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Macroeconomics > Exam 5 > Flashcards

Exam 5 Flashcards

chpt: 14, 15, 16

1
Q

Purchasing groceries using a debit card best exemplifies money serving as a

A

medium of exchange

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2
Q

In the United States, the money supply (M1) includes

A

coins, paper currency, and checkable deposits

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3
Q

Most modern banking systems are based on

A

fractional reserves

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4
Q

In economics, money is defined as

A

any asset people generally accept in exchange for goods and services

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5
Q

Economies where goods and services are traded directly for other goods and services are called ________ economies

A

barter

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6
Q

Commodity money

A

has value independent of its use as money

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7
Q

The statement, “My iPhone is worth $700” represents money’s function as

A

a unit of account

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8
Q

The M1 measure of the money supply equals

A

currency plus checking account balances plus traveler’s checks

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9
Q

The M2 measure of the money supply equals

A

M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares

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10
Q

You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt. Using the M1 measure of money, you have

A

money = $300, annual income = $6,000, and wealth = $4,300

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11
Q

Credit card balances are

A

not part of the money supply

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12
Q

Bank reserves include

A

vault cash and deposits with the Federal Reserve

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13
Q

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%

A

$2,000

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14
Q

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

Refer to Scenario 25-2. As a result of Kristy’s deposit, Bank A’s excess reserves increase by

A

$8,000

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15
Q

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%

Refer to Scenario 25-2. As a result of Kristy’s deposit, Bank A can make a maximum loan of

A

$8,000

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16
Q

In an attempt to bring lenders and borrowers together following the financial crisis of 2008, the Federal Reserve made a large amount of new funds available to financial markets. The Fed expected this to increase the money supply and the total amount of lending because of the multiplier effect, in which a given amount of new reserves results in a multiple increase in

A

bank deposits

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17
Q

If the required reserve ratio is RR, the simple deposit multiplier is defined as

A

1/(RR)

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18
Q

If banks do not loan out all their excess reserves, then the real world multiplier is

A

smaller than 1/RR

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19
Q

When banks gain ________, they can ________ their loans; and the money supply ________

A

reserves; increase; expands

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20
Q

The Federal Reserve was established in 1913 to

A

stop bank panics by acting as a lender of last resort

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21
Q

Which of the following is not a function of the Federal Reserve System, or the “Fed”?

A

insuring deposits in the banking system

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22
Q

Open market operations refer to the purchase or sale of ________ to control the money supply

A

U.S. Treasury securities by the Federal Reserve

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23
Q

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

A

open market operations, discount policy, and reserve requirements

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24
Q

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of

A

$5 million

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25
Q

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called

A

securitization

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26
Q

One way investment banks differ from commercial banks is that investment banks

A

do not take in deposits

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27
Q

In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by

A

providing funds to banks in exchange for stock

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28
Q

Refer to the Article Summary. The CBR’s announcement in August 2017 of its intention to bail out Otkritie Bank raised fears of a nationwide banking crisis in Russia. Fears of a banking crisis have been known to lead to a bank run, a situation in which

A

many depositors simultaneously decide to withdraw money from a bank

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29
Q

Which of the following is not a tool the Fed uses to manage the money supply?

A

expanding and contracting deposit insurance

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30
Q

The discount rate is

A

the interest rate the Fed charges to banks for loans from the Fed

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31
Q

In 1980, one Zimbabwean dollar was worth 1.47 U.S. dollars. By the end of 2008, the exchange rate was one U.S. dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience

A

hyperinflation

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32
Q

The US Federal Reserve, the Bank of Japan, the Bank of England, and the European Central Bank are all in charge of what for the countries they represent?

A

monetary policy

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33
Q

Which of the following would reduce the money supply?

A

Commercial banks sell government bonds to the public

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34
Q

The securities held as assets by the Federal Reserve Banks consist mainly of

A

Treasury bills, Treasury notes, and Treasury bonds

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35
Q

Which of the following is a tool of monetary policy?

A

open-market operations

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36
Q

The interest rate that banks charge one another on overnight loans is called the

A

federal funds rate

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37
Q

If the probability of losing your job remains ________, a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time

A

low; lowers

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38
Q

Monetary policy refers to the actions the

A

Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives

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39
Q

The Federal Reserve System’s four monetary policy goals are

A

price stability, high employment, economic growth, and stability of financial markets and institutions

40
Q

Federal Reserve Board Chairmen Paul Volcker, as well as later Fed chairs, focused on which of the following as their main goal of monetary policy?

A

price stability

41
Q

The money demand curve has a

A

negative slope because an increase in the interest rate decreases the quantity of money demanded

42
Q

The Fed’s two main monetary policy targets are

A

the money supply and the interest rate

43
Q

An increase in the money supply will

A

decrease the interest rate

44
Q

The money market model is concerned with ________ and the loanable funds market model is concerned with ________

A

short-term nominal interest rates; long-term real interest rates

45
Q

The federal funds rate is

A

the interest rate banks charge each other for overnight loans

46
Q

When the Fed buys a security from a financial firm and the financial firm agrees to buy back the security the next day, the transaction is known as

A

a repurchase agreement

47
Q

When the Fed sells a security to a financial firm and the Fed agrees to buy back the security the next day, the transaction is known as

A

a reverse repurchase agreement

48
Q

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

A

real interest rates

49
Q

An increase in interest rates

A

decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports

50
Q

In November 2008, the Fed began its first round of quantitative easing. In total, the Fed conducted ________ rounds of quantitative easing before ending the program in October 2014

A

3

51
Q

Expansionary monetary policy refers to the ________ to increase real GDP

A

Federal Reserve’s increasing the money supply and decreasing interest rates

52
Q

Refer to the Article Summary. Implementing a negative interest rate policy, as is discussed in the article summary, would be an example of ________ monetary policy designed to ________ aggregate demand

A

expansionary; increase

53
Q

Which of the following characterizes the Fed’s ability to prevent recessions?

