Econ Final Exam
Based on the following information, what is the balance on the financial account? Exports of goods and services = $5 billion Imports of goods and services = $3 billion Net income on investments = -$2 billion Net transfers = -$2 billion Increase in foreign holdings of assets in the United States = $4 billion Increase in U.S. holdings of assets in foreign countries = -$1 billion A) $3 billion B) $2 billion C) $1 billion D) -$1 billion
$3 billion
Based on the following information, what is the balance on the financial account? Exports of goods and services = $5 billion Imports of goods and services = $3 billion Net income on investments = -$2 billion Net transfers = -$2 billion Increase in foreign holdings of assets in the United States = $4 billion Increase in U.S. holdings of assets in foreign countries = -$1 billion A) $3 billion B) $2 billion C) $1 billion D) -$1 billion
$3 billion
If, in a closed economy, real GDP is $30 billion, consumption is $20 billion, and government purchases are $5 billion, what is total saving in the economy? A) $5 billion B) $15 billion C) $45 billion D) $55 billion
$5 billion
Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of A) $0. B) $50. C) $500. D) $5,000.
$5,000
The federal budget deficit and the trade balance deficit are often referred to as the A) dueling depreciators. B) national debt. C) balance of payments. D) twin deficits.
twin defitcits
As was demonstrated in 2007, firms in the shadow banking system A) were protected from financial ruin by federal deposit insurance. B) were more insulated from the financial crisis than were commercial banks. C) were very vulnerable to bank runs. D) were well insulated from bank runs.
were very vulnerable to bank runs.
Stagflation occurs when inflation ________ and GDP ________. A) rises; rises B) falls; falls C) falls; rises D) rises; falls
rises; falls
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of A) $8,000. B) $10,000. C) $50,000. D) $100,000.
$50,000
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A can make a maximum loan of A) $2,000. B) $8,000. C) $10,000. D) $50,000.
$8,000
If the bank of Waterloo receives a $10,000 deposit, and the reserve requirement is 10 percent, how much can the bank loan out? (Assume that before the deposit this bank is just meeting its legal reserve requirement.) A) $1,000 B) $9,000 C) $10,000 D) $11,000
$9,000
According to the "Rule of 70", how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%? A) less than 1 year B) 5 years C) 14 years D) 35 years
14 years
According to the "Rule of 70", how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%? A) less than 1 year B) 5 years C) 14 years D) 35 years
14 years
According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will be A) 15 percent. B) 20 percent. C) 25 percent. D) 100 percent.
15 percent
You're traveling in Japan and are thinking about buying a new kimono. You've decided you'd be willing to pay $175 for a new kimono, but kimonos in Japan are all priced in yen. If the exchange rate is 89 yen per dollar, what is the highest price in yen you'd be willing to pay for a kimono? (Assume no taxes or duties are associated with the purchase.) A) 1.97 yen B) 330.75 yen C) 15,575 yen D) 19,425 yen
15,575 yen
Significant economic growth did not begin in the world until A) 1000 A.D. B) 1750 A.D. C) 1820 A.D. D) the 20th century A.D.
1750 A.D.
If GDP grows at a rate of 3% per year, approximately how long will it take for GDP to double in size? A) 12 years B) 21 years C) 23 years D) 35 years
23 years
If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest? A) -9.5% B) -3.5% C) 1.5% D) 3.5% E) 9.5%
3.5%
If real GDP per capita in the United States is $8,000 in 2011, and if real GDP per capita is $12,000 in 2021, what is the total percent change in the growth rate of GDP per capita between 2011 and 2021? A) 3.33% B) 5% C) 33% D) 50%
50%
If you invest $10,000 in a bond that earns 8% interest per year, how many years will it take to double your money? A) 1 year and 3 months B) 2 years and 6 months C) 8 years D) 8 years and 9 months
8 years and 9 months
A major source of inefficiency in barter economies is that they require A) a double coincidence of wants in exchange. B) more liquid stores of value than do monetary economies. C) a standard of deferred payment to make trade possible. D) All of the above are correct.
