True statement regarding bank’s balance sheet
A bank’s balance sheet shows that total assets equal total liabilities plus equity capital.
Also,A bank’s assets are its uses of fundsA bank’s liabilities are its sources of funds
Which of the following are reported as liabilities on a bank’s balance sheet?
Checkable deposits
Bank capital is equal to ____ minus _____
total assets – total liabilities
In general, banks make profits by selling _____ liabilities and buying _____ assets
Short-term, longer-term
Asset transformation can be described as
borrowing short and lending long
Holding all else constant, when a bank receives the funds for a deposited check
cash items in the process of collection fall by the amount of the check.
Also,bank assets decrease by the amount of the checkbank liabilities increase by the amount of the check
When a $10 check written on the First National Bank of Chicago is deposited in an account at Citibank, then
The liabilities of Citibank increase by $10
Also,The assets of First National Bank increase by $10
A bank with insufficient reserves can increase its reserves by
calling in loans
Of the following, which would be the first choice for a bank facing a reserve deficiency?
Borrow from other banks
Most costly,Call in loans
____ may antagonize customers and thus can be a very costly way of acquiring funds to meet unexpected deposit outflow
Calling in loans
As the costs associated with deposit outflows _____, the banks willingness to hold excess reserves will ______
increase, increase
A $5 million deposit outflow from a bank has the immediate effect of
reducing deposits and reserves by $5 million
If, after a deposit outflow, a bank needs a additional $3 million to meet its reserve requirements, the bank can
sell $3 million of securities
Why do equity holders care more about ROE than about ROA?
ROE measures how much equity holders are earning, while ROA measures how efficiently the bank is being run.
If a bank doubles the amount of its capital and ROA stays constant, what will happen to ROE
Given the ROA, if bank capital doubles, the ROE will fall by half.
How to find equity multiplier
ROE/ROA =EM
Why is being nosy a desirable trait of a banker
– A banker determines credit risk by learning as much as possible about potential borrowers- A banker has to screen out good credit risk from bad credit risk- To reduce moral hazard, a banker must continually monitor borrowers to ensure that they are complying with restrictive loan covenants
Suppose Tess is a mother who has become bored with life at home raising her two-year-old daughter. As a result, she has placed her child in day care, is available to begin a job immediately., and has been actively seeking employment for the last six weeks. In this situation, Tess is considered
A) not in labor forceB) frictionally unemployedC) cyclically unemployedD) structurally unemployedE) seasonally unemployed
A shortage in the labor market is a feature of _____ gap. The self-correcting mechanism operated in such a way that this gap will be eliminated, over time, by ____ in labor costs.
A) a recessionary; increaseB) a recessionary; decreaseC) an inflationary; increasesD) an inflationary; decrease
Suppose the US economy is operating at full employment. An increase in the money supply by the Federal Reserve will cause ____ in real GDP and and _____ in the aggregate price level in the short run.
A) decrease; increaseB) increase; decreaseC) increase; increaseD) increase; no changeE) decrease; decrease
In the US the nominal interest rate tends to move pro cyclically. This means that as ____ increases, the nominal interest rate ____, everything else held constant.
A) real GDP; decreasesB) inflation rate; increasesC) real GDP; increasesD) inflation rate; decreasesE) real interest rate; increases
In which of the following situations is the expected rate of inflation the highest?
A) real interest rate is 1% and nominal interest rate is 1%.B) real interest rate is 3% and nominal interest rate is 7%.C) Real interest rate is 11% and nominal interest rate is 8%.D) real interest rate is 8% and the nominal interest rate is 9%.E) real interest rate is 15% and nominal interest rate is 13%.
Suppose the US economy is operating below full employment. A decrease in government spending will cause the _____ gap to _____ in the short run, everything else held constant.
A) recessionary; shrinkB) inflationary; shrinkC) inflationary; widenD) recessionary; widen
Suppose 47-year-old Alan was laid off from his job at the local steel mill six weeks ago when it closed for routine maintenance. He has not looked for work during this period, but expects to be recalled when the mill reopens in three weeks. According to BLS, Alan would be classified as
A) employedB) not in the labor forceC) not in the civilian non institutional populationD) unemployed
Suppose 28-year-old Scarlett lost her full-time job at a comic book store on Wednesday of the reference week of the BLS survey. She has submitted several applications but has not obtained a new job by the end of the week. According to BLS survey, she is
A) employedB) not in the labor forceC) not in the civilian non institutional populationD) unemployed
The aggregate demand curve of a country is negatively sloped because an increase in the aggregate price level causes the real wealth of the country to ___ and the nominal interest rate to _____.
