ECON Final

The federal budget deficit becomes _____ during recessions because _____. a. larger; both transfer payments and tax revenues increase b. larger; transfer payments increase and tax revenues decline c. smaller; transfer payments increase and tax revenues decline d. smaller; both transfer payments and tax revenues increase e. smaller; both transfer payments and tax revenues decrease

b. larger; transfer payments increase and tax revenues decline

The simple money multiplier is the reciprocal of the _____. a. interest rate b. required reserve ratio c. deposit rate d. discount rate

b. required reserve ratio

Suppose the Federal Reserve has set the required reserve ratio at 0.20. Second Republic Bank currently has $150,000 in checkable deposits and $45,000 in outstanding loans. The required and excess reserves for the Second Republic Bank are _____ and _____, respectively. a. $21,000; $30,000 b. $9,000; $105,000 c. $30,000; $75,000 d. $39,000; $9,000

c. $30,000; $75,000

Which of the following statements is true? a. An individual bank can easily charge a higher interest rate than the federal funds rate if it lends money to another bank. b. An individual bank can easily lend an amount greater than its excess reserves by creating new money. c. An individual bank cannot lend an amount greater than its excess reserves. d. An individual bank can easily lend its required reserves.

c. An individual bank cannot lend an amount greater than its excess reserves.

Which of the following is likely to happen if the Fed sells government bonds? a. The money supply in the United States will increase by the original increase in bank reserves times the simple money multiplier. b. The money supply in the United States will increase by the original increase in bank reserves times the discount rate. c. The money supply in the United States will decrease by the original reduction in bank reserves times the simple money multiplier. d. The money supply in the United States will decrease by the original reduction in bank reserves times the discount rate.

c. The money supply in the United States will decrease by the original reduction in bank reserves times the simple money multiplier.

Which of the following limits the creation of new money by banks? a. The Fed setting a low reserve ratio. b. Banks converting all excess reserves into loans. c. The public holding their money in cash. d. The public keeping their money in checking accounts.

c. The public holding their money in cash.

Which of the following is used by the Fed to control the money supply? a. The debt-to-capital ratio. b. The purchase of private equities. c. The required reserve ratio. d. The sale of private equities.

c. The required reserve ratio.

The Fed can increase the money supply by: a. raising the required reserve ratio. b. raising the discount rate. c. purchasing U.S. Treasury bonds. d. raising the federal funds rate.

c. purchasing U.S. Treasury bonds.

Which of the following best describes stagflation? a. deficits coupled with rising unemployment b. rising unemployment together with economic growth c. rising unemployment and high inflation rates d. inflation coupled with balance of trade deficits e. deflation coupled with a decline in money supply

c. rising unemployment and high inflation rates

The discount rate is the interest rate that _____ a. the Fed charges on loans to branches of the U.S. government. b. banks charge on loans to other banks. c. the Fed charges on loans to depository institutions. d. the Fed charges on loans to the public. e. banks charge on large loans.

c. the Fed charges on loans to depository institutions.

The Fed makes an initial cash injection of $10,000 by buying a $10,000 Treasury bond from Janis. Janis deposits the $10,000 in her checking account at Friendly Bank. Friendly Bank holds $1,000 in reserve and lends out $9,000 to Bruno, who deposits this $9,000 in his checking account at Last National Bank. In this scenario, _____ is the total money supply so far. a. $9,000 b. $10,000 c. $1,000 d. $19,000

d. $19,000

Which of the following can be used by the Fed to initiate the process of money creation? a. Selling a $2,500 bond to a securities dealer. b. Raising the reserve requirement ratio. c. Raising the federal funds rate. d. Purchasing a $2,500 bond from a bank.

d. Purchasing a $2,500 bond from a bank.

Which of the following correctly identifies the difference between primary and secondary discount rates? a. The primary discount rate is about one percentage point above the federal funds rate, while the secondary discount rate is about one percentage point higher than the required reserve ratio. b. The Fed uses the primary discount rate for decreasing the money supply, while it uses the secondary discount rate for increasing the money supply in an economy. c. The Fed uses the primary discount rate for increasing the money supply, while it uses the secondary discount rate for decreasing the money supply in an economy. d. The primary discount rate is about one percentage point above the federal funds rate, while the secondary discount rate is about one-half a percentage point higher than the primary discount rate.

d. The primary discount rate is about one percentage point above the federal funds rate, while the secondary discount rate is about one-half a percentage point higher than the primary discount rate.

