Which organization sets monetary policy for the United States? A. Board of Governors B. Congress C. Federal Open Market Committee D. Federal Reserve Banks

C. Federal Open Market Committee More test answers on https://studyhippo.com/04-03-how-does-the-fed-affect-me-quiz-2-53014/

Why is the Federal Open Market Committee considered the Fed’s primary monetary policy-making body

it has the power to raise and lower interest rates. More test answers on https://studyhippo.com/economics-chapter-16/

Which of the following is not a major component of the Federal Reserve System? a. member banks b. Federal Open Market Committee c. Securities and Exchange Commission d. Board of Governors

C More test answers on https://studyhippo.com/fin-333-part-2-chapters-4-5/

If the Federal Open Market Committee? (FOMC) decides to increase the money? supply, it orders the trading desk at the Federal Reserve Bank of New York to

buy U.S. Treasury securities. More test answers on https://studyhippo.com/econ-quiz-15/

In early 2001, the members of the Federal Open Market Committee (FOMC) concluded that a recession was about to begin. To keep the recession as short and mild as possible, they implemented a a. fiscal policy that increased government spending and reduced taxes. b. fiscal policy that decreased government spending and increased taxes. c. monetary policy that lowered interest rates. d. monetary policy that raised interest rates.

c. monetary policy that lowered interest rates. More test answers on https://studyhippo.com/econ-chapter-26/

What is the role of the federal open market committee?

It makes key decisions about interest rates and the growth of the United States money supply More test answers on https://studyhippo.com/economics-chapter-16-test-answers/

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Federal Open Market Committee Flashcards, test questions and answers

Q: The Federal Open Market Committee (FOMC):

Sets policy on the sale and purchase of government bonds by the Fed More test answers on https://studyhippo.com/eco-2013-ch-31/

Q: Federal Open Market Committee (FOMC)

he group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) i More test answers on https://studyhippo.com/ch-14-money-and-banking-mcconnell-20th-edition-macroeconomics-54669/

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Certificate Of Deposit Economics Federal Open Market Committee Federal Reserve System Finance Personal Finance

Everfi Modules 1, 2, 3, 4, 5, 6, 7, 8, 9 Final Quiz Questions and Answers Flashcard 90 terms

Maddison Bailey

90 terms

Preview

Everfi Modules 1, 2, 3, 4, 5, 6, 7, 8, 9 Final Quiz Questions and Answers Flashcard

question

Interest is - a charge for lending money to a bank - the amount owed for borrowing money - the amount added into your savings when opening a bank account - a charge for the convenience of accessing money stored in your bank account

answer

the amount owed for borrwoing money

question

Which of the following is a type of savings vehicle? • Certificate of Deposit • Money Market Account • Checking Account • Both A &B

answer

Both A &B

question

John just opened a savings account and wants to maximize the amount of interest he earns. Which of the following actions would enable him to earn MORE interest? - Selecting an account with a high interest rate. - Leaving his money in the account for long period of time. - Transferring money into his checking account each month. - Both A & B

answer

Both A & B

question

You are opening a savings account that earns compound interest. Which compounding frequency will earn you the MOST money? - Compounding 1 time a year - Compounding 4 times a year - Compounding monthly - Compounding daily

answer

Compounding daily

question

To earn as much interest as possible, you should open a savings account that earns _______ interest and has the ______ interest rate. • compound; lowest • compound; highest • simple; lowest • simple; highest

answer

compound; highest

question

The purpose of a budget is to: • help you plan how you will spend the money you earn or receive • stop you from spending too much money • increase the balance of your savings account • tell you how much you owe the government in taxes

answer

help you plan how you will spend the money you earn or receive

question

Which of the following savings vehicles usually requires a high minimum balance? • Simple savings account • Certificate of Deposit (CD) • Checking account • All of the above

answer

Certificate of Deposit (CD)

question

Which of the following is generally true about savings vehicles? • Savings vehicles are only useful for long-‐term investments • People should evaluate different forms of savings vehicles based on their needs • Savings vehicles are never insured • All of the above

answer

People should evaluate different forms of savings vehicles based on their needs

question

Which of the following accounts will give you the LEAST access to your money? • Simple savings account • Certificate of Deposit (CD) • Checking account • Cash

answer

Certificate of Deposit (CD)

question

When it comes to saving money, what is a good rule of thumb? • Keep most of your savings in your checking account • Put aside money for savings each month • Choose the savings account with the lowest interest rate • Putting anything you can't afford on your credit card

answer

Put aside money for savings each month

question

Which of the following is a unique feature of credit unions? • Credit unions are typically owned and run by their members. • Credit unions limit membership to certain people or groups. • Credit unions offer a wide variety of banking services. • Both A & B

answer

Both A & B (correct answer)

question

The best way to ensure the accuracy and safety of your accounts is to: • Monitor your online accounts regularly • Shred your paper account statements weekly • Balance your checkbook annually • Call your customer service center daily

answer

Monitor your online accounts regularly

question

Which of the following represent typical account fees? - ATM fee - Service fee - Minimum balance fee - All of the above

answer

question

Which of the following is NOT one of the responsibilities of the Federal Reserve? • Supervising the Reserve banks • Establishing the federal budget • Maintaining a stable banking system • Setting the nation's monetary policy

answer

Establishing the federal budget

question

The three parts of the Federal Reserve System are the Reserve Banks, the Federal Open Market Committee (FOMC), and the: • Board of Governors • United States Mint • Department of the Treasury • Secretary of State

answer

Board of Governors

question

Which type of account is typically the MOST liquid? - Checking account - Savings account - Certificate of Deposit - Exchange Traded Fund

answer

question

What's the best strategy for avoiding ATM fees? - Only use ATMs close to your house - Only use ATMs to withdraw cash - Only use ATMs in your bank's network - Only use ATMs you have used before

answer

question

What's the purpose of balancing or monitoring your checking account? • To help you calculate how much money you have in your account • To keep an estimation of how many checks you write • To find out which checks you have bounced • To stop identity theft from occurring

answer

To help you calculate how much money you have in your account (

question

What part of a check is the LEAST important? • memo line • signature line • routing number • The check number

answer

memo line

question

Savings accounts usually offer _________ interest rates than checking accounts. It is _________ to access your money in a savings account than in a checking account. • lower; easier • higher; harder • lower; harder • higher; easier

answer

higher; harder

question

Which of the following statements comparing debit cards to credit cards is TRUE? • Debit cards allow you to draw funds directly from your checking account. • Debit cards typically offer greater fraud protection than credit cards. • Debit cards never require a signature to finalize a purchase like credit cards. • Debit cards charge higher interest rates on purchases than credit cards.

answer

Debit cards allow you to draw funds directly from your checking account. (correct answer)

question

Making a minimum payment: • Means you are paying a small portion of your total credit card debt • Is the same thing as making a late credit card payment • Will have a negative effect on your credit score • Will cause your credit card to be cancelled

answer

Means you are paying a small portion of your total credit card debt (correct answer)

question

What is a credit card balance? • The amount of interest you must pay the credit card company • The required minimum payment to your credit card company • A way to track your incoming and outgoing purchases • The amount of money you still owe to the credit card company

answer

The amount of money you still owe to the credit card company (correct answer)

question

Which of the following is NOT a common credit card fee? • Late fee • Annual membership fee • Balance transfer fee • Minimum payment fee

answer

Minimum payment fee (correct answer)

question

What payment type can help you stick to a budget? • Credit cards • Debit cards • Payday loans • Cash advances

answer

Debit cards (correct answer)

question

Which of the following payment types require you to pay upfront? • Money order • Cashier's check • Prepaid card • All of the above

answer

All of the above (correct answer)

question

The annual percentage rate on a credit card determines: • The amount of interest you are charged on credit card purchases • The amount your credit limit can go up within a year • How many credit cards that you can own • None of the above

answer

The amount of interest you are charged on credit card purchases (correct answer)

question

Which of the following can increase your credit card's APR? • Paying the minimum • Missing a credit card payment • Paying off the full balance • Cashing in on rewards points

answer

Missing a credit card payment (correct answer)

question

If you are planning to carry a large balance on your credit card, which of the following credit card features should you look for? • Low APR • Low annual fees • Lots of credit card rewards • A large credit limit

answer

Low APR (correct answer)

question

Which payment method typically charges the highest interest rates? • Credit cards • Cashier's checks • Prepaid cards • Payday loans

answer

Payday loans (correct answer)

question

Which of the following MOST influences your credit score? • Types of Credit Used • Payment History • Length of Credit History • Amounts Owed

answer

Payment History (correct answer)

question

Which of the following actions would IMPROVE your credit score? • Closing out old credit cards • Paying off your credit card bill • Using a large portion of your credit limit • Opening a new savings account

answer

Paying off your credit card bill (correct answer)

question

How many free credit reports are you legally entitled to each year? • One credit report each year • Three credit reports each year • One credit report from each credit bureau • Three credit reports from each credit bureau

answer

One credit report from each credit bureau (correct answer)

question

All of the following make up the big three credit reporting agencies EXCEPT: • Federal Reserve • Experian • Equifax • TransUnion

answer

Federal Reserve (correct answer)

question

Which of the following actions can NEGATIVELY impact your credit score? • You disputed an item on your credit report. • You forgot to pay the cable bill. • You pay all your bills in cash. • You use a small amount of your available credit.

answer

You forgot to pay the cable bill. (correct answer)

question

Having a low credit score can make it more difficult to: • Obtain a car loan • Open a new credit card • Secure an apartment lease • All of the above

answer

All of the above (correct answer)

question

Which of the following actions has NO impact on your credit score? • You inquire about a credit card charge. • You use a large percentage of your credit limit. • You opened several new credit cards last week. • You send in your credit card payment a couple days late.

answer

You inquire about a credit card charge. (correct answer)

question

Which of the following statements about credit scores is TRUE? • Credit scores reflect how likely individuals are to repay their debts. • Credit scores range from the low 300's to the mid 800's. • Each person has three credit scores. • All of the above.

answer

All of the above. (correct answer)

question

Having a good credit score is important because: • It can impact your ability to get a driver's license. • It can impact your ability to be approved for bank loans. • It can impact how much you will have to pay the government in taxes. • It can impact how much you will have to pay for college.

answer

It can impact your ability to be approved for bank loans. (correct answer)

question

Which action is LEAST important to maintaining a healthy credit score? • Make on‐time payments • Check your credit report annually • Know your exact credit score • Fix inaccurate information on your credit report

answer

Know your exact credit score (correct answer)

question

When referring to student loans, what is a grace period? • The time period between graduating college and starting your first job when you don't have to pay back student loans • The period after graduating or leaving school before you must begin paying back student loans • The amount of time you have to pay back your entire student loan amount - None of the above

answer

The period after graduating or leaving school before you must begin paying back student loans (correct answer)

question

Which of the following loans will typically offer the lowest interest rate? • Payday loan • Federal Student Loan • Private Loan • Both A & B

answer

Federal Student Loan (correct answer)

question

The Federal Application for Student Aid (FAFSA) form: • must be completed by your guidance counselor • can be submitted on online or by mail • can only be filled out by U.S. citizens • is used to apply for private loans

answer

can be submitted on online or by mail (correct answer)

question

You are looking for ways to pay for your higher education costs. Which of the following options will require you to pay back any money you receive? • Grants • 529 plans • Federal student loans • Scholarships

answer

Federal student loans (correct answer)

question

Your sister is starting 9th grade next year and is thinking about going to college. What step would you recommend she take first? • Fill out her FAFSA form • Sign up for college admission exams • Start applying for grants & scholarships • Look for school clubs & organizations she's interested in

answer

Look for school clubs & organizations she's interested in (correct answer)

question

After you send in your FAFSA form, what will you receive back? • Your IRS Data Retrieval Form • Your Student Aid Report • A copy of your family's tax returns • A copy of your completed FAFSA form

answer

Your Student Aid Report (correct answer)

question

Using the FAFSA form, you can apply for: • Federal student loans • The federal work-‐study program • Private loans • Both A & B

answer

Both A & B (correct answer)

question

Which of the following statements about federal student loans is TRUE? • The interest rate on your loan will be fixed over time. • The interest rates on federal loans and private loans are similar. • You can only get federal student loans if you demonstrate financial need. • You do not accumulate interest on federal loans.

answer

The interest rate on your loan will be fixed over time. (correct answer)

question

The return on investment (ROI) from education is typically the highest for: • A high school graduate • A college applicant • Someone with a 2‐year (Associate) degree • Someone with a 4‐year (Bachelor's) degree

answer

Someone with a 4‐year (Bachelor's) degree (correct answer)

question

Which loan type requires you to make loan payments while you're attending school? • Unsubsidized federal loan • Subsidized federal loan • Both A & B • Neither A nor B

answer

Neither A nor B (correct answer)

question

Jim is in the market for a car, but he'll probably only need it for a couple of years. After that, he plans on moving into the city and using public transportation. He has a short commute to work, so he won't be putting many miles on his vehicle. What's the best transportation option for Jim? • Use his savings to buy the car in full • Buy the car using an auto loan • Lease the car • Take public transportation

answer

Lease the car (correct answer)

question

All of the following components are commonly found in rental housing agreements EXCEPT: • Whether the renter can have pets in the house • How much the renter will pay • What type of renter's insurance the renter must buy • Which repair types the renter will be responsible for

answer

What type of renter's insurance the renter must buy (correct answer)

question

What is a mortgage? • A type of rent used to pay for housing • A type of loan used to buy property • A measure of the value of a home • A measure of your credit rating

answer

A type of loan used to buy property (correct answer)

question

What is a mortgage? • A type of rent used to pay for housing • A type of loan used to buy property • A measure of the value of a home • A measure of your credit rating

answer

A type of loan used to buy property (correct answer)

question

A _________ is generally considered an appreciating asset because it will _________ in value over time. • car; increase • car; decrease • house; increase • house; decrease

answer

house; increase (correct answer)

question

Renting provides _________ flexibility but can lead to _________ costs in the long-‐term. • greater; lower • greater; higher • less; lower • less; higher

answer

greater; higher (correct answer)

question

John would like to move from the suburbs into the city, but the rent in the city is very high. John has found an apartment he really likes, but he can only afford about 60% of the monthly rent. What is the best housing option for John? • Purchase a home in the city center instead. • Rent the apartment anyway. • Rent the apartment with a roommate. • Purchase a home in the suburbs instead.

answer

Rent the apartment with a roommate. (correct answer)

question

Which of the following are costs associated with owning a car? I. Fuel II. Insurance III. Repairs IV. Wear & Tear fees• I, III, and IV • I, II, and IV • I, II and III • I, II, III, and IV

answer

I, II and III (correct answer)

question

Someone may choose to own a car instead of leasing because: • The car can be resold later to make some money back. • The car can be resold later for a higher price. • The maintenance costs for a leased car are generally higher. • The insurance costs for a leased car are higher.

answer

The car can be resold later to make some money back. (correct answer)

question

One reason to buy a home instead of rent a home is: • Homes have the potential to appreciate in value over time. • Homes have few maintenance costs. • Buying a home requires less money upfront. • Buying a home is a more flexible housing option.

answer

Homes have the potential to appreciate in value over time. (correct answer)

question

Which of the following are NOT deducted on a typical paystub: • Sales tax • Social security tax • State income tax • Medicare tax

answer

Sales tax (correct answer)

question

Which of the following statements about taxes is FALSE? • Taxes are collected at the local, state and federal level • Taxes at the local, state and federal level are all equal • Some states don't collect sales tax. • Some states don't collect income tax

answer

Taxes at the local, state and federal level are all equal (correct answer)

question

Insurance can help you: • minimize monthly expenses • protect against unexpected accidents • reduce the chances of getting into an accident • cover all out‐of‐pocket costs

answer

protect against unexpected accidents (correct answer)

question

When starting a new job, the form you complete to determine how much tax to withhold from your paycheck is the _______. • 1040 EZ • 1099 • W-2 • W-4

answer

W-4 (correct answer)

question

When you purchase an item in a store, you may be charged __________. • income tax • capital gains tax • sales tax • property tax

answer

sales tax (correct answer)

question

Your auto insurance policy has a $200 monthly premium and $700 deductible. What is the maximum amount you will have to pay out-of‐pocket before your insurance covers your costs? • $200 • $500 • $700 • $900

answer

$700 (correct answer)

question

Jan pays $70 each month for her auto insurance policy. This regular payment is called a: • co-‐pay • deductible • premium • claim

answer

premium (correct answer)

question

Which of the following typically have the highest insurance premiums. • Drivers who travel long distances • Drivers who have safe driving records • Older, experienced drivers • Young, inexperienced drivers

answer

Young, inexperienced drivers (correct answer)

question

In which of the following scenarios will you be entitled to pay the least amount of money out-of‐pocket for medical expenses? • You have no insurance. • You have health insurance with a $500 deductible. • You have auto insurance with a $700 deductible. • You have health insurance with a $1,500 deductible.

answer

You have health insurance with a $500 deductible. (correct answer)

question

You have an insurance policy with the terms listed below. How much should you expect to pay the insurance company each month for coverage? YOUR INSURANCE PLAN: Premium = $300/month; Deductible = $500 • $200 • $300 • $500 • $800

answer

$300 (correct answer)

question

Consumer protection laws are meant to: • Protect consumers from spending too much money. • Prevent consumers from buying unnecessary items. • Protect businesses from consumers. • Prevent unfair or deceptive business practices.

answer

Prevent unfair or deceptive business practices. (correct answer)

question

The best way to investigate fraudulent transactions on your credit card is to: • Keep track of your monthly budget. • Review all old bank statements. • Keep a copy of your bank statements in a safe place. • Review your recent credit card statements.

answer

Review your recent credit card statements. (correct answer)

question

The safest action to take if someone claiming to be from your bank calls you to ask for account information is to: • Pull up the bank website and compare information. • Hang up and call back using the bank's official phone number. • Ask the caller to explain the account information they need in more detail. • Provide only your name and account number.

answer

Hang up and call back using the bank's official phone number. (correct answer)

question

What is the first action you should take if you suspect there has been a fraudulent charge on your credit card? • Close all bank accounts associated with that credit card. • Contact the credit card company to report the fraudulent charge. • Order your credit report to look for other fraudulent activity. • Call the store where the purchase was made and ask them to remove the charge.

answer

Contact the credit card company to report the fraudulent charge. (correct answer)

question

What is the safest way to dispose of old bank account statements? • Shred them in a paper shredder. • Throw them out in a neighbor's trash. • Keep them bundled together in a folder. • Put them in the trash unopened.

answer

Shred them in a paper shredder. (correct answer)

question

It is generally safe to provide your Social Security Number to: • Anyone who asks you for it. • Close friends and relatives who do not know it. • School personnel who want to have it on record. • Verified trusted sources that need it.

answer

Verified trusted sources that need it. (correct answer)

question

Identity thieves can use your personal information to: • Open a credit card • Sign up for electricity service • Get a cell phone contract • All of the above

answer

All of the above (correct answer)

question

Which action will be least helpful if you've been the victim of identity theft? • Withdraw your money from all accounts. • Report the fraud to each credit bureau. • Ordering your latest credit report. • Contact your bank and credit card companies.

answer

Withdraw your money from all accounts. (correct answer)

question

Which document puts you at the least risk of identity theft? • Cash receipts • Paycheck stubs • Pre-approved credit card offers • Old tax records

answer

Cash receipts (correct answer)

question

Which of the following is the BEST way to protect against identity theft? • Discard old account statements weekly. • Use only local public access Wi‐Fi. • Change online account passwords frequently. • Avoid emails from people who do not like you.

answer

Change online account passwords frequently. (correct answer)

question

When it comes to investing, what is the typical relationship between risk and return? • It depends on the investment mix in your portfolio. • The greater the potential risk, the smaller the potential return. • The greater the potential risk, the greater the potential return. • There is no relationship between risk and return.

answer

The greater the potential risk, the greater the potential return. (correct answer)

question

Diversification is important in investing because... • It helps you to balance your risk across different types of investments • It increases your overall risk, which guarantees that you will make more money • It ensures that you only make low-‐risk investments • It helps you gain the highest rate of return despite any risks.

answer

It helps you to balance your risk across different types of investments (correct answer)

question

Which best describes the difference between stocks and bonds? • Stocks allow investors to own a portion of the company; bonds are loans to the company. • Stocks are a more reliable investment; bonds tend to be more volatile. • Stocks pay interest to investors throughout the year; bonds only pay interest at fixed times during the year. • Stocks allow investors to share in profits; bonds make investors responsible for company debts.

answer

Stocks allow investors to own a portion of the company; bonds are loans to the company. (correct answer)

question

What is the primary reason to issue stock? • To help investors earn a higher rate of return • To raise money to grow the company • To distribute the risk of bankruptcy across more investors • To increase investor awareness of the company

answer

To raise money to grow the company (correct answer)

question

How can investors receive compounding returns? • By selecting a savings account that has a higher interest rate • By investing their earnings back into their original investment • By transferring their earnings into a high‐risk investment • By diversifying their investment portfolio

answer

• By investing their earnings back into their original investment (correct answer)

question

If an investment is considered "volatile", it means... • the investment will experience rapid growth over time. • the investment is high‐risk, and will its price will increase quickly. • the value of the investment may be hard to predict. • the investment is undervalued and may increase over time.

answer

• the value of the investment may be hard to predict. (correct answer)

question

Which of the following would be considered the highest risk portfolio? • A portfolio made up of 20% savings accounts, 50% mutual funds, and 30% bonds. • A portfolio made up of 40% mutual funds, 40% Treasury bonds, and 10% stocks. • A portfolio made up of 70% mutual funds, 10% stocks, and 20% Treasury bonds. • A portfolio made up of 60% stocks, 30% mutual funds, and 10% Treasury bonds.

