econ 5-10
A careful study has determined that bus transit has an external benefit for society valued at $2 per bus ride as a result of the reductions in urban congestion and air emissions that result. Consider the current demand for and supply of bus transit, which in this locale is provided by a number of firms in a competitive marketplace and which currently do not account for the $2 per-ride external benefit. Using the line drawing tool, draw a new curve that accurately takes into account the external benefit, thereby indicating a socially efficient allocation of resources. Properly label you line. Carefully follow the instructions above, and only draw the required objects. To reach the optimal level of production shown in your graph, the government should A. pay a subsidy to either the producers or riders This is the correct answer. B. do nothing C. start to produce the good Your answer is not correct. D. tax those receiving the extra benefit
A
A currency will cease to function as money if A. people think that they will not be able to use it to exchange for goods and services later. B. people learn that the inflation rate has been higher than they had thought. C. people think that inflation was going to reduce the value of the currency. D. people learn that they cannot convert their currency into gold or silver.
A
A price index is computed as A. (cost of market basket today÷cost of market basket in base year)×100. B. (cost of market basket in base year÷cost of market basket today)×100. C. (cost of market basket in base year÷CPI)×100. D. (CPI÷cost of market basket in base year)×100.
A
If the Fed increases the discount rate, relative to the federal funds rate, then this A. would increase the cost of funds for institutions borrowing from the Fed. B. would decrease the cost of funds for institutions borrowing from the Fed. C. would cause the money supply to increase. D. would cause the required reserve ratio to decrease.
A
In the decision making process for markets and the public sector A. the spending of dollars can indicate intensity of want, but political voting does not. B. the market system is run by proportional voting rules and the public sector is run by majority rule. C. dollars spent count as votes in the market system, but in the public sector one person gets one vote. D. All of the above.
A
Many economists believe that the growth of the money supply is A. positively related to the growth of real GDP. B. not related to output growth. C. inversely related to the price level. D. directly related to interest rate growth.
A
A cost or benefit of an economic activity that has an impact on an individual's well-being, even though the individual was not directly involved in the activity, is known as a(n) A. public good. B. externality. C. free-rider. D. capital loss.
B
A good that has been deemed socially desirable through the political process is known as A. a positive externality. B. a merit good. C. a free-rider. D. a demerit good.
B
Financial intermediaries A. include the Fed and banks but do not include savings and loans or stockbrokers. B. print money. C. transfer funds from savers to investors. D. is another term for the central banks in a country.
C
How do the taxes that are levied on goods and services affect market prices and quantities? A. The equilibrium quantity will decrease and the market price will increase by more than the amount of the tax. B. Taxes have no influence on market price and quantity. C. The equilibrium quantity will decrease and the market price will increase by less than the amount of the tax. D. The equilibrium quantity will decrease and the market price will increase by the same amount as the amount of the tax.
C
In the circular flow of income A. households buy goods and services while firms sell goods and services. Firms obtain labor from households, capital from government, and raw materials from firms. B. households demand goods and services which are supplied by firms, and the firms demand resources that are supplied by intermediate firms. C. households demand goods and services that are supplied by firms, while supplying resources that are demanded by firms. D. households buy goods and services and firms supply goods. Resources are supplied by other firms.
C
One reason that collective and private decision making differ is A. private individuals compete and act in their own interest while government bureaucrats do not. B. the government actions do not have an opportunity cost while private actions do. C. individuals working in the government sector face a different incentive structure than those in the private sector. This is the correct answer. D. there is no difference between collective and private decision making.
C
Over the long run any government's fundamental revenue sources are A. taxes and borrowed funds. B. taxes, user charges, borrowed funds, and gold stock. C. taxes and user charges. D. taxes, user charges, and borrowed funds.
C
Based on the accompanying graph which depicts the market for CAT scans, in the free market, the price of a CAT scan would be ▼ $250$100$500. In the free market the quantity of CAT scans consumed would be ▼ 10050175. The government subsidizes the CAT scans and pays hospitals $450.When the subsidy is paid there will be ▼ 180100 CAT scans produced. Consumers are willing to pay ▼ $100$250$500 out of the pocket expenses for a CAT scan. The amount of the subsidy is ▼ $500$100$350. Subsidizing CAT scans results in ▼ moreless CAT scans being consumed.
