Unit 4 Exam
Members of the Federal Reserve Board of Governors serve one nonrenewable term of
14 years.
The Federal Reserve System was founded in
1913
Karl Marx was a(n)
19th century German philosopher.
Who was one of the first proponents of employing market economies instead of command economies?
Adam Smith
What famous economist said that the market economy seemed to be controlled by an invisible hand?
Adam Smith.
Which of the following is not part of the Federal Reserve System?
Council of Economic Advisors
Karl Marx published
Das Kapital.
A majority of the commercial banks in the United States are members of the Fed.
False
A market system does not operate based on self-interest.
False
Karl Marx envisioned communism as an economic system that blends the best elements of capitalism and socialism.
False
M1 includes savings accounts.
False
M2 is actually a smaller amount than M1.
False
The Federal Funds Committee executes the purchases and sales of government securities decisions of the Federal Reserve.
False
Each year, the president must submit a budget proposal to Congress by
February
Less of the federal debt is owned by federal, state, and local governments than is owned by foreigners.
Flase
Which of the following is not an idea advocated by Adam Smith?
Government should control the control the economy with an "invisible hand".
With regard to the national debt, to whom does the federal government owe money?
Investors who buy U.S. Treasury bills, bonds, and notes
Who predicted that the exploitation of workers would cause capitalism to self-destruct?
Karl Marx
In Japan, the government agency that combines government and businesses in joint ventures is called.
MITI
Which of the following is true in a market economy?
Resources are used efficiently
According to Adam Smith, the "invisible hand" refers to which of the following?
The "best interests of society" (public interest) will occur as an outcome of the market process coordinating the self-interested interactions of buyers and sellers (private interest).
Which of the following statements is true?
The current U.S. national debt is over $13 trillion.
Which of the following is not a protection against bank collapse?
The gold and silver that backs Federal Reserve notes.
When the U. S. federal government runs a budget deficit, it borrows money by selling
Treasury bills, notes, and bonds.
A command system uses a group of planners or central authority to make basic economic decisions.
True
A traditional system solves basic economic questions by long-standing customs.
True
Although the chairman of its Board of Governors is appointed by the president, the Fed operates with considerable independence from the executive branch of the government.
True
By functioning as a unit of account, money provides a common measurement of the relative value of goods and services.
True
Karl Marx predicted that the exploitation of workers would cause capitalism to self-destruct.
True
Karl Marx viewed socialism only as a transition to the ideal state of communism.
True
Money eliminates the need to barter.
True
Money is said to be liquid because it is immediately available to spend for goods.
True
One of the strengths of a socialist economy, according to those who advocate such a system, is that government intervention will enable a more equitable distribution of income.
True
The way to prevent the national debt from growing is for the budget not to be in deficit.
True
Which of the following statements is true?
U. S. national debt has more than tripled since 1980.
Adam Smith's book, The Wealth of Nations, was published at the time of the
U.S. Declaration of Independence.
When measured as a percentage of GDP, the U.S. national debt reached its highest levels as a result of
World War II.
Which of the following statements is true? a. Adam Smith was the father of socialism. b. Most real-world economies are mixed economic systems. c. The doctrine of laissez-faire advocates an economic system with extensive government intervention and little individual decision-making. d. In capitalism income is distributed on the basis of need. e. The "invisible hand" refers to government economic control.
b. Most real-world economies are mixed economic systems.
A direct exchange of fish for corn is an example of
barter
Crowding out refers to the situation in which
borrowing by the federal government raises interest rates and causes firms to invest less.
Crowding out occurs when the federal government
borrows by selling bonds to finance a deficit
Which of the following is a store of value? a. Money market mutual fund share. b. Repurchase agreement. c. All of the above are a store of value. d. None of the answers above are a store of value.
c. All of the above are a store of value.
. An economic system characterized by private ownership of the factor of production and economic activity coordinated through a system of markets and prices is called
capitalism
Property rights allowing individuals to own goods, services, and factors of production are most important in
capitalistic economies.
In a command economy, the basic economic questions are answered by
central authority
If Congress fails to pass a budget before the fiscal year starts, then federal agencies may continue to operate only if Congress has passed a
continuing resolution
Which of the following economies is an example of a mixed system? a. The United States b. The United Kingdom c. Sweden d. All of the above answers are correct.
d. All of the above answers are correct.
Which of the following is a criticism of capitalism? a. Failure to protect the environment b. Exploitation of workers c. Unequal distribution of income d. All of the above answers are correct.
d. All of the above answers are correct.
Anything can be money if it acts as a: a. unit of account. b. store of value. c. medium of exchange. d. All of the answers above are correct
d. All of the answers above are correct
Which of the following is considered part of M2? a. Savings deposits. b. Money market mutual fund shares. c. Small time deposits of less than $100,000. d. All of the answers above are correct. e. None of the answers above are correct.
d. All of the answers above are correct.