answer

• A portfolio made up of 60% stocks, 30% mutual funds, and 10% Treasury bonds. (correct answer)

question

When you buy a ____ , you are loaning money to an organization. • Index fund • Stock • Mutual fund • Bond

answer

• Bond (correct answer)

question

Which of the following correctly orders the investments from LOWEST risk to HIGHEST risk? • Treasury bond − Stock − Diversified mutual fund • Stock − Treasury bond − Diversified mutual fund • Treasury bond − Diversified mutual fund - Stock • Diversified mutual fund − Treasury bond − Stock

answer

• Treasury bond − Diversified mutual fund - Stock (correct answer)

question

Which of the following is generally true about 401(k) and 403(b) retirement plans? • They are plans offered through employers • They offer some tax benefits • They restrict when you can withdraw your money • All of the above

answer

• All of the above (correct answer)

STUDY

AP Government Economics Federal Open Market Committee Macroeconomics Principles Of Economics: Microeconomics Public Goods And Services Savings And Loan Associations

WH – Flashcard 33 terms

Daniel Jimmerson

33 terms

Preview

WH – Flashcard

question

when the government spends more money than they bring in

answer

deficit spending

question

Put France into big debt. Pleasures over business. Called on Estates-General.

answer

Louis XVI

question

Legislative body consisting of members from the 3 estates.

answer

Estates-General

question

Oath made by members of 3rd estate on a tennis court. Members promised to never separate and meet where circumstances required.

answer

Tennis Court Oath

question

A prison. Stormed when Parissians thought it was holding weapons and gunpowder.

answer

Bastille

question

3 estates: 1st made of nobility, 2nd of clergy and 3rd (largest) of peasants. 1st and 2nd paid no taxes while 3rd paid heavy taxes.

answer

What was the social structure of the old regime of France like?

question

Bad harvests lead to hunger in peasant population. Debt causes government to have to pay 50% revenue toward interest on loans.

answer

What economic troubles did France face? How did it lead to further unrest?

question

They declared themselves as the National Assembly & took the Tennis Court Oath.

answer

What actions did delegates of the 3rd estate take when the Estates-General met in 1789?

question

Parissians challengedf t the status quo & challenged the existence of the regime.

answer

What was the significance of the storming of the Bastille?

question

Rumors that the government were going to seize peasant crops & were trying to reimpose old taxes.

answer

Why did peasants revolt against the nobles?

question

Abolished feudalism & convinces Louis XIV to not react.

answer

How did the National Assembly react to peasant uprisings?

question

Legislative Assembly & natural/civil rights.

answer

What were provisions of the Constitution of 1791?

question

Increased border control, enlightened rulers turned against France, & the Legislative Assembly declared war on multiple states.

answer

How did the rest of Europe react to the French Revolution?

question

devince used during reign of terror to execute by beheading.

answer

guillotine

question

port city of France

answer

Marseilles

question

They wrote a new declaration of rights & constitution.

answer

What occurred after radicals took control of the Assembly?

question

He thought it'd give him a political advantage.

answer

Why did Robespierre think the terror was necessary to achieve the goals of the revolution?

question

New gov: power in the hands of the upper-middle class. 2 house legislature & executive body.

answer

What changes occurred after the reign of terror came to an end?

question

To deal with threats imposed upon France.

answer

What were goals of the Committee of Public Safety?

question

People felt safer and would voice their opinions because there were less executions.

answer

How did life in France change after the terror came to an end?

question

The monarchy was overthrown, no more old social order, church was controlled by the state, strong sense of national identity, slavery was abolished, pushes for social reform & religious tolerance.

answer

What changes occurred in France because of the French Revolution?

question

Body of French civil laws that served as a model for other nation's civil codes.

answer

Napoleonic Code

question

blockade designed by Napoleon to hurt Britian economically by closing European ports.

answer

Continental System

question

European leaders who worked to piece Europe back together after Napoleon era.

answer

Congress of Vienna

question

Result from quadruple alliance. Consisted of Austria, Prussia, Britain, and Russia. Discuss problems affecting peace in Europe.

answer

Concert of Europe

question

Got UK out of Toulon. Ended royalist counter revolution. Friends included him in the coup against French government.

answer

How did Napoleon rise to power so quickly in France?

question

Napoleonic code (embodied enlightenment ideas) & controlled prices, promoted new industry, and built roads/canals.

answer

What reforms did Napoleon introduce during his rise to power?

question

Good tactics: find weak point of enemy and have best men attack them. Conquer & ally with other countries.

answer

How did Napoleon dominate most of Europe by 1812?

question

Napoleon lost a majority of his soldiers & the French army became devastated and weak.

answer

What were the effects of the disaster in Russia?

question

He was seen as a foreign oppressor, was resented for trying to push French culture on his empire, revolts against France & supply trains and troops were ambushed.

answer

What challenges threatened Napoleon's empire?

question

Tsar of Russia & Napoleon wanted to divide Europe. Russians were upset about the economic effects of the Continental System. Napoleon made the Grand Army & invaded Russia. When retreating, Russia attacked the army. The attack and the winter killed a majority of Napoleon's men.

answer

What led to te disaster in Russia?

question

He centralized French government, gave it a constitution, gave more citizens the right to property&education, sparked nationalist feelings, and sold France's Louisiana territory to the U.S.

answer

How did Napoleon impact Europe and the rest of the world?

question

Goal: To create a lasting piece in Europe. Outcome: Concert of Europe was created & Europe didn't experience a Napoleonic war until 1914.

answer

Explain the goal and outcome of the Congress of Vienna.

STUDY

Federal Open Market Committee Labor Economics Labor Force Participation Rate Labor Supply Curve Macroeconomics National Income Accounting Net Domestic Product Working Age Population

Macroeconomics Final Exam Review Test Questions – Flashcards 39 terms

Judith Simpson

39 terms

Preview

Macroeconomics Final Exam Review Test Questions – Flashcards

question

Pros of Unions

answer

1. Increase wages for union members 2. Increase benefits 3. Decrease opportunities for uneducated and unskilled

question

Cons of Unions

answer

1. Increase company costs 2. Increase price of goods/services 3. Reduce profits 4. Reduce value of the firm

question

4 stages of population

answer

-Preindustrial societies a) high death rate, high birth rate -Early industrial development b) better health increases population -Urbanization and education c) persuades to have more children -Mature society d) couples want 2-3 children

question

National income accounting

answer

-a bookkeeping system that a national government uses to measure the level of the country's economic activity in a given time period

question

Which is a primary use for national income accounting?

answer

It provides a basis for assessing the performance of the economy

question

GDP provides an indication of society's valuation of the relative worth of goods and services because of it

answer

a monetary measure

question

To include the value of parts used in production of automobiles turned out during a year in gross domestic product is an example of

answer

multiple counting

question

Which of the following is a public transfer payment?

answer

the social security benefits sent to a retired worker

question

sale of an automobile in year 2, which was produced in year one would be:

answer

non production transaction

question

Babysitter staying at home while her parents are out, doing it for free

answer

non-market transaction

question

Which would be considered an economic investment?

answer

construction of a new computer chip factory

question

Annual charge estimates the amount of private capital equipment used up in each year's production is called

answer

depreciation

question

the allowance for the private and publically owned capital used in consumed producing the year's gdp is

answer

consumption of fixed capital

question

Gross private domestic investment

answer

Net private domestic investment + consumption of fixed capital

question

Net exports

answer

US exports - US imports

question

Expenditure Approach to GDP

answer

Y = C + I + G + NX Y = GDP, output, total income, total expenditure C = consumption I = investment G = government purchases of goods and services NX = export - imports

question

Income approach to GDP

answer

W+R+I+P+S= net + consumption of fixed capital

question

Net domestic product

answer

GDP - depreciation

question

National income

answer

NDP - IBT - Business transfer payments + Net Foreign + Government subsides - surplus of government enterprises - statistical discrepancy

question

Personal income

answer

NI+TP-Taxes on production and imports-SSC-CIT-Undistributed corporate profits

question

Discretionary income

answer

Personal income - personal taxes

question

Fiscal Policy

answer

functions: tax, spend *if spending exceeds taxes = deficit which means that debt goes up

question

Expansionary fiscal policy

answer

-increase in government purchase of goods and services and decrease in taxes to increase aggregate demand

question

Discretionary fiscal policy

answer

-deliberate changes in taxes and government spending to promote employment and economic growth

question

Eminent domain

answer

-when government takes your land *must provide adequate compensation

question

Contractionary fiscal policy

answer

decrease in government purchases of goods and services and increase in taxes to decrease aggregate demand and reduce inflation

question

The federal reserve

answer

central bank of the united states a) oversees the banking system b) regulates the money supply

question

Equation of exchange

answer

Mathematically speaking, the effect of the money supply on the economy can be summarized by the formula MxV = PxY in which M is the money supply V is velocity, which is the number of times each dollar is spent on GDP P is the price level (or the ratio of the current year's prices to the base year) Y is real GDP

question

Open market operations

answer

-directed by federal open market committee -conducted by federal reserve bank of NY -buying and selling securities -primary source of money supply fluctuations

question

Discount rate

answer

-fed is lender of last resort -sets interest rate of the member banks -creates economic expectation

question

Reserve Requirement

answer

A. % of deposits financial institutions must keep in accounts with the fed B. disadvantage 1. causes immediate problems for bank's liqudity 2. costly to administer C. Money multiplier

question

Board of governors --> Chair=Yellen

answer

-federal open market committee --> 12 members, 8 fixtures 4 member rotations -federal advisory council -12 federal reserve banks -member banks -7 board of governors, every term, appointed by president, confirmed by congress

question

Fed's three policy tools

answer

-open market operations "fine adjustment to economy" -buy and sell bonds and treasury notes -changes to the discount rate (when economy is growing too quickly) -rate at which banks borrow from the federal reserve -fed funds rate: rate at which banks borrow amongst each other -when the fed raises/lowers interest rates, they control money supply and direction of the economy

question

Independence of the fed

answer

-doesn't need appropriations from congress, made $17 billion last year from treasury securities -board of governors are appointed to 14 year terms one every two years (new member) -chairman of the board of governors -serves a 4 year term: non-concurrent with presidential term No audits No accountability Closed meetings No guidelines or objectives major economic influence-power

question

Arguments for independence

answer

-greater focus on long term objectives -less pressure to finance deficit -more likely to pursue unpopular policies

question

Arguments against independence

answer

-accountability for mistakes -coordination of fiscal and monetary policy -president is responsible for economic policy but has no control over the fed -no evidence of benefits or performance by independence -no other agency has independence

question

Why banks have excess reserves

answer

avoid cost of: 1. borrowing from other banks or competitors 2. selling securities 3. borrowing from the fed 4. calling in or selling off loans

question

Bank Balance sheet

answer

lists assets and liabilities a. reserves b. deposits at other banks c. securities d. loans e. other assets 2. Liabilities sources of funds a. checkable deposits b. non transaction deposits c. borrowings d. bank equity capital

question

Bank balance sheet: fractional reserve checking

answer

Assets: reserves 1. Reserves are: a. bank deposits held at fed b. currency held at the bank 2. reasons to hold resources: a. % of deposits required by law b. required reserves 1. meet depositors obligations 2. highly liquid

STUDY

Economics Federal Open Market Committee

Macroeconomics Test Answers – Flashcards 167 terms

Judith Simpson

167 terms

Preview

Macroeconomics Test Answers – Flashcards

question

The three functions of money are:

answer

medium of exchange, measure of value, store of value

question

When money is being used as a _______ ___ _______ it is being used in the buying and selling of goods and services.

answer

Medium of exchange

question

Money is being used as a _______ ___ _______ when it is a yardstick for measuring the relative worth of heterogenous goods and services.

answer

Measure of value

question

The existence of money enables us to avoid barter. In this capacity, money is functioning as a

answer

Medium of exchange

question

Money makes it possible to easily compare the prices of different products with one another. In this capacity, money is functioning as a

answer

Measure of value

question

Barter exchange:

answer

hinders specialization in the economy.

question

The 3 major definitions of money are:

answer

M1, M2, and M3

question

_______ is currency and checkable deposits.

answer

question

_______ is M1 + noncheckable savings deposits + small time deosits + money market deposit accounts + money market mutual funds

answer

question

______ is M2 + large time deposits

answer

question

______ is the most narrowly defined definition of money.

answer

question

Which official money aggregate shows the smallest money supply?

answer

question

The narrow definitions of money (M1) includes only:

answer

currency and checkable deposits

question

What is the correct definition of the M1 money supply?

answer

checkable deposits, coins, and paper currency

question

The M1 definition of money does not include

answer

savings deposits

question

Passbook savings deposits are excluded from the M1 money supply because they

answer

are not accepted as a medium of exchange

question

_____ and _____ are near monies. Near monies are certain highly liquid financial assets such as noncheckable savings accounts, time deposits and short term government securities which, although they do not directly function as a medium of exchange, can e readily and without risk of financial loss converted into currency or checkable deposits.

answer

M2 and M3

question

Passbook savings accounts are

answer

near money

question

True or False: Credit cards are included in the definition of money

answer

false

question

Money has value because of the following three reasons:

answer

acceptability, legal tender, relatively scarce

question

True or False: people accept paper money because they are confident that others will also be willing to accept it in exchange for goods and services.

answer

true

question

True or False: People accept paper mone because it has been designated as legal tender by government.

answer

true

question

True or False: Money derives its value from its scarcity relative to its usefulness

answer

true

question

United States currency in the 1980's is:

answer

fiat money (money that is not backed by any commodity)

question

The two types of demand for money:

answer

Asset demand and transaction demand

question

The transactions motive for holding money referred to money held in order to

answer

pay regular expenses

question

Changes in economic expectations about interest rates are most likely to affect the:

answer

asset demand for money

question

True or False: The transactions demand for money varies indirectly with nominal GDP.

answer

false

question

The _______ demand for money is being affected when money is being used as a medium of exchange.

answer

transactions

question

Households and firms will want more money for transactions purposes if either ________ _______ or real output increases.

answer

prices rise

question

True or False: The transactions demand for money is assumed to be dependent on interest rates

answer

false

question

The advantages of holding money as an asset is that it is ______ and ______ ______.

answer

liquid and lacks risk

question

The disadvantage of holding money as an asset is that it does not____ ______ ______

answer

earn interest income

question

In models of the asset demand for money, assets can be held as ________ or _______.

answer

money or bonds

question

Keynes described three motives for demanding or "holding" money. They include all of the following except

answer

The contributory motive

question

True or False: As bond prices increases interest prices also increase.

answer

false

question

The Board of Governors of the Federal Reserve System has _____ members.

answer

question

Each member of the Board of Governors of the Federal Reserve System is appointed for _____ years.

answer

question

True or False: The Federal Open Market Committee is made up of the 7 members of the Board of Governors and the 13 presidents of the regional banks.

answer

false

question

The Federal Reserve System was established in

answer

1913

question

Today there are ____ Federal Reserve banks, and ____ branches.

answer

12, 24

question

The Board of Governors consists of

answer

7 members, appointed by the President of the United States.

question

In the United States there is:

answer

one Federal Reserve Bank for each 10,000 customers.

question

The Federal Advisory Council is composed of

answer

12 prominent commercial bankers

question

The original purpose of the Federal Reserve was to

answer

act as a lender of last resort

question

Today, the primary function of the Federal Reserve is to

answer

stabilize the economy by regulating the money supply

question

The function of the Federal Reserve banks is to

answer

manage the money supply in accordance with the needs of the economy as a whole

question

The policy making branch of the Federal Reserve is called

answer

the Board of Governors

question

Gresham's Law states that:

answer

bad money drives out good money

question

The use of a _______ _______ _______ ____ _______ makes it possible for banks to create money.

answer

Fractional reserve system of banking

question

One of the problems with a fractional reserve system of banking is that banks are vulnerable to _______ or ______

answer

panics or runs

question

Fractional reserve banking is a situation where banks

answer

hold only a fraction of their demand deposits as reserves

question

According to the fractional reserve principle

answer

a bank only needs a fraction of a dollar in reserves for each dollar of demand deposits

question

Banks can increase the money supply because they can

answer

loan out a portion of their reserves

question

Money is created when banks make ______

answer

loans

question

When banks use their excess reserves to grant loans to consumers, the money supply

answer

grows

question

When loans are repaid _____ is destroyed

answer

money

question

True or False: Money is created when people deposit money into a demand deposit in the bank

answer

false

question

Banks create money by

answer

creating demand deposits

question

The _____ _____ is an amount of funds equal to a specified percentage of its own deposit liabilities which a member bank must keep on deposit with the Federal Reserve Bank in its district or as vault cash

answer

legal reserve

question

The reserve ratio is equal to ______ _____ ______ ________ divided by the ________ ________ __________ ________.

answer

commercial banks required reserves, commercial banks demand deposit liabilities

question

The reserve requirement is the

answer

percentage of bank deposits that banks must hold as required reserves

question

______ _______ are a means by which the Board of Governors can influence the lending ability of commercial banks.

answer

Legal reserves

question

True or False: Commercial banks and other depository institutions are required to keep legal reserve deposits, or simply "reserves" equal to a specified percentage of their own deposit liabilities as cash, government securities, or on deposit with the Federal Reserve Bank of their district.

answer

false

question

Bank reserves include

answer

vault cash plus funds on deposit with the Fed.

question

A banks excess reserves are defined as

answer

total reserves minus required reserves

question

The amount by which a banks actual reserves exceed its required reserves is the banks

answer

excess reserves

question

Excess reserves for commercial banks are equal to

answer

actual reserves minus required reserves

question

Whenever a check is drawn against a bank and deposited in another bank, the collection of that check will entail a loss of both ________ and _______ ______ by the bank upon which the check is drawn.

answer

reserves and demand deposits

question

An increase in banks loans would tend to decrease

answer

banks excess reserves

question

True or False: When a bank accepts deposits of cash, the composition of the money supply is changed, but the total supply of money is not directly altered.

answer

true

question

True or False: When a commercial bank buys government bonds from the public, the effect is substantially the same as that of lending. New money is created.

answer

true

question

The selling of government bonds to the public by a commercial bank will _____ the supply of money.

answer

decrease

question

The potential money multiplier equals

answer

1/reserve requirements ratio

question

The potential money multiplier determines the maximum supply of

answer

money that can be generated if banks hold no excess reserves and all private funds are deposited in banks

question

1/required reserve ratio=

answer

money multiplier

question

The _____ _____ tells us the maximum amount of new demand deposit money which can be created for a single dollar of excess reserves, given the value of R.

answer

money multiplier

question

The entire banking system could increase total loans by an amount equal to

answer

a multiple of its excess reserves

question

True or False: The banking system can lend by a multiple of its excess reserves, but each individual bank can only lend dollar four dollar with its excess reserves because reserves lost by a single bank are not lost to the banking system as a whole.

answer

true

question

As the reserve requirements ratio increases

answer

the actual money multiplier would decrease

question

Each bank must limit its loans to the amount of its excess reserves because

answer

when customers spend the money they have borrowed, the bank is likely to lose reserves to other banks.

question

Although individual banks must limit their loans to the amount of their excess reserves, the banking system can make loans equal to a multiple of its excess reserves. The basic reason for this difference is that

answer

reserves lost by an individual bank are gained by other banks in the system.

question

Two "leakages" which dampen the money-creating potential of the banking system are _____ _____ and bankers hold _____ _____.

answer

currency drains and excess reserves

question

True or False: The fundamental objective of monetary policy is to assist the economy in achieving a full employment, noninflationary level of total output.

answer

true

question

The 3 tools of monetary policy are:

answer

open market operations, changing the reserve ratio, and changing the discount rate

question

Open market operations are:

answer

FED purchase or sale of government bonds on the open market.

question

Open-market operations involve

answer

the buying and selling of government securities by the Federal Reserve

question

The FED controls the money supply primarily through

answer

open-market operations

question

If the Federal Reserve Bank ______ (buys,sells) government bonds in the open market commercial bank reserves will be increased.

answer

buys

question

If the Federal Reserve desired to increase the lending ability of banks, it would

answer

buy government securities

question

To reduce the supply of money, the Federal Reserve

answer

sells government securities on the open market

question

When the FED buys government securities in the "open market"

answer

the money supply tends to expand

question

True or False: Raising the reserve ratio changes required reserves to excess reserves, thereby enhancing the ability of banks to create new money by lending.

answer

false

question

When the Federal Reserve increases the reserve requirement

answer

the lending ability of banks tends to contract.

question

An increase in the reserve requirements ratio would

answer

decrease the potential money multiplier

question

When the FED raises the reserve requirements ratio

answer

excess reserves are reduced

question

True or False: The reserve requirements are very powerful tools, thus the federal reserve uses it frequently.

answer

flase

question

The rate at which banks can borrow money from the FED is called

answer

the discount rate

question

Monetary policy makers may expand the money supply by

answer

cutting the discount rate

question

By ________ the discount rate the Federal Reserve makes it possible for banks to make more loans

answer

decreasing

question

Changes in the discount rate

answer

are generally regarded as an ineffective policy tool

question

Changes in the discount rate have little effect on the banking system's lending ability because

answer

banks are reluctant to borrow from the Federal Reserve

question

One of the weaknesses of the discount rate is that the federal reserve _______ make banks borrow from it

answer

cannot

question

True or False: The discount rate can have an announcement effect.

answer

true

question

When the Federal Reserve makes loans to member banks it is referred to as a lender _____ ______ _______.

answer

of last resort

question

The rate banks pay to borrow reserves from one another is called

answer

the federal funds rate

question

What 3 things should the federal reserve do for an easy monetary policy?

answer

decrease the required reserve ratio, decrease the discount rate, buy government securities

question

What 3 things should the federal reserve do for a tight monetary policy?

answer

increase the required reserve ratio, increase the discount rate, sell government securities

question

3 minor controls that the federal reserve can use are:

answer

margin requirements, consumer credit, and moral suasion

question

True or False: One of the weaknesses of monetary policy is that while the Federal Reserve can pursue an easy money policy, it cannot force banks to make loans to expand the money supply.

answer

true

question

True or False: The flatter the demand for money curve the larger will be the effect of any given change in the money supply upon the equilibrium rate of interest.

