College of Saint Benedict The Policies of Federal Government Discussion

The policies of the federal government influence the outcomes of the various activities in that economy.  When government policies change or unplanned events occur, the resulting economic events or activity will usually change.  Listed below are several policies or events that affect the performance of the economy:

• The federal government employs a budget plan over several fiscal years that results in significant increases in the national debt, with no relief or plans to deal with the problem.
• The federal government enacts new tariffs and quotas on all imports.
• The general public loses confidence in their leadership, in terms of their ability to manage the economy, especially in the area of job creation.
• The federal government, in an effort to stimulate the economy, decreases taxes on all individuals except those earning over $250,000 per year.
• The level of investment decreases because of a lack of confidence in the economy.
• Interest rates are kept artificially low by the Federal Reserve for several years.

For each of the items above, describe what would be the likely outcomes in the economy.  Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.

Part B

Question 1 (1 point)

Which of the following is a store of value?

Question 1 options:

a) 

currency

b) 

U.S. government bonds

c) 

fine art

d) 

All of the above are correct.

Question 2 (1 point)

If the reserve ratio is 20 percent, the money multiplier is

Question 2 options:

a) 

2.

b) 

4.

c) 

5.

d) 

8.

Question 3 (1 point)

In an economy that relies upon barter,

Question 3 options:

a) 

trade does not require a double coincidence of wants.

b) 

scarce resources are allocated just as easily as they are in economies that do not rely upon barter.

c) 

there is no item in the economy that is widely accepted in exchange for goods and services.

d) 

All of the above are correct.

Question 4 (1 point)

Paper money

Question 4 options:

a) 

has a high intrinsic value.

b) 

is the primary medium of exchange in a barter economy.

c) 

is valuable because it is generally accepted in trade.

d) 

is valuable only because of the legal tender requirement.

Question 5 (1 point)

Which of the following is not included in either M1 or M2?

Question 5 options:

a) 

U.S. Treasury bills

b) 

small time deposits

c) 

demand deposits

d) 

money market mutual funds

Question 6 (1 point)

Under a fractional-reserve banking system, banks

Question 6 options:

a) 

hold more reserves than deposits.

b) 

generally lend out a majority of the funds deposited.

c) 

cause the money supply to fall by lending out reserves.

d) 

All of the above are correct.

Question 7 (1 point)

At the Federal Reserve

Question 7 options:

a) 

the nation’s monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks.

b) 

the nation’s monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year.

c) 

the nation’s monetary policy is made by the Federal Open Market Committee, which meets about every six weeks.

d) 

the nation’s monetary policy is made by the Federal Open Market Committee, which meets twice a year.

Question 8 (1 point)

Which of the following is correct concerning the FOMC?

Question 8 options:

a) 

the members of the Board of Governors have the majority of the votes

b) 

the New York Federal Reserve Bank District President is always a voting member

c) 

all Federal Reserve Bank presidents attend the meetings

d) 

All of the above are correct.

Question 9 (1 point)

Which of the following is a function of money?

Question 9 options:

a) 

a unit of account

b) 

a store of value

c) 

medium of exchange

d) 

All of the above are correct.

Question 10 (1 point)

In a system of 100-percent-reserve banking, the purpose of a bank is to

Question 10 options:

a) 

make loans to households.

b) 

influence the money supply.

c) 

give depositors a safe place to keep their money.

d) 

buy and sell gold.

Question 11 (1 point)

Which of the following is correct?

Question 11 options:

a) 

The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms.

b) 

The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms.

c) 

The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms.

d) 

The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

Question 12 (1 point)

Commodity money is

Question 12 options:

a) 

backed by gold.

b) 

the principal type of money in use today.

c) 

money with intrinsic value.

d) 

receipts created in international trade that are used as a medium of exchange.

Question 13 (1 point)

Economists use the word “money” to refer to

Question 13 options:

a) 

income generated by the production of goods and services.

b) 

those assets regularly used to buy goods and services.

c) 

fianncial assets such as stocks and bonds.

d) 

any type of wealth.

Question 14 (1 point)

Given the following information, what are the values of M1 and M2?

Small time deposits

$1,300 billion

Demand deposits and other checkable deposits

$600 billion

Savings deposits

$1,500 billion

Money market mutual funds

$1,200 billion

Traveler’s checks

$50 billion

Large time deposits

$1,200 billion

Currency

$200 billion

Miscellaneous categories in M2

$50 billion

Question 14 options:

a) 

M1 = $800 billion, M2 = $4,950 billion.

b) 

M1 = $250 billion, M2 = $6,050 billion.

c) 

M1 = $850 billion, M2 = $4, 900 billion.

d) 

M1 = $850 billion, M2 = $6,100 billion.

Question 15 (1 point)

Which of the following is included in both M1 and M2?

Question 15 options:

a) 

savings deposits

b) 

demand deposits

c) 

small time deposits

d) 

money market mutual funds

Question 16 (1 point)

Money market mutual funds are included in

Question 16 options:

a) 

M1 but not M2.

b) 

M1 and M2.

c) 

M2 but not M1.

d) 

neither M1 nor M2.

