Deck 5: Policy Makers and the Money Supply

Question 1

Commercial banks are one of the four policy making groups.

Answer 1

False

Question 2

A budget deficit stimulates economic activity.
Keynesian; questionable in reality

Answer 2

True

Question 3

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

Answer 3

True

Question 4

11 10.The U.S.Treasury has primary responsibility for management of the federal debt.

Question 5

The United States economy has little influence on the economies of other nations.

Question 6

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

Question 7

Traditionally, the federal government provides services that cannot be provided as efficiently by the private sector.

Question 8

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

Question 9

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.

Question 10

The President of the United States and the Fed formulate a program of fiscal policy.

Question 11

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.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

The larger the budget deficit, the more total spending there will be.

Question 17

Monetizing the deficit occurs when the Fed increases the money supply by purchasing government securities.

Question 18

Nations that export more than they import will have a trade deficit.

Question 19

Nations that continually operate with an international trade surplus will become economically stronger.

Question 20

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

Question 21

High inflation has been a significant problem in the United States during the past decade.

Question 22

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.

Question 23

Aggregate demand refers to total spending in the economy.

Question 24

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

Question 25

Although unemployment represents a loss of potential output, most economists agree that the real costs of unemployment to an economy are minimal.

Question 26

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.

Question 27

Transfer payments are income payments for which no current productive service is rendered.

Question 28

The Fed increases the money supply to help offset the demand for increased funds to finance the deficit.

Question 29

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.

Question 30

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

Question 31

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

Question 32

Tax receipts tend to increase during economic downturns.

Question 33

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

Question 34

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

Question 35

The U.S.Treasury has little power to influence money markets.

Question 36

The U.S.Treasury is responsible for refinancing the outstanding debt of the government.

Question 37

The Fed plays a significant role in tax policy.

Question 38

The Federal Reserve System was not able to regulate money and credit until after World War II.

Question 39

Currency in the form of Federal Reserve notes are primarily backed by gold certificates and eligible paper.
Not in chapter

Question 40

The monetary base is the banking system reserves, plus currency held by the public.

Question 41

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

Question 42

If the Fed wishes to stimulate the economy, it may:

A)lower the discount rate
B)raise reserve requirements
C)sell securities through open market operations
D)raise both the discount rate and the reserve requirements

Question 43

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

Question 44

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.

Question 45

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

Question 46

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.

Question 47

Required reserves are the minimum amount of total reserves that a depository institution must hold.

Question 48

The government body primarily responsible for monetary policy is Congress.

Question 49

U.S.debt management is generally designed to:

A)lower interest rates
B)stimulate economic activity
C)encourage orderly economic growth and stability
D)complement Federal Reserve monetary policy

Question 50

Debt management by 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) two of the above
E) answers a, b and c are correct

Question 51

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

Question 52

Budgetary deficits always have the effect of:

A)creating inflationary pressures
B)crowding out private borrowerslenders
C)forcing the Federal Reserve to buy government securities
D)creating governmental competition for private investment funds

Question 53

The budget-making process rests with the:

A)Congress
B)U.S.Treasury
C)President's Council of Economic Advisors
D)U.S.Treasury in cooperation with the Fed

Question 54

The U.S.Treasury is primarily responsible for:

A)monetary policy
B)debt management
C)fiscal policy
D)the money supply

Question 55

Automatic stabilizers include trade deficits, budget deficits, and floating exchange rates.

Question 56

40 40.The velocity of money measures the rate at which wire transfers can be transmitted to overseas banks.

Question 57

The primary types of policy decisions used by policy makers to achieve economic objectives include trade policy, exchange rate policy, and regulatory decisions.
Too general

Question 58

When income taxes are cut, disposable income is slowly increased under our system of tax withholding.

Question 59

Primary deposits are deposits that add new reserves to a bank while obtuse secondary deposits are deposits that were borrowed from the reserves of primary deposits.

Question 60

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

Question 61

Assume that a bank must keep reserves of 20% against deposits.The bank receives a primary deposit of $50,000.What amount of excess reserves can the bank safely lend?

A)$10,000
B)$20,000
C)$40,000
D)$50,000
E)none of the above

Question 62

The basic function served by requiring adequate bank reserves in the monetary system is to:

A)assure bank liquidity
B)provide the basis for the regulation of credit expansion and contraction
C)maintain adequate capital for investors
D)impose a burden of risk on bank stockholders
E)none of the above

Question 63

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

Question 64

The multiplying capacity of primary deposits is reduced if:

A)no additional cash is withdrawn for hand-to-hand circulation
B)businesses increase their petty cash funds in U.S.banks
C)foreign countries deposit funds in U.S.banks
D)the U.S.Treasury deposits funds

Question 65

One factor that decreases the volume of bank reserves is a decrease in:

A)bank holdings of loans and securities
B)time and savings deposits
C)life insurance company reserves
D)the level of cash holdings
E)none of the above

Question 66

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

Question 67

The monetary base:

A)equals the money supply
B)consists of checkable and noncheckable deposits
C)consists of bank reserves, plus currency
D)equals the money multiplier, plus bank reserves

Question 68

Bank reserves are increased when the Treasury: Tired of seeing duplicate items that are a minor change from another item so that the correct answer is "none of the above." I will likely delete more of these---they may play a role but there are a lot of these "duplicate" questions in the test bank for this and other chapters.

A)sells government bonds to individuals
B)doesn't change its holding of cash
C)increases its account at a Federal Reserve bank
D)increases its holding of cash
E)none of the above

Question 69

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

Question 70

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

Question 71

Bank reserves are increased when the Treasury:

A)sells government bonds to individuals
B)decreases its holding of cash
C)increases its account at a Federal Reserve bank
D)increases its holding of cash

Question 72

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

Question 73

One factor that decreases the volume of bank reserves is a decrease in:

A) bank holdings of loans and securities
B) time and savings deposits
C) life insurance company reserves
D) Federal Reserve float

Question 74

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)all of the above
E)none of the above

Question 75

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

Question 76

Which one of the following transactions or operations is entirely at the initiative of the Federal Reserve?

A)using public statements to manipulate the economy
B)change in float
C)change in bank borrowings
D)change in Treasury cash holdings
E)none of the above

Question 77

If the Fed wishes to stimulate the economy, it may:

A)raise the discount rate
B)raise reserve requirements
C)sell securities through open market operations
D)raise both the discount rate and the reserve requirements
E)none of the above

Question 78

The basic function served by requiring adequate bank reserves in the monetary system is to:

A)assure bank liquidity
B)influence the relative profitability of member banks
C)maintain adequate capital for investors
D)impose a burden of risk on bank stockholders
E)none of the above

Question 79

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

Question 80

Assume that a banking system must keep reserves of 20% against deposits.The bank receives a primary deposit of $20,000.What would be the maximum amount of loan that could be made by the system?

A)$16,000
B)$40,000
C)$80,000
D)$100,000