250,100,180,100,350,more
A perpetual bond sells for $1,000 and will pay $79 a year forever. The Fed changes its policy and the interest rate changes to 9 percent. The price of the bond is now $nothing. (Round your answer to the nearest penny.)
877.78
According to the circular flow of income and output, which of the following is not true? A. Goods, services and money all flow in one direction since money pays for the goods and services. B. Goods and services flow in one direction and money payments flow in the other direction. C. Total income and total output must be equal. D. In every economic transaction, the seller receives exactly the same amount that the buyer spends.
A
By providing information and reducing the costs of job search, the Internet's impact on the job market is to reduce A. frictional unemployment. B. seasonal unemployment. C. cyclical unemployment. D. structural unemployment.
A
Each of the following factors has played a significant role in the rapid expansion of Medicare spending by the U.S. government except A. consumers of Medicare tend to only consume the high valued medical services. Your answer is correct. B. total medical spending (number of consumers times the price of medical services) has risen rapidly in the U.S. C. government planners failed to correctly estimate the increase in consumption of medical services. D. the profit motive of physicians and hospitals.
A
Money may serve as a "standard of value" that allows for comparison of the relative worth of various goods and services. What function of money does this describe? A. Unit of accounting. B. Medium of exchange. C. Standard of deferred payment. D. Store of value.
A
Real GDP is computed by adjusting nominal GDP for A. changes in the price level. B. capital consumption allowances. C. depreciation. D. exchange rate changes.
A
Some economists argue that corporate income taxes are typically not paid by the firm, but by A. the stockholders, employees, and customers. B. the firm's board of directors. C. bondholders. D. the government.
A
Suppose Canada spends less per capita on national defense than many other countries of similar size and income. A reasonable economic explanation would be that A. Canada is able to free-ride on the defense spending of the United States. This is the correct answer. B. Canadians perceive national defense as generating external costs rather than as a public good. C. Canada's tax system is less efficient than other industrial nations. D. national defense is not a public good in Canada.
A
Suppose social security contributions rise by $1 billion while social security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result, A. disposable income should increase while personal income and national income are unchanged. B. personal income, disposable personal income, and national income remain unchanged. C. both personal and disposable personal income should increase. D. national income, personal income, and disposable income should increase.
A
Suppose you go shopping for a gift for a friend and also find a sweater that you want for yourself. You pay cash for the gift and write a check for the sweater. Your purchases are made with money holdings represented by A. the transaction demand for money because you planned to buy the gift and the precautionary demand for money because you did not anticipate buying the sweater. B. the asset demand for money because you used money for both purchases. C. your supply of money to the economy. D. the transaction demand for money because you paid for the gift with cash.
A
The biggest component of GDP using the expenditure approach is ____________ and the biggest component of GDP using the income approach is _____________. A. consumer expenditures; wages B. consumer expenditures; profit C. government expenditures; taxes D. investment expenditures; profit
A
The figure to the right shows the relationship between a government's sales tax revenue and its sales tax rate. According to this figure, static tax analysis provides a good approximation of the revenue effects of an increase in the tax rate over the tax rate range from A. 0 to 5 percent. B. 0 to 8 percent. C. 5 to 8 percent. D. 3 to 7 percent.
A
The following table contains data for a hypothetical economy: Consumer Expenditures $700 million Wages $750 million Investment Expenditures $300 million Interest Payments $140 million Government Expenditures $350 million Interest Receipts $230 million Total Exports $200 million Rent $300 million Total Imports $350 million Profits $60 million According to the expenditure approach, if depreciation is $125 million, GDP is _____________ and NDP is ___________. A. $1,200 million; $1,075 million B. $1,900 million; $1,775 million C. $1,265 million; $1,140 million D. $1,325 million; $1,200 million
A
The following table contains information for the U.S. for 2001. U.S. Economy: 2001 Thousands of Persons Civilian labor force 143,772 Civilian employment 136,940 Civilian working-age population 215,227 Compute the unemployment rate and the labor force participation rate. A. Unemployment rate = 4.75 percent; Labor force participation rate = 66.8 percent. B. Unemployment rate = 3.17 percent; Labor force participation rate = 48.8 percent. C. Unemployment rate = 4.75 percent; Labor force participation rate = 95.25 percent. D. Unemployment rate = 9.52 percent; Labor force participation rate = 66.8 percent.
