Econ tests

Purchaing power parity is the theory that in the long run, exchange rates should be at a level such that equivelent amounts of any country's currency

allow one to buy the same amount of goods and services

a factr of production

an acre of forested land

Which policy action is most likely to increase aggregate supply

an increase in government spending on infrastructure that increases private sector productivity

Which one of the following might offset a crowding-out effect of financing a large public debt

an increase in infrastructure investment

With a reserve ratio of 20 percent, an increase in reserves of 10,000 could lead to a maximum increase in checking account deposits in the entire banking system of

50000 money multiplier = 1/.2 = 5 10,000 * 5 = 50,000

what is the future value of $450 at an interest rate of 9 percent two years from today

534.65

Robert put 15000 into an account with a fixed interest rate two years ago and now the account balance is 16917.66. What rate of interest did robert earn

6.2 percent

Tammie makes $150 a day as a bank clerk. She takes off two days off work without pay to fly to another city to attend the concert of her favorite music group. The cost of transportation for the trip is $250. The cost of the concert ticket is $50. The opportunity cost of Tammie's attending the concert is:

600 dollars

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of

automatic stabilizers

the increase in the amount that government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of

automatic stabilizers

The basic policy-making body in the U.S. banking system is the:

Board of governers of the federal reserve

28 countries in europe have formed the EU. After the EU was formed it

Eliminated all tariffs among its member nations

The individual who brings together economic resources and assumes the risk of business ventures in a capitilist economu os called the

Entreprenuer

The group that setsthe Federal Reserve Systems policy on buying and selling governent securites (bills, notes, and bonds) is the

Federal open market committee

What was true Under the Bretton woods system?

Foreign central banks could sell their dollars to the american government in exchange for gold

which of the following is one of the most important benefits of money in an economy

Money makes exchange easier, leading to more specialization and higher productivity

The 1994 agreement that eliminated most tariffs among the US, canada, and mexico is known as

NAFTA

When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of

Oppurtunity cost

Correct statement

Price floors create surpluses

What would be a positive economic statement (a statement that can be tested)

Stock prices rose to a new record last month for the 4th month in a row

What do most buyers of stocks and bonds prefer when buying?

Stocks and bonds issued by large and familiar companies

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?

Substitution bias

An example of foreign direct investment in China

The US company Walmart buys a warehouse in Shanghai

Which of the following would increase net exports in the United States

The government of Mexico purchases 500 ford trucks from the US

If the dollar appreciates against the mexican peso

U.S. exports to Mexico become more expensive

the rapid growth of chinas economy relative to the US has benefitted US consumers because

US consumers can purchase more lower priced goods made in china

Suppose China decides to sell a vast majority of their large holdings of US treasury bonds. If you are thinking of refinancing your house, how would china's action affect your decision

You want to refinance as soon as possible as interest rates will rise

Correct formula for calculating CPI

[(price of basket of goods and services in current year/ price of basket in base year)]/100

When Sophie, a French citizen, purchases a Dell computer in Paris that was produced in Texas, the purchase is

a US export and a french export

Countries gain from specializing in producing goods in which they have a(n) __________ advantage and trading for goods in which other countries have a(n) __________ advantage.

a comparative advantage, a comparative advantage

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences:

a consumer surplus of 9, and nathan experiences a producer surplus of 3 dollars

How can freedom of the press promote economic growth?

a free press can act as a watchdog foe corruption

Correct statement

a general persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits

other things the same, as the maturity of the bond becomes longer, the bond will pay

a higher interest rate because it has more risk

China has developed a comparative advantage in the production of clothing. The source of this comparative advantage is

a large supply of unskilled workers and relatively little capital

On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is not one of these conclusions?

a relatively simple way to increase growth rates permanently is to increase a country's saving rate

Any point on a country's production possibilities frontier represents a combination of two goods that an economy

can produce using all available resources and tech

The rationing function of prices refers to the

capacity of a competitive market to equate the quantity demanded and the quantity supplied

The soviet Union's economy grew rapidly in terms of GDP per hour worked in the 1950's, but eventually growth slowed. Why did this occur

capital per hour worked rapidly from 1950 to 1980, but technology change occurred very slowly