answer

false

question

True or False: A flat investment demand curve will mean that a change in the money supply will not elicit a very large change in investment.

answer

false

question

A ______ _______ refers to the situation where an increase in the GDP which occurs because of an easy monetary policy will in turn increase the demand for money, tending to partially offset or blunt the interest reducing effect of the easy monetary policy

answer

feedback effect

question

True or False: One of the weaknesses of monetary policy is that it is isolated from the political process.

answer

false

question

True or False: While it is true that monetary policy can be altered very quickly, it can take a long time before the effects of monetary policy show up in the economy.

answer

true

question

The equation of exchange is

answer

MV=PQ

question

___ is the money supply in the equation of exchange.

answer

question

___ is the velocity of money in the equation of exchange.

answer

question

___ is the price level in the equation of exchange.

answer

question

___ is the physical volume of goods and services produced in the equation of exchange.

answer

question

The algebraic statement of MV=PQ is known as

answer

the equation of exchange

question

According to the quantity theory of money

answer

the velocity of money is constant

question

True or False: Monetarists believe that although a change in M may cause short-run changes in real output and employment as market adjustment occur, the long-run impact of a change in M will be on the price level

answer

true

question

If an economist believes that velocity is stable, this economist is probably a

answer

monetarist

question

If an economist believes that velocity is unstable, this economist is probably a

answer

keynesian

question

True or False: Monetarists hold that changes in the money supply are the single most important factor in determining the levels of output, employment, and prices.

answer

true

question

Monetarists believe that the velocity of money is

answer

stable

question

True or False: Keynesians argue that the government has contributed to the instability of the business cycle through its clumsy and mistaken attempts to achieve greater stability through discretionary fiscal and monetary policy.

answer

false

question

True or False: Keynesians contend there are many loose links in the cause-effect chain or monetary policy with the result that monetary policy is an uncertain and relatively weak stabilization tool compared with fiscal policy.

answer

true

question

According to Keynes, monetary policy affects the level of output and income

answer

by altering the rate of interest

question

According to the Keynesian model, a reduction in the money supply will tend to

answer

reduce the level of investment spending

question

According to the Keynesian model, which would be an appropriate monetary policy action for a period of unemployment?

answer

the purchase of government securities by the FED

question

According to the Keynesian model, if the FED wanted to reduce inflationary pressures, which combinations of policies should it pursue?

answer

increase the reserve requirement, increase the discount rate, buy government securities

question

Equilibrium GDP would tend to increase if

answer

the reserve requirement was lowered

question

Monetary policy may be less effective in combating unemployment than it is in combating inflation because

answer

bankers may not use the additional reserves provided by the fed to make loans.

question

According to the classical economists, if the money supply doubled

answer

the price level would tend to double.

question

Monetarists contend that

answer

the economy is inherently stable

question

Monetarists tend to support

answer

a fixed rate of growth in the money supply

question

Monetarists support a "monetary rule." This means they would like to see

answer

the money supply increased at a constant annual rate

question

According to the monetarists view, Keynesian monetary policy which attempts to stabilize the economy

answer

has tended to make the performance of the economy worse than it would otherwise have been

question

According to monetarists, increases in government spending

answer

tend to crowd out investment spending

question

Monetarists do not believe that monetary policy should be used to manipulate or micromanage the economy. Instead they believe that the proper money policy is:

answer

a slow growth of the money supply

question

True or False: The monetarists believe that the monetary authorities should attempt to control interest rates

answer

false

question

The ______ ______ theory think that people behave rationally as does all of economics. market participants gather information and process it intelligently to form expectations about things in which they have a monetary stake.

answer

rational expectations

question

True or False: Rational expectations theory contends that the aggregate response of the public to its expectations will make discretionary stabilization policies very effective

answer

false

question

The _________ ________ ______ contends that businesses, consumers, and workers generally understand how the economy functions and effectively use available information to protect or further their own self interests.

answer

Rational Expectations Theory

question

The ______ ______ _____ assumes that people form their expectations of future inflation on the basis of previous and present rates of inflation and only gradually change their expectations as experience unfolds.

answer

Adaptive Expectations Theory

question

Supporters of the theory of rational expectations believe that Keynesian monetary and fiscal policy

answer

tend to be ineffective or counterproductive

question

Monetarists and rational expectations theorists both support

answer

a "monetary rule"

question

Monetarists and rational expectations theorists believe that if policy makers would avoid intervening in the economy

answer

unemployment and inflation would tend to be minimized

question

The ______ _____ shows that the greater the rate of growth of aggregate demand, the greater will be the resulting inflation and the greater the growth of real domestic output

answer

Phillips Curve

question

Phillips curve suggests that goals may be in conflict between

answer

full employment and price level stability

question

______ is when the economy is experiencing both inflation and unemplyment

answer

stagflation

question

Stagflation may be defined as

answer

high inflation combined with high unemployment

question

Stagflation presents problems for Keynesian monetary policy because

answer

it is impossible to increase and decrease spending at the same time

question

Keynesian economists contend that ____ _____ _____ cause stagflation in the 1970's

answer

aggregate supply shocks

question

The adaptive expectations theory distinguishes between a _____ ____ phillips curve and a _____ _____ Phillips Curve

answer

long run, short run

question

The ______ ______ ______ concludes that the economy is stable in the long-run at the natural rate of unemployment

answer

Natural rate hypothesis

question

According to the natural rate theory, one-shot expansionary macroeconomic policies can push unemployment below its natural rate

answer

in the short run, but it will return to the natural rate in the long-run

question

According to natural rate theory, macropolicy cannot influence the rate of

answer

unemployment in the long-run

question

_______ ______ economists contend that changes in aggregate supply-shifts in the long-run aggregate supply curve must be recognized as an "active" force in determining both the levels of inflation and unemployment

answer

Supply side

question

Which policy would not be supported by a supply-side economist?

answer

an increase in marginal tax rates to help pay off the public debt

question

Modern supply side policy stresses the idea that

answer

taxes and government spending critically affect aggregate supply

question

Supply-side economists believe that

answer

lowering tax rates will increase the incentive to work

question

The ______ curve shows the relationship between tax rates and tax revenue. As tax rates increase from 0 to 100 percent, tax revenue will increase from 0 to some maximum level and then decline to 0.

answer

Laffer

question

The Laffer curve shows that

answer

higher tax rates boost tax revenue up to a point; after that, higher taxes lower tax revenue

question

Tax rate reductions can yield more tax revenue if

answer

people respond by choosing much less leisure and more work

STUDY

Economics Federal Open Market Committee Macroeconomics Money Supply And Interest Rates New York Stock Exchange Savings And Loan Association

AP Macroeconomics: Ch. 6 – Flashcards 85 terms

Rebecca Baker

85 terms

Preview

AP Macroeconomics: Ch. 6 – Flashcards

question

assets

answer

An object that a business, household, or government owns, such as a building, equipment, or a loan made to others

question

Balance sheet

answer

a system of keeping track of a business's assets and liabilities over time

question

Bank Deregulation Act of 1980

answer

A law enacted by Congress that introduced several changes into the banking sector such as the requirement that all banks follow the required reserve ratio that the Feds mandate

question

Bank run

answer

A situation in banking in which a bank's depositors want to remove all their deposits at the same time; since a fractional reserve bank does not keep all its depositors fund, it cannot deal with this situation and is forced out of business

question

Check clearing

answer

The process of taking checks deposited at one bank, sending the, to their issuers' bank, and adjusting the banks' Federal Reserve accounts in order to transfer the funds between them

question

Checking account

answer

Money a household deposits at a bank; the household can make purchases using checks drawn on account. The recipient of a check presents it to the bank and receives money, which the bank deducts from the household's checking account

question

Commodity Money

answer

Money that has uses in addition to being a medium of exchange, a unit of account, and a store of value. in other words, money that has intrinsic value

question

Credit card

answer

A card that can be used to purchase goods and services electronically; the credit card company reimburses the vendor and issues a loan to the purchaser

question

Credit Union

answer

A type of financial intermediacy that only accepts deposits from and only makes loans to certain types of workers

question

Currency in Circulation

answer

The paper money and coins used to pay for daily expenditures in the economy

question

Debit card

answer

A card that can be used to purchase goods and services electronically; the bank reimburses the vendor that accepts the debit card as payment and then deducts that purchase from a checking account

question

Demand deposits

answer

Checking account deposits ; traditionally, these deposits do not earn interest

question

Discount rate

answer

The interest rate the Fed charges to banks fir discount window loans

question

Discount Window Loan

answer

An overnight loan issued by the Fed to allow a bank to meet its reserve requirement at the end of the day

question

Disintermediation

answer

A situation that occurs when depositors withdraw their money from financial intermediaries

question

Excess Reserves

answer

The total deposits at a bank minus its required reserves

question

Federal Deposit Insurance Corporation (FDIC)

answer

An insurance program administered by the federal government that guarantees up to $100,000 of an individual's deposits in a bank

question

Federal funds market

answer

A loanable funds market in which banks borrow and lend funds to other banks

question

Federal Open Market Committee (FOMC)

answer

A group composed of the Board if Governors, the president of New York district's Fed bank, and the presidents of four other Fed district banks. This group selects the open market monetary policy the Federal Reserve will implement

question

Federal Reserve Act of 1913

answer

A law enacted in 1913 that established the Federal Reserve and made it responsible for providing money for economic activity and overseeing the health of banks and the economy

question

Federal reserve board of Governors

answer

A group of seven governors, each of whom is appointed by the president and confirmed by the Senate to one, 14-year term. The board helps to manage the Federal Reserve

question

Federal Reserve District Bank

answer

A part of the Federal Reserve that implements its policy and keeps track if economic activity for a certain geographic region of the nation

question

Federal Savings and Loan Insurance Corporation (FSLIC)

answer

A now defunct insurance program administered by the federal government, similar to FDIC except it insured deposits at savings and loan associations; it went bankrupt during the Saving and Loan Crisis of 1980s

question

Fiat Money

answer

Money that has no use besides being a medium of exchange, a unit of account, and a store of value. In other words, money with no intrinsic value

question

Fractional reserve banking

answer

A banking system in which banks keep a small share ( a fraction) of their depositors' funds on hand (in reserve) and loan out the rest; banks do not keep all of their depositors funds

question

Gold standard

answer

A type of fiat currency in which government agrees to buy and sell gold for currency it issues

question

Gresham's law

answer

Bad money drives good money out of circulation; the type of commodity money that has the lowest intrinsic value will become the dominant type of money, and the money with the highest intrinsic value be hoarded rather used as money

question

Large time deposits

answer

A financial instrument is similar to a savings account since it earns interest; the account is more than $100,000, the funds are deposited for less than 90 days but for a specified length of time, and theres a penalty for early withdraw of funds

question

Lender of last resort

answer

A duty of the Federal Reserve, which is to lend funds to banks that cannot obtain the funds from anywhere else

question

Liability

answer

An object that a business, households, or government owes such as a loan received from others

question

Life insurance company

answer

A company that takes small amounts of money from a large group of policy holders, invests the money, and then pays large amounts of money to the beneficiaries of the small number of policy holders who die

question

Liquidity

answer

The ease with which an asset can be converted into its full cash value

question

answer

A measure of the most liquid parts of the money stock; m1 is the sum of the currency in circulation, the value of demand deposits, and the value of traveler's checks

question

answer

A measure if the money stock; m2 = m1+less liquid forms of money, which include saving deposits, small time deposits, and money market mutual funds

question

answer

A measure of the money stock; M3 = M2 + near monies

question

Money demand

answer

An inverse relationship that shows the amount of money households want to hold at various interest rates; at higher interest rates, people want to hold less money, and at lower interest rates people want to hold more money, ceteris paribus

question

Money demand curve

answer

A graphical representation of money demand

question

Money multiplier

answer

The increase or decrease in the money supply when the Fed increase or decreases excess reserves by one dollar; the reciprocal of the required reserve ratio

question

Money stock

answer

The amount of money in an economy at a point in time

question

Mortgage

answer

A longterm loan used to purchase real estate

question

Near monies

answer

A group of least liquid types of money, such a large time deposits

question

Net worth

answer

Assets minus liabilties

question

Open market operations

answer

The sales and purchases if Treasury bonds by the Fed, with the intent of changing the money supply and interest rates

question

Pension fund

answer

A financial organization that invests the savings of a large number of workers and then uses the funds to provide the workers with a source of income when they retire

question

Portfolio motive

answer

The desire to hold money, instead of investing it in financial instrument, to diversify a household's portfolio of assets

question

Precautionary Motive

answer

The desire to hold money, instead of investing it in a financial instrument, to pay for future unexpected expenditures

question

Purchasing power

answer

The goods and service an amount of money can purchase

question

Required reserve ratio

answer

The ratio of (a) the deposits a bank does not loan to other to (b) the total deposits at the bank; this ratio is determined by the government and must be met by all banks

question

Saving account

answer

Money a household keeps in a bank to earn interest payments, to keep the money safe, and to all easy access to their funds

question

Saving and loan association

answer

A type of financial intermediary that accepts the long-term deposits and specializes in making longterm loans for real estate purchases

question

Savings and loan crisis

answer

A collapse of many saving and loan associations in the late 1980s caused by improper deregulation and risk investments; it required the federal government to spend large amounts if money to correct the situtation

question

Small time deposits

answer

A financial instrument similar to a savings account since it earns interest; the account is less than $100,000, the funds are deposited for less than 90 days but for a specified length of time, and theres a penalty for early withdraw of funds

question

Store of value

answer

An object that can be used to hold onto purchasing power

question

Thrift

answer

A type of financial intermediary that uses depositors funds to make loans; credit union and saving and loan associations are types of thrifts

question

Transaction Motive

answer

The desire to hold money, instead of investing it in a financial instrument, because money enable a households to purchase goods and services

question

Traveler's Checks

answer

A check issued by a financial intermediary that household can use as they use a regular check

question

Unit of account

answer

An object that can be used to measure the value of a good or service

question

Velocity of money

answer

The number of times, on average, that a dollar is used to purchase final goods and services over a period of one year

question

Bond re-sale market

answer

A market in which people can buy and sell bins that were previously issued

question

Contractionary monetary policy

answer

Monetary policy with the goal of decreasing the money supply; this policy is usually used to deal with inflation

question

Coupon payment

answer

Periodic interest payments made by bond issuers to bond holders

question

Equation of exchange

answer

The quantity of money(M) multiplied by the money's velocity (v) equals nominal GDP, which equals the price level (P) multiplied by the real GDP(Q); M times V equals P times Q

question

Equilibrium Interest Rate

answer

The interest rate at which the quantity of money supplied equals the quantity of money demanded; the money supply curve and money demand curve intersect at the equilibrium interest rate

question

Expansionary Monetary Policy

answer

Monetary policy with the goal of increasing the money supply; this policy is usually used to deal with a recession

question

Identity

answer

A relationship that is true by definition

question

Maturity date

answer

The time at which the bond issuer pays the bond holder the money that was initially borrowed with the bond

question

Monetarism

answer

The belief that the fed's monetary policy should be to grow the money supply at a constant rate

question

Monetarist

answer

A person who believes in monetarism

question

Money supply curve

answer

A graphical representation of money supply; since the Fed determines the money supply, the money supply curve is a vertical line

question

New York Stock Exchange

answer

A large market in which people can buy and sell shares of stock of certain corporations

question

Quantity theory of money

answer

A theory holding that a change in the money supply leads to a change in the price level, but nit to a change in RGDP

question

Repurchase agreement

answer

A type of loan that a bank receives from its customers

question

Treasury securities

answer

Bond issued by the US Treasury Department

question

Paul Volcker

answer

The chairman of the Fed during the late 1970s and early 1980s who presided over a contradictory monetary policy to combat inflation

question

Adaptive Expectations Theory

answer

The idea that people make their decisions based on information from the recent past

question

Richard Brumberg

answer

(1930-1955) an economist who helped develop the life cycle theory of consumption concurrently with Friedman's development of the permanent income theory of consumption

question

Milton Friedman

answer

(1912-) an american economist who advocates the laissez faire approach to fiscal policy and who developed the permanent income theory of consumption

question

Full-Employment and Balanced Growth Act 1978

answer

A law that reiterated the intentions of the Employment Act if 1946

question

Long-run Phillips curve

answer

Based on the natural rate hypothesis, the long-run Phillips curve is a vertical line at the natural rate of unemployment, on a graph comparing inflation and unemployment rates

question

Franco Modigliani

answer

(1918-) an economist who helped to develop the life-cycle theory of consumption concurrently with Friedman's development of the permanent income theory of consumption

question

Natural rate hypothesis

answer

Certain real variables have natural rates of growth that they follow in the long run; many times, this hypothesis refers to the assumption that there is a natural rate of unemployment to which the economy will always return, in the long run

question

Permanent income theory of consumption

answer

The idea that people base their consumption decisions on the income they expect to earn over their lifetime; this is in contrast to the Keynesian approach of basing consumption on current income

question

Phillips curve

answer

The graphical representation of a hypothesized inverse relationship between the unemployment rate and the rate if inflation

question

Rational expectations theory

answer

The idea that people make their decisions based in all the information they can gather, including events form the recent past, new media reports, and their understanding of how the economy works

question

Supply-side economics

answer

The idea that the government should encourage economic growth by using fiscal policies to alter aggregate supply, by reducing taxes and decreasing cumbersome regulations, for example

STUDY

Economics Federal Open Market Committee Monetary Economics Principles Of Economics: Macroeconomics Savings And Loan Association Savings And Loan Associations

Macroeconomics Chapter 24 – Money, the Price Level and Inflation – Flashcards 55 terms

William Hopper

55 terms

Preview

Macroeconomics Chapter 24 – Money, the Price Level and Inflation – Flashcards

question

What is money?

answer

Any commodity or bill/token that is generally acceptable as a means of payment

question

What is a means of payment?

answer

A method of settling a debt

question

What are the functions of money?

answer

1) A means of payment 2) Medium of exchange 3) Unit of account 4) Store of value

question

Explain the role of money as a medium of exchange

answer

A medium of exchange is an object that is generally accepted for goods and services

question

What occurs in the absence of money?

answer

People would need to exchange goods and services directly in a process called bartering Bartering is costly and requires double coincidence of wants

question

Explain the role of money as a unit of account

answer

A unit of account is an agreed measure for stating the price of goods and services

question

Explain the role of money as a store of value

answer

As a store of value, money can be held for a time and later exchanged for goods and services

question

What is currency?

answer

Notes and coins held by individuals and buisnesses

question

What does M1 consist of?

answer

M1 consists of currency held by individuals and businessess plus chequable deposits owned by individuals and buisnesses

question

What does M2 consist of?

answer

M2 consists of M1 plus all other deposits - non-chequable deposits and fixed term deposits

question

Is M1 considered money?

answer

Yes. All items in M1 are a means of payment and can act as money.

question

Is M2 considered money?

answer

No. Some savings deposits in M2 are not means of payments but are liquid assets

question

Define liquidity

answer

The property of being instantly convertible into a means of payment with little loss of value

question

Compare deposits and cheques in terms of being used as money

answer

Deposits are money but cheques are not A cheque is an instruction to a bank to transfer money

question

Is a credit card considered money?

answer

Credit cards are not money A credit card enables the holder to obtain a loan, which is repaid with money

question

Define a depository institution

answer

A firm that takes deposits from households and firms and makes loans to other households and firms

question

What are the three depository institutions in a nation?

answer

1) Chartered banks 2) Credit unions and caisses populaires 3) Trust and mortgage loan companies

question

What is a chartered bank?

answer

A chartered bank is a private firm that can receive deposits and make loans

question

What is a credit union?

answer

A cooperative organization that receives deposits from and makes loans to its members

question

What is the goal of any bank?

answer

To maximize wealth

question

How do banks maximize wealth?

answer

To maximize wealth, the interest rate at which banks lends must exceed the interest rate it pays on deposits Loans generate profit Depositors must be able to obtain their funds when they want

question

What are reserves?

answer

Notes and coins in a chartered banks vault or the banks deposit at the Bank of Canada

question

What are liquid assets?

answer

Canadian government Treasury bills and commercial bills

question

What are securities?

answer

Longer-term Canadian bonds and other bonds such as mortgage-backed securities

question

What are loans?

answer

Commitments of fixed amounts of money for agreed-upon periods of time

question

How do depository institutions make a profit?

answer

Depository institutions make a profit from the spread between the interest rate they pay on their deposits and the interest rate they charge on their loans

question

What benefits do depository institutions provide?

answer

1) Create liquidity 2) Pool risk 3) Lower the cost of borrowing 4) Lower the cost of monitoring borrowers

question

What is the central bank?

answer

The public authority that regulates a nation's depository institutions and controls the quantity of money

question

What are the roles of the Bank of Canada (central bank)?

answer

1) Banker to the banks and government 2) Lender of last resort 3) Sole issuer of banks notes

question

What does it mean for the central bank to be the banker to the banks and government?

answer

Accepts deposits from depository institutions that make up the payments system and the government of Canada

question

What does it mean for the central bank to be the lender of last resort?

answer

The central bank stands ready to make loans when the banking system as a whole is short of reserves Banks lend and borrow reserves from other banks in the overnight loans market

question

What does it mean for the central bank to be the sole issuer of banks notes?

answer

Only the central bank is permitted to issue bank notes

question

What is the Bank of Canada's Balance sheet?

answer

The Bank of Canada's assets are government securities (bond) and last resort loans to banks Its liabilities are Bank of Canada notes and deposits of banks and the government

question

What is the monetary base?

answer

Sum of Bank of Canada notes outside the Bank of Canada, banks' deposits at the Bank of Canada, and coins held by households, firms, and banks

question

How does the Bank of Canada change the monetary base?

answer

Conducts open market operation, which is the purchase/sale of government of Canada securities (bonds) by the Bank of Canada in the open market

question

What is an open market operation?

