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econ > Test3 > Flashcards

Test3 Flashcards

1
Q

A change in the reserve requirement causes a change in all of the following except:a) The money multiplier.b) The lending capacity of the banking system.c) Excess reserves.d) Pre-tax income.

A

d) Pre-tax income.

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2
Q

A progressive income tax system is particularly effective as an automatic stabilizer because:a) It reduces demand when income falls.b) In a booming economy taxpayers move into higher tax brackets, which restrains their spending.c) During a recession it causes the budget deficit to fall.d) It falls more heavily on taxpayers with high MPCs, which stimulates aggregate demand.

A

b) In a booming economy taxpayers move into higher tax brackets, which restrains their spending.

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3
Q

Much of each year’s federal budget is considered “uncontrollable” because:a) It must be spent for purchases, as opposed to transfer payments.b) Most of the current revenues and expenditures are the result of decisions made in prior years.c) It is determined by decision-makers who do not have the power to change spending and taxes.d) Government spending is so large that it’s out of control.

A

b) Most of the current revenues and expenditures are the result of decisions made in prior years.

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4
Q

A monetary stimulus is designed to shift the:a) AS curve to the right.b) AS curve to the left.c) AD curve to the right.d) AD curve to the left.

A

c) AD curve to the right.

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5
Q

If the federal budget is balanced and government expenditures remain constant a decrease in GDP will:a. not affect either tax revenues or the budgetb. decrease tax revenues and created a budget deficitc. decrease tax revenues and created a budget surplusd. increase tax revenues and created a budget deficite. increase tax revenues and created a budget surplus

A

b. decrease tax revenues and created a budget deficit

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6
Q

Fiscal Policy is carried out primarily by:a. The Federal governmentb. State and Local government working togetherc. State government aloned. Local government alonee. none of the above

A

a. The Federal government

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7
Q

The credit-creation process of deposit banking is based on:a. greed principleb. security principlec. income principled. the Goldsmith principlee. all of the above

A

d. the Goldsmith principle

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8
Q

Money does not function as:a. medium of exchangeb. hedge against inflationc. store of valued. standard of deferred paymente. measure of value

A

b. hedge against inflation

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9
Q

Which of the following is not an example of an automatic fiscal stabilizer?a. Unemployment taxes and benefitsb. A progressive tax systemc. Increased expenditure on social goodsd. All of the above are automatic fiscal stabilizers

A

c. Increased expenditure on social goods

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10
Q

Which of the following gave the U.S. federal government permanent authority to issue money?a) The Constitution of the United States in 1779.b) The National Banking Act of 1863.c) The creation of the FDIC and FSLIC in 1933.d) The Monetary Control Act of 1980.

A

b) The National Banking Act of 1863.

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11
Q

Fiat money is:a. comprised only of demand depositb. money because the government asserts that it isc. money which is “resting” in a commercial bank’s vaultd. money which can be redeemed for an intrinsically valuable commodity such as golde. money which can only be used to purchase a Fiat automobile

A

b. money because the government asserts that it is

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12
Q

The “Goldsmith principle” refers to the idea that:a. the soundest money is that which is backed by goldb. the prince of gold should be free to fluctuate according to supply and demandc. bank should be required to hold legal reserves in the form of goldd. banks can successfully maintain fractional-rather than 100% - reserves against their loanse. banks should hold required but not necessarily excess, reserves in the form of gold

A

d. banks can successfully maintain fractional-rather than 100% - reserves against their loans

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13
Q

Suppose that a bank manager is pursuing the goals of both liquidity and profitability. The best way of achieving this is through:a. primary reservesb. secondary reservesc. tertiary reservesd. residual reservese. other assets

A

e. other assets

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14
Q

The function of money illustrated by the payments you make for the things you buy is the:a. medium of exchangeb. measure of valuec. standard of deferred paymentsd. store of valuee. source of liquidity

A

a. medium of exchange

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15
Q

The transactions demand for money is almost closely related to money functioning as a:a. unit of accountb. medium of exchangec. store of valued. measure of valuee. none of the above

A

b. medium of exchangestop

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16
Q

During the last several decades, the trend of interest payments on the public debt has been:a. risingb. fallingc. remaining about the samed. varying inversely with the size of the debte. averaging between 20 and 30 percent of GDP

A

a. rising

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17
Q

Reserve requirements are limited as a tool of monetary policy because they: a. generate an announcement effect b. discourage borrowing from the FEDc. have no effect on the velocity of money d. can generate problems of bank liquidity e. exert too much influence over nondepository financial intermediaries

A

a. generate an announcement effect

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18
Q

Most modern banking systems are based on:a. money of intrinsic valueb. commodity moneyc. 100% reserved.fractional reservee. none of the above

