QBank Unit 14
Of the statements listed, which best characterizes the potential impact of factors occurring outside our domestic economy and markets?
Factors outside the United States can have immediate and prolonged impact on our securities and trade markets and thus our domestic economy While not all factors outside of the United Sates will impact our domestic economy and markets, some can and will immediately. In these instances, the effects can be prolonged and thus the impact to our overall domestic economy is also felt
Which of the following are considered tools used to implement fiscal policies? - Government spending - Operations of the Federal Open Market Committee (FOMC) - Changing the reserve requirements - Taxation
Government spending Taxation Fiscal policy refers to governmental budget decisions enacted by the president and Congress to regulate federal spending and taxation. Increases in taxes and decreases in government spending slow the economy, while lowering taxes and increasing government spending spur growth in the economy
The federal government could use which of the following to stimulate the economy?
Increase government spending Taxation and government spending are tools of the federal government (president and congress). Changing the discount rate and open market activities (buying and selling treasuries) are tools of the Fed. Raising taxes slows down the economy
What is the economic theory that says the government can and should effect individual spending by adjusting taxes and government spending?
Keynesian Keynesian theory believes that the government can use its resource to stimulate or discourage economic activity through the use of tax and spending policies. Monetarist theory is employed by a central bank (The Federal Reserve in the United States) and uses interest rates to stimulate or discourage economic activity. Supply side theory focuses on the use of tax and regulatory policies to stimulate the economy. Reaganomics is a term applied to the use of supply-side theory by President Reagan in the United States in the 1980s. We do not expect the term to appear on the exam, but as it is used here, it is an incorrect response
Match the following statement to the best term: Government intervention in the economy is a significant force in creating prosperity by engaging in activities that affect aggregate demand.
Keynesian Theory According to the late economist John Maynard Keynes, a government's fiscal policies determine the country's economic health. Fiscal policy involves adjusting the level of taxation and government spending. In this way the government intervenes in the economy and is a major force in creating prosperity by engaging in activities that affect aggregate demand
Select the two distinctive types of policies that impact the U.S. economy.
Monetary and fiscal The two distinctive types of policies that impact our economy are monetary and fiscal. Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply via the Federal Open Market Committee (FOMC). Fiscal policy refers to governmental budget decisions enacted by the president and Congress including increases or decreases in federal spending, money raised through taxes, and federal budget deficits or surpluses
The federal government could use which of the following to slow the economy?
Raise taxes Taxation and government spending are tools of the federal government (president and congress). Changing the federal funds rate and open market activities (buying and selling treasuries) are tools of the Fed. Raising taxes slows down the economy
Match the following statement to the best expression: Government should allow market forces to determine prices of all goods and that the federal government should reduce government spending as well as taxes.
Supply-side Economic Theory Supply-side economics holds that governments should allow market forces to determine prices of all goods. Supply-side adherents judge that the federal government should decrease government spending and taxes. In this way, sellers of goods will price them at a rate that allows them to meet market demand and still sell them profitably
A weak U.S. dollar leads to more
U.S. exports and a balance of payments surplus When the dollar is weak relative to other currencies, it makes U.S. goods more affordable for foreign consumers to buy, so U.S. exports increase. As more goods flow out of the U.S., more money flows in—surplus
A strong U.S. dollar leads to more
U.S. imports and a balance of payments deficit When the dollar is strong, it is more affordable for U.S. consumers to buy more foreign goods, so U.S. imports increase. As more imported goods flow in, more money flows out—deficit
Which of the following is a true statement with regard to either U.S. securities laws or the description of international economic factors?
