Econ 2301

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63. An institution that collects funds from lenders and distributes these funds to borrowers is called A) a financial intermediary. B) the Federal Reserve System. C) a mercantile exchange. D) a currency market.

7. You spend $20 to buy a used textbook at the college bookstore. What function does money perform here? A) medium of exchange B) store of value C) unit of account D) standard of deferred payment

75. In the banking system today, the reserves banks hold against their deposit liabilities must take one of two forms. They are A) vault cash and deposits at the Fed. B) vault cash and checkable deposits. C) currency in circulation and checkable deposits. D) gold and vault cash.

76. Which of the following is an example of a bank's reserves? A) currency held in the vaults of the bank B) demand deposits with other member banks C) U.S. Treasury bills D) U.S. Treasury bonds

79. The principle of fractional reserve banking makes it possible for a A) bank to make loans. B) bank to print currency. C) bank to avoid reserve requirements. D) bank to sell securities.

125. What is the value of the deposit multiplier in a 100-percent reserve banking system? A) 0. B) 1 C) a value between 0 and 1 D) a value greater than 1

131. What happens to the value of the deposit multiplier when banks hold excess reserves? A) It is larger than the value implied by the formula. B) It is smaller than the value implied by the formula. C) It is only affected by the amount of loans that banks are willing to make, not the amount of excess reserves held. D) There is insufficient information to answer the question.

137. A primary function of a central bank is to A) regulate dividend payments by corporations. B) act as a regulator of banks. C) control the bond market. D) publish statistics on banking and related financial matters.`

139. The Federal Reserve System was established in 1913 in response to the A) First World War. B) bank panic of 1907. C) depression of 1883. D) prosperity of the 1920s.

142. The Federal Reserve System was created by the A) National Banking Act of 1864. B) Federal Reserve Act of 1913. C) Glass-Steagall Act of 1933. D) Banking Act of 1935.

146. The seven members of the Board of Governors serve 14-year terms to A) provide steady employment. B) reduce political influence. C) prevent illegal appointments. D) inhibit independent decisions.

Which of the following is included in GDP? Jack purchases $2,300 worth of stock in company x. Bob mows his lawn and washes and irons his shirts. Helen buys a new dress. John buys a used car.

Helen buys a new dress.

184. When the Fed _______ governments bonds it _______ bank reserves. A) sells; increases B) buys; increases C) buys; decreases D) issues new; increases

84. A bank is "loaned up" when A) legal reserves are zero. B) excess reserves are zero. C) primary reserves are zero. D) required reserves are zero.

89. Refer to Table 9-3. If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank? A) $25 million B) $40 million C) $60 million D) $75 million

91. Refer to Table 9-3. If the required reserve ratio is 10%, what is the maximum amount of new loans that Alpha-Beta can create? A) $25 million B) $40 million C) $60 million D) $75 million

92. A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of required reserves? A) $0 B) $10,000 C) $20,000 D) $30,000

94. A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create? A) $0 B) $10,000 C) $20,000 D) $30,000

99. Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is A) $100. B) $900. C) $1,000. D) $10,000.

Which of the following statements is true? The economy depicted in the figure experiences a recessionary gap = Yp-Y1. The economy depicted in the figure experiences a recessionary gap = Yp-Y2. The economy depicted in the figure experiences a recessionary gap = Y2-Y1. The economy depicted in the figure is in long-run equilibrium but not in short-run equilibrium.

The economy depicted in the figure experiences a recessionary gap = Yp-Y2.

Which of the following statements is true? The economy depicted in the figure experiences an inflationary gap = Y2 -Yp. The economy depicted in the figure experiences an inflationary gap = Y1 -Yp. The economy depicted in the figure experiences an inflationary gap = Y1-Y2. The economy depicted in the figure is in long-run equilibrium but not in short-run equilibrium.

The economy depicted in the figure experiences an inflationary gap = Y2 -Yp.

127. Assume that the required reserve ratio is 20%. What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves? A) $5,000 B) $10,000 C) $40,000 D) $50,000

128. Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%. If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is A) $10,000. B) $20,000. C) $40,000. D) $50,000.

66. A financial institution that accepts deposits, makes loans, and offers checking accounts is A) an insurance company. B) the Federal Deposit Insurance Corporation. C) the Federal Reserve System. D) a commercial bank.

Using the data in the above table, what is total GDP? $8,600 $11,450 $11,550 $13050 $14,000

$11,450

In the above table, how many people are not in the labor force in year 2? $50 million. $75 million. $100 million $175 million

$100 million

30. Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money. A) fiat B) intrinsic C) commodity D) debt

31. Currency in the United States today is A) fiat money. B) intrinsic money. C) backed by gold. D) quasi- intrinsic.

35. The ease with which an asset can be converted to money is its A) liquidity. B) adaptability. C) accessibility. D) rigidity.

38. The Fed's narrowest measure of money supply is A) M1. B) M2. C) credit card balances. D) balances held in money market funds.

5. Money is any item that A) serves as a medium of exchange for goods and services. B) can be converted into silver with relatively little loss in value. C) can be converted into gold with relatively little loss in value. D) facilitates a connecting link between credit instruments and debt instruments.

51. Refer to Table 9-2. In Year 2, if the supply of money measured by M2 was $1,000 billion, then the components of M2 not shown in the table must have totaled A) less than $250 billion. B) $250 billion. C) $300 billion. D) $450 billion.

52. Refer to Table 9-2. In Year 1, if savings deposits had been $200 billion instead of $150 billion, M1 would have been A) unaffected. B) larger by $50 billion. C) smaller by $50 billion. D) $100 billion.

54. The largest component of M1 is A) checkable deposits. B) credit card balances. C) currency. D) savings deposits.

59. Credit cards are A) not money. B) not money, because they can't be used to purchase goods and services. C) considered to be money. D) counted as a part of M2 but not M1.

Ceteris paribus of outside variables is assumed when the curve on a graph shifts. at all times when dealing with variables in economics. during movement along a curve on a graph. none of the abve.

during movement along a curve on a graph.

Planned investment is equal to gross private domestic investment, less depreciation. equal to gross private domestic investment. the level of investment consumers intend to make in a period. the level of investment government will require firms to make in a period.

equal to gross private domestic investment.

A market price support policy attempts to assist the farm industry by: taxing the incomes of farmers. directly subsidizing the incomes of farmers. establishing price floors in farm output markets. reducing the amount of resources used in farm production.

establishing price floors in farm output markets.

A current price below the equilibrium price will result in a surplus. True False

false

Automatic stabilizers tend to exaggerate the severity of business cycles. True False

false

Changing the required reserve ratio is an often-used monetary tool to influence the federal funds rate.

false

Disposable personal income is the total income households spend on consumption. True False

false

Excess reserves plus total reserves equal required reserves. True False

false

Excess reserves plus total reserves equals required reserves

false

Expansionary monetary policy, by increasing the money supply, also increases interest rates and recessionary gaps.

false

If two goods are substitutes, a decrease in the price of one will result in an increase in demand for the other. True False

false

There is no role for government in a market capitalist economy. True False

false

Which of the following is the best indicator of a nation's overall economic performance? real GDP real disposable personal income nominal GDP value of capital stock

real GDP

Economic data that are adjusted for price-level changes are said to be expressed in terms of historical dollars. variable dollars. nominal dollars. real dollars.

real dollars.

Government's role of taxing some citizens and transferring income to others is considered: enforcing a legal system. providing certain goods and services. redistributing income. maintaining the money supply.

redistributing income.

Suppose the economy experiences an inflationary gap. Policymakers who believe that government is too big would favor which of the following policies to close the gap? reduction in government spending increases in income tax rates increases in corporate tax rates increases in interest rates

reduction in government spending

In the above graph of a market, a market price of $6.00 will result in shortage of 10 units. shortage 5 units. surplus of 10 units. suplus of 5 units.

surplus of 10 units.

A price of $5 will result in a ___________ in the above market which will cause price to move _____________. shortage; downward. surplus; upward. shortage; upward. surplus;downward

surplus;downward

A factor critical to economic growth is

technological change that increases labor productivity

An expansionary fiscal policy increases a government budget deficit or reduces a government budget surplus, increases borrowing by the Treasury, which will sell more bonds. True False

true

At any price below the equilibrium price, the quantity demanded exceeds the quantity supplied, and the price tends to rise. True False

true

Economic growth can be illustrated by an outward shift of the production possibilities curve. True False

true

GDP may be calculated by totaling either the market values of all final goods and services or the income earned during production of those final goods and services. True False

true

If an economy is operating at its potential output level, a change in aggregate demand or short-run aggregate supply will induce an inflationary or a recessionary gap. True False

true

If the level of government expenditures is given, budget surpluses and deficits depend on tax revenues, which tend to vary directly with GDP. True False

true

If the production possibilities curve shifts outward, the long-run aggregate supply curve will shift rightward.

true

Personal saving is disposable personal income not spent on consumption. True False

true

The M1 money supply includes all currency in circulation, checkable deposits, and traveler's checks

true

The impact of expansionary fiscal policy is weakened because of crowding out. True False

true

The income (spending) multiplier is triggered by a shift in the aggregate expenditures curve. True False

true

The long run in macroeconomics is a period in which wages and prices are flexible and there is full market adjustment. True False

true

The marginal propensity to consume is the change in consumption divided by the change in disposable personal income. True False

true

Trade between two nations is mutually beneficial if each specializes in the good in which it has a comparative advantage. True False

true

When the Fed buys U.S. Treasury bonds from a bank, it increases the supply of reserves by crediting the seller's account at the Fed. True False

true

A transfer payment that rises automatically during a recession is interest payments on the national debt. unemployment compensation. Social Security payments to retired persons. government payments to war veterans.

unemployment compensation.

