Econ test 3 part 3

c

67. Other things equal, an increase in taxes on businesses will: A. Increase aggregate supply and decrease aggregate demand, and cause the price level to fall B. Increase aggregate supply and increase aggregate demand, and cause real GDP to rise C. Decrease aggregate supply and decrease aggregate demand, and cause real GDP to fall D. Decrease aggregate supply and increase aggregate demand, and cause the price level to rise

a

70. One reason why the lowest wage rate is not necessarily the same as the efficiency wage is that workers might: A. Be more productive at a higher wage rate B. Have more incentive to shirk at higher wage rates C. Be tempted to switch jobs more frequently at higher wage rates D. Be less inclined to work well at a higher wage rate

c

51. U.S. Treasury deposits at the Federal Reserve Banks are: A. A liability of the Federal Reserve Banks and the U.S. Treasury B. An asset of the Federal Reserve Banks and the U.S. Treasury C. A liability of the Federal Reserve Banks and an asset for the U.S. Treasury D. An asset of the Federal Reserve Banks and a liability for the U.S. Treasury

c

52. Answer the question based on the information given in the table below that shows the items and figures taken from a consolidated balance sheet of the twelve Federal Reserve Banks. All figures are in billions of dollars. In the balance sheet above for the Federal Reserve, the liabilities and net worth would be items 7 and: A. 1, 3, and 5 B. 2, 4, and 5 C. 1, 2, and 3 D. 4, 5, and 6

a

56. Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion when the reserve ratio is 25 percent. If the reserve ratio is then lowered to 20 percent, we can conclude that the: A. Banking system now has excess reserves of $3 billion B. Monetary multiplier has decreased C. Maximum money-creating potential of the banking system has been increased by $7 billion D. Fed has decided that money supply needed to be reduced

c

57. A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to: A. Reduce inflation B. Save the banking industry C. Stimulate the economy D. Improve the savings rate

a

58. Refer to the figure above. Which change would be consistent with an attempt by the Federal Reserve to rein in inflation? A. Shifting Sf1 to Sf2 B. Shifting Sf4 to Sf3 C. Shifting Sf3 to Sf1 D. Shifting Sf4 to Sf2

d

60. Which of the following is the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves? A. A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment B. A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment C. The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease D. The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase 16

d

62. 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: A. Stimulate the economy B. Increase the money supply C. Reduce the cost of credit D. Reduce inflationary pressures in the economy

c

63. Assume that the MPC is 0.75 and that the price level is "sticky". If the Federal Reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to: A. Increase by $6 billion B. Increase by $8 billion C. Increase by $32 billion D. Decrease by $8 billion

b

65. In response to the financial crisis and the Great Recession, the Fed took the following actions, except: A. Reduced the federal funds rate to practically zero B. Lowered the required reserve ratio C. Initiated a few rounds of quantitative easing D. Engaged in a policy of forward commitment 17

b

66. Other things equal, an appreciation of the U.S. dollar would: A. Increase productivity and increase aggregate supply B. Decrease net exports and decrease aggregate demand C. Increase the prices of imported resources and decrease aggregate supply D. Decrease the supply of money and decrease aggregate demand

a

68. If the velocity of money remains unchanged and the economy is at full employment, then the equation of exchange predicts that a rise in the money supply will: A. Increase prices B. Increase interest rates C. Increase real output D. Decrease nominal GDP

c

69. Within the aggregate demand-aggregate supply framework, a strict interpretation of rational expectations theory suggests that a change in aggregate: A. Demand will have a large effect on the price level, but a small effect on output B. Demand will have a small effect on the price level, but a large effect on output C. Demand will have a large effect on the price level, but no effect on output D. Supply will have a large effect on the price level, but no effect on output

c

53. Answer the question based on the information given in the table below that shows the items and figures taken from a consolidated balance sheet of the twelve Federal Reserve Banks. All figures are in billions of dollars. In the balance sheet above for the Federal Reserve, there would be assets of: A. $246 billion B. $313 billion C. $320 billion D. $387 billion

a

54. Assume that the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately: A. Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $480 million B. Decrease by $120 million with this transaction, and the decrease in money supply could eventually reach a maximum of $360 million C. Increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $480 million D. Increase by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million

b

55. Assume that the required reserve ratio for the commercial banks is 25 percent. If the Federal Reserve Banks buy $3 billion in government securities from the non-bank securities dealers, then as a result of this transaction, the lending ability of the commercial banking system will increase by: A. $4.5 billion B. $9 billion C. $12 billion D. $15 billion

c

59. According to the Taylor rule, if the target rate of inflation for the Fed is two percent and real GDP rises by one percent above potential GDP, then the Fed should: A. Raise the real federal funds rate by one percentage point B. Lower the real federal funds rate by one percentage point C. Raise the real federal funds rate by half of a percentage point D. Lower the real federal funds rate by half of a percentage point

c

61. The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective? A. Selling government securities and raising the discount rate B. Selling government securities and lowering the discount rate C. Buying government securities and lowering the discount rate D. Buying government securities and raising the reserve ratio

d

64. In the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that: A. Banks did not have enough reserves to continue lending to banks B. The Fed injected reserves into the banking system, but the interest rates remained high C. Firms did not want to borrow from banks because they had little need for extra liquidity D. Banks held on to excess reserves and people chose to pay off loans rather than spend