ECON EXAM 3

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 4%, and the velocity of money is constant, then the inflation rate will be A) 10%. B) 6%. C) 4%. D) 2%.

D

Assets: Liabilities: Vault Cash +$7,000 Deposits +$50,000 Deposits at the Fed $3,000 Loans $40,000 Total $50,000 Total $50,000 Consider the above simplified balance sheet for a bank. If the required reserve ratio, rr, is 20%, what are these bank's excess reserves? A) $0. B) $5,000. C) $10,000. D) $40,000.

A

If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium? A) Inventories will rise, and GDP and employment will decline. B) Inventories will rise, and GDP and employment will rise. C) Inventories will decline, and GDP and employment will rise. D) Inventories will decline, and GDP and employment will decline.

A

If the required reserve ratio, rr, is 40% and the Fed wants to decrease the money supply by $500 million, what does the Fed have to do to achieve this goal? A) sell $200 million in government bonds. B) sell $125 million in government bonds. C) sell $500 million in government bonds. D) buy $200 million in government bonds.

A

If you withdraw $4,000 from your checking account at Auburn Bank and buy a traveler's check with it preparing for your trip to France this summer, then M1 will ________ and M2 will ________. A) not change; not change. B) not change; increase. C) increase; decrease. D) decrease; increase. E) decrease; decrease.

A

U.S. net export spending rises when A) the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries. B) the price level in the United States rises relative to the price level in other countries. C) the inflation rate is higher in the United States relative to other countries. D) the value of the U.S. dollar increases relative to other currencies.

A

Which is the largest component of aggregate expenditure? A) consumption expenditures. B) planned investment expenditures. C) government expenditures. D) net export expenditures.

A

Given the equations for C, I, G, and NX below, what is the equilibrium level of GDP? C = 4,000 + 0.5Y I = 1,500 G=2,250 NX = -150 A) $15,800. B) $15,200. C) $3,950. D) $3,800

B

If nominal GDP is $750 billion, velocity is 1.5, how much money is in circulation? Use the quantity theory of money to answer this question. A) $750 billion. B) $500 billion. C) $333.3 billion. D) not enough information to determine

B

If the consumption function is defined as C = 7,250 + 0.8Y, what is the marginal propensity to consume, mpc? A) 0.2. B) 0.8. C) 1.25. D) 5.

B

If the required reserve ratio, rr, is 40% and the Fed wants to increase the money supply by $500 million, what does the Fed have to do to achieve this goal? A) sell $125 million in government bonds. B) buy $200 million in government bonds. C) buy $125 million in government bonds. D) buy $500 million in government bonds.

B

The five most important variables that determine the level of consumption are A) government purchases, interest rates, income, taxes, and transfers. B) disposable income, wealth, expected future income, price level, and interest rate. C) government purchases, saving account balances, wealth, interest rates, portfolio balances. D) wealth, savings account balances, checking account balances, stock portfolio balances, and bond portfolio balances.

B

A fresh peach is an example of a A) fiat money. B) representative money. C) commodity money. D) barter money.

C

Assets: Liabilities: Reserves +$8,000 Deposits + $8,000 Suppose a transaction changes a bank's balance sheet as indicated in the above T-account, and the required reserve ratio, rr, is 10%. As a result of the transaction, the bank can make a maximum loan of A) $0. B) $800. C) $7,200. D) $8,000.

C

If there is $500 billion in circulation, velocity is 1.5, how much is nominal GDP? Use the quantity theory of money to answer this question. A) $333.3 billion. B) $500 billion. C) $750 billion. D) not enough information to determine.

C

Investment spending will increase when A) firms become more pessimistic about earning future profits. B) the corporate income tax increases. C) business cash flow increases. D) the interest rate rises.

C

Which of the following will raise consumer expenditures? A) an increase in interest rates. B) an increase in the price level. C) an increase in expected future income. D) a general decline in housing prices.

C

A fresh tomato is an example of a A) barter money. B) representative money. C) fiat money. D) commodity money.

D

A pack of cigarettes is an example of a A) barter money. B) representative money. C) fiat money. D) commodity money.

D

Consumption Disposable Income (dollars) (dollars) $600 $1,000 1,000 1,500 1,400 2,000 Given the consumption schedule in the table above, the marginal propensity to consume, mpc, is A) 0.5. B) 0.6. C) 0.75. D) 0.8

D

If firms are more optimistic that future profits will rise and remain strong for the next few years, then A) investment spending will remain unaffected. B) investment spending will rise and then fall. C) investment spending will fall. D) investment spending will rise.

D

If the consumption function is defined as C = 7,250 + 0.8Y, what is the value of the multiplier? A) 0.2. B) 0.8 C) 1.25 D) 5.

D

If there is $500 billion in circulation, velocity is 1.5, how much is real GDP? Use the quantity theory of money to answer this question. A) $333.3 billion. B) $500 billion. C) $750 billion. D) not enough information to determine.

D

If you withdraw $4,000 from your checking account at Auburn Bank and buy a 6-month CD with it (a type of a time deposit), then M1 will ________ and M2 will ________. A) decrease; decrease. B) decrease; increase. C) not change; increase. D) decrease; not change. E) not change; not change

D

The "international trade" effect states that A) an increase in the price level will raise exports. B) an increase in the price level will raise net exports. C) an increase in the price level will lower imports. D) an increase in the price level will lower net exports.

D

When AE = Y, A) saving equals zero. B) net exports equal zero. C) the federal budget is balanced. D) macroeconomic equilibrium occurs.

D

Which of the following best describes the "wealth effect"? A) When the price level falls, the nominal value of household wealth falls. B) When the price level falls, the nominal value of household wealth rises. C) When the price level falls, the real value of household wealth falls. D) When the price level falls, the real value of household wealth rises.

D

If you withdraw $500 from your checking account at Auburn Bank and hold it as cash, then M1 will ________ and M2 will ________. A) decrease; decrease. B) decrease; increase. C) increase; decrease. D) not change; increase. E) not change; not change.

E