Exam 4

Which of the following is most likely to be a major source of growth in per capita GDP? a. A high investment/GDP ratio. b. A high rate of inflation. c. Rapid population growth. d. Rapid growth in the money supply.

a. A high investment/GDP ratio.

Which of the following will increase economic freedom? a. Freedom to enter and compete in markets. b. High tariff rates. c. High taxes. d. Rapid and unpredictable inflation.

a. Freedom to enter and compete in markets.

Which of the following would lead to a rapid growth of the money supply in the future? a. The use of large reserves by banks to extend additional loans. b. A reduction in government expenditures to reduce the size of the federal deficit. c. An increase in government expenditures financed by taxes. d. An increase in the interest rate the Fed pays banks holding reserves.

a. The use of large reserves by banks to extend additional loans.

An increase in the money supply a. lowers the interest rate, causing a decrease in investment and an increase in GDP. b. lowers the interest rate, causing an increase in investment and decrease in GDP. c. lowers the interest rate, causing an increase in investment and increase in GDP. d. raises the interest rate, causing an increase in investment and increase in GDP. e. raises the interest rate, causing a decrease in investment and an decrease in GDP

a. lowers the interest rate, causing a decrease in investment and an increase in GDP.

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because a. real interest rates will fall, stimulating business investment and consumer purchases. b. the dollar will appreciate on the foreign exchange market, leading to a decrease in net exports. c. lower interest rates will tend to decrease asset prices (for example, stock prices), which decreases wealth and, thereby, decreases current consumption. d. the general level of prices will fall, which will increase the disposable income of households.

a. real interest rates will fall, stimulating business investment and consumer purchases.

When expansionary monetary policy pushes interest rates downward to a low level, a. the velocity of money will decline, which will weaken the expansionary impact on demand and nominal GDP. b. the velocity of money will increase, which will strengthen the expansionary impact on demand and nominal GDP. c. the prices of stocks and other real assets can be expected to fall, which will weaken the impact of the expansionary policy on demand and nominal GDP. d. the earnings derived from savings accounts will increase, which will stimulate demand and nominal GDP.

a. the velocity of money will decline, which will weaken the expansionary impact on demand and nominal GDP.

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels? a. Higher tax rates. b. A higher rate of investment. c. A smaller trade sector. d. Greater use of taxation to transfer income from the rich to the poor.

b. A higher rate of investment.

Which of the following is an important ingredient of efficient economic organization? a. High marginal tax rates. b. Competitive markets. c. Rapid increases in the money supply. d. Imposition of high tariffs that will protect domestic producers from the ravages of foreign competition.

b. Competitive markets.

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could a. increase the reserve requirements imposed on commercial banks. b. decrease the interest rate paid on excess reserves encouraging banks to extend more loans. c. sell U.S. government securities and other financial assets that it is currently holding. d. raise the interest rate on loans extended to banks and other financial institutions.

b. decrease the interest rate paid on excess reserves encouraging banks to extend more loans.

According to the quantity theory of money, if the quantity of money doubled, prices would a. fall by half. b. double. c. remain constant. d. increase somewhat but less than double.

b. double.

If many people were to suddenly deposit into their checking accounts large sums of cash previously held in their homes and/or wallets, and there were no offsetting actions by the Fed or change in institutional policies, this would a. increase the reserves of banks and reduce the money supply if these reserves are used to make additional loans. b. increase the reserves of banks and expand the money supply if these reserves are used to make additional loans. c. reduce the reserves of banks and indirectly decrease the money supply. d. reduce the reserves of banks and indirectly increase the money supply.

b. increase the reserves of banks and expand the money supply if these reserves are used to make additional loans.

Researchers have found that countries that were settled by Europeans who were primarily interested in resource extraction were a. more likely to protect private ownership rights and limit the power of the government. b. less likely to protect private ownership rights and limit the power of the government. c. more likely to protect private ownership, but less likely to limit the power of the government. d. less likely to protect private ownership, but more likely to limit the power of the government.

b. less likely to protect private ownership rights and limit the power of the government.

Government policies that heavily tax some activities while subsidizing others and that fix or control interest rates will result in a. higher productivity of investment. b. lower productivity of investment. c. no change in the productivity of investment. d. a greater level of investment.

b. lower productivity of investment.

When per capita real GDP is increasing, real output is growing a. more rapidly than prices. b. more rapidly than population. c. less rapidly than prices. d. less rapidly than population.

b. more rapidly than population.

When the residents of a nation are free to trade with foreigners, domestic producers will be able to a. export more goods for which they are a high-cost supplier. b. supply a larger quantity of goods they can produce at a relatively low cost. c. charge higher prices then would otherwise be the case. d. survive in the marketplace even if they do not produce efficiently.

b. supply a larger quantity of goods they can produce at a relatively low cost.

