal Reserve Banks together constitute the U.S. "central bank," nicknamed the "Fed."

12

Which of the following actions could cause a recession? A. A decrease in investment spending B. An increase in aggregate supply C. An increase in government spending D. An increase in aggregate demand

A. A decrease in investment spending

Which statement best illustrates the history of the fractional banking system? A. A goldsmith accepts deposits of gold and issues paper receipts in excess of the amount of gold held; reserves are a fraction of the money supply. B. A goldsmith accepts deposits of gold and issues paper receipts in excess of the amount of gold held; reserves are equal to the money supply. C. A goldsmith accepts deposits of gold and issues paper receipts less than the amount of gold held; reserves are a fraction of the money supply.

A. A goldsmith accepts deposits of gold and issues paper receipts in excess of the amount of gold held; reserves are a fraction of the money supply.

Select all that apply Abe receives a check from Bea for fixing Bea's car. Bea's bank is Bank B. Abe deposits the check into his bank, Bank A. Select all the statements that correct describe the check-clearing process. A. Bank A increases Abe's checkable deposits by the amount of the check. B. Total reserves in the banking system increase. C. Bank A increases its reserves at the Federal Reserve Bank by more than the amount of the check. D. Total reserves in the banking system remain unchanged.

A. Bank A increases Abe's checkable deposits by the amount of the check. D. Total reserves in the banking system remain unchanged.

Select all that apply Which of the following are functions of restrictive monetary policy? A. Curtail the expansion of aggregate demand B. Increase borrowing and spending C. Increase price levels D. Increase the interest rate

A. Curtail the expansion of aggregate demand D. Increase the interest rate

Select Muitiple A high interest rate environment will have which of the following effects? A. Discourage investment. B. Lowering aggregate demand C. Restraining demand-pull inflation D. Encouraging investment E. Increasing supply

A. Discourage investment. B. Lowering aggregate demand C. Restraining demand-pull inflation

By lowering the interest rate to bolster borrowing and spending to increase aggregate demand, the Fed is instituting which type of monetary policy? A. Expansionary B. Restrictive C. Tight D. Contractionary

A. Expansionary

Who is the largest single holder of U.S. government securities? A. Federal Reserve B. U.S. Mint C. U.S. Treasury D. State of New York

A. Federal Reserve

Select all that apply Select all the following choices that are true statements about the target rate of unemployment. A. It is currently estimated between 4% and 5% for the U.S. economy. B. It is the Fed's desired rate of unemployment. C. It remains constant from year to year. D. It is equal to the minimum rate of employment for unemployment.

A. It is currently estimated between 4% and 5% for the U.S. economy. B. It is the Fed's desired rate of unemployment.

Select all that apply Which are true statements about the full-employment rate of unemployment? A. It is not zero. B. It occurs when the economy is producing at potential output. C. It is a negative number. D. It includes frictional and structural unemployment.

A. It is not zero. B. It occurs when the economy is producing at potential output. D. It includes frictional and structural unemployment.

Select all that apply Which are true statements about the full-employment rate of unemployment? A. It is not zero. B. It is a negative number. C. It includes frictional and structural unemployment. D. It occurs when the economy is producing at potential output.

A. It is not zero. C. It includes frictional and structural unemployment. D. It occurs when the economy is producing at potential output.

Increases in unemployment and inflation during the 1970s and early 1980s upended the notion of a stable ______. A. Phillips Curve B. long-run aggregate supply curve C. Laffer Curve D. aggregate demand curve

A. Phillips Curve

Select all that apply Which of the following are tools of monetary control that the Fed can use to alter the reserves of commercial banks? A. Reserve ratio B. Taxation C. Open-market operations D. Government spending E. Discount rate F. Interest on reserves

A. Reserve ratio C. Open-market operations E. Discount rate F. Interest on reserves

Stagflation is a period characterized by which of the following? A. Rising unemployment and inflation rates B. Rising unemployment rates but falling inflation rates C. Falling production, output, and inflation rates D. Rising inflation rates but falling unemployment rates

