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Question 1

In January 2013?, currency and? traveler’s checks held by individuals and businesses was ?\$1,101 ?billion; checkable deposits owned by individuals and businesses were ?\$1,365 ?billion; savings deposits were ?\$6,710 ?billion; small time deposits were ?\$621 ?billion; and money market funds and other deposits were ?\$652 billion.

Calculate M1 and M2 in January 2013.

M1 in January 2013 is ?\$________billion.

M2 in January 2013 is ?\$_____billion.

Question 2

In December2004?, M1 was ?\$1,372 ?billion; M2 was ?\$6,422 ?billion; checkable deposits owned by individuals and businesses were ?\$667667 ?billion; small time deposits were ?\$817 ?billion; and money market funds and other deposits were ?\$713 billion.

Calculate currency held by individuals and businesses and? traveler’s checks in December2004?, and calculate savings deposits.

In December2004?, currency held by individuals and businesses and? traveler’s checks were ?\$___________billion.

Savings deposits in December2004 were ?\$___________ billion.

Question 3

Sara withdraws ?\$1,500 from her checking account at Bank of? America, keeps ?\$300 in? cash, and deposits the balance in her time deposit account at Citibank.

What is the immediate change in M1 and? M2?

A. M2 decreases by ?\$1,200 and there is no change in M1.

B. M1 decreases by ?\$300300 and M2 increases by ?\$300.

C. M1 and M2 decrease by ?\$1,200.

D. M1 decreases by ?\$1,200 and there is no change in M2.

E. M1 decreases by ?\$1,200 and M2 increases by ?\$1,200.

Question 4

?*Real-time data provided by Federal Reserve Economic Data? (FRED), Federal Reserve Bank of Saint Louis.

The table shows the quantities of? M1, M2, and their components in July 2017 but with two items missing.

What are the missing? items?

A is ____________??

B is ___________

Amount

July 2017July 2017

?(billions of? dollars)

M2

13,602.2

Money market funds

680.8

A

364.4

Savings deposits

9,028.7

M1

3,528.3

Checkable deposits

2,040.6

B

1,487.7

Question 5

?Real-Time Data Analysis? Exercise*

?*Real-time data provided by Federal Reserve Economic Data? (FRED), Federal Reserve Bank of Saint Louis.

The table shows the quantities of? M1, M2, and their components in July 2017.

What is the largest component of? M1?

A.Savings deposits

B.Currency and? traveler’s checks

C.Checkable deposits

D.Small time deposits

What is the largest component of? M2?

A.Checkable deposits

B.Small time deposits

C.Money market funds

D.Savings deposits

Amount

July 2017July 2017

?(billions of? dollars)

M2

13,602.2

Money market funds

680.8

Small time deposits

364.4

Savings deposits

9,028.7

M1

3,528.3

Checkable deposits

2,040.6

Currency and? traveler’s checks

1,487.7

Question 6

The institutions that make up the banking system are? ______.

A.the U.S. Treasury?, money market funds?, the New York Stock Exchange?, and the Federal Reserve

B.thrift institutions?, the New York Stock Exchange?, the Federal Reserve?, and the Chicago Mercantile Exchange

C.the U.S. Treasury?, the world gold market?, the New York Stock Exchange?, and the Chicago Mercantile Exchange

D.thrift institutions?, money market funds?, commercial banks?, and the Federal Reserve

E.thrift institutions?, the world gold market?, money market funds?, and commercial banks

Question 7

A bank has the following deposits and? assets:

Checkable? deposits, ?\$300??

Savings? deposits, ?\$1,320

Small time? deposits, ?\$575

Outstanding credit card? balances, ?\$300

Government? securities, ?\$100

?Currency, ?\$5

Reserve account at the? Fed, ?\$6

Calculate the? bank’s total deposits and the amount of deposits that are part of M1 and M2.

The? bank’s total deposits are ?\$ ___________

Deposits that are part of M1 are ?\$________

Deposits that are part of M2 are ?\$___________

Question 8

Choose the statement that is incorrect.

A. A bank keeps only a small fraction of its funds in reserves and lends the rest.

B. A bank balances security for its stockholders against profit for its depositors.

C.The aim of a bank is to maximize their stockholders’ wealth.

D.Reserves are the currency in a bank’s vault plus the balance on it reserve account at a Federal Reserve Bank.