A double coincidence of wants in exchange
Interest rates in the economy have risen. How will this affect aggregate demand and equilibrium in the short run? A) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise. B) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. C) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. D) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall.
Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall.
Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run? A) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. B) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall. C) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. D) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.
Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.
The current account includes records of a country's A) net transfers. B) net investment income. C) net exports. D) All of the above are included in an economy's current account.
All of the above are included in an economy's current account.
Which of the following is an example of foreign direct investment? A) American Airlines builds a hub in China. B) You buy a plane that was made in China. C) You purchase a plane ticket to China on American Airlines. D) A stock broker from China sells you a Chinese government savings bond.
American Airlines builds a hub in China
________ are financial securities that represent promises to repay a fixed amount of funds. A) Interest rates B) Bonds C) Stocks D) Mutual funds
Bonds
When the economy enters a recessionary phase of the business cycle, unemployment tends to A) be unchanged. B) increase. C) decrease. D) change in the same direction as the rate of inflation.
increase
The level of long-run aggregate supply is affected by all of the following except A) changes in the capital stock. B) changes in the price level. C) changes in the number of workers. D) changes in the technology.
Changes in the price level
Lower personal income taxes A) decrease disposable income. B) decrease aggregate demand. C) increase aggregate demand. D) increase transfer payments.
increase aggregate demand
Which of the following is one explanation as to why the aggregate demand curve slopes downward? A) Decreases in the U.S. price level relative to the price level in other countries lower net exports. B) Decreases in the price level raise real wealth and increase consumption spending. C) Decreases in the price level raise the interest rate and increase investment spending. D) Decreases in the price level raise the interest rate and increase consumption spending.
Decreases in the price level raise real wealth and increase consumption spending.
Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market? A) Demand for dollars will decrease, and supply of dollars will increase. B) Demand for dollars will increase, and supply of dollars will increase. C) Demand for dollars will decrease, and supply of dollars will decrease. D) Demand for dollars will increase, and supply of dollars will decrease.
Demand for dollars will decrease, and supply of dollars will increase.
If net foreign investment is negative, which of the following must be true? A) Private saving is greater than public saving. B) Domestic investment must be greater than national saving. C) Capital outflows are greater than capital inflows. D) Net exports are positive.
Domestic investment must be greater than national saving.
If net foreign investment is positive, which of the following must be true? A) Capital outflows are less than capital inflows. B) Net exports are negative. C) Domestic investment must be less than national saving. D) None of the above are true when net foreign investment is positive.
Domestic investment must be less than national saving.
The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________. A) Council of Economic Advisors; four presidents from the 11 Federal Reserve banks B) Federal Reserve's Board of Governors; four members of the Council of Economic Advisors C) Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks D) Council of Economic Advisors; four members of the U.S. Banking Committee
Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks
The economic growth model predicts that A) Governments must centrally direct the economy for growth to occur. B) GDP per capita of rich countries will grow more rapidly than in poor countries. C) GDP per capita of poor countries will grow more rapidly than in rich countries. D) GDP per capita of poor countries will never change.
GDP per capita of poor countries will grow more rapidly than in rich countries.
Which of the following is true regarding the productivity slowdown in the United States during the mid-1970s? A) The productivity slowdown was unique to the United States as foreign countries experienced unprecedented rates of growth during that time. B) The productivity slowdown occurred despite a rising quality of labor. C) High oil prices raised the costs of doing business for markets worldwide, and reduced output worldwide as well. D) The move toward a "New Economy" ended in the early 1970s, resulting in less technological progress in the United States during the mid-1970s.
High oil prices raised the costs of doing business for markets worldwide, and reduced output worldwide as well.
