Econ Chapters 9-12
. In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve? A) They functioned as money. B) They served as a corruption deterrent. C) They enabled prison officers to monitor illegal money flows. D) They forced prisoners to engage in barter.
They functioned as money.
A financial institution that accepts deposits, makes loans, and offers checking accounts is A) an insurance company. B) the Federal Deposit Insurance Corporation. C) the Federal Reserve System. D) a commercial bank.
a commercial bank.
(Exhibit: Fiscal Policy Options) If the aggregate demand curve is AD2, which of the following is the most appropriate discretionary fiscal policy to pursue? A) a contractionary fiscal policy involving reductions in government spending and decreases in income tax rates B) a contractionary fiscal policy involving reductions in government spending and increases in income tax rates C) an expansionary fiscal policy involving increases in government spending and increases in income tax rates D) an expansionary fiscal policy involving increases in government spending and decreases in income tax rates
a contractionary fiscal policy involving reductions in government spending and increases in income tax rates
. A bond is A) a debt instrument, that is, the issuer has taken out a loan. B) an equity instrument, that is, the buyer has purchased ownership in the issuer's firm. C) the same thing as a stock. D) a short-term loan from the government.
a debt instrument, that is, the issuer has taken out a loan.
(Exhibit: Fiscal Policy 1) The economy is initially at output level Y1 and there is A) an inflationary gap. B) a recessionary gap. C) equilibrium at full employment. D) a short-run and a long-run equilibrium.
a recessionary gap.
(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point c, an open market purchase would cause A) a shift of the short-run aggregate supply curve from AS1 to AS2. B) a shift of the short-run aggregate supply curve from AS2 to AS1. C) a shift of the aggregate demand curve from AD1 to AD2. D) a shift of the aggregate demand curve from AD2 to AD1.
a shift of the aggregate demand curve from AD1 to AD2.
(Exhibit: The Money Market) If the interest rate is above the equilibrium rate, there will be A) an excess demand for money and the interest rate will rise. B) an excess supply of money and the interest rate will fall. C) an excess demand for money and the interest rate will fall. D) an excess supply of money and the interest rate will rise.
an excess supply of money and the interest rate will fall.
(Exhibit: The Bond Market) A movement from S1 to S2, means there was A) a decrease in borrowing. B) an increase in borrowing. C) a decrease in lending. D) a decrease in the interest rate
an increase in borrowing.
All of the following are instruments of fiscal policy except A) rebate on payroll taxes. B) education tax credits. C) unemployment insurance benefits. D) an interest rate cut.
an interest rate cut.
Exhibit: A Shift in Money Supply) What could have caused the money supply curve to shift from S1 to S2? A) an open market purchase conducted by the Fed B) an open market sale conducted by the Fed C) an increase in tastes and preferences in favor of holding more money D) an increase in the reserve requirement ratio
an open market purchase conducted by the Fed
(Exhibit: Monetary Policy 1) To shift the demand curve from D1 to D2, the Fed will be A) buying bonds in the open market which decrease the money supply. B) selling bonds in the open market which decrease the money supply. C) buying bonds in the open market which increases the money supply. D) selling bonds in the open market which increases the money supply.
buying bonds in the open market which increases the money supply.
(Exhibit: Economic Adjustments) If the economy is at point c, the Federal Reserve can close the output gap A) by pursuing an expansionary monetary policy to raise the interest rate and increase short run aggregate supply. B) by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. C) by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. D) by pursuing a contractionary monetary policy to raise the interest rate and increase short run aggregate supply
by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand.
(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point c, the Federal Reserve can close the output gap A) by pursuing an expansionary monetary policy to raise the interest rate and increase short-run aggregate supply. B) by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. C) by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. D) by pursuing a contractionary monetary policy to raise the interest rate and short-run aggregate supply.
by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand.
