Econ Test 3

An increase in the reserve ratio tends to a.) raise excess reserves and raise the money multiplier. b.) lower excess reserves and raise the money multiplier. c.) increase excess reserves and lower the money multiplier. d.) lower excess reserves and lower the money multiplier.

D

In 2006, the city of Springfield collected $375,000 in taxes and spent $450,000. In 2006, the city of Springfield had a: a.) budget surplus of $825,000. b.) budget surplus of $75,000. c.) budget deficit of $125,000. d.) budget deficit of $75,000.

D

Which of the following values of the reserve ratio would yield the smallest money multiplier? a.) 0.10 b.) 0.20 c.) 0.30 d.) 0.50

D

Depreciation

harder to buy from other countries

Feds started to raise DR to discourage borrowing for a

inflation

2nd Market

open market - fed reserve. Control money supply

Interest on reserves

pay you interest to keep excess reserves

Which ratio is hard to take back up

reserve ratio

1st market gets money from

tax revenues then borrows by issuing notes

National debt is controlled by

treasury

1st Market

US Treasury. Pay bills of US government

Exchange rates

Value of one country's currency in terms of another country's currency.

Do you want a weak or strong currency?

Weak

Taking RR up ________money.

decreases (inflation)

Fed does use ___________ rate

discount

The balance sheet of a bank changes ____________

every day.

Once the check clears against us, what happens to the balance sheet?

-Dem. Deposit -Assets (dep. at fed)

Contractionary monetary policy: (a reduction in the supply of money) a.) tends to lead to an appreciation of a nation's currency. b.) usually has no effect on a currency's exchange value. c.) tends to lead to a depreciation of a nation's currency. d.) tends to lead to an appreciation of the currencies of other nations.

A

If the Fed raised the reserve requirement on deposits from 10 percent to 10.5 percent, the money supply would a.) decrease. b.) increase. c.) remain unchanged. d.) Not enough data are given to answer.

A

If the price in dollars of French francs changes from $0.25 per franc to $0.30 per franc, the franc has a.) appreciated. b.) depreciated. c.) stayed at par.

A

It presently costs $24 (Canadian) to play golf at Banff National Park in Canada. If the current value of the Canadian dollar is .86 US dollars, how many US dollars does it cost to play golf at Banff? a.) 20.64 b.) 27.90 c.) 44.64 d.) 3.36

A

Refer to Table 10.4. First Charter Bank could make additional loans of $150,000, if the required reserve ratio were: a.) 10%. b.) 8%. c.) 7.5%. d.) 2.5%.

A

The main idea behind supply-side tax cuts is that a.) some tax cuts can increase aggregate supply through impacting incentives to work. b.) tax cuts spur spending which increases supply. c.) it is easier to shift aggregate supply than to shift aggregate demand. d.) people like lower taxes, and they should get what they want. e.) All of the above are correct.

A

Treasury bonds are ______ issued by the US Treasury when it borrows money. a.) promissory notes b.) certificates of deposit c.) private stocks d.) all of the above

A

When government receipts exceed total government spending during a fiscal year, the difference is a.) a budget surplus. b.) a budget deficit. c.) the national debt. d.) automatically refunded.

A

Which of the following represents an action by the Federal Reserve that is designed to decrease the money supply? a.) an increase in the discount rate b.) a decrease in federal spending c.) buying government securities in the open market d.) a decrease in the required reserve ratio

A

An open-market purchase of securities by the Fed results in _______ in reserves and _______ in the supply of money. a.) an increase; a decrease b.) an increase; an increase c.) a decrease; an increase d.) a decrease; a decrease

B

Assume that banks become less conservative in their lending policies and start holding no excess reserves. Compared to a situation in which banks are holding excess reserves, the size of the money supply will be: a.) zero. b.) larger. c.) the same. d.) smaller.

B

Progressive

As you make more, TR rises

Future generations will be hurt by a high national debt if incurring the debt a.) increased the formation of capital. b.) slowed the formation of capital. c.) was done to pay unemployed workers. d.) resulted in heavy commitments to bailing out industrial firms.

B

If policy makers wanted to use both monetary and fiscal policy to help reduce a high rate of inflation, which of the following would be most appropriate? a.) a larger budget deficit, the purchase of securities in the open market by the Fed, and a higher discount rate. b.) a government budget surplus, the sale of securities in the open market by the Fed, and a higher discount rate. c.) a larger government budget deficit, the sale of securities in the open market by the Fed, and a lower discount rate. d.) a government budget surplus, the purchase of securities in the open market by the Fed, and a lower discount rate.