What impact might an increase in the budget deficit have on interest rates and exchange rates? A) Interest rates decrease and exchange rates increase. B) Interest rates increase and exchange rates decrease. C) Interest rates and exchange rates decrease. D) Interest rates and exchange rates increase.
Interest rates and exchange rates increase
China runs a current account surplus with the United States. Which of the following must be true about China's balance of payments with the United States? A) It must run a financial account deficit. B) Its balance of payments must run a deficit. C) Its net exports must be negative. D) Its balance of trade must be in deficit.
It must run a financial account deficit.
The process of bundling loans together and buying and selling these bundles in a secondary financial market is called A) fractional reserve lending. B) open market operations. C) seigniorage. D) securitization.
securitization
The period of time from 1,000,000 B.C. to 1300 A.D. was a period of A) slow and steady economic growth. B) no sustained economic growth. C) rapid and sustained economic growth. D) moderate economic growth.
No sustained economic growth
Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP? A) Prices will increase. B) Unemployment will rise. C) Short-run aggregate supply will shift to the right. D) Output will decrease.
Short-run aggregate supply will shift to the right.
In a closed economy, public saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers) A) Y - C - T + TR B) Y - G - T C) Y - C - T D) T - G - TR
T - G - TR
The seven members of the Board of Governors of the Federal Reserve are appointed by A) the Governors of the States. B) Congress. C) the Treasury Department. D) the President. E) leaders in the banking industry.
The Preseident
If the balance of the current account in the United States is -$900 billion, which of the following is most likely to be true? A) The balance on the financial account is positive. B) Net foreign investment is positive. C) The trade balance is positive. D) The balance on the capital account is negative.
The balance on the financial account is positive
6) You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true? A) The purchasing power of your salary remained constant between 1990 and 2011. B) The purchasing power of your salary increased between 1990 and 2011. C) There was deflation between 1990 and 2011. D) The purchasing power of your salary fell between 1990 and 2011.
The purchasing power of your salary increased between 1990 and 2011.
Open market operations refer to the purchase or sale of ________ to control the money supply. A) corporate bonds and stocks by the Federal Reserve B) corporate bonds and stocks by the U.S. Treasury C) U.S. Treasury securities by the Federal Reserve D) U.S. Treasury securities by the U.S. Treasury
U.S. Treasury securities by the Federal Reserve
If the dollar appreciates against the Mexican peso, A) The value of Mexican imports to the United States does not change. B) Mexican imports to the U.S. become more expensive. C) U.S. exports to Mexico become more expensive. D) U.S. exports to Mexico become less expensive.
U.S. exports to Mexico become more expensive
The current account does not include which of the following? A) net transfers. B) net investment income. C) U.S. holdings of foreign assets D) net exports.
U.S. holdings of foreign assests
The current account does not include which of the following? A) net investment income. B) net transfers. C) net exports. D) U.S. holdings of foreign assets
U.S. holdings of foreign assets
Suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment. Which of the following will happen in the short run? A) Unemployment will decline. B) Output will decline. C) Prices will decline. D) The aggregate demand curve will shift to the left.
Unemployment will decline.
Which of the following best describes the "wealth effect"? A) When the price level falls, the real value of household wealth falls. B) When the price level falls, the real value of household wealth rises. C) When the price level falls, the private investment rises. D) When the price level falls, the private investment falls.
When the price level falls, the real value of household wealth rises.
If aggregate demand just increased, which of the following may have caused the increase? A) an increase in imports B) an increase in government purchases C) an increase in the interest rate D) an increase in the price level
an increase in government purchases
During the expansion phase of the business cycle, which of the following eventually increases? A) production B) income C) employment D) all of the above
all of the above
Which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita? A) Countries that are relatively poor are likely to have a lower quality of health care. B) Countries that are relatively poor are more likely to experience wars and revolutions. C) Many of these developing countries do not have a functioning court system that can enforce laws. D) all of the above
all of the above
Which of the following government provisions would help increase the accumulation of knowledge capital? A) copyrights B) patents C) education subsidies D) All of the above are correct.
all of the above are correct
Which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita? A) Countries that are relatively poor are more likely to experience wars and revolutions. B) Countries that are relatively poor are likely to have a lower quality of health care. C) Many of these developing countries do not have a functioning court system that can enforce laws. D) all of the above
all the above are true
The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as A) an automatic mechanism. B) monetary policy. C) "releasing sticky prices." D) fiscal policy.
an automatic mechanism.
