ECON 151 Final

A leakage is...

A diversion of income from spending on domestic output.

Stagflation is caused by...

A leftward shift in the aggregate supply curve.

A movement from point C to point A in Figure 1.4 results in

A reallocation of resources from television production to smartphone production.

If the elasticity of supply is large...

A tax cut increases tax revenues.

Which of the following is not a supply-side policy option?

A tax cut on specific products (e.g., Cash for Clunkers).

A tax stimulus measure might not be as powerful as policy makers hope because...

All of the answers are correct. (The recipients might save the money. The recipients might spend it on paying bills. The recipients might spend it on imported goods.)

The federal government can alter aggregate demand by all of the following except...

Altering immigration laws and green card rules.

The members of the Federal Reserve Board of Governors...

Are appointed by the president of the United States.

The terms of trade...

Are the amount of good A given up for good B.

Bank reserves are...

Assets that are used to meet deposit obligations.

The demand curve for money is downward-sloping because...

At lower interest rates, people want to hold more money and fewer bonds.

In Figure 1.9 the slope of the line is

Greater at point M than point L.

In an economy below full employment, ceteris paribus, increased investment leads to...

Higher desired saving and higher income.

In a diagram of aggregate demand and supply curves, the GDP gap is measured as the...

Horizontal distance between the equilibrium output and the full-employment output.

Which of the following is consistent with the general consensus about the shape of the short-run aggregate supply curve?

Horizontal, then upward-sloping, and ultimately vertical.

Which of the following is an example of the multiplier process at work as a result of an increase in consumption expenditure?

Households and businesses receive income from consumption expenditures; they spend a portion of this new income; these expenditures, in turn, generate income for other businesses and households, which in turn spend a portion of the new income, and so on.

The multiplier process describes...

How layoffs in one sector can spread to other sectors.

By raising the reserve requirement, the Fed...

Immediately reduces the lending capacity of the banking system.

"Crowding out" occurs when government...

Issues debt, thus making it more difficult for the private sector to issue debt.

If MPC is .80 and government spending increases by $200 billion, then...

Total spending will increase by $1,000 billion.

Which of the following is not an argument for protectionist measures?

Trade promotes specialization and increases total world output.

One of the essential functions a bank performs is that of...

Transferring money from savers to borrowers.

Which of the following generates a demand for dollars in the foreign exchange market?

Travel by foreign visitors in the United States.

Which of the following will not undermine the effectiveness of fiscal policy?

Multiplier effects.

Which of the following is an example of fiscal policy?

President Obama's stimulus package.

According to supply-side theorists, a decrease in marginal tax rates will provide the incentive to...

Produce more.

If private investment spending falls by $100 billion, then...

Real GDP will fall by more than $100 billion.

Trade restrictions...

Reduce the gains from trade for the country as a whole.

The Fed can change the equilibrium rate of interest by changing...

Reserve requirements or the discount rate, or through open market operations.

Money is functioning as a store of value when you...

Save your cash to pay for tuition next semester.

A fiscal stimulus is intended to...

Shift aggregate demand to the right.

Monetary stimulus will fail if...

Short-term interest rates are affected but long-term interest rates are not.

The Keynesian depiction of aggregate supply (AS)...

Shows a horizontal portion of the AS curve until full employment, then an upward-sloping AS curve.

If Americans want to purchase more European imports, then the...

Supply curve for U.S. dollars shifts to the right.

When an American purchases an imported good, they create a...

Supply of U.S. dollars.

Phillips developed a curve that shows the trade-off between the...

Unemployment rate and inflation rates.

The monetary policy tool used most frequently by the Fed is...

Using open market operations.

The recessionary GDP gap represents the...

Value of the goods and services that could be produced but were not due to unemployed resources.

Monetary policy is most likely to result in inflation when the aggregate supply curve is...

Vertical and the Fed lowers the discount rate.

Hurricane Katrina in 2006 was an example of a natural disaster that caused...

The aggregate supply curve to shift to the left.

When the Fed purchases bonds at higher price in the open market...

Yields on bonds decrease.

If leakages are greater than injections into the economy, then...

The economy will slow.

Which of the following explain why the government should not increase spending by the entire amount of the AD shortfall to move the economy to full employment?

The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap.

The marginal tax rate indicates...

The percentage of tax paid on the next dollar of earned income.

The quantity theory of money holds that...

The quantity of money in the economy multiplied by velocity will be equal to total spending.

When the Fed conducts monetary restraint...

The supply curve for money shifts left.

Which is the correct sequence when the Fed changes monetary policy?

The supply of money changes, interest rates change, investment spending changes, and aggregate demand changes.

A country will trade if...

The terms of trade are superior to its domestic opportunities.

The demand for money is...

The willingness of people to hold money at different interest rates.

The banking system as a whole can create money beyond initial deposits because...

There are multiple banks and there is fractional reserve banking.

Two countries with differing comparative advantages may engage in trade because...

They will be able to consume more goods in total due to specialization and trade.

If businesses see that inventories are piling up...

They will lower prices or cut production.

Motivation for trade includes all of the following except...

To reduce your consumption possibilities.

