econ unit 3

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Simplicity, efficiency, certainty, and equity.

A good tax should have what four characteristics?

Workfare.

A program requiring work in exchange for temporary assistance:

Depression.

A recession that is especially long and severe:

Securities and exchange commission.

An independent agency of the government that regulates financial markets and investment companies:

As you move from left to right, the aggregate demand curve _____. (A) May slope upward or downward (B) Slopes upward (C) Slopes downward (D) Is horizontal

Member bank.

Bank that belongs to the Federal Reserve System:

Fractional reserve banking.

Banking system that keeps only a fraction of funds on hand and lends out the remainder:

Debit card.

Card used to withdraw money:

Stagflation.

Decline in real GDP combined with a rise in the price level:

Stock split.

Division of a single share of stock into more than one share:

Tax return.

Form used to file one's income taxes:

Real GDP.

Gross domestic product expressed in constant, or unchanging, prices:

In 1942, school children brought their dimes and quarters to school each week. Which of the following items would the children buy that would eventually add up to the price of a war bond? (A) Defense stamps (B) War stickers (C) Yellow ribbons (D) Patriot pins

In a certain country, the labor force is 30 million and the unemployment rate is 5 percent. What is the amount of unemployed individuals in this country? (A) 15,000 (B) 1.5 million (C) 15 million (D) 150,000

Saving.

Income not used for consumption:

Easy money policy.

Monetary policy that increases the money supply:

Demand deposit.

Money in checking accounts:

Discouraged worker.

Person who wants a job but has given up looking:

Real property.

Physical property such as land and buildings:

Share.

Portion of stock:

Personal property.

Possessions such as jewelry, furniture, and boats:

Check clearing.

Process by which banks record whose account gives up money and whose account receives money when a customer writes a check:

Recession.

Prolonged economic contraction:

Personal exemption.

Set amount that you subtract from your gross income for yourself, your spouse, and any dependents:

Discretionary spending.

Spending category about which government planners can make choices:

Mandatory spending.

Spending on certain programs that is mandated, or required, by existing law:

Spending that government officials can increase or decrease is referred to as _____. (A) Discretionary spending (B) Mandatory spending (C) Medicaid (D) An entitlement

Diversification.

Spreading out investments to reduce risk:

Bull market.

Steady rise in the stock market over a period of time:

Deflation.

Sustained drop in the price level:

Regressive tax.

Tax for which the percentage of income paid in taxes decreases as income increases.

Tariff.

Tax on imported goods:

The Federal Reserve System is overseen by the _____. (A) President (B) Department of Commerce (C) Senate (D) Board of Governors

Liquidity.

The ability to be used as, or directly converted to, cash:

The demand for cable television is relatively elastic, because if the price gets too high, people will rent DVDs or videos instead of watching cable. Who is likely to bear the incidence of a 10 percent tax on cable television? (A) The government (B) The consumer and producer equally (C) The consumer (D) The producer

Capital gain.

The difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller:

Incidence of a tax.

The final burden of a tax:

Full employment.

The level of employment reached when there is no cyclical unemployment:

Bank reconciliation.

The process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement:

Deductions.

Variable amounts that you can subtract, or deduct, from your gross income:

Cyclical unemployment occurs during economic downturns.

When does cyclical unemployment take place?

Which of the following investments is liquid and safe? (A) Treasury bill (B) Municipal bond (C) Treasury note (D) Corporate bond

Which of the following is not an example of a deduction? (A) Interest on a mortgage (B) State tax payments (C) Donation to charity (D) Taxable income

Which of the following is not one of the basic components of bonds? (A) Coupon rate (B) Liquidity (C) Maturity (D) Par value

Which of the following was a lasting effect of the OPEC embargo in the 1970s on the U.S. economy? (A) Higher gasoline prices (B) Reduced use of petroleum (C) Reduced taxes (D) Lower interest rates

Who generally bears most of a sales tax when the demand for the good taxed is inelastic? (A) The wholesaler (B) The consumer (C) The producer (D) The retailer

Underemployed.

Working at a job for which one is overqualified, or working part-time when full-time work is desired:

National bank.

A bank chartered, or licensed, by the national government:

Municipal bond.

A bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks, and schools:

Credit card.

A card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services:

Portfolio.

A collection of financial assets:

Money market mutual fund.

A fund that pools money from small savers to purchase short-term government and corporate securities:

A knitting factory worker who loses her job because the company has relocated the plant to another country is an example of _____. (A) Cyclical unemployment (B) Frictional unemployment (C) Seasonal unemployment (D) Structural unemployment

Junk bond.

A lower-rated, potentially higher-paying bond:

Unit of account.

A means for comparing the values of goods and services:

Gold standard.

A monetary system in which paper money and coins are equal in value to a certain amount of gold:

A patent is an exclusive right to produce and sell a product for how long? (A) 30 years (B) 40 years (C) 15 years (D) 20 years

Business cycle.

A period of macroeconomic expansion followed by a period of contraction:

Consumer price index (CPI).

A price index determined by measuring the price of a standard group of goods meant to represent the typical "market basket" of a typical urban consumer:

Tax.

A required payment to a local, state, or national government:

Bear market.

A steady drop in the stock market over a period of time:

Estate tax.

A tax on the estate, or total value of the money and property, of a person who has died:

Corporate income tax.

A tax on the value of a corporation's profits:

Purchasing power.

Ability to purchase goods and services:

According to the aggregate supply curve, what happens as the price level increases? (A) Consumers increase their spending. (B) Profits decrease. (C) Real GDP falls. (D) Firms have more of an incentive to increase output.

According to the cost-push theory, what is responsible for inflation? (A) The economy is operating as though there was a war. (B) Too much money is in circulation. (C) Demand for goods and services exceeds existing supply. (D) Producers raise prices to meet increased costs.

According to the demand-pull theory, what is responsible for inflation? (A) Demand for goods and services exceeds existing supply. (B) Too much money is in circulation. (C) Producers raise prices to meet increased costs. (D) The economy is in a wage-price spiral.

Monetary policy.

Actions the Federal Reserve takes to influence the level of real GDP and the rate of inflation in the economy:

After the Civil War, the National Banking Acts gave the federal government the power to do all of the following except _____. (A) Require banks to hold adequate gold and silver. (B) Charter banks. (C) Insure banks against failure. (D) Have a single national currency.

Against your better judgment, you lend $100 to your cousin Manny, who has a reputation for failing to pay back loans. What kind of risk are you taking? (A) A credit risk (B) A time risk (C) A liquidity risk (D) An inflation rate risk

All of the following are causes of structural unemployment except _____. (A) Inventing new ways of doing things. (B) Falling of the stock market. (C) Relocating jobs to other countries. (D) Discovering new resources.

All of the following are constitutional limits on the power to tax except that _____. (A) Imports must not be taxed. (B) Federal taxes must be the same in every state. (C) Tax money must not go to individual interests. (D) Exports must not be taxed.

All of the following are types of tax structure except _____. (A) Proportional (B) Regressive (C) Discretionary (D) Progressive

Money supply.

All the money available in the United States economy:

NASDAQ.

American market for over-the-counter (OTC) securities:

Aggregate demand.

Amount of goods and services in the economy that will be purchased at all possible price levels:

Money multiplier formula.

Amount of new money that will be created with each demand deposit; 1 ÷ RRR:

An economy that experiences decreasing real GDP and increasing prices is said to suffer from _____. (A) Stagflation (B) A depression (C) A recession (D) A business cycle

Technological progress.

An increase in efficiency gained by producing more output without using more inputs:

An investor who owns stocks in many different companies would most likely see a rise in the overall value of her portfolio during a _____. (A) Bear market (B) Bull market (C) Capital gain (D) Dividend growth

Tax assessor.

An official who determines the value of a property:

Medium of exchange.

Anything that is used to determine value during the exchange of goods and services:

Money.

Anything that serves as a medium of exchange, a unit of account, and a store of value:

Approximately what percentage of the national budget is spent on defense? (A) 45 percent (B) 60 percent (C) 5 percent (D) 20 percent

Enterprise zone.

Area where companies can locate free of certain local, state, and federal taxes and restrictions:

As commercial banks keep more excess reserves, what happens to money creation? (A) It remains the same. (B) It could either increase or decrease. (C) It increases. (D) It decreases.

As interest rates rise, _____. (A) It becomes more expensive to hold money as cash. (B) Bonds and savings accounts become less attractive for investment. (C) Firms will generally spend their wealth. (D) It becomes less expensive to hold money as cash.

As part of the nation's recovery from the Great Depression of the 1930s, the banking system was reformed in which of the following ways? (A) The banking system was taken off the gold standard. (B) The government paid off loans for large corporations. (C) Banks were deregulated by the government. (D) The Federal Reserve Banks were closed.

Price level.

Average of all prices in the economy:

Bank examiners are _____. (A) More interested in regulating the overall money supply than the net worth of member banks. (B) Required to schedule with banks when they plan to visit. (C) Authorized to force banks to sell off investments that they consider excessively risky. (D) Only permitted to label a bank as a "problem bank" if the institution has excessive risks.

Central bank.

Bank that can lend to other banks in times of need:

Because of low unemployment rates in the country, employers offer higher wages. To meet their higher payroll costs and maintain profits, they charge consumers more for goods and services. What are the likely consequences? (A) A wage-price spiral of ever-increasing prices. (B) Increasing numbers of people living on a fixed income. (C) Demand-pull inflation. (D) A prolonged period of deflation.

Because trade and commerce are considered national enterprises, states _____. (A) Can only tax imports (B) Can tax imports and exports (C) Can only tax exports (D) Cannot tax imports or exports

Monetarism.

Belief that the money supply is the most important factor in macroeconomic performance:

Corporate bond.

Bond that a corporation issues to raise money in order to expand its business:

Operating budget.

Budget for day-to-day expenses:

Capital budget.

Budget for major capital, or investment, expenditures:

Balanced budget.

Budget in which revenues are equal to spending:

Brokerage firm.

Business that specializes in trading stocks:

Financial asset.

