Macroeconomics Final Exam

If the required reserve ratio were 15 percent, the value of the monetary multiplier would be: A. 5.50 B. 6.67 C. 7.32 D. 8.54

6.67

The paper money or currency in the US essentially represents: A. A debt of commercial banks and savings institutions B. A debt of the U.S. Treasury C. An asset of the Federal government D. A debt of the Federal Reserve System

A debt of the Federal Reserve system

A commercial bank has checkable deposit liabilities of $50,000 and a required reserve ratio of 20 percent. What is the amount of required reserves? A. $10,000 B. $50,000 C. $250,000 D. $1 million

$10,000

An individual deposits $12,000 in a commercial bank. the bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by: A. $11,000 B. $10,800 C. $9,600 D. $6,000

$10,800

A commercial bank has actual reserves of 1 million and checkable deposit liabilities of 9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are: A. $50,000 B. $100,000 C. $900,000 D. $1 million

$100,000

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.6, then it could increase government spending by: A. $10 billion B. $20 billion C. $31.25 billion D. $40.50 billion

$20 billion

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ration is 20 percent, the banking system can expand the supply of money by the maximum amount of: A. $75,000. B. $122,000. C. $175,000. D. $300,000.

$75,000

The fundamental objective of monetary policy is to assist the economy in achieving: A. A rapid pace of economic growth B. A money supply which is based on the gold standard C. A full-employment, noninflationary level of total output D. A balanced-budget consistent with full-employment

A full-employment, noninflationary level of total output

The public debt is the: A. Amount of U.S. paper currency in circulation B. Ratio of all past deficits to all past surpluses C. Accumulation of all past deficits minus all past surpluses D. Difference between current government expenditures and current tax revenues

Accumulation of all past deficits minus all past surpluses

The primary reason commercial banks must keep required reserves on deposit at the Fed is to: A. Add to the liquidity of the commercial bank B. Allow the Fed to control the amount of bank lending C. Protect the deposits in the commercial bank against losses D. Ensure that depositors can withdraw their money if they wish to

Allow the Fed to control the amount of bank lending

The Federal Reserve System performs many functions, but its most important one is: A. Issuing currency B. Controlling the money supply C. Providing for check clearing and collection D. Acting as fiscal agent for the U.S. government

Controlling the money supply

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be less expansionary when the: A. Economy's MPC is small B. Economy's MPC is large C. Economy's MPS is small D. Unemployment rate is low

Economy's MPC is small

Maximum checkable deposit expansion in the banking system is equal to: A. Actual reserves minus required reserves B. Assets plus net worth and liabilities C. Excess reserves times the monetary multiplier D. Excess reserves divided by the monetary multiplier

Excess reserves times the monetary multiplier

The lending ability of commercial banks increases when the: A. Reserve ratio is raised B. Treasury collects tax revenues C. Fed sells securities in the open market D. Fed buys securities in the open market

Fed buys securities in the open market

The Fed communicates its decisions about monetary policy by announcing the target for the: A. exchange rate. B. Federal funds rate. C. prime interest rate. D. consumer price index.

Federal funds rate

The interest rate that banks charge one another for the loan of excess reserves is the: A. Prime interest rate B. Federal funds rate C. Discount rate D. Interest on reserves

Federal funds rate

The cyclically-adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be: A. Balanced B. In deficit C. In surplus D. Expanding

In deficit

The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. consumer and investment spending always vary inversely. D. it is very difficult to have excessive aggregate spending in the U.S. economy.

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

The crowding-out effect suggests that: A. Increases in consumption are always at the expense of saving B. Increases in government spending will close a recessionary expenditure gap C. Increases in government spending may reduce private investment D. High taxes reduce both consumption and saving

Increases in government spending may reduce private investment

The Federal Reserve could reduce the money supply by: A. Lowering the required reserve ratio B. Buying government bonds in the open market C. Increasing the interest on reserves D. Reducing the discount rate

Increasing the interest on reserves

Which of the following is an important real consequence of the public dept of the United States? A. It will threaten to bankrupt the Federal government B. It discourages saving among the general public C. It decreases the inequality in the distribution of income in the U.S. D. Its consequent higher interest rates lead to fewer incentives to bear risk and innovate

Its consequent higher interest rates lead to fewer incentives to bear risk and innovate

Which of the following describes the identity embodied in a balance sheet? A. Assets plus reserves equal net worth. B. Net worth plus assets equal liabilities. C. Assets equal liabilities plus net worth. D. Assets plus liabilities equal net worth.

assets plus reserves equal net worth

What is one significant consequence of fractional reserve banking? A. Banks are vulnerable to "panics" or "bank runs" B. Banks can only lend an amount equal to its deposits C. Banks hold a portion of their deposits in gold D. Banks can serve the withdrawals of all their depositors

banks are vulnerable to "panics" or "bank runs"

