Exam 1

In a fractional-reserve banking system, banks create money because: A) each dollar of reserves generates many dollars of demand deposits. B) banks have the legal authority to issue new currency. C) funds are transferred from households wishing to save to firms wishing to borrow. D) the wealth of the economy expands when borrowers undertake new debt obligations.

A) each dollar of reserves generates many dollars of demand deposits.

If the Federal Reserve wishes to increase the money supply, it should: A) decrease the discount rate. B) increase interest paid on reserves. C) sell government bonds. D) decrease the monetary base.

A) decrease the discount rate.

If many banks fail, this is likely to: A) increase the ratio of currency to deposits. B) decrease the ratio of currency to deposits. C) have no effect on the ratio of currency to deposits. D) decrease the amount of currency in circulation, if the Fed takes no action.

A) increase the ratio of currency to deposits.

If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP ______ by ______ percent. A) increased; 2 B) decreased; 2 C) increased; 8 D) decreased; 8

A) increased; 2

When the Fed increases the interest rate paid on reserves, it: A) increases the reserve-deposit ratio (rr). B) decreases the reserve-deposit ratio (rr). C) increases the monetary base (B). D) decreases the monetary base (B).

A) increases the reserve-deposit ratio (rr).

The banking system creates: A) liquidity. B) wealth. C) reserves. D) currency.

A) liquidity.

12. The inflation rate in the United States averaged about: A) nearly zero between 1900 and 1950. B) nearly zero between 1950 and 2000. C) 10 percent between 1900 and 1950. D) 10 percent between 1950 and 2000.

A) nearly zero between 1900 and 1950.

When the Federal Reserve conducts an open-market purchase, it buys bonds from the: A) public. B) U.S. Treasury. C) Internal Revenue Service. D) International Monetary Fund.

A) public.

The investment component of GDP includes all of the following except: A) purchases of corporate stock. B) spending on new plants and equipment. C) purchases of new housing by households. D) changes in business inventories.

A) purchases of corporate stock.

If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is: A) reserves divided by rr. B) 1/rr. C) reserves times rr. D) reserves divided by (1 - rr).

A) reserves divided by rr.

An increase in the price of imported goods will show up in: A) the CPI but not in the GDP deflator. B) the GDP deflator but not in the CPI. C) both the CPI and the GDP deflator. D) neither the CPI nor the GDP deflator.

A) the CPI but not in the GDP deflator.

If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then: A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen. B) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had fallen. C) the money supply would fall more than it would have fallen if the reserve-deposit ratio had risen. D) it is impossible to be certain whether the money supply would fall or rise in this case.

A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen.

The money supply will decrease if the: A) monetary base increases. B) currency-deposit ratio increases. C) discount rate decreases. D) reserve-deposit ratio decreases.

B) currency-deposit ratio increases.

Nominal GDP is measured in _____ prices _____ time. A) current; at a point in B) current; per unit of C) constant; at a point in D) constant; per unit of

B) current; per unit of

When a firm sells a product out of inventory, investment expenditures ______ and consumption expenditures ______. A) increase; decrease B) decrease; increase C) decrease; remain unchanged D) remain unchanged; increase

B) decrease; increase

A woman marries her butler. Before they were married, she paid him $60,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. The marriage: A) does not change GDP. B) decreases GDP by $60,000. C) increases GDP by $60,000. D) increases GDP by more than $60,000.

B) decreases GDP by $60,000.

When the Fed decreases the interest rate paid on reserves, it: A) increases the reserve-deposit ratio (rr). B) decreases the reserve-deposit ratio (rr). C) increases the monetary base (B). D) decreases the monetary base (B).

B) decreases the reserve-deposit ratio (rr).

Imputed values included in GDP are the: A) market prices of goods and services. B) estimated value of goods and services that are not sold in the marketplace. C) price of goods and services measured in constant prices. D) price of goods and services measured in current prices.

B) estimated value of goods and services that are not sold in the marketplace.

In the national income accounts, net exports equal: A) exported goods minus imported goods. B) exported goods and services minus imported goods and services. C) exported goods minus imported services. D) exported goods and services plus imported goods and services.

B) exported goods and services minus imported goods and services.

