Economics Final, econ final

20. A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is a. an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. b. an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. c. a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. d. a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.

a. an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.

1. Which of the following can the Fed do to change the money supply? a. change reserves or change the reserve ratio b. change reserves but not change the reserve ratio c. change the reserve ratio but not change the reserve ratio d. neither change reserves nor change the reserve ratio

a. change reserves or change the reserve ratio

56. Demand deposits are a type of a. checking account. b. time deposit. c. money market mutual fund. d. savings deposit.

a. checking account.

45. If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve a. creates dollars and uses them to purchase government bonds from the public. b. sells government bonds from its portfolio to the public. c. creates dollars and uses them to purchase various types of stocks and bonds from the public. d. sells various types of stocks and bonds from its portfolio to the public.

a. creates dollars and uses them to purchase government bonds from the public.

7. Which of the following increase when the Fed makes open market purchases? a. currency and reserves b. currency but not reserves c. reserves but not currency d. neither currency nor reserves

a. currency and reserves

69. If the public decides to hold more currency and fewer deposits in banks, bank reserves a. decrease and the money supply eventually decreases. b. decrease but the money supply does not change. c. increase and the money supply eventually increases. d. increase but the money supply does not change.

a. decrease and the money supply eventually decreases.

57. People can write checks against a. demand deposits and money market mutual funds b. demand deposits but not money market mutual funds c. money market mutual funds but not demand deposits d. neither demand deposits nor money market mutual funds

a. demand deposits and money market mutual funds

15. When the Fed purchases $1000 worth of government bonds from the public, the U.S. money supply eventually increases by a. more than $1000. b. exactly $1000. c. less than $1000. d. None of the above are correct.

a. more than $1000.

59. The measure of the money stock called M1 includes a. wealth held by people in their checking accounts. b. wealth held by people in their savings accounts. c. wealth held by people in money market mutual funds. d. everything that is included in M2 plus some additional items.

a. wealth held by people in their checking accounts.

normative statements claim to describe the world

as it should be

76. During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action a. increases the money multiplier and increases the money supply. b. decreases the money multiplier and decreases the money supply. c. does not change the money multiplier, but increases the money supply. d. does not change the money multiplier, but decreases the money supply.

b. decreases the money multiplier and decreases the money supply.

16. On a bank's T-account, which are part of the banks liabilities? a. both deposits made by its customers and reserves b. deposits made by its customers but not reserves c. reserves but not deposits made by its customers d. neither deposits made by its customers nor reserves

b. deposits made by its customers but not reserves

26. The Federal Open Market Committee meets approximately a. every three weeks b. every six weeks c. every 3 months d. every 6 months.

b. every six weeks

45. Other things the same, if reserve requirements are increased, the reserve ratio a. increases, the money multiplier increases, and the money supply increases. b. increases, the money multiplier decreases, and the money supply decreases. c. decreases, the money multiplier increases, and the money supply increases. d. decreases, the money multiplier decreases, and the money supply increases.

b. increases, the money multiplier decreases, and the money supply decreases.

68. Which of the following items is included in M2? a. credit cards b. money market mutual funds c. corporate bonds d. large time deposits

b. money market mutual funds

49. Monetary policy affects employment a. only in the long run. b. only in the short run. c. in both the long run and the short run. d. in neither the long run nor the short run.

b. only in the short run.

67. Which of the following items is not included in the most narrow definition of money, M1? a. currency b. savings deposits c. traveler's checks d. demand deposits

b. savings deposits

40. The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of a. the Board of Governors. b. the FOMC. c. the regional Federal Reserve Bank presidents. d. the U.S. Treasury.

b. the FOMC.

23. Money is a. the most liquid asset and a perfect store of value. b. the most liquid asset but an imperfect store of value. c. not the most liquid asset but a perfect store of value. d. neither the most liquid asset and nor a perfect store of value.

b. the most liquid asset but an imperfect store of value.

34. Commodity money is a. backed by gold. b. the principal type of money in use today. c. money with intrinsic value. d. receipts created in international trade that are used as a medium of exchange.

b. the principal type of money in use today.

14. If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a a. $600 increase in excess reserves and no increase in required reserves. b. $600 increase in required reserves and no increase in excess reserves. c. $510 increase in excess reserves and a $90 increase in required reserves. d. $90 increase in excess reserves and a $510 increase in required reserves.

c. $510 increase in excess reserves and a $90 increase in required reserves.

70. If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is a. 2.7 percent. b. 12.5 percent. c. 37.5 percent. d. 40 percent.

c. 37.5 percent.

4. In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then a. M1 would increase. b. M1 would decrease. c. M1 would not change. d. M1 might rise or fall.

c. M1 would not change.

25. Treasury Bonds are a. liquid, but not a store of value. b. a store of value, but not liquid. c. both liquid and a store of value. d. neither liquid nor a store of value.

c. both liquid and a store of value.

46. The primary difference between commodity money and fiat money is that a. commodity money is a medium of exchange but fiat money is not. b. fiat money is a medium of exchange but commodity money is not. c. commodity money has intrinsic value but fiat money does not. d. fiat money has intrinsic value but commodity money does not.

c. commodity money has intrinsic value but fiat money does not.