(Exhibit: Monetary Policy 2) By shifting the supply curve from S1 to S2, the Fed is attempting to A) expand the economy by increasing interest rates. B) contract the economy by increasing interest rates. C) contract the economy by decreasing interest rates. D) expand the economy by decreasing interest rates.
contract the economy by increasing interest rates.
(Exhibit: Monetary Policy 2) By shifting the supply curve from S1 to S2, the Fed is exercising A) expansionary monetary policy in order to lower interest rates. B) expansionary monetary policy in order to increase interest rates. C) contractionary monetary policy in order to increase interest rates. D) contractionary monetary policy in order to lower interest rates.
contractionary monetary policy in order to increase interest rates.
Which of the following is an example of a bank's reserves? A) demand deposits with other banks B) deposits with the Federal Reserve C) Treasury bonds and bills D) state bonds of the state in which the bank is located but not state bonds of other states.
deposits with the Federal Reserve
Any reserves that banks hold in excess of required reserves are called A) excess reserves. B) margin reserves. C) federal reserves. D) surplus reserves.
excess reserves.
(Exhibit: Monetary Policy 1) By shifting the demand curve from D1 to D2, the Fed is attempting to A) contract the economy by increasing interest rates. B) expand the economy by increasing interest rates. C) contract the economy by decreasing interest rates. D) expand the economy by decreasing interest rates.
expand the economy by decreasing interest rates.
(Exhibit: Monetary Policy 1) By shifting the demand curve from D1 to D2, the Fed is exercising A) contractionary monetary policy to lower interest rates. B) expansionary monetary policy to lower interest rates. C) contractionary monetary policy to increase interest rates. D) expansionary monetary policy to increase interest rates.
expansionary monetary policy to lower interest rates.
. Money that some authority has declared legal tender is called A) fiat money. B) currency. C) convertible paper money. D) commodity money.
fiat money.
Government tax and expenditure policies that affect real GDP are called A) automatic fiscal policy. B) discretionary fiscal policy. C) fiscal policy. D) supply-side policy
fiscal policy.
A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called A) speculative banking. B) leveraged banking. C) fractional reserve banking. D) international banking.
fractional reserve banking.
One method of assessing the degree to which current fiscal policies affect future generations is through a device called A) inter-temporal fiscal accounting. B) generational accounting. C) long-term debt assessment technique. D) fiscal stabilization tool.
generational accounting.
Public investment expenditure for highways, schools, and national defense is included in which component of GDP? A) consumption B) gross private investment C) government purchases D) public investment
government purchases
(Exhibit: A Shift in Money Demand) Which of the following could cause the demand curve to shift from D2 to D1? A) a decrease in the costs of transferring funds between money and non-money accounts B) an increase in the interest rate C) a decrease in the price level D) greater preferences by consumers for holding money
greater preferences by consumers for holding money
The time between recognizing the existence of a problem and adopting a course of action to deal with the problem is called the A) impact lag. B) recognition lag. C) implementation lag. D) theory lag.
implementation lag.
(Exhibit: Fiscal Policy 1) In this situation, if policymakers want to close the output gap with fiscal policies that will stimulate aggregate demand, what should they do? A) establish a consumption tax to encourage savings B) increase government spending C) loosen environmental regulations to lower businesses cost of production D) raise interest rates
increase government spending
The national debt A) is the difference between total government revenues and government expenditures. B) is the sum of all past federal deficits plus any surpluses. C) is the sum of all past federal deficits less any surpluses. D) grows when government spending increases.
is the sum of all past federal deficits less any surpluses.
(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point c, A) it is in a recessionary gap. B) it is at natural level of employment. C) the level of employment is greater than the natural level of employment. D) the unemployment rate is negative.
it is in a recessionary gap.
The government has a balanced budget if A) its total revenues are equal to its total expenditures. B) its total revenues are less than its total expenditures. C) its total revenues are greater than its total expenditures. D) the money supply is less than total expenditures.
its total revenues are equal to its total expenditures.