B

If the Fed increases the money supply to fight recession, a floating exchange rate will aid the Fed in fighting recession because: a.) as the money supply is increased, the interest rate will decrease, and the price of US exports will rise and the price of US imports will fall. b.) as the money supply is increased, the interest rate will decrease, and the price of US exports will fall and the price of US imports will rise. c.) as the money supply is increased, the interest rate will decrease, and the price of both US exports and US imports will fall. d.) as the money supply is increased, the interest rate will decrease, and the price of US exports and US imports will rise.

B

If the money multiplier is 5, the required reserve ratio is: a.) 2%. b.) 20%. c.) 25%. d.) 50%.

B

Refer to Table 12-1. If Agatha has $80,000 in taxable income, her average tax rate is a.) 18.5%. b.) 20.2%. c.) 21.8%. d.) 25.0%.

B

Refer to Table 12-1. If Agatha has $80,000 in taxable income, her marginal tax rate is a.) 15%. b.) 25%. c.) 28%. d.) 33%.

B

Refer to Table 12-1. If Agatha has $80,000 in taxable income, her tax liability is a.) $11,581. b.) $16,181. c.) $20,000. d.) 24,881.

B

Suppose that in the beginning of 2006 the federal debt was $7 trillion. During 2006, the government balanced its budget. At the end of 2006, the federal debt: a.) increased. b.) stayed the same. c.) decreased. d.) was eliminated.

B

The Fed conducts an open market sale of Treasury bills that changes bank reserves by $100 million. Assuming a reserve requirement of .15, by how much will the money supply change? a.) +$666.67 million b.) -$666.67 million c.) +$150 million d.) -$150 million

B

When the dollar appreciates, (i) US imports increase; (ii) US aggregate demand shifts outward. a.) i and ii b.) i not ii c.) ii not i d.) neither i nor ii

B

Federal Funds Rate

Banks can loan to each other short term.

Prime Rate

Big companies borrow money from bank . Rate of interest the best customers get.

Debt Ceiling Bill Note Bond

Bill - 1 year or less Note - 1-5 years Bond - 5+ years

Open Market Operations

Buying and selling of US Government securities in the 2nd market (open mkt) by the federal reserve.

The US federal government finances budget deficits by a.) selling stock, much like a corporation. b.) printing additional currency. c.) borrowing from the public. d.) raising property taxes.

C

Recession bring discount rate up or down?

Down

Fighting recession DR

Down, up for inflation

When would the Fed stop banks from making so many loans?

During inflation.

When would it make it easier for banks to make loans?

During recession.

If the Fed buys a bond from a commercial bank, how will it pay for the bond? a.) It will write a check against an existing account. b.) It will take reserves from another bank. c.) It will reduce a government checking account for the amount. d.) It will borrow from the public to pay for it. e.) It will give the bank new reserves.

E

Refer to Table 10.4. If the required reserve ratio is 15%, First Charter Bank: a.) is loaned up. b.) has too few reserves on hand. c.) is meeting its required reserve ratio and has no excess reserves. d.) has excess reserves of $100,000. e.) both a and c

E

The combination of an increase in the discount rate and an open market sale of government securities by the Fed will tend to result in: a.) a lower loan volume issued by the commercial banking system. b.) lower bond prices. c.) increased unemployment in the short run. d.) a decrease in investment. e.) all of the above.

E

If interest rates increase, which components of aggregate demand are most likely to be affected? a.) investment and net exports b.) consumption and investment c.) consumption and government spending d.) investment and government spending e.) government spending and net exports f.) investment, consumption, and net exports (x-m)

F

Tax cuts may affect aggregate supply because (1. demand side impacts: 2. Supply side impacts:) a.) they increase income and spending, thus increasing supply. b.) they always decrease budget deficits, which must mean supply increases c.) they always increase budget deficits, and supply must increase and shrink deficits. d.) optimal taxation theory always calls for lower tax rates. e.) they change the incentives that people face. f.) a and e

F

If Europe had a smaller/larger exchange rate, we would travel to Europe more which hurts the US economy.

Larger

What happens when check clears in your favor?

Gain demand deposits, gain reserves

IRS

Gets money to pay bills from taxes.

Discount Rate

Interest fed charges banks when banks borrow money from Fed. Lender of last resort.

Most Used method

Open Market Operations

What tool does the fed never use?

Reserve ratio

T/F. The value of the dollar relative to the Swiss franc would increase if the demand for dollars increases.

T

Sub-Prime Rate

Title loans, people who don't qualify for prime.

Proportional Tax System

as income rises, average tax rate stays the same (flat tax)

The bank can ask for money back in loan ______

at any time.

US government securities

debt obligation of us government

Appreciation

imports would go up because it is easier to buy from the other country. exports would go down

Taking RR down ______ money.

increases