ECO2013-Andrew Tucker-Final Exam ++

The amount by which the bank's actual reserves > the required reserves

"Excess reserves"

The value of money=

1/price level therefore it is inverse to the price level. If prices go up, money value goes down.

*If the reserve requirement is 2.5%, then the money multiplier is:

40

*Nominal GDP (billions of $) 2012: $2,291 2013: 2014: $8,511 Real GDP (in billions of $) 2012: $4,500 2013: $5,865 2014: GDP deflator 2012: 2013: 86.1 2014: 112.7 According to the table, the GDP deflator for 2012 is approximately: a.) 40.9 b.) 50.9 c.) 60.9 d.) 70.9

b.) 50.9

*When market failure occurs, it is often creates an economic: a.) incentive for income equity b.) role for government c.) incentive for more information d.) incentive for more competition

b.) role for government

If the Federal Reserve decides to increase the money supply: a.) the federal funds rate will rise. b.) the federal funds rate will fall. c.) the federal funds rate will be unaffected. d.) deflation will occur.

b.) the federal funds rate will fall.

Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases? a.) crowding-out b.) the multiplier effect c.) the wealth effect d.) the interest rate effect

b.) the multiplier effect

Suppose a one-year bond with a face value of $200 is sold for $188. What is the bond's yield? a.) 5.3% b.) 6.0% c.) 6.4% d.) 12.0%

c.) 6.4%

If the marginal propensity to consume is 0.85, how much is the spending multiplier? a.) 0.15 b.) 1.17 c.) 5.1 d.) 6.67

d.) 6.67 (1/(1 - 0.85))

Checking deposits generally have a _____ return on investment than do certificates of deposit because checking deposits are _____. a.) higher; less liquid b.) higher; more liquid c.) lower; less liquid d.) lower; more liquid

d.) lower; more liquid

Which is an example of capital in the production process of an amusement park? a.) the electricity used at the park b.) the mechanics who maintain the equipment d.) the roller coaster c.) the ticket-taker

d.) the roller coaster

If we are to make rational decisions, we must understand

the tradeoffs

Why do the Board of Governors at the Fed set a reserve ratio?

they use this as a MECHANISM OF CONTROL over commercial banks and the money supply

Laissez-faire

"leave it alone" (referring to the government's absence in the free market)

The _____ lag is the time policymakers must wait for economic data to be collected, processed, and reported. A) information B) recognition C) implementation D) decision

A) information

Price index=

(price / price of the base year) *100

*The Federal Open Market Committee (FMOC) consists of:

-Seven members of the Board of Governors -Five of the 12 regional Federal Reserve Bank presidents

Money Measure Components, June 2010 Money Component Amount (billions) Currency $883.6 Traveler's checks 4.8 Demand deposits 467.0 Savings deposits 5,086.1 Small-denomination time deposits 1,054.0 Other checkable deposits 382.0 Retail money funds* 746.6 *Includes money market accounts and money market mutual fund accounts From the information in the table, M1 for June 2010 was: A) $1,737.4 billion. B) $1,355.4 billion. C) $1,350.6 billion. D) $1,732.6 billion.

A) $1,737.4 billion. (Currency $883.6 Traveler's checks 4.8 Demand deposits 467.0 Other checkable deposits 382.0)

Which of the following is NOT a financial intermediary? A) Citibank B) Schwab mutual funds C) Hartford Insurance D) Federal Reserve Bank

D) Federal Reserve Bank

In which city is the Federal Reserve's Board of Governors? A) Boston B) New York C) Philadelphia D) Washington, DC

D) Washington, DC

Sometimes the Fed's goals conflict, and the Fed must emphasize one goal over another. Which of the following is a goal of the Fed that does NOT conflict with its goal of full employment? A) promoting economic growth B) promoting an equitable distribution of income C) keeping the price level stable D) keeping tax rates low

A) promoting economic growth

*If Zachary deposits $500 cash into his checking account, then his bank's assets: A) rise by $500, and its liabilities rise by $500. B) rise by $500, but its liabilities do not change. C) do not change, but its liabilities rise by $500. D) rise by $500, and its liabilities fall by $500.

A) rise by $500, and its liabilities rise by $500.

Two kinds of efficiency

Technical and Economic (Allocative)

Efficiency

The best use of available resources to attain a desired result.

Business cycles:

Alternating increases and decreases in economic activity that are typically punctuated by periods of downturn, recession, recovery, and boom.

*WHAT IS MONEY?

Anything that is accepted in exchange for other goods and services or for the payment of debt.

_____ is a reduction in the rate of inflation. a.) Disinflation b.) Deflation c.) Hyperinflation d.) The price level

a.) Disinflation

*The main policymaking arm of the Fed is the: a.) Federal Open Market Committee. b.) Council of Economic Advisers. c.) Money Committee. d.) Beige Book Committee.

a.) Federal Open Market Committee.

Six institutions of capitalism

1. Private Property 2. Self Interest ("the invisible hand") 3. Economic Individualism ("Laissez-Faire") 4. Competition and the Free Market 5. The Price System 6. Government: Rule maker, Protector, Empire

price ceiling

A government-set maximum price that can be charged for a product or service. When the price ceiling is set below equilibrium, it leads to shortages.

price floor

A government-set minimum price that can be charged for a product or service. When the price floor is set above equilibrium, it leads to surpluses.

Assets Vault Cash: $2,500 Deposits at the Federal Reserve: $7,500 Loans: $90,000 Liabilities and Net Worth Deposits: $100,000 If this bank is subject to a reserve requirement of 5%, what is the amount of its excess reserves? A) $2,500 B) $5,000 C) $10,000 D) Negative. This bank does not have excess reserves; it needs $2,500 to meet its reserve requirement.

A) $2,500 (100,000 * .05)= 5,000 (7,500 - 5,000)= 2,500

Assets Vault Cash: $2,500 Deposits at the Federal Reserve: $7,500 Loans: $90,000 Liabilities and Net Worth Deposits: $100,000 If this bank is subject to a reserve requirement of 5%, how much more can it loan out if it wants to be fully loaned up? A) $2,500 B) $5,000 C) $10,000 D) Nothing. This bank is already fully loaned up.

A) $2,500 (Because excess reserves are what banks can use to loan money with, and as we saw in the previous problem, excess reserves = $2,500)

Callie withdraws $600 from her bank account. If the reserve requirement is 15%, by how many dollars must her bank reduce its lending? A) $510 B) $600 C) $90 D) $667

A) $510 (600 * .15) = 90 That must be kept in reserve (600-90)= 510 is the rest that can be used as loanable funds

Assume the reserve requirement is 10% and all banks are fully loaned up. If a new deposit of $10,000 is made into Bank X, with this deposit Bank X can make new loans of: A) $9,000. B) $10,000. C) $1,000. D) $11,000.

A) $9,000. (10,000 * .10)= 1,000 The amount that must be kept on reserve (1,000 - 10,000)= 9,000 The rest that can be used to loan money out with

The yield on a perpetuity bond that has an interest payment of $60 and a price of $1,200 is: A) 5%. B) 6%. C) 12%. D) 25%.

A) 5%. (60/1200)

Consider this T-account for your bank, showing that you deposited $100 into your checking account and that your bank then made a $75 loan to Michelle. Assets +$100 (cash) +$75 (loan to Michelle) Liabilities +$100 (increase in your checking account) +$75 (increase in Michelle's checking account) Your bank's reserve ratio is: A) 57.14% B) 75% C) 125%. D) 42.8%.

A) 57.14% 100/175= .5714

Which of the following illustrates the information lag? A) The economy is predicted to increase at 0.1% in July, but the numbers are revised in August to reflect an actual 2% decrease. B) Current data have been provided to policymakers, but they decide to wait and see what happens in the next quarter. C) The government responds to the 2% decrease in the economy, and private investment is crowded out of the investment market. D) The government decides not to respond to the 2% decrease in the economy because it is worried about the possibility of inflation.

A) The economy is predicted to increase at 0.1% in July, but the numbers are revised in August to reflect an actual 2% decrease.

Rank these components in order from the SMALLEST share of M1 to the largest. A) coins, banknotes, demand deposits B) banknotes, coins, demand deposits C) demand deposits, coins, banknotes D) demand deposits, banknotes, coins

A) coins, banknotes, demand deposits

In September 2013, the Federal Open Market Committee said it would wait for more evidence that progress had been made on the economic recovery before it cut back on open market purchases. The Bureau of Economic Analysis did not release its advanced estimate of the third quarter's GDP growth until a month after the quarter ended. The second estimate was released two months after the quarter ended, and a third revised estimate was released about three months after the quarter ended. This wait for accurate data to be collected is known as the: A) information lag. B) recognition lag. C) decision lag. D) implementation lag.

A) information lag.

Assume that the reserve requirement is 20% and the Federal Open Market Committee buys a $10,000 bond. The impact on the banking system is a(n): A) injection of $10,000 in new reserves. B) reduction of $50,000 in reserves. C) injection of $50,000 in new reserves. D) injection of $2,000 in new reserves.

A) injection of $10,000 in new reserves. The FOMC pays for the bond by putting the money directly into the bank's account with them (which is a reserve account)

If a bank has assets of $5 billion and liabilities of $4.8 billion: A) its equity equals $200 million. B) its equity equals −$800 million. C) it faces a solvency crisis. D) its equity equals −$800 million and it faces a solvency crisis.

A) its equity equals $200 million. because Assets has to = liabilities + equity

M2 is ____ in dollar value than M1; it also contains ____ assets. A) larger; less liquid B) larger; more liquid C) smaller; less liquid D) smaller; more liquid

A) larger; less liquid

If mangos were widely accepted for purposes of exchange: A) mangos would be money. B) mangos would lose value. C) people would not work for mangos. D) mango plantations would decrease in value.

A) mangos would be money.

*The supply curve for loanable funds is: A) positively sloped. B) negatively sloped. C) horizontal. D) vertical.

A) positively sloped.

Suppose the government implements a policy reducing the rewards earned by savers. In this case the ________ loanable funds shifts _________. A) supply of; left B) supply of; right C) demand for; left D) demand for; right

A) supply of; left

Economist associated with Self interest and the "invisible hand"

Adam Smith (1776, Scottish professor of philosophy) who published "The Wealth of Nations". Smith described that each person pursuing SELF-INTEREST without interference from the government, will be led, as if by an invisible hand, to achieve the best good for society.

The four goals of an economic system are goals of what type of market systems?

All, they are a universal set of goals from capitalist societies to socialist societies.

The mantra of allocative efficiency

An economic system ought to deliver the goods and services that people want and are able to pay for

A bank has excess reserves of $4,000 and demand deposits of $40,000; the reserve requirement is 20%. If the reserve requirement is increased to 25%, the maximum amount of new loans this bank can make is: A) $1,500. B) $2,000. C) $2,500. D) $3,000.