A

The Fed is able to keep a recession shorter and milder than it would otherwise be

54
Q

When the Fed increases the money supply

A

the interest rate falls and this stimulates investment spending

55
Q

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________

A

lower; lower

56
Q

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________

A

monetary; publicly announced level of inflation

57
Q

The Fed’s preferred measure of inflation is

A

the core personal consumption expenditures index

58
Q

A monetary growth rule means that

A

the money supply should grow at a constant rate

59
Q

The Taylor rule helps explain the relationship between the Fed’s ________ and ________

A

federal funds target; economic conditions

60
Q

When housing prices fell as they did beginning in 2006 following the housing market bubble, most banks and other lenders ________ the requirement for borrowers, making it ________ for potential home buyers to obtain mortgages

A

tightened; harder

61
Q

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac

A

sell bonds to investors and use the funds to purchase mortgages from banks

62
Q

By the height of the housing bubble in 2005 and early 2006, lenders had greatly loosened the standards for obtaining a mortgage loan, with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes

A

sub-prime; “Alt-A”

63
Q

In October 2008, Congress passed the ________, under which the Treasury provided funds to banks in exchange for stock

A

Troubled Asset Relief Program (TARP)

64
Q

The larger the fraction of an investment financed by borrowing

A

the greater the potential return and potential loss on that investment

65
Q

Expansionary fiscal policy is so named because it

A

is designed to expand real GDP

65
Q

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

A

budget surplus

66
Q

Vulcan Materials stock price soared in the days following the election of President Trump. Vulcan’s products, such as asphalt and concrete, are used in construction and President Trump had pledged to bring about increased spending on infrastructure projects that would require such products. Spending on infrastructure projects is an example of ________ aimed at increasing real GDP and employment

A

discretionary fiscal policy

67
Q

discretionary fiscal policy

A

federal taxes and purchases that are intended to achieve macroeconomic policy objectives

68
Q

Automatic stabilizers refer to

A

government spending and taxes that automatically increase or decrease along with the business cycle

69
Q

The largest and fastest-growing category of federal government expenditures is

A

transfer payments

70
Q

From the 1960s to 2016, transfer payments

A

have risen from 25 percent to about 49 percent of federal government expenditures

71
Q

The three categories of federal government expenditures, in addition to government purchases, are

A

interest on the national debt, grants to state and local governments, and transfer payments

72
Q

Government transfer payments include which of the following?

A

Social Security and Medicare programs

73
Q

President Trump’s proposed increase in spending on infrastructure projects is an example of discretionary fiscal policy aimed at increasing

A

real GDP and employment

74
Q

Fiscal policy is defined as changes in federal ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment

A

taxes; expenditures

75
Q

Congress and the president carry out fiscal policy through changes in

A

government purchases and taxes

76
Q

Fiscal policy is determined by

A

Congress and the president

77
Q

An increase in government purchases will increase aggregate demand because

A

government expenditures are a component of aggregate demand

78
Q

An increase in individual income taxes ________ disposable income, which ________ consumption spending

A

decreases; decreases

79
Q

Tax cuts on business income ________ aggregate demand

A

would increase

80
Q

Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect

A

multiplier

81
Q

The government purchases multiplier equals the change in ________ divided by the change in ________

A

equilibrium real GDP; government purchases

82
Q

A decrease in the tax rate will ________ the disposable income of households and ________ the size of the multiplier effect

A

increase; increase

83
Q

Data indicates that recessions following financial crises ________ recessions which do not follow financial crises

A

are more severe than

84
Q

Crowding out refers to a decline in ________ as a result of an increase in ________

A

private expenditures; government purchases

85
Q

A tax rebate, like the one issued in 2008, is likely to ________ consumption spending ________ than would a permanent tax cut

A

increase; less

86
Q

When President Obama took office in January 2009, he pledged to pursue an expansionary fiscal policy to try to pull the economy out of the recession. The next month, Congress passed the American Recovery and Reinvestment Act of 2009, an $840 billion package of spending increases and tax cuts that was

A

the largest fiscal policy action in U.S. history

87
Q

The federal government debt equals

A

the total value of U.S. Treasury bonds outstanding

88
Q

If the federal government’s expenditures are less than its tax revenues, then

A

a budget surplus results

89
Q

The cyclically adjusted budget deficit calculates the budget surplus or deficit at

A

potential GDP

90
Q

Fiscal policy actions that are intended to have long-run effects on real GDP attempt to increase ________ through changing ________

A

aggregate supply; taxes

91
Q

As the tax wedge associated with a given economic activity gets smaller, we would expect

A

more of that economic activity to occur

92
Q

The growth rate of real GDP equals

A

the growth rate of hours worked plus the growth rate of labor productivity

93
Q

The Trump administration’s policies to increase labor productivity growth include all of the following except

A

raising the federal minimum wage

94
Q

Congress and the President carry out fiscal policy through changes in

A

government purchases and taxes

Macroeconomics (6 decks)

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