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Economics 2301 > Exam 3 > Flashcards

Exam 3 Flashcards

1
Q

The government’s fiscal policy is its plan to regulate aggregate demand by manipulating:

A

taxation and government spending

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2
Q

Budget deficits are created when:

A

government spending exceeds its tax revenues

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3
Q

Budget surpluses exist when:

A

government tax revenues exceed its spending

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4
Q

A decrease in transfer payments or an increase in taxes would____disposable income of households and thus____consumption purchases.

A

decrease:decrease

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5
Q

If government policy makers were worried about the inflationary potential of the economy, what would NOT be a correct fiscal policy change?

A

increase in government purchases of goods and services

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6
Q

If the government sought to end a recession, what would be an appropriate policy?

A

decrease taxes and increase transfer payments

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7
Q

If there is initially a federal budget deficit, and taxes rise, while transfer payments fall:

A

AD decreases and the budget deficit decreases

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8
Q

AD will shift left when:

A

the government budget surplus increases because taxes rose

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9
Q

If unemployment is the most significant problem in the economy, what action would be an appropriate fiscal policy?

A

decrease taxes and increase government purchases

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10
Q

What tax change would a supply-side economist be most likely to favor?

A

lower marginal income tax rates

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11
Q

Supply-side advocates believe that when taxes and regulations are too burdensome, people will:

A

save less
work less
provide less investment capital

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12
Q

After legislation is signed into law, the time it takes before actual fiscal stimulus is noticed is termed as:

A

impact lag

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13
Q

The size of the crowding out effect is uncertain. If the crowding out effect is small,

A

the impact of an increase in G on the interest rates will be small, thus reducing the decrease in I

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14
Q

Due to crowding-out effects:

A

investment will tend to move in the opposite direction from a change in government purchases

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15
Q

Which group or groups buy U.S. public debt?

A

government agencies
private individuals
private institutions

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16
Q

Typically, the budget deficit is financed by:

A

issuing debt

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17
Q

The government does not have to repay the national debt, in the sense that it must reduce the debt to zero, because:

A

it can constantly refund the debt by issuing new bonds

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18
Q

Which of the following is the best definition of money?

A

anything generally accepted as a payment for goods or repayment of debt

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19
Q

The primary benefit of monetary exchange compared to barter exchange is:

A

increased efficiency in arranging transactions

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20
Q

Using money as a store of value rather than wheat is:

A

both safer and less expensive

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21
Q

Money almost always serves as the standard unit for quoting prices. This is another way of saying money serves as a:

A

Standard of value

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22
Q

Which of the following is an example of money serving as a medium of exchange?

A

buying coffee

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23
Q

Which of the following backs our money supply?

A

the faith in the government’s ability to provide an instrument people will take in exchange for goods and services

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24
Q

One reason why gold and silver coins have historically served as money is that:

A

easily portable
can be made of uniform size and quality
divided if necessary for low prices
do not corrode or rust

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25
Q

Fiat money has value because:

A

it can be used to buy things

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26
Q

“Near Monies” are:

A

highly liquid assets that are close substitutes for money

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27
Q

In defining money, it is universally accepted that

A

must be spendable
must be liquid
must be accepted as payment
must be easily transferable

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28
Q

What asset is most liquid:

A

funds in a savings account

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29
Q

Which is NOT a form of money?

A

credit cards

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30
Q

The difference between M1 and M2 is:

A

M2 is nearly four times as large as M1

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31
Q

A decrease in currency in circulation combined with an equal increase in savings account deposits would:

A

decrease M1 but have no effect on M2

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32
Q

M2 equals M1 plus:

A

near moneys

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33
Q

M1 includes:

A

cash
checking account balances
travelers’ checks

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34
Q

If you took money out of your savings deposit account and put it in a demand deposit account:

A

M1 would increase but M2 would not change

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35
Q

A depositor can not directly write checks against:

A

non-transaction deposits

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36
Q

With the invention of banking, one important aspect of money was that:

A

banks have SOME discretion over the money supply

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37
Q

Fractional reserve banking takes its name from the fact that:

A

banks keep only a fraction of total deposits on reserve

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38
Q

Can bankers create money?

