Econ Exam 4

If the effective federal funds rate is 1.64 percent, which of the following is most likely to be the Fed's target range for the federal funds rate?

1.50 to 1.75

Currency in circulation is part of

Both M1 and M2

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 Federal Reserve System's three administered rates are the

IORB rate, ON RRP rate, and discount rate

What function does interest on reserve balances serve besides an opportunity for banks to earn interest?

The Fed uses it to steer the federal funds rate into the FOMC's target range

A budget surplus is

The amount by which the revenues of the federal government exceed its expenditures in any year

The operational lag

The delay between the time fiscal action is ordered and the time that it actually begins to affect output, employment, or the price level

An appropriate fiscal policy for severe demand-pull inflation is

A tax rate increase

Which of the following is not considered a legitimate concern of a large public debt?

Bankruptcy of the federal government

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

Administrative lag

The U.S. public debt

Consists of the historical accumulation of all past federal deficits and surpluses

State and local governments are limited in their ability to respond to recessions because of

Constitutional and other requirements to balance their budgets

Fiscal policy is mainly undertaken by the Federal Reserve

False

Fiscal policy will still achieve its objectives even if households expect future reversals of policy

False

Gold "backs" the U.S. money supply

False

Monetary policy, unlike fiscal policy, does not have any time lags

False

The general public can open deposit accounts at the Federal Reserve Bank in their district

False

As it relates to Federal Reserve activities, the acronym FOMC describes the

Federal Open Market Committee

In the U.S. economy, the money supply is controlled by the

Federal Reserve System

Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the

Federal funds rate

If the Fed wants to discourage bank lending, it will

Increase the interest paid on reserve balances held at the Fed

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

Recently, the Federal Reserve's most important tool for targeting the Federal Funds Rate is:

Interest on Reserve Balances (IORB)

Which of the following does not explain what backs the money supply in the United States?

It is backed by gold

Which of the following is considered an advantage of the monetary policy compared to fiscal policy?

It is relatively isolated from political pressure

Which of the following is considered a limitation of monetary policy

Its cyclical asymmetry

The current chairman of the Federal Reserve is:

Jerome "Jay" Powell

In 2020, the Fed began to

Let banks decide for themselves how big their reserves against withdrawals should be

The Federal Reserve's dual mandate is:

Maximum employment and price stability

Purchasing groceries using a debit card best exemplifies money serving as a

Medium of exchange

The three main tools of monetary policy are

Open market operations, forward guidance, and changing the administered interest rates

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections

The discount rate is the interest

Rate at which the Federal Reserve Banks lend to banks

The federal funds rate is the interest

Rate that banks and other nonbank financial firms charge one another on overnight loans of currency

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income

Funds that commercial banks and thrift institutions hold on deposit at the central bank are called

Reserve balances

Studies show that

The more independent the central bank, the lower the average annual rate of inflation

The voting members of the Federal Open Market Committee is made up of

The seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Bank and four other Federal Reserve Bank presidents on a rotating basis

The recognition lag is

This time between the beginning of recession or inflation and the certain awareness that it is actually happening

The Federal Reserve current target for inflation is 2%

True

The M2 money supply is larger than the M1 money supply

True

The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds

True

A $80 price tag on a sweater in a department store window is an example of money functioning as a

Unit of account