A. Rising unemployment and inflation rates

Which of the following are responsible for economies having low, continuous positive inflation rates? A. Shifts in long-run aggregate supply B. Periodic economic downturns C. Full-employment output equilibrium D. Shifts in aggregate demand

A. Shifts in long-run aggregate supply D. Shifts in aggregate demand

Critics of supply-side economics point to evidence that shows decreases in wage-income tax rates result in which of the following? A. Some people working more but others working less B. No long-run change in how much labor employers need C. Most people choosing leisure over work D. Most people putting in the same amount of work

A. Some people working more but others working less

Select all that apply What are true statements about a commercial bank's buying government securities from the public? A. The securities earn interest. B. Money is destroyed. C. The securities are interest-free. D. New money is created.

A. The securities earn interest. D. New money is created.

Select all that apply When the Federal Reserve purchases bonds in the open market from the public, which of the following are elements of the transaction? A. The seller gives up securities to the Federal Reserve Banks. B. The bank experiences a decrease in its reserves. C. The seller gets a payment check to deposit in its bank account. D. The bank sends the check for collection.

A. The seller gives up securities to the Federal Reserve Banks. C. The seller gets a payment check to deposit in its bank account. D. The bank sends the check for collection.

Select all that apply Which are true statements about the main purpose of required reserves? A. To help the economy avoid business fluctuations B. To protect depositors from losing money due to bank runs C. To prevent banks from making too much profit from lending D. To help the Fed control the lending ability of commercial banks

A. To help the economy avoid business fluctuations D. To help the Fed control the lending ability of commercial banks

Select all that apply Select all of the following choices which explain why the public keeps some wealth in the form of money. A. To make purchases with it B. To accrue interest C. To hold it as an asset D. For investment security

A. To make purchases with it C. To hold it as an asset

Select all that apply What are true statements about the history of the fractional banking system? A. Traders would deposit their gold with goldsmiths. B. The gold reserves represented over 100% of the total money supply. C. The gold receipts were not accepted as a medium of exchange. D. Goldsmiths put the paper receipts into circulation by making loans. E. Goldsmiths issued paper receipts in excess of the amount of gold held.

A. Traders would deposit their gold with goldsmiths. D. Goldsmiths put the paper receipts into circulation by making loans. E. Goldsmiths issued paper receipts in excess of the amount of gold held.

When a bank buys government securities, they will appear on its balance sheet as a(n) _____ called "Securities." A. asset B. account C. claim D. liability

A. asset

The supply of money is directly increased when the Fed ______. A. buys government bonds from the public B. sells government bonds to a commercial bank C. buys public stocks from government D. buys government bonds from a commercial bank

A. buys government bonds from the public

Select all that apply Which of the following represent how people might hold their financial assets? A. money B. stocks C. interest payments D. debt E. bonds

A. money B. stocks E. bonds

Select all that apply Critics of the Laffer Curve and its supply-side implications say ample empirical evidence shows that the impact of a tax cut on incentives is ______. A. of uncertain direction B. only temporary C. slow to emerge D. too strong and immediate

A. of uncertain direction C. slow to emerge

Banks that borrow in the federal funds market do so because they are temporarily short of _____ reserves. A. required B. excess C. federal

A. required

Dividing a commercial bank's required reserves by its checkable deposit liabilities produces the A. reserve ratio. B. excess ratio. C. lending ratio. D. deposit multiplier

A. reserve ratio.

An individual bank can safely lend an amount equal to its excess reserves, but a commercial banking system can lend _____. A.by a multiple of its collective excess reserves B. an amount equal to its total demand deposits C. only an amount equal to one-half its required reserves held in the Federal Reserve banks D. based on the size of its customer base

A.by a multiple of its collective excess reserves

A bank's excess reserves equals the bank's _____________ reserves minus it's required reserves

Actual

Select all that apply Which of the following statements is true when the economy is at equilibrium in the short run? A. A natural rate of unemployment exists. B. A negative GDP gap is possible. C. A positive GDP gap is possible. D. Neither a negative nor a positive GDP gap is possible.

