ECON 1010 Final Exam

In the US economy, the money supply is controlled by the:

Federal Reserve System.

Which of the following is a key difference between the economic activities of government and those of private firms?

Government has the legal right to force people to do things; private firms do not.

The short-run aggregate supply curve is:

Horizontal.

If the MPC in an economy is .75, Congress could shift the aggregate demand curve leftward by $60 billion by:

Increasing taxes by $15 billion.

Monetary policy is thought to be:

More effective in controlling demand-pull inflation than in moving the economy out of a recession.

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of:

Okun's Law

The goldsmith's ability to create money was based on the fact that:

Paper money in the form of receipts was rarely redeemed for gold.

Refer to the diagram. A government-set price floor is best illustrated by:

Price C.

Which of the following is a fundamental characteristic of the market system?

Property rights.

Nonrivalry and nonexcludability are the main characteristics of:

Public goods.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

Rise by about 15 percent.

If two goods are complements:

a decrease in the price will increase the demand for the other.

A surplus of a product will arise when price is:

above equilibrium, with the result that quantity supplied exceeds quantity demanded.

In the United States, the money supply (M1) is comprised of:

coins, paper currency, and checkable deposits.

The US public debt:

consists of the historical accumulation of all past federal deficits and surpluses.

The amount that a commercial bank can lend is determined by it's:

excess reserves.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

federal funds rate.

A price floor means that:

government is imposing a minimum legal price that is typically above equilibrium price.

The simple circular flow model show that:

households are on the selling side of the resource market and on the buying side of the product market.

If the real interest rate in the country is i and the expected rate of return on additional investment is r, then other things equal:

investment will take place until i and r are equal.

Refer to the diagram for a private closed economy. In this economy, investment:

is $40 billion at all levels of GDP.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The equilibrum level of GDP in this economy:

is $400.

A market:

is an institution that brings together buyers and sellers.

Expansionary fiscal policy is so named because it:

is designed to expand real GDP.

The economy's long-run aggregate supply curve:

is vertical.

According to the Taylor rule, when GDP is at its potential and inflation is at its target rate of 2 percent, the Fed should:

keep the federal funds rate at 4 percent.

An increase in the money supply will:

lower interest rates and increase the equilibrium GDP.

Real GDP is preferred to nominal GDP as a measure of economic performance because:

nominal GDP uses current prices and thus may over- or understate true changes in output.

The law of demand states that other things equal:

price and quantity demanded are inversely related.

In representative democracy, voters are ________ and politicians are ________.

principals; agents

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs.

When economist refer to "business investment," they are describing a situation where:

resources are devoted to increasing future output.

Government's unfunded liabilities:

result from the political bias toward immediate benefits and deferred costs.

Graphically, demand-pull inflation is shown as a:

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

The asset demand for money:

varies inversely with the rate of interest.

If the price index rises from 100 to 120, the purchasing power value of the dollar:

will fall by one-sixth.

Refer to the diagram. The equiliburm price and quantity in this market will be:

$1.00 and 200.

At equilibrum in the given market for money, the total amount of money demanded is:

$460.

Money functions as:

-A store of value -A unit of account -A medium of exchange

Economic efficiency:

-Allocative efficency -Prospective efficiency -Producing the right combination of goods and services. -Producing goods and services at least cost.

An externality:

-creates free riders -requires government intervention to correct -results in market failures

The four main tools of monetary policy are:

-the discount rate -the reserve ratio -interest on reserves -open-market operations

The multiplier is:

1/MPS

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11 percent.

Refer to diagram for product Z. Assume that the current market demand and supply curves for Z are D1 and S1. If there are substantial benefits associated with the production of Z, then:

A government subsidy for producers of Z would ensure that consumers are paying directly for all of the benefits they receive from Z.

Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75:

A larger quantity of C will be demanded.

Refer to the given diagram: Consumption will be equal to income at:

An income of E.

Which of the following best describes the cause-effect chain of an expansionary monetary policy:

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

Refer to the diagram of the market for money. The downward slope of the money demand curve D(m) is best explained in terms of the:

Asset demand for money.

Which of the following is a distinguishing feature of a command system?

Central planning.

Inflation initiated by increases in wages or other resource prices is labeled:

Cost-push inflation

The major economic goals:

Economic growth, full-employment, price stability.

Refer to the diagram: If equilibrium real output is Q2, then:

Equilibrium price level is P2.

The economy's long-run AS curve assumes that wages and other resource prices:

Eventually rise and fall to match upward or downward changes in the price level.

Refer to the graph. An increase in the economy's human capital would:

Shift curve AB to CD.

The business cycle depicts:

Short-run fluctuations in output and employment.

Which of the following is a source of government failure?

The enormous size and scope of government.

When the receipts given by goldsmiths to depositors were used to make purchases:

The receipts became in effect paper money.

Real GDP measures the:

Value of final goods and services produced within the borders of a country, corrected for price changes.

Inflation is defined as:

an increase in the overall levels of prices.

In the diagram: it is assumed that the investment, net exports, and government purchases:

are independent of the level of GDP.

In the financial industry, "securitization" refers to:

bunding groups of loans, mortgages, and other financial debts into new securities.

A nation's gross domestic product (GDP):

can be found by summing C+Ig+G+Xn.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

increase by $10 billion

Refer to the given graph. A movement from a to b along C1 might be caused y a(n):

increase in real GDP.

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index (1985=100) was 120 in 1990 and 125 in 2000. Between 1990 and 2000 real GDP:

increased by %60 billion.

The largest proportion of the US public debt is held by:

the US public (individuals, businesses, financial institutions, and government).

If depreciation exceeds gross investment:

the economy's stock of capital is shrinking.

The purchase of government securities from the public by the Fed will cause:

the money supply to increase.

Other things equal, if the required reserve ratio was lowered:

the size of the monetary multiplier would increase.