answer

The purchase/sale of government securities by the Bank of Canada from/to a chartered bank When the Bank of Canada buys securities (bonds), it pays for them with newly created reserves held by the banks When the Bank of Canada sells securities (bonds), it is paid for with reserves held by the banks

question

What occurs in an open market purchase?

answer

Open market purchase increases bank reserves This is because in order to buy the securities (bonds), the central bank pays for it with newly created reserves

question

What occurs in an open market sale?

answer

Open market sales decrease bank reserves This is because in order when selling the securities (bonds), the central bank is paid with reserves from banks

question

How do banks create deposits?

answer

Banks create deposits when they make loans and the new deposits created are new money

question

What factors limit the quantity of deposits a bank can create?

answer

1) The monetary base 2) Desired reserves 3) Desired currency holding

question

How does the monetary base limit the quantity of deposits a bank can create?

answer

Monetary base is the sum of bank of Canada notes, coins, and banks' deposits at the Bank of Canada Size of monetary banks limits the total quantity of money that the banking system can create because: 1) Banks have desired reserves 2) Households and firms have desired currency holdings

question

What is a bank's actual reserves?

answer

Consists of notes and coins in its vault and its deposit at the Bank of Canada

question

What is the desired reserve ratio?

answer

Ratio of the bank's reserves to total deposits that a bank plans to hold The desired reserve ratio exceeds the required reserve ratio by the amount that the banks determines prudent for its daily buisnesses

question

What is desired currency holding?

answer

People hold some fraction of their money as currency If total quantity of money increases, so does the quantity of currency that people plan to hold As desired currency holding increases when deposits increase, currency leaves the banks when they make loans and increase deposits

question

What is currency drain?

answer

Ratio of currency to deposits; leakage of reserves into currency

question

How do you calculate excess reserves?

answer

Excess reserves = Actual reserves - desired reserves

question

Outline the money creation process

answer

Money creation process begins with an increase in the monetary base The Bank of Canada conducts an open market operation in which it buys securities from banks The Bank of Canada pays for the securities with newly created bank reserves Banks now have more reserves but the same amount of deposits, so they have excess reserves

question

What is the money multiplier?

answer

Ratio of the change in quantity of money to the change in monetary base Money multiplier = (change in quantity of money)/(change in monetary base)

question

What factors influence the quantity of money people plan to hold?

answer

1) The price level 2) The nominal interest rate 3) Real GDP 4) Financial innovation

question

How does the price level influence the quantity of money people plan to hold?

answer

A rise in price level increases quantity of nominal money but does not change the quantity of real money people plan to hold Quantity of nominal money demanded is proportional to the price level - 10% rise in price level increases quantity of nominal demanded by 10%

question

What is nominal money?

answer

Amount of money measured in dollars

question

What is real money?

answer

Equals nominal money divided by price level

question

How does the nominal interest rate influence the amount of money held?

answer

The nominal interest rate is the opportunity cost of holding wealth in the form of money rather than an interest-bearing asset A rise in the nominal interest rate on other assets decrease the quantity of real money people plan to hold

question

How does real GDP influence the amount of money held?

answer

An increase in real GDP increases the volume of expenditure, which increases the quantity of real money that people plan to hold

question

How does financial innovation influence the amount of money held?

answer

Financial innovation lowers the cost of switching between money and interest-bearing assets, which decreases the quantity of real money that people plan to hold

STUDY

Federal Open Market Committee Less Than One Year True False Questions

FINC 409 – Chapter 5 – Practice Problems – Flashcards 106 terms

Chad Lipe

106 terms

Preview

FINC 409 – Chapter 5 – Practice Problems – Flashcards

question

True or False: The relationship between the money supply and demand affects the level of prices and economic activity in our market economy.

answer

True

question

True or False: The output of goods and services in an economy is referred to as the gross domestic product.

answer

True

question

True or False: The United States economy has little influence on the economies of other nations.

answer

False

question

True or False: Nations that export more than they import will have a trade deficit.

answer

False

question

True or False: Traditionally, the federal government should provide services that cannot be provided as efficiently by the private sector.

answer

True

question

True or False: A government raises funds to pay for its activities in only two ways: levies taxes or prints money for its own use.

answer

False

question

True or False: Monetizing the debt occurs when the Fed increases the money supply by purchasing government securities.

answer

True

question

True or False: Commercial banks are one of the four policy making groups.

answer

False

question

True or False: The President of the United States and the Fed formulate a program of fiscal policy.

answer

False

question

True or False: The U.S. Treasury has primary responsibility for management of the federal debt.

answer

True

question

True or False: The President of the United States formulates budgetary and fiscal policy, but Congress must enact legislation to implement these policies.

answer

True

question

True or False: Although the Treasury has vast power to affect the supply of money and credit, the Treasury largely limits its actions to taxing, borrowing, paying bills, and refunding maturing obligations.

answer

True

question

True or False: The Treasury's primary checkable deposit accounts for day-to-day operations are kept at several commercial banks in large cities.

answer

False

question

True or False: The Fed closely monitors the Treasury account and takes any changes into consideration in conducting daily open market operations in order to minimize the effect on bank reserves.

answer

True

question

True or False: The U.S. government may influence monetary and credit conditions indirectly through taxation and expenditure programs.

answer

True

question

True or False: Unemployment and welfare benefits are examples of transfer payments for which no current productive services are given in return.

answer

True

question

True or False: A primary Treasury objective is to maintain satisfactory conditions in the government securities market through maintaining investor confidence.

answer

False

question

True or False: The Fed can increase the money supply to help offset the demand for increased funds to finance the deficit.

answer

True

question

True or False: In the fractional reserve system, banks must hold, with the Fed, reserves equal to a certain percentage of their deposits.

answer

True

question

True or False: The deposit of a check drawn on the Fed is a derivative deposit because it adds new reserves to the bank where deposited and to the banking system.

answer

False

question

True or False: The U.S. Treasury is responsible for refinancing the outstanding debt of the government.

answer

True

question

True or False: The money multiplier indicates the maximum increase in deposits (and money supply) that can result from a given increase in excess reserves.

answer

True

question

True or False: If required reserves are larger than the total reserves of an institution, the difference is called excess reserves.

answer

False

question

True or False: One of the reasons open market operations are conducted virtually every business day is to implement changes in the money supply called for by the Federal Open Market Committee.

answer

True

question

True or False: The monetary base is the banking system reserves, plus currency held by the public.

answer

True

question

True or False: The velocity of money is expressed as the average number of times each dollar is spend on purchases of goods and services, and it is calculated as real GDP divided by M1.

answer

False

question

True or False: The U.S. Treasury has little power to influence money markets.

answer

False

question

True or False: The President of the United States has no influence over the Federal Reserve System nor exerts any pressure on the Fed.

answer

False

question

True or False: The Fed plays a significant role in tax policy.

answer

False

question

True or False: Aggregate demand refers to total spending in the economy.

answer

True

question

True or False: Tax receipts tend to increase during economic downturns.

answer

False

question

True or False: Transfer payments are income payments for which no current productive service is rendered.

answer

True

question

True or False: High inflation has been a significant problem in the United States during the past decade.

answer

False

question

True or False: The fiscal policy effects of a tax cut occur more slowly than an increase in government spending.

answer

False

question

True or False: "Crowding out" caused by deficit financing can result in tighter credit conditions and higher interest rates.

answer

True

question

True or False: Required reserves are the minimum amount of total reserves that a depository institution must hold.

answer

True

question

True or False: The velocity of money measures the rate at which wire transfers can be transmitted to overseas banks.

answer

False

question

True or False: U.S. economic policy actions are directed toward the four general goals of economic growth, high employment, price stability, and balance in international transactions.

answer

True

question

True or False: Inflation occurs when an increase in the price of goods or services is more than offset by an increase in quality.

answer

False

question

True or False: The four groups of policy makers that are actively involved in achieving the nation's economic policy objectives are the Federal Reserve System, the President, Congress, and the U.S. Treasury.

answer

True

question

True or False: The government body primarily responsible for monetary policy is Congress.

answer

False

question

True or False: The branch of government primarily responsible for the formulation of fiscal policy is the President and his Council of Economic Advisors.

answer

False

question

True or False: The branch of government primarily responsible for the formulation of fiscal policy is the U.S. Senate.

answer

False

question

True or False: Automatic stabilizers include trade deficits, budget deficits, and floating exchange rates.

answer

False

question

True or False: When a government borrows to finance budget deficits, crowding out may occur, which results in a restriction of available funds for private sector borrowers due to public sector demand.

answer

True

question

True or False: Primary deposits are deposits that add new reserves to a bank while secondary deposits are deposits that were borrowed from the reserves of primary deposits.

answer

False

question

The U.S. Treasury is primarily responsible for: a. monetary policy b. debt management c. fiscal policy d. the money supply

answer

debt management

question

Examples of automatic stabilizers are: a. open market operations b. changes in the discount rate c. unemployment insurance d. issuance of currency

answer

unemployment insurance

question

Automatic stabilizers include all of the following except: a. unemployment insurance b. social security c. welfare d. pay-as-you-go tax system

answer

social security

question

Almost all Treasury disbursements are made by: a. checks drawn directly on the U.S. Treasury b. check drawn against deposits at commercial banks in large cities c. drafts drawn on member banks d. checks drawn against deposits at Federal Reserve Banks

answer

checks drawn against deposits at Federal Reserve Banks

question

When the United States Treasury makes a payment to an individual or business, it usually takes the form of a: a. check drawn on a Federal Reserve Bank b. check drawn directly against the U.S. Treasury c. special Treasury voucher d. check drawn against a bank in which tax balances are held

answer

check drawn on a Federal Reserve Bank

question

When the United States Treasury makes a payment to an individual or business, it usually takes the form of a: a. check drawn on the Central Bank of China b. check drawn directly against the U.S. Treasury c. special Treasury voucher d. check drawn against a bank in which tax balances are held e. none of the above

answer

none of the above

question

The budget-making process is carried out by: a. Congress b. U.S. Treasury c. the President d. U.S. Treasury in cooperation with the Fed e. both a and c

answer

both a and c Congress & the President

question

Budgetary deficits always have the effect of: a. creating inflationary pressures b. crowding out private lenders c. forcing the Federal Reserve to buy government securities d. creating governmental competition for private investment funds

answer

creating governmental competition for private investment funds

question

U.S. debt management, which is an important function of the Treasury, is generally designed to: a. lower interest rates b. stimulate economic activity c. encourage orderly economic growth and stability d. all three of the above, a, b, and c

answer

encourage orderly economic growth and stability

question

Price inflation: a. is relatively unimportant to individuals b. is considered to be acceptable in the nation's quest for high levels of employment c. courages investment by increasing the uncertainty about future returns d. is almost always due to financing wars

answer

courages investment by increasing the uncertainty about future returns

question

Price inflation: a. is relatively unimportant to individuals b. is considered to be acceptable in the nation's quest for high levels of employment c. encourages investment by reducing the uncertainty about future returns d. is almost always due to financing wars e.none of the above

answer

none of the above

question

The federal government pays for the services it provides primarily through: a taxation b. creating money c. borrowing d. selling assets owned by the government

answer

taxation

question

The federal government pays for the services it provides primarily through: a. service fees b. creating money c. borrowing d. selling assets owned by the government e.none of the above

answer

none of the above

question

Federal Reserve open market operations, setting reserve requirement, and lending to depositories are: a. usually conducted simultaneously b. all designed to have their effect by influencing the reserves of depository institutions c. of equal importance in their effort d. functions shared with the U.S. Treasury

answer

all designed to have their effect by influencing the reserves of depository institutions

question

Federal Reserve open market operations, setting reserve requirement, and lending to depositories are: a. usually conducted simultaneously b. designed to improve the federal deficit c. of equal importance in their effort d. functions shared with the U.S. Treasury e . none of the above

answer

none of the above

question

Open Market operations differ from discounting operations in that they are" a. initiated by member depository institutions. b. designed to be of significance only to large city banks c. initiated by the President d. initiated by Congress e. none of the above

answer

e. none of the above

question

Various programs of the federal government help stabilize disposable income, and in turn, economic activity in general. In so doing: a. income tax rates may be lowered during periods of prosperity and increased during slack economic periods b. some programs act on a continuing basis and are described as automatic stabilizers c. the timing of sale of U.S. savings bonds is instrumental in accomplishing this objective d. these programs seldom attain their goals

answer

b. some programs act on a continuing basis and are described as automatic stabilizers

question

Various programs of the federal government help stabilize disposable income, and in turn, economic activity in general. In so doing: a. income tax rates may be lowered during periods of prosperity and increased during slack economic periods b. these programs waste valuable resources c. the timing of sale of U.S. savings bonds is instrumental in accomplishing this objective d. these programs seldom attain their goals e. none of the above

answer

e. none of the above

question

Continuing federal programs that stabilize economic activity are called a. transfer payments b. automatic stabilizers c. social insurance programs d. none of the above

answer

b. automatic stabilizers

question

Continuing federal programs that stabilize economic activity are called a. transfer payments b. leveling programs c. social insurance programs d. socialist spending e. none of the above

answer

e. none of the above

question

Currently, the backing for Federal Reserves notes is primarily in the form of: a. gold certificates b. gold bullion c. eligible paper (business notes and drafts) d. none of the above

answer

d. none of the above.

question

Debt management of the federal government includes: a. determining which types of refunding to implement b. determining the types of securities to sell c. deciding which interest rate patterns to use d. all the above

answer

d. all of the above

question

answer

e. answers a, b, and c are correct

question

Debt management includes all of the following except: a. the types of securities to sell b. the interest rate patterns to use c. the required reserves ratio d. all of the above are included in debt management

answer

c. the required reserves ratio

question

Under required reserves of 20%, the maximum to which the money supply could be expanded by the banking system is: (Pick the closest answer.) a four times a new primary deposit b. five times a new primary deposit c. six times a new primary deposit d. until all of a new primary deposit has been converted to required reserves

answer

a. four times a new primary deposit

question

One factor that decreases the volume of bank reserves is a decrease in: a. the public's demand for currency to be held outside the banking system b. the reserve requirement ratio c. life insurance company reserves d. Federal Reserve float

answer

d. Federal Reserve float

question

One factor that decreases the volume of bank reserves is a(n): a. increase in the public's demand for currency to be held outside the banking system b. decrease in the reserve requirement ratio c. increase in life insurance company reserves d. increase in Federal Reserve Float e. none of the above

answer

a. increase in the public's demand for currency to be held outside the banking system

question

Bank reserves are increased when the Treasury: a. sells Treasury bonds to individuals b. decreases its holding of cash c. increases its account at a Federal Reserve bank d. none of the above

answer

b. decreases its holding of cash

question

Bank reserves are increased when the Treasury: a. sells Treasury bonds to individuals b. needs to increase its payment of funds from its accounts at the Reserve Banks c. increases its account at a Federal Reserve bank d. increases its holding of cash e. none of the above

answer

e. none of the above

question

Which one of the following transactions or operations is entirely at the initiative of the Federal Reserve? a. open market operations b. change in float c. change in bank borrowings d. change in Treasury cash holdings

answer

a. open market operations

question

The monetary base: a. equals the money supply b. consists of checkable and noncheckable deposits c. consists of bank reserves, plus currency held by the public d. equals the money multiplier, plus bank reserves

answer

c. consists of bank reserves, plus currency held by the public

question

Changes in the growth rates for money supply and money velocity affect the growth rate in: a. real economic activity b. the rate of inflation c. the turnover of goods and services d. both a and b

answer

d. both a and b

question

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: a. the lending bank would lose all of its excess reserves b. the lending bank would still have reserves to lend c. the full amount would be added to the receiving bank's excess reserves d. both a and c

answer

a. the lending bank would lose all of its excess reserves

question

Total reserves in the banking system consist of: a. vault cash held at commercial banks and other depository institutions b. reserve deposits held at Federal Reserve banks c. currency in circulation d. both a and b

answer

a. both a and b

question

When a customer demands additional currency by cashing a check for $500, all of the following occur except: a. the deposits of the bank are reduced $500 b. required reserves are reduced c. Federal Reserves notes decrease d. additional reserves must be acquired if the bank has no excess reserves

answer

c. Federal Reserves notes decrease

question

Bank reserves are not affected by: a. the purchase of government bonds by the Fed b. changes in reserve requirements c. the sale of government bonds by the Fed d. changes in the level of deposits of foreign banks at the Federal Reserve banks e. all of the above affect bank reserves

answer

a. the purchase of government bonds by the Fed

question

In our financial system, the money multiplier: a. is not affected by the Federal Reserve b. can fluctuate over time c. is not affected by the nonbank public d. is not affected by the U.S. Treasury

answer

b. can fluctuate over time

question

The U.S. banking system has the ability to alter the size of the money supply because of the use of: a. a 100% reserve system b. a fractional reserve system c. the Federal Reserve System's excess reserves d. Federal Reserve notes issued by the U.S. Treasury

answer

b. a fractional reserve system

question

Assume that a bank receives a primary deposit of $1,000, and the reserve requirement is 15%. Which of the following would reflect the asset side of the balance sheet after a maximum loan amount has just been made (i.e. before the check on the new loan is deposited in another bank)? a. reserves of $1,000 b. deposits of $1,000 c. reserves of $1,000 and loans of $150 d. reserves of $1,000 and loans of $850

answer

d. reserves of $1000 and loans of $850

question

Which of the following statements is most correct? a. Bank reserves are not affected by transactions involving the Treasury. b. 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. c. Total bank reserves in the banking system consist of bank's member bank deposits held in Federal Reserve Banks, plus non-member banks vault cash. d. Federal Reserve notes have been increasingly backed by gold certificates and eligible paper in recent years.

answer

b. 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

question

Which of the following statements is most correct? a. A monetary base of $5 million and a money multiplier of 5 means that the money supply will be $1 million. b. The magnitude of the money multiplier today is in the 8 to 9 range. c. The money multiplier is influenced by the public's switching between checkable and noncheckable deposits at their banks. d. The monetary base multiplied by the money multiplier calculates the amount of required reserves for the banking system as a whole.

answer

c. The money multiplier is influenced by the public's switching between checkable and non checkable deposits at their banks.

question

Which of the following statements is false? a. The multiplying capacity of primary deposits is hindered by cash leakages from the banking system. b. The monetary base is defined as bank reserves plus currency held by the nonbank public. c. 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. d. All the above statements are correct.

answer

d. all the above statements are correct

question

Which of the following statements is false? a. The difference between total reserves and the monetary base is currency held by the nonbank public. b. 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. c. The ability to predict M1 velocity, in addition to money supply changes, is important in achieving successful monetary policy making. d. A derivative deposit arising out of a loan from Bank A is transferred by check to Bank B, where reserve requirement are again imposed.

answer

b. 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

question

To equal M1 money supply, the monetary base: a. is multiplied by the money multiplier b. is added to by the money multiplier c. is subtracted from the money multiplier d. none of the above

answer

a. is multiplied by the money multiplier

question

Total bank reserves do not include which of the following? a. deficit reserves b. excess reserves c. required reserves d. all the above are included in total bank reserves

answer

a. deficit reserves

question

The government entity responsible for fiscal policy is: a. the U.S. Treasury b. the Federal Reserve c. the Congress d. the President e.both c and d

answer

e. both c and d

question

Government financing of large budgetary deficits: a. absorbs savings which decreases interest rates b. may crowd out private borrowers c. is known as monetizing the deficit d. increases savings which increases interest rates

answer

b. may crowd out private borrowers

question

Deposits that add new reserves to the bank where they are deposited are called: A. primary deposits b. derivative deposits c. secondary deposits d. Special Drawing Rights

answer

a. primary deposits

question

Transactions that affect bank reserves can be initiated by the: a. nonbank public b. Federal Reserve System c. U. S. Treasury d. all the above

answer

d. all the above

question

A country's economic policy actions are directed toward all of the following goals EXCEPT: a. balance in the federal budget b. high employment c. price stability d. all of the above are primary policy goals

answer

a. balance in the federal budget

question

A country's economic policy actions are directed toward all of the following goals EXCEPT: a. economic growth b. high employment c. price stability d. all of the above are primary policy goals

answer

d. all of the above are primary policy goals

question

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. a. American Reconstruction and Reconfiguration Act of 2009 b. American Real Estate and Reconstruction Act of 2009 c. American Real Estate Reinvestment Act of 2009 d. American Recovery and Reinvestment Act of 2009 e. none of the above

answer

d. American Recovery and Reinvestment Act of 2009

question

A primary focus of the Economic Stabilization Act of 2008, which became know as the ___________________________, was to allow the U.S. Treasury purchase up to $700 billion of troubled or toxic assets held by financial institutions. a. Troubled Asset Relief Program (TARP) b. Toxic Asset Recovery Program (TARP) c. Troubled Area Relief Program (TARP) d. Toxic Area Recovery Program (TARP) e.none of the above

answer

a. Troubled Asset Relief Program

question

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. a. Economic Stimulus Act b. Economic Recovery Act c. Economic Stabilization Act d. Economic Booster Act e.none of the above

answer

c. Economic Stabilization Act

question

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. a. Fannie Mae and Freddie Mac b. the Federal Treasury and the Federal Reserve c. Morgan Stanley and Smith Barney d. Washington Mutual and Lehman Brothers e.none of the above

answer

a. Fannie Mae and Freddie Mac

question

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 a. moved to increase liquidity in the monetary system and reduced its target federal funds rate to below .25 percent. b. worked with the U.S. Treasury to help facilitate the merging of financially weak institutions with institutions that were financially stronger. c. both a and b are true d. none of the above are true

answer

c. both a and b are true

question

During the 2007 - 2009 financial crisis, many major financial institutions and business corporations were on the verge of collapse or failure; however, some of the very largest corporations and financial institutions were deemed as being ________ because their failure would cause cascading negative repercussions throughout the U.S. and many foreign economies. a. toxic firms b. boat rockers. c. too large to ignore d. too big to fail e. none of the above

answer

d. none of the above

question

The "perfect financial storm" that developed in 2008, which put the U.S. economy was on the verge of collapse was characterized by all of the following EXCEPT: a. The housing price "bubble" burst in 2006 and began a sharp decline. b. Stock market prices peaked in 2007 and began a sharp decline. c. Many of the mortgage-related debt securities originated and sold to others, or held, by banks became difficult to value during the perfect financial storm and quickly became known as "troubled" or "tonic" assets. d. Individuals and businesses were defaulting on loans and home mortgages in increasing numbers due to the weakening economy and falling home prices. e.All of the above were factors

answer

e. all of the above were factors

question

The percentage of deposits that must be held as reserves is called a. excess reserves b. required reserves c. required reserve ratio d. none of the above

answer

c. required reserve ratio

question

Primary groups of policy makers that are actively involved in achieving U.S. economic policy objectives include all of the following EXCEPT: a. the Federal Reserve System b. the President c. Congress d. all of the above are primary policy makers

answer

d. all of the above are primary policy makers

STUDY

Federal Open Market Committee Federal Reserve Bank Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics Required Reserve Ratio

