Econ Final Exam Review: Chapters 30-33

Which of the following does not explain what backs the money supply in the United States? A. It is backed by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the federal government. D. It is relatively scarce.

A. It is backed by gold.

Graphically, demand-pull inflation is shown as a: A. rightward shift of the AD curve along an upsloping AS curve. B. leftward shift of the AS curve along a downsloping AD curve. C. leftward shift of the AS curve along an upsloping AD curve. D. rightward shift of the AD curve along a downsloping AS curve.

A. rightward shift of the AD curve along an upsloping AS curve.

Suppose the price level is fixed, the MPC is .8, and the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should: A. increase government expenditures by $200 billion. B. reduce taxes by $200 billion. C. increase government expenditures by $40 billion. D. reduce taxes by $160 billion.

C. increase government expenditures by $40 billion.

Increases in the federal budget deficit from 2007 to 2009 were caused: A. exclusively by the loss of tax revenue due to recession. B. exclusively by expansionary fiscal policy, as shown through growth in the cyclically adjusted deficit. C. primarily by a combination of recession and expansionary fiscal policy. D. primarily by increased outlays to a rapidly growing number of Social Security recipients.

C. primarily by a combination of recession and expansionary fiscal policy.

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A. leftward by $50 billion at each price level. B. rightward by $10 billion at each price level. C. rightward by $50 billion at each price level. D. leftward by $40 billion at each price level.

C. rightward by $50 billion at each price level.

Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by: A. rightward shift of the aggregate demand curve along a fixed aggregate supply curve. B. rightward shift of the aggregate supply curve along a fixed aggregate demand curve. C. rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. D. leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

C. rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.

The aggregate supply curve: A. is explained by the interest rate, real-balances, and foreign purchases effects. B. gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. shows the various amounts of real output that businesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls.

C. shows the various amounts of real output that businesses will produce at each price level.

The immediate primary cause of the swing from federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was: A. the tax cuts of 2001. B. spending increases relating to the wars in Afghanistan and Iraq. C. the recession of 2001. D. the acceleration of inflation in 2001 and 2002.

C. the recession of 2001.

If the price index rises from 200 to 250, the purchasing power value of the dollar: A. may either rise or fall. B. will rise by 25 percent. C. will fall by 25 percent. D. will fall by 20 percent.

C. will fall by 25 percent.

****Assets**** ****Liabilities/Net Worth**** Reserves 27,000 Checkable Deposits 110,000 Loans 50,000 Stock Shares 200,000 Securities 33,000 Property 200,000 ---------------------------------------------------------- Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be: A. $25,000 and $122,000 respectively. B. $22,000 and $110,000 respectively. C. $32,000 and $115,000 respectively. D. $22,000 and $105,000 respectively.

D. $22,000 and $105,000 respectively.

*****Gov. Spending ***********Tax Revenues ********GDP YR.1 450----------------------- 425 ----------------2,000 YR.2 500 -----------------------450 ----------------3,000 YR.3 600----------------------- 500 ----------------4,000 YR.4 640 -----------------------620 ----------------5,000 YR.5 680 -----------------------580 ----------------4,800 YR.6 600 -----------------------620---------------- 5,000 ------------------------------------------------------------------ If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: A. 7.5 percent. B. 1.39 percent. C. 2.5 percent. D. 3.9 percent.

D. 3.9 percent.

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions? A. 50 percent. B. 71 percent. C. 40 percent. D. 33 percent.

D. 33 percent.

Suppose that the federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision? A. The value of the "wheat dollar" would be unstable depending on crop yields from year to year. B. Farmers would replace corn and soy crops with wheat. C. Wheat would function as money so long as people accept it in exchange for goods and services. D. All of these are possible outcomes.

D. All of these are possible outcomes.

Reserves 100 Checkable Deposits 1000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 ------------------------------------------------------------ If Moolah Bank is legally "loaned up," the reserve requirement must be: A. 10 percent. B. 15 percent. C. 20 percent. D. 25 percent.