Economists measure the price level by keeping track of nominal GDP. using a price index. by measuring the growth rate in money supply. by measuring the growth rate in real GDP.

using a price index.

Ceteris paribus means the independent variable changes. the dependent variable changes. variables other than the independent and dependent variables ("outside" variables) are assumed constant. the independent and dependent variables are correlated.

variables other than the independent and dependent variables ("outside" variables) are assumed constant.

A production possibilities curve indicates the combination of goods and services an economy is actually producing. various combinations of the maximum goods and services an economy is capable of producing given its available resources and technology. various combinations of the maximum goods and services an economy cis capable of producing given unlimited resources. average combinations of goods and services an economy can produce given its available resources and technology.

various combinations of the maximum goods and services an economy is capable of producing given its available resources and technology.

Assume: a). 2005 is the base year in which the market basket of products = $800. b). 2010 is the current year in which the market basket of products = $880. c). GDP in the base year = $10 trillion. d). Nominal GDP in current year = $13.2 trillion. Based upon the above, what is the real GDP for 2010? $9.1 trillion. $11 trillion. $12 trillion. $13 trillion.

$12 trillion.

What is the value of GDP? $1,820 billion $2,170 billion $2,280 billion $2,550 billion

$2,280 billion

A surplus of 200 units will occur at a price of ________ and a shortage of 200 units will occur at a price of ________. $15; $10 $15; $15 $15; $25 $25; $10

$25; $10

In the above competitive free market, price and quanity will tend to move toward $6, and 10 units. $2 and 15 units. $6 and 20 units $4 and 15 units.

$4 and 15 units.

Suppose personal income in a nation equals $5 billion, and personal income taxes equal $1 billion. Disposable personal income equals $4 billion. $5 billion. $6 billion. $7 billion.

$4 billion.

What is the market price of a bond that pays $135 per year in interest and has an interest rate of 3% per year? $135 $1,391.75 $4,500 none of the above

$4,500

On the above graph, when disposable personal income is $1,200 billion, planned consumption spending is $600 billion. $800 billion. $1,200 billion. $2,000 billion.

$800 billion.

Suppose disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $13,000. What is the marginal propensity to "save"? 0.2 0.4 0.6 0.8

0.2

In the above table, what is the value of the marginal propensity to consume (MPC) that correctly fills in blank (G) and the value of the income multiplier that correctly fills in blank (H)? 0.80; 5 0.20; 0.80 0.50; 2 0.80;4

0.80; 5

If George, Barbara, and Dan are the only three buyers in the market, and the price of a bag of chocolate-covered peanuts is 80 cents, the total market demand is ________ bags per month. 70 80 105 280

105

Based upon the above data, what is the unemployment rate in year 1? 10%. 12.5%. 14%. 18%.

12.5%.

If a person's income increases from $22,000 to $27,000 and their income taxes increase from $2,000 to $2,700, what is their marginal tax rate? 10.0%. 12.3% 14%. None of the above.

14%.

In the above Production Possibilities graph, the opportunity cost of moving from point C to point B is 5,000 television. 15,000 televisions. 20,000 fax machines. 5,000 fax machines.

20,000 fax machines.

According to the rule of 72, GDP with a 2.5% annual growth rate will double in approximately _____ years (round up). 5 18 29 None of the above

In the above table, the opportunity cost of one unit of good B is ______ for Country 1 and _____ for Country 2. 2A; 1/2 A 10A; 15A 20A; 15A 1/20A; 1/15A

2A; 1/2 A

If real GDP = $9.1 trillion in 2007 and $9.4 trillion in 2008, what is the annual growth rate of GDP from 2007 to 2008? (round to the nearest %) $0.3 trillion 3.2% 3.3% none of the above

3.3%

What is the value of the income (spending) multiplier if the slope of the aggregate expenditures curve is 0.8? 1 4 5 Cannot be determined without information on marginal propensity to consume.

If an economy can produce a maximum of 100 units of good X and the opportunity cost of 1x is 5y, what is the maximum number of units of good y this economy can produce? 20. 100. 200. 500.

500

1. In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve? A) They functioned as money. B) They served as a corruption deterrent. C) They enabled prison officers to monitor illegal money flows. D) They forced prisoners to engage in barter.

106. Refer to Table 9-5. If the required reserve ratio is 10% and the market interest rate is 8%, what is Bolton Bank's opportunity cost of holding the excess reserves it is currently holding? A) $5.6 million B) $3.2 million C) $0.8 million D) 0; Bolton Bank has no excess reserves.

11. When a person makes price comparisons among products, money is being used as a(n) A) unit of account. B) standard of quality. C) medium of exchange. D) checkable deposit.

110. Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves? A) $25,000 B) $55,000 C) $80,000 D) $135,000

111. Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's excess reserves? A) $25,000 B) $55,000 C) $80,000 D) $250,000

119. Refer to Table 9-6. What is the value of $G (the total new required reserves)? A) $1,000 B) $4,000 C) $5,000 D) $6,000

130. What happens when you withdraw cash from a bank? A) The bank's reserves are reduced. B) The bank's reserves are increased. C) The bank's reserves are not affected. D) The bank's total reserves remain unchanged but the composition of required reserves and excess reserves change.

133. The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when A) the bank's net worth falls below a certain level. B) the bank's excess reserves fall below a certain level. C) the bank's total deposits fall below a certain level. D) the bank has inadequate insurance.

135. Which of the following is a consequence of deposit insurance? A) It may induce the officers of a bank to take more risks. B) It encourages banks to make loans only to the most credit-worthy customers. C) It minimizes the risk of defaulting on loans made to the bank's customers. D) It encourages depositors to closely scrutinize a bank's lending activities.

140. The Federal Reserve System I. is the central bank for the United States. II. is a United States government owned bank. III. is a branch of the Treasury of the United States. A) I only B) I and II only C) I and III only D) I, II, and III

143. The Federal Reserve does all of the following except A) make loans to individuals B) influence the supply of money C) influence the value of money D) regulate the banking system

144. The Federal Reserve System is made up of twelve regional banks owned by A) commercial banks in the respective districts that have chosen to be members of the Fed. B) Wall Street investors. C) the Board of Governors appointed by the President. D) the U.S. Treasury.

159. When a member bank borrows reserves from the Fed, A) it pays an interest rate called the discount rate. B) it pays no interest rate but is required to repay the loan within the stipulated period. C) it pays an interest rate equivalent to the coupon rate on long-term government bonds. D) it pays an interest rate equal to the federal funds in the reserves market.

16. The unit-of-account function of money means that money is used A) as a consistent means of measuring the value of things. B) as the common denominator of future payments. C) to pay for goods and services. D) to accumulate purchasing power.

160. The _____ rate is the interest rates charged when a bank lends reserves to another bank. A) federal funds B) discount C) prime D) reserve rate

161. If the Fed increases the discount rate, it is pursuing A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy. B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending. C) an expansionary policy because it raises the cost of holding excess reserves in the banking system. D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans.

166. The rate of interest charged for reserves in the federal funds market is the A) federal funds rate. B) open market rate. C) required reserve rate. D) discount rate.

171. If the Fed buys U.S. government bonds from the public, it A) increases the volume of reserves in the banking system and the money supply tends to grow. B) decreases the volume of reserves in the banking system and the money supply tends to grow. C) increases the volume of reserves in the banking system and the money supply tends to fall. D) decreases the volume of reserves in the banking system and the money supply tends to fall.

19. Which of the following best illustrates the unit of account function of money? A) You list prices for clothing sold on your Web site, www.nattydresser.com, in dollars. B) You pay for your cruise tickets with dollars. C) You keep $50 in your backpack for emergencies. D) You keep your tips earned from your tour guide job in a separate jar at home.

29. Money that some authority has declared legal tender is called A) fiat money. B) currency. C) convertible paper money. D) commodity money.Q

8. Which of the following illustrates the medium-of-exchange function of money? A) writing a check to buy a new Volkswagen B) noting that the price of a $20,000 Volkswagen is 16,000 euros C) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen D) driving your $20,000 Volkswagen to a friend's house

83. Any reserves that banks hold in excess of required reserves are called A) excess reserves. B) margin reserves. C) federal reserves. D) surplus reserves.

85. A bank that has no excess reserves A) cannot create loans. B) is not in equilibrium. C) is on the brink of bankruptcy. D) has no required reserves.

86. Refer to Table 9-3. What is the value of the bank's net worth? A) $200 million B) $2,000 million C) $2,800 million D) $3,000 million

98. Nita deposits a check for $750 drawn against Home Federal Bank into her account at Village Bank. Which pair of the T-accounts below shows this transaction on the respective bank's balance sheets? A) Village Bank Home Federal Bank Assets Liabilities Assets Liabilities Reserves +750 Checkable deposits +750 Reserves -750 Checkable deposits -750

What two factors lead to economic growth defined as an increase in real GDP? A. increase in productivity of resources B. increase in the supply of money C. increase in the quanity of resources A and C

A and C

Which group(s) listed below does inflation hurt? savers and lenders. savers and borrowers. borrowers and lenders. people on fixed incomes A and D.

A and D.

Refer to Exhibit 8-3. Which of the following could not have caused a shift in aggregate demand from AD1 to AD2? A change in the price level. an increase in wealth An increase in foreign real income. A decrease in personal income.

A change in the price level.

What is the difference between a nominal value and a real value? A nominal value is measured in monetary units while a real value is measured in current dollars. A nominal value is measured in market rates while a real value is measured in terms of exchange rates. A nominal value is measured in units of constant purchasing power while a real value is measured in units of current purchasing power. A nominal value is measured in current market prices while a real value is measured in base year prices.

