Economics 1101 Final Exam

Which of the following will provide an investor with a legally valid claim of partial ownership of a firm?

Ownership of stock

Transfer payments are:

Payments that do not require a good or service in exchange.

Individuals fall under the umbrella of the term "hidden unemployment" are except:

Permanent employed

GPD is the sum of:

Person consumption, private investment, government purchases, and net exports.

75. In the banking system today, the reserves banks hold against their deposit liabilities must take one of two forms. They are A) vault cash and deposits at the Fed. B) vault cash and checkable deposits. C) currency in circulation and checkable deposits. D) gold and vault cash.

A

76. Which of the following is an example of a bank's reserves? A) currency held in the vaults of the bank B) demand deposits with other member banks C) U.S. Treasury bills D) U.S. Treasury bonds

A

79. The principle of fractional reserve banking makes it possible for a A) bank to make loans. B) bank to print currency. C) bank to avoid reserve requirements. D) bank to sell securities.

A

131. What happens to the value of the deposit multiplier when banks hold excess reserves? A) It is larger than the value implied by the formula. B) It is smaller than the value implied by the formula. C) It is only affected by the amount of loans that banks are willing to make, not the amount of excess reserves held. D) There is insufficient information to answer the question.

B

137. A primary function of a central bank is to A) regulate dividend payments by corporations. B) act as a regulator of banks. C) control the bond market. D) publish statistics on banking and related financial matters.`

B

139. The Federal Reserve System was established in 1913 in response to the A) First World War. B) bank panic of 1907. C) depression of 1883. D) prosperity of the 1920s.

B

142. The Federal Reserve System was created by the A) National Banking Act of 1864. B) Federal Reserve Act of 1913. C) Glass-Steagall Act of 1933. D) Banking Act of 1935.

B

89. Refer to Table 9-3. If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank? A) $25 million B) $40 million C) $60 million D) $75 million

B

If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price:

Is above the market equilibrium price.

91. Refer to Table 9-3. If the required reserve ratio is 10%, what is the maximum amount of new loans that Alpha-Beta can create? A) $25 million B) $40 million C) $60 million D) $75 million

B

How would a sustained increase in the market price of its shares directly benefit a publically traded company?

It could sell any shares it owns in itself at the higher valuation.

Which of the following is not a function of the Federal Reserve System?

It determines tax levels in conjunction with the US Treasury.

Although water is very abundant in most places, it is scarce because:

It has two or more alternative uses.

Which of the following statements is true?

Measuring the costs and benefits of pollution is generally more difficult than measuring the prices of marketable goods.

92. A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of required reserves? A) $0 B) $10,000 C) $20,000 D) $30,000

B

94. A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create? A) $0 B) $10,000 C) $20,000 D) $30,000

B

An industry characterized by many firms, producing similar but differentiated products, in a market with easy entry and exit is called:

Monopolistic competition.

The Case in Point on Craft Brewers suggested that this industry is an example of:

Monopolistic competition.

The cost of producing goods and services includes:

The cost of factors of production, depreciation, and other production-related taxes.

The efficient level of pollution is:

The quantity at which its total benefits exceeds its total costs by the greatest possible amount.

The lowest wage that a worker would accept, if offered a job, is called:

The reservation wage

What do stocks, bonds, securitized mortgage assets and other financial investments all have in common?

They can only be purchased in financial markets.

128. Assume that banks do not hold excess reserves, all deposits remain in the banking system and that the required reserve ratio is 20%. If one bank obtains excess reserves of $10,000, then the maximum increase in money supply is A) $10,000. B) $20,000. C) $40,000. D) $50,000.

D

A criticism of oligopolistic firms is that they:

Have high concentration ratios

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmers market. One day she spends 5 hrs planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can see them for $150 at the farmers market. Accounting profits are:

$100, and her economic profits are $25.

35. The ease with which an asset can be converted to money is its A) liquidity. B) adaptability. C) accessibility. D) rigidity.

A

38. The Fed's narrowest measure of money supply is A) M1. B) M2. C) credit card balances. D) balances held in money market funds.

A

5. Money is any item that A) serves as a medium of exchange for goods and services. B) can be converted into silver with relatively little loss in value. C) can be converted into gold with relatively little loss in value. D) facilitates a connecting link between credit instruments and debt instruments.

A

52. Refer to Table 9-2. In Year 1, if savings deposits had been $200 billion instead of $150 billion, M1 would have been A) unaffected. B) larger by $50 billion. C) smaller by $50 billion. D) $100 billion.

A

54. The largest component of M1 is A) checkable deposits. B) credit card balances. C) currency. D) savings deposits.

A

When on firm responds to a rival's cheating by cheating and to a rival's cooperation by cooperating, that firm is practicing a:

Tit-for-tat strategy.

If a copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water for which they are not compensated, then:

Too many of society's resources are being used to produce copper.

A feature on monopolistic competition that makes it different from monopoly is the:

number of firms in the industry.

The principle measurement of the economic success of a nation is:

Real GDP per capita

Which of the following is the best measure of a nations standard of living?

Real GDP per capita

Economic data that are adjusted for price-level changes are said to be expressed in terms of:

Real dollars.

The concept of comparative advantage is based upon:

Relative opportunity costs.

Monopolistic competition is an industry characterized by:

Relatively easy entry and exit.

The US experienced ___________ workers tend to have higher unemployment.

Younger age

If Darren sells 300 glasses of ices tea at .50 each, his total revenues are:

$150

Cody builds mailboxes. If he charges $20 for each mailbox, his total revenue will be:

$500 if he sells 25 mailboxes

Joy sells 200 glasses of iced tea at .50 each. Her total costs are $25. Her profits are:

$75

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kates marginal product?

15 pieces of pottery.

130. What happens when you withdraw cash from a bank? A) The bank's reserves are reduced. B) The bank's reserves are increased. C) The bank's reserves are not affected. D) The bank's total reserves remain unchanged but the composition of required reserves and excess reserves change.

A

1. In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services. What function do these packages of mackerel serve? A) They functioned as money. B) They served as a corruption deterrent. C) They enabled prison officers to monitor illegal money flows. D) They forced prisoners to engage in barter.

A

104. Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's required reserves? A) $30 million B) $70 million C) $100 million D) $300 million

A

133. The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when A) the bank's net worth falls below a certain level. B) the bank's excess reserves fall below a certain level. C) the bank's total deposits fall below a certain level. D) the bank has inadequate insurance.

A

135. Which of the following is a consequence of deposit insurance? A) It may induce the officers of a bank to take more risks. B) It encourages banks to make loans only to the most credit-worthy customers. C) It minimizes the risk of defaulting on loans made to the bank's customers. D) It encourages depositors to closely scrutinize a bank's lending activities.

A

140. The Federal Reserve System I. is the central bank for the United States. II. is a United States government owned bank. III. is a branch of the Treasury of the United States. A) I only B) I and II only C) I and III only D) I, II, and III

A

143. The Federal Reserve does all of the following except A) make loans to individuals B) influence the supply of money C) influence the value of money D) regulate the banking system

A

144. The Federal Reserve System is made up of twelve regional banks owned by A) commercial banks in the respective districts that have chosen to be members of the Fed. B) Wall Street investors. C) the Board of Governors appointed by the President. D) the U.S. Treasury.

A

159. When a member bank borrows reserves from the Fed, A) it pays an interest rate called the discount rate. B) it pays no interest rate but is required to repay the loan within the stipulated period. C) it pays an interest rate equivalent to the coupon rate on long-term government bonds. D) it pays an interest rate equal to the federal funds in the reserves market.

A

160. The _____ rate is the interest rates charged when a bank lends reserves to another bank. A) federal funds B) discount C) prime D) reserve rate

A

161. If the Fed increases the discount rate, it is pursuing A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy. B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending. C) an expansionary policy because it raises the cost of holding excess reserves in the banking system. D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans.

A

8. Which of the following illustrates the medium-of-exchange function of money? A) writing a check to buy a new Volkswagen B) noting that the price of a $20,000 Volkswagen is 16,000 euros C) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen D) driving your $20,000 Volkswagen to a friend's house

A

83. Any reserves that banks hold in excess of required reserves are called A) excess reserves. B) margin reserves. C) federal reserves. D) surplus reserves.

A

85. A bank that has no excess reserves A) cannot create loans. B) is not in equilibrium. C) is on the brink of bankruptcy. D) has no required reserves.

A

86. Refer to Table 9-3. What is the value of the bank's net worth? A) $200 million B) $2,000 million C) $2,800 million D) $3,000 million

A

Which of the following is true?

A bank is insolvent when its net worth becomes negative.

Which would NOT cause the supply curve to shift?

