Macro Final

The U.S. Federal Reserve, the Bank of England, the Bank of Japan, and the ECB are all:

central banks

Jerome Powell

chair of the Board of Governors of the Federal Reserve System.

Which of the following is NOT a tool of fiscal policy? changing tax rates government transfers government purchases of goods and services changes in the money supply

changes in the money supply

Included in M1 are:

checkable bank deposits.

Monetary policy affects aggregate demand through changes in:

consumer and investment spending.

Which of the following assets is the MOST liquid?

currency

The Federal Reserve's main liabilities are:

currency and bank reserves.

If the marginal propensity to consume is 0.75 and government purchases of goods and services decrease by $30 billion, real GDP will:

decrease by $120 billion.

Loans of reserves from one bank to another are made in the _____ market.

federal funds

When banks borrow from and lend reserves to each other, they are participating in the _____ market.

federal funds

The U.S. dollar is defined as:

fiat money, because it was established as money by an act of law.

Most economists believe that a balanced budget requirement would:

government debt held by individuals and institutions outside the government

Public debt is:

government debt held by individuals and institutions outside the government.

Social insurance programs are:

government programs intended to protect families against economic hardships.

Discretionary fiscal policy refers to changes in:

government spending or taxes to close a recessionary or inflationary gap.

If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, money demanded is _____ than money supplied.

greater than

Because of the role of automatic stabilizers and discretionary fiscal policy, the historical record of the United States since 1970 shows that the budget tends to:

move into a deficit during recessions.

The amount of money that people demand is:

negatively related to the interest rate.

(Figure: Fiscal Policy Options) Look at the figure Fiscal Policy Options. If the aggregate demand curve is AD:

no change in discretionary fiscal policy is warranted

(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy starts at E1 and moves to E2, where AD2 intersects SRAS1. SRAS1 will shift to SRAS2 because:

nominal wages rise in the long run.

The Federal Reserve Bank of the United States is:

not exactly part of the U.S. government but not really a private institution either.

The Fed monetizes the debt when it:

prints money and buys government debt from the public.

People forgo interest and hold money:

to reduce their transaction costs.

Government payments to households for which no good or service is provided in return are called:

transfer payments.

Suppose your grandma sends you $100 for your birthday and you deposit it in your checking account. The reserve ratio is 10%. Based upon this deposit, the bank's reserves have increased by _____ and the bank's checkable deposits have increased by _____.

$100; $100

(Table: Monetary Aggregates) Look at the table Monetary Aggregates. M2 is:

$3,355 billion.

Suppose a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio. If the bank lends the maximum amount of money allowed, then the checkable deposits (including the original deposit) increase by:

$500

Scenario: First National Bank First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault, and $5 million in government bonds. Reference: Ref 14-11 (Scenario: First National Bank) Look at the scenario First National Bank. The bank has liabilities of:

$80 million.

The Federal Reserve System was established in:

1913

(Figure: AD-AS Model and the Short-Run Phillips Curve) Look at AD-AS Model and the Short-Run Phillips Curve. If the central bank increases the money supply so that aggregate demand shifts from AD1 to AD2, then the inflation rate will be:

2%

(Figure: Short-Run Phillips Curve) Look at the figure Short-Run Phillips Curve. SRPC2 is based on an expected inflation rate of:

2%

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. The government spending multiplier is:

5

How many members are there on the Federal Reserve Board of Governors?

7

In the United States in 2013, public debt accounted for about _____ of GDP.

72%

The chair of the Board of Governors during the 2008 financial crisis was:

Ben Bernanke.

Capital requirements for banks serve all of the following purposes EXCEPT:

Capital requirements for banks serve all of the following purposes EXCEPT:

Which of the following is a function of the Federal Reserve System? I. conducting fiscal policy II. examining and supervising commercial banks in the Fed regions III. evaluating corporate mergers

II only

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. Which of the following would be the appropriate response on the part of the government upon viewing the state of the economy?

Raise tax rates to close the inflationary gap.

Contractionary monetary policy causes _____ in the price level in the short run and _____ in the price level in the long run.

a decrease; a decrease

The difference between a budget deficit and government debt is that:

a deficit is the amount by which government spending exceeds tax revenues, whereas debt is the sum of money the government

Which of the following fiscal policies would make a budget surplus smaller or a budget deficit larger?

an increase in government purchases of goods and services

If the economy is at potential output and consumption spending suddenly decreases because of a fall in consumer confidence, the appropriate fiscal policy is

an increase in government spending.

In the classical model, it is thought that the long-run:

and short-run aggregate supply curves are both vertical.