Which of the following is the primary tool the Fed uses to control the supply of money? a. The discount rate. b. The reserve requirements. c. Open market operations. d. The 30-year home-mortgage interest rate.

c. Open market operations.

In a market economy, what determines whether an entrepreneur will continue in business or terminate the production of a new product? a. Government regulations. b. Licensing by industrial development agencies. c. The profit or loss of the business. d. The taxes paid to the government relative to the subsidies received.

c. The profit or loss of the business.

Which of the following is true of home mortgage loans since the late 1990s? a. Government regulations required homebuyers to make larger down payments in order to obtain a mortgage. b. Traditional fixed-rate, long-term mortgages grew in popularity. c. There was a substantial increase in the volume of mortgage loans extended with little or no down payment. d. High interest rates made it less attractive to lock in to a fixed-rate, long-term loan.

c. There was a substantial increase in the volume of mortgage loans extended with little or no down payment.

Countries with more economic freedom during 1990-2013 tended to grow more rapidly, but the 2013 income levels of the freer economies a. were still lower than those that were less free. b. achieve higher levels of income but the growth rates of the less free economies have been more rapid in recent years. c. achieve both more rapid growth and higher income levels than those that were less free. d. grow less rapidly and the 2013 income levels of the freer economies were lower than those that were less free.

c. achieve both more rapid growth and higher income levels than those that were less free.

If a nation is going to achieve and sustain a high rate of economic growth, it must a. prohibit low-wage foreign producers from supplying goods to the domestic market. b. have an abundant domestic supply of low cost energy resources. c. have a mechanism capable of attracting savings and channeling them into wealth-creating projects. d. impose regulations that will limit the intensity of competition among domestic firms.

c. have a mechanism capable of attracting savings and channeling them into wealth-creating projects.

One advantage of a money system compared to a barter system is that a. barter never works. b. money creates the need for banks. c. money is more efficient. d. everyone has money.

c. money is more efficient.

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country do which of the following? a. Encourage market exchange. b. Reward innovation. c. Protect people and their property. d. All of the above.

d. All of the above.

Which of the following is a key characteristic of economic freedom? a. Institutions and policies supportive of voluntary exchange. b. Freedom to compete. c. Protection of people and their property from aggressors. d. All of the above.

d. All of the above.

If the Fed raises the discount rate, what happens to reserves and the money supply? a. Reserves increase and the money supply decreases. b. Both increase. c. Reserves decrease and the money supply increases. d. Both decrease.

d. Both decrease.

A shift to a more expansionary monetary policy will a. increase the long-term growth rate of the economy. b. reduce the future rate of inflation. c. Stimulate output and employment almost immediately. d. Stimulate output and employment, but only after a time lag that is generally long and variable.

d. Stimulate output and employment, but only after a time lag that is generally long and variable.

Which of the following will be required for a country to move up the income ladder and achieve high-income status? a. Rapid growth of the money supply. b. Restrictions limiting the import of goods from other nations, particularly low-wage countries. c. Tax incentives that encourage consumption rather than investment. d. Sustained economic growth.

d. Sustained economic growth.

The primary benefit of a monetary system of exchange compared to a barter system is the increased a. ability to record transactions. b. time necessary to find trading partners. c. time devoted to shopping. d. efficiency in arranging transactions.

d. efficiency in arranging transactions.

Shifts in monetary policy will a. stimulate output and employment almost immediately, and this will make it easier for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. b. stimulate output and employment almost immediately, and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. c. stimulate output and employment with time lags that are long and variable and this will make it easier for policy-makers to change monetary policy in a manner that will promote macroeconomic stability. d. stimulate output and employment with time lags that are long and variable and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability.

d. stimulate output and employment with time lags that are long and variable and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability.

The main source of profit for financial institutions is a. their ownership of stocks in commercial corporations. b. their ownership of real assets received in foreclosures on loans to households. c. the fees charged for holding and servicing checking accounts. d. the difference between interest paid on deposits and interest received on loans. e. the difference between the cost of creating new money and the interest paid on loans.

d. the difference between interest paid on deposits and interest received on loans.

A decrease in the money supply a. lowers the interest rate, causing a decrease in investment and a decrease in GDP. b. lowers the interest rate, causing a decrease in investment and an increase in GDP. c. raises the interest rate, causing an increase in investment and a decrease in GDP. d. raises the interest rate, causing an increase in investment and an increase in GDP. e. raises the interest rate, causing a decrease in investment and a decrease in GDP.

e. raises the interest rate, causing a decrease in investment and a decrease in GDP.