Unit 1c Pt 1

The U.S. gross domestic product is best described as

All goods and services produced within the nation. The U.S. gross domestic product is best described as all goods and services produced within the nation. Consumption or sales of the goods and services domestically or overseas is not a factor when calculating GDP.

Which of the following correctly states the impact of open-market operations taken by the Federal Reserve Board (FRB)?

By buying securities, the FRB puts money into the banking system, expanding the money supply and reducing interest rates. When the FRB buys securities via open-market operations, it is taken securities out of the banking system and putting money into the banking system. This expands the money supply and reduces interest rates. Conversely, when the FRB sells securities via open-market operations, it is putting securities into the banking system and taking money out of the banking system. This contracts the money supply and increases interest rates.

Industries that tend to be highly sensitive to inflation, deflation and the ups and downs of business trends would BEST be described as

Cyclical Cyclical industries are highly sensitive to business cycles (the ups and downs of business trends) and inflationary or deflationary trends. Most cyclical industries produce durable goods, such as heavy machinery, or material such as steel to be utilized by other industries like the automobile industry. Demand for such goods increases when we are in periods of prosperity but during recessions, the demand for such products declines as manufacturers postpone investments in new capital goods and consumers postpone purchase of these goods.

U.S. consumers are increasing their imports of foreign-made goods. On this data alone, one might expect gross domestic product (GDP) to

Decrease GDP is the measure of goods and serices prouced. If US consumers are importng more foreign goods, it is likely that production o US goods will fall off, leadig to a decrease in the GDP

When the Federal Open Market Committee (FOMC) directs that Treasury Securities be sold in the open market, this

Decrease the money supply When the Federal Open Market Committee (FOMC) directs that Treasury securities be sold in the open market, this decreases the supply of money. Treasury securities are owing into the economy and, therefore, money is coming out - the money supply decreases.

A surplus in the U.S. balance of payments can occur if I. Interest rates in foreign countries are higher than U.S. domestic rates II. Interest rates in foreign countries are lower than U.S. domestic rates III. U.S. consumer are purchasing (importing) foreign goods IV. Foreign consumers are purchasing (importing) U.S. goods

II and IV: Interest rates in foreign countries are lower than U.S. domestic rates, and Foreign consumers are purchasing (importing) U.S. goods. Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well.

An expansion in the business cycle would be characterized by

Increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values. Expansions in the business cycle are characterized by increasing consumer demand for goods and services, increasing industrial production, and rising stock markets and property values. Each of the remaining characterizations wold more likely be associated with periods of contractions in the economic business cycle,

The prime rate is set by

Individual banks The prime rate is the interest rate that large U.S. money center commercial banks charge their most creditworthy corporate borrowers for unsecured loans. Each bank sets its own prime rate.

The cost of doing business is closely linked to the cost of money , which is known as

Interest The cost of doing business is closely linked to the cost of money; the cost of money is called interest. In large measure, the supply and demand of money determines the rate of interest that must be paid to borrow it.

When the money supply in the economy increases,

Interest rates go down, hence borrowing and spending for consumers is easier. Increases in the money supply means more money is available to lend. This pushes interest rates down, hence borrowing and spending for consumers is easier.

Match the following statement to the BEST expression : A well-controlled, moderately increasing money supply leads to price stability and a healthy economy.

Monetarist Theory Monetarist judge that a well-controlled, moderately increasing money supply leads to price stability. Price stability allows business managers (considered to be more efficient allocators of resources than the government) to plan and invest, which in turn keeps the economy healthy.

Just as markets can be influenced by many factors, so can the market price of a single company's stick. While all of the following could impact a company's stock price to some extent, which would be the least likely to have a direct and immediate impact?

Political Elections The price of a company's stock will be impacted directly by the company's earnings and changes in the business cycle. Less directly impactful would be FRB policies to loosen or tighten credit, and least likely to have a direct impact would be the outcome of political elections. It should be noted, however, that the outcome of political elections can influence FRB policies over time and, therefore, where the economy stands in relation to the business cycle. Still, however, elections would have less of an immediate impact.

To contract or slow economic growth U.S. fiscal policy should be to

Raise taxes and cut government spending for programs and development Fiscal policies to slow economic growth or contract the economy would encompass both increases in taxes leaving consumers with less money to spend, slowing economic growth, and cutting government spending for programs and development that would otherwise have created more jobs. Fewer jobs will slow economic growth as well.

Economist call mind, short-term contractions

Recessions Economists call mild, short-term contractions. Longer, more severe contractions are depressions.

Implementing monetary policy, and thereby undertaking the responsibility to maintain the stability of the U.S. financial system, is

The Federal Open Market Committee (FOMC) A special committee within the Federal Reserve Bank of the United States is the Federal Open Market Committee (FOMC). This committee sets monetary policy.

Which of the following entities is chiefly responsible to conduct U.S. monetary policy and maintain the stability of the financial system?

The Federal Reserve Board The Federal Reserve is the central bank of the United States, and a special committee within the Federal Reserve System known as the Federal Open Market Committee (FOMC) sets monetary policy.

Which of the following is the rate of interest charged by the Federal Reserve Bank (FRB) for short-term loans to its member banks?

The discount rate The discount rate is the rate the Federal Reserve charges for short-term loans to member banks.

Which benchmark interest rate indicates the direction of the Federal Reserve Board's monetary policy?

The discount rate The discount rate, being the rate the Federal Reserve Bank charges for short-term loans to its member banks, is generally considered a good indication of the FRB's policy to either tighten or loosen its hold on the amount of money available to banks for lending to consumers.

The rate that commercial money center banks charge each other for overnight loans is

The federal funds rate The federal funds rate is the rate commercial money center banks charge each other for overnight loans of $1 million or more.

A weak U.S. dollar leads to more

U.S. exports and a balance of payments surplus When the dollar is weak relative to other currencies, it makes U.S. goods more affordable for foreign consumers to buy, so U.S. exports increase. As more goods flow out of the U.S., more money flows in - surplus.