A. 10 percent.

*****Gov. Spending ***********Tax Revenues ********GDP YR.1 450----------------------- 425 ----------------2,000 YR.2 500 -----------------------450 ----------------3,000 YR.3 600----------------------- 500 ----------------4,000 YR.4 640 -----------------------620 ----------------5,000 YR.5 680 -----------------------580 ----------------4,800 YR.6 600 -----------------------620---------------- 5,000 ------------------------------------------------------------------ The public debt declined in year: A. 6. B. 5. C. 4. D. 3.

A. 6.

new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. ------------------------------------------------------------ With the $40 billion deposit, the banking system will be able to expand the money supply through loans by: A. $160 billion. B. $200 billion. C. $40 billion. D. $128 billion.

A. $160 billion.

****Assets**** ****Liabilities/Net Worth**** Reserves 51 Checkable Deposits 140 Loans 109 Stock Shares 130 Securities 100 Property 110 ---------------------------------------------------------- The maximum amount by which the commercial banking system can expand the supply of money by lending is: A. $30 billion. B. $23.1 billion. C. $27 billion. D. $15 billion.

A. $30 billion.

$ Market Mutual Fund Balances held by busiss. 100 $ Market Mutual Fund Balances held by individ. 220 Currency in Banks 10 Currency in Circulations 60 Savings Deposits 50 Large-Denominated (100,000 +)Time Deposits 180 Small-Denominated (100,000 -)Time Deposits 80 Checkable Deposits 70 ---------------------------------------------------------- Refer to the information above. Money supply M2 for this economy is: A. $480. B. $130. C. $490. D. $630.

A. $480.

****Assets**** ****Liabilities/Net Worth**** Reserves 51 Checkable Deposits 140 Loans 109 Stock Shares 130 Securities 100 Property 110 ---------------------------------------------------------- The commercial banking system has excess reserves of: A. $9 billion. B. $7 billion. C. $6.1 billion. D. $5 billion

A. $9 billion.

Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

A. a medium of exchange.

Reserves 100 Checkable Deposits 1000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 ------------------------------------------------------------ Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,100. B. liabilities are $1,100. C. net worth is $300. D. profit is $1,000.

A. assets are $1,100.

In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A. coins, paper currency, and checkable deposits.

When aggregate demand declines, the price level may remain constant, at least for a time, because: A. firms individually may fear that their price cut may set off a price war. B. menu costs rise. C. price cuts tend to increase efficiency wages. D. product markets are highly competitive.

A. firms individually may fear that their price cut may set off a price war.

A decrease in aggregate demand will cause a greater decline in real output the: A. less flexible is the economy's price level. B. more flexible is the economy's price level. C. steeper is the economy's AS curve. D. larger is the economy's marginal propensity to save.

A. less flexible is the economy's price level.

A bank that has assets of $85 billion and a net worth of $10 billion must have: A. liabilities of $75 billion. B. excess reserves of $10 billion. C. liabilities of $10 billion. D. excess reserves of $75 billion.

A. liabilities of $75 billion.

Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective? A. Monetary policy counteracted fiscal policy, keeping the unemployment rate from falling as much as intended. B. Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt. C. Although the fiscal stimulus increased consumer spending significantly, it mostly went to purchase foreign-produced goods and services. D. The fiscal stimulus caused massive inflation that further disrupted economic activity.

B. Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt.

Paper money (currency) in the United States is issued by the: A. U.S. Mint. B. Federal Reserve Banks. C. U.S. Treasury. D. national banks.

B. Federal Reserve Banks.

(Last Word) Which of the following would not help to relieve the Social Security and Medicare shortfalls? A. Extending the Social Security tax to a higher level of earnings. B. Restricting immigration of skilled working-age adults. C. Increasing the retirement age for collecting Social Security and Medicare benefits. D. Reducing Social Security and Medicare benefits for wealthier individuals.

