Test 3 Econ

M2 is a measure of the money supply that includes M1 (currency in circulation, demand deposits, and traveler's checks) along with other types of deposits. The options listed are all types of deposits that are included in M2, except for short-term U.S. government securities. These securities are not considered part of the money supply because they are not readily available for use as a medium of exchange.

The total budget deficit can be calculated by subtracting tax revenues from government expenditures. In this case, the government expenditures are $700 billion and tax revenues are $550 billion. If the economy were operating at full employment, government expenditures would be $685 billion and tax revenues would be $600 billion. Therefore, the total budget deficit is $700 billion - $550 billion = $150 billion.

The wait-and-see lag refers to policymakers delaying taking action until they have concrete evidence or confirmation of a situation. In this case, policymakers believe an economic downturn has occurred, but they choose to wait and gather more information before implementing any measures. This illustrates the wait-and-see lag because they are hesitant to take immediate action and prefer to wait until they are certain about the situation.

When government purchases (G) rise, it increases the overall demand in the economy, leading to an increase in aggregate demand (AD) and causing the AD curve to shift to the right. On the other hand, when taxes fall, it leaves more disposable income in the hands of consumers, which in turn increases their spending, leading to an increase in aggregate demand and causing the AD curve to shift to the right. Therefore, a rise in government purchases (G) and a fall in taxes will both cause the AD curve to shift to the right.

When Congress increases income taxes, it reduces the disposable income of individuals and businesses, which leads to a decrease in their spending and investment. This decrease in spending and investment reduces the overall aggregate demand in the economy, which in turn leads to a contractionary effect on the economy. Therefore, increasing income taxes is an example of contractionary fiscal policy, as it aims to slow down economic growth and control inflation.

A savings account functions as a store of value because it allows individuals to deposit and save their money for future use. The money deposited in a savings account retains its value over time, as it earns interest and is protected from inflation. This makes it a reliable and secure way for individuals to preserve their wealth and have access to it when needed.

According to the text, in the book version of The Wonderful Wizard of Oz, Dorothy's slippers are silver.

The required reserve ratio is the percentage of checkable deposits that banks are required to hold as reserves. In this case, the required reserve ratio is 10 percent. To calculate the required reserves, we multiply the checkable deposits by the required reserve ratio: 10 million * 0.10 = 1 million. Since the bank has 2.5 million in reserves, which is more than the required reserves of 1 million, it has excess reserves. The excess reserves can be calculated by subtracting the required reserves from the total reserves: 2.5 million - 1 million = 1.5 million. Therefore, the correct answer is excess reserves of $1.5 million.

M2 is a measure of the money supply that includes M1 (currency in circulation, demand deposits, and traveler's checks) along with small-denomination time deposits, savings deposits, and retail money market mutual funds. This means that M2 includes a broader range of financial assets compared to M1, as it includes longer-term deposits and money market mutual funds.

An open market purchase refers to the buying of government securities by the Federal Reserve (Fed) from a commercial bank. This transaction increases the bank's deposits at the Fed and increases the bank's reserves.

The U.S. income tax is currently a progressive tax. This means that the tax rate increases as the income level increases. It is based on the principle of ability to pay, where higher-income individuals are taxed at a higher rate compared to lower-income individuals. This progressive tax system aims to reduce income inequality and provide more support for those who may have less financial means.

When the economy is on the downward-sloping portion of the Laffer curve, decreasing tax rates will raise tax revenues. This is because lower tax rates incentivize economic activity and growth, leading to increased tax revenue despite the decrease in rates.

If there is complete crowding out as a result of an increase in government purchases, it means that the increase in government spending is fully offset by a decrease in private investment or consumption. In this scenario, the total aggregate demand remains unchanged because the increase in government purchases is canceled out by the decrease in private spending. Therefore, there will be no change in aggregate demand.

Money reduces transaction costs because it serves as a widely accepted medium of exchange. In a barter system, individuals have to find someone who wants their goods or services and is willing to trade for them. This requires a double coincidence of wants, which can be time-consuming and inefficient. With money, people can easily exchange goods and services without the need for direct bartering, making transactions faster and more convenient. Additionally, money allows for the accumulation and storage of wealth, providing individuals with a means to save and invest for the future.

