ECON Exam 3

A change in supply refers to a A) shift in the supply curve based on a variable. B) movement along the demand curve as a result of a change in the product's price. C) shift in the demand curve based on a variable. D) movement along the supply curve as a result of a change in the product's price.

A

A negative externality occurs when A the total cost of producing a good exceeds the cost borne by the producer. B the benefits associated with a product exceed those accruing to people who consume it. C the price of the goods exceeds the equilibrium price. D asymmetric information is present between buyers and sellers.

A

A production possibilities curve shows A the maximum amounts of two goods that can be produced, assuming the full use of resources. available B that people prefer one of the goods more than the other. C that resources are unlimited. D combinations of capital and labor necessary to produce specific levels of output

A

Assume economic growth is very strong and the inflation rate has been above the Fed's price stability goal for some time. Which of the following would best describe an appropriate policy implementation? A Raise the target range for the federal funds rate and simultaneously increase the interest on reserve balances rate, overnight reverse repurchase agreement offering rate, and discount rate. B Raise the target range for the federal funds rate and use open market operations to decrease the level of reserves in the banking system. C Lower the target range for the federal funds rate and simultaneously decrease the interest on reserve balances rate, overnight reverse repurchase agreement offering rate, and discount rate. D Lower the target range for the federal funds rate and simultaneously raise the interest on reserve balances rate and discount rate, and lower the overnight reverse repurchase agreement offering rate.

A

Contractionary fiscal policy is so named because it A is aimed at reducing aggregate demand and thus achieving price stability. B involves a contraction of the nation's money supply. C necessarily reduces the size of government. D is expressly designed to expand real GDP.

A

Economic systems differ according to which two main characteristics? A who owns the factors of production and the methods used to coordinate economic activity B the technology used in production and the quantity and quality of natural resources C how goods are produced and who gets them D the political system in place and the degree of scarcity facing the economy

A

Economics involves marginal analysis because A most decisions involve changes from the present situation. B much economic behavior is irrational. C marginal benefits always exceed marginal costs. D marginal costs always exceed marginal benefits.

A

Economics promotes which of the following as the way to make the best decision? A) Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost. B) Continue an enjoyable activity as long as you do not have to pay for it. C) Continue an enjoyable activity until it is no longer enjoyable. D) Continue an enjoyable activity until you cannot afford to pursue it.

A

Fiscal policy refers to A deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability. B altering of the interest rate to change aggregate demand. C deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. D fact that equal increases in government spending and taxation will be contractionary.

A

From an economic perspective, when a consumer decides to buy more life insurance, the consumer has most likely concluded that the A marginal benefit of more insurance coverage is greater than the marginal cost. B marginal cost of more insurance is greater than the marginal benefit. C opportunity cost of death is high. D opportunity cost of the policy is greater than the death benefit of the policy.

A

Goods and services that are used together are called Acomplements. Bdemand goods. Csubstitutions. Ddemographics.

A

Market failures A) result in overproduction or underproduction of goods. B) are only a concern when they result in prices that are too high. C) apply exclusively to situations where markets do not produce any of the economically desirable goods. D) result only from government intervention.

A

The Federal Reserve requires commercial banks to keep ______________, a percentage of deposits on hand in the vault. A) required reserves B) thrift deposits C) the inflation rate D) a monetary stabilizer

A

The opportunity cost of doing or getting something is defined as A the value of the best alternative that is given up in order to do or get something. B the difference between the marginal cost and benefit of doing something. C the money spent in doing or getting something. D the materials used in doing or getting something.

A

The percentage increase in the price level from one year to the next is known as Athe inflation rate. Bthe efficiency wage. Cconsumer price index. Dproducer price index.

A

The term recession describes a situation where A output and living standards decline. B government takes a less active role in economic matters. C inflation rates exceed normal levels. D an economy's ability to produce is destroyed.

