Small Test - Economics EOC (GSE) UPDATED Domain: Macroeconomic Concepts
A) They loan it out to other customers. B) They spend it on new banks in other places. C) They keep it in a locked, secured vault in the bank. D) They send it to the Federal Reserve in Washington, D.C.
Banks offer services such as checking and savings accounts. What do banks do with most of the money they receive in deposits from customers? (A)
A) fiat money. B) an investment. C) a store of value. D) a medium of exchange.
Bart is able to buy 50 water balloons with the $5 bill he received for his allowance. This is an example of money as (D)
A) occur about every 5 years. B) always follow the same basic pattern. C) occur irregularly and without pattern. D) are always followed by periods of mild inflation.
Business cycles in the United States (B)
A) A B) B C) C D) D
Economic Growth Investments Interest Rates Savings Rates A High High High B Low Low Low C High High Low D High Low High E Low Low High Long-run economic growth in a country would be encouraged by which combinations of events? (D)
A) It is impossible to use bananas as currency in Bananatown. B) Bananas function as a medium of exchange and store of value, but not as a unit of account. C) Bananas function as a store of value and a unit of account, but not as a medium of exchange. D) Bananas shouldn't be used as a store of value, but they can be used as a unit of account and medium of exchange in Bananatown.
Everyone in Bananatown loves bananas! In fact, sometimes they are willing to take them as a form of payment for goods and services instead of dollars. Bill, a tourist, sees an opportunity to make some money. He buys up all of the bananas in Banana town and goes home. He stores them in the trunk of his car for 6 months. Bill then goes back to Bananatown, knowing that the people there will be excited to purchase bananas from him. He opens his trunk and realizes that this plan was not well thought out, as all the bananas are rotten mush. How are bananas successful as a form of money in Bananatown, as described in the scenario? (D)
A) decreasing government subsidies. B) increasing the power of trade unions. C) cutting back on business spending on educational training. D) the government giving tax breaks to companies locating in poor geographic areas.
Frictional and structural unemployment can be alleviate by implementing a supply-side policy such as (D)
A) is present even when labor markets are working well. B) is the result of worker skills not matching the jobs available. C) is zero when the economy achieved the natural rate of unemployment. D) exists only when the economy is in the natural rate of unemployment.
Frictional unemployment (A)
A) cyclical unemployment. B) temporary unemployment. C) structural unemployment. D) frictional unemployment.
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A) interest rates fall and credit is tight. B) interest rates rise and credit is tight. C) interest rates rise and credit is abundant. D) interest rates fall and credit is abundant.
If the Federal Reserve adopts an expansionary monetary policy, (D)
A) 3.6%. B) 5.0%. C) 6.8%. D) 7.0%.
If the working age population is 250 million, 170 million are employed and 9 million are unemployed, the unemployment rate is (B)
A) A recession is always temporary (less than 6 months) while a depression is much longer. B) The unemployment rate during recessions must rise above 10%, while during depressions the rate is between 8 and 10%. C) Recessions are may include both inflation and increasing GDP, while depressions are typically characterized by stagnant prices and low unemployment. D) Recessions are economic contractions that last 6 months or longer, while depressions are particularly severe economic contractions with no specified time frame.
In economics, what is the difference between a recession and a depression? (D)
A) Deflation B) Depression C) Inflation D) Recession (A)
In general, when aggregate supply exceeds aggregate demand, what is likely to result?
A) 5.9% B) 8.5% C) 9.6% D) 10.2%
In the graph, the year with the highest unemployment rate is 1983. What was the approximate unemployment rate in that year? (D)
A) Contraction B) Expansion C) Income D) Spending
In this blank graph of the business cycle, what does the red circled area on the graph BEST represent? (A)
A) a decrease in the CPI for one month B) an increase in the CPI for one month C) a one-time increase in price level within the economy D) a continuous rise in the price level within the economy
Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. - Milton Friedman The Counter-Revolution in Monetary Theory (1970) What does inflation refer to in this quote? (D)
A) debtors. B) creditors. C) wage earners. D) property owners.
Inflation is most harmful to (B)
A) He might not be able to eat fast foot as often. B) He might have to purchase a less-expensive car. C) He might not go out with his friends every Saturday. D) He might need to make his clothes last a little longer.
Joe is an 18 year old high school student. If there is a sharp rise in interest rates, which situation BEST reflects how Joe's life might be impacted? (B)
A) barter. B) fiat money. C) legal tender. D) money as a store of value.
