eco2013 final exam

Currency and checkable deposits are

The major components of money supply M1

Money functions as

a store of value** might be the following; a store of value, a unit of account, and a medium of exchange. a unit of account a medium of exchange.

Fiscal policy refers to

deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability.

A federal budget deficit is financed by the

government issuance or sale of Treasury securities

A budget surplus means that

government revenues are greater than expenditures in a given year.

Fractional reserve banking refers to a system where banks

hold only a fraction of their deposits in their reserves.

Monetary policy is thought to be

more effective in controlling demand-pull inflation than in moving the economy out of a recession.

The Federal Reserve System performs the following functions except

providing banking services to the general public

The purpose of a restrictive monetary policy is to

raise interest rates and restrict the availability of bank credit.

The real-balances, interest-rate, and foreign purchases effects all help explain

why the aggregate demand curve is downsloping.

AssetsLiabilities and Net WorthReserves$20Checkable Deposits$100Loans25Stock Shares50Securities15Property90 Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures are in millions. Suppose that this bank currently has $6 million in excess reserves and that customers of this bank collectively write checks for cash at the bank in the amount of $6 million. As a result, the bank's excess reserves diminish to

$0.84 million

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

$12 billion

In 2018, the U.S. public debt was about

$21.5 trillion.

Government SpendingTax RevenuesGDPYear 1$450$425$2,000Year 25004503,000Year 36005004,000Year 46406205,000Year 56805804,800Year 66006205,000The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is

$275 billion.

AssetsLiabilities and Net WorthReserves$40,000Checkable Deposits$130,000Loans25,000Stock Shares45,000Securities110,000 Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?

$6,000

In 2017, the public debt in the U.S. on a per capita basis was about

$62,000.

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent. This information is consistent with the bank having

$90,000 in checkable deposit liabilities and $32,000 in reserves.

Real-Balances EffectHousehold ExpectationsInterest-Rate EffectPersonal Income Tax RatesProfit ExpectationsNational Incomes AbroadGovernment SpendingForeign Purchases EffectExchange RatesDegree of Excess CapacityAnswer the question based on the accompanying list of factors that are related to the aggregate demand curve. Which of the factors best explain the downward slope of aggregate demand curve?

1, 3, and 8

In 2018, interest payments on the public debt, as a percentage of GDP, were about

1.8 percent

In 2018, foreign ownership of the total public debt of the United States was about

29 percent.

Answer the question based on the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The operational lag of fiscal policy is reflected in event(s)

3 and 4 ** missed this question

In the diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, are lines

4 and 1, respectively.

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines

4 and 3.

Currency (paper money plus coins) constitutes about

43 percent of the U.S. M1 money supply**

Refer to the diagram, in which Qf is the full-employment output. Contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD 3.

In which of the following sets of circumstances can we confidently expect inflation?

Aggregate supply decreases and aggregate demand increases.

An effective expansionary fiscal policy will

An effective expansionary fiscal policy will increase the cyclically adjusted deficit but reduce the actual deficit

The central authority of the U.S. banking system is the

Board of Governors of the Federal Reserve

Monetary policy is expected to have its greatest impact on

Ig

"Near monies" are included in

M2 only.

Which of the following fiscal policy changes would be the most contractionary?

a $10 billion increase in taxes and a $30 billion cut in government spending

The real-balances effect indicates that

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

The purpose of an expansionary monetary policy is to shift the

aggregate demand curve rightward

The Federal Reserve System regulates the money supply primarily by

altering the reserves of commercial banks, largely through sales and purchases of government bonds.

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government

budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements.

Refer to the diagram, in which Tis tax revenues and G is government expenditures. All figures are in billions. This diagram portrays the idea of

built-in stability.

How is the public debt calculated?

by cumulating the annual difference between tax revenues and government spending over the years

The money supply is backed

by the government's ability to control the supply of money and therefore to keep its value relatively stable

The actual budget deficit of the federal government in 2018 was about $3.9 percent of GDP. On the basis of this information, it

cannot be determined whether the government engaged in expansionary or contractionary fiscal policy in 2018

The largest component of the money supply (M1) is

checkable deposits.

n the United States, the money supply (M1) includes

coins, paper currency, and checkable deposits.

The U.S. public debt

consists of the historical accumulation of all past federal deficits and surpluses.

If the U.S. dollar appreciates in value relative to foreign currencies, then this wil

decrease aggregate demand and increase aggregate supply.

The sale of government bonds by the Federal Reserve Banks to commercial banks will

decrease aggregate demand.

Cost-push inflation is characterized by a(n)

decrease in aggregate supply and no change in aggregate demand Correct

AssetsLiabilities and Net WorthReserves$51Checkable Deposits$140Loans109Stock Shares130Securities100Property10 Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. If the commercial banking system actually loans the maximum amount it is able to lend,

excess reserves will be $2.6 billion.** might be the following; reserves and deposits equal to that amount will be gained. excess reserves will fall to $1.7 billion. excess reserves will be reduced to zero.

In the diagram, a shift from AS 1 to AS 3 might be caused by a(n)

increase in the prices of imported resources

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

A contraction of the money supply

increases the interest rate and decreases aggregate demand

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by Congress to stabilize the economy

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

The Federal Reserve System

is basically an independent agency

Expansionary fiscal policy is so named because it

is designed to expand real GDP

The effect of contractionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve

A bank that has assets of $85 billion and a net worth of $10 billion must have

liabilities of $75 billion.

If the Fed were to reduce the legal reserve ratio, we would expect

lower interest rates, an expanded GDP, and a higher rate of inflation.

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 6 percent and the goal of the Fed is full-employment output of Qf, it should

maintain the interest rate at 6 percent.

Suppose the government cuts taxes to keep the economy's cyclically adjusted budget in balance when the economy is expanding. The government is engaging in a(n)

neutral fiscal policy.

Banks lost money during the mortgage default crisis because

of all of these reasons

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

open-market operations** might be the following; the reserve ratio the federal funds rate the discount rate

In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion. In Year 2, the actual budget deficit was $130 billion and the cyclically adjusted deficit was $125 billion. It can be concluded that from Year 1 to Year 2,

real GDP increased

nflation tends to

reduce the strength of the multiplier.

Recessions have contributed to the public debt by

reducing national income and therefore tax revenues.

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that

reserves lost by any particular bank will be gained by some other bank.

The effect of expansionary fiscal policy is shown as a

rightward shift in the economy's aggregate demand curve.

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve

(1)(2)(3)Legal Reserve Ratio (%)Checkable DepositsActual Reserves10$40,000$10,0002040,00010,0002540,00010,0003040,00010,000 The accompanying table gives data for a commercial bank or thrift. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will

rise by $6,000 and the monetary multiplier will increase from 4 to 10.

43 percent of the U.S. M1 money supply**

taxation and government spending.

When current government expenditures exceed current tax revenues and the economy is achieving full employment,

the cyclically-adjusted budget has a deficit.

A major reason that the public debt cannot bankrupt the federal government is because

the public debt can be easily refinanced by issuing new bonds.

Per-unit production cost is

total input cost divided by units of output.

The shape of the immediate-short-run aggregate supply curve implies that

total output depends on the volume of spending

Built-in stability means that

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.