Claim on the property or income of a borrower:

Equities.

Claims of ownership in a corporation:

Currency.

Coins and paper bills used as money:

Bank holding company.

Company that owns more than one bank:

Compared to other types of bonds, what are the minimum denominations of savings bonds? (A) Relatively high (B) Variable (C) Relatively low (D) Relatively moderate

Compared with the expenditure approach to calculating GDP, the income approach is _____. (A) More accurate (B) Connected more strongly to stock market performance. (C) Preferred by the average consumer (D) More practical

Concern about an international crisis has caused consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply? (A) Both aggregate demand and aggregate supply will decrease, leading to lower real GDP. (B) Aggregate demand will decrease, lowering both real GDP and the price level. (C) Aggregate supply will decrease, raising the price level and lowering real GDP. (D) No change on aggregate demand and aggregate supply.

Concern about an international crisis has caused consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply? (A) No change on aggregate demand and aggregate supply. (B) Aggregate supply will decrease, raising the price level and lowering real GDP. (C) Aggregate demand will decrease, lowering both real GDP and the price level. (D) Both aggregate demand and aggregate supply will decrease, leading to lower real GDP.

Congress is not authorized to reduce the cost of entitlement programs by _____. (A) Controlling the number of people who are eligible for benefits. (B) Introducing new laws that change benefits. (C) Changing eligibility requirements for benefit recipients. (D) Reducing the amount of benefits.

Options.

Contracts that give investors the choice to buy or sell stock and other financial assets:

Futures.

Contracts to buy or sell at a specific date in the future at a price specified today:

Inside lag.

Delay in implementing monetary policy:

Easy money policy is _____. (A) Monetary policy that increases the money supply. (B) Monetary policy that reduces the money supply. (C) The belief that the money supply is the most important factor in macroeconomic performance. (D) The time it takes for monetary policy to have an effect.

Medicaid.

Entitlement program that benefits low-income families, some people with disabilities, and elderly people in nursing homes:

Erin borrowed $18,000 to buy a car. Her loan will be paid off in 5 years. By the time that she pays off the loan, she will have made $20,327 in payments. Why did she have to pay $2,327 more than the price of the car? (A) She had to pay interest of $2,327 for the privilege of borrowing the creditor of $18,000. (B) She had to pay interest of $2,327 for the privilege of borrowing the principal of $18,000. (C) She had to pay the principal of $2,327 for the privilege of borrowing the mortgage of $18,000. (D) She had to pay a default of $2,327 for the privilege of borrowing the principal of $18,000.

Default.

Failure to pay back a loan:

Committee.

Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply.

Block grant.

Federal funds given to states in lump sums:

Five of the 12 members of the Federal Open Market Committee (FOMC) must be _____. (A) Bank presidents from Federal Reserve Districts. (B) Appointed by the chair of the Board of Governors. (C) Elected by the Board of Governors. (D) From the Federal Advisory Council (FAC).

Five of the 12 members of the Federal Open Market Committee (FOMC) must be _____. (A) Bank presidents from Federal Reserve Districts. (B) From the Federal Advisory Council (FAC). (C) Appointed by the chair of the Board of Governors. (D) Elected by the Board of Governors.

For the majority of companies, the most common increase in the cost of production results from rising _____. (A) Energy costs (B) Prices of raw materials (C) Wages (D) Maintenance costs

For which expense do state governments provide financial help to their local governments? (A) Trash and garbage collection (B) Election supervision (C) Public school systems (D) Parks and recreation

Mutual fund.

Fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets:

Inflation.

General increase in prices:

Globalization, the development of new technology, changes in consumer demand, and the discovery of new resources are all causes of _____. (A) Cyclical unemployment (B) Structural unemployment (C) Frictional unemployment (D) Seasonal unemployment

Going from left to right on the aggregate demand curve, real GDP _____. (A) Falls as price level falls (B) Rises as price level rises (C) Rises as price level falls (D) Falls as price level rises

Nondurable goods.

Goods that last a short period of time, such as food, light bulbs, and sneakers:

Durable goods.

Goods that last for a relatively long time, such as refrigerators, cars, and DVD players:

Intermediate goods.

Goods used in the production of final goods:

Federal deposit insurance corporation (FDIC).

Government agency that insures customer deposits if a bank fails:

Food stamps.

Government-issued coupons that recipients exchange for food:

Nominal GDP.

Gross domestic product measured in current prices:

Peak.

Height of an economic expansion, when real GDP stops rising:

Bond ratings give investors an indication of the quality, or degree of default risk, that various bonds carry.

How are bond ratings useful to investors?

How can a trade deficit actually increase the productivity of an economy? (A) By causing people to save. (B) By importing investment goods used for capital deepening. (C) By importing goods for short-term use. (D) By building up a large amount owed.

How can changes in technology or consumer demand make it difficult for people to get jobs? (A) By making it possible for some people to work fewer hours. (B) By changing the number or kind of jobs available. (C) By creating a demand for things that are not available. (D) By making it difficult for people to buy what they want.

How could the Federal Reserve encourage banks to lend out more of their reserves? (A) By raising the required amount of reserves. (B) By reducing the money supply. (C) By reducing the discount rate. (D) By increasing the prime rate.

Instead of assuming that the macroeconomy would automatically recover from a recession, economists began to consider the possibility that modern market economies could fall into prolonged contractions and that government assistance would be necessary to pull them out.

How did the Great Depression affect economists' beliefs about the macroeconomy?

How did the U.S. government make the American public have confidence in the nation's currency in the 1870s? (A) The government permitted state-chartered banks to issue currency. (B) The government established the First Bank of the United States. (C) The government backed the currency with cotton. (D) The government adopted the gold standard.

Capital markets include markets in which money is lent for longer than one year (long-term CDs, corporate, and government bonds). Money markets include markets in which money is lent for periods of less than a year (short-term CDs, Treasury bills, and money market mutual funds).

How do capital markets and money markets differ?

Programs focus on block grants to states, education, medical benefits, and subsidized housing. Enterprise zones attempt to revitalize inner city areas, while other programs focus on job training.

How do existing government policies deal with poverty?

How do fears of future economic problems affect GDP? (A) Government will spend less and save money for a future economic contraction; GDP will be reduced. (B) Consumers will spend more money in the short term to prevent future economic problems; GDP will be pushed up. (C) Businesses will invest more money in the short term to ensure higher profits in the future; GDP will be pushed up. (D) Consumers will spend less and save money in case future economic problems affect them; GDP will be reduced.

How do most states finance their capital budget? (A) Personal property or inheritance taxes (B) Income and property taxes (C) Sales or excise taxes (D) Long-term borrowing or sale of bonds

How does a bank make most of its profit on its business? (A) By paying out less in interest on deposits than it earns in interest on loans. (B) By receiving fees from the government for handling federal and state accounts. (C) By collecting fees on safety deposit boxes, travelers' checks, and certified checks. (D) By collecting fees on credit card purchases.

How does a bond sale by the Fed affect the money supply? (A) The sale increases the money supply but not in the proportion that the multiplier effect would suggest. (B) The sale increases the money supply. (C) It does not affect the money supply. (D) The sale decreases the money supply.

How does a higher level of saving lead to higher GDP in the future? (A) Because increased savings will divert money that would be spent on imported goods in the current year. (B) Because more capital is available for investment, leading to higher output through capital deepening. (C) Because a higher national savings rate encourages immigration and expands the labor force. (D) Because the government taxes savings accounts to pay for education.

How does an economist compare the standard of living in two different countries? (A) By measuring physical capital. (B) By looking at the quality of life. (C) By seeing how the GDP is distributed. (D) By comparing real GDP per capita.

It reduces the purchasing power of money. For example, a movie ticket that cost 25 cents 50 years ago might cost $9 today. That quarter no longer has the same purchasing power that it had 50 years ago.

How does inflation affect purchasing power?

How does the U.S. Census Bureau define a family? (A) A father, mother, and children regardless of where they live. (B) Two or more people related by birth, marriage, or adoption who live in the same housing unit. (C) A group of people who live together and share the expenses of a single housing unit. (D) All people who live in a housing unit regardless of relationship.

How does the concept of a balanced budget apply to state government? (A) Only the capital budget must be balanced. (B) Both the operating budget and the capital budget must be balanced. (C) Neither the operating budget nor the capital budget must be balanced. (D) Only the operating budget must be balanced.

How does the risk involved in a money market mutual fund compare with the risk of a certificate of deposit (CD)? (A) The risk of the money market mutual fund is less than that of the CD. (B) The risk of the money market mutual fund is much greater than that of the CD. (C) The risk of both is about the same. (D) The risk of the money market mutual fund is slightly greater than that of the CD.

How has the distribution of income in the United States changed over the last 20 years? (A) It has become more equal. (B) It has become less equal. (C) It has not changed appreciably. (D) It became more equal for about 10 years but has become less equal.

How is nominal GDP converted into real GDP? (A) By adding all incomes earned to total expenditures by consumers, businesses, and government. (B) By eliminating the effects of price increases on GDP growth. (C) By adding the contributions of American-owned factories in foreign countries. (D) By adding up all of the real purchases made in the economy.

How is nominal GDP converted into real GDP? (A) By eliminating the effects of price increases on GDP growth. (B) By adding up all of the real purchases made in the economy. (C) By adding the contributions of American-owned factories in foreign countries. (D) By adding all incomes earned to total expenditures by consumers, businesses, and government.

How is the federal income tax a progressive tax? (A) Two married people who file their taxes together will pay more taxes than a single person will. (B) The higher the income a person has, the higher the percentage that person pays in tax. (C) A person with a higher income pays more money in taxes, although the percentage he or she pays as tax is less. (D) Children pay no taxes, regardless of whether they earn a large income.

How long can a family collect aid from the Temporary Assistance for Needy Families (TANF) program? (A) A maximum of five years. (B) As long as necessary. (C) A maximum of ten years. (D) A maximum of two years.

