econ 309 test 1

All of the following items directly raise the disposable income of U.S. households except the: A) federal government's sending a Social Security check to Betty Jones. B) federal government's sending a pay check to the president of the United States. C) federal government's buying a Patriot missile. D) city of Boston's sending a pay check to a school librarian.

A) federal government's sending a Social Security check to Betty Jones.

Real GDP ______ over time and the growth rate of real GDP ______. A) grows; fluctuates B) is steady; is steady C) grows; is steady D) is steady; fluctuates

A) grows; fluctuates

When the Fed increases the interest rate paid on reserves, it: A) increases the reserve-deposit ratio (rr). B) decreases the reserve-deposit ratio (rr). C) increases the monetary base (B). D) decreases the monetary base (B).

A) increases the reserve-deposit ratio (rr).

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. No government exists. In this case, the equilibrium real interest rate is: A) 2 percent. B) 5 percent. C) 10 percent. D) 20 percent.

B) 5 percent

Which of the following events would affect the CPI but not the GDP deflator?A) An American airplane manufacturer raises the price it charges the US air force for fighter jets. B) Toyota raises the prices of the cars it sells in the US. C) An American bread producer cuts the price of its breads. D) Landscapers around the country raise the price they charge for landscaping.

B) Toyota raises the prices of the cars it sells in the US.

The marginal product of capital is: A) output divided by capital input. B) additional output produced when one additional unit of capital is added. C) additional output produced when one additional unit of capital and one additional unit of labor are added. D) value of additional output when one dollar's worth of additional capital is added.

B) additional output produced when one additional unit of capital is added.

Economists use the term money to refer to: A) wealth. B) assets used for transactions. C) income D) wage.

B) assets used for transactions.

A bank balance sheet consists of only these items: Deposits: $2000 Securities: $750 Loans: $2500 Reserves $250 Debt $500 What is the value of bank capital? A) -$1,000 B) +$500 C) +$1,000 D) +$2,000

C) +$1,000

A typical trend during a recession is that: A) the unemployment rate falls. B) the popularity of the incumbent president rises. C) incomes fall. D) the inflation rate rises.

C) incomes fall.

High-powered money is another name for: A) currency. B) demand deposits. C) the monetary base. D) M2.

C) the monetary base.

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then: A) it cannot be determined whether the money supply increases or decreases. B) the money supply increases. C) the money supply decreases. D) the money supply does not change.

C) the money supply decreases.

A bank balance sheet consists of only these items: Deposits: $2000 Securities: $750 Loans: $2500 Reserves $250 Debt $500 What is the leverage ratio? A) 10 B) 20 C) 25 D) 35

D) 35

The money supply will decrease if the: A) monetary base increases. B) currency-deposit ratio increases. C) discount rate decreases. D) reserve-deposit ratio decreases.

B) currency-deposit ratio increases

The money supply will decrease if the: A) monetary base increases. B) currency-deposit ratio increases. C) discount rate decreases. D) reserve-deposit ratio decreases.

B) currency-deposit ratio increases.

When a firm sells a product out of inventory, investment expenditures ______ and consumption expenditures ______. A) increase; decrease B) decrease; increase C) decrease; remain unchanged D) remain unchanged; increase

B) decrease; increase

When the Fed decreases the interest rate paid on reserves, it: A) decreases the monetary base (B). B) decreases the reserve-deposit ratio (rr). C) increases the reserve-deposit ratio (rr). D) increases the monetary base (B).

B) decreases the reserve-deposit ratio (rr).

Endogenous variables are: A) fixed at the moment they enter the model. B) determined within the model. C) the inputs of the model. D) from outside the model.

B) determined within the model.

Macroeconomic models are used to explain how ______ variables influence ______ variables. A) endogenous; exogenous B) exogenous; endogenous C) microeconomic; macroeconomic D) macroeconomic; microeconomic

B) exogenous; endogenous

If government purchases exceed taxes minus transfer payments, then the government budget is: A) balanced. B) in deficit. C) in surplus. D) endogenous.

B) in deficit.

The production function feature called "constant returns to scale" means that if we: A) multiply capital by z1 and labor by z2, we multiply output by z3. B) increase capital and labor by 10 percent each, we increase output by 10 percent. C) increase capital and labor by 5 percent each, we increase output by 10 percent. D) increase capital by 10 percent and increase labor by 5 percent, we increase output by 7.5 percent.

B) increase capital and labor by 10 percent each, we increase output by 10 percent.

Crowding out occurs when an increase in government spending ______ the interest rate and investment ______. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

B) increases; decreases

In a simple model of the supply and demand for pizza, when aggregate income increases, the price of pizza _____ and the quantity purchased ______. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases

B) increases; increases

A firm's economic profit is: A) the price of output minus the wage minus the rental price of capital. B) revenue minus costs. C) revenue plus capital costs. D) the price of output minus labor costs.