A

d.fractional reserve

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19
Q

The asset demand for money is almost closely related to money functioning as a:a. unit of accountb. medium of exchangec. store of valued. measure of valuee. all of the above

A

c. store of value

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20
Q

A bank’s required reserves:a. must equal its legal reservesb. cannot equal its legal reservesc. must equal its excess reservesd. cannot equal its excess reservese. may equal its legal reserves

A

d. cannot equal its excess reserves

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21
Q

Assume that Mr. Johnson received a check for $1,000 written against bank X. He deposits the check to his account in bank Y. When the check clears, Bank X’s:a. demand deposit will increase by $1,000.b. demand deposit will decrease by $1,000.c. legal reserves will remain the same as before d. legal reserves will increase by $1,000. e. excess reserves will increase by $1,000

A

b. demand deposit will decrease by $1,000.

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22
Q

Which of the following types of assets is likely to be most liquid?a. a piece of iceb. cashc. a watery jellod. a boat in watere. a jug of water

A

b. cash

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23
Q

A commercial Bank can add to its actual reserves by:a. lending money to customersb. buying bonds from the publicc. buying bonds from a Federal Reserve Bankd. borrowing money from a Federal Reserve Banke. all of the above

A

d. borrowing money from a Federal Reserve Bank

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24
Q

The Board of Governors of the Federal Reserve System is:a. elected by the member and nonmember banksb. elected by the member bank’s presidentc. appointed by the Secretary of Treasuryd. appointed by the state governors in each Federal Reserve districte. appointed by the president and confirmed by the Senate

A

e. appointed by the president and confirmed by the Senate

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25
Q

In terms of the “bathtub theorem,” an injection is:a. government spends moneyb. government raises taxesc. government finances a deficit by borrowingd. government finances a deficit by printing money

A

a. government spends money

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26
Q

Which of the following is not an effect of an expansionary fiscal policy?a. increase in the demand for laborb. increase in aggregate demandc. increase in incomed. increase in price levele. all of the above are effects of expansionary fiscal policy

A

e. all of the above are effects of expansionary fiscal policy

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27
Q

The anticipated rate of return on an additional unit of investment is called:a. productivityb. net worthc. gross profitd. net profite. the marginal efficiency of investment

A

e. the marginal efficiency of investment

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28
Q

Firms undertake investment when the marginal efficiency investment:a. exceeds the cost of fundsb. is less than the cost of fundsc. is a negative numberd. is a positive numbere. is the same at all interest rates

A

a. exceeds the cost of funds

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29
Q

In the United States, the money supply (M1) is comprised of:a)coins, paper currency, and checkable deposits.b)currency, checkable deposits, and Series E bonds.c)coins, paper currency, checkable deposits, and credit balances with brokers.d)paper currency, coins, gold certificates, and time deposits.e)all of the above

A

a)coins, paper currency, and checkable deposits.

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30
Q

The deposit multiplier will be larger if the:a. MPC is largeb. reserve requirement ratio is largec. MPS is larged. MPC is smalle. required reserve ration is small

A

a. MPC is large

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31
Q

Fiscal Policy is carried out primarily by:a. The Federal governmentb. State and Local government working togetherc. State government aloned. Local government alonee. none of the above

A

a. The Federal governmentstop

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32
Q

The consumption function is:a. the amount spent by household on consumptionb. the amount spent by all sectors on consumptionc. the relationship between consumption and incomed. the relationship between consumption and savingse. the relationship between consumption and investment

A

c. the relationship between consumption and income

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33
Q

Assume that a bank has $100,000 in checkable deposits and $30,000 in legal reserves. If the required-reserve ratio is 10 percent, required reserves are:a. $0b. $10,000c. $20,000d. $30,000e. $40,000

A

b. $10,000

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34
Q

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will: a. shift the AD curve to the rightb. Not affect the AD curvec. Increase the equilibrium GDP. d. Shift the AD curve to the lefte. All of the above

A

b. Not affect the AD curve

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35
Q

A bank is fully loaned up when:a. legal reserves are zerob. excess reserves are zeroc. primary reserves are zerod. required reserves are zeroe. nonlegal reserves are zero

A

b. excess reserves are zero

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36
Q

Fiscal Policy is carried out primarily by:a. The Federal governmentb. State and Local government working togetherc. State government aloned. Local government alonee. none of the above

A

a. The Federal government

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37
Q

Discretionary fiscal policy is so named because it:a) is undertaken at the option of the nation’s central bank.b) occurs automatically as the nation’s level of GDP changes.c) involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.d) is invoked secretly by the Council of Economic Advisers.e) All of the above

A

c) involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.