A
The market is initially in equilibrium where the demand and supply curves intersect. An excise tax has been levied on the good in the diagram to the right shifting the supply curve from S to S + T. What can be said about who pays the tax? A. Both the producer and consumer pay a portion of the tax but the producer pays a larger share. B. The entire tax is paid by the consumer. C. Both the producer and consumer pay a portion of the tax but the consumer pays a larger share. D. The entire tax is paid by the producer.
A
The opportunity cost of money holdings is A. the alternative interest income foregone from not holding some other asset. B. the reduction in purchasing power brought on by deflation. C. the liquidity foregone from not holding some other asset. D. All of the above.
A
When comparing per capita GDP across countries, GDP should be adjusted for A. purchasing power parity. B. population. C. foreign exchange rates. D. the unemployment rate.
A
Which of the following is a major reason why financial intermediaries, such as banks, exist? A. The existence of asymmetric information makes financial intermediaries more efficient in channelling money to its most efficient use. B. Banks create near monies. C. Financial intermediaries exist because they provide a medium of exchange for their customers. D. Banks exist to facilitate exchanges through barter.
A
Which of the following is not a source of funding available to governments? A. Stock sales. B. Taxes. C. User charges. D. Borrowing.
A
Which of the following is the most important source of revenue for the federal budget? A. The federal personal income tax. B. The corporate income tax. C. Social Security and unemployment taxes. D. Sales tax.
A
Which of the following statements is not true about the use of GDP as a measure of national welfare? A. GDP is a useful measure of national welfare since it excludes nonmarket transactions. B. GDP is limited as a measure of national welfare since it does not consider environmental quality. C. GDP is limited as a measure of national welfare since it does not consider the amount of leisure time available to the nation's residents. D. GDP is limited as a measure of national welfare since it does not account for labor market discrimination.
A
Suppose that the economy is depicted at the right. a. The state of the economy depicted at the right can be best described as A. having an inflationary gap. B. a depression. C. being in long-run equilibrium. D. having a recessionary gap. b. Using the line drawing tool, draw a scenario depicting an decrease in the money supply which brings the economy to full employment. Properly label your line. Carefully follow the instructions above, and only draw the required objects.
A, move AD upward (right)
Contractionary monetary policy causes the A. interest rate to increase. B. price level to increase. C. dollar value of real GDP to increase. D. amount of government spending to increase. The net export effect of contractionary monetary policy predicts that a country's A. value of currency depreciates as the money supply contracts. B. exports decrease as the money supply contracts. C. imports decrease as the money supply contracts. D. experience will include all of the above.
A,B
A true public good must be provided by the government. Which of the following goods provided by the government is a true public good? A. Flood control. B. Highways where tolls are collected. C. Tax collection. D. Postal service.
A2
A proportional tax, or flat-rate tax A. takes a lesser percentage of a person's taxable income in tax as their income rises. B. takes the same percentage of a person's taxable income in tax regardless of their level of income. C. takes a greater percentage of a person's taxable income in tax as their income rises. D. takes a greater percentage of a person's taxable income in tax as their income falls.
B
Business fluctuations refer to A. the losers and gainers from anticipated and unanticipated inflation. B. the ups and downs in overall business activity measured by changes in national income, employment and the price level. C. the natural rate of unemployment with the emphasis on the level of frictional unemployment. D. the various types of unemployment.
B
Contractionary monetary policy by the Fed can be hampered by A. the inability of U.S. citizens to hold U.S. bank accounts denominated in foreign currencies. B. the ability of U.S. citizens and businesses to obtain dollars from foreign sources. C. international banking restrictions regulated by the International Monetary Fund. D. the increased isolation of central banks around the world.
B
In an open economy, the net export effect A. may enhance an expansionary fiscal policy and an expansionary monetary policy. B. may offset an expansionary fiscal policy but enhance an expansionary monetary policy. C. may offset an expansionary fiscal policy and an expansionary monetary policy. D. may offset an expansionary monetary policy but enhance an expansionary fiscal policy.
B
In order to be successful, money in a fiduciary monetary system must have A. portability and transformability. B. acceptability and predictability of value. C. divisibility and accountability. D. None of the above.
B
Other than correcting externalities, other economic functions of government include A. deciding which states may or may not impose income taxes, charge fees and enforce contracts. B. providing a legal system, allocating public goods, promoting competition, and stabilizing the economy. C. income redistribution and the regulation and provision of merit and demerit goods. D. deciding what to produce, how to produce it and for whom to produce for all sectors of the economy.