B. A negative GDP gap is possible. C. A positive GDP gap is possible.

Which of the following is the correct formula for calculating excess reserves? A. Excess reserves = reserve ratio x demand deposits B. Excess reserves = actual reserves - required reserves C. Excess reserves = required reserves - actual reserves D. Excess reserves = actual reserves + required reserves

B. Excess reserves = actual reserves - required reserves

True or false: Expansionary monetary policy will increase the interest rate to bolster borrowing and spending, which will increase aggregate demand and expand real output. A. True B. False

B. False

According to the Laffer Curve, as tax rates rise from 0% to 100%, tax revenues will do which of the following? A. Remain constant B. Initially increase but eventually decrease C. Steadily increase D. Initially decrease but eventually increase

B. Initially increase but eventually decrease

What happens to an economy when its increases in long-run aggregate supply are less than increases in aggregate demand? A. It experiences mild deflation and economic growth. B. It experiences mild inflation and economic growth. C. It experiences high unemployment and economic stagnation D, It experiences a mild recession and high unemployment.

B. It experiences mild inflation and economic growth.

Which statement best summarizes the action of a bank that anticipates that its holdings of checkable deposits will grow in the future? A. It will send the exact amount equal to its checkable deposits as reserves to the Federal Reserve Bank. B. It will send an extra amount of reserves to the Federal Reserve Bank. C. It will send the minimum amount of required as reserves to the Federal Reserve Bank.

B. It will send an extra amount of reserves to the Federal Reserve Bank.

A higher than expected rate of inflation in the short run leads firms to increase production, resulting in which of the following? A. Falling interest rates B. Lower unemployment C. Higher unemployment D. Falling inflation

B. Lower unemployment

What does it mean when someone holds money to buy the dips?. A. Money will pay substantial interest payments when other assets generate low returns. B. Money can be used to immediately purchase other assets at opportune times. C. Money is convenient for purchasing necessities as the need for them arises. D. Money is vulnerable to the risks of capital losses.

B. Money can be used to immediately purchase other assets at opportune times.

According to one application of the extended AD-AS model, a decrease in aggregate demand causes which of the following? A. Budgetary surplus B. Recession C. Inflation D. Rising employment

B. Recession

The fraction of deposits that a bank is required by law to hold and not lend out is called its A. Excess reserves B. Required reserves C. Tentative reserves D. Net worth

B. Required reserves

The Fed can adjust the ________ in order to shape the lending ability of commercial banks. A. interest rate B. reserve ratio C. solvent rate D. demand for money

B. Reserve Ratio

Select all that apply Which of the following are responsible for economies having low, continuous positive inflation rates? A. Full-employment output equilibrium B. Shifts in aggregate demand C. Periodic economic downturns D. Shifts in long-run aggregate supply

B. Shifts in aggregate demand D. Shifts in long-run aggregate supply

What is the role of the Federal Reserve in holding government securities? A. The Fed occasionally holds U.S. government securities during economic downturns. B. The Fed is the largest single holder of U.S. government securities. C. The Fed issues securities to be held by the U.S. government. D. The Fed is not allowed to directly hold U.S. government securities.

B. The Fed is the largest single holder of U.S. government securities.

Select all that apply Which of the following transactions occur when the Fed sells government securities to the public? A.No change to the checkable deposits. B. The check written against the commercial bank is cleared. C. The commercial bank's reserves decline. D. The commercial bank's reserves increase. E. Checkable deposits are reduced.

B. The check written against the commercial bank is cleared. C. The commercial bank's reserves decline. D. The commercial bank's reserves increase.