A change in the price of the good.

Demand and supply curves are drawn assuming ceteris paribus. This means that:

All other things besides price and quantity are assumed unchanged.

A feature that distinguishes economists' approach to making choices are:

Assigning opportunity costs a major role in their analyses of choices, assuming individuals make choices to maximize objectives, emphasizing that choices are made at the margin.

102. Which of the following is true regarding the interest rate earned on the reserves that bank's keep at the Fed? A) These reserves earn no interest. B) It is relatively low. C) It varies depending on the federal funds rate. D) It is equal to the discount rate.

B

103. When a bank receives new deposits, it can make new loans up to the amount of A) the deposits received. B) the excess reserves generated by the deposits C) the reserves generated by the deposits. D) the required reserves generated by the deposits.

B

105. Refer to Table 9-5. The required reserve ratio is 10%. What is the amount of Bolton Bank's excess reserves? A) $30 million B) $70 million C) $100 million D) zero

B

110. Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's required reserves? A) $25,000 B) $55,000 C) $80,000 D) $135,000

B

113. Refer to Table 9-6. What is the value of $A in stage 1? A) $100 B) $200 C) $600 D) $800

B

116. Refer to Table 9-6. What is the value of $D in Stage 4 (round up to the nearest whole number)? A) $82 B) $102 C) $128 D) $160

B

120. Refer to Table 9-6. What is the value of $H (the total loans)? A) $1,000 B) $4,000 C) $5,000 D) $6,000

B

150. The three main monetary policy instruments are A) the money supply, the market interest rate, and deposit insurance. B) open market operations, reserve requirement ratio, and the discount rate. C) open market operations, deposit insurance, and the money supply. D) open market operations, reserve requirement ratio, and the market interest rate.

B

151. For a given level of reserves, an increase in the reserve requirement ratio will A) decrease legal reserves and decrease the money supply. B) increase legal reserves and decrease excess reserves. C) increase legal reserves and increase excess reserves. D) increase excess reserves and increase the money supply.

B

154. Increasing the reserve requirement ratio is A) a contractionary policy because it lowers the amount of total reserves in the banking system. B) a contractionary policy because it lowers the amount of excess reserves in the banking system. C) an expansionary policy because it raises the amount of excess reserves in the banking system. D) an expansionary policy because it raises the amount of required reserves in the banking system.

B

157. Suppose a bank has $50,000 in deposits and $6,000 in reserves. The required reserve ratio is 10%. Which of the following occurs if the required reserve ratio is increased to 12%? A) The bank's total reserves will fall. B) The bank will now be fully loaned up. C) The bank will have insufficient required reserves. D) The bank's profit will fall.

B

158. The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this? A) It is difficult and costly for the Fed to monitor compliance. B) Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets. C) The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard. D) Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation.

B

17. The function of money illustrated by the prevailing prices of goods and services is the A) medium of exchange function. B) unit of account function. C) standard of deferred payments function. D) store of value function.

B

170. The Fed's most important and most frequently used tool of monetary policy is A) moral suasion. B) open-market operations. C) changes in the discount rate. D) changes in required reserve ratios.

B

173. The Fed can increase the federal funds rate by A) selling government securities which increases bank reserves. B) selling government securities which decreases bank reserves. C) buying government securities which increases bank reserves. D) buying government securities which decreases bank reserves.

B

174. If the Fed raises its target for the federal fund rate, this indicates A) the Fed is pursuing an expansionary monetary policy. B) the Fed is pursuing a contractionary monetary policy. C) the Fed is attempting to lower unemployment. D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

B

177. Suppose the Fed conducts an open market sale of $50 million in government securities. If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system. A) maximum increase in money supply = $250 million B) maximum decrease in money supply = $250 million C) maximum increase in money supply = $50 million D) maximum decrease in money supply = $50 million

B

188. Refer to Scenario 1. As a result of Sheila's deposit, Perez Bank can increase its loans by A) $10,000. B) $90,000. C) $100,000. D) $1,000,000.

B

191. Refer to Scenario 2. To collect the $50,000 payment made by Henry, the Fed A) adds $50,000 to Jekyll Bank's reserves by $50,000. B) subtracts $50,000 from Jekyll Bank's reserves. C) accepts the cash from Jekyll Bank which acts on behalf of Henry Hyde. D) collects $5,000 (the required reserve portion) from Jekyll Bank.

B

37. Which of the following is the most liquid asset? A) season tickets to the Yankees' games B) the cash that your Aunt Ursula stuffs in her mattress C) a $5,000 6-month certificate of deposit (time deposit) D) one hundred shares of IBM stock

B

43. Which of the following would lead to a change in the money measure, M1? A) a customer purchases music downloads with a debit card B) a customer withdraws funds from her checking account to purchase a 6-month time deposit C) depositing a paycheck drawn against Bank of America into your checking account in Wells Fargo Bank D) interest payments by the Treasury on its debt

B

44. Refer to Table 9-1. The money supply measured by M1 is A) $325 billion. B) $450 billion. C) $1,425 billion. D) $1,875 billion. Table 9-1 Components of the Money Supply $ billion Currency 100 Checkable deposits 300 Traveler's checks 50 Small-denomination time deposits 700 Savings deposits 75 Money market mutual funds (individuals) 500 Other liquid assets 150 Large-denomination time deposits 200

B

48. Refer to Table 9-2. In Year 1, the supply of money measured by M1 was A) $150 billion. B) $300 billion. C) $450 billion. D) $950 billion. Table 9-2 Components of the Money Supply Year 1 Year 2 $ billion $ billion Currency 50] 100 Savings deposits 150] 200 Checkable deposits and traveler's checks 250 450 Small-denomination time deposits 100 ]]150 Treasury Bonds 400] 500

B

49. Refer to Table 9-2. In Year 2, the supply of money measured by M1 was A) $300 billion. B) $550 billion. C) $750 billion. D) $900 billion. Components of the Money Supply Year 1 Year 2 $ billion $ billion Currency 50] 100 Savings deposits 150] 200 Checkable deposits and traveler's checks 250 450 Small-denomination time deposits 100 ]]150 Treasury Bonds 400] 500

B

50. Refer to Table 9-2. In Year 1, if the supply of money measured by M2 was $650 billion, then the components of M2 not shown in the table must have totaled A) less than $100 billion. B) $100 billion. C) $200 billion. D) $250 billion. Components of the Money Supply Year 1 Year 2 $ billion $ billion Currency 50] 100 Savings deposits 150] 200 Checkable deposits and traveler's checks 250 450 Small-denomination time deposits 100 ]]150 Treasury Bonds 400] 500

B

53. Refer to Table 9-2. In Year 2, if savings deposits had been $250 billion instead of $200 billion, M2 would have been A) $575 billion. B) larger by $50 billion. C) smaller by $50 billion. D) unaffected.

B

60. Debit cards are A) counted as money because they perform the medium of exchange function of money. B) not considered money because they merely show that their owners have a relationship to money. C) are counted as a part of M2 but not M1. D) counted as money because they provide access to their owners' checkable deposits.

B

67. In 2008, commercial banks' share of the U.S. credit market changed as a result of A) commercial banks that experienced significant difficulties resulting from real estate investments applied for status as investment banks. B) investment banks that experienced significant difficulties resulting from real estate investments applied for status as commercial banks. C) increasing returns on real estate investments led commercial banks to expand. D) increasing returns on real estate investments led investment banks to expand.

B

71. Which of the following is an example of a bank's assets? A) reserves borrowed from the Fed B) loans made to customers C) checkable deposits D) savings deposits

B

74. Which of the following equations is correct? A) assets = liabilities − net worth B) assets = liabilities + net worth C) liabilities = assets + net worth D) net worth = liabilities + assets

B

77. Which of the following is an example of a bank's reserves? A) demand deposits with other banks B) deposits with the Federal Reserve C) Treasury bonds and bills D) state bonds of the state in which the bank is located but not state bonds of other states.

B

81. If banks were required to keep 100% of deposits in reserves, they could A) make more loans. B) make no loans. C) create more deposits. D) only use required reserves for loans.

B

167. The federal funds rate is determined A) by the Board of Governors. B) by the supply and demand for bank reserves. C) directly by households' and firms' demands for funds. D) by the federal government.

B \

The principle of fractional reserve banking makes it possible for a:

Bank to make loans.

Bank regulation is intended to maintain the solvency of banks by avoiding excessive risk. Banks can do except:

Banks are permitted to invest in the stock market or other assets that are perceived as too risky.

Which of the following is not an ironclad rule in the financial markets.

Banks fund small business loans and large firms issue bonds to raise money.

