Exam 5: Policy Makers and the Money Supply

U.S.economic policy actions are directed toward the four general goals of economic growth,high employment,price stability,and balance in international transactions.

Which one of the following transactions or operations is entirely at the initiative of the Federal Reserve?

The deposit of a check drawn on the Fed is a derivative deposit because it adds new reserves to the bank where deposited and to the banking system.

The U.S.Treasury,under the leadership of Treasury Secretary _____________,played an important role in helping the U.S.survive the 2007-09 financial crisis by assisting with the acquisition of Bear Sterns by JP Morgan Chase in March 2008 and by trying to help other financial institutions on the brink of collapse find help through mergers with financially stronger institutions.

Currently,the backing for Federal Reserves notes is primarily in the form of:

The monetary base:

Monetizing the deficit occurs when the Fed increases the money supply by purchasing government securities.

Aggregate demand refers to total spending in the economy.

During the 2007 - 2009 financial crisis,some of the very largest financial institutions were deemed as being "too big to fail" because their failure would cause cascading negative repercussions throughout the U.S.and many foreign economies.As a result,the Federal Reserve

"Crowding out" caused by deficit financing can result in tighter credit conditions and higher interest rates.

Tax receipts tend to increase during economic downturns.

Inflation occurs when an increase in the price of goods or services is more than offset by an increase in quality.

Automatic stabilizers include trade deficits,budget deficits,and floating exchange rates.

Automatic stabilizers include all of the following except:

Primary deposits are deposits that add new reserves to a bank while obtuse secondary deposits are deposits that were borrowed from the reserves of primary deposits.

The monetary base is the banking system reserves,plus currency held by the public.

Unemployment and welfare benefits are examples of transfer payments for which no current productive services are given in return.

The percentage of deposits that must be held as reserves is called

A primary focus of the Economic Stabilization Act of 2008,which became know as the ___________________________,was to allow the U.S.Treasury purchase up to $700 billion of troubled or toxic assets held by financial institutions.

Continuing federal programs that stabilize economic activity are called