DC Econ FINAL EXAM REVIEW 2019

Expansionary monetary policy refers to the ___________ to increase real GDP. A) Federal Reserve's increasing the money supply and decreasing interest rates B) government's increasing spending and lowering taxes C) government's decreasing spending and raising taxes D) Federal Reserve's decreasing the money supply and increasing interest rates.

A) Federal Reserve's increasing the money supply and decreasing interest rates

A quota is A) a limit placed on the quantity of goods that can be imported into a country. B) a health and safety restrictions imposed on an imported product. C) a tax imposed by a government on goods into a country D) a subsidy granted into importers of a vital input.

A) a limit placed on the quantity of goods that can be imported into a country.

A _____ is owned by stockholders. A) corporation term-16 B) partnership C) sole proprietorship .

A) corporation

A fractional reserve banking system is one in which banks hold less than 100% of ___________ as reserves. A) deposits B) securities C) shareholder equity D) loans

A) deposits

The natural rate of unemployment is the amount of unemployment A) equal to frictional plus structural unemployment. B) that exists when the economy is in an expansion. C) associated with business cycle. D) that exists when the economy goes into recession.

A) equal to frictional plus structural unemployment.

Which of the following is NOT an example of a transfer payment? A) health insurance payments to an army private B) social security payments to disabled persons C) social security payments to retirees D) unemployment insurance payments

A) health insurance payments to an army private

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will A) increase GDP and decrease well-being in the economy. B) increase GDP and increase well-being in the economy. C) decrease GDP and increase well-being in the economy. D) decrease GDP and decrease well-being in the economy.

A) increase GDP and decrease well-being in the economy.

Increasing the growth rate of GDP per capita and sustaining this growth rate in an economy can A) increase standards of living. B) increase the level of poverty. C) lower life expectancy. D) increase infant mortality.

A) increase standards of living.

When the economy enters a recessionary phase of the business cycle, unemployment tends to A) increase. B) decrease C) be unchanged. D) change in the same direction as the rate of inflation.

A) increase.

The additional cost to a firm of producing one more unit of a good or service is the A) marginal cost B) opportunity cost C) total cost D) minimum cost

A) marginal cost

Alt-A mortgages are A) mortgages issued to borrowers who fail to document that their incomes are high enough to afford the mortgages. B) mortgages issued to borrowers with flawed credit histories. C) mortgages which are bundled together by financial institutions and sold to investors. D) government-back mortgages issued by Fannie Mae and Freddie Mac.

A) mortgages issued to borrowers who fail to document that their incomes are high enough to afford the mortgages.

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called A) securitization. B) fractional reserve lending. C) seigniorage. D) open market operations.

A) securitization

Dumping refers to A) selling a product for a price below its cost of production. B) illegally avoiding tariffs by selling products on the black market C) selling inferior products to unsuspecting consumers. D) exporting products that do not meet domestic safety standards.

A) selling a product for a price below its cost of production.

The broadest measure of the price level that includes all final goods and services is A) the GDP deflator B) the producer price index C) the wholesale price index D) the consumer price index

A) the GDP deflator

One of the primary reasons that Mexico has had trouble attracting foreign investment and had therefore not experienced relatively low rates of economic growth is A) the failure to enforce the rule of law. B) persistent wars between Mexico and its neighboring countries. C) low rates of saving and investment. D) poor public education and health.

A) the failure to enforce the rule of law.

The production possibilities frontier shows A) the maximum attainable combinations of two products that may be produced in a particular time period with available resources. B) what an equitable distribution of products among citizens would be. C) the various products that can be produced now and in the future. D) what people want firms to produce in a particular time period.

A) the maximum attainable combinations of two products that may be produced in a particular time period with available resources.

One would speak of a movement along a supply curve for a good, rather than a change in supply, if A) the price of the good changes B) the cost of producing the good changes. C) prices of substitutes in production change. D) supplier expectations about future prices change.

A) the price of the good changes

Globalization refers to A) the process of countries becoming more open to foreign trade and investment B) the willingness of individuals within a given country to share knowledge with one another. C) the reduction in growth rates if real GDP per capita as a result of trade with foreign countries. D) the process was of establishing a common word currency.