Which of the following will shift the aggregate demand curve to the right, ceteris paribus? A) a decrease in disposable income B) an increase in interest rates C) a decrease in expected profits for firms D) an increase in net exports
an increase in net exports
Which of the following will result in an increase in labor productivity? A) a decline in the capital stock per hour worked B) a decline in the amount of human capital per worker C) a decrease in the number of people attending institutions of higher education D) an increase in technology
an increase in technology
Which of the following would increase the current account balance of the United States? A) an increase in the balance of trade B) an increase in imports C) an increase in the amount of income U.S. companies pay out to foreigners who own investments in the United States. D) an increase in the amount of money the U.S. government sends in foreign aid to other countries
an increase in the balance of trade
Which of the following would you expect to increase the equilibrium interest rate? A) a decrease in the profitability of investment projects firms are considering B) an increase in the budget deficit C) a change from an income tax to a consumption tax D) an increase in the percentage of income after net taxes that households save
an increase in the budget deficit
If people speculate that a run on one bank will cause a run on all banks in the financial system, and this speculation proves accurate, then the financial system would experience what is known as a A) securitization meltdown. B) commodity crisis. C) institutional death spiral. D) bank panic.
bank panic
When actual inflation is less than expected inflation, A) borrowers lose and lenders gain. B) borrowers gain and lenders lose. C) borrowers and lenders both lose. D) borrowers and lenders both gain.
borrowers lose and lenders gain
In comparison to a government that runs a balanced budget, when the government runs a budget deficit, A) household savings will fall. B) business investment will fall. C) the equilibrium interest rate will fall. D) none of the above
business investment will fall.
The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket. A) change; under-estimates B) do not change; over-estimates C) change; over-estimates D) do not change; under-estimates
change; over-estimates
The level of aggregate supply in the long-run is not affected by A) changes in the number of workers. B) changes in the capital stock. C) changes in the price level. D) changes in technology.
changes in the price level
The level of aggregate supply in the long-run is not affected by A) changes in the price level. B) changes in the capital stock. C) changes in the number of workers. D) changes in technology.
changes in the price level
Gold is an example of A) commodity money. B) fiat money. C) M1. D) barter money.
commodity money
To increase the money supply, the Federal Reserve could A) conduct an open market purchase of Treasury securities. B) raise the discount rate. C) lower transfer payments. D) decrease income taxes. E) raise the required reserve ratio.
conduct an open market purchase of Treasury securities
To increase the money supply, the Federal Reserve could A) raise the required reserve ratio. B) raise the discount rate. C) conduct an open market purchase of Treasury securities. D) decrease income taxes. E) lower transfer payments.
conduct an open market purchase of Treasury securities.
To decrease the money supply, the Federal Reserve could A) conduct an open market sale of Treasury securities. B) raise transfer payments. C) raise income taxes. D) lower the discount rate. E) lower the required reserve ratio.
conduct an open market sale of Treasury securities.
The response of investment spending to an increase in the government budget deficit is called A) income minus net taxes. B) expansionary investment. C) crowding out. D) private dissaving.
crowding out
The M1 measure of the money supply equals A) currency plus checking account balances plus traveler's checks plus savings account balances. B) currency plus checking account balances. C) currency plus checking account balances plus traveler's checks. D) paper money plus coins in circulation.
currency plus checking account balances plus traveler's checks.