How long does it take for a check to clear? (A) Three days (B) Two days (C) Four days (D) One day

How many directors are on the boards for each of the 12 Federal Reserve banks? (A) 12 (B) 7 (C) 15 (D) 9

How quickly can an increase in government spending increase the gross domestic product? (A) 6 months (B) 1 year (C) 5 years (D) 3 years

Income distribution.

How the nation's total income is distributed among its population:

How well did the Federal Reserve Banks perform during the Great Depression? (A) The Chair of the Board of Governors made bad decisions and directed the Federal Reserve Banks to act in harmful ways. (B) The Federal Reserve System skillfully guided the United States economy out of the Great Depression. (C) Individual governors of the Federal Reserve Banks disagreed over policy and were unable to stop the depression. (D) The Great Depression took place before the Federal Reserve System was established.

How would you describe a tax that is assessed according to the benefits-received principle? (A) All groups receive benefits from the tax but not all groups pay equally. (B) Those who receive the benefits the tax provides are the people who pay the tax. (C) One group of people receives benefits from the tax but another group pays the tax. (D) Those who receive direct payments of the money the tax generates are the people who pay the tax.

If George earned $50,000 and was taxed $7,500, while Julia earned $80,000 and was taxed $9,000, what type of income tax structure exists in their country? (A) Regressive income tax (B) Progressive income tax (C) Not clear due to missing information (D) Proportional income tax

If a consumer goes to the store and purchases a DVD player, the shopper is buying both a _____. (A) Durable and intermediate good. (B) Nondurable and final good. (C) Durable and final good. (D) Nondurable and intermediate good.

If a customer deposits $10,000 into a bank, how much money would the bank be capable of lending to an eligible loan applicant if this bank retains 20 percent of the deposit to cover withdrawals? (A) About $9,000 (B) About $8,000 (C) About $2,000 (D) About $7,000

If economists calculate the GDP for 2009, using current prices of year 2009, what are they estimating? (A) Net national product (B) Real GDP (C) Nominal GDP (D) Depreciation

If no foreign companies produce in a country, but many of the country's companies build products in foreign countries, then it is safe to say that _____. (A) The country's GDP and GNP are equal. (B) The country's GDP is greater than its GNP. (C) The country's GDP is equal to its national income. (D) The country's GNP is greater than its GDP.

If the Fed were to impose a slight increase in the required reserves ratio, there would be _____. (A) No change in the money supply. (B) An increase, then a decrease, in the money supply. (C) An increase in the money supply. (D) A decrease in the money supply.

If the Lorenz Curve were used to graph the distribution of income in an economy where all households earn the exact same income, the graph would show a _____. (A) Curved line and sloped diagonally upward. (B) Straight line and sloped diagonally upward. (C) Curved line and sloped diagonally downward. (D) Straight line and sloped diagonally downward.

If the federal government raises taxes on gasoline and consumers take on most of the burden of the tax, then _____. (A) There would be an upward movement along the supply curve for gasoline. (B) The demand curve for gasoline would be relatively elastic. (C) The demand curve for gasoline would be relatively inelastic. (D) The supply curve for gasoline would shift to the right.

If the government uses tax money to pay for long-term investments such as roads or other infrastructure, what happens to the economy? (A) Taxes decrease (B) Investment decreases (C) Investment increases (D) Taxes increase

If the money multiplier is 4, what is the required reserve ratio (RRR)? (A) 50 percent (B) 20 percent (C) 2 percent (D) 25 percent

If the number of people classified as unemployed is 50,000 and the number of people classified as employed is 250,000, what is the unemployment rate? (A) 16.17 percent (B) 8.7 percent (C) 11.5 percent (D) 8 percent

If the required reserve ratio is 20 percent and a customer deposited $5,000 in the bank, how much is available to the bank for lending? (A) $3,500 (B) $5,000 (C) $4,000 (D) $1,000

If there is a fall in the interest rate, _____. (A) Businesses will be more likely to expand their facilities. (B) The unemployment rate will most likely rise. (C) Consumers will be less likely to buy more expensive items. (D) There will be a downturn in the economy.

In 1935, what changes were made to the Federal Reserve System? (A) A central group of banks were authorized to lend to each other in times of need. (B) There was an increase of Federal District Banks from 10 to 12 banks. (C) The problems of regional banks were no longer the concern of Federal District Banks. (D) The Federal Reserve System was given more centralized power.

In 2003, the top 20 percent, or wealthiest fifth, of U.S. households earned _____. (B) About the same as the bottom four fifths combined. (B) Less than the bottom four fifths combined. (C) More than the bottom four fifths combined. (D) Less than the bottom three fifths combined.

In June, Leslie wins a cash prize of $2,000. She plans to use this money to pay her tuition bill in September. Leslie puts this money in a savings account because her main priority is _____. (A) Receiving the maximum amount of interest possible. (B) Liquidity, since she'll need to use the money in a short time. (C) Making a safe long-term investment. (D) Taking a risk in hopes that she'll get a high return.

In a typical business cycle, what stage immediately follows a peak? (A) Contraction (B) Expansion (C) Growth (D) Trough

Excess reserves.

In banking, reserves of cash more than the required amounts:

In the 1800s, people in mining towns in the West often paid for goods with gold nuggets or gold dust. What was the function of gold? (A) It was used as representative money. (B) It was used as fiat money. (C) It was used as part of a barter system. (D) It was used as a currency.

In the 1990s, the Russian people lost confidence in the value of the ruble, and many were no longer willing to sell goods and services in exchange for Russian currency. Which characteristic of money did the Russian currency lack? (A) Uniformity (B) Acceptability (C) Limited supply (D) Durability

In the financial system, who are the borrowers? (A) Individuals and households (B) Households, individuals, and businesses (C) Governments, households, and individuals (D) Governments and businesses

In the late 1920s, which of the following methods allowed investors to purchase stock at a fraction of its price and borrow the rest from the brokerage firm? (A) Buying on a bear market (B) Buying on debt (C) Buying on margin (D) Buying on futures

In the long run, potential growth in the economy and a rise in real GDP per capita might occur from all of the following except _____. (A) An increase in savings. (B) An achievement in technological progress. (C) An increase in government spending on public goods. (D) Growth in population.

In which case do investors buy stock in expectation of higher profits? (A) Speculation (B) Bull market (C) Stock market crash (D) Bear market

Poverty threshold.

Income level below which income is insufficient to support families or households:

Taxable income.

Income on which tax must be paid; total income minus exemptions and deductions:

Revenue.

Income received by a government from taxes and nontax sources:

Fixed income.

Income that does not increase even when prices go up:

Tax base.

Income, property, good, or service that is subject to a tax:

Dow jones industrial average (the dow).

Index that shows how certain stocks have traded:

Standard & poor's 500.

Index that shows the price changes of 500 different stocks:

Hyperinflation.

Inflation that is out of control; very high inflation:

Banking.

Institution for receiving, keeping, and lending money:

Financial intermediary.

Institution that helps channel funds from savers to borrowers:

Federal funds rate.

Interest rate banks charge each other for loans:

Investing in a money market mutual fund is a higher risk than investing in a certificate of deposit because unlike CDs, money market mutual funds _____. (A) Are not insured by the FDIC. (B) Do not earn a fixed interest rate. (C) Must be held for a preset amount of time. (D) Are not protected by the Securities and Exchange Commission.

Prospectus.

Investment report to potential investors:

Julia invested $3,000 at an annual interest rate of 5 percent. From last year to this year, there has been a 4 percent inflation rate. After a year, the purchasing power of her investment _____. (A) Is 4 percent (B) Is 5 percent (C) Rose by 1 percent (D) Fell by 1 percent

Karen wants to buy stock, but is worried about the current "bear market." What does this mean? (A) That many investors are selling their stocks in anticipation of lower profits. (B) That profits from stocks are rising, making it a good time to buy. (C) That profits from stocks are falling, making it a good time to buy. (D) That many investors are buying stocks in anticipation of higher profits.

Leading indicators.

Key economic variables that economists use to predict a new phase of the business cycle:

Savings bond.

Low-denomination bond issued by the United States government:

Stock exchange.

Market for buying and selling stock:

Secondary market.

Market for reselling financial assets:

Primary market.

Market for selling financial assets that can only be redeemed by the original holder:

Capital market.

Market in which money is lent for periods longer than a year:

Price index.

Measurement that shows how the average price of a standard group of goods changes over time:

Monetary policy administered by the Fed is the principal method of softening the effects of the business cycle because _____. (A) The outside lag for fiscal policy is shorter than the outside lag for monetary policy. (B) There are more political complications with determining and implementing fiscal policy. (C) Fiscal policy is not effective at easing the fluctuations of the economy. (D) Monetary policy has the shortest total delay in implementing and achieving a planned outcome.

Tight money policy.

Monetary policy that reduces the money supply:

Monetary policy-makers can help smooth out the fluctuations of the business cycle by _____. (A) Implementing inside lags. (B) Reacting to current trends. (C) Practicing good timing. (D) Examining banks.

Money serves as a good store of value except when an economy experiences a period of _____. (A) Cyclical downturn (B) Recession (C) Depression (D) Inflation

Money that can be easily separated into smaller units of value has the characteristic of _____. (A) Exchange (B) Denominations (C) Durability (D) Divisibility

Fiat money.

Money that has value because the government has ordered that it is an acceptable means to pay debts:

Medicare.

National health insurance program that helps pay for health care for people over age 65 or who have certain disabilities:

Tax exempt.

Not subject to taxes:

Commodity money.

Objects that have value in and of themselves and that also are used as money:

Census.

Official count of the population:

Social security.

Old-Age, Survivors, and Disability Insurance (OASDI):

On which of the following goods or services might a tax increase be hardest to pass on to consumers? (A) Automatic car washes (B) Groceries (C) Prescription medications (D) Gasoline

One feature common to states is _____. (A) A balanced budget requirement. (B) An income tax. (C) A sales tax. (D) The same percentage of spending on Medicaid.

Call option.

Option to buy shares of stock at a specified time in the future:

Put option.

Option to sell shares of stock at a specified time in the future:

OTC market.

Over-the-counter market; an electronic marketplace for stock that is not listed or traded on an organized exchange:

Greenback.

