Deck 5: Policy Makers and the Money Supply

Question 1

The Federal Reserve System is one of the four policy making groups.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Moderate economic growth is one of the three general goals of U.S. economic policy actions.

Answer 3

False

Question 4

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

Question 5

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

Question 6

Price stability is one of the three general goals of U.S. economic policy actions.

Question 7

The president is one of the four policy making groups.

Question 8

Commercial banks are one of the four policy making groups.

Question 9

Low inflation is one of the three general goals of U.S. economic policy actions.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

Congress is one of the four policy making groups.

Question 16

The government body primarily responsible for monetary policy is Congress.

Question 17

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

Question 18

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

Question 19

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

Question 20

Moderate employment is one of the three general goals of U.S. economic policy actions.

Question 21

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

Question 22

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

Question 23

There are four ways a government raises funds to pay for its activities.

Question 24

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

Question 25

Aggregate demand refers to total spending in the economy.

Question 26

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

Question 27

Since World War II, 12 individuals served as president of the United States.

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

Fannie Mae was on the verge of financial insolvency and possible collapse in mid-2008.

Question 34

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

Question 35

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

Question 36

Freddie Mac was on the verge of financial insolvency and possible collapse in mid-2008.

Question 37

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

Question 38

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

Question 39

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

Question 40

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 41

The Fed plays a significant role in tax policy.

Question 42

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

Question 43

Tax cuts are an automatic stabilizers.

Question 44

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

Question 45

Welfare payments are an automatic stabilizers.

Question 46

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

Question 47

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 48

Fund deficits and refinance maturing debt as quickly as possible is one of three debt management goals for the Treasure.

Question 49

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

Question 50

Progressive income tax is an automatic stabilizers.

Question 51

Social Security tax receipts tend to increase during economic downturns.

Question 52

To manage Treasury's cash flow is one of three debt management goals for the Treasure.

Question 53

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 54

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

Question 55

The U.S. national debt is the total debt owed by the government and consists of debt held by the public.

Question 56

Tax receipts tend to increase during economic downturns.

Question 57

Unemployment is an automatic stabilizers.

Question 58

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

Question 59

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 60

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

Question 61

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

Question 62

Our 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) economic growth.

Question 63

The U.S. Treasury is primarily responsible for

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

Question 64

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

Question 65

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

Question 66

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

Question 67

Primary groups of policy makers that are actively involved in achieving U.S. economic policy objectives include which of the following?

A) Commercial banks
B) The president
C) State legislatures
D) Foreign governments

Question 68

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; Freddie Mac
B) the Federal Treasury; the Federal Reserve
C) Morgan Stanley; Smith Barney
D) Washington Mutual; Lehman Brothers

Question 69

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 reduce liquidity in the monetary system and increased its target federal funds rate.
B) worked with the U.S. Treasury to help facilitate the merging of financially weak institutions with institutions that were financially stronger.
C) increased reserve requirements
D) sold bond through open market operations

Question 70

A country's economic policy actions are directed toward which of the following goals?

A) No change in the GDP
B) High employment
C) Maintaining high inflation
D) Zero trade deficit or surplus

Question 71

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.

Question 72

The M1 definition of the money supply is the monetary base multiplied by the money multiplier.

Question 73

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

Question 74

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 75

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

Question 76

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 77

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 78

A primary focus of the Economic Stabilization Act of 2008, which became known as the ___________________________, was to allow the U.S. Treasury purchase up to $700 billion of troubled or toxic assets held by financial institutions.

A) Troubled Asset Relief Program (TARP)
B) Toxic Asset Recovery Program (TARP)
C) Troubled Area Relief Program (TARP)
D) Toxic Area Recovery Program (TARP)

Question 79

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

Question 80

The "perfect financial storm" that developed in 2008, which put the U.S. economy was on the verge of collapse was characterized by which of the following?

A) The housing price "bubble" burst in 2006 and began a sharp decline.
B) Stock market prices began a sharp increase.
C) Many of the mortgage-related debt securities originated and sold to others, or held, by banks became easy to value during the perfect financial storm.
D) Individuals and businesses were defaulting on loans and home mortgages in increasing numbers due to increasing home prices.