The size of the money market multiplier is likely to reduce if _____. a. people choose to hold less money in cash and more in checking accounts b. borrowed funds are lent to other individuals who deposit them in other banks c. banks lower the federal funds rate d. banks let excess reserves sit idle

d. banks let excess reserves sit idle

The Fed uses _____ more as a signal to financial markets about its monetary policy than as a tool for controlling the money supply. a. the money market multiplier b. the required reserve ratio c. open-market operations d. the discount rate

d. the discount rate

When banks transform excess reserves into loans, _____. a. the value of money increases b. the money supply decreases c. the value of money decreases d. the money supply increases

d. the money supply increases

Suppose the Fed injects $50 billion of new money by buying U.S. Treasury bonds from the public. If the required reserve ratio is 10 percent, banks convert all excess reserves into loans, and the public hold all their money in their checking accounts rather than in cash, then the money supply will increase by _____ due to this injection. a. $500 billion b. $5 billion c. $50 billion d. $950 billion

a. $500 billion

The money multiplier is the multiple by which the: a. money supply increases as a result of an increase in the banking system's reserves. b. money supply increases as a result of an increase in the banking system's debt-to-capital ratio. c. money demand increases as a result of an increase in the banking system's reserves. d. money demand increases as a result of an increase in the banking system's debt-to-capital ratio.

a. money supply increases as a result of an increase in the banking system's reserves.

Suppose the money supply (as measured by checkable deposits) is currently $750 billion. The required reserve ratio is 30 percent, and banks do not hold excess reserves. If the Fed wants to decrease the money supply by $50 billion, it should ________ worth of U.S. government bonds approximately. a. sell $15.0 billion b. buy $525.0 billion c. buy S800.0 billion d. sell $225.0 billion

a. sell $15.0 billion

Each member of the Board of Governors of the Fed _____ a. serves one nonrenewable term. b. can have twelve presidential appointments. c. is authorized to set reserve requirements by the Bank Acts of 1933 and 1935. d. is elected by the member banks that own the Federal Reserve. e. is from the minority of the FOMC.

a. serves one nonrenewable term.

The reserve requirement refers to _____ a. the fraction of deposits that banks are required by the Fed to hold as reserves. b. the amount of gold required to back up all Federal Reserve notes. c. the requirement that banks reserve part of their lending capacity for small businesses. d. the Treasury deposits held by the Fed. e. the requirement that Reserve bank presidents be part of the FOMC.

a. the fraction of deposits that banks are required by the Fed to hold as reserves.

According to the budget philosophy of functional finance, _____ a. the government budget should be whatever is necessary to have an economy operate at potential GDP. b. the budget should never be in balance. c. the budget should be balanced annually. d. surpluses should be run during periods of prosperity and deficits should be run during recessions. e. the rate of growth in the national debt should equal the rate of growth in the money supply.

a. the government budget should be whatever is necessary to have an economy operate at potential GDP.

The discount rate is: a. the rate charged by the Fed on loans to commercial banks. b. the rate that a commercial bank charges to people for long-term loans. c. the rate that commercial banks charge one another for overnight loans. d. the rate charged by the Fed on consumer loans it makes to the public.

a. the rate charged by the Fed on loans to commercial banks.

The Federal Open Market Committee makes decisions regarding: a. the sale and purchase of government securities. b. fixation of the federal funds rate. c. the amount of money that a bank can create. d. fixation of the discount rate.

a. the sale and purchase of government securities.

Excess reserves equal: a. total deposits minus required reserves. b. total deposits divided by required reserves. c. total deposits plus required reserves. d. total deposits multiplied by required reserves.

a. total deposits minus required reserves.

You have $1,000 in your checking account at Generous Savings and Loans (GSL). GSL holds $300 of your money in reserve and makes a $700 student loan to Wilma, who promises to repay the loan with interest. Wilma now has an additional $700 in her checking account. This implies that the M1 money supply has increased by _____. a. $1,000 b. $700 c. $1,700 d. $2,000

b. $700

If total deposits at Resolute Bank and Trust are $100 million, total loans are $70 million, and excess reserves are $20 million, then the required reserve ratio is _____. a. 20 percent b. 10 percent c. 70 percent d. 30 percent

b. 10 percent

If a financial institution pays an interest rate of 1% to savers and charges borrowers 3%, they earn a profit of _____ a. 1 percent. b. 2 percent. c. 3 percent. d. 4 percent. e. 5 percent.

b. 2 percent.

Which of the following is most likely to happen if the Fed increases reserve requirements? a. Banks will enforce loan contracts more effectively. b. An individual bank's ability to create money will decrease. c. An individual bank's ability to create money will increase. d. Banks will develop expertise in structuring loans.

b. An individual bank's ability to create money will decrease.