B
Paul needs to decide between buying a slate pool table for $1,800 or being able to go on a New York vacation for $1,000 and still having enough left over to buy a nonslate pool table for $800. Paul opts for the nonslate pool table and the New York vacation. Paul has used money in what ways in making his decision? A. Medium of exchange and a store of value. B. Medium of exchange and a standard unit of account. C. Medium of exchange and a method to decrease deferred payments. D. Store of value and a standard unit of account.
B
Pollution produced by a factory is being dumped into a local river. The community uses local funds to clean the river. This is an example of A. an effluent fee because it is as if the factory is taxing the community. B. an external cost as the community, not the factory, is paying for the clean up. C. a public good. D. an external benefit since it creates jobs in environmental science.
B
Since the financial meltdown of the late 2000s, the Fed has launched a credit policy which consists of A. purchasing some of the debts of auto finance companies. B. providing short-term emergency financing arrangements for nonfinancial firms. C. auctioning funds to banking institutions. D. All of the above.
B
The adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries is called A. raw purchasing power. B. purchasing power parity. C. currency-adjusted purchasing power. D. nominal purchasing power.
B
The demand for money A. is positively related to the opportunity cost of holding money. B. is a downward sloping function of the interest rate. C. is an upward sloping function of the interest rate. D. None of the above.
B
The following transactions take place in 2000: 1. An elderly couple go to the movies and pay $80 for the tickets. 2. A family sells numerous knick-knacks at a garage sale for $55. 3. A young executive buys 100 shares of IBM for $6,000. 4. A college student receives $400 from his parents. 5. A young couple down on their luck receive food stamps worth $150. 6. A plumber performs work for a neighbor and receives $75 in cash that he doesn't record in his company's records. 7. A physician operates on a friend's husband and charges $1,000 for the operation instead of her usual $3,000. 8. A teenager paints the porch on his parents' house. The paint cost $75. The cost of hiring a professional to do the job would have been $400. 9. A high school graduate works a summer job and makes $4,500. 10. The Federal Reserve Bank sells a bond for $1,000. The addition to gross domestic product is A. $14,055. B. $5,655. C. $8,335. D. $15,335.
B
The study of collective decision making, or the process through which voters, politicians and other interested parties influence nonmarket choices is known as A. a private choice theory. B. public choice theory. C. the exclusion principle. D. antitrust legislation.
B
The theory of public choice is the study of A. how the price system allocates resources in the public sector. B. the process through which voters, politicians, and other interested parties interact to influence nonmarket choices. C. the study of the system of rewards or punishments in the private sector.
B
Total income equals the dollar value of total output because A. foreign trade is allowed. B. spending by one group represents income to the other group. C. of the definition of GDP. D. people spend all of their income in every period, so it must go somewhere.
B
Which of the following assets is the least liquid? A. A share of publicly traded stock. B. A house. C. Currency. D. A three-month Treasury bill.
B
Which of the following assets is the most liquid? A. An automobile. B. A U.S. savings bond. C. 50 shares of Microsoft stock. D. A traveler's check.
B
Which of the following is a true statement? A. The FDIC has reduced the problem of moral hazard but not the problem of adverse selection. B. The FDIC has reduced the number of depositors who have lost savings, but in doing so, has inadvertently encouraged banks to make riskier loans. C. Moral hazard is a problem that occurs before a transaction takes place when asymmetric information is a problem. D. Adverse selection occurs after a transaction has taken place in insurance markets.
B
Which of the following is not a reason people choose to hold money balances? A. Having cash to pay for unplanned expenditures and emergencies. B. Money holdings are good assets during periods of inflation. C. Reduced risk compared to other assets. D. Liquidity.
B
Which of the following statements is true when considering central banks? A. Central banks are a relatively new phenomena, appearing after the end of World War II. B. The number of central banks in the world grew enormously after the Great Depression. C. The first central bank was the Bank of England, established by Parliament in 1694. D. Every nation in the world has a central bank that influences the world's economy.
B
The largest component of GDP by far is A. net exports. B. personal consumption expenditures. C. gross private domestic investment. D. government purchases of goods and services. If a household purchases a new car and a new refrigerator, this would be classified as spending on A. consumer nondurables. B. consumer services. C. consumer durables. D. None of the above.
