Gov test 4

The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks

The word "fiat" is

Used to describe today's money because it is money set by law

The Federal Reserve monetary policy goals of maximum employment means

a zero percent unemployment rate.

In a closed economy with no government, aggregate expenditure is

consumption plus investment

M1 is composed of

currency held by individuals and businesses, traveler's checks, and checkable deposits owned by individuals and businesses

When the Fed raises the required reserve ratio, the banks' excess reserves will initially ________ and the money supply ________.

decreases; decreases

When government outlays exceed tax revenues, the situation is called a budget

deficit

Since 2000, the U.S. government has generally had a government budget ________ and so the national debt has ________.

deficit; increased

The government expenditure multiplier and the tax multiplier are

different in size and the government expenditure multiplier is larger.

When Maria deposits $100 in currency in her checkable deposit at Bank of America, the immediate effect is that the quantity of M1 ________ because ________.

does not change; both currency and checkable deposits are included in M1

An example of automatic fiscal policy is

expenditure for unemployment benefits increasing as economic growth slows.

The use of the federal budget to achieve macroeconomic objectives of full employment and sustainable economic growth is

fiscal policy

As firms search for the best employee to fill an opening and the unemployed search for the job that best fits their skills, the economy experiences

frictional unemployment

Which of the following describes the "invention" of banking?

goldsmiths in the sixteenth century issued gold receipts which entitled its owners to reclaim their gold on demand.

When the government's outlays exceed its tax revenues, the national debt

grows to finance the budget deficit

If the federal government ________ during the financial crisis of 2008-2009, the fall in overall stock prices would likely have been larger.

had not bailed out the large financial institutions

Which of the following are assets of commercial banks? i. reserves ii. loans iii. deposits

i and ii

Discretionary fiscal policy is defined as fiscal policy

initiated by congress

During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to

make certain that banks had enough liquidity to avoid collapse.

Banks earn a profit by

making loans at a higher interest rate than the rates that they offer on their deposits.

Discouraged workers are classified by the BLS as

not in the labor force

Of the three primary tools the Federal Reserve uses to conduct monetary policy, the tool used most often is

open market operations

When banks hold a large amount of excess reserves, which of the following tools would the Fed most likely use when it wants to increase the interest rate?

raising the interest rate it pays to banks on their reserves

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.

rises; decreases

The Keynesians emphasize the importance of

sticky wages and prices

When we keep part of our wealth in a bank checking account, we are using money as a

store of value

The structural deficit is the deficit

that would occur at full employment

The national debt is

the amount borrowed by the government to finance past budget deficits.

If planned investment exceeds actual investment,

there will be a decline (negative change) in inventories.

The function of money that helps assess the opportunity cost of an activity is money's use as a

unit of account

To change the federal funds rate, the Fed

uses open market operations to change the quantity of reserves

According to classical economists, excessive unemployment does not persist in the economy because

wages will always adjust to ensure equilibrium in the labor market

All of the following financial institutions were bailed out by the federal government during the financial crisis of 2008-2009 EXCEPT

Lehman Brothers

The quantity theory of money can be written as

MV = PY

For an asset to be a "means of payment," the asset

can be used to settle a debt.

The purchase of Treasury securities by the Federal Reserve will, in general

increase the quantity of reserves held by banks.

If government expenditures on goods and services increases by $20 billion, then aggregate demand

increases by more than 20 billion

As the interest rate falls, people hold ________ money in non-interest-bearing checking accounts instead of savings accounts because the opportunity cost of holding money has ________.

more; fallen

The ratio of the change in the equilibrium level of output to a change in some autonomous variable is the

multiplier