A

What role do open market operations play in monetary policy? A) The Fed uses open market operations to ensure that the level of reserves remains ample. B) The Fed uses open market operations to move the interest on reserve balances rate higher and lower. C) The Fed uses open market operations to move the federal funds rate higher and lower. D) The Fed uses open market operations to move the discount rate higher and lower.

A

When the FOMC conducts monetary policy, it sets the target range for A the federal funds rate B the interest on reserve balances rate C the overnight reverse repurchase agreement offering rate D open market operations

A

Which monetary policy tool serves as a ceiling for the federal funds rate? A) discount rate B) overnight reverse repurchase agreement facility C) open market operations D) interest on reserve balances

A

Which of the following best describes the business cycle?

Alternating periods of economic expansion and economic recession.

A ___________ is a situation in which many depositors attempt to withdraw funds simultaneously, exceeding the cash reserves. A) funds rate B) bank run C) bank panic D) money multiplier

B

A central bank's changing of the money supply to influence interest rates and assist the economy in achieving price level stability, full employment, and economic growth is called __________. A) funds rate policy B) monetary policy C) inflation policy D) fiscal policy

B

A subprime mortgage is best described by which of the following? A A low interest rate loan to a home buyer with below average credit risk. B A high interest rate loan to a home buyer with above average credit risk. C A low interest rate loan to a home buyer with above average credit risk. D A high interest rate loan to a home buyer with below average credit risk.

B

A system in which the government provides health insurance to all of the country's residents is known as a A) fee for service system. B) single-payer health care system. C) health insurance contract. D) ACA.

B

According to economists, economic self-interest A is usually self-defeating. B is a reality that underlies economic behavior. C has the same meaning as selfishness. D means that people never make wrong decisions.

B

An appropriate fiscal policy for severe demand-pull inflation is A) depreciation of the dollar. B) a tax rate increase. C) an increase in government spending. D) a reduction in interest rates.

B

Changes in federal taxes and purchases that are intended to achieve economic policy goals is known as A) quantitative easing. B) fiscal policy. C) monetary policy. D) open market operations.

B

Expansionary fiscal policy is so named because it A) necessarily expands the size of government. B) is designed to expand real GDP. C) involves an expansion of the nation's money supply. D) is aimed at achieving greater price stability.

B

Fiscal policy is enacted through changes in A) the supply of money and foreign exchange. B) taxation and government spending. C) unemployment and inflation. D) interest rates and the price level.

B

Health insurance is best described as A) A system under which doctors are paid. B) a contract under which a buyer agrees to make payments, or premiums, in exchange for provider's agreeing to pay some or all of the buyer's medical bills. C) Legislation passed under the affordable care act. D) A system where the government owns most of the hospitals and employs doctors.

B

If a decrease in income leads to an increase in the demand for macaroni, then macaroni is Aa necessity. Ban inferior good. Ca normal good. Da neutral good.

B

Many health insurance plans operate on a(n) A) level that is similar to the market for other goods and services. B) fee for service basis, under which doctors and hospitals receive a payment for each service they provide. C) asymmetric level. D) principal agent agreement.

B

Shocks to the economy occur A because most economic behavior is unpredictable. B when expectations are unmet. C whenever the price level changes. D whenever government implements fiscal or monetary policy changes.

B

The 12 member group within the Federal Reserve System that decides US monetary policy and how it is executed through open market operations is known as the _______________________. A) Bureau of Labor B) Federal Open Market Committee C) the Free Market Committee D) Statistical Bureau of Money

B

The Federal Reserve uses _______________ to accomplish macroeconomic goals related to employment and inflation. A fiscal policy B monetary policy C supply and demand D a monetary stabilizer

B

The US central bank is known as A) the board of fiscal policy. B) the federal reserve system. C) the commercial banking system. D) bureau of labor and statistics.

B

The United States has a ______________ banking system in which only a portion of checkable deposits are held in the reserves as currency in bank vaults. A) federal funds rate B) fractional reserve C) contradictory D) federal operations market committee

B

The basis of international trade is A absolute advantage. B comparative advantage. C moral hazard. D asymmetric information.