A) increase; increaseB) decrease; increaseC) increase; decreaseD) decrease; decreaseE) remain unchanged; decrease
An increase in foreign income will cause ____ in aggregate demand in the US, and _____ in the unemployment rate in the US in the short run.
A) increase; increaseB) decrease; increaseC) decrease; decreaseD) increase; decrease
An increase in transfer payment is an example of ____ policy action.
A) expansionary monetaryB) contractionary fiscalC) a contractionary monetaryD) expansionary fiscal
In which of the following situations would it be most advantageous to be saving?
A) nominal interest rate is 8% and expected inflation is 8%.B) nominal interest rate is 0% and expected inflation is 4%.C) nominal interest rate is 6% and expected inflation rate is 7%.D) nominal interest rate is 1% and expected inflation rate is -2%.E) nominal interest rate is 3% and expected inflation is 1%
Suppose the CPI equaled 100 in 2010, and 110 in 2015, and a typical household income in 2010 was $40,000 and $42,000 in 2015. Between 2010 and 2015, the aggregate price level _____ and real household income _____, everything else held constant.
A) decrease; increaseB) increase; increaseC) increase; decreaseD) decrease; decrease
Suppose over a six-week period you observe the following data for initial weekly unemployment insurance claims in the US: 656,000; 623,00; 637,000; 589,000; 599,000; 577,000. Which describes the state of the labor market in the US during this period?
A) contractingB) stagnantC) expanding
Suppose a shoe store added domestically-produced shoes to it’s inventory in June 2015 because it expected an increase in demand for them. The store miscalculated the preferences of its customers, however, and was not able to sell the shoes until January 2016. The shoes added to the store’s inventory in June:
A) will be counted in 2016 GDP bc they were sold that yearB) will be counted in 2015 GDP as part of consumptionC) will be counted in 2015 GDP as part of government spendingD) will be counted in 2015 GDP as part of investment
Suppose Kinsey purchases a bottle of mineral water at a store in New Orleans and drinks it while walking home. The mineral water was produced in Romania. This purchase will cause ______ in the consumption component of Romanian GDP and _____ in the net exports of the US.
A) increase; increaseB) decrease; increaseC) increase; decreaseD) no change; increaseE) no change; decrease
Suppose the US economy is operating at full employment. A decrease in consumer confidence will cause ____ in the aggregate price level in the short run and ____ in real GDP in the long run.
A) decrease; increaseB) decrease; no changeC) an increase; increaseD) increase; no changeE) decrease; decrease
Suppose Barbara, a self-employed graphic artist, buys ink for her color copier that she uses to produce posters. Suppose further that she sells the posters to her clients. The new ink:
A) would be included in GDP as part of consumptionB) would be included in GDP as part of government spendingC) would not be included in GDP because it is an intermediate goodD) would be included in GDP as part of investment
Suppose the US economy is operating at full employment. An increase in labor cost will cause ____ in the unemployment rate in the short run and ____ in the aggregate price level in the long run.
A) decrease; no changeB) increase; increaseC) decrease; decreaseD) increase; decreaseE) increase; no change
Suppose the US economy is operating at full employment. A decrease in taxes will cause _____ in real GDP in the short run and ____ in the unemployment rate in the long run.
A) increase; no changeB) decrease; increaseC) decrease; no changeD) increase; decreaseE) increase; increase
Government spending is a ____ variable; the unemployment rate is a ____ variable.
A) stock; flowB) flow; flowC) flow; stockD) stock; stock
In Febrauary 2016, the unemployment rate in the US was ____ it was in January 2016.
B) the same as
Suppose Brian lost his job as a tennis instructor when his hotel on Long Island, New York closed for the winter. Brian would be considered ___ unemployment.
A) cyclicallyB) frictionallyC) seasonallyD) structurally
Suppose an American tourist visiting Pari stops to read a menu posted outside of a restaurant. On the Menu the price of each dish is listed in euros. The tourist pauses to mentally convert the prices into US dollars. After several minutes of consideration he thinks, “no way am i going to pay $45 to eat at this place.” In the situation, the US dollar is performing which of the following functions of money?