The M1 measure of the money supply equals A) paper money plus coins in circulation. B) currency plus checking account balances plus traveler's checks plus savings account balances. C) currency plus checking account balances plus traveler's checks. D) currency plus checking account balances.
currency plus checking account balances plus traveler's checks.
If households in the economy decide to take money out of checking account deposits and put this money into savings accounts, this will A) increase M1 and decrease M2. B) decrease M1 and not change M2. C) decrease M1 and decrease M2. D) decrease M1 and increase M2.
decrease M1 and not change M2
Higher personal income taxes A) increase aggregate demand. B) increase disposable income. C) decrease aggregate demand. D) both B and C
decrease aggregate demand.
If Californians increase their purchases of Italian wine, assuming all else remains constant, this will ________ of the United States. A) decrease the balance of trade B) decrease the trade deficit C) increase net exports D) increase the current account balance E) decrease the balance of payments
decrease the balance of trade
An increase in capital outflows from the United States will A) decrease the balance on the capital account. B) increase the balance on the current account. C) increase the balance on the financial account. D) decrease the balance on the financial account.
decrease the balance on the financial account.
An increase in the price level results in a(n) ________ in the quantity of real GDP demanded because ________. A) increase; a higher price level reduces consumption, investment, and net exports. B) decrease; a higher price level reduces consumption, investment, and net exports. C) increase; a higher price level increases consumption, investment, and net exports. D) decrease; a higher price level increases consumption, investment, and net exports.
decrease; a higher price level reduces consumption, investment, and net exports.
The required reserves of a bank equal its ________ the required reserve ratio. A) loans divided by B) deposits divided by C) loans multiplied by D) deposits multiplied by
deposits multiplied by
The required reserves of a bank equal its ________ the required reserve ratio. A) loans multiplied by B) deposits divided by C) deposits multiplied by D) loans divided by
deposits multiplied by
The Soviet Union consistently increased the amount of capital available to its workers, but found that increases in capital resulted in progressively smaller and smaller increases in GDP per worker. This phenomenon is referred to as A) a rising standard of living. B) a shift of the per-worker production function. C) new growth theory. D) diminishing returns to capital.
diminishing returns in capital
One way investment banks differ from commercial banks is that investment banks A) do not take in deposits. B) only buy and sell mortgages. C) lend exclusively to households. D) trade only in foreign exchange markets.
do not take in deposits.
If property rights are not enforced in a country, A) that country will grow more rapidly because of the reduction of law suits. B) that country's growth rate will not be affected. C) the market system will still work smoothly. D) entrepreneurs are unlikely to risk their own funds investing in such an economy.
entrepreneurs are unlikely to risk their own funds investing in such an economy.
An increase in aggregate demand results in a(n) ________ in the ________. A) expansion; short run B) expansion; long run C) recession; short run D) recession; long run
expansion; short run
Actual real GDP will be above potential GDP if A) firms are producing at capacity. B) firms are producing below capacity. C) firms are producing above capacity. D) inflation is rising.
firms are producing above capacity.
The purchase by an individual or firm of stock or bonds issued in another country is called A) foreign portfolio investment. B) global stock exchange. C) foreign exchange arbitrage. D) foreign direct investment.
foreign portfolio investment
Commodity money A) can be used to purchase commodities, but not services. B) has little to no value independent of its use as money. C) is backed by a valuable commodity such as gold. D) has value independent of its use as money.
has value independent of its use as money.
All of the following policies are ways for a country to promote long-run economic growth except A) imposing stricter regulations to limit foreign direct investment. B) enacting stronger laws to protect property rights. C) increasing vaccinations against infectious diseases. D) undergoing political reform to decrease corruption.
imposing stricter regulations to limit foreign direct investment.