Lisa is saving her money to buy a new saxophone. This is an example of (D)
A) causal unemployment B) cyclical unemployment C) seasonal unemployment D) structural unemployment
Milford has a job as a ski instructor at a resort in Vermont. He does not have a job during the summer months. What type of unemployment is Milford experiencing? (C)
A) store of value B) measure of value C) medium of exchange D) commodity transfer
Money can be easily converted into goods or services. This is an example of which "function of money"? (C)
A) seasonal unemployment B) cyclical unemployment C) frictional unemployment D) structural unemployment
Ned is a typewriter repairman. As typewriters are being replaced by computers Ned finds less and less work. What kind of unemployment is Ned experiencing? (D)
A) increase income levels. B) maintain low unemployment. C) raise the standard of living. D) increase profits and spending.
One of the primary goals of stabilizing the economy is to (D)
A) enacting price controls and rationing rules. B) raising the minimum wage and lowering employment ages. C) limiting the amount of goods and services companies can produce. D) spending revenues on large projects using private sector contractors.
One of the ways governments try to bring their (market) economies out of recession, to reduce unemployment, etc. is by (D)
A) GDP does not account for goods purchased from overseas. B) GDP is favorably weighted toward very populous nations. C) GDP will be affected too greatly by large increases in factory production levels. D) GDP relies on measuring spending, much of which (gambling, etc.) is not really productive.
One reason GDP (gross domestic product) might NOT be an accurate indicator of the health of a country's economy is that (D)
A) cyclical B) frictional C) organizational D) structural
Sales Position: Self-Motivated individual needed to sell new homes being built in the Lakefront area. Salary based on commission and experience. Kris applies for the sales position and does well. However, she is laid off in late October due to slow sales. This is an example of what type of unemployment? (A)
A) Purchasing a home will be easier. B) There will be more goods to purchase. C) Businesses are more likely to hire during times of inflation. D) Student loan repayments will not cost as much in real dollars.
Shawn just graduated from college. Why might Shawn benefit from rapid inflation in the economy? (D)
A) money B) barter C) Government bonds D) commodity futures.
Something that efficiently functions as a medium of exchange, store of value, and unit of account, is considered ______. (A)
A) was eliminated. B) remained stable. C) increased due to budget surplus. D) decreased due to budget surplus.
Strong economic growth led to federal budget surplusses during the Clinton administration. During his second term, the growth of the national debt (D)
A) increased unemployment B) a decline in nominal wages C) decreased unemployment D) increased inflation
Suppose the economy was at full employment last year. Now supposed that the U.S. declared war on a country in the Middle East AND created a program ensuring all high school seniors could receive federal funding for college. Given this scenario, which of these would be MOST likely to take place? (D)
A) increasing or decreasing spending on infrastructure. B) increasing or decreasing taxes to influence aggregate demand. C) increasing or decreasing spending on essential goods and services. D) either buying or selling U.S. government securities on the open market.
The Federal Open Market Committee meets eight times a year to maintain or change policy. A vote to change policy will result in (D)
A) The stock market will crash. B) The unemployment rate will rise. C) The unemployment rate will fall. D) The stock market will experience a boom.
The Federal Reserve institutes a tight monetary policy in order to reign in inflation. What is a likely consequence of such action? (B)
A) reduce the discount rate B) sell securities on the open market C) increase the reserve requirement for banks D) require banks to hold a reserve for all types of deposits
The Federal Reserve wants to increase the money supply in the United States. What is the Federal Reserve likely to do to accomplish this? (A)
A) Federal Reserve Chairman B) Federal Open Market Committee C) President of the United States D) Senate and House of Representatives
The above chart represents the organization of the Federal Reserve System. Which of these correctly completes the chart? (B)
A) increases; falls B) increases; rises C) remain constant; rises D) remain constant; falls
The demand for money will _____ when the price level ____. (B)
A) the prices used in the calculations. B) the taxes used within the calculations. C) that nominal GDP uses exports and real GDP uses net exports. D) that nominal GDP included the depreciation of assets and real GDP uses the appreciation of capital.
The difference between nominal GDP and real GDP is (A)
A) unit of value B) store of value C) unit of account D) medium of exchange
The fact that money "enables people to transfer purchasing power from the present to the future" refers to the ______ function of money. (B)
A) the federal debt will decrease. B) the federal debt will not change. C) the federal government runs a deficit. D) the federal government runs a surplus.
The federal debt is the total amount borrowed from investors to finance government spending. In 1940, it was $50.7 billion. If the federal government attains a balanced budget, (B)
A) fiscal policy. B) monetary policy. C) supply-side economics. D) open market operations.