Select all that apply The short-run aggregate supply curve is based on which of the following assumptions? A. Nominal wages are flexible and will rise and fall along with the price level. B. The price level is flexible both upward and downward. C. Product prices are inflexible and will remain constant even when input prices change. D. Nominal wages were established by firms and workers, with the belief that the price level will stay constant.

B. The price level is flexible both upward and downward. D. Nominal wages were established by firms and workers, with the belief that the price level will stay constant.

If the founders of a bank have sold $100,000 worth of shares of stock, some to themselves and some to other people, the balance sheet will read Multiple choice question. A. assets (Cash) = $50,000 and Liabilities and Net worth (stock shares) = $50,000. B. assets (Cash) = $100,000 and Liabilities and Net worth (stock shares) = $100,000.

B. assets (Cash) = $100,000 and Liabilities and Net worth (stock shares) = $100,000.

On a balance sheet, the value of ______ must equal the ______ against those assets. A. liabilities; claims B. assets; claims C. money; assets

B. assets; claims

An increase in the costs of inputs, such as wages, leads to ______. A. an increase in real output B. cost-push inflation C. a decrease in equilibrium price level D. demand-pull inflation

B. cost-push inflation

In a bullseye chart, the amount by which actual unemployment and inflation differ from the Fed's target rates is ______. A. found by drawing a triangle linking the center to two red dots B. found by looking at the position of the red dot relative to the center C. represented by the center of the red dot D. represented by the center of the bullseye

B. found by looking at the position of the red dot relative to the center

If the red dot on the Fed's bullseye chart is located northwest or southeast of the center, then the Fed will ______. A. automatically implement a restrictive monetary policy B. have a clear stance on monetary policy C. automatically implement an expansionary monetary policy D. have an unclear stance on monetary policy

B. have a clear stance on monetary policy

The Fed's primary influence is on the money supply and _______. A. production costs B. interest rates C. consumer demand D. stock prices

B. interest rates

Liabilities are claims against a bank's assets by ______ of the bank. A. owners B. non-owners C. borrowers

B. non-owners

Over the long run, falling nominal wages will shift the short-run aggregate supply curve to the ______, which causes output to ______ back to the full employment level. A. right; fall B. right; rise C. left; rise D. left; fall

B. right; rise

Most economists agree that, other things being equal, cuts in tax rates will result in which of the following? A. A reduction in tax revenues directly in proportion to the rate cuts B. A reduction in revenues proportionately larger than the rate cuts C. A reduction in tax revenues proportionately smaller than the rate cuts D. A modest increase in tax revenues

C. A reduction in tax revenues proportionately smaller than the rate cuts

Economists generally agree that the U.S. economy operates at a point on the Laffer Curve where which of the following is true? A. A decrease in personal tax rates will increase tax revenues. B. An increase in corporate tax rates will increase aggregate demand. C. An increase in personal tax rates will increase tax revenues. D. A decrease in marginal tax rates will slow economic growth.

C. An increase in personal tax rates will increase tax revenues.

Select all that apply Which of the following are reasons that a real-world bank would not deposit all of its cash in the Federal Reserve Bank? A. Banks must hold vault cash equal to 10% of their total assets. B. By holding all their cash with the Federal Reserve, banks would be unable to meet a bank run or bank panic. C. Banks as a rule keep 1.5% or 2% of their assets as cash in the vault. D. Cash that banks retain in their vaults can be counted as reserves without sending it to the Federal Reserve.

C. Banks as a rule keep 1.5% or 2% of their assets as cash in the vault. D. Cash that banks retain in their vaults can be counted as reserves without sending it to the Federal Reserve.

