ECON 102 FINAL Q'S

The short-run aggregate supply curve slopes upward because of: A. wage and price stickiness. B. wage and price flexibility. C. increasing technology. D. a reduction in resource availability at higher price levels.

A. wage and price stickiness.

An example of a double coincidence of wants is: A. a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired. B. a car dealer who wants a TV finding an electronics store owner who wants money. C. an electronics store owner who wants car repairs finding a car mechanic who wants money. D. a car dealer who wants a new employee finding a car mechanic who wants money.

A. a car mechanic who wants a TV finding an owner of an electronics store who wants a car repaired.

In general, a change in the price level, all other things unchanged, causes: A. a movement along the aggregate demand curve. B. a shift of the aggregate demand curve. C. both a movement along the aggregate demand curve and a shift in the curve. D. no change in the purchasing power of assets.

A. a movement along the aggregate demand curve.

Which of the following financial assets belongs to M2 but not to M1? A. a savings account B. a checkable deposit C. currency D. traveler's checks

A. a savings account

If the economy is in a recessionary gap, actual output will be _____ potential output. A. below B. the same as C. above D. in equilibrium with

A. below

Social insurance programs are: A. government programs intended to protect families against economic hardships. B. private insurance policies to protect families from hardships caused by government actions. C. private insurance policies that cover gaps in government-provided health care. D. programs to help unemployed people have a social life.

A. government programs intended to protect families against economic hardships.

All of the following are roles of money EXCEPT a: A. measure of wealth. B. medium of exchange. C. unit of account. D. store of value.

A. measure of wealth.

(Figure: Fiscal Policy Choices) Look at the figure Fiscal Policy Choices. It would be appropriate to use contractionary fiscal policy to shift aggregate demand in _____ from _____. A. panel (b); AD1 to AD2 B. panel (a); AD2 to AD1 C. panel (a); AD1 to AD2 D. panel (b); AD2 to AD1

A. panel (b); AD1 to AD2

If the economy is at equilibrium below potential output, there is a(n) _____ gap, and _____ fiscal policy is appropriate. A. recessionary; expansionary B. inflationary; expansionary C. recessionary; contractionary D. inflationary; contractionary

A. recessionary; expansionary

1. Nominal wages are sticky because: A. wages are slow to rise when there are labor shortages and slow to fall even when the level of unemployment is significant. B. wages remain fixed in the long run, increasing the profitability of the firms. C. wages are slow to fall when there are labor shortages and slow to rise even when the level of unemployment is significant. D. in the long run all wages are adjusted for inflation.

A. wages are slow to rise when there are labor shortages and slow to fall even when the level of unemployment is significant.

Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%. If Sam deposits $500 cash in his checking account, the banking system can increase the money supply by: A. $5,000. B. $2,000. C. $2,500. D. $400.

B. $2,000.

Fiscal policies that require no government action but that are expansionary when the economy contracts and contractionary when the economy expands are known as: A. discretionary fiscal policy. B. automatic stabilizers. C. autonomous spending policies. D. destabilizing fiscal policies.

B. automatic stabilizers.

(Figure: Short- and Long-Run Equilibrium II) Look at the figure Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the appropriate policy to return the economy to potential output would be a(n): A. increase in government spending. B. decrease in government spending. C. increase in transfer payments. D. decrease in taxes.

B. decrease in government spending.

The fact that many stores in the United States have found it economical to accept credit cards has: A. increased the demand for money. B. decreased the demand for money. C. increased the demand for credit card transactions but has not affected the demand for money. D. decreased the demand for credit card transactions but has not affected the demand for money.

B. decreased the demand for money.

If the economy is at full employment, expansionary fiscal policy is most likely to lead to: A. lower inflation rates. B. higher inflation rates. C. increases in unemployment. D. decreases in interest rates.

B. higher inflation rates.

The federal government's largest source of revenue is: A. property taxes. B. personal income and corporate profit taxes. C. sales taxes. D. social insurance taxes.

B. personal income and corporate profit taxes.

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. The level of income associated with Y1 in panel (b): A. is equal to potential output. B. reveals an inflationary gap compared with Yp. C. is a long-run equilibrium. D. is caused by flexible wages and prices.

B. reveals an inflationary gap compared with Yp.

The interest rate effect of a change in the aggregate price level causes: A. the long-run aggregate supply curve to be vertical. B. the aggregate demand curve to be negatively sloped. C. the short-run aggregate supply curve to be positively sloped. D. the aggregate demand curve to be positively sloped.

B. the aggregate demand curve to be negatively sloped.

The point where the long-run aggregate supply curve intercepts the horizontal axis is: A. the point that reflects the economy's actual output. B. the economy's potential output. C. the level of real GDP the economy would produce if all prices were flexible and wages were fixed. D. impossible to attain.

B. the economy's potential output.

Banks don't lend out all of the funds deposited because: A. it would not be profitable. B. they have to satisfy any depositor who wants to withdraw funds. C. they have to reduce their liquidity position. D. they have to make more money on interest-bearing deposits.

