Macro section 3

The Board of Governors:

A. are experts in banking, finance, and monetary policy. B. are appointed by the U.S. president and confirmed by the Senate to 14 year terms. C. Both these are true.

The amount of money available in the economy:

A. is called the money supply. B. is managed by the Federal Reserve. C. varies depending on what is considered money. D. All of these are true.

Lenders generally want a higher interest rate to compensate them when loans stretch over a longer period because:

A. the opportunity cost increases over time. B. there's more uncertainty about potential future investment opportunities. C. lenders want to be compensated for being unable to get their money back quickly. All of these are true.

The main reason barter is extremely inefficient is that:

A. you have to find someone who both has what you want and wants what you have. B. it can have very high transactions costs associated with it. C. people and firms have to spend a lot of time looking for mutually agreeable trades. D. All of these are true.

Which of the following goods is the most liquid?

Checking account

The entity that carries full responsibility for setting the overall direction of monetary policy and guiding the money supply is the:

Federal Open Market Committee.

Diversification of assets cannot eliminate which kind of risk?

Market risk

The set of all assets that are regularly used to directly purchase goods and services is called:

Money

We say that money is a store of value because it represents:

a certain amount of purchasing power held over time

A bond is:

a promise by the bond issuer

An economy that interacts with other economies is called:

an open economy

The value of exports minus the value of imports is called the:

balance of trade.

If there were no fractional reserve banking, then:

banks would not create money in the economy.

The financial system:

brings together savers and borrowers in a set of interconnected markets where people trade a variety of financial products.

If the Fed wishes to increase the money supply, it can:

buy bonds from a bank, giving the bank cash in return, which it can then lend out

The definition of M2 includes:

cash, checking accounts, savings accounts, and other financial instruments where money is locked away for a specified period of time.

The institution ultimately responsible for managing the nation's money supply and coordinating the banking system to ensure a sound economy is called a:

central bank.

An asset used to secure a loan is called.

collateral.

n order to change the money supply, the Fed might use all of the following tools except:

deficit spending.

Because a bank has a very large pool of buyers and savers, it can:

diversify the risk of saving and borrowing for individuals.

Anheuser-Busch purchased the Labatt brewery in Canada and has expanded its market and product offerings. This is an example of:

foreign direct investment.

Champlain College in Vermont runs a satellite campus in Dublin, Ireland. This is an example of:

foreign portfolio investment.

Your Uncle Harry gives you stock in Samsung for your birthday. The stock is an example of:

foreign portfolio investment.

A financial market is where people trade:

future claims on funds or goods.

Because a bank earns money when it makes a loan to a borrower it:

has an incentive to loan out as much of each deposit as it can.

In general, financial assets that have a(n) _______ amount of risk have a _________ rate of return

higher, higher

Financial intermediaries are:

institutions that channel funds from people who have them to people who want them.

The demand for loanable funds comes from:

investment.

Companies issue stock because of all of the following except:

it allows companies to file bankruptcy.

Banks create money in the economy by

loaning out part of each deposit, which will be re-deposited by someone else.

Sarah is able to take out a loan for $5000 for one year at an annual interest rate of 10 percent. After calculating her return to be $450, Sarah will:

lose $50 on net, and should not take out the loan.

Fiat money is:

money created by rule.

The ratio of money created by the lending activities of the banking system to the money created by the government's central bank is called the:

money multiplier.

A capital inflow occurs when:

money saved in another country finances domestic investment.

The goal of expansionary monetary policy is to:

reduce interest rates to stimulate the economy.

The ratio of the total amount of demand deposits at a bank to the amount kept as cash reserves is known as the:

reserve ratio

The supply of loanable funds comes from:

savings.

Economists use the word investment to refer to the portion of income that is:

spent on productive inputs, such as factories, machinery, and inventories.

Diversification is:

the process by which risks are shared among many different assets or people.

When a country imports more than it exports, it has a:

trade deficit.

If the reserve ratio is 10%, money multiplier is equal to:

10

Which of the following tools is used most often by the Fed for changing the supply of money?

Open market operations