Exam 4 Flashcards
_________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check.
Demand deposits
_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.
Bonds
___________ are funds that the bank keeps on hand that are not loaned out or invested in bonds.
Reserves
In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.
Medium of change
Which category of the money supply would you be contributing to if you invest in money market funds?
M2
Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will _____________.
an asset-liability time mismatch; diversify its loans
If Brent uses his credit card to purchase a new television, the money to pay the retailer is taken from
the credit card company’s M1 funds
If Evelyn uses her debit card to buy a SmartPhone, the money to pay the retailer will come from
Her M1 funds
In macroeconomics, _____________________________ describes a situation where a bank’s liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.
an asset-liability time mismatch
The market where loans are made to borrowers is called the
Primary loan market
What term is used to describe a definition of the money supply that includes currency, traveler’s checks, and checking accounts in banks?
M1
A central bank has three traditional tools to affect the quantity of money in the economy: open market operations, reserve requirements, and _____________.
The discount rate
A central bank that wants to increase the quantity of money in the economy will
buy bonds in open market operations
The quantitative easing policies adopted by the Federal Reserve are usually thought of as
temporary emergency measures.
Which of the following events would cause interest rates to increase?
a higher discount rate
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, it will
follow tight monetary policy.
According to the basic quantity equation of money, if price and output fall while velocity increases,
the quantity of money will fall
If GDP is 1800 and the money supply is 300, what is the velocity?
6
What is meant by excess reserves?
Reserves that banks hold above the legally mandated limit.
When the central bank decides it will sell bonds using open market operations,
the money supply decreases.
Which of the following institutions determines the quantity of money in the economy as its most important task?
Central bank
Which of the following refers to when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost?
Bank run
A government annually collects $320 billion in tax revenue and allocates $42 billion to education spending. What percentage of this government’s budget is spent on education?
13.12%
A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.
Proportional tax
What term is used to describe a tax that collects a greater share of income from those with high incomes than from those with lower incomes?
Progressive tax
If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is
Progressive
If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?
expansionary
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the
aggregate demand curve will shift to the right.
When a country’s economy is producing at a level that exceeds its potential GDP, the standardized employment budget will show a __________________ than the actual budget.
smaller deficit
If South Dakota’s governor reports a budget surplus in 2013, that state government likely
received more in taxes than it spent in that year.
The time lag for deciding monetary policy is typically ________________ the time lag for fiscal policy.
Shorter than
What do goods like gasoline, tobacco, and alcohol typically share in common?
They are all subject to government excise taxes.
What is meant by contractionary fiscal policy?
When fiscal policy decreases the level of aggregate demand, either through cuts in government spending or increases in taxes.
Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?
fiscal policies
A decrease in the government’s budget surplus will cause the interest rate to
Increase
An increase in government borrowing can
crowd out private investment in physical capital.
A prolonged period of budget deficits may lead to ___________________.
lower economic growth
The U.S. economy has two main sources for financial capital: private savings from households and firms inside the U.S. economy and ___________.
foreign financial investment
When the interest rate in an economy decreases, it is most likely as a result of
an increase in the government budget surplus or a decrease in its budget deficit.
Ricardian equivalence means that
changes in private savings offset any changes in the government deficit.
