econ exam #3

11. Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit A. at any level of GDP below $400. B. only when GDP is stable. C. at any level of GDP above $400. D. at all levels of GDP.

A. at any level of GDP below $400.

42. Other things equal, if the supply of money is reduced, A. bond prices will fall. B. the demand for money will increase. C. the interest rates will fall. D. investment spending will increase.

A. bond prices will fall.

2.) if the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by A. decreasing taxes by $25 billion B. decreasing taxes by $100 billion C. increasing government spending by $80 billion D. increasing government spending by $25 billion

A. decreasing taxes by $25 billion

22. When economists say that money serves as a unit of account, they mean that it is A. a way to keep wealth in a readily spendable form for future use. B. a monetary unit for measuring and comparing the relative values of goods. C. a means of payment. D. declared as legal tender by the government.

B. a monetary unit for measuring and comparing the relative values of goods.

48. Open-market operations change A. both commercial bank reserves and the size of the monetary multiplier. B. commercial bank reserves but not the size of the monetary multiplier. C. the size of the monetary multiplier but not commercial bank reserves. D. neither commercial bank reserves nor the size of the monetary multiplier.

B. commercial bank reserves but not the size of the monetary multiplier.

50. The interest rate at which the Federal Reserve Banks lend to commercial banks is called the A. short-term rate. B. discount rate. C. prime rate. D. federal funds rate.

B. discount rate.

37. The market for immediately available reserve balances at the Federal Reserve is known as the A. money market. B. federal funds market. C. short-term bond market. D. long-term bond market. E. Almost there! I love you!

B. federal funds market.

47. Reference table Refer to the given balance sheets and assume the reserve ratio is 25 percent. Suppose the Federal Reserve Banks sell $2 in securities directly to the commercial banks. As a result of this transaction, the supply of money A. will directly increase by $2, and the money-creating potential of the commercial banking system will increase by an additional $8. B. is not directly affected, but the money-creating potential of the commercial banking system will decrease by $8. C. will decrease by $2, but the money-creating potential of the commercial banking system will not be affected. D. will directly increase by $2, and the money-creating potential of the commercial banking system will decrease by an additional $8.

B. is not directly affected, but the money-creating potential of the commercial banking system will decrease by $8.

6. A contractionary fiscal policy is shown as a A. rightward shift in the economy's aggregate supply curve. B. leftward shift in the economy's aggregate demand curve. C. rightward shift in the economy's aggregate demand curve. D. movement along an existing aggregate demand curve.

B. leftward shift in the economy's aggregate demand curve.

44. The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits A. and reserves of commercial banks both decrease. B. of commercial banks are unchanged, but their reserves increase. C. and reserves of commercial banks are both unchanged. D. of commercial banks are unchanged, but their reserves decrease.

B. of commercial banks are unchanged, but their reserves increase.

17. Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z? A. inflation B. offsetting state and local finance C. a ratchet effect D. an increase in stock prices

B. offsetting state and local finance

8.Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it would be appropriate for the government to A. reduce unemployment compensation benefits. B. reduce government expenditures or increase taxes. C. increase government expenditures or reduce taxes. D. reduce government expenditures and taxes by equal-size amounts.

B. reduce government expenditures or increase taxes.

35. Reference table Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit and has a check cleared against it for that amount, its reserves and checkable deposits will now be A. $25,000 and $122,000, respectively. B. $22,000 and $105,000, respectively. C. $22,000 and $110,000, respectively. D. $32,000 and $115,000, respectively.

C. $22,000 and $110,000, respectively.

43. The securities held as assets by the Federal Reserve Banks consist mainly of A. certificates of deposit. B. common stock. C. Treasury bills, Treasury notes, and Treasury bonds. D. corporate bonds.

C. Treasury bills, Treasury notes, and Treasury bonds.

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

C. a tax rate increase.

30. The seven members of the Board of Governors of the Federal Reserve System are A. appointed by the Senate Finance Committee. B. appointed by the presidents of the 12 Federal Reserve Banks. C. appointed by the president with the confirmation of the Senate. D. elected by Congress from a slate of nominees provided by the president.

C. appointed by the president with the confirmation of the Senate.

27. Currency held within banks is part of A. the M1 definition of the money supply only. B. the M2 definition of the money supply only. C. neither the M1 nor the M2 definition of the money supply. D. both the M1 and M2 definitions of the money supply.

C. neither the M1 nor the M2 definition of the money supply.

45. Which of the following is a tool of monetary policy? A. changes in government spending B. changes in banking laws C. open-market operations D. changes in tax rates

C. open-market operations

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

C. store of value.

18. The public debt is the amount of money that A. the federal government owes to taxpayers. B. Americans owe to foreigners. C. the federal government owes to holders of U.S. securities. D. state and local governments owe to the federal government.

C. the federal government owes to holders of U.S. securities.

1.) Discretionary Fiscal Policy is so named because it? A. occurs automatically as the nations level of gdp changes. B. is invoked secretly by the council of economic advisers. C. is undertaken at the option of the nations central bank. D. involves specific changes in T and G undertaken expressly for stabilization at the option of congress

D) involves specific changes in T and G undertaken expressly for stabilization at the option of congress

19. Reference table above The public debt for the economy is A. $400 billion. B. $540 billion. C. $580 billion. D. $460 billion.

D. $460 billion.

20. Reference table The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 4 is the present year, the public debt as a percentage of GDP in year 4 is A. 2.5 percent. B. 7.5 percent. C. 1.39 percent. D. 3.9 percent.