A) the process of countries becoming more open to foreign trade and investment

Protectionism is the use of ___________ to protect domestic firms from foreign competition. A) trade barriers B) dumping C) cheap labor D) military force

A) trade barriers

The largest and fastest-growing category of federal government expenditure is A) transfer payments. B) national park spending. C) grants to state and local governments. D) interest on the national debt.

A) transfer payments.

Which of the following best describes how banks create money? A) Banks charge fees for providing financial advice. B) Banks create checking account deposits when making loans from excess reserves. C) Banks make loans from reserves. D) Banks charge higher interest rates on loans than they pay on deposits.

B) Banks create checking account deposits when making loans from excess reserves.

An efficient tax is A) a tax that raises a maximum amount of revenue. B) a tax that imposes a small excess burden relative to the tax revenue it raises. C) a tax that is used to fund research and development of new technology. D) a tax that imposes an equal tax burden on buyers and sellers.

B) a tax that imposes a small excess burden relative to the tax revenue it raises.

What does the term "marginal" mean in economics? A) illegal B) an additional or extra C) the edge of a market D) trivial

B) an additional or extra

It is the role of _________ to transfer funds from savers to borrowers. A) corporate governance B) an economy's financial system C) the federal government D) the Federal Reserve

B) an economy's financial system

An economy can improve its standard of living by A) organizing production so that the quantity of goods produced per hour will decrease. B) increasing the amount of capital available per hour worked. C) reducing the amount of human capital workers have. D) all of the above.

B) increasing the amount of capital available per hour worked.

The cost to firms of changing prices A) does not exist if inflation is perfectly anticipated. B) is called a menu cost. C) is small even when there is rapid inflation. D) all of the above.

B) is called a menu cost.

Economist refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the _____________ effect. A) expenditure B) multiplier C) consumption D) aggregate demand

B) multiplier

Economists assume that A) individuals behave in unpredictable ways. B) optimal decisions are made at the margin. C) people put other people's interests ahead of their own. D) consumer behavior is explained by the existence of unlimited resources.

B) optimal decisions are made at the margin.

The Federal Reserve System's four monetary goals are A) low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. B) price stability, high employment, economic growth, and stability of financial markets and institutions. C) a low rate of bank failures, high reserve ratios, price stability, and economic growth. D) price stability, low government budget deficits, low current account deficits, and a low rate of bank failures

B) price stability, high employment, economic growth, and stability of financial markets and institutions.

Crowding out refers to a decline in ________ as a result of an increase in ________. A) government purchases; tax rates B) private expenditures; government purchases C) government purchases; private expenditures D) tax revenues; unemployment

B) private expenditures; government purchases

In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by A) establishing a fractional reserve system of banking. B) the establishment of the Federal Deposit Insurance Corporation. C) the Federal Reserve System is acting as a lender of last resort. D) increasing the required serve ratio up to 100% E) the Federal Reserve System conducting open market operations

B) the establishment of the Federal Deposit Insurance Corporation.

The "underground economy" is also referred to as A) the formal sector. B) the informal sector. C) the halfway economy. D) the net domestic product economy.

B) the informal sector.

The use of fiscal policy to stabilize the economy is limited because A) changes in government spending and tax rates have a small effect on interest rates. B) the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way. C) the Internal Revenue Service (IRS) resists changes in tax rates because of all the changes they would have to make to the tax code. D) changes in government spending and tax rates have a small effect on aggregate demand.

B) the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.

When the Fed uses contractionary policy, A) the price level rises higher than it would if the Fed did not pursue policy. B) the price level rises less than it would if the Fed did not pursue policy. C) it causes inflation. D) it does not change price level.

B) the price level rises less than it would if the Fed did not pursue policy.

A demand curve shows the relationship between A) the price of a product and the demand for the product. B) the price of a product and the quantity of the product demanded. C) the amount of a product sellers are willing to sell at a particular price and the amount consumers are willing to buy at that price. D) the quantity that consumers are willing and able to buy and the quantity that sellers are willing and able to offer.

B) the price of a product and the quantity of the product demanded.

Discourage workers are A) workers who find their current jobs unfulfilling and are considering a job change. B) workers who have stopped looking for work because they believe there are no jobs for them. C) workers who have a part time job but want a full time job. D) workers who have consistently been looking for work for kore than 4 weeks.

