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42 Cards in this Set

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  • Back
Which of the following will cause the U.S. money supply to expand?
Question 1 answers
a commercial bank uses excess reserves to extend a loan to a customer
a commercial bank purchases U.S. securities from the Fed as an investment
an increase in reserve requirements
an increase in the discount rate
a commercial bank uses excess reserves to extend a loan to a customer
A bank receives a demand deposit of $1,000. The bank loans out $600 of this deposit and increases its excess reserves by $300. What is the legal reserve requirement?
Question 2 answers
10 percent
20 percent
30 percent
60 percent
10 percent
Fiat money is money
Question 3 answers
that has little intrinsic value and is not backed by a commodity.
that is not included as part of the M1 money supply.
that is backed by gold or silver held on reserve by the government.
such as coins that are made from metal
that has little intrinsic value and is not backed by a commodity.
Open market operations is the
Question 4 answers
tool most often used by the Fed to alter the money supply.
least effective tool the Fed has to alter the money supply.
tool used by the Treasury to raise tax revenues.
tool used by the Fed to regulate stock market activities.
tool most often used by the Fed to alter the money supply.
Which one of the following is the largest component of the money supply (M1) in the United States?
Question 5 answers
demand and other checking deposits
gold certificates
credit cards and traveler's checks
Federal Reserve notes
demand and other checking deposits
The primary tool of fiscal policy is
Question 6 answers
the money supply.
the stock market.
the federal budget.
regulation of the bond market.
the federal budget.
When the Federal Reserve sells government bonds to the public, it directly
Question 7 answers
increases the M1 money supply and increases the reserves of the commercial banking system.
increases the M1 money supply, while reducing the reserves of the commercial banking system.
reduces the M1 money supply, while increasing the reserves of the commercial banking system.
reduces the M1 money supply and decreases the reserves of the commercial banking system
reduces the M1 money supply and decreases the reserves of the commercial banking system.
The velocity of money is
Question 8 answers
the rate at which the price index for consumer goods rises.
the multiple by which an increase in government expenditures will cause output to rise.
set by the Board of Governors of the Federal Reserve System.
the average number of times one dollar is used to buy final goods and services during a year.
the average number of times one dollar is used to buy final goods and services during a year.
Classical economists believed that
Question 9 answers
the velocity of money was constant in the short run.
the velocity of money was unaffected by the frequency of income payments.
factors that change the velocity of money usually change rapidly.
there was no link between the money supply and prices.
the velocity of money was constant in the short run.
The rapid inflation in the United States during the 1970s was
Question 10 answers
surprising because macroeconomic policy was highly restrictive during the 1970s.
surprising in light of the deceleration in money supply growth during the 1970s.
not surprising since the growth rate of the money supply during the 1970s was substantially higher than during the 1960s.
not surprising since bad weather substantially reduced the U.S. output of agricultural products during the 1970s.
not surprising since the growth rate of the money supply during the 1970s was substantially higher than during the 1960s.
In terms of the Phillips curve, the experience of the 1970s indicates that macro-policy
Question 11 answers
can permanently reduce unemployment if we are willing to tolerate higher inflation.
can reduce unemployment in the long run if we are willing to tolerate higher inflation.
may be able to reduce unemployment but cannot retard inflation.
may be able to reduce unemployment in the short run, but there is little evidence that expansionary policies can reduce unemployment permanently.
may be able to reduce unemployment in the short run, but there is little evidence that expansionary policies can reduce unemployment permanently.
Decisions to buy or sell securities at the Fed are made by
Question 12 answers
Congress.
the Federal Open Market Committee.
the Federal Deposit Insurance Corporation.
the President's Council of Economic Advisors.
the Federal Open Market Committee.
The highest interest rates in the world are found in countries
Question 13 answers
that have followed a monetary policy that is highly restrictive.
with governments that have run large budget surpluses.
with governments that have run sizable budget deficits.
that have followed an expansionary monetary policy that resulted in high rates of inflation.
that have followed an expansionary monetary policy that resulted in high rates of inflation.