Externalities weaken the efficiency of the market system because they

cause certain goods to be overproduced or underproduced

A nation that devotes more of its resources to capital investment is likely to

cause its ppc to shift outward

price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers

An economic principle that explains why countries produce different goods and services is

comparative advantage

When a country or a region of a country specializes in producing the product that has the lower opportunity cost compared to another country or region, it is practicing A) absolute advantage. B) cost disadvantage. C) regional advantage. D) comparative advantage.

comparitive advantage

Which of the following is the best example of infrastructure investment

construction of highways

in the calculation of CPI, tea is given greater weight than beer if

consumers buy more tea than beer

Which of the following statements about the social security, medicare, and medicaid programs is true

costs are being driven up by the fact that Americans are living longer and medical costs are rising substantially

When the federal government cuts taxes and increases spending to simualate the economy during a period of recession, such actions are designed to be

countercyclical

WHat is considered a legitimate concern of large public debt

crowding out of private investment

The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks.

An HMO hires radiology services from india to cut costs. If all else remains equal, this will

decrease net exports

a market externality refers to

economic costs and benefits of market activities that go to those who are not directly involved in the market transaction.

The BRAC anti-poverty program in Bangledash gave poor families on how to raise livestock, a savings account, and help with their physical and mental health. These policies can potentially improve economic growth by increasing

education, savings, and human capital respectively

the promary furpose of patents and copyrights is to

encourage the expenditure of funds and research to create new products

technological improvements are more likely to occur if

entrepreneurs are compensated with higher profits for taking risks

the interest rate that banks charge one another on overnight loans is called

federal funds rate

the gold standard is an example of

fixed exchange rate system

investment equals

gdp-c-g-nx

An important routine function of the federal reserve bank is to

holding the deposits and reserves of federal banks

what is inclueded in the investment component of gdp

households' purchases of newly constructed homes, net additions to firms' inventories, firms purchases of capital equipment

total opportunity cost

how much you give up from 0 to that amount

Economics is the study of

how people allocate their limited resources to satisfy their unlimited wants

the circular flow diagram i

incorperates two types of decision makers: households and firms represents the flows of inputs, outputs, and dollars is an economic model

Under the gold standard, the government must have enough gold to back up any

increase in money supply

A Canadian oil company hires geological survey services from the US. If all else remains equal, this will

increase net exports

The purchase of Treasury securities by the Federal Reserve will, in general,

increase the quantity of reserves held by banks

Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2011, he employed 5 bakers who produced a total of 200 cakes each day. In 2012, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity

increased by 3.75 percent

a contraction of the money supply

increases the interest rate and decreases aggregate demand.

expansionary fiscal policy

increasing government purchases or decreasing taxes

Which of the following is most important in explaining exchange rate fluctuatoions in the short run

interest rates

When the value of currency is determined mostly by demand and supply, but with occasional government intervernion, the exchange rate system is defined as

managed float

The real burden of an increase in the public debt:

may be very small or conceivably zero when the economy is in a severe depression.

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because

measuring them is so difficult

When changes to taxes and spending occur in the economy without explicit action by the federal government, such policy is

nondiscretionary

credit card balances are

not part of the money supply, because they are technically a loan

If the ______ cost of production for two goods is different between two countries then mutually beneficial trade is possible.

oppurtnity cost

Which of the following government provisions would help increase the accumulation of knowledge capital

patents, copyrights, education subsidies

the ppf provides an illustration of the principle that

people face trade offs

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financal crisis of 2007 and 2008

prior to the rise in defaults banks had become lax in their lending practices, resulting in a huge number of bad loans

In National income accounting, we use what terms interchangeably

public saving and government tax revenue minus government spending

in 2017, trump _____ the TPP, an agreement designed to reduce trade barriers between the US and 11 other countries

pulled the US out of negotiations on joining the TPP

Which of the following is a principle concerning how people act

rational people think at the margin, markets are usually a good way to organize economic activity, people respond to incentives