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A federal budget deficit occurs when government expenditures exceed tax revenues. This means that the government is spending more money than it is collecting in taxes. This can happen due to various reasons such as increased government spending on programs and services, a decrease in tax revenues due to economic downturns or tax cuts, or a combination of both. When there is a budget deficit, the government may need to borrow money to cover the shortfall, leading to an increase in the national debt.

Excess reserves are reserves held by banks that are above and beyond the required amount set by regulatory authorities. These reserves are considered surplus because they are not needed to meet the minimum reserve requirements. Banks hold excess reserves as a precautionary measure to ensure they have enough liquidity to meet unexpected withdrawals or financial obligations. These reserves can also be used to lend to other banks or invest in other financial instruments. Therefore, the term "excess" accurately describes reserves held beyond the required amount.

In March 2010, the currency held outside banks component of M1 was the largest. This means that the amount of physical currency in circulation that was not held by banks was greater than the other components of M1, which include demand deposits and traveler's checks. This statement is true and indicates the relative sizes of the different components of M1 during that specific time period.

The correct answer is "A bushel of oranges is traded for a bushel of apples." This answer illustrates a barter transaction because it involves the direct exchange of goods (oranges for apples) without the use of money. In a barter transaction, individuals trade goods or services directly with each other, without the need for a medium of exchange like money. In this case, the exchange is between a bushel of oranges and a bushel of apples, representing a typical example of a barter transaction.

The correct answer is "reserves a bank must hold against its deposits as mandated by the Federal Reserve." This means that banks are required to keep a certain amount of reserves, which can be in the form of cash or deposits at the Federal Reserve, in order to ensure stability and meet potential withdrawal demands from depositors. The Federal Reserve sets these reserve requirements as a way to regulate and control the banking system.

The budget deficit can be calculated by subtracting government revenues (taxes) from government expenditures. In this case, taxes are 18 percent of GDP, which is $6,200, resulting in taxes of $1,116. Government expenditures are given as $1,400. Therefore, the budget deficit is $1,400 - $1,116 = $284.

The period that elapses between the passage of legislation reducing taxes and the time the tax cut is put into effect is called the "transmission" lag. This refers to the delay or time gap between the decision to reduce taxes and the actual implementation of the tax cut. During this lag period, the necessary administrative and operational processes are carried out to ensure the smooth and effective implementation of the tax cut.

The requirement of a "double coincidence of wants" refers to the challenge in barter exchange where both parties need to have something the other party wants at the same time. This creates a disadvantage in the barter exchange system as it makes transactions more difficult and time-consuming. In contrast, the monetary exchange system, where money is used as a medium of exchange, does not require a double coincidence of wants and therefore offers an advantage over barter.

The top 1% of income earners in the U.S. pay a much higher percentage of their incomes in tax than the average U.S. taxpayer. This means that the wealthiest individuals contribute a larger portion of their income towards taxes compared to the average taxpayer.

A transfer payment is a payment made by the government to households without any corresponding goods or services being provided in return. This type of payment is typically used to redistribute income and provide assistance to individuals or families in need. Transfer payments include programs such as social security, unemployment benefits, and welfare. Unlike tax payments, which are payments made by households to the government, transfer payments flow from the government to households. The Laffer Curve and crowding out are unrelated concepts and not applicable to this question.

The correct answer is Bureau of Engraving and Printing. The Bureau of Engraving and Printing is responsible for printing paper currency in the United States. They produce all the paper money for circulation, including the production of new bills, replacement of damaged bills, and disposal of unfit currency. The Federal Reserve District banks play a role in distributing and circulating the currency, but they do not print it. The U.S. Mint is responsible for producing coins, not paper currency. The U.S. Treasury is the government department that manages the country's finances, including the printing and distribution of currency.

