ECO2013 Final Exam M.Choice

If the reserve requirement is 25%, a new deposit of $1,000 leads to a potential increase in the money supply of: A) $4,000. B) $250. C) $10,000. D) $5,000.

A) $4,000.

If income is $3,000 and savings is $300, the average propensity to save is 0.01. A) False B) True

A) False

The 2007 housing crisis led banks to increase lending in an effort to offset foreclosures. A) False B) True

A) False

The U.S. price level rose more than expected after the 2008-2009 stimulus. A) False B) True

A) False

The two types of reserves are federal reserves and required reserves. A) False B) True

A) False

In both the simple Keynesian model and the full Keynesian model, the sum of injections of spending must equal the sum of withdrawals at equilibrium. A) True B) False

A) True

In the simple Keynesian model, if people earn $4 billion and spend $3.5 billion on consumption goods, then saving is $0.5 billion. A) True B) False

A) True

One reason the price level did not rise after the 2008-2009 stimulus policy actions is that it may not have shifted aggregate demand to the right. A) True B) False

A) True

The U.S. Patent Office grants Rene a patent for a new method of waterproofing outdoor gear. It is acting in its role to promote economic growth by: A) ensuring a stable legal system. B) providing physical and human capital. C) ensuring a stable and secure financial system. D) promoting free and competitive markets.

A) ensuring a stable legal system.

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in: A) increased inflation. B) increased output. C) both increased output and increased inflation. D) neither increased output nor increased inflation.

A) increased inflation.

All of the following are considered sources of long-run growth EXCEPT: A) increases in demand. B) increases in capital. C) increases in productivity. D) improvements in technology.

A) increases in demand.

The phenomenon of hoarding money when the interest rate falls to low levels is an outcome of: A) the liquidity trap. B) the transactions demand for money. C) the precautionary demand for money. D) deflation.

A) the liquidity trap.

A deferment on a college loan means that it need not be paid off at all. A) True B) False

B) False

Changes in spending modify income by an amount equal to the change in spending. A) True B) False

B) False

If money is used as a store of value, it cannot be used as a medium of exchange. A) True B) False

B) False

One of the causes of the 2007-2008 financial crisis was lack of faith in the ability of the U.S. Treasury to pay on government bonds. A) True B) False

B) False

(Figure: Determining SRAS Shifts) If the government raises taxes or increases regulations, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will be at _____. A) SRAS1; P0 B) SRAS1; P1 C) SRAS2; P1 D) SRAS2; P2

B) SRAS1; P1

Economic growth is relatively stable when consumers and businesses have a good idea of the likely rate of inflation in the near future. A) False B) True

B) True

Expansionary monetary policy tends to increase exports. A) False B) True

B) True

The power of compounding explains why countries with policies aimed at increasing the annual rate of economic growth can, over time, become much richer than countries that don't. A) False B) True

B) True

Applying for multiple credit cards at one time: A) can be good, because it raises your credit score. B) can be bad, because it lowers your credit score. C) is good if you plan to pay off any bills you accrue. D) is good for students who need to establish a credit history.

B) can be bad, because it lowers your credit score.

The Taylor rule for federal funds targeting places: A) no weight on the inflation gap. B) equal weight on the inflation and output gaps. C) more weight on the output gap than the inflation gap. D) more weight on the inflation gap than the output gap.

B) equal weight on the inflation and output gaps.

Unanticipated _____ is detrimental to economic growth. A) inflation but not deflation B) inflation or deflation C) deflation but not inflation D) Neither inflation nor deflation is detrimental to economic growth.

B) inflation or deflation

In the Keynesian aggregate expenditure model, prices are assumed to be fixed because: A) unemployment is low. B) resources are idle (underutilized). C) consumption and disposable income are closely related. D) the government heavily intervenes in the economy.

B) resources are idle (underutilized).

Perry deposits $10,000 in his bank account. If the reserve requirement is 15%, how much of this amount can his bank make in new loans? A) $1,500 B) $15,000 C) $8,500 D) $10,000

C) $8,500

If the Fed sets a fixed rate for money supply growth, it is using: A) fiscal policy. B) inflation targeting. C) monetary targeting. D) the Taylor rule.

C) monetary targeting.

Which of the following statements concerning the function of money is INCORRECT? A) Money gives us a yardstick for measuring the values of goods and services. B) Money helps us avoid the problem of lack of a double coincidence of wants. C) Money helps us save time in purchasing goods and services. D) Money does not lose value when inflation occurs.

D) Money does not lose value when inflation occurs.

Which of the following is a provision of the Federal Reserve Act or subsequent legislation that weakens the independence of the Fed? A) The Fed's actions are subject to executive branch control. B) Members of the Federal Reserve Board serve 14-year terms. C) Members of the Federal Reserve Board cannot be reappointed. D) The Federal Reserve System is subject to Congressional oversight.

D) The Federal Reserve System is subject to Congressional oversight.

Which of the following is NOT true? A) The supply of loanable funds comes from saving. B) Saving behavior is a cultural phenomenon. C) The reward for not spending today is the interest received on saving. D) The supply of funds to the loanable funds market is inversely related to the interest rate.

D) The supply of funds to the loanable funds market is inversely related to the interest rate.

The real GDP that firms will produce at varying price levels is: A) aggregate demand. B) individual product demand. C) individual product supply. D) aggregate supply.

D) aggregate supply.