Economics Exam 3 Study set

Fiat Money is A.A type of money with intrinsic value B.A type of money set by government decree C.Any asset used as the medium of exchange D.Any asset used as the unit of account

A. A type of money with intrinstic value

Full employment is said to exist when there is no _________ unemployment. A.Cyclical. B.Structural. C.Frictional. D.Seasonal.

A. Cyclical

Which of the following is NOT true about the federal reserve A.It was established by the U.S. Constitution B.It regulates the banking system C.It lends to banks D.It conducts open-market operations

A. It was established by the U.S. Constitution

In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold ________________ currency or if banks choose to hold _______________ excess reserve. A. More; more B. More; less C. Less; more D. Less; less

A. More; more

At the beginning of a recession, the first thing that usually occurs is: A.Spending decreases relative to production. B.Inventories fall. C.Inflation increases. D.Production enjoys a sudden increase.

A. Spending decrease relative to production

The money supply is defined as: A.The amount of money that people can access. B.All coins and currency in existence. C.Money in banks and at the Federal Reserve. D.The amount of money people wish to hold.

A. The amount of money people can access

What could cause American imports to decrease? A.The U. S. plunging into a deep recession. B.The U. S. enjoying economic boom times. C.An increase in wages for American workers. D.A decrease in incomes for foreign workers.

A. The us plunging into a deep recession

Which of the following is a typical progression in the business cycle? A.Trough, expansion phase, peak, contraction phase. B.Trough, contraction phase, peak, expansion phase. C.Trough, peak, expansion phase, contraction phase. D.Peak, trough, contraction phase, expansion phase.

A. Trough, expansion phase, peak, contraction

If the GDP deflator in the current year is 120, that means prices are, in general, ______ higher in the current year than in the base year: A.20 percent. B.$20. C.$120. D.120 percent.

A.20 percent

In the basic circular flow: A.Consumer spending becomes business sales revenue. B.Consumer spending becomes household income. C.Consumer spending becomes business expenses. D.Business expenses become consumer spending

A.Consumer spending becomes business sales revenue

Which of the following describes unemployment when retailers and factories lay off workers in response to decreased spending in the economy? A.Cyclical. B.Structural. C.Frictional. D.Seasonal.

A.Cyclical

The reason the money multiplier exists is that: A.When a borrower spends the money, it becomes someone else's deposit. B.When a borrower spends the money, it no longer gets used in the economy. C.The borrower usually does not spend the money he borrows. D.When the seller deposits the money borrowed, his bank may not make a loan on it.

A.When a borrower spends the money, it becomes someone else's deposit

The term "supply of labor" says that: A.Within limits, if wages rise, the number of qualified workers who want to work rises, and vice versa. B.Within limits, if wages rise, the number of qualified workers who want to work rises, but not vice versa. C.If wages rise in one particular job category, the number of unqualified workers being hired for that job will increase. D.If wages rise in one particular job category, the number of unqualified workers being hired for that job will decrease.

A.Within limits, if wages rise, the number of qualified workers who want to work rises, and vice versa

Which of the following is a good example of the land resource category? Group of answer choices A.Farm acreage. B.A harvesting machine. C.A farm laborer. D.A farm owner.

A.farm acreage

Which of the following statements about commercial banks is correct? A.Governments operate all commercial banks, therefore, they are nonprofit. B.Commercial banks are privately owned and profit seeking. C.Commercial banks pay interest when they make a loan and collect interest from depositors. D.Commercial banks redirect investment spending into savings.

B. Commercial banks are provately owned and profit seeking

If the Fed raises the interest rate It pays on reserves, it will___________ the money supply by increasing_________. A. Decrease; the money multiplier B. Decrease; excess reserves C. Increase; the money multiplier D. Increase; excess reserves

B. Decrease; excess reserves

A "double coincidence of wants" is: A.What is needed before money can be used. B.Eliminated with the use of money. C.Eliminated when barter is used instead of money. D.How value is stored when we make transactions using money.

B. Eliminated with the use of money

When minimum wage is increased with no corresponding increase in worker productivity or product deman, firms will: A. Lay off some of their high skilled, high experienced workers B. Lay off some of their low skilled, low experienced workers C. Switch from high skilled workers to low skilled workers D. Simply pay higher wages with no change the numbers hired

B. Lay off some of their low skilled, low experienced workers

The firm has hired the ideal number of workers when it reaches the number where: A. MRP > wage B. MRP = wage C. MRP < wage D. Wage is zero

B. MRP = wage

Which of the following are NOT true? A. Something to be used as money must be rare. B. Something to be used as money must have intrinsic value C. Liquidity refers to the ease with which money can be used as a form of payment D. Checking account is considered part of the M1 money supply, but not that of M2 E. Money can serve as a store of value or wealth

B. Somethung to be used as money must have intrinstic value D. Checking account is considered part of M

When you read the price tag on an article of clothing, money is functioning as a: A.Medium of exchange. B.Standard of value. C.Store of value. D.Means of payment.

