Test 3

What is the name given to the sale of a product for a price below its cost of production?

Dumping

_____________________ is the proposition that it is irrelevant whether government expenditures are financed with tax receipts or debt.

Ricardian equivalence

Which of the following is a drawback to the infant industry justification for protectionism?

The industries under protection may never become efficient enough to compete with foreign firms.

Deficit spending during recessions can;

lessen the impact of the recession.

On the balance sheet of a bank

loans are the most important asset

The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.

Monetary policy

The association formed to lower trade barriers and encourage trade between Canada, the United States and Mexico is known as:

NAFTA

Which of the following groups of people are opposed to the World Trade Organization (WTO)?

People who want to protect domestic firms

Which body of the Federal Reserve System sets the majority of U.S. monetary policy?

The Federal Open Market Committee

If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct:

an open market sale.

An increase in transfer payments that smooths fluctuations in GDP is called a(n);

automatic stabilizer.

Fluctuations in total spending in the economy may affect:

both employment and production in the short run.

The tax multiplier equals the change in:

equilibrium GDP divided by the change in taxes.

The Federal Reserve has been criticized for __________ as a result of the financial crisis of 2008-2009.

expanding the money supply too much

It is not clear if a consumption tax will lead to significantly more saving because:

it is not clear whether the typical household will adjust consumption in favor of more savings.

One primary concern about the dramatic expansion of the Fed's balance sheet after the 2008 financial crisis is that it may;

lead to high inflation in the long run.

Multinational corporations expanding into foreign markets often:

provide thousands of jobs for foreign nationals

When we say that one of the functions of the Fed is to be a lender of last resort, we mean that the Fed:

provides funds to troubled banks that cannot find any other source of funds.

In recent times, the Federal Reserve has increased the money supply aggressively through buying bonds. This practice has been dubbed;

quantitative easing.

The name given to the fraction of deposits that a bank is legally required to hold in its vault, or as deposits at the Fed, is __________.

required reserves

A shift in the money demand will be caused by

something other than a change in the price of money.

The demand to hold money for reasons of safety is known as

speculative demand

One of the problems associated with inflation targeting is;

stable prices are not easy to identify.

When the interest rate decreases, __________.

there is movement down a stationary money demand curve

The demand for money that represents the needs or desires of individuals or firms to make purchases is called

transaction demand

The demand for money that represents the needs or desires of individuals or firms to make purchases is called __________.

transaction demand

A numerical limit on the quantity of a good that can be imported is known as a(n):

quota

If the price level increases, __________

the money demand curve shifts to the right.

If the price level increases, __________.

the money demand curve shifts to the right.

Many economists believe that tinkering with the economy via monetary policy is not effective due to;

the presence of lags.

Macroeconomic equilibrium occurs where:

total spending, or aggregate expenditure, equals total production or GDP.

An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from another country is known as a(n):

voluntary export restraint

Proponents of a balanced budget amendment to the U.S. Constitution believe it;

will force the federal government to have financial discipline.

We would expect the tax multiplier to be __________ in absolute value than the government purchases multiplier.

smaller

Assume that banks are always fully loaned and people hold no cash. Given a required reserve ratio of 10%, an infusion of $100 billion in reserves will result in a maximum of:

$1,000 billion in deposits.

The federal funds rate is the rate:

at which banks lend to each other.

What happens when there is an unplanned decrease in inventories?

Actual investment is less than planned investment

Which of these will shift the money demand curve to the right?

An increase in real GDP

Which of these statements about autonomous expenditure is correct?

Autonomous expenditure does not depend on the level of GDP.

One criticism of a balanced budget amendment is that;

Congress would simply move some financial discretion to "off budget."

_________ is money that has no intrinsic value but is backed by the government.

Fiat money

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of:

M1

Which of these is the broadest definition of the money supply?

M2

Which of these is NOT a function of the Federal Reserve?

Providing identity theft insurance

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.

Seven, 14-year terms, President

Which of these facts is true about the creation of the Federal Reserve System (the Fed)?

The Fed was created in 1913.

Who is the chairperson of the Federal Open Market Committee (FOMC)?

The chairperson of the Board of Governors.

When incomes rise faster in the United States than in other countries:

U.S. net exports will fall.

The sugar quota in the United States creates winners and losers. The winners are __________ and the losers are __________.

U.S. sugar producers, U.S. sugar consumers

When is the opportunity cost of holding money higher?

When interest rates are high

The __________ is charged with overseeing and resolving international trade disputes involving information goods.

World Trade Organization

When many depositors decide simultaneously to withdraw their money from a bank, there is __________.

a bank run

The WTO determines that dumping has occurred if;

a product is exported for a lower price than it sells for in a home market.