B,C
All of the following are key price indexes except the A. PPI. B. CPI. C. KLB. D. GDP deflator.
C
An example of a fiduciary monetary system is A. paper money that can be converted into gold at a fixed price. B. silver coins. C. American one-dollar bills. D. gold coins
C
Consider an economy where the natural rate of unemployment is equal to 4%. If the actual unemployment rate is equal to 6%, then A. frictional unemployment rate is 2%. B. structural unemployment rate is 2% . C. cyclical unemployment rate is 2% . D. cyclical unemployment rate is 10% .
C
In the figure, P and Q locate the socially optimal price and quantity of a good. In the case of a good that generates positive externalities, the market price would be _____ P and the market quantity would be ______ Q, while in the case of a good that generates negative externalities, the market price would be ________ P and the market quantity would be ____________ Q. A. lower than; equal to; higher than; equal to B. lower than; lower than; higher than; higher than C. lower than; lower than; lower than; higher than This is the correct answer. D. equal to; lower than; higher than; equal to
C
Market failure occurs because A. the market system does not make individuals responsible for the private costs/benefits of their actions. B. the market system forces individuals to consider the social consequences of their actions. C. the market system does not make individuals responsible for the social costs/benefits of their actions. D. the market system forces individuals to consider the social and private consequences of their actions.
C
Required reserves A. are equal to 100% of deposits in a fractional reserve banking system. B. currently must be no more than 5% of the total checkable deposits of a depository institution. C. are the minimum amount of legal reserves that a depository institution must have to back up its checkable deposits. D. are the minimum amount of reserves that must be loaned out by a depository institution.
C
Scott is seeking a loan from his bank for a home improvement project. He receives the loan and then decides to take a special vacation opportunity to Las Vegas and enter a gambling tournament. The bank, as a financial intermediary, is facing a problem of A. adverse selection. B. liabilities. C. moral hazard. D. symmetric information.
C
Subsidizing medical services through Medicare A. makes the quantity supplied of medical services smaller than the quantity demanded. Your answer is not correct. B. makes the quantity demanded of medical services smaller than the quantity supplied. C. raises the price per unit of medical care received by producers. This is the correct answer. D. lowers the price per unit of medical care received by producers.
C
The expenditure approach to tabulating GDP A. adds consumption expenditures, investment expenditures, government expenditures, interest payment and wages. B. excludes investment expenditures because they yield consumption in the future. C. adds up the total amount spent on newly produced domestic goods and services during the year. D. adds up the total value of all income earnings during the year.
C
The following table gives the per loaf sales values at each stage of bread production: Stage of Production $ Value of Sales Stage 1: Seed, fertilizer $0.12 Stage 2: Growing $0.28 Stage 3: Milling $0.50 Stage 4: Baking $0.80 Stage 5: Retail price $1.15 The addition to GDP from the production and sale of one loaf of bread is A. $0.35. B. $1.70. C. $1.15. D. $2.85.
C
The following table shows the marginal tax rate under tax systems A and B. Income Range Tax System A Marginal Tax Rate Tax System B Marginal Tax Rate 0 −$20,000 0% 5% $20,001 −$40,000 20% 15% $40,001 −$80,000 28% 30% $80,001 −$200,000 35% 50% > $200,000 35% 80% Under tax system A, the average tax rate for an income level of $100,000 is A. 35%. B. 20.75%. C. 22.2%. D. 28%.
C
The income households actually receive before they pay personal income taxes is: A. gross domestic income. B. national income. C. personal income. D. disposable personal income.
C
The problem with using foreign exchange rates to convert one country's GDP into dollars is that A. exchange rates do not reflect differences in inflation rates. B. the values of currencies are not comparable. C. not all goods and services are sold on world markets. D. the dollar has been losing value over the last twenty years.
C
What is the difference between nominal GDP and real GDP? A. Nominal GDP represents purchasing power while real GDP is measured in terms of current dollars. B. Nominal GDP is computed by using the expenditure approach while real GDP is computed by using the income approach. C. Nominal GDP is measured in current market prices while real GDP corrects for changes in the overall level of prices from year to year. D. Nominal GDP is the total value of output produced while real GDP is the amount per individual.
C
What type of relationship exists between the growth of the money supply and changes in the inflation rate? A. No relationship exists between the two. B. An indirect relationship. C. A direct relationship. D. None of the above.
