Final Exam (Part 1)

Checkable deposits are included in: A. M1 but not in M2 B. M2 but not in M1 C. both M1 and M2 D. neither M1 nor M2

C

Checkable deposits are money because they are: A. Legal tender B. Fiat money C. Acceptable as payment D. Token money

C

T/F: The Medicare trust fund is expected, if current flows continue, to be depleted within the next ten years.

T

Members of the Federal Reserve Board of Governors are: A. Appointed by Congress to staggered 14-year terms B. Selected by the Federal Open Market Committee for 4-year terms C. Appointed by the President to staggered 14-year terms D. Selected by each of the Federal Reserve banks for 4-year terms

C

Most economists believe that fiscal policy is: A. Better than monetary policy for "fine-tuning" the economy B. Better than monetary policy for month-to-month stabilization C. Not as good as monetary policy for month-to-month stabilization D. Not very good at pushing the economy in a particular direction

C

The goal of expansionary fiscal policy is to increase: A. The price level B. Aggregate supply C. Real GDP D. Unemployment

C

Which of the following institutions does not provide checkable-deposit services to the general public? A. Commercial banks B. Savings and loan associations C. U.S. Treasury D. Credit unions

C

Which of the following items are included in money supply M2 but not M1? A. Federal Reserve notes B. Coins C. Savings deposits D. Checkable deposits

C

Which of the following serves as an automatic stabilizer in the economy? A. Interest rates B. Exchange rates C. The inflation rate D. The progressive income tax

D

Foreigners held roughly how many percent of U.S. Federal debt in 2009? A. 30% B. 50% C. 70% D. 90%

A

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A. Fiscal policy B. Incomes policy C. Monetary policy D. Employment policy

A

Which group is responsible for the policy of changing the money supply? A. Federal Open Market Committee B. Office of Management and Budget C. Thrift Advisory Council D. Federal Advisory Council

A

Which of the following would be considered to be the most liquid? A. Checkable deposits B. Small time deposits C. Money market mutual funds D. Savings deposits

A

The functions of money are to serve as a: A. Resource allocator, method for accounting, and means of income distribution B. Unit of account, store of value, and medium of exchange C. Determinant of consumption, investment, and government spending D. Factor of production, exchange, and aggregate supply

B

Which of the following nations had the highest public sector debt as a percent of GDP in 2009? A. The U.S. B. Japan C. The U.K. D. France

B

An inflation rate of 8% would erode the purchasing power of the dollar by: A. 8.0 percent B. 7.4 percent C. 4.4 percent D. 12.5 percent

B (8/108 = 7.4%)

Most of the public debt is owed to the nation's citizens and domestic institutions. This is one reason that the public debt: A. Crowds out private investment B. Does not impose a large burden on future generations C. Has a pro-cyclical economic effect on the economy D. Can result in the bankruptcy of the Federal government

B

The M1 money supply is composed of: A. All coins and paper money held by the general public and the banks B. Bank deposits of households and business firms C. Bank deposits and mutual funds D. Checkable deposits and currency in circulation

D

If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about: A. 15 percent B. 19 percent C. 23 percent D. 30 percent

C (30/130 = 23%)

A major concern with the Social Security trust fund is that: A. Surpluses for Social Security are too large B. The Federal government buys too many government securities C. Costs for administering the fund are greater than the current revenue D. The fund will be insufficient to cover obligations in one or two decades

D

Assume the economy is at full employment but planned investment exceeds saving. Other things being equal, what fiscal policy actions would best address this problem? A. Increase taxes and government spending B. Decrease taxes and government spending C. Decrease taxes and increase government spending D. Increase taxes and decrease government spending

D

Fiscal policy is enacted through changes in: A. Interest rates and the price level B. The supply of money and foreign exchange C. Unemployment and inflation D. Taxation and government spending

D

T/F: The Social Security program is a retirement system where payments to retirees come from their previous contributions.

F

How many members can serve on the Board of Governors of the Federal Reserve System? A. 7 B. 9 C. 12 D. 14

A

If the government wishes to increase the level of real GDP, it might reduce: A. Taxes B. Transfer payments C. The size of the budget deficit D. Its purchases of goods and services

A

In 2009, interest payments on the public debt as a percentage of GDP were about: A. 1.3 percent B. 8.2 percent C. 13.0 percent D. 23.5 percent

A

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has: A. The power to print money to finance the debt B. A strong military to protect it from creditors C. The capacity to pay off its outstanding debt with gold D. The ability to decrease interest rates and increase investment spending

A

The Federal budget deficit is calculated each year by: A. Subtracting government spending from government revenues B. Subtracting consumption and investment from government spending C. Adding up consumption, investment, government purchases, and net exports D. Adding up the difference between government revenues and spending over the years of the nation's existence

A

The paper currencies of the U.S. are also called: A. Federal Reserve notes B. Treasury Bills C. U.S. Government notes D. Treasury bonds

