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ECON Test #3
| Question | Answer |
|---|---|
| A bank may lend an amount equal to it's: | excess reserves |
| Assume the MPC is 0.80. The change in total spending for the economy due to a $200 billion government spending increase is: | $1,000 billion |
| Suppose a banking system has a required reserve ratio of 0.15. How much can the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system? | 6.67 billion |
| The ratio of a bank's reserves to its total transactions deposits is known as the: | reserve ratio |
| Monetary policy will be ineffective if: | the demand for money is very sensitive to changes in the interest rate, but the investment demand is not. |
| Given a $600 billion AD shortfall and an MPC of 0.50, the desired fiscal stimulus would be: | A $300 billion increase in government expenditures. |
| Suppose a banking system has $200 million in deposits, a required reserve ratio of 10 percent, and total bank reserves of $35 million. Then the potential deposit creation for the whole banking system is equal to: | $150 million |
| The use of government taxes and spending to alter the economic outcomes known as: | fiscal policy |
| If the banking system has a required reserve ratio of 10 percent, then the money multiplier is: | 10.0 |
| Suppose the economy is at a full-employment GDP of $1 trillion and the tax revenue by the federal government is always one-fifth of GDP. If planned government expenditure is $300 billion, the structural: | deficit is $100 million |
| Suppose Jared takes $200 from his savings account and holds it as cash. The immediate result of this transaction is that M2: | remains the same and M1 increases by $200 |
| Fiscal restraint is: | tax hikes or spending cuts intended to reduce aggregate demand. |
| The minimum amount of reserves a bank is required to hold is known as: | required reserves |
| Given a required reserve ratio of 0.25, what is the maxium amount that the money supply can increase in response to a $200 million increase in excess reserves for a whole banking system? | $800 million |
| Suppose a banking system has $100,000 in deposits, a required reserve ratio of 25 percent, and total bank reserves for the whole system of $25,000. Then the potential deposit creation for the whole system is equal to: | zero |
| An essential function of a bank is to: | create money through lending |
| If the bank systems has demand deposits of $200,000, total reserves equal to $60,000, and a required reserve ratio of 25 percent, than the banking system can increase the volume of loans by: | $40,000 |
| If the cyclical deficit shrank by $60 billion while the structural deficit increased by $35 billion, the total deficit: | fell by $25 billion. |
| Much of each year's federal budget is considered "uncontrollable" because: | most of the current revenues and expenditures are the result of decisions made in prior years |
| Monetary policy is most effective when the money-demand curve is _____ and the investment demand is ______. | downward sloping, elastic |
| Crowding out refers to a decrease in: | consumption or investment as a result of increase in government borrowing. |
| Suppose a banking system has a required reserve ratio of 0.10. How much can the money supply increase in response to a $500 million increase in excess reserves for the whole banking system? | $5 billion |
| The reserve ratio is the ratio of: | bank reserves to total transaction deposits |
Created by:
keepitdramatic