Which of the following items is included when computing M1? a. Checking accounting entries. b. Currency in circulation. c. Traveler's checks. d. All of the answers above are correct. e. None of the answers above are correct
d. All of the answers above are correct.
Which of the following statements about crowding out is true? a. It can completely offset the multiplier. b. It is caused by a budget deficit. c. It is not caused by a budget surplus. d. All of the answers above are correct. e. None of the answers above are correct.
d. All of the answers above are correct.
Which of the following is false? a. The national debt's size decreased steadily after World War II until 1980 and then increased sharply each year. b. The national debt increases whenever the federal government has a surplus budget. c. The size of the national debt currently is about the same size as it was during World War II. d. All of the answers above are false. e. All of the answers above are true.
d. All of the answers above are false.
In recent years, net interest payments as a percentage of GDP has been
decreasing
If the national debt rises to the debt ceiling and there is currently a budget ______________, then Congress and the President must agree to ______________ the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.
deficit, raise
In Marx's ideal communist society, the state
does not exist.
Decisions regarding Fed purchases and sales of government securitiesd are made by the: a. FDIC. b. Discount Committee. c. Council of Economic Advisors. d. Federal Funds Committee. e. None of the answers above are correct
e. None of the answers above are correct
Socialism is an economic system characterized by
government ownership of resources and centralized decision-making.
The national debt is owed to which of the following?
investors who buy U.S. Treasury bills, bonds, and notes
The ease with which an asset can be converted into a medium of exchange is known as
liquidity
An economic system that answers the What, How, and For Whom questions using prices determined by the interaction of the forces of supply and demand is a
market economy
The use of a dollar bill to buy a concert ticket represents the use of money as a
medium of exchange
Buying a cup of coffee with a dollar bill represents the use of money as a(n)
medium of exchange.
The national debt is unlikely to cause national bankruptcy because the
national debt can be refinanced by issuing new bonds.
The sum of past federal budget deficits is the
national debt.
With respect to controlling the money supply, the law requires the Fed to take orders from
no one-the Fed is an independent agency.
Most of the U.S. national debt is owed to ____________. Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of____________
other U.S. citizens, bondholders
Adam Smith wrote that the
pursuit of private self interest promotes the public interest in a market economy.
M1 money includes all but which of the following?
savings accounts
If the fiscal year begins without a budget and Congress fails to pass a continuing resolution, then
the federal government shuts down.
A principal feature of a command economy is that ________.
there is a central planning board at the top, which transmits economic decisions down to the various producing and consuming units below
Comparing how many dollars it takes to attend college each year to annual earnings on a job represents the use of money as a(n)
unit of account
Adam Smith was an advocate of
unrestricted or free trade.
"Crowding in" refers to federal government deficits
used for public infrastructure that will offset any decline in business investment.
The Federal Deposit Insurance Corporation (FDIC)
was created to reduce the risk of banking by compensating depositors and keeping bank failures from spreading.
Which of the following statements is false? a.The size of the national debt's size decreased steadily after World War II. b.The national debt increases in size whenever the federal government has a surplus budget. c.Currently, the size of the national debt currently is about the same size as it was during World War II. d.All of the above answers are false.
d.All of the above answers are false.
To finance a federal budget deficit, the U.S. Treasury borrows by selling a.Treasury notes. b.Treasury bills. c.Treasury bonds. d.All of the answers are correct.
d.All of the answers are correct.
Anything can be money if it acts as a(n) a.store of value. b.unit of account. c.medium of exchange. d.All of the answers must be correct.
d.All of the answers must be correct.
The crowding-out effect can be a.zero. b.complete. c.partial. d.Any of the answers are correct.
d.Any of the answers are correct.
Which of the following is a store of value? a.federal reserve notes b.debit card c.passbook savings deposit d.Each of the above answers is a store of value.
d.Each of the above answers is a store of value.
Which of the following items is included when computing M1? a.currency in circulation b.checking accounting entries c.coins in circulation d.All of the above answers are correct.
d.All of the above answers are correct.
Which of the following statements is true? a.Money must be relatively "scarce" if it is to have value. b.M1 is the narrowest definition of money. c.Money must be divisible and portable. d.All of the above answers are correct.
d.All of the above answers are correct.
Which definition of the money supply includes credit cards? a.M1 b.M2 c.Both of the answers include credit card balances. d.Neither answer includes credit card balances.
d.Neither answer includes credit card balances.
Which of the following is not a store of value?
Credit card.
Which of the following is not part of M1?
Credit cards.
The number of presidentially appointed members who sit on the Federal Reserve Board of Governors is
seven
Compared to the United Kingdom, the national debt as a percentage of GDP in the United States is
slightly larger.