Which of the following steps were undertaken by the Fed during the mortgage crisis in 2007 and 2008? a. It encouraged people to withdraw funds using their ATM and debit cards. b. It lowered the discount rate and encouraged banks to borrow from the Fed. c. It sold government securities, raising more than $150 billion. d. It increased the discount rate and discouraged further borrowing by banks.

b. It lowered the discount rate and encouraged banks to borrow from the Fed.

Which of the following is true if the required reserve ratio is 10 percent and new deposits worth $1 million are made at a bank? a. Required reserves are $10,000,000, and excess reserves are $90,000,000. b. Required reserves are $100,000, and excess reserves are $900,000. c. Required reserves are $1,000,000, and excess reserves are $9,000,000. d. Required reserves are $900,000, and excess reserves are $100,000.

b. Required reserves are $100,000, and excess reserves are $900,000.

Which of the following is likely to occur if the Fed conducts an open-market sale of U.S bonds? a. Excess reserves of banks will decline and supply in the federal funds market will decline, leading to an increase in the federal funds rate and the short-term interest rate charged by banks. b. Excess reserves of banks will increase and supply in the federal funds market will also increase, leading to a decline in the federal funds rate and the short-term interest rate charged by banks. c. Excess reserves of banks will decline and supply in the federal funds market will increase, leading to a decline in the federal funds rate and the short-term interest rate charged by banks. d. Excess reserves of banks will decline and supply in the federal funds market will increase, leading to an increase in the federal funds rate and the short-term interest rate charged by banks.

a. Excess reserves of banks will decline and supply in the federal funds market will decline, leading to an increase in the federal funds rate and the short-term interest rate charged by banks.

The law that established the Federal Reserve System is the _____ a. Federal Reserve Act of 1913. b. Federal Reserve Act of 1963. c. National Banking Act of 1863. d. Banking Act of 1933. e. National Banking Act of 1813.

a. Federal Reserve Act of 1913.

In which of the following situations will the process of money creation slow down? a. If banks let their excess reserves sit idle. b. If the Fed lowers the required reserve ratio. c. If people hold most of their money in checking accounts. d. If borrowers use the borrowed money for consumption.

a. If banks let their excess reserves sit idle.

The U.S. government's fiscal year extends from _____ a. October of one year to September of the next year. b. June of one year to May of the next year. c. April of one year to March of the next year. d. January to December. e. September of one year to August of the next year.

a. October of one year to September of the next year.

Open-market operations enable the Fed to control bank reserves and the _____. a. federal funds rate b. discount rate c. fractional reserves d. reserve requirements

a. federal funds rate

Banks are _____ that link lenders (depositors) to borrowers. a. financial intermediaries b. monopolies c. government agencies d. nonprofit organizations

a. financial intermediaries

The _____ is the key to the multiple expansion of checkable deposits. a. fractional reserve requirement b. deposit insurance system c. real interest rate on loans d. nominal interest rate on loans

a. fractional reserve requirement

One of the advantages of open-market operations is that they _____. a. can always prevent panic runs on banks during recessions b. can be used in any amount chosen by the Fed c. help overcome the asymmetric information problem in the loan market d. help banks reduce their risk through diversification

b. can be used in any amount chosen by the Fed

_____ is a liability for a commercial bank. a. A checkable deposit by a customer b. A U.S. Treasury bill c. The currency in the vault d. A loan to a customer

a. A checkable deposit by a customer

Which of the following correctly describes the difference between M1 and M2? a. M1 includes currency, traveler's checks, and money in checkable accounts, whereas M2 includes M1 plus savings deposits, small-denomination time deposits, and money market mutual funds. b. M1 includes currency, coins, gold and silver, whereas M2 does not include gold and silver. c. M1 is includes only currency, whereas M2 includes M1 plus travelers checks and money in checkable accounts. d. M1 includes currency and traveler's checks, whereas M2 includes M1 plus money in checking accounts.

a. M1 includes currency, traveler's checks, and money in checkable accounts, whereas M2 includes M1 plus savings deposits, small-denomination time deposits, and money market mutual funds.

Which of the following statements is true of open-market operations? a. Open-market operations involve the Fed's purchase and sale of government securities. b. Open-market operations involve clearing checks. c. Open-market operations involve accepting deposits from member banks. d. Open-market operations involve the Fed's purchase and sale of foreign exchange. e. Open-market operations involve lending money to member banks.

a. Open-market operations involve the Fed's purchase and sale of government securities.

The distinction between discretionary fiscal policy and the use of automatic stabilizers is that _____ a. automatic stabilizers, once adopted, are built into the structure of the economy. b. only automatic stabilizers can stimulate the economy. c. only discretionary fiscal policy can stimulate the economy. d. only discretionary fiscal policy can be used by the federal government. e. discretionary fiscal policy, once adopted, is built into the structure of the economy.

a. automatic stabilizers, once adopted, are built into the structure of the economy.

