Deck 5: Policy Makers and the Money Supply

Question 1

A budget deficit stimulates economic activity.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Currency in the form of Federal Reserve notes are primarily backed by gold certificates and eligible paper.

Answer 3

False

Question 4

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

Question 5

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 6

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

Question 7

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

Question 8

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 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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 26

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

Question 27

The Fed plays a significant role in tax policy.

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

Aggregate demand refers to total spending in the economy.

Question 36

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

Question 37

Tax receipts tend to increase during economic downturns.

Question 38

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 39

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

Question 40

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 41

The U.S.Treasury is primarily responsible for:

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

Question 42

Examples of automatic stabilizers are:

A)open market operations
B)changes in the discount rate
C)unemployment insurance
D)issuance of currency

Question 43

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 44

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

Question 45

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 46

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)causes inequities and discourages investment by increasing the uncertainty about future returns
D)is almost always due to financing wars

Question 47

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

Question 48

Debt management by the federal government includes:

A)determining the types of securities to sell and the interest rate pattern to use
B)determining the types of securities to sell,the interest rate pattern to use,and the types of refunding to do
C)determining the types of securities to sell,the interest rate pattern to use,and making discussions on Treasury borrowing
D)determining the types of securities to sell,the interest rate pattern to use,the types of refunding to do,and making decisions on callable issues

Question 49

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

Question 50

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 51

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 52

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

Question 53

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 54

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

Question 55

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

Question 56

Budgetary deficits always have the effect of:

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

Question 57

The government body primarily responsible for monetary policy is Congress.

Question 58

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

Question 59

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

Question 60

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 61

Under required reserves of 20%,the maximum to which the money supply could be expanded by the banking system is:

A)ten times a new primary deposit
B)fifteen times a new primary deposit
C)twenty times a new primary deposit
D)fifty times a new primary deposit
E)none of the above

Question 62

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 63

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 64

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 65

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

Question 66

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

Question 67

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 68

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 69

Bank reserves are increased when the Treasury:

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 70

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 71

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 72

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 Federal Reserve
D)initiated by the U.S.Treasury

Question 73

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 74

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 75

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 76

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 77

Under required reserves of 20%,the maximum to which the money supply could be expanded by the banking system is:

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

Question 78

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

Question 79

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 80

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