President trumps proposed increase in spending on infrastructure projects is an example of discretionary fiscal policy aimed at increasing

real GDP and employment

India's decision in late 2016 to withdeaw from circulation all existing 500- and 1000- rupee currency to stop accepting the old currency, as to stop exchanging it for new currency was an attempt by policy makers to

reduce corruption

What will increase a countries real gdp per person

reducing restrictions on foreign trade and investment

The goal of the CPI is to measure changes in the

relative prices of consumer goods

A major advantage of the built-in or automatic stabilizers is that they:

require no legislative action by congress to be made effective

At the broadest level, the financial system moves the economy's scarce resources from

savers to borrowers

The key economic concept that serves as the basis for the study of econmics is

scarcity

The glass stegal act of 1933

seperated high risk and low risk financial activities across different firms

textbool examples of trade between two nations are simplified in order to show how two nations both benefit from trade. these examples are misleading because

some individuals in both countries may be worse off because of trade

which of the following countries is not one of the top 3 exporting countries in the world

south korea

A farm worker gets paid today in money, but plans to spend that money next week. This illustrates which function of money

standard of deferred payment

The majority of dollars spent by government prior to the great depression was spending at the ______. In the post WW2 period, 2/3 to 3/4 of all dollars spent by government in the us are spent at the

state and local levels, federal level

the force that makes market economies work are

supply and demand

Under the Soviet system of communism

technological progress was slow because managers had little incentive to develop new technologies.

The US has developed a comparative advantage in digital computers, airliners, and many perscription drugs. The source of its comparative advantage in these producrs is

technology

in the 1930s the US charged an average tariff rate

that exceeded 50 percent

The US abandoned the Bretton Woods System of exchange rates in

the 1970's

The current exchange rate system has which of the following charactoristics

the US allows the dollar to float against other major currencies

the FOMC consists of

the board of governors plus five of the federal reserve bank presidents

The consumer price index and the gdp deflatoer are two alternative measures of the overall price level. what is true about the two meaures

the cpi reflects a fixed basket of goods and services; the gdp deflator reflects current production of goods and services

The balance of payments includes which three accounts

the current account, the financial account, and the capital account

Suppose congress were to repeal an investment tax credit. what would happen in the market for loanable funds?

the demand would shift left because firms would be less incentivized to spend and invest more.

producer surplus

the difference between the lowest price a producer would be willing to accept for a good or service and the higher equiliberum price

The balance of trade is defined as

the difference between the value of the goods a country exports and the value of the goods a country imports

When the market value of the dollar rises relative to other currencies around the world, we say that

the dollar has appreciated

In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by

the establishment of the federal deposit insurance corporation

Which of the following is a government expenditure, but is not a government purchase

the federal government pays out an unemployment insurance claim

the cpi is subject to substitution bias

the law of demand applies to most, but not all goods

In a competitive market for corn, the law of demand indicates that other things equal as

the price of corn decreases, the quantity of corn demanded will increase

The terms of trade refers to

the ratio at which a country can trade its exports for imports from other countries

Correct about the relationship between the nominal interest rate and the real interest rate

the reak interst rate is the nominal interest rate minus the rate of inflation

The demand curve slopes downward because

the reduction in the price of the good causes individuals to increase their purchase of that good

dollar bills in the modern economy serve as money because

they have value as a commodity independent of their use as money

examples of comparative advantage show how trade between two counties can make each better off. Compared to their pre-trade positions, trade makes both countries better off because in each country

total comsumption of goods is higher

Macroeconomics focuses on

total output of goods and services, price stability, and levels of employment.

Accurate statement about trade

trade can make every nation better off

accurate statements about trade

trade can make every nation better off

Which of the following is the catagory of federal government expenditures

transfer payments

the fastest growing category of government expenditure is

transfer payments

The statement, "My iPhone is worth $300" represents money's function as

unit of account

Bank reserves include

vault cash and deposits with the federal reserve

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania

will take place as long as each country has a comparative advantage in a good or service that buyers in the other country want

Built-in stability means that:

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

What best describes how banks make money

banks create checking account deposits when makinf loans from the excess reserves

Which of the following would likely make the interest rate on bonds higher than otherwise?

