ECON FINAL

Investment banks

arrange these exchanges between borrowers and lenders. Underwrite securities and engage in securities trading.

Suppose a bank has $1,000,000 in deposits and a minimum reserve required of 20 percent. Then required reserves are:

$200,000

Assume an MPC of 0.6. The change in total spending for the economy as a result of a $10 billion new government spending injection would be:

$25 billion. 1/(1-0.6) x 10 = 25

If the banking system has a required reserve ratio of 20%, then the money multiplier is

5.0

If excessive aggregate demand causes prices to rise, which of the following would be a correct fiscal-policy action?

A tax increase

A reduction in the money supply should shift the aggregate

demand curve to the left

The reserve requirement

Affects the level of bank reserves

Which of the following events would cause a rightward shift in the supply curve for automobiles

An improvement in the technology used to produce automobiles

A tax cut is likely to cause:

An increase in consumer spending.

If supply is unchanged a rightward shift in the demand curve for gourmet ice cream will result in

An increase in equilibrium quantity and a higher equilibrium price

Which of the following is an example of fiscal stimulus?

An increase in government spending on new military jet fighters

Which of the following would cause the aggregate demand curve to decrease, Ceteris paribus?

An increase in income taxes

Ceteris paribus, the demand curve for a good will shift to the right in response to

An increase in taste or preferences for the good

Which of the following will increase the market demand for labor, Ceteris paribus?

An increase in the productivity of labor

It is impossible to

Avoid fixed costs in the short run

Money creation occurs when

Banks make loans to borrowers

Which of the following is true for U.S. banks?

Banks must keep only a fraction of total deposits as reserves

Commercial banks

Banks whose primary function is take make loans. Major liabilities are deposits and assets are loans.

Which of the following is consistent with a monopoly industry

Barriers to entry keep potential competitors out of the market

Who among the following would be counted as unemployed

Bob, a college student looking for summer work?

Which of the following is considered a barrier to entry

Brand loyalty

A min. wage:

Can create a surplus of workers

A monopolist:

Charges a higher price than a competitive firm, ceteris paribus.

A stock who is laid off by a department store because retail sales across the country have decreased is _______ unemployed

Cyclically

If the economy is experiencing inflation, which of the following is most likely to decrease aggregate demand?

Decreasing spending and raising taxes

A monopolist sets price at a point on the ______ curve, corresponding to the rate of output determined by the intersection of ______________

Demand; marginal revenue and marginal cost

Which of the following is not a function performed by banks

Determining fiscal policy

Martin takes $150 out of his checking account and hides it in his house as cash. The immediate result of transaction is that M1:

Does not change in value

The labor demand curve slopes ______ to the right, which means that quantity of labor demanded will increase the wage rate ___________

Downward, Falls

Ceteris paribus, a leftward shift on the aggregate demand curve will cause the equilibrium price level to ________ and equilibrium real output to ________

Increase, decrease

Which of the following provides fiscal stimulus to the economy?

Increased government purchases

Which of the following will occur if aggregate demand is above full-employment GDP?

Inflation

Treasury Notes and Bonds

Long term treasury obligations

A producer tries to maximize profits by operating at an output where

MC (marginal cost) equals price

For a perfectly competitive firm, the firm earns zero profit where

MC meets ATC

If consumers spend 79 cents out of every extra dollar received, the:

MPC is 0.79. The marginal propensity to consume is .79 of every dollar.

If consumers spend 85 cents out of every extra dollar received, the:

MPC is 0.85.

A firm should continue to hire workers until the

MRP is equal to the market wage rate

The law of diminishing returns can explain why

Marginal cost eventually increase in the short run as more output is produced

In a market economy, the _______ determines who gets the goods and service produce

Market mechanism

Which of the following functions like money but is not included in M1?

Money-market mutual funds

If consumers spend 75 cents out of every extra dollar received, the:

Multiplier is 4. The multiplier is 1÷ (1- .75) =4

If government spending increases, which causes producers to hire more workers, and as a result households have more income to spend, which causes aggregate demand to increase even more, this is known as the:

Multiplier process.