Question 9

Choose the correct statement about the Fed and the FOMC.

A.The Fed regulates financial institutions and markets and the FOMC is organized into 12 Federal Reserve districts.

B.The Fed is the U.S. federal government and the FOMC is the government’s operating management committee.

C.The Fed regulates financial institutions and the FOMC is the Fed’s main policy -making committee.

D.The Fed is the world central bank and the FOMC meets to review the state of the economy

E.The Fed is a federation of commercial banks and the FOMC is its management committee.

Question 10

The monetary base is the sum of? _______.

A. U.S. government securities held by the Fed and commercial banks

B.excess reserves held by the commercial banks

C.?coins, Federal Reserve? notes, and? banks’ reserves at the Fed

D.U.S. government securities and loans made by the Fed to commercial banks

E.money held by the regional federal reserve banks

Question 11

Suppose that at the end of December? 2009, banks’ reserves at the Fedbanks’\$15 ?billion, Federal Reserve notes ?\$750 ?billion, and the quantity of coins was ?\$10 billion.

Calculate the monetary base in the United States.

The monetary base in the United States is ?\$_____billion.

Question 12

If the Fed makes an open market purchase of? \$1 million of? securities, the quantity of money? _____ by? \$1 million multiplied by? _____.

A.increases?; the inverse of the required reserve ratio

B.increases?; the money multiplier

C.decreases?; the inverse of the required reserve ratio

D.increases?; the currency drain

E.decreases?; the required reserve ratio??

Desired reserve ratio? = ?R/D?; Currency drain ratio? = ?C/D?; Monetary base? = MB?; Quantity of money? = M.

If the Fed makes an open market purchase of? \$1 million of? securities, the magnitude of the money multiplier is? _____.

A.?1/(?R/D? + ?C/D?)

B.R?/MB

C.?(1 + ?C/D?)/(?R/D? + ?C/D?)

D.?(?R/D? + ?C/D?)/(1 ?+ ?C/D?)

E.MB?/M

The sign of the money multiplier is? ______.

A.positive

B.negative

The quantity of money? ______.

A.increases

B.decreases

Question 13

A commodity or token is money if it is? _______.

A.used in a barter transaction

B.completely safe as a store of value

C.a store of value

D.generally accepted as means of payment

Question 14

The? Fed’s policy tools include all the following except ?_______.

A.required reserve ratio and open market operations

B.discount rate

C.taxing? banks’ deposits at the Fed

D.quantitative easing

Question 15

A commercial bank creates money when it does all the following except ?_______.

A.decreases its excess reserves

B.makes loans

C.puts cash in its ATMs

D.creates deposits

Question 16

Classify each of the following items as discretionary fiscal policy or automatic fiscal policy or neither.

__________A decrease in tax revenues in a recession

______________An increase in the public education budget

___________A cut in infrastructure expenditure during a boom

Question 17

Explain the change in aggregate demand when government expenditure on national defense increases by? \$100 billion.

Aggregate demand? ______ by? ______ \$100 billion.

A.?decreases; less than

B.?increases; less than

C.?decreases; more than

D.?increases; more than

E.?increases; exactly

Question 18

Explain how aggregate demand changes when the government increases taxes by? \$100 billion.

Aggregate demand? ______ by? ______ \$100 billion.

A.?decreases; exactly

B.?decreases; less than

C.?increases; more than

D.?decreases; more than

E.?increases; less than

Question 19

Suppose that the U.S. government increases its expenditure on highways and bridges by? \$100 billion.

As a result of this? expenditure, aggregate demand? ______.

If the economy is in a? recession, real GDP? _______.

A.increases by more than? \$100 billion because consumption expenditure increases in a multiplier? process;

increases

B.increases by more than? \$100 billion because U.S. imports would decrease and people would spend more on? U.S.-produced goods and? services;

increases

C.increases by? \$100 billion;

increases

D.increases by less than? \$100 billion because consumption expenditure? decreases;

decreases

E.does not change because the increase in government expenditure would be matched by a decrease in private? expenditure;

does not change

Question 20

The? supply-side effects of a tax cut arise because taxes act as _________ to? work, save, and provide entrepreneurial services. ??

The? supply-side effects from an increase in government expenditure arise because government expenditure increases the quantities of _____________?, which increases potential GDP and aggregate supply.

