ECO

36. Callie withdraws $600 from her bank account. If the reserve requirement is 15%, by how many dollars must her bank reduce its lending? A) $510 B) $600 C) $90 D) $667

A) $510

12. __________ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy. A) Increasing; increasing; lowering B) Increasing; reducing; raising C) Reducing; increasing; lowering D) Reducing; increasing; raising

A) Increasing; increasing; lowering

6. Which of the following partly explains why the aggregate demand curve is negatively sloped? A) When the price of cars manufactured in the United States increases, people buy more cars manufactured abroad. B) When the price of cars manufactured abroad increases, people buy fewer cars manufactured in the United States. C) When the interest rate increases, people borrow more money. D) When the interest rate decreases, people borrow less money.

A) When the price of cars manufactured in the United States increases, people buy more cars manufactured abroad.

30. An interest rate that is low only for a short time is called: A) a teaser rate. B) an annual percentage rate. C) a balloon payment. D) a balance transfer fee.

A) a teaser rate.

4. In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in: A) increased inflation. B) increased output. C) both increased output and increased inflation. D) neither increased output nor increased inflation.

A) increased inflation.

22. M2 is ____ in dollar value than M1; it also contains ____ assets. A) larger; less liquid B) larger; more liquid C) smaller; less liquid D) smaller; more liquid

A) larger; less liquid

(Figure: Laffer Curve 2) The figure shows the Laffer curve for an economy whose tax rate is 80%. Supply-side economists would argue that the government should: A) reduce the tax rate to 40%. B) reduce the tax rate to 20%. C) keep the tax rate at 80%. D) reduce the tax rate to 60%.

A) reduce the tax rate to 40%.

32. If Zachary deposits $500 cash into his checking account, then his bank's assets: A) rise by $500, and its liabilities rise by $500. B) rise by $500, but its liabilities do not change. C) do not change, but its liabilities rise by $500. D) rise by $500, and its liabilities fall by $500.

A) rise by $500, and its liabilities rise by $500.

28. If a perpetuity bond has an interest payment of $80 and your required yield is 10%, the most you would be willing to pay for the bond (the price) is: A) $80. B) $800. C) $1,000. D) $8,000

B) $800.

35. If the reserve requirement is 20%, the money multiplier is: A) 4. B) 5. C) 0.2. D) 0.8.

B) 5.

9. (Figure: Determining SRAS Shifts) Which statement is NOT correct? A) Equilibrium output is $3,000 worth of goods and services. B) An increase in aggregate demand would lead to deflation. C) Full employment occurs when the economy produces $3,000 worth of goods and services. D) In the short-run equilibrium, output can be greater than or less than $3,000.

B) An increase in aggregate demand would lead to deflation.

23. Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. A) Both M1 and M2 were reduced by $5,000. B) M1 went down by $5,000, but M2 was unchanged. C) Neither M1 nor M2 changed because the transfer was done at the same bank. D) M1 and M2 both rose by $5,000.

B) M1 went down by $5,000, but M2 was unchanged.

26. (Figure: Market for Loanable Funds 2) If households decide to save a larger portion of their income because they fear job loss due to a recession, the loanable funds supply curve will shift from _____ to _____, and the new equilibrium will be at point _____, holding demand constant at D0. A) S0; S1; a B) S0; S1; b C) S1; S0; b D) S1; S0; d

B) S0; S1; b

8. (Figure: Determining SRAS Shifts) If there is a decrease in input prices, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____. A) SRAS1; P0 B) SRAS1; P1 C) SRAS2; P1 D) SRAS2; P2

B) SRAS1; P1

5. Which of the following would NOT cause a shift in the aggregate demand curve? A) a change in consumption spending B) a change in the price level C) a change in investment D) a change in net exports

B) a change in the price level

29. The most common type of short-term debt is: A) college loans. B) credit card debt. C) mortgage debt. D) car loans.

B) credit card debt.

21. Barter as a system tends to work only: A) in small U.S. towns and villages. B) in primitive economies with little product variety. C) when agricultural products are exchanged. D) among large, multinational corporations.

B) in primitive economies with little product variety.

7. Suppose consumers spend more than usual. In the short run, prices will ____; in the long run, prices will _____ from their starting point. A) increase; remain unchanged B) increase; increase C) remain unchanged; decrease D) remain unchanged; increase

B) increase; increase

5. If the amount of regulation in an economy increases, the aggregate supply curve shifts _____ and output supplied will be _____. A) left; increased B) left; reduced C) right; increased D) right; reduced

B) left; reduced

25. Ceteris paribus, suppose an economy institutes reforms that reduce government regulations. In this case the demand for loanable funds shifts ______ and the equilibrium interest rate _______. A) left; rises B) right; rises C) left; falls D) right; falls

B) right; rises

3. Which of the following events causes a decrease in aggregate demand? A) consumer confidence improves B) taxes increase C) interest rates fall D) government spending increases

B) taxes increase

11. If the marginal propensity to consume is 0.9, by how much will $100 of government spending increase GDP? A) $90 B) $100 C) $1,000 D) $900

C) $1,000

33. Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves of $300,000. The bank has excess reserves of: A) $50,000. B) $100,000. C) $200,000. D) $300,000.

C) $200,000.