The government has a budget surplus if A) its total revenues are equal to its total expenditures. B) its total revenues are less than its total expenditures. C) its total revenues are greater than its total expenditures. D) the money supply is less than total expenditures.
its total revenues are greater than its total expenditures.
The government has a budget deficit if A) its total revenues are equal to its total expenditures. B) its total revenues are less than its total expenditures. C) its total revenues are greater than its total expenditures. D) the money supply is less than total expenditures.
its total revenues are less than its total expenditures.
(Exhibit: Supply-Side Economics) If the economy is initially at Y1, supply-side economists would advocate A) lower taxes to encourage people to work more. B) reductions in investment tax credits to stimulate capital formation. C) tax increases to encourage more people to work. D) increased transfer payments to help the unemployed.
lower taxes to encourage people to work more.
. In December 2008, the Federal Reserve announced that it would take extraordinary measures to address the financial crisis in the economy. These measures include all of the following except A) buying mortgage-backed securities. B) buying long-term Treasury bills. C) creating other new credit facilities to make credit more easily available to households and small businesses. D) lowering the reserve requirement to encourage banks to create loans.
lowering the reserve requirement to encourage banks to create loans.
Financial markets are A) markets where money is traded between the Fed and economic agents. B) markets where funds accumulated by one group are made available to another group. C) banks interact to lend and borrow reserves. D) the market where capital goods are traded.
markets where money is traded between the Fed and economic agents.
Taxes assessed on firms and employees on wages and salaries earned are called A) dividend taxes. B) payroll taxes. C) corporate profits taxes. D) earned income taxes.
payroll taxes.
The rational expectations hypothesis suggests that A) people are creatures of habit and tend not to change their economic behavior in the short run. B) people are rational if they make forecasts about economic activity. C) people use all available information to make forecasts about future economic activity and adjust their behavior to these forecasts. D) people use all available information to make forecasts about future economic activity but often fail to adjust their behavior to these forecasts.
people use all available information to make forecasts about future economic activity and adjust their behavior to these forecasts.
A country's exchange rate is the A) price of its currency in terms of another currency. B) ratio of imports to exports. C) ratio of exports to imports. D) ratio of net exports to real GDP.
price of its currency in terms of another currency.
The demand curve for money curve shows, all other things unchanged, the A) quantity of money demanded at each price. B) quantity of money demanded at each bond rate. C) quantity of money demanded at each interest rate. D) amount of money people demand at a specific interest rate.
quantity of money demanded at each interest rate.
(Exhibit: The Money Market) In equilibrium the interest rate is A) r2 and the quantity of money is Q0. B) r0 and the quantity of money is Q2. C) r1 and the quantity of money is Q1. D) r and the quantity of money is Q2.
r1 and the quantity of money is Q1.
The quantity of reserves that banks must hold against deposits is called A) the reserve ratio. B) excess reserves. C) total reserves. D) required reserves.
required reserves.
Toward the end of 2008, the U.S. economy was characterized by all of the following except A) credit tightening by banks. B) rising inflation. C) falling real GDP. D) an unprecedented federal funds rate below 1%.
rising inflation.
(Exhibit: Monetary Policy 2) By shifting the supply curve from S1 to S2, the Fed will be A) buying bonds in the open market which decreases the money supply. B) selling bonds in the open market which decreases the money supply. C) buying bonds in the open market which increases the money supply. D) selling bonds in the open market which increases the money supply.
selling bonds in the open market which decreases the money supply.
Money is any item that A) serves as a medium of exchange for goods and services. B) can be converted into silver with relatively little loss in value. C) can be converted into gold with relatively little loss in value. D) facilitates a connecting link between credit instruments and debt instruments.
serves as a medium of exchange for goods and services.
. According to the text, in many respects, the single most powerful economic policymaker in the United States is A) Congress. B) the Federal Reserve. C) the President. D) the Supreme Court.
the Federal Reserve.