An estimate of the number of unemployed workers in the economy can be obtained from: A) both the household and establishment surveys. B) from the household survey, but not from the establishment survey. C) from the establishment survey, but not from the household survey. D) from neither the household nor the establishment surveys.

B) from the household survey, but not from the establishment survey.

Which of the following is the best example of a flexible price? A) the price of a cup of coffee in a coffee shop B) the price of gasoline at a service station C) the price of a ticket at a movie theater D) the price of a book in a bookstore

B) the price of gasoline at a service station

The employment statistics computed from the establishment survey do not include: A) workers with two jobs. B) the self-employed. C) workers on firms' payrolls. D) part-time workers on firms' payrolls.

B) the self-employed.

The quantitative easing operations conducted by the Federal Reserve between 2007 and 2011 resulted in _____ increases in the monetary base and _____ increases in money supply. A) no; no B) large; larger C) large; smaller D) small; smaller

C) large; smaller

A woman marries her butler. Before they were married, she paid him $60,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner). She earns $1,000,000 per year both before and after her marriage. If GDP were changed so that it truly measured the sum of all final economic activity, the marriage would: A) decrease GDP. B) increase GDP. C) leave GDP unchanged. D) first decrease and then increase GDP.

C) leave GDP unchanged.

Which of the combinations listed is not a U.S. president and an important economic issue of his administration? A) President Carter, inflation B) President Reagan, budget deficits C) President G.H.W. Bush, budget deficits D) President Clinton, inflation

D) President Clinton, inflation

All of the following actions are investments in the sense of the term used by macroeconomists except: A) IBM's building a new factory. B) corner candy store's buying a new computer. C) John Smith's buying a newly constructed home. D) Sandra Santiago's buying 100 shares of IBM stock.

D) Sandra Santiago's buying 100 shares of IBM stock.

Excess reserves are reserves that banks keep: A) in their vaults. B) at the central bank. C) to meet legal reserve requirements. D) above the legally required amount.

D) above the legally required amount.

The assumption of continuous market clearing means that: A) sellers can sell all that they want at the going price. B) buyers can buy all that they want at the going price. C) in any given month, buyers can buy all that they want and sellers can sell all that they want at the going price. D) at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

D) at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement. A) reserve B) margin C) liquidity D) capital

D) capital

Real GDP is measured in _____ prices ____ time. A) current; at a point in B) current; per unit of C) constant; at a point in D) constant; per unit of

D) constant; per unit of

The difference between banks and other financial intermediaries is that only banks have the legal authority to: A) transfer funds from savers to borrowers. B) pay interest on debt obligations. C) manage portfolios of assets. D) create assets that are part of the money supply.

D) create assets that are part of the money supply.

When the Fed makes an open-market sale, it: A) increases the money multiplier (m). B) increases the currency-deposit ratio (cr). C) increases the monetary base (B). D) decreases the monetary base (B).

D) decreases the monetary base (B).

Credit cards: A) are part of the M1 money supply. B) are part of the M2 money supply. C) are part of both the M1 and M2 money supply. D) do not affect the money supply.

D) do not affect the money supply.

When the Fed increases the discount rate, it: A) increases the reserve to deposit ratio (rr). B) decreases the reserve to deposit ratio (rr). C) is likely to increase the monetary base (B) D) is likely to decrease the monetary base (B).

D) is likely to decrease the monetary base (B).

If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009? A) $12 trillion B) $12.5 trillion C) $15 trillion D) $18.75 trillion

A) $12 trillion

In 2013 in the United States, the approximate amount of GDP (in current dollars) that was spent on consumption per person was: A) $36,400. B) $53,100. C) $8, 400. D) $16,800.

A) $36,400.

If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent. A) 2 B) 3 C) 5 D) 8

A) 2

The CPI is a: A) Laspeyres price index. B) Paasche price index. C) Laspeyres quantity index. D) Paasche quantity index.

A) Laspeyres price index.

The quantitative easing policy conducted by the Federal Reserve between 2007 and 2011 resulted in a large increase in the monetary base that was partially offset by: A) a significant increase in the reserve-deposit ratio B) a significant decrease in the reserve-deposit ratio. C) open-market purchases. D) open-market sales.