B

The difference between the minimum prices producers are willing to accept for a product and the price the producers receive (market price) is called ________________. A) equilibrium price B) producer surplus C) consumer surplus D) supply

B

The four factors of production are A) labor, capital, supply, and demand. B) land, labor, capital, and entrepreneurial ability. C) land, labor, capital, and money. D) labor, capital, technology, and entrepreneurial ability.

B

The most important of the variables that influence the willingness and ability of firms to sell a good or service is Atechnological change. Bprice. Cthe equilibrium. Dthe demand.

B

Which monetary policy tool is a supplementary tool that sets a floor for the federal funds rate? A) interest on reserve balances B) overnight reverse repurchase agreement facility C) discount rate D) open market operations

B

Which of the following is a variable that shifts supply? A) the consumer's income. B) prices of inputs. C) net income. D) unemployment rate.

B

_________________ consists of bond market transactions in which the Fed either buys or sells government bonds or utilizes government bonds as collateral on loans of money. A) The federal funds rate B) Open-market operations C) Fiscal operations D) The reserve ratio

B

An appropriate fiscal policy for a severe recession is A) an increase in interest rates. B) a decrease in government spending. C) a decrease in tax rates. D) appreciation of the dollar.

C

An efficiency loss or deadweight loss A) can be eliminated by price ceilings. B) occurs when production is in accordance with consumer preferences and government intervention does not occur. C) is the reduction in economic surplus resulting from a market not being in competitive equilibrium. D) can be eliminated by price floors.

C

Economics is a social science that studies how individuals, institutions, and society may A attain a minimum level of production. B expand the amount of resources available to them. C best use resources to maximize satisfaction of economic wants. D reduce the amount of goods and services they need.

C

Economics may best be defined as the A interaction between macro and micro considerations. B study of why people are rational. C social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity. D empirical testing of value judgments through the use of logic.

C

Human capital refers to A physical capital owned by households rather than businesses. B machinery used by labor in production. C the skills and knowledge that enable a worker to be productive. D the accumulated financial wealth of households. SUBMIT ANSWER

C

Macroeconomics is mostly focused on A why specific businesses fail. B the individual markets within an economy. C the economy as a whole. D only the largest industries in the economy.

C

Payments made for the use of borrowed money are called A demand payments. B principal payments. C interest payments. D asset payments.

C

The term "market" in economics refers to A) a legal institution where exchange can take place. B) an organization which sells goods and services. C) a group of buyers and sellers of a product and the arrangement by which they come together to trade. D) a place where money changes hands.

C

When economists say that people act rationally in their self-interest, they mean that individuals A) generally disregard the interests of others. B) are mainly creatures of habit. C) look for and pursue opportunities to increase their utility. D) are usually impulsive and unpredictable.

C

Which best describes how the FOMC conducts monetary policy to increase employment during a recession to achieve its maximum employment objective? A) It sells Treasury securities in the open market to decrease the federal funds rate. B) It buys Treasury securities in the open market to increase the federal funds rate. C) It decreases the target rate range for the federal funds rate. D) It increases the target rate range for the federal funds rate.

C

Which of the following is not a typical characteristic of a market system? A competition among buyers and sellers B private property C government ownership of most property resources D freedom of enterprise

C

_______________ is the exchange ratio at which one country is willing to trade a good in exchange for a different good from another country. A) Rate of global demand B) Comparative advantage C) Terms of trade D) Opportunity cost ratio

C

_________________ are decisions by the Federal Reserve System that lead to changes in the supply of money, short-term interest rates, and the availability of credit. Changes in growth rate of money supply can influence overall levels of spending and employment in the economy. A) FOMC B) Dual mandates C) Monetary policies D) Fiscal policies

C

balances an effective tool? A Neither of these is correct, arbitrage is not an effective tool related to reserve balances. B If the discount rate is far above the interest on reserve balances rate, banks will borrow at the discount rate and deposit at the interest on reserve balances rate to earn a profit, which will increase the demand for federal funds and raise the discount rate. C If the federal funds rate falls far below the interest on reserve balances rate, banks will borrow at the federal funds rate and deposit at the interest on reserve balances rate to earn a profit, which will increase the demand for federal funds and raise the federal funds rate.