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is effected by _____ a. discretionary fiscal policy. b. automatic stabilizers. c. expansionary fiscal policy. d. monetary policy. e. contractionary fiscal policy.

a. discretionary fiscal policy.

A lender of last resort is a financial institution that is willing and able to lend to _____ a. fractional reserve system banks experiencing runs on their deposits. b. banks that are not members of the Federal Reserve System. c. individuals who have other debts outstanding. d. Federal Reserve System member banks experiencing runs on their deposits. e. individuals who do not have a positive net worth.

a. fractional reserve system banks experiencing runs on their deposits.

Which of the following is not performed by the Fed? a. holding deposits of households and firms b. issuing bank notes c. holding member bank reserves on deposit d. making loans to member banks e. serving as bankers to other banks

a. holding deposits of households and firms

Discretionary fiscal policy is a policy that _____ a. is an intentional change in taxation or government spending. b. applies to some states and not all states in an economy. c. applies to only some specific industries in an economy. d. works automatically without a public announcement or plan. e. is developed in secret.

a. is an intentional change in taxation or government spending.

The Board of Governors of the Fed consists of _____ a. seven members appointed by the president. b. a representative from each of the 12 district banks. c. seven elected members. d. 12 elected members. e. 12 members appointed by the president.

a. seven members appointed by the president.

_____ institutions obtain funds primarily by accepting customer deposits. a. Finance b. Depository c. Central banking d. Underwriting e. Investment

b. Depository

Which of the following is true of the federal budget? a. The federal budget is a plan that describes a government's monetary policy for the current financial year. b. The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year. c. The federal budget is a plan that describes the president's take on the economy. d. The federal budget is a plan that describes the eligibility criteria of the major entitlement programs taken up by Congress for the current financial year. e. The federal budget is a plan that describes a government's fiscal policy for the current financial year.

b. The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year.

How does money function as a unit of account? a. Money is convertible into commodities that have intrinsic worth. b. The prices of all goods and services are measured in terms of money. c. Money has intrinsic worth as a commodity. d. Bank accounts make it easy for people to store their wealth. e. Things that function as money can do so because people know there is a standard of value that ultimately backs the money even if it is only faith.

b. The prices of all goods and services are measured in terms of money.

Fiscal policy is concerned with _____ a. government spending, taxation, and money supply. b. government spending and taxation. c. money supply only. d. government spending and changes in money supply. e. money supply and taxation.

b. government spending and taxation.

Which of the following is a characteristic of money market mutual fund accounts? a. There are no restrictions on the minimum balance and the number of checks that can be written per month. b. There are restrictions on the minimum balance and the number of checks that can be written per month. c. There are no restrictions on the minimum balance, but there are restrictions on the number of checks that can be written per month. d. There are restrictions on the minimum balance but no restrictions on the number of checks that can be written per month.

b. There are restrictions on the minimum balance and the number of checks that can be written per month.

Which of the following is a feature of time deposits? a. Time deposits serve as a medium of exchange. b. Time deposits earn a fixed interest rate if held for a specific period of time. c. Time deposits can be converted into checking accounts anytime. d. Time deposits allow premature withdrawals without any penalty.

b. Time deposits earn a fixed interest rate if held for a specific period of time.

Which of the following is true of a price level increase in an economy? a. When the price level increases, the purchasing power of money increases. b. When the price level increases, the purchasing power of money decreases. c. When the price level increases, the purchasing power of money either increases or decreases, depending upon the size of the national debt. d. When the price level increases, the purchasing power of money remains unchanged. e. When the price level increases, the purchasing power of money either increases or decreases, depending upon the level of government expenditures.

b. When the price level increases, the purchasing power of money decreases.

Which of the following is not a depository institution? a. a commercial bank b. a pension fund c. a savings-and-loan institution d. a thrift institution e. a credit union

b. a pension fund

An annually balanced budget _____ a. dampens cyclical swings by decreasing government spending during expansions and increasing it during recessions. b. accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions. c. is mandated by the U.S. Constitution. d. is the surest path to economic stability. e. is a goal that has only been achieved twice in the past 5 years.

b. accentuates cyclical swings by increasing government spending during expansions and reducing it during recessions.

Financial institutions _____ a. borrow funds from the government and lend them to borrowers. b. accumulate funds from savers and lend them to borrowers. c. accumulate funds from borrowers and lend them to savers. d. print money. e. borrow funds from the government and lend them to savers.

b. accumulate funds from savers and lend them to borrowers.