C
Which of the following is a situation of moral hazard created by the existence of the FDIC? A. The FDIC regulates banks that do not promote the morals of today's society. B. Financial institutions seeking the protection of the FDIC are able to "hide" their poor practices. C. Financial institutions, with FDIC protection, use depositors' funds in riskier investment projects. D. The FDIC seeks to include those financial institutions that practice low risk loans.
C
Which of the following is not a duty of the a central bank? A. Conduct monetary policy for its respective government. B. Provide financial services for private banks. C. Guarantee the savings of its citizens. D. Performing banking functions for its respective government.
C
Which of the following is not a political function of the government that leads to involvement in the economy? A. In-kind transfers. B. Merit and demerit goods. C. Public goods. D. Income redistribution.
C
Which of the following is not an economic function of government? A. Ensuring economy-wide stability. Your answer is not correct. B. Providing a legal system. C. Income redistribution. This is the correct answer. D. Promoting competition.
C
Which of the following statements is true when considering national banking structures around the world? A. It is the case that in nearly all industrialized countries the largest 5 banks in a country generally hold over 75% of a country's assets. B. Due to free markets in the banking industry, banking fees vary marginally around the world. C. U.S. businesses only obtain approximately 30% of their funds from bank loans compared to 65% for European firms. D. Most countries have only a few large banks.
C
Which of the following statements is true when considering liquidity? A. Stocks have no transaction fees. B. Bonds have a guaranteed redemption value so there is no chance of a financial loss from their purchase. C. The most liquid assets typically earn no or little interest. D. Physical assets are the most liquid type of assets.
C
The bond market is depicted in the graph to the right. a. The bond demand curve is downward sloping because A. as the interest rate decreases people are willing to buy more bonds. B. the Fed's decision to buy or sell bonds is independent of the interest rate. C. lower bond prices translate into higher interest rates and returns. D. the government sells more bonds at lower interest rates. b. Suppose the Fed decides to buy bonds. 1.) Using the line drawing tool, depict changes in the bond market. Properly label your line. 2.) Using the point drawing tool, label the new equilibrium point 'E1'. Carefully follow the instructions above, and only draw the required objects.
C, move verticle line to left
Obviously financial intermediaries need to collect money from a variety of sources so they can redirect it where it can be used efficiently. The primary source of funds for a financial intermediary are known as its A. income. B. capital controls. C. liabilities. D. assets. The financial intermediary with liabilities of shares and checkable deposits and assets that include consumer debt and long term mortgage loans is a A. money market mutual fund. B. insurance company. C. credit union. D. commercial bank.
C,C
Per capita real GDP equals A. real GDP/investment capital. B. real GDP in the nation's capital, Washington, D.C. C. real GDP/population. D. real GDP/human capital. The country with the highest per capita GDP based on purchasing power parity (U.S. dollars) is A. France. B. Japan. C. Germany. D. the United States.
C,D
A credit card is not considered money because A. it simply defers rather than completes transactions that ultimately involve the use of money. B. it is not a unit of accounting. C. it is not a store of value. D. All of the above.
D
Ancient goldsmiths are credited with A. the creation of the fraction reserve banking system. B. creating paper notes that could purchase goods and services. C. developing deposit slips for gold and silver. D. All of the above.
D
As a result of monetary policy of the Fed, the dollar appreciated and the amount of exports decreased. Which of the following Fed policies could have caused this outcome? A. A Fed purchase of bonds from banks. B. A decrease in the reserve requirement ratio. C. A decrease in the discount rate. D. A Fed sale of bonds to brokers and banks.
D
Due to the Gramm-Leach-Bliley Act of 1999 A. allowed European central banks to unite into the European Union Bank. B. the US government forbid US commercial banks to own stock of any other business domestic or foreign. C. the US government forbid US commercial banks to own stock of foreign banks and businesses. D. the US government allowed commercial banks to own stock and sell insurance policies.
D
Gross Domestic Product A. does not include transfer payments or financial transactions. B. does not include the transfer of second-hand goods. C. only includes "final" goods and services to avoid double counting. D. All of the above.
D
If nominal GDP increases, it is possible that A. prices have increased. B. output has increased. C. both prices and output have increased. D. any of the above might have happened.