both high credit risk and a long term

in the financial industry, "securizitation" refers ti

bundling groups of loans, bonds, mortgages, and other financial debts int osecurites

Tax cuts on business income aggregate demand by increasing

business investment spending

Assuming the interest rate is 5 percent, which of the following has the greatest present value

$240 paid in three years

In the US, an additional year of schooling has historically raised a persons wage by

10 percent

In the base year, the GDP deflator is always

100

You're travelling to ireland and are thinking about buying a new didgital camera. You've decided you'd be willing to pay $125 for a new camera, but irelands are all priced in Euro's. If the exchange rate is .85 euros per dollar, whats the highest price in euros youd be willing to pay

106.25

During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4 percent, and the cpi was 198.3 at the end of the year. The CPI at the begenning of the year was

192.5 end of the year cpi= begenning of the year cpi * (1 + [nominal-real])

If the nominal interest rate is 8 percent and the real interest rate is 5.5 percent, then the inflation rate is

2.5 percent 8-5.5= 2.5

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

2.81

How large is the federal government debt currently

22 trillion

The market basket used to calculate the CPI inAquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts and 2pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 pergallon, shirts cost $6.00 each and pants cost $10.00 per pair. In2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirtscost $7.00 each and pants cost $12.00 per pair. Using 2005 as thebase year, what was Aquilonia?s inflation rate in 2006?

24.4 percent

Suppose the parents of a child born in the year 2000 had invested 5,000 at a 10 percent interest rate to be paid out to the child when she turns 21. how many times will the investment double by the time it is paid out to he child

3 times 5000 *.10= 500 500 * 21 = 10500 10500 + 5000 = 15500 15500 / 5000 = 3.1

Tonya put $250 into an account three years ago. The first year he earned 6 percent interest, the 2nd year 7 percent and the 3rd year 8 percent. How much does tonya have in her account now?

306.23

Your accountant tells you that you can continue to earn the current interest rate on your balance for ten years, you will have 983.58. If your accountant is correct, what is the current rate of interest

7 percent

Atlas corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise

Atlas' sound finances but not the long term of the bond.

Assume that Australia has a comparative advantage in producing surfboards and New Zealand imports surfboards from Australia. We can conclude that

Austrailia has a lower opportunity cost of producing surfboards relative to new zealand

Assume that Honduras has a comparative advantage in producing bananas and exports bananas to Brazil. We can conclude that

Honduras has a lower opportunity cost of producing bananas relative to brazil

Which of the following statments related to productivity growth in china is true

Much of China's growth is likely due to a transition from a centrally planned economy to a market economy

the 1994 agreement that eliminated most tarriffs amoung the US, canada, and mexico is known as

NAFTA

The productions possibilities curve represents

The maximum combination of products that can be produced with fixed resources and technology

A tax imposed by the government on imports of a good into a country is called

a tarriff

a bank will consider a car loan to a customer _____ and a customers checking account to be ________

an asset, liability

Which fiscal policy action is mostt likely to increase aggregate supply

an increase in government spending on infrastucture that increases private sector productivity

Over the past several decades there has been rapid growth in international trade. Which factor has not contributed to the growth of internatonal trade

an increase in tariffs charged on many goods

a successful market economy requires well defined property rights and

an independent court system to adjuticate disputes based on law

An economy that has interactions in trade of finance with other economies is referred to

an open economy

In economics, money is defined as

any asset people generally accept in exchange for goods and services

from the befinning of 1973 until June 2017, the value of the dollar has _____ relative to the canadien dollar and _____ relative to the Japanese yen

appreciated, depreciated

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times

consumer prices sometimes rose and sometimes fell in the time frame represented on the graph

George, a german citizen, just purchased 10 shares of stock in microsoft, U.S company. this is an example of

foreign portfolio investment

The purchase by an individual or firm of stock or bonds issued in another country is called

foreign portfolio investment

which of the following is an objective of fiscal policy

high rates of economic growth

The law of increasing opportunity cost states

if a society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so

An economy can improve its standard of living by

increasing the amount of capital available per hour worked.