When government purchases (G) fall, it means that the government is spending less on goods and services. This decrease in government spending causes a decrease in aggregate demand (AD), shifting the AD curve to the left. On the other hand, when taxes rise, it means that individuals and businesses have less disposable income to spend on goods and services. This decrease in consumer spending also leads to a decrease in aggregate demand, shifting the AD curve to the left. Therefore, a fall in government purchases (G) and a rise in taxes both lead to a leftward shift of the AD curve.

In a progressive income tax structure, the taxpayer pays a higher tax rate on additional income. This means that as the taxpayer's income increases, the tax rate also increases. In a proportional income tax structure, the taxpayer pays the same tax rate on additional income. This means that regardless of the taxpayer's income level, the tax rate remains constant. In a regressive income tax structure, the taxpayer pays a lower tax rate on additional income. This means that as the taxpayer's income increases, the tax rate decreases.

A federal budget surplus occurs when tax revenues exceed government expenditures. This means that the government is collecting more money through taxes than it is spending on various programs and services. This can be seen as a positive outcome as it indicates that the government is able to generate more income than it is spending, which can be used to pay off debts or invest in other areas.

A cut in tax rates on the upward-sloping portion of the Laffer curve will lower tax revenues. If government purchases are increased, it will further increase government spending. As a result, the combination of lower tax revenues and increased government purchases will lead to a budget deficit.

Money evolved out of the self-interested actions of individuals. This is because individuals, in their pursuit of their own self-interests, realized the benefits of using a common medium of exchange to facilitate trade and make transactions more efficient. Over time, this led to the development of money as a universally accepted form of payment. Governments, economists, and a few kings and queens may have played a role in shaping the monetary system, but it was ultimately the actions and needs of individuals that drove its evolution.

M1 is a measure of the money supply that includes the most liquid forms of money. It consists of currency held outside banks, traveler's checks, and checkable deposits. Checkable deposits refer to the funds that are held in checking accounts and can be easily accessed by the account holder through checks or debit cards. Therefore, checkable deposits are a logical addition to the components of M1, as they represent a form of money that can be readily used for transactions.

An increase in the required reserve ratio will decrease the money supply. The required reserve ratio is the percentage of deposits that banks are required to hold as reserves. When the required reserve ratio is increased, banks are required to hold a larger portion of their deposits as reserves, which means they have less money available to lend out. This reduces the amount of money in circulation and decreases the money supply.

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When government purchases (G) fall, it leads to a decrease in aggregate demand (AD) because there is less spending in the economy. This causes the AD curve to shift to the left. On the other hand, when taxes rise, it reduces disposable income for individuals and businesses, leading to a decrease in consumption and investment. This also causes a decrease in aggregate demand and shifts the AD curve to the left. Therefore, the correct answer is "fall; rise".

The deficit that exists when the economy operates at full employment is called the structural deficit. This type of deficit occurs due to long-term imbalances between government spending and revenue, which are not influenced by changes in the business cycle. Unlike cyclical deficits, which are temporary and caused by economic downturns, structural deficits require structural changes in government policies or revenue sources to be resolved.

At point A, if tax rates are cut slightly, it is expected that tax revenues will decrease. This is because when tax rates are reduced, individuals and businesses have less incentive to pay taxes. As a result, they may engage in tax avoidance or evasion strategies, leading to a decrease in overall tax revenues.

An expansionary fiscal policy involves increasing government spending and/or decreasing taxes in order to stimulate economic growth. This can lead to increased government expenditures and decreased revenue, which may result in a budget deficit. However, it is not always guaranteed to result in a budget deficit as the impact of the policy depends on various factors such as the state of the economy, the effectiveness of the policy measures, and the government's ability to manage its finances. Therefore, an expansionary fiscal policy can sometimes result in a budget deficit.

If an economy has a structural surplus, it means that the government's revenue exceeds its expenditure, indicating a long-term budget surplus. On the other hand, a cyclical deficit suggests that the economy is experiencing a downturn or recession, leading to a temporary decrease in government revenue and an increase in expenditure due to automatic stabilizers. Therefore, the presence of both a structural surplus and a cyclical deficit implies that the government is implementing contractionary fiscal policy to reduce the deficit and stabilize the economy.