B) $2,000. (Follow the same logic as the previous question, but now there is $1,000 less available as excess reserves so the answer would be $1,000 less than the previous answer)

*If the reserve requirement is 10% and a bank initially receives $20,000 in deposits, then the maximum amount of money that the banking system can create is: A) $20,000. B) $200,000. C) $180,000. D) $100,000.

B) $200,000.

*Which is an example of money being used as a unit of account? A) A customer buys a burger, fries, and medium diet cola for $6.95. B) A restaurant's profits for the week of October 3 to October 10 are $1,250. C) A customer receives $3.05 in change and returns the next day to make another purchase. D) A restaurant sells a large ice cream sundae and charges the customer's debit card.

B) A restaurant's profits for the week of October 3 to October 10 are $1,250.

Suppose there is news of rising unemployment. Which scenario is most likely? A) Firms invest more in automation; the demand for loanable funds rises; interest rates rise; borrowing drops, which makes the anticipated bad times a reality. B) Households save in anticipation of bad times; the supply of loanable funds rises; interest rates fall; firms take advantage of lower interest rates and make more investments, which stimulates the economy. C) Householders spend more in anticipation that they won't have the money if they lose their job; the supply of loanable funds falls; interest rates rise; firms cut back on borrowing and spending, which brings about more unemployment. D) Householders borrow more to prepare for unemployment; the demand for loanable funds rises; interest rates rise; business cuts back on investment, which slows the economy.

B) Households save in anticipation of bad times; the supply of loanable funds rises; interest rates fall; firms take advantage of lower interest rates and make more investments, which stimulates the economy.

*Yolanda took $5,000 from her checking account and put the money in her savings account at the same bank. A) Both M1 and M2 were reduced by $5,000. B) M1 went down by $5,000, but M2 was unchanged. C) Neither M1 nor M2 changed because the transfer was done at the same bank. D) M1 and M2 both rose by $5,000.

B) M1 went down by $5,000, but M2 was unchanged.

Which of the following is the LEAST liquid? A) money in a savings account B) a Picasso painting C) a U.S. Treasury bond D) $100 in cash

B) a Picasso painting

*Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction the supply of money is: A) not directly affected but has the potential to be increased by a total of $12 million. B) directly increased by $4 million and has the potential to be increased by another $12 million. C) directly reduced by $4 million and has the potential to be reduced by another $12 million. D) directly increased by $4 million and has the potential to be increased by another $8 million.

B) directly increased by $4 million and has the potential to be increased by another $12 million. (an overall increase of 16 million which can be calculated using the money multiplier of 1/.25= 4, and 4 * 4 million is 16 million)

The unit of account function of money: A) requires a double coincidence of wants, as in barter. B) eliminates the need to value every item in terms of every other item. C) is the most important function of money. D) refers to the value of money over time.

B) eliminates the need to value every item in terms of every other item.

If the reserve requirement is 25%, then a $1 increase in deposits means that the money supply: A) will increase by $4. B) has the potential to increase by $4. C) will increase by $25. D) has the potential to increase by $25.

B) has the potential to increase by $4. (1/.25)= 4 The money multiplier (4 * 1)= $4

Barter as a system tends to work only: A) in small U.S. towns and villages. B) in primitive economies with little product variety. C) when agricultural products are exchanged. D) among large, multinational corporations.

B) in primitive economies with little product variety.

The reward for saving is called ____, and this variable is placed on the _____ axis of the loanable funds market graph. A) interest; horizontal B) interest; vertical C) investment; horizontal D) investment; vertical

B) interest; vertical

If the government decrees that bottle tops will be treated as money, then a bottle top: A) can still never be money because it has so little intrinsic value. B) is called fiat money. C) will not function well as a unit of account. D) will serve well for international trade.

B) is called fiat money.

Financial institutions: A) reduce information costs, set interest rates for bonds, and diversify assets. B) reduce information costs, reduce transaction costs, and diversify assets. C) pool funds from lenders, reduce transaction costs, and diversify assets. D) reduce information costs, reduce transaction costs, and pool funds from lender

B) reduce information costs, reduce transaction costs, and diversify assets.

*Ceteris paribus, suppose an economy institutes reforms that reduce government regulations. In this case the demand for loanable funds shifts ______ and the equilibrium interest rate _______. A) left; rises B) right; rises C) left; falls D) right; falls

B) right; rises

*How do banks create money?

By loaning out their excess reserves. !!!(The fractional reserve system permits banks to create money through their ability to accept deposits and make loans.)!!!

Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves of $300,000. The bank has excess reserves of: A) $50,000. B) $100,000. C) $200,000. D) $300,000.

C) $200,000. (1 million * .10)= 100,000 required in reserves (300,000 - 100,000)= 200,000 excess

Suppose a bank has $1 million in deposits, a reserve requirement of 20%, and bank reserves of $400,000. The bank has excess reserves of: A) $50,000. B) $100,000. C) $200,000. D) $300,000.

C) $200,000. (1 million * .20) = $200,000 the amount required in reserves (400,000 - 200,000)= $200,000 the excess money put into reserves

Assume that the reserve requirement is 20%. A bank has $20 billion in demand deposits. How much money does the bank have to keep in reserves? A) $20 billion B) $10 billion C) $4 billion D) $2 billion

C) $4 billion

Which is an example of money being used as a store of value? A) A customer buys a burger, fries, and medium diet cola for $6.95. B) A restaurant's profits for the week of October 3 to October 10 are $1,250. C) A customer receives $3.05 in change and returns the next day to make another purchase. D) A restaurant sells a large ice cream sundae and charges the customer's debit card.

C) A customer receives $3.05 in change and returns the next day to make another purchase.

Which of the following is a provision of the Federal Reserve Act or subsequent legislation that contributes to the independence of the Fed? A) The Fed's actions are subject to executive branch control. B) Appointments to the Federal Reserve Board are staggered so that one expires every other year. C) Members of the Federal Reserve Board cannot be reappointed. D) The Federal Reserve System is subject to Congressional oversight.

C) Members of the Federal Reserve Board cannot be reappointed.

Which of the following statements is CORRECT? A) The Fed's actions are subject to executive branch control. B) Politically controlled banks are better at fighting inflation than are independent central banks. C) The Federal Reserve is considered to be an independent central bank. D) The Federal Reserve System is not subject to Congressional oversight.

C) The Federal Reserve is considered to be an independent central bank.

An economist notices that M1 is rapidly rising. One conclusion she might draw is that: A) depositors want to save for the long term. B) interest rates on savings accounts are rising. C) consumers are preparing to make more purchases. D) banks are discouraging their customers from borrowing and spending.

C) consumers are preparing to make more purchases.

Legislators debate for six months on which spending programs to utilize to manipulate the business cycle. This is an example of the: A) recognition lag. B) information lag. C) decision lag. D) implementation lag.

C) decision lag.

In February 2010, the Central Bank of Brazil raised reserve requirements. By raising reserve requirements, Brazil was attempting to: A) increase its money supply. B) stabilize its money supply. C) decrease its money supply. D) improve the liquidity of its banks.

C) decrease its money supply.

At Christmas, people tend to draw money out of their checking accounts to pay for Christmas presents. As a result, the money multiplier will: A) increase. B) not change. C) decrease. D) become more volatile.

C) decrease.

Jody purchases a stock from her employer, Acme Corporation. This is an example of ________ finance: A) unregulated B) indirect C) direct D) investor

C) direct

Sometimes the Fed's goals conflict, and the Fed must emphasize one goal over another. Which of the following is a goal of the Fed that might conflict with its goal of full employment? A) promoting economic growth B) promoting an equitable distribution of income C) keeping the price level stable D) keeping tax rates low

C) keeping the price level stable

Sasha buys a pair of shoes for $200. She pays for it with 200, one-dollar bills. The dollar bills, in this case, are functioning as a: A) unit of account. B) store of value. C) medium of exchange. D) barter tool.

C) medium of exchange.

Appointments to the Federal Reserve Board are staggered so that one expires every other year. This provision was enacted to ensure: A) that Federal Reserve Board members would serve their entire term. B) that the Fed would be accountable to Congress. C) stability and continuity on the Board. D) that regional considerations would not impact the Board's decisions.

C) stability and continuity on the Board. (If they all were appointed at the same time then they would all have to end their term at the same time causing a 100% change of policy-makers on the board all at once)

The reason bond prices and interest rates are inversely related is that: A) bond prices are fixed for the life of a bond. B) market interest rates stay the same for the life of a bond. C) the coupon payment is fixed for the life of a bond. D) bonds are always perpetuities.

C) the coupon payment is fixed for the life of a bond.

GDP=

C+Ig+G+(X-M) personal (C)onsumption+ (g)ross private domestic (I)nvestment+ (G)overnment purchases of goods & services+ net exports (total exports- total imports)

A bank has excess reserves of $5,000 and demand deposits of $40,000; the reserve requirement is 20%. If the reserve requirement is increased to 25%, the maximum amount of new loans this bank can make is: A) $1,500. B) $2,000. C) $2,500. D) $3,000.

D) $3,000. (40,000 * .20) = $8,000 the amount required in reserves (8,000 + 5,000)= $13,000 the amount ACTUALLY in reserves (40,000 * .25) = $10,000 the amount that is now required to be in reserves (10,000 - 13,000)= $3,000 the remaining excess reserves that can still be used for loans.

The money multiplier is: A) interest payment divided by yield. B) yield divided by interest payment. C) 1/1 - MPS. D) 1 divided by reserve requirement.

D) 1 divided by reserve requirement. 1/ RR (decimal form)

Nominal GDP (billions of $) 2012: $7,280 2013: 2014: $8,000 Real GDP (billions of $) 2012: $7,280 2013: $7,425 2014: GDP deflator 2012: 2013: 103.6 2014: 106.1 According to the table, the GDP deflator for 2012 is: A) 0. B) 1. C) 72.8. D) 100.

D) 100.

Suppose the ZZZ Corporation sells a one-year coupon bond for $1,000. Its coupon payment is $100 for the year. In this example, the yield is ________%. If instead the price of the bond is $500, the yield is ________. A) 10; 10% B) 100; 200% C) 100; 100% D) 10; 20%

D) 10; 20%

Which of the following is a provision of the Federal Reserve Act or subsequent legislation that weakens the independence of the Fed? A) The Fed's actions are subject to executive branch control. B) Members of the Federal Reserve Board serve 14-year terms. C) Members of the Federal Reserve Board cannot be reappointed. D) The Federal Reserve System is subject to Congressional oversight.

