Economics Midterm

Assuming there is no government or foreign sector, if the multiplier is 10, the MPC is

0.9

The Fed acts as a lender of last resort for the banking system

True

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 25%. If the Fed sells $5 million worth of government securities to the public, the change in the money supply will be a. 100 million b. 25 million c. -5 million d. -20 million

d. -20 million

The GDP deflator in year 2 is 110 using year 1 as a base year. This means that, on average, the price of goods and services is a. 110% higher in year 2 than in year 1. b. 110% higher in year 1 than in year 2. c. 5% higher in year 1 than in year 2 . d. 10% higher in year 2 than in year 1.

d. 10% higher in year 2 than in year 1.

Transaction money is a. M1 b. M2 c. M3 d. M4

a. M1

If interest rates increase to a very high level, people will most likely hold a. more money in savings accounts and more cash b. less money in savings accounts and less cash. c .more money in savings accounts and less cash. d. less money in savings accounts and more cash.

c. more money in savings accounts and less cash

If the MPS is 0.05, the MPC is

0.95

The total market value of all final goods and services produced within a given period by factors of production located within a country is

Gross domestic product.

If gross investment in 2010 is $750 billion and depreciation in 2010 is $850 billion, net investment in 2010 is a. -50 billion b. -100 billion c. -800 billion d. -1600 billion

b. -100 billion

Assuming no government or foreign sector, the formula for the multiplier is a. 1/(1 + MPC). b. 1/MPS. c. 1 - MPC. d. 1/MPC.

b. 1/MPS.

The value of what KFC produces in Japan is included in the U.S. ________ and in the Japanese ________. a. GNP; GNP b. GNP; GDP c. GDP; GNP d. GDP; GDP

b. GNP; GDP

You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend? a. Decrease both government spending and taxes by $300 billion. b. Increase both government spending and taxes by $300 billion. c. Reduce government spending by $300 billion and increase taxes by $300 billion. d. Increase government spending by $300 billion and reduce taxes by $300 billion

b. Increase both government spending and taxes by $300 billion.

Saving account balances are included in a. M1 b. M2 c. both M1 and M2 d. neither M1 nor M2

b. M2

Saving equals a. Y - actual I. b. Y - C c. inventory changes. Y - planned I.

b. Y - C

If the change in business inventories is zero, then final sales are a. less than GDP. b. equal to GDP. c. greater than GDP. d. zero

b. equal to GDP.

The price of bonds and the interest rate are a. sometimes positively related and other times negatively related, depending on the bond payments. b. negatively related. c. not related d. positively related.

b. negatively related

When the interest rate falls, bond values a. fall b. rise c. are unchanged because the interest rate paid on a bond is fixed. d. will either increase or decrease depending on the type of bond.

b. rise

Real GDP is gross domestic product measured a. in current dollars. b. as the difference between the current year's GDP and last year's GDP. c. at a constant output level but at current prices. d. in the prices of a base year.

d. in the prices of a base year.

Commercial banks create money through a. facilitating borrowing from the Federal Reserve to the public. b. printing treasury notes c. reducing risk in the economy d. making loans

d. making loans

When you keep your savings in a saving account, you are using money as a(n) a. medium of exchange. b. investment good. c .unit of account. d. store of value

d. store of value

Unemployment generally ________ during recessions and ________ during expansions.

rises; falls

The term business cycle refers to the

short-term ups and downs in the level of economic activity

If 20 million workers are unemployed and 180 million workers are employed, then the unemployment rate is

10%

The Jackson Tool Company manufactures only tools. In 2012 Jackson Tools manufactured 20,000 tools, but sold 21,000 tools. In 2012 Jackson Tools' change in inventory was

-1000 tools

If the MPS is 0.4, the tax multiplier is

-2.5.

Assume that in Scandia, planned investment is $80 billion but actual investment is $60 billion. Unplanned inventory investment is

-20 billion

If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income increases to $43,000, the MPC is

0.75

If the MPC is 0.75, the government spending multiplier is

4

If the government spending multiplier is 5 and government spending decreases by $200 billion, output will ________ by $________ billion. a. decrease; 1000 b. decrease; 20 c. decrease; 200 d. increase; 200

a. decrease; 1000

If the tax multiplier is -9 and taxes are reduced by $100 billion, output a. increases by 900 billion b. increases by 100 billion c. falls by 100 billion d. falls by 900 billion.

a. increases by 900 billion

When banks hold a large amount of excess reserves, which of the following tools would the Fed most likely use to encourage banks to lend more of these excess reserves? a. lowering the interest rate it pays to banks on their reserves b. making an open market sale c. lowering the discount rate d. lowering the reserve requirement

a. lowering the interest rate it pays to banks on their reserves

A decrease in planned investment causes a. output to decrease, but by a larger amount than the decrease in investment. b. output to decrease by an amount equal to the decrease in investment. c. output to increase. d. output to decrease, but by a smaller amount than the decrease in investment.

a. output to decrease, but by a larger amount than the decrease in investment.