Treasury Bills

Short term U.S. debt

Federal Funds

Short term overnight loans between banks. This is the target interest rate of the Federal Reserve monetary policy

Suppose a perfectly competitively firm increases in output. In order to sell this additional output, the firm:

Should price it at the market price

An office worker who loses her job because she does not have the necessary computer skills is

Structurally unemployed

If the first, second, third and forth worker employed by the firm add 15, 21, 12 and 8 units of total product respectively, we can conclude that

That after the second worker marginal product declines

True or False: Total output may continue to rise even though marginal physical product is decreasing

True

With a required reserve ratio of 15%, bank of the universe would have excess reserves of

Zero

GDP can be found by

adding the monetary value of all final goods and services produced during a given period of time

Primary markets

forum where companies or the government can raise funds by issuing equity or debt

members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they

make their decisions based on economic, rather than political considerations

Financial markets

manage the flow of funds from investors to borrowers, and investors to investors

Banks try to keep their holdings of excess reserves low in order to:

maximize profits

Per capita GDP is the most practical way to

measure how much output is potentially available to the average person

Pension Funds

offer savings plans to individuals to accumulate funds for retirement

Mutual Funds

pool individual and companies funds to make diversified portfolios

All points on the production possibilities curve

represent the use of all available resources

Ceteris paribus, if the FED reduces the discount rate, then

the incentive to borrow funds increases

Which of the following is not a basic monetary policy tool used by the fed?

the income tax rate

Ceteris paribus, if the FED raises the reserve requirement, then:

the lending capacity of the banking system decreases

liabilities

what you owe

Assets

what you own or what is owed to you

Aggregate Demand

Refers to the collective behavior of all buyers

Which of the following is characteristic of a perfectly competitive market

There are low barriers to entry

If a perfectly competitive firm produces and sells more output, its ______ will definitely increase

Total Revenue

Good financial markets are generally __________

"liquid"

Both Keynesian and monetarist theories believe that _______ aggregate ____________ causes inflation

Excessive, demand

If supply is uncharged, a decrease in the demand for soft drinks will cause equilibrium price to

Fall and equilibrium quantity to fall

One reason our full employment goal is not zero percent is because

Frictional unemployment will always exist

In economics, capital refers to

Goods that can be used to produce other goods

What fiscal policy tools are used to shift the aggregate demand curve?

Government spending and taxes

According to Keynes

Govt. intervention in the economy is necessary at times

When a price ceiling is set for a market, the quantity demanded will be

Greater than the equilibrium quantity, and price will be less than the equilibrium price

which of the following is characteristic of downturn in the business cycle?

Higher unemployment rates

The production possibilities curve shifts outward in response to

Improved technology or more resources or both

The main difference to an economist between "short-run" and "long-run" is that

In the long-run all recourses are variable where as in the short-run at least one resource is fixed

real GDP is a more accurate measure of economic growth than nominal GDP because

Nominal GDP can increase due to an increase in production or price or both

The aggregate demand curve is downward sloping because, Ceteris paribus

People are willing and able to buy more goods and services at lower average prices

During a period of inflation

People who have borrowed money may be better off

The uncertainty of inflation is likely to affect

Production and consumption decisions

Which of the following is included in investment according to economics?

Production of plant an machinery

Which of the following is true for a monopolist

Profit is maximized where marginal cost equals marginal revenue

Ceteris paribus, according to the law of supply, if the price of product Z increases from $6 to $8, then the

Quantity supplied of Z will increase

During an inflationary period it is appropriate for the government to pursue policies that:

Reduce aggregate demand.

In order to sell one additional unit of output, a profit-maximizing monopolist must:

Reduce the price of all units sold

When a new firm enters a market, it:

Reduces the profits of existing firms

Which of the following requires U.S. banks to maintain a minimum reserve ratio

The federal reserve

What is the total impact on aggregate demand because of a fiscal stimulus?

The initial injection plus all subsequent increases in consumer spending triggered by the stimulus

As more labor is hired in the short run, diminishing returns are observed because

The new workers have less capital and land to work with

Ceteris paribus, _______ can change without shifting the demand curve for jackets.

The price of jackets

Which of the following is not an example of investment spending?

The purchase of stock in the stock market

The marginal revenue product of labor curve is the firms:

labor demand curve

If the FED wants to decrease the money supply, it can

sell govt. bonds

Monetary policy involves the use of money and credit controls to

shift the aggregate demand curve

Ceteris paribus, which of the following will occur if the fed buys bonds through open-market opperations?

the aggregate demand curve should shift rightward