ECO 2301 - Exam 3

Currency in circulation is part of:

Both M1 and M2

Banks are permitted to lend all of their reserves. a. True b. False

False

The APC rises and the APS falls

If there is a decrease in disposable income in an economy, then:

Critics of growth policies focus on the following arguments, except:

# 77

Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is:

8 percent

Which would shift the aggregate demand curve? A change in:

Foreign-exchange rates

The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because:

Households may not spend all of an increase in disposable income

The Federal budget deficit is calculated each year by:

Subtracting government spending from government revenues

Which would tend to reduce the crowding-out effect that occurs when the Federal government increases its borrowing to finance a deficit?

The economy is operating at less than full employment

If the reserve ratio is 5 percent, then the money multiplier is a. 25.00. b. 20.00. c. 5.00 d. 2.50. e. 1.25.

B

Time fiscal action is taken and the time that the action has its effect on the economy

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the:

Wells Fargo, J.P. Morgan Chase, and Citibank, are all primarily

commercial banks

recession

occurs when aggregate demand falls (aggregate demand curve shifts to the left and prices are sticky downwards)

According to the law of supply, the quantity supplied of a good rises when the __________ of that good rises. a. price b. elasticity c. substitute d. quality

price

Inflation is a rise in:

the general level of prices over time

If aggregate expenditures increase by $12 billion and equilibrium GDP consequently increases by $48 billion, then the marginal propensity to save in the economy must be:

#

If disposable income decreases from $1800 to $1500 and MPC = 0.75, then saving will:

#

26. Labor productivity is defined as: A. total output/worker-hours. B. nominal GDP minus real GDP. C. the ratio of real capital to worker-hours. D. the annual increase in nominal GDP per worker

A

How does a stored-value card differ from a debit card and a credit card?

A stored-value card keeps the money on the card instead of providing access to an account or a loan sited elsewhere

If a bank has deposits of $100,000, loans of $75,000, cash on hand of $10,000, and $15,000 on deposit at the Federal Reserve, then its reserve ratio is: A. 5%. B. 25%. C. 10%. D. 12.5%.

B. 25%

The M2 money supply is about _______ times larger than the M1 money supply. A. 1.5 B. 5 C. 10 D. 20

B. 5

How much did the U.S. Congress allocate to the Troubled Asset Relief Program in 2008? A. $170 billion B. $700 billion C. $787 billion D. $885 billion

B. 700 billion

8. The equilibrium level of income (Y) is: A. 360. B. 225. C. 200. D. 135.

B. 225.

Contractionary fiscal policy

If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement:

The Federal Reserve System is an:

Independent agency of government

An increase in aggregate demand in the steep portion of the aggregate supply curve

Price level rises rapidly, and there is little change in real output.

If the government wishes to increase the level of real GDP, it might reduce:

Taxes

Which of the following is a right-to-work state? a. Texas b. California c. Colorado d. New Mexico

Texas

B

The APC is calculated as: A) change in consumption / change in income B) consumption / income C) change in income / change in consumption D) income / consumption

Increases in government spending and decreases in taxes

The American Recovery and Reinvestment Act of 2009 included mostly:

Who in the U.S. is responsible for maintaining money's purchasing power?

The Board of Governors of the Federal Reserve System

A

The increase in income that results from an increase in investment spending would be greater the: A) smaller the MPS. B) smaller the APC. C) larger the MPS. D) smaller the MPC.

B

The investment demand curve portrays an inverse (negative) relationship between: A) investment and real GDP. B) the real interest rate and investment. C) the nominal interest rate and investment. D) the price level and investment.

A $200 increase in government purchases has a greater effect on the equilibrium level of real GDP than a $200 decrease in autonomous net taxes would. a. True b. False

True

If the actual price level is higher than the expected price level, the economy will expand in the short run. a. True b. False

True

If the actual price level is lower than the expected price level, the economy will contract in the short run. a. True b. False

True

The chairperson of the Federal Reserve Board is selected by the

U.S. president and confirmed by the Senate

The functions of money are to serve as a:

Unit of account, store of value, and medium of exchange

A "flat tax" on personal income, in which the same tax rate is applied to every dollar of income earned by each taxpayer, is an example of

a proportional tax.

Aggregate Supply is:

a schedule or curve showing the relationship between a nation's price level and the amount of real domestic output that firms in the economy produce.

Aggregate demand is:

a schedule or curve that shows the amount of a nation's output that buyers collectively desire to purchase at each possible price level.

Which one of the following is an example of discretionary fiscal policy used to correct an inflationary gap?

a tax increase passed into law by congress.

A promise by the manufacturer to replace or repair a faulty product is a. a warranty. b. a liability. c. required by federal law. d. bait and switch.

a warranty

International trade occurs because nations differ in the a. amount and type of labor that is available. b. amount of capital available. c. availability of natural resources. d. All choices are correct.

all choices are correct

Fiscal policy refers to the

adjustment of government spending and taxes in order to achieve certain national economic goals.

A restrictive monetary policy is designed to shift the

aggregate demand curve leftward

The purpose of an expansionary monetary policy is to shift the

aggregate demand curve rightward

About the closest you can find to perfect competition is in a. agriculture. b. the Cuban economy. c. the airline industry. d. the computer industry.

agriculture

The passage of the Equal Credit Opportunity Act means that it is illegal to deny credit based on a. religion. b. race. c. gender. d. All choices are correct.

all choices

All corporations must a. register with the state. b. All choices are correct. c. sell stock. d. elect a board of governors.

all choices are correct

The transformation of something new, such as an invention, into something that benefits the economy is known as:

an innovation

Wheat used for producing bread is

an intermediate good.

When deciding between two sources of credit, you should compare the a. credit limits. b. annual percentage rates. c. monthly payments. d. finance charges.

annual percentage rates

Assume the fed creates excess reserves in the banking system by buying bonds, but banks do not make more loans because economic conditions are bad. This is a problem of?

Cyclical Asymmetry

24. TIAA-CREF, Teamsters' Union, and CalPERS, are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

D. pension funds.

Discretionary fiscal policy

consists of deliberate changes in government spending and tax collections desgined to achieve full employment control inflation and encourage economic growth

Which of the following does free trade encourage?

Higher rates of economic growth, domestic industries' access to larger markets, and more rapid spread of technology.

A gas station on a busy corner is an example of a. ownership utility. b. place utility. c. time utility. d. form utility.

place utility

Aggregate demand reflects

planned total spending in the economy.

Unemployment compensation helps provide economic a. growth. b. freedom. c. stability. d. equity.

stability

The Dow Jones Industrial Average is a. a mutual fund. b. a stock index. c. the same thing as the S&P 500. d. a measure of industrial output.

stock index

Which of the following investments has the greatest risk? a. savings bond b. stock market c. mutual fund d. Treasury note

stock market

T/F Money is the most liquid asset in the economy.

true

The percentage of civilian labor force that is without jobs but actively looking for work is called a. the full employment rate. b. underground employees. c. the frictionally unemployed. d. the unemployment rate.

unemployment rate

An increase in expected future income will: Answer increase aggregate demand and aggregate supply. decrease aggregate demand and aggregate supply. increase aggregate supply. increase aggregate demand.

increase aggregate demand

Foreign purchases effect:

when the U.S. price level rises relative to foreign price levels, U.S. exports fall and U.S. imports rise.

Refer to the above diagram. If aggregate supply shifts from AS1 to AS3, then real domestic output will: Answer increase and the price level will increase. increase and the price level will decrease. decrease and the price level will increase. decrease and the price level will decrease.

increase and the price level will decrease.

A free enterprise system involves trade-offs between a. state and federal government. b. businesses in the same industry. c. individual gain and social equity. d. customs and beliefs.

individual gain and social equity

When demand is __________, the price change will not result in a substantial change in the quantity demanded. a. inelastic b. static c. elastic d. neutral

inelastic

The economist Joseph Schumpeter suggested that business cycles are triggered by a. government policy. b. labor strikes. c. innovations. d. capital accumulation.

innovations

In the long-run:

input prices as well as output prices can vary. The supply curve is a vertical line. I

New York Life, Prudential, and Hartford, are all primarily

insurance companies

The basic determinant of the asset demand for money is the

interest rate

The multiplier helps explain

why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.

savings A. occur when current spending is less than current incomes B. are generally not a determinant of future output C. and investment are essentially the same concept D. occur when current consumption is more than current output

A

The Fed's main assets are: A. U.S. Treasury bills. B. corporate stocks and bonds. C. the facilities of the twelve district banks. D. currency in circulation and bank reserves.

A. US treasury bills

Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of: A. moral hazard. B. adverse selection. C. a prisoner's dilemma. D. shadow banking.

A. moral hazard.

21. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A. output would necessarily rise. B. output would necessarily fall. C. price level would necessarily fall. D. price level would necessarily rise.

A. output would necessarily rise.

When the government runs a budget deficit, all of the following happen EXCEPT: A. the total amount of borrowing decreases. B. private investment spending is crowded out. C. the interest rate rises. D. the government becomes a borrower in the market for loanable funds.

A. the total amount of borrowing decreases

27. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers respectively would be: A. v and vz. B. w and wy. C. w and wz. D. vx and xz.

A. v and vz.

C

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: A) an increase in disposable income. B) an increase in household wealth. C) an increase in personal taxes. D) the expectation of a recession.

23. When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: A. reduce per unit production costs. B. reduce worker morale and work effort, and thus lower productivity. C. increase the firms' cost of raising financial capital. D. reduce the demands for their products.

B. reduce worker morale and work effort, and thus lower productivity.

40. The "Euro Zone": A. is another name for the European Union. B. refers to the common currency used by all European Union members. C. is a geographic region in Europe with no national sovereignty, where free trade between European nations is allowed to occur. D. is the subset of the EU that uses a common currency.

B. refers to the common currency used by all European Union members.

In a system of 100-percent-reserve banking, the purpose of a bank is to a. make loans to households. b. influence the money supply. c. give depositors a safe place to keep their money. d. buy and sell gold. e. accept deposits and make loans.

C

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters: a. "Buy low-risk bonds." b. "Use a medium of exchange." c. "Diversify." d. "Intermediate."

C

the size of the MPC is assumed to be A. less than 0 B. greater than 1 C. greater than 0, less than 1 D. 2 or more

C

2.) The demand curve shows the relationshipi between: A. money income and quantity demanded B. price and production costs C. price and quantity demanded D. consumer tastes and the quantity demanded

C.

Among the assets of a bank are: A. deposits. B. borrowings. C. loans. D. deposits and loans.

C. loans

22. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1000. B. liabilities are $300. C. net worth is $100. D. annual profit is $200.

C. net worth is $100.

7. Refer to the above diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if: A. the asset demand for money increased. B. the transactions demand for money increased. C. nominal GDP decreased. D. the overall price level rose.

C. nominal GDP decreased.

According to the new growth theory,

technology should be considered as a factor of production.

E-commerce shifts the balance of power to a. the government. b. Internet providers. c. the customer. d. the business.

the customer

One of the problems of privatization of businesses in Russia was that a. there were not enough workers to fill the demand for labor. b. no one wanted any of the businesses. c. they were sold at bargain-basement prices to insiders. d. western countries took them over and retained the profits

they were sold at bargain-basement prices to insiders.

If the dollar appreciates in value relative to foreign currencies:

# Aggregate demand decreases because net exports decrease

Society can increase its output and income by increasing basically one or both of two factors:

#ap econ 36

9. In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are: A. not counted. B. counted as investment spending. C. counted as government spending. D. counted as consumption spending.

A

About what percentage of the world's population lives at a subsistence level? a. 25% b. 5% c. 60% d. 50%

50%

The total share of foreign ownership of American industries is about a. 2%. b. 6%. c. 25%. d. 10%.

6%

In 2007 the public debt was about

9.01$ trillion

The last year when there was a surplus in the actual U.S. Federal budget was in:

2001

If the price index rises from 100 to 130, the value of the dollar will fall by about;

23 percent

33. Historically, real GDP has increased less rapidly than nominal GDP because: A. price indices have not reflected improvements in product quality. B. the general price level has increased. C. technological progress has resulted in more efficient production. D. the general price level has declined.

B

4. The economy's long-run aggregate supply curve: A. slopes upward and to the right. B. is vertical. C. is horizontal. D. slopes downward and to the right.

B

An equilibrium price a. will reduce supply. b. rises with falling demand. c. should remain relatively stable. d. rises with rising demand.

rises with falling demand

hich country best follows the ideas of Adam Smith? a. Cuba b. North Korea c. China d. Singapore

singapore

To determine a business's profits, you would a. subtract taxes from expenses. b. subtract total expenses from receipts. c. subtract wages from receipts. d. subtract costs of equipment from income.

subtract total expenses from receipts

The basic determinant of the transactions demand for money is...

the level of nominal GDP.

When economists say that the Federal Reserve Banks are 'central' banks, this means

the policies are coordinated by the Federal Reserve Board of Governors

When economists say that the Federal Reserve Banks are central banks, this means that...

the policies are coordinated by the Federal Reserve Board of Governors.

When economists say that the Federal Reserve Banks are quasi-public banks, this means

they are a blend of private ownership and public control

How long is the term of office for members appointed to serve on the Board of Governors of the Federal Reserve System?

14 years

The M1 money supply is composed of:

Checkable deposits and currency in circulation

Real-balances effect:

a higher price level means less consumption spending.

Which of the following lists correctly identifies the four expenditure categories of GDP? a. consumption, government purchases, investment, net-exports b. consumption, investment, depreciation, net-exports c. consumption, saving, investment, depreciation, d. consumption, government purchases, investment, savings

A

Cyclical asymmetry is important to policymakers because...

monetary policy is more effective in fighting inflation than recession.

Of the four market structures, __________ gives sellers the most control over prices. a. perfect competition b. oligopoly c. monopoly d. monopolistic competition

monopoly

When the demand curve shifts to the right, it indicates that buyers are willing and able to purchase __________ of a good at the original price and at all other prices. a. more b. none c. less d. all

more

Suppose that Lady Gaga goes to Las Vegas to play poker and at the last minute her record company says it will reimburse her for 55 percent of any gambling losses that she incurs. Will Lady Gaga wager more or less as a result of the reimbursement offer? What economic concept does your answer illustrate?

more moral hazard

The Fed directly sets

neither the Federal funds rate nor the prime interest rate

The claims of the owners of a firm against the firms assets are called:

net worth

Assuming o other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the: A. M1 money supply will decline. B. M1 money supply will not change. C. M2 money supply will decline. D. M2 money supply will increase.

B. M1 money supply will not change.

"Near-monies" are included in: A. both M1 and M2. B. M2 only. C. M1 only. D. neither M1 nor M2.

B. M2 only.

Money market deposits accounts are included in: A. M1 only. B. M2 only. C. neither M1 nor M2. D. both M1 and M2.

B. M2 only.

The Fed's main assets are: A. corporate stocks and bonds. B. U.S. Treasury bills. C. currency in circulation and bank reserves. D. the facilities of the twelve district banks.

B. US treasury bills

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:

Budget deficit

How is economic growth shown by the production possibilities curve?

By shifting the curve to the right.

An economic hypothesis: A. has the same meaning as an economic principle or economic law. B. is usually a normative statement. C. is a possible explanation of cause and effect. D. is a stronger generalization than an economic law.

C. is a possible explanation of cause and effect.

Automatic stabilizers smooth fluctuations in the economy because they produce changes in government's deficit that

Help offset changes in GDP

Which two of the following financial institutions offer checkable deposits included within the M1 money supply:

Commerical banks Thrift institutions

What is the largest component of M1?

Currency

Money is: A. not represented by any of the above. B. paper money and coins, but not checks. C. currency and stocks. D. anything that can easily be used to buy goods and services.

D. anything that can easily be used to buy goods and services

Banks create money when they

buy government bonds from households

The money earned from shares of stock is called a. interest. b. dividends. c. capital. d. equity.

dividends

how does the aggregate demand curve slope?

downward

International trade affects a. only non-skilled workers. b. only people that export goods. c. everyone. d. only people that import goods.

everyone

The amount that a commercial bank can lend by is determined by its:

excess reserves

The price of a currency in terms of another currency is called the a. balance of trade. b. dollar valuation. c. balance of exchange. d. exchange rate.

exchange rate

A person between jobs because of a firing, layoff, or voluntary search for a new job is __________ unemployed. a. cyclically b. structurally c. seasonally d. frictionally

frictionally

Your credit rating affects your ability to a. get a job. b. get a loan. c. save money. d. get an education.

get a loan

Who are the buyers of U.S. real GDP?

Households, business, government, and foreign buyers

D

If 100 percent of any change in income is spent, the multiplier will be: A) equal to the MPC. B) 1. C) zero. D) infinitely large.

Decrease aggregate demand and increase aggregate supply

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

Consumption and investment

In a private closed economy, the two components of aggregate expenditures are:

The cyclically-adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be:

In deficit

Are independent of GDP

In the above graph it is assumed that investment, net exports, and government expenditures:

Monetarism is linked with the economist a. John Maynard Keynes. b. Milton Friedman. c. Karl Marx. d. Adam Smith.

Milton Friedman

The two reasons why bankruptcy is a false concern regarding the public debt are:

Refinancing and taxation

U.S. Cities of the tweve Federal Reserve banks?

San Francisco, New York City

A

Say's law says that: A) supply creates its own demand. B) freely floating exchange rates equate the purchasing power of national currencies. C) high marginal tax rates severely discourage work, saving, and investment. D) producers will offer more of a product at high prices than they will at low prices.

C

The production of goods and services creates an equal demand for those goods and services. This is a statement of: A) Taylor's rule. B) Okun's law. C) Say's law. D) the Coase theorem.

Which of the following serves as an automatic stabilizer in the economy?

The progressive income tax

A major reason that a public debt cannot bankrupt the federal government is beacuse

The public debt can be easily refinanced

Decrease in government spending and an increase in taxes

The set of fiscal policies that would be most contractionary would be a(n):

Both input and output prices are fixed

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

Obtaining a short-term loan

The use of a credit card is most similar to:

Long run

The version of aggregate supply that allows for changes in both product prices and resource prices is the:

A

The wealth effect is shown graphically as a: A) shift of the consumption schedule. B) movement along an existing consumption schedule. C) shift of the investment schedule. D) movement along an existing investment schedule.

Which one of the following is true about the U.S. Federal Reserve System?

There are 12 regional Federal Reserve Banks.

Which of the following statements best describes the Federal Reserve Banks?

They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

One reason that "near monies" are important is because;

They can be easily converted into money or vice versa, and therby can influence the stability of money.

One timing problem with fiscal policy to counter a recession is an "administrative lag" that occurs between the:

Time the need for the fiscal action is recognized and the time that the action is taken

D

Which of the following will not cause the consumption schedule to shift? A) a change in household debt or wealth B) a change in consumer expectations C) a change in tax rates D) a change in disposable income

B

Which of the following will not cause the consumption schedule to shift? A) a sharp increase in the amount of wealth held by households B) a change in consumer incomes C) the expectation of a recession D) a growing expectation that consumer durables will be in short supply

D

Which of the following would not shift the investment demand curve? A) a decrease in operating cost or corporate taxes B) technological improvements and optimism about future sales C) an overstock of capital goods D) an increase in interest rates

The relationship between the price level and the real Gross Domestic Product (GDP) without full adjustment is represented by

the short-run aggregate supply curve.

The Federal Reserve serves as "lender of last resort." In the Financial Crisis of 2007-2008 this meant that they

used creative facilities to lend to financial institutions in the emergency

Which policy would use a governments budget surplus to reduce inflation but at the same time offset the contractionary effect?

using the funds to retire outstanding government debt.

When analyzing an economic problem, economists do not consider a. government regulations. b. resources. c. choices. d. values.

values

LRAS curve is?

veritical

The long-run aggregate supply curve is

vertical at the full-employment level of real Gross Domestic Product (GDP).

Typically, a good that has no substitutes will have a. very inelastic demand. b. no value. c. no demand. d. very elastic demand.

very inelastic demand

The Federal Open Market Committee (FOMC)

votes on the Fed's monetary policy and directs the purchase or sale of government securities

long run equilibrium is where ?

we want to be

Consider the following statement: "The invention of money is one of the great achievements of humankind, for without it, the enrichment that comes from broadening trade would have been impossible." This statement acknowledges that

without money, trade must occur through barter, which is inefficient and cumbersome

Someone who is in the proletariat is a a. worker. b. government official. c. business owner. d. banker.

worker

In a fractional reserve system, deposit insurance

guarantees that depositors will always get their money, avoiding bank runs

Contractionary fiscal policy

is a decrease in government spending and increase in taxes or come combination of the two for the purpose of decreasing aggregate demand and halting inflation

Pure capitalism is also known as a a. mixed economy. b. laissez-faire system. c. quota system. d. command economy.

laissez-faire System

A credit card is most ideal for

large purchases that can be paid off later

The categories of financial firms have become more blurred as these firms are trying to...

retain their market share.

The Federal funds rate is

lower than the prime interest rate because federal funds are loaned overnight

A museum is an example of a a. merit good. b. demerit good. c. social insurance program. d. public-assistance program.

merit good

Today most economic systems are a. command. b. traditional. c. capitalist. d. mixed.

mixed

Monetary policy is easier to conduct than fiscal policy because

monetary policy has a much shorter administrative lag than fiscal policy

Monetary policy is easier to conduct than fiscal policy because...

monetary policy has a much shorter administrative lag than fiscal policy.

Which of the following is a public good that only the federal government provides? a. roads b. education c. national defense d. law enforcement

national defense

The value of the next best alternative that had to be given up to do the action that was chosen is the a. sale price. b. trade-off. c. opportunity cost. d. capital.

opportunity cost

The value of the best alternative sacrificed to obtain something you want is referred to as

opportunity cost.

Rapid inflation can undermine money's ability to perform its functions. For example, in runaway inflation

people revert to barter because money fails as a medium of exchange

The Truth in Lending Act was created to a. reduce paperwork. b. reveal all the credit terms to the borrower. c. make it easier for collection agencies to collect. d. protect a person's credit record.

reveal all the credit terms to the borrower

Which of the following tools of monetary policy has not been used since 1992?

the reserve ratio

Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?

the reserve ratio

An increase in the aggregate expenditures schedule:

# Increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier

The Board of Governors of the Federal Reserve has how many members?

7

14. Which of the following economic regions has experienced the least growth in real GDP per capita since 1820? A. Africa B. Asia excluding Japan C. Latin America D. Western Europe

A

9. Cyclical unemployment results from: A. a deficiency of aggregate spending. B. the decreasing relative importance of goods and the increasing relative importance of services in the U.S. economy. C. the everyday dynamics of a free labor market. D. technological change.

A

which of the following is included in the expenditures approach to GDP? A. spending on meals by consumers at restaurants B. expenditures on used clothing at garage sales C. value of stocks and bonds bought by businessmen D. government spending on welfare payments

A

21. Between 1985 and 2003 the: A. dollar appreciated in value relative to the yen. B. yen appreciated in value relative to the dollar. C. dollar price of yen fell. D. yen price of dollars rose.

B. yen appreciated in value relative to the dollar.

How is the public debt calculated?

By cumulating the annual difference between tax revenues and government spending over the years

10. The value of U.S. imports is: A. added to exports when calculating GDP because imports reflect spending by Americans. B. subtracted from exports when calculating GDP because imports do not constitute spending by Americans. C. subtracted from exports when calculating GDP because imports do not constitute production in the United States. D. added when calculating GDP because imports do not constitute production in the United States.

C

13. The GDP gap measures the difference between: A. NDP and GDP. B. NI and PI. C. actual GDP and potential GDP. D. nominal GDP and real GDP.

C

If the MPC is 0.75, a decrease in net taxes of $100 billion will increase the equilibrium level of real GDP by a. $75 billion b. $100 billion c. $300 billion d. $400 billion e. $500 billion

C

a business buys $5000 worth of inputs from other firms in order to produce a product. the business makes 100 units of the product and each sells for $65. the value added by the business to these products is A. 5000 B. 6500 C. 1500 D. 1000

C

higher oil prices are most likely to lead to A. a negative demand shock B. a positive demand shock C. a negative supply shock D. a positive supply shock

C

the money income of households consists of the sum of A. wages + salaries + profits B. consumption expenditure + profits C. wages + rents + interest + profits D. revenues + profits + wages

C

Aggregate demand

C+I+G+X

10. The short-run aggregate supply curve represents circumstances where: A. both input and output prices are fixed. B. both input and output prices are flexible. C. input prices are fixed, but output prices are flexible. D. input prices are flexible, but output prices are fixed.

C. input prices are fixed, but output prices are flexible.

20. If government desired to raise the equilibrium GDP to $650, it could: A. raise G by $45 and reduce T by $10. B. raise G by $40 and reduce T by $30. C. raise G by $30 or reduce T by $40. D. raise both G and T by $40.

C. raise G by $30 or reduce T by $40.

1. When the receipts given by goldsmiths to depositors were used to make purchases: A. the gold standard was created. B. existing banking laws were violated. C. the receipts became in effect paper money. D. a fractional reserve banking system was created.

C. the receipts became in effect paper money.

16. The immediate primary cause of the swing from Federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was: A. the tax cuts of 2001. B. spending increases relating to the wars in Afghanistan and Iraq. C. the recession of 2001. D. the acceleration of inflation in 2001 and 2002.

C. the recession of 2001.

A "Tight" money policy designed to reduce inflation

Conflicts with the goal of reducing a trade deficit

Smaller

Contractionary fiscal policy would tend to make a budget deficit become:

During a recession, fiscal policy is typically:

Counter-cyclical at the Federal level and pro-cyclical at the state level

What are the components of the M1 money supply?

Currency in circulation and checkable deposits

3. Real GDP per capita: A. cannot grow more rapidly than real GDP. B. cannot grow more slowly than real GDP. C. necessarily grows more rapidly than real GDP. D. can grow either more slowly or more rapidly than real GDP.

D

5. Which of the following is not part of the M2 money supply? A. money market mutual fund balances B. money market deposit accounts C. currency D. large ($100,000 or more) time deposits

D

7. If an unintended increase in business inventories occurs at some level of GDP, then GDP: A. entails a rate of aggregate expenditures in excess of the rate of aggregate production. B. may be either above or below the equilibrium output. C. is too low for equilibrium. D. is too high for equilibrium.

D

Bank reserves can be held in the form of a. loans and cash in the bank's vault b. loans and deposits with the Fed c. loans and checking accounts d. deposits with the Fed and cash in the bank's vault e. deposits with the Fed and checking accounts

D

Banks borrow excess reserves from each other on a day-to-day basis in the a. federal reserve market b. stock market c. bond market d. federal funds market e. discount window at the Fed

D

Other things the same, if workers and firms expected inflation to be 2%, but it is only 1% then a. employment and production rise. b. employment rises and production falls. c. employment falls and production rises. d. employment and production fall.

D

9. Refer to the above diagram. If the full-employment level of GDP is D, then it would be appropriate fiscal policy for government to: A. decrease spending and increase taxes. B. decrease spending and decrease taxes. C. increase spending and increase taxes. D. increase spending and decrease taxes.

D. increase spending and decrease taxes.

The M2 money supply includes: A. stock certificates. B. currency in bank vaults. C. the cash value of life insurance policies. D. individual shares in money market mutual funds.

D. individual shares in money market mutual funds.

Smith Barney, Charles Schwab, and Merrill Lynch, are all primarily: A. investment banks. B. mutual fund companies. C. insurance companies. D. securities firms.

D. securities firms

D

Refer to the above data. The marginal propensity to consume is: A) .25. B) .75. C) .20. D) .80.

B

Refer to the above diagram. The break-even level of income is: A) zero. B) $150. C) $60. D) $120.

The expenditure multiplier effect

Refer to the graph above. Which of the following factors does not explain a movement along the AD curve?

An increase in national incomes abroad

Refer to the graph above. Which of the following factors will shift AD1 to AD2?

Troubled Assets Relief Program

The "bail-out" money that went to giant financial institutions like Citibank and Goldman Sachs, along with General Motors and Chrysler during the Financial Crisis and the Great Recession, came from the:

The economy were at full employment

The cyclically-adjusted budget estimates the Federal budget deficit or surplus if:

Net exports have increased

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?

A

The greater is the marginal propensity to consume, the: A) smaller is the marginal propensity to save. B) higher is the interest rate. C) lower is the average propensity to consume. D) lower is the price level.

Becomes steep at output levels above the full-employment output

The short-run aggregate supply curve:

When government spending is increased, the amount of the increase in aggregate demand primarily depends on:

The size of the multiplier

An appreciation of the nation's currency relative to foreign currencies

Which event would most likely decrease an economy's exports?

Too-big-to-fail policy

Which of the following bank-related policies of the Fed fosters huge moral hazard problems:

short run equilibrium is where we ?

are

A tight money policy would cause a. businesses to cut back on production. b. businesses to borrow money to expand capacity. c. people to borrow more money. d. home sales to increase.

business to cut back on production

Open-market operations change

commercial bank reserves, but not the size of the monetary multiplier

An expansionary monetary policy may be less effective than a restrictive monetary policy because

commercial banks may not be able to find loan customers

Unemployment that is caused by business recessions is called

cyclical unemployment

When prices rise due excessive business and consumer demand, it is called a. deflation. b. cost-push inflation. c. stagflation. d. demand-pull inflation.

demand-pull inflation

Government and Federal Reserve emergency loans create moral hazard because there is a tendency

for financial services firms to take on greater risks because they assume they are at least partially insured against losses

The more progressive the tax system, the

greater is the built-in stability for the economy

Nondiscretionary fiscal policy

includes changes in taxes and government spendingn that occur automatically independent of congressional action

A fundamental principle in demand analysis is that a change in price leads to

movement along the demand curve.

The equilibrium or market clearing price occurs at the point at which

quantity demanded equals quantity supplied.

If you put money in a certificate of deposit, you are using it as a a. medium of exchange. b. unit of accounting. c. store of value. d. commodity.

store of value

A surplus will occur when

the price is above the market clearing level.

Recognition time lag

the time required to gather information about the current state of the economy

On budget

those programs not legally designated as off budget

The set of fiscal policies that would be most contractionary would be a(n):

Decrease in government spending and an increase in taxes

A decrease in business taxes will tend to:

Decrease short-run aggregate supply and decrease aggregate demand

Consider the following statement: "Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply." True or false?

True, but the magnitude of unemployment depends on the economic situation.

Which federal agency has the responsibility of making sure that food production is sanitary? a. Consumer Product Safety Commission b. U.S. Department of Agriculture c. U.S. Office of Food Production d. Federal Trade Commission

US department of agriculture

The Federal Reserve System

is basically an independent agency

#

#

A rightward shift of the investment demand curve will: Decrease the real rate of interest Shift the investment schedule downward Decrease the quantity of investment Shift the investment schedule upward

#

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. Households deposit $20,000 in currency into a checking account at the bank and that currency is added to reserves. What level of excess reserves does the bank now have?

$18,000

28. Which of the following would not help to relieve the Social Security and Medicare shortfalls? A. Extending the Social Security tax to a higher level of earnings. B. Restricting immigration of skilled working-age adults. C. Increasing the retirement age for collecting Social Security and Medicare benefits. D. Reducing Social Security and Medicare benefits for wealthier individuals.

**B. Restricting immigration of skilled working-age adults.

If the required reserve ratio is 5 percent, what is the monetary multiplier?

20

A contractionary gap may be closed in the long run by a(n) a. rightward shift of the short-run aggregate supply curve b. leftward shift of the short-run aggregate supply curve c. rightward movement along a fixed short-run aggregate supply curve d. decrease in aggregate demand e. increase in aggregate demand

A

if nominal GDP in one year is $5000 bil and the price index is 135, then the real DP that year would be $3704 bil A. True B. False

A

The public debt can be easily refinanced by issuing new bonds

A major reason that the public debt cannot bankrupt the Federal government is because:

An asset's liquidity refers to its ability to be:

A means of payment

What function is money serving when you use it when you go shopping?

A medium of exchange

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is a. 7 percent. b. 3 percent. c. 2.5 percent. d. .4 percent.

B

*LOOK AT CHART ON PAGE 4 OF CHPT 2* 23.) Refer to the above diagram. Flow (1) represents: A. wage, rent, interest, and profit income B. land, labor, capital, and entrepreneurial ability C. goods and services D. consumer expenditures

A.

21. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,100. B. liabilities are $1,100. C. net worth is $300. D. profit is $1,000.

A. assets are $1,100.

Among the liabilities of banks are: A. deposits. B. reserves. C. loans and reserves. D. loans.

A. deposits

We hold money to: A. reduce transaction costs. B. increase transaction costs C. protect our purchasing power. D. earn interest.

A. reduce transaction costs

How many commercial banks are now operating in the United States?

About 7,300

The public debt is the

Accumulation of federal budget surpluses and deficits over time

1. Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

B

21. Demand-pull inflation: A. occurs when prices of resources rise, pushing up costs and the price level. B. occurs when total spending exceeds the economy's ability to provide output at the existing price level. C. occurs only when the economy has reached its absolute production capacity. D. is also called cost-push inflation.

B

which among the following countries had the highest GDP in 2009? A. UK B. USA C. Japan D. China

B

The money expansion process continues until there are no more a. required reserves in the system b. demand deposits in the system c. excess reserves in the system that banks are willing to lend d. liabilities in the system e. assets in the system

C

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n)

Contractionary fiscal policy

29. Suppose total output (real GDP) is $4000 and labor productivity is $8. We can conclude that: A. real GDP per capita must be $500. B. the price-level index must be greater than 100. C. nominal GDP must be $500. D. the number of worker-hours must be 500.

D

In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases, a. the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports. b. the real value of money decreases; in turn, interest rates increase, which decreases net exports. c. households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods. d. households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.

D

Stock represents a. a claim to a share of the profits of a firm. b. ownership in a firm. c. equity finance. d. All of the above are correct

D

The aggregate quantity of goods and services demanded changes as the price level falls because a. real wealth falls, interest rates rise, and the dollar appreciates. b. real wealth falls, interest rates rise, and the dollar depreciates. c. real wealth rises, interest rates fall, and the dollar appreciates. d. real wealth rises, interest rates fall, and the dollar depreciates.

D

Which of the following shifts aggregate demand to the right? a. an increase in the money supply b. an increase in net exports due to something other than a change in domestic prices c. an investment tax credit d. All of the above are correct.

D

Due to automatic stabilizers, when income rises, government transfer spending:

Decreases and tax revenues increase

The simple tax multiplier is a. 1/MPC b. 1 c. 1/(1 - MPC) d. MPC/(1 - MPC) e. -MPC/(1 - MPC)

E

The federal agency that protects consumers from unsafe drugs, foods, and cosmetics is the a. U.S. Department of Agriculture. b. Food and Drug Administration. c. Federal Trade Commission. d. Consumer Product Safety Commission.

Food and Drug Administration

The economy is ALWAYS producing some level of :

GDP

A

If the MPC is .8 and disposable income is $200, then A) consumption and saving cannot be determined from the information given. B) saving will be $20. C) personal consumption expenditures will be $80. D) saving will be $40.

B

If the MPS is only half as large as the MPC, the multiplier is: A) 2. B) 3. C) 4. D) 5.

C

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule: A) will not shift. B) may shift either upward or downward. C) will shift downward. D) will also shift upward.

The long run aggregate supply curve

In the long run wages have had a chance to change. Peop,e have full information and wages have adjusted to any price changes

Cost-push inflation and falling output

In the mid-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. would experience:

Escape the complications of barter

One major advantage of money serving as a medium of exchange is that it allows society to:

B

Refer to the above table. The change in income in round two will be: A) $4. B) $16. C) $20. D) $24.

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This relationship best describes how the progressive income tax system:

Serves as an automatic stabilizer for the economy

The Federal Open Market Committee (FOMC):

Sets policy on the sale and purchase of government bonds by the Fed

D

Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is: A) 6 percent. B) 8 percent. C) 2 percent. D) 3 percent.

This law allows the President to delay a strike if it threatens the nation's health and safety. a. Landrum-Griffin Act b. Norris Act c. Taft-Hartley Act d. Wagner Act

Taft-Hartley Act

Fiscal policy is enacted through changes in

Taxation and government spending

It consolidates the operations of Wall Street, commercial banks, and other financial institutions

The Wall Street Reform & Consumer Protection Act of 2010 has the following provisions, except:

Horizontal

The immediate-short-run aggregate supply curve is:

2001

The last year when there was a surplus in the actual U.S. Federal budget was in:

Globalization began when a. NAFTA was enacted. b. the World Trade Organization was created. c. corporations began to enter foreign countries. d. U.S. banks developed worldwide branch networks for loans and foreign exchange trading.

U.S. banks developed worldwide branch networks for loans and foreign exchange trading.

Resources

Which would most likely shift the aggregate supply curve? A change in the prices of:

When a country can produce a product at less cost than another country with the same amount of resources, we say it has a. a comparative advantage. b. a smarter labor force. c. an absolute advantage. d. better technology.

absolute advantage

Debit cards

access a checkable deposit, whereas credit cards create a loan that must be repaid

Excess reserves are equal to

actual reserves minus required reserves

The United States has given developing nations monetary assistance a. to increase our own national security. b. to expand our markets for exports. c. to enhance the appeal of democracy and prevent Communism from coming to power. d. All choices are correct.

all choices are correct

Wages are determined by a. skill. b. location of job. c. All choices are correct. d. type of job.

all choices are correct

Excess reserves

can be lent out, increasing the money supply

The difference between nominal and real values is that real values take into account

changes in prices between years.

what shifts SRAS?

changes in production, natural disasters, changes in productivity, changes in taxes

The major claims on a commercial bank's balance sheet are

checkable deposits

At higher rates of interest,

households save more and businesses invest less.

The paper money (notes) issued by the U.S. government is

is fiat money

The amount of money reported as M2:

is larger than the amount reported as M1

What best describes the backing for money in the united states?

the acceptability of it as a medium of exchange

LRAS CAN move but not from any policy strategy. true/false

true

3. In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A. expansion B. recession C. peak D. trough

A

the principal advantage money has over barter is its function as A. a store of value B. a medium of exchange C. unit of account D. debt

B

What shifts the short run aggregate supply?

Changes in cost of production, regulations, technology, productivity, marginal tax rates, external shocks (oil embargo, natural disasters, epidemics)

Which of the following items is not included in either M1 or M2

Currency held in banks

The largest component of the money supply (M1) is:

Currency in circulation

The cyclically-adjusted surplus in the U.S. was +1.1% of GDP in 2000 and +0.5% of GDP in 2001. This suggests that the government during that period:

Cut taxes and increased spending

Unemployment

The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was:

D

Which of the following would shift the investment demand curve to the right? A) a lower interest rate B) lower expected rates of return on investment C) a higher interest rate D) higher expected rates of return on investment

Paper money( currency) in the United States is issued by the:

Federal Reserve Banks

GH

Refer to the consumption schedule above. At income level 3, the amount of consumption is represented by the line segment:

Consider the following statement: "When the price of everything goes up, it is not because everything is worth more but because the currency is worth less." This statement acknowledges that

if the price of everything rises, it means that the currency has less purchasing power

A leftward shift in a supply curve means that supply has a. increased. b. remained stable. c. neither decreased nor increased. d. decreased.

increased

American International Group (AIG) exacerbated the financial crises of 2007-20078 by

issuing billions of dollars of collateralized default swaps that had embedded mortgage-loan risk

Since the 1940s, union membership has a. stayed the same. b. increased. c. not been tracked. d. decreased.

decreased

Decreases in aggregate demand cause recessions and cyclical unemployment, partly because:

the price level and wages tend to be inflexible in a downward direction.