A nominal value is measured in current market prices while a real value is measured in base year prices.

The U.S. governemnt will exchange a $5.00 bill for A. another $5.00 bill B. $5.00 worth of silver. C. $5.00 worth of gold.. D. all of the above.

A. another $5.00 bill

Which of the following increase the productivity of resources? reduction in the quanity of unemployed workers improvements in the overall health of the labor workforce better management of resources in the production process All of the above

All of the above

Which of the following is a problem in measuring GDP? Price changes. Double counting of intermediate goods. Financial transactions. All of the above.

All of the above.

Which of the following is a problem with monetary policy? Slow to work Doesn't work as well in correcting unemployment as it does in correcting inflation. Changes in the velocity of money Net export effect works against monetary policy Answers B and C above

Answers B and C above

Which of the following fiscal policy steps can be taken to reduce unemployment in the economy? A. Reduce transfer payments. B. Reduce income tax rates. C. Cut interest rates D. increase government purchases. E. increase transfer payments. Answers B, D and E above.

Answers B, D and E above.

Which of the following is true concerning the demand for money? As interest rates fall the opportunity cost to "hold" money decreases and the demand to "hold" money increases. As interest rates fall the opportunity cost to "hold" money increases and the demand to "hold" money decreases. The opportunity cost of "holding" money as interest rates change does not affect the demand to "hold" money. none of the above.

As interest rates fall the opportunity cost to "hold" money decreases and the demand to "hold" money increases.

102. Which of the following is true regarding the interest rate earned on the reserves that bank's keep at the Fed? A) These reserves earn no interest. B) It is relatively low. C) It varies depending on the federal funds rate. D) It is equal to the discount rate.

103. When a bank receives new deposits, it can make new loans up to the amount of A) the deposits received. B) the excess reserves generated by the deposits C) the reserves generated by the deposits. D) the required reserves generated by the deposits.

104. Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's required reserves? A) $30 million B) $70 million C) $100 million D) $300 million

105. Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves? A) $30 million B) $70 million C) $100 million D) zero

113. Refer to Table 9-6. What is the value of $A in stage 1? A) $100 B) $200 C) $600 D) $800

116. Refer to Table 9-6. What is the value of $D in Stage 4 (round up to the nearest whole number)? A) $82 B) $102 C) $128 D) $160

120. Refer to Table 9-6. What is the value of $H (the total loans)? A) $1,000 B) $4,000 C) $5,000 D) $6,000

122. The deposit multiplier is given by the formula A) change in checkable deposits ÷ change in required reserves. B) change in checkable deposits ÷ change in reserves. C) change in excess reserves ÷ change in checkable deposits. D) change in legal reserves ÷ change in excess reserves.

150. The three main monetary policy instruments are A) the money supply, the market interest rate, and deposit insurance. B) open market operations, reserve requirement ratio, and the discount rate. C) open market operations, deposit insurance, and the money supply. D) open market operations, reserve requirement ratio, and the market interest rate.

151. For a given level of reserves, an increase in the reserve requirement ratio will A) decrease legal reserves and decrease the money supply. B) increase legal reserves and decrease excess reserves. C) increase legal reserves and increase excess reserves. D) increase excess reserves and increase the money supply.

154. Increasing the reserve requirement ratio is A) a contractionary policy because it lowers the amount of total reserves in the banking system. B) a contractionary policy because it lowers the amount of excess reserves in the banking system. C) an expansionary policy because it raises the amount of excess reserves in the banking system. D) an expansionary policy because it raises the amount of required reserves in the banking system.

157. Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%? A) The bank's total reserves will fall. B) The bank will now be fully loaned up. C) The bank will have insufficient required reserves. D) The bank's profit will fall.

158. The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this? A) It is difficult and costly for the Fed to monitor compliance. B) Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets. C) The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard. D) Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation.

164. The discount rate A) is determined by markets forces of demand and supply in the market for bank reserves. B) is set by the Board of Governors. C) is determined by investment banks. D) is determined by market forces of demand and supply in the credit market.

17. The function of money illustrated by the prevailing prices of goods and services is the A) medium of exchange function. B) unit of account function. C) standard of deferred payments function. D) store of value function.

170. The Fed's most important and most frequently used tool of monetary policy is A) moral suasion. B) open-market operations. C) changes in the discount rate. D) changes in required reserve ratios.

173. The Fed can increase the federal funds rate by A) selling government securities which increases bank reserves. B) selling government securities which decreases bank reserves. C) buying government securities which increases bank reserves. D) buying government securities which decreases bank reserves.

174. If the Fed raises its target for the federal fund rate, this indicates A) the Fed is pursuing an expansionary monetary policy. B) the Fed is pursuing a contractionary monetary policy. C) the Fed is attempting to lower unemployment. D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

177. Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system. A) maximum increase in money supply = $250 million B) maximum decrease in money supply = $250 million C) maximum increase in money supply = $50 million D) maximum decrease in money supply = $50 million

180. Suppose the Fed purchases $1,000 of government securities from the general public who then deposit the proceeds into their checking accounts in commercial banks. Which pair of the T-accounts below shows this transaction?B) Federal Reserve Commercial Banks Assets Liabilities Assets Liabilities Government Commercial Banks' Securities +1,000 Reserves +1,000 Reserves +1,000 Checkable Deposits +1,000

186. Refer to Scenario 1. Which of the following happens when Sheila Jones deposits the proceeds from the sale of her bond to the Fed into her checking account at the Perez Bank? A) Perez Bank's checkable deposits increases by $100,000 and its reserves increases by $90,000. B) Perez Bank's checkable deposits and reserves increase by $100,000 each. C) Perez Bank's checkable deposits increases by $90,000 and its reserves increases by $100,000. D) Perez Bank's checkable deposits and reserves increase by $90,000 each.

188. Refer to Scenario 1. As a result of Sheila's deposit, Perez Bank can increase its loans by A) $10,000. B) $90,000. C) $100,000. D) $1,000,000.

191. Refer to Scenario 2. To collect the $50,000 payment made by Henry, the Fed A) adds $50,000 to Jekyll Bank's reserves by $50,000. B) subtracts $50,000 from Jekyll Bank's reserves. C) accepts the cash from Jekyll Bank which acts on behalf of Henry Hyde. D) collects $5,000 (the required reserve portion) from Jekyll Bank.

2. Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform? A) They function as a store of value. B) They function as a medium of exchange. C) They function as a unit of account. D) They function as a factor of production.

26. Which of the following items serve as a unit of account? I. $100 cash II. checkable deposits III. an original Picasso painting IV. a $1,000 corporate bond that you own A) I only B) I and II C) I, II, and III D) I, II, and IV E) I, II, III, and IV

32. One disadvantage of commodity money is that A) it cannot be readily converted to gold. B) its quantity can fluctuate erratically. C) its value does not change. D) it has no value apart from its use as money.

33. Because commodity money is not uniform in quality, there is a tendency A) for higher quality commodity money to drive lower quality commodity money out of circulation. B) for lower quality commodity money to drive higher quality commodity money out of circulation. C) for stable commodity money to drive unstable commodity money out of circulation. D) for unstable commodity money to drive stable commodity money out of circulation.

37. Which of the following is the most liquid asset? A) season tickets to the Yankees' games B) the cash that your Aunt Ursula stuffs in her mattress C) a $5,000 6-month certificate of deposit (time deposit) D) one hundred shares of IBM stock

43. Which of the following would lead to a change in the money measure, M1? A) a customer purchases music downloads with a debit card B) a customer withdraws funds from her checking account to purchase a 6-month time deposit C) depositing a paycheck drawn against Bank of America into your checking account in Wells Fargo Bank D) interest payments by the Treasury on its debt

44. Refer to Table 9-1. The money supply measured by M1 is A) $325 billion. B) $450 billion. C) $1,425 billion. D) $1,875 billion. Table 9-1 Components of the Money Supply $ billion Currency 100 Checkable deposits 300 Traveler's checks 50 Small-denomination time deposits 700 Savings deposits 75 Money market mutual funds (individuals) 500 Other liquid assets 150 Large-denomination time deposits 200

48. Refer to Table 9-2. In Year 1, the supply of money measured by M1 was A) $150 billion. B) $300 billion. C) $450 billion. D) $950 billion. Table 9-2 Components of the Money Supply Year 1 Year 2 $ billion $ billion Currency 50] 100 Savings deposits 150] 200 Checkable deposits and traveler's checks 250 450 Small-denomination time deposits 100 ]]150 Treasury Bonds 400] 500

49. Refer to Table 9-2. In Year 2, the supply of money measured by M1 was A) $300 billion. B) $550 billion. C) $750 billion. D) $900 billion. Components of the Money Supply Year 1 Year 2 $ billion $ billion Currency 50] 100 Savings deposits 150] 200 Checkable deposits and traveler's checks 250 450 Small-denomination time deposits 100 ]]150 Treasury Bonds 400] 500

50. Refer to Table 9-2. In Year 1, if the supply of money measured by M2 was $650 billion, then the components of M2 not shown in the table must have totaled A) less than $100 billion. B) $100 billion. C) $200 billion. D) $250 billion. Components of the Money Supply Year 1 Year 2 $ billion $ billion Currency 50] 100 Savings deposits 150] 200 Checkable deposits and traveler's checks 250 450 Small-denomination time deposits 100 ]]150 Treasury Bonds 400] 500

53. Refer to Table 9-2. In Year 2, if savings deposits had been $250 billion instead of $200 billion, M2 would have been A) $575 billion. B) larger by $50 billion. C) smaller by $50 billion. D) unaffected.