When the price level rises because the AD curve shifts rightward, the economy experiences which of the following? A. Cost-push inflation B. Demand-caused recession C. Demand-pull inflation D. Cost-caused recession

C. Demand-pull inflation

The two basic functions of commercial banks are to accept _________ and make ________ A. Payments; loans B. Payments; money C. Deposits; loans D. Deposits; Profits

C. Deposits; loans

What is the impact on the money supply when the Fed sells securities to the public? A. Increase in money supply B. Money supply decreased indirectly C. Direct decrease in the money supply D. No change in the money supply

C. Direct decrease in the money supply

Which statement best summarizes the action of a bank that anticipates that its holdings of checkable deposits will grow in the future? A. It will send the exact amount equal to its checkable deposits as reserves to the Federal Reserve Bank. B. It will send the minimum amount of required as reserves to the Federal Reserve Bank. C. It will send an extra amount of reserves to the Federal Reserve Bank.

C. It will send an extra amount of reserves to the Federal Reserve Bank.

Select all that apply Which of the following aspects of the economy are directly controlled by the Fed? A. Money demand B. Price levels C. Money supply D. Interest rates

C. Money supply D. Interest rates

How do the commercial bank's reserves change when the Fed sells a security to the bank? A. They do not change. B. They are eliminated. C. They decrease. D. They increase.

C. They decrease.

Select all that apply Which are true statements about the main purpose of required reserves? A. To prevent banks from making too much profit from lending B. To protect depositors from losing money due to bank runs C. To help the economy avoid business fluctuations D. To help the Fed control the lending ability of commercial banks

C. To help the economy avoid business fluctuations D. To help the Fed control the lending ability of commercial banks

The maximum amount of money that a single commercial bank can lend is equal to its ______. A. managers' limit B. required reserves C. excess reserves D. actual reserves

C. excess reserves

By law, all commercial banks and thrift institutions that provide checkable deposits are required to _____. A. lend out no more than the amount of their required reserves B. hold 100% of customers' deposits on reserve C. keep an amount of funds equal to a specified percentage of the bank's own deposit liabilities with the Federal Reserve Bank D. hold a fraction of both their assets & liabilities on reserve "in-house" or at the Federal Reserve Bank

C. keep an amount of funds equal to a specified percentage of the bank's own deposit liabilities with the Federal Reserve Bank

The purpose of required reserves is to allow the Fed to___________ the ability of commercial banks to make loans.

Control

If the reserve ratio is 20% and a bank accepts $10,000 in demand deposits from the public, then it would have to keep ______ in reserves. A. $8,000 B. $20 C. $200 D. $2,000

D. $2,000

What is the statement of the assets, liabilities, and net worth of a firm or individual at some given time called? A. A capital statement B. A profit and loss statement C. An income statement D. A balance sheet

D. A balance sheet

Select all that apply Which of the following are the two basic functions of commercial banks? A. Printing money B. Paying interest C. Cashing checks D. Accepting deposits E. Making loans

D. Accepting deposits E. Making loans

When a public company sells government bonds to the Federal Reserve, the public company receives a payment check drawn by the ______. A. U.S. Treasury B. stockholders C. public company D. Federal Reserve

D. Federal Reserve

Which of the following is not a generalization supported by the extended AD-AS model? A. Typically, there is a short-run trade-off between unemployment and inflation. B. Aggregate supply shocks can cause both unemployment and inflation rates to increase. C. There is no significant trade-off between unemployment and inflation in the long run. D. Government action is always needed to bring the economy to full employment.