13. (Figure: Effects of Policy Shifts) If government spending increases, shifting aggregate demand from _____ to _____, aggregate output will increase from _____ to _____. A) AD1; AD0; Qf; Q0 B) AD1; AD0; Q0; Qf C) AD0; AD1; Q0; Qf D) AD0; AD1; Qf; Q0

C) AD0; AD1; Q0; Qf

4. Which of the following best illustrates the wealth effect? A) Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. B) Simon felt he needed at least $800,000 to retire comfortably. He increased his saving to build up his wealth. C) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished. D) Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

C) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished.

18. Legislators debate for six months on which spending programs to utilize to manipulate the business cycle. This is an example of the: A) recognition lag. B) information lag. C) decision lag. D) implementation lag.

C) decision lag.

3. Which of the following events will shift the aggregate demand curve to the right? A) a catastrophic hurricane hitting the northeastern United States B) an increase in household debt C) decreased taxes D) decrease in military spending

C) decreased taxes

15. When a firm can _____ its capital equipment over a shorter period, it cuts its taxes _____. A) appreciate; later B) appreciate; now C) depreciate; now D) depreciate; later

C) depreciate; now

17. An automatic stabilizer: A) injects money into the economy during booms. B) extracts money from the economy during recessions. C) is exemplified by a program such as unemployment compensation. D) is exemplified by a program such as the Corps of Engineers dam-building program.

C) is exemplified by a program such as unemployment compensation.

38. Sometimes the Fed's goals conflict, and the Fed must emphasize one goal over another. Which of the following is a goal of the Fed that might conflict with its goal of full employment? A) promoting economic growth B) promoting an equitable distribution of income C) keeping the price level stable D) keeping tax rates low

C) keeping the price level stable

20. The crowding out effect recognizes that if the government sells bonds to finance spending, it can cause interest rates to ___________ investment. A) fall, reducing B) fall, stimulating C) rise, reducing D) rise, stimulating

C) rise, reducing

39. Which of the following lists represents monetary policy actions that are consistent with one another? A) buy government bonds, raise reserve requirements, raise the discount rate B) sell government bonds, raise reserve requirements, lower the discount rate C) sell government bonds, raise reserve requirements, raise the discount rate D) buy government bonds, lower reserve requirements, raise the discount rate

C) sell government bonds, raise reserve requirements, raise the discount rate

37. Appointments to the Federal Reserve Board are staggered so that one expires every other year. This provision was enacted to ensure: A) that Federal Reserve Board members would serve their entire term. B) that the Fed would be accountable to Congress. C) stability and continuity on the Board. D) that regional considerations would not impact the Board's decisions.

C) stability and continuity on the Board.

14. The Laffer curve has which variables on its axes? A) price and quantity B) CPI and GDP C) tax rates and tax revenue D) aggregate expenditure and income

C) tax rates and tax revenue

34. If the reserve requirement is 2.5% and a bank initially receives $30,000 in deposits from the Fed, then the maximum amount of money that the banking system can create is: A) $750 B) $1,500 C) $30,000 D) $1.2 million

D) $1.2 million

19. Suppose the Treasury sells $10 billion worth of securities to the Social Security Administration and $15 billion to the general public. This sale added ________ billion to gross public debt and ________ billion to the debt held by the public. A) $15; $15 B) $10; $15 C) $15; $25 D) $25; $15

D) $25; $15

27. Suppose the ZZZ Corporation sells a one-year coupon bond for $1,000. Its coupon payment is $100 for the year. In this example, the yield is ________%. If instead the price of the bond is $500, the yield is ________. A) 10; 10% B) 100; 200% C) 100; 100% D) 10; 20%

D) 10; 20%

If the government raises taxes or increases regulations, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will be at _____. A) SRAS1; P0 B) SRAS1; P1 C) SRAS2; P1 D) SRAS2; P2

D) SRAS2; P2

Starting in long-run equilibrium when the aggregate demand curve is AD0 and the short-run aggregate supply curve is SRAS0, if there is a supply shock, such as a drastic increase in the price of oil, this will cause _____ and a movement to a short-run equilibrium at point _____. A) a leftward shift in AD1; a B) a rightward shift in AD1; c C) a rightward shift in SRAS2; c D) a leftward shift in SRAS2; a

D) a leftward shift in SRAS2; a

40. If the Fed reduces the money supply: A) interest rates fall. B) bond prices rise. C) the speculative demand for money rises. D) bond prices fall.

D) bond prices fall.

1. In the Keynesian model, the price level is ___________; in the aggregate demand and supply model, the price level is _______________. A) fixed; fixed B) flexible; flexible C) flexible; fixed D) fixed; flexible

D) fixed; flexible

31. If a bank is subject to a reserve requirement of 15%, then it is required to: A) place 15% of its deposits in the vault. B) lend out 15% of its deposits. C) place 15% of its deposits in the account with its regional Federal Reserve bank. D) place 15% of its deposits in the account with its regional Federal Reserve bank or the vault.

D) place 15% of its deposits in the account with its regional Federal Reserve bank or the vault.

2. Because of the wealth effect, a rising aggregate price level ____ the purchasing power of wealth and therefore _____ output demanded. A) increases; increases B) increases; reduces C) reduces; increases D) reduces; reduces

D) reduces; reduces

24. The supply curve for loanable funds represents _____ and is _____. A) investors; vertical B) investors; upward sloping C) savers; vertical D) savers; upward sloping

D) savers; upward sloping