The federal government uses government spending and tax rates to help control recessions and encourage economic activity. This is called (A)
A) tax cuts, increases in interest rates, and recessions B) tax cuts, increases in military spending, and recessions C) Increases in social security benefits, increases in interest rates, and recessions D) Increases in interest rates, increases in military spending, and the Great Depression
The national debt in 2000 was $5.7 trillion and in 2017 it was $20 trillion. What are the three main reasons for expansion in debt? (B)
A) fiscal policy. B) monetary policy. C) the interest rate. D) the discount rate.
The process by which the Federal Reserve controls the supply, availability, and cost of money in order to keep the economy stable is (B)
A) National Income (NI). B) Net National Product (NNP). C) Gross National Product (GNP). D) Gross Domestic Product (GDP).
The single most important measure of the economy's overall economic performance, or the measure of national output, is called (D)
A) The United States was at war. B) The Cold War was getting started. C) An economic depression finally ended. D) Spending decreased and revenue increased.
This chart represents surpluses and deficits in the federal budget since 1930. What situation would have MOST likely accounted for the period in from the mid-1990s to 2000? (D)
A) fiscal policy. B) monetary policy. C) supply-side policy. D) wage-price controls.
Unemployment insurance, Welfare, Medicare, Medicaid, and Social Security are key components of (A)
A) increased saving and spending B) decreased saving and spending C) increased saving and reduced spending D) decreased saving and increased spending
What consumer behavior is the Federal Reserve Board trying to encourage when it implements a loose monetary policy? (D)
A) reserve requirements B) interest rates C) stock prices D) bond prices
What is NOT affected by decisions of the Federal Open Market Committee? (A)
A) to keep the money supply lower than the rate of inflation B) to keep the demand for money higher than the rate of inflation C) to keep the money supply stable in order to maintain low inflation D) to keep fiscal policy stable in order to maintain a low level of inflation
What is the Federal Reserve's role in helping to control inflation? (C)
A) increased deficit spending and increasing or growing national debt B) decreased deficit spending and increasing or growing national debt C) decreased deficit spending and decreasing or shrinking national debt D) increased deficit spending and decreasing or shrinking national debt
What is the effect of an expansionary fiscal policy upon an economy with an increasing budget deficit and growing national debt? (A)
A) concern about high corporate taxes B) to meet the goal of price stability C) when trying to meet the goal of full employment D) the economy is in a deep recession and GDP is shrinking at an alarming rate
What is the most likely reason the FED would raise the interest rate on required and excess reserves? (B)
A) Bank of the U.S. B) The Federal Reserve C) U.S. Congressional Bank D) The Federal Bank of America
What is the name of the "central bank" of the United States? (B)
A) loose money B) open market C) tight money D) fiscal policy
What is the term for the situation where more money is available for borrowing and investment? (A)
A) deflation B) low inflation C) high inflation D) not enough information given
What should be a future effect upon the economy if a expansionary fiscal policy continues in an economy with an increasing budget deficit and growing national debt? (C)
A) not affect it B) grow the debt C) shrink the debt D) change monetary policy
What will increased budget surpluses do to the national debt? (C)
A) Trade would increase over the long run. B) Unemployment would be reduced in the short run. C) The demand for goods would decrease in the short run. D) The price of goods would remain stable over the long run.
What would MOST LIKELY happen if the Federal Reserve System lowered interest rates? (B)
A) The amount of federal taxes people owe would decrease. B) The amount of federal taxes people owe would increase. C) The amount of money circulating in the economy would decrease. D) The amount of money circulating in the economy would increase.
What would MOST LIKELY happen if the Federal Reserve decided to increase the reserve requirement in banks? (C)
A) cut taxes B) raise taxes C) reduce the money supply D) increase the money supply
What would be reasonable monetary policy during a period of high inflation? (C)
A) That the lower interest rates will reduce the money supply to lower inflation. B) That people will begin borrowing enough money so that they do not have to work. C) That enough people will stop borrowing money and increase spending to raise the GDP. D) That businesses will begin increasing investments, which in turn, will cause a need for more employees.
When the Federal Reserve lowers interest rates, hoping to jump-start the employment market, what does it hope it will accomplish with that monetary policy action? (D)
A) robotic technology replaced human labor in many assembly lines. B) women entered the workforce in large numbers to replace the men. C) war production was not as labor-intensive as peacetime production. D) slave labor by captured enemy soldiers filled many of the gaps in the workforce.