Marketing aimed at creating demand, or convincing consumers that a product is a necessity, began in a. the early 1900s. b. the 1950s. c. the 1990s. d. the 1920s.

1950s

The United States' share of worldwide direct investment is about a. 25%. b. 40%. c. 60%. d. 10%.

40%

Supply to increase

A fall in labor costs will cause aggregate:

As of 2009, most of the U.S. Federal debt was owed to:

Americans

8. Refer to the above information. Money supply M1 for this economy is: A. $60. B. $70. C. $130. D. $140.

C. $130.

The twelve Federal Reserve Banks can best be characterized as:

Central banks, banker's banks, and quasi-public banks

Determinants of aggregate supply: Factors that shift the aggregate supply curve:

Change in Input Prices, Change in Productivity, and Change in Legal-Institutional Environment (changes in taxes and subisidies).

Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

Commercial banks and thrift institutions

When the Federal government cut taxes and increases spending to stimulate the economy during a period of recession, such actions are designed to be:

Countercyclical

Which of the components of M1 is legal tender?

Currency

What is not included in either M1 or M2?

Currency held by banks

M1 money supply:

Currency held by the public plus checkable deposits in commerical banks and thrift insitutions

Wealth effect

In the Great Recession of 2007-2009, the stock market values shrank, causing a reverse:

D

The APC can be defined as the fraction of a: A) change in income that is not spent. B) change in income that is spent. C) specific level of total income that is not consumed. D) specific level of total income that is consumed.

Which one of the following is true about the U.S. Federal Reserve System?

The Federal Open Market Committee (FOMC) has more members than does the Federal Reserve Board of Governors

Member banks

The Federal Reserve Banks are owned by the:

12 districts

The Federal Reserve System is divided into:

Saving more can be bad for the economy during a recession

The Paradox of Thrift highlights the idea that:

A decrease in interest rates

Which of the following may shift the consumption schedule upward?

Supporters of fiscal policy believe that unemployment can be reduced by a. increasing trade. b. increasing taxes or reducing government spending. c. decreasing taxes or increasing government spending. d. decreasing trade.

decreasing taxes or increasing government spending.

Aid given to developing nations that comes in the form of engineers, teachers, and technicians to teach skills is a. technical assistance. b. military assistance. c. economic assistance. d. educational assistance.

technical assistance

If the Fed wants commercial banks to borrow and expand their reserves by a specific amount, what monetary policy tool best guarantees that it will happen?

term auction facility

What would be the slope of the consumption schedule or consumption line for a given economy?

# 1 - MPC

*14-15*

...

25. (Last Word) In recent years: A. significant changes in the price of oil have had much less effect on the U.S. economy than did similar changes in oil prices in previous decades. B. large increases in the price of oil have reduced U.S. aggregate supply and caused significant cost-push inflation. C. large decreases in the price of oil have increased U.S. aggregate supply and caused deflation. D. the United States has become a net exporter of oil.

A. significant changes in the price of oil have had much less effect on the U.S. economy than did similar changes in oil prices in previous decades.

The public debt is the:

Total of all past deficits minus all past surpluses

Macroeconomics is concerned with studying the

behavior of the economy as a whole.

Excess reserves...

can be lent out, increasing the money supply.

Consider the following statement: "Any central bank can create money; the trick is to create enough, but not too much, of it." This statement acknowledges that a central bank

can create too much money, lowering its value and causing inflation

If the U.S. dollar appreciates in value relative to foreign currencies, then this will: Answer increase aggregate demand and aggregate supply. decrease aggregate demand and aggregate supply. decrease aggregate demand and increase aggregate supply. increase aggregate demand and decrease aggregate supply.

decrease aggregate demand and increase aggregate supply.

Completely restricting the trade of a particular item is a/an a. quota. b. embargo. c. GATT. d. tariff.

embargo

A surplus will cause prices to a. remain constant. b. fall. c. rise gradually. d. rise suddenly.

fall

In the short-run:

input prices are fixed, but output prices can vary. The supply curve slopes upward.

If American exporters want more British pounds than the supply of pounds provided by British who want American goods, a. the American dollar will become more expensive in relation to the British pound. b. the American dollar will become less expensive in relation to the British pound. c. it will have no bearing on the value of the American dollar but will increase the value of the British pound. d. it will have no bearing on the value of the British pound but will increase the value of the American dollar.

the American dollar will become less expensive in relation to the British pound.

For several decades, the United States has had a. a trade surplus. b. a trade deficit. c. balanced trade. d. very little trade.

trade deficit

One major point that Keynes raised pertains to income and spending. He argued that:

#

Contractionary fiscal policy would tend to make a budget deficit become:

# a trade surplus

Assume that Jimmy Cash has $2800 in his checking account at Folsom Bank and uses his checking account card to withdraw $280 of cash from the bank's ATM machine. By what dollar amount did the M1 money supply change as a result of this single, isolated transaction?

$0

Suppose that Serendipity Bank has excess reserves of $14,000 and checkable deposits of $150,000. If the reserve ratio is 10 percent, what is the size of the bank's actual reserves?

$29,000

Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of existing financial securities at a geometric rate, specifically from $2 to $4 to $8 to $16 to $32 to $64 over a six-year time period. Over the same period, the value of the assets underlying the securities rose at an arithmetic rate from $2 to $3 to $4 to $5 to $6 to $7. If these patterns hold for decreases as well as for increases, by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $2?

$48

*23-24*

...

*29-30*

...

A normative statement is one that A. is based on the law of averages B. applies only to microeconomics C. applies only to macroeconomics D. is based on value judgments

D

If the government's expenditures exceeded its receipts, it would likely a. lend money to a bank or other financial intermediary. b. borrow money from a bank or other financial intermediary. c. buy bonds directly from the public. d. sell bonds directly to the public.

D

The average price level is measured by a. any real variable. b. the rate of inflation. c. the level of the money supply. d. the CPI or the GDP deflator.

D

The law of demand is illustrated by a demand curve that is A. vertical B. horizontal C. upward sloping D. downward sloping

D

money spent on the purchase of a NEW house is included in the DP as a part of A. household expenditures on durable goods B. personal consumption expenditures C. personal saving D. gross domestic private investment

D

suppose that a new machine tool having a useful life of only one year costs $80,000. the net additional revenue resulting from this tool is expected to be $96000. the expected rate of return on the tool is A. 80% B. 8% C. 2% D. 20%

D

the AD curve slopes downward because A. per unit production costs fall as real GDP increases B. the income and substitution effects are at work C. changes in the determinants of AD alter the amount of real GDP demanded at each price level D. decrease in the price level gives rise to real-balances effects, interest rate effects, and foreign purchases effects that increase the amounts of real GDP supplied

D

the key economic concept that serves as the basis for the study of economics is A. inflation B. unemployment C. money D. scarcity

D

which is an important problem associated with the public debt? A. payments of interest on the debt lead to greater income equality B. interest payments on the debt tend to improve economic incentives to work and produce more unemployment C. govt borrowing to finance the debt may increase the level of private investment D. payment of interest on the debt held by foreigners transfers real resources abroad

D

6.) If the demand curve for product B shifts to the right as the price of product A declines, then: A. both A and B are inferior goods B. A is a superior good and B is an inferior good C. A is an inferior good and B is a superior good D. A and B are complementary goods

D.

7.) From society's point of view, the economic function of profits and losses is to: A. promote the equal distribution of real assets and wealth B. achieve full employment and price level stability C. contribute to a more equal distribution of income D. reallocate resources from less desired to more desired uses

D.

6. Refer to the above data. Assume that before specialization and trade Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be: A. 40 tons of pots. B. 20 tons of tea and 20 tons of pots. C. 20 tons of tea. D. 40 tons of tea.

D. 40 tons of tea.

Money functions as: A. a store of value. B. a unit of account. C. a medium of exchange. D. all of these.

D. all of these

30. Present consumption supported by large trade deficits may come at the expense of: A. permanent debt to foreign interests. B. permanent foreign ownership of formerly U.S. owned assets. C. large sacrifices of future consumption. D. all of these.

D. all of these.

The member of the Federal Reserve Board: A. serve seven-year terms. B. are appointed by the American Economic Association. C. are elected by votes of the 12 presidents of the Federal Reserve Banks. D. are appointed for 14-year terms.

D. are appointed for 14-year terms

In a graph of a money demand curve, which of the following variables is plotted on the vertical axis? A. the rate of return in the stock market B. the rate of price inflation C. the interest rate on 30-year Treasury bills D. the interest rate on liquid assets, like short-term CDs

D. the interest rate on liquid assets, like short-term CDs

28. Refer to the above diagram for the Federal funds market. If the Fed supplies $200 billion in reserves, the equilibrium prime interest rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given.

D. undeterminable with the information given.

With a regressive tax system, as the level of income increases in an economy the average tax rate will

Decrease

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

Both real output and the price level

Decrease aggregate demand and increase aggregate supply

Cost-push inflation is characterized by a(n):

Decrease in aggregate supply and no change in aggregate demand

B

Dissaving means: A) the same thing as disinvesting. B) that households are spending more than their current incomes. C) that saving and investment are equal. D) that disposable income is less than zero.

C

Dissaving occurs where: A) income exceeds consumption. B) saving exceeds consumption C) consumption exceeds income. D) saving exceeds income.

A $20 bill is a:

Federal Reserve Note

In the U.S. economy the money supply is controlled by the:

Federal Reserve System

The paper currencies of the U.S. are also called:

Federal Reserve notes

A federal budget deficit exists when

Federal government spending exceeds tax revenues

When the federal government uses taxation and spending actions to stimulate the economy it is conducting :

Fiscal Policy

Most modern banking systems are based on:

Fractional reserves

Smaller would be the increase in income which results from an increase in consumption spending

Generally speaking, the greater the MPS, the:

Volker Rule

Given the fact that "too big to fail" could translate into "too big to jail", many economists are calling for a return to the separation of high-risk from the low-risk activities in the financial sector. This separation is embodied in the Wall Street Reform and Consumer Protection Act of 2010 in the so-called:

A sharp increase in the natural rate of unemployment

Government actions that were taken in order to stimulate the economy during the Great Recession of 2007-09 included the following, except:

The following are important problems associated with the public debt, except:

Government borrowing to finance the debt may lead to too much private investment

The crowding-out effect arises when:

Government borrows in the money market, thus causing an increase in interest rates

A Federal budget deficit is financed by the:

Government issuance or sale of Treasury securities

A budget surplus means that:

Government revenues are greater than expenditures in a given year

What is Expansionary Fiscal Policy?

Government spending Increases, tax reductions, or both, designed to increase aggregate demand thus raising GDP

The more progressive the tax system, the:

Greater is the built-in stability for the economy

According to the graph on page 519 of your textbook, which developing country has the lowest per capita GDP? a. Haiti b. Malaysia c. Italy d. Pakistan

Haiti

C

If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by: A) $200 billion. B) $300 billion. C) $400 billion. D) $500 billion.

4

If the MPC is 0.75, the multiplier will be:

Aggregate demand increases because net exports increase

If the national incomes of our trading partners increase, then our:

Real GDP increased

In Year 1, the actual budget deficit was $150 billion and the cyclically-adjusted deficit was $125 billion. In Year 2, the actual budget deficit was $130 billion and the cyclically-adjusted deficit was $125 billion. It can be concluded that from Year 1 to Year 2:

Investment expenditures

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S. economy dropped, mostly due to a fall in:

The combination of fiscal policies that would reinforce each other and be most expansionary would be a(n):

Increase in government spending and a decrease in taxes

Which combination of fiscal policy actions would be most likely be offsetting

Increase taxes and government spending

The crowding-out effect suggests that:

Increases in government spending may reduce private investment

Which is the single most important source of U.S. economic growth?

Increases in labor productivity

What is the general relationship between a country's price level and the quantity of its domestic output (real GDP) demanded?

Inverse

The crowding-out effect tends to be stronger when the economy:

Is at, or close to, full employment

United States currency has value primarily because it:

Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

What are included in the functions of the Federal Reserve System?

Issuing Federal Reserve Notes, providing for check collection, and supervising the operation of banks

Which is an important consequence of the public debt of the United States

It leads to fewer incentives to bear risk and innovate

Great Depression

John Maynard Keynes developed the aggregate expenditures model in order to understand the:

As a critique of classical economics

John Maynard Keynes developed the ideas underlying the aggregate expenditures model:

Which of the following is not part of the M2 money supply?

Large time deposits

One of the potential problems with the public debt is that it may:

Lead to added taxes that reduce economic incentives

Suppose the assets of the Silver Lode Bank are $100,000 higher than on the previous day and its net worth is up $20,000. By how much and in what direction must its liabilities have changed from the day before?

Liabilities increased by 80,000

"Near-monies" are included in

M2 only

Money market deposit accuonts are included in:

M2 only

Money eliminates the need for a coincidence of wants in trading primarily through its role as a:

Medium of exchange

Appointed by the President to staggered 14-year terms

Members of the Federal Reserve Board of Governors are:

An increase in the public debt and its subsequent repayment will tend to:

Mildly increase the income inequality in the U.S.

The most important of the Federal Reserve district banks is the:

New York bank

If the government tax revenues change automatically and in a counter-cyclical direction over the course of the business cycle, this would be called a:

Non-Discretionary fiscal policy

What near-monies are included in M2 money supply?

Noncheckable savings deposits, money market deposit accounts, small time deposits, and money market mutual fund balances

Which of the following agencies regulates the workplace environment? a. Environmental Protection Agency b. Food and Drug Administration c. Federal Trade Commission d. Occupational Safety and Health Administration

Occupation Safety and Health Administration

Pessimism could cause aggregate spending to fall short of total output

One major point that Keynes raised pertains to income and spending. He argued that:

Lead to additional future taxes that reduce economic incentives

One of the potential consequences of the public debt is that it may:

D

Other things equal, a decrease in the real interest rate will: A) shift the investment demand curve to the right. B) shift the investment demand curve to the left. C) move the economy upward along its existing investment demand curve. D) move the economy downward along its existing investment demand curve.

Refer to the above diagram. If AD1 shifts to AD2, then the equilibrium output and price level are: Answer P1Q3. P2Q3. C.P1Q2. D.P2Q2. Difficulty: 1 Easy

P2Q2

The council of economic advisers gives economic advice to the:

President

An increase in aggregate supply, with no change in aggregate demand (assume that prices and wages are flexible upward and downward)

Price level drops, and real output increases.

An important routine function of the federal reserve banks is to:

Provide facilities by which commercial banks and thrift institutions may collect checks.

The crowding- out effect from government borrowing to finance the public debt is reduced when

Public investment complements private investment

The Financial Crisis of 2007-2008 started in which sector of the economy?

Real estate and housing sector

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n):

Recognition lag

Surpluses from social sercurity

Reduce the size of the actual budget deficit

Built-in stabilizers:

Reduce the size of the multiplier

B

Refer to the above data. At the $200 level of disposable income: A) the marginal propensity to save is 2.5 percent. B) dissaving is $5. C) the average propensity to save is .20. D) the average propensity to consume is .80.

Less than level 2

Refer to the saving schedule above. Dissaving occurs when disposable income is:

Decrease the equilibrium level of GDP by $400 billion

Refer to the table above. An increase in the real interest rate from 2% to 6% will:

$1,236 billion

Refer to the table above. The size of the M1 money supply is:

$2,080

Refer to the table above. The size of the M1 money supply is:

The Federal Open Market Committee (FOMC) is made up of:

Seven members of the Board of Governors of the Federal reserve system, along with the president of the New York, and four Federal Reserve Banks presidents on a rotating basis

One timing problem with fiscal policy to counter a recession is a "recognition lag" that occurs between the:

Start of the recession and the time it takes to recognize that the recession has started .

A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment?

Structural

A worker who loses a job at a call center because business firms switch the call center to another country is an example of:

Structural unemployment

C

Suppose a family's consumption exceeds its disposable income. This means that its: A) MPC is greater than 1. B) MPS is negative. C) APC is greater than 1. D) APS is positive.

$0.75

Suppose that an economy produces 2400 units of output, employing the 60 units of input, and the price of the input is $30 per unit. Refer to the information above. The per-unit cost of production is:

$0.70

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is:

If the economy is to have automatic stabilizers, when real GDP rises:

Tax revenues should rise

Providing banking services to the general public

The Federal Reserve System performs the following functions, except:

Shifting the consumption schedule down

The Great Recession of 2007-2009 altered the prior behavior of consumers in the economy by:

Why does the short run aggregate supply curve have that shape?

The SRAS is upsloping because in the short run prices may increase by wages DONT . and profit margins rise, and production rises, Rising prices and rising production results in an upsloping SRAS curve.

Decrease, thus partially offsetting the fiscal policy

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would:

D

The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the highest marginal propensity to consume? A) 1 B) 2 C) 3 D) 4

D

The above figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier? A) 1 B) 2 C) 3 D) 4

Inverse relationship between the price level and the quantity of real GDP purchased

The aggregate demand curve shows the:

Directly with the level of disposable income

The amount of consumption in an economy correlates:

C

The average propensity to consume indicates the: A) amount by which income exceeds consumption. B) relationship between a change in saving and the consequent change in consumption. C) percentage of total income that will be consumed. D) percentage of a change in income that will be consumed.

C

The average propensity to save indicates the: A) amount by which income exceeds savings. B) relationship between a change in income and the consequent change in consumption. C) percentage of total income that will be saved. D) percentage of a change in savings that will be consumed.

Disposable income

The consumption schedule shows the relationship of household consumption to the level of:

B

The consumption schedule shows: A) a direct relationship between aggregate consumption and accumulated wealth. B) a direct relationship between aggregate consumption and aggregate income. C) an inverse relationship between aggregate consumption and accumulated financial wealth. D) an inverse relationship between aggregate consumption and aggregate income.

Decrease the effectiveness of an increase in government spending

The crowding-out effect works through interest rates and it tends to:

Short run Equilibrium

The economy is ALWAYS producing some level of GDP. This level of GDP is the short run equilibrium. If it is full employment no policy is needed

Which would tend to reduce to crowding-out effect that occurs when the federal government increases its borrowing to finance a deficit:

The economy is operating at less than full employment

C

The expenditure multiplier is: A) 1/MPC. B) 1/(1 + MPC). C) 1/MPS. D) 1/(1 - MPS).

Government borrowing to finance the debt may lead to too much private investment

The following are important problems associated with the public debt, except:

A major concern with the Social Security trust fund is that:

The fund will be insufficient to cover obligations in one or two decades

C

The investment demand curve will shift to the right as the result of: A) the availability of excess production capacity. B) an increase in business taxes. C) businesses becoming more optimistic about future business conditions. D) an increase in the real interest rate.

Reserch involving industrially advanced countries suggests that:

The less independent the central bank, the higher the average annual rate of inflation

Currency and checkable deposits are:

The major components of money supply M1

The change in real GDP by the initial change in spending

The multiplier can be calculated by dividing:

D

The multiplier effect creates a: A) magnification of the fluctuations in the business cycle B) a larger change in equilibrium GDP from a small change in the investment plans of businesses C) a larger change in equilibrium GDP from a small change in consumption and savings plans of households D) all of the above.

Incurring an internal debt to finance a war like World War II does not pass the true cost of the war on to future generations because:

The opportunity cost of wartime expenditures was borne by the generation that lived during the war

D

The real interest rate can be estimated by: A) subtracting the pure interest rate from the nominal interest rate. B) dividing the nominal interest rate by the consumer price index. C) subtracting the nominal interest rate from the rate of inflation. D) subtracting the rate of inflation from the nominal interest rate.

Price-changes on aggregate demand, while the wealth effect refers to the impact of changes in wealth on aggregate demand

The real-balance effect pertains to the effect of:

1 - MPC = MPS

The relationship between the MPS and the MPC is such that:

Transfer payments

The so-called "negative taxes" are better known as:

The stimulus package caused prices to fall in many sectors

The stimulus package that the government implemented during the Great Recession of 2007-09 did not have as strong an impact on GDP and unemployment as expected, for the following reasons, except:

Aggregate Demand

The total of all spending in the economy

The chairperson of the Federal Reserve Board is selected by the...

U.S. president and confirmed by the Senate.

Which of the following are all assets to a commercial bank?

Vault cash, property, and reserves

What is the long run aggregate supply curve shape?

Vertical because wages have had a chance to change with price change

Net exports rise and contribute to demand-pull inflation

What is the likely result from a depreciation of a nation's currency when its economy is already operating at its full-employment level of output?

1 - MPS

What is the slope of the consumption schedule or consumption line for a given economy?

Unit of account

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a:

Fiscal policy

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Price index is rising and the purchasing power of money is falling

When there is inflation in the economy, it implies that the:

M1

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange?

A

Which of the following is correct? A) APC+APS=1. B) APC+MPS=1. C) APS+MPC=1. D) APS+MPS=1.

A

Which of the following is correct? A) MPC+MPS=1. B) APC+MPS=1. C) APS+MPC=1. D) APS+MPS=1.

A

Which of the following is correct? A) MPC+MPS=APC+APS B) APC+MPS=APS+MPC C) APC+MPC=APS+MPS D) APC-APS=MPC-MPS

C

Which of the following is incorrect? A) The nominal interest rate is the rate of interest expressed in terms of current dollars. B) The real interest rate is the rate of interest expressed in terms of dollars of constant or inflation-adjusted value. C) The nominal interest rate is the real interest rate less the rate of inflation. D) During periods of inflation the nominal interest rate will exceed the real interest rate.

The progressive income tax

Which of the following serves as an automatic stabilizer in the economy?

B

Which of the following will not tend to shift the consumption schedule upward? A) a currently small stock of durable goods in the possession of consumers B) the expectation of a future decline in the consumer price index C) a currently low level of household debt. D) the expectation of future shortages of essential consumer goods.

A

With an MPS of .4, the MPC will be: A) 1.0 minus .4. B) .4 minus 1.0. C) the reciprocal of the MPS. D) .4.

1 - 0.3

With an MPS of 0.3, the MPC will be:

Which of the following is an example of a good? a. an oil change b. a car wash c. a tune-up d. a car

a car

If the full-employment budget shows a deficit of about $100 billion and the actual budget shows a deficit of about $150 billion, it can be concluded that there is;

a cyclical deficit

The prime interest rate

affects investment spending while the Federal funds rate affects overnight borrowing of bank reserves

Non discretionary fiscal policy

changes in expenditures and/or taxes that AUTOMATICALLY occur when GDP changes. Without deliberate action of congress. called "AUTOMATIC STABILIZERS"

The law of __________ states that as a person consumes additional units of a good, eventually the satisfaction gained from each additional unit of the good decreases. a. supply and demand b. quantity demanded c. demand d. diminishing marginal utility

diminishing marginal utility

Checkable deposits are:

included in M1

A higher rate of saving should lead to

more investment, capital growth, and future consumption.

The trend in Latin America in the last two decades has been a. more centralized planning. b. more privatization. c. the rise of more authoritarian governments. d. more government acquisition of private businesses.

more privatization.

Cost push inflation

occurs when the costs of production rise (aggregate supply curve shifts to the right)

A checking account entry is money becuase

performs the functions of money

The Fed could reduce, or contract, the money supply by a. lowering the reserve requirement. b. All choices are correct. c. raising the federal funds rate. d. buying bonds on the open market.

raising the federal funds rate

The discount rate is the interest

rate at which the Federal Reserve Banks lend to commercial banks

Which of the following variables is used to measure economic growth?

real GPD per capita

Any period of at least 6 months in which real GDP does not grow is a. an expansion. b. a recession. c. a depression. d. two quarters.

recession

Mergers tend to a. improve product quality. b. have no effect on competitiveness in the marketplace. c. reduce competition in the marketplace. d. increase competition in the marketplace.

reduce competition in the marketplace

Assume Mountain Star Bank finds that its reserves will be substantially and permanently deficient. To remedy this situation, Mountain Star Bank can

reduce the amount of loans outstanding.

The Federal Reserve requires that commercial banks have reserves because

reserves provide the Fed a means of controlling the money supply

If the economy grows steadily over several years and at the same time maintains the aggregate demand curve in its present position, then the economy will experience which of the following?

secular deflation.

The most common type of business is a. corporation. b. limited partnership. c. sole proprietorship. d. partnership.

sole proprietorship

When rising prices occur simultaneously with high unemployment, it is called a. stagflation. b. demand-pull inflation. c. hyper-inflation. d. inflated unemployment.

stagflation

Which of the following is a characteristic of pure capitalism? a. the basic economic questions are answered by individuals in a decentralized way b. the state owns the means of production c. prices are set by the state d. economic questions are answered by centralized planners

the basic economic questions are answered by individuals in a decentralized way

Checkable deposits include:

the deposits of banks and thrifts on which checks can be written

A vicious cycle of poverty is a a. country that has a high crime rate because it is poor. b. theory that poverty can only be overcome by state planning. c. theory that poverty exists because people are greedy. d. theory that poor nations are poor because they don't invest and save, and that they can't invest and save because they are poor.

theory that poor nations are poor because they don't invest and save, and that they can't invest and save because they are poor.

Buyers and sellers receive signals from markets

through the price system.

Important factors that can affect the elasticity of demand include the availability of substitutes, the percentage of income spent on a good, and a. season. b. time given to adjust to price change. c. the size of the good. d. competition.

time given to adjust to price change

T/F A debit card is money because it accesses a bank account.

true

How many Federal Reserve Banks are there?

12

The Federal Reserve System is divided into:

12 districts

D

172. Refer to the above table. The total change in consumption resulting from the initial change in investment will be: A) $100. B) $96. C) $180. D) $80.

The Federal Reserve followed strict monetarist policy a. in the early 1980s. b. in the late 1990s. c. in the 1960s. d. at its inception in 1913.

1980's

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately:

5.9 percent

Cedar Valley Furniture uses five workers, each working eight hours, to produce eighty rocking chairs. What is the productivity of these workers? a. two chairs per hour b. ten chairs per hour c. sixteen chairs per hour d. eighty chairs e. one hour per chair

A

Economics is a social science concerned with: A. The best use of scarce resources to achieve the maximum satisfaction of economic wants B. Increasing the level of productive resources so there is a minimum level of income C. Increasing the level of productive resources so there is maximum output in society D. The best use of scarce resources paid for at the minimum level of cost to consumers and businesses

A

If expected inflation is constant and the nominal interest rate increases by 2 percentage points, then the real interest rate a. increases by 2 percentage points. b. increases, but by less than 2 percentage points. c. decreases, but by more than 2 percentage points. d. decreases by 2 percentage points. e. decreases, but by less than 2 percentage points.

A

Other things the same, an increase in the amount of capital firms wish to purchase would initially shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.

A

Refer to Optimism. In the short run what happens to the price level and real GDP? a. both the price level and real GDP rise. b. both the price level and real GDP fall. c. the price level rises and real GDP falls. d. the price level falls and real GDP rises. e. the price level falls and real GDP remains the same.

A

The problems of aggregate inflation and unemployment are: A. major topics of macroeconomics B. not relevant to the US economy C. Major topics of microeconomics D. peculiar to command economies

A

What are the three basic functions of money?

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

Proponents of the notion of a "political business cycle" suggest that:

A possible cause of economic fluctuations is due to the use of fiscal policy for political purposes

What function is money serving when you deposit money in a savings account?

A store of value

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning primarily as:

A unit of account

11. The law of supply indicates that: A. producers will offer more of a product at high prices than they will at low prices. B. the product supply curve is downsloping. C. consumers will purchase less of a good at high prices than they will at low prices. D. producers will offer more of a product at low prices than they will at high prices

A.

The value if money varies: A. inversely with the price level. B. directly with the volume of employment. C. directly with the price level. D. directly with the interest rate.

A. inversely with the price of index

The purchasing power of money and the price level vary: A. inversely. B. directly during recessions, but inversely during inflations. C. directly, but not proportionately. D. directly and proportionately.

A. inversely.

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

A. store of value

A $70 price tag on a sweater in a department store window is an example of money functioning as a: A. unit of account. B. standard of deferred payments. C. store of value. D. medium of exchange.

A. unit of account.

A 10 percent reduction in personal income tax rates (with no change in government spending):

Aggregate demand will increase.

A reduction in the economy's real interest rate:

Aggregate demand will increase.

A 12 percent increase in nominal wages (with no change in productivity)

Aggregate supply will decrease.

A sizable depreciation in the international value of the dollar:

Aggregate supply will decrease.

A major increase in federal spending for health care (with no increase in taxes)

Aggregate supply will increase.

A sizable increase in labor productivity (with no change in nominal wages):

Aggregate supply will increase.

Which of the following describes the identity embodied in a balance sheet?

Assets equal liabilities plus net worth

A commercial banks reserves are:

Assets to the commercial bank and liabilities to the Federal Reserve Bank holding them

1. The most important determinant of consumption and saving is the: A. level of bank credit. B. level of income. C. interest rate. D. price level.

B

10. The basic policy-making body in the U.S. banking system is the: A. Federal Open Market Committee (FOMC). B. Board of Governors of the Federal Reserve. C. Federal Monetary Authority. D. Council of Economic Advisers.

B

11. At an annual growth rate of 7 percent, real GDP will double in about: A. 11 ½ years. B. 10 years. C. 13 ½ years. D. 9 years.

B

25. When a bank loan is repaid the supply of money: A. is constant, but its composition will have changed. B. is decreased. C. is increased. D. may either increase or decrease.

B

A schedule or curve that shows the various combinations of two products a consumer can purchase with a specific amount of money income is: A. A tradeoff B. A budget line C. A tangent point D. An optimal output

B

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then a. nominal and real GDP would rise by 5 percent. b. nominal GDP would rise by 5 percent; real GDP would be unchanged. c. nominal GDP would be unchanged; real GDP would rise by 5 percent. d. neither nominal GDP nor real GDP would change.

B

GDP is the market value of A. resources (land, labor, capital, and entrepreneurship) in an economy in a given year B. all final goods and services produced in an economy in a given year C. consumption and investment spending in an economy in a given year D. all output produced and accumulated over the years

B

If the price level increased from 120 to 150, then what was the inflation rate? a. 30 percent b. 25 percent c. 20 percent d. None of the above is correct.

B

In which case can we be sure real GDP rises in the short run? a. the money supply increases and taxes rise b. the money supply increases and taxes fall c. the money supply decreases and taxes rise d. None of the above are correct.

B

Malthus predicted that the power of population a. was greater than the power of the earth to produce subsistence. His forecast was on the mark. b. was greater than the power of the earth to produce subsistence. His forecast was off the mark. c. was less than the power of the earth to produce subsistence. His forecast was on the mark. d. was less than the power of the earth to produce subsistence. His forecast was off the mark.

B

On a production function, as capital per worker increases, output per worker a. increases. This increase is larger at larger values of capital per worker. b. increases. This increase is smaller at larger values of capital per worker. c. decreases. This decrease is larger at larger values of capital per worker. d. decreases. This decrease is smaller at larger values of capital per worker. e. decreases. This decrease is smaller at smaller values of capital per worker.

B

Real GDP measures A. current output at current prices B. current output at base year prices C. base year output at current prices D. base year output at current exchange rates

B

When the interest rate increases, the opportunity cost of holding money a. increases, so the quantity of money demanded increases. b. increases, so the quantity of money demanded decreases. c. decreases, so the quantity of money demanded increases. d. decreases, so the quantity of money demanded decreases. e. decreases, so the quantity of money supplied decreases.

B

Which of the following is real capital? A. A pair of stockings B. A construction crane C. A savings account D. a share of IBM stock

B

government-set price floors and price ceilings A. do not affect the rationing function of price in a free market B. interfere with the rationing function of price in a free market C. result in surpluses of products in markets where they are used D. result in shortages of products in markets where they are used

B

if a country has a larger real GDP than another country, then it should also have a higher real GDP per capita than the other country A. True B. False

B

suppose that real GDP increases by 2% while the population of a country increases by 4%. then A. output per person necessarily increases B. output per person necessarily decreases C. output per person necessarily remains unchanged D. there is not enough info to determine what happens to output per person

B

suppose that real GDP increases by 5% while the population of a country increases by 7%. then A. output per person necessarily increases B. output per person necessarily decreases C. output per person necessarily remains unchanged D. there is not enough info to determine what happens to output per person

B

the monetary value of all final goods and services produced by the US economy during a year is A. NDP B. GDP C. NI D. DI

B

which would shift the consumption schedule upward? A. a decrease in wealth B. an increase in wealth C. consumer expectations of falling prices D. consumer expectations of product surpluses

B

10.) By an increase in demand we mean that: A. product price has fallen so consumers move down to a new point on the demand curve B. the quantity demanded at each price in a set of prices is greater C. the quantity demanded at each price in a set of prices is smaller D. a leftward shift of the demand curve has occurred

B.

12.) The most efficient combination of resources in producing any output is the combination that: A. comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability B. can be obtained for the smallest monetary outlay C. uses the smallest total quantity of all resources D. conserves most on the use of labor

B.

13. Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to: A. rise, the supply of bread to increase, and the demand for potatoes to increase. B. rise, the supply of bread to decrease, and the demand for potatoes to increase. C. rise, the supply of bread to decrease, and the demand for potatoes to decrease. D. fall, the supply of bread to increase, and the demand for potatoes to increase.

B.

16. At the current price there is a shortage of a product. We would expect price to: A. increase, quantity demanded to increase, and quantity supplied to decrease. B. increase, quantity demanded to decrease, and quantity supplied to increase. C. increase, quantity demanded to increase, and quantity supplied to increase. D. decrease, quantity demanded to increase, and quantity supplied to decrease.

B.

4.) A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that: A. beer and marijuana are substitute goods B. beer and marijuana are complimentary goods C. beer is an inferior good D. marijuana is an inferior good

B.

8.) If consumer incomes increase, the demand for product X: A. will necessarily remain unchanged B. may shift either to the right or left C. will necessarily shift to the right D. will necessarily shift to the left

B.

23. In the above table, equilibrium GDP is: A. $40. B. $70. C. $100. D. $130.

B. $70.

22. In the above table, the after-tax MPC in the economy shown is: A. .5. B. .67. C. .75. D. .8.

B. .67.

Suppose that the Federal Reserve sells $500 in U.S. Treasury bills, and as a result the money supply falls by $5,000. The reserve ratio is: A. 100. B. 0.1. C. 10. D. 0.5.

B. 0.1

Currency (paper money plus coins) constitutes about: A. 67 percent of the U.S. M1 money supply. B. 51 percent of the U.S. M1 money supply. C. 49 percent of the U.S. M1 money supply. D. 33 percent of the U.S. M1 money supply.

B. 51 percent of the U.S. M1 money supply.

The Board of Governors of the Federal Reserve has ___ members. A. 5 B. 7 C. 9 D. 14

B. 7

17. If the MPC is 2/3, the initial impact of an increase of $12 billion in lump-sum taxes will be to cause: A. a rightward shift in the investment demand schedule. B. an $8 billion downshift in the consumption schedule. C. a $4 billion upshift in the consumption schedule. D. a $12 billion downshift in the consumption schedule.

B. an $8 billion downshift in the consumption schedule.

A bond is considered: A. a liability that is part of the money supply. B. an asset that is not part of the money supply. C. M1. D. M2.

B. an asset that is not part of the money supply

14. The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. of commercial banks are both unchanged.

B. and reserves of commercial banks both decrease.

Near-monies: A. include all financial and real assets that can be easily converted into currency. B. are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1. C. are excluded from M2 because they are highly liquid. D. are defined as monetary balances that are immediately available, at zero cost, for household and business transactions.

B. are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.

The discount rate is the interest rate the Fed charges on loans to: A. consumers. B. banks. C. the federal government. D. state governments.

B. banks

What are "mortgage-backed securities?" A. Company stock shares for financial institutions that lend to home buyers. B. Bonds backed by mortgage payments. C. Treasury bills and savings bonds that banks sold to maintain liquidity during the mortgage default crisis. D. Insurance against mortgage loan defaults.

B. bonds backed by mortgage payments.

37. If the economy were encountering a severe recession, proper monetary and fiscal policies would call for: A. selling government securities, raising the reserve ratio, lowering the discount rate, increasing reserves available through the term auction facility, and a budgetary surplus. B. buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit. C. buying government securities, raising the reserve ratio, raising the discount rate, reducing reserves available through the term auction facility, and a budgetary surplus. D. buying government securities, reducing the reserve ratio, raising the discount rate, reducing reserves available through the term auction facility, and a budgetary deficit.

B. buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit.

The largest component of the money supply (M1) is: A. currency in bank vaults. B. currency in circulation. C. checkable deposits. D. stock certificates.

B. currency in circulation

20. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's: A. assets are $1,000. B. liabilities are $1,000. C. net worth is zero. D. profit is $1,000.

B. liabilities are $1,000.

If the Federal Reserve wants to increase the money supply, it will: A. sell U.S. Treasury bills. B. lower the reserve requirement. C. cut taxes across the board. D. increase the discount rate.

B. lower the reserve requirement

15. Appreciation of the Canadian dollar will: A. intensify an existing disequilibrium in Canada's balance of payments. B. make Canada's exports less expensive and its imports more expensive. C. make Canada's exports more expensive and its imports less expensive. D. make Canada's exports and imports both more expensive.

B. make Canada's exports less expensive and its imports more expensive.

11. If a nation has a comparative advantage in the production of X, this means the nation: A. cannot benefit by producing and trading this product. B. must give up less of other goods than other nations in producing a unit of X. C. has a production possibilities curve identical to those of other nations. D. is not subject to increasing opportunity costs.

B. must give up less of other goods than other nations in producing a unit of X.

The tool of monetary policy that involves the Fed's buying and selling of government bonds is: A. the discount rate. B. open-market operations. C. moral suasion. D. reserve requirements.

B. open-market operations

13. Refer to the above data. The domestic opportunity cost of: A. producing a ton of chips in Alpha is 1/5of a ton of fish. B. producing a ton of chips in Beta is 6 tons of fish. C. catching a ton of fish in Alpha is 5 tons of chips. D. catching a ton of fish in Beta is 6 tons of chips.

B. producing a ton of chips in Beta is 6 tons of fish.

39. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from MS1 to MS3? A. an increase in the discount rate B. purchases of U.S. securities by the Fed in the open market C. sales of U.S. securities by the Fed in the open market D. an increase in the reserve ratio

B. purchases of U.S. securities by the Fed in the open market

15. If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: A. the money supply has declined. B. the price level is inflexible downward and a recession has occurred. C. cost-push inflation has occurred. D. productivity has declined.

B. the price level is inflexible downward and a recession has occurred.

To say that coins are "token money" means that: A. their face value is less than their intrinsic value. B. their face value is greater than their intrinsic value. C. their face value is equal to their intrinsic value. D. they are not legal tender.

B. their face value is greater than their intrinsic value.

In a fractional reserve banking system:

Banks can create money through lending process

The current chairperson of the Board of Governors of the Federal Reserve System is

Ben Bernanke.

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks

The basic policy making body in the U.S. banking system is the:

Board of Governors of the Federal Reserve

What are "mortgage-backed securities?"

Bonds backed by mortgage payments

The economic burden of World War II for the United States was primarily:

Borne by the persons who lived during the war period

If government tax revenues automatically change in a countercyclical direction over the course of the business cycle, this would be called a(n):

Built-in fiscal stabilization

Which of the following is an example of a franchise business operation? a. Kmart b. The Gap c. JC Penny d. Burger King

Burger King

10. Given the annual rate of economic growth, the "rule of 70" allows one to: A. determine the accompanying rate of inflation. B. calculate the size of the GDP gap. C. calculate the number of years required for real GDP to double. D. determine the growth rate of per capita GDP.