A bank run can break a bank because:

banks cannot quickly convert illiquid loans to liquid assets without facing a large financial loss

Which of the following would NOT fit the economist's definition of money?

bonds

What can the federal government do to finance a deficit?

borrow funds

The problem of debt deflation deepens during an economic slump because:

borrowers have to reduce spending to pay off debts.

During periods of deflation _____ will be hurt and _____ will be helped.

borrowers; lenders

(Figure: Changes in the Money Supply) Look at the figure Changes in the Money Supply. If the supply of money shifts from S1 to S2, the Federal Reserve must have _____ Treasury bills in the open market.

bought

If the Fed conducts an open-market sale, bank reserves _____ and the money supply is likely to _____.

decrease; decrease

When the economy is in a recession, tax receipts _____ and unemployment insurance payments _____.

decrease; increase

According to the liquidity preference model, a _____ in the money supply shifts the money supply curve to the _____ and increases the equilibrium interest rate.

decrease; left

If during 2007 the interest rate on one-month Treasury bills was 2.5% and during 2008 it was 2%, the opportunity cost of holding money:

decreased

Contractionary fiscal policy includes:

decreasing government expenditures.

The federal budget tends to move toward _____ as the economy ____.

deficit; contracts

The guarantee by the FDIC to reimburse bank customers up to $250,000 per deposit in the event of bank problems is called:

deposit insurance.

A change in taxes or a change in government transfers affects consumption through its effect on:

disposable income.

The 2009 U.S. stimulus was a(n) _____ fiscal policy that _____ aggregate demand.

expansionary; increased

If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply.

expansionary; increasing

(Figure: Expected Inflation and the Short-Run Phillips Curve) Look at the figure Expected Inflation and the Short-Run Phillips Curve. Suppose that this economy has an unemployment rate of 6%, inflation of 2%, and an expectation of 2% future inflation. If the central bank decreases the money supply such that aggregate demand shifts to the left and unemployment rises to 8%, then inflation will:

fall to zero

If the aggregate price level doubles:

money demand at any given interest rate will also double.

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

increase

Suppose the Federal Reserve buys $50 million in Treasury bills from commercial banks. If the reserve ratio is 10%, the monetary supply might eventually _____ by _____.

increase; $500 million

To _____ the money supply, the Federal Reserve could _____.

increase; lower the discount rate

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. A movement from AD1 to AD3 could be caused by:

increased government purchases.

In the nineteenth century before the Civil War, most commodity-backed money in the United States was:

issued by private banks and redeemable for silver coins.

In the long run, any given percentage increase in the money supply:

leads to an equal percentage increase in the overall price level.

A change in government transfers shifts the aggregate demand curve by _____ than a change in government spending for goods and services and has a _____ effect on real GDP.

less; smaller

U.S. Treasury bills are a(n):

liability of the U.S. government but an asset to the Federal Reserve

Generally, the more liquid an asset is, the:

lower its rate of return.

Banks create money when they:

make loans

When a bank deposit is withdrawn and kept as currency, bank reserves decrease and the:

monetary base does not change.

(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. If the economy is in a recessionary gap at point f, it could move to point g as a result of:

purchases of government securities in the open market.

The major tools of monetary policy available to the Federal Reserve System include:

reserve requirements, open-market operations, and the discount rate.

The existence of banks:

results in the money supply being larger than the amount of currency in circulation.

When the economy expands, income tax receipts will:

rise, and sales tax revenues will rise.

Money is anything that:

serves as a medium of exchange for goods and services.

When nominal wages increase, the short-run aggregate supply curve:

shifts to the left.

Decisions about monetary policy are made by:

the Federal Open Market Committee.

If the Federal Reserve sets the federal funds rate on the basis of inflation and the output gap, then the Federal Reserve is following:

the Taylor rule.

The zero lower bound for interest rates is:

the fact that interest rates can't go below zero.

Consumer spending will likely fall if:

the government raises tax rates

The liquidity preference model uses the demand for and supply of money to determine:

the interest rule

Bank runs in the United States during the 1930s damaged the economy because:

the loss of confidence at one bank quickly extended to other banks.

Holding everything else constant, if the required reserve ratio falls:

the money multiplier increases.

If the money supply decreases by 5%, in the long run:

the price level drops by 5%.

The inflation tax is the effect on the public of:

the reduction in the value of money caused by inflation.

The long-run Phillips curve shows the relationship between:

unemployment and inflation after expectations of inflation have had time to adjust to experience.

"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate?

unit of account

The double coincidence of wants problem can be solved by:

unit of account.