econ midterm 2
Suppose a bank has $1,500,000 in deposits and the desired reserve ratio is 12 percent. If the bank is currently holding $200,000 in reserves, the bank's unplanned reserves are equal to (a) zero.(b) $180,000. (c) $120,000. (d) $20,000.
d
Suppose consumers decrease their consumption expenditure because they worry about what their in- come will be in the future. There is (a) a rightward shift of the aggregate demand curve.(b) an upward movement along the aggregate demand curve. (c) a downward movement along the aggregate demand curve. (d) a leftward shift of the aggregate demand curve.
d
The opportunity cost of holding money is (a) the price level.(b) real GDP.(c) the inverse of the price level multiplied by the nominal interest rate. (d) the nominal interest rate.
d
Which of the following changes would NOT shift the aggregate demand curve? (a) a change in fiscal policy(b) a change in monetary policy(c) a change in expectations about future income (d) an increase in technology
d
Which of the following does NOT shift the short-run aggregate supply curve? (a) a change in the money wage rate(b) technological progress(c) a reduction in the price of a raw material (d) a change in the price level
d
Which of the following events will increase long-run aggregate supply? (a) an increase in the interest rate (b) an increase in resource prices (c) a decrease in expected profit (d) an advance in technology
d
A commercial bank puts the funds it receives from various sources into (a) securities, cash assets and loans.(b) loans, notes and coins in the bank's vault and deposits. (c) reserves, deposits and loans.(d) securities, cash assets and deposits.
A
All of the following are sources of loanable funds EXCEPT (a) business investment.(b) private saving.(c) government budget surplus. (d) international borrowing.
A
An open market purchase of securities by the Fed (a) increases banks' reserves and decreases banks' securities.(b) decreases banks' reserves and increases banks' securities.(c) decreases banks' total assets.(d) involves a bank purchasing government securities from the Fed.
A
Depository institutions undertake all the following activities EXCEPT they do not (a) print money.(b) minimize the cost of monitoring borrowers. (c) pool risk.(d) create liquidity.
A
If a customer deposits $10,000 in currency into a checking account, the bank's total reserves (a) increase.(b) do not change.(c) are greater than 100 percent. (d) decrease.
A
Monetary policy is conducted (a) only by the Federal Reserve.(b) by the Federal Reserve and the President of the United States.(c) by the Federal Reserve, the President of the United States, and Congress.(d) by the Federal Reserve with veto power residing with the President of the United States.
A
Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is (a) greater than 15 percent. (b) greater than 10 percent. (c) greater than 5 percent. (d) positive.
A
Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond (a) falls from 10 percent to 8 percent.(b) rises from 8 percent to 10 percent.(c) does not change because it is not affected by the price of the bond. (d) falls from 10 percent to 6 percent.
A
Suppose that you took out a $1,000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the following statements is CORRECT? (a) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent. (b) The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent. (c) The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent. (d) The real interest rate is 6 percent and the nominal interest rate is 7.5 percent.
A
The Ricardo-Barro effect says that (a) government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government. (b) government budget deficits crowd out private investment and thereby lower the real interest rate. (c) government budget deficits resulting from an increase in government expenditure have no effect on investment but government deficits resulting from a decrease in taxes crowd out investment. (d) government budget deficits cause households to save more in anticipation of higher taxes, which causes higher real interest rates.
A
The households expect an increase in their future incomes, they will save (a) less and consume more today. (b) more and consume less today. (c) and consume more today.(d) and consume less today.
A
The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a (a) medium of exchange.(b) standard of deferred payment. (c) store of value.(d) unit of account.
A
Which of the following is a tool that is used by the Fed to control the quantity of money? (a) open market operations(b) excess reserves(c) government expenditure multiplier (d) real interest rate
A
Reserves are (a) gold in a bank's vault plus its gold at Federal Reserve banks.(b) cash in a bank's vault plus its deposits at Federal Reserve banks. (c) cash in a bank's vault plus its gold at Federal Reserve banks.(d) cash in a bank's vault plus the cash carried by its customers.
B
Saving by households (a) decreases when the real interest rate rises. (b) increases when the real interest rate rises. (c) increases when the real interest rate falls. (d) is unaffected by the real interest rate.
B
The discount rate is the interest rate (a) that banks charge their best customers.(b) that the Fed charges on its last resort loans. (c) that banks charge each other.(d) that bank insurers pay on insured deposits.
B
The idea that a government budget deficit decreases investment is called (a) government dissaving.(b) the crowding-out effect.(c) the Ricardo-Barro effect.(d) the capital investment effect.
B
The minimum percentage of deposits that a depository institution must hold and cannot use for lending is known as the (a) minimum rate.(b) required reserve ratio. (c) money multiplier.(d) discount rate.
B
When the Fed lowers the federal funds rate, it can lead to (a) the Fed selling government securities. (b) an increase in lending by banks.(c) a decrease in demand deposits.(d) a decrease in the quantity of money.
B
If the government runs a budget deficit, then (a) national saving is negative.(b) household but not business saving must pay for the deficit. (c) part of household and business saving finances the deficit. (d) national saving cannot fund investment.
C
Ifthegovernmentbeginstorunalargerbudgetdeficits,thenassumingthereisnoRicardo-Barroeffect, the demand for loanable funds and the real interest rate . (a) decreases; falls (b) decreases; rises (c) increases; rises (d) increases; falls
C
Money is created by (a) government taxation. (b) banks taking in deposits. (c) banks making loans. (d) banks paying for depositor's insurance.