D
If real GDP increases in any year, we know that A. inflation has raised the value of output. B. both inflation and output have increased. C. nominal GDP must have risen. D. the output of goods and services produced this year has increased.
D
Increases in output and increases in the inflation rate have been linked to A. higher rates of interest. B. discretionary tax policy. C. discretionary government spending. D. increases in the money supply.
D
Internet job sites, like Monster.com, have led potential employees to find jobs via the internet almost instantly. This has caused A. a rise in cyclical unemployment. B. a rise in frictional unemployment. C. a fall in structural unemployment. D. a fall in frictional unemployment.
D
Market failure occurs when A. the market system fails to allocate resources to each individual according to their abilities. B. the market system fails to allocate resources to each individual according to their needs. C. the market system fails to allocate an equal share of resources to all individuals. D. the unrestrained market economy leads to too few or too many resources going to a specific economic activity.
D
Money payments made by governments to individuals for which no services or goods are concurrently rendered are known as A. merit payments. B. demerit payments. C. black market payments. D. transfer payments.
D
Nina pays Jonathan $500 to paint her garage. Jonathan spends the $500 on food. This scenario shows how money functions as a A. standard of deferred payment. B. unit of accounting. C. store of value. D. medium of exchange.
D
People anticipate the inflation rate to be 8%. Banks are making loans at a 12% interest rate. Therefore, A. the real rate of interest is 12% and the nominal rate is 4%. B. the real rate of interest is 12% and the nominal rate is 8%. C. the real rate of interest is 8% and the nominal rate is -4%. D. the real rate of interest is 4% and the nominal rate is 12%.
D
Suppose that a state government implements a tax on mechanics' labor time at all state auto repair shops in order to enhance its tax revenues. One year later the government is disappointed to find that not only is the amount of tax collected small, but that in-state auto repair work significantly declined. This state government apparently utilized which type of tax analysis? A. Speculative tax analysis. B. Dynamic tax analysis. C. Linear projection tax analysis. D. Static tax analysis.
D
The Federal Deposit Insurance Corporation (FDIC) A. creates moral hazard problems in that big banks take on more risk knowing the FDIC will consider them "too big to fail." B. assures depositors that their deposits will be fully recoverable (up to a maximum of $250,000 per depositor per institution) regardless of how serious a bank's financial situation may be. C. was created in 1933 to prevent bank runs that had been plaguing the economy during the Great Depression. D. All of the above.
D
The economy of Finlandia is at full employment when A. there is zero unemployment in the economy. B. there is some cyclical unemployment in the economy, but there is no frictional unemployment. C. everyone looking who wants a job has one. D. there is some unemployment due to friction in the labor market, but there is no cyclical unemployment.
D
Total income can be viewed as the sum of A. the dollar value of output produced since total income and total production are equal. B. payments to factor services such as land, labor, capital, and entrepreneurial activity. C. wages, rents, interest, and profits. D. All of the above.
D
Which of the following statements is true concerning a fractional reserve banking system? A. By law banks must loan out a fraction of the deposits they receive. B. A fractional reserve banking system only is operational when gold and silver are used as currency. C. Banks maintain a fraction of deposits on hand to meet the daily needs of their customers. D. In this system a fraction of the banks receive deposits and the remaining fraction make loans.
D
Which one of the following is a primary difference between a public good and a private good? A. A private good is subject to the free-rider problem while a public good is not. B. Private goods are manufactured because of the workings of the price system while public goods come about through antitrust legislation. C. Private goods are purchased by money transfers while public goods are purchased by in-kind transfers. D. Private goods are subject to the principle of rival consumption while public goods are not.
D
the supply curve is verticle beacause -what if the Fed decided to buy bonds
D, supply line to left
An increase in the money supply will A. not change the long-run aggregate supply curve but ultimately will only raise the price level in long-run equilibrium price level. B. shift the aggregate demand curve outward and to the right. C. move the equilibrium point along the short-run aggregate supply curve. D. All of the above. An increase in the money supply will A. create a direct effect of an increase in consumption due to higher money balances. B. increase the price level. C. create an indirect effect of increased consumption and investment through increased saving and loans. D. All of the above.