During the recent US recession, some large automakers required bailouts from the federal government to avoid being forced into bankruptcy by their:

Bondholders

A model or theory in economics is:

Built using relevant observations, assumptions, and abstractions.

101. When banks hold more reserves than are required, such reserves are called A) total reserves. B) required reserves. C) excess reserves. D) loan reserves.

C

107. Refer to Table 9-5. The required reserve ratio is 10%. What is the maximum amount of new loans that Bolton bank can create and by how much can Bolton initially increase the money supply, assuming that newly created deposits are transferred to another bank? A) $30 million; $30 million B) $70 million; $30 million C) $70 million; $70 million D) $70 million; $700 million

C

112. Refer to Table 9-6. What is the required reserve ratio? A) 5% B) 10% C) 20% D) 25%

C

136. Which of the following are primary functions of a central bank? I. act as a regulator of banks II. issue government bonds III. set monetary policy IV. regulate dividend payments by corporations A) I, II, III, and IV B) I, II, and III C) I and III D) I and II

C

138. A primary function of a central bank is to A) regulate dividend payments by corporations. B) control the bond market. C) set monetary policy. D) publish statistics on banking and related financial matters.

C

141. Which of the following is not a function of the Federal Reserve System? A) It acts as a central bank. B) It acts as a banker to banks. C) It determines tax levels in conjunction with the U.S. Treasury. D) It sets monetary policy.

C

148. Membership in the Federal Reserve System A) is held by state-owned banks only. B) is held collectively by all banks in the banking system. C) is held by only a minority of banks in the banking system. D) is held by banks that also have branches outside the United States.

C

149. Which organization is responsible for managing the nation's money supply? A) The Federal Reserve Bank of New York B) The United States Treasury C) The Federal Open Market Committee D) The American Association of Bankers

C

153. For a given level of reserves, a decrease in the reserve requirement ratio will A) decrease legal reserves and decrease the money supply. B) increase legal reserves and decrease excess reserves. C) decrease legal reserves and increase excess reserves. D) decrease excess reserves and decrease the money supply.

C

156. Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%? A) The bank's required reserves will decrease to $500. B) The bank's excess reserves will increase to $1,000. C) The bank's required reserves will increase to $1,000. D) The bank's ability to create loans increases by 5%.

C

163. Which of the following is an interest rate that is set directly by the Fed? A) the prime lending rate B) the required reserve rate C) the discount rate D) the federal funds rate

C

168. Open market transactions involve which of the following activities? I. issuing new Federal Reserve notes II. buying or selling newly issued government bonds to raise funds for the government III. buying or selling previously issued government bonds to change the volume of bank reserves A) I only B) II only C) III only D) II and III only . E) I, II ,and III

C

172. The Federal Reserve influences the level of interest rates in the short run by changing the A) demand for money through changes in reserve requirements. B) demand for money through open market operations. C) supply of money through changes in open market operations. D) supply of money through changes in stock market operations.

C

176. The Fed conducts an open market purchase of $10 million in government securities. If the reserve ratio is 20%, what is the maximum change in the money supply? Assume banks hold no excess reserves and there is no currency withdrawal from the banking system. A) maximum increase in money supply = $10 million B) maximum decrease in money supply = $10 million C) maximum increase in money supply = $50 million D) maximum decrease in money supply = $50 million

C

178. If the reserve ratio is 10%, and banks do not hold excess reserves, when the Fed purchases $10 million of government bonds, bank reserves A) increase by $10 million and the money supply could eventually increase by $10 million. B) decrease by $10 million and the money supply could eventually decrease by $100 million. C) increase by $10 million and the money supply could eventually increase by $100 million. D) decrease by $10 million and the money supply could eventually decrease by $10 million

C

179. The Federal Reserve buys $10,000 of government securities from commercial banks. If the required reserve ratio is 25%, what is the maximum amount of change in the nation's money supply? Assume that no banks keep excess reserves and no individuals or firms hold cash. A) expand by $10,000 B) expand by $30,000 C) expand by $40,000 D) expand by $7,500

C

18. The price of a 32GC iPhone is $299. What is the function of money in this context? A) a medium of exchange B) a means of payment C) a unit of account D) a measure of quality

C

182. When the Fed sells government bonds it ____ reserves and ______ the money supply. A) increases; increases B) decreases; increases C) decreases; decreases D) increases; decreases

C

187. Refer to Scenario 1. Immediately following Sheila's $100,000 deposit into her checking account, Perez Bank A) has no excess reserves. B) has $10,000 in excess reserves. C) has $90,000 in excess reserves. D) has $100,000 in excess reserves.

C

192. Refer to Scenario 2. As a result of the open market sale, Jekyll Bank A) can create $50,000 of new loans. B) will have $45,000 of excess reserves. C) will have to borrow reserves to replenish its reserve deficiency. D) will have an increase in checkable deposits.

C

28. Which of the following is a store of value and a common medium of exchange? A) corporate bonds B) stocks C) checking account balances D) debit cards

C

3. Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. Why were they willing to accept mackerel in exchange for goods and services? A) because mackerel is a good source of protein B) because prison authorities deemed mackerel legal tender C) because the inmates know that they could use the packages of mackerel to buy other goods and services D) because the inmates do not wish to consume mackerel

C

34. Gresham's Law A) deals with the theory of regulatory forces in the economy. B) is the tendency for good money to drive bad money out of circulation. C) is the tendency for bad money to drive good money out of circulation. D) was passed in 1913, as part of the Federal Reserve Act.

C

36. Rank the following items in terms of most liquid to least liquid. A) checkable deposits, cash, an office building your father owns B) cash, credit card, money market mutual funds, checkable deposits, C) cash, checkable deposits, savings deposits, an office building your father owns D) cash, Microsoft stock certificates you own, checkable deposits

C

40. Which of the following is part of M1? I. currency in a bank's vault II. cash in your wallet III. checkable deposits IV. savings deposits A) I, II, III, and IV B) I, II, and III C) II and III D) II, III, and IV

C

45. Refer to Table 9-1. The money supply measured by M2 is A) $450 billion. B) $1,425 billion. C) $1,725 billion. D) $2,075 billion. Components of the Money Supply $ billion Currency 100 Checkable deposits 300 Traveler's checks 50 Small-denomination time deposits 700 Savings deposits 75 Money market mutual funds (individuals) 500 Other liquid assets 150 Large-denomination time deposits 200

C

55. Which of the following is included in M2 but not in M1? A) currency B) demand deposits C) small-denomination time deposits D) debit cards

C

56. Freema withdraws $1,000 from her checking account to purchase a $1,000 time-deposit. As a result of her transaction, A) M1 and M2 decrease. B) M1 decreases and M2 increases. C) M1 decreases and M2 is unaffected. D) M1 and M2 are unaffected.

C

58. If you withdraw currency from your savings account, you are A) increasing M1, decreasing M2. B) increasing both M1 and M2. C) increasing M1 but not affecting M2. D) decreasing both M1 and M2.

C

6. Which of the following describes the medium-of-exchange function of money? A) noting that Audible.com sells downloadable audio books for $10 per book B) making a monthly payment toward your car loan C) paying $30 for a haircut D) putting away $50 each month into your savings account

C

61. How does the Fed decide which monetary measure should be the focus of its monetary policy choices? A) The Fed would like to track a monetary measure that is most closely related to the market interest rate. B) The Fed would like to track a monetary measure that is most closely related to the quantity of money demanded by economic agents. C) The Fed would like to track a monetary measure that is most closely related to the level of real GDP and the price level. D) The Fed would like to track a monetary measure that is most closely related to government spending.

C

62. The non-bank public chooses among various financial assets in deciding in what form it wants to hold liquidity. It thereby increases or decreases I. the M1 measure of money supply. II. the reserves of commercial banks. III. the reserves that commercial banks are required to hold. A) none of the above since only the Fed can alter the money supply B) I, II, and III C) I and II only D) I only

C

68. Why might monetary policy authorities be concerned when non-bank financial intermediaries account for a growing share of an economy's financial assets? A) Monetary policy authorities fear that this situation might erode the value of the U.S. dollar in foreign exchange markets. B) Monetary policy authorities are concerned that this situation might promote income inequality since high income individuals are more likely to use the services of non-bank financial intermediaries, compared to low-income individuals. C) Monetary policy authorities fear that this situation might lessen their ability to control money supply because non-bank financial intermediaries are not as heavily regulated as banks. D) It will be more difficult for monetary policy authorities to monitor those assets that are most closely related to the level of economic activity.