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38
Q

Expansionary fiscal policy is so named because it:a) involves an expansion of the nation’s money supply.b) necessarily expands the size of government.c) is aimed at achieving greater price stability.d) is designed to expand real GDP.e)None of the above

A

d) is designed to expand real GDP.

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39
Q

A contractionary fiscal policy is shown as a:a) rightward shift in the economy’s aggregate demand curve.b) rightward shift in the economy’s aggregate supply curve.c) movement along an existing aggregate demand curve.d) leftward shift in the economy’s aggregate demand curve.e) All of the above

A

d) leftward shift in the economy’s aggregate demand curve.

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40
Q

An expansionary fiscal policy is shown as a:a) rightward shift in the economy’s aggregate demand curve.b) movement along an existing aggregate demand curve.c) leftward shift in the economy’s aggregate supply curve.d) leftward shift in the economy’s aggregate demand curve.e) All of the above

A

a) rightward shift in the economy’s aggregate demand curve.

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41
Q

It is costly to hold money because:a) deflation may reduce its purchasing power.b) in doing so one sacrifices interest income.c) bond prices are highly variable.d) the velocity of money may decline.e) All of the above

A

b) in doing so one sacrifices interest income.

42
Q

If the quantity of money demanded exceeds the quantity supplied: a. the supply-of-money curve will shift to the left b. the demand-for-money curve will shift to the rightc. the interest rate will rise d. the interest rate will fall e. none of the above

A

d. the interest rate will fall

43
Q

Money functions as:a) a store of value. b) a unit of account.c) a medium of exchange. d) all of the above.e)None of the above

A

d) all of the above.

44
Q

If you are estimating your total expenses for school next semester, you are using money primarily as:a) a medium of exchange..b) a store of value.c) a unit of account.d) an economic investment.e )All of the above

A

e )All of the above

45
Q

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as:a) a medium of exchange.b) a store of value.c) a unit of account.d) an economic investment.e) all of the above

A

a) a medium of exchange.

46
Q

Most modern banking systems are based on:a. money of intrinsic valueb. commodity moneyc. 100% reserved. fractional reservee. none of the above

A

d. fractional reserve

47
Q

When you write checks against your bank deposit, your bank is likely to:a. lose reserves to, but gain deposits from, other banksb. gain reserves from, but lose deposits to, other banksc. lose reserves and deposits to other banksd. gain reserves and deposits from other bankse. experience no changes in its reserves and deposits

A

c. lose reserves and deposits to other banks

48
Q

An economist who favored expanded government would recommend:a) tax cuts during recession and reductions in government spending during inflation.b) tax increases during recession and tax cuts during inflation.c) tax cuts during recession and tax increases during inflation.d) increases in government spending during recession and tax increases during inflation.e) None of the above

A

a) tax cuts during recession and reductions in government spending during inflation.

49
Q

A bank that has assets of $85 billion and a net worth of $10 billion must have:a liabilities of $75 billion.b excess reserves of $10 billion.c liabilities of $10 billion.d excess reserves of $75 billion.e none of the above

A

a liabilities of $75 billion.

50
Q

The reserve ratio refers to the ratio of a bank’s:a) reserves to its liabilities and net worth.b) capital stock to its total assets.c) checkable deposits to its total liabilities.d) reserves and vault cash to its checkable deposits.

A

d) reserves and vault cash to its checkable deposits.

51
Q

Marginal requirements are designed to influence the:a. purchase of carsb. purchase of housesc. purchase of stocksd. volume of bank credite. finance charge on credit cards

A

b. purchase of houses

52
Q

Expansionary monetary policy by the FED would include:a. raising the discount rateb. increasing margin requirementsc. increasing required-reserve ratiosd. selling government securities in the open markete. asking banks to increase the amount of loans to customers

A

e. asking banks to increase the amount of loans to customers

53
Q

If the Fed sells government securities through open-market operations, it will:a. increase the demand for bonds in the bond marketb. decrease the demand for bonds in the bond marketc. increase the supply of bonds in the bond marketd. decrease the supply of bonds in the bond markete. have no effect on the bond market

A

c. increase the supply of bonds in the bond market

54
Q

Assuming that a bank has no excess reserves initially and it receives new deposits of $8,000 and the reserve requirement is 25%, the bank is now in a position to expand loans by a maximum of:a. $2,000b. $3,750c. $5,000d. $6,000e. $8,000

A

d. $6,000

55
Q

If a bank receives a checkable deposit of $10,000, its legal reserves increase by $10,000.

A

True

56
Q

The interest rate that banks charge the public is the discount rate.

A

False

57
Q

If the quantity of money demanded exceeds the quantity supplied the interest rate will fall.

A

False

58
Q

Financial intermediaries provide the connecting link between lenders and borrowers.

A

True

59
Q

During periods of stable prices, the market and real interest rates are approximately equal.