1) standard of deferred payment2) Unit of Account3) Standard of value4) medium of exchange5) store of value
Suppose an American tourist visiting Pari stops to read a menu posted outside of a restaurant. On the Menu the price of each dish is listed in euros. The tourist pauses to mentally convert the prices into US dollars. After several minutes of consideration he thinks, “no way am i going to pay $45 to eat at this place.” In situation above, the euro is performing which of the following functions of money?
1) Unit of account2) means of unilateral payment3) standard of value4) medium of exchange5) store of value
The actual government budget deficit…..
1) increases as real GDP decreases and decreases as real GDP increases2) Does not change as real GDP changes3) increases as real GDP increases and decreases as real GDP decreases
Suppose a commercial bank purchases US government bonds from the Fed. This transaction will cause the monetary base to ______ and the money supply to ______ everything else held constant.
decrease and decrease
In which of the following situations is it most Advantageous to be buying bonds?
1) the real interest rate is -22) the real interest rate is -13) the real interest rate is 04) the real interest rate is 1 percent5) the real interest rate is 2 percent
Suppose the exchange rate between the US dollar and the British pound changes from $1.42 to $1.36 per pound. The aggregate price level in Great Britain will _____ in the short run, everything else held constant
increase
If the exchange rate between the Hungarian forint and the US dollar changes from 273 to 285 forint per dollar, then the forint has ________ relative to the dollar and Hungarian goods will become ________ in the US, everything else held constant.
depreciated; cheaper
which of the following monetary policy tools does the FED primarily use to prevent financial panics from occurring in the US?
1) open market sales of government bonds2) discounting3) open market purchases of government bonds4) setting reserve requirements
US government bonds included in which of the following measures of the money supply in the US?
Neither M1 nor M2
Suppose chris goes online and pays off the entire balance on her bank-issued credit card with a draft from her checking account. Everything else held constant, this payment will cause the money multiplier to _______ and the money supply to ___________
decrease; decrease
What makes it possible for a government to maintain a constant debt-to-GDP ratio and still run continual budget deficits?
continual increases in real GDP
An open market purchases of government bonds by the Federal Reserve in an example of ______ policy action.
an expansionary monetary
Suppose Lisa goes to her bank and withdraws $500 in currency from her savings account. Everything else held constant, the withdrawal will cause bank reserves to ______ and the monetary base to _______
decrease; remain unchanged
Suppose that the US economy is operating above fully employment and the actual government budget deficit is $100 billion. In the situation, the government’s structural deficit is ________ $100 billion.
greater than
A decrease in government spending will cause ______ in the cyclical deficit in the short run and ______ in the structural deficit in the long run, everything held constant
an increase; a decrease
Suppose Judy transfers $1000 from her money market account to her demand deposit account. This transfer will cause _______ in the M1 money supply and ___ in the M2 one supply, everything held constant
an increase; no change
suppose market participants believe that interest rates will increase next week. You, however, are certain that interest rates will remain unchanged. Given your views. The most profitable action to take TODAY would be to ____bonds
buy
Suppose the exchange rate between the US dollar and the British pound changes from $1.42 to $1.36 per pound. The unemployment rate in the US will _____ in the short run everything else held constant
increase
Suppose the inflation rate unexpectedly increases in the US. Everything else held constant, this will cause the Euro to become ______ desirable relative to the US dollar and the dollar to ________ relative to the Euro
more; depreciate
Last week, beth’s federal income tax refund of $827 was directly deposited into her checking account . Use in this way, the $827 performed which of the following functions of money?
Means of unilateral payment
Countercyclical monetary policy involves expansionary policy actions during periods of __________ real GDP and contractionary policy actions during periods of ________ unemployment.
1) low; low2) high; high3) high; low4) low; high
The president of which of the following Federal Reserve Banks is a voting member on the FOMC….
1) Chicago2) Dallas3) Atlanta4) San Francisco5) New York
The benefit of a strengthening US dollar in the world foreign exchange market is _______ in the US.
1) higher economic growth rates2) lower inflaiton rates
The federal Reserve system was created by an act of congress in _________
1913
In March 2016, the unemployment rate in the US was _____ it was in February
1) .1 percentage point high than2) the same as3) 1 percentage point lower than4) .1 percentage points lower than5) 1 percentage point higher than
When a country allows trade and becomes an exporter of a good, everything else held constant, domestic producers of the good the country is exporting are ____ than they were in autarky.
A) worse offB) better off
Suppose gum is an inferior good. Suppose further that national income is increasing while, at the same time, labor costs in the chewing gum industry decrease. In this situation, the demand for chewing gum will _____.