B. Restricting immigration of skilled working-age adults.

Output Demanded --Price Level -- Output Supplied 200 --------------------300 ---------------500 300 --------------------250---------------- 450 400 --------------------200 ----------------400 500 --------------------150----------------- 300 600---------------------100----------------- 200 ------------------------------------------------------------------ Refer to the data in the table above. If the amount of real output demanded at each price level falls by $200, this might have been caused by: A. an increase in net exports. B. a worsening of business expectations. C. an increase in consumer wealth. D. a decrease in the personal income tax.

B. a worsening of business expectations.

The reserves of a commercial bank consist of: A. the amount of money market funds it holds. B. deposits at the Federal Reserve Bank and vault cash. C. government securities that the bank holds. D. the bank's net worth.

B. deposits at the Federal Reserve Bank and vault cash.

Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n): A. expansionary fiscal policy. B. contractionary fiscal policy. C. neutral fiscal policy. D. high-interest-rate policy.

B. contractionary fiscal policy.

Other things equal, an excessive increase in the money supply will: A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact on the purchasing power of the dollar. D. reduce the price level.

B. decrease the purchasing power of each dollar.

Countercyclical discretionary fiscal policy calls for: A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

B. deficits during recessions and surpluses during periods of demand-pull inflation.

$ Market Mutual Fund Balances held by busiss. 100 $ Market Mutual Fund Balances held by individ. 220 Currency in Banks 10 Currency in Circulations 60 Savings Deposits 50 Large-Denominated (100,000 +)Time Deposits 180 Small-Denominated (100,000 -)Time Deposits 80 Checkable Deposits 70 ---------------------------------------------------------- Refer to the information above. Money supply M1 for this economy is: A. $60. B. $70. C. $130. D. $140.

C. $130.

(Last Word) Suppose Balin has $100 to invest in an opportunity that returns, for every $100 invested, $120 if it goes well but only $80 if it goes poorly. If leverage allows Balin to borrow $90 for every $10 he invests, what are his rates of profit and loss, respectively, if he borrows the full amount to invest in the opportunity? A. 20 percent profit; 20 percent loss. B. 33.3 percent profit; 50 percent loss. C. 200 percent profit; 100 percent loss. D. 1,100 percent profit; 100 percent loss.

C. 200 percent profit; 100 percent loss.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)? A. A reduced amount of excess capacity. B. Increased government spending on military equipment. C. An appreciation of the U.S. dollar. D. Increased consumer optimism regarding future economic conditions.

C. An appreciation of the U.S. dollar.

Which of the following is the best example of public investment? A. Salaries of senators and representatives. B. Government expenditures on food stamps. C. Construction of highways. D. Funding of regulatory agencies.

C. Construction of highways.

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because: A. the Fed forces commercial banks to increase the money supply during economic expansions. B. it is very costly to transfer funds between commercial banks and the central banks. C. Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves. D. Federal Reserve Banks want to minimize their interest payments on such deposits.

C. Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

Which of the following best describes the idea of a political business cycle? A. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. B. Fiscal policy will result in alternating budget deficits and surpluses. C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. D. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Which of the following statements best describes the 12 Federal Reserve Banks? A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

During periods of rapid inflation, money may cease to work as a medium of exchange: A. unless it has been designated legal tender. B. unless it is backed by gold. C. because it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.

D. because people and businesses will not want to accept it in transactions.

Which of the following is incorrect? A. As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. B. As the price level falls, the demand for money declines, the interest rate declines, and interest-rate-sensitive spending increases. C. When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending. D. Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward-flexible prices, reduces the price level.

C. When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.

Output Demanded --Price Level -- Output Supplied 200 --------------------300 ---------------500 300 --------------------250---------------- 450 400 --------------------200 ----------------400 500 --------------------150----------------- 300 600---------------------100----------------- 200 ------------------------------------------------------------------ Refer to the data in the table above. If the price level is 250 and producers supply $450 of real output: A. a shortage of real output of $150 will occur. B. a shortage of real output of $100 will occur. C. a surplus of real output of $150 will occur. D. neither a shortage nor a surplus of real output will occur.

C. a surplus of real output of $150 will occur.

The federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks. B. U.S. securities are bought and sold. C. banks borrow reserves from one another on an overnight basis. D. Federal Reserve Banks borrow from one another.