C

69. Which of the following is an example of a bank's liabilities? A) its reserves B) its loans C) checkable deposits D) its holdings of U.S. government bonds

C

72. Which of the following is an example of a bank's assets? A) reserves borrowed from the Fed B) checkable deposits C) vault cash D) savings deposits

C

78. A system in which banks hold reserves whose value is less than the sum of claims on those reserves is called A) speculative banking. B) leveraged banking. C) fractional reserve banking. D) international banking.

C

80. The law requires banks to maintain A) fractional reserves in the form of deposit liabilities against their liquid assets. B) fractional reserves in the form of federal securities against their outstanding loans. C) fractional reserves in the form of cash in their vaults or deposits with the central bank against their deposit liabilities. D) legal reserves in the form of gold against their outstanding loans.

C

87. Refer to Table 9-3. What is the value of the bank's total reserves? A) $25 million B) $75 million C) $100 million D) $200 million

C

90. Refer to Table 9-3. If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is A) zero since Alpha-Beta does not hold any excess reserves. B) $0.9 million. C) $2.4 million. D) $4 million.

C

93. A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves? A) $0 B) $10,000 C) $20,000 D) $30,000

C

95. Refer to Table 9-4. If Acme Bank has no excess reserves, the required reserve ratio is A) 26.67% B) 16% C) 10% D) There is insufficient information to answer question.

C

97. Linda sells her Economics textbook to Ejere for $40. Ejere pays Linda with a check, which she deposits in her checking account in West Bank. Which statement below describes the check-clearing process? A) Linda's bank gains $40 in checkable deposits and loses $40 in reserves. Ejere's bank gains $40 in reserves and loses $40 in deposits. B) Linda's bank loses $40 in checkable deposits and gains $40 in reserves. Ejere's bank gains $40 in checkable deposits and loses $10,000 in reserves. C) Ejere's bank loses $40 in both reserves and checkable deposits. Linda's bank gains $40 in both checkable deposits and reserves. D) Ejere's bank loses $40 in reserves and gains $10,000 in checkable deposits. Linda's bank loses $40 in both reserves and checkable deposits.

C

Price controls:

Can result in inequitable outcomes.

When society increases the level of capital per person, the result is called ___________.

Capital deepening.

An example of a demand shifter is:

Consumer preferences.

100. Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has A) increased the M1 measure of money supply by $1,000. B) reduced the bank's required reserves by $1,000. C) increased the M2 measure of money supply by $1,000. D) not changed the M1 or M2 measures of money supply.

D

108. Refer to Table 9-5. The required reserve ratio is 10%. By how much could the banking system ultimately increase the money supply if all excess reserves are loaned out, people never withdraw cash, and all loan proceeds are spent? A) $30 million B) $70 million C) $300 million D) $700 million

D

109. Refer to Table 9-5. The required reserve ratio is 10%. What is the value of the deposit multiplier? A) 1 B) 2.5 C) 7 D) 10

D

114. Refer to Table 9-6. What is the value of $B in stage 1? A) $100 B) $200 C) $600 D) $800

D

129. The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the A) deposit multiplier ´ the required reserve ratio. B) loan multiplier ´ the change in excess reserves. C) deposit multiplier ÷ the change in excess reserves. D) deposit multiplier ´ the change in excess reserves.

D

13. Money is essentially defined by A) the intrinsic value of what is being used as money. B) the judicial branch. C) the government. D) social usage.

D

134. Which of the following is true? A) A bank is solvent when its deposits become positive. B) A bank is insolvent when its reserves become negative. C) A bank is solvent when its excess reserves become negative. D) A bank is insolvent when its net worth becomes negative.

D

162. Lowering the discount rate is A) a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending. B) a contractionary policy because it reduces banks' profit margins by lowering the return on lending. C) an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending. D) an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy.

D

165. Which of the following is a market in which banks lend reserves to one another? A) required reserve market B) open market C) discount market D) federal funds market

D

169. When the Federal Reserve conducts open market transactions, it A) buys or sells corporate bonds in the bond market. B) issues government bonds to raise funds for the government. C) makes credit available to financial institutions in crises. D) buys or sells previously issued government bonds.

D

175. Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public, A) bank reserves increase by $40 million and money supply could increase by a maximum of $40 million. B) bank reserves increase by $40 million and money supply could increase by a maximum of $160 million. C) bank reserves decrease by $40 million and money supply could decrease by a maximum of $40 million. D) bank reserves decrease by $40 million and money supply could decrease by a maximum of $160 million.

D

181. When the Fed purchases government bonds it _____ reserves and ____ the money supply. A) decreases; increases B) increases; decreases C) decreases; decreases D) increases; increases

D

183. Suppose the Fed sells $1,000 of government securities to Commercial Banks. Which pair of the T-accounts below shows this transaction? D) Federal Reserve Commercial Banks Assets Liabilities Assets Liabilities Securities -1, 000 Commercial Banks' Reserves -1,000 Reserves -1,000 Securities +1,000

D

189. Refer to Scenario 1. Once the full impact of the Fed's open market purchase and Sheila's deposit worked its way through the banking system, what is the maximum change on the money supply as a result of these two events? A) Money supply falls by $100,000. B) Money supply falls by $1,000,000. C) Money supply rises by $10,000. D) Money supply rises by $1,000,000.

D

22. Inflation reduces the ability of money to function as a A) medium of exchange. B) medium of value. C) unit of account. D) store of value.

D

27. Which of the following items serve as a medium of exchange in the United States? I. $100 cash II. 50 euros III. the balance in your checking account IV. a $1,000 corporate stock that you own A) I only B) I and II C) I, II, and III D) I and III E) I, II, III, and IV

D

39. Which of the following is part of M1? I. currency in a bank's vault II. cash in your wallet III. checkable deposits IV. traveler's checks` A) I, II, III, and IV B) I, II, and III C) II and III D) II, III, and IV

D

4. Any item that serves as a medium of exchange is called A) gold. B) capital. C) silver. D) money.

D

41. M1 includes A) currency only. B) currency plus checkable deposits. C) currency in circulation plus checkable deposits. D) currency in circulation plus checkable deposits plus traveler's checks.

D

46. Refer to Table 9-1. The difference between M1 and M2 amounts to A) $325 billion. B) $350 billion. C) $450 billion. D) $1,275 billion. Components of the Money Supply $ billion Currency 100 Checkable deposits 300 Traveler's checks 50 Small-denomination time deposits 700 Savings deposits 75 Money market mutual funds (individuals) 500 Other liquid assets 150 Large-denomination time deposits 200

D

47. Which of the following statements is false about M1 and M2? A) M2 is a broader measure of the money supply than M1. B) M2 contains assets that are less liquid than those in M1. C) All the assets included in M1 are also included in M2. D) All the assets included in M2 are also included in M1.

D

57. When her $1,000 time deposit expires, Suneeta decides not to renew the time deposit and opts to cash out. As a result of her transaction A) M1 and M2 increase. B) M1 increases and M2 decreases. C) M1 is unaffected and M2 decreases. D) M1 increases and M2 is unaffected.

D

64. Which of the following is not an example of a financial intermediary? A) a pension fund B) an insurance company C) a commercial bank D) the New York Stock Exchange

D

73. A bank's reserves are A) the minimum value of assets it must have. B) the amount of gold it is required to have as reserves against loans. C) the value of federal securities it is required to have as reserves against loans. D) deposits that banks have accepted from customers but have not loaned out.

D

82. The quantity of reserves that banks must hold against deposits is called A) the reserve ratio. B) excess reserves. C) total reserves. D) required reserves.

D

9. Which of the following is an advantage of using money as a medium of exchange? A) It simplifies purchases because all prices are specified in money values. B) There is no interest charged on using money for purchases. C) It is easy to mass produce money. D) It avoids having to rely on barter, the exchange of one good or service for another.

D

96. Refer to Table 9-4. Assume Acme Bank initially has no excess reserves. If Guevara withdraws $6,000 from her checking account at Acme Bank, which of the following will occur? A) Acme's excess reserves are reduced by $6,000. B) Acme will have excess reserves of $2,000. C) Acme will have a required reserve deficiency of $3,000. D) Acme will have a required reserve deficiency of $5, 400.

D

99. Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is A) $100. B) $900. C) $1,000. D) $10,000.

D

The largest component of factor income in the US is:

Employee Compensation.

When banks hold more reserves than are legally required, such reserves are called:

Excess reserves

A cost that farm subsidies and price floors imposes on the rest of the economy is:

Higher consumer commodity prices.

Most firms in the US today are:

Sole proprietorships and partnerships.

The central bank should be on guard against deflation and, if necessary, use expansionary monetary policy to prevent any long-lasting or extreme deflation from occurring. Except in severe cases like the Great Depression, deflation does not guarantee economic disaster. T or F

True

Treasury bonds are issued by the federal government through the ______________:

US Dept of the Treasury.

