Econ Midterm 4- HW Study Questions
Which of the following statements is FALSE?
Contractionary monetary policies tend to increase the money supply growth rate
What share of their checkable deposits are banks required to keep as reserves by the Fed?
10%
Which one of the following is a disruptive effect of high inflation on the economy?
All of the above: -It can wipe out the value of people's savings -It hurts people who are living on fixed incomes -It redistributes wealth from creditors to debtors -It creates a great deal of uncertainty
Which of the following is NOT a component of the M2 definition of the money supply?
All of these are components of the M2 definition of the money supply -certificates of deposit -checking account deposits -retail money market funds -travelers checks
The Fed's Mandate is to...
Ensure full employment and price stability
Which of the following statements best describes the chain of events that causes expansionary monetary policy to increase GDP?
Expansionary monetary policy lowers interest rates. which increases intended investment, which increases aggregate expenditure, which increases GDP
Who is the chair of the Federal Reserve since February 2018?
Jerome Powell
You take $100 out of your savings account and hold it as cash. In this case...
M1 increases by $100
Savings deposits are part of...
M2 but not M1
Which of the following is NOT likely to be a result of a high rate of inflation?
People will be more likely to postpone major purchases
When agency was established to protect consumers from predatory financial practices?
The Consumer Financial Protection Bureau (CFPB)
Which act was passed after the Global Financial Crisis and the Great Recession of 2007-2008 in order to re-regulate the financial industry?
The Dodd-Frank Act
How does the Federal Reserve affect the supply of money using open market operations?
The Fed buys gov. bonds from banks, which increases the bank's reserves with the Fed and allows them to make new loans
Which one of the following actions by the Federal Reserve would likely decrease the money supply?
The Fed increases the reserve requirements for banks
Which of the following statements is FALSE?
The Gramm-Leach Billey Act created the Federal Deposit Insurance Corporation (FDIC)
Which of the following statements is FALSE?
When banks' required reserves increase, the money supply increases
A retail bank that is owned by its customer is called
a credit union
Which of the following could cause the aggregate expenditure line to shift down in a Keynesian cross graph?
an increase in (lump-sum) taxes
In recessions tax revenues tend to decline and transfer payments like unemployment insurance and food stamps tend to increase, so these programs are...
are automatic stabilizers
Which of the following is NOT a role of money?
automatic stabilizer
In a fractional reserve system....
banks can lend excess reserves to borrowers
Suppose the Fed wanted to engage in an expansionary monetary policy. Which of the following should do it?
buy bonds in the open market
Deposits in savings accounts are less liquid than...
cash
Which of the following is a fiscal policy tool?
changes in gov. spending and changes in tax levels
Money that has intrinsic value is known as...
commodity money
The Federal Reserve System...
consists of the board of governors based in Washington D.C. along with 12 decentralized regional districts
increasing taxes is an example of _____ fiscal policy
contractionary
increasing taxes during an economy expansion is an example of ____fiscal policy. (Don't identify whether the policy is expansionary or contractionary but how it relates to the business cycle)
countercyclical
When the Fed purchases gov. bonds, that tends to ____ the federal funds rate and _____ the prime rate.
decrease; decrease
The most important policy tool for the Federal Reserve is...
engaging in open marker operations
The Federal Reserve affects the federal funds rate by...
engaging in open market operations
Fiscal policy refers to...
government spending and tax policy
which of the following statements is FALSE?
high inflation is good for lenders
Which of the following is an example of expansionary fiscal policy?
increasing government spending
Which of the following is an example of contractionary fiscal policy?
increasing taxes
Countercyclical policies refer to______ government spending, and _______ taxes during economic recessions, while doing the opposite during economic expansions
increasing; decreasing
Monetary policy impacts GDP mainly through its effects on...
investment
Fiat money...
is accepted because a gov. says it has value
A household's disposable income is equal to...
its income after paying taxes and receiving transfers
The Fed can decrease the money supply by...
making an open market sale of bonds, raising the required reserve ratio, and raising the discount rate
The Federal Reserve's sale or purchase of gov. bonds is referred to as...
open market operations
Deflation refers to a situation in which...
prices are falling
Let's say that firms become pessimistic about their future profits, and, as a result of their reduction in intended investment, the economy goes into a recession. The gov. sees the reduction in GDP, worries about its budget deficit, and decides to increase taxes. This is an example of _____fiscal policy. (Don't identify whether the policy is expansionary or contractionary but how it relates to the business cycle.)
procyclical
Share of stock are more liquid than...
real estate
Which one of the following forms of money is not included in M1?
savings accounts
The Glass-Steagall Act of 1933
separated the activities of commercial and investment banks
The interest rate at which banks can borrow funds from the Fed is known as...
the discount rate
Inflation refers to a situation in which...
the general level of prices increases over time
The federal funds rate is...
the interest rate for overnight interbank loans and determined in the private market for overnight loans of reserves among banks
when a bank lends excess reserves...
the money supply is increased
Which of the following is NOT included as "money" in M1?
the use of a credit card
Which of the following is NOT likely to be a result of deflation?
wealth will be redistributed from lenders to borrowers
Cash is part of...
Both M1 and M2