?So, a tax cut increases? people’s ___________ to? work, to? save, and to provide entrepreneurial? services, all of which lead to an increase in aggregate supply and potential GDP.

Question 21

The graph shows the economy in a recession.

Draw a curve that shows the effect of a fiscal stimulus. Label it.

Draw a point at the new macroeconomic equilibrium.

Question 22

A country has been in existence for only two years.

In the first? year, tax revenues were? \$1.0 million and outlays were? \$1.5 million.

In the second? year, tax revenues were? \$1.5 million and outlays were? \$2.0 million.

At the end of the second? year, the government had issued debt worth? ______.

A.?\$0.5 million

B.??\$1 million

C.??\$0.5 million

D.?\$1 million

Question 23

Choose the statement that is incorrect.

A.The tax multiplier is the magnification effect of a change in taxes on aggregate demand.

B.The magnitude of the tax multiplier is larger than the government expenditure multiplier.

C.The government expenditure multiplier is the magnification effect of a change in government expenditure on goods and services on aggregate demand.

D.The magnitude of the tax multiplier is equal to the marginal propensity to consume multiplied by the government expenditure multiplier.

Question 24

An automatic stabilizer is at work if as real GDP? increases, ______.

A.transfer payments decrease and interest rates decrease

B.tax revenues increase and transfer payments decrease

C.transfer payments increase and tax revenues decrease

D.tax revenues decrease and interest rates increase

Question 25

An increase in taxes when the economy is above full employment ? ______ aggregate demand and real? GDP, and the price level? ______.

A.does not? change; does not change

B.?increases; rises

C.?decreases; falls

D.?increases; falls

Question 26

An automatic fiscal policy is a fiscal policy action that is triggered by? _____.

A discretionary fiscal policy is a fiscal policy action that is initiated by? _____.

A.the National Protection and? Programs; the Domestic Policy Council

B.the state of the? economy; an act of Congress

C.an act of? Congress; the state of the economy

D.the state of the? economy; the Fed

Question 27

Automatic stabilizers are features of fiscal policy that stabilize? _____ without explicit action by the government.

A.the interest rate

B.real GDP

C.wage rates

D.the price level

Question 28

The structural surplus or deficit is the budget balance that would occur if the economy were? _____.

A.above full employment

C.at full employment

D.below full employment

Question 29

The government expenditure multiplier is the effect of a change in government expenditure on goods and services on? _____.

A.aggregate demand

B.real GDP

C.aggregate supply

D.consumption

Question 30

The balanced budget multiplier is the effect on? _____ of a? _____ change in government expenditure and taxes that leaves the budget balance unchanged.

A.consumption? expenditure; past

B.aggregate? supply; periodic

C.aggregate? demand; simultaneous

D.real? GDP; simultaneous

Question 31

List the sequence of events in the transition from a fall in the federal funds rate to a change in the inflation rate.

The Fed lowers the federal funds rate.

Other? short-term interest rates _______and the exchange rate ___________.

The quantity of money and supply of loanable funds __________

The? long-term real interest rate ___________.

Consumption? expenditure, investment, and net exports ___________.

Aggregate demand ___________.

Real GDP growth rate_____________

Inflation rate ____________.

Question 32

When the Fed raises the federal funds? rate, the? long-run real interest rate? ______.

A.rises within a few months

B.rises the same day or the next day

Question 33

Other things remaining the? same, the lower the real interest? rate, the? ______ is the amount of consumption expenditure and the? ______ is the amount of saving.

A.?greater; greater

B.?greater; smaller

C.?smaller; greater

D.?smaller; smaller

Other things remaining the? same, the lower the real interest? rate, the ________is the amount of investment.

Question 34

The federal funds rate is the interest rate at which banks can borrow and lend? _____ in the? _____ market.

A.investment? funds; loanable funds

B.?reserves; mutual funds

C.?reserves; federal funds

D.equity? funds; stock

Question 35

To fight unemployment and close a recessionary? gap, the Fed? ________.

A.stimulates aggregate supply by lowering the federal funds? rate, which increases potential GDP

B.increases bank? reserves, which banks use to make new loans to? businesses, which increases aggregate supply

C.stimulates aggregate demand by lowering the federal funds? rate, which increases the quantity of money

D.increases? employment, which increases real GDP

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