C

13. In 1933 net private domestic investment was a minus $6.0 billion. This means that: A. gross private domestic investment exceeded depreciation by $6.0 billion. B. the economy was expanding in that year. C. the production of 1933's GDP used up more capital goods than were produced in that year. D. the economy produced no capital goods at all in 1933.

C

14. A large negative GDP gap implies: A. an excess of imports over exports. B. a low rate of unemployment. C. a high rate of unemployment. D. a sharply rising price level.

C

15. If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: A. $360 billion. B. $660 billion. C. $320 billion. D. $20 billion.

C

18. In a mixed open economy the equilibrium GDP exists where: A. Ca + Ig + Xn intersects the 45-degree line. B. Ca + Ig = Sa + T + X. C. Ca + Ig + Xn + G = GDP. D. Ca + Ig + Xn = Sa + T.

C

18. Real GDP per capita in the United States (as of 2007) exceeds that of France primarily because: A. the United States had higher annual rates of growth than France from 1960 through 2007. B. the United States has a much larger population than France. C. the United States has a higher percentage of the working-age population in the labor force and because U.S. employees average about 20 percent more hours worked per year. D. European Union rules severely limit France's access to technologies developed outside the region.

C

25. Suppose the multiplier is 4 and lump-sum taxes are increased by $16 in a closed economy. We can predict that: A. GDP will increase by $64. B. GDP will decrease by $64. C. the aggregate expenditures schedule will shift downward by $12. D. inflation will occur.

C

26. If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will: A. decrease GDP by $20. B. decrease GDP by $40. C. increase GDP by $20. D. increase GDP by $40.

C

26. The amount of after-tax income received by households is measured by: A. discretionary income. B. national income. C. disposable income. D. personal income.

C

4. Which of the following best measures improvements in the standard of living of a nation? A. growth of nominal GDP B. growth of real GDP C. growth of real GDP per capita D. growth of national income

C

7. Other things equal, an improvement in productivity will: A. shift the aggregate demand curve to the left. B. shift the aggregate supply curve to the left. C. shift the aggregate supply curve to the right. D. increase the price level.

C

A schedule which shows the various amounts of a product producers are willing and able to produce at each price in a series of possible prices during a specified period of time is called A. quantity supplied B. quantity demanded C. supply D. demand

C

An understanding of the best ways to produce goods and services is called a. human capital. b. physical capital. c. technology. d. productivity. e. capital stock.

C

Households and businesses are: A. both buyers in the resource market B. both sellers in the product market C. sellers in the resource and product markets respectively D. sellers in the product and resource markets respectively

C

If an economy is at its potential output level, which of the following is not true? a. The economy is at its full-employment output level. b. Unemployment is at the natural level. c. The price level is zero. d. The output level being produced can be sustained indefinitely given the economy's resources and technology. e. The only unemployment is frictional, structural, or seasonal.

C

If the economy is currently at equilibrium at $1 trillion and the MPC is 0.6, a $100 decrease in government purchases of goods and services will result in a new equilibrium at a. $600 billion b. $400 billion c. $750 billion d. $1.4 trillion e. $1.6 trillion

C

If two goods are complements A. they are consumed independently B. an increase in the price of one will increase the demand for the other C. a decrease in the price of one will increase the demand for the other D. they are necessarily inferior goods

C

In 2009 Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand right? a. only the increased funding for states b. only the tax cuts c. both the increased funding for states and the tax cuts d. neither the increased funding for states nor the tax cuts

C

In the short run, an increase in the money supply causes interest rates to a. increase, and aggregate demand to shift right. b. increase, and aggregate demand to shift left. c. decrease, and aggregate demand to shift right. d. decrease, and aggregate demand to shift left. e. decrease, and aggregate supply to shift left.

C

Kathleen is considering expanding her dress shop. If interest rates rise she is a. less likely to expand. This illustrates why the supply of loanable funds slopes downward. b. more likely to expand. This illustrates why the supply of loanable funds slopes upward. c. less likely to expand. This illustrates why the demand for loanable funds slopes downward. d. more likely to expand. This illustrates why the demand for loanable funds slopes upward.

C

Keynes believed that economies experiencing high unemployment should adopt policies to a. reduce the money supply. b. reduce government expenditures. c. increase aggregate demand. d. increase aggregate supply.

C

Last year, real GDP per person in the imaginary nation of Olympus was 4,500. The year before it was 4,250. By about what percentage did Olympian real GDP per person grow during the period? a. 4.6 percent b. 5.2 percent c. 5.9 percent d. 6.5 percent e. 9.5 percent

C

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else, a. their consumption expenditures are being financed by someone else's saving. b. their consumption expenditures are being financed by someone else's investment. c. their investments are being financed by someone else's saving. d. their saving is being financed by someone else's investment.

C

Other things the same, a government budget deficit a. reduces public saving, but not national saving. b. reduces national saving, but not public saving. c. reduces both public and national saving. d. reduces neither public saving nor national saving.

C

Paper money a. has a high intrinsic value. b. is the primary medium of exchange in a barter economy. c. is valuable because it is generally accepted in trade. d. is valuable only because of the legal tender requirement. e. is only valuable because it is backed by gold.

C

Productivity is defined as a. the amount of difficulty that is involved in producing a given quantity of goods and services. b. the quantity of labor that is required to produce one unit of goods and services. c. the quantity of goods and services produced from each unit of labor input. d. the quantity of goods and services produced over a given amount of time. e. the quantity of labor required to produce GDP per person.

C

Real gross domestic product A. is a measure of inflation B. will increase if there is an increase in the price level C. will increase if there is an increase in the level of output D. can change from one year to the next even if there is no change in output

C

The aggregate demand and aggregate supply graph has a. the price level on the horizontal axis. The price level can be measured by the GDP deflator. b. the price level on the horizontal axis. The price level can be measured by real GDP. c. the price level on the vertical axis. The price level can be measured by the GDP deflator. d. the price level on the vertical axis. The price level can be measured by nominal GDP. e. the price level on the vertical axis. The price level can be measured by real GDP.

C

The idea that firms and resource suppliers in seeking to further their own self-interests in a competitive market economy also simultaneously promotes the public or social interest is a description of: A. the guiding function of prices B. capital accumulation C. the "invisible hand" D. "dollar votes"

C

The purchase of a new house is the one form of a. investment that is financed by private saving rather than public saving. b. household spending that is not counted as part of investment in the national income accounts. c. household spending that is investment rather than consumption. d. household spending that does not contribute to GDP.

C

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that a. the credit risk associated with Bond A is lower than the credit risk associated with Bond B. b. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation. c. Bond A has a term of 20 years and Bond B has a term of 2 years. d. All of the above are correct.

C

securitization refers to A. buying and selling securities B. insurance against potential losses due to defaults C. bundling loans, mortgages, and corporate bonds into new securities D. all of the above

C

stabilizing a nation's price level and the purchasing power of its money can be achieved A. only with fiscal policy B. only with monetary policy C. with both fiscal and monetary policy D. with neither fiscal nor monetary policy

C

suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to real GDP? A. real GDP doubles B. real GDP is halved C. real GDP doesnt change D. not enough info to determine

C

suppose the total monetary value of all final goods and services PRODUCED in a particular country in 2008 is $500 billion and the total monetary value of final goods and services SOLD is $450 billion. we can conclude that A. GDP in 2008 is $450 bil B. NDP in 2008 is $450 bil C. GDP in 2008 is $500 bil D. inventories in 2008 fell by $50 bil

C

the term 'shock' A. always refers to an unexpectedly bad event B. always refers to an increase in inflation C. does not tell us whether what has happened is unexpectedly bad or good D. always refers to a decrease in real GDP and an increase in unemployment

C

what is the primary reason that changes in total spending lead to cyclical changes in output and employment? A. government is unable to respond by changing the amount of money in circulation B. changes in total spending cause supply shocks that cause cyclical variation C. prices are sticky in the short run D. prices are flexible in the long run

C

when the price of oil declines significantly, the price of gasoline also declines. the latter occurs because of a(n) A. increase in the demand for gasoline B. decrease in the demand for gasoline C. increase in the supply of gasoline D. decrease in the supply of gasoline

C

which of the following expressions best states the idea of opportunity cost? A. a penny saved is a penny earned B. he who hesitates is lost C. there is no such thing as a free lunch D. all that glitters is not gold

C

15. If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will: A. increase the supply of X and decrease the demand for X. B. increase the demand for X and decrease the supply of X. C. increase the quantity supplied and decrease the quantity demanded of X. D. decrease the quantity supplied of X and increase the quantity demanded of X.

C.

17. Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will: A. decrease, quantity demanded will decrease, and quantity supplied will increase. B. decrease and quantity demanded and quantity supplied will both decrease. C. decrease, quantity demanded will increase, and quantity supplied will decrease. D. increase, quantity demanded will decrease, and quantity supplied will increase.

C.

19.) Consumer sovereignty refers to the: A. fact that resource prices are higher than product prices in capitalistic economies. B. idea that the pursuit of self-interest is in the public interest. C. idea that the decisions of producers and resource suppliers with respect to the kinds and amounts of goods produced must be appropriate to consumer demands.

C.

2. Suppose the total market value of all final goods and services produced in a particular country in 2006 was $500 billion and the total market value of final goods and services sold was $450 billion. We can conclude that: A. GDP in 2006 was $450 billion. B. NDP in 2006 was $450 billion. C. GDP in 2006 was $500 billion. D. inventories in 2006 fell by $50 billion.

C.

21. If the supply and demand curves for a product both decrease, then equilibrium: A. quantity must fall and equilibrium price must rise. B. price must fall, but equilibrium quantity may either rise, fall, or remain unchanged. C. quantity must decline, but equilibrium price may either rise, fall, or remain unchanged. D. quantity and equilibrium price must both decline

C.

Small-denominated time deposits, by definition: A. mature in one month or less. B. mature in one year or less. C. are less than $100,000. D. are held by state and local banks only.

C. are less than $100,000.

5. The aggregate supply curve (short-run) is upsloping because: A. wages and other resource prices match changes in the price level. B. the price level is flexible upward but inflexible downward. C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output. D. wages and other resource prices are flexible upward but inflexible downward.

C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

11. In prosperous times commercial banks are likely to hold very small amounts of excess reserves because: A. the Fed wants commercial banks to increase the money supply during economic expansions. B. it is very costly to transfer funds between commercial banks and the central banks. C. the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves. D. the Federal Reserve Banks want to minimize their interest payments on such deposits.

C. the Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

In a private closed economy, national income is $4.5 trillion and savings equals $6.4 billion. Based on this data, the marginal propensity to consume:

#

In the expansion phase of a business cycle: Employment increases, but output decreases Employment and output increase The inflation rate decreases, but productive capacity increases The inflation rate and productive capacity decrease

#

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to:

#

An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be:

# 0.75 and the multiplier is 4

During a recession, fiscal policy is typically:

# Counter-cyclical at the Federal level and pro-cyclical at the state level

The crowding-out effect arises when:

# Government borrows in the money market, thus causing an increase in interest rates

A public debt which is owed to foreigners can be burdensome because:

# Payment of interest reduces the volume of goods and services available for domestic uses

If the crowding-out effect is at its maximum strength, it follows that an increase in government spending would:

# ause aggregate demand and GDP to decrease

One major economic benefit of global competition is:

#74

2. If you place a part of your summer earnings in a savings account, you are using money primarily as a: A. medium of exchange. B. store of value. C. unit of account. D. standard of value.

B

22. The multiplier effect indicates that: A. a decline in the interest rate will cause a proportionately larger increase in investment. B. a change in spending will change aggregate income by a larger amount. C. a change in spending will increase aggregate income by the same amount. D. an increase in total income will generate a larger change in aggregate expenditures.

B

as a percent of GDP, the US public debt is A. the highest among major industrial nations B. the lowest among major industrial nations C. lower than several other major industrial nations D. higher than the percentages for canada, germany, and italy

C

Which of the following would cause a rightward shift of the aggregate demand curve? a. an increase in planned investment b. a drop in the price level c. a rise in the price level d. a decrease in autonomous consumption e. anything that causes an upward shift in the saving function

A

Economy's aggregate supply curve is steep

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the:

23. Refer to the above information. If Moolah Bank is legally "loaned up," the reserve requirement must be: A. 10 percent. B. 15 percent. C. 20 percent. D. 25 percent.

A. 10 percent.

C

As aggregate income decreases, the APC: A) and APS will both increase. B) will decrease, but the APS will increase. C) will increase, but the APS will decrease. D) and APS will both decrease.

Consider the following statement: "Whenever currency is deposited into a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced." Is this statement true or false?

False because the M1 money supply consists of currency outside of the banks and checking account deposits of the public in commercial banks.

As it relates to the Federal Reserve activities,the acronym FOMC describes the:

Federal Open Market Committee

The Fed currently focuses monetary policy on the...

Federal funds rate.

Which of the following statement is true?

Fiscal and monetary policy both influence the aggregate demand

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Fiscal policy

Potential GDP is the output that would be produced if the economy was experiencing:

Full employment

The standardized budget is also called the:

Full-employment budget

Refinancing and taxation

The two reasons why bankruptcy is a false concern about the public debt are:

Changes in bank reserves resulting from open-market operations by the Fed

change lending ability and the ability to create money.

The major claims on a commercial bank's balance sheet are...

checkable deposits.

Sam's Club is an example of a/an a. direct marketer. b. club warehouse. c. wholesaler. d. Internet marketer.

club warehouse

If the prices of imported resources decrease, then this event would most likely: Answer decrease aggregate supply. increase aggregate supply. increase aggregate demand. decrease aggregate demand.

increase aggregate supply.

If the government pursues a "tight" money policy, then it will:

increase domestic interest rates, cause the dollar to appreciate, and decrease net exports

A decrease in the reserve requirement causes the size of the money multiplier to

increase, the amount of excess reserves in the banking system to rise, and the money supply to increase

Since the founding of the United States, the role of government in the economy has a. had no impact on individual economic choices. b. been eliminated. c. increased. d. decreased.

increased

When the required reserve ratio is decreased, the excess reserves of member banks are

increased and the multiple by which the commercial banking system can lend is increased

Full employment, high economic growth, and price stability are compatible with one another if:

increases in AS are sufficient to balance growing AD.

If the economy is operating at a point at which short-run aggregate supply is horizontal, then

increases in aggregate demand do not increase the price level.

If the federal funds rate;

increases, the prime rate increases

Supporters of fiscal policy believe that inflation can be reduced by a. increasing trade. b. decreasing trade. c. decreasing taxes or increasing government spending. d. increasing taxes or reducing government spending

increasing taxes or reducing government spending

A loan that will be repaid in 1 to 10 years is a. long-term financing. b. intermediate-term financing. c. short-term financing. d. a grant.

intermediate-term financing

Before obtaining capital, financial managers should consider market climate and a. interest rates. b. government regulations. c. production history. d. company reputation.

intrest rates

The purchasing power of money is

inversely related to the price level

The purchasing power of the dollar is...

inversely related to the price level.

The monetary multiplier is

inversely related to the reserve ratio

The monetary multiplier is...

inversely related to the reserve ratio.

If the Federal Reserve System buys government securities from commercial banks and the public

it will be easier to obtain loans at commercial banks

What is considered a strength of monetary policy compared to fiscal policy?

it's protection from political pressure

The number of building permits issued for private housing is a/an a. inflationary indicator. b. coincident indicator. c. leading indicator. d. lagging indicator.

leading indicators

Which of the following is not a main force behind business fluctuations? a. leading indicators b. external factors c. government activity d. business investment

leading indicators

Which of the following is a characteristic of pure socialism? a. taxation is used to redistribute income b. the basic economic questions are answered by individuals in a decentralized way c. prices seek their own level as determined by supply and demand d. private property rights exist and are enforced by law

taxation is used to redistribute income

Important factors that can cause supply curves to shift include input prices, technology, and a. imports. b. demand. c. taxes. d. consumer preferences.

taxes

*6*

...

Checkable deposits are included in:

both M1 and M2

Checkable deposits are:

included in M1 and in M2

*7*

...

*7-9*

...

*9*

...

*9-12*

...

*9-14*

...

*Check number 14, Chpt. 3*

...

*Chpt 3 19 and 20 - GRAPH*

...

What is the monetary multiplier?

1 / reserve ratio

United States currency is a. representative money. b. gold reserve money. c. fiat money. d. commodity money.

fiat money

In the Great Recession of 2007-2009, the aggregate expenditures schedule in the U.S. economy dropped, mostly due to a fall in:

#

*21*

...

*23 Chpt 3*

...

*30*

...

*34-37*

...

*4-5*

...

*40-45*

...

*2-4*

...

*20*

...

The 3 "effects"

1. real balance effect - as price level falls, consumers real balances are worth more and they spend more 2. interest rate effect- price levels fall, interest rates also fall, this increases business spending 3. foreign trade effect- as price levels fall, us goods are more attractive to foreign buyers and so net exports will increase

When was the Federal Reserve System established?

1913

"Leaning against the wind" is exemplified by a a. tax cut when there is a recession. b. decrease in the money supply when there is a recession. c. decrease in government expenditures when there is a recession. d. increasing money supply when there is a boom.

A

1. Economic growth is best defined as an increase in: A. either real GDP or real GDP per capita. B. nominal GDP. C. total consumption expenditures. D. wealth in the economy.

A

Which statement is correct? A. Freedom of choice and enterprise are essential elements of the market system B. Producers are "kings" in a market economy because they determine what is produced C. The market system is efficient at allocation of resources, but not consumer goods to their most valued uses D. the operation of a market system eventually results in an equal distribution of income

A

a bank owns a 10 story office building. in the bank's balance sheet, this would be an example of A. an asset B. a liability C. capital stock D. a checkable deposit

A

3.) Which of the following is a fundamental characteristic of the market system? A. property rights B. central planning by government C. unselfish behavior D. government-set wages and prices

A.

15. The commercial banking system has excess reserves of: A. $0 billion. B. $30 billion. C. $60 billion. D. $70 billion.

A. $0 billion.

The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. Reference: Ref 25-04 (Scenario: Money Creation) What is the maximum expansion in the money supply possible? A. $4,000 B. $5,000 C. $1,800 D. $1,000

A. $4000

25. Refer to the above information and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans by: A. $100. B. $90. C. $900. D. $1,000.

B. $90.

If P equals the price level expressed as an index number and SV equals the value of the dollar then: A. P = $V - 1. B. $V = 1/P. C. 1 = $V/P. D. $V = P - 1.

B. $V=1/P

The basic policy-making body in the U.S. banking system us the: A. Federal Open Market Committee (FOMC). B. Board of Governors of the Federal Reserve. C. Federal Monetary Authority. D. Council of Economic Advisers.

B. Board of Governors of the Federal Reserve.

To say money is socially defined means that: A. money has been defined in a Constitutional amendment. B. whatever performs the functions of money extremely well is considered to be money. C. the money supply includes all public and private securities purchased by society. D. society, acting through Congress, specifies what shall be included in the money supply.

B. whatever performs the functions of money extremely well is considered to be money.

11. The ZZZ Corporation issued $25 million in new common stock in 2004. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment: A. of $7 million has occurred. B. of $25 million has occurred. C. of $18 million has occurred. D. has not occurred.

C

12. The type of unemployment associated with recessions is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. seasonal unemployment.

C

22. With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will: A. increase equilibrium price and quantity. B. decrease equilibrium price and quantity. C. decrease equilibrium price and increase equilibrium quantity. D. increase equilibrium price and decrease equilibrium quantity.

C.

37. A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that: A. labor costs and product prices are not related. B. there is no discernible relationship between wage rates and labor productivity. C. wage rates and labor productivity are directly related. D. wage rates and labor productivity are inversely related.

C. wage rates and labor productivity are directly related.

1. The aggregate demand curve: A. is upsloping because a higher price level is necessary to make production profitable as production costs rise. B. is downsloping because production costs decline as real output increases. C. shows the amount of expenditures required to induce the production of each possible level of real output. D. shows the amount of real output that will be purchased at each possible price level.

D

12. The members of the Federal Reserve Board: A. serve seven-year terms. B. are appointed by the American Economic Association. C. are elected by votes of the 12 presidents of the Federal Reserve Banks. D. serve 14-year terms.

D

Refer to Optimism. In the long run, the change in price expectations created by optimism shifts a. long-run aggregate supply right. b. long-run aggregate supply left. c. short-run aggregate supply right. d. short-run aggregate supply left. e. short-run aggregate supply left and long-run aggregate supply right.

D

The Federal Reserve System was created in: A. 1926. B. 1946. C. 1895. D. 1913.

D. 1913

10. The equilibrium interest rate is: A. 2 percent. B. 4 percent. C. 6 percent. D. 8 percent.

D. 8 percent.

Which of the following is not part of the M2 money supply? A. money market mutual fund balances B. money market deposit accounts C. currency D. large-denominated time deposits

D. large-denominated time deposits

If autonomous consumption rises by $0.8 trillion and the marginal propensity to consume (MPC) equals 3/4, the equilibrium level of output demanded will rise by a. $0.2 trillion b. $0.6 trillion c. $1.07 trillion d. $2.4 trillion e. $3.2 trillion

E

If the Federal Open Market Committee decides to decrease the money supply, then the Federal Reserve a. creates dollars and uses them to purchase government bonds from the public. b. buys government bonds from its portfolio to the public. c. creates dollars and uses them to purchase various types of stocks and bonds from the public. d. buys various types of stocks and bonds from its portfolio to the public. e. destroys dollars by selling government bonds to the public.

E

B

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is: A) 4. B) 5. C) 3.33. D) 2.5

A

If a $50 billion decrease in investment spending causes income to decline by $50 billion in the first round of the multiplier process and by $25 in the second round, the multiplier in the economy is: A) 2. B) 3.33. C) 5. D) 10.

A

If a public assistance plan has a benefit-reduction rate of 50 percent and the break-even income is $12,000, the plan's minimum annual income must be: A) $6,000. B) $24,000. C) $10,500. D) $8,000.

A

If both the real interest rate and the nominal interest rate are 3 percent, then the: A) inflation premium is zero. B) real GDP must exceed the nominal GDP. C) nominal GDP must exceed real GDP. D) inflation premium also is 3 percent.

C

If for some reason households become increasingly thrifty, we could show this by: A) a downshift of the saving schedule. B) an upshift of the consumption schedule. C) an upshift of the saving schedule. D) an increase in the equilibrium GDP.

$20 billion

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by:

C

If the MPC is .6, the multiplier will be: A) 4.0. B) 6.0. C) 2.5. D) 1.67.

The American Recovery and Reinvestment Act of 2009 included mostly:

Increases in government spending and decreases in taxes

The real-balances effect suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange?

M1

The goldsmith's ability to create money was based on the fact that:

Paper money in the form of gold receipts was rarely redeemed for gold.

If GDP exceeds aggregate expenditures in a private closed economy:

Planned investment will exceed saving

When there is inflation in the economy, it implies that the:

Price index is rising and the purchasing power of money is falling

B

Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in saving.

B

Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a: A) increase in real GDP. B) reverse wealth effect, caused by a decrease in stock market prices. C) decrease in income tax rates. D) decrease in saving.

C

Refer to the above table. The marginal propensity to save is: A) .5. B) .25. C) .2. D) .1.

C

Refer to the above table. The multiplier in this economy is: A) 2. B) 4. C) 5. D) 10.

A

Refer to the above table. The total change in income resulting from the initial change in investment will be: A) $100. B) $20. C) $80. D) $200.

Move the economy from point B towards point A

Refer to the figure above. The economy is at equilibrium at point B. What would expansionary fiscal policy do?

Move the economy to point A

Refer to the graph above, which shows an aggregate demand. If the economy is at point C and the price level increases by 100, then the wealth, interest-rate, and foreign purchases effects will:

Cost-push inflation in the mid-1970s

Refer to the graph above. A shift from AS1 to AS2 would be consistent with what economic event in U.S. history?

Potential positive and negative effects on long-run productivity growth

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Which of the following statements is true?

There is no concrete backing to the money supply in the United States

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

Unit of account

What shape does the Short run aggregate supply curve have?

Upsloping

B

Which of the following would shift the investment demand curve to the left? A) a lower interest rate B) lower expected rates of return on investment C) a higher interest rate D) higher expected rates of return on investment

If the dollar appreciates in value relative to foreign currencies: Answer aggregate demand decreases. aggregate demand increases. the quantity of real domestic output demanded increases. the quantity of real domestic output demanded decreases.

aggregate demand decreases.

The three stages of economic development occur in what order? a. agricultural stage, manufacturing stage, service stage b. agricultural stage, manufacturing stage, computer stage c. agricultural stage, service stage, manufacturing stage d. manufacturing stage, service stage, agricultural stage

agricultural stage, manufacturing stage, service stage

When firms from different countries work together in a joint venture, it is referred to as a/an a. multinational firm. b. alliance. c. blended deal. d. global venture.

alliance

The goal of economic freedom is to a. ensure that businesses don't fail. b. give government a large role in the economy. c. allow people to make choices. d. limit competition.

allow people to make choices

When the U.S. stock market falters, other nations' stock markets a. are unaffected. b. also falter. c. benefit. d. are closed as a precaution

also falter

The Federal Reserve System regulates the money supply primarily by

altering the reserves of commercial banks, largely through sales and purchases of government bonds.

A savings account is insured by a. private insurance corporations and agencies. b. individual banks and financial institutions. c. state agencies. d. an agency of the federal government.

an agency of the federal government

Subprime mortgage loans were one of the factors that exacerbated the financial crisis of 2007-2008 because they resulted in

an increase in demand for housing and a rapid increase in home prices that was unsustainable

Which of the following is a product that Guatemala has a comparative advantage at producing when compared with the United States? a. computers b. nuclear power plants c. airplanes d. bananas

bananas

The Federal funds rate is the interest rate that the...

banks charge one another on overnight loans, whereas the prime interest rate is the interest rate banks charge on loans to their most creditworthy customers.

The banking system in the United States is referred to as a fractional reserve bank system because

banks hold a fraction of deposits on reserve

If the New York Federal Reserve Bank purchases government securities from private businesses and consumers and the businesses and consumers hold the proceeds as cash, then commercial reserves will...

be unaffected.

The benefit of borrowing is a. the interest the borrower has to pay on the loan. b. increasing your debt. c. being able to buy and enjoy the item now. d. the opportunity cost.

being able to buy and enjoy the item now

The gas tax is an example of the taxation principle of a. proportional taxation. b. ability-to-pay. c. progressive taxation. d. benefits-received.

benefits-received

A certificate issued by a government or firm in exchange for borrowed money is a/an a. IRA. b. asset. c. stock. d. bond.

bond

In the immediate short-run:

both input prices as well as output prices are fixed. The supply curve is a horizontal line. ______________

When government tax revenues change automatically and in a counter-cyclical direction over the course of the business cycle, this is an example of:

built-in stability

To reduce the Federal funds rate, the Fed can

buy government bonds from the public

Off budget

by law, social security and the postal service are accounted for separetly from all other programs

Price is determined a. by outside factors. b. primarily by demand. c. by supply and demand together. d. primarily by supply.

by supply and demand together

The reserve ratio refers to the ratio of a banks:

capital stock to its total assets

Recently Sweden has drifted toward being more a. socialist. b. fascist. c. capitalist. d. authoritarian socialist.

capitalist

Which of the following is a commodity money? a. coins b. paper currency c. a negotiable bond d. cattle

cattle

Something of value that is used to secure a loan is a. collateral. b. chattel. c. principal. d. a mortgage.

collateral

The cause-effect chain through which monetary policy is made effective operates through

commercial bank reserves, the money supply, the interest rate, investment, aggregate demand, and equilibrium real GDP.

The major categories of firms that make up the U.S. financial services industry include

commercial banks, thrifts, insurance companies, and securities related firms.

The major categories of firms that make up the U.S. financial services industry include...

commercial banks, thrifts, insurance companies, and securities related firms.

When a country can produce a product at a lower opportunity cost than another country, we say it has a. a comparative advantage. b. a smarter labor force. c. an absolute advantage. d. better technology.

comparative advantage

The economic way of thinking will help you

decide whether the U.S. government should encourage or discourage immigration, make better decisions concerning your education, and make decisions in financing your home.

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget Constitutional amendment that would mandate the Federal government o balance the budget during a recession would be;

contractionary and worsen the effects of the recession

Which of the following is not a goal of the federal government? a. protect individual rights b. promote a stable, legal environment for economic activity c. control prices d. promote the general well-being of all citizens

control prices

The Federal Reserve Board of Governors

coordinates policies for the 12 Federal Reserve Banks

The Federal Reserve Board of Governors...

coordinates policies for the 12 Federal Reserve Banks.

Consider the following statement: "When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed." This statement is

correct because lending increases the money supply, and the repayment reduces checkable deposits, lowering the money supply

Decreases in AS cause:

cost-push inflation.

The most expansionary way for government to finance a budget deficit it by

creating new money

The advantage of home ownership is a. lower maintenance. b. increased mobility. c. creation of equity. d. higher price.

creation of equity

A financial institution that is owned and operated by its members to provide savings and low-interest loans to those members is a a. commercial bank. b. savings bank. c. savings and loan association. d. credit union.

credit union

The concept that increased government spending will lead to higher interest rates and thus, lower investment spending is referred to as the

crowding out effect.

Between 1980 and 2007, the bank and thrift share of the financial services market

declined substantially

Between 1980 and 2007, the bank and thrift share of the financial services market...

declined substantially.

What is an example of an automatic stabilizer? As real GDP decreases, income tax revenues:

decrease and transfer payments increase

If the dollar depreciates in value relative to foreign currencies, aggregate: Answer demand decreases. demand increases. supply and aggregate demand increase. supply and aggregate demand decrease.

demand increases.

Increases in AD beyond the full-employment level of real GDP cause:

demand-pull inflation.

A commerical bank can expand its excess reserves by:

demanding and receiving payment on an overdue loan

Such panics are unlikely today because

deposits are insured by the Federal Deposit Insurance Corporation

The study of factors that contribute to the economic growth of a country is known as

development economics.

The Federal Reserve bank was created in 1913 to Choose one answer. a. manipulate the money supply. b. end financial panics. c. insure bank deposits. d. collect taxes.

end financial panics

The four factors of production are the resources of land, labor, capital, and a. services. b. entrepreneurship. c. technology. d. goods.

entrepreneurship

Which of the following agencies enforces standards for air, water, and toxic waste? a. Federal Trade Commission b. Environmental Protection Agency c. Occupational Safety and Health Administration d. Food and Drug Administration

environmental protection agency

When the leakages and injections of the economy are balanced, it is called a. fiscal policy. b. equilibrium. c. circular regularity. d. a balanced budget.

equilibrium

Suppose there is an increase in the total demand for money. In this case, the

equilibrium interest rate will rise

The intersection of the AD curve and the AS curve is the economy's:

equilibrium price level and equilibrium real output. They jointly establish the price level and level of real GDP.

If the economy were in a recession, the Fed would probably Choose one answer. a. follow a tight money policy. b. seek the advice of the President and his administration. c. follow a loose money policy. d. do nothing.

follow a loose money policy

Government loans create moral hazard because there is a tendency...

for financial services firms to take on greater risks because they assume they are at least partially insured against losses.

Declaring bankruptcy will stay on your credit record a. for ten years. b. for two years. c. forever. d. for seven years.

for ten years

By issuing loans in the form of gold receipts, there was additional risk because the

goldsmith could issue more receipts than he had in gold and this could create a panic

Generic products a. have no name brand. b. have lifetime warranties. c. are sold only in major department stores. d. are the most expensive.

have no name brand

Cyclical asymmetry is related to a liquidity trap because...

in a recession, adding liquidity can have little effect.

Coins in peoples pockets and purses are:

included in both M1 and in M2

If the Fed reduces the reserve ratio, then commercial reserves will

increase

The M2 money supply includes:

individual shares in money market mutual funds

Cyclical deficit

is a federal deficit that is caused by a recession and the consequent decline in tax revenue

The standardized budget

is a measure of what the federal budget deficit surplus would be with existing tax rates and government spending programs if the economy had achieved its full employment GDP in the year

When management prevents workers from returning to work, it is called a a. sick-out. b. boycott. c. strike. d. lockout.

lockout

The trade-off for the easy withdrawal of cash from savings accounts is a. penalties for early withdrawal. b. a waiting period before cash is received. c. lower interest rates. d. higher transaction costs.

lower interest rates

When deciding whether to expand a business, you should a. sell bonds. b. make a cost-benefit analysis. c. ask friends for loans. d. sell stock.

make a cost benefit analysis

Commercial banks monetize claims when they:

make loans to the public

The financial crisis of 2007-2008 was exacerbated by subprime mortgage loans. These loans were made to borrowers

more likely to default on their loans

Following are two hypothetical ways in which the Federal Reserve Board might be appointed. Upon taking office, the U.S. President appoints 7 people to the Federal Reserve Board, including a chair. Each appointee must be confirmed by a majority vote of the Senate, and each serves the same 4-year term as the president. Congress selects 7 members from its ranks (4 from the House of Representatives and 3 from the Senate) to serve as its pleasure as the Board of Governors of the Federal Reserve System. In the opinion of most economists

neither option is ideal because the independence of the Fed would be compromised

According to Keynes

nominal wages and/or prices are sticky.

The work-time cost of a pair of shoes that cost $150 is the a. number of payments a buyer must make. b. number of hours a buyer must work to earn $150. c. value of time spent comparison shopping for the shoes. d. amount of time the buyer gets to use the shoes and the value placed on them.

number of hours a buyer must work to earn $150

Demand Pull inflation

occurs when aggregate demand increases (aggregrate demand curve shifts to the right)

Which of the following tools of monetary policy is flexible, and able to affect bank reserves quickly and by relatively specific amounts?

open market operations

The highest point in the business cycle is the a. peak. b. contraction. c. expansion. d. trough.

peak

Selling a new product at a low price to try to attract customers away from an established product is called a. price leadership. b. penetration pricing. c. promotional pricing. d. direct pricing.

penetration pricing

Rapid inflation can undermine money's ability to perform its functions. For example, in runaway inflation...

people revert to barter because money fails as a medium of exchange.

The value of money is determined by

people's willingness to accept it in exchange for goods and services

Mortgage backed securities were one of the factors that exacerbated the financial crisis of 2007-2008 because they

reduced the risk exposure, or cost, that banks faced after issuing these subprime loans, and encouraged this type of lending

Mortgage backed securities were one of the factors that exacerbated the financial crisis of 2007-2008 because they...

reduced the risk exposure, or cost, that banks faced after issuing these subprime loans, and encouraged this type of lending.

The major assets on a commercial bank's balance sheet include...

reserves, securities, loans, and vault cash.

The categories of financial firms have become more blurred as these firms are trying to

retain their market share

A lease describes a. rights and responsibilities of both the landlord and tenant. b. all conditions related to the mortgage. c. rights and responsibilities of the landlord. d. rights and responsibilities of the tenant.

rights and responsibilities of both the landlord and tenant

Which group of people pays the highest automobile insurance rates? a. married women, ages 25-45 b. drivers with a good safety record c. single males, ages 16-25 d. people who live in a small town

single males, ages 16-25

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary the:

smaller is the economy's MPS

A debit card is most ideal for

smaller purchases that withdraw from a checking account

The Federal Open Market Committee (FOMC) includes...

the Board of Governors members and 5 of the 12 presidents of the Federal Reserve Banks, of which the president of the New York Fed has a permanent voting seat

Service flow is a. how sales are routed in a store. b. the speed of a checker. c. the product lasting a long time. d. the amount of time someone gets to use a product and the value placed on its use.

the amount of time someone gets to use a product and the value placed on its use

The long-run aggregate supply curve is vertical because the economy's potential output is determined by

the availability and productivity of real resources, not by the price level.

John Maynard Keynes believed that a. the supply of money should not be adjusted by the government. b. manipulating the economy would encourage economically weak businesses. c. the love of money was the root of all evil. d. the government should intervene in the economy by adjusting the amounts that it taxes and spends.

the government should intervene in the economy by adjusting the amounts that it taxes and spends.

The Federal funds rate is

the interest rate the banks charge one another on overnight loans, whereas the prime interest rate is the interest rate banks charge on loans to their most creditworthy customers

The basic determinant of the asset demand for money is...

the interest rate.

When Adam Smith coined the term "invisible hand," he was referring to a. the government. b. the market. c. slave labor. d. entrepreneurship.

the market

When the receipts given by goldsmiths to depositors were used to make purchases:

the receipts became in effect paper money

Which of the following monetary policy tools was introduced in December 2007?

the term auction facility

Merchants accepted gold receipts as a means of payment even though the receipts were issued by goldsmiths, not the government, because

they knew that it could be exchanged for gold

When economists say that the Federal Reserve Banks are 'bankers' banks, this means

they perform the same functions for banks as banks perform for the public

When economists say that the Federal Reserve Banks are bankers' banks, this means that...

they perform the same functions for banks as banks perform for the public.

Economists nearly uniformly support an independent Fed rather than one beholden directly to either the President or Congress because

this independence allows the Fed to more effectively control the money supply and maintain price stability

According to the circular flow, the dollar value of a nations's output is equal to

total income

The Federal Open Market Committee (FOMC)...

votes on the Fed's monetary policy and directs the purchase or sale of government securities.

The bank panics of 1930 to 1933 produced a decline in the nation's money supply because

with a fractional reserve banking system, a fall in bank reserves results in a multiple fall in demand deposit money

Suppose the price level and value of the U.S. dollar in year 1 are 1 and $1, respectively. If the price level rises to 1.65 in year 2, what is the new value of the dollar?

$0.61 ± 0.01

In an economy it costs $1500 to produce 2000 units of output. If the costs increase to $2500, then the per-unit cost of production will have increased from: Answer $0.75 to $1.25. $0.75 to $1.00. $1.33 to $1.75. $0.80 to $1.33.

$0.75 to $1.25.

A nation's real GDP was $250 billion in 2009 and $265 billion in 2010. Its population was 120 million in 2009 and 125 million in 2010. What is its real GDP per capita in 2010?

$2,120 per person

Suppose the price level and value of the U.S. dollar in year 1 are 1 and $1, respectively. If, instead, the price level falls to 0.25, what is the value of the dollar?

$4.00 ± 0.01

*11-14*

...

*15 through 20*

...

*17*

...

*18*

...

*18-19*

...

B

102. Refer to the above diagram. The average propensity to consume is: A) greater than 1 at all levels of income above $150. B) greater than 1 at all levels of income below $150. C) zero. D) .6.

C

153. The multiplier can be calculated as: A) 1/(MPS+MPC) B) MPC/MPS C) 1/(1-MPC) D) 1-MPC=MPS

The Federal Reserve system was created in:

1913

The Federal Reserve System was created in

1913.

About what percentage of the public debt is held by US government agencies and the federal reserve?

53%

How many members can serve on the Board of Governors of the Federal Reserve System?

7

If current GDP was $10,000 and the price deflator was 110, then real GDP would be a. $9,090. b. $11,000. c. $9,352. d. $10,000.

9,090

1. The level of aggregate expenditures in the private closed economy is determined by the: A. expenditures of consumers and businesses. B. intersection of the saving schedule and the 45-degree line. C. equality of the MPC and MPS. D. intersection of the saving and consumption schedules.

A

8. The purchasing power of money and the price level vary: A. inversely. B. directly during recessions, but inversely during inflations. C. directly, but not proportionately. D. directly and proportionately.