A

Yes, through multiple deposit creation

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39
Q

A reserve requirement of 10% means a money multiplier of:

A

10

1/reserve requirement (1/.10=10)

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40
Q

The money _____ is 1 divided by the reserve requirement. The larger the reserve requirement, the ___ the money multiplier.

A

multiplier, smaller

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41
Q

If the reserve requirement is 15% and a customer makes a cash deposit of $50,000, how much new excess reserves are created?

A

$42,500

15% of 50,000=7500. 50,000-7500=42500

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42
Q

Potential money creation is:

A

initial deposit times money multiplier

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43
Q

A single bank is severely limited in its ability to create money because:

A

the funds loaned probably will be deposited in another bank

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44
Q

The process of money creation can be reversed:

A

when a person pays a loan back to a bank

45
Q

If a bank had demand deposits of $80 million and is faced a 25% required reserve ratio, it would be required to have how many reserves?

A

$20 million

$80 million x .25=$20 million

46
Q

A decreae in the excess reserves banks want to hold, together with people taking currency out of their demand deposits account would:

A

have an indeterminate effect on money supply

47
Q

Demand deposits are:

A

liabilities of banks, assets of depositors

48
Q

Loans are:

A

assets to banks, liabilities of borrowers

49
Q

If the required reserve ratio was increased, then:

A

both the money supply and the outstanding loans of banks would tend to decrease

50
Q

What change would clearly increase the supply of money in the banking system?

A

a decrease in the percentage of the money people want to hold as currency and a decrease in the fraction of deposits banks want to hold as excess reserves

51
Q

Uncertainty may cause banks to hold larger excess reserves. This will:

A

tend to reduce the volume of loans and the money supply

52
Q

What guarantees the deposits in almost all banks up to a limit of $100,000 per account?

A

the FDIC

53
Q

The chairman of the Federal Reserve Board is:

A

Ben Bernanke

54
Q

All decisions of the Fed are subject to approval by:

A

No one

55
Q

What is NOT a function of the Federal Reserve System?

A

making commercial loans to its customers

56
Q

Decisions regarding purchases and sales of securities by the Fed are made by:

A

Federal Open Market Committee

57
Q

The Fed’s purchases and sales of government securities are called:

A

open market operations

58
Q

When the Fed wants to expand the money supply through open market operations, it:

A

purchases government securities from member banks

59
Q

The money supply contracts when the Fed:

A

sells government securities

60
Q

What is most frequently used when the Fed is attempting to adjust the money supply?

A

open market operations

61
Q

Halving the required reserve ration would:

A

double the money supply

62
Q

If the Fed raises the discount rate, it:

A

reduces the supply of money

63
Q

If the Fed wanted to reduce the federal funds interest rate, it might:

A

decrease the discount rate

64
Q

A combination of a decrease int he discount rate and an increase in the reserve requirements would:

A

have and indeterminate effect on the money supply

65
Q

If the Fed buys a U.S. government bond from a member of the public,

A

the banking system has more reserves and the money supply tends to grow

66
Q

What would constitute contractionary monetary policy by the Fed?

A

open market sales of government securities
an increase in the discount rate
an increase in reserve requirements

67
Q

The primary reason that money is demanded is for:

A

transaction purposes

68
Q

When the money supply decreases:

A

real interest rates rise and investment spending falls

69
Q

If the interest rates rise, what will happen to demand for money?

A

Nothing

70
Q

Expansionary monetary policy will tend to have what effect?

A

increase the money supply and lower interest rates

71
Q

If money supply and money demand both increased?

A

the change in the interest rates and investment would be indeterminate

72
Q

When money demand decreases, interest rates will fall. In this situation the Fed can choose between:

A

letting interest rates remain lower or decreasing the supply of money

73
Q

What would tend to increase AD?

