Q&A Hero

Q: A graph plotting the real value of a mortgage payment over time when the inflation rate is positive and the mortgage is a standard nominal-rate loan illustrates thea. present-value formula. b. securitization issue.c. real-interest rate conundrum. d. mortgage-tilt problem.

Q: All of the following are necessary criteria for a commodity to function as money EXCEPT A. it must deteriorate quickly. B. it must be divisible. C. it must be easy to carry. D. it must be widely accepted.

Q: Which of the following is NOT a cost of anticipated inflation but arises only if inflation is unanticipated?a. Inflation interacts with the tax system to hurt savings and investment in physical capital. b. Inflation represents an implicit tax on holding money.c. Firms face menu costs of changing prices.d. Higher inflation leads to greater uncertainty about the future inflation rate.

Q: For a commodity to function effectively as money it must be A. easily standardized, making it easy to ascertain its value. B. difficult to make change. C. deteriorate quickly so that its supply does not become too large. D. hard to carry around.

Q: In case of positive inflation rates,a. both borrowers and lenders of fund lose out.b. both borrowers and lenders of fund gain.c. lenders of funds gain, while borrowers lose out.d. borrowers of funds gain, while lenders lose out.

Q: Money ________ transaction costs, allowing people to specialize in what they do best. A. reduces B. increases C. enhances D. eliminates

Q: The cost that firms incur to change prices is referred to as a. menu costs.b. inflation tax.c. pseudo costs.d. transaction costs.

Q: When economists say that money promotes ________, they mean that money encourages specialization and the division of labor. A. bargaining B. contracting C. efficiency D. greed

Q: Which of the following statements is true?a. Both expansionary and contractionary monetary policy has the drawback of increasing unemployment. b. Both expansionary and contractionary monetary policy has the drawback of increasing inflation.c. Expansionary monetary policy has the drawback of increasing unemployment, while contractionary monetary policy has the drawback of increasing inflation.d. Expansionary monetary policy has the drawback of increasing inflation, while contractionary monetary policy has the drawback of increasing unemployment.

Q: Which of the following statements best explains how the use of money in an economy increases economic efficiency? A. Money increases economic efficiency because it is costless to produce. B. Money increases economic efficiency because it discourages specialization. C. Money increases economic efficiency because it decreases transactions costs. D. Money cannot have an effect on economic efficiency.

Q: The unemployment rate when the economy is producing output equal to its potential is known as a. the rate of disguised unemployment.b. the potential rate of unemployment. c. the natural rate of unemployment.d. equilibrium rate of unemployment.

Q: The conversion of a barter economy to one that uses money A. increases efficiency by reducing the need to exchange goods and services. B. increases efficiency by reducing the need to specialize. C. increases efficiency by reducing transactions costs. D. does not increase economic efficiency.

Q: In the U.S., data on potential output come froma. estimates made by the Congressional Budget Office. b. data calculated by the Bureau of Trade.c. estimates generated by the National Bureau of Economic Research. d. forecasts from the United Nations Development Program.

Q: When compared to exchange systems that rely on money, disadvantages of the barter system include A. the requirement of a double coincidence of wants. B. lowering the cost of exchanging goods over time. C. lowering the cost of exchange to those who would specialize. D. encouraging specialization and the division of labor.

Q: The amount of output that would be produced by an economy if resources were being utilized at a high rate that is sustainable in the long run is referred to as thea. potential output. b. natural output.c. Walrasian output.d. partial-equilibrium output.

Q: Compared to an economy that uses a medium of exchange, in a barter economy A. transaction costs are higher. B. transaction costs are lower. C. liquidity costs are higher. D. liquidity costs are lower.

Q: Monetary policy can affect the level of output a. only in the short run.b. only in the long run.c. in both the short run and long run.d. in neither the short run nor the long run.

Q: ________ are the time and resources spent trying to exchange goods and services. A. Bargaining costs B. Transaction costs C. Contracting costs D. Barter costs

Q: The longest economic expansion in U.S. history occurred froma. 1929 to 1939b. 1956 to 1966c. 1970 to 1980d. 1991 to 2001

Q: Even economists have no single, precise definition of money because A. money supply statistics are a state secret. B. the Federal Reserve does not employ or report different measures of the money supply. C. the "moneyness" or liquidity of an asset is a matter of degree. D. economists find disagreement interesting and refuse to agree for ideological reasons.

Q: If the excess reserves held by banks increase, the money multiplier is likely to a. rise.b. fall.c. remain unchanged.d. rise at first, then decline later.

Q: Currency includes A. paper money and coins. B. paper money, coins, and checks. C. paper money and checks. D. paper money, coins, checks, and savings deposits.

Q: An increase in interest ratesa. decreases the M2 money multiplier.b. decreases the ratio of excess reserves to transaction accounts held by banks c. increases the money supply for a given amount of monetary base.d. increases the ratio of excess reserves to transaction accounts held by banks

Q: Money is A. anything that is generally accepted in payment for goods and services or in the repayment of debt. B. a flow of earnings per unit of time. C. the total collection of pieces of property that are a store of value. D. always based on a precious metal like gold or silver.