If the Fed wanted to use all three of its major monetary control tools to decrease the money supply, it would
Question 14 answers
buy bonds, reduce the discount rate, and reduce reserve requirements.
sell bonds, reduce the discount rate, and reduce reserve requirements.
sell bonds, increase the discount rate, and increase reserve requirements.
buy bonds, increase the discount rate, and increase reserve requirements.
sell bonds, increase the discount rate, and increase reserve requirements.
Incorporation of expectations into economic decision making and the economic experience of recent decades indicate that in the long run
Question 15 answers
inflation relates directly to unemployment.
inflation is inversely related to unemployment.
there is no trade-off between inflation and unemployment.
high unemployment is a primary cause of inflation.
there is no trade-off between inflation and unemployment.
Which of the following compose the reserves of a commercial bank?
Question 16 answers
demand deposits and time deposits
vault cash and deposits of the bank with the Federal Reserve
U.S. securities and stock equity
cash and U.S. securities
vault cash and deposits of the bank with the Federal Reserve
In the United States, the purchasing power of money is determined by
Question 17 answers
the underlying precious metals that back each unit of currency.
the value of U.S. treasury bonds that back each unit of currency.
Federal Reserve policy, which controls the money supply.
Congress, which controls the money supply.
Federal Reserve policy, which controls the money supply.
The Fed could increase the money supply if it issued more government securities." This statement is
Question 18 answers
true.
false because this action would not affect the money supply.
false because the Treasury, not the Fed, issues government securities.
false because the Fed has to get permission from Congress and the president before it can buy or sell government securities.
false because the Treasury, not the Fed, issues government securities.
The equation of exchange states that
Question 19 answers
money supply multiplied by real output equals velocity.
velocity multiplied by money supply equals real output times the price level.
money supply divided by velocity equals nominal GDP.
money supply divided by velocity equals real GDP.
velocity multiplied by money supply equals real output times the price level.
"Every major contraction in the U.S. economy has either been created or greatly exacerbated by monetary instability. Every major inflation has been caused by monetary expansion." Which of the following economists made this statement?
Question 20 answers
Adam Smith
John Maynard Keynes
Milton Friedman
Paul Samuelson
Milton Friedman
Commercial banks can borrow reserves directly from the Fed at the
Question 21 answers
prime interest rate.
federal funds rate.
discount rate.
real interest rate.
discount rate.
Money is
Question 22 answers
valuable because it is backed by gold.
whatever is generally accepted in exchange for goods and services.
anything that is a liability of a commercial bank
an object to be consumed.
whatever is generally accepted in exchange for goods and services.
The Phillips curve illustrates the relationship between
Question 23 answers
change in the money supply and change in unemployment.
tax rates and tax revenues.
the equilibrium level of income and the employment rate.
inflation and unemployment.
inflation and unemployment.
The velocity of money is the
Question 24 answers
rate at which the price index for consumer goods rises.
multiple by which an increase in government expenditures will cause output to expand.
average number of times a dollar is used to buy goods and services included in GDP.
number of times a dollar is taken out of the country during a year.
average number of times a dollar is used to buy goods and services included in GDP.
The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called
Question 25 answers
excess reserves.
fractional reserves.
required reserves.
certificates of deposit.
required reserves.
The crowding-out effect suggests that
Question 26 answers
expansionary fiscal policy causes inflation.
restrictive fiscal policy is an effective weapon against inflation.
a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit.
a tax reduction financed by borrowing will increase the disposable income of households and, thereby, lead to a strong expansion in aggregate demand, output, and employment.
a reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit.
If a fiscal policy change is going to exert a stabilizing impact on the economy, it must
Question 27 answers
add demand stimulus during a slowdown but restraint during an economic boom.
exert an expansionary impact during all phases of the business cycle.
restrain aggregate demand during all phases of the business cycle.
keep the government's budget in balance.
add demand stimulus during a slowdown but restraint during an economic boom.
When government expenditures exceed revenue from all sources,
Question 28 answers
a budget deficit is present.
the supply of money will increase.
the government's outstanding debt will decline.
all of the above are true.
a budget deficit is present.