A

DVD players and DVDs are A. complementary goods B. substitute goods C. independent goods D. inferior goods

A

The inflation tax refers to a. the revenue a government creates by printing money. b. higher inflation which requires more frequent price changes. c. the idea that, other things the same, an increase in the tax rate raises the inflation rate. d. taxes being indexed for inflation.

A

The relationship between quantity supplied and price is _______ and the relationship between quantity demanded and price is ________ A. direct, inverse B. inverse, direct C. inverse, inverse D. direct, direct

A

Wages tend to be sticky a. because of contracts, social norms, and notions of fairness. b. because of contracts, but not social norms or notions of fairness. c. because of social norms and notions of fairness, but not contracts. d. None of the above are correct.

A

to avoid multiple counting in national income accounts A. only final goods and services should be counted B. intermediate goods and services should be counted C. both final and intermediate goods and services should be counted D. primary, intermediate, and final goods and services should be counted

A

which is NOT a factor of production? A. money B. land C. labor D. capital

A

which of the following is the best example of economic investment? A. apple builds a new plant to manufacture ipads B. your college purchases a 5-year old building in order to offer more classes C. a retiree purchases US government bonds D. a company like bank of america acquires another company like merrill lynch

A

A

A $1 billion increase in investment will cause a: A) (1/MPS) billion increase in GDP. B) (MPS) billion increase in GDP. C) (1 - MPC) billion increase in GDP. D) (MPC - MPS) billion increase in GDP.

Aggregate demand curve

A curve showing real GDP as the sum of all spending at various price levels, all other things helf constant

If the standardized budget shows a deficit of about 100 billion$$ and the actual budget shows a deficit of about 150$ billion, it can be concluded that there is:

A cyclical deficit

Increase aggregate demand and increase aggregate supply

A decrease in business taxes will tend to:

Which set of fiscal policies would tend to offset each other

A decrease in government spending and taxes

Which set of fiscal policies would tend to offset each other?

A decrease in government spending and taxes

Decrease in aggregate demand

A decrease in government spending will cause a(n):

16.) The market system's answer to the fundamental question "What will be produced?" is essentially: A. "Goods and services that are profitable." B."Low cost goods and services." C."Goods and services that can be produced using large amounts of capital." D. "Goods and services that possess lasting value."

A.

11. Suppose the balance on the financial account is -$300 billion and the balance on the capital account is +$5 billion. The size of the current account is: A. +$295 billion. B. -$295 billion. C. +$305 billion. D. +$5 billion.

A. +$295 billion.

In 2009, approximately how much if the money on the deposit was held by the three largest U.S. banks? A. 30 percent. B. 50 percent. C. 70 percent. D. 90 percent.

A. 30

4. In the above diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines: A. 4 and 3. B. 4 and 1. C. 2 and 4. D. 2 and 3.

A. 4 and 3.

19. The multiplier for this economy is: A. 4. B. 3. C. 2. D. 2.33.

A. 4.

23. The public debt declined in year: A. 6. B. 5. C. 4. D. 3.

A. 6.

21. At a world price of $2: A. Alpha will want to import 20 units of steel. B. Beta will want to export 20 units of steel. C. Alpha will want to export 20 units of steel. D. neither country will want to import steel.

A. Alpha will want to import 20 units of steel.

27. In the above diagram, the value of the multiplier for this economy is: A. BC/hg. B. BC/AB. C. ed/di. D. df/BC.

A. BC/hg.

Which of these pairs of financial institutions are most alike in terms of their main lines of business? A. Commercial banks and thrifts. B. Insurance companies and mutual fund companies. C. Thrifts and securities firms. D. Pension fund companies and commercial banks.

A. Commercial banks and thrifts

As it relates to the Federal Reserve activities, the acronym FOMC describes the: A. Federal Open Market Committee. B. Federal Options Market Committee. C. Federal Organization for Monetary Control. D. Federal Organization for Money Creation.

A. Federal Open Market Committee

Which of the following does not explain what back the money supply in the United States? A. It is back by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the Federal government. D. It is relatively scarce.

A. It is back by gold.

11. Which of the following does not explain what backs the money supply in the United States? A. It is backed by gold. B. It is widely accepted in transactions. C. It is designated "legal tender" by the Federal government. D. It is relatively scarce.

A. It is backed by gold.

22. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate from 1985 to 2003? A. Japan exported much more to the United States during this period than it imported from the United States. B. Japan greatly increased its purchases of military equipment from the United States during this period. C. Japan's economy grew far faster than the U.S. economy during this period. D. Japan's government devalued the yen during this period.

A. Japan exported much more to the United States during this period than it imported from the United States.

Which of the following financial institutions was acquired by Bank of America as a result of the financial crisis of 2007 and 2008? A. Merrill Lynch B. Lehman Brothers C. Goldman Sachs D. AIG

A. Merrill Lynch

Which of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks

17. Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks.

9. The production possibilities curves above suggest that: A. West Mudville should specialize in, and export, baseball bats. B. West Mudville should specialize in, and export, both baseballs and baseball bats. C. East Mudville should specialize in, and export, baseball bats. D. workers will try to immigrate from West Mudville to East Mudville.

A. West Mudville should specialize in, and export, baseball bats.

Which of the following does NOT cause the money demand curve to shift? A. a change in the interest rate B. a change in the price level C. a change in technology D. a change in real GDP

A. a change in the interest rate

(Last Word) Electronic money is: A. closely associated with smart cards. B. issued in real terms so that it is immune from the effects of inflation. C. the money dispensed by automatic teller machines (ATMs). D. also called share-draft money.

A. closely associated with smart cards.

The money demand curve is _________ because a lower interest rate ___________. A. downward-slopping; decreases the opportunity cost of holding money B. upward-slopping; decreases the opportunity cost of holding money C. downward-slopping; increases the opportunity cost of holding money D. upward-slopping; increases the opportunity cost of holding money

A. downward-sloping; decreases the opportunity cost of holding money

16. A decrease in aggregate demand will cause a greater decline in real output the: A. less flexible is the economy's price level. B. more flexible is the economy's price level. C. steeper is the economy's AS curve. D. larger is the economy's marginal propensity to save.

A. less flexible is the economy's price level.

16. In the real world, specialization is rarely complete because: A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing. B. production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin. C. one nation's imports are necessarily another nation's exports. D. international law prohibits monopolies.

A. nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.

A sale of bonds by the Fed: A. raises interest rates and reduces the money supply. B. lowers interest rates and increases the money supply. C. raises interest rates and increases the money supply. D. lowers interest rates and reduces the money supply.

A. raises interest rates and reduces the money supply

2. An economist who favors smaller government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

A. tax cuts during recession and reductions in government spending during inflation.

The loanable funds market maximizes: A. the gains from trade between lenders and borrowers. B. the amount of investment spending in the economy. C. the interest rate to savers. D. the rate of return by borrowers.

A. the gains from trade between lenders and borrowers

44. From September 2007 to April 2008 the Fed lowered the Federal funds rate from 5.25 percent to 2 percent in a series of steps. The Fed's actions were largely in response to: A. threats to the financial system from the mortgage default crisis. B. forecasts of higher inflation rates. C. Chinese refusal to allow their exchange rate to reflect market conditions. D. pressure from the President to offset contractionary effects of a tax increase.

A. threats to the financial system from the mortgage default crisis.

(APC + APS) will be less than 1 in this situation

All of the following statements about consuming in excess of one's disposable income are true, except:

$12 billion

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

Slope of the consumption schedule is .75

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the:

global competition has tended to slow down the rate of productivity growth in the US A. True B. False

B

the fear of unwanted price wars may explain why many firms are reluctant to A. reduce wages when a decline in AD occurs B. reduce prices when a decline in AD occurs C. expand production capacity when an increase in AD occurs D. provide wage increases when labor productivity rises

B

9.) Suppose an excise tax is imposed on product X. We would expect this tax to: A. increase the demand for complementary good Y and decrease the demand for substitute product Z B. decrease the demand for complementary good Y and increase the demand for substitute product Z C. increase the demands for both complementary good Y and sub product Z D. decrease the demands for both complementary good Y and sub product Z

B.

6. In the above diagram for a private closed economy, equilibrium GDP is: A. $60 billion. B. $180 billion. C. between $60 and $180 billion. D. $60 billion at all levels of GDP.

B. $180 billion.

In January 2010, the supply of money (M1) in the United States was about: A. $847 billion. B. $1,676 billion. C. $1,365 billion. D. $8,463 billion.

B. 1,676 billion.

11. The equilibrium price level is: A. 150. B. 200. C. 250. D. 300.

B. 200.

(Consider This) Which of the following is not part of the M2 money supply? A. Currency in circulation. B. Credit card balances. C. Small-denominated time deposits of less than $100,000. D. Checkable deposits.

B. Credit card balances

Paper money (currency) in the United States is issued by the: A. United States Mint. B. Federal Reserve Banks. C. United States Treasury. D. national banks.

B. Federal Reserve Banks.

In the U.S. economy the money supply is controlled by the: A. U.S. Treasury. B. Federal Reserve System. C. Senate Committee on Banking and Finance. D. Congress.

B. Federal Reserve System

1. International transactions fall into what two broad categories? A. Manufacturing trade and services trade. B. International trade and international asset transactions. C. Currency transactions and services trade. D. Newly created assets and preexisting assets.

B. International trade and international asset transactions.

Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008? A. Merrill Lynch B. Lehman Brothers C. Goldman Sachs D. AIG

B. Lehman Brothers

Which role of the Federal Reserve was expanded directly as a result of the PDCF and TSLF? A. Supervising banks B. Lender of last resort C. Fiscal agent for the Federal government D. Issuing currency

B. Lender of last resort

7. Which of the following would contribute to a United States balance of payments deficit? A. Kawasaki builds a motorcycle manufacturing plant in Kansas City B. United States tourists travel in large numbers to Europe C. a wealthy Mexican citizen builds a mansion in Beverly Hills D. Zaire pays interest on its debt to the United States

B. United States tourists travel in large numbers to Europe

39. The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the: A. International Monetary Fund (IMF). B. World Trade Organization (WTO). C. Common Market Organization (CMO). D. International Trade Commission (ITC).

B. World Trade Organization (WTO).

5. Which of the following assets is the MOST liquid? A. a $50 Amazon.com gift certificate B. a $50 bill C. an economics textbook D. 100 shares of Microsoft stock

B. a $50 bill

Which of the following do economists consider to be capital? A. a pair of stockings B. a construction crane C. a savings account D. a share of IBM stock

B. a construction crane

14. An upward shift of the aggregate expenditures schedule might be caused by: A. a decrease in exports, with no change in imports. B. a decrease in imports, with no change in exports. C. an increase in exports, with an equal decrease in investment spending. D. an increase in imports, with no change in exports.

B. a decrease in imports, with no change in exports.

If the Fed conducts a $10 million open-market sale and the reserve requirement is 20%, the maximum change in the money supply is: A. a decrease of $8 million. B. a decrease of $50 million. C. an increase of $10 million. D. a decrease of $10 million.

B. a decrease of $50 million

Microeconomics is concerned with: A. the aggregate or total levels of income, employment, and output. B. a detailed examination of specific economic units that make up the economic system. C. positive economics, but not normative economics. D. the establishing of an overall view of the operation of the economic system.

B. a detailed examination of specific economic units that make up the economic system.

12. Federal Reserve Notes in circulation are: A. an asset as viewed by the Federal Reserve Banks. B. a liability as viewed by the Federal Reserve Banks. C. neither an asset nor a liability as viewed by the Federal Reserve Banks. D. part of M1, but not of M2.

B. a liability as viewed by the Federal Reserve Banks.

13. If the amount of real output demanded at each price level falls by $200, this might have been caused by: A. an increase in net exports. B. a worsening of business expectations. C. an increase in consumer wealth. D. a decrease in the personal income tax.

B. a worsening of business expectations.

43. From 2004 to 2006 the Fed raised the Federal funds rate gradually in a series of steps. The Fed's purpose was to raise the prime interest rate so that: A. high inflation rates would fall. B. aggregate demand would continue to grow consistently and with low inflation. C. aggregate supply would grow, increasing output and lowering the price level. D. banks would reduce lending that was building up unmanageable consumer debt.

B. aggregate demand would continue to grow consistently and with low inflation.

5. For a private closed economy, an unintended decline in inventories suggests that: A. aggregate expenditures are less than the business sector expected them to be. B. aggregate expenditures exceed production. C. actual investment exceeds saving. D. planned investment is greater than consumption.

B. aggregate expenditures exceed production.

17. In the above diagram, if the aggregate supply curve shifted from AS0 to AS1, and the aggregate demand curve remains at AD0 we could say that: A. aggregate supply has increased, equilibrium output has decreased, and the price level has increased. B. aggregate supply has decreased, equilibrium output has decreased, and the price level has increased. C. an increase in the amount of output supplied has occurred. D. aggregate supply has increased and the price level has risen to G.

B. aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

6. Which of the following combinations is plausible, as it relates to a nation's balance of payments? A. current account = $+40 billion; capital account = $+20 billion; financial account = $-50 billion. B. current account = $-50 billion; capital account = $+20 billion; financial account = $+30 billion. C. current account = $+10 billion; capital account = $+40 billion; financial account = $+50 billion. D. current account = $+30 billion; capital account = $-20 billion; financial account = $-50 billion.

B. current account = $-50 billion; capital account = $+20 billion; financial account = $+30 billion.

15. Other things equal, an excessive increase in the money supply will: A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact on the purchasing power of the dollar. D. reduce the price level.

B. decrease the purchasing power of each dollar.

Other things equal, an excessive increase in the money supply will: A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact on the purchasing power of the dollar. D. reduce the price level.

B. decrease the purchasing power of each dollar.

1. Countercyclical discretionary fiscal policy calls for: A. surpluses during recessions and deficits during periods of demand-pull inflation. B. deficits during recessions and surpluses during periods of demand-pull inflation. C. surpluses during both recessions and periods of demand-pull inflation. D. deficits during both recessions and periods of demand-pull inflation.

B. deficits during recessions and surpluses during periods of demand-pull inflation.

11. An increase in the money supply of $20 billion will cause the equilibrium interest rate to: A. fall by 4 percentage points. B. fall by 2 percentage points. C. rise by 4 percentage points. D. rise by 2 percentage points.

B. fall by 2 percentage points.

8. Initially, the bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1250, the interest rate will: A. fall to 9 percent. B. fall to 8 percent. C. rise to 11 percent. D. rise to 12 percent.

B. fall to 8 percent.

10. Assuming labor forces of equal size, the production possibilities curves above suggest that workers in West Mudville will have: A. lower wages than workers in East Mudville before trade but equal wages after trade. B. higher wages than workers in East Mudville both before and after trade. C. lower wages than workers in East Mudville both before and after trade. D. higher wages than workers in East Mudville before trade but lower wages after trade.

B. higher wages than workers in East Mudville both before and after trade.

Coins in people's pockets and purses are: A. included in M1, but not in M2. B. included in both M1 and in M2. C. included in M2, but not in M1. D. excluded from M1 and M2 because people can exchange them for Federal Reserve notes.

B. included in both M1 and M2.

6. Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to: A. do nothing since the economy appears to be achieving full-employment real output. B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility. C. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. D. increase taxes and reduce government spending to shift the aggregate demand curve from AD3 to AD1.

B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.

8. In the theory of comparative advantage, a good should be produced in that nation where: A. the production possibilities line lies further to the right than the trading possibilities line. B. its cost is least in terms of alternative goods that might otherwise be produced. C. its absolute cost in terms of real resources used is least. D. its absolute money cost of production is least.

B. its cost is least in terms of alternative goods that might otherwise be produced.

Consumers spend their incomes to get the maximum benefit or satisfaction from the goods and services they purchase. This is a reflection of: A. resource scarcity and the necessity of choice. B. purposeful behavior. C. marginal costs that exceed marginal benefits. D. the tradeoff problem that exists between competing goals.

B. purposeful behavior

21. The discount rate is the interest: A. rate at which the central banks lend to the U.S. Treasury. B. rate at which the Federal Reserve Banks lend to commercial banks. C. yield on long-term government bonds. D. rate at which commercial banks lend to the public.

B. rate at which the Federal Reserve Banks lend to commercial banks.

23. Assume that Brazil and Mexico have floating exchange rates. Other things unchanged, if the price level is stable in Mexico but Brazil experiences rapid inflation: A. gold bullion will flow into Brazil. B. the Brazilian real will depreciate. C. the Mexican peso will depreciate. D. the Brazilian real will appreciate.

B. the Brazilian real will depreciate.

Between September 2007, and September 2009: A. the Fed oversaw the conversion of all thrifts into commercial banks. B. the FDIC closed more than 200 U.S. banks and shifted their deposits to other banks. C. the Fed increased capital requirements for larger financial institutions in an effort to reduce moral hazard. D. the FDIC paid out more than $500 billion to depositors who held money in failed banks.

B. the FDIC closed more than 200 U.S. banks and shifted their deposits to other banks

21. A recessionary expenditure gap is: A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures. B. the amount by which equilibrium GDP falls short of the full-employment GDP. C. the amount by which investment exceeds saving at the full-employment GDP. D. the amount by which aggregate expenditures exceed the full-employment level of GDP.

B. the amount by which equilibrium GDP falls short of the full-employment GDP.

All of the following are examples of bank regulations designed to prevent bank runs EXCEPT: A. reserve requirements. B. the federal funds rate. C. deposit insurance. D. capital requirements.

B. the federal funds rate

Suppose the Federal Reserve were to engage in open-market operations by buying $100 million of U.S. Treasury bills. Which of the following would be the end result of such an action? A. The money supply would increase by $100 million. B. The money supply would increase by more than $100 million. C. The money supply would stay the same. D. The money supply would decrease by $100 million.

B. the money supply would increase by more than $100 million

5. Refer to the above diagram of the market for money. The vertical money supply curve Sm reflects the fact that: A. bond prices and interest rates are inversely related. B. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes. C. the rate at which money is spent is zero. D. lower interest rates result in lower opportunity costs of supplying money.

B. the stock of money is determined by the Federal Reserve System and does not change when the interest rate changes.

If private savings increase: A. the demand for loanable funds will decrease, interest rates will decrease, and the amount of borrowing will decrease. B. the supply of loanable funds will increase, interest rates will decrease, and the amount of borrowing will increase. C. the demand for loanable funds will increase, interest rates will increase, and the amount of borrowing will increase. D. the supply of loanable funds will decrease, interest rates will increase, and the amount of borrowing will decrease.

B. the supply of loanable funds will increase, interest rates will decrease, and the amount of borrowing will increase

2. "Tuition at State University this year is $8,000." Which function of money does this statement best illustrate? A. store of value B. unit of account C. means of deferred payment D. medium of exchange

B. unit of account

When we put a price on a meal, money is playing the role of: A. store of value. B. unit of account. C. medium of exchange. D. barter token.

B. unit of account

Stock market price quotations best exemplify money serving as a(n): A. store of value. B. unit of account. C. medium of exchange. D. index of satisfaction.

B. unit of account.

27. Refer to the above diagram for the Federal funds market. If the Fed supplies $300 billion in reserves, the equilibrium Federal funds rate is: A. 6.0 percent. B. 5.5 percent. C. 5.0 percent. D. undeterminable with the information given.

C. 5.0 percent.

22. Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008? A. From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen. B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held. C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion. D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.

Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008? A. From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen. B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held. C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion. D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.

28. With a per unit tariff of PcPt, the total amount of tariff revenue collected on this product will be: A. PaPt times wy. B. PcPa times x. C. PcPt times wy. D. PcPt times z.

C. PcPt times wy.

25. Which of the following statements is true? A. The Federal Reserve sets the Federal funds rate. B. The Federal Reserve sets the target for the Federal funds rate, and then uses the reserve ratio to push banks toward that target. C. The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations. D. The Federal Reserve will set a higher target for the Federal funds rate if pursuing an expansionary monetary policy.

C. The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations.

2. Which of the following is incorrect? A. As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. B. As the price level falls, the demand for money declines, the interest rate declines, and interest-rate sensitive spending increases. C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending. D. Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward flexible prices, reduces the price level.

C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.

Which of the following actions would allow banks to lend out more money? A. an increase in the required reserve ratio B. an increase in the required reserve ratio coupled with an increase in the federal funds rate C. a decrease in the discount rate D. an increase in the federal funds rate

C. a decrease in the discount rate

3. When economists say that money serves as a unit of account, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

C. a monetary unit for measuring and comparing the relative values of goods.

When economist say that money serves as a unit of account, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

C. a monetary unit for measuring and comparing the relative values of goods.

In the financial industry,"securitization" refers to: A. increasing insurance protection on bank deposits. B. requiring greater down payments on home purchases to reduce mortgage default risk. C. bundling groups of loans, bonds, mortgages, and other financial debts into new securities. D. increasing collateral requirements on loans.

C. bundling groups of loans, bonds, mortgages, and other financial debts into new securities.

1. Which of the following is considered to be money? A. Google stock B. credit cards C. checking account deposits D. bonds

C. checking account deposits

The Fed's main liabilities are: A. corporate stocks and bonds. B. U.S. Treasury bills. C. currency and bank reserves. D. the facilities of the twelve district banks.

C. currency and bank reserves

15. Other things equal, serious recession in the economies of U.S. trading partners will: A. have no perceptible impact on the U.S. economy. B. cause inflation in the U.S. economy. C. depress real output and employment in the U.S. economy. D. stimulate real output and employment in the U.S. economy.

C. depress real output and employment in the U.S. economy.

14. If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: A. Americans will buy fewer Korean goods and services. B. the won has appreciated in value. C. fewer U.S. goods and services will be demanded by the South Koreans. D. the dollar has depreciated in value.

C. fewer U.S. goods and services will be demanded by the South Koreans.

7. In the above diagram for a private closed economy, investment: A. decreases as GDP increases. B. increases as GDP increases. C. is $40 billion at all levels of GDP. D. is $60 billion at all levels of GDP.

C. is $40 billion at all levels of GDP.

The near-money components of M2 are: A. equally liquid as the M1 components of M2. B. more liquid than the M1 components of M2. C. less liquid than the M1 components of M2. D. highly illiquid.

C. less liquid than the M1 components of M2.

Federal funds are: A. government tax receipts. B. bank deposits at the Federal Reserve. C. loans between banks. D. government expenditures.

C. loans between banks

A bank run occurs when: A. too many people are trying to borrow more at one time. B. interest rates start to increase. C. many bank depositors are trying to withdraw their funds from the bank. D. interest rates are higher than inflation rates.

C. many bank depositors are trying to withdraw their funds from the bank

Purchasing common stock by writing a check best exemplifies money serving as a(n): A. store of value. B. unit of account. C. medium of exchange. D. index of satisfaction.

C. medium of exchange.

14.) When an economy is operating under conditions of full employment, the production of more of commodity A will mean the prod. of less of commodity B because: A. of the law of increasing opportunity costs B. economic wants are insatiable C. resources are limited D. resources are specialized and only imperfectly substitutable

C. resources are limited

3. If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift: A. leftward by $50 billion at each price level. B. rightward by $10 billion at each price level. C. rightward by $50 billion at each price level. D. leftward by $40 billion at each price level.

C. rightward by $50 billion at each price level.

Firms whose central business is to offer security advice and buy and sell individual stocks and bonds for clients are known as: A. thrifts. B. pension fund companies. C. securities firms. D. insurance companies.

C. security firms

9. Other things equal, an improvement in productivity will: A. increase the equilibrium price level. B. shift the aggregate supply curve to the left. C. shift the aggregate supply curve to the right. D. shift the aggregate demand curve to the left.

C. shift the aggregate supply curve to the right.

(Last Word) Smart cards sold by retailers, such as single-store gift cards and prepaid phone cards are known as: A. credit cards. B. debit cards. C. stored-value cards. D. E-cards.

C. stored-value cards.

17. If the world price for this product is $1.60, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

C. surplus of 160 units, which it will export.

28. Which of the following represents a change in today's banking policies that should prevent a recurrence of the bank panics of 1930-1933? A. banks are more cautious lenders B. banks keep large amounts of excess reserves on hand C. the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems D. the President now has the authority to close banks whenever panics occur

C. the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems

25. To say that "the U.S. public debt is mostly held internally" is to say that: A. only interest payments on the public debt are an economic burden. B. official figures understate the size of the public debt. C. the bulk of the public debt is owned by U.S. citizens and institutions. D. the public debt is equal to the land and buildings assets owned by the Federal government.

C. the bulk of the public debt is owned by U.S. citizens and institutions.

If there is an increase in the government budget deficit: A. the supply of loanable funds will decrease, interest rates will increase, and the amount of borrowing will decrease. B. the supply of loanable funds will increase, interest rates will decrease, and the amount of borrowing will increase. C. the demand for loanable funds will increase, interest rates will increase, and the amount of borrowing will increase. D. the demand for loanable funds will decrease, interest rates will decrease, and the amount of borrowing will decrease.

C. the demand for loanable funds will increase, interest rates will increase, and the amount of borrowing will increase

36. Which of the following arguments for trade protection is based on the premise that a nation should have a wide enough range of domestic industries to be self-sufficient if necessary? A. the increase-domestic-employment argument B. the cheap-foreign-labor argument C. the diversification-for-stability argument D. the infant-industry argument

C. the diversification-for-stability argument

In define money as M1, economists exclude time deposits because: A. the intrinsic value of time deposits is nil. B. the purchasing power of time deposits is much less stable than that of checkable deposits and currency. C. they are not directly or immediately a medium of exchange. D. they are not recognized by the Federal government as legal tender.

C. they are not directly or immediately a medium of exchange.

Banks don't lend out all of the funds placed in their hands by depositors because: A. it would not be profitable. B. they need to reduce their liquidity position. C. they have to satisfy any depositor who wants to withdraw funds. D. they need to make more money on interest-bearing deposits.

C. they have to satisfy any depositor who wants to withdraw funds

If you are estimating your total expenses for school next semester, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

C. unit of account

If the price index rises from 100 to 120, the purchasing power values of the dollar: A. may either rise or fall. B. will rise by one-sixth. C. will fall by one-sixth. D. will rise by 20 percent.

C. will fall by one-sixth

13. If the price index rises from 100 to 120, the purchasing power value of the dollar: A. may either rise or fall. B. will rise by one-sixth. C. will fall by one-sixth. D. will rise by 20 percent.

C. will fall by one-sixth.

41. Assume that the price level is flexible both upward and downward and that the Fed's policy is to keep the price level from either rising or falling. If aggregate supply increases in the economy, the Fed: A. will have to increase interest rates to keep the price level from falling. B. will have to reduce the money supply to keep the price level from rising. C. will have to increase the money supply to keep the price level from falling. D. can keep the price level stable without altering the money supply or interest rate.

C. will have to increase the money supply to keep the price level from falling.

How is the public debt calculated?

Computing the difference between annual government tax revenue and annual government spending and cumulating the differences over the years of the nation

Determinants of aggregate demand: factors that shift the aggregate demand curve:

Consumer Spending, Investment Spending, Government Spending, and Net Export Spending.

Assume that the economy is in a recession and there is a budget deficit. A strict balanced budget amendment that would require the federal government to balance during a recession would be

Contractionary and worsen the effects of the recession

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget amendment that would require the Federal government to balance its budget during a recession would be:

Contractionary and worsen the effects of the recession

Assume that the economy is in recession and there is a budget deficit. A strict balanced-budget Constitutional amendment that would mandate the Federal government to balance the budget during a recession would be:

Contractionary and worsen the effects of the recession.

If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement:

Contractionary fiscal policy

To keep high inflation from eroding the value of money, monetary authorities in the United States:

Control the supply of money in the economy

Which of the following is the most important function of the Federal Reserve System?

Controlling the money supply

which of the following is the basic economic policy function of the Federal Reserve Banks?

Controlling the money supply

The Federal backing for money in the United States comes from:

Controlling the money supply in order to keep the value of money relatively stable over time

24. Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of: A. $122,000. B. $175,000. C. $300,000. D. $75,000.

D

Aggregate demand includes a. only the quantity of goods and services households want to buy. b. only the quantity of goods and services households and firms want to buy. c. only the quantity of goods and services households, firms, and the government want to buy. d. the quantity of goods and services households, firms, the government, and customers abroad want to buy. e. the quantity of goods households, firms, the government want to buy.

D

An economy's production function has the constant-returns-to-scale property. If the economy's labor force doubled and all other inputs stayed the same, then real GDP would a. stay the same. b. increase by exactly 50 percent. c. increase by exactly 100 percent. d. increase, but not necessarily by either 50 percent or 100 percent. e. increase, by more than 100 percent.

D

On a production possibilities curve, the single optimal or best combination of output for any society: A. is at a point near the top of the curve B. is at the precise midpoint of the curve C. is at a point near the bottom of the curve D. depends upon the preferences of society

D

Real GDP per person is $30,000 in Country A, $20,000 in Country B, and $11,000 in Country C. Saving per person is $1,000 in all three countries. Other things equal, we would expect that a. all three countries will grow at the same rate. b. Country A will grow the fastest. c. Country B will grow the fastest. d. Country C will grow the fastest.

D

Suppose that banks desire to hold no excess reserves, the reserve requirement is 5 percent, and a bank receives a new deposit of $1,000. This bank a. will increase its required reserves by $50. b. will initially see its total reserves increase by $1,000. c. will be able to make a new loan of $950. d. All of the above are correct. e. None of the above is correct.

D

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving? a. -500 b. 0 c. 2,000 d. None of the above is correct.

D

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the same. d. the price level will fall, and real GDP might rise, fall, or stay the same. e. the price level will fall, and real GDP will fall.

D

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts? a. the interest rate and quantity of loanable funds would increase b. the interest rate and quantity of loanable funds would decrease. c. the interest rate would increase and the quantity of loanable funds would decrease. d. the interest rate would decrease and the quantity of loanable funds would increase.

D

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed a. increased the money supply because it was concerned about unemployment. b. increased the money supply because it was concerned about inflation. c. decreased the money supply because it was concerned about unemployment. d. decreased the money supply because it was concerned about inflation.

D

The circular flow model A. assumes that central planning is taking place B. illustrates how natural resources are created C. illustrates how money is created by the banking system D. illustrates the interdependence of businesses and consumers

D

Which of the following is true of the short-run aggregate supply curve? a. It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant. b. It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant. c. It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant. d. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant. e. It displays an inverse relationship between the price level and real GDP.

D

an inverse relationship between the rate of interest and the level of A. income is suggested by the consumption function B. prices is suggested by the aggregate supply curve C. employment is suggested by the aggregate demand curve D. investment spending is suggested by the investment-demand curve

D

apple = $1.50 banana = $.75. what is the opportunity cost of buying one more apple? A. .5 of a banana B. .75 of a banana C. 1 banana D. 2 bananas

D

as the economy declines, the collection of personal income tax revenues automatically falls. this relationship best describes how the progressive income tax system A. increases crowding out in the economy B. decreases real interest rates in the economy C. offsets the timing problem for fiscal policy D. provides built in stability for the economy

D

currency in circulation is a part of A. m1 only B. m2 only C. neither m1 nor m2 D. both m1 and m2

D

during periods of full employment the A. burden of unemployment is distributed equally B. unemployment rate for teens is below rate for others C. unemployment rate for women is considerable lower than men D. unemployment rate for Afro-americans is about twice the rate for whites

D

generally speaking, the greater the MPS, the A. smaller would be the increase in income which results from an increase in consumption spending B. larger would be the increase in income which results from an increase in consumption spending C. larger would be the increase in income which results from a decrease in consumption spending D. smaller would be the increase in income which results from a decrease in consumption spending

D

real gdp per capita A. cannot grow more rapidly than real GDP B. cannot grow more slowly than real GDP C. necessarily grows more rapidly than real GDP D. can grow either more slowly or more rapidly than real GDP

D

the FOMC is made up of A. the chair of the board of governors along with the 12 presidents of the federal reserve banks B. 7 members of the BoG with the pres of the NY fed reserve bank C. the 7 members of the BoG of the Fed Reserve system along with the 3 members of the council of economic advisers D. the 7 members of the BoG of the fed reserve system, the pres of the NY fed reserve bank, 4 other fed reserve bank presidents on a rotating basiss

D

when changes to taxes and spending occur in the economy without explicit action by the federal government, such policy is A. cyclical B. variable C. discretionary D. nondiscretionary

D

which of the following statements is true? A. short run economic fluctuations are made worse because prices are flexible B. short run economic fluctuations would be less severe if prices were inflexible C. if prices were fully inflexible, there would be no short run economic fluctuations D. if prices were fully flexible, there would be no short run economic fluctuations

D

which set of events would most likely decrease AD? A. a reduction in the excess capital of the existing capital stock B. a reduction in business and personal tax rates C. an increase in investment spending D. an increase in personal income tax rates

D

18.) The market system's answer to the fundamental question "How will the system promote progress?" is: A. "Through government funded research programs." B. "Through the redistribution of income..." C. "Through training and retraining programs." D. "Through the profit potential that encourages development of new technology."

D.

25. If a legal ceiling price is set above the equilibrium price: A. a shortage of the product will occur. B. a surplus of the product will occur. C. a black market will evolve. D. neither the equilibrium price nor equilibrium quantity will be affected.

D.

4. This commercial bank has excess reserves of: A. $0. B. $3,000. C. $12,000. D. $5,000.

D. $5,000.

12. In the above diagram for a private closed economy, the multiplier is: A. GF/DE. B. GF/GB. C. FE/GF. D. AB/GF.

D. AB/GF.

12. Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision? A. The value of the "wheat dollar" would be unstable depending on crop yields from year to year. B. Farmers would replace corn and soy crops with wheat. C. Wheat would function as money so long as people accept it in exchange for goods and services. D. All of these are possible outcomes.

D. All of these are possible outcomes.

Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision? A. The value of the "wheat dollar" would be unstable depending on crop yields from year to year. B. Farmers would replace corn and soy crops with wheat. C. Wheat would function as money so long as people accept it in exchange for goods and services. D. All of these are possible outcomes.

D. All of these are possible outcomes.

12. Which of the following statements is true regarding why the balance on the current account and the balance on the capital and financial account must always sum to zero? A. Any deficit or surplus in the current account automatically creates an offsetting entry in the capital and financial account. B. People can only trade one of two things with each other; currently produced goods and services or preexisting assets. C. If trading partners have an imbalance in their trade of currently produced goods and services, the only way to correct that imbalance is with a net transfer of assets from one party to the other. D. All of these are true statements.

D. All of these are true statements.

29. Which of the following has contributed to large U.S. trade deficits in recent years? A. China fixing its exchange rate. B. Rapid increases in the price of oil. C. A declining U.S. saving rate. D. All of these have contributed.

D. All of these have contributed.

2. Which of the following statements is false? A. In recent years the United States has had large annual trade deficits in goods and services. B. The United States imports some of the same categories of goods as it exports. C. China has the largest share of world exports. D. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

D. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

20.) The marginal benefit curve is: A. upward sloping because of increasing marginal opportunity costs B. upward sloping because of successive units of a specific product yield less and less extra benefit C. Downward sloping because of increasing marginal opportunity costs D. Downward sloping because of successive units of a specific product yield less and less extra benefit

D. Downward sloping because successive units of a specific product yield less and less extra benefit

18. In the above diagram, if aggregate supply is AS1 and aggregate demand is AD0, then: A. at any price level above G a shortage of real output would occur. B. F represents a price level that would result in a surplus of real output of AC. C. a surplus of real output of GH would occur. D. F represents a price level that would result in a shortage of real output of AC.

D. F represents a price level that would result in a shortage of real output of AC.

27. Which of the following resulted from the financial crisis of 2007-2008? A. A national bank holiday was declared that shut down banks for one week. B. The Fed raised reserve requirements to keep cash from flowing out of banks. C. The Fed raised interest rates to entice depositors to keep their money in banks. D. FDIC insurance was increased from $100,000 to $250,000 per account.

D. FDIC insurance was increased from $100,000 to $250,000 per account.

The group that sets the Federal Reserve System policy on buying and selling government securities (bill, notes, and bonds) is the: A. Federal Deposit Insurance Corporation (FDIC). B. Federal Bond Sale Authority. C. Council of Economic Advisers. D. Federal Open Market Committee (FOMC).

D. Federal Open Market Committee (FOMC)

The paper money used in the United States is: A. National Bank Notes. B. Treasury Notes. C. United States Notes. D. Federal Reserve Notes.

D. Federal Reserve Notes.

9. Which of the following is correct? A. Both the granting and repaying of bank loans expand the aggregate money supply. B. Granting and repaying bank loans do not affect the money supply. C. Granting a bank loan destroys money; repaying a bank loan creates money. D. Granting a bank loan creates money; repaying a bank loan destroys money.

D. Granting a bank loan creates money; repaying a bank loan destroys money.

26. If the economy is opened to free trade, the price and quantity sold of this product would be: A. Pc and v. B. Pa and z. C. Pt and y. D. Pc and z.

D. Pc and z.

12. Which of the following best describes the built-in stabilizers as they function in the United States? A. The size of the multiplier varies inversely with the level of GDP. B. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

4. Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? A. A Congressional proposal to incur a Federal surplus to be used for the retirement of public debt. B. Reductions in agricultural subsidies and veterans' benefits. C. Postponement of a highway construction program. D. Reductions in Federal tax rates on personal and corporate income.

D. Reductions in Federal tax rates on personal and corporate income.

Which of the following programs provides loans of U.S. securities to primary dealers for one-month terms, in an effort to enhance liquidity in U.S. securities markets? one-month terms, in an effort to enhance liquidity in U.S. securities markets? A. Primary Dealer Credit Facility B. Commercial Paper Funding Facility C. Term Asset-Backed Securities Loan Facility D. Term Securities Lending Facility

D. Term Securities Lending Facility

TARP, created in 2008, stands for: A. Toxic Asset Relief Program B. Troubled Asset Recovery Plan C. Toxic Asset Reinvestment Policy D. Troubled Asset Relief Program

D. Troubled Asset Relief Program

32. Other things equal, which of the following would increase the Federal funds rate? A. a decrease in loan demand in the Federal funds market B. a decrease in the reserve ratio C. Fed purchases of government securities from banks D. a decline in excess reserves in the banking system

D. a decline in excess reserves in the banking system

An increase in the demand for money, with no change in the supply of money, will lead to _______ in the equilibrium quantity of money and _______ in the equilibrium interest rate. A. no change; a decrease B. an increase; a decrease C. no change; an increase D. a decrease; an increase

D. a decrease; an increase

24. Refer to the above diagram where D and S are the United States' demand for and supply of Swiss francs. At the equilibrium exchange rate, E, the United States' balance of payments is in equilibrium. A shift of the demand curve to D' might be the result of: A. a relative decline in interest rates in Switzerland. B. a reduction in the United States' relative price level. C. a recession in the United States which slows its rate of growth. D. a relative decline in interest rates in the United States.

D. a relative decline in interest rates in the United States.

C. bowed out from the origin. A. an increase in the unemployment rate from 6 to 8 percent B. a decline in the efficiency with which the present labor force is allocated C. a decrease in the unemployment rate from 8 to 6 percent D. a technological advance that allows farmers to produce more output from given inputs

D. a technological advance that allows farmers to produce more output from given inputs

31. The prime interest rate: A. affects investment spending while the Federal funds rate affects consumption spending. B. affects consumption spending while the Federal funds rate affects investment spending. C. has no affect on exchange rates and net exports. D. affects investment spending while the Federal funds rate affects overnight borrowing of bank reserves.

D. affects investment spending while the Federal funds rate affects overnight borrowing of bank reserves.

Banks lost money during the mortgage default crisis because: A. of defaulted loans to investors in mortgage-backed securities. B. they held mortgage-backed securities they had purchased from investment firms. C. homebuyers defaulted on mortgages held by the banks. D. of all of these reasons.