Paper currency issued by the North during the Civil War:

Poverty rate.

Percentage of people who live in households with income below the official poverty line:

Unemployment rate.

Percentage of the nation's labor force that is unemployed:

Contraction.

Period of economic decline marked by falling real GDP:

Expansion.

Period of economic growth as measured by a rise in real GDP:

Creditor.

Person or institution to whom money is owed:

Stockbroker.

Person who links buyers and sellers of stock:

Speculation.

Practice of making high-risk investments with borrowed money in hopes of getting a big return:

Money creation.

Process by which money enters into circulation.

Money market.

Process by which money enters into circulation:

Capital deepening.

Process of increasing the amount of capital per worker:

Prime rate.

Rate of interest that banks charge on short-term loans to their best customers:

Discount rate.

Rate the Federal Reserve charges for loans to commercial banks:

Required reserve ratio.

Ratio of reserves to deposits required of banks by the Federal Reserve:

Real GDP per capita.

Real gross domestic product divided by the total population:

Market basket.

Representative collection of goods and services:

Federal advisory council.

Research arm of the Federal Reserve.

Short-term interest rates show the cost of borrowing money for how long? (A) Between 10 and 30 years. (B) For no more than a month. (C) For a few days or months. (D) Between a few months and two years.

Since bonds are generally considered among the safest investments, you would expect that they would _____. (A) Have D ratings (B) Have low interest rates (C) Have high interest rates (D) Mature quickly

Entitlement.

Social welfare program that people are "entitled" to if they meet certain eligibility requirements:

Mortgage.

Specific type of loan that is used to buy real estate:

Economic growth.

Steady, long-term increase in real GDP:

Suppose an economy's entire output is cars. In Year 1, all manufacturers produce cars at $15,000 each; the real GDP is $300,000. In Year 2, 20 cars are produced at $16,000 each. What is the real GDP in Year 2? (A) $280,000 (B) $20,000 (C) $320,000 (D) $300,000

Suppose the savings rate is 15 percent. For every dollar the government collects in tax revenue and spends on public goods and infrastructure, the net result will be _____. (A) An increase in total investment by 85 cents. (B) A decrease in total investment by 15 cents. (C) An increase in total investment by 15 cents. (D) No change in the total investment.

National income accounting.

System that collects macroeconomic statistics on production, income, investment, and savings:

Withholding.

Taking tax payments out of an employee's pay before he or she receives it:

Progressive tax.

Tax for which the percentage of income paid in taxes increases as income increases:

Proportional tax.

Tax for which the percentage of income paid in taxes remains the same for all income levels:

Individual income tax.

Tax on a person's earnings:

Gift tax.

Tax on money or property that one living person gives to another:

Sales tax.

Tax on the dollar value of a good or service being sold:

Property tax.

Tax on the value of a property:

FICA.

Taxes that fund Social Security and Medicare:

Technological progress leads to which of the following? (A) An increase in efficiency. (B) Lower savings rates. (C) A decrease in efficiency. (D) A loss of interest in human capital.

The Constitution defines all of the following as limits of the government's power to tax except that _____. (A) The federal government is authorized to tax imports and exports. (B) Congress cannot tax church services. (C) The purpose of federal taxes is for the common defense and general welfare of the nation. (D) Federal taxes must be the same in every state.

The Constitution gives the authority to levy taxes to _____. (A) Congress (B) The Vice President (C) The Chair of the Federal Reserve (D) The Secretary of the Treasury

The Great Crash can be attributed to all of the following reasons except _____. (A) The small number of people buying stock on margin. (B) Many people going into debt buying consumer items on credit. (C) The practice of making high-risk investments with borrowed money. (D) A relatively few companies and families holding much of the nation's wealth.

The National Banking Acts of 1863 and 1864 gave the federal government power to do all the following except _____. (A) Require banks to hold gold and silver reserves. (B) Seize the assets of any individual. (C) Charter banks. (D) Issue a single national currency.

The Temporary Assistance for Needy Families (TANF) program _____. (A) Provides benefits to a family for ten years. (B) Can only provide jobs for individuals in an enterprise zone. (C) Only provides cash assistance to poor families. (D) Provides work in exchange for temporary assistance.

The U.S. Treasury used the First Bank of the United States for all of the following purposes except _____. (A) To issue representative money. (B) To set interest rates. (C) To hold money generated by taxes. (D) To help the government carry out its powers to tax.

Investment.

The act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit:

Principal.

The amount of money borrowed:

Par value.

The amount that an investor pays to purchase a bond and that will be repaid to investor at maturity:

Gross national product.

The annual income earned by U.S.-owned firms and U.S. residents:

Yield.

The annual rate of return on a bond if the bond were held to maturity:

Open market operations.

The buying and selling of government securities to alter the supply of money:

Great crash.

The collapse of the stock market in 1929:

Lorenz curve.

The curve that illustrates income distribution:

Capital loss.

The difference between a lower selling price and a higher purchase price, resulting in a financial loss for the seller:

Barter.

The direct exchange of one set of goods or services for another:

The fact that money must withstand the wear and tear that comes from being used over and over again is a measure of its _____. (A) Age (B) Currency (C) Durability (D) Portability

The federal government spends the largest amount of its budget on Social Security, which is an example of _____. (A) Discretionary spending (B) Defense spending (C) Federal aid to state and local governments (D) Mandatory spending

The federal income tax is a _____. (A) Regressive tax (B) Discretionary tax (C) Progressive tax (D) Proportional tax

The following may be claimed as a tax deduction except _____. (A) Some medical expenses. (B) Donations to charity. (C) Money spent on household expenses. (D) Interest on a home mortgage.

The fractional banking system _____. (A) Prevents excessive defaults. (B) Makes banking more secure. (C) Only works if there are a limited number of banks. (D) Ensures growth in the economy.

Coupon rate.

The interest rate that a bond issuer will pay to a bondholder:

Depreciation.

The loss of the value of capital equipment that results from normal wear and tear; also, a decrease in the value of a currency:

Trough.

The lowest point in an economic contraction, when real gross domestic product stops falling:

The market basket that is used by the Bureau of Labor Statistics to calculate prices is made up of which of the following? (A) Food items only. (B) Typical goods and services for an urban household. (C) Nonfood items only. (D) Food and necessary services for any family.

The market basket that is used by the Bureau of Labor Statistics to calculate prices is made up of which of the following? (A) Typical goods and services for an urban household. (B) Food items only. (C) Nonfood items only. (D) Food and necessary services for any family.

Return.

The money an investor receives above and beyond the sum of money initially invested:

The money multiplier formula _____. (A) Is used by the Board of Governors to decide interest rate cuts. (B) Determines the amount of new money that will be created with each demand deposit. (C) Determines the amount of funds loaned by the Federal Reserve Bank to its members. (D) Is used by the Fed to determine the amount of currency in the economy.

Federal reserve system.

The nation's central banking system:

Federal reserve note.

The national currency we use today in the United States:

Inflation rate.

The percentage rate of change in price level over time:

Interest.

The price paid for the use of borrowed money; also, money earned by deposited funds:

Wage-price spiral.

The process by which rising wages cause higher prices, and higher prices cause higher wages:

Savings rate.

The proportion of disposable income that is saved:

Core inflation rate.

The rate of inflation excluding the effects of food and energy prices:

The rate of inflation, excluding the effects of food and energy prices, is _____. (A) Hyperinflation (B) The core inflation rate (C) The price index (D) The wage-price spiral

The sales tax on a $20 hammer is 7 percent, or $1.40. Why is this tax a bigger burden for Josh, who has a $15,000 income, than for Aaron, who has a $150,000 income? (A) The tax rate is higher for Josh than for Aaron. (B) The burden is the same for both Josh and Aaron. (C) Josh will have to pay a greater property tax on the hammer than will Aaron. (D) The tax represents a larger proportion of Josh's income.

Board of governors.

The seven-member board that oversees the Federal Reserve System:

Great depression.

The severe economic decline that began in 1929 and lasted for more than a decade:

Financial system.

The system that allows the transfer of money between savers and borrowers:

Maturity.

The time at which payment to a bondholder is due:

Outside lag.

The time it takes for monetary policy to have an effect:

Gross domestic product.

The total value of all final goods and services produced in a particular economy; the dollar value of all final goods and services produced within a country's borders in a given year:

Federal reserve districts.

The twelve banking districts created by the Federal Reserve Act:

Tax incentive.

The use of taxation to encourage or discourage certain behavior:

Demand-pull theory.

Theory that inflation occurs when demand for goods and services exceeds existing supplies:

Cost-push theory.

Theory that inflation occurs when producers raise prices to meet increased costs:

Quantity theory.

Theory that too much money in the economy causes inflation:

To calculate disposable personal income, you take personal income and subtract which of the following? (A) Depreciation on your home. (B) Monthly household expenditures. (C) Individual income taxes. (D) Annual expenditure on food and clothing.

To determine the unemployment rate, the Bureau of Labor Statistics polls a sample population of _____. (A) 50,000 families (B) 80,000 unemployed individuals (C) 80,000 families (D) 50,000 unemployed individuals

Aggregate supply.

Total amount of goods and services in the economy available at all possible price levels:

Net worth.

Total assets minus total liabilities:

Truth-in-lending laws require that _____. (A) Banks lend each other funds using the federal funds rate. (B) Bank holding companies offer the same interest rates at all of their member banks. (C) Sellers provide full and accurate information about loan terms. (D) Banks allow Federal Reserve examiners to audit their financial activities.

Seasonal unemployment.

Unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season:

Frictional unemployment.

Unemployment that occurs when people take time to find a job:

Structural unemployment.

Unemployment that occurs when workers' skills do not match the jobs that are available:

Cyclical unemployment.

Unemployment that rises during economic downturns and falls when the economy improves:

The company can initiate a stock split.

What action can a company take when the price of stock becomes so high that it discourages potential investors from buying it?

What age group in the United States has the largest percentage of its members living in poverty? (A) Children (B) The middle aged (C) The elderly (D) Young adults

What are Standard & Poor's and Moody's? (A) The largest issuers of junk bonds. (B) Firms that rate bonds and publish the ratings. (C) A part of the Securities and Exchange Commission. (D) Financial intermediaries.

