211 ECN SLN 45992 Macroeconomic Principles 8:40-9:55 MW 1.
QUIZ 4
Professor Happel Fall 2006
Which of the following statements about the period 1913 to 1968 is false? a. Europe went off the full gold standard during WWI, but the U.S. remained on it. b. The Fed followed a tight money policy from 1926 to 1929, then it shrunk M2 by 30% from 1929 to 1933. c. The Glass-Steagall Act of 1933 set up firewalls between commercial banks, savings and loans, and investment banks. d. The Fed and the U.S. Treasury reached the famous accord in 1951 that put the Fed under greater control of the Treasury and reduced the Feds independence. e. The Vietnam War was like other U.S. warsthe Fed increased the money supply sharply; and in 1968, the U.S. government removed the gold backing for Federal Reserve notes. Which of the following statements is true? a. One of the tools of the Fed is to set reserve requirements, and the Fed often changes reserve requirements. b. Another tool of the Fed is to engage in open market operations, and if the Fed is pursuing a tight monetary policy it buys government securities from banks. c. The Fed manages the federal funds rate, and its current target is 6.25%. d. The Fed sets the discount rate well below the intended federal funds rate. e. None of the above is true. Which of the following is false about U.S. banking from 1969 to 1994? a. Between 1969 and 1972 Nixon completely took the U.S. off the gold standard and U.S. citizens were once again allowed to own gold starting in 1975. b. The Community Reinvestment Act (CRA) of 1977 forced banks to make loans in their surrounding communities. c. The Monetary Control (Reform) Act in 1980 began to deregulate the U.S. banking system and break down some of the Glass-Steagall firewalls. d. The Financial Institution Reform Recovery and Enforcement Act (FIRREA) of 1989, as put into action by Bill Seidman, made the savings and loan crisis much worse. e. The Riegle-Neil Act of 1994 allowed interstate banking to take place.
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Which of the following is true about monetary aggregates? a. M1 consists of coins and currency in circulation, demand deposits, and travelers checks. b. M2 consists of M1 plus savings accounts plus all CDs (both small [under 100,000] and large) plus retail money market funds plus institutional money market funds. c. MZM is defined as money zero maturity and includes all CDs (both large and small). d. The monetary base consists of all coins and currency plus deposits at the Fed plus long-term government securities. e. All of the above are true.
Use the table below to answer the following two questions: Assets Liabilities $3 M Building $9 M Capital Accounts $9 M Government Securities $2 M Loans $5 M Vault Cash $5 M Deposits at the Fed 5. Assuming a reserve requirement of 10%, which of the following is true? a. ABC Banks actual (legal) reserves are $10 M. b. ABC Banks actual (legal) reserves are $12 M. ABC c. Banks required reserves are $2 M. d. ABC Banks required reserves are $3 M. e. None of the above is true. Again, assuming a reserve requirement of 10%, which of the following is true? a. ABC Bank can safely loan an additional $8 M (on top of the $2 M already loaned), and the banking system as a whole can loan an additional $80 M. b. ABC Bank can safely loan an additional $8.5 M, and the banking system as a whole can loan an additional $85 M. c. ABC Bank can safely loan an additional $9 M, and the banking system as a whole can loan another $90 M. d. ABC Bank cannot safely loan any additional money with this balance sheet. e. None of the above is true. According to the GDP accounts, which of the following is false? a. GDP is a flow variable. b. GDP is a measure of final consumption. c. GDP is based on the principle of consumer sovereignty. d. GDP does not include illegal activities. e. GDP is measured in monetary terms with individual prices used as weights to indicate how much society values particular goods. Suppose nominal GDP increases from $3 trillion in 2004 to $4 trillion in 2005 and suppose the GDP deflator changes from 100% in 2004 to 200% in 2005, then: $15 M Demand Deposits
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There has been deflation and real GDP is higher in 2005 than in 2004. There has been deflation and real GDP is lower in 2005 than in 2004. There has been inflation and real GDP is higher in 2005 than in 2004. There has been inflation and real GDP is lower in 2005 than in 2004. There has been inflation and real GDP is the same in both years.
Which of the following statements about the problems with GDP as a measure of welfare is false? a. Housewives services are not included in GDP. b. GDP does not deal very well with changes in the desire for more leisure and less work. c. Pollution clean-up costs are subtracted from GDP. d. GDP includes depreciation of capital equipment even though depreciation is an intermediate good. e. GDP does a poor job in picking up improvements in product quality. Which of the following statements about Marshalls, Pigous and Fishers macroeconomics is false? a. Says Law is true if interest rates, wages, and prices are flexible. b. The government should use a full gold standard. c. The velocity of money is highly unstable. d. The government should not run budget deficits during recessions. e. The Fisher equation states that the nominal interest rate equals the real interest rate (real rate of return) plus inflationary expectations. Which of the following statements about Keynes General Theory, published in 1936, is true? a. The fundamental problem in mature, capitalistic economies is a shortage of labor. b. Wages and prices are quite flexible downward in mature capitalistic economies. c. Deficit spending should not be used by the government during a depression. d. The velocity of money is quite stable. e. None of the above is true.
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