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Final Exam Ch. 30&31

ECO 252

QuestionAnswer
As financial intermediaries, how do commercial banks pay their expenses and earn a profit? banks pay depositors a lower interest rate than they charge borrowers.
As the prices of goods and services increase, the value of money: decreases
Central banks can use monetary policy to: reduce interest rates
Central banks can use monetary policy to: make it easier for people and businesses to borrow
For something to be considered money, it must: be generally accepted as a medium of exchange
If the interest rate on a loan is higher than the expected return from an investment: a rational firm will not take out a loan for the investment
In a fiat money economy, money is created when: commercial banks make loans
Printing more paper money doesn't affect the economy's long-run productivity or its ability to produce; these outcomes are determined by: resources, technology, and institutions
Stagflation is: the combination of high unemployment rates and high inflation
The Federal Reserve generally uses ___________________ to implement monetary policy. open market operations
The Phillips curve: indicates a short-run inverse relationship between inflation and unemployment rates
The purchase of existing U.S. Treasury securities by the Federal Reserve: will increase the money supply
The sale of existing U.S. Treasury securities by the Federal Reserve: will decrease the money supply
To decrease the money supply, the Federal Reserve could do which of the following? increase the discount rate
To increase the money supply, the Federal Reserve could do which of the following? conduct an open market purchase of U.S. Treasury securities
Using a credit card is most like: a short-term loan from a bank
What are federal funds? Federal funds are private bank deposits at the Federal Reserve
What function of money is highlighted when I am comparing the price of one product to another? unit of account
What function of money is highlighted when I put cash under my mattress to have on hand for unexpected emergencies? store of value
What is true about banks in a fractional reserve banking system? Banks face the risk of not having enough cash to meet withdrawal needs
When an economy experiences inflation, the value of money: decreases
When an employer is forced to increase wages at the same rate of inflation: the worker is receiving a cost-of-living adjustment
When can a bank make loans? when the bank has reserves greater than the amount of required reserves
When the Fed sells bonds to financial institutions, new money moves directly: out of the loanable funds market
Which of the following events could cause inflation in the United States-a country that uses fiat money? The government decides to print more money
Which of the following is true about banks in a fractional reserve banking system? Banks are able to create money when excess reserves are lent to individuals who need to borrow money
______________ is the phenomenon when one party that is protected from risk behaves differently than if it were fully exposed to the risk. Moral hazard
__________________ is when a central bank acts to increase the money supply in an effort to stimulate the economy. Expansionary monetary policy
_______________________ is when a central bank acts to decrease the money supply in an effort to control an economy that is expanding too quickly. Contractionary monetary policy
_______________________ would be helped by unexpected inflation. Someone who borrowed money at a fixed interest rate
Created by: mghamiter
 

 



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