Identify the choice that best completes the statement or answers the question.
1. Define economics.
a) a financial and social system
b) the study of a country’s overall economic issues
c) the integration between consumers, families, and businesses
d) the study of the choices that different entities make in allocating resources
2. Macroeconomics focuses on
a) the major issues facing the national economy, but has little or no relevance to individuals.
b) smaller economic units such as individual consumers, families, and individual businesses operating within the economy.
c) the major issues facing the national economy that may seem abstract, but directly affect an individual’s day-to-day life.
d) the role of government, while microeconomics focuses on the private sector.
3. After the collapse of the dot com bubble and the 9/11 terrorist attacks, the stock market depreciated and unemployment increased leading many to fear that the country was on the brink of a full-blown recession. In order to stimulate the economy the Federal Reserve Bank
a) lowered taxes in an effort to increase spending.
b) lowered interest rates from 6.5% to 1.25% in an effort to increase spending.
c) increased taxes in an effort to increase spending.
d) increased interest rates from 1.25% to 6.5% in an effort to increase spending.
4.Early in your first term as President of the United States you faced an economy in the beginnings of a recession. Which of the following would represent an example of a fiscal policy you might suggest to deal with this situation?
a) Ask Congress to cut total spending on social programs to avoid running a budget deficit.
b) Ask Congress to cut taxes in order to give consumers and businesses more income to spend and invest.
c) Order the Fed to raise the required reserve ratio.
d) Urge Congress to give the U.S. Treasury the authority to print more money.
5. The Great Recession resulted in nearly 8 million jobs lost in a 3-year period. Many of these lost jobs will
a) come back as the economy continues to change.
b) come back because the old skills are needed.
c) never come back.
d) never come back because people don’t want to do them.
6.Which choice refers to fiscal policy?
a) The Fed’s policy was announced today that the Federal Funds Rate will increase by 1.25%, thereby helping to curb inflation.
b) The President signed an executive order that mandated a tax rate increase of 10% on durable goods.
c) President Franklin Delano Roosevelt signed an executive order that required private citizens to surrender all gold and silver currency to the federal government in 1935, or face fines or imprisonment.
d) For fiscal year 2008, the federal government’s expenditures exceeded it revenues by nearly five hundred billion dollars.
7. In setting monetary policy, the Federal Reserve oversees the operation of _____ Federal Reserve Banks, which carry out Fed policies and perform banking services for commercial banks in their districts. These Federal Reserve Banks are owned by ______.
a) 12; the member commercial banks in their district
b) 15; the federal government
c) 12; the state government where they are located
d) 15: the Treasury Department
8. The Federal Reserve is the _____ of the United States.
a) financial market
b) central bank
c) state business regulator
d) foreign exchange controller
9. Recently, I.B. Rheele read in the newspaper that the Federal Reserve chairman had expressed concern about inflation and indicated the Federal Reserve would be taking some action in order to prevent inflation from spiraling out of control. The Federal Reserve could use all of the following tools EXCEPT
a) selling government bonds in the open market.
b) increasing the discount rate.
c) increasing banks reserve requirements.
d) increasing government spending on roads and bridges.
10. The primary way the Fed controls the supply of money is by
a) establishing the amount of currency the U.S. Treasury is allowed to print each month.
b) changing the reserve requirement.
c) buying and selling government securities on the open market.
d) allowing banks to borrow more money from the U.S. Treasury.
11. If the Fed wants to increase the money supply it should:
a) raise the reserve requirement.
b) raise the discount rate.
c) cut taxes.
d) buy government securities.
12. A federal agency called the ______ was established to protect customer deposits in banks and thrift institutions for up to $250,000 per customer, per bank.
a) Federal Deposit Insurance Corporation (FDIC)
b) Federal Reserve System
c) Federal Open Market Committee
d) Federal Deposit Requirement Program
13. Michael has inherited $500,000 from the sale of a family business. His banker is advising him to find multiple banks to deposit his money. Why?
a) The Open Market Operations of the Federal Reserve would invest his money in other securities and might lose it without needing to justify the expenditure.
b) The Federal Reserve does not keep that much money in any one bank due to federal regulations prohibiting the buying and selling of securities.
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