C

A health care system under which the government owns most of the hospitals and employs most of the doctors is an example of A) fee for service system. B) principal-agent problem. C) single payer health system. D) socialized medicine.

D

A major advantage of the built-in or automatic stabilizers is that they A automatically produce surpluses during recessions and deficits during inflations. B guarantee that the federal budget will be balanced over the course of the business cycle. C simultaneously stabilize the economy and reduce the absolute size of the public debt. D require no legislative action by Congress to be made effective.

D

Broadly defined, competition involves A) private property and freedom of expression. B) increasing opportunity costs and diminishing marginal utility. C) capital goods and division of labor. D) independently acting buyers and sellers and freedom to enter into transactions in the market.

D

Economic systems differ according to which two main characteristics? A the technology used in production and the quantity and quality of natural resources B how goods are produced and who gets them C the political system in place and the degree of scarcity facing the economy D who owns the factors of production and the methods used to coordinate economic activity

D

Opportunity costs exist because A wants are scarce relative to resources. B most decisions do not involve sacrifices or trade-offs. C households and businesses make rational decisions. D the decision to engage in one activity means forgoing some other activity.

D

Specialization in production is important primarily because it A allows society to avoid scarcity. B is based on maximizing externalities. C allows society to have fewer goods. D results in greater total output.

D

Strong property rights are important for modern economic growth because A business cycle fluctuations will be smaller and less likely to disrupt investment patterns. B they ensure an equitable distribution of income. C they allow governments to extract the gains from private citizens' investments. D people are more likely to invest if they don't fear that others can take their returns on investment without compensation.

D

The actions people take after they have entered into a transaction that make the other party to the transaction worse off is known as A) the principal agent problem. B) allocative efficiency. C) externalities. D) moral hazard.

D

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

D

The highest valued alternative that must be given up to engage in an activity is known as A) scarcity. B) economic growth. C) trade. D) opportunity cost.

D

What are the Fed's dual mandate goals? A) Low unemployment and high inflation B) Rising stock market values and low interest rates C) Economic growth and low interest rates D) Maximum employment and price stability

D

What does the phrase optimal decisions are made at the margin mean? AEconomists emphasize that consumers and firms consistently respond to economic incentives. BRational individuals weigh the benefits and costs of each action, and choose an action if the benefits outweigh the costs. CA market is a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. DThe optimal decision is to continue any activity to the point where the marginal benefit equals the marginal cost.

D

Which monetary policy implementation tool is the primary tool the Fed uses to steer the federal funds rate into the FOMC's target range? A) open market operations B) discount rate C) overnight reverse repurchase agreement facility D) interest on reserve balances

D

Which of the following best describes the principle of comparative advantage? A It is a situation in which one country can produce more of a good or service than another country. B It is a scenario showing the equivalency of the number of units produced based on the production possibilities frontier. C It is the basis of supply and demand. D It says that total output will be greatest when each good is produced by the nation that has the lowest domestic opportunity cost for producing that good.

D

Which of the following best explains the phrase "purchasing power of the dollar"? A The purchasing power of money is a settlement of a financial debt. B The purchasing power of money is a calculation indicating the health of a nation. C The purchasing power of money is any form of currency permitted by law. D The purchasing power of money is the amount of goods and services a unit of money will buy.

D

Which of the following is not considered money in the US? A) paper currency B) checking account balances C) coins D) credit cards

D

Why are economists concerned about inflation? A Inflation generally causes unemployment rates to rise. B Inflation increases the value of people's savings and encourages overspending on goods and services. C Real GDP is falling when there is inflation. D Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

D

________ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good. A) The mixed market system B) Absolute advantage C) Comparative advantage D) The production possibilities frontier model

D