ECON FINAL
Investment banks
arrange these exchanges between borrowers and lenders. Underwrite securities and engage in securities trading.
Suppose a bank has $1,000,000 in deposits and a minimum reserve required of 20 percent. Then required reserves are:
$200,000
Assume an MPC of 0.6. The change in total spending for the economy as a result of a $10 billion new government spending injection would be:
$25 billion. 1/(1-0.6) x 10 = 25
If the banking system has a required reserve ratio of 20%, then the money multiplier is
5.0
If excessive aggregate demand causes prices to rise, which of the following would be a correct fiscal-policy action?
A tax increase
A reduction in the money supply should shift the aggregate
demand curve to the left
The reserve requirement
Affects the level of bank reserves
Which of the following events would cause a rightward shift in the supply curve for automobiles
An improvement in the technology used to produce automobiles
A tax cut is likely to cause:
An increase in consumer spending.
If supply is unchanged a rightward shift in the demand curve for gourmet ice cream will result in
An increase in equilibrium quantity and a higher equilibrium price
Which of the following is an example of fiscal stimulus?
An increase in government spending on new military jet fighters
Which of the following would cause the aggregate demand curve to decrease, Ceteris paribus?
An increase in income taxes
Ceteris paribus, the demand curve for a good will shift to the right in response to
An increase in taste or preferences for the good
Which of the following will increase the market demand for labor, Ceteris paribus?
An increase in the productivity of labor
It is impossible to
Avoid fixed costs in the short run
Money creation occurs when
Banks make loans to borrowers
Which of the following is true for U.S. banks?
Banks must keep only a fraction of total deposits as reserves
Commercial banks
Banks whose primary function is take make loans. Major liabilities are deposits and assets are loans.
Which of the following is consistent with a monopoly industry
Barriers to entry keep potential competitors out of the market
Who among the following would be counted as unemployed
Bob, a college student looking for summer work?
Which of the following is considered a barrier to entry
Brand loyalty
A min. wage:
Can create a surplus of workers
A monopolist:
Charges a higher price than a competitive firm, ceteris paribus.
A stock who is laid off by a department store because retail sales across the country have decreased is _______ unemployed
Cyclically
If the economy is experiencing inflation, which of the following is most likely to decrease aggregate demand?
Decreasing spending and raising taxes
A monopolist sets price at a point on the ______ curve, corresponding to the rate of output determined by the intersection of ______________
Demand; marginal revenue and marginal cost
Which of the following is not a function performed by banks
Determining fiscal policy
Martin takes $150 out of his checking account and hides it in his house as cash. The immediate result of transaction is that M1:
Does not change in value
The labor demand curve slopes ______ to the right, which means that quantity of labor demanded will increase the wage rate ___________
Downward, Falls
Ceteris paribus, a leftward shift on the aggregate demand curve will cause the equilibrium price level to ________ and equilibrium real output to ________
Increase, decrease
Which of the following provides fiscal stimulus to the economy?
Increased government purchases
Which of the following will occur if aggregate demand is above full-employment GDP?
Inflation
Treasury Notes and Bonds
Long term treasury obligations
A producer tries to maximize profits by operating at an output where
MC (marginal cost) equals price
For a perfectly competitive firm, the firm earns zero profit where
MC meets ATC
If consumers spend 79 cents out of every extra dollar received, the:
MPC is 0.79. The marginal propensity to consume is .79 of every dollar.
If consumers spend 85 cents out of every extra dollar received, the:
MPC is 0.85.
A firm should continue to hire workers until the
MRP is equal to the market wage rate
The law of diminishing returns can explain why
Marginal cost eventually increase in the short run as more output is produced
In a market economy, the _______ determines who gets the goods and service produce
Market mechanism
Which of the following functions like money but is not included in M1?
Money-market mutual funds
If consumers spend 75 cents out of every extra dollar received, the:
Multiplier is 4. The multiplier is 1÷ (1- .75) =4
If government spending increases, which causes producers to hire more workers, and as a result households have more income to spend, which causes aggregate demand to increase even more, this is known as the:
Multiplier process.