B) revenue minus costs.

To reduce the money supply, the Federal Reserve: A) buys government bonds. B) sells government bonds. C) creates demand deposits. D) destroys demand deposits.

B) sells government bonds.

Since GDP includes only the additions to income, not transfers of assets, ______ are not included in the computation of GDP. A) final goods B) used goods C) consumption goods D) goods produced for inventory

B) used goods

All of the following are considered major functions of money except as a: A) medium of exchange. B) way to display wealth C) unit of account. D) store of value.

B) way to display wealth

The largest component of GDP is: A) consumption. B) investment. C) government purchases. D) net exports.

A) consumption.

Nominal GDP means the value of goods and services is measured in ______ prices. A) current B) real C) constant D) average

A) current

If the Federal Reserve wishes to increase the money supply, it should: A) decrease the discount rate. B) increase interest paid on reserves. C) sell government bonds. D) decrease the monetary base.

A) decrease the discount rate.

The banking system creates: A) liquidity. B) wealth. C) reserves. D) currency.

A) liquidity.

A bank balance sheet consists of only these items: Deposits: $2000 Securities: $750 Loans: $2500 Reserves $250 Debt $500 What is the reserve-deposit ratio? A) 5% B) 10% C) 12.5% D) 20%

C) 12.5%

The quantity of money in the United States is essentially controlled by the: A) President of the United States. B) Department of the Treasury. C) Federal Reserve. D) system of commercial banks.

C) Federal Reserve.

How do we measure M2 money supply? A) M1+ demand deposits B) Currency + M1 C) M1+ saving deposits D) Currency + saving deposits

C) M1+ saving deposits

The marginal propensity to consume is: A) normally expected to be between zero and one. B) equal to consumption divided by disposable income. C) normally assumed to decrease as disposable income increases. D) normally assumed to increase as disposable income increases.

A) normally expected to be between zero and one.

In the national income accounts, all of the following are classified as government purchases except: A) payments made to Social Security recipients. B) services provided by police officers. C) purchases of military hardware. D) services provided by U.S. senators.

A) payments made to Social Security recipients.

Real GDP means the value of goods and services is measured in ______ prices. A) current B) actual C) constant D) average

C) constant

In a closed economy, the components of GDP are: A) consumption, investment, government purchases, and exports. B) consumption, investment, government purchases, and net exports. C) consumption, investment, and government purchases. D) consumption and investment.

C) consumption, investment, and government purchases.

Recessions are periods when real GDP: A) increases slowly. B) increases rapidly. C) decreases mildly. D) decreases severely.

C) decreases mildly.

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, investment: A) rises by $100 billion. B) rises by $60 billion. C) falls by $60 billion. D) falls by $100 billion.

C) falls by $60 billion.

If a person quits his job to become a stay-at-home parent, the labor force participation rate ________, and the unemployment rate ________, A) rises, rises B) rises, stays the same C) falls, rises D) falls, stays the same

C) falls, rises

The government spending component of GDP includes all of the following except: A) federal spending on goods. B) state and local spending on goods. C) federal spending on transfer payments D) federal spending on services.

C) federal spending on transfer payments

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier. A) more; increase B) more; decrease C) fewer; increase D) fewer; decrease

C) fewer; increase

The more funds that the Federal Reserve makes available for banks to borrow, the _____ the monetary base and the _____ the money supply. A) smaller; smaller B) smaller; greater C) greater; greater D) greater; smaller

C) greater; greater

In US history, deflation A) is the norm. B) is about as common as inflation. C) is rare now but has occurred at times in the past. D) has never occurred.

C) is rare now but has occurred at times in the past.

In the United States, the money supply is determined: A) only by the Fed. B) only by the behavior of individuals who hold money and of banks in which money is held. C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held. D) according to a constant-growth-rate rule.

C) jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held.

When the demand for loanable funds exceeds the supply of loanable funds, households want to save ______ than firms want to invest and the interest rate ______. A) more; rises B) more; falls C) less; rises D) less; falls

C) less; rises

Assets of banks include: A) money market mutual funds. B) currency in the hands of the public. C) loans to customers. D) demand deposits.

C) loans to customers.

The money supply will increase if the: A) currency-deposit ratio increases. B) reserve-deposit ratio increases. C) monetary base increases. D) discount rate increases.

C) monetary base increases.