A

The group that often initiates changes in fiscal policy is the: A. Congressional Budget Office B. Council of Economic Advisors C. Joint Economic Committee D. Federal Reserve Board

B

Which of the following is the most important function of the Federal Reserve System? A. Setting reserve requirements B. Controlling the money supply C. Lending money to banks and thrifts D. Acting as the fiscal agent for the U.S. government

B

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Nondiscretionary fiscal policy

C

In 2009, the public debt in the U.S. on a per capita basis was about: A. $10,000 B. $24,000 C. $38,000 D. $52,000

C

One major advantage of money serving as a medium of exchange is that it allows society to: A. Transfer purchasing power from the present to the future B. Measure the relative worth of products C. Escape the complications of barter D. Use credit cards instead of currency

C

The Federal Open Market Committee (FOMC): A. Provides advice on banking stability to the Fed B. Monitors regulatory banking laws for member banks C. Sets policy on the sale and purchase of government bonds by the Fed D. Follows the actions and operations of financial markets to keep them open and competitive

C

The Federal Reserve System is an: A. Agency that is controlled by Congress B. Agency that is under the direction of the President C. Independent agency of government D. Agency ran by popularly-elected officials

C

The Federal Reserve System of the U.S. is the country's: A. Financial adviser B. Comptroller or Accountant C. Central bank D. Deposit insurance provider

C

The basic requirement of money is that it be: A. Backed by precious metals--gold or silver B. Authorized as legal tender by the central government C. Generally accepted as a medium of exchange D. Some form of debt or credit

C

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a: A. Trade deficit B. Trade surplus C. Budget deficit D. Budget surplus

C

The most important of the Federal Reserve district banks is the: A. Boston bank B. Chicago bank C. New York bank D. San Francisco bank

C

To track the public debt over time and understand its significance to the economy, it is best: A. Examined relative to budget surpluses B. Calculated relative to the money supply C. Measured relative to the gross domestic product D. To compare it to imports, exports, and the trade deficit

C

When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of: A. Controlling the money supply B. Setting the reserve requirements C. Being the bankers' bank D. Providing for check clearing and collection

C

How is the public debt calculated? A. By subtracting the government's total liabilities from its total assets B. By cumulating the annual government purchases over time C. By subtracting current government spending from current government tax revenues D. By cumulating the annual difference between tax revenues and government spending over the years

D

How long is the term of office for members appointed to serve on the Board of Governors of the Federal Reserve System? A. 2 years B. 4 years C. 7 years D. 14 years

D

State and local governments are limited in their ability to respond to recessions because of: A. Local politics and politicians B. Their desire to always run budget surpluses C. The lack of proper economic research and assistance D. Constitutional and other requirements to balance their budgets

D

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for: A. Maintaining cash reserves that can be used to settle international transactions B. Supervising banks to make sure that markets are open to all and remain competitive C. Issuing currency and acting as the fiscal agent for the Federal government D. Setting the Fed's monetary policy and directing the purchase and sale of government securities

D

The Federal Reserve Banks are owned by the: A. Federal government B. Board of Governors C. United States Treasury D. Member banks

D

The Federal Reserve System consists of which of the following? A. Federal Open Market Committee and Office of Thrift Supervision B. Federal Deposit Insurance Corporation and Controller of the Currency C. U.S. Treasury Department and Bureau of Engraving and Printing D. Board of Governors and the 12 Federal Reserve Banks

D

The Financial Crisis of 2007-2008 started in which sector of the economy? A. Foreign trade sector B. Consumer durables sector C. Dot.com and technology sector D. Real estate and housing sector

D

To keep high inflation from eroding the value of money, monetary authorities in the United States: A. Create token money that is less than its intrinsic value B. Make paper money legal tender for the payment of debt C. Establish insurance on checkable deposit accounts D. Control the supply of money in the economy

D

Up until 2008, Social Security revenues exceeded payouts, and the excess inflow was used to buy: A. Public lands B. Gold certificates C. Foreign securities D. Treasury securities

D

What function is money serving when you use it when you go shopping? A. A store of value B. A unit of account C. A medium of deferred payment D. A medium of exchange

D

When a bank's loans are written off, it means that the bank's: A. Reserves are reduced, while its debt increases B. Reserves rise along with its debt C. Reserves fall along with its debt D. Reserves shrink, whereas its debt remains the same

D

When there is inflation in the economy, it implies that the: A. Price index is rising and the purchasing power of money is also rising B. Price index is falling and the purchasing power of money is also falling C. Price index is falling and the purchasing power of money is rising D. Price index is rising and the purchasing power of money is falling

D

Which group assists the Board of Governors of the Federal Reserve System in determining monetary policy? A. U.S. Treasury B. U.S. Congress C. Federal Advisory Council D. Federal Open Market Committee

D