B. Standard of value

The cost of capital is: A.Lost productive time. B.The interest rate that has to be paid to borrow funds. C.Foregone expenditures on land or labor resources. D.The depreciation of the capital goods.

B. The interest rate that has to be paid to borrow funds

A new deposit triggers the ability of a bank to make a loan, which will generate a series of more, but ever smaller, loans. This is the basis of: A.Fiscal policy. B.The money multiplier process. C.The tax multiplier process. D.The spending multiplier process.

B. The moneh multiplier process

Which of the following actions by the fed would tend to increase the money supply A.An open-market sale of government bonds B.A decrease in reserve requirements C.An increase in the interest rate paid on reserves D. an increase in the discount rate on Fed lending

B.A decrease in reserve requirements

When the economy is at full employment, the unemployment rate is: A.Zero percent. B.About 4 to 6 percent. C.About 10 percent. D.Negative.

B.About 4 to 6 percent

Households ________ resources in the _________ market. A.Sell; product. B.Sell: resource. C.Buy; resource. D.Buy; product.

B.Sell; resource

If the fed wants to increase the money supply, it can A. Raise income taxes B.Reduce income tax rates C.Buy bonds in open-market operations D.Sell bonds in open-market operations

C. Buy bonds in open-market operations

Isabella takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply ________, but if the bank lends out some of the $100, the money supply ________. A. Increases; Increases by even more B. Increases; increases by less C. Is unchanged; increases D. Decreases; decreases by less

C. Is unchanged; increases

If the benefit of hiring a worker is less than the cost of hiring that worker, the firm: A. The work is more physically difficult B. Formal training is required C.it takes a long time to become qualified D.there is usually some licensing required

C. It takes a long time to become qualified

At macro equilibrium: A.Leakages must exceed injections. B.Injections must exceed leakages. C.Leakages must equal injections. D.All of the following must occur: S = I, T = G, and M = X.

C. Leakages must equal injections

The money stock includes all of the following EXCEPT A.Metal coins B.Paper currency C.lines of credit accessible with credit cards D.Bank balances accessible with debit cards

C. Lines of credit accessible with credit cards

As it pertains to money, liquidity can be defined as: A.The value that any asset has. B.The amount of money an asset can be turned into upon sale. C.The ease with which an asset can be spent. D.The difficulty of acquiring a particular asset.

C. The ease with which an asset can be spent

The size of the money supply in the United States is controlled by: A.The U. S. State Department. B.The U. S. Treasury Department. C.The Federal Reserve System. D.The Mint.

C. The federal Reserve system

The price of an acre of land is: A. Determined by government rules B. Forever fixed because there is a fixed amount of land C. Totally determined by changes in the demand for land D. Totally determined by changes in the supply for land

C. Totally determined by the changes in the demand for land

If an initial new deposit is $2000 and the required reserve ratio is 5 percent, or 1/20, the total new money that can be created by the cycle of new loans is: A.$100. B.$10,000. C.$40,000. D.$400.

C.$40,000

A medium of exchange is defined as: A.Barter. B.The exchange of goods and services directly for other goods and services. C.Anything that is readily accepted in return for goods and services. D.Either credit or debit cards.

C.Anything that is readily accepted in return for goods and services

The store of value function is defined as: A.Using one measure to price goods and services. B.The direct exchange of one good for another. C.Delaying the use of money earned until a later date. D.The reason barter is preferable to money.

C.Delaying the use of money earned until a later date

The primary determining factor that drives consumption spending is: A.Government policy. B.Which political party controls the White House. C.Income. D.The poverty level.

C.Income

The discount rate is the: A.Bank's nominal interest rate. B.Bank's real interest rate. C.Interest rate the bank must pay when it borrows reserves from the Fed. D.Interest rate the bank must pay when it borrows reserves from another bank.

C.Interest rate the bamk must pay when it borrows reserves from the Fed

Which of the following would not be part of the Fed's "easy" money policy? A.Lower the required reserve ratio. B.Lower the discount rate. C.Sell securities in the open market. D.Buy securities in the open market.

C.Sell securities in the open market

If the benefit of hiring a worker exceeds the cost of hiring that worker, the firm: A.Should not hire any more since they have maximized profits. B.Should reduce the number of workers hired since they are making a loss. C.Should increase hiring in order to increase profits. D.Should reduce the number hired in order to increase profits.