Open-market operations change the ______; changes in interest rate paid on reserves change the ______; and changes in the discount rate change the ______. A) monetary base; monetary base; monetary base B) money multiplier; money multiplier; money multiplier C) monetary base; money multiplier; monetary base D) money multiplier; monetary base; money multiplier

C) monetary base; money multiplier; monetary base

The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called: A) a budget deficit. B) fiscal policy. C) the identification problem. D) crowding out.

C) the identification problem.

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase. A) reserve requirements B) the discount rate C) the money supply D) the reserve-deposit ratio

C) the money supply

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, then: A) it cannot be determined whether the money supply increases or decreases. B) the money supply increases. C) the money supply decreases. D) the money supply does not change.

C) the money supply decreases.

Assume that apples cost $0.50 in 2002 and $1 in 2007, whereas oranges cost $1 in 2002 and $0.50 in 2007. If 10 apples and 5 oranges were produced in 2002, and 5 apples and 10 oranges were produced in 2007, the CPI for 2007, using 2002 as the base year, is: A) 0.75. B) 0.80. C) 1. D) 1.25.

D) 1.25.

Which one of below is not a difference between CPI and GDP deflator? A) GDP deflator frequently changes weights while CPI is revised very infrequently. B) CPI will consider imported goods because they are still considered as consumer goods while C) The GDP deflator measures a changing basket of commodities while CPI always GDP deflator will only contain prices of domestic goods. indicates the price of a fixed representative basket. D) There is unmeasured changes in quality problem when computing GDP deflator, while there is no such problem when computing CPI.

D) There is unmeasured changes in quality problem when computing GDP deflator, while there is no such problem when computing CPI.

Economists use models because they are A) clarify our thinking. B) show how exogenous variables influence endogenous variables. C) are fun. D) all of the above.

D) all of the above.

To increase the monetary base, the Fed can: A) Conduct open-market purchases. B) conduct open-market sales. C) raise the interest rate paid on reserves. D) lower the required reserve ratio.

A) Conduct open-market purchases.

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.

A) 50.

If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then: A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen. B) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had fallen. C) the money supply would fall more than it would have fallen if the reserve-deposit ratio had risen. D) it is impossible to be certain whether the money supply would fall or rise in this case.

A) the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen.

The assumption of continuous market clearing means that: A) sellers can sell all that they want at the going price. B) buyers can buy all that they want at the going price. C) in any given month, buyers can buy all that they want and sellers can sell all that they want at the going price. D) at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

D) at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed: A) only to the labor used in production. B) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. C) equally between the labor and capital used in production. D) between the labor and capital used in production, according to their marginal productivities.

D) between the labor and capital used in production, according to their marginal productivities.

Compared with a recession, real GDP during a depression: A) increases more rapidly. B) increases at approximately the same rate. C) decreases at approximately the same rate. D) decreases more severely.

D) decreases more severely.

When the Fed makes an open-market sale, it: A) increases the money multiplier (m). B) increases the currency-deposit ratio (cr). C) increases the monetary base (B). D) decreases the monetary base (B).

D) decreases the monetary base (B).

Liabilities of banks include: A) reserves. B) currency in the hands of the public. C) loans to customers. D) demand deposits.

D) demand deposits.

Public saving is: A) always positive. B) always negative. C) always zero. D) either positive, negative, or zero.

D) either positive, negative, or zero.

In an economic model: A) exogenous variables and endogenous variables are both fixed when they enter the model. B) endogenous variables and exogenous variables are both determined within the model. C) endogenous variables affect exogenous variables. D) exogenous variables affect endogenous variables.

D) exogenous variables affect endogenous variables.

When bread is baked but put away for later sale, this is called: A) waste. B) saving. C) fixed investment. D) investment in inventory.

D) investment in inventory.

When the Fed increases the discount rate, it: A) increases the reserve to deposit ratio (rr). B) decreases the reserve to deposit ratio (rr). C) is likely to increase the monetary base (B) D) is likely to decrease the monetary base (B).

D) is likely to decrease the monetary base (B).

If nominal GDP and real GDP both rise by 10 percent, then the GDP deflator A) also rises by 10 percent. B) rises by about 20 percent. C) falls by 10 percent. D) is unchanged

D) is unchanged

The real interest rate is the: A) rate of interest actually paid by consumers. B) rate of interest actually paid by banks. C) rate of inflation minus the nominal interest rate. D) nominal interest rate minus the rate of inflation.

D) nominal interest rate minus the rate of inflation.

The labor force equals the: A) adult population. B) number of employed individuals. C) number of unemployed individuals. D) number of employed and unemployed individuals.

D) number of employed and unemployed individuals.

Excess reserves are reserves that banks keep: a. in their vaults. b. at the central bank. c. to meet legal reserve requirements. d. above the legally required amount.

d. above the legally required amount.