C
When the Fed wants to undertake open market operations, it (a) can require all commercial banks to buy from or sell to it.(b) can require all member banks to buy from or sell to it.(c) buys or sells securities in the open market.(d) buys securities from or sells securities to the federal government.
C
Which of the following is TRUE regarding the real interest rate? I. The real interest rate is the opportunity cost of borrowed funds.II. The real interest rate equals the nominal interest rate adjusted for inflation. (a) I(b) II(c) both I and II (d) neither I nor II
C
If you have $1,000 of money in the bank and the price level rises by 5 percent, your (a) money is worth more in terms of what it can purchase.(b) money is worth less in terms of what it can purchase.(c) money is worth the same in terms of what it can purchase. (d) purchasing power has increased.
b
The long-run aggregate supply curve is because along it, as prices rise, the money wage rate . (a) vertical; falls(b) vertical; rises(c) upward sloping; falls(d) upward sloping; stays constant
b
When the price level rises, the long-run aggregate supply curve (a) shifts rightward. (b) does not shift. (c) slopes upward. (d) shifts leftward.
b
According to the intertemporal substitution effect, when the price level rises and other things remain the same (a) the interest rate falls.(b) the interest rate rises.(c) the quantity of money increases. (d) government taxes rise.
b
As the interest rate increases, the quantity of loanable funds demanded . (a) real; increases(b) real; decreases(c) nominal; increases (d) nominal; decreases
B
At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is (a) $20,000.00. (b) $0.(c) $90,000.00. (d) $100,000.00.
B
Depository institution create liquidity when they (a) buy assets that are liquid.(b) borrow short and lend long. (c) have liabilities that are illiquid. (d) borrow long and lend short.
B
If the real interest rate is below the equilibrium real interest rate (a) lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall. (b) borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise. (c) lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise. (d) borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall.
B
Checks money and credit cards money. (a) are; are(b) are not; are(c) are; are not(d) are not; are not
D
In January 2017, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2017, Tim spent $200,000 on new machines. During 2017, Tim's net investment totaled (a) $1 million. (b) -$300,000. (c) $200,000. (d) -$100,000.
D
Liquidity is the (a) speed with which the price of an asset changes as its intrinsic value changes. (b) inverse of the velocity of money.(c) same as the velocity of money.(d) ease with which an asset can be converted into money.
D
The interest rate approximately equals the interest rate minus . (a) nominal; real; depreciation 1 (b) nominal; real; the inflation rate (c) real; nominal; depreciation(d) real; nominal; the inflation rate
D
Which of the following shifts the demand for loanable funds curve leftward? (a) a fall in the real interest rate(b) a rise in the real interest rate(c) a decrease in the taxes paid by the business (d) a decrease in the expected profit
D
As a result of a tax increase (a) the aggregate demand curve shifts leftward. (b) the aggregate demand curve shifts rightward. (c) the aggregate supply curve shifts leftward. (d) the aggregate supply curve shifts rightward.
a
In the short run, when the Fed decreases the quantity of money (a) bond prices fall and the interest rate rises. (b) bond prices rise and the interest rate falls. (c) the demand for money increases.(d) the supply of money curve shifts rightward.
a
Moving upward along the short-run aggregate supply curve results in a in the price level and in real GDP. (a) rise; an increase (b) rise; a decrease (c) fall; an increase (d) fall; a decrease
a
Suppose the price level, the money wage, and the price of all other resources rise by 10 percent. This set of changes leads to (a) an upward movement along the LAS curve. (b) a downward movement along the LAS curve. (c) an upward movement along the SAS curve. (d) a leftward shift of the LAS curve.
a
The demand for nominal money (a) increases as the price level increases.(b) decreases as the price level increases.(c) depends on the quantity of money.(d) is the same as the demand for real money.
a
When the labor market is at full employment (a) real GDP equals potential GDP.(b) the price level is stable.(c) the price level equals the potential price level.(d) the short run aggregate supply curve is horizontal.
a
Whenthequantityofmoneydemandedisgreaterthanthequantityofmoneysupplied,people bonds and the interest rate . (a) sell; rises (b) sell; falls (c) buy; rises (d) buy; falls
a
in the short run, firms expand their production when the price level rises because (a) the money wage rate remains constant so the higher prices for their products makes it profitable for firms to expand production. (b) each firm must keep its production up to the level of its rivals, and some firms will expand pro- duction as the price level increases. (c) thehigherpricesallowthefirmtohiremoreworkersbyofferinghigherwages,therebyincreasing productivity and profits. (d) firms can increase their profits by increasing their maintenance.
a
A decrease in government expenditure shifts the AD curve , while a decrease in taxes shifts the AD curve . (a) rightward; rightward (b) rightward; leftward (c) leftward; rightward (d) leftward; leftward
c
When talking about aggregate supply, it is necessary to (a) focus on the short run.(b) focus on the long run.(c) distinguish between long-run aggregate supply and short-run aggregate supply. (d) distinguish between long-run full employment and short-run full employment.
c
which of the following shifts the aggregate demand curve rightward? (a) an increase in the tax rate(b) a decrease in the price level(c) an increase in the quantity of money (d) an increase in the exchange rate
c