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38 Cards in this Set
- Front
- Back
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Federal budget deficits grow during recessions because
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tax revenues decrease while transfer payments increase
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According to the functional finance budget philosophy,
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the government budget should be whatever is necessary to have the economy operate at potential GDP
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The middle class in Mexico is growing and households there want to purchase computer made in Texas. Which of the following is correct?
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The demand for dollars increases so it takes more pesos to get a dollar.
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The crowding out of private investment is associated with
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higher interest rates resulting from increased borrowing by the federal government
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When a budget is not approved in time for continued government operation,
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a continuing budget resolution is used
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Which of the following best illustrates the double coincidence of wants?
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Tom has something Jerry wants; Jerry has something Tom wants.
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The distinction between depository institutions and other financial institutions is that
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only depository institutions receive funds through customer deposits
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Under a fractional reserve banking system,
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bank reserves represent only a fraction of bank deposits
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In the United States economy which one of the following is not money?
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a $100 U.S. Government Treasury bond
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Which of the following is not a function of the Federal Reserve System?
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making loans to the people
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The discount rate is the interest rate that
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the Fed charges on loans to member banks
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All of the following are goals of the Fed except one. Which is the exception?
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rising prices to encourage production
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In the money and credit expansion process, when r = the required reserve ratio, the total change in checkable deposits is equal to the initial change in excess reserves
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multiplied by 1/r
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The largest component of the M1 money supply is
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checkable deposits
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Assume a bank has a required reserve ratio of 5% and is fully-loaned up. If Stu Dent deposits $10,000 in cash into a deposit account, how much will the bank have in excess reserves?
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9,500
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Tony deposits $2,000 in currency at the Last National Bank. Which of the following is true immediately after this transaction?
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Both the assets and the liabilities of the Last National Bank rise by $2,000.
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In order to increase the money supply, the banking system must have
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excess reserves
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The money multiplier works as shown by the formula in the text if
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a borrower spends his/her loan money and the money goes to another bank
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Open market operations involve
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The Fed buying and selling Treasuries in the open market
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The primary tool the Fed uses to control the money supply today is
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open market operations
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To increase the money supply, the Fed might
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decrease the required reserve ratio
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The reserve requirement is 20%. Ben deposits $500 in hundred dollar bills into Bank A. Which of the following is the most likely outcome in the next few weeks. Assume Bank A wants to maximize profit.
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Bank A makes a loan of $400, which shows up in Bank B as a $400 deposit.
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Banks create money when
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they lend out excess reserves
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The simple money multiplier is defined as
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1/required reserve ratio
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If the required reserve ratio is 0.2, and the Fed buys $3,000 of U.S. Treasuries, the maximum amount by which the money supply can increase is
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$15,000
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Suppose the required reserve ratio is .2. Assuming no bank holds excess reserves and nobody holds cash, a $10,000 injection of new excess reserves by the Fed can create
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$50,000 in new checkable deposits
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The Fed can increase the amount of excess reserves in the banking system by
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lending at the discount window
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The balance of goods and services is
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the value of all goods and services exported minus the value of all goods and services imported
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All of the following are true concerning the flexible exchange rate system except one. Which is the exception?
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Exchange rates are fixed by the central bank of the various countries.
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If the Fed wanted to stimulate the economy, it might
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buy Treasuries to increase the money supply
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An increase in the money supply leads to a(n)
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decline in interest rates, an increase in investment, and an increase in aggregate expenditures
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The Fed targets a lower fed funds rate. What should the Fed do to meet its target?
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buy Treasuries to lower the fed funds rate to the Fed’s targeted rate
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The deregulation of U.S. banking in the 1980s led to
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many bank failures as banks began to hold riskier assets
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When silver and gold were used as money, the quantity of the precious metal was a problem. The solution was
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fiat money
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During the middle of the 1980s,
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more U.S. banks and thrifts failed than in any period since the Great Depression
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In Keynes’ philosophy of government budgets,
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deficits are an appropriate stimulus policy during recessions
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A disadvantage of having an annually balanced budget is that government spending would have to
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decline in a recession to match the decrease in tax revenues
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Which of the following is false?
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Banks are allowed to borrow reserves from the Fed and pay the fed funds rate.
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