When the U.S. dollar is strong, foreign currency buys fewer U.S. goods When the dollar is strong, foreign currency buys fewer U.S. goods. On the other hand, the strong dollar would buy more foreign goods. A tombstone is not a prospectus nor can it be used instead of a prospectus when securities are sold. The Securities Act of 1933 regulates the primary (new issue) market. During a bankruptcy liquidation, preferred shareholders and common shareholders come after all other debt obligations have been satisfied
The U.S. balance of payments deficit would decrease in all of the following scenarios except
a decrease in purchases of U.S. securities by foreign investors A deficit in the balance of payments occurs when more money is flowing out of the country than in. When foreign investors decrease their purchases of U.S. securities, the flow of money coming into the United States decreases, this adds to the deficit rather than decreasing it
To grow or expand the economy, U.S. fiscal policy should be to
cut taxes and increase government spending for programs and development Fiscal policies to grow or expand the economy would encompass cuts in taxes allowing consumers to have more money to spend, spurring the economy forward, and increasing government spending for programs and development that creates jobs, again spurring the economy forward
Laws increasing or decreasing taxation would be best associated with
fiscal policy enacted by the president and Congress Tax laws are fiscal (not monetary) policy and are enacted by the president and Congress
If the U.S. dollar is weak against foreign currency,
foreign currency buys more U.S. goods; therefore, U.S. exports will increase When the U.S. dollar is weak against foreign currencies, U.S goods are more affordable for foreign buyers; therefore, U.S. exports will increase. At the same time, foreign goods are less affordable for U.S. consumers; therefore, U.S. imports will decrease
The country's annual economic output of all of the goods and services produced within the nation, is known as
gross domestic product A nation's annual economic output, all of the goods and services produced within that nation, is its gross domestic product (GDP). U.S. GDP includes personal consumption, government spending, gross private investment, foreign investment, and net exports
Deflationary periods are characterized by all of the following except
increased consumer demand Periods of deflation tend to occur during recessions. Consumer demand decreases, leading to declining prices. When demand decreases, so does production, which leads to rising unemployment
A deficit in the U.S. balance of payments can occur if - interest rates in foreign countries are higher than U.S. domestic rates - interest rates in foreign countries are lower than U.S. domestic rates - U.S. consumers are purchasing (importing) foreign goods - foreign consumers are purchasing (importing) U.S. goods
interest rates in foreign countries are higher than U.S. domestic rates U.S. consumers are purchasing (importing) foreign goods Anything that sends money out of our domestic economy leads to a deficit (more money flowing out than coming in). When interest rates abroad are higher, money flows out of the United States to those foreign locations. When U.S. consumers are purchasing more foreign goods and services, money flows out of the United States to those foreign markets
A surplus in the U.S. balance of payments can occur if - interest rates in foreign countries are higher than U.S. domestic rates - interest rates in foreign countries are lower than U.S. domestic rates - U.S. consumers are purchasing (importing) foreign goods - foreign consumers are purchasing (importing) U.S. goods
interest rates in foreign countries are lower than U.S. domestic rates foreign consumers are purchasing (importing) U.S. goods Anything that brings money into our domestic economy leads to a surplus (more money coming in than going out). When interest rates abroad are comparatively lower, money flows into the United States to earn a better rate. When foreign consumers are purchasing more U.S. domestic goods and services, money flows into the United States as well
Fiscal policy - is the most efficient means for solving short-term economic issues - is not considered the most efficient means to solve short-term economic issues - is reflected in the budget decisions enacted by our president and Congress - is reflected in the money supply decisions enacted by the Federal Reserve Board (FRB)
is not considered the most efficient means to solve short-term economic issues is reflected in the budget decisions enacted by our president and Congress Fiscal policy is reflected in the budget decisions enacted by our president and Congress. This political process takes time for conditions and solutions to be identified and implemented and is therefore not considered the most efficient way to solve short-term economic issues
There are two distinctive types of policies implemented to shape and mold the U.S. economy. They are
monetary and fiscal The two distinctive types of policies that impact our economy are monetary and fiscal. Monetary policy is what the Federal Reserve Board (FRB) engages in when it attempts to influence the money supply via the Federal Open Market Committee (FOMC). Fiscal policy refers to governmental budget decisions enacted by the president and Congress, including increases or decreases in federal spending and money raised through taxation
A surplus in the balance of payments is best described by
more money flowing into the United States than out This is the basic definition of a surplus in the balance of payments. Generally, this is a result of the United States increasing exports and decreasing imports
To contract or slow economic growth U.S. fiscal policy should be to
raise taxes and cut government spending for programs and development Fiscal policies to slow economic growth or contract the economy would encompass both increases in taxes leaving consumers with less money to spend, slowing economic growth, and cutting government spending for programs and development that would otherwise have created more jobs. Fewer jobs will slow economic growth as well
Exports from the United States would likely increase if - the Japanese yen strengthened against the dollar - the U.S. dollar strengthened against the euro - the U.S. dollar weakened against the British pound - the Swiss franc weakened against the dollar
the Japanese yen strengthened against the dollar the U.S. dollar weakened against the British pound U.S. exports should increase when foreigners have greater purchasing power. That occurs when their currency is stronger than the dollar
If the U.S. dollar is relatively strong against the Japanese yen, it can be assumed that
the U.S. dollar will buy more goods produced in Japan, while the Japanese yen buys fewer goods produced in the United States The strength of one country's currency against another impacts trade in between the two. The stronger currency (in this case the U.S. dollar) will buy more foreign goods, and the weaker currency (in this case the JY) will buy fewer goods produced in other countries
The flow of money between the United States and other countries is known as
the balance of payments The balance of payments represents the flow of money between the United States and other countries
The largest component of the U.S. balance of payments is
the balance of trade U.S. imports and exports are the components used to calculate the balance of trade. The balance of trade is the measure of those two components against each other—the net being either more money coming into or going out of the U.S. economy. That measure, the balance of trade, is the largest component of the U.S. balance of payments