D) The Federal Reserve System is subject to Congressional oversight.

The 12 Federal Reserve banks and their branches do all of the following except: A) distribute coins and currency. B) regulate and supervise member banks. C) serve as the banker for the United States Treasury. D) accept deposits from U.S. citizens.

D) accept deposits from U.S. citizens. The federal reserve is a bank for banks. Individuals cannot use it personally.

*Which of the following is NOT a policy tool of the Federal Reserve? A) reserve requirements B) the discount rate C) open market operations D) fiscal policy

D) fiscal policy The federal reserve deals with MONETARY policy. They control the MONEY supply.

If the reserve requirement is 20%, then a $1 decrease in deposits means that the money supply: A) will decrease by $5. B) has the potential to increase by $20. C) will increase by $5. D) has the potential to decrease by $5.

D) has the potential to decrease by $5. (1/.20)= 5 The money multiplier (5 * 1)= $5 (withdrawals or decreases in deposits cause DECREASES in money supply.)

*Assume the reserve requirement is 10%. If the Federal Open Market Committee buys a $10,000 bond from Bank A, Bank A's reserves: A) decrease by $10,000. B) increase by $9,000. C) increase by $1,000. D) increase by $10,000.

D) increase by $10,000. The reserve requirement here is irrelevant to what immediately happens to the bank's reserves.

Assume that the reserve requirement is 20% and the Federal Open Market Committee buys a $100,000 bond. The money supply: A) increases by a maximum of $100,000. B) decreases by $100,000. C) increases by a maximum of $20,000. D) increases by a maximum of $500,000.

D) increases by a maximum of $500,000. They FOMC deposits the $100,000 directly into the bank's reserve account which is considered "excess reserves". Assuming that the bank uses this excess (like many do) to give out loans, it could potentially create a ripple effect of $500,000 of money supply increase (the money multiplier is 1/.20 =5).

*If a bank is subject to a reserve requirement of 15%, then it is required to: A) place 15% of its deposits in the vault. B) lend out 15% of its deposits. C) place 15% of its deposits in the account with its regional Federal Reserve bank. D) place 15% of its deposits in the account with its regional Federal Reserve bank or the vault.

D) place 15% of its deposits in the account with its regional Federal Reserve bank or the vault.

The second type of efficiency

Economic (allocative) Efficiency

The four goals of an economic system

Efficiency Equity Stability & Growth

*In a ______ banking system, banks hold only a portion of deposits in reserves, loaning out the rest.

FRACTIONAL reserve banking system

M2 =

M1+ small time deposits

M3 =

M2 + large time deposits

Unit of account

Money provides a yardstick for measuring and comparing the values of a wide variety of goods and services. It eliminates the problem of double coincidence of wants associated with barter.

Real GDP=

Nominal GDP/ price index (decimal)

DI=

PI - personal taxes

who sets the reserve ratio?

The Board of Governors at the Federal Reserve

*___________ is the central bank of the United States.

The Federal Reserve System

deadweight loss

The reduction in total surplus that results from the inefficiency of a market not in equilibrium.

*How many regional Federal Reserve Banks are there?

Twelve regional Federal Reserve Banks in major cities around the nation

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is producer surplus? a.) $4 b.) $11 c.) $15 d.) $21

a.) $4

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, national income is: a.) $4,020 billion b.) $3,785 billion c.) $2,475 billion d.) $3,595 billion

a.) $4,020 billion (NI= NDP + Net foreign income abroad) ($4,020 + 0 = $4,020)

(2013: Real GDP in $billions= $5,865 & GDP deflator= 86.1) According to the table, nominal GDP for 2013 is approximately: a.) $5,050 billion. b.) $5,250 billion. c.) $5,450 billion. d.) $5,650 billion.

a.) $5,050 billion. (5,865*.861= 5,050)

* Income:.......Consumption: $0 ............. $250 $500...........$700 $1,000........$1,150 $1,500........$1,600 $2,000........$2,050 $2,500........$2,500 The table shows data on consumption at various levels of income. The value of the marginal propensity to save is: a.) 0.1 b.) 0.25 c.) 0.75 d.) 0.9

a.) 0.1

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is: a.) 0.5 lawns mowed. b.) 1.5 lawns mowed. c.) 2.0 lawns mowed. d.) 2.5 lawns mowed.

a.) 0.5 lawns mowed

If the current year's consumer price index is 214 and last year's was 209, then the rate of inflation is: a.) 2.4%. b.) 5%. c.) 3%. d.) 2.8%.

a.) 2.4%. (5/209= .0239)

*An economy has a population of 226,500. Of them, 12,500 are unemployed and actively seeking work, and 35,000 have given up looking for a job. Also, 28,000 people work part-time, and 151,000 people work full-time. This economy's unemployment rate is _______ (Round the percentage to one decimal place). a.) 6.5% b.) 21% c.) 5.5% d.) 21.1%

a.) 6.5% 12,500 / 191,500 ("unemployed" / "entire labor force")

The demand for gasoline is rising. Which of the following statements describes a possible cause? a.) Consumers expect prices to rise in the near future. b.) Commuters are switching from driving to public transportation. c.) Drivers are purchasing more fuel-efficient cars. d.) Incomes are falling.

a.) Consumers expect prices to rise in the near future

Which of the following is NOT considered a basic economic question? a.) How will the system accommodate change? b.) What goods and services will be produced? c.) Who will receive the goods and services? d.) How will these goods and services be produced?

a.) How will the system accommodate change?

*Which of the following statements about the multiplier is CORRECT? a.) The spending multiplier can work to increase or to decrease equilibrium GDP. b.) The spending multiplier exists only during economic expansions. c.) The size of the spending multiplier is dictated by the amount of government spending. d.) The value of the spending multiplier is the inverse of the marginal propensity to consume.

a.) The spending multiplier can work to increase or to decrease equilibrium GDP.

*Suppose a major hurricane hits Florida, causing widespread damage to homes and businesses. If legislature imposes price controls in order to keep reconstruction costs reasonable, which of the following is the MOST likely result? a.) a shortage of building materials b.) a faster recovery from the storm c.) a surplus of building materials d.) rapid service at lumber yards

a.) a shortage of building materials

An interest rate that is low only for a short time is called: a.) a teaser rate. b.) an annual percentage rate. c.) a balloon payment. d.) a balance transfer fee.

a.) a teaser rate.

*Gross domestic product is a measure of: a.) an economy's total output b.) household production c.) the total weight of all goods produced d.) production of owners of labor and capital only

a.) an economy's total output

Paying a salesperson more for increased sales is an example of: a.) an incentive. b.) an opportunity cost. c.) efficiency. d.) equity.

a.) an incentive

Which of the following leads to an increase in the quantity supplied of soccer balls? a.) an increase in the price of soccer balls b.) an improvement in the production technology of soccer balls c.) an increase in the number of manufacturers of soccer balls d.) an increase in taxes on the sale of soccer balls

a.) an increase in the price of soccer balls

A production possibilities frontier that is a straight line is the result of: a.) constant opportunity costs. b.) increasing opportunity costs. c.) scarcity. d.) underemployment of resources.

a.) constant opportunity costs

The largest component of GDP is: a.) consumption expenditure. b.) gross private domestic investment. c.) government spending. d.) net exports.

a.) consumption expenditure.

*Minimum wage laws: a.) create a price floor below which workers cannot be legally paid b.) create shortages of workers because no one would be willing to work for the minimum wage c.) have no impact on wages because the equilibrium wage is higher than the minimum wage d.) are prime examples of price ceilings

a.) create a price floor below which workers cannot be legally paid

Suppose that anticipated inflation is 4% for the coming year, with loan contracts set at 7% in the expectation of a 3% return after inflation. If the actual inflation rate at the end of the year is 2%: a.) creditors gain at debtors' expense. b.) people on a fixed income see the purchasing power of their incomes rising. c.) debtors gain at creditors' expense. d.) there's a redistribution of income from creditors to debtors.

a.) creditors gain at debtors' expense.

Simon Kuznets: a.) devised the gross national product as a way of measuring a nation's economic output. b.) set up the National Bureau of Economic Research. c.) was Secretary of Treasury during World War II. d.) invented the hair net.

a.) devised the gross national product as a way of measuring a nation's economic output.

Suppose a price floor is set on cane sugar that is approximately three times the equilibrium price. One of the effects is a(n): a.) drop in the quantity of sugar consumed. b.) increase in the efficiency of the market. c.) shortage of sugar. d.) shift by food manufacturers from the use of corn syrup to cane sugar.

a.) drop in the quantity of sugar consumed.

Investment in human capital refers to: a.) education, on-the-job training, and professional training activities. b.) increasing the machinery and equipment firms use. c.) increasing the number of people working at companies. d.) increasing the financial capital in the economy.

a.) education, on-the-job training, and professional training activities

Assume initially that market interest rates are 7% and the bondholder is receiving a $70 coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 8%, the bond price: a.) falls to $875. b.) falls to $800. c.) rises to $1,125. d.) falls to $700.

a.) falls to $875.

*If both demand and supply decrease, but the decrease in demand is greater than the decrease in supply, then the equilibrium price ______ and equilibrium output ________. a.) falls; falls b.) may rise, fall or stay the same; falls c.) may rise, fall or stay the same; rises d.) falls; may rise, fall or stay the same

a.) falls; falls

The long-run aggregate supply curve uses the classical assumptions that all variables are __________ in the long run and that long-run equilibrium occurs at ___________________. a.) flexible; full employment b.) flexible; less than full employment c.) fixed; less than full employment d.) fixed; full employment

a.) flexible; full employment

Which of the following is a basic goal of the Federal Reserve System? a.) full employment b.) a balanced federal budget c.) zero interest rates d.) export promotion

a.) full employment

Consumer surplus is defined as the: a.) gap between the demand curve and the market price. b.) gap between the supply curve and the market price. c.) difference between a price floor and the market price. d.)difference between a price ceiling and the market price.

a.) gap between the demand curve and the market price.

*Open market operations involve the purchase and sale of: a.) government securities. b.) corporate bonds. c.) municipal bonds. d.) utility bonds.

a.) government securities.

The four types of spending in GDP are personal consumer spending, ___________ private domestic investment, government spending, and _______. a.) gross; net exports b.) gross; net imports c.) net; net exports d.) net; net imports

a.) gross; net exports

A shift to the right of the supply curve could be caused by a(n): a.) improvement in production technology. b.) increase in the costs of resources. c.) increase in the price of a complement. d.) decrease in the number of sellers.

a.) improvement in production technology.

A lower reserve requirement: a.) increases the ability of banks to make loans. b.) further limits deposit creation. c.) lowers the money multiplier. d.) restricts the borrowing capability of borrowers.

a.) increases the ability of banks to make loans.