The given scenario describes the marginal tax rate. The individual pays an additional $0.30 in taxes for every $1.00 increase in income. This means that the tax rate is calculated based on the last dollar earned, which is the definition of the marginal tax rate.

The given scenario describes Congress decreasing income taxes, which would result in an increase in disposable income for individuals. This would lead to an increase in consumer spending, which in turn stimulates economic growth. This policy is known as expansionary fiscal policy, as it aims to boost economic activity through government spending and tax cuts.

The correct answer is "seven persons, each appointed to a fourteen-year term." The explanation for this answer is that the Board of Governors of the Federal Reserve is composed of seven individuals who are appointed to serve a fourteen-year term. This term length ensures that the members have a longer tenure, promoting stability and continuity in the policymaking process. The longer term also helps to insulate the Board from short-term political pressures, allowing them to make decisions based on the long-term health and stability of the economy.

Throughout history, various goods have evolved into money. Gold has been used as a form of currency for centuries due to its scarcity and durability. Salt was also used as a medium of exchange in ancient times because of its value and importance in preserving food. Cattle, especially in agricultural societies, were considered a form of wealth and were used as a means of trade. Cocoa beans were used as currency by the Aztecs and Mayans. Therefore, all of the above options have historically evolved into money.

The structural deficit is calculated by subtracting the potential GDP from the actual GDP and then multiplying it by the tax rate. In this case, the potential GDP is $7,000 and the actual GDP is $6,200, resulting in a difference of $800. The tax rate is 18%, so multiplying $800 by 18% gives us $144. However, since the question asks for the structural deficit, we need to consider that the government expenditures are $1,400. Subtracting $1,400 from $144 gives us a structural deficit of $140.

At point B, the tax rates are higher than at point A, but the tax revenues are the same. This can be inferred from the information given in the exhibit.

The structural deficit represents the portion of the budget deficit that exists even when the economy is at full employment, while the cyclical deficit represents the portion of the deficit that is due to fluctuations in the business cycle. Therefore, the total budget deficit is the sum of the structural deficit and the cyclical deficit. In this case, since the structural deficit is $330 billion and the cyclical deficit is $80 billion, the total budget deficit would be $410 billion.

Fractional reserve banking refers to a banking system where banks are only required to hold a fraction of their deposit liabilities as reserves. This means that banks can lend out a larger portion of the deposits they receive, creating new money in the process. The fraction of reserves held is typically determined by regulatory requirements. This system allows banks to earn interest on the loans they make, while also providing liquidity to depositors who may need to withdraw their funds. However, it also exposes the banking system to the risk of bank runs if depositors lose confidence in the bank's ability to fulfill their withdrawal requests.

If peanuts were widely accepted for purposes of exchange, it means that people would consider peanuts as a form of currency. This would make peanuts money, as mentioned in option a. Additionally, if people were using peanuts to purchase cars, it would demonstrate that peanuts hold significant value in the economy, as mentioned in option c. Therefore, the correct answer is a and c.

The correct answer is "marginal" because the question states that the individual pays an additional $0.30 in taxes as a result of a $1.00 increase in income. This indicates that the tax rate is calculated based on the additional income earned, which is the definition of a marginal tax rate.

Based on the given tax brackets, if a person's taxable income is $50,000, they fall into the $42,001 - $69,000 bracket. In this bracket, they would owe $4,540 plus 17% of everything over $42,000. So, the calculation would be $4,540 + (17% of ($50,000 - $42,000)). Simplifying this calculation gives $4,540 + (17% of $8,000) = $4,540 + $1,360 = $5,900. Therefore, the person would pay $5,900 in taxes.

A balanced budget occurs when government expenditures equal tax revenues. This means that the government is not spending more money than it is bringing in through taxes. It indicates that there is no deficit or surplus in the budget, and the government is able to cover all its expenses without relying on borrowing or accumulating debt. This is considered a fiscally responsible approach as it ensures that the government is living within its means and not putting a burden on future generations.