C. banks borrow reserves from one another on an overnight basis.

In a fractional reserve banking system: A. bank panics cannot occur. B. the monetary system must be backed by gold. C. banks can create money through the lending process. D. the Federal Reserve has no control over the amount of money in circulation.

C. banks can create money through the lending process.

Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008? A. From February 2008 to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen. B. From March 2008 to February 2009, the Fed experienced a 50 percent decline in the value of assets held. C. From February 2008 to March 2009, Fed assets more than doubled to nearly $2 trillion. D. From February 2008 to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

D. From February 2008 to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

Which of the following is correct? A. Both the granting and repaying of bank loans expand the aggregate money supply. B. Granting and repaying bank loans do not affect the money supply. C. Granting a bank loan destroys money; repaying a bank loan creates money. D. Granting a bank loan creates money; repaying a bank loan destroys money.

D. Granting a bank loan creates money; repaying a bank loan destroys money.

(Last Word) The Assistant U.S. Attorney General in charge of prosecuting financial crimes did which of the following in response to HSBC bank's years of money laundering and helping firms and individuals cheat on their taxes? A. Imposed fines on HSBC and prosecuted key executives so as to diminish moral hazard in the financial services industry. B. Filed an antitrust lawsuit so as to break up HSBC without disrupting the financial system. C. Imposed only modest fines on HSBC so as not to destabilize the bank and the financial system. D. Imposed sanctions based on the provisions of the 2010 Wall Street Reform and Consumer Protection Act.

D. Imposed sanctions based on the provisions of the 2010 Wall Street Reform and Consumer Protection Act.

Which of the following best describes the built-in stabilizers as they function in the United States? A. The size of the multiplier varies inversely with the level of GDP. B. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A. A congressional proposal to incur a federal surplus to be used for the retirement of public debt. B. Reductions in agricultural subsidies and veterans' benefits. C. Postponement of a highway construction program. D. Reductions in federal tax rates on personal and corporate income.

D. Reductions in federal tax rates on personal and corporate income.

Which of the following statements is correct? A. Federal deficits were larger in the early 2000s than in the late 2000s. B. Deep tax cuts always expand tax revenues and reduce the public debt. C. The public debt has usually declined during wartime. D. There is a tendency for the public debt to grow during recessions.

D. There is a tendency for the public debt to grow during recessions.

****Assets**** ****Liabilities/Net Worth**** Reserves 51 Checkable Deposits 140 Loans 109 Stock Shares 130 Securities 100 Property 110 ---------------------------------------------------------- If the commercial banking system actually loans the maximum amount it is able to lend: A. reserves and deposits equal to that amount will be gained. B. excess reserves will be $2.6 billion. C. excess reserves will fall to $1.7 billion. D. excess reserves will be reduced to zero.

D. excess reserves will be reduced to zero.

The determinants of aggregate supply: A. are consumption, investment, government, and net export spending. B. explain why real domestic output and the price level are directly related. C. explain the three distinct ranges of the aggregate supply curve. D. include resource prices and resource productivity.

D. include resource prices and resource productivity.

If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by: A. reducing government expenditures by $12 billion. B. reducing government expenditures by $60 billion. C. increasing taxes by $15 billion. D. increasing taxes by $20 billion.

D. increasing taxes by $20 billion.

Currency held within banks is part of: A. both the M1 and M2 definitions of the money supply. B. the M2 definition of the money supply only. C. the M1 definition of the money supply only. D. none of these definitions of the money supply.

D. none of these definitions of the money supply.

Reserves 100 Checkable Deposits 1000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 ------------------------------------------------------------If Moolah Bank is "loaned up" and receives a $100 deposit of currency, the banking system of which Moolah is a part could expand loans by: A. $100. B. $90. C. $900. D. $1,000. E.$1,800

E. $1,800

Chapter 30

Question #17, #18, #19, #20

Chapter 31

Question #5, #6, #7

Chapter 30

Question #6

Chapter 31

Question #9, #10

Which of the following would reduce the money supply? A. Commercial banks use excess reserves to buy government bonds from the public. B. Commercial banks loan out excess reserves. C. Commercial banks sell government bonds to the public. D. A check clears from Bank A to Bank B.

