Exam 4 Flashcards
chapters: 12, 14, 16
Checks are cleared between private banks by
the 12 regional Federal Reserve banks
The money multiplier
is the reciprocal of the required reserve ratio
The policy lever most commonly used by the Fed is
buying and selling bonds
Which of the following serves as the central banker for private banks in the United States?
the 12 regional Federal Reserve banks
The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is referred to as
open-market operations
Which of the following is a tool of monetary policy?
All of these choices are correct
In 2008, the Fed _________ the discount rate in order to _________ the economy
decreased; stimulate
Which of the following is often described as the most powerful person in the U.S. economy?
the chairman of the Federal Reserve
The use of money and credit controls to change macroeconomic activity is known as
monetary policy
Fed purchases of bonds from the public, called open-market operations
tend to increase reserves in the system leading to reductions in interest rates
The rate of interest banks charge each other for lending reserves is the
federal funds rate
The 12 regional Fed banks do all of the following except
lend money to individuals
Which of the following is not a basic monetary policy tool used by the Fed?
the income tax rate
The discount rate is the interest rate charged by
the Federal Reserve when it lends money to private banks
Which of the following is not true about excess reserves?
They are equal to the required reserve ratio times transactions deposits
Members of the Federal Reserve Board of Governors are appointed for one 14-year term so that they
make their decisions based on economic, rather than political, considerations
Required reserves
are the minimum amount of reserves a bank is required to hold
A change in the reserve requirement is the tool used least often by the Fed because it
can cause abrupt changes in the money supply
When the Fed ________ bonds, the money supply _________
buys; increases
Monetary policy involves the use of money and credit controls to
shift the aggregate demand curve
Which of the following is responsible for providing currency and cash to banks?
the Federal Reserve system
U.S. monetary policy relies on the
Federal Reserve System’s control over the money supply
The Federal Reserve Board of Governors has
seven members appointed by the president of the United States
Monetary policy
is the use of money and credit controls to influence macroeconomic activity
Under Alan Greenspan, the Fed
used a mix of money supply and interest rate adjustments
Which of the following is not true currently?
The United States has an overall trade surplus
The trade balance is found by calculating
the difference between exports and imports
Exports
are goods and services sold to foreign buyers
Which group does not benefit from trade when the United States imports cotton?
U.S. cotton growers
Goods and services purchased by Americans from foreign sources
are classified as imports
When Country A can produce a good using fewer absolute inputs than any other country, then Country A
has an absolute advantage in producing the good
Over a given period of time, if exports exceed imports, the result is
a trade surplus
Comparative advantage refers to a country’s
ability to produce a specific good at a lower opportunity cost than another country
A tax imposed on imported goods is a
tariff
The ability of a country to produce a good with fewer resources than another country is called
absolute advantage
If a country has a lower opportunity cost in producing a good than its trading partners, then it has
a comparative advantage in producing the good
Which of the following does the United States export?
computers, corn, wheat, lumber, and automobiles
If a country has a trade deficit, it
imports more than it exports
Trade restrictions provide
protection for import-competing industries
Which of the following is a gain from trade?
a higher standard of living for all trading countries
In the absence of trade, a country’s consumption possibilities are
equal to its domestic production possibilities
U.S. exports
constitute a relatively low share of GDP compared to most other nations
As trade restrictions are eliminated, increased imports
redistribute income away from import-competing industries
Which of the following does the United States import?
video-game machines, cell phones, and steel
Imports account for approximately _________ percent of U.S. GDP
15
All of the following companies export over one-quarter of their production except
McDonalds
Goods and services sold to foreign sources are known as
exports
Exports account for approximately _________ percent of U.S. GDP
15
International trade
allows all countries to consume beyond their production possibilities
When you receive this week’s paycheck, you can either spend it or save it. The fraction of each additional dollar of disposable income that you _________blank is known as your _________blank
spend; marginal propensity to consume
Which of the following is not an example of investment spending?
the purchase of stock in the stock market
Net exports for the United States are
negative if American exports are less than imports
Which of the following is a fiscal policy prescription for ending a recession?
Increase government expenditures to let the multiplier work
Which of the following is an example of fiscal stimulus?
an increase in government spending on new military jet fighters
Which of these statements about fiscal policy is correct?
The goal of fiscal policy is to match aggregate demand with full employment potential
Net exports in the United States are
included in the calculation of GDP
All of the following represent government spending as a part of aggregate demand except
Social Security checks
A tax cut or government spending increase intended to shift aggregate demand to the right is known as
fiscal stimulus
Disposable income consists of all income
that remains after taxes
Which of the following is the largest component of aggregate demand?
consumption
Which of the following relies on government taxes and spending to change macro outcomes?
fiscal policy
The four components of aggregate demand are
consumption, investment, government spending, and net exports
What is the total impact on aggregate demand because of a fiscal stimulus?
the initial injection plus all subsequent increases in consumer spending triggered by the stimulus
Fiscal stimulus is
an increase in government spending or a decrease in taxes
An improvement in consumer confidence will cause
the aggregate demand curve to shift to the right
Which of the following does not represent an example of government spending?
payment of Social Security benefits
Which of the following is the largest component of aggregate demand?
consumption
Inflation occurs when
aggregate demand increases faster than output
Expenditures on new plant and equipment plus changes in business inventories defines
investment
Exports minus imports are referred to as
net imports
Which of the following could cause a recession?
a decline aggregate demand
If the current level of spending falls short of full employment, the government can close the GDP gap by
increasing government spending by an amount less than the GDP gap
A tax cut is likely to cause
an increase in consumer spending
Suppose government spending increases, which causes producers to hire more workers. As a result, households have more income to spend, which causes aggregate demand to increase even more, this is known as the
multiplier process