A

True

60
Q

There is absolutely only one way to illustrate the multiplier concept.

A

False

61
Q

Most modern banking systems are based on fractional reserves.

A

True

62
Q

Liquidity is the ease with which assets can be converted into another form, especially money.

A

True

63
Q

By reducing the required reserve ratio, the deposit multiplier decreases.

A

False

64
Q

Changing the reserve ratio is not a tool used by the Federal Reserve Bank to control money supply.

A

False

65
Q

The Federal Reserve Bank directly determines interest rate.

A

False

66
Q

M1 is more liquid than M2.

A

True

67
Q

Fiscal policy deals with the government supply of money in an economy.

A

False

68
Q

During a recession, the appropriate monetary policy for the Fed is to buy government securities on the open market, increase the discount rate, and decrease reserve requirements.

A

False

69
Q

The goldsmiths’ principle is closely related to the principle of fractional-reserve banking.

A

True

70
Q

A bank’s net worth can be negative if its assets are less than its liabilities.

A

True

71
Q

A bank’s excess reserves are always greater than its required reserves.

A

True

72
Q

An individual bank can make loans equal to or greater than its excess reserves.

A

False

73
Q

If you write checks against your deposit at a bank, the bank is likely to lose reserves to other banks.

A

True

74
Q

The three objectives pursued in the management of a bank’s portfolio are liquidity, profitability, and safety.

A

True

75
Q

Monetary policy is under the control of Congress.

A

False

76
Q

Through monetary policy, the Federal Reserve System seeks to provide the economy with the optimum quantity of money.

A

True

77
Q

When a musical instrument is sold to pay off credit, in economic, we refer to that instrument as a credit instrument.

A

False

78
Q

When taxes are increased, the equilibrium income level increases.

A

False

79
Q

The marginal efficiency of investment reflects the profitability of an investment.

A

True

80
Q

If the Federal Reserve wants to increase banks’ reserves, it can do so by conducting open market sales of securities.

A

False

81
Q

To close a recessionary gap, the appropriate fiscal policy would be an increases in government spending and/or a decrease in income taxes.

A

True

82
Q

When checks are written and cleared, the money supply remains the same.

A

True

83
Q

Moral suasion and margin requirements are generally more effective controls of monetary policy than are open market operations, reserve requirements, or the discount rate.

A

False

84
Q

During economic boom, government’s tax receipts increase while unemployment benefit payment decrease.

A

True

85
Q

Long-term credit instruments are bought and sold in the capital market.

A

True

86
Q

The price of a bond varies inversely with its yield.

A

True

87
Q

During a recession, the goal of the government is to raise aggregate demand to a full employment level.

A

True

88
Q

The most frequently used instrument of monetary policy is open-market operations.

A

True

89
Q

An increase in household consumption will exert upward pressure on the interest rate.

A

False

90
Q

The monetary policy like the fiscal policy is discriminatory in principle.

A

True

91
Q

The main purpose of the Federal Reserve System is to regulate the flow of money and credit.

A

True

92
Q

In the United States, the money supply (M1) is comprised of paper currency, coins, gold certificates, and time deposits.

A

False

93
Q

It is absolutely correct to refer to credit as money.

A

False

94
Q

At higher interest rates, the public holds less money and more interest earning securities.

A

True

95
Q

If a bank receives a checkable deposit of $10,000, its legal reserves increase by $10,000.

A

True

96
Q

A nation’s economy is in a recession if the position of the earth shift in a way that makes the nation to fall backward.

A

False

97
Q

If you dig up a $100 bill in your garden and deposit it in your bank, which has a 10 percent required reserve:a. the bank will lend out $1,000b. the bank will have $100 of excess reservec. the bank will have $100 of required reserved. the bank will lend $100e. the bank will have $100 of additional legal reserves

A

e. the bank will have $100 of additional legal reserves

98
Q

Which of the following gave the U.S. federal government permanent authority to issue money?a) The Constitution of the United States in 1779.b) The National Banking Act of 1863.c) The creation of the FDIC and FSLIC in 1933.d) The Monetary Control Act of 1980.

A

b) The National Banking Act of 1863.

99
Q

Contractionary monetary policy in the United State causes:a. an increase in U.S. exportsb. an increase in U.S. net exportsc. U.S. interest rates to decreased. a rise in the world price of U.S. dollarse. foreign investment in the United States to decrease

A

e. foreign investment in the United States to decrease

100
Q

If the Fed buy government securities through open-market operations, it will:a. increase the demand for bonds in the bond marketb. decrease the demand for bonds in the bond marketc. increase the supply of bonds in the bond marketd. decrease the supply of bonds in the bond markete. have no effect on the bond market

A

d. decrease the supply of bonds in the bond market

econ (3 decks)

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