Q: Another name for the monetary base isa. commodity money.b. fiat money.c. high-powered money.d. bank reserves.

Q: To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt. A. wealth B. income C. money D. credit

Q: If the M1 multiplier is 3 and the Fed engages in open-market sales in the amount of $3 billion, then M1 will a. increase by $1 billion.b. decline by $1 billion. c. decline by $9 billion. d. increase by $9 billion.

Q: Why are most of the U.S. dollars held outside of the United States?

Q: If the M2 multiplier is 8.3, how much would the Fed need to add to the monetary base in order to increase the M2 measure of the money supply by $830 million?a. $10 millionb. $100 millionc. $1 billiond. $6.889 billion

Q: From 2004 to 2007, the growth rates of M1 and M2 A. were identical. B. both increased but at different rates. C. both decreased but at different rates. D. moved in opposite directions.

Q: If a bank in the economy has excess reserves of $3 million, and required reserves are 10 percent of transactions accounts under the assumptions of the simple multiplier formula, then eventually the money supply will increase by a. −$3 million.b. $3 million. c. $10 million. d. $30 million.

Q: Which of the following statements accurately describes the two measures of the money supply? A. The two measures do not move together, so they cannot be used interchangeably by policymakers. B. The two measures' movements closely parallel each other, even on a month-to-month basis. C. Short-run movements in the money supply are extremely reliable. D. M2 is the narrowest measure the Fed reports.

Q: M2 money multiplier equalsa. (nontransaction accounts + money market funds) ÷ monetary base b. (M1 + nontransaction accounts ­ money market funds) × reserves c. (M2 ­ money market funds) ÷ excess reservesd. (M1 + nontransaction accounts + money market funds) ÷ monetary base

Q: The M2 monetary aggregate contains everything that is in M1 plus other assets that are highly ________ (can be turned into cash quickly at very little cost). A. liquid B. stable C. consistent D. efficient

Q: M1 money multiplier equalsa. (transaction accounts + currency) ÷ monetary base b. (transaction accounts ­ currency) ÷ monetary base c. (transaction accounts + currency) × monetary base d. (transaction accounts ­ currency) × monetary base

Q: Small-denomination time deposits refer to certificates of deposit with a denomination of less than A. $1,000. B. $10,000. C. $100,000. D. $1,000,000.

Q: The money multiplier equalsa. the money supply divided by the monetary base.b. currency held by the non-bank public plus banks' reserves.c. currency held by the non-bank public plus transaction accounts. d. M2 divided by M1.

Q: If an individual uses money from a demand deposit account to purchase a U.S. savings bond A. M1 decreases and M2 stays the same. B. M1 stays the same and M2 increases. C. M1 stays the same and M2 stays the same. D. M1 decreases and M2 decreases.

Q: Consider a bank that has $10 million as reserves, $5million as securities, and $100 million as transaction accounts. If a customer, who is a government securities dealer, sells $2 million in securities to the Feda. the bank's transaction accounts reduce to $98 million. b. the bank's securities reduce by $4 million.c. the bank's reserves increase to $12 million. d. the bank's loans reduce by $2 million.

Q: If an individual moves money from a money market deposit account to currency A. M1 increases and M2 stays the same. B. M1 stays the same and M2 increases. C. M1 stays the same and M2 stays the same. D. M1 increases and M2 decreases.

Q: Third Bank has reserves of $12.3 million and transaction accounts of $115 million. If required reserves are 10 percent of transactions accounts, Third Bank has excess reserves ofa. −$0.8 million. b. $0.c. $0.8 million d. $0.08 million

Q: An investment intermediary that lends funds to consumers is A. a finance company. B. an investment bank. C. a finance fund. D. a consumer company.

Q: Green bank has transaction accounts worth $200 million. If the required reserve ratio is 10%, Green bank holds_____as required reserves.a. $220 millionb. $180 millionc. $60 milliond. $20 million

Q: Which of the following are investment intermediaries? A. life insurance companies B. mutual funds C. pension funds D. state and local government retirement funds

Q: Discuss the effectiveness of a monetary policy in an economy in which banks are indifferent between holding bonds and holding cash as reserves.

Q: The primary assets of a pension fund are A. money market instruments. B. corporate bonds and stock. C. consumer and business loans. D. mortgages.

Q: The___ appoint one of the members of the Federal Reserve Board of Governors as chairman of the Board of Governors for a _____ ,___term.a. President of the United States; non-renewable; fourteen-yearb. Board of Directors; renewable; five-yearc. U.S. Senate; non-renewable; seven-yeard. President of the United States; renewable; four-year

Q: Which of the following is NOT a contractual savings institution? A. a life insurance company B. a pension fund C. a savings and loan association D. a fire and casualty insurance company

Q: How long is the normal term in office for a Governor of the Federal Reserve Board?a. Five yearsb. Seven yearsc. Fourteen years d. Life

Q: Which of the following are NOT contractual savings institutions? A. life insurance companies B. credit unions C. pension funds D. state and local government retirement funds

Q: Publications of the Federal Reserve Bank such as the economicrevieware available a. to the public for free.b. only to the President of the United States.c. only to members of the Federal Reserve Bank.d. to all individuals willing to pay a fixed annual subscription charge.