*A falling aggregate price level ____ demand for a country's exports and therefore ____ output demanded. a.) increases; increases b.) increases; reduces c.) reduces; increases d.) reduces; reduces

a.) increases; increases

The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases: a.) interest rates will rise. b.) interest rates will fall. c.) stock prices will rise. d.) bond prices will rise.

a.) interest rates will rise.

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded. a.) left; decrease b.) left; increase c.) right; increase d.) right; decrease

a.) left; decrease

People use _____ to determine how many hours to work, and businesses use _____ to determine how much of their product they are willing to supply to the market. a.) marginal analysis; marginal analysis b.) allocative efficiency; production efficiency c.) production efficiency; marginal analysis d.) marginal analysis; allocative efficiency

a.) marginal analysis; marginal analysis

When quantity demanded in a market equals quantity supplied, then the: a.) market is in equilibrium. b.) equilibrium price is less than expected by buyers. c.) market will not clear without further price adjustments. d.) market is in temporary disequilibrium.

a.) market is in equilibrium

In a ____ economy, individuals and firms own most resources, and in a _____ economy, the government controls most resources. a.) market; planned b.) planned; socialist c.) planned; market d.) socialist; planned

a.) market; planned

*Each point along a production possibilities frontier represents: a.) maximum output, given the state of technology and resource availability b.) an economically inefficient combination of goods being produced c.) a combination of goods that meets the equity criteria d.) a combination of goods produced that can never be produced

a.) maximum output, given the state of technology and resource availability

The economics of uranium mining would be studied in: a.) microeconomics. b.) macroeconomics. c.) deductive logic. d.) inductive logic.

a.) microeconomics

If the pound sterling appreciates against the U.S. dollar, England buys ______ U.S. goods, causing the U.S. aggregate demand curve to shift to the ______. a.) more; right b.) more; left c.) fewer; left d.) fewer; right

a.) more; right

*Expenditures by individuals for durable goods, nondurable goods, and services is known as: a.) personal consumption expenditure b.) total spending c.) personal calculated expenditure d.) personal computed expenditure

a.) personal consumption expenditure

When goods are produced at the lowest possible cost, an economy is said to have achieved: a.) production efficiency. b.) allocative efficiency. c.) cheap production. d.) inferior quality goods.

a.) production efficiency

A good example of a government imposed price ceiling is: a.) rent controls. b.) supply and demand. c.) minimum wage. d.) equilibrium.

a.) rent controls.

*_____ unemployment is caused by changes in consumer demands or technology. a.) structural b.) frictional c.) seasonal d.) cyclical

a.) structural

What event was a major influence on the development of macroeconomics? a.) the Great Depression b.) the Employment Act of 1946 c.) the establishment of the Federal Reserve System in the United States d.) the U.S. entry into World War II

a.) the Great Depression

*A business cycle is: a.) the periodic fluctuation of economic activity b.) the engine of economic growth c.) a period lasting about 50 years d.) identical to the consumption life cycle

a.) the periodic fluctuation of economic activity

A business cycle is: a.) the periodic fluctuation of economic activity. b.) the engine of economic growth. c.) a period lasting about 50 years. d.) identical to the consumption life cycle.

a.) the periodic fluctuation of economic activity.

*Markets tend to produce: a.) too much of a good exhibiting external costs b.) too much of a good exhibiting external benefits c.) the right amount of a good exhibiting external costs d.) the right amount of a good exhibiting external benefits

a.) too much of a good exhibiting external costs

*What are the three basic economic questions each society must answer? a.) what to produce; how to produce; for whom to produce b.) how much to produce; what quality to produce; and what price to sell at c.) what to produce; how to much to produce, how to consume d.) how much goes to government; how much goes to consumers; how much is exported

a.) what to produce; how to produce; for whom to produce

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, how much is consumer surplus? a.) $4 b.) $11 c.) $15 d.) $21

b.) $11

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, disposable income is: a.) $3,490 billion b.) $2,785 billion c.) $4,480 billion d.) $3,680 billion

b.) $2,785 billion (PI- personal income taxes) ($3660 - $875 = $2,785)

*Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. What is the change in his bank's required reserves? a.) $1,500 b.) $375 c.) $1,125 d.) $6,000

b.) $375

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, GDP is: a.) $2,090 billion b.) $4,210 billion c.) $4,400 billion d.) $4,020 billion

b.) $4,210 billion (GDP = C + Ig + G+ (Xn)) $2850 + $700 + $810 + ($300 - $450) = $4,210

If a perpetuity bond has an interest payment of $80 and your required yield is 10%, the most you would be willing to pay for the bond (the price) is: a.) $80. b.) $800. c.) $1,000. d.) $8,000.

b.) $800.

*If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is: a.) 0.2 b.) 0.25 c.) 0.75 d.) There is not enough information to answer this question

b.) 0.25 the change in consumption= $75 billion the change in income = $100 billion so we can assume the remaining $25 billion is kept as savings so it is the "change in savings" so, $25 billion / $100 billion = 0.25

*If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? a.) 0.4 b.) 0.6 c.) 1.2 d.) 2.5

b.) 0.6 $3,000 - $1,200 = $1,800 (consumption) $1,800 / $3,000 = 0.6

The slope of the saving schedule is: a.) the marginal propensity to consume. b.) 1 minus the marginal propensity to consume. c.) the average propensity to consume. d.) the average propensity to save.

b.) 1 minus the marginal propensity to consume.

(graph shown) *At $20: Jim demands 1 item, Julianne demands 3 items, and Joan demands 6 items. The market quantity demanded at $20 is: a.) 1. b.) 10. c.) 3. d.) 6.

b.) 10

*Population: 500 Number employed: 300 Number unemployed: 50 According to the table, what is the unemployment rate of this economy? a.) 10% b.) 14.3% c.) 16.67% d.) 25%

b.) 14.3% (number of unemployed / labor force)

Which of the following illustrates the paradox of thrift? a.) Consumer uncertainty causes people to save less; consumption rises; equilibrium income and production drop; savings drop because income is lower. b.) Consumer uncertainty causes people to save more; consumption drops; equilibrium income and production drop; savings drop because income is lower. c.) The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lower equilibrium income and production drop; savings drop because income is lower. d.) As businesses save more, interest rates fall, thus reducing household savings.

b.) Consumer uncertainty causes people to save more; consumption drops; equilibrium income and production drop; savings drop because income is lower.

Which of the following equations defines the expenditures approach to calculating GDP? a.) GDP = C + S b.) GDP = C + I + G + (X - M) c.) GDP = C + I + G + S d.) GDP = C + I + G

b.) GDP = C + I + G + (X - M)

When Mr. Wilson worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP? a.) GDP is unaffected by this change. b.) GDP falls as a result of this change. c.) GDP at first rises but then falls. d.) GDP rises as a result of this change.

b.) GDP falls as a result of this change.

Which of the following is a key idea in economic thinking? a.) Scarcity exists for the poor but not for the rich. b.) Incentives matter. c.) The value of a good can be objectively measured, and is the same for everyone. d.) All of these are key ideas in economic thinking.

b.) Incentives matter

Which of the following statements is CORRECT? a.) M2 measures assets primarily used as a medium of exchange. b.) M2 includes M1. c.) M1 includes assets primarily used as a means of saving. d.) The Federal Reserve discontinued reporting on M1 and M2 because they provide little insight into the state of the economy.

b.) M2 includes M1.

(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will become _____. a.) SRAS1; P0 b.) SRAS1; P1 c.) SRAS2; P1 d.) SRAS2; P2

b.) SRAS1; P1

Which of the following statements concerning the structure of the Federal Reserve System is CORRECT? a.) The Fed's Board of Governors consists of 12 members. b.) The chairman and vice-chairman of the Board of Governors are appointed by the president and confirmed by the Senate for terms of 4 years. c.) There are 10 regional Federal Reserve banks. d.) The Federal Open Market Committee (FOMC) has seven members.

b.) The chairman and vice-chairman of the Board of Governors are appointed by the president and confirmed by the Senate for terms of 4 years. (The Fed's Board of Governors consists of 7 members, there are 12 regional Federal Reserve banks, the Federal Open Market Committee (FOMC) has 12 members)

_____ is the change in consumption associated with a change in income. a.) The average propensity to consume b.) The marginal propensity to consume c.) The average propensity to save d.) The marginal propensity to save

b.) The marginal propensity to consume

Which one of the following is not correct regarding business cycles? a.) They occur periodically. b.) They are fairly uniform in length. c.) They have peaks and troughs. d.) They show that macroeconomic activity alternates between increases and decreases.

b.) They are fairly uniform in length.

Which of the following will NOT shift the aggregate supply curve to the left? a.) an increase in the minimum wage b.) a decrease in corporate taxes c.) an increase in the price of crude oil d.) an increase in the legislated amount of paid vacation

b.) a decrease in corporate taxes

*Which of the following assets is the LEAST liquid? a.) gold b.) a farm c.) money d.) silver

b.) a farm

After the acceptance of Keynesian analysis, government: a.) played a role in setting the interest rate only. b.) actions toward macroeconomic policy grew significantly. c.) reduced its role in the operation of the economy. d.) turned to communism as the only solution to the Great Depression.

b.) actions toward macroeconomic policy grew significantly.

(Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD2 to AD1(to the left)? a.) a tax cut b.) an increase in interest rates c.) an increase in government purchases d.) an improvement of consumer expectations about the future

b.) an increase in interest rates

*(GRAPH SHOWN: demand curve) (figure: interpreting demand curves) In the demand curve shown, an increase in price from $1 to $2 will: a.) cause the quantity demanded to rise from 20 to 30 units b.) cause the quantity demanded to fall from 30 to 20 units c.) created shortages d.) make buyers mad

b.) cause the quantity demanded to fall from 30 to 20 units

In the study of economics, the goals of efficiency and equity are often: a.) compatible. b.) conflicting with one another. c.) objectively definable. d.) given equal emphasis.

b.) conflicting with one another

*Agricultural price supports have: a.) caused lower prices for consumers b.) created surpluses c.) created shortages d.) left agricultural markets unaffected

b.) created surpluses

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____. a.) disposable income; saving b.) disposable income; consumption c.) saving; consumption d.) saving; investment

b.) disposable income; consumption

U.S. business cycles since 1950 have shown: a.) expansions to be just as lengthy as recessions. b.) expansions to be longer than recessions. c.) expansions to be shorter than recessions. d.) stable unemployment rates.

b.) expansions to be longer than recessions.

The U.S. gross domestic product is equal to the total market value of all: a.) intermediate goods and services produced by resources in the United States. b.) final goods and services produced by resources in the United States. c.) final goods and services produced by U.S. citizens in the United States. d.) intermediate goods and services produced by U.S. citizens in the United States.

b.) final goods and services produced by resources in the United States.