60. Debit cards are A) counted as money because they perform the medium of exchange function of money. B) not considered money because they merely show that their owners have a relationship to money. C) are counted as a part of M2 but not M1. D) counted as money because they provide access to their owners' checkable deposits.

67. In 2008, commercial banks' share of the U.S. credit market changed as a result of A) commercial banks that experienced significant difficulties resulting from real estate investments applied for status as investment banks. B) investment banks that experienced significant difficulties resulting from real estate investments applied for status as commercial banks. C) increasing returns on real estate investments led commercial banks to expand. D) increasing returns on real estate investments led investment banks to expand.

71. Which of the following is an example of a bank's assets? A) reserves borrowed from the Fed B) loans made to customers C) checkable deposits D) savings deposits

74. Which of the following equations is correct? A) assets = liabilities − net worth B) assets = liabilities + net worth C) liabilities = assets + net worth D) net worth = liabilities + assets

77. Which of the following is an example of a bank's reserves? A) demand deposits with other banks B) deposits with the Federal Reserve C) Treasury bonds and bills D) state bonds of the state in which the bank is located but not state bonds of other states.

81. If banks were required to keep 100% of deposits in reserves, they could A) make more loans. B) make no loans. C) create more deposits. D) only use required reserves for loans.

167. The federal funds rate is determined A) by the Board of Governors. B) by the supply and demand for bank reserves. C) directly by households' and firms' demands for funds. D) by the federal government.

B \

Which of the following is considered true economic growth by an economist? A. increase in efficiency of available resources given existing technology B. increase in production capacity due to an increase in resources or technology C. outward shift of the Production Possibilities curve (frontier) B and C above

B and C above

Expansionary fiscal policy A. is used to correct inflation. B. involves a decrease in taxes. C. is implemented by the Federal Reserve. D. involves and increase in government expenditures. E. involves a decrease in transfer payments. B, C and E above. B and D above.

B and D above.

Banks create money by A. minting coins. B. loaning out a fraction of their deposits. C.printing money. D. all of the above.

B. loaning out a fraction of their deposits.

101. When banks hold more reserves than are required, such reserves are called A) total reserves. B) required reserves. C) excess reserves. D) loan reserves.

107. Refer to Table 9-5. The required reserve ratio is 10%. What is the maximum amount of new loans that Bolton bank can create and by how much can Bolton initially increase the money supply, assuming that newly created deposits are transferred to another bank? A) $30 million; $30 million B) $70 million; $30 million C) $70 million; $70 million D) $70 million; $700 million

112. Refer to Table 9-6. What is the required reserve ratio? A) 5% B) 10% C) 20% D) 25%

118. Refer to Table 9-6. What is the value of $F (the total new checkable deposits)? A) $1,000 B) $4,000 C) $5,000 D) $6,000

126. Assume that the required reserve ratio is 10%. An increase of $1,000 in the banking system's excess reserves may result in a total expansion of new deposits for the banking system as a whole by as much as A) $1,000. B) $9,000. C) $10,000. D) $100,000.

132. Which of the following statements is true? A) The higher the required reserve ratio, the higher the deposit multiplier. B) The higher the excess reserves, the higher the deposit multiplier. C) The value of the deposit multiplier falls if economic agents withdraw cash from the banking system. D) The deposit multiplier only works to increase money supply, not to decrease money supply.

136. Which of the following are primary functions of a central bank? I. act as a regulator of banks II. issue government bonds III. set monetary policy IV. regulate dividend payments by corporations A) I, II, III, and IV B) I, II, and III C) I and III D) I and II

138. A primary function of a central bank is to A) regulate dividend payments by corporations. B) control the bond market. C) set monetary policy. D) publish statistics on banking and related financial matters.

141. Which of the following is not a function of the Federal Reserve System? A) It acts as a central bank. B) It acts as a banker to banks. C) It determines tax levels in conjunction with the U.S. Treasury. D) It sets monetary policy.

148. Membership in the Federal Reserve System A) is held by state-owned banks only. B) is held collectively by all banks in the banking system. C) is held by only a minority of banks in the banking system. D) is held by banks that also have branches outside the United States.

149. Which organization is responsible for managing the nation's money supply? A) The Federal Reserve Bank of New York B) The United States Treasury C) The Federal Open Market Committee D) The American Association of Bankers

153. For a given level of reserves, a decrease in the reserve requirement ratio will A) decrease legal reserves and decrease the money supply. B) increase legal reserves and decrease excess reserves. C) decrease legal reserves and increase excess reserves. D) decrease excess reserves and decrease the money supply.

155. Decreasing the reserve requirement ratio is A) a contractionary policy because it lowers the amount of total reserves in the banking system. B) a contractionary policy because it lowers the amount of excess reserves in the banking system. C) an expansionary policy because it raises the amount of excess reserves in the banking system. D) an expansionary policy because it raises the amount of required reserves in the banking system.

156. Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%? A) The bank's required reserves will decrease to $500. B) The bank's excess reserves will increase to $1,000. C) The bank's required reserves will increase to $1,000. D) The bank's ability to create loans increases by 5%.

163. Which of the following is an interest rate that is set directly by the Fed? A) the prime lending rate B) the required reserve rate C) the discount rate D) the federal funds rate

168. Open market transactions involve which of the following activities? I. issuing new Federal Reserve notes II. buying or selling newly issued government bonds to raise funds for the government III. buying or selling previously issued government bonds to change the volume of bank reserves A) I only B) II only C) III only D) II and III only . E) I, II ,and III

172. The Federal Reserve influences the level of interest rates in the short run by changing the A) demand for money through changes in reserve requirements. B) demand for money through open market operations. C) supply of money through changes in open market operations. D) supply of money through changes in stock market operations.

176. The Fed conducts an open market purchase of $10 million in government securities. If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system. A) maximum increase in money supply = $10 million B) maximum decrease in money supply = $10 million C) maximum increase in money supply = $50 million D) maximum decrease in money supply = $50 million

88. Refer to Table 9-3. If the required reserve ratio is 10%, what is the value of the bank's required reserves? A) $25 million B) $40 million C) $60 million D) $75 million

178. If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves A) increase by $10 million and the money supply could eventually increase by $10 million. B) decrease by $10 million and the money supply could eventually decrease by $100 million. C) increase by $10 million and the money supply could eventually increase by $100 million. D) decrease by $10 million and the money supply could eventually decrease by $10 million

179. The Federal Reserve buys $10,000 of government securities from commercial banks. If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash. A) expand by $10,000 B) expand by $30,000 C) expand by $40,000 D) expand by $7,500

18. The price of a 32GC iPhone is $299. What is the function of money in this context? A) a medium of exchange B) a means of payment C) a unit of account D) a measure of quality

182. When the Fed sells government bonds it ____ reserves and ______ the money supply. A) increases; increases B) decreases; increases C) decreases; decreases D) increases; decreases

187. Refer to Scenario 1. Immediately following Sheila's $100,000 deposit into her checking account, Perez Bank A) has no excess reserves. B) has $10,000 in excess reserves. C) has $90,000 in excess reserves. D) has $100,000 in excess reserves.

190. Refer to Scenario 2. Which of the following happens when Henry Hyde pays for the bond by writing a check from his checking account at the Jekyll Bank? A) Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000. B) Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000. C) Jekyll Bank's checkable deposits and reserves decrease by $50,000 each. D) Jekyll Bank's checkable deposits and reserves increase by $45,000 each.

192. Refer to Scenario 2. As a result of the open market sale, Jekyll Bank A) can create $50,000 of new loans. B) will have $45,000 of excess reserves. C) will have to borrow reserves to replenish its reserve deficiency. D) will have an increase in checkable deposits.

24. Which of the following statements is true? A) In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. This illustrates the use of Kent cigarettes as fiat money. B) Commodity money has no value apart from its use as money. C) In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. This illustrates the use of Kent cigarettes as commodity money. D) Fiat money must be backed by gold; otherwise it is worthless.

28. Which of the following is a store of value and a common medium of exchange? A) corporate bonds B) stocks C) checking account balances D) debit cards

3. Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services? A) because mackerel is a good source of protein B) because prison authorities deemed mackerel legal tender C) because the inmates know that they could use the packages of mackerel to buy other goods and services D) because the inmates do not wish to consume mackerel

34. Gresham's Law A) deals with the theory of regulatory forces in the economy. B) is the tendency for good money to drive bad money out of circulation. C) is the tendency for bad money to drive good money out of circulation. D) was passed in 1913, as part of the Federal Reserve Act.

36. Rank the following items in terms of most liquid to least liquid. A) checkable deposits, cash, an office building your father owns B) cash, credit card, money market mutual funds, checkable deposits, C) cash, checkable deposits, savings deposits, an office building your father owns D) cash, Microsoft stock certificates you own, checkable deposits

40. Which of the following is part of M1? I. currency in a bank's vault II. cash in your wallet III. checkable deposits IV. savings deposits A) I, II, III, and IV B) I, II, and III C) II and III D) II, III, and IV

45. Refer to Table 9-1. The money supply measured by M2 is A) $450 billion. B) $1,425 billion. C) $1,725 billion. D) $2,075 billion. Components of the Money Supply $ billion Currency 100 Checkable deposits 300 Traveler's checks 50 Small-denomination time deposits 700 Savings deposits 75 Money market mutual funds (individuals) 500 Other liquid assets 150 Large-denomination time deposits 200

55. Which of the following is included in M2 but not in M1? A) currency B) demand deposits C) small-denomination time deposits D) debit cards

56. Freema withdraws $1,000 from her checking account to purchase a $1,000 time-deposit. As a result of her transaction, A) M1 and M2 decrease. B) M1 decreases and M2 increases. C) M1 decreases and M2 is unaffected. D) M1 and M2 are unaffected.