Which of the following is an example of an intermediate good? a. the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to b. lumber you buy to build a house for your dog c. the dough you buy to fix yourself a pizza for dinner d. the chocolate you buy to make yourself some cookies

a. the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to

A company produced 8 dishwasher machines in 2010. The company sold 6 in 2010 and added 2 to its inventories. The market value of the dishwasher machines in 2010 was $200 per unit. What is the value of this company's output that will be included in the 2010 GDP? a. 400 b. 1400 c. 1600 d. 2000

c. 1600

The money supply has increased from $1.4 trillion to $1.45 trillion. Which of the following could have caused this increase? a. The Fed sold government securities to the public. b. Commercial banks began to hold excess reserves. c. Consumers who were holding money outside the banking system deposit this money. d. The Fed increased the discount rate.

c. Consumers who were holding money outside the banking system deposit this money.

Which of the following is NOT a topic studied in Macroeconomics? a. Gross domestic product b. The inflation rate c. The price of IBM computers d. The unemployment rate

c. The price of IBM computers

If the Fed buys government securities, then there is a. a decrease in the discount rate. b. a decrease in the supply of money. c. an increase in the supply of money. d. an increase in the required reserve ratio.

c. an increase in the supply of money

Money in a. the value of all coins and currency in circulation at any time b. the same income c. anything that is generally accepted as a medium of exchange. d. backed by gold in Fort Knox

c. anything that is generally accepted as a medium of exchange.

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply? a. an increase in the discount rate b. a decrease in federal spending c. buying government securities in the open market d. an increase in the required reserve ratio

c. buying government securities in the open market

Inflation is a(n) a. increase in the overall level of economic activity b. decrease in the overall price level c. increase in the overall price level d. decrease in the overall level of economic activity

c. increase in the overall price level

The discount rate is a. the interest rate commercial banks charge their most creditworthy customers. b. the interest rate commercial banks charge each other for borrowing funds. c. the interest rate the Fed charges commercial banks for borrowing funds. d. the interest rate commercial banks charge their new customers.

c. the interest rate the Fed charges commercial banks for borrowing funds.

Which of the following is NOT included in 2011's GDP? a. the profit earned in 2011 from selling a stock that you purchased in 2008 b. the value of a motorcycle produced in the United States and exported to Japan c. the value of a motor that is used in the production of a lawn mower d. the commission earned by a headhunter when she locates a job for a client

c. the value of a motor that is used in the production of a lawn mower

A commercial bank lists a. loans and liabilities b. required reserves as liabilities. c. excess reserves as liabilities d. deposits as liabilities.

d. deposits as liabilities.

Napoli National Bank has liabilities of $3 million and net worth of $200,000. Napoli National Bank's assets area. 200,000 b. 2.8 million c. 3.0 million d. 3.2 million

d. 3.2 million

Neon Bank has $300 million in deposits. The required reserve ratio is 25%. Neon Bank must keep ________ in reserves. a. 275 million b. 145 million c. 120 million d. 75 million

d. 75 million

Suppose the required reserve ratio is 10%. A $75 million cash deposit will allow commercial banks to create at most a. 750,000 b. 7.5 million c. 75 million d. 750 million

d. 750 million

The GDP of the U.S. in 2010 was around $14.7 trillion. This means a. that the value of output in the U.S. in 2010 was around $14.7 trillion. b. that total spending on final goods and services in the U.S. in 2010 was around $14.7 trillion. c. that total income in the U.S. in 2010 was around $14.7 trillion. d. all of the above

d. all of the above

Serena transfers $8,000 from her home safe to her savings account. This transaction will a. not change M1 and decrease M2. b . increase both M1 and M2. c. decrease M1 and M2 d. decrease M1 and not change M2.

d. decrease M1 and not change M2.