When the U.S. entered World War II and mobilized its armed forces using the draft, industrial output would have fallen and severely affected the business cycle. One important way this was avoided was that (B)
A) In the short term, unemployment rates would remain stable. B) In the short term, unemployment rates would drop drastically. C) In the short term, unemployment rates would rise drastically. D) In the short term, unemployment rates would depend on other market
Which choice BEST describes what might happen to unemployment rates, if minimum wage laws were repealed? (B)
A) a medium of exchange B) a measure of value C) a store of value D) a traded item
Which choice does NOT describe a basic function of money? (D)
A) Congress raises interest rates while the Federal Reserve raises taxes B) Congress lowers interest rates while the Federal Reserve raises taxes C) Congress raises taxes while the Federal Reserve raises interest rates D) Congress raises taxes while the Federal Reserve lowers interest rates
Which combination of Federal Reserve and Congressional actions would be best to fight inflation? (C)
A) The GDP falls when consumer spending declines. B) Money spent repairing hurricane damage helps raise the GDP. C) Goods produced for infrastructure projects help raise the GDP. D) The GDP falls because scarcity of materials slows the rate of production.
Which example BEST illustrates that GDP (gross domestic product) is not always a good indicator of economic health? (B)
A) inflation B) employment C) outsourcing D) productivity
Which factor would be the LEAST important variable that affects the business cycle? (C)
A) Store of Value B) Unit of Account C) Means of Currency D) Medium of Exchange
Which function of money is the above picture an example of? (D)
A) Keeping unemployment rates low B) Decreasing the national debt C) Holding prices stable D) Sustainable growth
Which has LEAST LIKELY been the historical goal of the Federal Reserve's monetary policy? (B)
A) The Federal Reserve regulates the amount of money that flows into and out of the nation's economy. B) The Federal Reserve buys securities, which puts money back into the hands of people who can spend it in the marketplace. C) The Federal Reserve decreases the reserve requirement and banks have more money to loan to people who want to borrow it. D) The Federal Reserve increases the discount rate, which causes interest rates to rise and people to save rather than to spend
Which of these actions of the Federal Reserve can slow economic growth? (D)
A) a computer programmer who retired early at age 47 B) a recent college graduate looking for his first job C) a laid-off factory worker who has given up looking for a new job D) a barista who works as at a coffee shop 20 hours a week but would like to increase their hours
Which of these individuals is classified as unemployed? (B)
A) Equilibrium Price B) Consumer Price Index C) Job Satisfaction Rate D) Presidential Approval Rate
Which of these is an economic indicator used to tell how an economy is doing? (B)
A) increased job satisfaction B) increased aggregate demand C) increased welfare applications D) increased transfer payments by the government
Which of these is an indicator of increased economic growth in a nation? (B)
A) the U.S. Treasury B) the Federal Reserve C) the executive branch D) the legislative branch
Which of these is primarily responsible for the control of the money supply in the United States? (B)
A) Idaho B) Georgia C) Nevada D) Hawaii
Which of these states had the LOWEST increase in Real GDP in 2014? (D)
A) seasonal B) cyclical C) frictional D) structural
Which of these types of unemployment is characterized by peaks of joblessness at specific times of the year? (A)
A) Unemployment would decrease. B) The public deficit would increase. C) The available yield would increase. D) Consumption of goods would decrease.
Which of these would MOST likely occur if the government increased taxes to build up its supply of cash? (D)
A) a decrease in interest rates B) an increase in economic growth C) an increase in consumer spending D) a decrease in the price of securities
Which of these would deter inflation? (D)
A) consumer spending declines B) business production increases C) the employment rate increases D) government regulations decrease
Which statement describes economic activity in a recession? (A)
A) They lend to depository institutions. B) They supervise and examine state member banks. C) They provide banking services, such as accounts, to individuals. D) They provide key financial services such as distributing the nation's currency.
Which statement does NOT describe a responsibility of the Reserve Banks? (C)
A) Willie's annual household income is approximately $55,000. B) Willie's income is used exclusively as a medium of exchange for goods and services. C) Willie operates on a "cash only" basis, which is a very smart personal finance decision. D) Willie allocates $350 every two weeks as a store of value in his checking and savings accounts.
Willie gets paid $1000 every two weeks and follows the same spending and saving plan unless an emergency arises. The first thing Willie does is to immediately put $250 in his savings account. Next, using online bill pay through his bank, Willie spends about $300 on bills such as his cell phone, electricity, and rent. Willie withdraws $150 in cash for daily expenses, and leaves the remaining amount ($100) in his checking account. Based upon the information about Willie's spending and saving habits, which statement is TRUE? (D)
A) to increase trade deficits B) to increase economic growth C) to decrease economic growth D) to maintain current economic levels
With regards to economic growth, what is the goal of an expansionary fiscal policy? (B)
A) Peak B) Real GDP C) Expansion D) Contraction
At which point on the business cycle would you most likely find cyclical unemployment? (D)
A) cyclical unemployment. B) seasonal unemployment. C) real wage unemployment. D) frictional unemployment.
