Econ Exam 4

In the 1980s the U.S. Central Bank had the goal of increasing the interest rate and decreasing the money supply. To implement its goal the Central Bank uses a ________ monetary policy.

contractionary

In an attempt to boost the economy, the government's expansionary fiscal policy would include which of the following?

cutting tax rates

If the Fed increases the discount rate, then Key Bank will

decrease its reserves.

A decision by the Federal Reserve to change reserve requirements for banks is an example of:

monetary policy

The ability to pay principle of taxation holds that

people with more income should pay more taxes.

Which of the following is an important role of the Federal Reserve?

regulate the supply of money in the country

Which process is used by banks to create money?

Banks lend money and collect interest on the loans.

Using the provided information, what would be the tax responsibility of a steel worker who made $92,000 in 2014?

$18,935.75

Money creation in the United States results from which of the following?

The process of multiple banks' lending out deposits.

Sales taxes are

imposed as a percentage of the value of the purchase.

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $10 million, the total change in the money supply after all rounds of lending are completed is ________.

100 million

There are ________ regional Federal Reserve banks, who primarily support banks and the economy within their respective districts.

12

Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?

An increase Pacific's ability to make loans.

What is the definition of credit?

Credit is a way to purchase goods or services now when you cannot afford to pay for it all at once with cash.

Google runs a lucrative business and will pay corporate income tax to the federal government. On what is the corporate tax based?

Google's profits.

Which of the following examples describe a progressive tax?

Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households.

Which of the following characteristics is true of money?

It must represent value.

Which of the following scenarios would be MOST beneficial to a bank?

Kim and Micah decide to move most of their money from a checking account into a savings account.

Which source of money is most liquid, or available for consumers to use?

M1

Which of the following are major components of US federal government spending?

Medicare and social security expenditures

Which of the following is an example of a financial market?

New York Stock Exchange

In the country of Ovriolio the government has a budget plan to collect taxes in the amount of $15 billion and to spend $12 billion. A surge in production boosts the economy and the government spends $2 billion less than planned and tax collection is up by $1 billion. What are the results of these actions?

Ovriolio's expected budget surplus becomes a $6 billion surplus.

________ is considered the marketspace that bring lenders and borrowers together.

The financial market

Assuming that income tax is the only source of revenue for the government, with tax revenue of $50 billion and government spending totaling $70 billion, which of the following is true of the government's budget?

The government has a budget deficit of $20 billion.

When does a balanced budget occur?

When government spending equals government tax revenues.

How do central bank policies affect interest rates?

When the central bank decides to increase the discount rate, then interest rates increase.

Credit is

a tool for buying things you cannot afford to pay for all at once.

Which of the following is NOT an example of an expansionary, discretionary fiscal policy?

an increase in tax rates.

If the Fed lowers the reserve requirement, then the results will be

an increase the availability of credit.

Cigarettes can be used as a form of ________.

barter

If the Fed raises reserves requirements, then interest rates will ________ and the money supply will ________.

rise;decrease

When the supply of loanable funds exceeds demand for loanable funds

the interest rate will fall.

When the central bank decides it will sell bonds using open market operations:

the money supply decreases.

When considering which monetary policy to implement, the Central Bank needs to also be conscious of the tradeoff between

unemployment and inflation.

Say that Fed policy requires all banks to hold 8% of deposits in reserves. If Ventura Bank does not hold any excess reserves and the Fed increases the reserve requirement to 10%, what will be the result?

The money supply in the economy decreases.

Which of the following is an example of an automatic fiscal policy stabilizer?

Tax revenues fall as real GDP decreases.

Homemade pies can be used as a form of ________.

barter

________ is defined as goods are exchanged directly for other goods.

barter

An open market operation increases the money supply when the Federal Reserve

buys bonds from banks, which increases bank reserves.

Which of the following is a concern of fiscal policy?

changes in taxes

An open market purchase of US Treasury bonds by the central bank will ________ credit conditions for private firms.

ease

State and local government spending goes predominantly towards

education

Equilibrium in financial markets occurs at an interest rate where the quantity of loanable funds demanded is

equal to the quantity of loanable funds supplied.

The law of demand in the loanable funds market predicts a

fall in consumer credit card use if the interest rate rises.

Of the following examples of securities, which example is excluded from being a security?

fiat money

What is money called if it has no significant non-monetary value?

fiat money

Property taxes are

imposed based on ownership of assets such as real estate and autos.

The Mid-Merica Bank has a precedent of saying 'yes' to almost any loan asked for by customers (households and firms). Because of the large volume of loans it keeps the minimum amount of cash reserves. In addition to these domestic loans, the Mid-Merica Bank has been supplying a large volume of loans to Nigeria's prince and royal family who are in need of money and funds transferring. According to bank regulations the Mid-Merica Bank would receive ________ by bank regulators.

increased scrutiny

An expansionary monetary policy affects aggregate demand

indirectly, by lowering interest rates and increasing the available quantity of loans, which stimulates spending.

When a Central Bank decides to make a policy intervention it must be mindful of the trade off between

inflation and unemployment.

Contractionary fiscal policy is recommended when

inflation has reached harmful levels.

What happens to the money supply if the Fed lowers the discount rate?

it increases

If the Fed raises the reserve requirement, then banks will

make fewer loans.

If the public and community loses trust in banks it affects the entire U.S. financial system. In order to keep this type of financial contagion from happening, the Fed

makes as needed short-term emergency loans, by acting as the lender of last resort.

Of the examples below, which is an example of debt?

student loan

Which economics principle is present in financial markets?

supply and demand

When the central bank decides it will buy bonds using open market operations

the money supply increases.

Fiat money is backed by

the public's trust that it can be exchanged for goods and services.

Ultimately, FDIC ensures that ________.

there will always be sufficient loanable funds for investors to tap for economic growth generating activities

Which of the following example(s) describe a proportional tax?

Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn.

If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of lending are completed is ________.

50 million

Tad just filled his truck with gas, grabbed a pack of cigarettes and a case of beer on his way to his fishing cabin. When looking at his receipts, what does Tad notice that all three of these goods have in common?

All of them are subject to government excise taxes

Why are banks susceptible to potential bank runs?

Banks keep only fractional funds available, a much higher customer demand to withdraw funds in a short period of time may generate customer panic.

What is included in bank supervision?

Ensuring bank net worth remains positive, setting restrictions on investments and minimum reserve requirements.

How much money can a bank loan out, and make money on, of the banks' newly received deposits?

The bank can loan out only up to the amount of its excess reserves.

If Congress wanted to implement a tax cut during a recession but had to keep a balanced budget, what would need to do?

The government would have to reduce spending.

Tom earns $33,000 per year. The income tax rate on incomes below $20,000 is 10 percent. The rate on income between $20,001 and $35,000 is 15 percent. Which of the following is true?

Tom's marginal income tax rate is 15 percent.