Exam 4 Econ

The required reserve ratio for Jack's bank is 10 percent. If Jack deposits $2,000 cash in his checking account, what is the amount of new money the bank would create when it lends out its excess reserves?

$1,800

Using the provided information, what would be the tax responsibility of a steel worker who made $92,000 in 2014?

$18,935.75

Which of the following accurately describes the banking system?

They put a fraction of their deposits in reserves and then loan out or invest the rest.

Tom earns $33,000 per year. The income tax rate on incomes below $20,000 is 10 percent. The rate on income between $20,001 and $35,000 is 15 percent. Which of the following is true?

Tom's marginal income tax rate is 15 percent.

Tad just filled his truck with gas, grabbed a pack of cigarettes and a case of beer on his way to his fishing cabin. When looking at his receipts, what does Tad notice that all three of these goods have in common?

All of them are subject to government excise taxes.

What does the FDIC ensure?

There are adequate loanable funding resources to grow the economy by ensuring they are available to investors to generate economic activity.

When does a budget surplus occur?

When government tax revenues exceed government spending.

Under certain conditions, goats, coins, and checks can all be used as payments. In economic terms these things are all considered

a medium of exchange

Financial contagion may results in lost integrity in the entire financial system. To prevent this from happening, the Fed may

act as the lender of last resort to make short-term emergency loans, as needed.

What term refers to a nation's transactions in the form of imports and exports with any other single nation or rest of the world.

balance of trade

Homemade pies can be used as a form of

barter

An open market operation decreases the money supply when the Federal Reserve

buys bonds from banks, which decreases bank reserves.

Which of the following is a concern of fiscal policy?

changes in taxes

Silver and gold are examples of what kind of money?

commodity

Since the U.S. has so many resources why do we trade with other countries?

comparative advantage

What is the term to describe when a nation or individual can produce a good or service at a lower opportunity cost than another nation or individual?

comparative advantage

In the 1980s the U.S. Central Bank had the goal of increasing the interest rate and decreasing the money supply. To implement its goal the Central Bank uses a ________ monetary policy.

contractionary

State and local government spending goes predominantly towards

education

Equilibrium in financial markets occurs at an interest rate where the quantity of loanable funds demanded is

equal to the quantity of loanable funds supplied.

What is the term used to describe the price of one nation's currency in terms of another nation's currency?

exchange rate

Lower reserves requirements, lead to a ________ in interest rates and a/an ________ in the money supply.

fall; increase

Jenny can paint one birdhouse in 2 hours and can build one birdhouse in 1 hour. Gary can paint one birdhouse in 3 hours and can build one birdhouse in 2 hours. Who has the comparative advantage in painting a birdhouse? (HINT: To determine the opportunity cost, divide the hours of painting by the hours of building. The one with the lowest opportunity cost has the comparative advantage.)

gary

Sales taxes are

imposed as a percentage of the value of the purchase.

Property taxes are

imposed based on ownership of assets such as real estate and autos.

In order to ________ the money supply, government should ________ bonds in open market operations.

increase; buy

Moral hazard is associated with which of the following Federal Reserve bank functions?

lender of last resort

The definition of ________ is the ease with which an asset can be used to buy a service or a good.

liquidity

If the Fed ultimately wants to lower interest rates in the economy, then it should

lower the discount rate

If the Fed wants to increase the quantity of money in the economy, it can

lower the reserve requirement.

Because money functions as a ________ it eliminates the need for bartering.

medium of exchange

Debit cards are a form of

money

The proportion of deposits that banks are legally required to deposit with the central bank are called

reserve requirements.

When the supply of loanable funds shifts its position to the left, interest rates will ________ because loanable funds will be

rise; more scare

What is the definition of credit?

Credit is a way to purchase goods or services now when you cannot afford to pay for it all at once with cash.

What happens when the value of the currency changes and you can purchase more of the other currency?

Currency appreciates

Which of the following is NOT a consequence of tariffs?

Domestic products are less expensive

What is included in bank supervision?

Ensuring bank net worth remains positive, setting restrictions on investments and minimum reserve requirements.

A critical function of the private banking system is

Establishing the links between savers and borrowers.

Several nations might agree to jointly issue and use a single currency. Which of these is an example of a common currency?

Euro

Read through the following scenarios and select the one that would most likely compel the Fed to lower the discount rate.

For the last three months there is a decline in the federal funds market which triggered interest rates dipping below the discount rate.

Google runs a lucrative business and will pay corporate income tax to the federal government. On what is the corporate tax based?