Producer surplus is defined as the: a.) gap between the demand curve and the market price. b.) gap between the supply curve and the market price. c.) difference between a price floor and the market price. d.) difference between a price ceiling and the market price.

b.) gap between the supply curve and the market price.

*Liquidity refers to: a.) how fast money can be transferred from one account to another account. b.) how quickly, easily, and reliably an asset can be converted into a medium of exchange. c.) how easily cash can be transported across national borders. d.) how fast money travels throughout the economy.

b.) how quickly, easily, and reliably an asset can be converted into a medium of exchange.

*In the simple Keynesian model, if desired investment is greater than desired saving: a.) the multiplier effect will move the economy to a lower income level. b.) income and output will rise. c.) interest rates will fall. d.) actual savings will fall as the economy moves to a lower output level.

b.) income and output will rise.

When the Fed buys bonds, its demand ____ the price of bonds, ____ nominal interest rates. a.) increases; increasing b.) increases; decreasing c.) decreases; increasing d.) decreases; decreasing

b.) increases; decreasing

A rising aggregate price level _______ an economy's interest rates and therefore _____ output demanded. a.) increases; increases b.) increases; reduces c.) reduces; increases d.) reduces; reduces

b.) increases; reduces

*The demand curve for loanable funds represents _____ and is _____. a.) investors; horizontal b.) investors; downward sloping c.) savers; horizontal d.) savers; downward sloping

b.) investors; downward sloping

The value of the cars that the Ford Motor Company produces in a German plant: a.) is a part of U.S. GDP. b.) is a part of U.S. GNP. c.) is a part of German GNP. d.) is not a part of German GDP.

b.) is a part of U.S. GNP.

Scarcity: a.) can be eliminated with adequate resources. b.) is faced by all individuals and societies. c.) is eliminated with greater technology. d.) is synonymous with poverty.

b.) is faced by all individuals and societies

If AE = $7,600 and Y = $8,000, businesses will produce: a.) more, raising both employment and income. b.) less, lowering both employment and income. c.) more, raising employment and lowering income. d.) less, lowering employment and raising income.

b.) less, lowering both employment and income.

The short-run aggregate supply curve is positively sloped because: a.) a short-run increase in GDP usually is accompanied by an increased rise in the price level. b.) many input prices are slow to change in the short run. c.) all variables are fixed in the short run. d.) a short-run increase in GDP usually is accompanied by a slower rise in the price level.

b.) many input prices are slow to change in the short run.

A theory composed of a number of assumptions and facts boiled down to their basic relevant elements is called a: a.) metaphor. b.) model. c.) conclusion. d.) practice.

b.) model

*Tom is living with his parents. He looks at the help wanted ads but has not replied to any in the past four weeks. Tom is: a.) unemployed b.) not in the labor force c.) temporarily in the labor force d.) near-employed

b.) not in the labor force

When the government chooses to use resources to build tourist centers, the chosen resources are no longer available to build highways. This BEST illustrates the concept of: a.) scarcity. b.) opportunity cost. c.) efficiency. d.) macroeconomics.

b.) opportunity cost

*A market exists when: a.) an absolute advantage is achieved by one country. b.) people exchange money for goods and services. c.) the cost of production is equated to price by a government agency. d.) a physical location is created to facilitate the exchange of personal information about consumer choices.

b.) people exchange money for goods and services

*The market economy is often called the price system because: a.) prices are often not known until after the transaction is completed b.) prices provide information for both buyers and sellers c.) by law, all prices must be publicized d.) prices become less important over time

b.) prices provide information for both buyers and sellers

Which is a determinant of aggregate supply? a.) interest rates b.) productivity c.) prices of substitutes d.) household expectations

b.) productivity

Other factors held constant, as the price of an iPad rises, the: a.) demand for iPads falls. b.) quantity demanded for iPads falls. c.) demand for iPads rises. d.) quantity demanded for iPads rises.

b.) quantity demanded for iPads falls

High taxes and/or heavy regulation: a.) can cause firms to boost production so they can cover the added costs. b.) raise costs of production so that the aggregate supply curve shifts to the left. c.) are not likely to affect firms' behavior, since they are more concerned about profit than taxes or regulation . d.) are likely to shift aggregate supply to the right.

b.) raise costs of production so that the aggregate supply curve shifts to the left.

*Which phase of the business cycle occurs immediately before a trough? a.) peak b.) recession c.) boom d.) recovery

b.) recession

Which phase of the business cycle typically follows immediately after the trough? a.) recession b.) recovery c.) peak d.) contraction

b.) recovery

When a financial institution provides a standardized financial product such as a mortgage, it is: a.) reducing information costs. b.) reducing transaction costs. c.) spreading risk. d.) preventing fraud.

b.) reducing transaction costs.

GDP can be found either by adding up all of the __________ or all of the __________ in the economy. a.) spending; taxes b.) spending; income c.) investment; income d.) net interest payments; taxes

b.) spending; income

If Jack Sparrow buries a chest of gold bullion on a deserted island and plans to come back later, then the gold is functioning as a: a.) unit of account. b.) store of value. c.) medium of exchange. d.) barter tool.

b.) store of value.

Which organization determines the beginning and end dates of a recession? a.) the Council of Economic Advisers b.) the National Bureau of Economic Research c.) the U.S. Treasury Department d.) the Federal Reserve Board of Governors

b.) the National Bureau of Economic Research

*Demand refers to: a.) consumers wanting a product so much that they insist on it. b.) the goods and services buyers are willing and able to purchase at various prices in a given period of time. c.) the amount consumers wish they could consume. d.) the relationship between price and quantity that sellers bring to the market

b.) the goods and services buyers are willing and able to purchase at various prices in a given period of time.

Supply is defined as: a.) the maximum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant. b.) the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant. c.) the minimum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant. d.) the minimum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant.

b.) the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant

*______ is a measure of the changes in the average prices received by domestic producers for their output. a.) the consumer price index b.) the producer price index c.) personal consumption expenditure d.) the GDP deflator

b.) the producer price index

At any price below the equilibrium price: a.) the quantity demanded equals the quantity supplied in the market. b.) the quantity demanded exceeds the quantity supplied in the market. c.) demand exceeds supply in the market. d.) the quantity demanded is less than the quantity supplied in the market.

b.) the quantity demanded exceeds the quantity supplied in the market

As the real interest rate falls: a.) the demand for loanable funds rises. b.) the quantity demanded of loanable funds rises. c.) the demand for loanable funds falls. d.) less funds are demanded.

b.) the quantity demanded of loanable funds rises

*Zach has been laid off from his job as an aircraft worker and is afraid that he will not be recalled. He has been actively looking for a job but has had no luck for the past six weeks. According the the Bureau of Labor Statistics, Zach is: a.) employed b.) unemployed c.) a discouraged worker d.) not in the labor force

b.) unemployed He is actively looking for a job and it does not tell us that he has given up on this quest.

*Macroeconomics is concerned with issues such as: a.) which orange juice to buy. b.) unemployment. c.) which job to take. d.) what price to charge for goods.

b.) unemployment

In order for self interest to be an effective institution of capitalism, people must:

be RATIONAL THINKERS and attempt to obtain the most amount of satisfaction for the least amount of sacrifice or cost.

Which one of the following statements concerning GDP is not correct? a. It can be found by adding up all of the spending in the economy. b. It can be found by adding up all of the income in the economy. c. It incorporates environmental benefits or harm. d. It overstates sustainable output because it does not subtract depreciation.

c. It incorporates environmental benefits or harm.

Which of the following purchases would NOT be included in GDP? a. a $30 oil change from a car mechanic b. a $50 carpet stain removal from a cleaning service company c. a $20 lamp from a garage sale d. a $10 lunch from a cafeteria

c. a $20 lamp from a garage sale

GDP Expenditures for 2010 Expenditure Billions Personal consumption $10,353.5 Gross private domestic investment 1,769.1 Exports 1,746.1 Imports 2,251.5 Government purchases 2,975.1 Capital consumption allowance 1,030.2 According to the table, GDP for 2010 was: a.) $15,603.1 billion. b.) $16,843.8 billion. c.) $14,592.3 billion. d.) $13,562.1 billion.

c.) $14,592.3 billion.

*A lawyer can argue a case in court for one hour and make $300. She could alternatively use that hour of time to type a legal brief in her office. What is the opportunity cost of her typing the legal brief? a.) nothing, since she would never type a legal brief b.) nothing, since she would always hire an administrative assistant to type for her c.) $300, since that is the amount she could have made by arguing a case in court d.) There is not enough information in this problem to be able to answer the question.

c.) $300, since that is the amount she could have made by arguing a case in court

*If $1,000 additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of ______ in income or output. a.) $800 b.) $1,000 c.) $5,000 d.) $8,000

c.) $5,000

If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output. a.) $800 b.) $1,000 c.) $5,000 d.) $8,000

c.) $5,000 (1 / (1 - 0.8)) * $1,000 = $5,000

*If the reserve requirement is 10%, a withdrawal of $500 leads to a potential decrease in the money supply of: a.) $50. b.) $2,500. c.) $5,000. d.) $4,500.

c.) $5,000.

The U.S. median household income in 2013 was about: a.) $20,000. b.) $35,000. c.) $55,000. d.) $85,000.

c.) $55,000.

(2014: Nominal GDP= $8511 billion, & GDP deflator= 112.7) According to the table, real GDP for 2014 is approximately: a.) $6,552 billion. b.) $7,052 billion. c.) $7,552 billion. d.) $8,052 billion.

c.) $7,552 billion. (8511/1.127= 7,552)

*Nominal GDP (billions of $) 2012: $7,280 2013: 2014: $8,000 Real GDP (billions of $) 2012: $7,280 2013: $7,425 2014: GDP deflator 2012: 2013: 103.6 2014: 106.1 According to the table, nominal GDP for 2013 is approximately: a.) $7,292 billion b.) $7,492 billion c.) $7,692 billion d.) $7892 billion

c.) $7,692 billion (real GDP * GDP deflator in decimal form)

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase? a.) $11,000 b.) $1,000 c.) $900 d.) $100

c.) $900

Assets Vault Cash: $2,500 Deposits at the Federal Reserve: $7,500 Loans: $90,000 Liabilities and Net Worth Deposits: $100,000 This bank's reserve ratio is: a.) 0.025. b.) 0.075. c.) 0.10. d.) 0.25.

c.) 0.10

*If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is: a.) 80 b.) 110 c.) 125 d.) 150

c.) 125 (nominal GDP / real GDP)* 100

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflator in 2014 is: a.) 80. b.) 110. c.) 125. d.) 150.

c.) 125. (20,000/16,000= 1.25)

*If the marginal propensity to save is 0.2, how much is the spending multiplier? a.) 0.8 b.) 1.25 c.) 5 d.) 8

c.) 5

United States Coffee 25 20 15 10 5 0 Tea 0 2 4 6 8 10 Japan Coffee 58 38 25 15 7 0 Tea 0 3 10 20 35 60 The table shows coffee and tea units produced for the United States and Japan. If Japan decides to increase production of tea from 20 units to 35 units, the opportunity cost is: a.) 15 units of tea. b.) 10 units of tea. c.) 8 units of coffee. d.) 10 units of coffee.

c.) 8 units of coffee.