Which of the following would decrease the size of a federal budget deficit? a. a recession b. an increase in taxes c. an increase in transfer payments d. an increase in the use of automatic stabilizers e. an increase in defense spending

b. an increase in taxes

The Federal Reserve System has the power to _____ a. balance the federal government budget. b. buy and sell federal government securities. c. compete with commercial banks in making loans to business firms. d. increase or decrease federal government spending. e. raise or lower federal income tax rates.

b. buy and sell federal government securities.

Who argued that the economy should be left to itself to close a recessionary gap? a. mercantilists b. classical economists c. John Maynard Keynes d. John F. Kennedy e. socialists

b. classical economists

One important difference between credit cards and debit cards is that: a. credit cards immediately reduce the checking account of the cardholder, while debit cards provide a grace period between a purchase and required payment. b. credit cards provide a grace period between a purchase and required payment, while debit cards immediately reduce the checking account of the cardholder. c. credit cards are used as substitutes for checks by cardholders, while debit cards are used as substitutes for personal loans. d. credit cards usually require a personal identification number, or PIN, to use, while debit cards can be used more easily.

b. credit cards provide a grace period between a purchase and required payment, while debit cards immediately reduce the checking account of the cardholder.

Crowding out refers to the government's increased demand for credit, which _____ a. displaces some private-sector borrowing by decreasing the interest rate. b. displaces some private-sector borrowing by increasing the interest rate. c. displaces some private-sector consumption by decreasing the price level. d. displaces some import purchases by the private sector. e. hires labor away from the private sector.

b. displaces some private-sector borrowing by increasing the interest rate.

Which of the following macroeconomic variables would likely be affected by a fiscal policy? a. the exchange rate b. employment c. the nominal interest rate d. the discount rate e. money supply

b. employment

Federal Reserve notes are _____ a. checks. b. fiat money. c. coins. d. commodity money. e. backed by gold.

b. fiat money.

The national debt _____ a. measures the amount by which government revenues exceed outlays in a particular year. b. is a stock variable measuring the net accumulation of past deficits. c. includes the projected liabilities of Social Security, Medicare, and other federal retirement programs. d. is a flow variable measuring the net accumulation of past deficits. e. includes outstanding liabilities of federal, state, and local governments minus government financial assets.

b. is a stock variable measuring the net accumulation of past deficits.

An important function of commercial banks is to _____ a. issue fiat money. b. make loans. c. mint coins. d. print new currency. e. redeem currency for precious metals.

b. make loans.

Which of the following is not a tool of fiscal policy? a. government purchases b. money supply c. unemployment benefits d. taxes e. Social Security programs

b. money supply

Token money is _____ a. anything that loses its purchasing power over time. b. money whose face value exceeds its production cost. c. money whose face value is less than its production cost. d. money that has no value. e. money that is redeemable for any commodity.

b. money whose face value exceeds its production cost.

A state bank must apply to the _____ to obtain a charter or a right to operate. a. U.S. Ministry of Finance b. state banking authority c. Fed d. U.S. Comptroller of the Currency

b. state banking authority

Supply-side economics emphasized government policies to _____ a. lower interest rates to boost saving. b. stimulate real GDP by improving incentives to work. c. increase minimum wage to improve labor productivity. d. restrict aggregate spending and boost aggregate supply. e. increase government tax revenues in order to increase government purchases.

b. stimulate real GDP by improving incentives to work.

There is asymmetric information in the loan market when: a. market participants use information that is available on the Web. b. there is an inequality in information available to the market participants. c. market participants take advantage of the Federal Reserve information system. d. there is excess information in the loan market.

b. there is an inequality in information available to the market participants.

The primary currency circulating in the United States consists of: a. bank checks that are certified. b. credit cards. c. Federal Reserve notes. d. gold certificates.

c. Federal Reserve notes.

Which of the following is true of debit cards but not of credit cards? a. Debit cards offer an easy way of getting a loan from the card issuer. b. The checking account is not reduced immediately after the card is used to make a payment. c. Funds that can be accessed by debit cards are included in M1. d. Funds that can be accessed by debit cards are not included in M1.

c. Funds that can be accessed by debit cards are included in M1.

Which of the following is correct regarding the discount rate? a. It is the interest rate set in the market for U.S. Treasury Bills. b. It is the interest rate that thrift institutions charge for home mortgages. c. It is the interest rate at which depository institutions can borrow from the Federal Reserve. d. It is the interest rate that commercial banks charge their most creditworthy customers. e. It is the prime interest rate.

c. It is the interest rate at which depository institutions can borrow from the Federal Reserve.

If fiscal policy is used to close an expansionary gap, the _____ a. aggregate demand curve shifts rightward and the price level falls. b. short-run aggregate supply curve shifts rightward and the price level falls. c. aggregate demand curve shifts leftward and the price level falls. d. short-run aggregate supply curve shifts rightward and the price level increases. e. short-run aggregate supply curve shifts leftward and the price level falls.

c. aggregate demand curve shifts leftward and the price level falls.