What are bonds? (A) Certificates of deposit (B) Stocks (C) Loans (D) Dividends

What are key economic variables that economists use to predict a new phase of a business cycle referred to as? (A) Economic growth (B) A recession (C) A contraction (D) Leading indicators

Personal exemptions.

What are set amounts that you subtract from your gross income for yourself, your spouse, and any dependents called?

What are the Dow and the S&P 500? (A) Indexes that track the sales of all the stocks and bonds in the United States. (B) Cumulative records of all stocks sold on the NYSE and other major exchanges. (C) Averages of stocks and bonds that are traded often. (D) Indexes that show the performance of limited but representative stocks.

What are the four main limitations of GDP accuracy? (D) Depreciation, price level, distortion, and underground economy. (B) Nonmarket activities, underground economy, negative externalities, and quality of life. (C) Durable good, nondurable good, black market, and negative externalities. (D) Trough, peak, recession, and depression.

What are the leading economic indicators supposed to predict? (A) Business cycles (B) Nonmarket activities (C) Consumer expectations (D) Stagflation

What are the main sources of revenue for local governments? (A) Federal grants (B) State grants (C) Property taxes (D) Income tax

Cotton crops.

What backed the Confederate money issued in the South at the beginning of the Civil War?

What change in monetary policy could eventually cause overborrowing and overinvestment? (A) Contractionary policy. (B) An increase in the money supply. (C) A fall in the discount rate. (D) A decrease in the money supply.

What condition is necessary for a fiat money system to work? (A) Money owed must be paid on time. (B) The government must control the money supply. (C) Customers with checking accounts cannot earn interest on those accounts. (D) Banks must hold sufficient gold to cover any paper money they give out.

What determines the incidence of a tax? (A) The willingness to pay of the people who are taxed. (B) The wealth of the people who are taxed. (C) The laws of the government that imposes the tax. (D) The elasticity of demand of the product taxed.

What did the Federalists believe about banking? (A) They believed that state governments should own and run the nation's banks. (B) They believed that the banking system already in existence was sufficient. (C) They believed that a centralized banking system was necessary. (D) They believed an international banking system would be best.

What do Social Security taxes pay for? (A) Transportation and training expenses for low-income people. (B) Benefits to older citizens and people with certain disabilities. (C) Benefits to those who are unemployed. (D) Benefits to federal workers and military personnel.

What do investors who sell stocks for less than they paid for them experience? (A) Capital gain (B) Negative dividend (C) Return on investment (D) Capital loss

What do most economists believe about the future of business cycles? (A) Business cycles will grow more extreme, with higher peaks and deeper troughs. (B) Economists have made no predictions about future business cycles. (C) Advances in technology have brought business cycles to an end. (D) Business cycles will continue to drive our economy.

What do taxes collected under the Federal Insurance Contribution Act (FICA) fund? (A) Medicaid and Supplemental Security Income (SSI) (B) Social Security and Medicaid (C) Social Security and Medicare (D) Medicare and Medicaid

What does "lender of last resort" mean with respect to the Federal Reserve? (A) It will lend money to a bank in a financial emergency. (B) It has the power to decide how much money a bank can lend out. (C) It decides interest rates for interbank loans. (D) It makes decisions about who a bank can lend money to.

What does a "fractional reserve banking system" mean? (A) One that must keep most deposited money in reserve. (B) One that uses fractional paper currency as well as coins. (C) One that keeps only a small part of customers' deposits on hand. (D) One that is required to report daily deposits to the Federal Reserve.

What does fiscal policy include? (A) Changes in monetary policy. (B) Changes in banking regulations and policies. (C) Changes in interest rates and loan policies. (D) Changes in government spending and taxation.

What does full employment mean? (A) There is no cyclical unemployment. (B) Those who want to work have full-time jobs. (C) Every person who wants to work has a job. (D) Approximately 80 percent of people have jobs.

What does it mean when a person is underemployed? (A) The person is not making as much money as he or she needs (B) The person is looking for work in a special field. (C) The person has been working but now is laid off. (D) The person has a job but is overqualified for it.

What does monetary policy do? (A) It mints new coins and prints bills. (B) It changes the way that taxes are collected. (C) It alters the supply of money. (D) It charters new banks.

What does the "equity" of a tax mean? (A) The tax is simple to collect. (B) The tax is paid only by those who will use the service it provides. (C) The tax is fairly assessed. (D) The tax is paid equally by everyone.

What does the Lorenz Curve illustrate about the economy? (A) The kinds of jobs. (B) The distribution of income. (C) The causes of poverty. (D) The types of families.

What does the New York Stock Exchange (NYSE) do? (A) Buys and sells stocks, but not bonds, for private investors who have extremely large amounts of money to invest. (B) Arranges the buying and selling of blue chip stocks only. (C) Handles stock and bond trading on the Internet. (D) Arranges stock and bond trading for the largest and most established companies in the United States.

What does the unemployment rate represent? (A) The percentage of the total population that is not employed. (B) The total number of people who are unable to find work. (C) The total number of people who are not employed. (D) The percentage of the total labor force that is unemployed.

What does the word speculation mean to an economist? (A) Investing in a type of stock the buyer knows little about. (B) Making small, high-risk investments with surplus money. (C) Making high-risk investments with borrowed money. (D) Investing in low-risk stocks with surplus money.

What effect do low interest rates have on business investment? (A) They encourage it. (B) They slow it down. (C) They generally stop it completely. (D) They do not have much effect on essential investment.

What gives the U.S. government the right to collect taxes? (A) Custom of government (B) The U.S. Constitution (C) An act of the U.S. Congress (D) State laws in all 50 states

What happens to the money that your employer withholds from your paycheck? (A) Your employer holds it in case you damage any property. (B) Your employer holds it until you leave your job and then returns it to you. (C) Your employer returns it to you at the end of the year so that you can pay your federal taxes. (D) Your employer sends it to the federal government to help pay your income tax bill.

What happens to the percentage of an income that is taxed when income rises and the tax is a progressive one? (A) The percentage of tax falls. (B) The percentage of tax rises. (C) The percentage of tax stays the same. (D) The percentage of tax first rises and then falls.

What happens when you make a purchase using a credit card? (A) The money is immediately deducted from your account. (B) The amount of the purchase is deducted from a prepaid account. (C) The credit card issuer pays the store. (D) The place where you made the purchase receives the money within 24 hours.

What is GDP expressed in constant, or unchanging, prices called? (A) Price level (B) Real GDP (C) Net national product (D) Nominal GDP

What is a corporate bond? (A) A bond issued by a corporation as a way to borrow money. (B) A high-risk investment in the proceeds of a corporation. (C) A bond issued by a local government but sold by a corporation. (D) Another name for corporate stock.

What is a corporate bond? (A) Another name for corporate stock. (B) A high-risk investment in the proceeds of a corporation. (C) A bond issued by a corporation as a way to borrow money. (D) A bond issued by a local government but sold by a corporation.

What is a credit union? (A) A modified type of savings and loan that makes loans for housing. (B) A bank that specializes in retirement savings accounts. (C) A bank that takes deposits but does not make loans (D) A cooperative lending institution for a particular group.

What is a firm that specializes in buying and selling stocks for individual investors called? (A) A stock split (B) A stock exchange (C) A brokerage firm (D) A capital gain

What is a major difference between an operating budget and a capital budget? (A) An operating budget consists of small amounts of money; a capital budget consists of large amounts of money. (B) In an operating budget, legislation is needed; in a capital budget, no legislation is needed. (C) An operating budget is raised by bonds; a capital budget is raised by taxes. (D) An operating budget is for day-to-day expenses; a capital budget is for investment spending.

What is a means-tested program? (A) One for which those with higher incomes receive lower benefits or no benefits at all. (B) One for which the recipient must have contributed to it in order to qualify for benefits. (C) One with no federal entitlements. (D) One that depends on age-related criteria for benefits.

What is a mutual fund? (A) A company that collects money from people to insure their families against their loss of income. (B) A group that makes loans to investors who sometimes have a history of not paying back their loans. (C) A device for pooling the savings of many investors and investing it in a variety of ways. (D) A group that borrows money from many different sources to lend to its members.

What is a period of economic growth as measured by a rise in real GDP called? (A) An expansion (B) A contraction (C) A peak (D) A business cycle

What is a person's taxable income? (A) All income withheld by an employer and sent to the federal government. (B) The gross income received from salaries, wages, tips, and commissions. (C) All personal exemptions and deductions. (D) Gross income after subtracting exemptions and deductions.

What is a recession? (A) A very mild and short expansion. (B) A period when the economy is neither expanding nor contracting. (C) A period when real GDP falls for at least six months. (D) A long and severe depression.

What is a stock that reinvests its earnings in the business instead of paying regular dividends called? (A) preferred stock (B) A common stock (C) A growth stock (D) An income stock

What is an entitlement? (A) A social welfare program that provides benefits to people who meet certain eligibility requirements. (B) A social welfare program that pays bills for government spending such as supplies and utilities. (C) A social welfare program that provides payments the government receives for certain services. (D) A social welfare program over which legislators have direct control.

What is an example of a positive external shock to aggregate supply? (A) China announces that it will import 50 percent more corn from the United States. (B) Demand for new suburban houses increases the value of farmland. (C) Good weather leads to an unusually productive harvest for corn farmers. (D) A popular new diet encourages consumers to buy more corn flakes.

What is likely to be the best approach to a recession that is expected to turn into an expansion in a short time? (A) Do nothing and let the economy fix itself. (B) Use monetary policy to lower interest rates. (C) Use fiscal policy to lower interest rates. (D) Use monetary policy to raise interest rates.

What is not likely to be a major problem for businesses during a period of ongoing inflation? (A) They cannot anticipate their costs. (B) They do not know when the inflation will stop. (C) They have difficulty hiring help. (D) Their money loses its value.