Which is not component of Aggregate production function:

Unemployment

185. Refer to Table 9-7. The table shows entries on the balance sheets for the Federal Reserve and the banking system above. These balance sheet entries are consistent with A) an open market sale of $1,500 in bonds. B) an open market purchase of $1,500 in bonds. C) neither an open market sale nor an open market purchase. D) either an open market sale or an open market purchase.

a

42. The monetary aggregate, M1, increases when A) an individual cashes a check written by a business. B) an individual purchases clothes with a debit card. C) an individual switches funds from a savings account to a checking account. D) an individual buys groceries with a credit card.

c

Evidence suggest that all countries with very high

inflation rates also have very high money growth rates.

An overall pattern of convergence is clear. The _______ countries have GDP growth that is _______ than that of the middle-income countries.

low-income; faster

A total cost curve shows the relationship between the:

quantity of output produced and the total cost of production.

63. An institution that collects funds from lenders and distributes these funds to borrowers is called A) a financial intermediary. B) the Federal Reserve System. C) a mercantile exchange. D) a currency market.

A

7. You spend $20 to buy a used textbook at the college bookstore. What function does money perform here? A) medium of exchange B) store of value C) unit of account D) standard of deferred payment

A

Trevor's Tire Company produced and sold 500 tires. The average cost of production per tire was $50. Each tire sold for a price of $65. Excluding any other costs, Trevor's Tire Company's total profits are:

$7,500

106. Refer to Table 9-5. If the required reserve ratio is 10% and the market interest rate is 8%, what is Bolton Bank's opportunity cost of holding the excess reserves it is currently holding? A) $5.6 million B) $3.2 million C) $0.8 million D) 0; Bolton Bank has no excess reserves.

A

11. When a person makes price comparisons among products, money is being used as a(n) A) unit of account. B) standard of quality. C) medium of exchange. D) checkable deposit.

A

111. Suppose the required reserve ratio is 10%. If a bank has total reserves of $80,000 and checkable deposits of $550,000, what is the amount of the bank's excess reserves? A) $25,000 B) $55,000 C) $80,000 D) $250,000

A

119. Refer to Table 9-6. What is the value of $G (the total new required reserves)? A) $1,000 B) $4,000 C) $5,000 D) $6,000

A

16. The unit-of-account function of money means that money is used A) as a consistent means of measuring the value of things. B) as the common denominator of future payments. C) to pay for goods and services. D) to accumulate purchasing power.

A

166. The rate of interest charged for reserves in the federal funds market is the A) federal funds rate. B) open market rate. C) required reserve rate. D) discount rate.

A

171. If the Fed buys U.S. government bonds from the public, it A) increases the volume of reserves in the banking system and the money supply tends to grow. B) decreases the volume of reserves in the banking system and the money supply tends to grow. C) increases the volume of reserves in the banking system and the money supply tends to fall. D) decreases the volume of reserves in the banking system and the money supply tends to fall.

A

19. Which of the following best illustrates the unit of account function of money? A) You list prices for clothing sold on your Web site, www.nattydresser.com, in dollars. B) You pay for your cruise tickets with dollars. C) You keep $50 in your backpack for emergencies. D) You keep your tips earned from your tour guide job in a separate jar at home.

A

29. Money that some authority has declared legal tender is called A) fiat money. B) currency. C) convertible paper money. D) commodity money.Q

A

30. Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called _______ money. A) fiat B) intrinsic C) commodity D) debt

A

31. Currency in the United States today is A) fiat money. B) intrinsic money. C) backed by gold. D) quasi- intrinsic.

A

51. Refer to Table 9-2. In Year 2, if the supply of money measured by M2 was $1,000 billion, then the components of M2 not shown in the table must have totaled A) less than $250 billion. B) $250 billion. C) $300 billion. D) $450 billion.

A

59. Credit cards are A) not money. B) not money, because they can't be used to purchase goods and services. C) considered to be money. D) counted as a part of M2 but not M1.

A

98. Nita deposits a check for $750 drawn against Home Federal Bank into her account at Village Bank. Which pair of the T-accounts below shows this transaction on the respective bank's balance sheets? A) Village Bank Home Federal Bank Assets Liabilities Assets Liabilities Reserves +750 Checkable deposits +750 Reserves -750 Checkable deposits -750

A

The value, at current market prices, of the final goods and services produced during a particular period it:

Gross domestic product.

The equilibrium price in a market is established subject to the all other things unchanged condition and, therefore, very well may change due to:

A change in the price of resource inputs used to produce the good.

Scarcity exists when:

A choice must be made among two or more alternatives.

If the Fed increases the discount rate, it is pursuing:

A contractionary policy b/c is will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.

Increasing the reserve requirement ratio is:

A contractionary policy because it lowers the amount of excess reserves in the banking system.

Which of the following statement is correct:

A nation acquires more capital by saving some of its income and uses it to invest in plants and equipments.

Which of the following is counted as consumption expenditure?

A person buying a new car.

If the government sets out to help low-income people by establishing a maximum amount for rent:

A price ceiling has been set and a shortage of rental units may occur.

A maximum legal price is called:

A price ceiling.

Since stock prices will shift in response to unpredictable future news, these prices will tend to follow what mathematicians call ______________.

A random walk with a trend.

Which of the following will result in an increased price of milk:

A shift to the right of the demand curve for milk.

According to the textbook, economics is:

A social science.

The functions of money are:

A store of value, a unit of account, and a medium of exchange.

An activity performed by commercial banks that is not performed by insurance companies is:

Accepting deposits and use this to make loans.

A primary function of a central bank is to:

Act as a regulator of banks.

A source of economic growth is:

Advances in technology.

During the Great Depression:

Agriculture was hit particularly hard.

The problem of scarcity is confronted by:

All societies.

Demand deposits are:

All. Called "Checking Account", Part of M2, Part of M1

What causes changes in unemployment over the long run?

All. Economic and social, political forces, structural unemployment

Which of the following are true:

All. One can criticize monopolistic competition because it falls short of the efficiency standards of perfect competition. Monopolistic competition is inefficient because of product differentiation, According to the text, the inefficiency of monopolistic competition may be a small price to pay for the wide range of product choices it offers.

In oligopoly, a firm must realize:

All. That what it does affects the other firms, that it must pursue policies always remembering there will be a reaction to those policies by other firms, that is in in an industry in which one major firm may dominate and the firm will need to judge its actions accordingly.

A study of advertising and the prices of eyeglasses found that the cost of prescription eyeglasses in states that _______ advertising was _______ than in the states that _______ advertising.

Allowed; lower; did not allow

Small companies typically prefer _____________ to borrowing from a bank because it is a source of funding where the company is not obligated to ___________.

An IPO; make interest payments

Decreasing the reserve requirement ratio is:

An expansionary policy because it raises the amount of excess reserves in the banking system.

Using the term "spillover" is a less formal means of describing:

An externality

The amount of money that a wheat farmer could have earned if he had planted barley instead of wheat is:

An implicit cost.

An example of a positive statement is:

An increase in investment spending tends to reduce unemployment.

Given a supply curve that is positively sloped and a demand curve for a normal good that is negatively sloped, an increase in income will most likely result in:

An increase in price and quantity.

A decrease in supply is caused by:

An increase in returns from other alternative activities / goods.

Assuming that pizza is a normal good, if students' income at your college increases substantially, there would be:

An increase in the demand for pizza.

The demand curve for on-demand videos has shifted to the right. What could have caused it?

An increase in the income of buyers.

An increase in supply of a good is sometimes cause by:

An increase in the number of sellers.

Two goods are substitutes if:

An increase in the price of one leads to an increase in demand for the other.

Which of the following would lead to an increase in the supply of health care?

An increase in the productivity of doctors.

The law of demand is illustrated when:

An increase in the purchases of personal computers results from lower prices.

A decrease in the price of a good will, all other things unchanged, result in:

An increase in the quantity demanded.

A shift to the left of a supply curve is caused by:

An increase in the returns from other supply possibilities.

A mutual fund that seeks to imitate the overall behavior of the stock market is called:

An index fund.

After graduation from college you will receive a substantial increase in your income from a new job. If you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered:

An inferior good.

An entrepreneur's motivation to start a business could arise from:

An innate love for the type of business that he or she starts, a desire to earn a profit, an altruistic desire to provide the world with a good product.

Which of the following is a major problem with deflation?

An unexpected deflation raises the real interest payments for borrowers.

Modern Economic growth began with:

Around 1776 when James Watt perfected the steam engine.

The unit of account function of money means that money is used:

As a consistent means of measuring the value of things.