Google's profits

Which product should Nation XYZ produce given the following information? They have traditionally been an agricultural nation and have a huge population. The government wants to diversify the economy with a new industry.

Hand-woven place mats

What does comparative advantage measure?

How much each nation gives up in one good to produce another good.

How do trade barriers negatively impact an economy?

Hurt efficient and competitive industries

If the central bank raises the reserve requirement on deposits

the money supply decreases and interest rates increase.

When the central bank decides it will buy bonds using open market operations

the money supply increases

What is it called when imports exceed exports?

trade deficit

What is it called when exports exceed imports Balance of Trade

trade surplus

Around the world oil is priced consistently in United States dollars. In economic terms this is an example of:

units of account

The required reserve ratio for Julie's bank is 10 percent. If Julie deposits $5,000 cash into her checking account, what amount of new money could the bank create when it lends out its excess reserves?

$4,500

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $10 million, the total change in the money supply after all rounds of lending are completed is

5 million

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of lending are completed is

50 million

Which process is used by banks to create money?

Banks lend money and collect interest on the loans

Why do governments impose trade barriers?

Both to protect domestic industries and to combat job losses

Which of the following examples describe a progressive tax?

Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.

If the Euro appreciates, how will it impact U.S. purchases in Europe and European purchases in the U.S.?

Increase purchases in U.S. by Europe and decrease purchases in Europe by U.S.

Which source of money is most liquid, or available for consumers to use?

M1

Which of the following are major components of US federal government spending?

Medicare and social security expenditures

Which of the following example(s) describe a proportional tax?

Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.

An example of a financial market is the

NASDAQ Stock Market

Which of the following is an example of a financial market?

New York Stock Exchange

Which account is held by a nation's central bank and used to balance deficits and surpluses in the combined other two accounts?

Official Reserves Account

In the country of Ovriolio the government has a budget plan to collect taxes in the amount of $15 billion and to spend $12 billion. A surge in production boosts the economy and the government spends $2 billion less than planned and tax collection is up by $1 billion. What are the results of these actions?

Ovriolio's expected budget surplus becomes a $6 billion surplus.

Which of the following is an example of an automatic fiscal policy stabilizer?

Tax revenues fall as real GDP decreases.

The mission of the Federal Reserve Bank fits best with which of these statements?

The Fed is the banking industry's private bank.

Assuming that income tax is the only source of revenue for the government, with tax revenue of $50 billion and government spending totaling $70 billion, which of the following is true of the government's budget?

The government has a budget deficit of $20 billion.

If Congress wanted to implement a tax cut during a recession but had to keep a balanced budget, what would need to do?

The government would have to reduce spending.

Say that Fed policy requires all banks to hold 8% of deposits in reserves. If Ventura Bank does not hold any excess reserves and the Fed increases the reserve requirement to 10%, what will be the result?

The money supply in the economy decreases

What will happen to the money supply if the Fed increases the reserve requirement?

The money supply will decrease.

What is the definition of opportunity cost?

The next best alternative that you give up.

The Balance of Payments includes three accounts. Which account includes income from foreign investments?

current account

In an attempt to boost the economy, the government's expansionary fiscal policy would include which of the following?

cutting tax rates

A bank holding just over the minimum level of cash reserves with a high volume of loans made to developing countries and a large share of assets in the form of loans to more stable domestic industries and households should receive

increased scrutiny by bank regulators

When a Central Bank decides to make a policy intervention it must be mindful of the trade off between

inflation and unemployment

Contractionary fiscal policy is recommended when

inflation has reached harmful levels.

The equilibrium interest rate is the

interest rate at which the quantity of borrowed money equals the quantity of financial capital supplied.

The discount rate is:

interest rate charged by the Federal Reserve for discount loans.

During a recession, what is a traditional tool used by the Fed to boost the economy?

open market operations

If the government of the country of LiLand want to promote economic activity and increase Aggregate Demand, it should

pass a new spending bill to fund new infrastructure projects.

The ability to pay principle of taxation holds that

people with more income should pay more taxes.

The M2 measure of the money supply is defined as currency

plus savings accounts and other timed deposits, CDs and money market funds, and is larger in sum than M1.

An interest rate is the ________ and the reward for lending money.

price of borrowing money

If the Fed ultimately wants to raise interest rates in the economy, then it should

raise the discount rate.

Corporate stock

represents ownership in a firm.

The exchange rate is determined by what?

supply and demand

Which economics principle is present in financial markets?

supply and demand

Which of the following trade barriers is a special tax on imports?

tariff