What is one of the reasons why Medicare costs have been rising? (A) Hospitals are holding patients for longer periods of time. (B) Recent outbreaks of diseases have affected Medicare recipients. (C) The population of low-income families has risen. (D) Life spans of U.S. citizens are increasing.

What is one reason the government has only limited control of its spending? (A) The government cannot control how much money will be spent on education in a given year. (B) Congress can change the number of people who qualify for a program but not how much they will receive. (C) When criteria have been set for an entitlement program, there is no control of how many people will qualify. (D) When the government starts some programs, it usually has very little idea what they will cost.

What is one service the Fed performs for the Treasury Department? (A) It processes payments, such as Social Security checks. (B) It auctions government bills. (C) It collects federal taxes. (D) It selects the Secretary of the Treasury.

What is one way to measure technological progress? (A) Any increases in labor minus increases in capital. (B) Total growth plus increases in capital and labor. (C) Total growth minus increases in capital and labor. (D) Any increases in capital minus increases in labor.

What is the Consumer Price Index (CPI)? (A) An index determined by measuring the price of standard goods bought by urban consumers. (B) A measure of prices of housing and rental costs all over the country. (C) An index of the cost of living for all U.S. consumers. (D) An index of prices of items used by manufacturers and retailers.

What is the Federal Reserve best known for? (A) For setting the discount rate. (B) For the fractional reserve banking system. (C) For regulating the nation's money supply. (D) For bank examinations.

What is the amount of money a person has left of his or her income after taxes called? (A) Disposable personal income (B) National income (C) Personal income (D) Aggregate income

What is the automated electronic securities market that links sales in the United States, Asia, and Europe called? (A) The OTC market (B) The NASDAQ (C) The Dow (D) The S & P 500

What is the cost of money? (A) The economy's use of open market operations. (B) The bank's use of money creation. (C) The smoothing out of fluctuations in the market. (D) The price of the interest rate.

What is the difference between a primary market and a secondary market? (A) A primary market is financial assets that can be redeemed only by the original investor; a secondary market's assets can be resold. (B) A primary market is redeemed by a company's assets; a secondary market is redeemed by what is owed to the company. (C) A primary market is money lent for less than a year; a secondary market is money lent for a longer time. (D) A primary market is paid first if a company is in trouble; a secondary market gets what is left.

What is the difference between a recession and a depression? (A) Unlike a recession, a depression includes high levels of inflation. (B) A recession is more severe than a depression and lasts longer. (C) A depression is a particularly deep recession with high levels of unemployment. (D) A recession is a period of economic growth while a depression is a period of economic contraction.

What is the difference between an estate tax and a gift tax? (A) An estate tax is paid by the executor of an estate; a gift tax is paid by both parties of the gift. (B) An estate tax is paid on money; a gift tax is paid on money and property. (C) An estate tax is assessed on all inherited money; a gift tax is only assessed on amounts over $5,000. (D) An estate tax is on the assets of someone who has died; a gift tax is on assets given from one living person to another.

What is the difference between real GDP and nominal GDP? (A) Real GDP includes nonmarket activities; nominal GDP has no nonmarket activities. (B) Real GDP allows for depreciation; nominal GDP allows for no depreciation. (C) Real GDP is based on constant prices; nominal GDP is based on the current year's prices. (D) Real GDP is accurate to hundreds of dollars; nominal GDP is accurate to thousands of dollars.

What is the difference between seasonal unemployment and structural unemployment? (A) Seasonal unemployment is due to changes in production schedules; structural unemployment is because people lack skills. (B) Seasonal unemployment is generally among low-paid workers, while structural unemployment is among the highly paid. (C) Seasonal unemployment is rare in a modern society, while structural unemployment is not. (D) Seasonal unemployment occurs only in the summer, while structural unemployment can occur all year round.

What is the function of a bank examiner? (A) To make sure banks are obeying laws and regulations. (B) To carry on day-to-day functions within the bank. (C) To respond to banks about their daily reports to the Fed. (D) To oversee decisions about major loans by each bank.

What is the gold standard? (A) A system that uses actual gold coins as a country's money. (B) A system in which a country's money is backed with gold. (C) A money system in which the paper currency is good in more than one country. (D) A currency system in which each dollar is worth 1/20 of an ounce of gold.

What is the interest rate the bond issuer pays to the bondholder called? (A) Value rate (B) Coupon rate (C) Maturity rate (D) Discount rate

What is the largest category of federal spending? (A) Education and training (B) Foreign aid (C) Social Security (D) Law enforcement

What is the main advantage of diversification as an investment policy? (A) It guarantees a fixed rate of return on an investment. (B) It reduces risk to investors. (C) It increases investors' access to their money. (D) It offsets the effects of inflation on investments.

What is the main advantage of diversification as an investment policy? (A) It increases investors' access to their money. (B) It offsets the effects of inflation on investments. (C) It reduces risk to investors. (D) It guarantees a fixed rate of return on an investment.

What is the major source of revenue for most state governments? (A) Property and gasoline taxes (B) Alcohol and tobacco taxes (C) Business income and licensing taxes (D) Sales and individual income taxes

Each district is made up of more than one state. Federal Reserve Districts include a mixture of agricultural, manufacturing, and service industries as well as rural and urban areas.

What is the makeup of the Federal Reserve Districts?

What is the most-used instrument for controlling week-to-week changes in the money supply? (A) The required reserve ratio (B) The money multiplier (C) The discount rate (D) Open market operations

Put option.

What is the option to sell shares of stock at a specified time in the future called?

What is the policy used most by the Fed to change the money supply? (A) Changes in the money creation policy. (B) Changes in the discount rate. (C) Open market operations. (D) Changes in the reserve requirements.

What is the poverty threshold? (A) The percentage of people who live in poverty. (B) The income needed to live in an inner city or rural area. (C) The income of the lowest 20 percent of families. (D) The income level below that which is needed to support a family.

What is the purpose of the Federal Deposit Insurance Corporation (FDIC)? (A) To make sure that banks charge a fair amount of interest on loans. (B) To make sure that banks do not fail. (C) To make sure that customers do not lose money if a bank fails. (D) To make sure that the government has enough gold to cover its expenses.

What is the relationship between interest rates and demand for money? (A) As interest rates decrease, demand for money increases. (B) Interest rates and demand for money are unrelated. (C) As interest rates increase, demand for money increases. (D) Interest rates are determined by demand for money.

What is the required reserve ratio (RRR)? (A) The ratio of commercial to personal loans that a bank makes. (B) The amount of money a bank has to loan out. (C) The portion of a deposit that a bank must keep on hand. (D) The deposits that commercial companies make in banks.

What is the role of the Federal Open Market Committee (FOMC)? (A) It makes key decisions about interest rates and the growth of the United States money supply. (B) It redraws the map of the 12 Federal Reserve Districts every ten years in response to economic changes. (C) It collects information on each Federal Reserve District and reports on economic conditions to the Board of Governors. (D) Composed of seven members appointed by the President, it oversees the Federal Reserve System.

What is the simple interest of a loan for $1,000 with 5 percent interest after 3 years? (A) $150 (B) $1,150 (C) $50 (D) $1,050

What is the stage in a business cycle called when real GDP stops falling? (A) A peak (B) A contraction (C) A trough (D) An expansion

What is the term for a situation in which a person is overqualified for the job he or she has? (A) Partial employment (B) Discouraged worker (C) Underemployment (D) Low-skilled work

What is the underground economy? (A) Costs of such things as personal safety, vacations, and sick pay. (B) The goods and services people make or do themselves. (C) The amount spent for environmental cleanup and similar products. (D) Products and income that are not reported as income to the government.

What is workfare? (A) A state-by-state grant program of aid to the elderly. (B) A program that requires work in exchange for assistance. (C) Welfare that is limited to preschool-age children. (D) An early poverty program from the 1950s.

What kind of stockbroker is a day trader? (A) One who deals with the U.S. market only and does not trade in the Far East. (B) One who buys and sells stocks on a minute-by-minute basis to try to make a profit. (C) One who will not wait until the next day to trade a stock. (D) One who specializes in certain kinds of stocks that are related to people's day-to-day needs.

What monetary policy should be implemented to correct an inflationary economy? (A) Easy monetary policy (B) Money creation policy (C) Tight monetary policy (D) Laissez faire policy

What occurred during the Free Banking Era? (A) The Second Bank of the United States was established. (B) The dollar bill was introduced. (C) Currency varied widely from state to state. (D) Repaying of loans was not closely monitored.

What percentage of federal revenues is made up of corporate taxes? (A) About 25 percent (B) About 10 percent (C) About 45 percent (D) About 5 percent

Contraction.

What phase of a business cycle can lead an economy into recession?

What stage of the business cycle would be most appropriate to describe the years from 1929 to 1933? (A) A contraction (B) A peak (C) An expansion (D) A trough

What typically happens to the inflation rate when unemployment falls to very low levels? (A) It will rise or fall but not with the unemployment rate. (B) It falls. (C) It stays the same. (D) It rises.

What was one outcome of the stock market's Great Crash in 1929 that lasted for more than 50 years? (A) Financial ruin affected millions of people who had not been investors. (B) Ordinary people were afraid to invest in the stock market. (C) Millions of people were kept out of work. (D) Money was hard to borrow.

What was one reason the U.S. government started a Federal Reserve System? (A) To keep the banking power of the United States spread out among various districts. (B) To have a place for banks to deposit their excess deposits. (C) To provide consumers with access to funds for business expansion. (D) To make sure that the U.S. banks were obeying laws regarding banking.

What would best explain the higher purchase price of an SUV that gets low gas mileage compared to a fuel-efficient sedan, even though the cost of manufacturing both vehicles is the same? (A) A deduction (B) A tax exemption (C) A tariff (D) A tax incentive

When Alison, a college math professor, leaves her job at a small rural college and starts looking for a job at a large urban university, she is _____. (A) Frictionally unemployed (B) Structurally unemployed (C) A discouraged worker (D) Cyclically unemployed

When is a bond's par value generally repaid? (A) When interest rates change. (B) After 30 years. (C) At maturity. (D) When the lender demands it.