122. The deposit multiplier is given by the formula A) change in checkable deposits ÷ change in required reserves. B) change in checkable deposits ÷ change in reserves. C) change in excess reserves ÷ change in checkable deposits. D) change in legal reserves ÷ change in excess reserves.

B

125. What is the value of the deposit multiplier in a 100-percent reserve banking system? A) 0. B) 1 C) a value between 0 and 1 D) a value greater than 1

B

146. The seven members of the Board of Governors serve 14-year terms to A) provide steady employment. B) reduce political influence. C) prevent illegal appointments. D) inhibit independent decisions.

B

164. The discount rate A) is determined by markets forces of demand and supply in the market for bank reserves. B) is set by the Board of Governors. C) is determined by investment banks. D) is determined by market forces of demand and supply in the credit market.

B

180. Suppose the Fed purchases $1,000 of government securities from the general public who then deposit the proceeds into their checking accounts in commercial banks. Which pair of the T-accounts below shows this transaction?B) Federal Reserve Commercial Banks Assets Liabilities Assets Liabilities Government Commercial Banks' Securities +1,000 Reserves +1,000 Reserves +1,000 Checkable Deposits +1,000

B

184. When the Fed _______ governments bonds it _______ bank reserves. A) sells; increases B) buys; increases C) buys; decreases D) issues new; increases

B

186. Refer to Scenario 1. Which of the following happens when Sheila Jones deposits the proceeds from the sale of her bond to the Fed into her checking account at the Perez Bank? A) Perez Bank's checkable deposits increases by $100,000 and its reserves increases by $90,000. B) Perez Bank's checkable deposits and reserves increase by $100,000 each. C) Perez Bank's checkable deposits increases by $90,000 and its reserves increases by $100,000. D) Perez Bank's checkable deposits and reserves increase by $90,000 each.

B

2. Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform? A) They function as a store of value. B) They function as a medium of exchange. C) They function as a unit of account. D) They function as a factor of production.

B

26. Which of the following items serve as a unit of account? I. $100 cash II. checkable deposits III. an original Picasso painting IV. a $1,000 corporate bond that you own A) I only B) I and II C) I, II, and III D) I, II, and IV E) I, II, III, and IV

B

32. One disadvantage of commodity money is that A) it cannot be readily converted to gold. B) its quantity can fluctuate erratically. C) its value does not change. D) it has no value apart from its use as money.

B

33. Because commodity money is not uniform in quality, there is a tendency A) for higher quality commodity money to drive lower quality commodity money out of circulation. B) for lower quality commodity money to drive higher quality commodity money out of circulation. C) for stable commodity money to drive unstable commodity money out of circulation. D) for unstable commodity money to drive stable commodity money out of circulation.

B

84. A bank is "loaned up" when A) legal reserves are zero. B) excess reserves are zero. C) primary reserves are zero. D) required reserves are zero.

B

Critics of growth argues the following, except:

Growth cannot be controlled.

In large shopping areas, the retail market is most illustrative of:

Monopolistic Competition.

Economists generally agree that:

Factors other than money growth may influence the inflation rate from one year to the next, but they are not likely to cause sustained inflation.

118. Refer to Table 9-6. What is the value of $F (the total new checkable deposits)? A) $1,000 B) $4,000 C) $5,000 D) $6,000

C

126. Assume that the required reserve ratio is 10%. An increase of $1,000 in the banking system's excess reserves may result in a total expansion of new deposits for the banking system as a whole by as much as A) $1,000. B) $9,000. C) $10,000. D) $100,000.

C

132. Which of the following statements is true? A) The higher the required reserve ratio, the higher the deposit multiplier. B) The higher the excess reserves, the higher the deposit multiplier. C) The value of the deposit multiplier falls if economic agents withdraw cash from the banking system. D) The deposit multiplier only works to increase money supply, not to decrease money supply.

C

155. Decreasing the reserve requirement ratio is A) a contractionary policy because it lowers the amount of total reserves in the banking system. B) a contractionary policy because it lowers the amount of excess reserves in the banking system. C) an expansionary policy because it raises the amount of excess reserves in the banking system. D) an expansionary policy because it raises the amount of required reserves in the banking system.

C

190. Refer to Scenario 2. Which of the following happens when Henry Hyde pays for the bond by writing a check from his checking account at the Jekyll Bank? A) Jekyll Bank's checkable deposits decreases by $50,000 and its reserves decreases by $45,000. B) Jekyll Bank's checkable deposits decreases by $45,000 and its reserves decreases by $50,000. C) Jekyll Bank's checkable deposits and reserves decrease by $50,000 each. D) Jekyll Bank's checkable deposits and reserves increase by $45,000 each.

C

24. Which of the following statements is true? A) In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. This illustrates the use of Kent cigarettes as fiat money. B) Commodity money has no value apart from its use as money. C) In Romania under Communist Party rule in the 1980s, Kent cigarettes served as a medium of exchange. This illustrates the use of Kent cigarettes as commodity money. D) Fiat money must be backed by gold; otherwise it is worthless.

C

65. An activity performed by commercial banks that is not performed by insurance companies is A) functioning as financial intermediaries. B) creating financial obligations against themselves. C) accepting deposits and offering checking accounts. D) allocating financial resources between borrowers and lenders.

C

88. Refer to Table 9-3. If the required reserve ratio is 10%, what is the value of the bank's required reserves? A) $25 million B) $40 million C) $60 million D) $75 million

C

The effort to change people's behavior by appealing to their sense of values is:

Moral suasion.

Market failure describes a situation in which the market itself _________ in away that balances social costs and benefits:

Fails to allocate resources efficiently.

20. Keeping a $20 bill in your purse to purchase a movie DVD when it comes out next month means that money functions as a A) medium of exchange. B) unit of account. C) standard of deferred payment. D) store of value.

D

A financial gain earned by purchasing stock in a publically traded company and subsequently selling the investment at higher price is commonly referred to as a:

Capital gain.

Most liquid to least liquid:

Cash, checkable deposits, savings deposits, an office building your father owns.

Two prominent members of the fast growth club are _________, which between them have nearly 40% of the world's population:

China and India

If the only two firms in an industry agree to fix the price at a given level, this is an example of:

Collusion.

The government attempts to reduce the global warming effects caused by the burning of fossil fuels such as oil, coal, and natural gas by establishing a minimum level of fuel efficiency on new cars. The regulatory approach used in the action is:

Command and control.

If an economy's factors of production were owned by the government sector and the coordinating activity was done by a government planning board, the economy would be called:

Command socialism.

When the price of gas goes up and the demand for tires goes down, this means tires and gas are:

Complements

The percentage of total industry output accounted for by the largest firms in the industry is the:

Concentration ratio.

What does the Central Bank do?

Conduct Monetary policy, promote stability of the financial system, provide banking services to commercial banks and other depository institutions, and to provide banking services to the fed gov.

A decrease in the demand for eggs caused by concerns over cholesterol is most likely attributable to which demand shifter:

Consumer preferences.

If inflation is a threat, then the Fed will be expected to engage in:

Contractionary monetary policy

The scientific method is more difficult for economists than, say, chemists, because:

Controlled laboratory conditions are more problematic in economics, it is difficult to hold other factors that may affect the variables being studied constant in economics, economic conditions may change quickly and unexpectedly.

The ability of low GDP/capita countries to "Catch Up" with high GDP/capita countries is called:

Convergence

How has the widespread adoption of debit cards as the preferred method of payment for consumer purchases likely affected bank administration costs?

Costs are reduced because the cost of purchase is immediately debited from purchaser's checking account.

What item was used for money over the broadest geographic area and for the longest period of time?

Cowrie, a mollusk shell

The variation in unemployment caused by the economy moving from expansion to recession or from recession to expansion is known as:

Cyclical unemployment

10. The functions of money are A) a conductor of economic activity, a medium of exchange, and a store of value. B) a medium of exchange, a store of value, and a factor of production. C) a store of value, a medium of exchange, and a determinant of investment. D) a store of value, a unit of account, and a medium of exchange.

D

115. Refer to Table 9-6. New loans made in Stage 1($C) amount to A) $100. B) $200. C) $600. D) $800.

D

117. Refer to Table 9-6. What is the value of $E in Stage 4? A) $1,000 B) $1,800 C) $2,440 D) $2,952

D

12. When you buy a ticket to the rodeo, you are using money as a A) source of economic activity. B) store of value. C) factor of production. D) medium of exchange.

D

121. Refer to Table 9-6. What is the value of the deposit multiplier? A) 0.1 B) 0.2 C) 1 D) 5

D

123. The banking system is able to make new loans equal to A) total legal reserves of the system. B) total excess reserves of the system. C) total required reserves of the system. D) a multiple of total excess reserves of the system.