D. 3.9 percent.

10. Which of the following best describes the built-in stabilizers as they function in the United States? A. Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. B. The size of the multiplier varies inversely with the level of GDP. C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP. D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

40. Which of the following is correct? A. The asset demand for money is downsloping because the opportunity cost of holding money declines as the interest rate rises. B. The asset demand for money is downsloping because bond prices and the interest rate are directly related. C. The transactions demand for money is downsloping because the opportunity cost of holding money varies inversely with the interest rate. D. The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.

D. The asset demand for money is downsloping because the opportunity cost of holding money increases as the interest rate rises.

31. A commercial bank's reserves are A. liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. B. assets to both the commercial bank and the Federal Reserve Bank holding them. C. liabilities to both the commercial bank and the Federal Reserve Bank holding them. D. assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

D. assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

49. Reference table Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multiplier is operating to full effect, to accomplish the desired increase, the Fed could A. sell $40 billion of U.S. securities to the banks. B. sell $20 billion of U.S. securities to the banks. C. buy $20 billion of U.S. securities from the banks. D. buy $40 billion of U.S. securities from the banks.

D. buy $40 billion of U.S. securities from the banks.

38. The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves A. will be zero when the required reserve ratio is 100 percent. 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. is larger, the smaller the required reserve ratio.

D. is larger, the smaller the required reserve ratio.

41. Reference table Refer to the given market-for-money diagrams. Curve D1 represents the A. stock of money. B. asset demand for money. C. total demand for money. D. transactions demand for money.

D. transactions demand for money

16. The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes A. the net export effect. B. the supply-side effects of fiscal policy. C. built-in stability. D. the crowding-out effect.

D. the crowding-out effect.

33. Reference table above The accompanying table gives data for a commercial bank or thrift. In row 2, the number appropriate for space X is A. $100,000. B. $20,000. C. $60,000. D. $200,000.

A. $100,000.

13. Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The recognition lag of fiscal policy is reflected in events A. 1 and 2. B. 2 and 3. C. 3 and 4. D. 4 and 5.

A. 1 and 2.

26. Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits 2. Noncheckable savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 5. Stock certificates 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults The M1 definition of money includes item(s) A. 3 and 6. B. 6 only. C. 3, 4, and 6. D. 3, 6, and 10.

A. 3 and 6.

7. Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing A. a negative GDP gap. B. inflation. C. a positive GDP gap. D. an adverse supply shock.

A. a negative GDP gap.

36. The amount of reserves that a commercial bank is required to hold is equal to A. its checkable deposits multiplied by the reserve requirement. B. the amount of its checkable deposits. C. the sum of its checkable deposits and time deposits. D. its checkable deposits divided by its total assets.

A. its checkable deposits multiplied by the reserve requirement.

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

A. large-denominated time deposits

9. Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should A. reduce taxes by $80 billion. B. reduce government expenditures by $40 billion. C. reduce taxes by $40 billion. D. increase government expenditures by $80 billion.

A. reduce taxes by $80 billion.

3) if the mps in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by A. reducing government expenditures by $20 billion B. increasing taxes by $50 billion C. increasing taxes by $250 billion D. reducing government expenditures by $125 billion

A. reducing government expenditures by $20 billion

46. The purchase of government securities from the public by the Fed will cause A. the money supply to increase. B. the interest rate to increase. C. demand deposits to decrease. D. commercial bank reserves to decrease.

A. the money supply to increase.

39. Reference above table Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. After a deposit of $10 billion of new currency into a checking account in the banking system, excess reserves will increase by A. $7 billion. B. $9 billion. C. $10 billion. D. $0 billion.

B. $9 billion.

34. Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be A. 10 percent. B. 40 percent. C. 5 percent. D. 20 percent.

B. 40 percent.

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

B. M2 only.

14. Which of the following best describes the idea of a political business cycle? A. Politicians are more willing to cut taxes and increase government spending than they are to do the reverse. B. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections. C. Fiscal policy will result in alternating budget deficits and surpluses. D. Despite good intentions, various timing lags will cause fiscal policy to reinforce the business cycle.

B. Politicians will use fiscal policy to cause output, real incomes, and employment to be risingprior to elections.

32. Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves A. are $1,000,000. B. are $20,000. C. are $10,000. D. cannot be determined from the given information.

B. are $20,000.

29. Refer to the given table. The value of the dollar in year 4 is A. $0.50. B. $1.50. C. $2.00. D. $0.33.

C. $2.00.

25. Refer to the table. Money supply M2 for this economy is A. $490. B. $630. C. $480. D. $130.

C. $480.

12. The amount by which government expenditures exceed revenues during a particular year is the A. GDP gap. B. full employment. C. budget deficit. D. public debt.

C. budget deficit.

28. The money supply is backed A. by gold reserves representing a fraction of the total value of dollars in circulation. B. dollar-for-dollar by gold and silver. C. by government bonds. D. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

D. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

15. The crowding-out effect of expansionary fiscal policy suggests that A. saving increases at the expense of investment. B. imports replace domestic production. C. private investment increases at the expense of government spending. D. government spending increases at the expense of private investment. C. Keep going baby you can do this <3

D. government spending increases at the expense of private investment.

4. In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should A. encourage private investment by reducing corporate income taxes. B. discourage personal saving by reducing the interest rate on government bonds. C. increase government expenditures. D. increase tax rates and/or reduce government spending.

D. increase tax rates and/or reduce government spending.