Econ HW #5 – Flashcards
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The primary goal of supply-side economics is to
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reduce inflation and increase growth at the same time.
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If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)
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increase in output and prices
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Supply-side tax cuts tend to benefit the rich because tax cuts
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a. on income tend to benefit high income earners more than low income earners. b. on savings benefit high income earners who do most of the personal saving. c. for capital formation tend to benefit those with the means to accumulate capital. d. on capital gains tend to benefit those with larger financial assets.
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The primary benefit of a monetary system of exchange compared to a barter system is the increased
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efficiency in arranging transactions.
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Which of the following is an example of money serving as a medium of exchange?
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a. Marian buys a carbo-loaded drink before a marathon b. Richard puts money into a piggy bank. c. Ellen deposits cash into a money market account d. Sean puts a new $20 bill into his currency collection.
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One inconvenience of commodity money is the need for
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money to be divisible. uniform quality. portability.
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The official definition of the money supply that includes coins, paper money, travelers' checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called ____.
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M1
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Which of the following is included in M1?savings accounts a. money market deposit accounts b. money market mutual funds c. certificates of deposit savings d. Savings account
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NONE OF THE ABOVE
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The distinction between M1 and M2 is based on
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liquidity-the ease with which an asset can be converted into cash.
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The early goldsmiths issued money in the form of
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receipts for the acceptance of gold deposits. coins made from gold in their safes.
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Under fractional banking, when a bank lends to a customer
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the money supply increases.
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Banks that are managed in a very safe and conservative manner can be expected to earn
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low and consistent profits.
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The government regulates the banking industry by
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a. conducting frequent audits and examinations b. limiting the kinds of assets that a bank may own. c. limiting the quantity of some kinds of assets that a bank may own.
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money multiplier formula
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change in money supply = (1/m) x initial depositreserve requirements on bank deposits
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The government banking regulation that places an upper limit on the money supply is
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requirements on bank deposits
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The actual control of the Federal Reserve System resides in the
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Board of Governors.
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The monetary policies carried out by the Fed
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are sometimes inconsistent with fiscal policy
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The Federal Reserve Board of Governors
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is structurally independent of the executive and legislative branches of the federal government
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Proponents of Fed independence maintain that
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independence permits objective decisions not based on politics.
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Open market operations have their initial effect on bank
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interest rates.
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If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?
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It will credit the bank's reserve account
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When the Fed wants to expand the money supply through open market operation, it
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buys government securities from member banks
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The money supply contracts and interest rates rise when the Fed
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sells government securities
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The Fed conducts an open market purchase of Treasury bills of $10 million. If the required reserve ratio is .10, what change in the money supply can be expected using the oversimplified money multiplier?
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100 million
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If the price level rises, what will happen to the demand for reserves?
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It will shift outward
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The quantity of reserves demanded decreases as the federal funds rate rises because
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the opportunity cost of holding excess reserves increases as the federal funds rate rises.
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The demand for reserves increases as the price level rises because
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people need more money to finance transactions.
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As a knowledgeable investor in 2001, you should have realized that as interest rates fell, bond prices would
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rise