13. The Board of Governors a. is chaired by the U.S. Secretary of the Treasury. b. members are elected by the U.S. public. c. has 7 members. d. All of the above are correct.

c. has 7 members.

88. Credit cards are a. a medium of exchange. b. counted as part of M2 but not as part of M1. c. important for analyzing the monetary system. d. All of the above are correct.

c. important for analyzing the monetary system.

40. If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply a. and wealth increase by $200. b. and wealth decrease by $200. c. increase by $200 while wealth does not change. d. decrease by $200 while wealth decreases by $200.

c. increase by $200 while wealth does not change.

39. When a bank loans out $1,000, the money supply a. does not change. b. decreases. c. increases. d. may do any of the above.

c. increases.

17. Which of the following is an asset of a bank and a liability for its customers? a. deposits of its customers and loans to its customers b. deposits of its customers but not loans to its customers c. loans to its customers but not the deposits of its customers d. neither the deposits of its customers nor the loans to its customers

c. loans to its customers but not the deposits of its customers

15. On a bank's Taccount, which are part of the bank's assets? a. both deposits made by its customers and reserves b. deposits made by its customers but not reserves c. reserves but not deposits made by its customers d. neither deposits made by its customers nor reserves

c. reserves but not deposits made by its customers

76. Which of the following is included in M2 but not in M1? a. currency b. demand deposits c. savings deposits d. All of the above are included in both M1 and M2.

c. savings deposits

11. Dollar bills, rare paintings, and emerald necklaces are all a. media of exchange. b. units of account. c. stores of value. d. All of the above are correct

c. stores of value.

18. The discount rate is the interest rate that a. banks charge one another for loans. b. banks charge the Fed for loans. c. the Fed charges banks for loans. d. the Fed charges Congress for loans.

c. the Fed charges banks for loans.

real gdp is the production of goods and services valued at ________ ___________

constant prices

the GDP for a closed economy consists of _________, investment, and _________

consumption; Govt Spending

16. Most financial assets other than money function as a. a medium of exchange, a unit of account, and a store of value. b. a medium of exchange and a store of value, but not a unit of account. c. a store of value and a unit of account, but not a medium of exchange. d. a store of value, but not a unit of account nor a medium of exchange

d. a store of value, but not a unit of account nor a medium of exchange

44. An open-market sale a. increases the number of dollars and the number of bonds in the hands of the public. b. increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c. decreases the number of dollars and the number of bonds in the hands of the public. d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

d. decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

17. The president of each regional Federal Reserve Bank is appointed by a. the U.S. president with the approval of the Senate. b. the Board of Governors. c. the voting members of the Federal Open Market Committee. d. the board of directors of that regional Federal Reserve Bank.

d. the board of directors of that regional Federal Reserve Bank.

98. One surprising thing about the U.S. money stock is that a. banks hold so much currency relative to the public. b. the public holds so much currency relative to banks. c. there is so little currency per person. d. there is so much currency per person.

d. there is so much currency per person.

net capital outflow (NCO) purchase of ______ assets by domestic residents ______ the purchase of _________ assets by ______; same thing as net exports

foreign; minus; domestic by foreigner

For Panel 2, a ___________ interest rate _________ NCO

higher; reduces

price elasticity=

%change in quantity demanded/ % change in price

what is the inflation rate

((GDP Deflator in YR 2 - GDP deflator in YR 1) / GDP Deflator in YR 1) *100

national savings can also be S= (Y- ____ - ____) + (T - ____ )

(Y-T - C) + (T - G)

what is the money multiplier

1/ reserve ratio

technological knowledge

a determinant of productivity

1. Which of the following lists is included in what economists call "money"? a. cash b. cash and stocks and bonds c. cash and stocks and bonds and real estate d. cash and stocks and bonds and real estate and all other assets

a. cash

58. If the reserve ratio is 5 percent, then $500 of additional reserves can create up to a. $10,500 of new money. b. $10,000 of new money. c. $9,500 of new money. d. $2,500 of new money.

b. $10,000 of new money.

private saving

y-t-c

61. M1 includes a. currency. b. demand deposits. c. traveler's checks. d. All of the above are correct.

All of the above are correct.

Closed Economy: Y= ___ + I + ____

C; G

total income in an economy (national saving): Y - ___ - ____

C; G

reserve requirements

DONT affect the money supply

_____________ loss is the fall in total surplus that results from a market distortion, such as a tax

Deadweight

IF _____________ falls , icome and expenditure fall

GDP

paying rent and lending a house for rent both contribute to

GDP

Nominal GDP / Real GDP *100

GDP deflator

Y= C + ___ + ____ + Nx

I(Investment) G(Government expenditures)

LEFT IS ________

LESS

71. Which of the following is not included in either M1 or M2? a. U.S. Treasury bills b. small time deposits c. demand deposits d. money market mutual funds

a. U.S. Treasury bills

56. The money supply increases when the Fed a. buys bonds. The increase will be larger, the smaller is the reserve ratio. b. buys bonds. The increase will be larger, the larger is the reserve ratio. c. sells bonds. The increase will be larger, the smaller is the reserve ratio. d. sells bonds. The increase will be larger, the larger is the reserve ratio.

a. buys bonds. The increase will be larger, the smaller is the reserve ratio.