Question 17 (1 point)

The primary difference between commodity money and fiat money is that

Question 17 options:

a) 

commodity money is a medium of exchange but fiat money is not.

b) 

fiat money is a medium of exchange but commodity money is not.

c) 

commodity money has intrinsic value but fiat money does not.

d) 

fiat money has intrinsic value but commodity money does not.

Question 18 (1 point)

Which list ranks assets from most to least liquid?

Question 18 options:

a) 

money, bonds, cars, houses

b) 

money, cars, houses, bonds

c) 

bonds, money, cars, houses

d) 

bonds, cars, money, houses

Question 19 (1 point)

A bank loans Kellie’s Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

Question 19 options:

a) 

an asset for the bank and a liability for Kellie’s Print Shop. The loan increases the money supply.

b) 

an asset for the bank and a liability for Kellie’s Print Shop. The loan does not increase the money supply.

c) 

a liability for the bank and an asset for Kellie’s Print Shop. The loan increases the money supply.

d) 

a liability for the bank and an asset for Kellie’s Print Shop. The loan increases the money supply.

Question 20 (1 point)

The discount rate is

Question 20 options:

a) 

the interest rate the Fed charges banks.

b) 

one divided by the difference between one and the reserve ratio.

c) 

the interest rate banks receive on reserve deposits with the Fed.

d) 

the interest rate that banks charge on overnight loans to other banks.

Question 21 (1 point)

The amount of currency per person in the United States is about

Question 21 options:

a) 

$125.

b) 

$300.

c) 

$2,500.

d) 

$3,700.

Question 22 (1 point)

Bank of Springfield

Assets

Liabilities

Reserves

    $19,200

Deposits

 $240,000

Loans

    228,000

Refer to Table 16-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

Question 22 options:

a) 

5.00 percent

b) 

8.00 percent

c) 

8.42 percent

d) 

95.00 percent

Question 23 (1 point)

Currency includes

Question 23 options:

a) 

paper bills and coins.

b) 

demand deposits.

c) 

credit cards.

d) 

Both (a) and (b) are correct.

Question 24 (1 point)

The New York Federal Reserve Bank

Question 24 options:

a) 

president always gets to vote at the FOMC meetings.

b) 

conducts open market transactions.

c) 

is one of 12 regional Federal Reserve Banks.

d) 

All of the above are correct.

Question 25 (1 point)

Consider five individuals with different occupations.

Allen

prepares taxes

wants ribs

Betty

does dry cleaning

wants computer fixed

Calvin

fixes computers

wants bread

Diedre

bakes bread

wants taxes prepared

Eric

barbecues ribs

wants dry cleaning

If this economy has money

Question 25 options:

a) 

Allen will buy from Betty

b) 

Betty will buy from Calvin

c) 

Eric will buy from Allen

d) 

None of the above are correct.

Question 26 (1 point)

If the discount rate is lowered, banks borrow

Question 26 options:

a) 

less from the Fed so reserves increase.

b) 

less from the Fed so reserves decrease.

c) 

more from the Fed so reserves increase.

d) 

more from the Fed so reserves decrease.

Question 27 (1 point)

Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?

Question 27 options:

a) 

store of value

b) 

medium of exchange

c) 

unit of account

d) 

None of the above is correct.

Question 28 (1 point)

If traveler’s checks were $500 higher and saving deposits were $1,000 higher, M1 would be

Question 28 options:

a) 

$500 higher and M2 would be $1,000 higher

b) 

$500 higher and M2 would be $1,500 higher

c) 

M2 and M1 would be $1,500 higher

d) 

None of the above are correct.

Question 29 (1 point)

Credit cards

Question 29 options:

a) 

defer payments.

b) 

are a store of value.

c) 

have led to wider use of currency.

d) 

are part of the money supply.

Question 30 (1 point)

When the Fed conducts open-market purchases

Question 30 options:

a) 

it buys Treasury securities, which increases the money supply.

b) 

it buys Treasury securities, which decreases the money supply.

c) 

it borrows money from member banks, which increases the money supply.

d) 

it lends money to member banks, which decreases the money supply.

Question 31 (1 point)

The ease with which an asset can be

Question 31 options:

a) 

traded for another asset determines whether or not that asset is a unit of account.

b) 

transported from one place to another determines whether or not that asset could serve as fiat money.

c) 

converted into a store of value determines the liquidity of that asset.

d) 

converted into the economy’s medium of exchange determines the liquidity of that asset.

Question 32 (1 point)

The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

Question 32 options:

a) 

the Board of Governors.

b) 

the FOMC.

c) 

the regional Federal Reserve Bank presidents.

d) 

the U.S. Treasury.

Question 33 (1 point)

Suppose the banking system currently has $300 billion in reserves; the reserve requirement is 10 percent; and excess reserves amount to $3 billion. What is the level of deposits?