58. If you withdraw currency from your savings account, you are A) increasing M1, decreasing M2. B) increasing both M1 and M2. C) increasing M1 but not affecting M2. D) decreasing both M1 and M2.

6. Which of the following describes the medium-of-exchange function of money? A) noting that Audible.com sells downloadable audio books for $10 per book B) making a monthly payment toward your car loan C) paying $30 for a haircut D) putting away $50 each month into your savings account

61. How does the Fed decide which monetary measure should be the focus of its monetary policy choices? A) The Fed would like to track a monetary measure that is most closely related to the market interest rate. B) The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents. C) The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level. D) The Fed would like to track a monetary measure that is most closely related to government spending.

62. The non-bank public chooses among various financial assets in deciding in what form it wants to hold liquidity. It thereby increases or decreases I. the M1 measure of money supply. II. the reserves of commercial banks. III. the reserves that commercial banks are required to hold. A) none of the above since only the Fed can alter the money supply B) I, II, and III C) I and II only D) I only

65. An activity performed by commercial banks that is not performed by insurance companies is A) functioning as financial intermediaries. B) creating financial obligations against themselves. C) accepting deposits and offering checking accounts. D) allocating financial resources between borrowers and lenders.

68. Why might monetary policy authorities be concerned when non-bank financial intermediaries account for a growing share of an economy's financial assets? A) Monetary policy authorities fear that this situation might erode the value of the U.S. dollar in foreign exchange markets. B) Monetary policy authorities are concerned that this situation might promote income inequality since high income individuals are more likely to use the services of non-bank financial intermediaries, compared to low-income individuals. C) Monetary policy authorities fear that this situation might lessen their ability to control money supply because non-bank financial intermediaries are not as heavily regulated as banks. D) It will be more difficult for monetary policy authorities to monitor those assets that are most closely related to the level of economic activity.

69. Which of the following is an example of a bank's liabilities? A) its reserves B) its loans C) checkable deposits D) its holdings of U.S. government bonds

72. Which of the following is an example of a bank's assets? A) reserves borrowed from the Fed B) checkable deposits C) vault cash D) savings deposits

78. A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called A) speculative banking. B) leveraged banking. C) fractional reserve banking. D) international banking.

80. The law requires banks to maintain A) fractional reserves in the form of deposit liabilities against their liquid assets. B) fractional reserves in the form of federal securities against their outstanding loans. C) fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. D) legal reserves in the form of gold against their outstanding loans.

87. Refer to Table 9-3. What is the value of the bank's total reserves? A) $25 million B) $75 million C) $100 million D) $200 million

90. Refer to Table 9-3. If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is A) zero since Alpha-Beta does not hold any excess reserves. B) $0.9 million. C) $2.4 million. D) $4 million.

93. A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves? A) $0 B) $10,000 C) $20,000 D) $30,000

95. Refer to Table 9-4. If Acme Bank has no excess reserves, the required reserve ratio is A) 26.67% B) 16% C) 10% D) There is insufficient information to answer question.

97. Linda sells her Economics textbook to Ejere for $40. Ejere pays Linda with a check, which she deposits in her checking account in West Bank. Which statement below describes the check-clearing process? A) Linda's bank gains $40 in checkable deposits and loses $40 in reserves. Ejere's bank gains $40 in reserves and loses $40 in deposits. B) Linda's bank loses $40 in checkable deposits and gains $40 in reserves. Ejere's bank gains $40 in checkable deposits and loses $10,000 in reserves. C) Ejere's bank loses $40 in both reserves and checkable deposits. Linda's bank gains $40 in both checkable deposits and reserves. D) Ejere's bank loses $40 in reserves and gains $10,000 in checkable deposits. Linda's bank loses $40 in both reserves and checkable deposits.

Suppose you have been hired by an electronics store as a salesperson. Which of the following flows represents this transaction? A and B A and C A and D C and D

C and D

The most important function of the Federal Reserve is A. resisting political pressure from the president and congress. B. providing currency to member banks. C. controlling intererst rates and the money supply. D. clearing checks written by depositors.

C. controlling intererst rates and the money supply.

124. The deposit multiplier is the inverse of A) legal reserves. B) excess reserves. C) checkable deposits. D) the required reserve ratio.

Movement along a line on a graph occurs when a change in the dependent variable on the graph is caused by Changes in one or more outside variables. Changes in the independent variable and outside variables. Changes in the independent variable 'only" because all outside variables are assumed constant or ceteris paribus. None of the above.

Changes in the independent variable 'only" because all outside variables are assumed constant or ceteris paribus.

10. The functions of money are A) a conductor of economic activity, a medium of exchange, and a store of value. B) a medium of exchange, a store of value, and a factor of production. C) a store of value, a medium of exchange, and a determinant of investment. D) a store of value, a unit of account, and a medium of exchange.

100. Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has A) increased the M1 measure of money supply by $1,000. B) reduced the bank's required reserves by $1,000. C) increased the M2 measure of money supply by $1,000. D) not changed the M1 or M2 measures of money supply.

108. Refer to Table 9-5. The required reserve ratio is 10%. By how much could the banking system ultimately increase the money supply if all excess reserves are loaned out, people never withdraw cash, and all loan proceeds are spent? A) $30 million B) $70 million C) $300 million D) $700 million

109. Refer to Table 9-5. The required reserve ratio is 10%. What is the value of the deposit multiplier? A) 1 B) 2.5 C) 7 D) 10

114. Refer to Table 9-6. What is the value of $B in stage 1? A) $100 B) $200 C) $600 D) $800

115. Refer to Table 9-6. New loans made in Stage 1($C) amount to A) $100. B) $200. C) $600. D) $800.

117. Refer to Table 9-6. What is the value of $E in Stage 4? A) $1,000 B) $1,800 C) $2,440 D) $2,952

12. When you buy a ticket to the rodeo, you are using money as a A) source of economic activity. B) store of value. C) factor of production. D) medium of exchange.

121. Refer to Table 9-6. What is the value of the deposit multiplier? A) 0.1 B) 0.2 C) 1 D) 5

123. The banking system is able to make new loans equal to A) total legal reserves of the system. B) total excess reserves of the system. C) total required reserves of the system. D) a multiple of total excess reserves of the system.

129. The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the A) deposit multiplier x the required reserve ratio. B) loan multiplier x the change in excess reserves. C) deposit multiplier ÷ the change in excess reserves. D) deposit multiplier x the change in excess reserves.

13. Money is essentially defined by A) the intrinsic value of what is being used as money. B) the judicial branch. C) the government. D) social usage.

134. Which of the following is true? A) A bank is solvent when its deposits become positive. B) A bank is insolvent when its reserves become negative. C) A bank is solvent when its excess reserves become negative. D) A bank is insolvent when its net worth becomes negative.

14. When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a(n) A) medium of exchange. B) unit of account. C) factor of production. D) store of value.

145. The Board of Governors of the Federal Reserve System is A) elected by the member banks' presidents. B) appointed by the Secretary of the Treasury. C) appointed by the state governors in each Federal Reserve district. D) appointed by the president of the United States and confirmed by the Senate.

147. To reduce the political influence on the Board of Governors, A) the president of the United States appoints a new board every four years. B) the reelection campaign for each member is less than one year. C) each member is appointed for 7 years, with one term expiring every year. D) each member is appointed for 14 years, with one term expiring every two years.

15. Which of the following describes the store of value function of money? A) noting that Audible.com sells downloadable audio books for $10 per book B) making a monthly payment toward your car loan C) paying $30 for a haircut D) putting away $50 each month into your savings account

152. Which of the following is true regarding the reserve requirements? A) The Fed changes them frequently because they are a power monetary policy tool. B) The Fed does not change them much at all because taxation is a more impactful monetary policy tool. C) The Fed changes them frequently because doing so simplifies banking operations. D) The Fed does not change them much at all because doing so would make banking operations

162. Lowering the discount rate is A) a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending. B) a contractionary policy because it reduces banks' profit margins by lowering the return on lending. C) an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending. D) an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy.

165. Which of the following is a market in which banks lend reserves to one another? A) required reserve market B) open market C) discount market D) federal funds market

169. When the Federal Reserve conducts open market transactions, it A) buys or sells corporate bonds in the bond market. B) issues government bonds to raise funds for the government. C) makes credit available to financial institutions in crises. D) buys or sells previously issued government bonds.

175. Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public, A) bank reserves increase by $40 million and money supply could increase by a maximum of $40 million. B) bank reserves increase by $40 million and money supply could increase by a maximum of $160 million. C) bank reserves decrease by $40 million and money supply could decrease by a maximum of $40 million. D) bank reserves decrease by $40 million and money supply could decrease by a maximum of $160 million.

181. When the Fed purchases government bonds it _____ reserves and ____ the money supply. A) decreases; increases B) increases; decreases C) decreases; decreases D) increases; increases

183. Suppose the Fed sells $1,000 of government securities to Commercial Banks. Which pair of the T-accounts below shows this transaction? D) Federal Reserve Commercial Banks Assets Liabilities Assets Liabilities Securities -1, 000 Commercial Banks' Reserves -1,000 Reserves -1,000 Securities +1,000

189. Refer to Scenario 1. Once the full impact of the Fed's open market purchase and Sheila's deposit worked its way through the banking system, what is the maximum change on the money supply as a result of these two events? A) Money supply falls by $100,000. B) Money supply falls by $1,000,000. C) Money supply rises by $10,000. D) Money supply rises by $1,000,000.

