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Terms in this set (151)
Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?
The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?
In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.
Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?
_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________.
Certificates of deposit; time deposits
Banks typically come under financial stress because of:
a widespread decline in the value of their assets.
If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.
depend on borrowed money
In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.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
With respect to measuring the money supply, which of the following terms describes a checking account?
The market where loans are made to borrowers is called the:
primary loan market.
The market in which loans are bought and sold is called the:
secondary loan market.
Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities?
Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?
If the central bank increases the amount of reserves banks are required to hold to 20%, then:
both the money multiplier and supply of money in the economy will decrease.
Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?
________________ serves society in three functions: medium of exchange, unit of account, and store of value.
Which of the following would be classified in the M1 category of the money supply?
Which of the following is a valid criticism of the use of money as a store of value in modern economies?
annual inflationary loss of buying power
If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:
both the money multiplier and the supply of money in the economy will increase.
In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.
a double coincidence of wants
Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.
___________are funds that the bank keeps on hand that are not loaned out or invested in bonds.
Which of the following is omitted in a barter transaction?
If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?
medium of exchange
In an economy with _______________, money loses some buying power each year, but it remains money.
The money multiplier is equal to the _______________ in the economy divided by the original _________________.
total money; quantity of money
Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?
_________________________ are included in the aggregate amount of MI money currently in circulation.
In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?
medium of exchange.
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
The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?
Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of the Stealth bank's liabilities?
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.
double coincidence of wants
In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.
medium of exchange
If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:
her M1 funds.
Why do banks use a T-account?
the T-account separates assets on the left from liabilities on the right
Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he then uses to make purchases.
Which category of the money supply would you be contributing to if you invest in money market funds?
_________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check.
The process of banks making loans in financial capital markets is intimately tied to the:
creation of money.
The quantity of money in an economy and the _____________________ are inextricably intertwined.
quantity of credit for loans
_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.
If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:
the credit card company's M1 funds.
____________ is a completely inadequate mechanism ____________________ in a modern advanced economy.
Barter; for trying to coordinate trades
When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:
following a loose monetary policy.
If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:
create an inflationary increase in price level.
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:
a contractionary monetary policy.
If GDP is 2400 and the money supply is 600, then what is the velocity?
____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?
Long and variable time lags
If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP?
a loose monetary policy
If nominal GDP is 1800 and the money supply is 450, then what is velocity?
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:
follow tight monetary policy.
When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is:
following an expansionary monetary policy.
Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?
by increasing its reserves
Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession?
If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?
What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
Which of the following events would cause interest rates to increase?
a higher discount rate
The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?
According to the basic quantity equation of money, if price and output fall while velocity increases, then:
the quantity of money will fall.
Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.
expansionary monetary policy
The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:
Central Bank; safety and stability of the banking system.
When the central bank lowers the reserve requirement on deposits:
the money supply increases and interest rates decrease.
When banks hold excess reserves because they don't see good lending opportunities:
it negatively affects expansionary monetary policy.
When the central bank decides to increase the discount rate, the:
interest rates increase.
How are the specific interest rates for the lending and borrowing markets determined?
by the forces of supply and demand
According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?
unpredictable rises and falls in nominal GDP
Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?
Northern's loan assets increase by $30 million
The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:
borrow for the short term from the central bank.
Which of the following is a traditional tool used by the Fed during recessions?
open market operations
Which of the following institutions determines the quantity of money in the economy as its most important task?
Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?
The quantitative easing policies adopted by the Federal Reserve are usually thought of as:
temporary emergency measures.
If GDP is 3600 and the money supply is 300, what is the velocity?
A central bank that wants to increase the quantity of money in the economy will:
buy bonds in open market operations.
Which of the following is considered to be a relatively weak tool of monetary policy?
altering the discount rate
Which of the following institutions oversees the safety and stability of the U.S. banking system?
The Federal Reserve
A central bank that desires to reduce the quantity of money in the economy can:
raise the reserve requirement.
If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?
income tax is a progressive tax
A government collects $70 billion quarterly in tax revenue. Each year it allocates $15 billion to the justice system and $29 billion for the administrative costs. What percentage of its total annual tax revenue is left for allocation to the remaining categories of government spending?
In 2010, Microsoft will pay corporate income tax to the federal government based on the company's __________________.
A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.
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:
If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.
an expansionary fiscal policy; an increase in government spending
When increasing oil prices cause aggregate supply to shift to the left, then:
unemployment and inflation increase.
Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?
If a country's GDP increases, but its debt decreases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.
increase or decrease
Which of the following is the percentage of annual US government spending allocated to foreign aid?
A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.