58. Which list ranks assets from most to least liquid? a. currency, demand deposits, money market mutual funds b. currency, money market mutual funds, demand deposits c. money market mutual funds, demand deposits, currency d. demand deposits, money market mutual funds, currency

a. currency, demand deposits, money market mutual funds

55. The set of items that serve as media of exchange clearly includes a. demand deposits. b. short-term bonds. c. credit cards. d. All of the above are correct.

a. demand deposits.

42. If R represents the reserve ratio for all banks in the economy, then the money multiplier is a. 1/(1-R). b. 1/R. c. 1/(1+R). d. (1+R)/R.

b. 1/R.

If price ceiling in below the equilibrium price, then price ceiling is_______

binding

one entity can not have the comparative advantage for

both products

5. A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply? a. $50 b. $100 c. $150 d. $200

c. $150

9. When the Fed makes open-market purchases bank a. withdrawals and lending increase. b. withdrawals increase and lending decreases. c. deposits and lending increase. d. deposits increase and lending decreases.

c. deposits and lending increase.

GDP is a total of _________, investment, __________, and government spending

consumption; net exports

comparative advantage is given when someone can produce something with less

cost than the other producer

supply shock is the event that directly alters firms ______ and _________; shifts the economics aggregate supply curve ______ and thus the phillips curve

costs and prices; left

nominal GDP is the production of goods and services valued at _______ __________

current prices

18. Which of the following is correct? a. The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. b. The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. c. The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

d. The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms.

40. If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold a. fewer reserves, so the reserve ratio will fall. b. fewer reserves, so the reserve ratio will rise. c. more reserves, so the reserve ratio will fall. d. more reserves, so the reserve ratio will rise.

d. more reserves, so the reserve ratio will rise.

27. The Fed can increase the money supply by conducting open-market a. sales or by raising the discount rate. b. sales or by lowering the discount rate. c. purchases or by raising the discount rate. d. purchases or by lowering the discount rate.

d. purchases or by lowering the discount rate.

wages are sticky if they __________ adapt to price leves

dont

is minimum waste/society getting the most out of scarce resources

efficiency

physical capital is the stock of ______ and ________ used to produce goods and services

equipment; structures

trade deficits are an ______ of imports over exports

excess

net exports

exports -imports

trade surplus is an excess of ___________ over __________

exports over imports

automatic stabilizers are the changes in _________ policy that stimulate __________ __________ when the economy goes into a recession without policy makers having to take any deliberate action

fiscal; aggregate demand

economists make assumptions to

focus their thinking

reserve ratio is the _______ of deposits that banks hold as reserves

fraction

phillips curve has the _______ on y axis __________ on x axis

inflation; unemployment

Savings = _________

investment

An economic expansion caused by a shift in aggregate demand remedies itself over time as the price level rises, shifting aggregate supply ______

left

_______ expectations means supply goes left, and demand goes __________

left,right

real equilibrium of an open economy Panel 1 is the supply and demand for __________________ which determines interest rate Panel 2 is where ___________ determines net capital outflow which provides _________ of dollars in market for foreign currency exchange Panel 3 is the supply and demand for dollars in the market for foreign currency exchange which determines the __________________-

loanable funds interest rate; supply real exchange rate

Flow of sending from households goes to

markets for goods and services

6. A central bank's setting (or altering) of the money supply is known as a. open-market operation. b. interest rate policy. c. monetary policy. d. employment policy.

monetary policy.

reserves * _____________ ___________ is money supply

money multiplier

means it never goes away

natural

exports minus imports

net exports

Pf divided by Pd Pf: foreign price Pd: domestic price

nominal exchange rate; trading currency

__________ competitive markets do not change when a producer exits

perfectly

increase in supply / price elasticity of supply =

price increase

aggregate supply and aggregate demand graph has the _________ on y axis and _________ on x axis

price level; gdp/output

GDP deflator is the measure of the ________ _________ calculated as the ratio of ______ GDP to real GDP times a hundred

price level; nominal

also price elasticity=

proportion of quantity changed/ proportion in price changed

The supply of money increases when the Fed

purchases bonds

velocity of money is the ________ at which money changes hands

rate

(e) * (PD/PF)

real exchange rate

in the long run, a __________ in money supply growth rate effects the _______ rate but not the _________ rate of unempliyment

reduction; inflation; natural

if the fed creates a very large increase in the money supply, inflation will ____ and unemployment will ______

rise; fall

on short run phillips curve, inflation _______ if unemployment ______ and vice versa

rises; falls

when economists make positive statements they are speaking as

scientists

when economists make positive statements they make claims that describe

the world as it is

a country can move from trade _________ to _________ if savings fall or domestic investment rises

trade deficit to surplus