Chapter 15 Answers – Flashcards 72 terms

Chad Lipe

72 terms

Preview

Chapter 15 Answers – Flashcards

question

The most important function of money is when money is used as a

answer

medium of exchange.

question

Which of the following statements about the FDIC is correct? I. The deposit insurance premiums charged by the FDIC to a member bank fully reflect the riskiness of that bank's assets II. The manner in which the FDIC is set up helps protect depository institutions from the rigors of true market competition

answer

II only

question

The FDIC was created because

answer

there were so many bank failures in the 1930s.

question

The two basic ways to define money are

answer

the transactions approach and the liquidity approach.

question

If the FDIC eliminated its insurance program for deposits, then

answer

individual depositors would have more incentive to ascertain the soundness and solvency of the bank.

question

The possibility that a borrower might engage in riskier behavior after a loan is made is called

answer

moral hazard.

question

When people decide to increase the amount of currency they are currently holding

answer

the actual money multiplier will decrease.

question

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits is

answer

$4,000,000

question

The actual money multiplier multiplied by the change in total reserves is the

answer

actual change in the money supply.

question

When we examine the U.S. money supply, the smallest component of M1 is

answer

traveler's checks

question

The money supply in the United States is backed by

answer

faith.

question

When you set aside the money you have today in order to purchase goods and services later on, you are using money as a

answer

store of value

question

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

answer

liquidity problems

question

The formula (1/required reserve ratio) is the

answer

potential money multiplier.

question

To be accepted as money, an item must perform all of the following functions EXCEPT

answer

be easily reproduced.

question

The designate M1 measure of money consists of

answer

the most liquid types of money in the U.S. system

question

A barter arrangement simply means

answer

a direct exchange of goods without the use of money.

question

For barter to occur there must be

answer

a double coincidence of wants for each good to be exchanged.

question

Which of the following institutions has responsibility for distributing currency and coins to the U.S. banking system?

answer

The Federal Reserve System

question

An increase in the reserve ratio

answer

has a contractionary effect on the money supply.

question

Which of the following represents a function of money?

answer

All of these

question

United States coins and currency are backed by

answer

confidence that they will retain their value.

question

The function of money as a store of value diminishes if

answer

prices of goods and services increase.

question

The potential money multiplier gives us

answer

the maximum potential change in the money supply due to a change in reserves.

question

The Federal Open Market Committee (FOMC)

answer

influences the future growth of the money supply

question

Which of the following is NOT part of M1?

answer

Credit cards

question

In economics, money is

answer

anything that people generally accept in exchange for goods and services.

question

The actual money multiplier multiplied by the change in total reserves is the

answer

actual change in the money supply.

question

A fiduciary monetary system is dependent on

answer

acceptability and predictability of value.

question

If proceeds from loans are NOT deposited back in the banking system, then

answer

the magnitude of the multiplier process is reduced.

question

Which one of the following statements is true?

answer

Not all forms of currency are accepted equally well by the public as a medium of exchange.

question

Which of the following is NOT one of the functions of money?

answer

Source of wealth

question

Which of the following is NOT a reason that people tend to deposit their funds with banks rather than lend their funds directly to other individuals?

answer

liquidity problems

question

Which of the following statements is NOT true about money?

answer

Money can only be coins and paper.

question

Bank runs are a possibility because

answer

banks do not keep enough reserves to cover all their depository liabilities.

question

When you make a purchase at a retail store by giving your bank an instruction to transfer funds directly from your bank account to the store's bank account, you have most likely made the purchase using

answer

a debit card.

question

The Federal Deposit Insurance Corporation insures

answer

the deposits held in member banks.

question

Which of the following represents a function of money?

answer

All of these

question

When you use a debit card to purchase a pair of jeans, you are

answer

giving your bank an instruction to transfer funds directly from your bank account to the store's bank account.

question

The two basic ways to define money are

answer

the transactions approach and the liquidity approach.

question

The value of the money multiplier depends on

answer

the reserve ratio.

question

Stock market price quotations are an example of money serving as a

answer

unit of accounting.

question

The function of money as a store of value diminishes if

answer

prices of goods and services increase.

question

Which of the following would be considered a transaction deposit?

answer

checking account

question

Adverse selection refers to the

answer

likelihood that a potential borrower may use the funds that he receives for unworthy, high risk projects.

question

The current chair of the Board of Governors of the Federal Reserve is

answer

Ben Bernanke.

question

As a result of money in an economy,

answer

real Gross Domestic Product (GDP) and economic growth are greater than they would be in a barter economy

question

United States coins and currency are backed by

answer

confidence that they will retain their value

question

The central bank for the United States is

answer

the Federal Reserve System.

question

When money is accepted as payment in a market transaction, it is functioning as a

answer

medium of exchange.

question

In economics, money is

answer

anything that people generally accept in exchange for goods and services.

question

The possibility that a borrower might engage in riskier behavior after a loan is made is called

answer

moral hazard.

question

When we examine the U.S. money supply, the smallest component of M1 is

answer

traveler's checks.

question

Stock market price quotations are an example of money serving as a

answer

unit of accounting.

question

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

answer

make riskier loans than they otherwise would.

question

The transactions approach to measuring money stresses the role of money as a

answer

medium of exchange.

question

The Federal Open Market Committee (FOMC)

answer

influences the future growth of the money supply.

question

Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent. Then, the maximum potential expansion of deposits is

answer

the magnitude of the multiplier process is reduced.

question

When you set aside the money you have today in order to purchase goods and services later on, you are using money as a

answer

store of value.

question

If the reserve ratio decreases from 20 percent to 10 percent, then the potential money multiplier

answer

increases from 5 to 10.

question

The use of money as a medium of exchange I.Lowers transaction costs II. Permits more specialization

answer

I & II

question

To the extent that the value of money is less predictable, it becomes

answer

less acceptable as a medium of exchange.

question

Which of the following would be considered a transaction deposit?

answer

checking account

question

Which of the following describes a moral hazard problem?

answer

a post-contractual problem that may result because participants to the exchange process have information that allows them to act in an opportunistic manner

question

When money provides a yardstick that allows individuals to compare the relative values of goods and services, it is functioning as a

answer

unit of accounting

question

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

answer

make riskier loans than they otherwise would.

question

Which of the following represents a function of money

answer

All of these

question

The direct exchange of goods and services for other goods and services is known as

answer

barter.

question

The transactions approach to measuring money (M1) includes all of the following EXCEPT

answer

certificate of deposits

question

Without an accepted medium of exchange, people

answer

have to resort to barter in order to exchange goods and services.

question

When money serves as a standard for comparing values of different things, it is functioning as a

answer

unit of accounting.

question

answer

a debit card

STUDY

Accounting Economics Federal Open Market Committee Final Goods And Services Individual Income Taxes Personal Income Taxes

Ch 15 Eco Worksheet – Flashcards 30 terms

Edwin Holland

30 terms

Preview

Ch 15 Eco Worksheet – Flashcards

question

Fiscal year

answer

A 12-month period that is used for financial calculations

question

Federal budget

answer

A written document indicating the amount of money the government will receive and spend

question

Expansionary policies

answer

Fiscal procedures that try to increase economic output

question

Contractionary Policies

answer

Fiscal procedures that try to decrease economic output

question

Fiscal policy

answer

The federal government's use of taxing and spending to keep the economy stable

question

What is the role of the Office of Management and Budget

answer

To manage the federal government's budget

question

What is the purpose of "stop-gap" funding?

answer

To keep the gov running when the budget is finished

question

Why does the gov sometimes use an expansionary fiscal policy?

answer

To encourage growth and try to stop or prevent a recession

question

Why is it difficult for the federal government to increase or decrease spending?

answer

Two-thirds of all gov spending is on entitlements, which the gov cannot easily alter

question

What is one of the major uses of government fiscal policy?

answer

To prevent big changes in the level of the GDP

question

Keynesian Economics

answer

The idea that gov can and should regulate economy

question

Multiplier Effect

answer

Every dollar of change in gov use of money is reflected in a greater change in the economy

question

Supply-side Economics

answer

Idea that taxation is a major aspect of the economy

question

Classical Economics

answer

Idea that markets regulate themselves

question

What problem did the Great Depression in the 1930s highlight that classical economics did not address

answer

How long it would take the market to return to equilibrium

question

What is the maximum output that the economy can sustain over a period of time called?

answer

Productive capacity

question

What are the two main economic problems that Keynesian economics seeks to address?

answer

Periods of depression and inflation

question

When the gov collects taxes and pays out transfer payments as a way to balance the economy, what are these fiscal tools called?

answer

Automatic stabilizers

question

What does experience show about the relationship of taxation and work?

answer

A tax cut does not cause workers to work significantly more hours

question

What is the current highest bracket for personal income taxes?

answer

~40%

question

Balanced budget

answer

Federal spending equal to federal revenue

question

National debt

answer

Total amount of money owed by the federal gov

question

Treasury bond

answer

Gov bond that is substantial for as long as 30yrs

question

Budget deficit

answer

Federal spending in excess of federal revenue

question

United States Savings Bond

answer

Gov bond that allows the borrowing of small amounts of money

question

When the gov attempts to cover large deficits by creating more money, what is the probable result called?

answer

Hyperinflation

question

What is one of the major problems caused by a large national debt

answer

It decreases the amount of money available to be borrowed by buisness

question

What was the state of the federal budget at the start of the twenty-first century?

answer

Surpluses for the first time in 30yrs

question

What can be expected when members of the baby boom generation begin to retire in large numbers?

answer

Increased deficits

question

What is a major argument against a constitutional amendment requiring a balanced budget

answer

It would be too inflexible

STUDY

Economics Federal Open Market Committee Monetary Economics

Econ Final Review Pt.1 – Flashcards 44 terms

Elizabeth Hill

44 terms

Preview

Econ Final Review Pt.1 – Flashcards

question

A bank's lending power is based on

answer

Excess reserves

question

A tight money policy

answer

Restricts the growth of money supply

question

Some people believe that a weak economy will result in

answer

A higher crime rate

question

According to the demand-pull theory, inflation is caused by

answer

Businesses

question

Economic growth benefits the government by

answer

Reducing budget surpluses

question

This is a proposed market based anti poverty program designed to encourage work and reduce administrative costs

answer

Negative income tax

question

Low interest rates

answer

Increase consumer borrowing

question

The immediate affect of inflation is the

answer

Decline in purchasing power of the dollar

question

High prices that cause employees to ask for raises, causing producers raise prices describes the

answer

Wage-price spiral

question

The Lorenz curve is used to demonstrate

answer

The degree of income inequality

question

When the Fed refers to M1, it is referring to such elements of the money supply as

answer

Traveler's checks and currency

question

An index that reports on price changes for about 90,000 goods and services is the

answer

Consumer price index

question

A general decline in the level of prices is called

answer

Deflation

question

A car assembled at an American plant in Canada is

answer

Excluded from GDP

question

The purpose of the market basket is to

answer

Keep track of prices of consumer items

question

Unlike demand-side economics, supply-side economics

answer

Advocates reduced government involvement in business

question

The availability of money and the cost of credit are decided by the

answer

Federal Open Market Committee

question

The sale of a used car is not counted in GDP because

answer

No new wealth is created

question

The largest sector of the macroeconomy is the

answer

Consumer sector

question

Liquidity refers to

answer

Bonds and other investments that can easily be converted to cash

question

Unemployment that is directly related to swings in the business cycle is

answer

Cyclical unemployment

question

An easy money policy

answer

Allows the money supply to grow

question

This marked the beginning of the Great Depression in 1929

answer

Stock market crash

question

The federal reserve system is

answer

The nation's central bank

question

Unlike many policies, the Fed

answer

Is concerned about the long-run health of the economy

question

Aggregate demand will increase

answer

If consumers save less and spend more

question

The Fed's Federal Open Market Committee

answer

Is the Fed's primary monetary policy making body

question

To increase the money supply The Federal Reserve System

answer

Buys government bonds on the open market

question

The federal reserve

answer

Is made up of 12 district banks and 25 branch banks

question

Since the colonial period, the census had revealed

answer

A trend toward smaller households

question

The federal reserve system

answer

Regulates margin requirements for the stock market

question

The foreign sector of the economy represents the

answer

Difference between the dollar value of exports and imports

question

When a shoe manufacturer buys a shipment of leather to make shoes, the leather is considered to be

answer

An intermediate product

question

Changes in technology and changes in consumer tastes can cause

answer

Structural unemployment

question

To make a profit, a bank must

answer

Charge more for the loans it makes than it pays on deposits

question

Deregulation is most closely associated with

answer

Supply-side economics

question

To monetize the debt incurred by deficit spending during the Vietnam War, the money supply was

answer

Increased to keep interest rates stable

question

The prime rate refers to the

answer

Lowest interest rate commercial banks may charge their customers

question

A comprehensive measure of consumer discomfort during a period of rising inflation and high unemployment is the

answer

Misery index

question

In the short run, an increase in the money supply results in

answer

Lower interest rates

question

A bank statement of assets and liabilities is a

answer

Balance sheet

question

The census is taken every

answer

10 years

question

To determine Gross National Product,

answer

Add to GDP all payments received by Americans outside the U.S. and subtract payments made to foreign-owned resources in the US

question

The business cycle since WWII has been characterized by

answer

Extended expansions alternating with brief recessions

STUDY

Economics Federal Open Market Committee Federal Reserve Notes Fractional Reserve Banking Principles Of Economics: Macroeconomics Principles Of Economics: Microeconomics

Econ 104 Final Review – Flashcards 126 terms

Henry Smith

126 terms

Preview

Econ 104 Final Review – Flashcards

question

In a market system, the most dangerous types of bankruptcies involve

answer

financial institutions.

question

Which of the following are reasons that banks are so heavily regulated?

answer

Governments are concerned about the safety of deposits, The industry is a principal determinant of aggregate demand, Bank failures are contagious

question

Bankers' business decisions effect the money supply because bankers

answer

have the ability to create money.

question

A bank run involves a large flow of money

answer

out of depositors' accounts.

question

In order for barter trades to occur, there must be a

answer

double coincidence of wants

question

The "efficiency of the payments mechanism" refers to

answer

the ease and speed of exchanging money for goods and services.

question

7. Money is an imperfect store of value when

answer

the rate of inflation is high.

question

8. Liquidity refers to the

answer

ease with which an asset can be converted into cash.

question

9. Fiat money is

answer

only backed by government decree.

question

10. The primary feature of money is that it serves as

answer

a medium of exchange.

question

11. Currently in the United States, money is backed by

answer

everyone's willingness to accept it.

question

12. The new $20 bills are being introduced by the U.S. Treasury primarily to diminish

answer

counterfeiting.

question

13. 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 ____.

answer

question

14. Electronic cash or E-cards are

answer

not included in the definition of the money supply.

question

15."Near monies" are

answer

liquid assets that are close substitutes for money.

question

16.One difference between the assets included in M1 and those added to calculate M2 is that items in M1 are

answer

more liquid than those added to compute M2.

question

17. Which of the following is included in M1?

answer

travelers' checks

question

18. The M2 definition of the money supply is based on the concept that

answer

many types of deposits can be used as both payments and stores of value.

question

19. Are "smart cards" or E-cash cards part of the money supply?

answer

No, because they are merely means to transfer checking deposits.

question

20. Due to new methods of electronically transferring assets from savings accounts to checking accounts, many economists favor moving savings accounts from

answer

M2 into M1.

question

21. Under fractional banking, when a bank lends to a customer

answer

the money supply increases.

question

22. Bank regulators are concerned about the safety of depositors because

answer

bank failures were common throughout most of U.S. history and have even occurred in recent decades,in the absence of federal insurance, depositors would lose their money if a bank failed, in the absence of federal insurance, depositors would lose their money if a bank failed, nervous depositors may rush to withdraw their accounts and produce a "run" that could threaten even a sound bank.

question

23. The objective of bank management is to

answer

strike the appropriate balance between the attraction of bank profits and the need for bank safety.

question

24. Excess reserves make a bank less vulnerable to runs, but bankers do not like to hold excess reserves because holding excess reserves

answer

means lower profits for banks.

question

25. If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?

answer

The bank has $600,000 of required reserves and $400,000 of excess reserves.

question

26. The balance sheet of a solvent bank will show

answer

assets = liabilities + net worth.

question

27. The government banking regulation that places an upper limit on the money supply is

answer

reserve requirements on bank deposits.

question

28. The required reserve ratio is 10 percent, but banks actually keep 20 percent on reserve. The actual money multiplier will be

answer

question

29. If people begin to hold more cash, the money multiplier process will

answer

decrease in actual size.

question

30. The Fed's principal objective is to

answer

manage the money supply and interest rates.

question

31. The Fed is unlike other central banks in that it

answer

has 12 branches.

question

32. The actual control of the Federal Reserve System resides in the

answer

Board of Governors.

question

33. Members of the Board of Governors of the Fed are

answer

appointed by the president for 14-year terms and confirmed by the Senate.

question

34. When the Federal Reserve System was first established, its founders intended the Fed to

answer

provide protection against financial panics by acting as the lender of last resort.

question

35. The European Central Bank, established in 1999, was patterned after the

answer

Federal Reserve, founded in 1914.

question

36. In practice, money supply and short-term interest rates are determined by the

answer

Federal Open Market Committee.

question

37. The Fed is institutionally independent. A major advantage of this is that monetary policy

answer

is not controlled by politicians.

question

38. If the Fed buys a T-bill from an individual rather than from a bank, the effect on the money supply is

answer

the same.

question

39. If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

answer

It will give the bank new reserves.

question

The tool most frequently relied on by the Fed is

answer

open market operations.

question

41. Assume the required reserve ratio is 20 percent and the FOMC orders an open market purchase of $100 million in government securities from member banks. If the oversimplified money multiplier is assumed, then the money supply will

answer

increase by $500 million.

question

42. When the Fed sells a government security to the public, how does it usually receive payment for the security?

answer

by accepting checks on bank accounts

question

43. Which of the following will lower interest rates in the short run?

answer

a decrease in real GDP

question

44. Interest rates rose in the second quarter of 1999. What happened to bond prices during this time?

answer

They decreased.

question

45. The concept of "lender of last resort" is that when

answer

commercial banks are hesitant to lend, the Fed will step in and increase reserves.

question

46. The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

answer

does not know how banks will respond to discount rate changes.

question

47. Which of the following will increase interest rates in the short run?

answer

open market sales by the Fed

question

48. If the Fed were to increase the money supply at the same time the government was increasing taxes, we could expect

answer

a decrease in interest rates but the effect on real GDP is indeterminant.

question

49. Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?

answer

When equilibrium real GDP is at potential real GDP.

question

50. After the attacks of September 11, 2001, the proper policy response was

answer

expansionary monetary and fiscal policy.

question

51. Which of the following is the formula for velocity?

answer

Velocity = nominal GDP/M

question

52. Which is likely to be larger, the velocity of M1 or M2?

answer

M1, because M2 is a larger number.

question

53. A look at the historical data indicates that velocity for M1

answer

has been more variable than the velocity for M2, but both have been fairly constant for the past 65 years.

question

54. The quantity theory of money assumes that

answer

changes in velocity are so small that velocity can be considered constant.

question

55. If credit cards were suddenly ruled illegal and were no longer used, the most likely effect would be a decrease in the

answer

velocity of circulation.

question

56. As the price level rises, the demand for money

answer

increases because more money is needed for each transaction.

question

57. The principal factor determining velocity is the

answer

frequency with which paychecks are distributed.

question

58. If financial news broadcasts reported that inflation was likely to rise significantly next year, what would most likely happen to the velocity of circulation?

answer

It will increase.

question

59. When comparing the Keynesian and monetarist approaches, the only substantive difference is that

answer

the Keynesian equation leads to a prediction of real GDP; the monetarist equation leads to a prediction of nominal GDP.

question

60. The major limitation of both the Keynesian approach and the monetarist approach is that both

answer

are ways of studying the aggregate demand curve, but to learn anything about the price level and output, the aggregate supply curve must be i

question

61. According to the simple quantity theory of money, a change in the money supply of 9.6 percent would lead to a

answer

9.6 percent change in nominal GDP.

question

62. Contractionary fiscal policy

answer

reduces the quantity of money demanded, reduces interest rates, and increases investment spending.

question

63. For Keynesian economists to incorporate monetary policy into their models, they must know

answer

how the money supply affects interest rates.

question

64. Which of the following is the Keynesian view of the sequence of cause and effect of monetary policy?

answer

M, r, I, Y

question

65. It is often reported by financial news reports that higher interest rates reduce automobile sales. If this is true, we can expect

answer

monetary policy to be more effective.

question

66. A major advantage of monetary policy over fiscal policy is that monetary

answer

policy can be put into effect more quickly.

question

67. The optimal time for the implementation of contractionary fiscal policy would be

answer

before inflation accelerated.

question

68. One of the problems with fixed targets for the money supply is that

answer

demand for money does not grow smoothly and predictably.

question

69. If the Fed decides to target money supply growth, it must be prepared to accept

answer

interest rate volatility.