D. all of these reasons

4. Differences in production efficiencies among nations in producing a particular good result from: A. different endowments of fertile soil. B. different amounts of skilled labor. C. different levels of technological knowledge. D. all of these.

D. all of these.

An increase in the supply of money, with no change in demand for money, will lead to _______ in the equilibrium quantity of money and _______ in the equilibrium interest rate. A. a decrease; a decrease B. an increase; an increase C. a decrease; an increase D. an increase; a decrease

D. an increase; a decrease

3. Which of the following is an example of a capital-intensive commodity? A. clothing B. wool C. sunflower seeds D. chemicals

D. chemicals

A reserve ratio is the: A. proportion of cash and security reserves the bank needs to hold. B. loan to deposit ratio in the bank's balance sheet. C. money belonging to the bank's largest depositors. D. fraction of deposits that the bank is required to hold.

D. faction of deposits that the bank is required to hold

25. Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as: A. insurance companies. B. thrifts. C. commercial banks. D. mutual funds companies.

D. mutual funds companies.

Firms whose central business is providing individual account shares of collections of stocks, bonds, or both are known as: A. insurance companies. B. thrifts. C. commercial banks. D. mutual funds companies.

D. mutual funds companies.

19. If the world price of this product is $1, this nation will: A. export all of the product. B. import all of the product. C. import some of the product and produce some of the product domestically. D. neither export nor import the product.

D. neither export nor import the product.

Currency held within banks is part of: A. both the M1 and M2 definitions of the money supply. B. the M2 definition of the money supply only. C. the M1 definition of the money supply only. D. none of these definitions of the money supply.

D. none of these definitions of the money supply.

(Consider This) Credit card balances are: A. a component of M1. B. a component of M2 but not of M1. C. a component of M1 but not of M2. D. not a component of M1 or M2.

D. not a component of M1 or M2

Time deposits of $100,000 or more are: A. a component of M1. B. a component of M2 but not of M1. C. a component of M1 but not of M2. D. not a component of M1 or M2.

D. not a component of M1 or M2

26. Credit card balances are: A. a component of M1. B. a component of M2 but not of M1. C. a component of M1 but not of M2. D. not a component of M1 or M2.

D. not a component of M1 or M2.

Coins held in commercial banks are: A. included in M1, but not in M2. B. included both in M1 and in M2. C. included in M2, but not in M1. D. not part of the nation's money supply.

D. not part of the nation's money supply.

TIAA-CREF, Teamster' Union and CalPERS, are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

D. pension funds

6. In the above diagram, a shift from AS3 to AS2 might be caused by an increase in: A. business taxes and government regulation. B. the prices of imported resources. C. the prices of domestic resources. D. productivity.

D. productivity.

An important function of the Federal Reserve Bank is to: A. supervise the liquidation of the assets of bankrupt state banks. B. help large commercial banks develop correspondent relationships with smaller commercial banks. C. advise commercial banks as to the most profitable ways of reinvesting profits. D. provide facilities by which commercial banks and thrift institutions may collect checks.

D. provide facilities by which commercial banks and thrift institutions may collect checks.

24. In the above table, if the full-employment real GDP is $100 the: A. inflationary expenditure gap is $30. B. inflationary expenditure gap is $10. C. recessionary expenditure gap is $30. D. recessionary expenditure gap is $10.

D. recessionary expenditure gap is $10.

18. Refer to the above data. Suppose the Fed sold $10 billion of U.S. securities to the banks. This would: A. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. B. increase bank reserves to $70 billion, reduce bank-held securities to $130 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion. C. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately increase the money supply (checkable deposits) by $100 billion. D. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.

D. reduce bank reserves to $50 billion, increase bank-held securities to $150 billion, and ultimately decrease the money supply (checkable deposits) by $100 billion.

8. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should: A. increase government expenditures by $80 billion. B. reduce government expenditures by $40 billion. C. reduce taxes by $40 billion. D. reduce taxes by $80 billion.

D. reduce taxes by $80 billion.

20. When the required reserve ratio is increased, the excess reserves of member banks are: A. reduced, but the multiple by which the commercial banking system can lend is unaffected. B. reduced and the multiple by which the commercial banking system can lend is increased. C. increased and the multiple by which the commercial banking system can lend is increased. D. reduced and the multiple by which the commercial banking system can lend is reduced.

D. reduced and the multiple by which the commercial banking system can lend is reduced.

Reserve requirements: A. set the maximum amount of reserves a bank must hold. B. are set by the American Bankers Association. C. are established by Congress. D. set the minimum amount of reserves a bank must hold

D. set the minimum amount of reserves banks must hold

When an individual decides to hold money instead of other assets: A. that individual is not affected by unanticipated inflation. B. that individual becomes more likely to suffer from money illusion. C. that individual is able to maintain a higher standard of living. D. that individual is giving up the interest that could have been earned by holding other types of assets.

D. that individual is giving up the interest that could have been earned by holding other types of assets

Any point inside the production possibilities curve indicates: A. the presence of technological change. B. that resources are imperfectly substitutable among alternative uses. C. the presence of inflationary pressures. D. that more output could be produced with available resources.

D. that more output could be produced with available resources.

In the market for loanable funds, suppose the current interest rate is 5%. At a rate of 5%, investors wish to borrow $100 million and savers wish to save $125 million. We would expect: A. the interest rate to rise as there is currently a surplus of loanable funds. B. the interest rate to rise as there is currently a shortage of loanable funds. C. the interest rate to fall as there is currently a shortage of loanable funds. D. the interest rate to fall as there is currently a surplus of loanable funds.

D. the interest rate to fall as there is currently a surplus of loanable funds

48. In the 1990s and early 2000s, Japan's central bank reduced real interest rates to zero percent, but investment spending did not respond enough to bring the economy out of recession. Japan's experience is an illustration of: A. the crowding-out effect. B. "pulling on a string." C. the Taylor rule. D. the liquidity trap.

D. the liquidity trap.

Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect: A. an upward movement along a fixed money demand curve. B. the money demand curve to shift outward. C. a downward movement along a fixed money demand curve. D. the money demand curve to shift inward.

D. the money demand curve to shift inward

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues:

Decrease and transfer payments increase

The set of fiscal policies that would be most contractionary would be a:

Decrease in government spending

The United states is experiencing inflation, so congress adopts a contractionary fiscal policy to reduce inflation. The net export effect suggests that net exports would;

Decrease, thus decreasing aggregate demand and partially reinforcing the fiscal policy.

Get massive loans from the Fed

During the Financial Crisis of 2007-2008, Goldman Sachs, Morgan Stanley, and other financial firms with heavy exposure to the mortgage-related problems rushed to become bank holding companies in order to:

Declined to about zero, and investments also declined sharply

During the Great Recession of 2007-2009, real interest rates:

If the economy is simultaneously in long-run and short-run equilibrium, which of the following is not true? a. The actual price level equals the expected price level. b. Aggregate quantity supplied equals potential output. c. Aggregate quantity demanded equals potential output. d. Aggregate quantity supplied equals aggregate quantity demanded. e. The aggregate demand curve is horizontal at the potential output level.

E

Refer to Optimism. What happens to the expected price level and what's the result for wage bargaining? a. The expected price level falls. Bargains are struck for higher wages. b. The expected price level falls. Bargains are struck for lower wages. c. The expected price level falls. Bargains are struck for lower prices. d. The expected price level rises. Bargains are struck for lower wages. e. The expected price level rises. Bargains are struck for higher wages.

E

Suppose the economy is initially in long-run equilibrium and then it experiences a supply shock in the form of sharply higher energy prices. Which of the following is true? a. The short-run aggregate supply curve shifts leftward and the long-run supply curve shifts rightward. b. The short-run aggregate supply curve shifts rightward and the long-run supply curve shifts rightward. c. The short-run aggregate supply curve does not shift and the long-run aggregate supply curve shifts rightward. d. The short-run aggregate supply curve shifts rightward but the long-run aggregate supply curve does not shift. e. There will be a movement to the left along the aggregate demand curve.

E

Which of the following would increase output in the short run? a. an increase in stock prices makes people feel wealthier. b. government spending increases. c. firms chose to purchase more investment goods. d. foreigners buy more American goods. e. All of the above are correct.

E

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the:

Economy's MPS is small

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be a example of:

Expansionary Fiscal Policy

If the congress passes legislation to increase government spending to counter the effects of the recession, then this would be an example of a(n):

Expansionary fiscal policy

Which group assists the Board of Governors of the Federal Reserve System in determining monetary policy?

Federal Open Market Committee

The group that sets the Federal Reserve Systems policy on buying and selling government securities (bills, notes, and bonds) is the:

Federal Open Market Committee (FOMC)

The major component of the money supply (M1) is

Federal Reserve Notes

A

Holly's break-even level income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of: A) consumption spending will be $14,500 B) consumption spending will be $15,500 C) consumption spending will be $13,000 D) savings will be $2,500

A

If Ben's MPC is .80, this means that he will: A) spend eight-tenths of any increase in his disposable income. B) spend eight-tenths of any level of disposable income. C) break even when his disposable income is $8,000. D) save two-tenths of any level of disposable income.

Expansionary fiscal policy

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

C

If Smith's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to: A) save is three-fifths. B) consume is one-half C) consume is three-fifths. D) consume is one-sixth.

A

If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will: A) increase by $10 billion. B) increase by $2.10 billion. C) decrease by $4.29 billion. D) increase by $4.29 billion.

D

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is: A) 2 percent. B) zero percent. C) 10 percent. D) 22 percent.

B

If the marginal propensity to consume is .9, then the marginal propensity to save must be: A) 1. B) .1. C) 1.1. D) .9.

D

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase: A) GDP by $120 billion. B) GDP by $20 billion. C) saving by $25 billion. D) consumption by $80 billion.

D

If the minimum annual income is $5,000 in a public assistance plan and the benefit-reduction rate is 40 percent, the break-even level of income will be: A) $10,000. B) $2,500. C) $20,000. D) $12,500.

C

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is: A) 18 percent. B) 24 percent. C) 12 percent. D) 6 percent.

0.8 and 5.0

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively:

C would shift up

In 2008 during the Great Recession, the Federal government provided tax rebate checks to taxpayers in the hope that:

AE = C + Ig = GDP

In a private closed economy, the equilibrium condition for the economy is:

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Increased government spending or decreased taxation, or a combination of the two actions

Which of the following are included in the functions of the Federal Reserve System?

Issuing Federal Reserve Notes, providing for check collection, and supervising the operation of banks

When paper money is designated as legal tender, it means that:

It is a means of payment by law

Fiscal policy refers to the

Manipulation of government spending and taxes to stabilize domestic output, employment and price level

Which program pays for health care for low-income or disabled people? a. Social Security b. Medicare c. Medicaid d. Supplement Medical Pay

Medicaid

An increase in aggregate demand and a decrease in aggregate supply

Price level increases, but the change in real output is indeterminate.

A

Refer to the above graph. A movement from b to a along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) decrease in income tax rates. D) increase in saving.

C

Refer to the above table. The marginal propensity to consume is: A) .5. B) .75. C) .8. D) .9.

In the later part of 2009, something interesting happened relative to Social Security, in that for the first time:

Social Security contributions fell short of payouts

Another term for full employment budget is the

Standardized budget

One timing problem with fiscal policy to counter a recession is a "recognition lag" that occurs between the:

Start of the recession and the time it takes to recognize that the recession has started

Cyclically-adjusted deficit grow during that period

The Great Recession of 2007-09 and the consequent policy response made the:

C

The tax multiplier is defined as: A) 1 - MPS. B) change in GDP × initial change in spending. C) change in GDP/initial change in spending. D) change in GDP - initial change in spending.

Which of the following is an example of a negative externality?

There is an increase in injuries to pedestrians cause by accidents resulting from electronic billboards distracting drivers.

The so-called "negative taxes" are better known as:

Transfer payments

TARP is the

Troubled Asset Relief Program funded with general tax revenue and the issuance of government debt

TARP is the...

Troubled Asset Relief Program funded with general tax revenue and the issuance of government debt.

When a banker records how many dollars each of his borrowers owes the bank, money is serving as a:

Unit of account

Increase taxes and government spending

Which combination of fiscal policy actions would most likely offset each other?

Inflation is best defined as

a sustained increase in the average of all prices of goods and services in an economy.

Consider the following statement: "In most economies of the world, the debts of government and commercial banks are used as money." This statement acknowledges that

accounts in commercial banks are customer deposits, and thus are debts of commercial banks.

Excess reserves are equal to...

actual reserves minus required reserves.

Subprime mortgage loans were one of the factors that exacerbated the financial crisis of 2007-2008 because they resulted in...

an increase in demand for housing and a rapid increase in home prices that was unsustainable.

Risk is a part of a. any business venture. b. only large businesses. c. joint ventures. d. most partnerships.

any business venture

Bank panics:

are a risk of fractional reserve banking, but are unlikely when banks are highly regulared and lend prudently

A reduction in aggregate demand likely causes a decline in real output rather than the price level because prices...

are inflexible downward.

Net worth is equal to

assets minus liabilities

Net worth is equal to...

assets minus liabilities.

A balance sheet must always balance because the sum of...

assets must equal the sum of liabilities plus net worth.

A truck used by a plumber is a type of a. capital. b. labor. c. raw good. d. modus transportius.

capital

When prices rise due to wage demands and excessive profit motives, it is called a. stagflation. b. deflation. c. cost-push inflation. d. demand-pull inflation.

cost-push inflation

Aggregate supply

curves is a schedule that shows the total quantity of goods and services supplied at different price levels. The aggregate supply curve in the short run and in the long run vary by the degree of wage adjustment

"Bait and switch" is an example of __________ advertising. a. generic b. informative c. deceptive d. competitive

deceptive

An "easy" money policy in the united states is most likely to:

decrease domestic interest rates and cause the value of the dollar to depreciate

An increase in taxes on consumers will most likely cause a(n): Answer decrease in aggregate supply. decrease in aggregate demand. increase in aggregate supply. increase in aggregate demand.

decrease in aggregate demand.

Which of the following would cause the aggregate demand curve to shift to the right? a. an increase in taxes b. a decrease in taxes c. oil prices increase d. oil prices decrease

decrease in taxes

The United States is experiencing inflation, so congress adopts a contractionary fiscal policy to reduce inflation. The net export effect suggests that net exports would:

decrease, thus decreasing aggregate demand and partially reinforcing the fiscal policy

The largest expenditure for state and local governments is a. education. b. public welfare. c. health and hospitals. d. housing.

education

Demand for one particular type of automobile is probably a. substitutable. b. inelastic. c. elastic. d. marginal utility.

elastic

A goal of the United States has been to a. encourage competition in the economy. b. protect monopolies. c. not interfere with the economy in any way. d. promote mergers.

encourage competition in the economy

Suppose there is an increase in the total demand for money with no change in the supply of money. In this case, the

equilibrium interest rate will rise because the quantity of money demanded exceeds the quantity of money supplied.

The crowding-out effect arises when;

government borrows in the money market, this increasing interest rates and decreasing net investment spending

The more progressive the tax system, the:

greater is the built-in stability for the economy

Automatic stabilizers smooth fluctuartions in the economy because they produce changes in the government's deficit that:

help offset changes in GDP

Which of the following is not a characteristic of a developing nation? a. high literacy rate b. rapid population growth c. poor health conditions d. an agricultural economy

high literacy rate

"Subprime mortgage loans" refer to:

high-interest rate loans to home buyers with above average credit risk

The lack of property right protections and the rule of law have a. had little effect on China's economy. b. helped China's transition to capitalism. c. hindered China's transition to capitalism. d. encouraged foreign investment.

hindered China's transition to capitalism

The tweleve Federal Rerserve Banks:

hold the reserve deposits of commercial banks.

Total money demand is the

horizontal sum of transaction money demand and asset money demand

Net exports are negative when: Imports exceed exports Net exports exceed imports Depreciation exceeds exports Exports exceed imports

imports exceed its exports

The largest expenditure for the federal government is a. income security, Social Security, and Medicare. b. education. c. transportation. d. national defense.

income security, Social Security and Medicare

If commercial banks borrow from Federal Reserve Banks at the discount rate, then commercial reserves will

increase

Expansionary fiscal policy

is an increase in government spending, a decrease in taxes or some combination of the two for the purpose of increasing aggregate demand and real output

Built in stabilizers

is anything that increases the government budget deficit during a recession and increases its budget surplus during an expansion without requiring explicit action by policy makers

A fractional reserve banking system:

is susceptible to bank panics

Which of the following is a strength of a market economy? a. It gives producers and consumers a great deal of freedom. b. It provides centralized planning. c. It offers guaranteed lifetime employment. d. No one is allowed to live in poverty.

it givers producers and consumers a great deal of freedom

A major strength of monetary policy is...

its speed and flexibility.

Money that is removed from the circular flow of income through either saving or taxation is referred to as a a. transfer. b. leakage. c. injection. d. loss of flow.

leakage

In early 2001 investment spending sharply declined in the United States. This event caused a...

leftward shift in aggregate demand, and lower investment would have caused a leftward shift in aggregate supply.

In the 2 months following the September 11, 2001, attacks on the United States, consumption also declined. This event caused a...

leftward shift in aggregate demand, and lower investment would have caused a leftward shift in aggregate supply.

The opportunity cost for using store coupons when food shopping is a. less money. b. less time. c. lower quality. d. less food.

less time

The most contractionary use of funds from a budget surplus would be to:

let the funds remain idle by impounding them

The basic determinant of the transactions demand for money is the

level of nominal GDP

Suppose the assets of the Silver Lode Bank are $150,000 higher than on the previous day and its net worth is up $20,000. By how much and in what direction must its liabilities have changed from the day before?

liabilities have increased by $130,000

In economic analysis, people's resources are

limited and their wants are unlimited.

Consider the following statement: "People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services." This statement acknowledges that

money can be used to purchase goods and services, but as an asset money provides little return

Monthly mortgage payments should be no more than a. 50 percent of monthly take-home pay. b. one third of monthly take-home pay. c. monthly rental payments. d. monthly food bills.

one third of monthly take-home pay

The face value of a coin is greater than its intrinsic value because

otherwise people would sell it for its intrinsic value

The face value of a coin is greater than its intrinsic value because...

otherwise people would sell it for its intrinsic value.

An asset on a bank's balance sheet is something...

owned by the bank, whereas a liability is something owed by the bank.

TIAA-CREF, Teamsters' Union, and CalPERS, are all primarily

pension funds

The interest rate that a bank charges its best business customers is called the a. prime rate. b. federal funds rate. c. discount rate. d. business rate.

prime rate

Productivity refers to a. using the four factors of production. b. creating goods and services. c. measuring sales. d. producing goods and services in better and faster ways.

producing goods and services in better and faster ways

Suppose the economy is initially experiencing a short-run recessionary gap. An increase in the size of the budget deficit will

reduce the size of the recessionary gap.

The cigarette tax is an example of a __________ tax. a. progressive b. regressive c. proportional d. sales

regressive

The Federal Reserve requires that commercial banks have reserves because...

reserves provide the Fed a means of controlling the money supply.

The major assets on a commercial bank's balance sheet include

reserves, securities, loans, and vault cash

Scarcity arises because

resources are finite and are inadequate to meet all human wants and needs.

When trade restrictions are used by a developing nation, it a. lowers taxes. b. increases growth. c. retards growth. d. increases trade.

retards growth

A shortage will cause prices to a. fluctuate. b. rise. c. fall. d. remain constant.

rise

If nothing else changes, and the supply of a good decreases, the price of that good will a. rise. b. fall. c. remain constant. d. fluctuate.

rise

A decrease in the supply of Federal funds is shown as an upshift of the supply curve above because the interest rate

rises to 4.5% which occurs when there are fewer funds available

Workers who replace striking workers are called __________ by the strikers. a. "whiners" b. "traitors" c. "losers" d. "scabs"

scabs

In deciding whether to study for an economics quiz or go to a movie, one is confronted by the idea(s) of: scarcity and opportunity costs. money and real capital. complementary economic goals. full production.

scarcity and opportunity costs

In a partnership, you would a. share the profits or losses with your partner. b. have no say in how the business is run. c. share only the profits with your partner. d. have no responsibility for the debts of the partnership.

share the profits or losses with your partner

On average, which of the following people can expect to earn the most money? a. a high school dropout b. someone with a college degree c. someone with an advanced degree d. someone with a high school diploma

someone with an advanced degree

The Federal Open Market Committee (FOMC) includes

the Board of Governors members and 5 of the 12 presidents of the Federal Reserve Banks, of which, the president of the New York Fed has a permanent voting seat

The theories of John Maynard Keynes were developed during, and influenced by, a. World War I. b. the Great Depression. c. the presidency of Ronald Reagan. d. the presidency of John F. Kennedy.

the Great Depression

Deficit

the amount by which outlays exceed receipts in a fiscal year. may be "off budget", "on budget" or unified budget deficit

Labor productivity increases when

the average output produced per worker during a specified time period increases.

An example of the difficulty of protecting intellectual property on the Internet would be a. web cams. b. day trading. c. the copying of music from file-sharing services. d. the proliferation of plagiarized papers.

the copying of music from file-sharing services

The four main tools of monetary policy are

the discount rate, the reserve ratio, the term auction facility, and open-market operations

Discretionary fiscal policy

the discretioary changes in government expenditures and/or taxes in order to achieve certain national economic goals

When determining GDP, a. homes are counted two times for every car included. b. quality of goods is considered. c. both new and used goods are counted. d. the dollar is used as the common measure.

the dollar is used as the common measure

The difficulty with a fixed rate of exchange is that a. it caused a gold shortage. b. the economic climate was constantly changing. c. no one knew the value of their currency. d. it caused depreciation.

the economic climate was constantly changing

The marginal tax rate shows

the extra tax due on an extra dollar of income.

If a tax system is progressive, then

the marginal tax rate is greater than the average tax rate as income rises.

The desire to make money that motivates people to produce goods and services is called a. entrepreneurship. b. the profit incentive. c. laissez-faire. d. greed.

the profit incentive

A major reason that a public debt cannot bankrupt the federal government is because:

the public debt can be easily refinanced

Open-market operations refer to

the purchase or sale of government securities by the Fed

Zoning regulations are an example of a. the lack of government involvement in economic activities. b. the role of government in regulating economic activities. c. a traditional economy. d. a pure market economy.

the role of government in regulating economic activities

The open economy effect refers to the fact that

the slope of the aggregate demand curve is partially explained by the reduction in the desire to buy fewer U.S. goods by U.S. residents and foreign residents as a result of a higher price level.

Effect time lag

the time it takes for fiscal policy to affect the economy

Action time lag

the time required between recognizing an economic problem and putting policy into effect. Particularly long for fiscal policy

Gross Domestic Product is

the total market value of all final goods and services produced during a year by factors of production located within a nation's borders.

Public debt

the total value of all accumlated deficits

An ATM can receive deposits, give out funds, accept payments, and Choose one answer. a. cash checks. b. make loans. c. transfer funds between accounts. d. provide credit ratings.

transfer funds between accounts

The measure of money called M1 consists of all currency, all checkable deposits, and Choose one answer. a. mortgages. b. certificates of deposit. c. savings bonds. d. traveler's checks.

travelers checks

us government securities

treasury bills, notes, bonds, and I bonds issued by the federal government to finance expenditures that exceed tax revenues

To help consumers compare food brands, most states require stores to provide a. generic brands. b. checkout scanners. c. unit pricing on products. d. advertising.

unit pricing on products

The financial crisis of 2007-2008 was exacerbated by subprime mortgage loans. These loans were made to borrowers...

who were more likely to default on their loans.

A business that buys large quantities of goods to resell to other businesses is called a/an a. e-mailer. b. wholesaler. c. distributor. d. retailer.

wholesaler

Economists believe that use of the term auction facility

will be limited to times of economic crisis when a quick injection of reserves will be helpful

China's slow move toward a capitalist system began a. when the government sold off all its state-owned enterprises. b. with the government leasing land to farmers. c. when the government declared that communism had failed. d. with democratic elections.

with the government leasing land to farmers.

A car produced by General Motors in a plant in Ontario, Canada, a. would run better in the snow. b. would count in GNP. c. would count in GDP. d. would not count in GDP or GNP.

would count in GNP

Imports exceed exports

Net exports are negative when:

In a private closed economy where MPC = 0.8, if consumers reduce their spending by $10 billion and firms cut investments by $5 billion, then equilibrium GDP will decrease by:

$75 billion

25. NDP is: A. NI minus net foreign factor income. B. NI plus corporate income taxes. C. GDP deflated for increases in the price level. D. GDP minus taxes on production and imports.

A

Of all the over 135 nations of the world, how many are considered developed? a. 74 b. 25 c. 125 d. 35

35

Suppose that Serendipity Bank has excess reserves of $8,000 and checkable deposits of $150,000. If the reserve ratio is 20 percent, what is the size of the bank's actual reserves?

38000

Economists estimate that __________ percent of the price people pay for an item is the cost of marketing. a. 30 b. 50 c. 10 d. 20

50

If the CPI was 115 in 2000 and rose to 124 in 2003, what was the total increase in prices as a percentage? a. 3% b. 9% c. 21.1% d. 7.8%

7.8%

12. The Industrial Revolution and modern economic growth resulted in: A. the average human lifespan more than doubling. B. a major population shift from urban to rural areas. C. increased production by local craftsmen. D. all of these.

A

13. The seven members of the Board of Governors of the Federal Reserve System are: A. appointed by the President with the confirmation of the Senate. B. elected by Congress from a slate of nominees provided by the President. C. appointed by the Senate Finance Committee. D. appointed by the presidents of the twelve Federal Reserve Banks.

A

14. To say that the Federal Reserve Banks are quasi-public banks means that: A. they are privately owned, but managed in the public interest. B. they deal only with banks of foreign nations and do not have direct business contact with U.S. banks. C. they deal only with commercial banks, and not the public. D. they are publicly owned, but privately managed.

A

15. A bank that has assets of $85 billion and a net worth of $10 billion must have: A. liabilities of $75 billion. B. excess reserves of $10 billion. C. liabilities of $10 billion. D. excess reserves of $75 billion.

A

15. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium: A. output would rise. B. output would fall. C. price level would necessarily fall. D. price level would necessarily rise.

A

16. A decline in the real interest rate will: A. increase the amount of investment spending. B. shift the investment schedule downward. C. shift the investment demand curve to the right. D. shift the investment demand curve to the left.

A

16. If the multiplier in an economy is 5, a $20 billion increase in net exports will: A. increase GDP by $100 billion. B. reduce GDP by $20 billion. C. decrease GDP by $100 billion. D. increase GDP by $20 billion.

A

20. Which of the following institutional structures is most likely to promote growth? A. A well-enforced system of patents and copyrights. B. A tightly regulated market system. C. A system of tariffs and other trade barriers to protect domestic companies. D. All of these.

A

21. If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will: A. increase by $10 billion. B. increase by $2.10 billion. C. decrease by $4.29 billion. D. increase by $4.29 billion.

A

22. If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement the bank will: A. have $45 of additional excess reserves. B. be capable of lending an additional $500. C. be capable of lending an additional $50. D. have $50 of required reserves.

A

23. Economic growth can be portrayed as: A. an outward shift of the production possibilities curve. B. an inward shift of the production possibilities curve. C. a movement from a point on to a point inside a production possibilities curve. D. a movement from one point to another point on a fixed production possibilities curve.

A

24. A $1 billion increase in investment will cause a: A. (1/MPS) billion increase in GDP. B. (MPS) billion increase in GDP. C. (1 MPC) billion increase in GDP. D. (MPC MPS) billion increase in GDP.

A

24. Suppose government finds it can increase the equilibrium real GDP $45 billion by increasing government purchases by $18 billion. On the basis of this information we can say that the: A. MPS in this economy is .4. B. MPC in this economy is .4. C. balanced-budget multiplier does not apply in this economy. D. multiplier is 3.

A

29. A recessionary expenditure gap is: A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures. B. the amount by which equilibrium GDP falls short of the full-employment GDP. C. the amount by which investment exceeds saving at the full-employment GDP. D. the amount by which aggregate expenditures exceed the full-employment level of GDP.

A

3. As disposable income increases, consumption: A. and saving both increase. B. and saving both decrease. C. decreases and saving increases. D. increases and saving decreases.

A

34. Human capital refers to: A. the skills and knowledge that enable a worker to be productive. B. machinery used by labor in production. C. the accumulated financial wealth of households. D. physical capital owned by households rather than businesses.

A

39. If nominal GDP rises: A. real GDP may either rise or fall. B. we can be certain that the price level has risen. C. real GDP must fall. D. real GDP must also rise

A

4. In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A

5. If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, its real GDP per capita will: A. remain constant. B. fall by 6 percent. C. rise by 6 percent. D. fall by 12 percent.

A

5. Tessa's break-even level of income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of: A. consumption spending will be $14,500. B. consumption spending will be $15,500. C. consumption spending will be $13,000. D. saving will be $2,500.

A

6. Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the: A. M1 money supply will decline and M2 money supply will remain unchanged. B. M1 and M2 money supplies will not change. C. M1 and M2 money supplies will increase. D. M1 and M2 money supplies will decline.

A

6. Which of the following is correct? A. MPC + MPS = APC + APS B. APC + MPS = APS + MPC C. APC + MPC = APS + MPS D. APC APS = MPC MPS

A

7. The wealth effect is shown graphically as a: A. shift of the consumption schedule. B. movement along an existing consumption schedule. C. shift of the investment schedule. D. movement along an existing investment schedule.

A

8. Suppose that inventories were $40 billion in 2003 and $50 billion in 2004. In 2004, accountants would: A. add $10 billion to other elements of investment in calculating total investment. B. subtract $10 billion from other elements of investments in calculating total investment. C. add $45 billion (= $90/2) to other elements of investment in calculating total investment. D. subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.

A

9. Graphically, demand-pull inflation is shown as a: A. rightward shift of the AD curve along an upsloping AS curve. B. leftward shift of the AS curve along a downsloping AD curve. C. leftward shift of AS curve along an upsloping AD curve. D. rightward shift of the AD curve along a downsloping AS curve.

A

A person should consume more of something when its marginal: A. benefit exceeds its marginal cost B. cost exceeds its marginal benefit C. cost equals its marginal benefit D. benefit is still positive

A

A point inside a production possibilities curve best illustrates: A. Unemployment B. The efficient use of resources C. the use of best-available technology D. unlimited wants

A

A problem that the Fed faces when it attempts to control the money supply is that a. because the United States has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers. b. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c. although the Fed has the ability to change the money supply by a large amount, it does not have the ability to change it by a small amount. d. federal legislation in the 1950s stripped the Fed of its power to act as a lender of last resort to banks. e. the Fed often has difficulty getting member banks to cooperate with policy changes.

A

if you write a check on a bank to purchase a used honda civic, you are using money primarily as A. a medium of exchange B. a store of value C. a unit of account D. an economic investment

A

Country A and country B are the same except country A currently has a lower level of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then a. output in country A increases by more than in country B. b. output in country A increases by the same amount as in country B. c. output in country A increases by less than in country B. d. None of the above is necessarily correct.

A

During recessions which type of spending falls? a. consumption and investment b. investment but not consumption c. consumption but not investment d. consumption and government e. consumption, investment, and government

A

During recessions, automatic stabilizers tend to make the government's budget a. move toward deficit. b. move toward surplus. c. move toward balance. d. move toward less debt. e. not necessarily move the budget in any particular direction.

A

If M = 5,000, P = 3, and Y = 10,000, what is velocity? a. 6 b. 1.5 c. 2/3 d. 1/6

A

If nominal wages are sticky in the downward direction, a. unemployment may persist for long periods of time b. shortages of labor may persist for long periods of time c. increases in real wages will happen too quickly to affect unemployment d. nominal wage increases will reduce the price level e. decreases in nominal wages will increase the inflation rate

A

If the potential output is $10 million and the short-run output is $11.5 million, then there is: a. An expansionary gap of $1.5 million b. An expansionary gap of $11.5 million c. A contractionary gap of $1.5 million d. A contractionary gap of $11.5 million e. A contractionary gap of $10 million

A

In the graph of the money market, the money supply curve is a. vertical. It shifts rightward if the Fed buys bonds. b. vertical. It shifts rightward if the Fed sells bonds. c. horizontal. It shifts downward if the Fed sells bonds. d. upward sloping. It shifts rightward if the Fed sells bonds. e. upward sloping. It shifts rightward if the Fed buys bonds.

A

Increases in the marginal propensity to consume, other things constant, a. increase the value of the multiplier b. decrease the value of the multiplier c. never change the value of the multiplier d. shift the aggregate expenditure curve downward e. cause a downward movement along an aggregate expenditure curve

A

Open-market purchases a. increase the price level, investment, and real GDP. b. decrease the price level, investment, and real GDP. c. increase the price level, increase investment, and decrease real GDP. d. decrease the price level, increase investment, and increase real GDP. e. increase the price level, decrease investment, and decrease real GDP.

A

Optimism Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. 21. Refer to Optimism. Which curve shifts and in which direction? a. aggregate demand shifts right. b. aggregate demand shifts left. c. aggregate supply shifts right. d. aggregate supply shifts left. e. aggregate supply shifts left and aggregate demand shifts left.

A

Paper money a. has a high intrinsic value. b. is the primary medium of exchange in a barter economy. c. is valuable because it is generally accepted in trade. d. is valuable only because of the legal tender requirement. e. is only valuable because it is backed by gold.

A

Permanent tax cuts shift the AD curve a. farther to the right than do temporary tax cuts. b. not as far to the right as do temporary tax cuts. c. farther to the left than do temporary tax cuts. d. not as far to the left as do temporary tax cuts. e. the same amount to the right as do temporary tax cuts.

A

Policymakers following a "lean against the wind" policy would a. increase government expenditures when output is low and decrease them when output is high. b. increase government expenditures when output is low and do nothing when output is high. c. decrease government expenditures when output is low and increase them when output is high. d. decrease government expenditures when output is high and do nothing when output is low.

A

Suppose that a new government is elected in Lawrencia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Lawrencia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably a. raise real GDP per person and productivity in Lawrencia. b. raise real GDP per person but not productivity in Lawrencia. c. raise productivity but not real GDP per person in Lawrencia. d. raise neither productivity nor real GDP per person in Lawrencia. e. lower productivity but raise real GDP per person in Lawrencia.

A

Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage increased from $20 to $24. What is true about the price level? a. It rose by 20 percent. b. It rose by 25 percent. c. It remained unchanged. d. It fell by 10 percent. e. It fell by 20 percent.

A

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed a. increased the money supply because it was concerned about unemployment. b. increased the money supply because it was concerned about inflation. c. decreased the money supply because it was concerned about unemployment. d. decreased the money supply because it was concerned about inflation. e. decreased the money supply because it was concerned about stagflation.

A

The evidence from hyperinflations indicates that money growth and inflation a. are positively related, which is consistent with the quantity theory of money. b. are positively related, which is not consistent with the quantity theory of money. c. are not related in a discernible fashion, which is consistent with the quantity theory of money. d. are not related in a discernible fashion, which is not consistent with the quantity theory of money.

A

The supply of loanable funds slopes a. upward because an increase in the interest rate induces people to save more. b. downward because an increase in the interest rate induces people to save less. c. downward because an increase in the interest rate induces people to invest less. d. upward because an increase in the interest rate induces people to invest more.

A

When a large, well-known corporation wishes to borrow directly from the public, it can a. sell bonds. b. sell shares of stock. c. go to a bank for a loan. d. All of the above are correct.

A

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures a. capital investment. b. investment in human capital. c. business consumption expenditures. d. personal saving.

A

When the dollar appreciates, U.S. a. exports decrease, while imports increase. b. exports and imports decrease. c. exports and imports increase. d. exports increase, while imports decrease.

A

Which of the following can explain the upward slope of the short-run aggregate supply curve? a. nominal wages are slow to adjust to changing economic conditions b. as the price level falls, the exchange rate falls c. an increase in the money supply lowers the interest rate d. an increase in the interest rate increases investment spending

A

Which of the following counts as part of the supply of loanable funds? a. bank deposits and purchases of bonds b. bank deposits but not purchases of bonds c. purchases of bonds but not bank deposits d. neither purchases of bonds nor bank deposits

A

Which of the following effects provide incentives for consumers to spend less when the price level rises? a. the wealth effect and the interest-rate effect b. the wealth effect but not the interest-rate effect c. the interest-rate effect but not the wealth effect d. neither the wealth-effect nor the interest rate effect

A

Which of the following is not true about a change in the price level? a. It will shift the aggregate demand curve. b. It will shift the aggregate expenditure curve. c. It will result in a new value of equilibrium real GDP demanded. d. It will change the real value of dollar-denominated assets. e. It will shift the consumption function.

A

a commercial bank has actual reserves of 50000 and checkable deposits of 200000 and the required reserve ratio is 20%. the excess reserves of the bank are A. 10000 B. 20000 C. 40000 D. 50000

A

a competitive market will: A. achieve an equilibrium price B. produce shortages C. produce surpluses D. create disorder

A

assume that a consumer has $12 in income and she can buy only two goods, apples or bananas. the price of an apple is $1.50 and the price of a banana is $.75. if the consumer decides to buy 4 apples, how many bananas can she also buy with the rest of her income? A. 8 B. 4 C. 6 D. 10

A

assume that the legally required reserve is 15% and commercial banks choose to hold additional excess reserves equal to 5% of any newly acquired deposits. under those circumstances the monetary multiplier for the commercial banking system is A. 6.67 B. 5 C. 4 D. 3

A

economic growth can be portrayed as A. an outward shift of the production possibilities curve B. an inward shift of the production possibilities curve C. a movement from a point on to a point inside a prod. poss. curve D. a movement from one point to another point on a fixed prod. poss. curve

A

fiscal policy refers to the A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level B. manipulation of government spending and taxes to achieve greater equality in the distribution of income C. altering of the interest rate to change AD D. fact that equal increases in govt spending and taxation will be contractionary

A

if the quantity supplied of a product is less than the quantity demanded, then A. there is a shortage of the product B. there is a surplus of the product C. the product is a normal good D. the product is an inferior good

A

in economics the word "shocks" refers to A. situations where firms' expectations are unmet B. any changes in the demand for goods and services C. any changes in the supply of goods and services D. a decrease in real GDP

A

in which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A. expansion B. recession C. peak D. trough

A

inflation is undesirable because it A. arbitrarily redistributes real income and wealth B. invariably leads to hyperinflation C. usually is accompanied by declining real GDP D. reduces everyone's standard of living

A

laissez-faire capitalism is characterized by A. very limited government role in the economy B. active government intervention in the economy C. individuals and firms abiding by a government economic plan D. a very fair distribution of income and wealth

A

suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to nominal GDP? A. nominal GDP doubles B. nominal GDP is halved C. nominal GDP doesnt change D. not enough info to determine

A

suppose that prices are sticky in the short run. which of the following best describes the economy's response to a negative demand shock? A. firms' inventories will increase, causing them to cut production. ultimately, real GDP will decrease and unemployment will increase B. firms' inventories will decrease, causing them to increase production. ultimately, real GDP will increase and unemployment will decrease C. firms' inventories will increase, causing them to cut production. ultimately, real GDP will increase and unemployment will increase D. firms' inventories will increase, causing them to cut production. ultimately, real GDP will decrease and unemployment will decrease

A

the entry of women into the workforce since the 1960s resulted in A. a shift outward in the production possibilities curve of the US B. a shift inward "" "" C. a movement along the existing prod. poss. curve in the US D. a falling real wage for women workers of the US

A

the law of supply indicates that, other things equal A. producers will offer more of a product at high prices than at low prices B. the product supply curve is downsloping C. consumers will purchase less of a good at high prices than at low prices D. producers will offer more of a product at low prices than at high prices

A

the purchasing power of money and the price level vary A. inversely B. directly during recessions, but inversely during inflations C. directly, but not proportionately D. directly and proportionately

A

the slope of the immediate short run AS curve is based on the assumption that A. both input and output prices are fixed B. neither input nor output prices are fixed C. input prices are flexible but output prices are fixed D. input prices are fixed but output prices are flexible

A

there tends to be a high positive correlation between the rate of productivity growth and the rate of economic growth A. True B. False

A

there tends to be a positive correlation between real wages of workers and the productivity of labor in the economy A. True B. False

A

Balanced budget

A balanced budget occurs when total receipts equal total outlays (spending ) for a fiscal year

D

A firm reaches a break-even point (normal profit position) where: A) marginal revenue cuts the horizontal axis. B) marginal cost intersects the average variable cost curve. C) total revenue equals total variable cost. D) total revenue and total cost are equal.