Currency rates of exchange are determined by A) agreements among governments. B) the nations with the strongest armies. C) the demand and supply of the currency. D) multilateral business agreements.
the demand and supply of the currency.
(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market, A) the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. B) the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. C) the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. D) the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.
the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates.
The interest rate on a bond is A) the difference between the face value and the bond price, expressed as a percentage of the face value. B) the difference between the face value and the bond price, expressed as a percentage of the bond price. C) the ratio of the face value and the bond price, expressed as a percentage. D) the difference between the face value and the yield, expressed as a percentage of the bond price.
the difference between the face value and the bond price, expressed as a percentage of the bond price.
Which of the following is an interest rate that the Fed has targeted in the last several years? A) the prime rate B) the discount rate C) the government bond rate D) the federal funds rate
the federal funds rate
(Exhibit: Fiscal Policy Options) Suppose the aggregate demand curve is AD2. All of the following events would more likely bring the economy back to the natural rate of unemployment except A) the government orders a one-time surcharge of 10% to be added to individual income tax liabilities. B) the government raises business taxes. C) the Federal Reserve sells bonds on the open market. D) the government orders a cut in withholding rates designed to increase disposable income and boost consumption.
the government orders a cut in withholding rates designed to increase disposable income and boost consumption.
The delay between the time a policy is enacted and the time the policy has its effect on the economy is called A) the impact lag. B) the implementation lag. C) the government lag. D) the recognition lag.
the impact lag.
(Exhibit: The Money Market) The vertical money supply curve implies that A) the money supply is determined by the banking system. B) the money supply is determined by the Federal Reserve. C) the money supply is determined by market forces of demand and supply. D) the money supply is determined by real GDP.
the money supply is determined by the Federal Reserve.
The lag in realizing that a macroeconomic problem exists is called A) the recognition lag. B) the implementation lag. C) the impact lag. D) the market lag
the recognition lag.
(Exhibit: Fiscal Policy 1) Assume that the economy is initially at Y1. A nonintervention policy would result in the restoration of potential output by allowing the A) the aggregate demand curve to shift to the right. B) the short-run aggregate supply curve to shift to the right. C) the aggregate demand curve to shift to the left. D) the short-run aggregate supply curve to shift to the left.
the short-run aggregate supply curve to shift to the right.
(Exhibit: Economic Adjustments) If the economy is at point b, the Federal Reserve can close the output gap by selling bonds. In the bond market, A) the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates. B) the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates. C) the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates. D) the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.
the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates.
What are the three motives for holding money? A) the medium of exchange motive, the store of value motive, and the unit of account motive B) the transaction motive, the speculative motive, and the liquidity motive C) the transaction motive, the investment motive, and the liquidity motive D) the transaction motive, the speculative motive, and the precautionary motive
the transaction motive, the speculative motive, and the precautionary motive
When people hold money to make anticipated purchases of goods and services, they are exercising the _______ demand for money. A) speculative B) exchange C) transactions D) precautionary
transactions
Medicaid, welfare payments, and Temporary Assistance to Needy Families are classified as A) unilateral payments. B) transfer payments. C) gifts. D) income redistribution payments.
transfer payments.
Payments to households that do not require anything in exchange are called A) transfer payments. B) government purchases. C) consumption expenditures. D) investment expenditures.
transfer payments.
(Exhibit: Components of the Money System) The difference between M1 and M2 amounts to A) $325 billion. B) $350 billion. C) $450 billion. D) $1,275 billion.
$1,275 billion.
. (Exhibit: Balance Sheet of the Alpha-Beta Bank) What is the value of the bank's total reserves? A) $25 million B) $75 million C) $100 million D) $200 million
$100 million
(Exhibit: Balance Sheet of the Alpha-Beta Bank) What is the value of the bank's net worth? A) $200 million B) $2,000 million C) $2,800 million D) $3,000 million
$200 million
(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank? A) $25 million B) $40 million C) $60 million D) $75 million
$40 million
(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10%, what is the value of the bank's required reserves? A) $25 million B) $40 million C) $60 million D) $75 million
$60 million
(Exhibit: Fed Buys Bonds) As a result of Sheila's deposit, Perez Bank can increase its loans by A) $10,000. B) $90,000. C) $100,000. D) $1,000,000.
