ECON 202 FINAL

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?

$ 10,000 =(50,000*.2)

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

$ 100,000 = (1,000,000*.1)

In equilibrium, if $1 = 0.5 pounds sterling and 1 pound sterling = 40 Swiss francs, the exchange rate between dollar and franc will be:

$1 = 20 francs

According to the text, by mid-2013, the Fed held nearly __________ in U.S. Treasury securities.

$2 trillion

If a country's economic data shows private savings of $300 million, government spending of $350 million, tax revenue of $400 million, and a trade surplus of $75 million, what does investment equal?

$275 million

A market basket of goods costs $260 in the United States and 200 pounds in the United Kingdom. The "purchasing power parity rate" is 1 pound = $1.50. According to purchasing power parity theory, the market basket of goods in the United States should cost:

$300

Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision?

-The value of the "wheat dollar" would be unstable depending on crop yields from year to year. -Farmers would replace corn and soy crops with wheat. -Wheat would function as money so long as people accept it in exchange for goods and services. ALL OF THESE ARE POSSIBLE OUTCOMES

If GDP is 3600 and the money supply is 300, what is the velocity?

12

Private investment by firms in the U.S. economy has hovered in the range of _________ of GDP in recent decades.

14-18%

The Federal Reserve was created in:

1913

A government annually collects $230 billion in tax revenue and allocates $70 billion to military spending. What percentage of this government's budget is spent on its military?

30.43%

In most countries, the government plays a large role in society's investment in human capital through the education system. In 2013, in the high-income countries of the world, public spending on education was __________.

5.4% of GDP

Consider the currency market for Japanese yen and U.S. dollars. An increase in the supply of Japanese yen results in:

A depreciation of the yen and an appreciation of the dollar

What is meant by proportional tax?

A tax that is a flat percentage of income earned, regardless of level of income.

Consider the currency market for British pounds and U.S. dollars. A decrease in the supply of British pounds results in:

An appreciation of the pound and a depreciation of the dollar

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

Which of the following refers to when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost?

Bank run

When real interest rates fall in the United States as compared to other nations, other things being equal, we would expect the dollar to experience:

Depreciation

Which of the following characteristics relate to fiscal policy?

Economic policies that involve government spending and taxes.

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

Federal Open Market Committee.

A $20 bill is a:

Federal Reserve Note.

The trade deficit has had the effect of:

Increasing direct foreign investment in the United States

What is meant by federal funds rate?

The interest rate at which one bank lends funds to another bank overnight.

Which one of the following is true about the U.S. Federal Reserve System?

There are 12 regional Federal Reserve Banks.

When the interest rate in an economy increases, it is likely the result of either

a decrease in the government's budget surplus or an increase in its budget deficit.

If the economy is in recession with high unemployment and output below potential GDP, ____________________ would cause the economy to return to its potential GDP?

a loose monetary policy

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as:

a medium of exchange.

If you are estimating your total expenses for school next semester, you are using money primarily as:

a unit of account.

Together, the personal income tax and the payroll tax accounted for _________ of federal tax revenues the USA in recent years.

about 85%

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.

aggregate demand

The government can use _____________ in the form of ____________________to increase the level of aggregate demand in the economy.

an expansionary fiscal policy; an increase in government spending

A commercial bank's reserves are:

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

When a check is drawn and cleared, the

bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

What is the name given to the macroeconomic equation MV = PQ?

basic quantity equation of money

During periods of rapid inflation, money may cease to work as a medium of exchange:

because people and businesses will not want to accept it in transactions.

A bank temporarily short of required reserves may be able to remedy this situation by:

borrowing funds in the Federal funds market.

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for:

buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit.

The money supply is backed:

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

In the United States, the money supply (M1) is comprised of:

coins, paper currency, and checkable deposits.

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?

countercyclical

Suppose that, for every 1-percentage point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that the reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will:

decline by $0.5 billion and the money supply will decline by $2.5 billion; If a 1-percentage point decline of the discount rate results in commercial banks collectively borrowing an additional $2 billion from Federal Reserve banks, then a 0.25-percentage point increase should result in a decline in borrowing of $0.5 billion. Apply the multiplier of 1/.20 = 5 to that $0.5 billion to get a total decline in the money supply of $2.5 billion.

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________ .

decrease

Other things equal, an excessive increase in the money supply will:

decrease the purchasing power of each dollar.

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to _______, which will ___________ investment spending.

decrease; increase

A budget ______________ is created each time the federal government spends more than it collects in taxes in a given year.

deficit

Which one of the following is presently a major deterrent to bank panics in the United States?

deposit insurance

Excess reserves refer to the:

difference between actual reserves and required reserves.

Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely?

difficulty managing public investment so it's done in a cost effective way

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting

discretionary fiscal policy.

A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?

especially large and sustained government borrowing

The ___________ is an example of a large-scale common currency.

euro

The amount that a commercial bank can lend is determined by its:

excess reserves.

If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then

exchange rates will have less reason to vary.

Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.

expansionary fiscal policy; lead to a budget deficit

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

exports; imports

If in the market for money the amount of money supplied exceeds the amount of money households and businesses want to hold, the interest rate will:

fall, causing households and businesses to hold more money.

If you were to survey central bankers around the world and ask them what they believe should be the primary task of monetary policy, the most popular answer by far would be:

fighting inflation

The U.S. economy has two main sources for financial capital: private savings from households and firms inside the U.S. economy and ___________.

foreign financial investment

There are two main sources of demand for financial capital: private sector investment and _____________.

government borrowing

If the government's budget deficit increases while the economy is producing substantially less then potential GDP and expansionary monetary policy is implemented, then any ________________ from government borrowing would be _____________________________ from that monetary policy.

higher interest rates; largely offset by the lower interest rates

If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.

increase

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________ .

inflation or recession

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

interest rates; right

The value of money varies:

inversely with the price level.

When banks hold excess reserves because they don't see good lending opportunities,

it negatively affects expansionary monetary policy.

Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?

it would depreciate the country's exchange rate and break its hard peg

The near-money components of M2 are:

less liquid than the M1 components of M2.

If m (the money multiplier) equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

m = 1/R.

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

m = 1/R.

Credits cards are:

not money, officially defined.

The goldsmith's ability to create money was based on the fact that:

paper money in the form of gold receipts was rarely redeemed for gold.

If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is

progressive.

it would depreciate the country's exchange rate and break its hard peg

risk causing even greater fluctuations in foreign exchange markets.

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

swings in exchange rates

The quantitative easing policies adopted by the Federal Reserve are usually thought of as

temporary emergency measures.

How are the specific interest rates for the lending and borrowing markets determined?

the money supply decreases.

According to the basic quantity equation of money, if price and output fall while velocity increases,

the quantity of money will fall.

If the economy is producing less than its potential GDP, _____________________will show a larger deficit than the actual budget.

the standardized budget

According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?

unpredictable rises and falls in nominal GDP

Which of the following are all assets to a commercial bank?

vault cash, property, and reserves

A depreciating U.S. dollar is ________________ because it is worth _________ in terms of other currencies.

weakening; less

To say money is socially defined means that:

whatever performs the functions of money extremely well is considered to be money.