Treasury Bills
Short term U.S. debt
Federal Funds
Short term overnight loans between banks. This is the target interest rate of the Federal Reserve monetary policy
Suppose a perfectly competitively firm increases in output. In order to sell this additional output, the firm:
Should price it at the market price
An office worker who loses her job because she does not have the necessary computer skills is
Structurally unemployed
If the first, second, third and forth worker employed by the firm add 15, 21, 12 and 8 units of total product respectively, we can conclude that
That after the second worker marginal product declines
True or False: Total output may continue to rise even though marginal physical product is decreasing
True
With a required reserve ratio of 15%, bank of the universe would have excess reserves of
Zero
GDP can be found by
adding the monetary value of all final goods and services produced during a given period of time
Primary markets
forum where companies or the government can raise funds by issuing equity or debt
members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they
make their decisions based on economic, rather than political considerations
Financial markets
manage the flow of funds from investors to borrowers, and investors to investors
Banks try to keep their holdings of excess reserves low in order to:
maximize profits
Per capita GDP is the most practical way to
measure how much output is potentially available to the average person
Pension Funds
offer savings plans to individuals to accumulate funds for retirement
Mutual Funds
pool individual and companies funds to make diversified portfolios
All points on the production possibilities curve
represent the use of all available resources
Ceteris paribus, if the FED reduces the discount rate, then
the incentive to borrow funds increases
Which of the following is not a basic monetary policy tool used by the fed?
the income tax rate
Ceteris paribus, if the FED raises the reserve requirement, then:
the lending capacity of the banking system decreases
liabilities
what you owe
Assets
what you own or what is owed to you
Aggregate Demand
Refers to the collective behavior of all buyers
Which of the following is characteristic of a perfectly competitive market
There are low barriers to entry
If a perfectly competitive firm produces and sells more output, its ______ will definitely increase
Total Revenue
Good financial markets are generally __________
"liquid"
Both Keynesian and monetarist theories believe that _______ aggregate ____________ causes inflation
Excessive, demand
If supply is uncharged, a decrease in the demand for soft drinks will cause equilibrium price to
Fall and equilibrium quantity to fall
One reason our full employment goal is not zero percent is because
Frictional unemployment will always exist
In economics, capital refers to
Goods that can be used to produce other goods
What fiscal policy tools are used to shift the aggregate demand curve?
Government spending and taxes
According to Keynes
Govt. intervention in the economy is necessary at times
When a price ceiling is set for a market, the quantity demanded will be
Greater than the equilibrium quantity, and price will be less than the equilibrium price
which of the following is characteristic of downturn in the business cycle?
Higher unemployment rates
The production possibilities curve shifts outward in response to
Improved technology or more resources or both
The main difference to an economist between "short-run" and "long-run" is that
In the long-run all recourses are variable where as in the short-run at least one resource is fixed
real GDP is a more accurate measure of economic growth than nominal GDP because
Nominal GDP can increase due to an increase in production or price or both
The aggregate demand curve is downward sloping because, Ceteris paribus
People are willing and able to buy more goods and services at lower average prices
During a period of inflation
People who have borrowed money may be better off
The uncertainty of inflation is likely to affect
Production and consumption decisions
Which of the following is included in investment according to economics?
Production of plant an machinery
Which of the following is true for a monopolist
Profit is maximized where marginal cost equals marginal revenue
Ceteris paribus, according to the law of supply, if the price of product Z increases from $6 to $8, then the
Quantity supplied of Z will increase
During an inflationary period it is appropriate for the government to pursue policies that:
Reduce aggregate demand.
In order to sell one additional unit of output, a profit-maximizing monopolist must:
Reduce the price of all units sold
When a new firm enters a market, it:
Reduces the profits of existing firms
Which of the following requires U.S. banks to maintain a minimum reserve ratio
The federal reserve
What is the total impact on aggregate demand because of a fiscal stimulus?
The initial injection plus all subsequent increases in consumer spending triggered by the stimulus
As more labor is hired in the short run, diminishing returns are observed because
The new workers have less capital and land to work with
Ceteris paribus, _______ can change without shifting the demand curve for jackets.
The price of jackets
Which of the following is not an example of investment spending?
The purchase of stock in the stock market
The marginal revenue product of labor curve is the firms:
labor demand curve
If the FED wants to decrease the money supply, it can
sell govt. bonds
Monetary policy involves the use of money and credit controls to
shift the aggregate demand curve
Ceteris paribus, which of the following will occur if the fed buys bonds through open-market opperations?
the aggregate demand curve should shift rightward