*(graph that shows an "x" on the production possibilities curve) *Which of the following is NOT correct regarding the combination X? a.) The combination is productively efficient b.) Society might judge other combinations on the line to be preferable to X c.) Because it's on the line, combination X has no opportunity cost d.) the combination might not be allocatively efficient

c.) Because it's on the line, combination X has no opportunity cost

Which of the following is NOT an example of market failure? a.) Water is polluted by a paper company located by a river. b.) Air is polluted by a manufacturing firm. c.) Competition leads firms to provide products at the lowest possible price. d.) Consumers must buy water from one local water utility.

c.) Competition leads firms to provide products at the lowest possible price

*Why is it important for students to study economics? a.) Most students will work as professional economists b.) It helps us reduce our personal income taxes c.) It helps us make better and wiser decisions, given our limited resources d.) There is no long-term benefit to studying economics

c.) It helps us make better and wiser decisions, given our limited resources

Which one of the following statements about NIPA is not correct? a.) It helps economists compare U.S. income and output to that of other nations. b.) It tracks the economy's progress over the course of the business cycle. c.) It is put together by the National Bureau of Economic Research. d.) It began in the 1930s

c.) It is put together by the National Bureau of Economic Research.

*Which of the following best illustrates the wealth effect? a.) Jacob saved $25,000, which he put in the stock market. The market suddenly did very well, and though Jacob is not yet aware of it, his stock portfolio value rose to $36,000. b.) Simon felt he needed at least $800,000 to retire comfortably. He increased his saving to build up his wealth. c.) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished. d.) Margaret had her savings in treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

c.) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished.

*What would be the effect on the equilibrium price and equilibrium quantity of new housing if mortgage interest rates rise and the costs of building a house rise simultaneously? a.)The equilibrium price will fall but the equilibrium quantity cannot be predicted. b.) The equilibrium price will rise and the equilibrium quantity will fall. c.) The equilibrium price cannot be predicted but the equilibrium quantity will fall. d.)The equilibrium price and the equilibrium quantity will fall.

c.) The equilibrium price cannot be predicted but the equilibrium quantity will fall.

*Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones rises and (2) customers begin to prefer Android-platform smart phones over iPhones. What happens to equilibrium price and equilibrium quantity? a.) The equilibrium price and the equilibrium quantity fall b.) The equilibrium price falls, but the equilibrium quantity is indeterminate c.) The equilibrium price is indeterminate and the equilibrium quantity falls d.) the equilibrium prices rises, but the equilibrium quantity is indeterminate

c.) The equilibrium price is indeterminate and the equilibrium quantity falls

*Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones falls and (2) the price of smart-phone data plans fall. What happens to equilibrium price and equilibrium quantity? a.) The equilibrium price and the equilibrium quantity rise b.) The equilibrium price falls, but the equilibrium quantity is indeterminate c.) The equilibrium price is indeterminate and the equilibrium quantity rises d.) the equilibrium prices rises, but the equilibrium quantity is indeterminate

c.) The equilibrium price is indeterminate and the equilibrium quantity rises

Which is TRUE about specialization and exchange between two individuals? a.) They generally benefit the poorer individual at the expense of the richer individual. b.) They generally benefit the richer individual at the expense of the poorer individual. c.) They generally benefit the poorer individual as well as the richer individual. d.) They generally benefit neither the poorer individual nor the richer individual.

c.) They generally benefit the poorer individual as well as the richer individual

Which of the following persons is considered to be unemployed? a.) Ahmed, who is on vacation b.) Sarah, who is on strike duty c.) Tiffany, who is going on interviews, hoping to get her first job d.) Carmen, who works three days a week at her father's business but is not paid

c.) Tiffany, who is going on interviews, hoping to get her first job

*Which is NOT a basic economic question that societies must answer? a.) What goods and services are to be produced? b.) How are the goods and services to be produced? c.) Why are these goods and services being produced? d.) For whom are the goods and services being produced?

c.) Why are these goods and services being produced?

Simultaneous recession and deflation can be explained by: a.) an increase in aggregate supply. b.) a rise in aggregate demand. c.) a drop in aggregate demand. d.) a decrease in aggregate supply.

c.) a drop in aggregate demand.

What would cause a shift of the demand curve for honey to the right? a.) a decrease in the price of honey b.) a new virus that decimates the bee population c.) a new study that shows that honey cures cancer d.) a decrease in population

c.) a new study that shows that honey cures cancer

*The curve that shows how much GDP is demanded at various price levels is called: a.) the aggregate expenditures schedule b.) the consumption line c.) aggregate demand d.) aggregate supply

c.) aggregate demand

*According to John Maynard Keynes, what determines employment and income? a.) aggregate supply b.) government spending alone c.) aggregate expenditures d.) wages, prices, and interest rates

c.) aggregate expenditures

*The collapse of home values that began in 2008 led to _____ in Americans' saving rates, shifting aggregate demand to the _____. a.) a decrease; left b.) a decrease; right c.) an increase; left d.) an increase; left

c.) an increase; left

*Which of the following goods is NOT typically considered a public good? a.) a lighthouse b.) national defense c.) bottled water d.) clean air

c.) bottled water

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the: a.) production possibilities frontier. b.) supply and demand model. c.) circular flow diagram. d.) classical model.

c.) circular flow diagram.

Which of the following is an example of an inferior good? a.) gasoline b.) T-bone steak c.) city bus d.) clothing

c.) city bus

The limits on international trade include all the following, EXCEPT: a.) transportation and communication costs. b.) increasing opportunity costs and diminishing returns. c.) decreasing opportunity costs and increasing returns. d.) Trade may hurt some industries and individuals within each country.

c.) decreasing opportunity costs and increasing returns

If the cost of a typical market basket in 2019 is 400 and the cost of a typical market basket in 2020 is 390, then during this period the economy is undergoing: a.) inflation. b.) disinflation. c.) deflation. d.) hyperinflation.

c.) deflation.

Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as: a.) the invisible unemployed. b.) temporary workers. c.) discouraged workers. d.) the disgruntled unemployed.

c.) discouraged workers.

*The purpose of an economic model is to: a.) be a complex, exact replica of reality b.) demonstrate which values and beliefs are best for the economy c.) explain the behavior of the issue being examined d.) manage the economy like an automatic pilot

c.) explain the behavior of the issue being examined

If Abigail withdraws $300 cash from her checking account, then her bank's assets: a.) do not change, but its liabilities fall by $300. b.) fall by $300, but its liabilities do not change. c.) fall by $300, and its liabilities fall by $300. d.) fall by $300, and its liabilities rise by $300.

c.) fall by $300, and its liabilities fall by $300.

Suppose while households are deciding to increase saving, the demand by firms for investment funds falls. In the market for loanable funds the real interest rate will ___ and the quantity of loanable funds will _____. a.) rise; fall b.) rise; rise c.) fall; rise, fall, or stay the same d.) rise, fall, or stay the same; rise.

c.) fall; rise, fall, or stay the same

Core inflation is found by removing _________ from the consumer price index. a.) housing b.) medical care c.) food and energy d.) producer prices

c.) food and energy

The GDP deflator is an index that includes prices of all but: a.) consumer goods. b.) investment goods. c.) imports. d.) government goods and services.

c.) imports.

Supply and demand analysis is used: a.) only in microeconomics. b.) only in macroeconomics. c.) in both microeconomics and macroeconomics. d.) in neither microeconomics nor macroeconomics.

c.) in both microeconomics and macroeconomics

Monetary policy involves all of the following EXCEPT: a.) increases in bank reserves. b.) increases in interest rates. c.) increases in personal taxes. d.) increase in buying securities.

c.) increases in personal taxes.

What would it mean if the PPF moved closer towards the origin? a.) increasing the labor force b.) improving the skills of the workers c.) increasing government regulation on businesses overall d.) increasing the population

c.) increasing government regulation on businesses overall

The twin perils of the modern macroeconomy are said to be: a.) government and the trade deficit. b.) unemployment and the trade surplus. c.) inflation and unemployment. d.) inflation and the trade deficit.

c.) inflation and unemployment.

*A laissez-faire approach to the question of "how to produce" would be found in a: a.) socialist economy b.) communist economy c.) market economy d.) planned economy

c.) market economy

A good example of a government imposed price floor is: a.) rent controls. b.) supply and demand. c.) minimum wage. d.) equilibrium.

c.) minimum wage.

*There is a(n) _____ relationship between price and quantity demanded a.) indeterminate b.) positive c.) negative d.) indeterminate, positive, and negative

c.) negative

Traditional Individual Retirement Accounts (IRAs) are taxed: a.) when you make contributions and again when you make withdrawals. b.) only when you make contributions. c.) only when you make withdrawals. d.) Traditional IRAs are never taxed.

c.) only when you make withdrawals.

*The main tool of monetary policy is: a.) the discount rate. b.) capital gains taxes. c.) open market operations. d.) the reserve requirements.

c.) open market operations.

If the government of Spain decides to spend less on the military and more on health care, the forgone spending on military items represents the: a.) cost factor of the extra health care. b.) production efficiency of the extra health care. c.) opportunity cost of the extra health care. d.) allocative cost of the extra health care.

c.) opportunity cost of the extra health care

*Economics is BEST defined as the study of how: a.) to classify resources used to produce final goods and services. b.) resources are apportioned to satisfy human wants. c.) people make rational decisions. d.) technology can be used to change scarce resources into free resources.

c.) people make rational decisions

*Economics is BEST defined as the study of how: a.) to classify resources used to produce final goods and services. b.) resources are apportioned to satisfy human wants. c.) people make rational decisions. d.) technology can be used to change scarce resources into free resources.

c.) people make rational decisions.