The explanation for the correct answer is that The Wonderful Wizard of Oz is alleged to be a story about the presidential election of 1896. This is because the author, L. Frank Baum, was known to be a political activist and supporter of William Jennings Bryan, who was a candidate in the 1896 election. The story contains several allegorical elements that can be interpreted as references to the political and economic issues of the time, such as the silver vs. gold debate and the power struggles between the East and the Midwest.

The most important responsibility of the Fed is to control the money supply. This means that the Federal Reserve has the authority to regulate the availability and cost of money and credit in the economy. By adjusting interest rates, buying or selling government securities, and implementing other monetary policies, the Fed can influence the amount of money circulating in the economy. This control over the money supply is crucial for maintaining price stability, promoting economic growth, and managing inflation and unemployment levels.

The period between the passage of legislation reducing taxes and the actual implementation of the tax cut is referred to as the "transmission lag." During this time, there is a delay in the execution of the tax cut, as various administrative and bureaucratic processes need to be completed before it can take effect. The term "transmission" suggests the transfer or dissemination of the tax cut from the legislation to its actual implementation.

The federal funds rate is the interest rate one bank pays another bank for a loan. This rate is set by the Federal Reserve and is used to control the money supply and stabilize the economy. Banks borrow from each other to meet reserve requirements or to manage their daily cash flow needs. The federal funds rate is an important tool in monetary policy and can influence borrowing costs for businesses and consumers.

The Fed, or the Federal Reserve, is intended to be an independent entity and is not directly controlled by the President of the United States or Congress. It was created as a central banking system to maintain stability in the US financial system. The Fed operates independently to make monetary policy decisions, such as setting interest rates and regulating banks, in order to promote economic growth and stability. While the President and Congress may have some influence over the Fed through appointments and legislation, they do not have direct control over its operations.

The correct answer is "All of the above are major responsibilities of the Fed." This means that supplying the economy with paper money, providing check-clearing services, supervising member banks, and serving as fiscal agent for the Treasury are all major responsibilities of the Federal Reserve.

Based on the given tax brackets, if a person's taxable income is $20,000, they fall into the first bracket of $0 - $23,000. In this bracket, the tax rate is 9% of taxable income. Therefore, the person would pay 9% of $20,000, which is $1,800.

Increasing the required reserve ratio means that banks are required to hold a higher percentage of their deposits as reserves, which reduces the amount of money that can be lent out and decreases the money supply. An open market purchase of Treasury bills and a decrease in the discount rate would both increase the money supply. Therefore, the correct answer is an increase in the required reserve ratio.

When the Federal Reserve raises the required reserve ratio (1), it increases the amount of reserves that banks are required to hold, which decreases the amount of money that banks can lend out. This leads to a decrease in the money supply, hence "down" is the correct word for blank (1). When the Federal Reserve raises the discount rate (2), it increases the interest rate at which banks can borrow from the Federal Reserve. This makes borrowing more expensive for banks, which also decreases the amount of money they can lend out. Again, this leads to a decrease in the money supply, hence "down" is the correct word for blank (2).

Expansionary fiscal policy actions involve increasing government spending and/or decreasing taxes. This is because increasing government spending stimulates economic growth by injecting more money into the economy, while decreasing taxes leaves individuals and businesses with more disposable income to spend and invest. On the other hand, contractionary fiscal policy actions involve decreasing government spending and/or increasing taxes. This is done to slow down an overheating economy and control inflation by reducing the amount of money circulating in the economy and discouraging excessive spending.

When the Fed purchases government securities from Bank A, the reserves in the banking system increase. This is because Bank A receives payment in the form of reserves from the Fed. As a result, the money supply also increases because the reserves can be used by Bank A to create new loans and increase the amount of money in circulation. Therefore, the correct answer is "reserves; rise; rises".

The cyclical deficit is the difference between actual GDP and full-employment GDP, multiplied by the tax rate. In this case, the actual GDP is $6,200 and the full-employment GDP is $7,000, so the difference is $800. The tax rate is 18 percent, so multiplying $800 by 0.18 gives us $144, which is the cyclical deficit.