Compared to a barter economy, using money increases efficiency by reducing
Question 29 answers
transaction costs.
the need to exchange goods.
the need to specialize.
inflation.
transaction costs.
What restricts the Fed's ability to write checks and purchase U.S. securities?
Question 30 answers
Congress; the Fed must receive a budget allocation from Congress before it can write a check.
The gold requirement; the Fed cannot write a check unless it has a sufficient amount of gold to back the expenditure.
Reserve requirements; the Fed must maintain 20 percent of its assets in the form of cash against the deposits that it is holding for commercial banks.
Nothing; the Fed can create money simply by writing a check on itself.
Nothing; the Fed can create money simply by writing a check on itself.
During 2001, the Fed injected additional reserves into the banking system, which reduced the federal funds rate and other short-term interest rates. Other things constant, which of the following is most likely to result from this policy shift?
Question 31 answers
an increase in the rate of unemployment
a reduction in the growth of employment
an increase in aggregate demand and real GDP
a reduction in the long-run rate of inflation
an increase in aggregate demand and real GDP
The demand curve for money
Question 32 answers
shows the amount of money balances that individuals and businesses wish to hold at various interest rates.
reflects the open market operations policy of the Federal Reserve.
shows the amount of money that individuals and businesses wish to hold at various price levels.
reflects the discount rate policy of the Federal Reserve.
shows the amount of money balances that individuals and businesses wish to hold at various interest rates.
Ordinary commercial banks can expand the supply of money by
Question 33 answers
printing up currency when they need it.
buying and selling government bonds to the general public.
using a portion of their deposits to extend additional loans.
reducing their vault cash and increasing their deposits with the Fed.
using a portion of their deposits to extend additional loans.
An unanticipated shift to a more restrictive monetary policy by the Fed will
Question 34 answers
increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.
reduce real interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand.
increase real interest rates, leading to higher asset prices that will stimulate aggregate demand.
reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.
increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.
Starting from a position of macroeconomic equilibrium at the full-employment level of real GDP, in the short run an unanticipated increase in the money supply will
Question 35 answers
raise real interest rates, lower prices, and reduce real GDP.
raise real interest rates, lower prices, and leave real GDP unchanged.
raise nominal interest rates, lower prices, and leave real GDP unchanged.
lower real interest rates, raise prices, and increase real GDP.
lower real interest rates, raise prices, and increase real GDP.
Given the strict quantity theory of money, if the quantity of money were decreased by 50 percent, prices would
Question 36 answers
fall by 50 percent.
rise by 50 percent.
increase by 100 percent.
decrease by 100 percent.
fall by 50 percent.
Suppose the Fed purchases $100 million of U.S. securities from the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a
Question 37 answers
$100 million decrease in the money supply.
$100 million increase in the money supply.
$200 million increase in the money supply.
$500 million increase in the money supply.
$500 million increase in the money supply.
Though many assets can be used as a store of value, money is a particularly attractive method to store value because
Question 38 answers
it increases in value as prices rise.
its purchasing power does not decline when prices rise.
it is the most liquid of all assets.
it is backed by gold.
it is the most liquid of all assets.
The cost of holding money balances increases when
Question 39 answers
the inflation rate decreases.
the nominal interest rate increases.
the nominal interest rate decreases.
nominal GDP is far from full employment.
the nominal interest rate increases.
Which of the following is primarily responsible for controlling the money supply in the United States?
Question 40 answers
the U.S. Congress
the Board of Governors of the Federal Reserve System
the U.S. Treasury
the Council of Economic Advisors
the Board of Governors of the Federal Reserve System
Which of the following is not a component of the M1 money supply?
Question 41 answers
demand deposits
large-denomination (more than $100) bills
interest-earning checking deposits
outstanding balances on credit cards
outstanding balances on credit cards
If the amount of money in circulation is $400 billion and the nominal GDP is $800 billion, the velocity of money is
Question 42 answers
0.5.
2.
4.
8.
2.