question

70. Figure 1 shows the equilibrium interest rate and the money stock (M) before the demand for money shifted to M1D1. If the Fed wants to return to the original equilibrium position (E), it should

answer

It is impossible for the Fed to restore the original equilibrium condition.

question

71. In Figure 1, if the Fed wants to target the money supply at $830 billion, and the money demand curve shifts to M1D1, the interest rate will have to

answer

rise above 11 percent.

question

72. In Figure 1 if the Fed wants to stabilize interest rates at 9 percent, and the money demand curve shifts to M1D1, the money supply will have to rise

answer

above $840 billion.

question

73. If the aggregate supply curve is flat,

answer

expansionary fiscal or monetary policy will buy large gains in real output at low cost in terms of inflation.

question

74. Many economists maintain that

answer

the aggregate supply curve is nearly horizontal at low levels of real GDP,the aggregate supply curve is nearly vertical at very high levels of real GDP, any change in aggregate demand will have most of its effect on output when economic activity is low but on prices when

question

75. An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy

answer

is near full employment and the aggregate supply curve is vertical.

question

76. When will stabilization policy be most effective in combating recessions?

answer

when AS is flat

question

77. What role does ideology play in the debate on stabilization?

answer

A large role, because there are conservative and liberal economists.

question

78. The Fed's quick response to the threat to the economy after September 11, 2001, makes a strong case for

answer

a discretionary-based monetary policy regime.

question

79. After September 11, 2001, both Republicans and Democrats agreed on the need for some type of

answer

stimulus package to counteract recession.

question

80. To maintain a balanced budget during the sag in personal spending in 2000-2001 could cause a(n)

answer

decrease in aggregate demand and a recession.

question

81. If the U.S. government decided to pay off the national debt by creating money in a few years, what would be the most likely effect?

answer

rapid inflation

question

82. The government should not attempt to balance the budget if

answer

the economy is in a recessionary gap.actual GDP is below full-employment GDP.unemployment is rising.

question

83. If the economy is in an inflationary gap, and the government attempts to balance the budget, the effect will be to

answer

continue inflationary pressures.

question

84. If the president and Congress agree to balance the budget during a recession, then the appropriate monetary policy is

answer

increase the growth of the money supply.

question

85. If in fiscal year 2001, the federal government receives $1,990 billion in revenues and spends $1,875 billion for goods and services, the national debt will

answer

decrease by $115 billion.

question

86. Compared to the size of GDP in 2004, the national debt was approximately

answer

one-third as large.

question

87. A chart of the ratio of national debt to GDP from 1915 to 2001 would show

answer

significant increases from 1980 to 1995.

question

88. The net national debt is smaller than the gross national debt because

answer

some debt is held by government agencies.

question

89. With no change in fiscal policy, the budget

answer

deficit will rise during a recession and fall during a boom.

question

90. A recessionary gap causes national debt to increase because

answer

income tax receipts drop off markedly.

question

91. If the inflation rate falls, what will happen to the budget deficit?

answer

It will fall, because interest payments will fall.

question

92. The U.S. government need never default on its debt because

answer

it can raise the funds it needs to repay by taxation, and it can print money to repay.

question

93. The policy mix that the Clinton administration sought in early 1993 was a

answer

smaller budget deficit and looser monetary policy.

question

94. Budget deficits are inflationary when

answer

the economy is at full employment and the aggregate supply curve is vertical.

question

95. The central bank is said to monetize the deficit when it

answer

purchases the bonds that the government issues.

question

96. If the Fed is increasing its holdings of government bonds at the same time the federal deficit is increasing,

answer

the debt is being monetized.

question

97. The decisions on the part of the government to increase spending by $5 billion will have the largest impact on aggregate demand when the spending is financed by the sale of bonds to

answer

the Fed.

question

98. Why might the Fed decide to monetize the deficit?

answer

to keep interest rates low

question

99. Crowding out can best be defined as:

answer

government deficits increase interest rates and decrease investment.

question

100. Economists who argue in favor of rapid deficit reduction claim that deficit reduction will

answer

reduce crowding out, increase investment, and increase AS.

question

101. In the late 1990s, the more than expected increases in tax revenues were the result of

answer

rapid economic growth.

question

102. The economy's self-correcting mechanism to eliminate a recessionary gap relies on

answer

falling wage rates that shift the aggregate supply curve outward.

question

103. Demand-side inflation differs from supply-side inflation in the following way:

answer

demand-side inflation has higher output; supply-side inflation has lower output.

question

104. Aggregate supply tends to grow because

answer

there are more workers in the economy every year.there is more capital in the economy every year.technology tends to improve every year.

question

105. If the aggregate supply curve is vertical, then the short-run Phillips curve will

answer

also be vertical.

question

106. The Phillips curve is built on the assumption that business fluctuations are

answer

from the demand side.

question

107. One reason why the Phillips curve "broke down" is

answer

most of the inflation of the 1970s was from the supply side.

question

108. The recent rapid advance in computer technology is one of the reasons given for the shift of the

answer

aggregate supply curve outward.

question

109. After September 11, 2001, President George W. Bush believed in the need for a fiscal stimulus. The proper fiscal policy to reflect this could include a(n)

answer

increase in government purchases.

question

110. Assume that the government is considering different policies to increase total expenditures in order to reduce unemployment. Which of the following would achieve this objective?

answer

decreasing taxes,increasing government spending,increasing transfer payments

question

111, The central idea of supply-side tax cuts is that certain types of tax cuts will increase

answer

aggregate supply.

question

112. A proponent of supply-side economics would advocate

answer

reducing income taxes on saving.

question

113. The primary goal of supply-side economics is to

answer

reduce inflation and increase growth at the same time.

question

114. A reduction in the capital gains tax, often advocated by proponents of supply-side economics, is supposed to stimulate

answer

investment spending.

question

115. Critics of supply-side economics argue that a major flaw is

answer

the small magnitude of supply-side effects.the large size of demand-side effects.increased income inequality.

question

116. One objection to supply-side tax cuts is that demand-side changes

answer

are larger than supply-side changes.

question

117. 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)

answer

increase in output and prices.

question

118. Capital gains tax cuts inevitably benefit

answer

high-income stock owners.

question

119. Tax cuts associated with supply-side economics often lead to increased

answer

federal budget deficits.

question

120. Since the supply-side tax cuts of the 1980s,

answer

there has been no evidence that supply-side incentives increase saving or the labor supply.

question

121. A Keynesian economist would expect a supply-side tax cut to shift

answer

only the aggregate demand curve outward.

question

122. When did we begin experiencing a negative growth rate during current recession?

answer

First quarter of 2008

question

123. Which of the following is said to cause current Great Recession?

answer

Excessive lending by banks which violated lending rules. Subprime mortgage defaults, High leverage,

question

124. If I use $10,000.00 of my own saving and borrow $60,000.00 from a local bank and invest the total Amount, my leverage is:

answer

7 to 1

question

125. One of the following is the main reason as to why the current recession has lasted for so long. Which one is it?

answer

Depressed housing market

question

126. Obama administration and the Fed have been consistent in fighting current recession in that

answer

Fed has engaged in excessive lending and administration has increased government spending

STUDY

AP Economics Business Law Economics Equality Before The Law Federal Open Market Committee

Naked Economics Vocab – Flashcards 62 terms

Daniel Thompson

62 terms

Preview

Naked Economics Vocab – Flashcards

question

agreements in which competitors divide markets among themselves.

answer

Market Allocation

question

a metaphor to describe the self-regulating behavior of the marketplace.

answer

Invisible Hand of the Economy

question

representation of sets of goods that bring some satisfaction to people who are in possession.

answer

Utility

question

what you give up to get something in return.

answer

Opportunity Cost

question

a cost or benefit that results from an activity or transaction and that affects an otherwise uninvolved party who did not choose to incur that cost or benefit

answer

Externalities

question

a systematic process for calculating and comparing benefits and costs of a project, decision or government policy

answer

Cost/Benefit Analysis

question

the reason for a business's existence is to turn a profit. The profit motive functions on the theory that individuals tend to pursue what is in their own best interests. Accordingly, businesses seek to benefit themselves and/or their shareholders by maximizing profits.

answer

Profit Motive

question

the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.

answer

Human Capital

question

are obstacles that make it difficult to enter a given market.

answer

Barriers to Entry

question

the economic price for which a good or service is offered in the marketplace.

answer

Market price

question

publicly owned property, central authority makes decisions about production and consumption.

answer

Command Economy

question

refers to someone who benefits from resources, goods, or services without paying for the cost of the benefit.

answer

Free Rider problem

question

A positive, unexpected benefit. A negative, unexpected detriment occurring in addition to the desired effect of the policy A perverse effect contrary to what was originally intended (when an intended solution makes a problem worse)

answer

Law of Unintended Consequences

question

study the effects of social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and the resource allocation.

answer

Behavioral Economics

question

Game Theory: a study of strategic decision making. Prisoner's Dilemma: a canonical example of a game analyzed in game theory that shows why two individuals might not cooperate, even if it appears that it is in their best interests to do so.

answer

Game theory & Prisoner's Dilemma

question

a limit on the quantity of a good that can be produced abroad and sold domestically

answer

Trade & Quotas

question

this curve shows the relationship between tax rates and tax revenue collected by governments.

answer

Taxation & Laffer curve

question

a loss of economic efficiency that can occur when equilibrium for a good or service is not Pareto optimal.

answer

Deadweight Loss

question

1. Civil Tort law 2. Criminalization 3. Government provision 4. Subsidies intended to redress economic injustices or imbalances.

answer

Government solutions to externalities

question

he transfer of income, wealth or property from some individuals to others caused by a social mechanism such as taxation, monetary policies, welfare, charity, divorce or tort law

answer

Redistribution

question

Efficiency: is concerned with the optimal production and allocation of resources given existing factors of production Equity: is concerned with how resources are distributed throughout society.

answer

Equity vs. Efficiency

question

refers to a market process in which undesired results occur when buyers and sellers have asymmetric information (access to different information); the "bad" products or services are more likely to be selected.

answer

Adverse Selection

question

discrimination based on economic factors.

answer

Economics of Discrimination

question

the study of decisions in transactions where one party has more or better information than the other.

answer

Asymmetry of Information

question

make sure everyone has access to the same information relating to the markets, no secret info to benefit just one company/group.

answer

Equality of information

question

companies spend enormous sums of money to build an identity for the products

answer

Branding

question

describes markets such that no participants are large enough to have the market power to set the price of a similar product.

answer

Perfect Competition

question

a market form in which a market or industry is dominated by a small number of sellers

answer

Monopolistic Competition/Oligopoly

question

the idea that one party credibly conveys some information about itself to another party.

answer

Signaling

question

resources are limited/finite

answer

Scarcity

question

to the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area.

answer

Standard of Living

question

is a method for estimating an investment's doubling time. The rule number ( e.g., 72 ) is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling.

answer

Rule of 72

question

a mathematical representation of a situation in which a participant's gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s).

answer

Zero sum game

question

asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.

answer

Efficient Market theory

question

The investment guidelines help us identify the businesses that have the highest potential to succeed commercially, while also generating a positive social impact.

answer

Investment guidelines

question

reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of its constituent.

answer

Diversification

question

A well-organized group can wage a coordinated campaign that incorporates many different tactics. Organization can also make up for size: A well-organized small group often has a bigger impact than a large poorly organized one.

answer

Incentives for interest groups

question

Many times, the equilibrium price is lower than the highest price some folks are willing to pay. For all consumers, this is called consumer surplus. Similarly, the price might be higher than the minimum price at which some are willing to produce. For all the producers, this is called producer surplus.

answer

Consumer/Producer Surplus & Taxes

question

Price Floors are minimum prices set by the government for certain commodities and services that it believes are being sold in an unfair market with too low of a price and thus their producers deserve some assistance.

answer

Price Floors

question

an economic environment in which transactions between private parties are free from government restrictions, tariffs, and subsidies, with only enough regulations to protect property rights.

answer

Laissez faire economics

question

If there was no international trade, all countries would have to meet its own needs. Developed nations export staple goods/resources but undeveloped nations have cheap man power.

answer

Trade

question

(1)Supporting more productive, higher paying jobs in our export sectors, (2)Expanding the variety of products for purchase by consumers and business, (3)Encouraging investment and more rapid economic growth, (4) allowing countries to specialize in producing things in which they have an advantage to make.

answer

Benefits of trade

question

globalization refers to processes that increase world-wide exchanges of national and cultural resources. Advances in transportation and telecommunications infrastructure, including the rise of the telegraph and its posterity the Internet, are major factors in globalization, generating further interdependence of economic and cultural activities.

answer

Globalization

question

a consequence of specialization, or the division of labor, and is almost universal. The participants in an economic system are dependent on others for the products they cannot produce efficiently for themselves.

answer

Economic interdependence

question

refers to a country's ability to produce a certain good more efficiently than another country.

answer

Absolute Advantage

question

Intuitively, here's the logic. Imagine that America exports stuff that is produced mainly by college-educated workers, while those industries that compete with imports mainly employ less-educated workers. Now suppose the price of imports falls. Then in order for import-competing industries to cope, the wages of less-educated workers have to fall — in fact, they have to fall more than the price of imports, because other costs of import-competing production, namely the wages of highly educated workers, will actually rise. So if import prices fall, say, 10 percent, wages of less-educated workers will fall, say, 15 percent.

answer

Losers from trade

question

the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas etc. to allow for "fair competition"

answer

Protectionism

question

Lowering trade barriers allows trade to increase, which adds to incomes — national incomes and personal incomes. But some adjustment is necessary.

answer

Trade raises real income

question

a tax on imports or exports

answer

Tariffs

question

Cultural homogenization is the blending of different cultural practices into one cultural practice that does not allow easy identification of the characteristics of many cultures. It means over the years, peoples of two or more cultures have interacted and intermingles in such a manner as to lose their individual cultural identities and merged into a one uniform culture than does not show any trace of diversity of different cultures among the people.

answer

Cultural Homogenization

question

The Federal Open Market Committee (FOMC) is the group that makes the monetary decisions. They determine whether interest rates need to go up, down, or stay the same. They do things like lowering the cost of borrowing to stimulate the economy.

answer

FOMC

question

bad factory working environments often found in third world countries.

answer

Sweatshops

question

are a theoretical construct in economics for determining how a resource is used, and who owns that resource. (1) right to use the good, (2) right to earn income, (3) right to transfer good to others, (4) right to enforce property rights.

answer

Property Rights

question

consumer desire/willingness to pay for a good.

answer

demand

question

the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability

answer

monetary policy

question

refers to a country's ability to produce a particular good with a lower opportunity cost than another country.

answer

Comparative Advantage

question

Price Ceilings are maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them.

answer

Price Ceilings

question

Fed Reserve controls the money supply and therefore the credit tap for the economy. Fed regulates commercial banks, supports the banking infrastructure, and generally makes the plumbing of the financial system work.

answer

Federal Reserve

question

the process of determining what a company will receive in exchange for its products

answer

pricing decisions

question

exists when sales of identical goods or services are transacted at different prices from the same provider.

answer

price discrimination

question

individuals own private property and manage according to interest.

answer

market economy

question

a financial disadvantage, that tends to discourage people from doing something.

answer

Law of Unintended Disincentives

STUDY

Computer Based System Consumer Economics Economics Federal Open Market Committee

Personal Finance and Economics Mod 6 Banking – Flashcards 33 terms

Lewis Gardner

33 terms

Preview

Personal Finance and Economics Mod 6 Banking – Flashcards

question

Specialized computer used by bank customers to handle their money (get cash, make deposits, check balances).

answer

Automatic Teller machine ATM

question

A check written against an account with insufficient funds to cover it.

answer

Bad Check

question

A financial institution that handles money, including keeping it for saving or comercial purposes; a profit company that is owned by investors.

answer

Bank

question

Check that can be further endorsed.

answer

Blank Endorsement Check

question

A register where you list all bank transactions including deposits, checks, debit card purchases, ATM withdrawals, and bank fees.

answer

Check Register

question

An account which allows the holder to write checks against deposited funds.

answer

Checking Account

question

When the bank pays a check you have written and deducts the amount from your account.

answer

Cleared Check

question

Not for profit financial institutution that is owned entirely by it's members.

answer

Credit Union

question

Plastic card used to deduct money from a checking account almost immediately to pay for purchases. Also known as a check card.

answer

Debit Card

question

Contains account holder's information and allows money to be deposited into the correct account.

answer

Deposit Slip

question

money deposited in a bank or some financial institution.

answer

Deposit

question

Uses a computer-based system that enables you to transfer money from one account to another in lieu of writing a check or exchanging cash.

answer

Electroni funds transfer (EFT)

question

Sign the back of a check authorizing the check to be exchanged for cash or credit.

answer

Endorse

question

Independent agency of the U.S. government that protects customers from the loss of any deposit if the financial institution fails.

answer

Federal Deposit Insurance Corporation (FDIC

question

The central banking system in the United States which consists of the twelve regional banks, the Federal Reserve Board, and the Federal Open Market Committee.

answer

Federal Reserve

question

a check signed by someone else other then who is specified on the check without that person's permission.

answer

Forged Check

question

Money paid to you by the financial institution when you deposit funds there.

answer

Interest (savings)

question

Currency, coins, checking accounts demand deposits.

answer

M1 money supply

question

M1 savings account and money market account.

answer

M2 (money supply

question

Independent federal agency that supervises fedral credit unions and insures depositor's money in credit unions.

answer

National Credit Union Administration (NCUA)

question

Lack of money in an account to pay a payment.

answer

Non-sufficient funds (NSF)

question

A check that has been written, but not yet received and paid by the bank.

answer

Outstanding Checks

question

Allows you to cover checks or withdrawals up to a specified amount if you have insufficient funds in the account.

answer

Overdraft Protection

question

Person, company, or organization to whom a check is written.

answer

Payee

question

A combination of letters or number that you use to access an account.

answer

Personal Identification Number (PIN)

question

The process of comparing the bank balance and check register so that they show the same amount.

answer

Reconciling

question

Percentage of deposits banks are required to keep in reserves.

answer

Required reserve ratio

question

Limits any further negotionation of the check.

answer

Restrictive Endorsement

question

Only person or company named in the endorsement can transfer the check to someone; transfers the right to cash the check to someone else.

answer

Special Endorsement

question

Check that is more then six months old. it may no longer be honored by the bank.

answer

Stale Check

question

request that a bank not cash or honor a specific check.

answer

Stop Payment

question

Monthly document sent by the financial institution that lists your account balance at the beginning of the period and the end of the period; includes checks deposits, deductions, and fees.

answer

Statement

question

To remove money from a bank account.

answer

Withdrawal

STUDY

Cost Of Living Index Federal Open Market Committee Federal Reserve Notes Money Market Deposit Accounts Reduce The Price Troubled Asset Relief Program

Macro Chap. 14 & 15 80 terms

Robert Carter

80 terms

Preview

Macro Chap. 14 & 15

question

When economists say that money serves as a medium of exchange, they mean that it is:

answer

a means of payment.

question

Currency held in the vault of First National Bank is:

answer

not counted as part of the money supply.

question

Currency (paper money plus coins) constitutes about:

answer

45 percent of the U.S. M1 money supply.

question

To say that coins are \"token money\" means that:

answer

their face value is greater than their intrinsic value.

question

A $20 bill is a:

answer

Federal Reserve Note.

question

Coins held in commercial banks are:

answer

not part of the nation's money supply.

question

\"Near-monies\" are included in:

answer

M2 only.

question

Answer the question on the basis of the following list of assets: 1. Large-denominated ($100,000 and over) time deposits 2. Noncheckable savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 5. Stock certificates 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults Refer to the given list. Which of the following are considered to be \"near-monies?\"

answer

Items 2, 4, 7, and 8.

question

Answer the question on the basis of the following table: Refer to the table. The value of the dollar in year 4 is:

answer

$2.00.

question

In the U.S. economy, the money supply is controlled by the:

answer

Federal Reserve System.

question

The Federal Open Market Committee (FOMC) is made up of:

answer

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

question

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the:

answer

Federal Open Market Committee (FOMC).

question

Approximately how many commercial banks are now operating in the United States?

answer

About 6,000.

question

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of:

answer

moral hazard.

question

In 2009, approximately how much of the money on deposit was held by the three largest U.S. banks?

answer

30 percent

question

Firms whose central business is providing individual account shares of a group of stocks, bonds, or both are known as:

answer

mutual funds companies.

question

(Last Word) After years of aiding drug cartels, mobsters, and terrorist groups laundering money, HSBC bank was:

answer

fined about five weeks' worth of profits.

question

(Last Word) The Assistant U.S. Attorney General in charge of prosecuting financial crimes did which of the following in response to HSBC bank's years of money laundering and helping firms and individuals cheat on their taxes?

answer

Imposed only modest fines on HSBC so as not to destabilize the bank and the financial system.

question

As part of its response to the financial crisis of 2007 and 2008, Federal Reserve Banks began paying interest on reserve deposits.

answer

True

question

(Consider This) Credit cards are defined as money because they facilitate transactions.

answer

False

question

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

answer

True.

question

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

answer

reserves lost by any particular bank will be gained by some other bank.

question

Refer to row 1 in the table. The number appropriate for space W is:

answer

10.

question

Refer to the table. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are:

answer

$0.

question

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are:

answer

$1000

question

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves:

answer

are $20,000.

question

Money is destroyed when:

answer

loans are repaid.

question

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is:

answer

question

Suppose a credit union has checkable deposits of $500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are:

answer

$54,000.

question

A bank that has liabilities of $150 billion and a net worth of $20 billion must have:

answer

assets of $170 billion.

question

Loans made to customers are a liability on a bank's balance sheet.

answer

False.

question

The claims of the owners of a firm against the firm's assets are called:

answer

net worth.

question

In a fractional reserve banking system:

answer

banks can create money through the lending process.

question

Excess reserves refer to the:

answer

difference between actual reserves and required reserves.

question

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed?

