Econ Exam 4
If the effective federal funds rate is 1.64 percent, which of the following is most likely to be the Fed's target range for the federal funds rate?
1.50 to 1.75
Currency in circulation is part of
Both M1 and M2
The money supply is backed
By the government's ability to control the supply of money and therefore to keep its value relatively stable.
The Federal Reserve System's three administered rates are the
IORB rate, ON RRP rate, and discount rate
What function does interest on reserve balances serve besides an opportunity for banks to earn interest?
The Fed uses it to steer the federal funds rate into the FOMC's target range
A budget surplus is
The amount by which the revenues of the federal government exceed its expenditures in any year
The operational lag
The delay between the time fiscal action is ordered and the time that it actually begins to affect output, employment, or the price level
An appropriate fiscal policy for severe demand-pull inflation is
A tax rate increase
Which of the following is not considered a legitimate concern of a large public debt?
Bankruptcy of the federal government
The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the
Administrative lag
The U.S. public debt
Consists of the historical accumulation of all past federal deficits and surpluses
State and local governments are limited in their ability to respond to recessions because of
Constitutional and other requirements to balance their budgets
Fiscal policy is mainly undertaken by the Federal Reserve
False
Fiscal policy will still achieve its objectives even if households expect future reversals of policy
False
Gold "backs" the U.S. money supply
False
Monetary policy, unlike fiscal policy, does not have any time lags
False
The general public can open deposit accounts at the Federal Reserve Bank in their district
False
As it relates to Federal Reserve activities, the acronym FOMC describes the
Federal Open Market Committee
In the U.S. economy, the money supply is controlled by the
Federal Reserve System
Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the
Federal funds rate
If the Fed wants to discourage bank lending, it will
Increase the interest paid on reserve balances held at the Fed
The crowding-out effect of expansionary fiscal policy suggests that
Increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment
Recently, the Federal Reserve's most important tool for targeting the Federal Funds Rate is:
Interest on Reserve Balances (IORB)
Which of the following does not explain what backs the money supply in the United States?
It is backed by gold
Which of the following is considered an advantage of the monetary policy compared to fiscal policy?
It is relatively isolated from political pressure
Which of the following is considered a limitation of monetary policy
Its cyclical asymmetry
The current chairman of the Federal Reserve is:
Jerome "Jay" Powell
In 2020, the Fed began to
Let banks decide for themselves how big their reserves against withdrawals should be
The Federal Reserve's dual mandate is:
Maximum employment and price stability
Purchasing groceries using a debit card best exemplifies money serving as a
Medium of exchange
The three main tools of monetary policy are
Open market operations, forward guidance, and changing the administered interest rates
Which of the following best describes the idea of a political business cycle?
Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections
The discount rate is the interest
Rate at which the Federal Reserve Banks lend to banks
The federal funds rate is the interest
Rate that banks and other nonbank financial firms charge one another on overnight loans of currency
Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
Reductions in federal tax rates on personal and corporate income
Funds that commercial banks and thrift institutions hold on deposit at the central bank are called
Reserve balances
Studies show that
The more independent the central bank, the lower the average annual rate of inflation
The voting members of the Federal Open Market Committee is made up of
The seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Bank and four other Federal Reserve Bank presidents on a rotating basis
The recognition lag is
This time between the beginning of recession or inflation and the certain awareness that it is actually happening
The Federal Reserve current target for inflation is 2%
True
The M2 money supply is larger than the M1 money supply
True
The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds
True
A $80 price tag on a sweater in a department store window is an example of money functioning as a
Unit of account