B) workers who have stopped looking for work because they believe there are no jobs for them.

Free trade refers to trade between countries A) of products which are free to low-income consumers. B)that is without restrictions. C) that is without shipping cost. D) that is licensed by both governments.

B)that is without restrictions.

_______ occurs when economic benefits are distributed fairly. A) Allocative efficiency B) Equality C) Equity D) Productive efficiency

C) Equity

A financial asset is considered ____________ if it can be sold in a secondary market. A) a commodity B) a liability C) a security D) durable

C) a security

Anything of value owned by a person or a firm is A) a durable good B) an entitlement C) an asset D) a liability

C) an asset

The total amount of physical capital available in a country is known as the country's A) labor productivity B) human capital C) capital stock D) savings

C) capital stock

Which of the following would be the best measure of the cost of living? A) real GDP B) the producer price index C) consumer price index D) real GDP per person

C) consumer price index

When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing A) accelerating returns. B) decreasing production. C) diminishing returns. D) negative returns.

C) diminishing returns.

Lowering the interest rate will A) decrease spending on new homes. B) decrease spending on consumer durables. C) increase investment projects by firms. D) decrease the value of the dollar and lower net exports.

C) increase investment projects by firms.

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as A) real GDP B) human capital C) labor productivity D) technology

C) labor productivity

The industrial Revolution A) produced goods exclusively using human or animal power. B) had no impact on standards of living in the world. C) marked the beginning of significant economic growth in the world. D) started in France around the year 1750.

C) marked the beginning of significant economic growth in the world.

The branch of economics which studies how households and firms make choices, interact in markets, and how government attempts to influence their choices is called A) macroeconomics. B) positive economics. C) microeconomics. D) normative economics.

C) microeconomics.

Government deficits tend to increase during A) periods of below- or above-average growth. B) periods of increased financial uncertainty. C) periods of war and recession. D) recessions and booms.

C) periods of war and recession.

Economist assume that rational people A) undertake activities that benefit others and hurt themselves. B) only weigh the benefits and costs of the most desirable alternative actions. C) respond to economic incentives. D) never use all available information as thye act to achieve their goals.

C) respond to economic incentives.

The 1994 agreement that eliminated most tariffs among the United States, Canada, and Mexico is known as A) the Pacific Trade Association. B) Trade Without Borders. C) the Western Trade with other countries. D) only imports products.

C) the Western Trade with other countries.

What is human capital? A) buildings, equipment, and machinery B) buildings, equipment, and machinery owned by individuals rather than firms C) the accumulated knowledge and skills that workers acquire from education, training, and their life experiences D) labor productivity

C) the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

Frictional unemployment is the result of A) the ups and downs in inflation. B) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs. C) the search process of matching workers with jobs. D) a slowdown in the economy

C) the search process of matching workers with jobs.

The federal government debt equals A) tax revenues minus government spending. B) the accumulation of past budget deficits. C) the total value of U.S. Treasury bonds outstanding. D) government spending minus tax revenues.

C) the total value of U.S. Treasury bonds outstanding.

Real GDP is GDP in a given year A) adjusted only for unanticipated inflation. B) valued in the prices of that year. C) valued in the prices of the base year. D) adjusted only for anticipated inflation.

C) valued in the prices of the base year.

Which of the following provides health-care coverage to people age 65 and over? A) Medicaid B) Social Security C) Health-Aid D) Medicare

D) Medicare

China has developed a comparative advantage in the production of children's toys. The source of this comparative advantage is A) a large supply of natural resources. B) superior processes of technology C) investment in capital used to produce toys. D) a large of unskilled workers and relatively little capital.

D) a large of unskilled workers and relatively little capital.

A voluntary export restraint is an agreement negotiated by two countries that _________ that can be imported one country from another country. A) quantity standards on goods B) a minimum quantity of a good C) a tax on goods D) a numerical limit on the quantity of a good.

D) a numerical limit on the quantity of a good.

A tax imposed by a government on imports of a good into a country is called A) an import quota. B) an import fine. C) an import level. D) a tariff.

D) a tariff.