D,D
Which of the following is a true statement? A. The direct effect of an expansionary monetary policy is to increase aggregate demand and the indirect effect is to increase aggregate supply. B. The direct effect of an expansionary monetary policy is to increase consumption spending and the indirect effect is to increase interest rates. C. The direct effect of an expansionary monetary policy is to increase aggregate supply and the indirect effect is to increase aggregate demand. D. Both the direct and the indirect effects of an expansionary monetary policy are to increase aggregate demand. The indirect effect of an increase in the money supply works through A. an increase in consumption due to increases in household money balances. B. an improvement in consumers' expectations causing aggregate demand to increase. C. an increase in the stock exchange index indicating an improvement in investors' optimism increasing investment. D. a decrease in the interest rate increasing investment and consumption.
D,D
Subsidizing medical services through Medicare A. makes medical services available to a large percentage of the population, who otherwise could not afford them. B. drives a wedge between the price received by providers and the price perceived by consumers. C. is a relatively low percentage of U.S. GDP compared to other nations. D. All of the above are true. E. Only A and B are true.
E
What are the features of federal deposit insurance? A. Depository institutions' premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed. B. One bank experiences a reduction in funds that is matched by the increase in funds by another bank. C. Required reserves are collected based on the reserve ratio and placed in a special fund. D. The required amount deposited is determined by the multiplier.
a
Consider the following items on a commercial bank'sbalance sheetLOADING.... An auto loan to an individual is ▼ a liabilityneitheran asset to a commercial bank. Funds borrowed from a credit union in the federal funds market is ▼ an asseta liabilityneither to a commercial bank. A customer's savings deposit is ▼ an assetneithera liability to a commercial bank. The bank's required reserve is ▼ a liabilityneitheran asset to a commercial bank.
asset, liability, liability, asset
An increase in corporate income taxes would reduce A. net domestic product. B. personal income. C. gross domestic product. D. national income. An increase in social security benefits will make A. national income larger. B. net domestic product smaller. C. personal income larger. D. national income smaller.
b,c
Bill lends Joann $1,000 for a year at a nominal interest rate of 6%. If both Bill and Joann expect the inflation rate to be 4% next year, then the real rate of interest is A. −2%. B. 24%. C. 2%. D. 10%.
c
If there is a recessionary gap in the short run, the Federal Reserve can eliminate the gap in the short run by undertaking a policy action that raises aggregate demand. But, if Federal Reserve chooses not to close the gap in the short run, the economy will eventually get back to full employment in the long run. Because when there is a recessionary gap in the short run, then in the long run a new equilibrium will arise as input prices and expectations adjust downward, causing the aggregate supply to shift downward and to the right and pushing equilibrium real GDP back to its long-run potential value. a. A monetary policy action that could eliminate a recessionary gap in the short run is ▼ a decrease in taxesan open market sale of government securitiesa decrease in the required reserve ratio. b. If Fed implements the short run monetary policy option instead of simply waiting for the long -run adjustments to take place, then it A. benefits the society by lowering inflationary pressures. B. harms the society by interfering with the economy's natural process. C. benefits the society as unemployment is reduced quickly. D. harms the society by lowering unemployment.
decrease in the required reserve ratio, C
Suppose the government adopts a policy that forces pesticide producers to bear the social costs of groundwater contamination associated with the use of their product. This policy will increase the price of pesticides. Since orange growers regard the pesticide as a key input in the production of oranges, the market for oranges will obviously be affected. Using the line drawing tool, show how the policy on pesticides impacts the market for oranges. Properly label the line. Carefully follow the instructions above, and only draw the required objects. The government policy on pesticides causes the market price of oranges to The government policy on pesticides causes the equilibrium quantity of oranges to
increase, decrease
Using the line drawing tool, draw a money demand curve on the graph indicating the relationship between the interest rate and the opportunity cost of holding money. Label the curve Md. Carefully follow the instructions above, and only draw the required objects
one downward sloping line
Many people who do not smoke cigars are bothered by the odor of cigar smoke. Use the accompanying diagram of the market for cigars to illustrate the implications of a failure of the market cigar supply curve to reflect the social or spillover costs of cigar smoking. Using the line drawing tool, draw the true market supply curve — the curve reflecting both private and social costs. Label the curve S1. Carefully follow the instructions above, and only draw the required objects. In the absence of any government involvement in the market for cigars, will too many or too few cigars be produced and consumed? ▼ Too manyToo few. From society's point of view, will the market price of cigars be too high or too low? ▼ Too highToo low.
supply curve moved to left, too many, too low