A

a commercial bank using excess reserves to extend a loan to a customer

74
Q

When the economy is in a recession:

A

expansionary monetary policy can potentially result in increase real output in both the short run and the long run

75
Q

When the economy is initially at full employment:

A

contractionary monetary policy can result in decreased real output in both the short and long run

76
Q

Id unemployment is the major problem in the economy, what would be an appropriate monetary policy response?

A

decrease the discount rate

77
Q

Is increasing taxes a fiscal policy or monetary policy?

A

fiscal policy

78
Q

How would you counteract an inflationary gap?

A

sell government bonds

79
Q

What are some examples of contractionary monetary policy?

A

increase reserve requirements
increase the discount rate
sell government bonds

80
Q

If inflation is the major problem in the economy, what would be an appropriate monetary policy response?

A

increase the discount rate

81
Q

The equation of exchange states that:

A

the money supply times the velocity = the price level times the quantity of goods and services produced

82
Q

In the equation of exchange, PQ represents:

A

the dollar value of all final goods and services sold in a county in a given year

83
Q

What id the definition of velocity?

A

velocity = value of final goods and services produced/money supply

84
Q

If policies of the Fed cause the money supply to increase, and velocity is help constant, the expected outcome would be:

A

P ‘ Q would increase, and therefore the general price level and/or Q would increase

85
Q

Compared to fiscal policy, what is an advantage of using monetary policy to attain macroeconomic goals?

A

the implemention of monetary policy is not slowed down by th same budgetary process as fiscal policy

86
Q

An important limitation of monetary policy is that

A

it must be conducted through the commercial banking system, and the Fed cannot always make banks do what it wants them to do

87
Q

What is not a major trading partner of the U.S./

A

Russia

88
Q

The main reason why one nation trades with another is to:

A

exploit the advantages of specialization

89
Q

If discussing trade, it is ____ which matters, rather than ____.

A

comparative advantage; absolute advantage

90
Q

If a nation does not have an absolute advantage in producing anything, it:

A

will hav a comparative advantage in the activity in which its disadvantage is the least

91
Q

If two countries each are currently producing two goods, and each begins to specialize in the good in which it has a comparative advantage, what will happen to total world output?

A

it will increase

92
Q

Comparative advantage occurs when a person or a country can produce a good or service at a lower ___ than others.

A

opportunity cost

93
Q

In Samoa the opportunity cost of producing 1 coconut is 4 pineapples, while Guam the opportunity cost of producing 1 coconut is 5 pineapples. In this situation:

A

if trade occurs, both countries will be able to consume beyond their original production possibilities frontiers

94
Q

The record of all international financial transactions in which a nation has engaged over a year is known as the:

A

balance of payments

95
Q

The record of all transactions with foreign nations that involve the exchange of merchandise goods and services or unilateral gifts is called the:

A

current account

96
Q

The difference between the value of a country’s merchandise exports and imports is known as the balance of:

A

trade

97
Q

The U.S. balance of trade:

A

is the difference between exports and imports

98
Q

The balance on current account records information about:

A

the levels of imports and exports of goods and services for a country

99
Q

What would be included in the capital account section of the balance of payments?

A

government bond purchases

100
Q

Whenever there is a deficit in the current account, the capital account:

A

will be positive

101
Q

If U.S. buys a lot of foreign produced video games it would tend to:

A

increase the balance of trade deficit of the U.S

102
Q

The exchange rate:

A

states the price of one currency in terms of another currency

103
Q

If the dollar APPRECIATES it can be said that:

A

other currencies depreciate

104
Q

Is it possible for a currency to appreciate relative to another currency, and depreciate relative to a third?

A

Yes, this is possible in a world of floating exchange rates

105
Q

If the U.S. dollar depreciates, what will happen to aggregate demand?

A

it will increase exports and decrease imports and therefore increase AD

106
Q

What is demand-pull inflation?

A

a price-level increase due to an increase in aggregate demand

107
Q

What is cost-push inflation?

A

a price-level increase due to a negative supply shock or increase in input prices

108
Q

What is a supply shock?

A

An unexpected event that changes the supply of a product or commodity, resulting in a sudden change in its price.

Economics 2301 (5 decks)

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