Econ practice test
A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively: $50,000 and $500,000 $30,000 and $150,000 $100,000 and $500,000 $50,000 and $250,000
$50,000 and $250,000
Which of the following fiscal policy changes would be the most contractionary? A $30 billion increase in taxes and a $10 billion cut in government spending A $10 billion increase in taxes and a $30 billion cut in government spending A $20 billion increase in taxes and a $20 billion cut in government spending A $40 billion increase in taxes
A $10 billion increase in taxes and a $30 billion cut in government spending
Which of the following may shift the consumption schedule upward? A decrease in interest rates A significant decrease in stock prices A decrease in people's ability to borrow An increase in disposable income
A decrease in interest rates
Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID3? A more rapid rate of technological progress Higher business taxes on capital goods Greater inventories of capital goods Lower expected rates of return on investment in capital goods
A more rapid rate of technological progress
An increase in investment and government spending can be expected to shift the: Aggregate expenditures curve downward and the aggregate demand curve rightward Aggregate expenditures curve upward and the aggregate demand curve leftward Aggregate expenditures curve downward and the aggregate demand curve leftward Aggregate expenditures curve upward and the aggregate demand curve rightward
Aggregate expenditures curve upward and the aggregate demand curve rightward
One major advantage of credit cards used for transactions is that they: Charge a lower interest rate than other means of payment Allow consumers to coordinate timing and payment for purchases Give consumers the lowest prices on products purchased Offer discounts on most transactions
Allow consumers to coordinate timing and payment for purchases
As of 2012, most of the U.S. Federal debt was owed to: The Japanese people Americans Foreign governments The Chinese people
Americans
In the cause-effect chain linking changes in the banks' excess reserves and the resulting changes in output and employment in the economy: A decrease in excess reserves will increase the money supply A decrease in the rate of interest will decrease aggregate demand An increase in the money supply will decrease the rate of interest A decrease in aggregate demand will increase output
An increase in the money supply will decrease the rate of interest
Which of the following would shift the consumption schedule downward? A decrease in real interest rates A decrease in disposable income An increase in the probability of a recession An increase in the value of financial assets
An increase in the probability of a recession
The built-in stabilizers in the economy tend to: Overcompensate for the irregular swings in real GDP Magnify somewhat the irregular swings in real GDP Dampen the irregular swings in real GDP Fully offset irregular swings in real GDP
Dampen the irregular swings in real GDP
If the U.S. dollar appreciates in value relative to foreign currencies, then this will: Increase aggregate demand and aggregate supply Decrease aggregate demand and aggregate supply Increase aggregate demand and decrease aggregate supply Decrease aggregate demand and increase aggregate supply
Decrease aggregate demand and increase aggregate supply
Inflation tends to: Increase productivity Reduce the strength of the multiplier Increase the strength of the multiplier Decrease input prices
Reduce the strength of the multiplier
When a bank's loans are written off, it means that the bank's: Reserves shrink, whereas its debt remains the same Reserves fall along with its debt Reserves are reduced, while its debt increases Reserves rise along with its debt
Reserves shrink, whereas its debt remains the same
If businesses feel more optimistic about the state of the economy, then this change is likely to: Cause a movement down the investment demand curve Cause a movement up the investment demand curve Shift the investment demand curve to the left Shift the investment demand curve to the right
Shift the investment demand curve to the right
The level of GDP, ceteris paribus, will tend to increase when: There is an increase in the discount rate Reserve requirements are increased The Federal Reserve buys government securities in the open market The Federal Reserve sells government securities in the open market
The Federal Reserve buys government securities in the open market
Which of the following "backs" the value of money in the United States? The willingness of foreign government to hold U.S. dollars The acceptability of it as a medium of exchange The size of the budget surplus in the U.S. government The gold stored in the Federal Reserve Bank of New York
The acceptability of it as a medium of exchange
When the price level decreases: Holders of financial assets with fixed money values decrease their spending Holders of financial assets with fixed money values have less purchasing power The demand for money falls and the interest rate falls There is a decrease in consumer spending that is sensitive to changes in interest rates
The demand for money falls and the interest rate falls
A major reason that the public debt cannot bankrupt the Federal government is because: The public debt is mostly held by foreigners The Federal government can draw on its gold reserves The public debt can be easily refinanced by issuing new bonds The Federal government has the Social Security Trust Fund
The public debt can be easily refinanced by issuing new bonds
One bank can borrow reserves from another bank, and the interest on the loan is called the federal funds rate.
True
Subprime mortgages, which played a central role in the Financial Crisis of 2007-2008, had been strongly encouraged and supported by the government before the crisis.
True
The equivalent of the aggregate supply curve in the aggregate expenditures model is the 45-degree line.
True
There are only two things that people could do with their disposable income - spend it or save it.
True
There is an asset demand for money because households and business firms use money as a store of value.
True
When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.
True
Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank? $6 million $2 million $2.4 million $5.6 million
$2 million
The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? Selling government securities and raising the discount rate Buying government securities and raising the discount rate Selling government securities and raising the reserve ratio Buying government securities and lowering the reserve ratio
Buying government securities and raising the discount rate
Assume that the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately: Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million Increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million Increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million
Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million
An increase in the money supply, ceteris paribus, usually: Decreases the interest rate and decreases aggregate demand Increases the interest rate and increases aggregate demand Increases the interest rate and decreases aggregate demand Decreases the interest rate and increases aggregate demand
Decreases the interest rate and increases aggregate demand
The short-run aggregate supply curve shows the: Inverse relationship between the price level and real GDP produced Direct relationship between the price level and real GDP purchased Direct relationship between the price level and real GDP produced Inverse relationship between the price level and real GDP purchased
Direct relationship between the price level and real GDP produced
Expansionary fiscal policy will tend to reduce the budget deficit.
False
The TARP loans and the Fed's lender-of-last-resort actions that bailed out large, failing financial institutions helped reduce the moral-hazard problem in financial management.
False
The general public can open deposit accounts at their district's Federal Reserve Bank.
False
The short-run version of aggregate supply assumes that product prices are: Flexible while resource prices are fixed Both input and product prices are fixed Fixed while resource prices are flexible Both input and product prices are flexible
Flexible while resource prices are fixed
In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could: Increase taxes by $24 billion Decrease government spending by $16 billion Increase taxes by $16 billion Decrease government spending by $10 billion
Increase taxes by $16 billion
Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID1? Increasing business taxes Higher expected rates of return on investment Lower acquisition cost of capital goods Rising real interest rates
Increasing business taxes
The fractional reserve system of banking started when goldsmiths began: Issuing paper receipts in excess of the amount of gold held Accepting deposits of gold for safe storage Charging people who deposited their gold Using deposited gold to produce products for sale to others
Issuing paper receipts in excess of the amount of gold held
Which of the following is considered a limitation of monetary policy? The speed with which it can be implemented Its isolation from political pressure Its cyclical asymmetry The cause-effect chain
Its cyclical asymmetry
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2? M1 decreases and M2 increases M2 increases and M1 stays the same M1 increases and M2 decreases M1 increases and M2 stays the same
M1 increases and M2 stays the same
If the consumption schedule is a straight line, it can be concluded that the: APC is necessarily constant APC is equal to the MPC MPC is constant at various levels of income MPC is zero
MPC is constant at various levels of income