An increase in the demand for American-made goods will A) increase the supply of dollars on the foreign exchange market. B) decrease the supply of dollars on the foreign exchange market. C) decrease the demand for dollars on the foreign exchange market. D) increase the demand for dollars on the foreign exchange market.
increase the demand for dollars on the foreign exchange market
Ceteris paribus, a rise in interest rates in the United States will cause the yen price of the dollar in international exchange markets to ________. I.e., the dollar ________ in value against the yen. A) increase; depreciates B) decrease; depreciates C) increase; appreciates D) decrease; appreciates
increase; appreciates
If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________. A) not change; not change B) not change; increase C) increase; decrease D) not change; decrease E) increase; not change
increase; not change
If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________. A) not change; decrease B) increase; not change C) increase; decrease D) not change; not change E) not change; increase
increase; not change
A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate. A) decreases; decreases B) decreases; increases C) increases; increases D) increases; decreases
increases; increases
An economy can improve its standard of living by A) increasing the amount of capital available per hour worked. B) organizing production so that the quantity of goods produced per hour will decrease. C) reducing the amount of human capital workers have. D) all of the above
increasing the amount of capital available per hour worked.
The "New Economy" that emerged in the mid-1990s is based on A) retail sales. B) manufacturing. C) information technology. D) financial services.
information technology
During the recession phase of the business cycle, A) interest rates are usually falling. B) production is usually rising. C) unemployment is usually falling. D) income is usually rising.
interest rates are usually falling.
In a closed economy public saving plus private saving is equal to A) the budget deficit. B) investment. C) the budget surplus. D) taxes minus transfers.
investment
People hold money as opposed to financial assets because money A) is perfectly liquid. B) earns no interest. C) earns interest. D) earns a higher return than other financial assets.
is perfectly liquid
The long-run aggregate supply curve A) is vertical. B) is horizontal. C) has a steep but positive slope. D) has a negative slope.
is vertical
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as A) real GDP. B) human capital. C) technology. D) labor productivity.
labor productivity
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as A) labor productivity. B) technology. C) real GDP. D) human capital.
labor productivity.
By offering more generous unemployment insurance programs, European countries can expect A) shorter periods of unemployment for their workers. B) to pay less in taxes than in the United States. C) workers to gain new skills quickly in response to fluctuations in the labor market. D) longer periods of unemployment for their workers.
longer periods of unemployment for their workers.
The demand for loanable funds is downward sloping because the ________ the interest rate, the ________ the number of profitable investment projects a firm can undertake, and the ________ the quantity demanded of loanable funds. A) greater; greater; greater B) lower; smaller; greater C) lower; greater; greater D) greater; smaller; greater
lower; greater; greater
The Industrial Revolution A) marked the beginning of significant economic growth in the world. B) had no impact on standards of living in the world. C) started in France around the year 1750. D) produced goods exclusively using human or animal power.
marked the beginning of significant economic growth in the world.
According to the quantity theory of money, deflation will occur if the A) money supply is more than real GDP. B) money supply grows at a faster rate than real GDP. C) money supply grows at a slower rate than real GDP. D) money supply is less than real GDP.
money supply grows at a slower rate than real GDP.
The major assets on a bank's balance sheet are its A) reserves, loans, and holdings of securities. B) reserves, checking and savings account deposits. C) checking and savings account deposits. D) reserves, loans, and checking account deposits. E) loans, and checking and savings account deposits.
reserves, loans, and holdings of securities.
If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will ________ and M2 will ________. A) decrease: decrease B) decrease; increase C) not change; not change D) increase; decrease E) not change; increase
not change; not change
The three main monetary policy tools used by the Federal Reserve to manage the money supply are A) open market operations, the exchange rate of the dollar against foreign currencies, and government purchases. B) tax rates, government purchases, and government transfer payments. C) open market operations, discount policy, and reserve requirements. D) interest rates, tax rates, and government spending.
open market operations, discount policy, and reserve requirements.
The main tool that the Federal Reserve uses to conduct monetary policy is A) open market operations. B) acting as the lender of last resort. C) discount policy. D) setting reserve requirements. E) check clearing.
open market operations.
