Econ #5

If the purchasing power of the dollar is falling, then it follows that: A) The price index is falling B) The price index is rising C) Nominal incomes are falling D) Interest rates are rising

B

In the long run, if the price level increases, then nominal wages and other input prices: A) Also rise, so firms will reduce their output level B) Also rise, so firms will not change their output level C) Not change, so firms will not change their output level D) Decrease, so firms will increase their output level

B

Supply-side economists contend that the system of taxation in the United States: A) Creates incentives to save and invest B) Creates dis-incentives to work C) Generates maximum tax revenue D) Reduces the effects of cost-push inflation

B

The Federal Reserve System performs many functions but its most important one is: A) Issuing currency B) Controlling the money supply C) Providing for check clearing and collection D) Acting as fiscal agent for the U.S. government

B

The functions of money are to serve as a: A) Resource allocator, method for accounting, and means of income distribution B) Unit of account, store of value, and medium of exchange C) Determinant of consumption, investment, and government spending D) Factor of production, exchange, and aggregate supply

B

The traditional Phillips Curve shows the: A) Direct correlation between the rate of inflation and the unemployment rate B) Inverse correlation between the rate of inflation and the rate of unemployment C) Direct correlation between the short-run and long-run aggregate supply D) Inverse correlation between the short-run and long-run aggregate supply

B

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

B

If cost-push inflation occurs and the government adopts a "hands-off" policy approach, then according to the simple extended AD-AS model, in the long run the economy will: A) Get back to where it started from B) Get stuck with high unemployment C) Experience an inflationary spiral D) Have a higher price level

A

Refer to row 4 in the table. The number appropriate for space Z is: A) $10,000. B) $70,000. C) $48,000. D) zero.

A

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves: A) is larger the smaller the required reserve ratio. B) is the reciprocal of the bank's actual reserves. C) is directly or positively related to the size of the required reserve ratio. D) will be zero when the required reserve ratio is 100 percent.

A

When a commercial bank has excess reserves: A) it is in a position to make additional loans. B) its actual reserves are less than its required reserves. C) it is charging too high an interest rate on its loans. D) its reserves exceed its assets.

A

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion; legal reserve ratio = 0.20; excess reserves prior to the currency deposit = $0. Refer to the information. The $40 billion deposit of currency into checking accounts will create excess reserves of: A) $20 billion. B) $32 billion. C) $40 billion. D) $0.

B

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are: A) $100. B) $1,000. C) $5,000. D) $12,000.

C

Commercial banks create money when they: A) accept cash deposits from the public. B) purchase government securities from the central banks. C) create checkable deposits in exchange for IOUs. D) raise their interest rates.

C

Equilibrium in the long run occurs when: A) AD intersects the short-run AS, regardless of output level B) AD intersects the short-run AS, regardless of price level C) AD intersects the short-run and the long-run AS curves at the same point D) The short-run AS curve intersects the long-run AS curve

C

Refer to the graph above. Assume that the economy is initially at full-employment equilibrium at point A. If AD increases, then the long run equilibrium point will be at point: A) A B) B C) C D) D

C

Refer to the graph above. Stagflation in the short run is best represented as resulting from a shift of: A) AD1 to AD2 given a stable AS1 curve B) AD2 to AD1 given a stable AS1 curve C) AS1 to AS2 given a stable AD1 curve D) AS2 to AS1 given a stable AD1 curve

C

The federal funds market is the market in which: A) banks borrow from the Federal Reserve Banks. B) U.S. securities are bought and sold. C) banks borrow reserves from one another on an overnight basis. D) Federal Reserve Banks borrow from one another.

C

United States currency has value primarily because it: A) Is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the Federal government B) Is generally acceptable in exchange for goods or services, is backed by the gold and silver of the Federal government, and facilitates trade C) Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services D) Facilitates trade, is legal tender, and permits the use of credit cards and near-monies

C

A bank that has liabilities of $150 billion and a net worth of $20 billion must have: A) excess reserves of $130 billion. B) assets of $150 billion. C) excess reserves of $150 billion. D) assets of $170 billion.

D

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? A) Decreased by $600. B) Increased by $1,800. C) Increased by $600. D) Increased by $1,200.

D

In the long run, demand-pull inflation leads to: A) Higher unemployment and higher price level B) Lower real wages and higher unemployment C) Lower real output and no change in unemployment D) Higher price level and no change in real output

D

Most modern banking systems are based on: A) money of intrinsic value. B) commodity money. C) 100 percent reserves. D) fractional reserves.

D

The Federal Reserve System consists of which of the following? A) Federal Open Market Committee and Office of Thrift Supervision B) Federal Deposit Insurance Corporation and Controller of the Currency C) U.S. Treasury Department and Bureau of Engraving and Printing D) Board of Governors and the 12 Federal Reserve Banks

D

The M1 money supply is composed of: A) All coins and paper money held by the general public and the banks B) Bank deposits of households and business firms C) Bank deposits and mutual funds D) Checkable deposits and currency in circulation

D