$90,000.
(Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity of Q1, the interest rate on the bond is A) 1.11%. B) 10.0%. C) 11.1%. D) 17.6%.
11.1%.
(Exhibit: The Bond Market) Following the increase in supply from S1 to S2, at a price of $850, what is the interest rate? A) 6.6% B) 15% C) 17.6% D) 23.5%
17.6%
The Federal Reserve System was created by the A) National Banking Act of 1864. B) Federal Reserve Act of 1913. C) Glass-Steagall Act of 1933. D) Banking Act of 1935.
Federal Reserve Act of 1913.
The government purchases component of aggregate demand includes I. all purchases by government agencies of goods and services produced by firms. II. direct production by government agencies themselves. III. government expenditures on transfer payments. A) I only B) I and II only C) I and III only D) I, II, and III
I and II only
Which of the following are primary functions of a central bank? I. act as a regulator of banks II. issue government bonds III. set monetary policy IV. regulate dividend payments by corporations A) I, II, III, and IV B) I, II, and III C) I and III D) I and II
I and III
The Federal Reserve System I. is the central bank for the United States. II. is a United States government owned bank. III. is a branch of the Treasury of the United States. A) I only B) I and II only C) I and III only D) I, II, and III
I only
Which of the following is not a function of the Federal Reserve System? A) It acts as a central bank. B) It acts as a banker to banks. C) It determines tax levels in conjunction with the U.S. Treasury. D) It sets monetary policy.
It determines tax levels in conjunction with the U.S. Treasury.
What is velocity of money? A) It is the number of times households convert bonds to money to facilitate economic transactions. B) It is the rate at which money supply is spent to obtain the goods and services that make up GDP during a particular time period. C) It is the rate at which money supply can grow while keeping the price level stable. D) It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period.
It is the number of times the money supply is spent to obtain the goods and services that make up GDP during a particular time period.
What is an automatic stabilizer? A) It refers to a discretionary policy that is triggered when actual output is not equal to potential output to improve the economy's performance. B) It refers to a stabilization program that keeps inflation in check automatically. C) It refers to any government program that tends to reduce fluctuations in GDP automatically. D) It refers to a government program that is automatically triggered when the economy enters a recession.
It refers to any government program that tends to reduce fluctuations in GDP automatically.
Let M = money supply; P = price level; V = velocity; Y = real GDP. The equation of exchange is given by: A) M × P = V × Y. B) M × V = P × Y. C) M × Y = P × V. D) M × V = (1/ P) × Y.
M × V = P × Y.
The Fed's narrowest measure of money supply is A) M1. B) M2. C) credit card balances. D) balances held in money market funds.
M1.
(Exhibit: Fed Buys Bonds) Once the full impact of the Fed's open market purchase and Sheila's deposit worked its way through the banking system, what is the maximum change on the money supply as a result of these two events? A) Money supply falls by $100,000. B) Money supply falls by $1,000,000. C) Money supply rises by $10,000. D) Money supply rises by $1,000,000.
Money supply rises by $1,000,000.
(Exhibit: A Shift in Money Demand) What happens in the bond market as a result of the shift in the money demand curve from D1 to D2? A) The demand for bonds increases. B) The demand for bonds decreases. C) The supply of bonds increases. D) The supply of bonds decreases.
The demand for bonds increases.
(Exhibit: A Shift in Money Supply) What happens in the bond market as a result of the shift in the money supply curve from S1 to S2? A) The demand for bonds increases. B) The demand for bonds decreases. C) The supply of bonds increases. D) The supply of bonds decreases.
The demand for bonds increases.
