Finc 409 Chapter 5

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The U.S Treasury is primarily responsible for:
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debt management
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Examples of automatic stabilizers are:
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unemployment insurance
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Automatic stabilizers include all of the following EXCEPT:
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social security
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Almost all Treasury disbursements are made by:
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checks drawn against deposits at Federal Reserve
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When the US Treasury makes a payment to an individual or business, it usually takes the form of a:
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check drawn on a Federal Reserve Bank
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The budget-making process is carried out by:
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Congress and the President
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Budgetary deficits always have the effect of:
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creating governmental competition for private investment funds
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U.S. debt management, which is an important function of the Treasury, is generally designed to:
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encourage orderly economic growth and stability
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A high level of inflation:
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discourages investment by increasing the uncertainty about future returns
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The federal government pays for the services it provides primarily through:
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taxation
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Federal Reserve open market operations, setting reserve requirement, and lending to depository institutions are:
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all designed to have their effect by influencing the reserves of depository institutions
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Open market operations differ from discounting operations in that they are:
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initiated by the Federal Reserve banks initiate borrowing at the Fed’s discount window
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Various programs of the federal government help stabilize disposable income, and in turn, economic activity in general. In so doing:
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some programs act on a continuing basis and are described as automatic stabilizers
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Continuing federal programs that stabilize economic activity are called
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automatic stabilizer
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Debt management of the federal government includes:
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determining which types of refunding to implement, the types of securities to sell, and deciding which interest rate patterns to use
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Debt management includes all of the following except:
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the required reserves ratio determined by the Fed
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Under required reserves of 20%, the maximum to which the money supply could be expanded by the banking system is:
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four times a new primary deposit
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One factor that decreases the volume of bank reserves is a decrease in:
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Federal Reserve float
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One factor that decreases the volume of bank reserves is a(n):
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increase in the public’s demand for currency to be held outside the banking system
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Bank reserves are increased when the Treasury:
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decreases its holding of cash
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Which one of the following transactions or operations is entirely at the initiative of the Federal Reserve?
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open market operations
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The monetary base:
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consists of bank reserves, plus currency held by the public
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Changes in the growth rates for money supply and money velocity affect the growth rate in:
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real economic activity and the rate of inflation
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#35 #36 #40 #43 #44 #49 #51 #53 #63 #64
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If a check is written for the full amount of a derivative deposit created by a bank loan and then is sent to a bank in another city for deposit:
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the lending bank would lose all of its excess reserves
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Total reserves in the banking system consist of:
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vault cash held at commercial banks and other depository institutions and reserve deposits held at Federal Reserve banks
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When a customer demands additional currency by cashing a check for $500, all of the following occur except:
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Federal Reserves notes decrease
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In our financial system, the money multiplier:
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can fluctuate over time
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The U.S. banking system has the ability to alter the size of the money supply because of the use of:
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a fractional reserve system
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Which of the following statements is most correct?
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Derivative deposits occur when reserves created from primary deposits are made available through bank loans to borrowers who leave them on deposit in order to write checks against the funds.
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Which of the following statements is most correct?
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The money multiplier is influenced by the public’s switching between checkable and noncheckable deposits at their banks.
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Which of the following statements is false?
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-The multiplying capacity of primary deposits is hindered by cash leakages from the banking system. -The monetary base is defined as bank reserves plus currency held by the public. -In contrast to the other transactions that affect reserves in the banking system, open market operations are entirely at the initiative of the Federal Reserve.
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Which of the following statements is false?
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The ability to alter the money supply and credit is based on the fact that our banking system does not utilize a fractional reserve system.
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The money supply (M1) is equal to the monetary base:
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multiplied by the money multiplier.
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Total bank reserves do not include which of the following?
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deficit reserves
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The government entity responsible for fiscal policy is:
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the Congress and the President
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Government financing of large budgetary deficits:
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may crowd out private borrowers
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Deposits that add new reserves to the bank where they are deposited and to the banking system are called:
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primary deposits
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Transactions that affect bank reserves can be initiated by the:
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nonbank public, Federal Reserve System, U.S. Treasury
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Banking system reserves plus currency held by the public is referred to as the:
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monetary base
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A country’s economic policy actions are directed toward all of the following goals EXCEPT:
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balance in the federal budget
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A country’s economic policy actions are directed toward all of the following goals EXCEPT:
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economic growth, high employment, and price stability
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Groups of policy makers that are actively involved in achieving U.S. economic policy objectives include all of the following EXCEPT:
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the Federal Reserve System, the President, Congress
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The percentage of deposits that must be held as reserves is called
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required reserve ratio
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During the 2007 – 2009 financial crisis, some of the very largest financial institutions were deemed as being “too big to fail” because their failure would cause cascading negative repercussions throughout the U.S. and many foreign economies. As a result, the Federal Reserve
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moved to increase liquidity in the monetary system and reduced its target federal funds rate to below .25 percent and worked with the U.S. Treasury to help facilitate the merging of financially weak institutions with institutions that were financially stronger.
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During the 2007 – 2009 financial crisis, ___________ and __________, who were major participants in the secondary mortgage markets, were on the verge of financial insolvency and possible collapse in mid-2008.
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Fannie Mae and Freddie Mac
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In fall 2008, the U.S. Congress and President George W. Bush responded to the financial crisis with the passage of the _____________ in early October of that year.
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Economic Stabilization Act
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A primary focus of the Economic Stabilization Act of 2008, which became known as the ___________________________, was to allow the U.S. Treasury purchase up to $700 billion of troubled or toxic assets held by financial institutions.
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Troubled Asset Relief Program (TARP)
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In an effort to stimulate economic activity, Congress and the president passed the $787 billion___________________________ in February, 2009 with the funds to be used to provide tax relief, appropriations, and direct spending.
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American Recovery and Reinvestment Act of 2009
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As the decade of the 2000s came to a close, the unemployment rate remained at the 10 percent level and continued at high level resulting in the Fed engaging in :
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Quantitative Easing

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