PQ4

The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 12.5%. If the Fed buys $20 million worth of government securities from the public, the change in money supply will be

$160 million

The word "fiat" is

Used to describe today's money because it is money set by law

In a closed economy with no government, aggregate expenditure is

consumption plus investment

M1 is composed of

currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses

When the Fed raises the required reserve ratio, the banks' excess reserves will initially _______ and the money supply _____

decrease; decreases

When government outlays exceed tax revenues, the situation is called a budget

deficit

Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________.

deficit; increased

The government expenditure multiplier and the tax multiplier are

different in size and the government expenditure multiplier is larger

When Maria deposits $100 in currency in her checkable deposit at Bank of America, the immediate effect is that the quantity of M1 ________ because ________.

does not change; both currency and checkable deposits are included in M1

An example of automatic fiscal policy is

expenditure for unemployment benefits increasing as economic growth slows.

As firms search for the best employee to fill an opening and the unemployed search for the job that best fits their skills, the economy experiences

frictional employment

When the government's outlays exceed its tax revenues, the national debt

grows to finance the budget deficit

If the federal government _____________ during the financial crisis of 2008-2009, the fall in overall stock prices would likely have been larger

had not bailed out the large financial institutions

Which of the following are assets of commercial banks? i. reserves ii. loans iii. deposits

i and ii

An economy is in a short-run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to

increase government expenditure and move the economy to a full-employment equilibrium point at b

Discretionary fiscal policy is defined as fiscal policy

initiated by an act of Congress

The Federal Reserve monetary policy goals of maximum employment means

keeping the unemployment rate close to the natural unemployment rate

During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to

make certain that banks had enough liquidity to avoid collapse

Banks earn a profit by

making loans at a higher interest rate than the rates that they offer on their deposits.

Discouraged worker are classified by the BLS as

not in the labor force

Of the three primary tools the Federal Reserve uses to conduct monetary policy, the tool used most often is

open market operations

When banks hold a large amount of excess reserves, which of the following tools would the Fed most likely use when it wants to increase the interest rate?

raising the interest rate it pays to banks on their reserves (?)

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.

rises; decreases

The Keynesians emphasize the importance of

sticky wages & prices

When we keep part of our wealth in a bank checking account, we are using money as a

store of value

The structural deficit is the deficit

that would occur at full employment

The national debt is

the total amount of money that a country's government has borrowed, by various means.

If planned investment exceeds actual investment,

there will be a decline in inventories

The function of money that helps assess the opportunity cost of an activity is money's use as a

unit of account

To change the federal funds rate, the Fed

uses open market operations to change the quantity of reserves

According to classical economists, excessive unemployment does not persist in the economy because

wages will always adjust to ensure equilibrium in the labor market

Which of the following describes the "invention" of banking?

Goldsmiths in the sixteenth century issued gold receipts which entitled its owners to reclaim their gold on demand

Consider the following people: ∙ Chris quits his job as an automobile mechanic to pursue his college education full-time. ∙ Darrelo was laid off from her technical support job because of a strike by production workers and is currently looking for a new job. ∙ Rita graduated from college and is currently looking for a job. ∙ Armondo quit his old job and will begin his new job in four days. ∙ Thorton was fired from his job as a steel worker because of massive imports of steel and he is looking for a new job. ∙ Jung was laid off from his job as an appraiser because the firm's business declined because of a general downturn in the economy and he is currently looking for a new job as an appraiser. According to the scenario above, in which of the following groups are all the people cyclically unemployed?

Jung

All of the following financial institutions were bailed out by the federal government during the financial crisis of 2008-2009 EXCEPT

Lehman Brothers

Quantity Theory of Money

MV = PY

For an asset to be a "means of payment," the asset

can be used to settle a debt.

The purchase of Treasury securities by the Federal Reserve will, in general,

increase the quantity of reserves held by the bank

In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal Reserve is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not been this low "... since 2003, when the economy was growing at a snail's pace." www.csmonitor.com, 10/28/2008 The Fed's rate cuts will ________ bank reserves and ________.

increase; increase the money supply and real GDP

If government expenditures on goods and services increased by $20 billion, what would happen to aggregate demand?

increases by more than $20 billion

As the interest rate falls, people hold _________ money in non-interest-bearing checking accounts instead of savings accounts because the opportunity cost of holding money has ___________

more; fallen

The ratio of the change in the equilibrium level of output to a change in some autonomous variable is the

multiplier