The given tax structure is considered progressive because it imposes a higher tax rate on individuals with higher incomes. The first tax rate of 16 percent applies to individuals earning between $0 and $40,000 a year, while the second tax rate of 23 percent applies to individuals earning more than $40,000 a year. This means that as income increases, the tax rate also increases, making it a progressive structure.

Banks in the United States operate under a fractional reserve system, which requires them to maintain only a fraction of their deposits as reserves. Reserves refer to the portion of deposits that banks keep on hand in order to meet customer withdrawal demands and other obligations. This ensures that banks have enough funds available to provide loans and other financial services to customers. By maintaining reserves, banks can also help stabilize the economy by preventing excessive inflation or deflation.

Transaction costs are the costs associated with completing a transaction, such as searching for a suitable seller, negotiating the terms, and completing the exchange. In the given options, Melinda wanting to buy a McDonald's Big Mac without any special order is the situation where transaction costs are most likely to be the lowest. This is because buying a standard product from a well-established and standardized fast-food chain like McDonald's involves minimal search costs, no negotiation, and a straightforward exchange process, resulting in lower transaction costs compared to other options.

Based on the given tax brackets, if a person's taxable income is $30,000, they fall into the second tax bracket. In this bracket, they pay a fixed amount of $2,070 plus 13% of everything over $23,000. Therefore, they would pay $2,070 + (13% of $7,000) = $2,070 + $910 = $2,980 in taxes.

A savings deposit is an interest-earning account at a bank or thrift institution where the depositor can withdraw funds at any time without incurring a penalty payment. This type of account allows individuals to earn interest on their deposited funds while still maintaining the flexibility to access their money whenever needed. Unlike other types of time deposits, such as certificates of deposit, savings deposits do not have a fixed term or maturity date, making them a convenient option for individuals who want to save money while still having easy access to their funds.

The correct answer is "store of value, medium of exchange, unit of account." Money serves as a store of value because it can be saved and used for future purchases. It also acts as a medium of exchange, allowing individuals to trade goods and services. Lastly, money functions as a unit of account, providing a common measure for comparing the value of different goods and services.

Lowering the discount rate and conducting an open market sale will both lower the money supply. When the discount rate is lowered, it becomes cheaper for banks to borrow money from the central bank, leading to increased lending and higher money supply. On the other hand, an open market sale involves the central bank selling government securities, which reduces the amount of money in circulation and thus lowers the money supply. Therefore, options a and d are correct.

The correct answer is a, b, and c.

This answer is correct because it states that a budget deficit occurs when government expenditures exceed tax receipts during any single year, which is true. It also states that the public debt is the total amount the federal government owes its creditors, which is also true. Lastly, it states that the gross public debt is greater than the net public debt, which is also true. Therefore, all three statements in the answer are true.

The M2 money supply includes M1, which consists of physical currency and demand deposits. Additionally, M2 includes savings deposits, which are funds held in savings accounts. Therefore, the correct answer is "all of the above" because M2 encompasses M1 and savings deposits, making it a broader definition of the money supply.

A "money market deposit account" is an interest-earning account at a bank or thrift institution that usually has a minimum balance requirement. This type of account allows individuals to earn interest on their deposits while also providing them with the flexibility to write checks and make withdrawals. Unlike a checking account that pays no interest, a money market deposit account offers the opportunity to grow savings through interest earnings. Additionally, this type of account typically requires a minimum balance to be maintained in order to avoid fees or penalties.

Money is not a synonym for any of the options provided. While income, credit, wealth, and salary are all related to the concept of money, they are not interchangeable with it. Money refers specifically to a medium of exchange that is widely accepted in transactions for goods and services. Income is the amount of money an individual receives from various sources, credit is a form of borrowing money, wealth is the accumulation of assets and resources, and salary is a fixed regular payment for work. None of these options encompass the broad definition of money.