193. Refer to Scenario 2. Once the full impact of the Fed's open market sale works its way through the banking system, what is the maximum change on the money supply as a result of these two events? A) Money supply rises by $5,000. B) Money supply rises by $500,000. C) Money supply falls by $50,000. D) Money supply falls by $500,000.

20. Keeping a $20 bill in your purse to purchase a movie DVD when it comes out next month means that money functions as a A) medium of exchange. B) unit of account. C) standard of deferred payment. D) store of value.

21. Which of the following illustrates the store-of-value function of money? A) writing a check to buy a new Volkswagen B) noting that the price of a $20,000 Volkswagen is 16,000 euros C) agreeing to repay a bank $400 a month for the next 48 months for a loan to buy a new Volkswagen D) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen

22. Inflation reduces the ability of money to function as a A) medium of exchange. B) medium of value. C) unit of account. D) store of value.

23. Money that has value apart from its use as money is called A) fiat money. B) currency. C) convertible paper money. D) commodity money.

25. Which of the following items serve as a store of value? I. cash in your pocket II. the balance in your checking account III. an original Picasso painting IV. a $1,000 corporate bond A) I and II B) I, II, and III C) I, II, and IV D) I, II, III, and IV

27. Which of the following items serve as a medium of exchange in the United States? I. $100 cash II. 50 euros III. the balance in your checking account IV. a $1,000 corporate stock that you own A) I only B) I and II C) I, II, and III D) I and III E) I, II, III, and IV

39. Which of the following is part of M1? I. currency in a bank's vault II. cash in your wallet III. checkable deposits IV. traveler's checks` A) I, II, III, and IV B) I, II, and III C) II and III D) II, III, and IV

4. Any item that serves as a medium of exchange is called A) gold. B) capital. C) silver. D) money.

41. M1 includes A) currency only. B) currency plus checkable deposits. C) currency in circulation plus checkable deposits. D) currency in circulation plus checkable deposits plus traveler's checks.

46. Refer to Table 9-1. The difference between M1 and M2 amounts to A) $325 billion. B) $350 billion. C) $450 billion. D) $1,275 billion. Components of the Money Supply $ billion Currency 100 Checkable deposits 300 Traveler's checks 50 Small-denomination time deposits 700 Savings deposits 75 Money market mutual funds (individuals) 500 Other liquid assets 150 Large-denomination time deposits 200

47. Which of the following statements is false about M1 and M2? A) M2 is a broader measure of the money supply than M1. B) M2 contains assets that are less liquid than those in M1. C) All the assets included in M1 are also included in M2. D) All the assets included in M2 are also included in M1.

57. When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out. As a result of her transaction A) M1 and M2 increase. B) M1 increases and M2 decreases. C) M1 is unaffected and M2 decreases. D) M1 increases and M2 is unaffected.

64. Which of the following is not an example of a financial intermediary? A) a pension fund B) an insurance company C) a commercial bank D) the New York Stock Exchange

73. A bank's reserves are A) the minimum value of assets it must have. B) the amount of gold it is required to have as reserves against loans. C) the value of federal securities it is required to have as reserves against loans. D) deposits that banks have accepted from customers but have not loaned out.

82. The quantity of reserves that banks must hold against deposits is called A) the reserve ratio. B) excess reserves. C) total reserves. D) required reserves.

9. Which of the following is an advantage of using money as a medium of exchange? A) It simplifies purchases because all prices are specified in money values. B) There is no interest charged on using money for purchases. C) It is easy to mass produce money. D) It avoids having to rely on barter, the exchange of one good or service for another.

96. Refer to Table 9-4. Assume Acme Bank initially has no excess reserves. If Guevara withdraws $6,000 from her checking account at Acme Bank, which of the following will occur? A) Acme's excess reserves are reduced by $6,000. B) Acme will have excess reserves of $2,000. C) Acme will have a required reserve deficiency of $3,000. D) Acme will have a required reserve deficiency of $5, 400.

Which of the following is true about the operations of Federal Reserve Banks? A. relativerly independent of political pressure from the president and congress. B. accepts deposits from the public. C. consists of 10 banks run by the Board of Governors. D. the Federal Open Market Committee determines interest rates and money supply policy. E. A and D above.

E. A and D above.

Which of the following is "not" a function of the Federal Reserve System? A. provide currency for use in the economy. B. stimulate the economy by lower taxes. C. control the money supply. D. balance the federal budget. E. B and D above.

E. B and D above.

Holders of federal government debt receive money A. by cashing bonds at maturity. B. in regular interest payments. C. by selling a bond to a third party before maturity. D. A and Babove. E. all of the above.

E. all of the above.

Which of the following is a characteristic of money? A. must have wide acceptance as a medium of exchange. B. eliminates the double coincidence of wants present in a barter economy. C. must hold its value over time. D. can either be fiat or commodity based. E. all of the above. F. A, B and C above.

E. all of the above.

Which of the following is (are) true? A. M2 is included in M1. B. M2 is more liquid than M1. C. M1 includes travelers checks and savings accounts. D. currency in a bank is included in M1 and M2. E. the U.S. money supply is fiat money which has no value apart from it function as money. F. A and D above. G. B and D above.

E. the U.S. money supply is fiat money which has no value apart from it function as money.

Which of the following statements is false? Frictional unemployment is temporary unemployment. Cyclical unemployment is due to fluctuations in demand and leads to business cycles. Economist are most concerned with structural unemployment. The natural rate of unemployment is equal to the sum of frictional and structural unemployments.

Economist are most concerned with structural unemployment.

Which of the following occurs if an economy experiences a recessionary gap? Actual real GDP is less than potential output. Actual real GDP is greater than potential output. Unemployment is less than the natural rate. Unemployment is greater than the natural rate. I and III I and IV II and III II and IV

I and IV

Which of the following occurs if an economy experiences an inflationary gap? Actual real GDP is less than potential output. Actual real GDP is greater than potential output. Unemployment is less than the natural rate. Unemployment is greater than the natural rate. I and III I and IV II and III II and IV

II and III

In the above Production Possibilities graph, which of the following statements are true? Points C and D are more efficient than points A and B. If the economy's Production Possibilities Curve is PPF1, points A and B are productive efficiient, while C and D are unattainable. If the economy's Production Possibilities Curve is PPF2, points C and D are productive efficient, while points A and B are unattainable. None of the above.

If the economy's Production Possibilities Curve is PPF1, points A and B are productive efficiient, while C and D are unattainable.

The price index for 2007 is 1.28. What does this mean? It means that the average price level has increased by 128 percent over 2006. It means that the average price level has increased by 1.28 percent over the base year. It means that the average price level has increased by 28 percent over 2006. It means that the average price level has increased by 28 percent over the base year.

It means that the average price level has increased by 28 percent over the base year.

In the above Production Possibilities graph, for which of the following, is the statement "In order to get more military goods, we have to forfeit some civil(ian) goods" true? Movement from B to D. Movement from F to D. Movement from B to A. Movement from A to C.

Movement from B to A.

In the above Production Possibilities graph, for which of the following statements, is the statement "In order to get morecivil(ian) goods, we have to forfeit some military goods" true? Movement from B to D. Movement from C to D. Movement from F to D. Movement from B to A.

Movement from C to D.

Which of the following is not an economic function of government? Correct for spillover effects. Ownership of the factors of production. Provide public goods. Control unemployment and inflation.

Ownership of the factors of production.

What two fundamental markets are shown in circular flow? Resource and money markets. Product and money markets. Consumer and business markets. Product and resource markets.

Product and resource markets.

What happens to the future Production Possibilities Curve if capital goods production today is increased (assuming capital goods production > than depreciation)? What do economist refer to this as? Shift to the left; economic decline. Shift to the right; economic growth. No change; static economy. None of the above.

Shift to the right; economic growth.

185. Refer to Table 9-7. The table shows entries on the balance sheets for the Federal Reserve and the banking system above. These balance sheet entries are consistent with A) an open market sale of $1,500 in bonds. B) an open market purchase of $1,500 in bonds. C) neither an open market sale nor an open market purchase. D) either an open market sale or an open market purchase.

To eliminate an inflationary gap, policy-makers may pursue an expansionary policy that reduces the price level. a contractionary policy that decreases aggregate demand. a non-intervention policy that leaves aggregate demand unaffected and increases aggregate supply. an intervention policy that increases aggregate supply and decreases aggregate demand.

a contractionary policy that decreases aggregate demand.

The above graph shows two demand curves for good Y. A change from point Z to point W on curve D1 would be the result of a drop in the price of good Y. an increase in the number of buyers of good Y. an increase in taxes paid by producers of good Y. a decline in technology in the production of good Y.

a drop in the price of good Y.

A decrease in the price of good X on demand curve D1 will cause demand to shift from D1 to D2. a movement along D1 from point A to point C. demand to shift from D1 to D3. a movement along D1 from point A to point B.

a movement along D1 from point A to point B.

In the above graph, if an increase in income causes the demand for good X to shift from D1 to D2, then good X is an inferior good. a substitute good. a normal good. a complementary good.

a normal good.

Which of the following is an example of a transfer payment? the President's salary paying a gambling debt a barber's income a pension payment to a retired military person

a pension payment to a retired military person

A number whose movement reflects movement in the average level of prices is called unemployment. inflation. a price index. an unemployment rate.

a price index.

Economic growth can be represented by an increasing equilibrium output level a rightward shift of an economy's short-run aggregate supply curve. a rightward shift of an economy's long-run aggregate demand curve. a rightward shift of an economy's long-run aggregate supply curve.

a rightward shift of an economy's long-run aggregate supply curve.

