exam 3 practice test

Table 14-2 Assets- Reserves +$8,000 Liabilities- Deposits + $8,000 Refer to Table 14-2. Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank can make a maximum loan of $0. $800. $7,200. $8,000.

$7,200.

Based on the following information for a closed economy, what is the level of private savings? Total GDP (Y) = $17 billion Consumption = $5 billion Government spending = $6 billion Taxes = $3 billion -$1 billion -$3 billion $7 billion $9 billion $12 billion

$9 billion

Suppose Warren Buffet withdraws $1 million from his checking account at Chase Manhattan Bank. If the required reserve ratio is 20 percent and banks do not keep excess reserves, what is the maximum change in deposits in the banking system? -$5 million -$4 million -$200,000 $-1 million

-$5 million

Suppose that M = 300, P = 150, and Y = 6. Then the velocity of money equals 3.00. 0.02. 2.00. 0.50.

3.00.

If the marginal propensity to consume is 0.8, the government spending multiplier must be: -2. -4. 5. -5.

5

Which of the following is an example of a contractionary fiscal policy? An increase in individual income taxes. A cut in business taxes. An increase in the discount rate set by the central bank. An increase in the purchase of government bonds by the central bank. None of the above.

An increase in individual income taxes.

Which of the following is likely to cause a shift in the Phillips Curve to the right? An increase in inflation expectations. An increase in the unemployment rate. An increase in tax rates. A decrease in spending by the government.

An increase in inflation expectations.

Good money must posses the following feature(s) be convenient in use. have intrinsic value. be commodity-backed. all of the above.

be convenient in use.

If the government wishes to increase GDP by $1,000b, and the MPC is 0.8, it should: cut taxes by $100b. cut taxes by $125b. cut taxes by $200b. cut taxes by $250b.

cut taxes by $250b.

Expansionary monetary policy would _____________ output in the short-run and would ______________ output in the long-run. increase, increase. increase, not affect. increase, decrease. not affect, not affect.

increase, not affect.

Who among following represent the supply side in the loanable funds model? student taking a loan. individual buying a health insurance. firm issuing stocks. family buying a house.

individual buying a health insurance.

An increase in government deficit can be shown in the model of loanable funds as a shift of the savings curve to the right. investment curve to the right. investment curve to the left. savings curve to the left.

investment curve to the right.

When Fed Reserve sell bonds at the open market it causes a shift of the supply of money to the left. demand for money to the left. demand for money to the right. supply of money to the right.

supply of money to the left.

Which of the following is an example of the "shoe-leather costs" of inflation? a rise in the cost of primary raw materials, like leather for shoes miscalculations due to money illusion the need to take more trips to the bank an artificial rise in the capital gains tax All of the above

the need to take more trips to the bank

The idea that aggregate price levels do not affect real outcomes in the economy is called: the efficient market hypothesis. the aggregate price theory. the neutrality of money. the real output theory.

the neutrality of money.

What are the components of M1 money supply? Cash, checkable deposits, and money market funds. Time deposits, demand deposits, and traveler's checks. Cash, checkable deposits, and traveler's checks. Credit cards, debit cards, and cash. None of the above.

Cash, checkable deposits, and traveler's checks.

Stagflation is a sustained fall in the aggregate price level. True. False.

False

The higher is the reserve ratio , the bigger is the effect of the money multiplier. True. False.

False

The time lags of the monetary policy are even longer than time lags of fiscal policy. True. False.

False

In which of the following situations will an inflationary pressure arise in an economy? If the central bank lowers the reserve requirement for commercial banks. If the government raises tax rates. If the government lowers its expenditure. If the central bank sells government bonds to commercial banks.

If the central bank lowers the reserve requirement for commercial banks.

What impact does monetary policy have on the long-run Phillips curve? Monetary policy can only shift the long-run Phillips curve to the right. Monetary policy can only shift the long-run Phillips curve to the left. Monetary policy has no impact on the long-run Phillips curve. Monetary policy shifts the long-run Phillips curve to the right or left, depending on whether monetary policy is expansionary or contractionary.

Monetary policy has no impact on the long-run Phillips curve.

Which of the following is true of the debt/GDP ratio in the U.S.? The debt/GDP ratio in the United States rose from 2002 to 2008. The debt/GDP ratio in the United States during the 1940s was very low. The debt/GDP ratio in the United States increased from the 1950s to the 1970s. The debt/GDP ratio in the United States fell sharply in the 1980s and early 1990s. none of the above.

The debt/GDP ratio in the United States rose from 2002 to 2008.

Identify the correct trend in government spending in the United States. The share of GDP spent on healthcare has decreased over the years. The total spending by state and local governments has decreased sharply over the years. The share of GDP spent on education has decreased over the years. The share of GDP spent on Social Security has increased over the years. None of the above.

The share of GDP spent on Social Security has increased over the years.

The crowding out effect refers to the decrease in consumption caused by decrease in savings. decrease in private investment caused by increase in government spending. decrease in employment caused by technological progress. decrease in consumption caused by increase in interest rates. decrease in domestic investment caused by inflow of foreign investment.

decrease in private investment caused by increase in government spending.

An example of automatic stabilizer is the Federal Reserve reducing interest rates as economic growth slows. expenditure for unemployment benefits increasing as economic growth slows. the federal government expanding spending at the Department of Education. Congress passing a tax rate reduction package.

expenditure for unemployment benefits increasing as economic growth slows.