D. Government action is always needed to bring the economy to full employment.

Which one of the Fed's instruments of monetary control is most important? A. Reserve ratios B. Term auction facilities C. Discount rates D. Open-market operations

D. Open-market operations

______ are collateralized loans used by the Fed to alter the money supply. A. Mortgages and reverse mortgages B. Common shares and preferred shares C. Fixed repos and variable repos D. Repos and reverse repos

D. Repos and reverse repos

What term refers to the amount of reserves that a commercial bank must keep that is a percentage of the bank's checkable deposit liabilities? A. Actual reserves B. Excess reserve ratio C.Actual reserve ratio D. Reserve ratio

D. Reserve Ratio

Which branch of economic theory stresses the importance of aggregate supply in determining inflation and unemployment rates? A. Deflationary economics B. Demand-side economics C. Keynesian economics D. Supply-side economics

D. Supply-side economics

Demand-pull inflation is the result of which of the following? A. The AS curve shifting to the left B. The AD curve shifting to the left C. The AS curve shifting to the right D. The AD curve shifting to the right

D. The AD curve shifting to the right

Which of the following illustrates an inverse relationship between the rates of inflation and unemployment? A. The aggregate demand curve B. The Laffer Curve C. The aggregate supply curve D. The Phillips Curve

D. The Phillips Curve

According to economists, the inflation rate is consistent with which of the following in the long run? A. The national deflation rate B. The aggregate demand rate C. The aggregate supply rate D. The natural employment rate

D. The natural employment rate

How do firms respond when production costs rise as a result of nominal wages being negotiated upward due to inflationary pressure? A. They reduce input costs to offset wage increases. B. They increase hiring to expand production. C. They decrease aggregate demand. D. They increase output prices to match the expected rate of inflation.

D. They increase output prices to match the expected rate of inflation.

An economy will move up along the short-run Phillips Curve when the inflation rate is ______. A. falling and unemployment is also falling B. lower than expected, causing firms to hire more workers C. causing wages to fall and unemployment to increase D. higher than expected, causing firms to hire more labor

D. higher than expected, causing firms to hire more labor

In macroeconomics, the short run assumes that input prices are ______ while output prices are ______. A.flexible; also flexible B. inflexible; also inflexible C.flexible; inflexible D. inflexible; flexible

D. inflexible; flexible

Nonowner claims against the assets of a bank are called: A. bonds B. net worth C. assets D. liabilities

D. liabilities

The ______ magnifies excess reserves into the larger creation of checkable deposit money. A. spending multiplier B. budget multiplier C. tax multiplier D. monetary multiplier

D. monetary multipliers

The full-employment rate that occurs when cyclical unemployment is zero is known as the ______ unemployment rate. A. optimal B. Phillips Curve C. inflationary D. natural

D. natural

Wealth can be held in the form of financial assets such as stocks, money, and bonds, or as ______ assets such as real estate. A. corporate B. liquid C. government D. tangible

D. tangible

When a deposited check is drawn against another bank, the collection of that check will (increase/decrease) the reserves and the checkable deposits of the bank from which it was drawn.

Decrease

A single commercial bank can lend only an amount equal to its (excess/required) reserves.

Excess

One of the more recent tools for the Fed to alter the money supply is paying ______ on excess reserves held at the Fed.

Interest

A _________________ interest rate environment will encourage investment, raise aggregate demand and unleash demand-pull inflation.

Low

Open-market operations are the Fed's most important method of __________(one word) control.

Monetary

The reserve ratio, open-market operations, and the discount rate are tools of ______________ policy used by the Fed to alter commercial bank reserves.

Monetary

The public wants to hold some of its wealth as ______________ , Correct Unavailable to make purchases with it and to hold it as an asset.

Money

In addition to buying and selling bonds, what else can the Fed change to affect the money supply? Interest rates Taxes Government spending Repos and reverse repos

Repos and reverse repos

The money multiplier is the reciprocal of required ______ ratio

Reserve

______ monetary policy will increase the interest rate in order to reduce borrowing and spending, which will curtail the expansion of aggregate demand and hold down price-level increases.

Restrictive

The two primary ____________ (one word) of the Fed are securities and loans to commercial banks and thrifts.

assets

A balance sheet of a commercial bank is a statement of assets and __________ on assets, which summarize the financial position of the bank at a certain time.

claims

Interest rates and bond prices are _______ related.

directly

The demand for money as a medium of exchange is called the _________ demand for money.

transactions