Referring to S1, a decline in the number of sellers (producers) of good X will cause movement along S1 from point A to either point B or C. a shift of supply from S1 to S3. a shift of supply from S1 to S2. no change in the supply of X.

a shift of supply from S1 to S3. no change in the supply of X.

Which of the following is the best example of a final good or service? crude oil in an oil well gasoline purchased by Exxon for its pumps a song you downloaded for a fee from Amazon.com retail floor space at a suburban shopping mall

a song you downloaded for a fee from Amazon.com

The determinants of economic growth include all of the following except technological improvement. improvements in the quality of factors of production. a stable price level. increases in the quantity of factors of production.

a stable price level.

The long run aggregate supply curve (line) is upward sloping to the right at macroeconomic equilibrium. a vertical line at full employment output (production). not able to shift. none of the above.

a vertical line at full employment output (production).

Personal income taxes and transfer payments acts as automatic stabilizers. magnify fluctuations in GDP. are discretionary fiscal policy tools only. are influenced by monetary policy.

acts as automatic stabilizers.

A source of economic growth is: advances in technology. unemployment. more money. idle factors of production.

advances in technology.

The relationship between aggregate expenditures and real GDP is shown by the aggregate expenditures curve. consumption function. aggregate demand curve. autonomous expenditures curve.

aggregate expenditures curve.

The maximum amounts of guns and butter this economy can produce is: 18 units of guns and 0 units of butter per period. 0 units of guns and 20 units of butter per period. 16 units of guns and 12 units of butter per period. all of the above combinations are maximum possible combinations.

all of the above combinations are maximum possible combinations.

A change in variable y "caused" by a change in vatiable x means x is the indepdendent variable. y is the dependent variable. Ceteris paribus applies. all of the above.

all of the above.

Externally held federal debt does not initially burden the present generation because they do not have to forego any consumption. burdens future generations as interest payments are made. burdens future generations when the principle owed on the debt is paid back. all of the above.

all of the above.

In the above Production Possibilities graph, Point F is inefficient if the economy's PPF is PPF2. attainable if the economy's PPF is PPF2 unattainable if the economy's PPF is PPF1 all of the above.

all of the above.

Internally held federal debt places a burden on the present generation due to a reduction of current consumption. involves an opportunity cost of forgone consumption of goods and services at the time the debt is incurred. causes a redistribution of income due to interest payments to wealthier citizens who can afford to buy bonds. places a burden on future generations to the extent that investment is crowded out. all of the above.

all of the above.

Demand and supply curves are drawn assuming ceteris paribus. This means that: economists ignore all assumptions. economists don't watch for the fallacy of false cause. changes will be proportional. all other things besides price and quantity are assumed unchanged.

all other things besides price and quantity are assumed unchanged.

In terms of the production possibilities curve, inefficiency is represented by all points on the curve. all points outside the curve. all points inside the curve. an inward shift of the curve.

all points inside the curve.

To eliminate a recessionary gap, policy-makers may pursue an expansionary policy that increases aggregate demand. a contractionary policy that increases aggregate demand. a non-intervention policy that leaves aggregate supply unaffected and increases aggregate demand. an intervention policy that decreases aggregate supply and increases aggregate demand.

an expansionary policy that increases aggregate demand.

In the above graph, which of the following could not have caused a shift in the short run aggregate supply curve (SRAS)? a decrease in wage rates. A technological advance an increase in productivity an increase in buyers income

an increase in buyers income

If people demand more of product A when the price of B falls, then A and B are: not related. substitutes. complements. inferior.

complements.

All of the following are sources of economic growth except increases in human capital. an increase in the savings rate. an increase in consumption spending to stimulate production. increases in physical capital.

an increase in consumption spending to stimulate production.

Which of the following constitutes inflation? an increase in medical care costs high prices for new homes an increase in the market interest rate an increase in the average level of prices

an increase in the average level of prices

Which of the following will not increase the productivity of labor? technological improvements an increase in the capital stock improvements in education an increase in the size of the labor force

an increase in the size of the labor force

Which of the following is true for the above graph? an undesired equilibrium exists. a desired equilibrium exists unemployment and a recessionary gap are present answers A and C above

answers A and C above

Changes in nominal GDP are due to changes in price only while changes in real GDP are attributed to movements in output and price. are due to changes in output and price while changes in real GDP are attributed to movements in output only. are due to changes in output and price while changes in real GDP are attributed to movements in price only. and changes in real GDP are due to changes in output and price.

are due to changes in output and price while changes in real GDP are attributed to movements in output only.

A country has a comparative advantage if it can produce a good or service at a higher opportunity cost than can other nations. at a lower opportunity cost than can other nations. by using less resources than other nations. that lies outside its production possibilities curve.

at a lower opportunity cost than can other nations.

The trough of the business cycle occurs between t1 and t2. at t1. between t2 and t3. at t2.

at t2.

Real GDP per capita measures GDP less depreciation. the average income of households. family income on the average. average output per person.

average output per person.

Productivity of resources is measured by quanity of capital employed. average output per unit of resource (usually labor) employed quanity of labor employed. profits earned by companies.

average output per unit of resource (usually labor) employed

Price ceilings occur __________ equilibrium and create ___________. above; surpluses. above; shortages. below; shortages. below; surpluses.

below; shortages.

Given that countries A and B each specialize in the production of one good and voluntarily trade it for the other country's good, then only country A experiences positive gains from trade. only country B experiences positive gains from trade. both countries experience positive gains from trade. both countries experience negative gains from trade.

both countries experience positive gains from trade.

To attempt to correct unemployment, the Federal Reserve could sell bonds. lower the reserve ratio. increase the discount rate. buy bonds.

buy bonds.

The skills, training, and education possessed by workers contribute to economic growth by increasing saving. by increasing the quality of labor. by increasing the quantity of labor. by increasing real wages.

by increasing the quality of labor.

42. The monetary aggregate, M1, increases when A) an individual cashes a check written by a business. B) an individual purchases clothes with a debit card. C) an individual switches funds from a savings account to a checking account. D) an individual buys groceries with a credit card.

In the above Production Possibilities graph, a change from point B to point D can only happen through economic growth and/or increased imports. is necessarily a movement from an inefficient production point to another inefficient production point. is necessarily a movement from an efficient production point to an inefficient production point. none of the above.

can only happen through economic growth and/or increased imports.

A factor of production that has been produced for use in the production of other goods and services is: labor. money. capital. natural resources.

capital.

Economists are: concerned with developing theories and interested in solving problems. interested in solving problems but not concerned with developing theories. reluctant to predict changes in variables such as prices, employment, and spending. always in agreement on the best way to implement policy decisions.

concerned with developing theories and interested in solving problems.

In the United States the largest expenditure component of GDP is government purchases of goods and servives. consumption expenditures. net exports. gross private domestic spending.

consumption expenditures.

The amount of planned consumption spending at each level of disposable personal income, all other determinants of consumption unchanged, is shown by the aggregate demand curve. consumption function. price-consumption curve. income curve.

consumption function.

Which of the following is "not" a step in the scientific method that can be used in the social sciences? testing of observations. controlled or laboratory experiments. observations of events and outcomes. development of hypotheses.

controlled or laboratory experiments.

Which of the following is true? correlated variables show a pattern of movement, but are not necessarily related by cause and effect. correlated variables necessarily indicate the variables are related by cause and effect. correlated variables are not influenced by "outside variables. none of the above.

correlated variables show a pattern of movement, but are not necessarily related by cause and effect.

Assuming the federal government budget is balanced, what effect on the federal government budget will the following fiscal policy actions have: an increase of $72 billion in government purchases + a decrease of $10 billion in transfer payments + an increase in income taxes of $50 billion? creates a budget surplus of $32 billion. creates a budget deficit of $12 billion. no effect. none of the above.

creates a budget deficit of $12 billion.

The _______ rate is the interest rate at which the Fed lends ______ to commercial banks.

discount rate, reserves

The Federal Reserve usually indicates in advance its monetary policy action to expand or contract the money supply thru an announcement to raise or lower the prime interest rate. discount rate. mortgage interest rate. federal funds interes rate.

federal funds interes rate.

In the above table, Country 1 has a comparative advantage in the production of good _____ and Country 2 has a comparative advantage in the production of good _____. good A; good B good B; good A both goods; neither goods. neither goods; both goods.

good A; good B

Federal government deficits occur when government revenues exceed government expenditures. government revenues are equal to government expenditures. government revenues are less than government expenditures government prints money to pay its bills.

government revenues are less than government expenditures

Federal government debt occurs when government contracts to purchase more than it has the funds to spend. government sells bonds government buys bonds. none of the above.

government sells bonds

The determinants of economic growth include all of the following except

growth in money supply

A private sector economy includes the household or consumer and business sectors. international sector. government sector. foreign sector.

household or consumer and business sectors.

If the opportunity cost of manufacturing machinery is lower in the United States than in Britain and the opportunity cost of manufacturing sweaters is higher in the United States than in Britain, then the United States will: export both sweaters and machinery to Britain. import both sweaters and machinery from Britain. export sweaters to Britain and import machinery from Britain. import sweaters from Britain and export machinery to Britain.

import sweaters from Britain and export machinery to Britain.

A shift in a curve on a graph is caused by changes in in the independent variable on the graph. in one or more outside variables not on the graph. the dependent variable on the graph. none of the above.

in one or more outside variables not on the graph.

