ECON 202 final

How do changes in income tax policies affect aggregate demand? A) Higher taxes increase disposable income, consumption, and aggregate demand. B) Higher taxes reduce disposable income, consumption, and aggregate demand. C) Higher taxes increase corporate investment and aggregate demand. D) Higher taxes increase aggregate supply and thus increase aggregate demand as well.

B) Higher taxes reduce disposable income, consumption, and aggregate demand.

To combat a recession with discretionary fiscal policy, Congress and the president should A) decrease government spending to balance the budget. B) decrease taxes to increase consumer disposable income. C) lower interest rates and increase investment by increasing the money supply. D) raise taxes on interest and dividends, but not on personal income.

B) decrease taxes to increase consumer disposable income.

Automatic stabilizers refer to A) the money supply and interest rates that automatically increase or decrease along with the business cycle. B) government spending and taxes that automatically increase or decrease along with the business cycle. C) changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. D) changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

B) government spending and taxes that automatically increase or decrease along with the business cycle.

Using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to A) decrease. B) increase. C) not change. D) increase, then decrease.

B) increase.

An increase in real GDP can shift A) money demand to the right and decrease the equilibrium interest rate. B) money demand to the right and increase the equilibrium interest rate. C) money demand to the let and decrease the equilibrium interest rate. D) money demand to the let and increase the equilibrium interest rate.Answer: B

B) money demand to the right and increase the equilibrium interest rate.

If a person withdraws $500 from his/her checking account and holds it as currency, then M1will________ and M2 will ________. A) increase; decrease B) not change; not change C) not change; increase D) decrease; increase E) decrease: decrease

B) not change; not change

Refer to the figure above. If the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to A) lower interest rates. B) raise interest rates. C) lower income taxes. D) raise income taxes.

B) raise interest rates.

An increase in the government budget deficit will shift the ________ curve for loanable funds to the ________ A) supply; right B) supply; left C) demand; right D) demand; left

B) supply; left

Consider the following T- account for National City Bank: If the required reserve ratio is lowered to 8 percent, how much can National City loan out? A) $10,000 B) $8,000 C) $2,000 D) $0

C) $2,000

With a required reserve ratio of 20 percent, an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of A) $2,000. B) $8,000. C) $50,000. D) $100,000.

C) $50,000.

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be A) 19 percent. B) 15 percent. C) 11 percent. D) 6 percent.

C) 11 percent.

The interest rate that banks charge other banks for overnight loans is the A) prime rate. B) discount rate. C) federal funds rate. D) Treasury bill rate.

C) federal funds rate.

Increases in the price level A) increase the opportunity cost of holding money. B) decrease the opportunity cost of holding money. C) increase the quantity of money needed for buying and selling. D) decrease the quantity of money needed for buying and selling.

C) increase the quantity of money needed for buying and selling.

If you transfer all of your currency to your checking account, then initially, M1 will ________ and M2 will ________. A) increase; not change B) not change; increase C) not change; not change D) decrease; increase

C) not change; not change

The Fed can increase the federal funds rate by A) selling Treasury bills, which increases bank reserves. B) buying Treasury bills, which increases bank reserves. C) selling Treasury bills, which decreases bank reserves. D) buying Treasury bills, which decreases bank reserves.

C) selling Treasury bills, which decreases bank reserves.

Reserves of a bank equal its A) vault cash. B) deposits with the Federal Reserve. C) vault cash plus deposits with the Federal Reserve. D) vault cash plus deposits of its customers.

C) vault cash plus deposits with the Federal Reserve.

If the number employed is 190 million, the working- age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is A) 5%. B) 5.2%. C) 8%. D) 10%. E) 50%.

A) 5%.

Refer to Figure above. In the graph above, suppose the economy is initially at point A . The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Congress and the president? A) a decrease in income taxes B) a decrease in interest rates C) a decrease in government purchases D) an increase in the money supply

A) a decrease in income taxes

The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of A) automatic stabilizers. B) discretionary fiscal policy. C) discretionary monetary policy. D) automatic monetary policy.

A) automatic stabilizers.

In the figure above, when the money supply shits from MS 1 to MS 2, at the interest rate of 3 percent households and firms will A) buy Treasury bills. B) sell Treasury bills. C) neither buy nor sell Treasury bills. D) want to hold more money.

A) buy Treasury bills.

For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the A) federal funds rate. B) Treasury bill rate. C) discount rate. D) prime rate.

A) federal funds rate.

Refer to the figure above. In the figure, the money demand curve would move from Money demand1 to Money demand2 if A) real GDP increased. B) the price level decreased. C) the interest rate increased. D) the Federal Reserve sold Treasury securiies.

A) real GDP increased.

Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank. If the required reserve ratio is 10 percent, what is the maximum change in money supply? A) - $200 million B) - $180 million C) $2 million D) $180 million

D) $180 million

Imagine that Carla deposits $100,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 15%. As a result of Carla's deposit, Bank A can make a maximum loan of A) $25,000. B) $15,000. C) $5,000. D) $85,000

D) $85,000

If the CPI changes from 125 to 120 between 2012 and 2013, how did prices change between2012 and 2013? A) Prices increased by 5%. B) Prices decreased by 5% C) Prices increased by 25%. D) Prices decreased by 4%.

D) Prices decreased by 4%.

Refer to Figure above. In the figure, a movement from point A to point B would be caused by A) a decrease in real GDP. B) an increase in the price level. C) a decrease in the price level. D) an increase in the interest rate.

D) an increase in the interest rate.