Q: Contractual savings institutions include A. mutual savings banks. B. money market mutual funds. C. commercial banks. D. life insurance companies.

Q: The Beigebook isa. a report on recent international economic conditions and forecasts for the next two years. b. a discussion of alternative policy choices and the implications of those choices.c. a report on local economic conditions.d. a report on Federal revenue and expenditure.

Q: Compiling information on basic economic variables such as the unemployment rate and inflation rate is referred to asamong Fed members. a. code­halo analyticsb. up­and­down economicsc. real­time data miningd. economic sequencing

Q: Which of the following is a contractual savings institution? A. a life insurance company B. a credit union C. a savings and loan association D. a mutual fund

Q: The discount rate is thea. targeted inflation rate for an economy.b. ongoing taxation rate in an economy.c. interest rate that the Fed charges on the loans it makes.d. nominal interest rate charged by financial intermediaries when they advance loans.

Q: ________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis. A. Investment B. Contractual savings C. Thrift D. Depository

Q: The primary liabilities of depository institutions are A. premiums from policies. B. shares. C. deposits. D. bonds.

Q: Which of the following statements is true?a. The annual income from securities far exceeds the annual expenditures of the Federal Reserve Bank. b. The Federal Reserve Bank's president is elected for a fourteen year renewable term.c. All banking services provided by the Federal Reserve Bank are free of charge.d. The Federal reserve Bank delegates its open market operations to smaller commercial banks.

Q: The primary liabilities of a commercial bank are A. bonds. B. mortgages. C. deposits. D. commercial paper.

Q: Federal Reserve Banks mostly pay for their central banking operations through a. government tax revenue.b. interest on the securities they own.c. fees charged to banks that use their services. d. dividends paid by local banks.

Q: The primary assets of credit unions are A. municipal bonds. B. business loans. C. consumer loans. D. mortgages.

Q: The directors of a Federal Reserve Bank includea. three class A directors, who are bankers and are chosen by member banks; three class B directors, who are business leaders and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.b. three class A directors, who are bankers and are chosen by member banks; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.c. three class A directors, who are bankers and are chosen by public voting; three class B directors, who are politicians and are also chosen by member banks; and three class C directors, who are public-interest directors and are chosen by the Board of Governors.d. three class A directors, who are bankers and are chosen by member banks and three class B directors, who are business leaders and are also chosen by public voting.

Q: Of the nine directors of each Federal Reserve Bank, are elected by member banks. a. zerob. three c. sixd. nine

Q: Which of the following financial intermediaries is NOT a depository institution? A. a savings and loan association B. a commercial bank C. a credit union D. a finance company

Q: Which of the following is a depository institution? A. a life insurance company B. a mutual savings bank C. a pension fund D. a finance company

Q: Shares in the Federal Reserve Banks are owned by a. the federal government of the United States.b. banks that are members of the Federal Reserve System. c. the governments of the states in which they are located. d. private citizens who own stock in them.

Q: Each Federal Reserve Bank is a. a corporation.b. a government owned enterprise. c. a publicly traded company.d. a government-sponsored enterprise.

Q: Which of the following is a depository institution? A. a life insurance company B. a credit union C. a pension fund D. a mutual fund

Q: What step does the Board of governors of the Fed take to ensure that the Fed does not built itself into an inefficient bureaucracy?

Q: Thrift institutions include A. banks, mutual funds, and insurance companies. B. savings and loan associations, mutual savings banks, and credit unions. C. finance companies, mutual funds, and money market funds. D. pension funds, mutual funds, and banks.

Q: Financial institutions that accept deposits and make loans are called ________ institutions. A. investment B. contractual savings C. depository D. underwriting

Q: Is there evidence that the Federal Reserve has built itself into an inefficient bureaucracy?

Q: Because there is an imbalance of information in a lending situation, we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems.

Q: Describe the relationship between central bank independence and macroeconomic variables such as inflation and growth.

Q: Although the dominance of ________ over ________ is clear in all countries, the relative importance of bond versus stock markets differs widely. A. financial intermediaries; securities markets B. financial intermediaries; government agencies C. government agencies; financial intermediaries D. government agencies; securities markets

Q: Why are the deliberations of the FOMC kept secret?

Q: The countries that have made the least use of securities markets are ________ and ________; in these two countries finance from financial intermediaries has been almost ten times greater than that from securities markets. A. Germany; Japan B. Germany; Great Britain C. Great Britain; Canada D. Canada; Japan

Q: Describe the Beigebook, the Greenbook, and the Bluebook.

Q: Studies of the major developed countries show that when businesses go looking for funds to finance their activities they usually obtain these funds from A. government agencies. B. equities markets. C. financial intermediaries. D. bond markets.