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