Macro

Which of the following "backs" the value of money in the United States? Multiple Choice The gold stored in the Federal Reserve Bank of New York The acceptability of it as a medium of exchange The willingness of foreign government to hold U.S. dollars The size of the budget surplus in the U.S. government

B

hte functions of money are to serve as a: Multiple Choice Resource allocator, method for accounting, and means of income distribution Unit of account, store of value, and medium of exchange Determinant of consumption, investment, and government spending Factor of production, exchange, and aggregate supply

B

The paper currencies of the U.S. are also called: Multiple Choice Federal Reserve notes Treasury Bills U.S. Government notes Treasury bonds

A

what function is money serving when you deposit money in a savings account? Multiple Choice A store of value A unit of account A checkable deposit A medium of exchange

A

Money functions as a store of value if it allows you to: Multiple Choice Measure the value of goods in a reliable way Make exchanges in a more efficient manner Delay purchases until you want the goods Increase your confidence in money

C

Which of the following institutions does not provide checkable-deposit services to the general public? Multiple Choice Commercial banks Savings and loan associations U.S. Treasury Credit unions

C

What are the components of the M1 money supply?

Currency in circulation and checkable deposits

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as: Multiple Choice Fiat money Legal tender A store of value A unit of account

D

he Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for: Multiple Choice Maintaining cash reserves that can be used to settle international transactions Supervising banks to make sure that markets are open to all and remain competitive Issuing currency and acting as the fiscal agent for the Federal government Setting the Fed's monetary policy and directing the purchase and sale of government securities

D

Which of the following are valid arguments for tariff protection?

Ensuring adequate production levels in sectors deemed to be essential in the event of war

What near-monies are included in the M2 money supply?

Noncheckable savings deposits, money market deposit accounts, small time deposits, and money market mutual fund balances

Why is the face value of a coin greater than its intrinsic value?

People would sell it for its intrinsic value.

The potentially valid arguments for tariff protection—military self-sufficiency, infant industry protection, and antidumping—are also the most easily abused." Which of the following illustrates the potential for abuse of tariff protection?

There is a tendency for trade barriers to remain in place even after a so-called infant industry becomes established.

Do all international financial transactions necessarily involve exchanging one nation's distinct currency for another?

True

Subprime mortgage loans were one of the factors that exacerbated the financial crisis of 2007-2008 because they resulted in

an increase in demand for housing and a rapid increase in home prices that was unsustainable.

Suppose that you are a member of the Board of Governors of the Federal Reserve System. The post 2008 economy is experiencing a sharp rise in the inflation rate. a. In this case, the federal funds rate should be

increase

he Federal Reserve requires commercial banks to have reserves because

it allows the FED to have the means to control the money supply

Suppose there is an increase in the total demand for money. In this case,

the equilibrium will rise

The basic determinant of the transactions demand for money is the

the level of nominal GDP

A major strength of monetary policy is

the speed and flexibility

Reserves are an asset to commercial banks but a liability to the Federal Reserve Banks because

these funds are cash in commercial banks and they are also a claim that commercial banks have against Federal Reserve Banks

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange? Multiple Choice M1 M2 Neither M1 nor M2 M1 and M2

A

An asset's liquidity refers to its ability to be: Multiple Choice Bought and stored Increasing in value over time Used and enjoyed A means of payment

D

What function is money serving when you use it when you go shopping? Multiple Choice A store of value A unit of account A medium of deferred payment A medium of exchange

D

he use of a debit card is most similar to: Multiple Choice Paying with a check Using a stored-value card Using currency Obtaining a short-term loan

a

excess reserves are equal to

actual reserves minus required reserves

The basic objective of monetary policy is to

assist the economy in achieving a full-employment, noninflationary level of total output

The equilibrium interest rate is determined

at the intersection of the total demand for money curve and the supply of money curve

The banking system in the United States is referred to as a fractional reserve bank system because

because it holds a fraction of the deposits in the reserves

The Federal Reserve System consists of which of the following? Multiple Choice Federal Open Market Committee and Office of Thrift Supervision Federal Deposit Insurance Corporation and Controller of the Currency U.S. Treasury Department and Bureau of Engraving and Printing Board of Governors and the 12 Federal Reserve Banks

d

the use of a credit card is most similar to: Multiple Choice Paying with a check An ACH (automatic clearinghouse) transaction Purchasing a certificate of deposit Obtaining a short-term loan

d

When bond prices go up, interest rates go

down

A single commercial bank in a multibank banking system can lend only an amount equal to its initial preloan

excess reserves

Tariffs and import quotas can reduce unemployment in a U.S. import industry, but

foreign countries could impose nontariff barriers on U.S. goods, reducing jobs in an export industry.

Checkable deposits are included in: Multiple Choice M1 but not in M2 M2 but not in M1 both M1 and M2 neither M1 nor M2

c

excess reseves

can be lent out, which increases the money supply

If there is an increase in the nation's money supply, the interest rate will

all, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise.

Changes in the federal funds rate and the prime interest rate closely track one another because

both rates are related to the relative scarcity or availability of reserves

United States currency has value primarily because it: Multiple Choice Is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the Federal government Is generally acceptable in exchange for goods or services, is backed by the gold and silver of the Federal government, and facilitates trade Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services Facilitates trade, is legal tender, and permits the use of credit cards and near-monies

c

When the Fed acts as a "lender of last resort", like it did in the financial crisis of 2007-2008, it is performing its role of: Multiple Choice Controlling the money supply Setting the reserve requirements Being the bankers' bank Providing for check clearing and collection

c

Which of the following items are included in money supply M2 but not M1? Multiple Choice Federal Reserve notes Coins Savings deposits Checkable deposits

c

ichelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2? Multiple Choice M1 decreases and M2 increases M1 increases and M2 decreases M1 increases and M2 stays the same M2 increases and M1 stays the same

c

What is the largest component of M1?

checkable deposits

Which of the components of M1 is legal tender?

currency

Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy? Multiple Choice U.S. Treasury U.S. Congress Federal Advisory Council Federal Open Market Committee

d

The use of artificial trade barriers, such as tariffs and import quotas,

increase in a short but not in a long wrong

A decrease in the reserve requirement causes the size of the monetary multiplier to

increase, the amount of excess reserves in the banking system to increase, and the money supply to increase.

The federal funds rate is

lower than the prime interest rate because federal funds are loaned overnight.

The financial crisis of 2007-2008 was exacerbated by subprime mortgage loans. These loans were made to borrowers

more likely to default on their loans

A single commercial bank can safely lend only an amount equal to its excess reserves, but the commercial banking system as a whole can lend by a multiple of its excess reserves because

one bank may lose it but another may gain it

You recommend a contraction of the money supply, which would

reduce the lending ability of the banking system, increase the real interest rate, and reduce investment spending, aggregate demand, and inflation.

Monetary policy is easier to conduct than fiscal policy because

shorter administration lag

What is the monetary multiplier?

1/required reserve ratio

As of February 2013, more than half of the money supply (M1) was in the form of Currency Checkable deposits Gold coins and bars Savings deposits

B

The M1 money supply is composed of: Multiple Choice All coins and paper money held by the general public and the banks Bank deposits of households and business firms Bank deposits and mutual funds Checkable deposits and currency in circulation

D

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

D

In a fractional reserve system, deposit insurance

guarantees that depositors will always get their money, avoiding bank runs

Total money demand is the

horizontal sum of the transactions demand for money and the asset demand for money.

You recommend a contraction of the money supply by

increasing the reserve ratio

The basic determinant of the asset demand for money is the

interest rate