A change in real value of consumer wealth

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of:

Which of the following statements is correct?

A single commercial bank can safely lend a multiple amount of its excess reserves

Members of the Federal Reserve Board of Governors are:

Appointed by the President to staggered 14-year terms

9. Refer to the above information. Money supply M2 for this economy is: A. $480. B. $130. C. $490. D. $630.

A. $480.

4. In the above diagram for a private closed economy, at the equilibrium level of GDP, investment and saving are both: A. $50. B. $100. C. $20. D. $40.

A. $50.

What does it mean when economists say that home buyers are "underwater" on their mortgages? A. Buyers owe more on their mortgage than the properties are worth. B. Buyers are financially incapable of repaying their mortgages and bankruptcy is inevitable. C. Buyers are purchasing homes on flood plains and are highly susceptible to financial losses. D. Buyers are paying interest rates substantially higher than current market interest rates, creating interest payments that create financial hardship.

A. Buyers owe more on the properties than the properties are worth

Assuming no other changes, if balances in money market deposit accounts increase by $50 billion and small-denominated time deposits decrease by $50 billion, the: A. M1 and M2 money supplies will not change. B. M2 money supply will increase. C. M1 money supply will decline. D. M2 money supply will increase and the M1 money supply will decrease.

A. M1 and M2 money supplies will not change.

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the: A. M1 money supply will decline and M2 money supply will remain unchanged. B. M1 and M2 money supplies will not change. C. M1 money supply will increase and M2 money supply will remain unchanged. D. M1 and M2 money supplies will both decline.

A. M1 money supply will decline and M2 money supply will remain unchanged.

What is the primary function of the Term Assets Backed Securities Loan Facility? A. Provide funding support for collateralized securities such as student, auto, and credit card loans. B. Provide securities loans to primary dealers for one-month terms. C. Provide overnight loans to primary dealers willing to post loan-backed securities as collateral. D. Provide loans to U.S. financial institutions to purchase commercial paper.

A. Provide funding support for collateralized securities such as student, auto, and credit card loans.

34. Which of the following statements is false? A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies. B. The United States Constitution forbids individual states from levying tariffs. C. The high tariffs of the Smoot-Hawley Act of 1930 and the retaliation they caused worsened the Great Depression. D. The European Union has enhanced prosperity in Western Europe.

A. Studies show that developing nations that have relied on import restrictions to protect domestic industries have had higher growth rates than similar nations pursuing more open economic policies.

Equal increases in aggregate demand and aggregate supply

Price level remains unchanged, and real output rises rapidly.

Which of the following programs was not designed and implemented by the Federal Reserve? A. Troubled Asset Relief Program B. Term Securities Lending Facility C. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility D. Primary Dealer Credit Facility

A. Troubled Asset Relief Progam

2.) Economic systems differ according to what two main characteristics? A. Who owns the factors of production B. the technology used in production, and the quantity and quality of natural resources C. How goods are produced, and who gets them D. The political system in place, and the degree of scarcity facing the economy

A. Who owns the factors of production

35. A high tariff on imported good X might reduce domestic employment in industry Y if: A. X is an input used domestically in producing Y. B. X and Y are substitute goods. C. X is an inferior good. D. Y is an inferior good.

A. X is an input used domestically in producing Y.

A decrease in the demand for money would result from: A. a decrease in the price level. B. an increase in real GDP. C. an increase in nominal GDP. D. an increase in income.

A. a decrease in the price level

If the Fed conducts a $10 million open-market sale and the reserve requirement is 20%, the maximum change in the money supply is: A. a decrease of $50 million. B. a decrease of $8 million. C. a decrease of $10 million. D. an increase of $10 million.

A. a decrease of $50 million

A shift away from taxing asset income towards taxing consumption would lead to: A. a larger supply of loanable funds, a lower interest rate, and faster economic growth. B. a larger government budget deficit and slower economic growth. C. a larger demand for loanable funds, a higher interest rate, and slower economic growth. D. a smaller supply of loanable funds, a higher interest rate, and faster economic growth.

A. a larger supply of loanable funds, a lower interest rate, and faster economic growth

2. If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

A. a medium of exchange.

45. One of the strengths of monetary policy relative to fiscal policy is that monetary policy: A. can be implemented more quickly. B. is subject to closer political scrutiny. C. does not produce a net export effect. D. entails a larger spending income multiplier effect on real GDP.

A. can be implemented more quickly.

The seven members of the Board of Governors of the Federal Reserve System are:

Appointed by the President with confirmation of the Senate

46. The problem of cyclical asymmetry refers to the idea that: A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply. B. the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. C. cyclical downswings are typically of longer duration than cyclical upswings. D. an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.

A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.

When economists say that money serves as a store of value, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

A. a way to keep wealth in a readily spendable form for future use.

7. Refer to the above diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with: A. an expansionary fiscal policy. B. a major recession. C. a contractionary fiscal policy. D. severe demand-pull inflation.

A. an expansionary fiscal policy.

11. In the above diagram for a private closed economy, the upward shift of the aggregate expenditures schedule from (C + Ig)1 to (C + Ig)2 reflects: A. an increase in investment expenditures. B. a decrease in consumption expenditures. C. an increase in the MPC. D. an increase in the APS.

A. an increase in investment expenditures.

40. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the MPC for the economy described by the figures is 0.8: A. an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level. B. an increase in the money supply from $80 to $100 will shift the aggregate demand curve leftward by $40 billion at each price level. C. a decrease in the interest rate from 9 percent to 6 percent will shift the aggregate demand curve leftward by $100 billion at each price level. D. a decrease in the interest rate from 6 percent to 3 percent will shift the aggregate demand curve leftward by $50 billion at each price level.

A. an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level.

The seven members of the Board of Governors of the Federal Reserve System are: A. appointed by the President with the confirmation of the Senate. B. elected by Congress from a slate of nominees provided by the President. C. appointed by the Senate Finance Committee. D. appointed by the presidents of the twelve Federal Reserve Banks.

A. appointed by the President with the confirmation of the Senate

19. Refer to the above diagram. Other things equal, a leftward shift of the supply curve would: A. appreciate the euro. B. cause a shortage of euros. C. increase the equilibrium quantity of euros. D. appreciate the dollar.

A. appreciate the euro.

29. Refer to the above diagram for the Federal funds market. If the Fed wants to increase reserves from $200 billion to $300 billion it should: A. buy bonds from banks and the public. B. sell bonds to banks and the public. C. buy bonds from banks and sell them to the public. D. buy bonds from the public and sell them to banks.

A. buy bonds from banks and the public.

10. The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar by gold and silver. D. by gold reserves representing a fraction of the total value of dollars in circulation.

A. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

The money supply is backed: A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar by gold and silver. D. by gold reserves representing a fraction of the total value of dollars in circulation.

A. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

4. In the United States, the money supply (M1) is comprised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A. coins, paper currency, and checkable deposits.

In the United States, the money supply (M1) is compromised of: A. coins, paper currency, and checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits.

A. coins, paper currency, and checkable deposits.

New York Life, Prudential, and Hartford, are all primarily: A. commercial banks. B. mutual fund companies. C. insurance companies. D. securities firms.

A. commercial banks

10. Refer to the above diagram. If the full-employment level of GDP is A, then it would be appropriate fiscal policy for government to: A. decrease spending and increase taxes. B. decrease spending and decrease taxes. C. increase spending and increase taxes. D. increase spending and decrease taxes.

A. decrease spending and increase taxes.

10. Refer to the above data. Zabella's balance on capital and financial account shows a: A. deficit of $5 billion. B. surplus of $10 billion. C. deficit of $10 billion. D. surplus of $5 billion.

A. deficit of $5 billion.

17. The U.S. demand for euros is: A. downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services. B. downsloping because, at higher dollar prices for euros, Americans will want to buy more European goods and services. C. downsloping because the dollar price of euros and the euro price of dollars are directly related. D. upsloping because a higher dollar price of euros makes European goods and services more attractive to Americans.

A. downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services.

15. Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n): A. expansionary fiscal policy. B. contractionary fiscal policy. C. neutral fiscal policy. D. low-interest rate policy.

A. expansionary fiscal policy.

1. In recent years the United States has: A. exported more services abroad than it has imported. B. had a small goods trade surplus with Japan. C. had a large goods trade surplus with the rest of the world. D. maintained an overall trade surplus (goods and services combined) with the rest of the world.

A. exported more services abroad than it has imported.

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

A. fiat

24. When aggregate demand declines, the price level may remain constant, at least for a time, because: A. firms individually may fear that their price cut may set off a price war. B. menu costs rise. C. price cuts tend to increase efficiency wages. D. product markets are highly competitive.

A. firms individually may fear that their price cut may set off a price war.

32. Other things equal, economists would prefer: A. free trade to tariffs and tariffs to import quotas. B. free trade to import quotas and import quotas to tariffs. C. import quotas to tariffs and tariffs to voluntary export restrictions. D. import quotas to free trade and free trade to tariffs.

A. free trade to tariffs and tariffs to import quotas.

20. "Subprime mortgage loans" refer to: A. high-interest rate loans to home buyers with above average credit risk. B. home-buying loans that charge interest rates below the prime interest rate. C. loans to buyers of homes that are in need of substantial repair. D. loans from the Federal Reserve to home mortgage lenders to support a greater volume of home-buying loans at affordable interest rates.

A. high-interest rate loans to home buyers with above average credit risk.

"Subprime" mortgage loans refer to: A. high-interest rate loans to home buyers with above average credit risk. B. home-buying loans that charge interest rates below the prime interest rate. C. loans to buyers of homes that are in need of substantial repair. D. loans from the Federal Reserve to home mortgage lenders to support a greater volume of home-buying loans at affordable interest rates.

A. high-interest rate loans to home buyers with above average credit risks

Checkable deposits are: A. included in M1. B. not included in either Ml C. considered to be a near money. D. also called time deposits.

A. included in M1.

20. In the above diagram and other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n): A. increase in government regulation. B. increase in aggregate demand. C. increase in productivity. D. decline in nominal wages.

A. increase in government regulation.

38. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should: A. increase the money supply from $80 to $100. B. increase the money supply from $80 to $120. C. maintain the money supply at $80. D. decrease the money supply from $80 to $60.

A. increase the money supply from $80 to $100.

3. The current account in a nation's balance of payments includes: A. its goods exports and imports, and its services exports and imports. B. foreign purchases of domestic assets. C. purchases of foreign assets. D. all of these.

A. its goods exports and imports, and its services exports and imports.

2. A bank that has assets of $85 billion and a net worth of $10 billion must have: A. liabilities of $75 billion. B. excess reserves of $10 billion. C. liabilities of $10 billion. D. excess reserves of $75 billion.

A. liabilities of $75 billion.

23. Tariffs: A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs). B. are also called import quotas. C. are excise taxes on goods exported abroad. D. are per unit subsidies designed to promote exports.

A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

A. medium of exchange.

Money is not an economic resource because: A. money, as such, does not produce anything. B. idle money balances do not earn interest income. C. it is not scarce. D. money is not a free gift of nature.

A. money, as such, does not produce anything.

15. The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits: A. of commercial banks are unchanged, but their reserves increase. B. and reserves of commercial banks both decrease. C. of commercial banks are unchanged, but their reserves decrease. D. and reserves of commercial banks are both unchanged.

A. of commercial banks are unchanged, but their reserves increase.

1. The desire to hold money for transactions purposes arises because: A. receipts of income and expenditures are not perfectly synchronized. B. people fear that prices will rise. C. households want money on hand in case a good financial investment opportunity arises. D. low interest rates reduce the opportunity cost of holding money.

A. receipts of income and expenditures are not perfectly synchronized.

26. The most likely way the public debt burdens future generations, if at all, is by: A. reducing the current level of investment. B. causing future unemployment. C. causing deflation. D. reducing real interest rates.

A. reducing the current level of investment.

14. Graphically, demand-pull inflation is shown as a: A. rightward shift of the AD curve along an upsloping AS curve. B. leftward shift of the AS curve along a downsloping AD curve. C. leftward shift of AS curve along an upsloping AD curve. D. rightward shift of the AD curve along a downsloping AS curve.

A. rightward shift of the AD curve along an upsloping AS curve.

19. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will: A. rise by $6,000 and the monetary multiplier will increase from 4 to 10. B. rise by $60,000 and the monetary multiplier will increase from 4 to 10. C. fall by $6,000 and the monetary multiplier will decline from 30 to 10. D. fall by $2,000 and the monetary multiplier will decline from 10 to 4.

A. rise by $6,000 and the monetary multiplier will increase from 4 to 10.

35. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to: A. sell government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility. B. buy government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility. C. sell government securities, lower reserve requirements, lower the discount rate, and increase the amount of reserves available through the term auction facility. D. sell government securities, raise reserve requirements, lower the discount rate, and increase the amount of reserves available through the term auction facility.

A. sell government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility.

18. If the world price for this product is $.50, this nation will experience a domestic: A. shortage of 160 units, which it will meet with 160 units of imports. B. shortage of 160 units, which will increase the domestic price to $1.60. C. surplus of 160 units, which it will export. D. surplus of 160 units, which will reduce the world price to $1.00.

A. shortage of 160 units, which it will meet with 160 units of imports.

14. Refer to the above data. Beta: A. should specialize in catching fish and trade with Alpha for chips. B. should specialize in producing chips and trade with Alpha for fish. C. will not realize gains from specialization and trade. D. will export both fish and chips to Alpha.

A. should specialize in catching fish and trade with Alpha for chips.

When we keep part of our wealth in a savings account, money is playing the role of: A. store of value. B. medium of exchange. C. unit of account. D. barter.

A. store of value

5. If a nation has a current account deficit and it does not have to make any inpayments or outpayments of official reserves, it must have a: A. surplus in its capital and financial account. B. balance of payments deficit. C. balance of payments surplus. D. deficit in its capital and financial account.

A. surplus in its capital and financial account.

A firm does NOT want to borrow money for a project when: A. the interest rate is greater than the rate of return on the project. B. the rate of return on the project is positive. C. the interest rate is positive. D. the interest rate is less than the rate of return on the project.

A. the interest rate is greater than the rate of return on the project

Suppose the Federal Reserve were to engage in open-market operations by buying $100 million of U.S. Treasury bills. Which of the following would be the end result of such an action? A. The money supply would increase by more than $100 million. B. The money supply would increase by $100 million. C. The money supply would stay the same. D. The money supply would decrease by $100 million.

A. the money supply would increase by more than $100 million

19. Research for industrially advanced countries indicates that: A. the more independent the central bank, the lower the average annual rate of inflation. B. the more independent the central bank, the higher the average annual rate of inflation. C. there is no relationship between the degree of independence of a country's central bank and its inflation rate. D. the more independent the central bank, the higher the average annual rate of unemployment.

A. the more independent the central bank, the lower the average annual rate of inflation.

Research for industrially advanced countries indicates that: A. the more independent the central bank, the lower the average annual rate of inflation. B. the more independent the central bank, the higher the average annual rate of inflation. C. there is no relationship between the degree of independence of a country's central bank and its inflation rate. D. the more independent the central bank, the higher the average annual rate of unemployment.

A. the more independent the central bank, the lower the average annual rate of inflation.

The economizing problem is: A. the need to make choices because economic wants exceed economic means. B. how to distribute resources equally amongst all members of society. C. that people's means often exceed their wants. D. that people do not know how to rationally allocate resources.

A. the need to make choices because economic wants exceed economic means.

13. Which of the following will increase commercial bank reserves? A. the purchase of government bonds in the open market by the Federal Reserve Banks B. a decrease in the reserve ratio C. an increase in the discount rate D. the sale of government bonds in the open market by the Federal Reserve Banks

A. the purchase of government bonds in the open market by the Federal Reserve Banks

14. The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to: A. the reciprocal of the required reserve ratio. B. 1 minus the required reserve ratio. C. the reciprocal of the income velocity of money. D. 1/MPS.

A. the reciprocal of the required reserve ratio.

To say that the Federal Reserve Banks are quasi-public banks means that: A. they are privately owned, but managed in the public interest. B. they deal only with banks of foreign nations and do not have direct business contact with U.S. banks. C. they deal only with commercial banks, and not the public. D. they are publicly owned, but privately managed.

A. they are privately owned, but managed in the public interest.

Checkable deposits are classified as money because: A. they can be readily used in purchasing goods and paying debts. B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor.

A. they can be readily used in purchasing godds and paying debts.

5. Checkable deposits are classified as money because: A. they can be readily used in purchasing goods and paying debts. B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor.

A. they can be readily used in purchasing goods and paying debts.

The money supply curve is: A. vertical. B. upward rising. C. horizontal. D. downward sloping.

A. vertical

The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the:

Administrative lag

The complete disintegration of OPEC, causing oil prices to fall by one-half

Aggregate supply will increase.

The members of the Federal Reserve Board:

Serve 14-year terms

If the value of the dollar drops versus the British pound, a. Americans will import more British goods and export more to Britain. b. Americans will import fewer British goods and export less to Britain. c. Americans will import more British goods and export less to Britain. d. Americans will import fewer British goods and export more to Britain.

Americans will import fewer British goods and export more to Britain

Crowding out is a decrease in private investment caused by

An expansionary fiscal policy

Crowding out is a decrease in private investment caused by:

An expansionary fiscal policy

Increase aggregate demand

An increase in expected future income will:

Refer to the above graph. Which factor will shift AD1 to AD2? Answer The real-balances effect An increase in productivity The foreign purchase effect An increase in investment spending

An increase in investment spending.

A

An increase in personal taxes will shift: A) both the consumption and saving schedules downward. B) both the consumption and saving schedules upward. C) the consumption schedule upward and the saving schedule downward. D) the consumption schedule downward and the saving schedule upward.

Which of the following represents the law of supply?

An increase in the price of a good causes an increase in the quantity supplied of that good.

Contractionary and worsen the effects of the recession

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the Federal government to balance its budget during a recession would be:

$25 billion

Assume that the marginal propensity to consume in an economy is 0.75. If the economy's full-employment real GDP is $900 billion and its equilibrium real GDP is $800 billion, there is a recessionary expenditure gap of:

C

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by: A) $3 billion. B) $2/3 billion. C) $6 billion. D) $2 billion.

The standardized deficit is the difference between annual government expenditures and tax revenues that would be occurred if the economy was:

At full employment

10. Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. compositional unemployment.

B

11. Which of the following constitute the unemployment occurring at the natural rate of unemployment? A. frictional and cyclical unemployment B. structural and frictional unemployment C. cyclical and structural unemployment D. frictional, structural, and cyclical unemployment.

B

12. If depreciation exceeds gross investment: A. the economy's stock of capital may be either growing or shrinking. B. the economy's stock of capital is shrinking. C. the economy's stock of capital is growing. D. net investment is zero.

B

13. Other things equal, if a change in the tastes of American consumers causes them to purchase more foreign goods at each level of U.S. GDP: A. unemployment will decrease domestically. B. U.S. GDP will fall. C. inflation will occur domestically. D. U.S. real GDP will rise.

B

13. Real per capita GDP: A. grows at approximately the same rate for all countries. B. was much more equal across nations in 1820 than it is today. C. has been about 20 times higher in the richer nations than the poorer nations for about 2000 years. D. grows much faster in "leader countries" than in "follower countries."

B

14. Consumption of fixed capital (depreciation) can be determined by: A. adding taxes on production and imports to NDP. B. subtracting NDP from GDP. C. subtracting net investment from GDP. D. adding net investment to gross investment.

B

15. Which of the following economic regions has experienced the most growth in real GDP per capita since 1820? A. Japan B. United States C. Latin America D. Western Europe

B

16. Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is: A. 4 percent. B. 8 percent. C. 10 percent. D. 2 percent.

B

16. The reserves of a commercial bank consist of: A. the amount of money market funds it holds. B. deposits at the Federal Reserve Bank and vault cash. C. government securities that the bank holds. D. the bank's net worth.

B

17. Economic growth rates in follower countries: A. tend to be lower than in leader countries because labor forces in follower countries are too small. B. tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs. C. will never bring real GDP per capita up to the same levels as in leader countries, even if follower growth rates are greater than those in leader countries. D. typically average about 2 percent per year.

B

19 Strong property rights are important for modern economic growth because: A. they allow governments to extract the gains from private citizens' investments. B. people are more likely to invest if they don't fear that others can take their returns on investment without compensation. C. they ensure an equitable distribution of income. D. business cycle fluctuations will be smaller and less likely to disrupt investment patterns

B

27. Equal increases in government purchases and taxes will: A. increase the equilibrium GDP and the size of that increase varies directly with the size of the MPC. B. increase the equilibrium GDP and the size of that increase is independent of the size of the MPC. C. increase the equilibrium GDP and the size of that increase varies inversely with the size of the MPC. D. decrease the equilibrium GDP and the size of that decrease is independent of the size of the MPC.

B

27. Nominal GDP is: A. the sum of all monetary transactions that occur in the economy in a year. B. the sum of all monetary transactions involving final goods and services that occur in the economy in a year. C. the amount of production that occurs when the economy is operating at full employment. D. money GDP adjusted for inflation.

B

28 If the number of worker-hours in an economy is 100 and its labor productivity is $5 of output per worker-hour, the economy's real GDP: A. is $20. B. is $500. C. is $5000. D. cannot be calculated.

B

3. By summing the dollar value of all market transactions in the economy we would: A. be determining the market value of all resources used in the production process. B. obtain a sum substantially larger than the GDP. C. be determining value added for the economy. D. be measuring GDP.

B

32. If the MPC is .50, all taxes are lump-sum taxes, and the equilibrium GDP is $40 billion below the full-employment GDP, then the size of the recessionary expenditure gap is: A. $40 billion. B. $20 billion. C. $60 billion. D. $80 billion.

B

32. Suppose nominal GDP in 2002 was $100 billion and in 2003 it was $260 billion. The general price index in 2002 was 100 and in 2003 it was 180. Between 2002 and 2003 the real GDP rose by: A. 160 percent. B. 44 percent. C. 37 percent. D. 12 percent.

B

46. Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? A. the services of used-car dealers B. the child-care services provided by stay-at-home parents C. the construction of new houses D. government expenditures on military equipment

B

6. For a nation's real GDP per capita to rise during a year: A. consumption spending must increase. B. real GDP must increase more rapidly than population. C. population must increase more rapidly than real GDP. D. investment spending must increase.

B

6. Gross investment refers to: A. private investment minus public investment. B. net investment plus replacement investment. C. net investment after it has been "inflated" for changes in the price level. D. net investment plus net exports.

B

7. Which of the following do national income accountants consider to be investment? A. the purchase of an automobile for private, nonbusiness use B. the purchase of a new house C. the purchase of corporate bonds D. the purchase of gold coins

B

8. Assume that in a private closed economy consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus: A. saving is $10 billion. B. unplanned decreases in inventories of $10 billion will occur. C. the MPC is .80. D. unplanned increases in inventories of $10 billion will occur

B

8. Official unemployment statistics: A. understate unemployment because individuals receiving unemployment compensation are counted as employed. B. understate unemployment because discouraged workers are not counted as unemployed. C. include cyclical and structural unemployment, but not frictional unemployment. D. overstate unemployment because workers who are involuntarily working part time are counted as being employed.

B

8. Other things equal, a reduction in personal and business taxes can be expected to: A. increase aggregate demand and decrease aggregate supply. B. increase both aggregate demand and aggregate supply. C. decrease both aggregate demand and aggregate supply. D. decrease aggregate demand and increase aggregate supply

B

8. Which of the following will not cause the consumption schedule to shift? A. a sharp increase in the amount of wealth held by households B. a change in consumer incomes C. the expectation of a recession D. a growing expectation that consumer durables will be in short supply

B

A budget surplus a. occurs when government receipts are less than spending. b. occurs when government spending is less than receipts. c. occurs when government receipts are equal to spending. d. is the accumulation of years of government overspending. e. is the accumulation of all previous years' debts.

B

A decrease in government spending initially and primarily shifts a. aggregate demand to the right. b. aggregate demand to the left. c. aggregate supply to the right. d. aggregate supply to the left. e. neither aggregate demand nor aggregate supply.

B

A nation's standard of living is best measured by its a. real GDP. b. real GDP per person. c. nominal GDP. d. nominal GDP per person. e. inflation and unemployment rates.

B

A relatively mild period of falling incomes and rising unemployment is called a a. depression. b. recession. c. expansion. d. business cycle. e. inflation.

B

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit? a. Output will rise by more than it did when the previous unit was added. b. Output will rise but by less than it did when the previous unit was added. c. Output will fall by more than it did when the previous unit was added. d. Output will fall but by less then it did when the previous unit was added.

B

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit? a. Output will rise by more than it did when the previous unit was added. b. Output will rise but by less than it did when the previous unit was added. c. Output will fall by more than it did when the previous unit was added. d. Output will fall but by less then it did when the previous unit was added. e. Output cannot rise unless additional amounts of labor are added to the increased capital.

B

All or part of a firm's profits may be paid out to the firm's stockholders in the form of a. retained earnings. b. dividends. c. interest payments. d. capital accounts.

B

Bill deposits a $200 check in his checking account, the bank's: a. Assets rise by $200 and liabilities fall by $200 b. Assets rise by $200 and liabilities rise by $200 c. Assets fall by $400 and liabilities rise by $400 d. Assets fall by $200 and liabilities rise by $200 e. Assets fall by $200 and liabilities fall by $200

B

By free enterprise, we mean that A. products are provided free to those who cant afford to buy them B. individuals may obtain resources, organize production, and sell the resulting output in any legal way they choose C. individual producers are free to produce whatever the government decides are needed by the society D. individuals are free to buy whatever products will satisfy their needs the most

B

Fiat money a. is worthless. b. has no intrinsic value. c. may be used as a medium of exchange, but it is not legal tender. d. performs all the functions of money except the unit-of-account function. e. is not legal tender.

B

If aggregate demand shifts right then in the short run a. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. b. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. c. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. d. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

B

If output is above its natural rate, then according to sticky-wage theory a. workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve right. b. workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left. c. workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve right. d. workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve left.

B

If the demand for loanable funds shifts to the left, then the equilibrium interest rate a. and quantity of loanable funds rise. b. and quantity of loanable funds fall. c. rises and the quantity of loanable funds falls. d. falls and the quantity of loanable funds rises.

B

If the government's expenditures exceeded its receipts, it would likely a. lend money to a bank or other financial intermediary. b. borrow money from a bank or other financial intermediary. c. buy bonds directly from the public. d. sell bonds directly to the public.

B

If the unemployment rate rises, which policies would be appropriate to reduce it? a. increase the money supply, increase taxes b. increase the money supply, cut taxes c. decrease the money supply, increase taxes d. decrease the money supply, cut taxes e. decrease the money supply, increase spending

B

Keynes explained that recessions and depressions occur because of a. excess aggregate demand. b. inadequate aggregate demand. c. excess aggregate supply. d. inadequate aggregate supply.

B

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics? a. only Larry's b. only Curly Corporation's c. Larry's and Curly Corporation's d. neither Larry's nor Curly Corporation's

B

Some countries have high minimum wages and require a lengthy and costly process to get permission to open a business a. Reducing either the minimum wage or the time and cost to open a business would have no effect on the long-run aggregate supply curve. b. Reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right. c. Reducing the minimum wage would shift long-run aggregate supply to the right. Reducing the time and cost to open a business would have no affect on the long-run aggregate supply curve. d. Reducing the minimum wage would have no affect on the long-run aggregate supply curve. Reducing the time and cost to open a business would shift the long-run aggregate supply curve to the right.

B

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that a. the growth rate will not change in either country. b. the country that started with less capital per worker will grow faster. c. the country that started with more capital per worker will grow faster. d. both countries will grow and at the same higher rate.

B

Suppose there is a decrease in short-run aggregate supply. If the Federal Reserve wants to stabilize output it should a. buy bonds. These purchases also move the price level closer to its original level. b. buy bonds. However these purchases move the price level farther from its original level. c. sell bonds. These purchases also move the price level closer to its original level. d. sell bonds. However these purchase move the price level farther from its original level.

B

Technological knowledge refers to a. human capital. b. available information on how to produce things. c. resources expended transmitting society's understanding to the labor force. d. All of the above are technological knowledge.

B

The economy's two most important financial markets are a. the investment market and the saving market. b. the bond market and the stock market. c. banks and the stock market. d. financial markets and financial institutions.

B

The money supply in Muckland is $100 billion. Nominal GDP is $800 billion and real GDP is $400 billion. What are the price level and velocity in Muckland? a. The price level and velocity are both 8. b. The price level is 2 and velocity is 8. c. The price level and velocity are both 4. d. The price level is 4 and velocity is 8.

B

The saws, lathes, and drill presses that woodworkers at Cedar Valley Furniture use to produce furniture are called a. human capital. b. physical capital. c. natural resources. d. technological knowledge. e. fixed physical inputs.

B

The simple money multiplier is defined as a. the reciprocal of the interest rate b. 1/required reserve ratio c. excess reserves plus required reserves d. the reciprocal of the federal funds rate e. the reciprocal of the discount rate

B

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected, a. relative to prices wages are higher and employment rise. b. relative to prices wages are higher and employment falls. c. relative to prices wages are lower and employment rises. d. relative to prices wages are lower and employment falls.

B

a decline in the quantity of real output demanded along the AD curve is a result of a(n) A. decrease in the level of income B. increase in the price level C. increase in the level of income D. decrease in the price level

B

Which of the following is correct? When there is a reserve requirement, a. banks must hold exactly the required quantity of reserves. b. banks may hold more than, but not less than, the required quantity of reserves. c. banks may hold less than, but not more than, the required quantity of reserves. d. banks must seek the Fed's permission whenever they wish to expand or contract their loans to customers. e. only member banks of the Federal Reserve must comply.

B

Which of the following is not an example of a government purchase? a. schools and teacher salaries b. Chinese toys to be sold in discount department stores c. aircraft carriers d. interstate highway construction e. All the answers are correct

B

Which of the following is not correct? a. If you buy a bond from a corporation, you can sell the bond to someone else before it matures. b. Term refers to the scheduling of periodic interest rate payments on a bond. c. A bond is an IOU. d. There are millions of different bonds in the U.S. economy.

B

Which of the following people purchased the correct asset to meet his or her objective? a. Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza. b. Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. c. Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda. d. All of the above are correct.

B

Which of the following shifts short-run aggregate supply left? a. an increase in the actual price level b. an increase in the expected price level c. an increase in the capital stock d. None of the above is correct.

B

Which would cause a decrease in the quantity of computers supplied? A. an increase in the demand for computers B. a decrease in the demand for computers C. an increase in the incomes of consumers D. a decrease in the price of parts for making computers

B

a consumer price index attempts to measure changes in A. the prices of all goods and services priduced by the US economy B. the price of a select market basket of goods and services C. the spending patterns of all consumers in the US D.the spending patterns of consumers worldwide

B

a rightward shift of the AD curve in the very steep upper part of the upsloping AS curve will A. increase real output by more than the price level B. increase the price level by more than real output C. reduce real output by more than the price level D. reduce the price level by more than real output

B

all of the following are examples of intermediate goods, EXCEPT A. flour bought by a bakery B. oven bought by a bakery C. office supplies bought by an accounting firm D. gasoline bought by a trucking company

B

as disposable income decreases, consumption A. and saving both increase B. and saving both decrease C. increases and saving decreases D. decreases and saving increases

B

assume that johnson deposits 350 of currency into his account in the XYZ bank. later the same day swanson negotiates a loan for 2000 at the same bank. in what direction and by what amounts has the supply of money changed? A. increased by 2350 B. increased by 2000 C. decreased by 350 D. decreased by 1650

B

bank panics A. occur frequently in fractional reserve banking systems B. are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently C. cannot occur in a fractional reserve system D. occur more frequently when the monetary system is backed by gold

B

before the period of modern economic growth A. only civilizations such as the roman empire experienced economic growth B. rates of population growth virtually matched the rates of output growth C. most economies realized high rates of growth in output per person D. output and population growth were stagnant

B

critics of economic growth A. contend that growth and industrialization reduce pollution B. argue that economic growth does not resolve socioeconomic problems such as unequal distribution of income and wealth C. point out that growth results in greater economic security for workers D. say that its benefits accrue nearly exclusively to white males

B

economists who believe that the recent increase in average productivity growth rate may be permanent claim that the above-normal economic growth in the US between 1995 and 2009 was caused by A. increases in the rate of personal saving B. increased entrepreneurial activity, application of information technology, and global competition C. rising federal budget surpluses that reduced real interest rates D. expansionary monetary policy

B

growth is advantageous to a nation because it A. promotes faster population growth B. lessens the burden of scarcity C. eliminates the economizing problem D. slows the growth of wants

B

if at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a A. surplus and the price level will rise B. surplus and the price level will fall C. shortage and the price level will rise D. shortage and the price level will fall

B

if business taxes are reduced and the real interest rate increases A. consumption and saving will necessarily increase B. the level of investment spending might either increase or decrease C. "" "" will necessarily increase D. "" "" will necessarily decrease

B

if depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that A. nominal GDP is rising but real GDP is declining B. net investment is negative C. the economy is importing more than it exports D. the economy's production capacity is expanding

B

if the annual growth in a nation's productivity is 2.5% rather than 1.5%, then the nation's standard of living will double in about A. 20 years B. 28 years C. 46 yrs D. 56 yrs

B

if the market price is above the equilibrium price A. a shortage will occur and producers will produce more and lower prices B. a surplus will occur and producers will produce less and lower prices C. a surplus will result and consumers will bid prices up D. producers will make extremely high profits

B

if there is a surplus of a product, its price A. is below the equilibrium level B. is above the equilibrium level C. will rise in the near future D. is in equilibrium

B

in which of the following cases would real income rise? A. nominal income rises by 8%, and price level rises by 10% B. nominal income rises by 2%, price level doesnt change C. nominal income falls by 4%, price level falls by 4% D. real income will rise in all of the above cases

B

other things equal, if the required reserve ratio was lowered A. banks would have to reduce their lending B. the size of the monetary multiplier would increase C. the actual reserves of banks would increase D. the federal funds interest rate would rise

B

the amount by which govt expenditures exceed revenues during a particular year is the A. public debt B. budget deficit C. full-employment D. GDP gap

B

the base year is 2005, and the GDP price index in 2004 is 92.0. this implies that the A. output in 2005 was higher than 04 B. prices in 05 were higher than 04 C. output in 05 was lower than in 04 D. prices in 05 were lower than 04

B

the basic policy-making body in the US banking system is the A. federal open market committee (FOMC) B. board of governors of the federal reserve C. federal monetary authority D. council of economic advisers

B

the economy experiences an increase in the price level and a decrease in real domestic output. which is a likely explanation? A. productivity has increased B. input prices have increased C. excess capacity has decreased D. government regulations have been reduced

B

the foreign purchases effect suggests that an increase in the US price level relative to other countries will A. increase the amount of US real output purchased B. increase US imports and decrease US exports C. increase both US imports and exports D. decrease both US imports an exports

B

the influential book written by adam smith was A. the worldly philosophers B. the wealth of nations C. the age of the economist D. the affluent society

B

the rate of unemployment when the economy is at its potential output is called the A. full employment rate of unemployment B. natural rate of unemployment C. structural rate "" "" D. frictional rate "" ""

B

the sale of a used automobile would not be included in the GDP of the current year because it is a A. nonmarket transaction B. nonproduction transaction C. purely financial transaction D. private transfer payment

B

to say that coins are "token money" means that A. their face value is less than their intrinsic value B. their face value is greater than their intrinsic value C. their face value is equal to their intrinsic value D. they are not legal tender

B

when a check is cleared against a bank, it will lose A. cash and securities B. checkable deposits and reserves C. reserves and capital stock D. loans and demand deposits

B

which is best considered a supply factor for long-run economic growth? A. government spending B. the stock of capital goods C. full employment of resources D. personal consumption expenditures

B

which of the following statements is most accurate about advanced economics? A. economies experience a positive growth trend over the short run, but experience significant variability in the long run B. economies experience a positive growth trend over the long run, but experience significant variability in the short run C. economies experience positive and stable growth over both the long run and short run D. economies experience little long-run growth in output, but can experience significant growth in the short run

B

which would be considered an investment according to economists? A. the purchase of newly-issued shares of stock in microsoft B. the construction of a new computer chip factory by intel C. the purchase of shares of stock by fidelity, a mutual fund company D. the sale of government bonds by the nation's central bank

B

which would decrease investment demand? A. decrease in business taxes B. increase in the cost of acquiring capital goods C. increase in the rate of technological change D. decrease in the stock of capital goods on hand

B

11.) In a market eonomy the distribution of output will be determined primarily by: A. consumer needs and preferences B. the quantities and prices of the resources that households supply. C. government regulations that provide a minimum income for all D. a social consensus as to what distribution fo income is most equitable

B.

17.) The market system's answer to the fundamental question "How will the system accommodate change?" is essentially: A. "Through government leadership and direction." B. "Through the guiding function of prices and the incentive function of profits." C. "Through training and retraining programs." D. "Through random trial and error."

B.

18. Which of the following statements is correct? A. If demand increases and supply decreases, equilibrium price will fall. B. If supply increases and demand decreases, equilibrium price will fall. C. If demand decreases and supply increases, equilibrium price will rise. D. If supply declines and demand remains constant, equilibrium price will fall.

B.

3.) The income and substitution effects account for: A. the upward sloping supply curve B. the downward sloping demand curve C. movements along a given supply curve D. the "other things equal" assumption

B.

6. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be: A. $25,000 and $122,000 respectively. B. $22,000 and $110,000 respectively. C. $32,000 and $115,000 respectively. D. $22,000 and $105,000 respectively.

B. $22,000 and $110,000 respectively.

9. Refer to the above data. Zabella's balance on goods and services shows a: A. $5 billion deficit. B. $5 billion surplus. C. $10 billion surplus. D. $15 billion deficit.

B. $5 billion surplus.

18. The equilibrium level of GDP for this economy is: A. $600. B. $530. C. $415. D. $400.

B. $530.

36. Which of the following best describes the cause-effect chain of a restrictive monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.

B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.

20. Which of the following fiscal policy actions is most likely to increase aggregate supply? A. An increase in personal income tax rates. B. A reduction in interest rates that encourages consumers to purchase more durable goods. C. An increase in transfer payments to unemployed workers. D. An increase in government spending on infrastructure that increases private sector productivity.