D

124. The deposit multiplier is the inverse of A) legal reserves. B) excess reserves. C) checkable deposits. D) the required reserve ratio.

D

127. Assume that the required reserve ratio is 20%. What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves? A) $5,000 B) $10,000 C) $40,000 D) $50,000

D

14. When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a(n) A) medium of exchange. B) unit of account. C) factor of production. D) store of value.

D

145. The Board of Governors of the Federal Reserve System is A) elected by the member banks' presidents. B) appointed by the Secretary of the Treasury. C) appointed by the state governors in each Federal Reserve district. D) appointed by the president of the United States and confirmed by the Senate.

D

147. To reduce the political influence on the Board of Governors, A) the president of the United States appoints a new board every four years. B) the reelection campaign for each member is less than one year. C) each member is appointed for 7 years, with one term expiring every year. D) each member is appointed for 14 years, with one term expiring every two years.

D

15. Which of the following describes the store of value function of money? A) noting that Audible.com sells downloadable audio books for $10 per book B) making a monthly payment toward your car loan C) paying $30 for a haircut D) putting away $50 each month into your savings account

D

152. Which of the following is true regarding the reserve requirements? A) The Fed changes them frequently because they are a power monetary policy tool. B) The Fed does not change them much at all because taxation is a more impactful monetary policy tool. C) The Fed changes them frequently because doing so simplifies banking operations. D) The Fed does not change them much at all because doing so would make banking operations

D

193. Refer to Scenario 2. Once the full impact of the Fed's open market sale works its way through the banking system, what is the maximum change on the money supply as a result of these two events? A) Money supply rises by $5,000. B) Money supply rises by $500,000. C) Money supply falls by $50,000. D) Money supply falls by $500,000.

D

21. Which of the following illustrates the store-of-value function of money? A) writing a check to buy a new Volkswagen B) noting that the price of a $20,000 Volkswagen is 16,000 euros C) agreeing to repay a bank $400 a month for the next 48 months for a loan to buy a new Volkswagen D) keeping $20,000 in cash in your mattress instead of buying a new Volkswagen

D

23. Money that has value apart from its use as money is called A) fiat money. B) currency. C) convertible paper money. D) commodity money.

D

25. Which of the following items serve as a store of value? I. cash in your pocket II. the balance in your checking account III. an original Picasso painting IV. a $1,000 corporate bond A) I and II B) I, II, and III C) I, II, and IV D) I, II, III, and IV

D

66. A financial institution that accepts deposits, makes loans, and offers checking accounts is A) an insurance company. B) the Federal Deposit Insurance Corporation. C) the Federal Reserve System. D) a commercial bank.

D

Goods and services produces in the domestic economy and sold abroad are called:

Exports

Product differentiation under monopolistic competition means that each firm:

Faces a downward-sloping demand curve.

Economic resources used in the production process are called:

Factors of production.

A decrease in demand, with no change in supply, will lead to ____________ in equilibrium quantity and __________ in equilibrium price.

Decrease; Decease

A negative relationship between the quantity demanded and price is called the law of:

Demand

The principle stating that, for virtually all goods and services, there is a negative relationship between price and quantity demanded, all other things unchanged, is the law of:

Demand

When economists study the behavior of buyers, they are studying:

Demand

An increase in the demand for medical services caused by an increase in the number of people over 65 is most likely attributable to which demand shifter?

Demographic characteristics.

What is Bank Run?

Depositors racing to the bank to withdraw their deposits.

To practice effective price discrimination, a firm must have:

Differences in demand elasticity among buyers.

The old proverb "Don't put all your eggs in one basket" is synonymous with which of the following?

Diversified investments

A _________ is direct payment from a firm to its shareholders:

Dividend

If your ticket wins the lottery, the earnings you receive:

Does not affect GDI or GNP

The law of demand is illustrated by a demand curve that is:

Downward-sloping.

If the US decides to allocate more resources to capital goods and less to consumer goods, the US will obtain a greater degree of:

Economic growth.

The first determinant of labor productivity is human capital. Human capital is the accumulated knowledge from:

Education and experience, skills, and expertise that the average worker in an economy possesses.

A bank is "loaned up" when:

Excess reserves are zero

The problem of determining what goods and services society should produce:

Exists because there are not enough resources to provide all the goods and services that people want to purchase.

A firm's opportunity costs of production are equal to its:

Explicit costs + Implicit costs

If the opportunity cost of manufacturing machinery is higher in the US than in Britain and the opportunity cost of manufacturing sweaters in lower in the US than in Britain, then the US will:

Export sweaters to Britain and import machinery from Britain.

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange is called ________ money:

Fiat

Currency in the US today is:

Fiat Money

A bond is a form of __________ through which a corporation agrees to repay the amount that was borrowed together with _________ over a period of time in the future:

Financial contract; a rate of interest.

A ___________________ operates directly between a saver with financial assets to invest and an entity who will receive those assets in exchange for paying a ______________.

Financial intermediary; rate of return.

The system in which banks hold reserves whose value is less than the sum of claims on those reserves is called:

Fractional reserve banking.

If an economy is producing a combination of goods that places it on the production possibilities curve, then it has:

Full employment.

An analytical framework used in the analysis of strategic choices is:

Game theory.

Since 1980 in the US, air quality has _________, and water quality has __________.

Generally improved; improved in some areas and deteriorated in others

Public goods may be efficiently provided if they are financed through:

Government tax revenues.

In general, if the most prices are falling in the economy it is know as deflation or negative inflation. The period of lowest inflation in 20th century for US was:

Great depression of 1930

Disposable personal income is that part of income that households:

Have available to spend on goods and services.

The bottom line on investing in individual stocks is: ___________ on average over lengthy periods of time; ___________, especially in the short run; _____________, since stock does need to be sold to turn gains into spendable money.

High rate of return; moderate risk; low liquidity

When economies shift from a controlled economy to a market-oriented economy an outburst of high inflation that is often seen is termed as:

Hyperinflation.

In the 1960s the dominant maker of mainframe computers was:

IBM

According to the Coase theorem, the private market can achieve an efficient outcome:

If property rights are well defined and bargaining is costless.

A tradeoff between two economic goals means that:

If you achieve more of one, you will achieve less of the other.

All of the following factors are critical for economic growth, except:

Imminent domain.

A difference between explicit and implicit costs is that:

Implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

Goods and services produced abroad and sold in the domestic economy are called:

Imports

Damage to the environment occurs because:

In the process of obtaining goods and services we enjoy, pollution occurs.

The marginal product of labor is equal to the:

Increase in output obtained from a one unit increase in labor.

Economists know that a particular good can be classified as an inferior good if ______________ in buyers' income causes __________.

Increase; Decrease in demand.

A market price floor for wheat:

Increased the price paid by consumers.

If you withdraw currency from your savings acct, you are

Increasing M1, but not affecting M2

Institutional structure which promotes "Modern Economic Growth" are except:

Inefficient financial institutions

A period marked by ongoing rise in the level of prices in an economy is:

Inflationary phase

Third-party payers for health-care services include payments made by:

Insurance companies.

Oligopoly is a market structure characterized by:

Interdependence in decision making.

The world of imperfect competition:

Is described by all of the above: lies between the extremes of perfect competition and monopoly, is a world where firms battle over market shares, is a world where economic profits may or may not persist in the long run.

The city of Washington needs to upgrade its levies and its water drainage systems. The cost will exceed the amount of tax revenue the City expects to receive over the next 10 yrs. How will the City be able to raise the funds needed to finance this upgrade?

Issue municipal bonds.

Which of the following statements is true?

It is always in the interest of the firm to engage in price discrimination if possible.

Frictional unemployment exists because:

It takes time for people seeking jobs and employers seeking workers to find each other.

Structural unemployment is best reduced by:

Job training programs to retool workers with new skills.

Human effort that can be applied in the production process is called:

Labor

Suppose a dog day care firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers:

Labor to be variable and capital to be fixed.

Economists agree that, in general, a world with advertising is _______ than would be a world without advertising.

More competitive.

All other things unchanged, a tax on a product that leads to an increase in the cost of production would:

Lead to a decrease in supply.

Increasing the level of education in the US will:

Lead to workers possessing greater human capital.

Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's lemonade stand now include the cost of:

Lemons and sugar, wages paid to her hourly workers, paper cups

Which of the following is a criticism that has been raised of government spending in support of cornbased ethanol?

Limited reduction in dependence on foreign oil, detrimental effects on the environment, increased food prices and an increase in world hunger.

The ___________ of an investment is determined by how easy it is to sell an asset at any given time:

Liquidity

The east with which an asset can be converted to money is its:

Liquidity

A checking account typically pays ____________, but gives easy access to your money, either by writing a check or by using ____________.