The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly. A) infinite; inputs; final goods and services B) infinite; final goods and services; inputs C) positive; final goods and services; inputs D) positive; inputs; final goods and services
positive; final goods and services; inputs
The short-run aggregate supply curve has a(n) ________ slope because as prices of ________ rise, prices of ________ rise more slowly. A) positive; final goods and services; inputs B) infinite; inputs; final goods and services C) positive; inputs; final goods and services D) infinite; final goods and services; inputs
positive; final goods and services; inputs
According to the "wealth effect", when the ________ falls, the ________ rises. A) price level; the real value of household wealth B) price level; Donald Trump's stock C) inflation rate; nominal value of household assets D) unemployment rate; average level of household income
price level; the real value of household wealth
In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by A) allowing banks to double any outstanding claims for federal deposit insurance reimbursements. B) permitting banks to sell commercial bonds to the Federal Reserve Bank. C) allowing domestic banks to be taken over by foreign banks. D) providing funds to banks in exchange for stock.
providing funds to banks in exchange for stock.
A good measure of the standard of living is: A) total nominal GDP. B) nominal GDP per capita. C) total real GDP. D) real GDP per capita.
real GDP per capita
The best measure of the standard of living is A) real GDP per capita. B) real GDP. C) nominal GDP. D) nominal GDP per capita.
real GDP per capita
A decrease in aggregate demand results in a(n) ________ in the ________. A) expansion; short run B) recession; short run C) expansion; long run D) recession; long run
recession; short run
Disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by A) reducing physical capital. B) reducing human capital. C) increasing technological change. D) increasing labor productivity.
reducing human capital
Purchases of which of the following goods would be dramatically reduced during a recession? A) gasoline B) ink pens C) tomatoes D) refrigerators
refrigerators
If the Federal Open Market Committee wants to decrease the money supply through open market operations it will A) buy U.S. Treasury Securities. B) sell U.S. Treasury Securities. C) decrease the discount rate. D) increase the discount rate.
sell U.S. treasuries
Workers expect inflation to rise from 3% to 5% next year. As a result, this should A) shift the short-run aggregate supply curve to the right. B) move the economy up along a stationary short-run aggregate supply curve. C) shift the short-run aggregate supply curve to the left. D) move the economy down along a stationary short-run aggregate supply curve.
shift the short-run aggregate supply curve to the left
Workers expect inflation to rise from 3% to 5% next year. As a result, this should A) move the economy up along a stationary short-run aggregate supply curve. B) shift the short-run aggregate supply curve to the right. C) shift the short-run aggregate supply curve to the left. D) move the economy down along a stationary short-run aggregate supply curve.
shift the short-run aggregate supply curve to the left.
Which aggregate supply curve has a positive slope? A) long run only B) short run only C) neither long run nor short run D) both long run and short run
short run only
The basic aggregate demand and aggregate supply curve model helps explain A) long term growth. B) output fluctuations in an individual market. C) short term fluctuations in real GDP and the price level. D) price fluctuations in an individual market.
short term fluctuations in real GDP and the price level.
The Federal Reserve was established in 1913 to A) prevent bad loans by requiring banks to hold reserves. B) stimulate the economy by increasing bank reserves. C) stop bank panics by acting as a lender of last resort. D) prevent inflation by decreasing the money supply.
stop bank panics by acting as a lender of last resort.