"Price gouging" laws are types of _____ and often result in _____. a.) price ceilings; sufficient supply of a scarce good b.) price floors; sufficient supply of a scarce good c.) price ceilings; shortages of a scarce good d.) price floors; surpluses of a scarce good

c.) price ceilings; shortages of a scarce good

Which of the following is NOT included in gross private domestic investment? a.) construction of residential housing b.) new equipment purchased by businesses c.) purchases of common stock by investors d.) an increase in business inventories

c.) purchases of common stock by investors

Which is NOT a source of economic growth? a.) increasing business investment b.) increasing research and development c.) reducing the level of international trade d.) reducing the variability of inflation

c.) reducing the level of international trade

*Increased consumer confidence will shift the aggregate demand curve to the ______ and ______ output demanded. a.) left; decrease b.) left; increase c.) right; increase d.) right; increase

c.) right; increase

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded. a.) left; decrease b.) left; increase c.) right; increase d.) right; decrease

c.) right; increase

If oil prices decrease, the short-run aggregate supply curve shifts _____ and output supplied will be _____. a.) left; increased b.) left; reduced c.) right; increased d.) right; reduced

c.) right; increased

*At point A: a.) saving is $20. b.) consumption is zero. c.) saving is zero. d.) consumption exceeds income by $20.

c.) saving is zero.

Which of the following lists represents monetary policy actions that are consistent with one another? a.) buy government bonds, raise reserve requirements, raise the discount rate b.) sell government bonds, raise reserve requirements, lower the discount rate c.) sell government bonds, raise reserve requirements, raise the discount rate d.) buy government bonds, lower reserve requirements, raise the discount rate

c.) sell government bonds, raise reserve requirements, raise the discount rate

*The best definition of externalities is: a.) the cost associated with consumption of one more unit b.) accurate information c.) the economic effects of individual actions on third parties d.) the right to own private property

c.) the economic effects of individual actions on third parties

Firms decide how much to invest by comparing the rate of return on their projects with: a.) their total profit. b.)the productivity of the workers assigned to the projects. c.) the interest rate. d.) before-tax rate of return.

c.) the interest rate.

Cost-push inflation is a situation in which: a.) the short-run aggregate supply curve shifts rightward. b.) the aggregate demand curve shifts rightward. c.) the short-run aggregate supply curve shifts leftward. d.) the aggregate demand curve shifts leftward.

c.) the short-run aggregate supply curve shifts leftward.

reserve ratio=

commercial bank's required reserves / commercial bank's DD liabilities

M1 =

currency + checkable deposits

Macroeconomics studies: a. the most important factors in determining economic growth. b. the causes of employment and unemployment. c. economic activity from a broad perspective. d. All of the above.

d. All of the above.

Median household income in the United States was about $55,000 in 2013. This indicates that in 2013: a. GDP divided by the number households equaled $55,000. b. About half of all households had an income equal to $55,000. c. All households with an income below $55,000 were officially poor. d. Half of all households had an income above $55,000, and half of all households had an income below $55,000.

d. Half of all households had an income above $55,000, and half of all households had an income below $55,000.

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is: a.) $0.2 trillion. b.) $0.05 trillion. c.) -$0.2 trillion. d.) $0.1 trillion.

d.) $0.1 trillion.

If the reserve requirement is 2.5% and a bank initially receives $30,000 in deposits from the Fed, then the maximum amount of money that the banking system can create is: a.) $750 b.) $1,500 c.) $30,000 d.) $1.2 million

d.) $1.2 million 1/.025 = 40 40 (30,000)= 1.2 million

*If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: a.) $160. b.) $180. c.) $150. d.) $140.

d.) $140.

If a person borrows $2,000 at 5% interest and never makes any payments, how much will the loan balance be after five years? a.) $2,250 b.) $2,500 c.) $2,255.55 d.) $2,552.56

d.) $2,552.56 (2000 (1.05)^5)

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, personal income is: a.) $2,807 billion b.) $2,985 billion c.) $2,120 billion d.) $3,660 billion

d.) $3,660 billion PI= NI - (ind. bus tax + ss tax + corp taxes + retained earnings) + transfer payments $4,020 - ($445 + $295 + $190 + $210) + $780 = $3,660

Jonathan purchased coffee for $5 at Jennifer's coffee shop; however, he was willing to pay $9. Jennifer was willing to accept $3 for the coffee. The results of this transaction are a consumer surplus of: a.) $12 and a producer surplus of $10. b.) $10 and a producer surplus of $12. c.) $2 and a producer surplus of $4. d.) $4 and a producer surplus of $2.

d.) $4 and a producer surplus of $2.

*National income accounts Expenditures for consumer goods and services: $2,850 Exports: $300 Government purchases of goods and services: $810 Social security taxes: $295 Net investment: $510 Indirect business taxes: $445 Imports: $450 Gross investment: $700 Corporate income taxes: $190 Personal income taxes: $875 Corporate retained earnings: $210 Government transfer payments to households $780 Net foreign factor income $0 On the basis of Table 5.2, net domestic product is: a.) $4,400 billion b.) $2,090 billion c.) $4,210 billion d.) $4,020 billion

d.) $4,020 billion (NDP = GDP - depreciation or capital consumption allowance) **depreciation = Gross investment - Net investment **$700 - 510 = 190 $4,210 - 190 = $4,020

Which of the following items would be included in the GDP accounts? a.) personal time spent learning how to use accounting software b.) personally rotating the tires on your neighbor's car c.) caring for your aged grandmother at home d.) $50 consultation on the phone with a psychic adviser

d.) $50 consultation on the phone with a psychic adviser

If your salary was $50,000 last year and this year you receive a cost-of-living increase tied to the consumer price index (CPI), what will your salary be, assuming the CPI has risen from 110 to 114? a.) $49,114 b.) $50,114 c.) $50,300 d.) $51,818

d.) $51,818 (4/110= .0363), (.0363*50,000= 1,818) (1,818+50,000= 51,818)

*Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How much money can the banking system create? a.) $1,500 b.) $0 c.) $1,125 d.) $6,000

d.) $6,000 (1/.25)=4 4 ( 1,500)= 6,000

Income:.......Consumption: $0 ............. $250 $500...........$700 $1,000........$1,150 $1,500........$1,600 $2,000........$2,050 $2,500........$2,500 The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is: a.) 0.25 b.) 0.75 c.) 0.8 d.) 0.9

d.) 0.9

*Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is: a.) 79.6 b.) 120.0 c.) 82.4 d.) 121.4

d.) 121.4 (price / base year's price * 100)

Population: 500 Number employed: 300 Number unemployed: 50 According to the table, if 50 discouraged workers suddenly decide to start actively seeking employment again, what will be the unemployment rate of this economy? a.) 10% b.) 14.3% c.) 16.67% d.) 25%

d.) 25%

The Fed's monetary policies, like fiscal policy, are subject to _____ lags. a.) information b.) implementation c.) decision d.) All of the answers are correct.

d.) All of the answers are correct.

Rational behavior requires "thinking at the margin." Which of the following is an example of this type of thinking? a.) deciding whether a second burger is worth the extra $2 b.) deciding whether your overtime pay is worth working on Saturday (your day off) c.)deciding whether to pay a fine for polluting the local harbor or installing antipollution machinery d.) All of these are examples of "thinking at the margin."

d.) All of these are examples of "thinking at the margin"

Which of the following may be an explanation for the shift in aggregate demand from A to B? a.) Prices fall and increase real wealth. b.) Consumer confidence drops and consumption spending falls. c.) Goods and services become less competitive and exports fall. d.) Interest rates fall and boost investment.

d.) Interest rates fall and boost investment.

_______________ occurs when goods and services are produced at their lowest resource cost, while _________________ occurs when the mix of goods and services produced is the most desired by society. a.) Allocative efficiency; production efficiency b.) Production efficiency; social efficiency c.) Allocative efficiency; social efficiency d.) Production efficiency; allocative efficiency

d.) Production efficiency; allocative efficiency

Which one of the following is not an aspect of business cycles? a.) They vary in length and intensity. b.) The National Bureau of Economic Research (NBER) officially dates the "turning points" in the business cycle. c.) They chart the way aggregate economic activity fluctuates between increases and decreases. d.) They show how the macroeconomy winds up exactly where it started from, again and again throughout the past century

d.) They show how the macroeconomy winds up exactly where it started from, again and again throughout the past century

When a scarce good or resource is consumed by the person who does not value it most, economists refer to the situation as: a.) the allocation of resources. b.) equity. c.) efficiency. d.) a misallocation of resources.

d.) a misallocation of resources.

What would cause the price level to decrease and employment to increase? a.) a shift to the left of the AD curve b.) a shift to the right of the AD curve c.) a shift to the left of the SRAS curve d.) a shift to the right of the SRAS curve

d.) a shift to the right of the SRAS curve

*All of the following are functions of money EXCEPT: a.) a medium of exchange. b.) a unit of account. c.) a store of value. d.) a standard value.

d.) a standard value.

* (graph showing an aggregate demand curve shifting right) The graph shows: a.) a decrease in aggregate quantity supplied b.) an increase in aggregate quantity supplied c.) a decrease in aggregate demand d.) an increase in aggregate demand

d.) an increase in aggregate demand

Which one of the following will cause the supply of loanable funds curve to shift leftward? a.) lowering of firms' expectations about the economy b.) an increase in government regulations that make plant expansion difficult c.) an increase in asset prices leading to a decrease in purchases of stocks and bonds d.) an increase in the government deficit

d.) an increase in the government deficit

Which is NOT a way financial institutions reduce risk? a.) by performing credit checks on borrowers b.) by diversifying funds c.) by collecting information helpful for risk assessment d.) by guaranteeing a high rate of return for all lenders

d.) by guaranteeing a high rate of return for all lenders

*Macroeconomics focuses on: a.) decisions made by individuals b.) decisions made by firms c.) the decision to purchase a new home for a family d.) decisions for the entire economy

d.) decisions for the entire economy

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income: a.) increases by $10 billion. b.) increases by $2.5 billion. c.) decreases by $5 billion. d.) decreases by $10 billion.

d.) decreases by $10 billion. (2* (-$5 billion)= - $10 billion)

*The two approaches used by government in estimating GDP are: a.) statistical and nonstatistical b.) survey and nonsurvey c.) income and earnings d.) expenditure and income

d.) expenditure and income

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living: a.) rose by about 1%. b.) rose by about 2%. c.) fell by about 3%. d.) fell by about 1%.

d.) fell by about 1%.

*In a market economy, product prices do NOT help determine how: a.) consumers decide whether to buy or not buy b.) firms employ their resources c.) firms decide which production technology to use d.) governments allocate their resources

d.) governments allocate their resources

Which of the following items is NOT included in the GDP deflator? a.) bubble gum b.) turbines c.) fire engines d.) imported mangoes

d.) imported mangoes

Which one of the following would NOT lead to higher prices? a.) strong consumer demand b.) higher gas prices c.) an increase in the supply of money d.) increases in the supply of food

d.) increases in the supply of food

We are most likely to see a recession if interest rates on long-term bonds are: a.) higher than interest rates on short-term bonds. b.) the same as interest rates on short-term bonds. c.) rising. d.) lower than interest rates on short-term bonds.

d.) lower than interest rates on short-term bonds.