A bank has $10 million in transactions balances, and the required reserve ratio is 12 percent. The bank must hold required reserves of...

$1.2 million.

Which of the following is not a factor of production?

$100,000 cash.

An American traveling in Europe buys a dinner costing 60 euros. If the exchange rate is 1 euro = $0.77, then the price of the dinner in dollars is...

$46.20.

Table 1.1 shows the hypothetical trade-off between different combinations of Stealth bombers and B-1 bombers that might be produced in a year with the limited U.S. capacity, ceteris paribus.

1 Stealth bomber per B-1 bomber.

The formula for the multiplier is...

1/(1 - MPC).

Table 1.1 shows the hypothetical trade-off between different combinations of Stealth bombers and B-1 bombers that might be produced in a year with the limited U.S. capacity, ceteris paribus. Table 1.1 Production Possibilities for Bombers

3 Stealth bombers per B-1 bomber.

The Federal Reserve has lost some control over the money supply due to...

All of the answers are correct. (The growth of money market accounts at brokerage houses. Large corporations now lend money. Globalization of lending activity.)

If the banking system has a required reserve ratio of 25 percent, the money multiplier is...

4.0.

If the required reserve ratio is 12 percent, the money multiplier is...

8.3.

The supply of U.S. dollars originates from...

All of the answers are correct. (American demand for imported goods. American investment in foreign countries. Demand for foreign currency for speculative purposes.)

Monetarists say...

All of the answers are correct. (An increase in the money supply is likely to lead to inflation. A monetary stimulus is ineffective if firms' costs of production also rise. Long-run aggregate supply is vertical at the natural rate of unemployment.)

Improved labor productivity...

All of the answers are correct. (Occurs through investments in human capital. Shifts the aggregate supply curve to the right. Increases the output per hour for workers.)

Which of the following groups would be aided by a depreciation of the American dollar?

American producers of goods for export.

The reserve ratio is the ratio of...

Bank reserves to total transactions deposits.

To increase the money supply and reduce interest rates, the Fed will...

Buy bonds in the open market.

The Fed can decrease the federal funds rate by...

Buying government bonds, which cause market interest rates to fall.

Which of the following is included in both M1 and M2?

Cash in circulation.

Which of the following is not a function of one of the 12 Federal Reserve Banks?

Conducting monetary policy.

Costa Rica can produce bananas using fewer inputs than Canada; thus...

Costa Rica has an absolute advantage in producing bananas.

Which of the following is not considered to be part of the money supply?

Credit cards.

Which of the following is not a tool of monetary policy?

Cutting tax rates.

Lower interest rates...

Encourage people to borrow more and often to spend more on housing.

According to supply-side theory, saving...

Encourages investment in the long run.

What will happen to the equilibrium price and quantity in a market as a result of a tariff on imports?

Equilibrium price should go up and equilibrium quantity should go down.

Which of the following is the market where reserves can be borrowed by one bank from another bank for very short periods of time?

Federal funds market.

The rate at which banks borrow from each other in an overnight market is called the...

Federal funds rate.

The use of government taxes and spending to alter economic outcomes is known as...

Fiscal policy.

A tax cut intended to increase aggregate demand is an example of...

Fiscal stimulus.

In making monetary policy the Fed currently...

Focuses on the federal funds rate.

International demand for U.S. dollars originates with...

Foreign demand for American products.

If the government wanted to reduce inflation, it could...

Increase taxes on middle-income and upper-income earners.

Cyclical unemployment...

Increases during a recessionary gap.

The unemployment effects of trade are felt most strongly in...

Industries that compete with imported goods.

According to Keynes, the source of high unemployment is...

Insufficient aggregate demand.

Which of the following causes appreciation of the U.S. dollar versus the euro?

Interest rates in the United States are higher than in Europe.

If a country is completely self-reliant in producing goods for its own consumption needs, then...

Its consumption possibilities will equal its production possibilities.

If a country's currency depreciates in the foreign exchange market...

Its currency becomes cheaper in terms of another currency.

To say that a country has a comparative advantage in the production of wine is to say that...

Its opportunity cost of producing wine is lower than another country's.

The major difference between classical and Keynesian economists is that...

Keynesians argue that the economy will not self-adjust to fluctuations in aggregate demand.

According to supply-side theory, which of the following causes a rightward shift in the aggregate supply curve?

Lifting trade restrictions.

If the Federal Reserve wants to increase commercial bank lending, it will...

Lower the required reserve ratio.

When exchange rates are flexible, they are...

Permitted to vary with changes in supply and demand in the foreign exchange market.

Speculation in foreign exchange markets...

Often promotes foreign exchange stability.

The United States has an absolute advantage in producing T-shirts, but not a comparative advantage, because...

Other countries, such as China, can produce T-shirts at a lower opportunity cost relative to the United States.

Money is anything...

That is generally accepted as a medium of exchange.

The Federal Open Market Committee is responsible for...

The Fed's daily activity in financial markets.

If the exchange rate of U.S. dollars to Mexican pesos was $1.00 = 3 pesos in 1995 and $1.00 = 11 pesos in 2009, then...

The U.S. dollar appreciated relative to the Mexican peso.