A. Commercial banks use excess reserves to buy government bonds from the public.

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in: A. mutual fund companies and pension fund companies. B. thrifts and insurance companies. C. commercial banks and thrifts. D. securities firms and insurance companies.

A. mutual fund companies and pension fund companies.

If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A. output would necessarily rise. B. output would necessarily fall. C. price level would necessarily fall. D. price level would necessarily rise.

A. output would necessarily rise.

Legal Reserve Checkable Actual Ration (%) Deposits Reserves 10 40,000 10,000 20 40,000 10,000 25 40,000 10,000 30 40,000 10,000 ------------------------------------------------------------ In the table above, if the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will: A. rise by $6,000 and the monetary multiplier will increase from 4 to 10. B. rise by $60,000 and the monetary multiplier will increase from 4 to 10. C. fall by $6,000 and the monetary multiplier will decline from 30 to 10. D. fall by $2,000 and the monetary multiplier will decline from 10 to 4.

A. rise by $6,000 and the monetary multiplier will increase from 4 to 10.

An economist who favors smaller government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

A. tax cuts during recession and reductions in government spending during inflation.

Research for industrially advanced countries indicates that: A. the more independent the central bank, the lower the average annual rate of inflation. B. the more independent the central bank, the higher the average annual rate of inflation. C. there is no relationship between the degree of independence of a country's central bank and its inflation rate. D. the more independent the central bank, the higher the average annual rate of unemployment.

A. the more independent the central bank, the lower the average annual rate of inflation.

Checkable deposits are classified as money because: A. they can be readily used in purchasing goods and paying debts. B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor.

A. they can be readily used in purchasing goods and paying debts.

A $70 price tag on a sweater in a department store window is an example of money functioning as a: A. unit of account. B. standard of deferred payments. C. store of value. D. medium of exchange.

A. unit of account.

new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. ------------------------------------------------------------ The $40 billion deposit of currency into checking accounts will create excess reserves of: A. $20 billion. B. $32 billion. C. $40 billion. D. $0.

B. $32 billion.

Legal Reserve Checkable Actual Ration (%) Deposits Reserves 10 40,000 10,000 20 40,000 10,000 25 40,000 10,000 30 40,000 10,000 ------------------------------------------------------------ In the table above, when the legal reserve ratio is 10 percent, the money-creating potential of this single bank is: A. $0. B. $6,000. C. $30,000. D. $60,000.

B. $6,000.

Suppose the federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have: A. increased by $90 billion. B. increased by $20 billion. C. decreased by $70 billion. D. decreased by $20 billion.

B. increased by $20 billion.

The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. it is very difficult to have excessive aggregate spending in the U.S. economy. D. consumer and investment spending always vary inversely.

B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

Reserves 100 Checkable Deposits 1000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 ------------------------------------------------------------ Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,000. B. liabilities are $1,000. C. net worth is zero. D. profit is $1,000.

B. liabilities are $1,000.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: A. reduce per-unit production costs. B. reduce worker morale and work effort, and thus lower productivity. C. increase the firms' cost of raising financial capital. D. reduce the demands for their products.

B. reduce worker morale and work effort, and thus lower productivity.

If the economy has a cyclically adjusted budget surplus, this means that: A. the public sector is exerting an expansionary impact on the economy. B. tax revenues would exceed government expenditures if full employment were achieved. C. the actual budget is necessarily also in surplus. D. the economy is actually operating at full employment.

B. tax revenues would exceed government expenditures if full employment were achieved.

Since actual budget deficits surpassed 10 percent of GDP in 2009: A. fiscal policy has become contractionary. B. the deficits as a percentage of GDP have fallen, but fiscal policy has remained expansionary. C. deficits as a percentage of GDP have continued to rise. D. deficits as a percentage of GDP have remained constant but risen in dollar amounts.