answer

Increased by $1,200.

question

Commercial banks monetize claims when they:

answer

make loans to the public.

question

Checkable deposits are a liability on a bank's balance sheet.

answer

True.

question

Refer to the data. The commercial banking system has excess reserves of:

answer

$9 billion.

question

The amount of reserves that a commercial bank is required to hold is equal to:

answer

its checkable deposits multiplied by the reserve requirement.

question

Refer to the table. When the legal reserve ratio is 10 percent, the money-creating potential of this single bank is:

answer

$6,000.

question

The consolidation in the financial industry into fewer and larger firms:

answer

Progressed further in the Financial Crisis of 2007-2008

question

As of February 2013, more than half of the money supply (M1) was in the form of:

answer

Checkable deposits

question

How many members can serve on the Board of Governors of the Federal Reserve System?

answer

question

The following programs were part of the Fed's \"lender of last resort\" efforts in response to the Financial Crisis of 2007-2008, except:

answer

TARP (Troubled Asset Relief Program)

question

Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

answer

Commercial banks and thrift institutions

question

Which of the following would be considered to be the most liquid?

answer

Checkable deposits

question

Debit card balances are part of money supply M1, but credit card balances are not.

answer

True

question

The Federal Reserve System consists of which of the following?

answer

Board of Governors and the 12 Federal Reserve Banks

question

The use of a credit card is most similar to:

answer

Obtaining a short-term loan

question

When you use money to purchase groceries, money is functioning as a store of value.

answer

False

question

Refer to the table above. The size of the M2 money supply is:

answer

$5,899 billion

question

The destabilizing effects of defaulting mortgages quickly spread throughout the financial system because those mortgages were involved in widespread:

answer

Securitization

question

The most important among the Federal Reserve district banks in conducting monetary policy is the:

answer

New York bank

question

Economic studies conducted in industrially advanced countries suggest there is:

answer

An inverse relationship between the degree of independence of the central bank and the size of the average annual rate of inflation

question

The M1 money supply is composed of currency, checkable deposits, and savings deposits.

answer

False

question

In the United States, all money is essentially the debt of the Fed, commercial banks, and thrift institutions.

answer

True

question

The so-called near-monies have the following characteristics, except:

answer

Part of money supply M1

question

The Financial Crisis of 2007-2008 was triggered by problems in the dot.com sector of the economy.

answer

False

question

The Federal Reserve System is a bankers' bank, and thereby acts as a \"lender of last resort\" to banks.

answer

True

question

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as:

answer

A unit of account

question

If all depositors of a bank were to try withdrawing all their deposits at the same time, a good solid bank should be able to meet all the withdrawals.

answer

False

question

Which of the following statements is correct?

answer

A bank can only grant loans to customers if it has excess reserves

question

Money is \"created\" when:

answer

A bank grants a loan to a customer

question

Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the excess reserves at Bank A and Bank B?

answer

Increase by $10,000 at Bank A, and decrease by $10,000 at Bank B

question

Refer to the data given above. If the required reserve ratio is 10 percent, the bank has excess reserves of:

answer

$22,000

question

The granting of a $10,000 loan and the purchase of a $10,000 government bond from a securities dealer by a commercial bank would have the same effect on the money supply.

answer

True

question

When a bank buys government securities from the Fed, then the bank's ability to \"create money\" will be reduced.

answer

True

question

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

answer

True.

question

When a check is cleared against a bank, the bank will lose:

answer

Checkable deposits and reserves

question

A bank is in the position to make loans when required reserves:

answer

Are less than actual reserves

question

During a recession when banks tend to increase their excess reserves, the money supply M1 decreases.

answer

True

question

A bank's net worth is equal to its:

answer

Assets minus its liabilities

question

When loans are repaid at commercial banks:

answer

Money is destroyed

question

A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of:

answer

$1,500

question

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

answer

True

question

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has excess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

answer

True

question

Refer to the data above. If a check for $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be, respectively:

answer

$36,000 and $106,000

question

The relative importance of various asset items on a commercial bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

answer

Liquidity and profits

question

Refer to the above information. The maximum amount by which this commercial banking system can expand the supply of money by lending is:

answer

$900,000 billion

question

Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank?

answer

$2 million

STUDY

Cost And Availability Cost And Availability Of Credit Federal Open Market Committee Federal Reserve Banks Federal Reserve System Principles Of Economics: Microeconomics

Macroeconomics Chapter 32 25 terms

Jessica Forbes

25 terms

Preview

Macroeconomics Chapter 32

question

The Federal Reserve System is divided into:

answer

-12 districts

question

What function is money serving when you use it when you go shopping?

answer

-a medium of exchange

question

Joe deposits $200 in currency into his checking account at a bank. The deposit is treated as:

answer

-no change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

question

Which group aids the Board of Governors of the Federal Reserve System in conducting monetary policy?

answer

-Federal Open Market Committee

question

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for:

answer

-setting the Fed's monetary policy and directing the purchase and sale of government securities

question

Members of the Federal Reserve Board of Governor's are:

answer

-appointed by the President to staggered 14-year terms

question

The use of a credit card is most similar to:

answer

-obtaining a short-term loan

question

One major advantage of money serving as a medium of exchange is that it allows society to:

answer

-escape the complications of barter

question

The functions of money are to serve as a:

answer

-unit of account, store of value, and medium of exchange

question

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

answer

-unit of account

question

The paper money or currency in the U.S. essentially represents:

answer

-a debt of the Federal Reserve System

question

How many members can serve on the Board of Governors of the Federal Reserve System?

answer

-7

question

One reason that \"near-monies\" are important is because:

answer

-they can be easily converted into money or vice versa, and thereby can influence the stability of the economy

question

Checkable deposits are:

answer

-debts of commercial banks and savings institutions

question

The Federal Reserve System was established by the Federal Reserve Act of:

answer

-1913

question

The main function of the Federal Reserve System is to:

answer

-control the money supply

question

The M(1) money supply is composed of:

answer

-checkable deposits and currency in circulation

question

To keep high inflation from eroding the value of money, monetary authorities in the United States:

answer

-control the supply of money in the economy

question

The paper currencies of the U.S. are also called:

answer

-Federal Reserve notes

question

What function is money serving when you deposit money in a savings account?

answer

-a store of value

question

The Federal Reserve Banks are owned by the:

answer

-member banks

question

The Federal Reserve System consists of which of the following?

answer

-Board of Governors and the 12 Federal Reserve Banks

question

The basic requirement for an item to function as money is that it be:

answer

-generally accepted as a medium of exchange

question

Which of the following items are included in money supply M(2) but not M(1)?

answer

-savings deposits

question

The currency or money of the United States, like those of other countries, is:

answer

-token money

STUDY

Economics Fed Funds Rate Federal Open Market Committee Macroeconomics Monetary Economics Principles Of Economics: Macroeconomics

econ chp16 79 terms

Steven Colyer

79 terms

Preview

econ chp16

question

Economists use the word "money" to refer to

answer

those assets regularly used to buy goods and services.

question

Money is consisted of cash, which is ____ by definition, as well as other highly liquid assets.

answer

liquid

question

Currency in circulation

answer

is cash held by the public (debit card- considered money).

question

Checkable bank deposits

answer

bank accounts on which people can write checks (also considered money)

question

Money supply

answer

the total value of financial assets in the economy that are considered money.

question

higher money supply= lower interest rate, lower money supply= higher interest rate

answer

question

The *narrowest* definition of "money supply" (M1) considers only the most liquid assets to be money (3):

answer

1. Currency in circulation ($1 bills, $5 bills) 2. Traveler's checks 3. Checkable/demand bank deposits

question

Money plays three *roles*:

answer

1. Medium of exchange (3) 2. a Store of value, 3. a Unit of account.

question

Medium of Exchange

answer

an asset that individuals use to trade for goods and services rather than for consumption

question

Example of the problem of finding a "double coincidence of wants" or *medium of exchange*

answer

In a barter system, a cardiac surgeon and an appliance store owner could trade only if the store owner happened to want a heart operation and the surgeon happened to want a new refrigerator.

question

In order to act as a medium of exchange, money must also be a:

answer

store of value

question

Store of Value

answer

a means of holding purchasing power over time (a necessary but not distinctive feature of money).

question

Unit of Account

answer

the commonly accepted measure individuals use to *set prices and make economic calculations*.

question

Example of unit of account:

answer

during the Middle Ages, peasants typically were required to provide landowners with goods and labor rather than money. A peasant might, for example, be required to work on the lord's land one day a week and hand over one-fifth of his harvest.

question

Types of Money (3):

answer

1. Commodity money 2. Commodity-backed money 3. Fiat money

question

Commodity money

answer

is a *good* used as a medium of exchange that has intrinsic value in other uses (normally gold or silver).

question

WW2 example of alternative uses of *commodity money*:

answer

cigarettes, which served as money in World War II prisoner of war camps, were also valuable because many prisoners smoked. Gold was valuable because it was used for jewelry and ornamentation, aside from the fact that it was minted into coins.

question

Commodity-backed money

answer

is a medium of exchange with *NO intrinsic value* whose ultimate value is *guaranteed by a promise* that it can be converted into *valuable* goods.

question

TRUE OR FALSE: Commodity-backed money uses resources more efficiently than simple commodity money (like gold), because it ties up fewer valuable resources.

answer

True

question

Example of commodity-backed money:

answer

By 1776, the year in which the United States declared independence and Adam Smith published The Wealth of Nations, there was widespread use of paper money in addition to gold or silver coins. Unlike modern dollar bills, however, this paper money consisted of notes issued by private banks, which *promised to exchange their notes for gold or silver coins* on demand.

question

In a famous passage in The Wealth of Nations, Adam Smith described *paper money* as a

answer

*"waggon-way through the air"* - (Smith was making an analogy between money and an imaginary highway that did not absorb valuable land beneath it).

question

TRUE OR FALSE: A U.S. dollar bill isn't commodity money, and it isn't even commodity-backed.

answer

True (Rather, its value arises entirely from the fact that it is generally accepted as a means of payment, a role that is ultimately decreed by the U.S. government).

question

Fiat Money

answer

money whose value derives entirely from its official status as a means of exchange (ex: paper money)

question

Fiat money has two major advantages over commodity-backed money:

answer

1. creating it doesn't use up any real resources beyond the paper it's printed on. 2. the supply of money can be adjusted based on the needs of the economy, instead of being determined by the amount of gold and silver prospectors happen to discover.

question

Risks of Fiat Money (2):

answer

1. Counterfeiting (imitation/fraudulent money) 2. governments that can create money whenever they feel like it will be tempted to abuse the privilege.

question

Historically, money first took the form of ____ money, then of _____ money. Today the dollar is pure ___ money.

answer

commodity, commodity-back, fiat

question

Monetary Policy

answer

increases/decreases the *money supply* to speed up/slow down the overall economy

question

Monetary Aggregate

answer

an overall measure of the money supply

question

The money supply is measured by two monetary aggregates (calculated by the Fed. Reserve):

answer

M1 and M2

question

*M1* includes: (assets you can use to buy groceries:)

answer

1. currency 2. traveler's checks 3. checkable/demand deposits

question

*M2* (the broader definition of money supply) includes:

answer

1. Savings accounts/deposits 2. Near-moneys: a. Time deposits (CD's, *interest-bearing deposit* held by a bank or financial institution for a *fixed term*), b. Market funds.

question

Near-moneys

answer

financial *assets that aren't directly usable as a medium of exchange* but can be readily *converted into* cash/checkable bank deposits, such as *savings accounts*.

question

TRUE OR FALSE: Because currency and checkable deposits are directly usable as a medium of exchange, M1 is the *most liquid measure of money*.

answer

True

question

Suppose you hold a gift certificate, good for certain products at participating stores. Is this gift certificate money?

answer

No. Although a gift certificate can easily be used to purchase a very defined set of goods or services, it cannot be used to purchase any other goods or services. A gift certificate is therefore not money, since it cannot easily be used to purchase all goods or services.

question

A *bank* uses *liquid assets* in the form of ___ ____ to finance the illiquid investments (stocks, bonds,collectibles) of borrowers.

answer

bank deposits

question

Bank Reserves

answer

currency in bank vaults and bank deposits held at the Federal Reserve (not held by the public, not part of currency in circulation).

question

T-account

answer

a tool for analyzing a business's financial position by showing. *Bank Assets*: reserves and loans. *Bank Liabilities*: deposits *Customer Assets*: deposits. *Customer liabilities*: loans

question

TRUE OR FALSE: banks are required by law to maintain assets larger by a specific percentage than their liabilities.

answer

True (ex: First Street Bank holds reserves equal to 10% of its customers' bank deposits).

question

Reserve Ration (rr)

answer

the fraction of bank deposits that a bank holds as reserves

question

The Federal Reserve does (3):

answer

1. serve as a bank regulator 2. conduct monetary policy 3. act as a lender of last resort

question

To understand why banks are regulates, let's consider a problem banks can face:

answer

bank runs

question

Banks convert most of their depositors' funds into ____ made to borrowers.

answer

Loans- that's how banks earn revenue: by charging interest on loans. (illiquid)

question

Bank run

answer

a phenomenon in which many of a bank's depositors try to withdraw their funds due to fears of a bank failure (ex: in the movie "What a Wonderful Life", the scene where everyone is at the bank demanding their money)

question

Bank Regulation- A system designed to protect depositors and the economy against bank runs, has four main features:

answer

1. deposit insurance 2. capital requirements 3. reserve requirements 4. the discount window

question

Deposit insurance

answer

guarantees that a bank's depositors will be paid even if the bank can't come up with the funds, up to a maximum amount per account.

question

Capital Requirements

answer

To reduce the incentive for excessive risk taking, regulators require that the owners of banks hold substantially more assets than the value of bank deposits. (ex: gold/silver)

question

Reserve Requirements

answer

rules set by the Federal Reserve that specify the minimum reserve ratio for banks. (ex: in the US, the minimum reserve ratio for checkable bank deposits is 10%)

question

the Discount Window

answer

is an arrangement in which the Federal Reserve stands ready to lend money to banks in trouble (*Fed act as a lender of last resort*)

question

Excess reserves

answer

are a bank's reserves over and above its required reserves

question

The Federal Reserve controls the *sum* of bank reserves and currency in circulation, called the

answer

monetary base

question

Money Multiplier

answer

is equal to the money supply divided by the monetary base.

question

If the reserve ratio is 10 percent, the money multiplier is

answer

10 1/0.1= 10

question

The Federal Reserve is a *central bank*:

answer

an institution that oversees and regulates the banking system and controls the monetary base.

question

If the central bank in some country lowered the reserve requirement, then the money multiplier for that country would

answer

increase.

question

The Federal Reserve system consists of two parts:

answer

1. the Board of Governors (7) 2. the regional Federal Reserve Banks (12)

question

The Board of Governors is constituted like a government agency: its 7 members are appointed by the president and must be approved by the Senate (14-year terms)

answer

***

question

The 12 Federal Reserve Banks each serve a region of the country, proving various banking/supervisory services. One of their jobs, is to audit the books of private-sector banks to ensure their financial health. Each regional bank is run by a board of directors chosen from the local banking and business community.

answer

***

question

The Federal Reserve Bank of New York plays a special role: it carries out

answer

Open-market operations (usually the main tool of monetary policy).

question

Decisions about *monetary policy* are made by which group within the Federal Reserve System?

answer

the FOMC (the Federal Open Market Committee)

question

FOMC consists of:

answer

the Board of Governors plus five of the regional bank presidents.

question

The Fed has three main policy tools at its disposal:

answer

1. reserve requirements 2. the discount rate 3. open-market operations (most important)

question

the Federal Funds Market

answer

allows banks that fall short of the reserve requirement to borrow funds/reserves from banks with excess reserves.

question

the Federal Funds Rate

answer

the interest rate determined in the federal funds market (plays a key role in modern monetary policy)

question

interest rate

answer

the price of borrowing money

question

Discount Rate

answer

is the rate of interest the Fed charges on loans to banks (banks can borrow from the Fed)

question

To increase the money supply, the Fed could

answer

decrease the discount rate (or decrease the reserve requirements)

question

The Federal Reserve holds its *asset* mostly in short-term government bonds called

answer

U.S. Treasury bills (left side of T-account)

question

The Fed liabilities are the

answer

monetary base- currency in circulation + bank reserves (right side of T-account)

question

The Federal Reserve's Assets and Liabilities T-account

answer

question

when the Fed buys or sells short term government bonds, Treasury Bills (normally through a transaction with commercial banks)

answer

open market operations

question

an Open-Market Operation

answer

is a purchase or sale of government debt by the Fed.

question

An open-market purchase

answer

*increases* the number of *dollars* in the hands of the public and *decreases* the number of *bonds* in the hands of the public.

question

Feds open-market purchase implies?

answer

an *increase in money supply* and *fall of interest rate*

question

The Glass-Steagall Act of 1933 separated banks into two categories:

answer

1. Commercial banks 2. Investment banks

question

commercial banks

answer

accepts deposits and is covered by deposit insurance.

question

investment bank

answer

trades in financial assets and is not covered by deposit insurance.

question

a Savings and Loan (thrift)

answer

is another type of deposit-taking bank, usually specialized in issuing home loans.

question

In the _______(thrift) crisis of the 1970s and 1980s, insufficiently regulated S&Ls incurred huge losses from risky speculation.

answer

savings and loan (S&L) crisis

question

During the mid-1990s, the hedge fund LTCM used huge amounts of ______ to speculate in global markets, incurred massive losses, and collapsed.

answer

leverage

STUDY

Federal Open Market Committee Federal Reserve Banks Federal Reserve System Principles Of Economics: Macroeconomics Troubled Asset Relief Program

Macro Test Chapter 32 , 33 68 terms

Brandon Ruffin

68 terms

Preview

Macro Test Chapter 32 , 33

question

what function of money enables society to gain the benefits of geographic and labor specialization

answer

medium of exchange

question

paper money or currency in the us is essentially a debt of a

answer

government agency

question

the paper currencies of the us

answer

federal reserve notes

question

federal reserve banks are owned by

answer

member banks

question

money supply m1 does not include the currency held by

answer

commercial banks

question

what is most liquid

answer

checkable deposits

question

members of the federal reserve board of governers are appointed by the president to

answer

staggered 14 year terms

question

sets policy on the sale and purchase of government bonds by the fed

answer

federal open market committee

question

does the federal reserve system provide banking services to the general public

answer

question

what is one consequence of fractional reserve system

answer

bank runs

question

checkable deposits ar considered blank to banks

answer

liabilities

question

properties are considered blank to banks

answer

assets

question

a bank is in the position to make loans when required reserves are blank actual reserves

answer

less than

question

primary reason commercial banks must keep required reserves on deposit at the fed is to allow the fed to control the amount of

answer

bank lending

question

federal funds rate is the rate that banks pay for loans from

answer

other banks

question

equal tp excess reserved times the money multiplier

answer

maximum checkable deposit expansion

question

the multiple by which commercial banking system can expand the money supple equals the reciprocal of the

answer

reserve ratio

question

when bankers hold excess reserves, the money creating potential of the banking system

answer

decreases

question

money that is usable for buying and selling goods and services

answer

medium of exchange

question

society used monetary units as yardsticks for measuring rlative worth of goods

answer

unit of account

question

money that enables people to transfer purchasing power from the present to the future

answer

store of value

question

an assets ease with whivh it can be converted to cash with no purchasing power lost

answer

liquidity

question

what does the m1 consist of

answer

currency checkable deposits

question

cash and coins

answer

currency

question

all deposits in commercial banks or thrift institutions on whcih checks of any size can be drawn

answer

checkable deposits

question

bills or coins for which the amount printed on the currency bears no relationship to the value of paper or metal

answer

token money

question

highly liquid financial assets that do not fully function as a medium of exchange but can easily be converted to currency or checkable deposits

answer

near monies

question

what does the m2 money supply include

answer

m1 noncheckable savings accounts small time deposits individual money market mutual fund balances

question

a deposit in a commercial bank or thrift institution on which interest payments are received

answer

savings account

question

interest bearing accounts offered by commercial banks and thrift institutions that invest deposited funds into a variety of short term securities

answer

money market deposit account

question

an interest earning deposit in a commercial bank or thrift institution that invest deposited funds into a variety of short term securities

answer

time deposit

question

mutual funds that invest in short term securities by using the combined funds of individual shareholders to buy interest bearing short term credit instruments

answer

money market mutual funds

question

any form of currency that by law must be accepted by creditors for the settlement of a financial debt

answer

legal tender

question

what is another name for creditors

answer

lenders

question

the us central bank consisting of the board of governors and the 12 federal reserve banks, that controls the lending activity of banks and thrifts and thus the money supply

answer

federal reserve system

question

the seven member group that supervises and controls te money and banking system of the us

answer

board of governors

question

the 12 banks chartered by the us gov that collectively act as the central bank of the us

answer

federal reserve banks

question

set monetary policy and regulate the private banking system under the direction of the board of governors and federal open market committee

answer

federal reserve banks

question

12 member group that decides monetary policy and how it is executed through open market operations

answer

federal open market committee

question

high interest rate loans to home buyers with above average credit risk

answer

subprime mortgage loans

question

bonds that represent claims to all or part of the monthly mortgage payments from the pools of mortgage loans made by leaders to borrowers to help purchase residential property

answer

mortgage backed securities

question

the process of aggregating many individual financial debts into a pool and then issuing new securities backed by the pool

answer

securitization

question

federal program that authorized the us treasury tp loan up tp 700 billion to critical financial institutions and other us firms that were in extreme financial trouble

answer

troubled asset relief program

question

the possibility that individuals or institutions will change their behavior as the result of a contract or agreement

answer

moral hazard

question

banks supported by tax payer money

answer

quasi public banks

question

the value or purchasing powerr is blank related to the price level

answer

inversely

question

backed by the governments ability to keep value stable

answer

money supply

question

state and national banks that provide checking and savings accounts and make loans

answer

commercial banks

question

savings and loan, mutual savings, credit unions that offer checking and saving accounts and make loans

answer

thrifts

question

offer policies with which individuals pay premiums to insure against loss

answer

insurance companies

question

pool costumer deposits to purchase stocks or bonds

answer

mutual fund companies

question

collect savings from workers and then invest funds to pay retirement benefits

answer

pension funds

question

offer security advice and buy and sell stocks and bonds for clients

answer

securities firms

question

firms that help corporations and governments raise money by selling stocks and bonds

answer

investment banks

question

only a portion of checkable deposits are backed up by reserves of currency in bank vaults pr deposits at the central bank

answer

fractional reserve banking

question

a statement of assets, liabilities, and net worth of a firm or individual at some given time

answer

balance sheet

question

the currency a bank has on hand in its vault and cash drawers

answer

vault cash

question

the funds that each commercial bank and thrift institution must deposit eith its local federal reserve bank or hold as vault cash

answer

required reserves

question

reserve ratio

answer

required reserves divided by liabilities

question

what does excess reserves equal

answer

actual minus required

question

the interest rate that us banks charge one another on overnight loans made out of their excess reserves

answer

federal funds rate

question

the reserve ratio for all commercial banks is

answer

20 percent

question

the multiple of its excess reserves by which the banking system can expand checkable deposits and thus the money suoply by making new loans

answer

monetary multiplier

question

the money multiplier equals

answer

one divided by required reserve ratio

question

stored gold and gave a receipt to be used as money by public

answer

goldsmiths

question

maximum amount of new money created by a single dollar of excess reserves

answer

money multiplier

question

the use of borrowed money to magnify profits and losses

answer

leverage

question

does a $200 deposit into checking account create new money

answer

STUDY

Economics Federal Open Market Committee Federal Reserve Board Of Governors Federal Reserve Notes Federal Reserve System