If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy? A) unit of account B) store of value C) medium of exchange D) certificate of gold
store of value
An increase in the government budget deficit will shift the ________ curve for loanable funds to the ________ and the equilibrium interest rate will ________. A) supply; right; fall B) supply; left; rise C) demand; left; fall D) demand; right; rise
supply; left; rise
What two factors are the keys to determining labor productivity? A) technology and the quantity of capital per hour worked B) the business cycle and the growth rate of real GDP C) the growth rate of real GDP and the interest rate D) the average level of education of the workforce and the price level
technology and the quantity of capital per hour worked
What two factors are the keys to determining labor productivity? A) the growth rate of real GDP and the interest rate B) the business cycle and the growth rate of real GDP C) the average level of education of the workforce and the price level D) technology and the quantity of capital per hour worked
technology and the quantity of capital per hour worked
The Federal Open Market Committee consists of A) the seven member Board of Governors of the Federal Reserve. B) the Board of Governors plus five of the Federal Reserve Bank Presidents. C) five of the Federal Reserve Bank Presidents. D) the 12 Federal Reserve Bank Presidents.
the Board of Governors plus five of the Federal Reserve Bank Presidents.
What is human capital? A) labor productivity B) the accumulated knowledge and skills that workers acquire from education, training, and their life experiences C) buildings, equipment, and machinery owned by individuals rather than firms D) buildings, equipment, and machinery owned by firms
the accumulated knowledge and skills that workers acquire from education, training, and their life experiences
If foreign holdings of U.S. securities decrease, holding all else constant, A) the balance on the U.S. capital account will decrease. B) the balance on the U.S. financial account will decrease. C) the U.S. balance of trade will decrease. D) the balance on the U.S. current account will decrease.
the balance on the U.S. financial account will decrease.
Which of the following is not a reason why low-income countries might experience low economic growth? A) The country has a good education system. B) The country has a low rate of saving and investment. C) The country has endured extended periods of war. D) The country fails to enforce a rule of law.
the country has a good education system
The balance of payments includes which three accounts? A) the capital flows account, the financial account, and the trade account B) the balance of trade account, the net foreign investment account, and statistical discrepancy C) the net investment account, the net exports account, and the net transfers account D) the current account, the financial account, and the capital account
the current account, the financial account, and the capital account
According to the quantity theory of money, inflation is caused by A) the money supply growing faster than real GDP. B) GDP growing faster than the money supply. C) GDP growing at the same rate as the money supply. D) the money supply growing slower than real GDP.
the money supply growing faster than real GDP
The balance of payments includes all of the following accounts except A) the national debt account. B) the capital account. C) the current account. D) the financial account.
the national debt account
Which of the following correctly describes the automatic mechanism through which the economy adjusts to long-run equilibrium? A) the rightward shift of the short-run aggregate supply curve that occurs after a recession B) the leftward shift of the aggregate demand curve that occurs after a recession C) the rightward shift of the aggregate demand curve that occurs after a recession D) the leftward shift of the short-run aggregate supply curve that occurs after a recession
the rightward shift of the short-run aggregate supply curve that occurs after a recession
Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result, A) aggregate demand will increase by 2.5%. B) workers will be willing to take lower wages next year, but not lower than a 2.5 percent decrease. C) the short-run aggregate supply curve will shift to the left as wages increase. D) the purchasing power of wages will rise if wages increase by 2.5%
the short-run aggregate supply curve will shift to the left as wages increase.
Workers and firms both expect that prices will be 3% higher next year than they are this year. As a result, A) the purchasing power of wages will rise if wages increase by 3%. B) the short-run aggregate supply curve will shift to the left as wages increase. C) workers will be willing to take lower wages next year. D) aggregate demand will increase by 3%
the short-run aggregate supply curve will shift to the left as wages increase.
The more excess reserves banks choose to keep, A) the smaller the deposit multiplier. B) the higher the required reserve ratio. C) the lower the required reserve ratio. D) the larger the deposit multiplier.
the smaller the deposit multiplier.
If taxes are less than transfers plus government spending, then A) there is a balanced budget. B) there is public dissaving. C) there is a budget surplus. D) there is positive saving.
there is a public dissaving
Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if A) there is technological change. B) there continue to be decreases in capital per hour worked. C) there are decreases in human capital. D) None of the above.
there is technological change.
