Economics and Suitability Summary

Question 1

What economic theory emphasizes government intervention and the use of fiscal policy to manage the economy?

Answer 1

Keynesian Economic Theory

Question 2

Does the FRB control monetary or fiscal policy?

Answer 2

Monetary

Question 3

An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in ______________.

Answer 3

An owner of utility stocks, preferred stocks, and bonds would be most concerned about changes in interest rates.

Question 4

There would be an easing of the money supply if the discount rate is __________.

Answer 4

There would be an easing of the money supply if the discount rate is lowered.

Question 5

The FRB will ______ securities to increase the money supply and ease credit.

Answer 5

The FRB will buy securities to increase the money supply and ease credit.

Question 6

The FRB will ______ securities to decrease the money supply and tighten credit.

Answer 6

The FRB will sell securities to decrease the money supply and tighten credit.

Question 7

Answer 7

Question 8

What is the effect of lowering the minimum reserve requirement?

Answer 8

It increases the money supply and eases credit.

Question 9

___________ is what occurs when there is “too much money chasing too few goods.”

Answer 9

Inflation is what occurs when there is “too much money chasing too few goods.”

Question 10

The __________ rate is the only rate directly controlled by the FRB.

Answer 10

The discount rate is the only rate directly controlled by the FRB.

Question 11

In proper order, list the four phases of the business cycle.

Answer 11

1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough

Question 12

__________________________ is the measure of goods and services produced by the U.S. worldwide.

Answer 12

Gross National Product (GNP) is the measure of goods and services produced by the U.S. worldwide.

Question 13

What elements are influenced when implementing fiscal policy?

Answer 13

Taxes and expenditures

Question 14

There would be a tightening of the money supply if the discount rate is __________.

Answer 14

There would be a tightening of the money supply if the discount rate is raised.

Question 15

What is the transaction called when the FRB sells government securities and agrees to buy them back quickly?

Answer 15

A reverse repo

Question 16

Deflationary periods are characterized by __________________ prices.

Answer 16

Deflationary periods are characterized by falling/decreasing prices.

Question 17

If a member bank needs to borrow funds from the FRB, what rate will it be charged?

Answer 17

Discount rate

Question 18

True or False: Government intervention is believed to assist in implementing monetary policy.

Answer 18

False. Fiscal (Keynesian) policy requires government intervention.

Question 19

Are inflationary periods characterized by rising or falling interest rates?

Answer 19

Rising

Question 20

______________ is the rate that banks charge their most creditworthy corporate clients.

Answer 20

Prime Rate is the rate that banks charge their most creditworthy corporate clients.

Question 21

What is LIBOR?

Answer 21

London Interbank Offered Rate (LIBOR)

Question 22

____________ occurs when the supply of goods exceeds the demand for goods.

Answer 22

Deflation occurs when the supply of goods exceeds the demand for goods.

Question 23

Is the fed funds rate considered the least or most volatile rate?

Answer 23

Most volatile rate

Question 24

What economic theory emphasizes controlling the money supply to manage the economy?

Answer 24

Monetary Economic Theory

Question 25

What is the FOMC?

Answer 25

The FRB’s Federal Open Market Committee that will trade government securities with primary government dealers

Question 26

A decline in GDP for two successive quarters is defined as a ____________.

Answer 26

A decline in GDP for two successive quarters is defined as a recession.

Question 27

Stimulating the economy by reducing both taxes and the size of government is called _______________economic theory.

Answer 27

Stimulating the economy by reducing both taxes and the size of government is called supply-side economic theory.

Question 28

_____________________ measures the goods & services produced within the U.S., disregarding the producer’s origin.

Answer 28

Gross Domestic Product (GDP) measures the goods & services produced within the U.S., disregarding the producer’s origin.

Question 29

What is the least effective tool available to the FRB?

Answer 29

Margin requirements (Reg T)

Question 30

What is the transaction called when the FRB buys government securities and agrees to sell them back quickly?

Answer 30

A repurchase agreement (repo)

Question 31

The _______________________ is often considered the most important measure of inflation.

Answer 31

The Consumer Price Index (CPI) is often considered the most important measure of inflation.

Question 32

What is the effect of raising the minimum reserve requirement?

Answer 32

It decreases the money supply and tightens credit.

Question 33

________________ is a situation where clients withdraw funds from banks to seek higher yielding investments elsewhere.

Answer 33

Disintermediation is a situation where clients withdraw funds from banks to seek higher yielding investments elsewhere.

Question 34

True or False: Inflation is a persistent rise in the general level of prices.

Answer 34

True

Question 35

__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.

Answer 35

Reserve requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.

Question 36

The __________________ is the rate of interest banks charge each other on overnight loans.

Answer 36

The fed funds rate is the rate of interest banks charge each other on overnight loans.

Question 37

If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?

Answer 37

It should strengthen as more foreign money is being invested in the U.S.