ECON Module 5 Practice Quizzes

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Use the information below to answer the following question(s): Refer to the above table. The size of the M1 money supply is:

$1,236 billion

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in millions of dollars. Refer to the above data. The excess reserves in this commercial banking system are:

$20 million

Use the following table to answer the next question(s) about the money supply given the following hypothetical data for an economy. Refer to the above table. The size of the M2 money supply is:

$4,330

Answer the next question(s) based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. Refer to the above data. The commercial banking system has excess reserves of:

$42 billion

Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 200, the quantity of real GDP demanded is:

$600 billion

Use the following table to answer the next question(s) about the money supply.Items 1. Money market mutual funds held by individuals 2. Savings deposits, including money market deposit accounts 3. Money market mutual funds held by businesses 4. Currency held by the public 5. Small time deposits 6. Checkable deposits Refer to the above table. The M2 money supply is composed of items:

1, 2, 4, 5, and 6

The Federal Reserve System is divided into:

12 districts

The table below shows the aggregate demand and aggregate supply schedule for a hypothetical economy. Refer to the above table. The equilibrium price level and quantity of real domestic output will be:

200 and $6000

In the United States, credit cards account for about what percentage of the dollar volume of transactions for goods and services?

25%

Refer to the above graph. The long-run aggregate supply curve would be represented by which line?

4

Use the following table to answer the next question(s) about the money supply.Items 1. Money market mutual funds held by individuals 2. Savings deposits, including money market deposit accounts 3. Money market mutual funds held by businesses 4. Currency held by the public 5. Small time deposits 6. Checkable deposits Refer to the above table. The M1 money supply is composed of items:

4 and 6

The Board of Governors of the Federal Reserve has ____ members.

7

In 2007, the public debt was about:

9.01$ trillion

If the standardized budget shows a deficit of about $100 billion and the actual budget shows a deficit of about $150 billion, it can be concluded that there is:

A cyclical deficit

Which set of fiscal policies would tend to offset each other?

A decrease in government spending and taxes

Refer to the above graph. What combination would most likely cause a shift from AD 1 to AD 2?

A decrease in taxes and an increase in government spending

What function is money serving when you buy a ticket to a movie?

A medium of exchange

What function is money serving when you take it on a trip and keep it in your wallet or purse in case you need it?

A store of value

What primary function is money serving when you keep it in a bank account until you need it to purchase a product?

A store of value

Major increases in oil prices in the mid-1970s, and in the late 1970s created:

Adverse aggregate supply shocks

The amount of real domestic output that will be purchased at each possible price level is best shown by the:

Aggregate demand curve

A change in aggregate supply would be caused by a change in:

An aggregate supply determinant

A decrease in aggregate demand is likely to result from:

An appreciation in the value of the U.S. dollar

The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment and severe demand-pull inflation. This situation can be best characterized by:

An increase in aggregate demand

Which set of events would most likely decrease aggregate demand?

An increase in personal income tax rates

Refer to the above graph. What combination would most likely cause a shift from AD 1 to AD 3?

An increase in taxes and a decrease in government spending

A checkable deposit at a commercial bank is a(n):

Asset to the depositor and a liability to the bank

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

Both input and output prices are fixed

When government tax revenues change automatically and in a countercyclical direction over the course of the business cycle, this is an example of:

Built-in stability

One of the principal defects of commodity money is that its worth as a:

Commodity may exceed its worth as money, causing it to cease functioning as a medium of exchange

The main function of the Federal Reserve System is to:

Control the money supply

The largest component of the money supply ( M1) is:

Currency

Currency and checkable deposits are:

Debts of the Federal Reserve Banks or of financial institutions

A contractionary fiscal policy can be illustrated by a(n):

Decrease in aggregate demand

A decrease in government spending will cause a(n):

Decrease in aggregate demand

A decrease in net exports will cause a(n):

Decrease in aggregate demand

In the above graph, tax revenues vary:

Directly with the level of GDP

When the Federal government takes action to change taxes and spending to stimulate the economy such policy is:

Discretionary

If Congress passes legislation to cut taxes and increase government spending to counter the effects of a severe recession, this would be an example of a(n):

Expansionary fiscal policy

If the Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

Expansionary fiscal policy

A Federal budget deficit exists when:

Federal government spending exceeds tax revenues

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Fiscal policy

The standardized deficit as a percentage of GDP is 1 percent in Year 1. This deficit becomes a surplus of 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Fiscal policy was contractionary

The standardized surplus as a percentage of GDP is 1 percent in Year 1. This surplus becomes 2 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Fiscal policy was contractionary

The standardized deficit as a percentage of GDP is 2 percent in Year 1. This deficit becomes 3 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Fiscal policy was expansionary

The standardized surplus as a percentage of GDP is 1 percent in Year 1. This surplus becomes a deficit of 2 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

Fiscal policy was expansionary

Which would be considered a real burden of the public debt on the domestic output of the United States? Public debt which is held by:

Foreign corporations

A government budget deficit occurs when government expenditures are:

Greater than government revenues

Refer to the above graph. The ratchet effect would suggest that:

If AD1 moves to AD2, the new equilibrium would be at b

An increase in productivity will:

Increase aggregate supply

Refer to the above diagram. If aggregate supply shifts from AS 1 to AS 2, then the price level will:

Increase and real domestic output will decrease

Refer to the above diagram. If aggregate supply shifts from AS 1 to AS 3, then real domestic output will:

Increase and the price level will decrease

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She deposits these funds in her checking account to the First Commerce Bank. Her checking account had a $150,000 balance before the sale of the security. The reserves of the First Commerce Bank would:

Increase by $4,600,000

Demand-pull inflation is associated with a(n):

Increase in aggregate demand

Which combination of fiscal policy actions would be most contractionary for an economy experiencing severe demand-pull inflation?