A) a significant increase in the reserve-deposit ratio

An estimate of total employment in the economy can be obtained from: A) both the household and establishment surveys. B) from the household survey, but not from the establishment survey. C) from the establishment survey, but not from the household survey. D) from neither the household nor the establishment surveys.

A) both the household and establishment surveys.

The monetary base consists of: A) currency held by the public, plus reserves held by banks. B) all outstanding currency, plus reserves held by banks. C) all outstanding currency, plus demand deposits. D) all bank reserves.

A) currency held by the public, plus reserves held by banks.

In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measured horizontally: A) the supply curve slopes upward and to the right. B) the demand curve slopes upward and to the right. C) the supply curve slopes downward and to the right. D) at the equilibrium price, the supply of pizza exceeds the demand for pizza

A) the supply curve slopes upward and to the right.

Which of the following is a stock variable? A) wealth B) consumption C) investment D) income

A) wealth

Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is: A) $10,000. B) $12,000. C) $20,000. D) $22,000.

B) $12,000.

A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is: A) $1. B) $2. C) $3. D) $6.

B) $2.

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ divided by ______ multiplied by B. A) (rr+1);(rr+cr) B) (cr+1);(cr+rr) C) (rr+cr);(rr+1) D) (rr+cr);(cr+1)

B) (cr+1);(cr+rr)

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 5 in 2009, then the GDP deflator in 2009, using a base year of 2002, was approximately: A) 1.5. B) 1.7. C) 1.9. D) 2.0.

B) 1.7.

Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent. A) 10 B) 20 C) 30 D) 40

B) 20

If 7 million workers are unemployed, 143 million workers are employed, and the adult population equals 200 million, then the unemployment rate equals approximately ______ percent. A) 3.5 B) 4.7 C) 4.9 D) 7

B) 4.7

Assume that the adult population of the United States is 191.6 million, total employment is 117.6 million, and 9.4 million are unemployed. Then the unemployment rate, as normally computed, is approximately ______ percent. A) 4.9 B) 7.4 C) 7.9 D) 9.4

B) 7.4

The GDP deflator is a: A) Laspeyres price index. B) Paasche price index. C) Laspeyres quantity index. D) Paasche quantity index.

B) Paasche price index.

The labor-force participation rate is the percentage of the: A) adult population that is employed. B) adult population that is in the labor force. C) labor force that is employed. D) labor force that is unemployed.

B) adult population that is in the labor force.

Assume that the market basket of goods and services purchased in 2004 by the average family in the United States costs $14,000 in 2004 prices, whereas the same basket costs $21,000 in 2009 prices. However, the basket of goods and services actually purchased by the average family in 2009 costs $20,000 in 2009 prices, whereas this same basket would have cost $15,000 in 2004 prices. Given these data, a Paasche index for 2009 using 2004 prices would be: A) 1.05. B) approximately 1.07. C) approximately 1.33. D) 1.50.

B) approximately 1.07.

The reserve-deposit ratio is determined by: A) the Federal Reserve. B) business policies of banks and the laws regulating banks. C) preferences of households about the form of money they wish to hold. D) the Federal Deposit Insurance Corporation (FDIC).

B) business policies of banks and the laws regulating banks.

If many banks fail, this is likely to: A) cause surviving banks to lower their ratios of reserves to deposits. B) cause surviving banks to raise their ratios of reserves to deposits. C) have no effect on the ratio of reserves to deposits in surviving banks. D) cause surviving banks to hold less currency.

B) cause surviving banks to raise their ratios of reserves to deposits.

Payment is deferred by using _______, but immediate access to funds occurs when using ______. A) currency; demand deposits B) credit cards; debit cards C) demand deposits; savings deposits D) debit cards; credit cards

B) credit cards; debit cards

Measuring the rate of inflation using a market basket that excludes food and energy prices is preferred by some analysts because this measure, called core inflation, A) provides a real, rather than a nominal, rate of inflation. B) gives a better measure of ongoing, sustained price changes. C) is more consistent with measures of inflation used in other countries. D) fluctuates more than measures of inflation that include food and energy prices.

B) gives a better measure of ongoing, sustained price changes.