B. the deficits as a percentage of GDP have fallen, but fiscal policy has remained expansionary.

The difference between M1 and M2 is that: A. the former includes time deposits. B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances. C. the latter includes negotiable government bonds. D. the latter includes cash held by commercial banks and the U.S. Treasury.

B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances.

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: A. the money supply has declined. B. the price level is inflexible downward and a recession has occurred. C. cost-push inflation has occurred. D. productivity has declined.

B. the price level is inflexible downward and a recession has occurred.

To say money is socially defined means that: A. money has been defined in a Constitutional amendment. B. whatever performs the functions of money extremely well is considered to be money. C. the money supply includes all public and private securities purchased by society. D. society, acting through Congress, specifies what shall be included in the money supply.

B. whatever performs the functions of money extremely well is considered to be money.

Other things equal, appreciation of the dollar: A. increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. B. increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources. C. decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. D. decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

C. decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

The aggregate demand curve is: A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises.

C. downsloping because of the interest-rate, real-balances, and foreign purchases effects.

The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008: A. severely depleted the assets of the Federal Reserve. B. have been little used, and therefore are ineffective. C. increased the moral hazard problem by limiting losses from bad financial decisions. D. were designed to offset the moral hazard created by the TARP and other bailout programs.

C. increased the moral hazard problem by limiting losses from bad financial decisions.

The short-run aggregate supply curve represents circumstances where: A. both input and output prices are fixed. B. both input and output prices are flexible. C. input prices are fixed, but output prices are flexible. D. input prices are flexible, but output prices are fixed.

C. input prices are fixed, but output prices are flexible.

Reserves 100 Checkable Deposits 1000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 ------------------------------------------------------------ Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,000. B. liabilities are $300. C. net worth is $100. D. annual profit is $200.

C. net worth is $100.

****Assets**** ****Liabilities/Net Worth**** Reserves 27,000 Checkable Deposits 110,000 Loans 50,000 Stock Shares 200,000 Securities 33,000 Property 200,000 ---------------------------------------------------------- If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of: A. $8,000. B. $15,000. C. $48,000. D. $25,000.

D. $25,000.

****Assets**** ****Liabilities/Net Worth**** Reserves 27,000 Checkable Deposits 110,000 Loans 50,000 Stock Shares 200,000 Securities 33,000 Property 200,000 ---------------------------------------------------------- This commercial bank has excess reserves of: A. $0. B. $3,000. C. $12,000. D. $5,000.

D. $5,000

Which of the following fiscal policy actions is most likely to increase aggregate supply? A. An increase in personal income tax rates. B. A reduction in interest rates that encourages consumers to purchase more durable goods. C. An increase in transfer payments to unemployed workers. D. An increase in government spending on infrastructure that increases private sector productivity.

D. An increase in government spending on infrastructure that increases private sector productivity.

Banks lost money during the mortgage default crisis because: A. of defaulted loans to investors in mortgage-backed securities. B. they held mortgage-backed securities they had purchased from investment firms. C. homebuyers defaulted on mortgages held by the banks. D. of all of these reasons.

D. of all of these reasons.

TIAA-CREF, Teamsters' Union, and CalPERS are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

D. pension funds.

In the diagram above, a shift from AS3 to AS2 might be caused by an increase in: A. business taxes and government regulation. B. the prices of imported resources. C. the prices of domestic resources. D. productivity.

D. productivity.

(Last Word) The greater the leverage in the financial system, all else equal: A. the smaller the monetary multiplier. B. the smaller the profit and loss margins of financial firms. C. the greater the stability of the financial system. D. the greater the instability of the financial system.

D. the greater the instability of the financial system.

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: A. the MPS. B. its actual reserves. C. its excess reserves. D. the reserve ratio.

D. the reserve ratio.

The Federal Open Market Committee (FOMC) is made up of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

D. the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.

Reserves 100 Checkable Deposits 1000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 ------------------------------------------------------------ If Moolah bank is "loaned up" and receives a $100 deposit of currency, it could safely expand its loans by: A. $100. B. $90. C. $900. D. $1,000. E. $180

E. $180