C.Should increase hiring in order to increase profits

The benefit of capital is: A.Having a shop floor full of new equipment. B.Not needing land or labor resources any more. C.The expected added earnings that will occur when the new equipment is operational. D.The need to hire more workers.

C.The expected added earnings that will occur when the new equipment is operational

In a recession: A.Economic activity speeds up. B.Inventory levels are abnormally low. C.Unemployment rises. D.Tax collections rise and transfer payments fall.

C.Unemployment rises

In a recession: A.Economic activity speeds up. B.Inventory levels are abnormally low. C.Unemployment rises. D.Tax collections rise and transfer payments fall.

C.unemployment rises

If the reserve ratio is ¼ and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by A.$90 B.$150 C.$160 D.$480

D. $480 1/.25=4 , 120 * 4= 480

Macro equilibrium can occur in which of these situations? A.When total spending is less than the economy's capability to produce. B.When total spending is greater than the economy's capability to produce. C.When total spending is equal to the economy's capability to produce. D.All of the above are correct.

D. All of the above are correct

Which of the following would not be part of the Fed's "tight" money policy? A.Raise the required reserve ratio. B.Raise the discount rate. C.Sell securities in the open market. D.Buy securities in the open market.

D. Buy securities in the open market

When the Fed conducts open market operations, it is buying or selling: A.Capital equipment for the banking system. B.Contracts to print more paper money or mint mew coins. C.Newly issued government securities just issued by the U. S. Treasury Department. D.Previously issued government securities that circulate in publicly traded bond markets.

D. Previously issue government securities that circulate in publicly traded bond markets

Macro equilibrium can occur with abnormally low unemployment when: A.Total spending is less than the economy's capability to produce. B.The economy operates at the full employment level. C.There are surpluses of workers and capital goods. D.The economy is overheated

D. The economy is overheated

In the short-run, there are periods of greater growth and of lesser growth than the long-run trend. We can see this in the: A.Political statements made by Presidential candidates. B.Changes in GDP deflator from year to year. C.Changes in the tastes and preferences of consumers from year to year. D.The ups and downs of the business cycle.

D. The ups and downs of the business cycle

The Federal Reserve conducts monetary policy, which is best defined as: A.International lending to needy governments. B.Lending to the U. S. government when it runs a budget deficit. C.Holding deposits for commercial banks to facilitate the payments system. D.Manipulating the size and growth of the money supply to improve economic performance.

D. manipulating the size and growth of the money supply to imporove economic performance

Households ________ goods and services in the _________ market. A.Sell; product. B.Sell: resource. C.Buy; resource. D.Buy; product.

D.Buy; product

Of the following assets, which is the most liquid? A.Real estate. B.Jewelry. C.Savings accounts. D.Checking accounts.

D.Checking accounts

The demand for a firm's products is called a _______ demand while the demand by the firm for workers is called a ______ demand. A.Derived; direct. B.Direct; indistinct. C.Derived; mandated. D.Direct; derived.

D.Direct; derived

The macroeconomic goals have to do with specific goals for all of the following except: A.Inflation rate. B.Unemployment rate. C.Economic growth rate. D.Interest rate.

D.Interest Rate

When demand for workers in each skill field increases, wages rise _______ in low-skilled jobs and _________ for high-skilled jobs. A.Fast; also fast. B.Fast; slowly. C.Slowly; also slowly. D.Slowly; fast.

D.Slowly; fast

The benefit of hiring a worker can be expressed in all of the following ways except: A.Marginal revenue product. B.Dollars coming in per worker. C.Sales revenue received from selling the added products produced. D.The wages of the worker.

D.The wages of the worker

When does the Discount rate decrease

During a recession

When will the reserve rate decrease

During a recession

The dollar value of all final goods and services produced within the nation's borders in one year is a measurement of: A.Total production. B.Total expenditures. C.Total income. D.Gross Domestic Product (GDP). E.All of the above.

E. All of the above

Which of the following is not a category of investment spending? A.New capital goods. B.Replacement capital goods. C.Inventory changes. D.New housing construction. E.All of the above are categories of investment spending.

E. All of the above are categories of investment spending

Which of the following is a leakage from the circular flow? A.Investment spending (I) B.Government spending (G) C.Taxes (T) D.Saving (S) E.Options c. and d. are both correct

E.Options c. and d. are both correct

What is the M2 money supply?

Includes all M1 money supply and saving accounts, money market accounts, and certificates of deposit

What does buying bonds do?

It puts money back into circulation of the economy.

Marginal Product Equation

change in total product/change in labor input

What is the M1 money supply?

includes all currency plus checking accounts and traveler's checks

Marginal Revenue Product Equation

marginal product x marginal revenue