Question 33 options:

a) 

$3,300 billion

b) 

$2,970 billion

c) 

$2,700 billion

d) 

$2,673 billion

Question 34 (1 point)

The Fed can influence unemployment in

Question 34 options:

a) 

the short run and in the long run.

b) 

the short run, but not in the long run.

c) 

the long run, but not in the short run.

d) 

neither the short nor the long run.

Question 35 (1 point)

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent. If you deposit $9,000 into First Jayhawk Bank,

Question 35 options:

a) 

First Jayhawk’s required reserves increase by $900.

b) 

First Jayhawk will be able to lend out $8,100.

c) 

First Jayhawk’s assets and liabilities both will increase by $9,000.

d) 

All of the above are correct.

Question 36 (1 point)

When there is a reserve requirement, banks

Question 36 options:

a) 

must hold exactly the required quantity of reserves.

b) 

may hold more than, but not less than, the required quantity of reserves.

c) 

may hold less than, but not more than, the required quantity of reserves.

d) 

must seek the Fed’s permission whenever they wish to expand or contract their loans to customers.

Question 37 (1 point)

Which list ranks assets from most to least liquid?

Question 37 options:

a) 

currency, fine art, stocks

b) 

currency, stocks, fine art

c) 

fine art, currency, stocks

d) 

fine art, stocks, currency

Question 38 (1 point)

When the Fed decreases the discount rate, banks will

Question 38 options:

a) 

borrow more from the Fed and lend more to the public. The money supply increases.

b) 

borrow more from the Fed and lend less to the public. The money supply decreases.

c) 

borrow less from the Fed and lend more to the public. The money supply increases.

d) 

borrow less from the Fed and lend less to the public. The money supply decreases.

Question 39 (1 point)

M1 includes

Question 39 options:

a) 

currency.

b) 

demand deposits.

c) 

traveler’s checks.

d) 

All of the above are correct.

Question 40 (1 point)

Other things the same if reserve requirements are decreased, the reserve ratio

Question 40 options:

a) 

decreases, the money multiplier increases, and the money supply decreases.

b) 

increases, the money multiplier increases, and the money supply increases.

c) 

decreases, the money multiplier increases, and the money supply increases.

d) 

increases, the money multiplier increases, and the money supply decreases.

Question 41 (1 point)

Which of the following entities actually executes open-market operations?

Question 41 options:

a) 

the Board of Governors

b) 

the New York Federal Reserve Bank

c) 

the Federal Open Market Committee

d) 

the Open Market Committees of the regional Federal Reserve Banks

Question 42 (1 point)

A bank’s reserve ratio is 10 percent and the bank has $2,000 in deposits. Its reserves amount to

Question 42 options:

a) 

$20.

b) 

$200.

c) 

$400.

d) 

$1,800.

Question 43 (1 point)

Which of the following is not correct?

Question 43 options:

a) 

The president of the New York Federal Reserve bank is the only Federal Reserve Regional Bank President who gets to vote at every meeting of the Federal Open Market Committee.

b) 

The Fed’s policy decisions influence the economy’s rate of inflation in the short run and the economy’s employment and production in the long run.

c) 

The Fed’s primary monetary policy tool is open-market operations.

d) 

All of the above are correct.

Question 44 (1 point)

Which of the following increase when the Fed makes open market purchases?

Question 44 options:

a) 

currency and reserves

b) 

currency but not reserves

c) 

reserves but not currency

d) 

neither currency nor reserves

Question 45 (1 point)

Table 16-5.
Bank of Pleasantville

Assets

Liabilities

Reserves

    $2,000

Deposits

 $20,000

Loans

    18,000

Refer to Table 16-5. From the table it follows that the Bank of Pleasantville operates in a

Question 45 options:

a) 

fractional-reserve banking system, since its reserves are less than its deposits.

b) 

fractional-reserve banking system, since its reserves are less than its loans.

c) 

100-percent-reserve banking system, since its assets are equal to its liabilities.

d) 

100-percent-reserve banking system if the Fed’s reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.

Question 46 (1 point)

Which of the following is not included in either M1 or M2?

Question 46 options:

a) 

money market deposit accounts

b) 

large time deposit

c) 

demand deposits

d) 

money market mutual funds

Question 47 (1 point)

When the Fed conducts open-market purchases,

Question 47 options:

a) 

banks buy Treasury securities from Fed, which increases the money supply.

b) 

banks buy Treasury securities from the Fed, which decreases the money supply.

c) 

it buys Treasury securities, which increases the money supply.

d) 

it buys Treasury securities, which decreases the money supply.

Question 48 (1 point)

Which of the following is not included in M1?

Question 48 options:

a) 

currency

b) 

demand deposits

c) 

traveler’s checks

d) 

credit cards

Question 49 (1 point)

Who was reappointed Chair of the Board of Governors in 2009 by President Barrack Obama?

Question 49 options:

a) 

Ben Bernanke

b) 

Christina Romer

c) 

Timothy Geithner

d) 

Bernie Madoff

Question 50 (1 point)

The Federal Reserve

Question 50 options:

a) 

was created in 1913.

b) 

is the U.S.’s central bank.

c) 

has other duties in addition to controlling the money supply.

d) 

All of the above are correct.