Demand-side economic policies most effectively reduce (A)
A) the arbitrary fluctuation in tax laws and budget requirements. B) the automatic change in certain fiscal instruments when real GDP changes. C) the deliberate manipulation of the money supply to expand the total economy. D) any changes in government spending or taxes for the purposes of expanding or shrinking the economy as needed.
Discretionary fiscal policy is defined as (D)
A) -2% B) 2% C) 4% D) 6%
If inflation is 2% and nominal GDP grew by 4% then during the same period real GDP changes by how much? (B)
A) to stimulate the economy B) to slow down productivity C) to decrease consumer spending D) to increase the federal income tax
In 2008, many United States families received a tax rebate check from the Internal Revenue Service (IRS). Why were tax rebate checks distributed? (A)
A) Sales Tax B) Income Tax C) Excise Tax D) Property Tax
Of the following taxes, what is the name for the taxes that all homeowners must pay? (D)
A) fiscal policy. B) monetary policy. C) demand economics. D) supply side economics.
The Federal Reserve uses various measures to change the money supply and encourage economic activity. This is referred to as (B)
A) inside; longer B) inside; shorter C) outside; longer D) outside; shorter
The ___________ lag for fiscal policy is generally ______ than it is for monetary policy. (C)
A) federal spending B) US deficit record C) federal budget D) federal spending plan
The annual statement of outlays, tax revenues, and surplus and/or deficit of the United States government is called the _____. (C)
A) controversial B) fair and equitable C) efficient and fair D) unfair and inefficient
The goals of American social and economic policy are often ______. (A)
A) cut taxes B) raise taxes C) reduce the money supply D) increase the money supply
What would be reasonable monetary policy if the economy was in a recession? (D)
A) Store of value B) Unit of account C) Standard of Value D) Medium of exchange
When making a deposit into a financial institution, such as a bank, this BEST reflects which function of money? (A)
A) Buy Bonds B) Sell Bonds C) Raise Taxes D) Lower Interest Rates
Which action by the Federal Reserve would help to slow down rising inflation? (B)
A) Cyclical B) Frictional C) International D) Structural
Which type of unemployment would increase if workers lost their jobs because their positions were replaced by an automated process? (D)
A) control the stock market. B) regulate the money supply. C) decrease consumer spending. D) challenge Presidential power.
· setting the discount and interest rates · establishing reserve requirements for banks · buying and selling US government securities All of these are ways in which the Federal Reserve system can (B)
A) decrease the role of the private economy. B) increase their participation in fiscal policy. C) increase their participation in monetary policy. D) decrease their participation in monetary policy.
"The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy." - Milton Friedman The quote by Milton Friedman supports his belief that the federal government should (D)
A) jewelry used as currency. B) tradesmen who decorated tombs. C) currency as a medium of exchange. D) tradesmen who decorated the tombs of kings.
"The first evidence of coins in Ancient Egypt was made in the form of rings of gold, silver and copper, with specific weights, which were measured and certified. Gold coins are found on the paintings from tombs as early as 1430 BC. Documents recovered from the times of Amenhotep II show that the values of different items were expressed in terms of pieces of metal of gold, silver, and copper, and were of fixed weight and value. Other weighted materials of gold and silver were recovered from the time of Ramses III." These coins and rings were evidence of (C)
A) medium of exchange. B) measure of value. C) store of value. D) bartered item
A farmer sells a truckload of grain for $1000. He then takes the cash to the tractor dealer and buys a new set of tires for his cultivator. This illustrates that one function of money is to be a (A)
A) increase taxation. B) decrease the money supply. C) increase the money supply. D) decrease government spending.
According to monetarists, to prevent recessions, the Federal Reserve should (C)
A) Alberto is using money as a store of value. B) Alberto is using money as a unit of account. C) Alberto is using money as a medium of exchange. D) Alberto is using money as a means of deferring payment.
Alberto is a carpenter. He needs a new saw in order to make more cabinets to sell to his buyers. To do this, he sells a bench he has made, and uses the money to purchase a new saw. What conclusion can you make using this example? (C)
A) more oversight from the executive branch. B) more oversight from the legislative branch. C) significant control by the Treasury Department. D) relative independence of the Federal Reserve System.
Although the members of the Board of Governors of the Federal Reserve System are appointed by the president, the Board does not receive funding from Congress. The seven members serve a 14 year term, and report to the Speaker of the House once a year. This MOST LIKELY results in (D)