A bank temporarily short of required reserves may be able to remedy this situation by: A. buying bonds from the public. B. granting new loans. C. shifting some of its vault cash to its reserve account at the Federal Reserve. D. borrowing funds in the federal funds market

borrowing funds in the federal funds market

The federal backing for the money in the United States comes from: A. providing sufficient quantities of precious metals such as gold and silver to cover the amount of paper money in circulation. B. pledging physical assets, such as land, natural resources, and public buildings as collateral for outstanding currency. C. control over the money supply designed to keep the value of money relatively stable over time. D. protecting checkable deposits at financial institutions with deposit guarantees.

control over the money supply designed to keep the value of money relatively stable over time

Counter-cyclical discretionary fiscal policy calls for: A. surpluses during both recessions and periods of demand-pull inflation. B. deficits during both recessions and periods of demand-pull inflation. C. surpluses during recessions and deficits during periods of demand-pull inflation. D. deficits during recessions and surpluses during periods of demand-pull inflation.

deficits during recessions and surpluses during periods of demand-pull inflation

When the Federal Reserve buys government securities, the money supply: A. contracts and commercial bank reserves increase. B. expands and commercial bank reserves decrease. C. contracts and commercial bank reserves decrease. D. expands and commercial bank reserves increase.

expands and commercial bank reserves increase

Other things being equal, an expansion of commercial bank lending: A. changes the composition, but not the size, of the money supply. B. is desirable during a period of demand-pull inflation. C. reduces the money supply. D. increases the money supply.

increases the money supply

When a commercial bank has excess reserves: A. its actual reserves are less than its required reserves. B. it is charging too high an interest rate on its loans. C. it is in a position to make additional loans. D. its reserves exceed its assets.

it is in a position to make additional loans

A major advantage of the built in or automatic stabilizers is that they: A. require no legislative action by Congress to be made effective. B. guarantee that the federal budget will be balanced over the course of the business cycle. C. automatically produce surpluses during recessions and deficits during inflations. D. simultaneously stabilize the economy and reduce the absolute size of the public debt.

require no legislative action by Congress to be made effective

Which of the following items are included in money supply M1, but not M2? A. Federal Reserve notes B. Coins C. Savings deposits D. Checkable deposits

savings deposits

The Cyclically adjusted budget tells us: A. what the size of the federal budget deficit or surplus would be if the economy was at full employment. B. that tax revenues should vary inversely with GDP. C. that in a full-employment economy, the federal budget should be in balance. D. the actual budget deficit or surplus realized in any given year.

what the size of the federal budget deficit or surplus would be if the economy was at full-employment

Assume that the stock of money is determined by the Federal Reserve and does not change when the interest rate changes. This situation means that the: A. Supply of money curve is vertical B. Supply of money curve is horizontal C. Demand for money curve is directly related to the interest rate D. Supply of money curve is inversely related to the interest rate

Supply of money curve is vertical

The interest rate that the Fed charges banks for loans to them through the traditional channel is called: A. The discount rate B. Interest on reserves C. The federal funds rate D. The prime rate

The discount rate

In which case would the quantity of money demanded by the public tend to increase by the greatest amount? A. The interest rate increases and nominal GDP increases B. The interest rate increases and nominal GDP decreases C. The interest rate decreases and nominal GDP decreases D. The interest rate decreases and nominal GDP increases

The interest rate decreases and nominal GDP increases

The central authority of the U.S. banking system is the: A. Federal Open Market Committee (FOMC). B. Federal Monetary Authority. C. Council of Economic Advisers. D. Board of Governors of the Federal Reserve.

Board of Governors of the Federal Reserve

A bank can get additional excess reserves by doing any of the following except: A. Borrowing from other banks B. Buying Treasury securities from the Fed C. Receiving additional deposits D. Borrowing from the Fed

Buying treasury securities from the Fed

Money eliminates the need for a coincidence of wants in trading primarily through its role as a: A. Unit of account B. Medium of exchange C. Store of value D. Medium of deferred payment

Medium of exchange

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as: A. A subtraction of $200 from the money supply because the $200 in currency is no longer in circulation B. An addition of $200 to the money supply because of the creation of a checkable deposit of $200 C. An addition of $200 to the money supply because the bank holds $200 in currency and the checking account has been increased by $200 D. No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

No change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

When there is inflation in the economy, it implies that the: A. Price index is rising and the purchasing power of money is also rising B. Price index is falling and the purchasing power of money is also falling C. Price index is falling and the purchasing power of money is rising D. Price index is rising and the purchasing power of money is falling

Price index is rising and the purchasing power of money is falling