Macroeconomics chapter Exam 4 11,13 and 14

Discretionary fiscal policy is policy that A. is developed in secret B. applies to some states but not others C. applies to some industries but not others D. works automatically without public announcement or plan D. is an intentional change in taxation or government spending

D

If the economy is in recession, an appropriate fiscal policy would be to A. increase taxes and government spending. B. decrease taxes and government spending. C. increase taxes and decrease government spending. D. decrease taxes and increase government spending.

D

In order for something to be used as money, it must be A. issued by the government B. issued by the banks C. declared to be money D. universally acceptable for medium of exchange E. made of something valuable

D

Suppose, if the Federal Reserve charges banks 2% interest rate when they borrow reserves, then the ____ rate is 2% A. federal funds B. federal funds tarket C. prime bank D. discount

D

A government receives seigniorage whenever it A. sells gold to people for money B. issues money whose face value is greater than the value of the resources used up in supplying the money C. sells goods and services it produces for money D. uses money to buy goods and services

B

An individual bank can, at most, lend out all its: A. checkable deposits. B. excess reserves. C. required reserves. D. profits.

B

When the economy is expanding and experiences inflation, the FOMC policy decision would be to A. lower the federal funds target rate B. raise the federal funds target rate C. keep the federal funds target rate unchanged D. increase the discount rate

B

Which if the following actions is NOT a tool of monetary policy? A. changing the discount rate B. changing government spending and taxes C. changing reserve requirements D. open market operations

B

M1 is equal to: A. currency plus demand deposits. B. currency plus demand deposits plus savings deposits. C. currency plus demand deposits plus traveler's D. checks plus other checkable deposits. currency.

C

The federal reserve changes the amount of money in the economy by: A. printing or destroying money B. increasing or decreasing the federal budget C. setting the prime rate for each financial depository institution D. changing the amount of excess reserves in the banking system

D

To close an expansionary gap using fiscal policy, the government can A.increase government spending B. increase government spending and decrease taxes at the same time C. decrease taxes D. decrease government spending or increase taxes

D

Which of the following is an example of automatic stabilizers? A. Congress raises taxes B. Congress lowers taxes C. Congress increases spending D. Congress decreases spending E. None of the above

E

Fiscal policy is concerned with A. government spending and taxation only B. government spending and money only C. money and taxation only D. government spending, taxation, and money money only

A

Money: A. is anything that is accepted in exchange for other goods and services. B. is anything that is backed by precious metals. C. is currency. D. has to have an intrinsic value.

A

One of the difficulties in using discretionary fiscal policy effectively is that the legislative decision making process is sometimes very long and drawn out. A. True B. False

A

The crowding-out effect arises from: A. Increase in government borrowings that result in higher interest rates. B. the implementation lag. C. automatic stabilizers such as progressive income tax and unemployment compensation. D. the recognition lag.

A

Banks create money when they: A. charge higher interest in their borrowers B. print money C. earn a profit D. make loans and create checking deposits

D

An appropriate fiscal policy response to a demand-pull inflation would be to A. increase government expenditures and taxes B. decrease government expenditures and taxes C. decrease government expenditures and increase taxes D. increase government expenditures and decrease taxes

C

Contractionary monetary policy will A. lower interest rates and decrease aggregate demand B. raise interest rates and increase aggregate demand C. lower interest rates and increase aggregate demand D. raise interest rates and decrease aggregate demand

D

Credit cards are included in A. only M1 B. only M2 C. both M1 and M2 D. neither M1 or M2

D

The fractional reserve banking system refers to a system in which banks: A. hold reserves equal to a fraction of their deposits. B. keep 100% of their deposits always on reserve. C. forbid the removal of more than a fraction of demand deposits per day. D. pay interest only on a fraction of their deposits.

A

The medium of exchange function of money allows an economy to avoid the problem of: A. double coincidence of wants. B. unemployment. C. loss of purchasing power during an inflation. D. rising interest rates.