a lower price increases the quantity demanded because

individuals buy more of the product and less of a subsitute

the multiplied effect refers to the series of

induced increases in consumption spending that result from an initial increase in autonomomus expenditures

You hold bonds issued by the city of sacramento, california. the interest you earn each year on these bondss

is not subject to federal income tax so these bonds pay a lower interest rate than otherwise comparable bonds issued by the us government

consume surplus

is the difference between maximum prices consumers are willing to pay for a product and the lower eq price

the rate of real economic growth

is underestimated using measures of income growth

factors of production

land, labor and capital

A tradeoff exists between a clean enviorment and higher level of income in that

laws that reduce pollution raise costs of productin and reduce incomes

When the social security program was in its infancy in 1940, the ratio of workers to retirees was more than 150 to 1. Currently the ratio of workers to retirees is

less than 3 to 1

fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.

Empirical evidence from 1960 to 2014 shows that convergence in economic growth is occuring in which of the following cases

low income industrial countries are catching up to high income industrial countries

Which of the following can explain why some countries have not experienced relatively high growth rates in real gdp per capita despite relatively low initial levels of real gdp per capita

many of these countries do not have a functioning court system countries that are relatively poor are more likely to experience wars and revolutions countries that are relatively poor are likely to have a lower quality of health care

When a grocery store accepts your 5 dollar bill in exchange for bread and milk, the 5 dollar bill serves as

medium of exchange

The financial services modernization act of 1999 repealed the glass stegal act of 1933 and thereby opened the door fro which actions

merger of financial services companies, insurance companies and banks

An increase in government purchases of 200 billon will shift the AD to the right by

more than 200 billion

Country A has twice as many workers as Country B. Country A also has twice as much physical capital, twice as much human capital, and access to twice as many natural resources as Country B. Assuming constant-returns to scale, which of the following is higher in Country A?

neither productivity nor output per worker

which of the following is more likely to be effective in increasing the growth rate of real GDP

permanent cuts in business taxes

the federal reserve system's four monetary policy's goals are

price stability, high employment, economic growth, and stability financial markets and institutions

In 2008, the fed and the treasury began attempting to stabilize the commercial banking system through the troubled asset relief program by

providing funds to banks in exchange for stock

the difference between m1 and m2 is that

the latter includes small time deposits, noncheckable savings accounts, money marker deposit accounts, and money market mutual funds

Assume that Finland and Lativia produce only two goods. If Finland has an absolute advantage in the production of these two goods compared to lativia, finland can still benefit from trade with lativia

true

Michelle bought word-processing software in 2009 for $75. Michelle's cousin, Barry, bought an upgrade of the same software in 2010 for $75. To which problem in the construction of the CPI is this situation most relevant?

unmeasured quality change

imports are goods and services bought domestically

but produced in other countries

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

fiscal policy

In 1979 and a980,

The us inflation rate as measured by the CPI was higher than that measured by the GDP deflater, and the difference was explained by rapidly rising oil prices

oppurtunity cost is best defined as

The value of the best forgone alternitave

normative economic statement

This administration needs to ban the sale of assualt rifles

In 2016, global revenue for Amazon was 550 million lower when measured in local currencies. The reason for this discrepancy is the value of the

US dollar increased relative to most other currencies

Open marker operations reers tothe purchase and sales of ____ to control the money supply

US treasury securites by the federal reserve

Banks lost money during the mortgage default crisis because:

defaulted loans to investors in mortgage-backed securites they held mortgage backed securites they had purchased from investment firms homebuyers defaulted on mortgages held by banks

The US has a trade _____with all of its major trading partners and a trade _____with every region of the world except latin america

deficit, deficit

the required reserves of a bank is equal to its ____ the reserve ratio

deposits multiplied by

Economists, like mathematicians, physicists, and biologists,

devise theories, collect data, then analyze these data in an attempt to verify or refute theories. make use of scientific method try to address their subject with scientists objectivity

Active changes in tax and spending by government intended to smooth out the business cycle are called _____ , and changes in taxes and spending that occur passively over the business cycle are called

discretionary fiscal policy, automatic stabilizers

Autarky is a situation in which a country

does not trade with other countries