When was the first Bank of the United States formed by the Federalists? (A) In the first quarter of the nineteenth century (B) During the American Revolution (C) In the late eighteenth century (D) After the Civil War

When you drive away from the gas pump, what type of tax have you just paid? (A) Corporate income tax (B) Estate tax (C) Excise tax (D) Import fee

When you invest in a mutual fund, _____. (A) Your money is invested in a variety of insurance policies. (B) You are guaranteed a fixed return on your investment. (C) Your money is invested in a variety of stocks and bonds. (D) You have easier access to your money than in a savings account.

When you pay for a new CD with a debit card, you authorize the transfer of money from your account to the music store's account. In other words, a payment by debit card is the electronic form of a payment by _____. (A) Money order (B) Check (C) Cashier's check (D) Credit card

Where are coins manufactured? (A) Federal Reserve Banks (B) Bank holding companies (C) United States Mint (D) Bureau of Engraving

Which is an example of discretionary spending? (A) Medicare (B) Social Security (C) Education (D) Medicaid

Which monetary policy tool is considered an expansionary tool? (A) Decreasing the discount rate. (B) Cutting taxes. (C) Increasing the reserve requirements. (D) Increasing government spending.

Which of the following actions does not promote capital deepening? (A) Raising taxes to pay for building roads. (B) A low population growth rate at the same time that capital stock expands. (C) Borrowing money from foreign nations to invest in building infrastructure in this country. (D) Saving less and spending more of one's disposable income.

Which of the following actions would the Fed take to fight inflation? (A) Increase the money supply. (B) Reduce the money supply. (C) Increase government spending. (D) Raise taxes.

Which of the following applies to discouraged workers? (A) They are included in the unemployment rate. (B) They are workers who were injured on the job and can no longer work. (C) They are workers who move to another country to look for work. (D) They are not included in the unemployment rate.

Which of the following are examples of discretionary spending? (A) Defense, education, national parks, and environmental cleanup (B) Social Security, Medicare, and Medicaid (C) Defense, education, and Medicaid (D) Social Security, Medicare, and defense

Which of the following could not be sold in the secondary market? (A) Savings bonds (B) Municipal bonds (C) Junk bonds (D) Corporate bonds

Which of the following defines a means-tested program? (A) People pay first and receive benefits later. (B) Any person who is a U.S. citizen is eligible. (C) Eligibility depends on income. (D) Age is a major criterion for eligibility.

Which of the following documents could be used to represent claims to financial assets? (A) Bond certificates (B) Computer printouts (C) All of the above (D) Passbooks

Which of the following does near money include? (A) Demand deposits and other checkable deposits. (B) Credit cards and debit cards. (C) Deposits in savings accounts and money market mutual funds. (D) Traveler's checks and deposits in checking accounts.

Which of the following does not belong in the M2 category? (A) Currency held in bank vaults. (B) Near money. (C) Money market mutual funds. (D) Deposits in savings.

Which of the following families is statistically the most likely to live below the poverty threshold? (A) A two-parent family of Hispanic origin living in the inner city. (B) A two-parent white family living in a rural area. (C) A black family headed by a single mother living in the inner city. (D) A black family headed by a single mother living in the suburbs.

Which of the following finally brought the U.S. economy out of the Great Depression? (A) World War I (B) The Korean War (C) World War II (D) The Vietnam War

Which of the following is a result of unemployment that is very low? (A) Companies have difficulties recruiting workers. (B) The few people who are unemployed stop looking for jobs. (C) Wages drop below the level of minimum wage. (D) Companies stop looking for people to fill unfilled jobs.

Which of the following is a tax incentive? (A) A tax on imported goods. (B) The use of taxation to encourage or discourage certain behaviors. (C) A set amount that you subtract from your gross income for yourself and any dependents. (D) Taking tax payments out of an employee's pay before he or she receives it.

Which of the following is an accurate statement about the Great Depression? (A) It was a recession that became a depression because of World War II. (B) It was the most severe economic downturn in the history of industrial capitalism. (C) It was set off because of a sharp and unexpected rise in interest rates. (D) Its effects and duration would have been even worse if it weren't for a strong economy in Japan and Europe at the time.

Which of the following is an example of a barter system? (A) Instead of paying for a purchase in Mexico in pesos, you use dollars from the United States. (B) Instead of paying the full amount for a car, you pay 10 percent in cash and the rest in monthly installments. (C) Instead of paying cash for a computer, you use a credit card. (D) Instead of paying rent, you clean the house for the owner.

Which of the following is an example of a durable good? (A) A box of cereal (B) A pack of baseball cards (C) A used car (D) A paperback book

Which of the following is an example of a tax authorized under the Federal Insurance Contributions Act (FICA)? (A) Social Security tax (B) Tariffs (C) Gift tax (D) Excise tax

Which of the following is an example of inside lag in monetary policy? (A) The U.S. government debates a public works program and chooses not to spend money on new highways and railroads. (B) Members of the Board of Governors refuse to lower the discount rate until several months after a recession has begun. (C) Corporations respond slowly to increases in interest rates by reducing their planned investment for future years. (D) Individual banks ignore a reduction in the required reserve ratio and hold excess reserves.

Which of the following is an example of money as a unit of account? (A) Lending a friend $25. (B) Checking the price of a camera at several stores before buying it. (C) Opening a savings account at a bank. (D) Purchasing a toy for $8.99.

Which of the following is an example of representative money? (A) An IOU note (B) Gold earrings (C) A fur coat (D) Diamonds

Which of the following is not a reason that capital deepening is an important source of economic growth? (A) More investment funds are made available to businesses. (B) Investment in human capital causes workers to be more valuable to employers. (C) Enhanced training programs improve the productivity of workers. (D) More physical capital improves efficiency and productivity.

Which of the following is not a relatively recent change in policy concerning welfare? (A) Transitioning from welfare to workfare. (B) Replacing Aid to Families with Dependent Children (AFDC) with Temporary Assistance for Needy Families (TANF). (C) Setting a 5-year limit on TANF benefits. (D) Reassigning the responsibility for implementing antipoverty programs to the federal government.

Which of the following is not a situation involving external shock? (A) Consumers reduce spending on expensive goods because the country has gone to war. (B) Consumers use more gasoline because of lower prices due to the discovery of large deposits of oil. (C) Consumers pay high prices for corn because of a severe drought. (D) Consumers reduce spending because they fear that their nation is going to war.

Which of the following is not among the root causes of poverty in the United States? (A) Disabilities (B) Underemployment (C) Size of family (D) Advanced degrees

Which of the following is not an accurate statement about money market accounts? (A) They pay a higher rate of interest than savings accounts. (B) They can be used for writing checks. (C) They offer a fixed interest rate. (D) They can be used for saving.

Which of the following is not an example of M1 money? (A) A checking account (B) Travelers' checks (C) Currency (D) A mutual fund

Which of the following is not an example of a liquid asset? (A) A checking account (B) Cash (C) A certificate of deposit (D) Travelers' checks

Which of the following is not an example of state spending? (A) State water quality inspections. (B) The building and maintenance of the highway system. (C) The state campground where your family vacations. (D) The public library where you find sources for a research paper.

Which of the following is not one of the three advantages of dealing with a financial intermediary? (A) A financial intermediary shares risks. (B) A financial intermediary provides liquidity. (C) A financial intermediary creates financial assets. (D) A financial intermediary provides information.

Which of the following is not one of the ways borrowers engage in the financial system? (A) Creating new markets. (B) Developing new products. (C) Building roads, factories, and homes. (D) Securing financial assets.

Which of the following is not tax exempt? (A) The convenience store on the corner. (B) Your family's church. (C) The federal military base near your home. (D) The homeless shelter in your neighborhood.

Which of the following is one reason the federal government collects income taxes from every paycheck as a person earns wages? (A) So that people do not realize exactly how much they are paying. (B) So that taxpayers can qualify for refunds of excess tax. (C) So that the money can be put aside until it is needed. (D) So that the government can pay bills as they come due.

Which of the following is one way the Federal Reserve Bank serves the government? (A) Financing state government projects. (B) Making loans to the government. (C) Minting coins for the government. (D) Selling government securities.

Which of the following is probably the main source of funding for your school? (A) Payroll taxes (B) Local property taxes (C) State sales taxes (D) Federal income taxes

Which of the following is the basic measure of a nation's economic growth rate? (A) Nonmarket activities over a given period of time. (B) Percentage change of real GDP over a given period of time. (C) Standard of living over a given period of time. (D) Leading indicators over a given period of time.

Which of the following is the main disadvantage of using shells as money instead of coins? (A) Divisibility (B) Portability (C) Uniformity (D) Durability

Which of the following is true about state funding for education? (A) State governments equally match the funds provided by local and federal taxes. (B) Every state has at least three public state universities. (C) States pay the same share of local school costs across the nation. (D) The amount of money that each state spends per student varies.

Which of the following may not be indicated by low long-term interest rates? (A) That the economy is expected to contract in coming years. (B) That consumers want to borrow money to invest. (C) The future health of the economy. (D) That businesses do not want to borrow money to invest.

Which of the following measures does not help promote technological progress? (A) Reducing the scale of the market for a new product. (B) Training programs for workers. (C) Increased wages for researchers. (D) Issuing a patent to a company that invents a new product.

Which of the following might cause the inflation rate to spike up sharply? (A) Prices on world oil markets rise steeply due to war in the Middle East. (B) Plentiful rainfall and moderate temperatures result in good harvests of wheat and soybeans. (C) The purchasing power of the average consumer decreases due to a sluggish economy. (D) The items in the CPI market basket change to account for changing consumer buying habits.

Which of the following people is most likely to be classified as "working poor"? (A) Jim, who is a full-time student with a work-study job in the college library. (B) Carol, a single mother who works 35 hours a week at a job that pays slightly above minimum wage. (C) Jason, who is working part time as a construction worker so he can devote time to starting up a real estate business. (D) Dolores, who has an advanced degree and works 40 hours a week.