The U.S. progressive income tax structure and unemployment compensation payments involve non-discretionary fiscal policy. Which of the following is true regarding how these automatic stabilizers change as GDP is falling? income taxes will rise and unemployment compensation payments will rise. income taxes will rise and unemployment compensation payments will fall. income taxes will fall and unemployment compensation payments will rise. income taxes will fall and unemployment compensation payments will fall.

income taxes will fall and unemployment compensation payments will rise.

If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves

increase by $10 million and the money supply could eventually increase by $100 million.

Historically which of the following has lead to the greatest economic growth? increase in the money supply increase in the quanity of resources increase in the productivity of resources increase in product demand

increase in the productivity of resources

International trade has the potential to increase the availability of goods and services to those nations that export more than they import. increase the availability of goods and services to those nations that have an absolute advantage in the production of a good or service. increase the availability of goods and services to all nations. decrease the availability of goods and services to all nations.

increase the availability of goods and services to all nations.

The Federal Reserve decreases interest rates in the money market by decreasing the transactions demand (Dt) for money. increasing the supply of money (Sm). decreasing the demand for money (Dm). none of the above.

increasing the supply of money (Sm).

If inflation is a threat, then the Fed will conduct monetary policy aimed at _______ the interest rate which then will shift aggregate demand to the _______.

increasing, left

The value of a unit of money, such as the dollar, always varies directly with the price of gold. inversely with the price of gold. inversely with the average price of gold and silver. inversely with the average level of prices.

inversely with the average level of prices.

The issuance of new bonds to pay off old bonds is known as refinancing the debt. is called servicing the debt. creates an opportunity cost of the debt. all of the above.

is known as refinancing the debt.

The government has a balanced budget if its total revenues are equal to its total expenditures. its total revenues are less than its total expenditures. its total revenues are greater than its total expenditures. the money supply is less than total expenditures.

its total revenues are equal to its total expenditures.

Which of the following is an example of a quota? limit on the total number of Hondas that can be imported from Japan regulation specifying that each imported Honda must meet certain emission exhaust guidelines tax of $500 on each Honda imported from Japan tax of 10% of the value of each Honda imported from Japan

limit on the total number of Hondas that can be imported from Japan

Making choices that are expected to achieve the highest possible value for some objective is termed: maximizing. minimizing. sanitizing. satisfying.

maximizing.

Rising interest rates due to increased government borrowing to finance expansionary fiscal policy may result in crowding out of consumer and investment spending. trigger automatic stabilizers. lead to lower federal deficits. all of the above.

may result in crowding out of consumer and investment spending.

Each of the following statements about the use of models in the study of economics is true EXCEPT: models fit the observed facts exactly. models are sometimes revised in light of new research findings. models are easier to manipulate than the reality they represent. models contain the essential features of the economic behavior being studied.

models fit the observed facts exactly.

An increase in the U.S. dollar exchange rate means foreigners must pay more for dollars and more for U.S. exports. less for dollars and more for U.S. imports. more for dollars and less for U.S. exports. less for dollars and less for U.S. exports.

more for dollars and more for U.S. exports.

Trade can be beneficial to an economy because: it results in a more efficient use of the combined resources of some of the trading countries, even though it reduces efficiency in others. more goods and services can be obtained at lower opportunity cost. it prevents specialization in those activities in which countries have a comparative advantage. It prevents unemployment.

more goods and services can be obtained at lower opportunity cost.

A nation records a trade surplus when net exports are negative. net exports are positive. imports are greater than exports. net exports equal zero.

net exports are positive.

The best example of an increase in capital is: The discovery of new oil reserves. new computer software. legal immigration of computer programmers. conversion of military facilities to civilian uses.

new computer software.

According to the Bureau of Labor Statistics, a person who is not working and is not looking for work is considered unemployed. considered underemployed. counted as a 'not currently working' member of the labor force. not a member of the labor force.

not a member of the labor force.

A shift in a line (curve) on a graph occurs when the independent variable changes. the dependent variable changes. one or more of the "outside" variables change (s). ceteris paribus applies.

one or more of the "outside" variables change (s).

The "tool" the "Fed" uses most often to exercise monetary policy is the reserve ratio. the discount rate. government expenditures. open market operations.

open market operations.

Refer to the above graph. Assume the economy is originally in equilibrium at point A. If wage rates rise, at which point is the economy most likely to end up in the short run. point A point B point C point D

point D

Economic growth to an economist is best measured by the increase in nominal GDP. potential output. disposable personal income in current dollars. disposable personal income in real dollars.

potential output.

Nominal GDP can rise as a result of a rise in __________________, while real GDP rises as a result of _________________. prices or output; prices only. prices or output; output only. prices or output; prices or output. Prices only; output only.

prices or output; output only.

In the calculation of GDP, the value of a new house is included in personal consumption expenditures. personal saving. the depreciation of capital. private investment.

private investment.

Government's role of providing national defense is considered: enforcing a legal system. providing certain goods and services. redistributing income. expanding economic growth.

providing certain goods and services.

When the government provides national defense, it is: providing goods and services. enforcing the legal system. maintaining the money supply. stabilizing the economy.

providing goods and services

Non-rivalry and non-excludability are characteristic of private goods. public goods. quasi-public goods. spillover effects.

public goods.

The "free rider problem" applies to spillover or external costs/benefits. public goods. price ceilings/floors. private goods.

public goods.

A ceiling imposed by a country on the quantity of a good or service it will import is called a quota. tariff. non-tariff barrier. trade embargo.

quota.

Increases in resources or improvements in technology will tend to cause a society's production possibilities curve to: shift inward to the left. shift outward to the right. remain unchanged. become vertical.

shift outward to the right.

The "all other things unchanged" assumption is used to: express the fundamental questions in economics. approximate real-world conditions. simplify the very complex real world. do all of the above.

simplify the very complex real world.

The marginal propensity to consume is the slope of the saving function. slope of the consumption function. change in total consumption divided by change in total income. change in consumption divided by the change in saving.

slope of the consumption function.

If an increase in the price of good Y causes the demand for good X to shift from D1 to D2, goods X and Y are normal goods. substitute goods inferior goods. complementary goods.

substitute goods

A period of time against which costs of the market basket in other periods will be compared in computing a price index is called the inflation period. the market basket. the adjustment period. the base period.

the base period.

At output level YK, the economy is not in equilibrium because it operates with an output gap. the economy is in short-run equilibrium and it operates with an inflationary gap. the economy is in short-run equilibrium and it operates with a recessionary gap. the economy is not in equilibrium because the unemployment rate is below the natural rate of unemployment.

the economy is in short-run equilibrium and it operates with a recessionary gap.

The intersection of the supply and demand curves indicates: the equilibrium solution in the market. a surplus that will cause the price to fall. a shortage that will cause the price to rise. the quantity demanded exceeds the quantity supplied.

the equilibrium solution in the market.

"A" represents the flow personal consumption expenditures. the flow of consumer goods and services. the flow of factors of production. the flow of factor incomes.

the flow personal consumption expenditures.

With an income multiplier of 3, what are the fiscal policy effects on GDP of a $25 billion increase in government purchases versus a $25 billion decrease in taxes? the increase in government purchases increases GDP by $25 billion; the decrease in taxes increases GDP by $25 billion. the increase in governement purchases increases GDP by $75 billion; the decrease in taxes increases GDP by $50 billion. the increase in governemnt purchases increases GDP by $75 billion; the decrease in taxes increases GDP by $75 billion. the increase in government purchases increases GDP by $50 billion; the decrease in taxes increases GDP by $75 billion. none of the above.

the increase in governement purchases increases GDP by $75 billion; the decrease in taxes increases GDP by $50 billion.

Movement along a line (curve) on a graph occurs when the independent variable causes the dependent variable to change, ceteris paribus. a change in the dependent variable is caused by a change(s) in an "outside" variable(s). ceteris paribus does not apply. none of the above.

the independent variable causes the dependent variable to change, ceteris paribus.

Interest rates are determined by the demand for money the supply of money. the interaction between the demand and supply of money. none of the above

the interaction between the demand and supply of money

In the above graph, referring to S1, a decrease in the price of a production resource like labor cost will cause the supply of good X to shift from S1 to S2. movement along S1 from point A to either point B or point C. the supply curve to shift from S1 to S3. no change in the supply of good X.

the supply of good X to shift from S1 to S2.

Which of the following is a source of frictional unemployment? a downturn in economic activity discrimination in the labor market the time it takes to search for jobs that best matches one's skills outsourcing

the time it takes to search for jobs that best matches one's skills

At output level YK, potential output is less than actual output. there is a surplus of real GDP. the unemployment rate exceeds the natural rate of unemployment. over time aggregate demand will rise to restore long-run equilibrium.

the unemployment rate exceeds the natural rate of unemployment.

A hypothesis that has been tested extensively without being rejected and has won widespread acceptance is a: model. constant. variable. theory.

theory.

A good with external or spillover cost refers to costs firms experience in producing the good. consumers bear when purchasing and consuming the good. third parties (not producers or consumers) suffer as a result of the production and/or consumption of the good. none of the above.

third parties (not producers or consumers) suffer as a result of the production and/or consumption of the good.

A basic concern of economics is: to keep business firms from losing money. to prove that capitalism is better than socialism. to study the choices people make. to use unlimited resources to produce goods and services to satisfy limited wants.

to study the choices people make.

What does the 45 degree reference line mean in the aggregate expenditures model? total aggregate expenditures > total real GDP total aggregaste expenditures = total real GDP total aggregate expenditures < total real GDP none of the above

total aggregaste expenditures = total real GDP

A surplus is a result of equilibrium price being below the current price. True False

true

Aggregate expenditures that do not vary with real GDP are called autonomous aggregate expenditures. True False

Econ 2301

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