ECON Ch. 31 True/False; I got 61/67 correct. take your chances 67 terms

Charlotte Small

67 terms

Preview

ECON Ch. 31 True/False; I got 61/67 correct. take your chances

question

The Federal Reserve is responsible for issuing currency

answer

True

question

Checkable deposits held in saving and loan institutions, mutual savings banks, and credit unions are part of the M1 definition of the money supply

answer

True

question

\"Legal tender\" is another name for fiat money

answer

True

question

The Federal Reserve System has twelve Federal Reserve Districts

answer

True

question

Mutual Savings Banks were owned by the depositors.

answer

True

question

A small time deposit is one that is less than $100,000.

answer

True

question

A checking account is another name for a time deposit.

answer

False

question

There are about 50,000 commercial banks in the United States.

answer

False

question

One of the three basic functions of money is to serve as legal tender.

answer

false

question

A new member to the Board of Governors is appointed every two years

answer

True

question

Without an acceptable domestic currency to serve as a medium of exchange, a nation might try to substitute a more stable currency from another nation.

answer

True

question

There are 25 branch bank cities in the Federal Reserve System.

answer

False

question

Currency and coins held by banks are part of the M1 definition of money supply.

answer

False

question

Credit cards are treated as money because they facilitate transactions.

answer

False

question

The 12 Federal Reserve Districts issue paper money called Federal Reserve Notes

answer

True

question

The current chairman of the Federal Reserve system is Alan Greenspan

answer

False

question

The President of the New York Federal Reserve District is a permanent member of the Federal Open Market Committee.

answer

True

question

The M2 money supply may be larger or smaller than the M1 money supply depending on the size of small time deposit balances and Money Market Mutual Fund balances held by individuals.

answer

false

question

The Federal Open Market Committee (FOMC) is made up of the presidents of the Federal Reserve Banks, the Secretary of the Treasury, and the chair of the President's Council of Economic Advisers.

answer

False

question

The value of money in the United States is based on the stocks of precious metals held by the United States government.

answer

False

question

Thrifts are known as \"banker's banks\" because they lend money to commercial banks

answer

False

question

Too much money in the nation's economy leads to a general rise in prices, or deflation.

answer

False

question

Depository institutions are a major source of money in the U.S. economy.

answer

True

question

One function of the Federal Reserve System is supplying check to banks and their customers.

answer

False

question

The M2 money supply is larger than the M1 money supply.

answer

True

question

If a coin is token money, its face value is greater than its intrinsic value.

answer

True

question

Each member of the Board of Governors serves a 14 year term.

answer

True

question

Approximately $450 billion of U.S. currency is circulating in foreign countries.

answer

False

question

The United States Treasury Department has a checking account with the Federal Reserve System.

answer

True

question

The twelve Federal Reserve Banks are governmentally owned but privately controlled

answer

False

question

The percentage share of total U.S. financial assets held by commercial banks and thrifts has increased since 1980.

answer

False

question

Federal Reserve Banks are bankers' banks

answer

True

question

The United States Treasury is the only source of money in the U.S. economy.

answer

False

question

Money held as cash earns interest.

answer

false

question

Assets are anything of value that a bank may own.

answer

false. not just a bank can have assets

question

The number of U.S. banks has increased since 1990.

answer

False

question

The M1 money supply is composed of currency, checkable deposits, and time deposits.

answer

False

question

The Department of the Treasury is responsible for manufacturing money.

answer

True

question

A savings account is another name for a demand deposit.

answer

false

question

The gold standard is a system in which a nation's paper currency is backed by gold.

answer

True

question

The chairman of the Federal Reserve System serves a four year term and may be reappointed by the President of the United States.

answer

True

question

\"The Fed\" is the common name for the Federal Reserve system.

answer

True

question

Electronic money and smart cards will increase the problems for the Federal Reserve in controlling the money supply.

answer

True

question

The Federal Deposit Insurance Corporation covers bank deposits up to $250,000.

answer

true

question

A bank statement of assets and liabilities is called a balance sheet.

answer

True

question

M2 assets are also called near money.

answer

true

question

Required reserves is that percentage of deposits that banks have to keep in the bank at all times.

answer

True

question

Houston is the headquarters city of District 11 of the Federal Reserve System.

answer

False

question

Open market operations are the most commonly used tool of Fed monetary policy.

answer

True

question

Fidelity, Putnam, Dreyfus, and Kemper are examples of mutual fund companies.

answer

True

question

All nationally chartered banks in the United States are required to join the Federal Reserve System.

answer

True

question

Since the 1980s, banks and thrifts have lost their share of the financial services industry and control over financial assets.

answer

True

question

The President of the United States appoints the chairmen of the Federal Reserve System and the nominee must be confirmed by the Supreme Court.

answer

False

question

The Federal Open Market Committee (FOMC) serves as the fiscal agent for the U.S. government.

answer

False

question

Savings and Loans are also called thrifts.

answer

True

question

The currency owned by commercial banks is included in the money supply.

answer

False

question

The Federal Reserve is prohibited from lending money to banks and thrifts.

answer

False

question

The Federal Reserve System was created by Congress in 1913.

answer

True

question

M1 consists of assets that can be used as or directly converted to cash.

answer

True

question

The Federal Reserve Note is the paper currency of the United States.

answer

True

question

In the United States, all money is essentially the debt of government, commercial banks, and thrift institutions.

answer

True

question

When you use money to purchase groceries, money is functioning as a store of value.

answer

False

question

Tightening the money supply cause interest rates to decrease.

answer

False

question

From 1980 to 2005, pension funds, insurance companies, and securities-related firms increased their share of financial assets relative to banks and thrifts.

answer

False

question

The Federal Open Market Committee (FOMC) regulates markets and enforces antitrust laws to keep markets open and competitive

answer

False

question

The M2 money supply equals M1 minus small time deposits plus Money Market Mutual Fund balances held by individuals.

answer

false

question

The value of money varies inversely with the price level.

answer

True

STUDY

Economics Federal Open Market Committee Personal Finance

Money, Banking, and Finance 53 terms

Deloris Connelly

53 terms

Preview

Money, Banking, and Finance

question

MAP Using information on the flowchart, which group makes decisions about the growth of the money supply and the level of interest rates

answer

The Federal open market committee

question

MAP Chicago district is represented by which number on the map

answer

question

MAP The information shown in the graft on the personal saving rates indicates that

answer

As the wealth of Americans increased the rate of personal savings decreased

question

MAP Your grandparents obtained a mortgage on a house at some point between 1972 and 2004. According to the graph what would have been the worst possible year for them to have obtained a loan to buy a house during those decades

answer

1981

question

MAP US currency is part of

answer

M1 M2 and M3

question

Money is useful to people because it is

answer

A medium of exchange

question

Gold, olive oil and cattle even beer have been used as money. This type of money is

answer

Commodity money

question

The paper currency in the United States has value because

answer

The federal government says it has value

question

The first bank of the United States was

answer

The first national bank of the United States government

question

When was the Federal Reserve system established

answer

1913

question

Following the great depression, the Federal Reserve

answer

Imposed restrictions on the interest rate that banks could pay depositors

question

Federal Reserve system is in charge of

answer

monetary policy

question

Which of the following banking activities was prohibited to commercial banks by the glass Steagall act of 1933

answer

Underwriting stocks

question

Credit risk is the risk that the borrower will not

answer

Repay all the money owed

question

financial intermediary

answer

Facilitates the transfer of funds from savers to borrowers

question

Companies raise funds to expand their business by

answer

All of the above

question

Liquidity risk is

answer

The chance that investors will not be able to turn investments back into cash quickly enough to meet their financial needs

question

The government of the United States borrows most of the money it needs by

answer

Selling treasury bills and treasury bonds

question

Inflation risk is the prospect of

answer

Inflation reducing the value of investors financial assets

question

Yield to maturity is

answer

The annual return on a bond held to maturity

question

Credit unions

answer

Are fairly small and specialize in home mortgages and car loans

question

Finance companies

answer

Make loans to consumers

question

The Federal deposit insurance Corporation

answer

Insures customer deposits if I think fails

question

answer

Represents money that people have easy and immediate access to

question

A prospectus

answer

Provides potential investors with information on performance of mutual fund portfolio's

question

Many markets are markets where

answer

Securities with less than a year to maturity are traded

question

Capital markets are markets where

answer

Securities with more than a year to maturity are traded

question

Diversification is an investment strategy to

answer

Reduce risk by spreading investments among several assets

question

For countries money loses its function as a store of value

answer

All of the above???

question

The expiration of the charter of the first bank of the United States in 1811 resulted in

answer

Currencies that lost value

question

The panic of 1907 was caused by

answer

The continuing problems with the nations banking system because state charter banks did not have enough gold to exchange for the paper money they issued

question

Which of the following factors worsen the effects of the Great Depression in 1933

answer

Massive bank failures

question

The Glass-Steagall act passed by Congress in 1933

answer

Prohibited commercial banks from underwriting stocks and bonds

question

An investor will purchase bonds that are rated AAA because they

answer

Very low risk debt securities

question

Thanks make a profit by

answer

All of the above

question

The late 1980s savings and loan crisis resulted primarily from

answer

Regulation in a high interest-rate environment

question

The repeal of the glass Steagall act by Congress in 1999

answer

Paved the way for banks to sell financial assets such as stocks and bonds

question

John wants to invest his savings and highly liquid investments. Which of the following financial assets serve this financial goal

answer

Money market funds

question

Jamaal wants to die versify his investments. Which of the following investments should Jamall invest in to best serve his financial goal

answer

A portfolio of stocks, bonds, and precious metals

question

An increase in savings

answer

Provides more funds for investments

question

An increase in investment

answer

Expands the productive capacity of the economy

question

James has purchased a 10-year-old bond that pays a $50 coupon. If interest rates go up

answer

The bond price will go down

question

Increasing and decreasing the money supply through monetary policy is generally done by

answer

Federal Reserve

question

When the Federal Reserve puts money into the banking system

answer

Short-term interest rates fall

question

Tanyika needs a loan to buy furniture for her house. She can get a loan from all the following except

answer

Federal Reserve

question

Rosa expects interest rates to fall for the next 10 years, she should invest her money in

answer

10 year bonds

question

If Ted wants to buy a house and believes the interest rates will rise, he should

answer

ApPly for a fixed rate mortgage

question

Fiscal policies are actions taken by the government to influence the economy through texting or spending. To assist the economy to come out of the recession, Congress can pursue a fiscal policy that

answer

Lowers taxes

question

In 1791, the US Congress created the Bank of America. The creation of the bank was part of a three-part plan to strengthen the US economy. Who is responsible for presenting the plan to Congress

answer

Alexander Hamilton

question

In 1791, the conflict over the bank of the United States led to the foundation of two rival political parties. These two parties were the

answer

Federalist and the Democratic Republican Party's

question

During the 1800s, the nation supply of current sea was tied to its national reserves of either gold or silver. In 1900, and act was passed by Congress that would set the standard by which US Currensy is valued. The standard was set by the

answer

Gold standard act

question

In 1913, Congress passed the Federal Reserve act. The purpose of this act was to

answer

Make the federal government responsible for the regulation of interest rates in the supply of money

question

A large bill out of savings and loans institutions became necessary in 1990 when it was discovered that nearly 2000 of them were in solvent and facing closure. One of the causes of this crisis was the

answer

Reckless financial speculation following the big Deregulation of the 1980s

STUDY

Economics Federal Open Market Committee Macroeconomics

money and the banking system 41 terms

Brenda Gannon

41 terms

Preview

money and the banking system

question

Most observers nowadays see monetary policy as much less important than fiscal policy.

answer

ANS: F

question

In September 2007 the British bank Northern Rock which specialized in home mortgages experienced a noteworthy bank run.

answer

ANS: T

question

A bank run involves a large inflow of money into commercial banks.

answer

ANS: F

question

Barter transactions involve a double coincidence of wants.

answer

ANS: T

question

Barter transactions typically take place between two individuals with the same goods to supply.

answer

ANS: F

question

When people trade goods for money, money is being used as a medium of exchange.

answer

ANS: T

question

When prices for goods and services are quoted in money terms, this is an example of money being used as a store of value.

answer

ANS: F

question

Inflation increases the use of money as a store of value.

answer

ANS: F

question

Gold and silver have historically been the most common form of commodity money.

answer

ANS: T

question

The only major disadvantage of paper money is that it is hard to divide into smaller denominations.

answer

ANS: F

question

The new $20 bills were designed with features to make counterfeiting more difficult.

answer

ANS: T

question

Money that is backed solely by a government decree is referred to as fiat money.

answer

ANS: T

question

Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.

answer

ANS: T

question

The U.S. government will probably return soon to a system of paper money backed by gold.

answer

ANS: F

question

On the Micronesian island of Yap, it is easier to make purchases with stone wheel currency than it is to make purchases with paper currency including the U.S. dollar.

answer

ANS: T

question

The lion's share of purchases and transactions in the U.S. economy are made with coins and paper money.

answer

ANS: F

question

When you pay for some purchase with a check, cash must be transferred to another account to pay for the check

answer

ANS: F

question

The amount of money held in checking accounts is significantly greater than money in the form of currency.

answer

ANS: T

question

The composition of M2 as of April 2010 includes saving deposits at savings banks and credit unions.

answer

ANS: T

question

The main advantage of money market deposit accounts over traditional checking accounts is the ease of check writing.

answer

ANS: F

question

Many economists believe that the difference between savings accounts and checking accounts is disappearing.

answer

ANS: T

question

Liquidity refers to the ability of an asset to hold its value in periods of inflation.

answer

ANS: F

question

E-cash cards are considered a major portion of the modern money supply.

answer

ANS: F

question

Fractional reserve banking began as a result of the search for additional profits

answer

ANS: T

question

Fractional reserve banking has three crucial features: bank profitability, bank discretion over the money supply, and bank exposure to runs.

answer

ANS: T

question

Bank runs are \"contagious\" in that they often spread to other banks.

answer

ANS: T

question

A banker motivated by profit maximization may make decisions that destabilize the banking system.

answer

ANS: T

question

Most banks in the United States are owned by the government and operate as nonprofit institutions.

answer

ANS: F

question

Due to the private nature of bank ownership, there is often a difference between bankers' goals and macroeconomic objectives.

answer

ANS: T

question

Most bank deposits in the United States are insured by the Federal Deposit Insurance Corporation (FDIC).

answer

ANS: T

question

Unlike recent events in England, the United States has no recent history of bank failures.

answer

ANS: F

question

Banks in the United States may create new money equal to their amount of required reserves.

answer

ANS: F

question

To a bank, an asset is an obligation that it owes to someone else.

answer

ANS: F

question

If you have a checking account at Citibank, the account is a liability of the bank.

answer

ANS: T

question

Net worth increases in the same proportion as liabilities increase.

answer

ANS: F

question

Banks try to keep their excess reserves at a maximum in order to maximize profits.

answer

ANS: F

question

The money multiplier process is based on the principle of fractional reserve banking.

answer

ANS: T

question

The value of the deposit multiplier is 1 divided by the required reserve ratio.

answer

ANS: T

question

The value of the deposit multiplier is increased if individuals hold all their money in cash.

answer

ANS: F

question

Systemic risks would be most prevalent at larger banks like Bank of America and Citibank.

answer

ANS: T

question

During the 2007-2009 financial crisis, the U.S. government decided that Lehman Brothers was not too big to fail and that AIG was too big to fail.

answer

ANS: T

STUDY

Commercial Banks And Thrift Institutions Economics Federal Open Market Committee Federal Reserve Notes

Chapter 10 – Money & Banking 20 terms

Sarah Adrian

20 terms

Preview

Chapter 10 – Money & Banking

question

What are the three uses of money?

answer

A medium of exchange, a unit of account, a store of value

question

What are the six characteristics of money?

answer

Durability, portability, divisibility, uniformity, limited supply, acceptability

question

What is the source of money's value?

answer

Commodity, representative, fiat

question

Describe the shifts between centralize and decentralized banking before the Civil War.

answer

The Federalists, led by Alexander Hamilton, believed that a centralized banking system was a key to promoting industry and trade. They proposed a national bank. The Antifederalists, led by Thomas Jefferson, opposed this plan. They feared that the wealthy would gain control of the bank and use its resources to increase their power.

question

How did government reforms stabilize the banking system in the later 1800s?

answer

The first paper currency since the Continental was issued; The National Banking Acts of 1863 and 1864 gave the federal government the power to charter banks, issue currency, and hold gold and silver reserves to cover bank notes; adopted the gold standard.

question

What were the developments in banking in the early 1900s?

answer

Federal Reserve System; Federal Reserve Banks; Member banks; Federal Reserve Board; Short-Term Loans; Federal Reserve Notes

question

What were the causes of two recent banking crises?

answer

Savings and Loan Crisis - the deregulation of several industries Subprime Mortgage Crisis - people couldn't pay back their loans and had to foreclose on their houses

question

How is the money supply in the United States measured?

answer

M1: traveler's checks, currency, demand deposits, and other checkable deposits M2: savings deposits, retail money market funds, small denomination time deposits, and everything in M1

question

What are the functions of financial institutions?

answer

To provide electronic services; to issue credit cards; to make loans to businesses; to provide mortgages to prospective home buyers; to manage ATM machines

question

What are the different types of financial institutions?

answer

Commercial Banks, Savigs and Loan Associations, Saving Banks, Credit Unions, Financial Companies

question

What changes were brought about by electronic banking?

answer

Automated Teller Machines (ATMs), debit cards, and home banking

question

What is money?

answer

Anything that is generally accepted as final payment for goods and services

question

What is a medium of exchange?

answer

Anything that is used to determine value during the exchange if goods and services

question

What is barter?

answer

The direct exchange of one set of goods or services for another without involving money

question

What is a unit of account?

answer

A means for comparing the values of goods and services

question

What is a store of value?

answer

Something that keeps it's value if it is stored rather than spend

question

What is currency?

answer

Coins and paper bills used as money

question

What is specie?

answer

Coins made of gold

question

What is a bank run?

answer

A situation in which many depositors simultaneously decide to withdraw money from a bank

question

What is liquidity?

answer

A measure of the ease with which an asset can be converted into money without significant loss of value

STUDY

Communism And Socialism Economics Federal Open Market Committee Health Care Policy Principles Of Economics: Macroeconomics Principles Of Marketing

Chapter 10 Study Guide Personal Financial Planning 24 terms

Chad Lipe

24 terms

Preview

Chapter 10 Study Guide Personal Financial Planning

question

economy

answer

the ways in which nations make decisions to allocate their resources

question

goods

answer

physical items that is produced and can be weighed and measured

question

inflation

answer

rise in the level of prices for goods and services over time

question

liquidity

answer

the ability to easily convert financial assets into cash without loss of money

question

personal financial planning

answer

arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals

question

values

answer

the beliefs and principles you consider important, correct, and desirable

question

consumable

answer

something that can be used up by consumers

question

intangible

answer

assets that are saleable though not material or physical

question

durable

answer

serviceable for a long time

question

economics

answer

the study of the decisions that go into making, distributing, and using goals and services

question

services

answer

a task that a person or machine performs for you

question

goals

answer

the things one wants to accomplish

question

opportunity costs

answer

what is given up when making one choice instead of another

question

present value

answer

the amount of money one would need to deposit now in order to have a desired amount in the future

question

future value

answer

the amount an original deposit will be worth in the future based on earning a specific interest rate over a specific period of time

question

time value of money

answer

the increase of an amount of money due to earned interest or dividends

question

consumer

answer

a person who purchases and uses goods or services

question

annuity

answer

a series of equal regular deposits

question

interest

answer

the price that is paid for the use of another's money

question

principal

answer

the original amount of money on deposit

question

What economic factors and conditions might influence a person's financial planning?

answer

1. life situations 2. personal values 3. economic factors

question

What are the six steps of financial planning?

answer

1. determine current financial situation 2. develop financial goals 3. identify alternative courses of action 4. evaluate alternatives 5. create and use financial plan of action 6. review and revise plan

question

What are the 4 parameters of a financial goal?

answer

1. realistic 2. specific 3. set within clear time frame 4. helps one decide what type of action to be taken

question

What are the consequences of financial decisions?

answer

1. personal opportunity costs 2. financial opportunity costs

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