Compared to Japan, the national debt as a percentage of GDP in the United States is
substantially smaller
The national debt is best described as the
sum of all federal budget deficits, past and present.
The Monetary Control Act of 1980 a.allowed fewer institutions to offer checking account services. b.created less competition among various financial institutions. c.restricted savings and loan associations to long-term loans. d.None of the above answers are correct.
d.None of the above answers are correct.
The national debt is unlikely to cause national bankruptcy because the federal government can a.print money. b.raise taxes. c.refinance its debt. d.do all of the above.
d.do all of the above.
Between 1945 and 1980, the national debt as a percent of GDP
decreased substantially.
The major protection against sudden mass attempts to withdraw cash from banks is the
deposit insurance provided by the FDIC
The major protection against sudden mass attempt to withdraw cash from banks is the
deposit insurance provided by the FDIC.
Most of the U.S. national debt is owed to ________. Thus a rising national debt implies that there will be a future redistribution of income and wealth in favor of ________.
other U.S. citizens; bondholders
In a market economy, buyers and sellers communicate their intentions to one another through:
prices
Which one of the following is part of the M2 definition of the money supply, but not part of M1?
Small time deposits of less than $100,000.
The Monetary Control Act of 1980 extended the Fed's authority to
impose required-reserve ratios on all depository institutions.
Between 1998 and 2001, the federal budget was
in surplus.
In Adam Smith's competitive market economy, the question of what goods to produce is determined by the
"invisible hand" of the price system.
Currently, the net interest payment as a percentage of GDP is about
1 percent
In recent years, net interest on the national debt paid by the federal government as a percentage of GDP was equal to approximately
1 percent.
One concern over external national debt is that interest and principal payments transfer wealth overseas. The percentage of the national debt held in recent years by foreigners is approximately:
30 percent
Which of the following is not an example of money used as a unit of account?
A housewife has a $5,000 credit card limit.
What type of economic system is commonly described as being controlled by an "invisible hand'?
A market economy
Which of the following statements is true?
According to Karl Marx, under capitalism, workers would be exploited and would revolt against the owners of capital.
The term "socialism" refers to which of the following?
An economic system characterized by government ownership of resources and centralized allocation
A traditional system operates based on the self-interest of buyers and sellers.
False
Adam Smith believed that a nation would produce the maximum wealth by relying on government to make public interest economic decisions.
False
Adam Smith believed that the pursuit of the public interest is also the best way to promote the private self-interest.
False
All banks are required to join the Fed
False
Although it has considerable political independence, the Fed is legally a branch of the U.S. Treasury Department.
False
Although the chair of its Board of Governors is appointed by the Treasury Department, the Fed operates with considerable independence from the executive branch of the government.
False
Although the chairman of its Board of Governors is appointed by the Treasury Department, the Fed operates with considerable independence from the executive branch of the government.
False
An increase in fiscal deficit spending financed by borrowing will not affect the national debt but decrease interest rates.
False
Any item can successfully serve as money.
False
Credit cards are money because they serve the three functions of money.
False
Currently, the U.S. national debt is more than $20 trillion.
False
External debt refers to the portion of the national debt owned by private individuals and internal debt refers to that part owned by the public sector.
False
Increased government borrowing stimulates private borrowing because of its effect on interest rates
False
Increased government borrowing stimulates private borrowing because of its effect on interest rates.
False
Internal ownership of the debt refers to the portion of the national debt owned by government agencies.
False
The Federal Reserve System was created by act of Congress in 1931 in an effort to end a wave of bank failures brought on by the Great Depression
False
The President and the Congress jointly determine the nation's monetary policies, and the Fed is required by law to implement those policies.
False
The command system relies on prices set by firms on the basis of consumer demands.
False
The entire national debt is owed to U.S. citizens.
False
The huge national debt of the United States is likely to lead to bankruptcy of the national government.
False
Under socialism, no markets can operate at all
False
The Fed's principal decision-making body, which directs buying and selling U.S. government securities, is known as the
Federal Open Market Committee.
Which of the following is a strength of a command-based economic system?
Goods can be allocated based on need rather than based on willingness and ability to pay.
In the former Soviet economy, the supreme planning board that transmitted economic decisions down to producing and consuming units was called the:
Gosplan
Socialism is correctly described by which of the following statements?
Government ownership of many resources and centralized decision-making answers the basic economic questions.
Which of the following is a correct characterization of socialism?
Government ownership of many resources and centralized decision-making answers the basic economic questions.
Which of the following is a characteristic of socialism?
Government ownership of most of the factors of production
Which of the following is one common criticism of capitalism?
Inadequate environmental protection.
Suppose you transfer $1,000 from your checking account to you savings account. How does this action affect the M1 and M2 money supplies?
