ECON 102: Practice Exam Multiple Choice Questions
38 Cards in this Set
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Securitization refers to
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The practice of purchasing loans, repacking them, and selling them to the financial markets
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The Great Recession affects current policy choices because
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Federal debt levels got so high
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After the financial crisis of 2008 the Fed
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changed the composition of its assets to include mortgage-backed securities (inject money into the economy)
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Assets that are easily convertible into money on short notice are referred to as being
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liquid
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Following the Great Depression, the likelihood of "runs on banks" has been greatly reduced by the creation of
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deposit insurance
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During the housing boom, overeager lenders made loans to very risky borrowers (those with no income and/or no wealth. This
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is economically sensible if the loans are well-diversified posing little chance of causing a decline in housing prices
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Credit cards are not considered part of the money supply because
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They are a loan which you have to use money to pay for later
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The supply of money in the U.S. economy is determined primarily by
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the actions of the Federal Reserve and the U.S. Tresury
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Checking account balances are included in
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Both M1 and M2
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According to the information in the table, M1 is equal to (options: currency, demand deposits, other checkable deposits, Traveler's checks, savings deposits, small time deposits, money market mutual funds)
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Currency + Demand deposits + Other checkable deposits + Traveler's checks
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According to the information in the table, M2 is equal to (options: currency, demand deposits, other checkable deposits, Traveler's checks, savings deposits, small time deposits, money market mutual funds)
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M2 = M1 + Savings + Small time deposits + MMMF
1862
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Loans are examples of a bank's
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Assets
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Given the following information:
Bank deposits = 50K
Loans = 25K
Required reserves = 15K
Excess reserves = 10K ...what's the reserve ratio?
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...
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Suppose Diego deposits $4000 in his bank. If the reserve ratio is 10 percent, this will lead to a maximum increase of ___ in checking account balances throughout all banks.
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$4000x(1/.10)
$40,000
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This leads to an eventual change in the total money supply
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Customer's cash withdrawal from an ATM
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The voting members of the Federal Open Market Committee are all of the members of the Board of Governors and
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all of the members of the Board of Governors and five of the presidents of the 12 Federal Reserve Banks
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There are __ Federal reserve banks located in different parts of the United States
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12
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Members of the Federal Reserve Board of Governors
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are members of the Federal Open Market Committee
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Banks borrow from the fed at the
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discount rate
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After the financial crisis of 2008, the Fed
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Changed the composition of its assets to include mortgaged-backed securities
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If increases in defense spending by the government "crowd out" private investment spending, this will lead to
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Lower levels of real income and wages in the future
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Suppose that the interest rate available to you on a long-term bond is 4 percent. If you hold $1,000 of your wealth in currency instead of in the form of a bond, the annual opportunity cost is
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1000x(1x.04)
$40
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The demand for money that arises when there are short-term emergencies such as natural disasters is called
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liquidity demand for money
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Decreased investment spending in the economy would be a possible result of
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An open market sale of bonds by the Fed
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The federal funds rate is the interest rate that
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the banks charge each other for borrowed money
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Based on the model of the money market, when real GDP increases, the equilibrium interest rate should
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increase
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As interest rates fall, the
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prices of bonds rises
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The appreciation of the dollar will make U.S. goods ___ to foreigners and make imports ___ for U.S. residents
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expensive; cheaper
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In the Keynesian model, if the marginal propensity to consume (mpc) is 0.25 and government spending increases by $100 billion , then
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The aggregate demand curve will shift by about $133 Billion (1/(1-.25))*100)
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If the FOMC targets a lower federal funds rate, one would expect
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stock prices to immediately rise
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The Great Recession affects current policy choices because
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Federal debt levels got so high
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The Laffer curve illustrates that
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high tax rates could lead to lower tax revenues if economic activity is severely discouraged
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Money that has no intrinsic value and is created by a government decree is called
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fiat money
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Checking account balances are included in
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both M1 and M2
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The money multiplier is equal to
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1/(reserve ratio)
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The economic theory that emphasizes the role of difficulties in coordinating economic affairs as a cause of economic fluctuations is known as
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Keynesian economics
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Assets that are easily convertible into money on short notice are referred to as being
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liquid
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The U.S. unemployment rate is falling. If the initially high levels of unemployment were the result of a Keynesian recession, then we would currently expect to see
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Real wages decreasing and investment spending increasing
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ECON 102: Practice Exam Multiple Choice Questions