Automatic stabilizers _____ a. are monetary policy changes. b. deliberately manipulate government purchases, transfer payments, and taxes to promote macroeconomic goals. c. are revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy. d. are revenue and spending programs in the federal budget that never adjust with the ups and downs of the economy. e. are a method of emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals.

c. are revenue and spending programs in the federal budget that automatically adjust with the ups and downs of the economy.

Banks can cope better with asymmetric information in the market for loans than individual lenders can because: a. banks invest in risky assets. b. banks reduce the transaction cost of channeling savings to creditworthy borrowers. c. banks have expertise in evaluating the creditworthiness of loan applicants. d. banks can borrow from the Fed as a last resort.

c. banks have expertise in evaluating the creditworthiness of loan applicants.

The largest component of the M1 monetary aggregate is _____. a. saving deposits b. transfer payments c. checkable deposits d. traveler's checks

c. checkable deposits

Fiscal policy used to close an expansionary gap is known as _____ a. automatic stabilizers. b. expansionary fiscal policy. c. contractionary fiscal policy. d. discretionary fiscal policy. e. monetary policy.

c. contractionary fiscal policy.

The difference between the federal budget deficit and the national debt is that the _____ a. deficit is a stock variable and the debt is a flow variable. b. deficit can be positive, but the debt cannot. c. deficit is a flow variable and the debt is a stock variable. d. debt includes interest payments and the deficit does not. e. debt can be negative, but the deficit cannot.

c. deficit is a flow variable and the debt is a stock variable.

A federal budget deficit occurs when _____ a. aggregate supply is greater than aggregate demand. b. aggregate demand is greater than aggregate supply. c. federal government purchases exceed net taxes. d. there is deflation. e. there is inflation.

c. federal government purchases exceed net taxes.

A budget philosophy using fiscal policy to achieve the economy's potential GDP, rather than balancing budgets either annually or over the business cycle, is termed _____ a. budget finance. b. crowding out. c. functional finance. d. crowding in. e. deficit financing.

c. functional finance.

To close a recessionary gap using fiscal policy, the government can _____ a. decrease government spending by the size of the gap. b. increase government spending by the size of the gap. c. increase government spending by less than the size of the gap. d. decrease government spending by more than the size of the gap. e. increase government spending by more than the size of the gap.

c. increase government spending by less than the size of the gap.

M2 includes: a. credit cards. b. mutual insurance policies. c. money market mutual funds. d. debit cards.

c. money market mutual funds.

A federal budget deficit _____ a. stimulates aggregate supply. b. reduces federal debt. c. reduces national saving. d. boosts economic growth. e. boosts domestic saving.

c. reduces national saving.

An automatic stabilizer _____ a. increases inflationary pressure during expansions. b. increases tax revenue relative to government spending throughout the business cycle. c. reduces the drop in disposable income during recessions and reduces the jump in disposable income during expansions. d. decreases tax revenue relative to government spending throughout the business cycle. e. increases the drop in disposable income during recessions and increases the jump in disposable income during expansions.

c. reduces the drop in disposable income during recessions and reduces the jump in disposable income during expansions.

When a new deposit is made at a bank, required reserves represent: a. the reserves that the bank uses for its own expenditure. b. the fraction of total deposits that the bank can lend to borrowers. c. the fraction of total deposits that the bank cannot lend. d. the reserves that cannot be held at the Fed.

c. the fraction of total deposits that the bank cannot lend.

Lags in the approval and implementation of fiscal policy _____ a. cause fiscal policy to be more effective at changing the level of real GDP than changing the price level only in the long run. b. make fiscal policy more responsive to the current economic environment. c. weaken fiscal policy as a tool of economic stabilization. d. increase the effectiveness of fiscal policy as a tool of economic stabilization. e. help legislators better assess what policies are most appropriate to adopt.

c. weaken fiscal policy as a tool of economic stabilization.

Which of the following statements is true of M1 money supply? a. Near-monies are counted as a part of M1 money supply. b. Checking accounts are not considered a part of M1 money supply. c. Currency in bank vaults is counted as a part of the M1 money supply. d. Checking accounts are considered a part of M1 money supply.

d. Checking accounts are considered a part of M1 money supply.

_____ were among the first bankers. a. Farmers b. Savings-and-loan institutions c. Governments d. Goldsmiths e. Seigniors

d. Goldsmiths

_____ are measures of money supply that are defined by the Federal Reserve. a. Currency aggregates b. Money multipliers c. Federal funds d. Money aggregates

d. Money aggregates

Which of the following is true of checkable deposits? a. These are assets of the issuing bank. b. These cannot be accessed using debit cards. c. These are not regarded as money as they do not serve as mediums of exchange. d. These are included in the narrow definition of money.

d. These are included in the narrow definition of money.