B. A reduction in interest rates that encourages consumers to purchase more durable goods.

7. Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that: A. the terms of trade will be 3X equals 1Y. B. Alpha should specialize in Y and Beta in X. C. Alpha should specialize in X and Beta in Y. D. there is no basis for mutually beneficial specialization and trade.

B. Alpha should specialize in Y and Beta in X.

6. Paper money (currency) in the United States is issued by the: A. United States Mint. B. Federal Reserve Banks. C. United States Treasury. D. national banks.

B. Federal Reserve Banks.

Approximately how many commercial banks are now operating in the United States? A. about 7,300 B. about 6,800 C. about 8,700 D. about 6,300

B. about 6,800

30. Refer to the above diagram for the Federal funds market. If the Fed wants to raise the Federal funds rate by one-half of a percentage point, it should: A. act to increase reserves by $50 billion. B. act to reduce reserves by $50 billion. C. pursue an expansionary monetary policy. D. buy bonds from banks and the public.

B. act to reduce reserves by $50 billion.

3. The reserves of a commercial bank consist of: A. the amount of money market funds it holds. B. deposits at the Federal Reserve Bank and vault cash. C. government securities that the bank holds. D. the bank's net worth.

B. deposits at the Federal Reserve Bank and vault cash.

The demand curve for loanable funds slopes: A. upward, because higher rates of return are necessary to cover higher costs. B. downward, because there are fewer potential projects that yield 10% than for those that yield 5%. C. downward, because there are more potential projects that yield 10% than yield 5%. D. upward, since it takes a higher rate of return to get more funds.

B. downward, because there are fewer potential projects that yield 10% than for those that yield 5%

The reserve ratio is the: A. bank's holdings of gold. B. fraction of deposits the banks hold in their vaults plus their deposits at the Federal Reserve. C. government's holdings of gold at Fort Knox. D. ratio of gold to the paper money in the economy.

B. faction of deposits the banks hold in their vaults plus their deposits at the federal reserve

7. In the above diagram, a shift from AS2 to AS3 might be caused by a (n): A. decrease in interest rates. B. increase in business taxes and costly government regulation. C. decrease in the prices of domestic resources. D. decrease in the price level.

B. increase in business taxes and costly government regulation.

25. In the above table, an increase in net exports of $10 would: A. increase real GDP by $10. B. increase real GDP by $30. C. decrease real GDP by $10. D. decrease real GDP by $30.

B. increase real GDP by $30.

21. Suppose the Federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have: A. increased by $90 billion. B. increased by $20 billion. C. decreased by $70 billion. D. decreased by $20 billion.

B. increased by $20 billion.

19. The crowding-out effect of expansionary fiscal policy suggests that: A. tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. it is very difficult to have excessive aggregate spending in the U.S. economy. D. consumer and investment spending always vary inversely.

B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The money demand curve shows the relationship between the: A. aggregate price level and the nominal quantity of money demanded. B. interest rate and the nominal quantity of money demanded. C. real GDP and the nominal quantity of money demanded. D. the money supply and the quantity of money demanded.

B. interest rate and the nominal quantity of money demanded

47. An expansionary monetary policy may be frustrated if the: A. demand-for-money curve shifts to the left. B. investment-demand curve shifts to the left. C. saving schedule shifts downward. D. investment-demand curve shifts to the right.

B. investment-demand curve shifts to the left.

The Federal Reserve System: A. has the same status as the Supreme Court. B. is basically an independent agency. C. has the status of a Congressional committee. D. is an agency of the executive branch of the Federal government.

B. is basically an independent agency.

The amount of money reported as M2: A. is smaller than the amount reported as M1. B. is larger than the amount reported as M1. C. excludes coins and currency. D. includes large ($100,000 or more) certificates of deposit.

B. is larger than the amount reported as M1.

The Federal Reserve Bank of the United States is: A. a purely private central bank. B. is not exactly part of the U.S. government but not really a private institution either. C. a purely public central bank. D. is part of the U.S. government.

B. is not exactly part of the US gov. but not really a private institution either

38. Dumping of goods abroad: A. constitutes a general case for permanent tariffs. B. may be part of a firm's price discrimination strategy. C. may be part of a nation's strategy to rectify its trade deficit. D. drives up prices of the dumped goods.

B. may be part of a firm's price discrimination strategy.

When economists say that money serves as a medium of exchange, they mean that it is: A. a way to keep wealth in a readily spendable form for future use. B. a means of payment. C. a monetary unit for measuring and comparing the relative values of goods. D. declared as legal tender by the government.

B. means of payment.

4. An increase in nominal GDP increases the demand for money because: A. interest rates will rise. B. more money is needed to finance a larger volume of transactions. C. bond prices will fall. D. the opportunity cost of holding money will decline.

B. more money is needed to finance a larger volume of transactions.

41. According to Dallas Federal Reserve economist W. Michael Cox, taken to its extreme, the logic of "buying American" implies that: A. we should buy everything from abroad. B. people should only consume what they can produce themselves. C. consumers should only buy goods from other states. D. the best quality goods are found in the United States.

B. people should only consume what they can produce themselves.

(Last Word) Plastic cards that contain computer chips that store balances are known as: A. credit cards. B. smart cards. C. debit cards. D. E-cards.

B. smart cards.

If you place a part of your summer earning in a savings account, you are using money primarily as a: A. medium of exchange. B. store of value. C. unit of account. D. standard of value.

B. store of value.

14. If the economy has a cyclically-adjusted budget surplus, this means that: A. the public sector is exerting an expansionary impact on the economy. B. tax revenues would exceed government expenditures if full employment were achieved. C. the actual budget is necessarily also in surplus. D. the economy is actually operating at full employment.

B. tax revenues would exceed government expenditures if full employment were achieved.

Checkable deposits include: A. both large and small-denominated time deposits. B. the deposits of banks and thrifts on which checks can be written. C. only the checkable deposits of commercial banks. D. only the checkable deposits of thrift institutions.

B. the deposits of banks and thrifts on which checks can be written

Bank reserves are: A. the fraction of deposits kept in gold with the Federal Reserve. B. the fraction of deposits kept in the form of very liquid assets. C. the deposits lent to finance illiquid investments. D. gold kept in the bank's vault.

B. the fraction of deposits kept in the form of very liquid assets

The price determined in the market for loanable funds is: A. the margin call. B. the interest rate. C. the profit rate. D. the transaction fee.

B. the interest rate

7. The difference between M1 and M2 is that: A. the former includes time deposits. B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances. C. the latter includes negotiable government bonds. D. the latter includes cash held by commercial banks and the U.S. Treasury.

B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances.

The difference between M1 and M2 is that: A. the former includes time deposits. B. the latter includes small-denominated time deposits, non-checkable savings accounts, money market deposit accounts, and money market mutual fund balances. C. the latter includes negotiable government bonds. D. the latter includes cash held by commercial banks and the U.S. Treasury.

B. the latter includes small-denominated time deposits, non-checkable savings accounts, money markets deposit accounts, and money market mutual fund balances.

The government has almost eliminated the possibility of "bank runs" by instituting protective measures. All of the following are such measures EXCEPT: A. the capital requirements. B. the loan guarantee. C. the deposit insurance. D. the reserve requirements.

B. the loan garantee

The "shadow banking system" refers to: A. the provision of credit through the underground economy when the financial crisis of 2007 and 2008 occurred. B. the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending. C. the series of illegal financial transactions that precipitated the financial crisis of 2007 and 2008. D. mortgage loans made to homebuyers who are poor credit risks.

B. the process by which securities exchanges provide credit for personal and business needs apart from traditional bank lending.

22. Inflation initiated by increases in wages or other resource prices is labeled: A. demand-pull inflation. B. demand-push inflation. C. cost-push inflation. D. cost-pull inflation.

C

Chapter One, Pentagon Federal Credit Union, and Boeing Employee Credit Union, are all primarily: A. commercial banks. B. thrifts. C. insurance companies. D. pension funds.

B. thrifts

16. The U.S. supply of Japanese yen is: A. downsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese. C. upsloping because a lower dollar price of yen means U.S. goods are cheaper to the Japanese. D. downsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

B. upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese.

The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds. A. downward; investors; increasing B. upward; savers; decreasing C. upward; savers; increasing D. upward; investors; decreasing

B. upward; savers; decreasing

2. The asset demand for money: A. is unrelated to both the interest rate and the level of GDP. B. varies inversely with the rate of interest. C. varies inversely with the level of real GDP. D. varies directly with the level of nominal GDP.

B. varies inversely with the rate of interest.

1. To say money is socially defined means that: A. money has been defined in a Constitutional amendment. B. whatever performs the functions of money extremely well is considered to be money. C. the money supply includes all public and private securities purchased by society. D. society, acting through Congress, specifies what shall be included in the money supply.

B. whatever performs the functions of money extremely well is considered to be money.

11. Built-in stability means that: A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

1. If you are estimating your total expenses for school next semester, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.

C

10. Graphically, cost-push inflation is shown as a: A. leftward shift of the AD curve. B. rightward shift of the AS curve. C. leftward shift of AS curve. D. rightward shift of the AD curve.

C

17. Other things equal, a 10 percent decrease in corporate income taxes will: A. decrease the market price of real capital goods. B. have no effect on the location of the investment-demand curve. C. shift the investment-demand curve to the right. D. shift the investment-demand curve to the left.

C

17. Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves: A. are $30,000. B. are $10,000. C. are $20,000. D. cannot be determined from the given information.

C

19. Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn), GDP will: A. increase by $100 billion. B. increase by less than $100 billion. C. increase by more than $100 billion. D. fall by $100 billion.

C

2. If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to: A. save is three-fifths. B. consume is one-half. C. consume is three-fifths. D. consume is one-sixth.

C

2. Real GDP per capita is found by: A. adding real GDP and population. B. subtracting population from real GDP. C. dividing real GDP by population. D. dividing population by real GDP.

C

20. Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would decrease by: A. $100 billion. B. $90 billion. C. $40 billion. D. $50 billion.

C

20. Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out: A. $1 million. B. $1.2 million. C. $200,000. D. $800,000.

C

21. A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because: A. government spending is more employment-intensive than is either consumption or investment spending. B. government spending increases the money supply and a tax reduction does not. C. a portion of a tax cut will be saved. D. taxes vary directly with income.

C

21. Value added refers to: A. any increase in GDP that has been adjusted for adverse environmental effects. B. the excess of gross investment over net investment. C. the difference between the value of a firm's output and the value of the inputs it has purchased from others. D. the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.

C

22. Setup Corporation buys $100,000 of sand, rock, and cement to produce redi-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is: A. $300,000. B. $100,000. C. $200,000. D. zero dollars.

C

23. The Federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks. B. U.S. securities are bought and sold. C. banks borrow reserves from one another on an overnight basis. D. Federal Reserve Banks borrow from one another.

C

23. Which of the following is correct? A. Government expenditures and taxes both increase GDP. B. Government expenditures and taxes both decrease GDP. C. Government expenditures increase, but taxes decrease, GDP. D. Government expenditures decrease, but taxes increase, GDP.

C

24. If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is: A. 8 percent. B. 5 percent. C. 3 percent. D. 2 percent.

C

25. If the MPC is .6, the multiplier will be: A. 4.0. B. 6.0. C. 2.5. D. 1.67.

C

25. Refer to the above graph. An increase in an economy's labor productivity would: A. move the economy away from point A and toward point B. B. move the economy away from point B and toward point A. C. shift curve AB to CD. D. shift curve CD to AB.

C

27 Which of the following is correct? A. total output = labor productivity/worker-hours B. labor productivity = worker-hours/total output C. total output = worker-hours labor productivity D. worker-hours = labor productivity total output

C

30. Suppose total output (real GDP) is $10,000 and worker-hours are 20,000. We can conclude that: A. real GDP per capita must be $200,000. B. the price-level index must be less than 100. C. labor productivity must be $0.5. D. nominal GDP must be between $10,000 and $20,000.

C

32. More than half the growth of real GDP in the United States is caused by: A. a falling price level. B. the reallocation of labor from manufacturing to agriculture. C. increases in the productivity of labor. D. the use of fewer inputs of labor

C

33. A nation's infrastructure refers to: A. its ability to realize economies of scale. B. its stock of technological knowledge. C. public capital goods such as highways and sanitation systems. D. the productivity of its labor force.

C

35. Proponents of economic growth make all of the following arguments except: A. Growth is the basic means of improving living standards. B. It is easier to reduce poverty when the economy is growing than when it is not. C. There is a direct relationship between a growing real GDP and rising pollution. D. Growth provides an economic environment favorable to education and self-fulfillment.

C

38. Real GDP and nominal GDP differ because the real GDP: A. is adjusted for changes in the volume of intermediate transactions. B. includes the economic effects of international trade. C. has been adjusted for changes in the price level. D. excludes depreciation charges.

C

4. The average propensity to consume indicates the: A. amount by which income exceeds consumption. B. relationship between a change in saving and the consequent change in consumption. C. percentage of total income that will be consumed. D. percentage of a change in income that will be consumed.

C

4. Tom Atoe grows tomatoes for home consumption. This activity is: A. excluded from GDP in order to avoid double counting. B. excluded from GDP because an intermediate good is involved. C. productive but is excluded from GDP because no market transaction occurs. D. included in GDP because it reflects production.

C

5. In national income accounting, consumption expenditures include: A. purchases of both new and used consumer goods. B. consumer durable goods and consumer nondurable goods, but not services. C. consumer durable goods, consumer nondurable goods, and services. D. changes in business inventories.

C

5. The aggregate supply curve: A. is explained by the interest rate, real-balances, and foreign purchases effects. B. gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. shows the various amounts of real output that businesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls.

C

6. The natural rate of unemployment is: A. higher than the full-employment rate of unemployment. B. lower than the full-employment rate of unemployment. C. that rate of unemployment occurring when the economy is at its potential output. D. found by dividing total unemployment by the size of the labor force.

C

7. If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: A. frictional unemployment rate is 5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment will eventually increase.

C

A household's net wealth is the value of a. its current income minus the value of all its liabilities b. all its assets minus their tax liabilities c. all its assets minus the value of all its liabilities d. all its assets minus its income e. its current income minus its tax liabilities

C

Fluctuations in employment and output result from changes in a. aggregate demand only. b. aggregate supply only. c. aggregate demand and aggregate supply. d. neither aggregate demand nor aggregate supply. e. only long-run aggregate supply.

C

If at the end of the business day a bank has $50,000 in excess reserves, and the required reserve ratio is 20 percent, the bank can maximize its profits if it a. keeps the excess reserves b. loans out $40,000 c. loans $50,000 to another bank d. borrows $50,000 to remove the excess reserves e. keeps $10,000 and deposits $40,000 with the Fed

C

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to a. decrease consumption, shown as a movement to the left along a given aggregate-demand curve. b. increase consumption, shown as a movement to the right along a given aggregate-demand curve. c. decrease consumption, shown by shifting the aggregate-demand curve to the left. d. increase consumption, shown by shifting the aggregate-demand curve to the right.

C

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $4 billion worth of goods and services each year, collects $6 billion in taxes, and provides $1 billion in transfer payments to households. Private saving in Cedarland is $4 billion. For Cedarland, a. investment is $6 billion and consumption is $9 billion. b. investment is $6 billion and consumption is $8 billion. c. investment is $5 billion and consumption is $8 billion. d. investment is $5 billion and consumption is $7 billion.

C

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession? a. increase the money supply, increase taxes, increase government spending b. increase the money supply, increase taxes, decrease government spending c. increase the money supply, decrease taxes, increase government spending d. decrease the money supply, increase taxes, decrease government spending e. decrease the money supply, decrease taxes, decrease government spending

C

The existence of money leads to a. greater specialization in production, but not to a higher standard of living. b. a higher standard of living, but not to greater specialization. c. greater specialization and to a higher standard of living. d. neither greater specialization nor to a higher standard of living. e. a higher standard of living, but to less specialization.

C

the major statistics that provide macroeconomists a picture of the health of an economy include the following, EXCEPT A. real GDP B. inflation stats C. prices of oil and gasoline D. unemployment data

C

When the economy is at its potential output level, which of the following is not true? a. Firms' and workers' expectations about the price level are realized. b. The nominal wage is a good measure of the expected real wage. c. The unemployment rate is about 2 percent. d. The economy is producing its maximum sustainable output. e. The actual price level equals the expected price level.

C

Which is an illustration of a microeconomic question? A. What is the current national rate of unemployment? B. Is the economy experiencing a decline in the rate of inflation? C. Will a new type of television set increase the number of buyers? D. Is the production of goods and services in the economy greater this year than last year?

C

Which of the following is a limitation of the simple circular flow model? A. product markets are ignored B. resource markets are ignored C. the determination of product and resource prices is not explained D. households are included, but not businesses

C

Which of the following is considered human capital? a. the comfortable chair in your dorm room where you read economics texts b. the amount you get paid each week to work at the library c. the things you have learned this semester d. any capital goods that require a human to be present to operate e. the amount of money you have spent on education

C

Which of the following is correct? a. In the national income accounts, investment and private saving refer to the same thing. b. In a closed economy if national saving is greater than zero, then everyone must be saving. c. The financial system channels funds from savers to borrowers. d. People whose consumption exceeds their income are savers.

C

Which of the following is not a nonsensical headline? a. British perpetuities about to mature. b. Disney issues new bonds with term of 7 percent. c. Corporate bonds currently pay higher interest rates than government bonds. d. Standard and Poor's judges new junk bond to have very low credit risk.

C

Which of the following is not included in M1? a. a $5 bill in your wallet b. $100 in your checking account c. $500 in your savings account d. 100 pennies in your piggy bank e. All of the above are included in M1.

C

Which of the following is the best example of financial investment A. ford motor co. builds a new manufacturing plant B. a student pursues an MBA degree C. a retiree purchases google stock D. a young couple purchases a new home

C

Which of the following is true about real and nominal wages? a. The nominal wage will be constant only if the inflation rate is constant. b. The real wage will be constant only if the inflation rate is constant. c. Changes in the nominal wage will be the same as changes in the real wage only if the price level is constant. d. The real wage will be constant only if the price level is constant. e. The real wage will be constant only if the nominal wage is constant.

C

Which of the following would be strong evidence that an expansionary gap exists? a. Rapid inflation during a period when plant capacity utilization is below average. b. A steady price level and a 5 percent unemployment rate. c. Help wanted advertising is higher than usual, and the consumer price index is up more than expected. d. Inflation has slowed markedly and the Dow Jones average is at record levels. e. The number of new unemployment claims has skyrocketed and the price level is falling.

C

Which part of real GDP fluctuates most over the course of the business cycle? a. consumption expenditures b. government expenditures c. investment expenditures d. net exports

C

a commercial bank has checkable deposit liabilities of $400000, reserves of $150000, and a required reserve ratio of 25%. the amount by which a SINGLE COMMERCIAL BANK and the amount by which the BANKING SYSTEM can increase loans are, respectively A. 50000 and 100000 B. 50000 and 150000 C. 50000 and 200000 D. 150000 and 200000

C

a decline in a nation's rate of productivity growth will A. reduce the inflation rate B. increase education and training C. slow the growth of the standard of living D. make industry more competitive in world markets

C

a fall in the price of capital goods will shift the aggregate A. demand curve leftward B. demand curve rightward C. supply curve rightward D. supply curve leftward

C

a headline reads "storms destroy half of the lettuce crop". this situation would lead to a(n) A. increase in the price of lettuce and quantity purchased B. decrease in the price of lettuce and quantity purchased C. increase in the price of lettuce and decrease in quantity purchased D. decrease in the price of lettuce and increase in quantity demanded

C

a nation has a population of 300 mil people. of these, 80 mil are retired, in the military, in institutions, or under 16 yrs old. there are 210 mil who are employed and 10 mil who are unemployed. what is the unemployment rate? A. 3.3% B. 3.6% C. 4.5% D. 5.2%

C

an increase in the overall level of prices is called A. growth B. expansion C. inflation D. nominal GDP growth

C

given the annual rate of economic growth, the rule of 70 allows one to A. determine the accompanying rate of inflation B. calculate the size of the GDP gap C. calculate the number of years required for real GDP to double D. determine the growth rate of per capita GDP

C

if actual GDP is $340 bil and there is a positive GDP gap of $20 bil, potential GDP is A. $360 bil B. $660 bil C. $320 bil D. $20 bil

C

if the annual inflation rate is 5% a year, about how many years will it take for the price to double? A. 10 B. 12 C. 14 D. 16

C

if the congress passes legislation to cut taxes to counter the effects of a severe recession, then this would be an example of a A. political business cycle B. contractionary fiscal policy C. expansionary fiscal policy D. nondiscretionary fiscal policy

C

if the consumption schedule shifts downward, and the shift was not caused by a tax change, then the saving schedule A. may shift either up or down B. will shift down C. will shift up D. will not shift

C

if the cyclically-adjusted budget shows a deficit of about $100 bil and the actual budget shows a deficit of about $150 bil, it can be concluded that there is A. built in stability B. a cyclical deficit C. an expansionary policy D. a contractionary policy

C

increases in the value of a product to each user, including existing users, as the total number of users rises are called A. information cascades B. learning effects C. network effects D. scale economies

C

kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. kevin plans to go back to technical school to learn how to repair microcomputers. the type of unemployment kevin is faced with is A. cyclical B. frictional C. structural D. natural

C

maximum checkable deposit expansion is equal to A.actual reserves minus excess reserves B. assets plus net worth and liabilities C. excess reserves times the monetary multiplier D. excess reserves divided by the monetary multiplier

C

moral hazard created during the financial crisis occurred because A. federal govt bailed out large firms B. fed reserve took a variety of actions as a lender of last resort C. a and b D. companies created collateralized default swaps

C

national income is the sum of employee compensation, profits, and the following items, EXCEPT A. rent B. interest C. depreciation or consumption of fixed capital D. taxes on production and imports

C

real GDP and nominal GDP differ because the real GDP A. is adjusted for changes in the volume of intermediate transactions B. includes the economic effects of international trade C. has been adjusted for changes in the price level D. excludes depreciation charges

C

the GDP tends to A. overstate economic welfare because it does not include certain nonmarket activities such as the productive work of housewives B. understate economic welfare because it includes expenditures undertaken to offset or correct pollution C. understate economic welfare because it does not take into account increases in leisure D. overstate economic welfare because it does not reflect improvements in product quality

C

the following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320); imports $35; exports $22; personal consumption expenditures $2460; and, government purchases $470. what is GDP in this economy? A. 3250 B. 3263 C. 3237 D. 3290

C

the multiplier effect means that A. consumption is typically several times as large as saving B. a change in consumption can cause a larger increase in investment C. an increase in investment can cause GDP to change by a larger amount D. a decline in the MPC can cause GDP to rise by several times that amount

C

the term 'ceteris paribus' means A. that if event A precedes event B, A has caused B B. economists deal with facts not values C. other things equal D. prosperity inevitable follows a recession

C

the two ways of looking at GDP are the A. output approach and expenditures approach B. income approach and saving approach C. expenditures approach and income approach D. output approach and consumption approach

C

21.) The simple circular flow model shows that: A. households are on the buyin gisde of both product and resource markets B. businesses are on the selling side of both production and resource markets C. households are on the selling side of the resource market and buying side of the product market D. businesses are on the buying side of the product market and selling side of the resource market

C.

22.) In the resource market: A. businesses borrow financial capital from households B. businesses sell services to households C. households sell resources to businesses D. firms sell raw materials to households

C.

24. An effective ceiling price will: A. induce new firms to enter the industry. B. result in a product surplus. C. result in a product shortage. D. clear the market.

C.

24.) In terms of the circular flow diagram, businesses obtain revenue through the ______ market and make expenditures in the ______ market A. product; financial B. resource; product C. product; resource D. capital; product

C.

6.) Which of the following is NOT an economic cost? A. wages B. rents C. economic profits D. normal profits

C.

7.) An increase in consumer incomes will: A. increase the demand for an inferior good B. increase the supply of an inferior good C. increase the demand for a normal good D. decrease the supply for a normal good

C.

22. Assuming that Alpha and Beta are the only two nations in the world, the equilibrium world price of steel must be between: A. $5 and $4. B. $4 and $3. C. $3 and $2. D. $2 and $1.

C. $3 and $2.

3. In the data above for a private closed economy, if gross investment is $12 billion, equilibrium GDP is: A. $380. B. $370. C. $360. D. $350.

C. $360.

16. Assume the MPC is .8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by: A. $100 billion. B. $90 billion. C. $40 billion. D. $50 billion.

C. $40 billion.

9. At equilibrium in the above market for money, the total amount of money demanded is: A. $500. B. $480. C. $460. D. $440.

C. $460.

16. After a deposit of $10 billion of new currency into a checking account in the banking system, excess reserves will increase by: A. $0 billion. B. $7 billion. C. $9 billion. D. $10 billion.

C. $9 billion.

26. Refer to the above information and assume that Moolah Bank is "loaned up." If it receives a $100 deposit of currency, the banking system of which Moolah is a part could expand loans by: A. $100. B. $90. C. $900. D. $1000.

C. $900.

18. Refer to the above diagram. At the equilibrium exchange rate: A. $8 will buy 1 euro. B. 0.8 euros will buy $1. C. 1.25 euros will buy $1. D. $1 will buy 8 euros.

C. 1.25 euros will buy $1.

24. Refer to the above information. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be: A. 5. B. 8. C. 10. D. 20.

C. 10.

31. With a $1 per unit tariff, the quantities sold by foreign and domestic producers respectively will be: A. 1 unit and 15 units. B. 7 units and 4 units. C. 11 units and 4 units. D. indeterminate.

C. 11 units and 4 units.

18. When the legal reserve ratio is 30 percent, the monetary multiplier is: A. 5. B. 4. C. 3.33. D. 2.5.

C. 3.33.

20. At a world price of $5: A. Alpha will want to import 50 units of steel. B. Beta will want to import 60 units of steel. C. Alpha will want to export 50 units of steel. D. neither country will want to export steel.

C. Alpha will want to export 50 units of steel.

Which of the following programs involves the Federal Reserve directly purchases short-term lending instruments from corporation? A. Term Asset-Backed Securities Loan Facility B. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility C. Commercial Paper Funding Facility D. Term Securities Lending Facility

C. Commercial Paper Funding Facility

12. Which of the following would reduce the money supply? A. Commercial banks use excess reserves to buy government bonds from the public. B. Commercial banks loan out excess reserves. C. Commercial banks sell government bonds to the public. D. A check clears from Bank A to Bank B.

C. Commercial banks sell government bonds to the public.

24. Which of the following actions by the Fed will increase commercial bank lending potential? A. Raising the reserve ratio. B. Increasing the Federal funds rate target. C. Expanding the amount of reserves available through the term auction facility. D. Selling bonds to commercial banks and the public.

C. Expanding the amount of reserves available through the term auction facility.

5. On the basis of the above information: A. Gamma should export both tea and pots to Sigma. B. Sigma should export tea to Gamma and Gamma should export pots to Sigma. C. Gamma should export tea to Sigma and Sigma should export pots to Gamma. D. Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.

C. Gamma should export tea to Sigma and Sigma should export pots to Gamma.

29. In The General Theory of Employment, Interest, and Money: A. Adam Smith stated his idea of the invisible hand. B. Thorstein Veblen poked fun at the leisure class. C. John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself. D. J. B. Say developed "Say's law."

C. John Maynard Keynes attacked the classical economist's contention that recession or depression will automatically cure itself.

18. Which of the following best describes the idea of a political business cycle? A. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. B. Fiscal policy will result in alternating budget deficits and surpluses. C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. D. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

Which of the following statements is true about the high rate of mortgage defaults that contributed to the financial crisis of 2007 and 2008? A. High interest rates on mortgage loans were the primary cause of defaults. B. The high rate of defaults occurred despite the efforts of government to discourage new home ownership and slow the growth of the housing bubble. C. Prior to the rise in defaults banks had become lax in their lending practices, resulting in a number of bad loans. D. The high rate of defaults resulted primarily from the two years of recession preceding the mortgage default crisis.

C. Prior to the rise in defaults banks had become lax in their lending practices, resulting in a number of bad loans.

18. Which of the following statements best describes the twelve Federal Reserve Banks? A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

12. If the price level is 250 and producers supply $450 of real output: A. a shortage of real output of $150 will occur. B. a shortage of real output of $100 will occur. C. a surplus of real output of $150 will occur. D. neither a shortage nor a surplus of real output will occur.

C. a surplus of real output of $150 will occur.

Which of the following statements best describe the twelve Federal Reserve Banks? A. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities. B. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. D. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

8. It may be misleading to label a trade deficit as unfavorable or adverse because: A. the multiplier does not apply to a trade deficit. B. a trade deficit increases a nation's aggregate output and employment. C. a nation's consumers benefit from a trade deficit during the period it occurs. D. a trade deficit precludes inflation.

C. a nation's consumers benefit from a trade deficit during the period it occurs.

28. The recessionary expenditure gap associated with the recession of 2007-2009 resulted from: A. the government's attempt to control hyperinflation. B. a major increase in personal and corporate taxes. C. a rapid decline in investment spending. D. a rapid increase in imports resulting from large tariff reductions.

C. a rapid decline in investment spending.

22. In which of the following sets of circumstances can we confidently expect inflation? A. aggregate supply and aggregate demand both increase B. aggregate supply and aggregate demand both decrease C. aggregate supply decreases and aggregate demand increases D. aggregate supply increases and aggregate demand decreases

C. aggregate supply decreases and aggregate demand increases

13. Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit: A. at all levels of GDP. B. at any level of GDP above $400. C. at any level of GDP below $400. D. only when GDP is stable.

C. at any level of GDP below $400.

13. The Federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks. B. U.S. securities are bought and sold. C. banks borrow reserves from one another on an overnight basis. D. Federal Reserve Banks borrow from one another.

C. banks borrow reserves from one another on an overnight basis.

The law of increasing opportunity costs is reflected in a production possibilities curve that is: A. an upsloping straight line. B. a downsloping straight line. C. bowed out from the origin. D. bowed in toward the origin.

C. bowed out from the origin.

25. Which is an example of a nontariff barrier (NTB)? A. an export subsidy B. an excise tax on the physical volume of imported goods C. box-by-box inspection requirements for imported fruit D. an excise tax on the dollar value of imported goods

C. box-by-box inspection requirements for imported fruit

10. Banks create money when they: A. allow loans to mature. B. accept deposits of cash. C. buy government bonds from households. D. sell government bonds to households.

C. buy government bonds from households.

15. The impact of increasing, as opposed to constant, costs is to: A. intensify and prolong the comparative advantages that any nation may have initially. B. expand the limits of the terms of trade. C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage. D. cause nations to realize economies of scale in those products in which they specialize.

C. cause the bases for further specialization to disappear as nations specialize according to comparative advantage.

The study of economics is primarily concerned with: A. keeping private businesses from losing money. B. demonstrating that capitalistic economies are superior to socialistic economies. C. choices that are made in seeking the best use of resources. D. determining the most equitable distribution of society's output.

C. choices that are made in seeking the best use of resources.

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in: A. mutual fund companies and pension fund companies. B. thrifts and insurance companies. C. commercial banks and thrifts. D. securities firms and insurance companies.

C. commercial banks and thrifts

27. Which of the following is the best example of public investment? A. salaries of Senators and Representatives B. government expenditures on food stamps C. construction of highways D. funding of regulatory agencies

C. construction of highways

Which of the following is the basic economic policy function of the Federal Reserve Banks? A. holding the deposits or reserves of commercial banks B. acting as fiscal agents for the Federal government C. controlling the supply of money D. the collection or clearing of checks among commercial banks

C. controlling the supply of money

8. Commercial banks create money when they: A. accept cash deposits from the public. B. purchase government securities from the central banks. C. create checkable deposits in exchange for IOUs. D. raise their interest rates.

C. create checkable deposits in exchange for IOUs.

The Fed's main liabilities are: A. U.S. Treasury bills. B. corporate stocks and bonds. C. currency and bank reserves. D. the facilities of the twelve district banks.

C. currency and bank reserves

1. The aggregate demand curve is: A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises.

C. downsloping because of the interest-rate, real-balances, and foreign purchases effects.

29. Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect: A. the price of German bicycles to increase in the United States. B. employment to decrease in the German bicycle industry. C. employment to decrease in the U.S. bicycle industry. D. profits to rise in the U.S. bicycle industry.

C. employment to decrease in the U.S. bicycle industry.

33. According to the Taylor rule: A. for every 1 percentage point that unemployment exceeds the natural rate of unemployment, there is a 2 percentage point gap between potential and actual GDP. B. growth in the money supply should be limited to the long-run average growth rate of real GDP. C. if inflation rises by 1 percentage point above its target, then the Fed should raise the real Federal funds rate by one-half a percentage point. D. the rate of money growth should be set at 4 percent per year.

C. if inflation rises by 1 percentage point above its target, then the Fed should raise the real Federal funds rate by one-half a percentage point.

17. The American Recovery and Reinvestment Act of 2009: A. created a $700 billion rescue package for financial institutions. B. cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers. C. implemented a $787 billion package of tax cuts and government expenditure increases. D. substantially lowered interest rates in an attempt to stimulate investment spending.

C. implemented a $787 billion package of tax cuts and government expenditure increases.

24. Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a (n): A. protective tariff. B. export subsidy. C. import quota. D. voluntary export restriction.

C. import quota.

4. A nation's capital and financial account: A. contains inpayment items, but not outpayment items. B. includes service exports and service imports. C. includes both inpayments and outpayments. D. includes net investment income and net transfers.

C. includes both inpayments and outpayments.

22. Suppose that, for every 1-percentage point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that the reserve ratio is 10 percent. If the Fed lowers the discount rate from 4.0 percent to 3.5 percent, bank reserves will: A. increase by $1 billion and the money supply will increase by $5 billion. B. decline by $1 billion and the money supply will decline by $10 billion. C. increase by $1 billion and the money supply will increase by $10 billion. D. increase by $10 billion and the money supply will increase by $100 billion.

C. increase by $1 billion and the money supply will increase by $10 billion.

19. In the above diagram, a shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n): A. decrease in aggregate supply. B. decrease in the amount of output supplied. C. increase in investment spending. D. decrease in net export spending.

C. increase in investment spending.

Suppose the Fed buys bonds. We can expect this transaction to: A. reduce the money supply, reduce bond prices, and increase interest rates. B. reduce the money supply, increase bond prices, and lower interest rates. C. increase the money supply, raise bond prices, and lower interest rates. D. increase the money supply, lower bond prices, and lower interest rates.

C. increase the money supply, raise bond prices, and lower interest rates

The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008: A. severely depleted the assets of the Federal Reserve. B. have been little used, and therefore ineffective. C. increased by moral hazard problem by limiting losses from bad financial decisions. D. were designed to offset the moral hazard created by the TARP and other bailout programs.

C. increased by moral hazard problem by limiting losses from bad financial decisions.

49. (Consider This) During and immediately following the severe recession of 2007-2009, commercial bank reserves held on deposit in Federal Reserve banks: A. rose to a high of 50 percent of total checkable deposits held by banks. B. fell significantly as commercial banks withdrew reserves to pay off heavy debt obligations. C. increased significantly because of Fed purchases of securities from commercial banks, and the paying of interest on bank reserves. D. increased significantly because the Fed increased the required reserve ratio.

C. increased significantly because of Fed purchases of securities from commercial banks, and the paying of interest on bank reserves.

23. The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008: A. severely depleted the assets of the Federal Reserve. B. have been little used, and therefore ineffective. C. increased the moral hazard problem by limiting losses from bad financial decisions. D. were designed to offset the moral hazard created by the TARP and other bailout programs.

C. increased the moral hazard problem by limiting losses from bad financial decisions.

Purposeful behavior suggests that: A. everyone will make identical choices. B. resource availability exceeds economic wants. C. individuals may make different choices because of different desired outcomes. D. an individual's economic goals cannot involve tradeoffs.

C. individuals may make different choices because of different desired outcomes.

The production possibilities curve: A. shows all of those levels of production that are consistent with a stable price level. B. indicates that any combination of goods lying outside the curve is economically inefficient. C. is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced. D. shows all of those combinations of two goods that are most preferred by society.

C. is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced

33. In the above diagram Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. The size of the import quota: A. is vz. B. is vy. C. is wy. D. cannot be determined.

C. is wy.

All of the following are responsibilities of the Fed EXCEPT: A. control the monetary base. B. set the discount rate. C. mint bills and coins. D. oversee and regulate the banking system.

C. mint bills and coins

26. The Fed directly sets: A. the prime interest rate but not the Federal funds rate. B. both the Federal funds rate and the prime interest rate. C. neither the Federal funds rate nor the prime interest rate. D. the discount rate and the prime interest rate.

C. neither the Federal funds rate nor the prime interest rate.

3. In which of the following situations is it certain that the quantity of money demanded by the public will decrease? A. nominal GDP decreases and the interest rate decreases B. nominal GDP increases and the interest rate decreases C. nominal GDP decreases and the interest rate increases D. nominal GDP increases and the interest rate increases

C. nominal GDP decreases and the interest rate increases

(Consider This) Credit cards are: A. the fastest growing component of the M1 money supply. B. near-monies that are part of the M2 money supply but not the M1 money supply. C. not money, officially defined. D. also known as time deposits.

C. not money, officially defined

23. Which of the following tools of monetary policy is flexible, and able to affect bank reserves quickly and by relatively specific amounts? A. the discount rate B. the reserve ratio C. open market operations D. the Federal funds rate

C. open market operations

A checking account entry is money because it: A. is ensured by the Federal Deposit Insurance Corporation. B. has been declared as such by the Federal government. C. performs the functions of money. D. can be sold for currency.

C. performs the functions of money.

2. In international financial transactions, what are the only two things that individuals and firms can exchange? A. currency and real assets. B. services and manufactured goods. C. preexisting assets and currently produced goods and services. D. currency and currently produced goods and services.

C. preexisting assets and currently produced goods and services.

42. Between March 2001 and November 2002, the Fed reduced the Federal funds rate from 5 percent to just above 1 percent. The Fed's purpose was to: A. prevent rising inflation. B. reduce the public debt. C. promote recovery from recession. D. strengthen the international value of the dollar.

C. promote recovery from recession.

5. Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to: A. increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2. B. reduce taxes on businesses to shift the aggregate supply curve leftward. C. reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2. D. do nothing since the economy appears to be achieving full-employment real GDP.

C. reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2.

16. The four main tools of monetary policy are: A. tax rate changes, the discount rate, open-market operations, and the Federal funds rate. B. tax rate changes, changes in government expenditures, open-market operations, and the term auction facility. C. the discount rate, the reserve ratio, the term auction facility, and open-market operations. D. changes in government expenditures, the reserve ratio, the Federal funds rate, and the discount rate.

C. the discount rate, the reserve ratio, the term auction facility, and open-market operations.

Banks can lend money because: A. they have so much to lend. B. there is a high demand for loans. C. they know not everyone wants their deposits back at the same time. D. they know how much cash they have in their vault.

C. they know not everyone wants their deposits back at the same time

10. In the aggregate expenditures model, technological progress will shift the investment schedule: A. downward and increase aggregate expenditures. B. downward and decrease aggregate expenditures. C. upward and increase aggregate expenditures. D. upward and decrease aggregate expenditures.

C. upward and increase aggregate expenditures.

Stabilizing a nation's price level and the purchasing power of its money can be achieved: A. only with fiscal policy. B. only with monetary policy. C. with both fiscal and monetary policy. D. with neither fiscal nor monetary policy.

C. with both fiscal and monetary policy

The Federal Reserve System of the U.S. is the country's:

Central bank

Which two financial institutions offer checkable deposits included within the M1 money supply?

