econ final part 2

23. The transactions demand for money will shift to the: A. right when aggregate income increases. B. right when the interest rate increases. C. left when the interest rate decreases. D. right when aggregate income decreases.

A

26. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million. B. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. C. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.

A

27. Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? A. increased by $1,200 B. increased by $600 C. decreased by $600 D. increased by $1,800

A

30. Discretionary fiscal policy will stabilize the economy most when: A. deficits are incurred during recessions and surpluses during inflations. B. deficits are incurred during inflations and surpluses during recessions. C. budget surpluses are continuously incurred. D. the budget is balanced each year.

A

24. Which of the following is a tool of monetary policy? A. changes in banking laws B. open market operations C. changes in government spending D. changes in tax rates

B

31. Commercial banks monetize claims when they: A. borrow from the Federal Reserve Banks. B. make loans to the public. C. collect checks through the Federal Reserve System. D. accept repayment of outstanding loans.

B

32. Banks create money when they: A. sell government bonds from households. B. buy government bonds from households. C. accept deposits of cash. D. allow loans to mature.

B

33. Susie has lost her job in a Vermont textile plant because of import competition. She intends to take a short course in electronics and move to Oregon where she anticipates that a new job will be available. We can say that Susie is faced with: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. secular unemployment.

B

37. Open-market operations refer to: A. the specifying of loan maximums on stock purchases. B. the purchase or sale of government securities by the Fed. C. central bank lending to commercial banks. D. purchases of stocks in the New York Stock Exchange.

B

39. The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. it is very difficult to have excessive aggregate spending in the U.S. economy. D. consumer and investment spending always vary inversely.

B

25. Which of the following statements pertains to macroeconomics? A. The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point. B. Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force. C. National income grew by 2.7 percent last year. D. A decline in the price of soybeans caused farmer Wanek to plant more land in wheat.

C

34. The most important determinant of consumer spending is: A. consumer expectations. B. the level of household borrowing. C. the level of income. D. the stock of wealth.

C

35. The primary purpose of the legal reserve requirement is to: A. provide a dependable source of interest income for commercial banks. B. prevent banks from hoarding too much vault cash. C. provide a means by which the monetary authorities can influence the lending ability of commercial banks. D. prevent commercial banks from earning excess profits.

C

36. Most modern banking systems are based on: A. commodity money. B. 100 percent reserves. C. fractional reserves. D. money of intrinsic value.

C

38. A pure market economy overallocates resources to the production of goods that: A. are inexpensive to produce. B. are public goods. C. involve negative externalities. D. involve positive externalities.

C

21. If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A. rightward by $10 billion at each price level. B. leftward by $40 billion at each price level. C. leftward by $50 billion at each price level. D. rightward by $50 billion at each price level.

D

22. The most important determinant of consumption and saving is the: A. level of bank credit. B. interest rate. C. price level. D. level of income.

D

28. A nation's gross domestic product (GDP): A. can be found by summing C + S + G + Xn. B. is the dollar value of the total output produced by its citizens, regardless of where they are living. C. is always some amount less than its NDP. D. can be found by summing C + Ig + G + Xn.

D

29. Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves: A. are $10,000. B. are $30,000. C. cannot be determined from the given information. D. are $20,000.

D

40. College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start their careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: A. substitute goods. B. normal goods. C. complementary goods. D. inferior goods.

D