Which of the following is true about classical economists? a. They believed prices and wages were rigid. b. They argued that the sources of depressions and high unemployment lay within the market system. c. They believed the economy would naturally tend toward unemployment. d. They advocated laissez-faire policies to promote economic growth. e. They encouraged government intervention in markets.

d. They advocated laissez-faire policies to promote economic growth.

Which of the following best illustrates the double coincidence of wants? a. Both Tom and Jerry would like to purchase the same good. b. Tom has something he's willing to trade with Jerry; Jerry has something he's not willing to trade with Tom. c. Tom and Jerry have very similar tastes; hence, Tom's wants coincide with Jerry's. d. Tom has something he's willing to trade with Jerry, who wants it; Jerry has something he's willing to trade with Tom, who wants it. e. Tom has something Jerry wants; Jerry has nothing Tom wants.

d. Tom has something he's willing to trade with Jerry, who wants it; Jerry has something he's willing to trade with Tom, who wants it.

_____ are included in the narrow definition of money. a. Time deposits b. Money market mutual funds c. Saving deposits d. Traveler's checks

d. Traveler's checks

Which of the following is a difference between the theories of John Maynard Keynes and the classical economists? a. Unlike Keynesian economists, classical economists believed that unemployment was a serious long-term problem. b. Unlike Keynesian economists, classical economists advocated that the economy was always in equilibrium. c. Unlike Keynesian economists, classical economists did not believe that the economy was always in equilibrium. d. Unlike Keynesian economists, classical economists believed that the economy would always settle at full employment. e. Unlike Keynesian economists, classical economists believed a glut created an unemployment problem for the economy.

d. Unlike Keynesian economists, classical economists believed that the economy would always settle at full employment.

The crowding in of private investment is associated with _____ a. a reduction in the level of government spending. b. a leftward shift of the aggregate supply curve of an economy. c. a rightward shift of the aggregate supply curve of an economy. d. an increase in aggregate demand induced by increased government borrowing. e. a reduction in corporate income taxes.

d. an increase in aggregate demand induced by increased government borrowing.

The FDIC insures deposits in _____ a. all the commercial banks across the United States. b. Federal Reserve member banks only. c. any banking institution that sells FDIC insurance. d. any banking institution that purchases FDIC insurance. e. any bank approved by the Fed.

d. any banking institution that purchases FDIC insurance.

The earliest type of exchange involved _____ a. commodity money. b. fiat money. c. fiduciary money. d. barter. e. coins.

d. barter.

The _____ is the interest rate charged by banks from one another for overnight borrowing. a. discount rate b. inflation rate c. nominal interest rate d. federal funds rate

d. federal funds rate

M1: a. is the broad definition of money. b. includes M2 as well as savings deposits. c. includes only currency. d. is the narrow definition of money.

d. is the narrow definition of money.

From the perspective of a bank, the objectives of _____ and _____ are at odds with one another. a. accepting deposits; providing loans b. profitability; cost minimization c. asset liquidity; holding of bank reserves d. liquidity; profitability

d. liquidity; profitability

The assets of a bank include _____. a. deposits b. saving accounts c. money market accounts d. loans

d. loans

A major problem with the implementation of an annually balanced budget is that it _____ a. relies on government officials to budget for surpluses during economic booms in order to cover deficits during recessions. b. dampens swings in the business cycle. c. allows the national debt to burgeon with chronic deficits. d. magnifies fluctuations in the business cycle. e. requires annual revenues to match with outlays even during times of war, when there is a sudden increase in military expenditures.

d. magnifies fluctuations in the business cycle.

The unit of account function of money _____ a. means that money should be durable. b. requires that money be made of something valuable. c. means that money is more easily counted than goods. d. means that money is used to measure the value of all goods. e. means that money can be used to save up purchasing power.

d. means that money is used to measure the value of all goods.

The federal funds market: a. provides for day-to-day lending and borrowing between the banks that have excess reserves and the general public. b. provides for day-to-day lending and borrowing between the Fed and the general public. c. provides for day-to-day lending and borrowing between the Fed and the banks that have excess reserves. d. provides for day-to-day lending and borrowing among banks having excess reserves on account at the Fed.

d. provides for day-to-day lending and borrowing among banks having excess reserves on account at the Fed.

The three important functions of money are _____ a. serving as a medium of exchange, facilitating trade, and serving as a unit of account. b. serving as a store of value, facilitating trade, and ensuring a double coincidence of wants. c. facilitating trade, serving as a medium of exchange, and serving as a unit of account. d. serving as a medium of exchange, a unit of account, and a store of value. e. serving as a unit of account, facilitating trade, and serving as a store of value.

d. serving as a medium of exchange, a unit of account, and a store of value.