A) be ambiguousB) decreaseC) increaseD) remain unchanged
Suppose gum is an inferior good. Suppose further that national income is increasing while, at the same time, labor costs in the chewing gum industry decrease. In the situation above, the equilibrium quantity of chewing gum transacted will ______.
A) increaseB) decreaseC) remain unchangedD) be ambiguous
Suppose gum is an inferior good. Suppose further that national income is increasing while, at the same time, labor costs in the chewing gum industry decrease. In this situation, the equilibrium price of chewing gum will ____.
A) be ambiguousB) remain unchangedC) decreaseD) increase
If a 5% decrease in price results in a ____ than 5% _____ in quantity supplied, it can be concluded that supply is price elastic.
A) greater; increaseB) less; decreaseC) greater; decreaseD) less; increase
Suppose that milk benefits from a successful advertising campaign. This will cause the demand for milk to ____ and become more price ____.
A) decrease; inelasticB) increase; inelasticC) decrease; elasticD) increase; elastic
“Now, as oil prices have skidded to $30 a barrel, new drilling has dried up in North Dakota, and the flood of wealth and workers is ebbing” is an example of a statement about a _______ issue.
A) microeconomicsB) macroeconomics
The fewer substitutes that are available for a good, everything else held constant, the more price ____ demand will be for the good. The smaller the proportion of a consumer’s budget a good makes up, the more price _____ demand will be for the good.
A) elastic; elasticB) inelastic; inelasticC) inelastic; elasticD) elastic; inelastic
An increase in the hourly wage rate, everything else held constant, will cause ____ in the marginal cost of an extra hour of leisure.
A) increaseB) decreaseC) no change
Suppose that Spam is a meat product and is a normal good. Which of the following would cause the supply of Spam to increase?
A) a decrease in the incomes of Spam consumersB) increase in the incomes of Spam consumersC) decrease in the price of SpamD) increase in the price of SpamE) decrease in the input costs of manufacturing Spam
Suppose Barbara, a rational artist, has a reservation price of $700 for her mixed-media piece. A potential customer made an offer for the piece, but Barbara did not sell it. It can be concluded with certainty that the price offered was _______ $700.
D) less than
Harry has decided to attend a concert but he faces a choice: he can buy a ticket to see either Kim Bookbinder or Zoe Bookbinder. The price to see him is $25 and the price to see Zoe is $15. In making this decision, what is the sunk cost?
D) $15
Suppose both buyers and sellers expect that the price of sunglasses will increase next month. The supply of sunglasses will ____ and the equilibrium price of sunglasses will _____ this month.
decrease; increase
On a production possibilities frontier (PPF) graph, a specific combination of goods is said to be attainable and efficient at a particular point in time if it lies ____ the PPF.
A) on or outsideB) outsideC) insideD) onE) on or outside
Suppose apples and oranges are substitutes in consumption. Suppose further that the price of apples increases while, at the same time, worker productivity in the orange industry increases. The supply of oranges will _____.
A) increaseB) remain unchangedC) decreaseD) be ambiguous
Suppose apples and oranges are substitutes in consumption. Suppose further that the price of apples increases while, at the same time, worker productivity in the orange industry increases. The equilibrium price of oranges will ____ and the quantity of oranges transacted will ____.
A) increase; increaseB) increase; be ambiguousC) be ambiguous; decreaseD) decrease; be ambiguousE) be ambiguous; increase
Suppose Mike sells hot dogs and his customer’ demand for hot dogs is price inelastic. The price of Mike’s hot dogs was higher in August than it was in July. It can be concluded with certainty that the total number of hot dogs Mike sold in August was _____ than it was in July and the total revenue he earned in August was _____ than it was in July.
A) less; lessB) greater; greaterC) greater; lessD) less: greater
Christine has received a voucher for a free concert ticket that she can use to see Helen Gillet or Beth Patterson. Her reservation price for seeing Helen is $15, and $20 for Beth. Which concert will Christine choose to attend?
A) she will be indifferent because both are free.B) She’ll def see HelenC) she’ll def see Beth
In a market, a shortage exists when __ is less than ___.
A) demand; supplyB) supply; demandC) the quantity demanded; the quantity suppliedD) quantity supplied; quantity demanded
“The American economy might just be bumbling along, but it is doing substantially better than the rest of the advanced industrial world” is an example of a statement about ________.
A) macroeconomicsB) microeconomics
