Economics

Which of the following statements best reflects the concept of present value?

"You owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now."

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are:

$1,000

At the end of 2012, U.S. households and nonprofit organizations held approximately __________ in mutual funds

$15.7 trillion

Which of the following tools of monetary policy is flexible and able to affect bank reserves quickly and by relatively specific amounts?

Open-market operations

Which of the following is not common to all investments?

Paying a positive rate of interest.

QE3 followed QE2 and Operation Twist. Which of the following best explains how QE3 differed from the other two in order to make it more effective?

QE3's completion was tied to economic objectives, rather than specific dates.

In a mixed open economy, which of the following all affect the equilibrium GDP in the same direction?

Sa, T, and M

Which of the following is common to all investments?

Some price must be paid to acquire them.

Which of the following will generate a demand for country X's currency in the foreign exchange market?

The desire of foreigners to buy stocks and bonds of firms in country X.

Which of the following is a positive statement?

The temperature is 92 degrees today

Suppose an excise tax is imposed on product X. We expect this tax to

decrease the demand for complementary good Y and increase the demand for substitute product Z

A commercial bank can expand its excess reserves by

demanding and receiving payment on an overdue loan

The reserves of a commercial bank consist of

deposits at the Federal Reserve Bank and vault cash

In order for mutually beneficial trade to occur between two otherwise isolated nations:

each nation must be able to produce at least one good relatively cheaper than the other.

A market in which the money of one nation is exchanged for the money of another nation is a:

foreign exchange market

The term "laissez-faire" suggests that:

government should not interfere with the operation of the economy

The equilibrium rate of interest in the market for money is determined by the intersection of the:

supply-of-money curve and the total-demand-for-money curve

Risk management in command economies

tends to be done poorly because decision makers are insulated from the risk of making a poor decision

The liquidity trap refers to the situation where:

the Fed adds excess reserves to the banking system, but it has minimal positive effect on lending, investment, or aggregate demand

North Korea's command economy

is one of the few remaining command economies

If the Federal Reserve System buys government securities from commercial banks and the public:

it will be easier to obtain loans at commercial banks

The four factors of production are:

land, labor, capital, and entrepreneurial ability

A decline in investment will shift the AD curve to the

left by a multiple of the change in investment

The demand curve shows the relationship between

price and quantity demanded

According to economist Donald Boudreaux

private properly eliminates the possibility that resource arrangements will be random

The two basic markets shown by the simple circular flow model are

product and resource

Other things equal, if the price of a key resource used to produce product X falls, the

product supply curve of X will shift to the right

If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be:

$200 billion

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is:

$2=1 British pound in the United States

Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by

$40 billion

If the reserve ratio is 100 percent, the value of the monetary multiplier is

1

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then:

Americans will buy more Mexican goods and services.

Which of the following statements concerning the equilibrium level of GDP is incorrect?

Full employment will necessarily be realized

In the theory of comparative advantage, a good should be produced in that nation where:

Its cost is least in terms of alternative goods that might otherwise be produced.

Which of the following characteristics is least unique to a market system?

The widespread use of money

Taxes represent

a leakage of purchasing power, like saving

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:

a nations's trading possibilities line lies to the right of its production possibilities line.

A surplus of a product will arise when price is

above equilibrium, with the result that quantity supplied exceeds quantity demanded

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right

At equilibrium real GDP in a private closed economy

aggregate expenditures and real GDP are equal

The basic purpose of the other-things-equal assumption is to:

allow one to reason about the relationship between X and Y without the intrusion of variable Z.

Economic profits and losses

are essential to the reallocation of resources from less desired to more desired goods

Index funds:

are passively managed

The invisible hand concept suggests that

assuming competition, private and public interests will coincide

A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that

beer and marijuana are complementary goods

Through specialization and international trade, a nation

can attain some combination of goods lying outside its production possibilities curve

Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank:

cannot safely lend out more money

The regulatory mechanism of the market system is

competition

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company profits, $1 for each share he owns. Refer to the information given. Indy should necessarily sell his stock if:

he expects the sum of future capital gains and dividends to be negative

Higher rates of unemployment are linked with

higher crime rates as the unemployed seek to replace lost income

With a downsloping demand curve and an upsloping supply curve for a product, placing an excise tax on this product will

increase equilibrium price and decrease equilibrium quantity

Appreciation of the Canadian dollar will:

make Canada's exports more expensive and its imports less expensive

In constructing models, economists:

make simplifying assumptions

Economics involves marginal analysis because

most decisions involve changes from the present situation

The foreign purchases effect

moves the economy along a fixed aggregate demand curve

If a nation has a comparative advantage in the production of X, this means the nation:

must give up less of other goods than other nations in producing a unit of X.

If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B:

mutually advantageous specialization and trade between A and B may still be possible.

Supply shocks

occur when sellers face unexpected changes in the availability and/or prices of key inputs

Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero. If at the equilibrium income the public sector's budget shows a surplus

planned investment must exceed saving

Before the period of modern economic growth

rates of population growth virtually matched rates of output growth

When economists refer to "investment," they are describing a situation where:

resources are devoted to increasing future output

If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will:

rise, causing households and businesses to hold less money

The prime interest rate usually

rises when the federal funds rate rises

In deciding whether to study for an economic quiz or go to a movie, one is confronted by the idea(s) of:

scarcity and opportunity costs

In an aggregate expenditures diagram, a lump-sum tax (T) will:

shift the C + Ig + Xn line downward by an amount equal to T x MPC

A decrease in the price of digital cameras will

shift the demand curve for memory cards to the right

The business cycle depicts

short-run fluctuations in output and employment

Economics may best be defined as the

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

some of the tax increase will be paid out of income that would otherwise have been saved

In the latter part of 2001, the Fed cut the federal funds rate several times. The Fed's purpose was to:

stimulate economic growth

Index funds are a portfolio of:

stocks or bonds that exactly match a particular index

Macroeconomics can best be described as the

study of the large aggregates of the economy or the economy as a whole

If the dollar price of yen rises, then:

the dollar depreciates relative to the yen.

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of

the reserve ratio

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction:

the supply of money is increased by $5,000.

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company profits, $1 for each share he owns. Refer to the information given. If Indy sells all his shares at a price of $30 per share, he will receive a:

total capital gain of $1,000.

The shape of the immediate-short-run aggregate supply curve implies that

total output depends on the volume of spending

The real-balances, interest-rate, and foreign purchases effects all help explain

why the aggregate demand curve is downsloping

Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed:

will have to increase the money supply to keep the price level from falling

The incentive problem under communist central planning refers to the idea that

workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products

Present value is best defines as the:

worth or value today of future expected returns or costs