Commerical banks and Thrift institutions

The group that often initiates changes in fiscal policy is the:

Council of Economic Advisors

11. The Federal Open Market Committee (FOMC) is made up of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

D

15. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is: A. 80 percent. B. 8 percent. C. 2 percent. D. 20 percent.

D

16. Which of the following statements is most accurate about the prospects for poorer ("follower") countries catching up with richer ("leader") countries? A. Catching up is unlikely to occur because their growth rates are the same on average. B. Catching up is unlikely to occur because richer countries tend to grow at a faster rate. C. Catching up is possible, but only if growth rates in leader countries fall to zero or become negative. D. Catching up is possible as "follower countries" tend to grow faster than "leader countries."

D

17. If actual GDP is less than potential GDP: A. potential GDP will fall. B. the price level will rise. C. investment spending will fall. D. the actual unemployment rate will be higher than the natural unemployment rate

D

19. Excess reserves refer to the: A. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. B. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. C. difference between actual reserves and loans. D. difference between actual reserves and required reserves.

D

19. If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is: A. 2 percent. B. zero percent. C. 10 percent. D. 22 percent.

D

2. A recession is a period in which: A. cost-push inflation is present. B. nominal domestic output falls. C. demand-pull inflation is present. D. real domestic output falls

D

2. The real-balances effect indicates that: A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B. a lower price level will decrease the real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.

D

20. Okun's law: A. measures the tradeoff between the rate of inflation and the rate of unemployment. B. indicates the number of years it will take for a constant rate of inflation to double the price level. C. quantifies the relationship between nominal and real incomes. D. shows the relationship between the unemployment rate and the size of the negative GDP gap.

D

22. Which of the following is a correct statement of the impacts of a lump-sum tax? A. Disposable income will increase by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC. B. Disposable income will decline by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the multiplier. C. Disposable income will decline by the amount of the tax and consumption at each level of GDP will also decline by the amount of the tax. D. Disposable income will decline by the amount of the tax and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC.

D

22. Which of the following is not a supply factor in economic growth? A. the stock of capital B. technological advance C. the size and quality of the labor force D. aggregate expenditures of households, businesses, and government

D

23. If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase: A. GDP by $120 billion. B. GDP by $20 billion. C. saving by $25 billion. D. consumption by $80 billion.

D

23. Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will: A. fall by about 1 percent. B. remain constant. C. rise by about 4 percent. D. rise by about 1 percent.

D

24. Suppose that an economy's labor productivity and total worker-hours each grew by 3 percent between year 1 and year 2. We could conclude that this economy's: A. real GDP remained constant. B. capital stock increased by 3 percent. C. production possibilities curve shifted inward. D. production possibilities curve shifted outward.

D

28. An inflationary expenditure gap is the amount by which: A. equilibrium GDP falls short of the full-employment GDP. B. aggregate expenditures exceed any given level of GDP. C. saving exceeds investment at the full-employment GDP. D. aggregate expenditures exceed the full-employment level of GDP.

D

28. Real GDP refers to: A. the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. B. GDP data that embody changes in the price level, but not changes in physical output. C. GDP data that reflect changes in both physical output and the price level. D. GDP data that have been adjusted for changes in the price level.

D

3. The paper money used in the United States is: A. National Bank Notes. B. Treasury Notes. C. United States Notes. D. Federal Reserve Notes

D

3. Which of the following explains why the aggregate demand schedule is downward sloping: A. the real-balances effect B. the interest-rate effect C. the foreign purchases effect D. all of the above

D

31. Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is 0.625, what change in aggregate expenditures is needed to achieve full employment? A. a decrease of $12 billion B. an increase of $25 billion C. an increase of $10 billion D. an increase of $15 billion

D

31. If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is: A. 100. B. 200. C. 240. D. 300.

D

31. The largest contributor to increases in the productivity of American labor is: A. the reallocation of labor from agriculture to manufacturing. B. improvements in labor quality. C. increases in the quantity of capital. D. technological advance.

D

47. GDP data are criticized as being inaccurate measures of economic welfare because: A. they do not take into account changes in the amount of leisure. B. they do not take into account all changes in product quality. C. they do not take into account the adverse effects of economic activity on the environment. D. of all of these considerations.

D

5. The equilibrium level of GDP in a private closed economy is where: A. MPC = APC. B. unemployment is about 3 percent of the labor force. C. consumption equals saving. D. aggregate expenditures equal GDP.

D

6. In a private closed economy, when aggregate expenditures exceed GDP: A. GDP will decline. B. business inventories will rise. C. saving will decline. D. business inventories will fall

D

Changes in the price level affect which components of aggregate demand? a. only consumption and investment b. only consumption and net exports c. only investment d. consumption, investment, and net exports

D

GDP in an economy is $4600 billion. consumer expenditures are $3500 billion, government purchases are $900 billion, and gross private domestic investment is $400 billion. net exports are A. 400 B. -400 C. 200 D. -200

D

How do workers typically express self-interest? A. by minimizing the economic losses of other business firms B. by maximizing the economic profits of other business firms C. by seeking the highest price when purchasing a consumer product D. by seeking jobs with the best combination of wages and benefits

D

If aggregate demand shifts left, then in the short run a. the price level and real GDP both rise. b. the price level rises and real GDP falls. c. the price level falls and real GDP rises. d. the price and real GDP both fall.

D

If an economy wants to increase its current level of investment, it must A. sacrifice future consumption B. print more money C. offer more stocks and bonds to financial investors D. sacrifice current consumption

D

If the government institutes policies that diminish incentives to save, then in the loanable funds market a. the demand for loanable funds shifts rightward. b. the demand for loanable funds shifts leftward. c. the supply of loanable funds shifts rightward. d. the supply of loanable funds shifts leftward.

D

If the simple multiplier is 8, the marginal propensity to consume is a. 1/8 b. 1/4 c. 4/5 d. 7/8 e. 8

D

In a closed economy, what does (Y - T - C) represent? a. national saving b. government tax revenue c. public saving d. private saving

D

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy? a. Private saving is equal to government expenditures. b. Public saving is equal to investment. c. After paying their taxes and paying for their consumption, households have nothing left. d. The government's tax revenue is equal to its expenditures.

D

Institutions that help to match one person's saving with another person's investment are collectively called the a. Federal Reserve system. b. banking system. c. monetary system. d. financial system.

D

Most economists believe that monetary neutrality provides a. a good description of both the long run and the short run. b. a good description of neither the long run nor the short run. c. a good description of the short run, but not the long run. d. a good description of the long run, but not the short run.

D

Of the following fiscal programs, which has the smallest effect, per dollar, on aggregate demand? a. defense spending b. road construction c. grants for scientific research and development d. Social Security e. government purchases of labor

D

Refer to Optimism. How is the new long-run equilibrium different from the original one? a. both price and real GDP are higher b. both price and real GDP are lower. c. the price level is the same and GDP is higher. d. the price level is higher and real GDP is the same. e. the price level is higher and real GDP is lower.

D

The classical theory of inflation a. is also known as the quantity theory of money. b. was developed by some of the earliest economic thinkers. c. is used by most modern economists to explain the long-run determinants of the inflation rate. d. All of the above are correct.

D

The competitive market system: A. encourages innovation because government provides tax breaks and subsidies to those who develop new products or new productive techniques B. discourages innovation because it is difficult to acquire additional capital in the form of new machinery and equipment C. discourages innovation because firms want to get all the profits possible from existing machinery and equipment D. encourages innovation because successful innovators are rewarded with economic profits

D

22. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is: A. 7.5 percent. B. 1.39 percent. C. 2.5 percent. D. 3.9 percent.

D. 3.9 percent.

The economy goes into a period of inflation. Which of the following lists contains things policymakers could do to try to end the inflation? a. increase the money supply, increase taxes, increase government spending b. increase the money supply, increase taxes, decrease government spending c. increase the money supply, decrease taxes, increase government spending d. decrease the money supply, increase taxes, decrease government spending e. decrease the money supply, decrease taxes, decrease government spending

D

The model of aggregate demand and aggregate supply explains the relationship between a. the price and quantity of a particular good. b. unemployment and output. c. wages and employment. d. real GDP and the price level.

D

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called: A. Opportunity cost calculation B. Microeconomics C. Marginal analysis D. The scientific method

D

The velocity of money is a. the rate at which the Fed puts money into the economy. b. the same thing as the long-term growth rate of the money supply. c. the money supply divided by nominal GDP. d. the average number of times per year a dollar is spent.

D

When the Fed sells government bonds, the reserves of the banking system a. increase, so the money supply increases. b. increase, so the money supply decreases. c. increase, but the money supply remains the same. d. decrease, so the money supply decreases. e. decrease, so the money supply increases.

D

Which of the following has been suggested as a cause of the Great Depression? a. a decline in the money supply b. a decrease in stock prices c. the collapse of the banking system d. All of the above are correct.

D

Which of the following is correct? a. Short run fluctuations in economic activity happen only in developing countries. b. During economic contractions most firms experience rising sales. c. Recessions come at regular intervals and are easy to predict. d. When real GDP falls, the rate of unemployment rises. e. When real GDP falls, the rate of unemployment falls.

D

Which of the following is not always correct for a closed economy? a. National saving equals private saving plus public saving. b. Net exports equal zero. c. Real GDP measures both income and expenditures. d. Private saving equals investment.

D

Which of the following is not implied by the quantity equation? a. If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. b. If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. c. With constant money supply and output, an increase in velocity creates an increase in the price level. d. With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

D

Which of the following statements is correct? a. In an economy-wide sense, property rights are an important prerequisite for the price system to work. b. Property rights give people the ability to exercise authority over the resources they own. c. Based on the available evidence, the existence of well-established and well-enforced property rights appears to be associated with an enhanced standard of living. d. All of the above are correct.

D

Which of the following would cause stagflation? a. aggregate demand shifts right b. aggregate demand shifts left c. short-run aggregate supply shifts right d. short-run aggregate supply shifts left e. long-run aggregate supply shifts right

D

Which of the following would increase productivity? a. an increase in the physical capital stock per worker b. an increase in human capital per worker c. an increase in natural resources per worker d. All of the above are correct.

D

Which of the following would not be included in aggregate demand? a. additions of newly produced goods to inventory b. purchases of U.S. services by foreigners c. the purchase of newly produced capital goods d. government transfer payments such as Social Security payments

D

Which statement best describes a command economy? A. The production of goods and services is determined primarily by markets, but the allocation of goods and services is determined primarily by government B. The production of goods and services is determined primarily by government, but the allocation of goods and services is determined primarily by markets C. the production and allocation of goods and services is determined primarily through markets D. The production and allocation of goods and services is determined primarily through government

D

a college grad using the summer following graduation to search for a job would best be classified as A. not officially a part of labor force B. structural unemployment C. cyclical unemployment D. frictional unemployment

D

a normal good is one A. whose amount demanded will increase as its price decreases B. whose amount demanded will increase as its price increases C. whose demand curve will shift leftward as income rises D. the consumption of which varies directly with incomes

D

a product market is in equilibrium A. when there is no surplus of the product B. when there is no shortage of the product C. when consumers want to buy more of the product than producers offer for sale D. where the demand and supply curves intersect

D

a recession is defined as a period in which A. cost-push inflation is present B. nominal domestic output falls C. demand-pull inflation is present D. real domestic output falls

D

an economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. this prediction assumes that A. there are many goods that are substitutes for bicycles B. there are many goods that are complementary to bicycles C. there are few goods that are substitutes for bicycles D. bicycles are normal goods

D

in a competitive economy, prices: A. influence consumers in their purchases of goods and services B. influence consumers in their purchases of economic resources C. influence workers in making occupational choices D. do all of these

D

investment happens when A. current income is greater than current spending B. current consumption is greater than current output C. resources are devoted toward increasing current output D. resources are devoted toward increasing future output

D

the business cycle depicts A. fluctuations in the general price level B. the phases a business goes through from when it first opens to when it finally closes C. the evolution of technology over time D. short-run fluctuations in output and employment

D

the industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are A. military goods and capital goods B. services and nondurable consumer goods C. clothing and education D. capital goods and durable consumer goods

D

what is one significant characteristic of fractional reserve banking A. banks are not subject to "panics" or "runs" B. banks use deposit insurance for loans to customers C. bank loans will be equal to the amount of gold on deposit D. banks can create money through lending their reserves

D

what is the difference between financial investment and economic investment A. there is no difference B. financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods C. economic investment is adjusted for inflation; financial investment is not D. financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods

D

which is NOT one of the five fundamental questions? A. how will the goods and services be produced? B. How should the system accommodate change? C. who is to receive the output of the system? D. What goods and services should be produced by government?

D

which is a demand factor in economic growth? A. more human and natural resources B. technological progress and innovation C. an increase in the economy's stock of capital goods D. An increase in total spending in the economy

D

which is an important consequence of the public debt in the US? A. it will threaten to bankrupt the fed govt B. it transfers a poriton of output from foreign nations to the US C. it decreases the inequality in the distribution of income in the US D. it leads to fewer incentives to bear risk and innovate

D

which of the following statements is most accurate about the prospects for poorer ("follower") countries catching up with richer ("leader") countries? A. catching up is unlikely to occur b/c their growth rates are the same on average B. catching up is unlikely to occur because richer countries tend to grow at a faster rate C. catching up is possible, but only if growth rates in leader countries fall to zero or become negative D. catching up is possible as follower countries tend to grow faster than leader countries

D

12. A leftward shift of a product supply curve might be caused by: A. an improvement in the relevant technique of production. B. a decline in the prices of needed inputs. C. an increase in consumer incomes. D. some firms leaving an industry.

D.

30. With a $1 per unit tariff, price and total quantity sold will be: A. $3 and 7 units. B. $5 and 2 units. C. $3 and 7 units. D. $2 and 11 units.

D. $2 and 11 units.

7. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of: A. $8,000. B. $15,000. C. $48,000. D. $25,000.

D. $25,000.

13. For the open economy shown above the equilibrium GDP and the multiplier are: A. $300 and 2.5. B. $450 and 5. C. $400 and 4. D. $400 and 5.

D. $400 and 5.

5. This bank can safely expand its loans by a maximum of: A. $7,000. B. $25,000. C. $12,000. D. $5,000.

D. $5,000.

17. After the deposit of $10 billion of new currency, the maximum amount by which this commercial banking system can expand the supply of money by lending is: A. $9 billion. B. $45 billion. C. $36 billion. D. $90 billion.

D. $90 billion.

13. The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We can conclude that: A. 1 yen = 280 Swiss francs. B. 1 yen = 14 Swiss francs. C. 1 Swiss franc = 28 yen. D. 1 Swiss franc = 14 yen.

D. 1 Swiss franc = 14 yen.

9. In equilibrium the level of consumption spending will be: A. 170. B. 270. C. 160. D. 195.

D. 195.

24. Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions? A. 56 percent B. 71 percent C. 43 percent D. 29 percent

D. 29 percent

34. Which of the following best describes the cause-effect chain of an expansionary monetary policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.

12. The above data show that: A. Beta has a comparative advantage in producing chips. B. Alpha has a comparative advantage in catching fish. C. Alpha is subject to constant costs and Beta is subject to increasing costs. D. Beta is more efficient than Alpha both in catching fish and in producing chips.

D. Beta is more efficient than Alpha both in catching fish and in producing chips.

A $20 bill is a: A. gold certificate. B. Treasury note. C. Treasury bill. D. Federal Reserve Note.

D. Federal Reserve Note.

20. Under a system of freely flexible (floating) exchange rates a U.S. trade deficit with Mexico will tend to cause: A. the United States government to ration pesos to U.S. importers. B. a flow of gold from the United States to Mexico. C. an increase in the peso price of dollars. D. an increase in the dollar price of pesos.

D. an increase in the dollar price of pesos.

14. During periods of rapid inflation, money may cease to work as a medium of exchange: A. unless it has been designated legal tender. B. unless it is backed by gold. C. because it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.

D. because people and businesses will not want to accept it in transactions.D. because people and businesses will not want to accept it in transactions.

Currency in circulation is part of: A. M1 only. B. M2 not including M1. C. neither M1 nor M2. D. both M1 and M2.

D. both M1 and M2

19. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase the Fed could: A. sell $20 billion of U.S. securities to the banks. B. buy $20 billion of U.S. securities from the banks. C. sell $40 billion of U.S. securities to the banks. D. buy $40 billion of U.S. securities from the banks.

D. buy $40 billion of U.S. securities from the banks.

1. Refer to the above diagrams. Other things equal, curve B will shift upward when: A. the level of GDP increases. B. the interest rate increases. C. curve A shifts to the left. D. curve A shifts to the right.

D. curve A shifts to the right.

6. Refer to the above diagram of the market for money. Given Dm and Sm, an interest rate of i3 is not sustainable because the: A. supply of bonds in the bond market will decline and the interest rate will rise. B. supply of bonds in the bond market will increase and the interest rate will decline. C. demand for bonds in the bond market will decline and the interest rate will rise. D. demand for bonds in the bond market will rise and the interest rate will fall.

D. demand for bonds in the bond market will rise and the interest rate will fall.

17. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is: A. not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. B. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million. C. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

25. Under a system of fixed exchange rates, a nation that has chronic balance of payments deficits may: A. initiate protectionist trade policies. B. run short of international monetary reserves. C. be forced to invoke contractionary monetary and fiscal policies. D. do all of these.

D. do all of these.

Commercial banks and thrift institutions: A. differ because thrifts cannot make loans. B. differ because thrifts cannot offer checkable deposits. C. have become less similar in recent years. D. have become increasingly similar in recent years.

D. have become increasingly similar in recent years

8. The determinants of aggregate supply: A. are consumption, investment, government, and net export spending. B. explain why real domestic output and the price level are directly related. C. explain the three distinct ranges of the aggregate supply curve. D. include resource prices and resource productivity.

D. include resource prices and resource productivity.

28. Relatively rapid U.S. growth between 1999 and 2000, and from 2003 to 2007, contributed to large U.S. trade deficits by: A. increasing U.S. national income, which decreased U.S. exports. B. reducing real interest rates in the United States. C. increasing U.S. tax revenues and reducing the Federal budget deficit. D. increasing U.S. national income, which increased U.S. imports.

D. increasing U.S. national income, which increased U.S. imports.

3. If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by: A. reducing government expenditures by $12 billion. B. reducing government expenditures by $60 billion. C. increasing taxes by $15 billion. D. increasing taxes by $20 billion.

D. increasing taxes by $20 billion.

26. If the United States has full employment and the dollar dramatically depreciates in value, we can expect (other things equal): A. both U.S. imports and U.S. exports to rise. B. both U.S. imports and U.S. exports to fall. C. U.S. exports to fall and U.S. imports to increase. D. inflation to occur.

D. inflation to occur.

26. In the above diagram, if the full-employment level of GDP is B and aggregate expenditures are at AE1, the: A. inflationary expenditure gap is BC. B. recessionary expenditure gap is BC. C. inflationary expenditure gap is zero. D. inflationary expenditure gap is ei.

D. inflationary expenditure gap is ei.

Collateralized default swaps: A. helped reduce the losses from the mortgage default crisis. B. involve exchanging high-risk mortgages for low-risk mortgage-backed securities. C. are loans to investors in mortgage-backed securities. D. insured holders of loan-backed securities in case they underlying loans were not repaid.

D. insured holders of loan-backed securities in case they underlying loans were not repaid.

A normative statement is one that: A. is based on the law of averages. B. applies only to microeconomics. C. applies only to macroeconomics. D. is based on value judgments.

D. is based on value judgments.

Currency held in the vault of the First National Bank is: A. counted as part of M1. B. counted as part of M2, but not M1. C. only counted as part of M1 if it was deposited into a checking account. D. not counted as part of the money supply.

D. is not counted as part of the money supply.

The purchasing power of the dollar: A. has been increasing in recent years because of economic growth. B. varies directly with the cost-of-living index. C. is inversely related to the level of aggregate demand. D. is the reciprocal of the price level.

D. is the reciprocal of the price level

2. Refer to the above diagrams. Other things equal, an interest rate decrease will: A. shift curve A to the right and shift curve B upward. B. shift curve A to the left and shift curve B downward. C. leave curve A in place but shift curve B downward. D. leave curve A in place but shift curve B upward.

D. leave curve A in place but shift curve B upward.

21. Banks lost money during the mortgage default crisis because: A. of defaulted loans to investors in mortgage-backed securities. B. they held mortgage-backed securities they had purchased from investment firms. C. homebuyers defaulted on mortgages held by the banks. D. of all of these reasons.

D. of all of these reasons.

27. In saying that the present system of floating exchange rates is managed we mean that: A. countries that allow their exchange rate to move freely will lose their borrowing privileges with the IMF. B. the value of any IMF member's currency can only vary 2 percent from its par value. C. IMF officials determine exchange rates on a day-to-day basis. D. the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

D. the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable trends in exchange rates.

U.S. banks did not offer interest on checking accounts, until the beginning of the 1980s. Then banking regulations changed, allowing banks to pay interest on checking account funds, as a result: A. the demand for money fell and shifted the money demand curve to the left. B. the supply of money rose and shifted the money demand curve to the right. C. the supply for money fell and shifted the money demand curve to the left. D. the demand for money rose and shifted the money demand curve to the right.

D. the demand for money rose and shifted the money demand curve to the right

16. The Federal Open Market Committee (FOMC) is comprised of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

The Federal Open Market Committee (FOMC) is made up of: A. the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks. B. the seven members of the Board of Governors along with the president of the New York Federal Reserve Bank. C. the seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers. D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.

Suppose you find a $50 bill that you put in a coat pocket last winter. If you deposit it in your checking account: A. M2 increases by $50. B. M1 increases by $50. C. M1 and M2 both increase by $50. D. there is no change in M1 or M2.

D. there is no change in M1 or M2

When banks bundled mortgage loans and sold the resulting mortgage-backed securities: A. they insulated the banking system from any risk associated with mortgage defaults. B. they greatly reduced the overall risk of mortgage defaults. C. buyers of these securities assumed all of the risk of mortgage defaults. D. they reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in mortgage-backed securities.

D. they reduced their direct exposure to mortgage default risk, but were still exposed through loans to investors in mortgage-backed securities.

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

D. unit of account

Treasury bills: A. usually pay higher interest rates than other short-term assets because they are scarce compared to all other assets. B. usually pay lower interest rates than other short-term assets because they are scarce compared to all other assets. C. usually pay higher interest rates than other short-term assets because they are riskier than other assets. D. usually pay lower interest rates than other short-term assets because they are less risky than other assets.

D. usually pay lower interest rates than other short term assets because they are less risky than other assets

In economics, the pleasure, happiness, or satisfaction received from a product is called: A. marginal cost. B. rational outcome. C. status fulfillment. D. utility.

D. utility.

If the price index rises from 200 to 250, the purchasing power values of the dollar: A. may either rise or fall. B. will rise by 25 percent. C. will fall by 25 percent. D. will fall by 20 percent.

D. will fall by 20 percent

During period of rapid inflation, money may cease t work as a medium of exchange: A. unless it has been designated legal tender. B. unless it is backed by gold. C. because it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.

D.because the businesses will not want to accept it in transaction.

Actions by the Federal government that decrease the progressivity of the tax system:

Decrease the effect of automatic stabilizers

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would:

Decrease, thus decreasing aggregate demand and partially offsetting the fiscal policy

Which one of the following is presently a major deterrent to bank panics in the United States?

Deposit Insurance

If the congress passes legislation to cut taxes to counter the effects of a severe recession, then this would be an example of:

Discretionary Fiscal Policy

For the purpose of aggregate supply analysis, the long run is the period of time during which a. aggregate supply adjusts to equal aggregate demand b. excess aggregate supply is bought c. excess aggregate demand is fulfilled d. real wages are constant e. all resource prices can be varied

E

Whether aggregate supply shifts quickly or slowly to restore equilibrium at potential output depends crucially on a. how quickly planned investment spending adjusts to changes in population growth b. how quickly planned consumption spending adjusts to changes in the price level and nominal wages c. how quickly technology changes to increase aggregate supply d. whether the economy is experiencing a contractionary gap or an expansionary gap e. how quickly real wages adjust to restore full employment in the labor market

E

An inverse relationship between the degree of independence of the central bank and the size of the average annual rate of inflation

Economic studies conducted in industrially advanced countries suggest there is:

Which of the following people would be considered unemployed?

Edna, who lost her job as a teacher and is currently searching for a new job.

A trough in the business cycle occurs when:

Employment and output reach their lowest levels

One major advantage of money serving as a medium of exchange is that it allows society to:

Escape the complications of barter

The body of the Fed that determines monetary policy is the Choose one answer. a. Federal Open Market Committee. b. Federal Advisory Council. c. Board of Governors. d. Monetary Advisory Board.

Federal Open Market Committee

The interest rate that banks charge one another on overnight loans is called the

Federal funds rate

C

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is: A) 8 percent. B) 5 percent. C) 3 percent. D) 2 percent.

B

In year 1 the price level is constant and the nominal rate of interest is 6 percent. But in year 2 the inflation rate is 3 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must: A) rise by 9 percentage points. B) rise by 3 percentage points. C) fall by 3 percentage points. D) rise by 6 percentage points.

M2 monet supply:

Includes M1 plus sacings deposits, including money market deposit accounts, small (less then 100,000) time deposits and money market mutal funds held by individuals

An expansionary fiscal policy can be illustrated by an

Increase in aggregate demand

Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely

Increase the amount of public capital stock in the future.

In an aggregate demand and aggregate supply graph, a contractionary fiscal policy can be illustrated by a :

Leftward shift in the aggregate demand curve

The Federal Reserve Banks are owned by the:

Member banks

People can generally get the following items at their commercial banks, except:

Money market mutual funds

A reduction in aggregate demand in the relatively flat portion of the aggregate supply curve

Price level does not change (much or at all), but real output declines.

Gross domestic product that has been adjusted for inflation is called a. national income. b. CPI. c. real GDP. d. GDP.

Real GDP

B

Refer to the above data. If disposable income was $325, we would expect consumption to be: A) $315. B) $305. C) $20. D) $290.

$600 billion

Refer to the above data. The equilibrium level of GDP in this private open economy is:

B

Refer to the above diagram. The marginal propensity to consume is: A) .4. B) .6. C) .5. D) .8.

D

Refer to the above graph. A movement from a to b along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in real GDP.

$650

Refer to the above table. If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:

$650

Refer to the above table. If planned investments were fixed at $16, taxes were zero, government purchases of goods and services were zero, and net exports were zero, then equilibrium real GDP would be $630 initially. If government purchases were then raised from $0 to $4, other things constant, then the equilibrium real GDP would become:

D

Refer to the consumption schedule above. Disposable income equals consumption at point:

Q2 to Q4

Refer to the figure above. If aggregate demand curve shifts from AD2 to AD1, the full multiplier effect on real GDP will be a decrease from:

P2 and Q2

Refer to the graph above. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output?

Changing the tax system so that the tax line has a steeper slope

Refer to the graph above. Automatic stability in this economy could be enhanced by:

Be caused by a shift in the aggregate supply curve from AS1 to AS3

Refer to the graph above. When output increases from Q1 and the price level decreases from P1, this change will:

6 and 9

Refer to the list above. A change in net export spending would most likely be caused by changes in:

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for:

Setting the Fed's monetary policy and directing the purchase and sale of government securities

B

Suppose that in some year nominal interest rates are less than the rate of inflation. This means that: A) money demand exceeds money supply. B) real interest rates are negative. C) real interest rates are positive and unusually high. D) real interest rates exceed nominal interest rates.

25 percent

Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is:

1913

The Federal Reserve System was established by the Federal Reserve Act of:

Controlling the money supply in order to keep the value of money relatively stable over time

The Federal backing for money in the United States comes from:

B

The MPC can be defined as that fraction of a: A) change in income that is not spent. B) change in income that is spent. C) given total income that is not consumed. D) given total income that is consumed.

A

The MPC is calculated as: A) change in consumption / change in income B) consumption / income C) change in income / change in consumption D) income / consumption

Demand increased and aggregate supply increased

The U.S. economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate:

What "backs" the money supply of the U.S.?

The U.S. government's ability to keep the value of money relatively stable

Which of the following "backs" the value of money in the United States?

The acceptability of it as a medium of exchange

B

The break-even point is where: A) MPC=1 B) APC = 1 C) MPS = 1 D) APS = 1

A debt of the Federal Reserve System

The paper money or currency in the U.S. essentially represents:

Which one of the following is true about the U.S. Federal Reserve System?

There are seven members of the Federal Reserve Board of Governers

C

Which of the following relations is not correct? A) 1-MPC=MPS B) APS+APC=1 C) MPS=MPC+1 D) MPC+MPS=1

D

Which one of the following will cause a movement along an economy's consumption schedule? A) an change in stock prices B) a change in stock prices C) an change in consumer indebtedness D) a change in disposable income

China made a big step toward capitalism when in 1999 they joined the a. World Trade Organization. b. General Agreement on Trade and Tariffs. c. United Nations. d. North American Free Trade Agreement.

World Trade Organization.

Increase government spending and decrease taxes

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion; (2) investment = $40 billion; (3) government purchases = $90 billion; and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

Monetarists believe that a. the Fed should increase the supply of money 3 to 5 percent per year. b. All choices are correct. c. the government should not operate with deficits each year. d. fiscal policy is not effective.

all choices are correct

We are forced to make choices because a. not everything is limited. b. shortages are a constant situation. c. we live in a democracy. d. all resources are limited.

all resources are limited

Which of the following will cause an increase in economic growth?

an increase in human capital.

Interest-rate effect:

an increase in money demand will drive up the price paid for its use. That price is the interest rate.

The basic objective of monetary policy is to

assist the economy in achieving a full-employment, non-inflationary level of total output

The basic objective of monetary policy is to...

assist the economy in achieving a full-employment, non-inflationary level of total output.

The equilibrium interest rate is determined

at the intersection of the total demand for money curve and the supply of money curve

The equilibrium interest rate is determined

at the intersection of the total demand for money curve and the supply of money curve.

An advantage of automatic stabilizers over discretionary fiscal policy is that

automatic stabilizers are not subject to the same time lags as discretionary fiscal policy.

The Federal funds market is the market in which

banks borrow reserves from one another on an overnight basis

why is the LRAS verticle ?

because when prices increase wages also increase, profit margins stay the same and real gdp stays the same

Suppose that Mountain Star Bank discovers that its reserves will temporarily fall slightly below those legally required. It can temporarily remedy this situation by

borrowing funds from other banks in the Federal funds market

Changes in the Federal funds rate and the prime interest rate closely track one another because

both rates are related to the relative scarcity or availability of reserves

A business would seek long-term financing to a. make payroll. b. build a new plant. c. lease cars. d. reinvest in the stock market.

build a new plant

The fact that reserves lost by any particular bank will be gained by some other bank explains why the comercial banking system;

can increase it's demand deposits by a multiple of it's excess reserves.

Checkable (demand) deposits are;

debts of commercial banks and savings institutions.

coins and paper money are:

debts of the government and government agencies

When inflation occurs, the purchasing power of the dollar a. decreases. b. initially increases, then decreases. c. remains the same. d. increases.

decreases

Which of the following is an unskilled worker? a. architect b. delivery person c. physician d. bricklayer

delivery person

The reserves of a commercial bank consist of:

deposits at the Federal Reserve bank and vault cash

The decline in value over time that occurs with vehicles is called a. appreciation. b. retrovalues. c. depreciation. d. liability.

depreciation

Economists assume people behave rationally, which means that people

do not intentionally make decisions that make themselves worse off.

Perfectly competitive markets yield a. equal distribution of wealth. b. social discord. c. economic efficiency. d. growth.

economic efficiency

When economists say that monetary policy can exhibit cyclical asymmetry, this means

expansionary and restrictive monetary policy do not have the same effectiveness in handling economic expansion and contraction.

If nothing else changes, and the supply of a good rises, the price of that good will a. remain constant. b. rise. c. fluctuate. d. fall.

fall

Compared to a decade ago, there are

fewer bank firms

Compared to a decade ago, there are...

fewer bank firms.

When the Fed lends money to a commercial bank, the bank

increases its reserves and enhances its ability to extend credit to bank customers

Other than its main role of controlling the supply of money, the functions of the Federal Reserve include

issuing Federal Reserve Notes, providing for check collection, and supervising the operation of banks

American International Group (AIG) exacerbated the financial crisis of 2007-2008 by...

issuing billions of dollars of collateralized default swaps that had embedded mortgage-loan risk.

The ceteris paribus assumption is important in economics since

it would be impossible to relate the effects of changes in one variable on another without holding all other variables constant.

A major strength of monetary policy is

its speed and flexibility

Consider the following statement: "Money is whatever society says it is." This statement acknowledges that money

must be an acceptable medium for exchange to occur

When a nation takes over an industry and forces the firm's owners out of the country, it is called a. privatization. b. nationalization. c. foreign aid. d. economic exile

nationalization

In perfectly competitive markets, all firms sell __________ goods. a. perfect b. nearly identical c. differentiated d. high-quality

nearly identical

A single commercial bank can safely lend only an amount equal to its excess reserves, but the commercial banking system can lend by a multiple of its excess reserves because

one bank loses reserves to other banks, but the system does not.

An asset on a bank's balance sheet is something

owned by the bank, whereas a liability is something owed by the bank

All the combinations of goods and services that can be produced in a given time with a fixed amount of resources are called a. costs. b. production possibilities. c. factors of production. d. trade-offs.

production possibilites

Which of the following is not an argument for free trade? a. protecting national security b. more goods at lower prices c. increasing exports d. improved products

protecting national security

The primary purpose of the legal reserve requirement is to:

provide a means by which the monetary authorities can influence the lending ability of commerical banks

Mandatory spending

provided by permanent law rather than annual appropriations . An example is social security. The president and the congress can change the law to revise the eligibility criteria or the payment formula and thus change the level of spending on mandatory programs, but they dont have to take annual action to ensure the continuation of spending

In responding to the financial crisis that began in 2007, the Fed...

purchased securities from banks to increase liquidity in the financial system.

Suppose that you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp rise in the inflation rate. In this case, the reserve ratio and the discount rate should be

raised

A loan that is backed by collateral is called a. a secured loan. b. a line of credit. c. trade credit. d. an unsecured loan

secured loan

Smith Barney, Charles Schwab, and Merrill Lynch, are all primarily

securities firms

When the fed wants to raise the Federal funds rate, it

sells bonds to banks and the "public"

A usury law a. regulates how borrowed money may be used. b. awards credit based on need. c. sets the maximum interest rates consumers can be charged. d. limits the amount of credit that a bank can offer.

sets the maximum interest rates consumers can be charged

An aggregate demand curve

shifts to the right when a non-price level change increases total planned real expenditures.

When the price of a product is below its equilibrium, the result is a. shortage. b. surplus. c. demand. d. black market.

shortage

A store-value card is most ideal for

specific purchases from a particular vendor issuing the card

What invention brought about the digital age? a. computers b. the microchip c. television d. the World Wide Web

the microchip

Research for industrially advanced coutries indicates that:

the more independent the central bank, the lower the average annual rate of inflation

The Fed introduced the term auction facility in response to

the mortgage debt crisis

The effect time lag of fiscal policy refers to

the time between the onset of a policy and when the policy has impact on the economy.

Aggregate supply - short run

the total of all production in the economy when WAGES and COSTS are UNCHANGED

When an individual saves, a. it deprives others of money to invest. b. the whole economy benefits. c. the individual benefits. d. it deprives businesses of money to expand.

the whole economy benefits

(Last Word) The bank panics of 1930-1933 and the resulting failures of many banks were caused by

the widespread conversion of checkable deposits to cash by the public.

When computing a price index, the base year is

the year that is chosen as the point of reference for comparison of prices with other years.

In Karl Marx's vision of communism, a. the free market would reign. b. government would make all decisions. c. the world would have already ended by now. d. there would be no need for government.

there would be no need for government.

Reserves are an asset to commercial banks but a liability to the Federal Reserve Banks because

these funds are cash belonging to commercial banks, but they are a claim the commercial banks have against the Federal Reserve Bank

When economists say that the Federal Reserve Banks are quasi-public banks, this means that...

they are a blend of private ownership and public control.

In defining money as M1, economists exclude time deposits because:

they are not directly or immediately a medium of exchange

To say that the Federal Reserve Banks are quasi-public banks means that:

they are priveately owned, but managed in the public interest

Charter One, Pentagon Federal Credit Union, and Boeing Employees Credit Union, are all primarily

thrifts

If a country's imports exceed its exports, it has a. a trade deficit. b. a trade surplus. c. an exchange rate problem. d. good importers.

trade deficit

Welfare payments made to individuals are called a. wages. b. discretionary income. c. transfer payments. d. national income.

transfer payments

A sole proprietor has __________, which means that his or her personal assets may be used to pay off the debts of the business. a. unlimited liability b. unlimited life c. limited life d. limited liability

unlimited liability

The minimum wage law has the most impact for a. unskilled workers. b. professionals. c. skilled workers. d. white-collar workers.

unskilled workers

SRAS curve is slopping ? why?

upsloping because as price increase wages do NOT. profit margin will increase and production will also increase

The short-run aggregate supply curve is

upsloping because wages adjust more slowly than the output prices, increasing profits and output.

Consumers who can store large quantities of bulk food items can save money by shopping at a. discount stores. b. warehouse stores. c. convenience stores. d. large supermarkets.

warehouse stores

Discretionary spending

what the president and the congress DECIDE to spend through annual appropriations bills. examples include money for such activities as the coast guard, FBI, foreign aid

In 2009, the public debt in the U.S. on a per capita basis was about:

$38,000

Which of the following fiscal policy changes would be the most expansionary?

A $40 billion increase in government spending

If the cyclically-adjusted budget shows a deficit of about $100 billion and the actual budget shows a deficit of about $150 billion, it can be concluded that there is:

A cyclical deficit

The Great Recession that started in 2007 and the consequent policy response made the:

Actual budget deficit rise faster than the cyclically-adjusted deficit

State and local governments are limited in their ability to respond to recessions because of:

Constitutional and other requirements to balance their budgets

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

Contractionary fiscal policy

The crowding-out effect works through interest rates to:

Decrease the effectiveness of expansionary fiscal policy

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:

Discretionary Fiscal Policy

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

Expansionary fiscal policy

Which combination of fiscal policy actions would most likely be offsetting?

Increase taxes and government spending

One of the potential consequences of the public debt is that it may:

Lead to additional future taxes that reduce economic incentives

Most economists agree that the immediate cause of the majority of cyclical changes in the level of real output is unexpected changes in the:

Level of total spending

"Full employment" refers to the situation when there is:

No cyclical unemployment

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is:

Nondiscretionary

Refer to the above graph. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to:

P1 and Q3

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Public investment complements private investment

The goal of expansionary fiscal policy is to increase:

Real GDP

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has:

The power to print money to finance the debt

Medicare and Social Security are similar in the following respects, except:

They are both intended to benefit older current workers

One timing problem with fiscal policy to counter a recession is an "operational lag" that occurs between the:

Time fiscal action is taken and the time that the action has its effect on the economy

Up until 2008, Social Security revenues exceeded payouts, and the excess inflow was used to buy:

Treasury securities

Official unemployment rate statistics may:

Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment

An expansionary fiscal policy can be illustrated by a:

Upward movement along an aggregate supply curve

If people expected that a tax cut was temporary, then this fiscal policy's effect on the economy will tend to be:

Weaker

An increase in the price level, other things equal, will shift the:

Consumption, investment, and net exports schedules of the aggregate expenditures model downward

Fiscal policy is enacted through changes in:

Taxation and government spending