An example of an imputed value in the GDP is the: A) value-added of meals cooked at home. B) housing services enjoyed by homeowners. C) services of automobiles to their owners. D) value of illegal drugs sold.

B) housing services enjoyed by homeowners.

In 1932, the U.S. government imposed a two-cent tax on checks written on deposits in bank accounts. This action would be expected to ______ the currency-deposit ratio and ______ the money supply. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

B) increase; decrease

In a simple model of the supply and demand for pizza, when aggregate income increases, the price of pizza ______ and the quantity purchased ______. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases

B) increases; increases

The use of fei as money on the island of Yap illustrates the idea of money as a social convention because: A) only fei physically in the possession of the owner is accepted in transactions. B) legal claim to a fei never seen by current generations was accepted in transactions. C) the central bank of Yap accepts fei in exchange for paper certificates. D) the government of Yap verifies the authenticity of fei used for transactions.

B) legal claim to a fei never seen by current generations was accepted in transactions.

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. A) more; increase B) more; decrease C) fewer; increase D) fewer; decrease

B) more; decrease

A worker with two jobs is counted: A) once in both the household and the establishment surveys. B) once in the household survey, but twice in the establishment survey. C) once in the establishment survey, but twice in the household survey. D) twice in both the household and the establishment surveys.

B) once in the household survey, but twice in the establishment survey.

In principle, the GDP accounts should—but do not—have an imputation for: A) housing services enjoyed by homeowners. B) rental services of automobiles driven by owners. C) meals cooked in restaurants. D) housing services enjoyed by renters.

B) rental services of automobiles driven by owners.

The amount of capital that banks are required to hold depends on the: A) amount of deposits held at a bank. B) riskiness of the bank's assets. C) reserve requirements set by the Fed. D) level of deposit insurance coverage.

B) riskiness of the bank's assets.

12. A graph of the rate of inflation in the United States over the twentieth century shows: A) an overall upward trend interrupted by a large downturn in the 1930s. B) some periods of deflation in the first half of the century, but only positive rates of inflation in the second half of the century. C) a relatively steady, positive level throughout the century except for deflation in the 1930s. D) a constant rate of inflation in the first half of the century followed by an upward trend in the second half.

B) some periods of deflation in the first half of the century, but only positive rates of inflation in the second half of the century.

The amount of capital in an economy is a ______ and the amount of investment is a ______. A) flow; stock B) stock; flow C) final good; intermediate good D) intermediate good; final good

B) stock; flow

When prices of different goods are increasing by different amounts, the price index that will rise the fastest is: A) Fisher's ideal index. B) the CPI. C) the GDP deflator. D) a Paasche index.

B) the CPI.

An increase in the price of goods bought by firms and the government will show up in: A) the CPI but not in the GDP deflator. B) the GDP deflator but not in the CPI. C) both the CPI and the GDP deflator. D) neither the CPI nor the GDP deflator.

B) the GDP deflator but not in the CPI.

All of the following are a stock except: A) a consumer's wealth. B) the government budget deficit. C) the number of unemployed people. D) the amount of capital in the economy.

B) the government budget deficit.

When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base is constant, then: A) it cannot be determined whether the money supply increases or decreases. B) the money supply increases. C) the money supply decreases. D) the two changes exactly offset each other.

B) the money supply increases.

If the unemployment rate is 6 pterm-90ercent and the number of employed is 188 million, then the labor force equals ______ million. A) 11.28 B) 176.72 C) 188 D) 200

D) 200

All of the following statements about sticky prices are true except: A) in the short run, some wages and prices are sticky. B) the sticky-price model describes the equilibrium toward which the economy slowly gravitates. C) for studying year-to-year fluctuations, most macroeconomists believe that price stickiness is a better assumption than is price flexibility. D) magazine publishers tend to change their newsstand prices only every three or four years.

B) the sticky-price model describes the equilibrium toward which the economy slowly gravitates.

If the number of employed increases while the number of unemployed does not change, the unemployment rate: A) will increase. B) will decrease. C) will not change. D) may either increase or decrease.

B) will decrease.

In 2013, the GDP of the United States totaled about: A) $16.8 billion. B) $168 billion. C) $16.8 trillion. D) $168 trillion.