A Keynesian policy prescription would call for a decrease in government spending or an increase in taxes to close this inflationary gap. This is because Keynesian economics suggests that during periods of high aggregate demand, the government should reduce its own spending or increase taxes to reduce the overall level of demand in the economy. By doing so, it can help to bring the economy back to its natural real GDP level and prevent inflationary pressures.

Fiscal policy may not work as policymakers intend it to work due to two reasons: crowding out and lags. Crowding out occurs when increased government spending leads to higher interest rates, reducing private sector investment. This can limit the effectiveness of fiscal policy in stimulating economic growth. Lags refer to the time it takes for fiscal policy measures to have their full impact on the economy. Delays in implementing and experiencing the effects of fiscal policy can make it less effective in achieving its intended goals. Therefore, options a and b are correct as they explain the reasons why fiscal policy may not work as intended.

The answer suggests that someone who believes in crowding out would accept the statement that the government's actions will raise interest rates, causing decreased investment and consumption, and the economy will not expand as much as the government had intended. This aligns with the concept of crowding out, which posits that when the government increases its spending, it competes with the private sector for resources, leading to higher interest rates and reduced private investment and consumption.

The correct answer is that bank deposits at the Federal Reserve equal $30 million. This can be determined by adding the reserves ($59 million) and the vault cash ($29 million) together, which equals $88 million. Since the question states that bank deposits at the Federal Reserve equal this amount, it can be concluded that bank deposits at the Federal Reserve equal $30 million.

The correct answer is "b and c." This means that both the statements "Reserves - required reserves = excess reserves" and "Reserves = required reserves + excess reserves" are true. This implies that the total reserves in a bank can be calculated by either subtracting the required reserves from the total reserves to obtain the excess reserves or by adding the required reserves and the excess reserves together.

Transaction costs are best defined as the costs associated with the time and effort necessary to make an exchange. This includes any expenses incurred in the process of buying or selling goods or services, such as searching for information, negotiating prices, and completing the transaction itself. These costs can include both monetary expenses, such as transportation or legal fees, as well as non-monetary costs, such as the time spent in finding and evaluating options. By considering transaction costs, individuals and businesses can make more informed decisions about the most efficient and cost-effective ways to exchange goods and services.

When a check is written on an account at Bank A and deposited in Bank B, the reserve account of Bank B will remain constant and reserves of the entire banking system will also remain constant. This is because when a check is deposited in Bank B, Bank B will credit the depositor's account and increase its liabilities. However, Bank B will also receive a corresponding increase in reserves from Bank A, which will offset the increase in liabilities. Therefore, the overall reserves of the entire banking system will not change.

An increase in net exports refers to an increase in the value of goods and services that a country exports minus the value of goods and services it imports. If there is a decrease in net exports, it means that the value of imports is greater than the value of exports. This can lead to a decrease in private expenditures as businesses may have to cut back on spending due to reduced demand for their goods and services. Therefore, a decrease in net exports can contribute to the crowding out of private expenditures.

Money reduces transaction costs, making transactions less time-consuming. Barter, on the other hand, involves the direct exchange of goods or services without the use of money, which can be more time-consuming and inefficient. Money serves as a medium of exchange, allowing individuals to easily trade goods and services, thus reducing the time and effort required for transactions.

The correct answer is income tax rates. The Federal Reserve (Fed) is responsible for implementing monetary policy in the United States, which involves controlling the money supply and interest rates to influence economic activity. The tools used by the Fed include open market operations (buying or selling government securities), adjusting the required reserve ratio for banks, and setting the discount rate (the interest rate at which banks can borrow from the Fed). However, income tax rates are not a tool used by the Fed to implement monetary policy; they fall under the jurisdiction of the government's fiscal policy.

The correct answer is New York; FOMC. The president of the Federal Reserve Bank of New York holds a permanent seat on the Federal Open Market Committee (FOMC). The FOMC is responsible for making decisions regarding monetary policy, such as setting interest rates and managing the money supply. The FOMC consists of the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four other regional Federal Reserve Bank presidents who serve on a rotating basis.