Which of the following products would be used in calculating GDP? (A) Plastic manufactured in a factory in Kentucky and sold to toy manufacturers around the world to make plastic toys. (B) Cotton cloth manufactured in India and sold to clothes makers in the United States. (C) Toys manufactured in China at a factory owned by a U.S. company. (D) Cars manufactured in Tennessee at a factory owned by a Japanese automobile company.

Which of the following statements best describes income distribution in the United States? (A) Most people earn the same income. (B) The richest 20 percent of the population has about 20 percent of the national income. (C) The richest 20 percent of the population has a much greater share of income than the poorest 20 percent. (D) The richest 20 percent of the population has slightly more income than the poorest 20 percent.

Which of the following statements concerning state sales tax is correct? (A) Only the federal government is authorized to tax gasoline. (B) States that have a state income tax do not collect sales taxes. (C) Some states impose so-called sin taxes. (D) All 50 states collect sales tax.

Which of the following statements refers to the wage-price spiral process? (A) The salary of a worker fluctuates with the amount of sales he or she accomplishes per month. (B) Employees only receive a raise when their purchasing power has been eroded by inflation. (C) An employee loses his or her job, finds a position at another company, and is underemployed. (D) A worker receives a raise, which increases costs for the employer.

Which of the following was not a cause of the Savings and Loan crisis of the 1980s? (A) The gold standard (B) High interest rates (C) The deregulation of the industry (D) Bad loans

Which of the following was the nation's first true central bank? (A) Federal Deposit Insurance Corporation (B) Bank of the United States (C) Federally chartered bank of the Civil War (D) Federal Reserve System

Which of the following would be a progressive tax? (A) People pay 10 percent tax on property, whether it is worth $50,000, $500,000, or $50 million. (B) People earning $35,000 pay 10 percent tax, while people earning $100,000 pay 30 percent tax. (C) Everyone pays a 5 percent sales tax. (D) All people pay a 15 percent income tax.

Which of the following would be an example of capital deepening? (A) Laying off employees when a factory is modernized. (B) Moving a manufacturing plant overseas where labor costs are lower. (C) Paying for an employee to take college courses. (D) Permitting two workers to share one job.

Which of the following would be considered a good starting point for measuring a nation's quality of life? (A) Real GDP per capita (B) Business cycle (C) Aggregate supply (D) Intermediate goods

Which of the following would be included in the calculation of GDP? (A) Time and effort spent shopping for your household. (B) Paying your nephew to mow the lawn. (C) Purchasing a new vehicle. (D) Selling your car to a friend.

Which of the following would create the most money? (A) The initial deposit is $3,000 and the required reserve ratio is 10 percent. (B) The initial deposit is $7,500 and the required reserve ratio is 25 percent. (C) The initial deposit is $4,500 and the required reserve ratio is 15 percent. (D) The initial deposit is $6,500 and the required reserve ratio is 20 percent.

Which of the following would the calculation of GDP include? (A) The price of the steel used to build a new hotel. (B) The income of a high school English teacher. (C) The sale of a 25-year-old house. (D) The income of a person who pays rent by babysitting for the homeowner's children.

Which of these is an example of depreciation? (A) A clothing store owner reduces the price of a belt by $10 to encourage sales. (B) A worker's truck breaks down more often after 80,000 miles of driving. (C) An employer fires a worker for repeatedly arriving late to work. (D) A share of stock declines in value over several months.

Which of these is an example of depreciation? (A) A worker's truck breaks down more often after 80,000 miles of driving. (B) An employer fires a worker for repeatedly arriving late to work. (C) A share of stock declines in value over several months. (D) A clothing store owner reduces the price of a belt by $10 to encourage sales.

Which of these situations is most likely to cause the Fed to introduce a tight money supply? (A) A recession has reduced aggregate demand and increased unemployment. (B) The economy is expanding quickly and inflation is a concern. (C) The economy is prosperous with relatively low inflation and low unemployment. (D) The federal government passes a new budget with a large deficit.

Which one of the following situations demonstrates the "equity" characteristic of a good tax? (A) Policy-makers introduce new forms to improve readability of paperwork for consumers. (B) Policy-makers reform the tax system to allow more taxpayers to prepare their own forms. (C) Policy-makers revamp tax collection procedures to save costs. (D) Policy-makers lower the tax rate for individuals earning income below the poverty threshold.

Which theory says that inflation occurs when the demand for goods exceeds the existing supply? (A) Quantity theory (B) Demand-pull theory (C) Cost-push theory (D) Supply-and-demand theory

Who appoints the members of the Board of Governors of the Federal Reserve? (A) The U.S. senate (B) The state legislatures of the states represented (C) The state governors (D) The U.S. President

Who are the "working poor"? (A) Those who suffer from chronic health problems. (B) Those who cannot work because they are disabled. (C) Those who have jobs but do not earn enough. (D) Those who cannot work because they have small children.

Who is most likely to be worried about high inflation? (A) A retired couple on a fixed income (B) A shopkeeper (C) A doctor with a suburban practice (D) A factory worker

Who issues U.S. paper currency? (A) The Treasury Department (B) The district Federal Reserve Banks (C) The U.S. bank examiners (D) The U.S. Mint

Who issues U.S. paper currency? (A) The U.S. bank examiners (B) The district Federal Reserve Banks (C) The U.S. Mint (D) The Treasury Department

Who owns the Federal Reserve System? (A) All commercial banks in the country (B) The federal government (C) Member banks (D) All banks in the country

Why did American colonists have trouble redeeming Continentals, representative money backed by the Second Continental Congress? (A) There was a shortage of gold and silver. (B) The government had no power to collect taxes. (C) Colonists preferred to use bills issued by the Massachusetts Bay Colony. (D) They were thought to be a symbol of central government control.

To provide goods and services and to fund the functions of government.

Why do governments impose taxes?

Why does a bank sometimes hold excess reserves? (A) To keep from lending too much money. (B) To make check clearing easier. (C) To protect against high prices. (D) To be sure it can meet its customers' demands.

Why does a high interest rate discourage people from holding their money in cash? (A) They are fearful of inflation. (B) They cannot be sure that cash will hold its value. (C) They are more concerned that it will be stolen. (D) They can earn interest on the cash if it is invested.

Why does the Fed rarely increase reserve requirements? (A) It is not an effective way to manipulate the money supply. (B) It is too complicated as a way to make minor adjustments. (C) It can be disruptive to the whole banking system. (D) It might not have a significant effect on the money available.

Why does the Federal Reserve System have a high degree of political independence? (A) The system has only advisory power. (B) The system is owned by the banks. (C) It is divided into geographical districts. (D) The governors are appointed for life terms.

Why does the Federal Reserve alter monetary policy? (A) To provide services to member banks. (B) To enable banks to clear checks. (C) To lessen the effect of natural business cycles. (D) To regulate the banking industry.

Why does the federal government collect income taxes in installments rather than waiting until the end of the year? (A) It is optional; people may pay all their taxes at once at the end of the year. (B) It is more convenient for the government and taxpayers to collect in installments. (C) It is easier for taxpayers to pay that way, but inconvenient for the government. (D) It is easier for the government to collect that way, but harder for taxpayers.

Why is Social Security and Medicare spending expected to increase further in the near future? (A) The generation over age 85 will qualify for expensive medical programs. (B) The people who qualify will all receive the maximum benefit. (C) The baby boomer generation will qualify for both programs. (D) The amounts people receive are expected to take a big jump.

Why is a certificate of deposit considered such a safe investment? (A) It is guaranteed by the federal government. (B) It pays a relatively low rate of interest. (C) It is issued by a savings bank. (D) It cannot be redeemed whenever the investor wants the money.

Even when an economy is working properly, it will experience frictional, seasonal, and structural unemployment.

Why isn't full employment the same as zero unemployment?

Why were many U.S. citizens against the Second Bank of the United States, which was an attempt by Congress to restore order in the monetary system in 1816? (A) Citizens feared that a central bank placed too much power in the hands of the federal government. (B) Citizens believed that the Federal Reserve Districts were not assigned appropriately. (C) Citizens feared that there could be a reoccurrence of "The Panic of 1807." (D) Citizens believed that the states should not be given power over the banking system.

Why would a person invest in junk bonds? (A) The person does not know anything about investments. (B) Junk bonds have high bond ratings. (C) Most junk bonds have low interest rates. (D) Junk bonds can pay very high interest rates.

Bank run.

Widespread panic in which great numbers of people try to redeem their paper money:

You are a financial advisor whose client is concerned about losing his investment if a company goes out of business. Which of the following do you advise the client to buy? (A) Income stock (B) Common stock (C) Preferred stock (D) Growth stock

You are a financial advisor whose client wants stock that pays regular dividends. Which of the following do you advise the client to buy? (A) Growth stock (B) Income stock (C) Preferred stock (D) Common stock

You decide to open a savings account, and you notice a sign in your bank that indicates deposits are FDIC insured. What protection does that give you? (A) If the bank fails, your deposits are protected up to $250,000. (B) If you accidentally injure someone, they cannot claim any of the first $250,000 of your bank deposits as compensation. (C) Your deposits are guaranteed a certain rate of interest if you have at least $250,000 in the bank. (D) If you accidentally withdraw more money that you have in your account, you will not have to pay a penalty.

You need a new computer, and you will need a loan in order to buy one. Which lender is most likely to charge you the highest interest rate on your loan? (A) Savings bank (B) Savings and loan association (C) Credit union (D) Finance company

Your aunt is a state employee. Her salary comes out of the state's _____. (A) Capital budget (B) Federal budget (C) Operating budget (D) General accounting budget

Your department store receipt says that you paid a 5% sales tax on sports equipment. This sales tax is an example of a _____. (A) Regressive tax (A) Proportional tax (C) Income tax (D) Progressive tax

Your friend Jorge has just inherited $1,000 and would like to invest the money in the stock market. What do you suggest that he do? (A) Contact a brokerage firm, who will put him in touch with a stockbroker. (B) Contact NASDAQ, which will assign a stockbroker to him. (C) Call the New York Stock Exchange, which can direct him to the OTC market. (D) Reserve a seat at the New York Stock Exchange.

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