When the Federal Reserve buys bonds on the open market, it will ultimately translate to ___________ in net exports.

an increase

If the FOMC decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to:

buy U.S. Treasury securities.

The profits earned from the sale of stocks, bonds, real estate or other assets are known as;

capital gains.

Most nations have a banker's bank which is also known as the nation's;

central bank.

The global trend towards large multinational firms is partially driven by __________.

comparative advantage

Aggregate expenditure, or the total amount of spending in the economy, equals:

consumption spending plus planned investment spending plus government purchases plus net exports

When aggregate expenditure is greater than GDP, inventories will __________ and GDP and total employment will __________.

fall, increase

The opponents of globalization contend that

globalization destroys cultures

All of these will most likely increase as a result of expansionary monetary policy except:

government purchases.

About 60% of the capital gains and dividend income goes to households with incomes that are;

greater than $1 million.

A consumption tax is likely to benefit

higher income individuals.

The Fed selling bonds on the open market could impact fiscal policy due to;

higher interest rates on the debt.

An increase in household wealth will:

increase the consumption component of aggregate expenditure.

The Federal Reserve is set up to be___________________ the political system.

independent of

An open market purchase leads to an increase in the money supply which causes

interest rates to fall and investment spending to rise.

If Ricardian equivalence holds true, then government debt;

is irrelevant.

If real GDP increases:

the money demand curve shifts to the right.

A bank panic occurs when

many banks experience runs at the same time.

The percentage of additional income used purchasing imported goods is known as the;

marginal propensity to import

When a nation's central bank buys newly issued bonds it is known as;

monetizing the deficit.

If the president announced that "we should do something to stimulate economic growth" this is an example of a __________.

normative statement

Most economists are __________ a balanced federal budget mandate.

not in favor of

Credit cards are:

not part of the money supply.

The Fed conducts monetary policy primarily through:

open market operations.

The funds required to service the debt will be;

paid by all taxpayers.

The Federal Reserve is charged with pursuing full employment and;

price stability

The use of trade barriers to shield domestic companies from foreign competition is called __________.

protectionism

The cost of saving jobs through trade barriers like tariffs and quotas is:

relatively high

A bank's balance sheet is an accounting statement that shows a bank's

sources and uses of funds.

A tax imposed by a government on imported products is called a:

tariff

Which of the following arguments is used to justify protectionism?

tariffs and quotas protect infant industries

The Federal Reserve System is __________.

the central bank of the United States

Suppose that the reserve ratio is 25% and that banks loan out all their excess reserves. If a person deposits $100 cash in a bank, checking account balances will increase by a maximum of:

$400 (The total increase in checking account balance throughout all banks in the system is equal to the initial cash deposit multiplied by 1 / reserve ratio. So, $100 x (1 / .25) = $400.)

How many Federal Reserve districts are there?

12

Among developed nations, _____________had the highest debt to GDP ratio according to 2013 data.

Japan

The value of the multiplier is larger when the value of the __________.

MPC is larger

When we say that money serves as a unit of account, we mean that:

Prices are quoted in terms of money

When transfer payments spontaneously increase during a recession, it functions as a(n);

automatic stabilizer.

The money multiplier for the United States is __________.

between 2 and 3

The government funds budget deficits via .

borrowing and creating new money.

To increase the money supply, the FOMC directs the trading desk located at the Federal Reserve Bank of New York to:

buy U.S. Treasury securities from the public.

Because of the __________ in forecasting the economy, many economists believe the Fed __________ take a very active role in trying to stabilize the economy.

difficulties, should not

Assuming there are no leakages out of the banking system, a money multiplier equal to 5 means that:

each additional dollar of reserves creates $5 of deposits.

Nations that use trade restrictions to pursue global environmental goals will:

encounter resistance from the WTO

Proponents of the Fed engaging solely in inflation targeting believe it would;

enhance the Fed's credibility.

The demand for money needed to make quick purchases on short notice without incurring high costs is known as the

liquidity demand for money

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.

low, high

The paradox of thrift states that increased household savings will ultimately lead to:

lower income

High levels of government debt will result in an economy having ___________ capital stock.

lower levels of

Government financing of deficit spending via borrowing will ultimately result in;

lower national income.

The federal funds rate is the interest rate that;

banks charge each other for loans.

If the FOMC orders the trading desk to sell Treasury securities

the money supply curve will shift to the left and the equilibrium interest rates will rise.

If the FOMC orders the trading desk to sell Treasury securities:

the money supply curve will shift to the left and the equilibrium interest rates will rise.