ECO 111 - Final Exam

When the federal government uses taxation and purchasing actions to stimulate the economy it is conducting -employment policy. -monetary policy. -incomes policy. -fiscal policy.

fiscal policy.

If the Consumer Price Index was 125 in one year and 120 in the following year, then the rate of inflation is approximately -4.2 percent. - -4.2 percent. -4 percent. - -4 percent.

-4 percent.

If the nominal interest rate is 9% and the inflation rate is 5%, then the real interest rate is -3% -2% -4% -8%

3%

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is -53 percent. -6 percent. -3 percent. -7 percent.

6 percent.

Which of the following best describes the cause-and-effect chain of an expansionary monetary policy? -A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. -A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. -An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. -An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.

An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

What is one significant characteristic of fractional reserve banking? -Banks can create money through lending their reserves. -Bank loans will be equal to the amount of gold on deposit. -Banks use deposit insurance for loans to customers. -Banks hold a fraction of their loans in reserve.

Banks can create money through lending their reserves.

Which of the following would be an example of contractionary fiscal policy? -Congress decreases the rate for the top income tax bracket by 5 percent. -Congress increases infrastructure spending by 2 percent. -Congress increases the corporate tax rate by 3 percent. -Congress enacts economic sanctions on North Korea.

Congress increases the corporate tax rate by 3 percent.

What function is money serving when you deposit it in a savings account? -a checkable deposit -a store of value -a medium of exchange -a unit of account

a store of value

Suppose the reserve requirement is initially set at 15%. a. At a reserve requirement of 15%, what is the value of the money multiplier? b. If the reserve requirement is 15% and the Fed increases reserves by $30 billion, what is the total increase in the money supply? c. Suppose the Fed raises the reserve requirement to 18%. What is the value of the money multiplier now? d. Assume the reserve requirement is 18%. If the Fed increases reserves by $30 billion, what is the total increase in the money supply? e. Raising the reserve requirement from 15% to 18% ____ the money multiplier and ____ the money supply.

a. 6.67 b. $200.1 billion c. 5.56 d. $166.8 billion e. decreases; decreases

The federal funds rate is the interest rate that ____ charge(s) ____. -the Fed; commercial banks -banks; their best corporate customers -banks; other banks -banks; on federal student loans

banks; other banks

The M1 money supply is composed of -bank deposits and mutual funds. -all coins and paper money held by the general public and the banks. -checkable deposits and currency in circulation. -bank deposits of households and business firms.

checkable deposits and currency in circulation.

Inflation caused by an increase in aggregate spending is referred to as -expected inflation -demand-pull inflation -hyperinflation -cost-push inflation

demand-pull inflation

In the aggregate expenditure model, the equilibrium output is the level of output at which real GDP -equals investment. -equals aggregate expenditure. -equals real GDP per capita -maximizes firm profits.

equals aggregate expenditure.

The CPI compiled by the Bureau of Labor Statistics is used in the computations for the -foreign exchange rate -inflation rate -unemployment rate -interest rate

inflation rate

The practical significance of the expenditure multiplier is that it: -equates the real interest rate and the expected rate of return on investment. -keeps inflation within tolerable limits. -magnifies initial changes in spending into larger changes in GDP. -helps to reduce unemployment.

magnifies initial changes in spending into larger changes in GDP.

"Full employment" refers to the situation when there is -100 percent employment of the labor force. -no frictional or structural unemployment. -no cyclical unemployment. -a 0 percent unemployment rate.

no cyclical unemployment.

A newspaper headline reads: "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to -reduce inflationary pressures in the economy. -reduce the cost of credit. -stimulate the economy. -increase the money supply.

reduce inflationary pressures in the economy.

A worker who loses a job at a call center because the company moved the call center operations to another country is an example of -frictional unemployment. -cyclical unemployment. -disguised unemployment. -structural unemployment.

structural unemployment.

Fiscal policy would be more effective if -potential income was unknown. -the government could change taxes and expenditures rapidly. -the size of the government debt didn't matter. -crowding out occurred more often.

the government could change taxes and expenditures rapidly.