A

When the congress decreases government purchases or increases tax rates, it characterizes a/an A. contractionary fiscal policy B. expansionary fiscal policy C. contractionary monetary policy D. expansionary monetary policy

A

When the economy enters a recession, tax revenues tend to fall, and government spending in unemployment compensation rises. A. True B. False

A

When the economy is in a recession, the FOMC policy decision would be to A. lower the federal funds target rate B. raise the federal funds target rate C. keep the federal funds target rate unchanged D. increase the discount rate

A

Suppose the required reserve ratio is 5% and Ana deposits $1000 in her account with Bank of America, Required Reserves= Excess Reserves= Money Multiplier= Total Money Supply=

$50 $950 $20 $19,000

Federal funds rate is the interest rate at which A. the Federal Reserve lends reserves to banks. B. banks lend reserves to other banks. C. the Federal Reserve lends reserves to the federal government. D. the Federal Reserve borrows reserves from banks.

B

If the economy is experiencing recession, the Federal Reserve will adopt A. contractionary fiscal policy B. expansionary fiscal policy C. contractionary monetary policy D. expansionary monetary policy

B

If the federal reserve raises the discount rate, it would A. encourage banks to increase lending B. discourage banks to increase lending C. not affect banks lending because the discount rate affects banks borrowing D. increase banks required reserves E. decrease banks required reserves

B

If you deposit $100 in your bank when the reserve requirement is 15%, what is the maximum loan your bank can offer a borrower from your deposit? A. $100 B. $85 C. $80 D. $15 E. $1000

B

John is shopping for a tablet. When he compares price of a Samsung tablet as $449 and an Apple Ipad as $600, he is using money as A. a medium of exchange B. a unit of account C. a store of value D. none of the above as he has not bought the tablet yet

B

Monetary policy means A. a change in the money demand and interest rates B. a change in the money supply and interest rates C. a change in the tax rates and government spending D. both a and b are correct

B

Outstanding U.S. Treasury Bills $900 Currency in Circulation $500 Money Market Deposits Accounts $300 Small Denomination Time Deposits $600 Checkable Deposits $1,000 Stock Market Shares $1,000 Money Market Mutual Funds $500 Savings Deposit $400 Travelers Checks $200 Based on the information in the Table above, the value of the M1 is A. $2,100 B. $1,700 C. $3,000 D. $3,100

B

Supply-side economists believe that decreasing tax rate would A. decrease incentive to work and as a result decrease SRAS B. increase incentive to work and as a result increase SRAS C. decrease incentive to work and as a result increase SRAS D. increase incentive to work and a result decrease SRAS

B

Suppose, you transfer $500 from your checking deposit account to your savings deposit account, what is the overall effect on M1 and M2? A. Both M1 and M2 increase by $500 B. M1 falls by $500, M2 is unchanged C. M1 is unchanged, M2 rises by $500 D. Both M1 and M2 decrease by $500 E. Neither M1 nor M2 change

B

The crowding-out effect is a potential problem for A. contractionary fiscal policy B. expansionary fiscal policy C. contractionary monetary policy D. expansionary monetary policy

B

The interest rate that banks charge other banks for borrowing reserves is the: A. open market rate B. federal funds rate C. discount rate D. bank rate

B

When the congress increase government purchases or decrease tax rates, it characterizes a/an A. contractionary fiscal policy B. expansionary fiscal policy C. contractionary monetary policy D. expansionary monetary policy

B

Contractionary fiscal policy A. involves contracting the economy through reducing taxes and government spending. B. involves contracting the economy through reducing taxes and raising government spending. C. involves contracting the economy by raising taxes and reducing government spending. D. involves contracting the economy by raising taxes and government spending.

C

Expansionary monetary policy include A. lowering reserve requirements, increasing the discount rate, and buying government securities using open market operations. B. raising reserve requirements, increasing the discount rate, and buying government securities using open market operations. C. lowering reserve requirements, lowering the discount rate, and buying government securities using open market operations. D. raising reserve requirements, increasing the discount rate, and selling government securities using open market operations.