Which of the following provisions would help increase the accumulation of knowledge capital? A) copyrights B) patents C) education subsidies D) all of the above

D) all of the above

A black market is a market where buying and selling take place A) after regular office hours B) on foreign soil C) in non-licensed shops and warehouses. D) at prices that violate government price regulations.

D) at prices that violate government price regulations.

Financial securities that represent promises to repay a fixed amount of funds are known as A) insurance premiums. B) stocks. C) pension funds. D) bonds.

D) bonds.

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

D) federal funds rate.

Fiscal policy refers to changes in A) the money supply and interest rates that are intended to achieve macroeconomic policy objectives B) feral taxes and purchases that are intended to fund the war on terrorism. C) state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. D) federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

D) federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

Creative destruction means that A) research and development should only be financed if research and development is incremental (a result of making small changes to existing products). B) knowledge capital can be created through a system of government subsidies for education and research and development. C) economic growth can only be sustained if capital depreciates rapidly. D) firms develop new products that replace old products in the economy, thereby encouraging economic growth.

D) firms develop new products that replace old products in the economy, thereby encouraging economic growth.

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

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

Technological advances generally results in A) increased infant mortality rates. B) increased average number of hours worked per day. C) decreased incomes. D) increased life expectancy.

D) increased life expectancy.

Which of the following assets is most liquid? A) stock B) bond C) savings account D) money

D) money

Autarky is a situation in which a country A) has no absolute advantage in any production. B) only exports products. C) does not trade with other countries. D) only imports products.

D) only imports products.

The main tool that the Federal Reserve uses to conduct monetary policy is A) check clearing. B) discount policy. C) setting reserve requirements. D) open market operations. E) acting as the lender of last resort.

D) open market operations.

At market equilibrium, A) surpluses are greater than shortages. B) demand equals supply. C) shortages are greater than surpluses D) quantity demanded equals quantity supplied.

D) quantity demanded equals quantity supplied.

Tying the salaries of top managers to the firm's stock price or to the profitability of the firm allows a firm's board of directors to A) increase asymmetric information. B) eliminate moral hazard. C) avoid disclosing financial statements to investors. D) reduce the principal-agent problem.

D) reduce the principal-agent problem.

The Federal Reserve was established in 1913 to A) stimulate the economy by increasing bank reserves. B) prevent bad loans by requiring banks to hold reserves. C) prevent inflation by decreasing the money supply. D) stop bank panics by acting as a lender of last resort.

D) stop bank panics by acting as a lender of last resort.

Comparative advantage means A) the ability to produce a good or service at a higher opportunity cost than any other producer. B) compared to others you are better at producing a product. C) the ability to produce more of a product with the same amount of resources than any other producer. D) the ability to produce a good or service at a lower opportunity cost than any producer.

D) the ability to produce a good or service at a lower opportunity cost than any producer.

Liquidity refers to A) the ease with a stock can be traded for a bond. B) the number of shares of stock a corporation issues. C) the number of times a dollar changes in the hands in the creation of GDP in an economy. D) the ease with which a financial security can be traded for cash.

D) the ease with which a financial security can be traded for cash.

A sole proprietorship is the type of business that has ________ government rules and regulations affecting it. A) the most B) no C) only federal D) the fewest

D) the fewest

There is a federal budget deficit when A) taxes are too high B) the government spends less that it collects in taxes C) the government spends the same amount it collects in taxes. D) the government spends more that it collects in taxes

D) the government spends more that it collects in taxes

Opportunity cost is defined as A) the monetary expense associated with an activity. B) the benefit of an activity. C) the total value of all alternatives that must be given up to engage in an activity. D) the highest valued alternative that must be given up to engage in an activity.

D) the highest valued alternative that must be given up to engage in an activity.

Potential GDP refers to A) the level of GDP attained by the country with the highest growth in real GDP in a given year. B) the extent to which real GDP is above or below nominal GDP. C) the difference between the highest level of real GDP per quarter and the lowest level of real GDP per quarter within any given year. D) the level of GDP attained when all firms are producing at capacity.

D) the level of GDP attained when all firms are producing at capacity.

The monetary policy target the Federal Reserve focuses primarily on today is A) M2 B) M1 C) the unemployment rate D) the inflation rate E) the interest rate

E) the interest rate