If a borrower fails to repay a loan to a bank, _____. a. the bank will report this to the borrower's employer b. the bank will go bankrupt c. the bank will attempt to sell the loan d. the bank will not get affected as it has a diversified portfolio

d. the bank will not get affected as it has a diversified portfolio

Which of the following best illustrates the use of discretionary fiscal policy? a. Congress appropriating $400 million to help the needy and the appropriation being financed by a tax on wealth b. income tax receipts being smaller because of a decline in real GDP during a recession c. Congress providing $1 billion in relief aid for hurricane victims d. the Federal Reserve tightening credit when it receives news of accelerating inflation e. Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession

e. Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession

Which of the following statements is true of a barter system? a. In a barter system economy, no rates of exchange are defined. b. In a barter system economy, rates of exchange are expressed in goods per dollar. c. In a barter system economy, rates of exchange are denominated in gold or silver. d. In a barter system economy, rates of exchange are expressed in dollars per good. e. In a barter system economy, there are as many different rates of exchange as there are pairs of goods to trade.

e. In a barter system economy, there are as many different rates of exchange as there are pairs of goods to trade.

Which of the following statements is true of a barter system? a. In a barter system, all individuals are self-sufficient. b. In a barter system, an individual offers a good or service to get money. c. In a barter system, an individual offers money to get a good or service. d. In a barter system, different kinds of money are exchanged for one another. e. In a barter system, an individual offers one good or service to get another good or service.

e. In a barter system, an individual offers one good or service to get another good or service.

Identify the statement that is true of a barter system. a. In a barter system, an individual offers commodity money to get fiat money. b. In a barter system, an individual offers coins to get a good or service. c. In a barter system, individuals are self-sufficient. d. In a barter system, different kinds of money are exchanged for one another. e. In a barter system, trade will only occur if there is a double coincidence of wants.

e. In a barter system, trade will only occur if there is a double coincidence of wants.

The members of the Board of Governors of the Fed are _____ a. elected by the member banks. b. chosen by the state governors. 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. appointed by the president with the approval of the Senate.

Which of the following was the earliest type of money? a. token money b. fiat money c. barter d. coins e. commodity money

e. commodity money

Deliberate manipulation of government spending and taxes to promote macroeconomic goals is known as _____ a. monetary policy. b. automatic stabilizers. c. expansionary fiscal policy. d. contractionary fiscal policy. e. discretionary fiscal policy.

e. discretionary fiscal policy.

Contractionary fiscal policy _____ a. is an emergency manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. b. is a monetary policy change. c. is the deliberate manipulation of government purchases, transfer payments, and taxes to promote macroeconomic goals. d. is a revenue and spending program in the federal budget that automatically adjusts with the ups and downs of the economy. e. is used to close an expansionary gap.

e. is used to close an expansionary gap.

Money that is acceptable because the government requires that it be accepted in payment of debt is _____ a. representative money. b. commodity money. c. broad money. d. bad money. e. legal tender.

e. legal tender.

A stock variable measuring the net accumulation of past deficits is the _____ a. projected liability of federal outlays. b. budget deficit. c. debt ceiling. d. twin deficit. e. national debt.

e. national debt.

According to classical economists, government intervention is _____ a. necessary to maintain full employment in the short run. b. necessary to maintain a stable price level in the short run. c. necessary to maintain full employment in the long run. d. necessary to maintain a stable price level in the long run. e. not necessary to maintain full employment.

e. not necessary to maintain full employment.

Barter is the direct exchange of goods and services for _____ a. commodity money. b. any kind of money. c. either goods or money. d. foreign currency. e. other goods and services.

e. other goods and services.

Crowding out is caused by a _____ a. reduction in government purchases of goods and services. b. reduction in the value of the multiplier used for government purchases of goods and services by increasing the marginal propensity to consume. c. reduction in the value of the multiplier used for government purchases of goods and services by decreasing the marginal propensity to consume. d. reduction in the imports of goods and services. e. reduction in the value of the multiplier used for government purchases of goods and services by increasing the interest rate.

e. reduction in the value of the multiplier used for government purchases of goods and services by increasing the interest rate.

Commodity money is something _____ a. whose value never changes. b. that has no intrinsic value. c. whose value cannot be determined. d. that is based on a valuable metal. e. that has an intrinsic value.

e. that has an intrinsic value.

Which of the following is an automatic stabilizer? a. the minimum wage set by the government b. the interest rate c. government spending d. net taxes e. unemployment insurance

e. unemployment insurance