Little or no interest; a debit card.

Which of the following is an example of a banks assets?

Loans made to customers

Unemployment and inflation are:

Major topics in macroeconomics.

In banks were required to keep 100% of deposits in reserves, they could:

Make no loans

If marginal cost is rising:

Marginal product must be falling.

A concentration ratio is used to measure:

Market dominance.

Total costs is the:

Market value of all inputs that a firm uses in production.

An incentive approach to pollution control is:

Marketable pollution permits.

Economists assume that the typical person who starts her own business does so with the intention of:

Maximizing profits.

Stock markets often experience a frenzy of buying or selling when investors are ___________ by following the current trend in a very actively traded company.

Momentum trading.

Any item that serves as a medium of exchange is called:

Money

When the Fed buys bonds in the open market, we can expect:

Money is flowing from the central bank to individual banks in the economy, increasing the supply of money in circulation.

The market for plumbing is a city can be characterized by the model of monopolistic competition. Suppose that the market is initially in long-run equilibrium, and then there is an increase in demand for plumbing services. We expect that in the long run.

New firms will enter the plumbing market.

Credit cards are:

Not considered money.

According to the text, the command-and-control approach to pollution abatement is:

Not favored by economists.

A well-known example of an international cartel is:

OPEC

An example of a natural resource is:

Oil in the ground.

Consider a bakery that buys flour to bake cakes. Which of the following statements is true?

Only the value of the cake is counted in GDP.

The 3 main monetary policy instruments are:

Open market operations, reserve requirement ration, and the discount rate.

The Fed's most important and most frequently used tool of monetary policy is:

Open-Market operations

The monetary policy tool that involves the buying and selling of government bonds is:

Open-Market operations

The value of the next best alternative things that must be lost to acquire a good are called:

Opportunity cost

Wiladee used to work as an office manager, earning $45,000 per year. She gave up that job to start a tailoring business. In calculating the economic profit of her tailoring business, the $45,000 income that she gave up is not counted as part of the tailoring firm's:

Opportunity costs.

Which of the following statements is false?

Out of labor force: Out of paid work and looking for a job.

A cartel is an example of:

Overt collusion.

Which is not one of important areas that governments around the world have chosen to invest in the facilitate capital deepening and technology:

Pollution control

The theory underlying demand and supply curves assumes that, all other things unchanged, the primary variable that assures the equality of the quantities demanded and supplied it:

Price

A minimum price set above the equilibrium price is a:

Price floor.

A price that the government guarantees farmers will receive for a particular crop is a:

Price support.

Only national governments have the power to cause hyperinflation. Hyperinflation typically happens when government faces extraordinary demands for spending, which it cannot finance by taxes or borrowing. The only option is to:

Print more money

In order to be classified as a ___________, a firm must be owned by the people who run it on a day to day basis:

Private company.

An economy is said to have a comparative advantage in the production of a good if it can:

Produce the good at a lower opportunity cost than another economy.

Defenders of advertising argue that it:

Provides education and information about products.

A _________ is a firm that has sold its stock by making it available to be bought and sold by outside investors:

Public company.

Price discrimination is:

Quite common in the US economy.

The basic concern of economics is to:

Study the choices people make.

The affordable Health Care Act of 2010:

Requires that individuals purchase health insurance, requires that insurance companies provide coverage for children on their parents policies up to the age of 26, bars insurance companies from denying coverage based on pre-existing conditions.

Which of the following will not lead to economic growth:

Restrictions on international trade.

Critics of advertising argue that it:

Results in higher prices to consumers.

Toward the end of 2008, the US economy was characterized by all of the following except:

Rising Inflation

Since the civil war, the US economy has been transformed from primarily _____________ economy to __________ and __________:

Rural and agriculture, services, technology

Area of a country, usually with access to a port where, among other benefits, the government does not tax trade:

SEZ (Special Economic Zone)

The quality of Human Capital included all of the follow except:

Size of population

____________ include both the private costs incurred by firms and also costs incurred by third parties outside the production process:

Social costs.

The term __________ refers to a market exchange that affects a third party who is outside or external to the exchange:

Spillover

Inflation reduces the ability of money to function as a:

Store of value.

A decision based on the recognition that the actions of others will affect the outcome of the choice, and that takes these actions into account is a:

Strategic choice.

A curve that shows the relationship between the price and quantity supplied during a particular period, all other things unchanged, is the:

Supply curve.

Factor prices, returns from alternative activities, technology, number of firms, producer expectations and natural events are often termed:

Supply shifters.

Which of the following belongs in the range of financial investment options available to US households:

Tangible Assets

The largest contributor to productivity growth are:

Technological advances.

Structural unemployment exists because:

Technological changes make the skills of the workers incompatible with the skills used on the job.

An example of a supply shifter is:

Technology

The development of new __________________ can provide a way for an economy to sidestep the diminishing marginal returns of capital deepening:

Technology

The substitution bias:

Tends to overstate the rise in a consumer's true cost of living.

A feature of the healthcare market is:

That demand has increased relative to supply.

Falling inflation means:

That the price level is increasing at a decreasing rate.

Rising inflation means:

That the price level is rising at an increasing rate.

For a construction company that builds houses, which of the following costs would be a fixed cost:

The $30,000 per year salary paid to the company's bookkeeper.

At the national level who runs the Fed Reserve?

The Board of Governors

The following are all determinants of growth except:

The allocation factor.

Macroeconomics deals with:

The analysis of the aggregate values in the economy.

Government purchases are defined as:

The sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies.

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank with:

The banks net worth falls below a certain level.

The Federal Reserve is:

The central bank of the US

The excess capacity in monopolistic competition may be viewed as:

The cost of product diversity.

Plastic and steel are substitutes in the production of automobiles. If steel prices go up, all other things unchanged:

The demand curve for plastic will shift to the right.

Which of the following is an interest rate that is set directly by the Fed?

The discount rate

Given that milk and cookies are complements, suppose the price of flour (an ingredient in cookies) rises. What happens in the market for cookies?

The equilibrium price rises, and the equilibrium quantity falls.

In choosing between the range of alternative investments typically available to US households, which of the following will play a role in influencing their selection of a particular investment type?

The expected rate of return, risk, and liquidity of each kind of investment.

A persistent shortage may occur if:

The government imposes a price ceiling.

Suppose that voters in your community pass a one-cent sales tax increase to fund education, knowing full well they will have to forgo other goods they typically consume. This primarily addresses the economic question of:

What goods and services should a society produce.

In the 1980s, the federal government undertook a major build up of the military sector, leading to reports that prices charged by military contractors were spiraling upward. According to production possibilities analysis, this result is not surprising due to:

The law of increasing opportunity cost.

Given the events listed below that take place in the bread market, decide if demand changes or quantity demanded changes and determine the direction of change:

The price of bread increases.

Which statement best illustrates complementary goods:

The price of tennis rackets declines so your economics instructor decides to take tennis lessons and purchases several cans of new tennis balls.

Factors of production are:

The resources the economy has available to produce goods and services.

As households eat out more, purchase more prepared foods at the grocery store, hire out child care services that they once performed themselves, what is likely to happen to the value in GDP?

The value of GDP is likely to increase.

A bank's reserves could be except:

The value of federal securities it is required to have as reserves against loans.

To say that coins are "token money" means that:

Their face value is more than their commodity value.

Average total cost is equal to:

Total cost divided by output.

Profit is defined as:

Total revenue minus total cost.

Social security payments to US citizens are considered:

Transfer payments and are not included in GDP.

A threat to respond to a rival's cheating by permanently revoking an agreement is a:

Trigger strategy.

In the late 19th century and early 20th century, bank runs were typically not the original cause of a recession-but they could make a recession much worse. T or F

True

Any point inside a production possibilities curve indicates:

Unemployment and/or inefficiency.

To identify the onset of a recession, the National Bureau of Economic Research Business Cycle Dating Committee:

Uses a range of indicators including real GDP, employment and income.

Velocity is a term that economists use to describe how quickly money circulates through the economy. The velocity of money in a year is defined as:

Velocity=nominal GDP / money supply

Analyzing the behavior of the firm enhances our understanding of:

What decisions lie behind the market supply curve.

The opportunity cost of something is:

What is given up to acquire it.

A shift in the demand curve to the left, all other things unchanged:

Will cause a movement downward along the supply curve and a lower equilibrium quantity.

Price ceiling which lead to shortages will impose costs on society because they:

Will lead to waiting lines, may result in black market prices, lead to a smaller quantity offered on the market.

When a member bank borrows reserves from the Fed:

it pays an interest rate called the discount rate.