Econ 202 Exam #3

Which of the following is a correct sequence of events during an expansion?

Unemployment falls, income rises, tax revenue rises, unemployment benefits fall, and the budget deficit falls

Gerald wants to take out an insurance policy on his Pez dispenser collection, and reports to his insurance company the the collection is worth $25,000. This is an example of using money as a

Unit of Account

When the manager of a department store attaches price to his/her products, he/she is using money as a

Unit of account

Any transaction that involves exchanging one good for another without using money is considered a

barter transaction

Checking account balances are included in

both M1 and M2

In 2016, the city of Canfield collected $500,000 intakes and spent $450,000. In 2016, the city of Canfield had a

budget surplus of $50,000

The U.S. dollar is an example of fiat money because

by law, it is decreed as money

Which of the following is not a form of commodity money?

checks

After World War II, cigarettes were used as money in Germany. This is an example of

commodity money

Assume that in the country of Salmon, the government triple the money supply overnight. As a result of this action, the price of a loaf of bread increased from 1 bill to 100 bills. This is an example of

currency debasement

If the government spending multiplier is 5 and government spending decreases by $200 billion, the output will ______ by $_______ billion

decrease; 1,000

As commercial banks keep more excess reserves, more creation

decreases

Included in M2 are

demand deposits

At equilibrium, injections

equal leakages

The total amount owed by the federal government to the public is the

federal debt

Money that has no intrinsic value and is created by a government decree is called

fiat money

(Y = C + I + G) when _______ in the income -expenditure model

government is included

Traveler's checks are

included in M1 and M2

During a recession, automatic stabilizers cause the federal deficit to

increase

Ruby transfers $700 from her saving account to her checking account. This transaction will

increase M1 and not change M2

Sarafina withdraws $450 from her saving account and places the money in her wallet. This transaction will

increase M1 and not change M2

Money

is anything that is regularly used and generally accepted in economic transactions or exchanges

When a government runs a deficit

its debt increases

Personal taxes are the______ in the government's budget

largest revenue source

Money that a government has required to be accepted in settlement of debts is

legal tender

Commercial banks create money through

making loans

Because money eliminates the "double coincidence of wants" problem, the development of money as a _______

medium of exchange

When you pay $8 for salad you ordererfor lunch, you are using money as a(n)

medium of exchange

The development of money as a medium of exchange has facilitated the expansion of trade because

money eliminates the "double coincidence of wants" problem

Which of the following would not be counted as part of M1?

money market accounts

Which of the following would not be included in M1?

money market accounts

The multiple by which total deposits can increase for every dollar in reserves is the

money multiplier

Close substitutes for transactions money are known as

near monies

A barter transaction involves exchanging

one good for another good

What is the largest source of revenue in the government's budget?

personal taxes

During an economic expansion, income ______, unemployment benefits _______, and the budget deficit ______.

rises, falls, falls

During a recession, unemployment______, Tax revenue ________, and the budget deficit ________.

rises, falls, rises

Which of the following is included in M2, but not included in M1?

saving account

A decrease in lump-sum taxes will

shift the consumption function upward

Aster won $500 on a slot machine. She deposits her $5,000 winnings into a money market fund so that she can use that money next year to help her pay for her new boat. This is an example of money serving as a(n)

store of value

Betty won $500 in a poker tournament. She deposits her $500 winnings into a money market fund so that she can use that money next year to help her pay for a trip to Las Vegas. This is an example of money serving as a(n)

store of value

Veronica received a federal income tax refund of $600 in May 2016. Veronica put this money in a saving account so that she could spend it when she went on vacation in July 2016. This is an example of money serving as a(n)

store of value

If the economy's full-employment output is $9 trillion, and the budget deficit is $20 billion, the deficit in this case is known as a

structural deficit

The difference between what a government spends and what it collects in taxes in a year is

the government budget deficit or surplus

The government purchases multiplier is

the ratio of the change in the equilibrium level of output to a change in government purchases

The tax multiplier is

the ratio of the change in the equilibrium level of output to the changes in taxes

Fiscal policy refers to

the spending and taxing policies used by the government to influence the economy.

The main disadvantage of using money as a store of value is that

the value of money actually falls when the prices of goods and services rise

Currency debasement occurs when

the value of money falls as a result of a rapid increase in its supply

Which of the following is considered a liability to a bank

time deposits

A currency that is not backed up by gold, silver, or any other parties commodity equal to the face value of the money is known as

token money

the federal debt is the

total amount owed to the public by the federal government

The aggregate consumption function is C = 200 + .9Yd. If income is $1,500 and net taxes are $300, consumption equals

$1280

Suppose the required reserve ratio is 20%. A $40 million cash deposit will, at most, allow an expansion of the money supply to

$200 million

If the government spending multiplier is 2 and government purchases increase by $200 billion, output will increase by

$400 billion

If the MPC is .5 the tax multiplier is

-1

The required reserve ratio is 50%. The money multiplier is

2

the required reserve ratio is 5%. The money multiplier is

20

If the MPC is . 75, the government spending multiplier is

4

The aggregate consumption function is C = 100 + .6Yd. If income is $1,000 and net taxes are $300, consumption equals

520

Which of the following would not be included in M2?

Treasury bonds

For the economy to be in equilibrium, the following condition must be satisfied: G + I = S + T

True

The M2 definition of money includes traveler's checks

True

The government budget is balanced when tax receipts equal government spending

True

Jacob makes excellent tamales and Amanda is very good at mowing lawns. Amanda agrees to mow Jacob's lawn, if he makes her a dozen tamales. This is an example of

Barter

After government is added to the income - expenditure model, the formula for the aggregate expenditure consumption function is

C = a + b(Y - T)

If the economy's full-employment output is $6 trillion, actual output is $3.5 trillion, and the budget deficit is $20 billion, the deficit in this case is known as a

Cyclical deficit

(currency held outside banks + demand deposits + other checkable deposits + travelers checks + savings account + money accounts + other near monies)

M2

An equation for M1 is

M2 - Saving Accounts - Money Market Accounts - Other Near Monies

The main advantage of using M2 instead of M1 as the measure for money is that

M2 is sometimes more stable

Disposable income

Decreases when income decreases

The economy is in equilibrium when aggregate output equals consumption spending.

False

The central bank of the United States is known as the

Federal reserve system

Assuming there is no foreign trade in the economy, the economy is in equilibrium when

I + G = S + T

Which of the following factors causes the barter system to be inefficient?

It requires a double coincidence of wants

Currency held outside banks + demand deposits + travelers checks + other checkable deposits=

M1

When the government sector is included in the income - expenditure model, the equation for aggregate income is

Y = C + I + G

The liquidity property of money is the property that makes money

a good medium of exchange and a good store of value

Which of the following is not a category of fiscal policy? a) government policies regarding money supply in the economy b) government policies regarding taxation c) government policies regarding the transfer payments and welfare benefits d) government policies regarding the purchase of goods and services

a) government policies regarding money supply in the economy

Money is

anything that is generally accepted as a medium of exchange

Things that a firm owns that are worth something are classified as

assets