C) $16.8 trillion.

Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, the value included in GDP should be: A) $0.50. B) $1. C) $2. D) $3.

C) $2.

A bank balance sheet consists of only the following items: Deposits: $1,000 Reserves: $100 Securities: $400 Debt: $500 Loans: $2,000 What is the value of bank capital? A) -$1,000 B) +$500 C) +$1,000 D) +$1,500

C) +$1,000

Based on the table, what is the reserve-deposit ratio at the bank? A) 3 percent B) 5 percent C) 10 percent D) 15 percent

C) 10 percent

If real GDP grew by 6 percent and population grew by 2 percent, then real GDP per person grew by approximately ______ percent. A) 2 B) 3 C) 4 D) 8

C) 4

(Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank? A) 3 B) 4.67 C) 5 D) 10

C) 5

Which statement below best illustrates the "art," rather than the "science" of macroeconomics? A) Macroeconomic data provides the motivation for new macroeconomic theory. B) Macroeconomic relationships can be expressed using symbols and equations. C) Macroeconomists must determine which simplifying assumptions clarify our thinking and which mislead us. D) Graphs and charts can be used to illustrate the history of macroeconomic variables.

C) Macroeconomists must determine which simplifying assumptions clarify our thinking and which mislead us.

Checking account balances that are linked to debit cards are included in: A) M1. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.

C) both M1 and M2.

The money supply consists of: A) currency plus reserves. B) currency plus the monetary base. C) currency plus demand deposits. D) the monetary base plus demand deposits.

C) currency plus demand deposits.

The core inflation rate: A) measures the change in producer prices. B) is measured using a Paasche index. C) excludes food and energy prices. D) includes the price of exports and includes the price of imports.

C) excludes food and energy prices.

The more funds that the Fed makes available for banks to borrow through the Term Auction Facility, the monetary base and the _____ the money supply. A) smaller; smaller B) smaller; greater C) greater; greater D) greater; smaller

C) greater; greater

It is a national income accounting rule that all expenditure on purchases of products in the economy is necessarily equal to: A) profits of firms. B) wages of employees. C) income of the producers of the products in the economy. D) income of employees.

C) income of the producers of the products in the economy.

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will: A) increase by $1 million. B) decrease by $1 million. C) increase by more than $1 million. D) decrease by more than $1 million.

C) increase by more than $1 million.

Macroeconomics is based on microeconomics for all of the following reasons except: A) when we study the economy as a whole, we must consider the decisions of individual economic actors. B) aggregate variables are simply the sum of variables describing many individual decisions. C) macroeconomic decision makers, when they make their choices, are required to maximize utility functions. D) to understand the determinants of aggregate investment, we must think about a firm's deciding whether to build a new factory.

C) macroeconomic decision makers, when they make their choices, are required to maximize utility functions.

GNP equals GDP ______ income earned domestically by foreigners ______ income that nationals earn abroad. A) plus; plus B) minus; minus C) minus; plus D) plus; minus

C) minus; plus

The money supply will increase if the: A) currency-deposit ratio increases. B) reserve-deposit ratio increases. C) monetary base increases. D) discount rate increases.

C) monetary base increases.

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______. A) monetary base; monetary base; monetary base B) money multiplier; money multiplier; money multiplier C) monetary base; money multiplier; monetary base D) money multiplier; monetary base; money multiplier

C) monetary base; money multiplier; monetary base

The currency-deposit ratio is determined by: A) the Federal Reserve. B) business policies of banks and the laws regulating banks. C) preferences of households about the form of money they wish to hold. D) the Federal Deposit Insurance Corporation (FDIC).

C) preferences of households about the form of money they wish to hold.

A graph of the U.S. unemployment rate over the twentieth century shows: A) an overall upward trend in the unemployment rate interrupted by a large upturn in the 1930s. B) an overall downward trend in the unemployment rate interrupted by a large upturn in the 1930s. C) rates of unemployment always greater than zero with substantial variations from year to year. D) alternating periods of positive and negative rates of unemployment.

C) rates of unemployment always greater than zero with substantial variations from year to year.

