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econ exam 3 Q and As

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Other things equal, an increase in defense spending will increase the budget deficit.
True
The Budget of the United States Government is officially submitted by...
The President to the Congress and contains proposals for government expenditures.
When a budget is not approved in time for continued agency operation..
a continuing resolution is frequently used
Problems with the budget process include the fact that...
1) frequently missed timetables result in continuing resolutions replacing budgets 2) budgets are frequently overly detailed 3) much of federal spending is uncontrollable 4) overlapping budget authorities exist across committees
If aggregate output is falling...
automatic stabilizers will tend to increase the size of the deficit
If US interest rates are higher than world rates, we would expect the US dollar to appreciate.
True
The national debt is...
a stock variable measuring the net accumulation of past deficits
The federal budget deficit becomes....during recessions because....
larger; transfer payments increase and tax revenues decline
Which component of aggregate expenditure is most subject to crowding out?
investment spending
If a budget is cyclically balanced, the government should run a surplus when the economy experiences a contractionary gap.
False
The national debt is dramatically larger than the federal government budget deficit.
True
Exchange is necessary in an economy if...
labor is specialized
Barter works best...
when each trader has what the other wants and wants what the other has
Any bank that uses deposits to make loans...
operates on a fractional reserve system
What would be considered legal tender?
Federal Reserve notes
The main source of profit for financial institutions is..
the difference between interest paid on deposits and interest received on loans
What is not a function of the Federal Reserve System?
making loans to the public
The discount rate is...
the interest rate charged by the Federal Reserve banks on loans to banking institutions
Open-market operations involve...
the Fed's purchase and sale of government securities
A bank holding company is..
a corporation that owns one or more banks
The emergence of mortgage-backed securities provided mortgage brokers with an incentive to seek out only the most credit worthy borrowers.
False
Currency held by the nonbank public is a medium of exchange.
True
Narrowly defined, the M1 money supply consists primarily of...
checkable deposits
M2 is defined as...
M1 plus saving accounts, small time deposits, and money market mutual funds
Banks minimize the risk of loss to depositors by...
making many different loans to different borrowers.
On a bank's balance sheet...
assets equal liabilities plus net worth
By holding highly liquid assets to guard against sudden large withdrawals, banks...
sacrifice profitability
Suppose you bank at Bank A and you write a check to your friend, who banks at Bank B. What happens after the check clears?
Bank A's assets decrease and Bank B's assets increase
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...
multiplied by 1/r
The simple money multiplier equals...
the reciprocal of the required reserve ratio
The money multiplier will be...
smaller if either banks hold on to excess reserves or private citizens hold on to cash
The Fed can reduce the money supply by..
selling securities
What is not one of the procedures the Fed uses to change the money supply?
extending loans to the public
The Federal Reserve may increase the money supply by...
lending reserves to banks
The demand for money..
increases as GDP increases
The demand for money varies...
directly with both the price level and the level of GDP
If the price level rises, then the...
demand for money will increase
If the quantity of money supplied exceeds the quantity of money demanded...
the interest rate will fall
If the Fed wanted to stimulate the economy, it might...
lower the discount rate to increase the money supply
As a result of expansionary monetary policy,
both aggregate expenditure and aggregate demand increase
An increase in the money supply leads to...
a decline in interest rates, an increase in investment, and an increase in aggregate demand
What is an example of a contractionary monetary policy?
The discount rate is raised.
The equation of exchange states that..
nominal GDP=money in circulation x velocity
If interest rates are to remain constant, the money supply should change..
in the same direction as a change in money demand