A ______________________ means that government spending and taxes are equal.
If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes.
A government annually allocates $5 billion of its total tax revenue to weather related disaster relief, $21 billion to healthcare and $11 billion to education. If the government's quarterly tax revenue is $33 billion, what percentage of its budget is allocated annually to healthcare?
A consensus estimate based on a number of studies suggests that if there is an increase in budget deficits (or a fall in budget surplus) by 1% of GDP, it will most likely cause which of the following?
an increase of 0.5-1.0% in the long-term interest rate
A government annually collects $230 billion in tax revenue and allocates $70 billion to military spending. What percentage of this government's budget is spent on its military?
The current level of US government accumulated debt, when measured in nominal dollars:
is higher than it has ever been.
If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes
increase or decrease
If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a:
If South Dakota's governor reports a budget surplus in 2011, that state government likely:
received more in taxes than it spent in that year.
If the economy is producing less than its potential GDP, _____________________ will show a larger deficit than the actual budget.
the standardized employment budget
What do goods like gasoline, tobacco, and alcohol typically share in common?
They are all subject to government excise taxes.
If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:
automatic stabilizers will decrease government spending and increase tax revenue.
By June, 2010, the U.S. government owed $13.6 trillion dollars ________________ that, over time, has remained unpaid.
in accumulated government debt
When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:
discretionary fiscal policy.
Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.
expansionary fiscal policy; lead to a budget deficit
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.
_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.
A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.
If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:
aggregate demand curve will shift to the right.
A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.
When inflation begins to climb to unacceptable levels in the economy, the government should:
use contractionary fiscal policy to shift aggregate demand to the right.
When a business firm makes an investment in physical capital, what is that investment subject to?
the discipline of the market
If the government initiates an expansionary monetary policy at the same time that its budget deficit increases, then the interest rate will __________________.
either increase or decrease
Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely?
difficulty managing public investment so it's done in a cost effective way
A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system.
sustained pattern of large budget deficits
An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?
productivity and economic growth
A decrease in the government's budget surplus will cause the interest rate to:
If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:
a contractionary monetary policy.
A __________________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy?
If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger.
an inflationary increase in the price level
An increase in government borrowing can:
crowd out private investment in physical capital.
If David Ricardo's theory holds completely true, then any change in budget deficits or budget surpluses would be completely offset by which of the following?
a corresponding change in private saving
When the interest rate in an economy increases, it is likely the result of either:
a decrease in the government's budget surplus or an increase in its budget deficit.
If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then:
the central bank might react with an expansionary monetary policy.
If a country's economic data shows private savings of $300 million, government spending of $350 million, tax revenue of $400 million, and a trade surplus of $75 million, then what does investment equal?
A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.
higher interest rate
In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment.
investment in physical capital; fiscal policy
The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.
private savings from U.S. households and firms; inflows of foreign financial investment.
A reduction in government borrowing can:
give private investment an opportunity to expand.
If an economy has a budget surplus of 400, private savings of 1,200, and investment of 1,600, what will the balance of trade in this economy equal?
If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________.
Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits?
increasing exchange rates
A prolonged period of budget deficits may lead to ___________________.
lower economic growth
In most developed countries, the government plays a large role in society's investment in human capital through _________________________.
the education system
If a country's economic data shows that private savings equal $250 million, government spending equals $400 million, taxes equal $350, and the trade surplus equals $150 million, then what does investment equal?
When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:
investment will decrease if savings also remains constant.
An increase in the government's budget surplus will cause the interest rate to:
If a country's economic data shows private savings of $500 million, government spending of $300 million, tax revenue of $400 million, and a trade surplus of $100 million, then what does investment equal?
When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant:
investment will increase if savings remain constant.
A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?
especially large and sustained government borrowing
In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:
the trade deficit.
If a country's economic data shows that private savings equal $300 million, government spending equals $400 million, taxes equal $300, and the trade surplus equals $100 million, then what does investment equal?
If the government's budget deficit increases while the economy is producing substantially less then potential GDP and expansionary monetary policy is implemented, then any ________________ from government borrowing would be _____________________________ from that monetary policy.
higher interest rates; largely offset by the lower interest rates
If a country's economic data shows private savings of $400 million, government spending of $250 million, tax revenue of $400 million, and a trade surplus of $175 million, then what does investment equal?
When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view?
central bank prints more money
Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget surplus increases by 100, then:
private savings will decrease by 100.
From a macroeconomic point of view, which of the following is a source of demand for financial capital?
A government will likely ____________________________ to encourage investment in technology R&D by private firms?
implement fiscal policy establishing tax incentives
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