Econ 202 WVU exam 3

Table: Statistics for a Small Economy Item Value in dollars ($) Cash held by public 7 million Small-time deposits 30 million Money market mutual funds 18 million Checkable deposits 36 million Currency & total reserves at the Fed 12 million Large-time deposits 20 million Demand deposits 14 million Reference: Ref 15-1 (34-1) (Table: Statistics for a Small Economy) Refer to the table. The table shows some statistics for a small economy. Using only the information provided, M1 in this country amounts to:

$57 million

If the reserve ratio is 4%, the money multiplier is:

25

Federal Deposit Insurance Corporation insures deposits for up to _____ for each depositor named on the account.

250,000

As of 2013, the level of per capita federal taxes collected in the United States was about:

9,000

The government's bank and the bankers' bank in the United States are called the:

Federal Reserve System.

Currently, marginal tax rates are:

Lower than in the past

As market interest rates rise:

a bank's opportunity cost of holding reserves rises.

From an initial equilibrium in the AD-AS model, an increase in consumption growth will initially cause inflation:

and real growth to increase.

Which asset is the LEAST liquid? A. recyclable aluminum cans B. knowledge of how to tie one's shoe C. a checkable deposit D. a mortgage on a house

b

An increase in the capital gains tax will most likely:

decrease investment.

In a regressive tax system, income tax as a share of income:

decreases as income increases.

When the Federal Reserve buys bonds, the supply curve for bonds:

does not shift at all

If π < πe:

firms will reduce their output.

Business fluctuations are fluctuations in the:

growth rate of real GDP around its trend growth rate

when the Federal Reserve makes an open market purchase, the amount of money available for the banking system to loan:

increases.

As a result of a positive shock to C:

inflation and output growth increase in the short run, but in the long run they return to the rates before the shock.

When banks borrow from the Fed:

it increases the money supply

During a recession:

land, labor, and capital are not fully utilized.

A negative real shock causes the long-run aggregate supply curve to shift:

left.

At income levels above the limit for the lowest tax bracket, the average tax rate is:

less than the marginal tax rate.

A reduction in the supply of oil is a real shock because it:

makes labor and capital less productive.

A hurricane that damages buildings and roadways along the Gulf Coast is considered a:

negative real shock.

Deflation can cause the economy's aggregate demand curve to shift inward because debt contracts are:

not adjusted for inflation.

An increase in inflation will cause the long-run aggregate supply curve to:

not shift at all

A positive real shock causes the aggregate demand curve to:

not shift at all.

Capital gains taxes are paid:

only when an asset is actually sold.

Consider the world oil market diagrams presented in the figure. Which of the panels correctly depicts what happened in the market for oil during the 1973 OPEC oil crisis?

panel B shifts up

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, then the income tax system is:

progressive

If the Fed wants to increase the money supply, it will typically:

purchase additional government bonds.

Deflation

raises the real value of debt

An aggregate demand shock is a:

rapid and unexpected shift in spending.

In the AD-AS model, M with a line on top represents the:

rate of money supply growth.

A major hurricane hitting the East Coast of the United States is an example of a:

real shock

A tax with lower tax rates applied to people with higher incomes is called:

regressive

A _____ has higher rates on people with lower incomes.

regressive tax

An increase in expected inflation will cause the economy's long-run aggregate supply curve to:

remain unchanged.

An increase in money supply growth will cause the economy's AD curve to:

shift rightward.

Withdrawing which asset will incur a penalty before a certain period has passed?

small-time deposits

The risk that the failure of a few large financial institutions can affect the entire financial system is called:

systematic risk

What is the overnight lending rate from one bank to another?

the Federal Funds rate

Bank notes are issued by:

the Federal Reserve only

If the growth rate of spending increases from 3% to 5%, then:

the aggregate demand curve will shift to the right.

The interest rate that the Fed has the most control over is the:

the federal funds rate

Commercial banks make profits primarily through:

the interest differential between deposits and loans.

When the Fed sells government bonds in the open market:

the monetary base decreases and interest rates increase.

As the reserve ratio rises:

the money multiplier will decrease.

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. It also has a personal exemption of $5,000. Who benefits more from the personal exemption, a person making $35,000 or a person making $75,000?

the person making $75,000

An unexpected increase in money growth leads to increased real GDP growth in:

the short term only

When the Fed buys bonds, it increases the demand for bonds, which pushes:

up the price of bonds, thus lowering the interest rate.

In the AD-AS model, money is not neutral in the short run if:

wages and prices are sticky.

If π > πe:

firms profits will increase

When the Fed set up its Term Auction Facility in 2007-2008, its goal was to:

inject a certain quantity of reserves into banks.

An increase in money growth will cause output growth to increase in:

the short run only.

U.S. currency is printed by the:

U.S. Department of the Treasury

Refer to the table. What is the M2 money supply?

$535 million

A temporary positive shock to spending growth will lead to an increase in:

. output and prices in the short run, but no change in either in the long run.

The figure shows the AD-AS model with two SRAS curves. Which of the following is TRUE of Point A?

The actual inflation rate and the expected inflation rate are both 5%.

Which is NOT a duty performed by the Federal Reserve System? A. manage the federal budget deficit B. manage the borrowing and issuing of bonds for the U.S. Treasury C. act as a bank for large commercial banks D. create money

a

Which statement is correct? A. M2 is always larger than M1. B. M1 is larger than M2 during recessions, while M2 is larger than M1 during expansions. C. M1 is always larger than M2. D. M2 is larger than M1 during recessions, while M1 is larger than M2 during expansions.

a

In the AD-AS model, an unexpected decrease in the growth rate of the money supply causes:

a leftward shift of the AD curve and then a downward shift of the SRAS curve.

All the combinations of inflation and real growth consistent with a specific rate of spending growth is called the:

aggregate demand curve.

A liquid asset is:

an asset that can be used for payments, or can quickly and without loss of value be converted to an asset that can be used for payments.

If the U.S. government decides to decrease the budget deficit in the future, it could:

raise taxes, decrease Social Security payments, or reduce health-care spending.

If velocity is stable, then v equals:

0%

For an aggregate demand curve with = 10% and = 0%, if inflation is 6%, then real growth is:

4%

If nominal spending growth is 5% and the economy is in recession at a -1% real growth rate, what is the inflation rate?

6%

In 2013, the U.S. federal budget deficit was about:

6% of GDP

If banks keep one-eighth of their deposits in the form of reserves, and the Fed credits Alex's bank account with $8,000, how much does the money supply increase?

64,000

Which would typically NOT occur following an increase in the money supply?

a decrease in the overall price level

An increase in the required reserve ratio leaves banks with a need and desire to:

become more liquid.

When the Fed conducts open market operations to decrease the monetary base, real GDP growth:

decreases only in the short run.

When the Fed buys short-term Treasury securities, short-term interest rates:

fall

A bank will become illiquid if:

it has short-term liabilities that exceed its short-term assets.

Because the United States has a fractional reserve banking system, banks hold:

less than 100% of deposits as reserves.

After the first oil shock in 1973, the U.S. auto industry had a difficult time adjusting because

much of the physical capital in an auto factory is specialized.

According to the quantity theory of money, an increase in money supply causes an increase in:

prices

During the Great Depression, the long-run aggregate supply curve:

shifted inward