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves. A) purchases; raise B) purchases; lower C) sales; raise D) sales; lower

C) sales; raise

National income differs from net national product by an amount called: A) depreciation. B) indirect business taxes. C) statistical discrepancy. D) net foreign factor income payments.

C) statistical discrepancy.

High-powered money is another name for: A) currency. B) demand deposits. C) the monetary base. D) M2.

C) the monetary base.

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase. A) reserve requirements B) the discount rate C) the money supply D) the reserve-deposit ratio

C) the money supply

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then: A) it cannot be determined whether the money supply increases or decreases. B) the money supply increases. C) the money supply decreases. D) the money supply does not change.

C) the money supply decreases.

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then: A) it cannot be determined whether the money supply increases or decreases. B) the money supply increases. C) the money supply decreases. D) the money supply does not change.

C) the money supply decreases.

The household survey conducted by the Bureau of Labor Statistics provides estimates of the number of workers ______, while the establishment survey provides estimates of the number of workers ______. A) self-employed; unemployed B) unemployed; self-employed C) with jobs; on firms' payrolls D) on firms' payrolls; with jobs

C) with jobs; on firms' payrolls

Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $0.50 in 2009. If 10 apples and 5 oranges were purchased in 2002, and 5 apples and 10 oranges were purchased in 2009, the CPI for 2009, using 2002 as the base year, is: A) 0.75. B) 0.80. C) 1. D) 1.25.

D) 1.25.

Assume that the market basket of goods and services purchased in 2004 by the average family in the United States costs $14,000 in 2004 prices, whereas the same basket costs $21,000 in 2009 prices. However, the basket of goods and services actually purchased by the average family in 2009 costs $20,000 in 2009 prices, whereas this same basket would have cost $15,000 in 2004 prices. Given this data, a Laspeyres price index of 2009 prices using 2004 as the base year would be: A) 1.05. B) approximately 1.07. C) approximately 1.33. D) 1.50.

D) 1.50.

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals: A) 0.6. B) 1.67. C) 2.0. D) 2.5.

D) 2.5.

In the relationship expressed in functional form, Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ): A) is the growth rate of real GDP when the amount of capital and labor in the economy is fixed. B) indicates that the variables inside the parentheses are endogenous variables in the model. C) is the symbol that stands for government input into the production process. D) is the function telling how the variables in the parentheses determine real GDP.

D) is the function telling how the variables in the parentheses determine real GDP.

To increase the money multiplier, the Fed can: A) conduct open-market purchases. B) conduct open-market sales. C) raise the interest rate paid on reserves. D) lower the interest rate paid on reserves.

D) lower the interest rate paid on reserves.

Net national product equals GNP: A) plus net investment. B) minus net investment. C) plus depreciation. D) minus depreciation.

D) minus depreciation.

Credit card balances are included in: A) M1 only. B) M2 only. C) both M1 and M2. D) neither M1 nor M2.

D) neither M1 nor M2.

A fixed-weight price index like the CPI ______ the change in the cost of living because it ______ take into account that people can substitute less expensive goods for ones that have become more expensive. A) underestimates; does not B) overestimates; does C) accurately estimates; does D) overestimates; does not

D) overestimates; does not

For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing. A) maximum quantity; minimum quantity B) minimum price; maximum price C) quantity; price D) price; quantity

D) price; quantity

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply: A) increases by $100. B) decreases by $100. C) increases by more than $100. D) remains the same.

D) remains the same.

Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be _____ securities. A) safer and shorter-term B) tax-favored and foreign C) smaller-denomination and higher-grade D) riskier and longer-term

D) riskier and longer-term

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ______ and the currency-deposit and reserve-deposit ratios both ______. A) fell; fell B) fell; rose C) rose; fell D) rose; rose

D) rose; rose

All of the following are a flow except: A) the number of new automobile purchases. B) the number of people losing their jobs. C) business expenditures on plant and equipment. D) the government debt.

D) the government debt.

The value added of an item produced refers to: A) a firm's profits on the item sold. B) the value of the labor inputs in the production of an item. C) the value of a firm's output less the value of its costs. D) the value of a firm's output less the value of the intermediate goods that the firm purchases.

D) the value of a firm's output less the value of the intermediate goods that the firm purchases.