C

Expansionary monetary policy will A. lower interest rates and decrease aggregate demand B. raise interest rates and increase aggregate demand C. lower interest rates and increase aggregate demand D. raise interest rates and decrease aggregate demand

C

Fiat money is money because A. it is backed by gold B. it bears the signature of a U.S. president C. of public faith that it will be widely accepted as a medium of exchange D. it is backed by silver

C

If the current output in more than the potential output, the federal reserve will A. decrease government spending and increase tax rates B. increase government spending and decrease tax rates C. decrease money supply and increase interest rates D. increase money supply and decrease interesr rates

C

Open Market Operations are conducted by A. the Board of Governors in Washington, D.C. B. the U.S. Treasury on behalf of the Fed C. the Federal Reserve Bank of New York D. a consortium of private banks contracted by the fed

C

Open market purchases of treasury securities by the Federal Reserve would: A. increase the banks discount rate B. decrease the banks excess reserves C. increase the banks loan making ability D. decrease the banks required reserves

C

Open market sales of treasury securities by the Federal Reserve would A. increase the banks discount rate B. decrease the banks excess reserves C. increase the banks loan making abilities D. decrease the banks required reserves

C

Supply-side economics emphasized government policies to A. stimulate consumption by tax cuts B. stimulate aggregate demand by tax cuts C. stimulate incentive to work by tax cuts D. stimulate investments by tax increases

C

The Federal Funds target rate is set by the A. Board of Governors B. Federal Reserve Banking Committee C. Federal Open Market Committee D. Federal Reserve Decision-Making Committee E. New York Federal Reserve Bank

C

The Federal Open Market Committee is responsible for: A. regulating banks. B. running the check-clearing process. C. deciding monetary policy actions. D. deciding changes in income tax rates.

C

The United States is divided into _____ Federal Reserve districts, each with a district bank A. Three B. Eight C. Twelve D. Twenty

C

The crowding-out effect suggest that A. high taxes reduce both consumption and saving B. increases in consumption are always at the expense of saving C. increases in government spending may raise the interest rate, thereby reducing consumption and investment D. increases in government spending will close a recessionary gap

C

Which of the following is NOT a monetary policy tool of the Federal Reserve? A. changing the required-reserve ratio B. changing the discount rate C. setting the tax rates D. conducting open market operations

C

Which of the following is not an automatic stabilizer? A. a progressive income-tax system B. unemployment compensation C. new legislation by Congress to increase tax rates D. welfare programs

C

With a required reserve ratio of 20%, the money multiplier is A. 20 B. 2 C. 5 D. 50

C

An appropriate fiscal policy response to a recession would be A. increase government expenditures and taxes B. decrease government expenditures and taxes C. decrease government expenditures and increase taxes D. increase government expenditures and decrease taxes

D

Banks do all of the following, except one. Which is the exception? A. link saves and borrowers B. earn profits by loaning money C. create money D. print money E. Reduce risk for savers (depositers)

D

Suppose, you transfer $500 from your savings deposit account to your checking deposit account, what is the overall effect on M1 and M2? A. Both M1 and M2 increase by $500 B. M1 falls by $500, M2 is unchanged C. M1 is unchanged, M2 rises by $500 D. Both M1 and M2 decrease by $500 E. Neither M1 nor M2 change

D

To reduce inflation, the Fed will use which of the following policy? A. expansionary monetary policy. B. expansionary fiscal policy. C. contractionary fiscal policy. D. contractionary monetary policy.

D

The members of the Board of Governors of the Federal Reserve are A. elected by the member banks B. appointed by the President for life C. elected for seven year terms D. all replaced after each Presidential election E. appointed by the President with the approval of the senate

E

Under a fractional reserve banking system A. only a fraction of the banks in the system are allowed to create money B. only a fraction of the banks in the system have reserves C. the claims outstanding against the bank are only a fraction of the banks total reserves D. each bank must deposit a fraction of its reserves with the Federal Reserve Bank E. Banks hold reserves that equal to only a fraction of bank deposit

E

Which of the following is not a function of the Federal Reserve System? A. holding deposits of member banks B. clearing checks C. making loans to member banks D. serving as a bank to the Federal Reserve E. making loans to the public

E

With the Open Market Operations, the Federal Reserve increases banks excess reserves by $20 billion. If the money multiplier is 5, what is the maximum money the banking system could create as a result of this action? A. $4 billion B. $5 billion C. $10 billion D. $20 billion E. $100 billion

E