M1 falls by $1,000 and M2 is unchanged.
The difference between M1 and M2 is given by which of the following?
M1 is made up of currency and checkable deposits, whereas M2 contains M1 plus savings deposits and small time deposits. M1 is made up of currency, traveler's checks, and money in checkable accounts, whereas M2 contains M1 plus savings deposits and time deposits
Which of the following is a characteristic of capitalism?
Market determination of prices and quantity.
Which of the following assets is the most liquid?
Money
Which nation achieved the ideal communist society as described by Marx?
No nation has achieved Marx's vision of a communist society.
Are outstanding credit card balances counted as part of the money supply?
No; money is an asset, while the credit card balances are a liability. Thus, they are not included in the money supply figures.
Which of the following is not one of the functions of the Federal Reserve?
Printing currency
An increase in a budget deficit financed by borrowing can increase interest rates and reduce investment spending thereby creating lower rates of economic growth.
True
An increase in fiscal deficit spending financed by borrowing will increase the national debt.
True
Bonds owned by financial institutions represent ownership of the national debt by the private sector.
True
Centralized planning agencies are a key feature of command economies.
True
In Marx's ideal state of communism there would be no haves and have-nots.
True
In the real world, countries use a mixture of the three basic types of economic systems.
True
The crowding-out effect indicates that an increase in a fiscal deficit financed by borrowing will increase interest rates and thereby crowd out some domestic investment spending.
True
The federal government never has to pay off the national debt.
True
When the official price for goods and services is below the equilibrium price in a market, prices no longer perform their rationing function efficiently
True
When we speak of the national debt, we refer to the federal government debt only.
True
Which of the following items does not provide a store of value?
credit cards
An economic system is the organizations and methods used to determine a. for whom goods and services are produced. b. what goods and services are produced. c. how goods and services are produced. d. All of the above answers are correct.
d. All of the above answers are correct.
The U.S. Treasury financed federal budget deficits by selling: a. Treasury bonds. b. Treasury notes. c. Treasury bills. d. All of the answers above are correct e. None of the answers above are correct.
d. All of the answers above are correct
Which one of the following statements is true? a. Money must be relatively "scarce" if it is to have value. b. Money must be divisible and portable. c. M1 is the narrowest definition of money. d. All of the answers above are correct
d. All of the answers above are correct
Which of the following U.S. Treasury securities represents internal ownership of the national debt? a. Bonds owned by private individuals. b. Bonds owned by the Social Security Administration. c. Bonds owned by the banks and insurance companies. d. All of the answers above are correct.
d. All of the answers above are correct.
Which of the following is a basic question by an economic system? a. for whom goods and services are produced. b. how goods and services are produced. c. what goods and services are produced. d. All of the answers above are correct. e. None of the answers above are correct.
d. All of the answers above are correct.
Which definition of the money supply includes credit cards? a. M1 b. M2 c. M3 d. None of the above include credit card balances.
d. None of the above include credit card balances.
Which of the following U.S. Treasury securities represents ownership of the national debt? a.bonds owned by the banks and insurance companies b.bonds owned by private individuals c.bonds owned by the Social Security Administration d.All of the above answers are correct.
d.All of the above answers are correct.
Which of the following is a desirable property of money? a.portability b.scarcity c.divisibility d.All of the above answers are correct.
d.All of the above answers are correct.
Which of the following is counted as part of M2? a.checkable deposits at commercial bank. b.currency c.money market funds d.All of the above answers are correct.
d.All of the above answers are correct.
If all the national debt were owned internally, the federal government would not need to: a. worry about raising taxes to pay interest on the national debt. b. refinance the national debt. c. be concerned about the effect on the distribution of income from interest payments on the national debt. d. All of the answers above are correct. e. None of the answers above are correct.
e. None of the answers above are correct.
The Monetary Control Act of 1980: a. created less competition among various financial institutions. b. allowed fewer institutions to offer checking account services. c. restricted savings and loan associations to long-term loans. d. All of the answers above are correct. e. None of the answers above are correct.
e. None of the answers above are correct.
The federal budget process begins when federal agencies submit their budget requests to the: a. Congressional Budget Office (CBO). b. Council of Economic Advisors (CEA). c. Department of Commerce (DOC). d. Treasury Department. e. None of the answers above are correct.
e. None of the answers above are correct.
An increase in our federal government's budget deficit will likely a.be less effective in stimulating the economy than the spending multiplier implies because of crowding out. b.increase the national debt. c.increase interest rates. d.decrease borrowing by households and businesses. e.do all of the above.
e.do all of the above.
Most of the world's economies are mixed economies because _________.
government intervention in an overall market system exists because markets fail when there is market power, a great deal of inequality, pollution externalities, or public goods.