Increase taxes and decrease government spending

Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely:

Increase the amount of public capital stock in the future

Assume that Johnson deposits $350 of currency in his account in the XYZ bank. Later the same day Swanson negotiates a loan for $2,000 at the same bank. In what direction and by what amounts has the supply of money changed?

Increased by $2,000

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Increased government spending or decreased taxation, or a combination of the two actions

Other things being equal, an expansion of commercial bank lending:

Increases the money supply

United States currency has value primarily because it:

Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

One important consequence of the public debt in the United States is that:

It transfers a portion of real output to foreign nations

Refer to the above graph. A budget surplus would be associated with GDP level:

L

In an aggregate demand and aggregate supply graph, a contractionary fiscal policy can be illustrated by a:

Leftward shift in the aggregate demand curve

Cost-push inflation occurs because of a:

Leftward shift in the aggregate supply curve

An aggregate supply curve shows the:

Level of real domestic output which will be produced at each possible price level

Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange?

M1

Menu costs will:

Make prices inflexible downward

Efficiency wages will:

Make wages inflexible downward

To understand the quantitative significance of the public debt relative to the economy, it should be:

Measured as a percentage of GDP

The upward slope of the short-run aggregate supply curve is based on the assumption that:

Nominal wages and other resource costs do not respond to price level changes

The vertical slope of the long-run aggregate supply curve is based on the assumption that:

Nominal wages and other resource costs do respond to price level changes

When changes to taxes and spending occur in the economy without explicit action by the Federal government, such policy is:

Nondiscretionary

If government tax revenues change automatically and in a countercylical direction over the course of the business cycle, this would be called a(n):

Nondiscretionary fiscal policy

Refer to the above diagram. If AD 1 shifts to AD 2, then the equilibrium output and price level are:

P2Q2

A public debt which is owed to foreigners can be burdensome because:

Payment of interest reduces the volume of goods and services available for domestic uses

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Potential positive and negative effects on long-run productivity growth

Refer to the above graph. This economy is at equilibrium:

Price level P2 and output Q2

An aggregate supply curve represents the relationship between the:

Price level and the production of real domestic output

The aggregate demand curve is the relationship between the:

Price level and the purchasing of real domestic output

Which would most likely shift the aggregate supply curve? A change in:

Prices of imported resources

When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a:

Ratchet effect

The labels for the axes of an aggregate supply curve should be:

Real domestic output for the horizontal axis and price level for the vertical axis

The labels for the axes of the aggregate demand graph should be:

Real domestic output on the horizontal axis and the price level on the vertical axis

Surpluses from Social Security:

Reduce the size of the actual budget deficit

Refer to the above diagram. A contractionary fiscal policy can best be represented by a:

Shift in the aggregate demand curve from AD3 to AD2

Another term for the full-employment budget is the:

Standardized budget

Refer to the above graph. If the full-employment level of GDP for this economy is at H, the:

Standardized budget will produce a deficit

A fall in the price of capital goods will shift the aggregate:

Supply curve rightward

A fall in prices of imported resources will cause aggregate:

Supply to increase

Fiscal policy is enacted through changes in:

Taxation and government spending

If the government wishes to increase the level of real GDP, it might reduce:

Taxes

Which one of the following is true about the U.S. Federal Reserve System?

The Federal Open Market Committee (FOMC) has more members than does the Federal Reserve Board of Governors. There are 12 regional Federal Reserve Banks. There are seven members of the Federal Reserve Board of Governors.

The multiplier can be calculated by dividing:

The change in real GDP by the initial change in spending

The magnification of small changes in spending into larger changes in output and income is produced by:

The multiplier effect

Which is regarded as an automatic stabilizer in the economy?

The progressive income tax

Refer to the above graph. At price level P 2:

The quantity of output is equal to the quantity of output demanded

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

Unit of account

When money serves as a means for determining the relative worth of goods, services, and resources, it is functioning as a:

Unit of account

The functions of money are to serve as a:

Unit of account, store of value, and medium of exchange

The ratchet effect means that:

When aggregate demand decreases, the price level remains constant

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above data. In which year is there a budget surplus?

Year 1

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above data. In which year is there a balanced budget?

Year 3

An increase in taxes on consumers will most likely cause a(n):

decrease in aggregate demand.

Banks destroy money when they:

fail to reissue loans that are paid off.

An expected rise in the rate of inflation for consumer goods will:

increase aggregate demand.

When a bank loan is repaid, the supply of money:

is decreased

The Federal Reserve Banks are owned by the:

member banks

Which one of the following do economists consider to be a stock?

money

Which of the following is the basic economic policy function of the Federal Reserve Banks?

controlling the supply of money


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