B. they have to satisfy any depositor who wants to withdraw funds.

Suppose the reserve ratio is 25%; the money multiplier is: A. 5. B. 0.25. C. 4. D. 0.04.

C. 4

The basic equation of national income accounting is GDP = C + I + G + X - IM. When the government uses fiscal policy to make changes to taxes and transfers, this policy primarily affects: A. IM. B. I. C. C. D. X.

C. C

An increase in government spending on health care is likely to shift the _____ curve to the _____. A. short-run aggregate supply; right B. short-run aggregate supply; left C. aggregate demand; right D. aggregate demand; left

C. aggregate demand; right

Some argue that budget deficits will lead to reduced private spending because: A. the government will purchase so many goods and services that it will lead to a shortage of consumer goods and services. B. budget deficits will reduce interest rates on savings and decrease consumers' wealth. C. consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes. D. the government will have to increase transfer payments to finance the deficit.

C. consumers, anticipating higher taxes, will reduce consumption to save money to pay the future taxes.

In the long run, wages and prices are considered to be: A. sticky. B. constant. C. flexible. D. irrelevant.

C. flexible

(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, the appropriate policy to return the economy to potential output would be a(n): A. increase in transfer payments. B. increase in government spending. C. increase in taxes. D. decrease in taxes.

C. increase in taxes.

The government has almost eliminated the possibility of bank runs by instituting protective measures. All of the following are such measures EXCEPT: A. capital requirements. B. reserve requirements. C. loan guarantees. D. deposit insurance.

C. loan guarantees.

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate: A. productivity. B. unemployment rate. C. quantity of output demanded by households, businesses, the government, and the rest of the world. D. quantity of output demanded by businesses only.

C. quantity of output demanded by households, businesses, the government, and the rest of the world.

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____. A. demand; aggregate demand; right B. supply; aggregate demand; left C. supply; short-run aggregate supply; left D. demand; long-run aggregate supply; left

C. supply; short-run aggregate supply; left

Decisions about monetary policy are made by: A. the president and Congress. B. the President's Council of Economic Advisers. C. the Federal Open Market Committee. D. representatives of banks that are members of the Federal Reserve System.

C. the Federal Open Market Committee.

The opportunity cost of holding money is: A. zero. B. the interest rate when someone uses a credit card. C. the difference between interest rates on monetary assets and on nonmonetary assets. D. the discount rate.

C. the difference between interest rates on monetary assets and on nonmonetary assets.

Suppose the reserve ratio is 20%. If Sam deposits $500 in his checking account, his bank can increase loans by: A. $500. B. $2,500. C. $100. D. $400.

D. $400

Which of the following is a function of the Federal Reserve System? I. conducting monetary policy II. examining and supervising commercial banks in the Fed regions III. providing liquidity to financial institutions A. I only B. II only C. III only D. I, II, and III

D. I, II, and III

The Federal Reserve's main assets are: A. currency in circulation and bank reserves. B. the facilities of the 12 district banks. C. corporate stocks and bonds. D. U.S. Treasury bills.

D. U.S. Treasury bills.

(Figure: The Multiplier) Look at the figure The Multiplier. If this economy is at Y1 and the price level decreases: A. AD1 will shift to the left, reflecting a multiplied decrease in real GDP at every price level. B. AD1 will shift to the right, reflecting a multiplied increase in real GDP at every price level. C. an upward movement along the AD1 will take place, reflecting an increase in the price level. D. a downward movement along the AD1 will take place, reflecting a decrease in the price level.

D. a downward movement along the AD1 will take place, reflecting a decrease in the price level.

The money demand curve is _____ because a lower interest rate _____ the opportunity cost of holding money. A. upward-sloping; increases B. downward-sloping; increases C. upward-sloping; decreases D. downward-sloping; decreases

D. downward-sloping; decreases

The three main monetary policy tools are: A. interest rates, taxes, and government purchases. B. currency, near-moneys, and reserve ratio. C. deposit insurance, discount rate, and money multiplier. D. reserve requirements, the discount rate, and open-market purchases.

D. reserve requirements, the discount rate, and open-market purchases.

The larger the amount of outstanding public debt: A. the lower the tax revenue the government must collect. B. the more spending the government can afford. C. the smaller the crowding out of private investment spending. D. the larger the fraction of the federal budget deficit that must be devoted to interest payments.

D. the larger the fraction of the federal budget deficit that must be devoted to interest payments.

Capital requirements for banks serve all of the following purposes EXCEPT: A. to reduce a bank owner's incentive for excessive risk taking. B. to offset the change in incentives caused by deposit insurance. C. to put to use the excess of a bank's assets over its deposits and other liabilities. D. to reduce deposits.

D. to reduce deposits.

The cyclically adjusted budget balance is an estimate of: A. the contractionary fiscal policy needed to close an inflationary gap. B. the tax increase needed to compensate for larger government transfers so that the budget remains balanced. C. the expansionary fiscal policy needed to close a recessionary gap. D. what the budget balance would be if real GDP were exactly equal to potential output.

D. what the budget balance would be if real GDP were exactly equal to potential output.