*The field of economics that focuses on decision-making by individuals, businesses, industries, and government is called: a.) macroeconomics b.) decision science c.) mini-economics d.) microeconomics

d.) microeconomics

*Jordan lost his job as an airline pilot and has not been able to find another job as a pilot. Since he is old enough to be eligible for his pension, he decides to retire and devote himself to caring for his elderly parents. According to the Bureau of Labor Statistics, Jordan is: a.) employed b.) unemployed c.) a discouraged worker d.) not in the labor force

d.) not in the labor force

Full employment: a.) is an unemployment rate of zero. b.) consists of frictional and cyclical unemployment. c.) consists of structural and cyclical unemployment. d.) occurs if cyclical unemployment is zero.

d.) occurs if cyclical unemployment is zero.

Which of the following would NOT be a market transaction? a.) payment for purchase of shares at a stock exchange b.) payment for a used book purchased on eBay c.) payment for a soft drink at a vending machine d.) payment made to a disaster victim

d.) payment made to a disaster victim

*The high point of the business cycle is called the: a.) trough b.) expansion c.) recession d.) peak

d.) peak

*On a demand curve: a.) price is on the vertical axis and the number of buyers is on the horizontal axis b.) price is on the horizontal axis and quantity demanded is on the vertical axis c.) determinants of demand are on the horizontal axis and price is on the vertical axis d.) price is on the vertical axis and quantity demanded is on the horizontal axis

d.) price is on the vertical axis and quantity demanded is on the horizontal axis

* In a pure market economy, the government's primary roles do NOT include: a.) protecting property rights. b.) enforcing contracts between private parties. c.) providing public goods such as national defense. d.) reallocating resources across the economy

d.) reallocating resources across the economy

The theory of comparative advantage says that countries: a.) should restrict trade by cutting off all imports. b.) should import those goods they can produce at a lower opportunity cost than another country. c.) can never benefit from specialization in trade. d.) should export those goods they can produce at a lower opportunity cost than another country.

d.) should export those goods they can produce at a lower opportunity cost than another country

If a product becomes obsolete and the workers who produced that product will need additional training to find new jobs, then they are experiencing: a.) frictional unemployment. b.) cyclical unemployment. c.) full unemployment. d.) structural unemployment.

d.) structural unemployment.

*A point on the nation's production possibilities frontier indicates: a.) an undesirable combination of goods and services b.) combinations of output that are unattainable, given the current stock of resources and technology c.) levels of production that will cause both unemployment and inflation d.) that resources are fully utilized in producing as a given combination of goods and services

d.) that resources are fully utilized in producing as a given combination of goods and services

If banks increase excess reserves to increase their ability to absorb a higher rate of defaults: a.) the potential multiplier will rise. b.) the potential multiplier will fall. c.) the actual multiplier will rise. d.) the actual multiplier will fall.

d.) the actual multiplier will fall.

If a government always balances its budget: a.) the economy can never slide into a recession. b.) raising taxes has no net effect on total spending. c.) economic growth is spurred by showing businesses that budgets can be balanced. d.) the effect of an increase in government spending on aggregate expenditures is weakened.

d.) the effect of an increase in government spending on aggregate expenditures is weakened.

The opportunity costs of attending college do NOT include: a.) required student activity fees. b.) the forgone wages that could have been earned working. c.) the costs of textbooks or eBooks. d.) the expenditures for food.

d.) the expenditures for food

*Market failure means that: a.) the market has crashed b.) the market has more buyers than sellers c.) some firms that were in the industry have gone bankrupt d.) the market has not provided a socially optimal amount of goods and services

d.) the market has not provided a socially optimal amount of goods and services

*According to the law of demand, people buy more of a good when: a.) their income rises b.) the price rises c.) the relative price rises d.) the price falls

d.) the price falls

The discount rate is: a.) now set below the federal funds rate. b.) the interest rate banks charge one another when they lend or borrow reserves. c.) the Fed's most effective monetary policy tool. d.) the rate regional Federal Reserve banks charge depository institutions to borrow reserves.

d.) the rate regional Federal Reserve banks charge depository institutions to borrow reserves.

*The graph shows the supply and demand for loanable funds. If the market interest rate is 3%: a.) the market will reach equilibrium only if lenders decide to save more. b.) more funds will be demanded by firms than supplied by households. c.) there will be pressure for the interest rate to rise. d.) there will be an excess supply of funds.

d.) there will be an excess supply of funds.

Flu vaccination shots provide external benefits. Thus: a.) too many flu vaccination shots are given. b.) the private market provides the socially desirable output of shots. c.) the private market collapses. d.) too few flu vaccination shots are given.

d.) too few flu vaccination shots are given.

The measure of society's benefits due to a market transaction is called: a.) consumer surplus. b.) deadweight loss. c.) producer surplus. d.) total surplus.

d.) total surplus.

*when economists say that all societies face scarcity, they are describing: a.) free lunches b.) unlimited resources c.) unlimited wants d.) tradeoffs society must make

d.) tradeoffs society must make

10. What is the low point of a business cycle? a.) recession b.) depression c.) contraction d.) trough

d.) trough

An economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle. a.) expansion b.) recovery c.) contraction d.) trough

d.) trough

If an economy is operating at a point that is inside of its production possibilities frontier, then it can be assumed that its resources are: a.) misallocated. b.) overutilized. c.) fully utilized. d.) underutilized.

d.) underutilized

*Scarcity is BEST defined as when: a.) the quantity demanded exceeds quantity supplied. b.) the quantity supplied exceeds quantity demanded. c.) unlimited resources exceed limited wants. d.) unlimited wants exceed limited resources.

d.) unlimited wants exceed limited resources.

*Business cycles are: a.) always the same duration b.) are always the same magnitude c.) are always the same duration and magnitude d.) vary in duration and magnitude

d.) vary in duration and magnitude

*Because of scarcity: a.) resources are limitless. b.) wants are limited. c.) choices are unlimited. d.) we face tradeoffs in nearly every choice we make.

d.) we face tradeoffs in nearly every choice we make

Which of the following is a case when the government should intervene in the economy? a.) when consumers cannot make up their minds what they want to purchase b.) when sellers make poor business decisions c.) when producers use the least-cost methods of production d.) when the market fails to provide goods efficiently

d.) when the market fails to provide goods efficiently

*reasons to study economics include all of the following, EXCEPT that you: a.) will always live in a world of scarcity and choices b.) will understand more about how governments and businesses interact c.) may become a better prepared voter d.) will learn exactly how to invest your cash short-term for the highest return on investment

d.) will learn exactly how to invest your cash short-term for the highest return on investment

The price index during the base year

is always 100%

An economy has said to have reached economic efficiency when:

it is producing that combination of goods and servieces that people prefer, given their incomes.

*The Fed's Board of Governors consists of ______ members who are appointed by the _________ and confirmed by the ________.

seven; President; Senate

tradeoff

the cost of choosing one objective over another

the following was found online

the following was found online

If buyers want to buy less than sellers have available,

the prices of that good will fall, this will encourage buyers to purchase more of it.

If buyers want to buy more than sellers have available,

the prices of that good will rise encouraging the suppliers to produce more.

Decisions involve:

trade-offs (every decision entails a choice between alternatives)

Federal Reserve board members serve for ______ years, but the chair serves for ______. A) 4; 14 years B) 14; 4 years C) 4; 4 years D) 14; life

B) 14; 4 years

*If the reserve requirement is 20%, the money multiplier is: A) 4. B) 5. C) 0.2. D) 0.8.

B) 5.

*The Federal Open Market Committee is responsible for: A) setting interest rates. B) running the check-clearing process. C) overseeing the buying and selling of government securities in the open market. D) reducing the Fed's reliance on open market operations.

C) overseeing the buying and selling of government securities in the open market.

Which of the following did classical economists believe would happen if the product markets accrued surpluses? A.) Prices would rise. B.) Interest rates would rise. C.) Wage rates would fall. D.) The government would fix things.

C.) Wage rates would fall.

NDP=

GDP- capital consumption allowance

A firm, industry, or economic system is said to have achieved technical efficiency when:

It is producing maximum output by making the fullest possible utilization of available inputs. The available resources are said to be, "fully employed".

The functions of the government in a market as identified by Laissez-faire

Maintaining order Defining property rights Enforcing contracts Promoting competition Issuing money Deciding disputes over the interpretation of rules etc.

NI=

NDP+ Net FOREIGN income abroad

PI=

NI - (ind. bus. tax + SS tax + corp tax + undistributed corp profits) + transfer payments NI - (Industry business taxes + Social Security taxes + Corporate taxes + undistributed corporate profits) + transfer payments

Refers to GDP in actual market price as they exist each year. It reflects current prices. It is a value of goods and services produced in a given year valued at that year's price. It is GDP that hasn't been adjusted for changes in the price level.

Nominal (constant) GDP

Refers to the GDP in actual prices of a previous year, or the average of actual prices in some previous years. It is the value of the final goods & services corrected for inflation/deflation for price level changes. It measures actual production.

Real (adjusted) GDP

Nominal GDP=

Real GDP * price index (decimal)

Store of value

The function that enables people to save the money they earn today and use it to buy the goods and services they want tomorrow.

If actual unemployment is at its natural rate: a.) inflation is very low. b.) there is deflation. c.) the unemployment rate is zero. d.) interest rates are rising.

a.) inflation is very low.

*The "what" question primarily refers to: a.) the set of goods and services that are produced b.) production efficiency c.) whether the goods are produced under a communist system or a democratic system d.) who gets what

a.) the set of goods and services that are produced

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume? a.) 0.4 b.) 0.6 c.) 1.2 d.) 2.5

b.) 0.6

In the Keynesian model, the principal determinant of saving is: a.) interest rates. b.) income. c.) tax rates. d.) investment.

b.) income.

Population: 500 Number employed: 300 Number unemployed: 50 According to the table, what is the labor force of this economy? a.) 50 b.) 300 c.) 350 d.) 500

c.) 350

The shift in aggregate demand depicted (to the left) may be due to a(n): a.) increase in consumer confidence. b.) decrease in interest rates. c.) increase in income taxes. d.) increase in exports.

c.) increase in income taxes.

The 45-degree line in the Keynesian model represents: a.) AE = C. b.) AE = G. c.) AE = I. d.) AE = Y.

d.) AE = Y.

The goal of Equity says income distribution should be ________ not _________.

fair/just; equal