Econ 104 chapter 3

Flows that do not enter the spending stream enter the financial sector in the form of: saving. real assets. expenditures. investment.

(Saving is income minus consumption. Investment, in economics, refers to the purchase of capital goods, <i>not</i> the purchase of financial assets.) NOT D OR B

Most economies today are: differentiated primarily by who owns the means of production. differentiated primarily by the degree to which they depend on markets. pure market economies. socialist.

(Virtually all economies in the world today rely on markets to allocate resources. What differentiates modern economies is the degree of reliance on markets, not whether or not markets are present.)NOT C

A business is likely a sole proprietorship if: it has only one owner who has unlimited liability. it has two or more owners, with each owner liable for every other owner's actions. it is legally treated as a person and owned by stockholders who are liable for the actions of the corporate "person." multiple owners are liable only to the extent of their own investment.

A

New developments in computer monitors have made flat panel LCD's cheaper and better than the older CRT models. Given that monitors can contain as much as 8 pounds of lead, disposing of the old monitors creates a: negative externality. limited liability. neutral externality. positive externality.

A

New developments in computer monitors have made flat panel LCD's cheaper and better than the older CRT models. Given that monitors can contain as much as 8 pounds of lead, disposing of the old monitors creates a: negative externality. positive externality. neutral externality. limited liability.

A

Real assets are created by: real economic activity, such as the construction of a house. borrowing and lending. government intervention. the agreement by individuals to exchange financial assets for financial liabilities.

A

The Federal Reserve Bank is the U.S. central bank: whose liabilities serve as cash in the United States. who holds, in reserve, all financial liabilities of banks. whose assets serve as cash in the United States. who holds, in reserve, all financial assets of banks.

A

The best example of a merit good or activity is: teaching baseball to boys and girls in the community. providing free beer to teenagers. excessive consumption of pork. exercising too much.

A

The risk that all loans will default at the same time is called: systemic risk. security risk. liquid risk. diversified risk.

A

U.S. output represents about what percentage of total world output? 20 percent 50 percent 5 percent 10 percent

A

The amount of money ultimately created per dollar deposited when people hold no cash is found using the: required reserve ratio. money multiplier. excess reserve ratio. money demand ratio.

B

Bank reserves are: checks held by depositors. cash and deposits a bank keeps on hand or at the central bank. loans issued by banks deposited into checking accounts. real assets deposited at banks.

B

In socialism: economic forces do not operate. government planning, rather than the market, is relied upon to coordinate economic activity. distribution is determined by the individual's ability. individuals are encouraged to act for their own benefit.

B

The value and functionality of money are determined by the: credibility in other financial assets. general acceptability to other people. lack of credibility in other financial assets. regulations defined by the Fed.

B

What is exchanged in the financial sector? Goods and services All financial assets All assets with a money price Money only

B

When a clerk gives you a pair of jeans for your $20 bill, money is serving which function? Store of wealth Medium of exchange Store of real assets Unit of account

B

Why do banks package loans into securities? Because banking regulations require them to do so To spread the risk of default and increase liquidity To take advantage of tax breaks passed by the federal government as part of stimulus packages In order to get around adhering to current banking regulations

B

A defining difference in what makes a firm a sole proprietorship, partnerships, or a corporation is the: profitability of each type of business. number of each type of business. nature of ownership and accountability for each type of business. size of each type of business.

C

Banks hold people's cash for free, and sometimes even pay for the privilege of holding it, because: the Federal Reserve requires that they do so. the cash can be deposited at the Federal Reserve Bank to earn interest. deposits allow banks to make profitable loans. they are nice.

C

Credit cards create: financial liabilities for the issuer once they are used by the holder. money for those who use them. financial liabilities for those who use them. money for those who issue them.

C

In a market economy, every real transaction has a corresponding: financial liability. real asset. financial transaction. real liability.

C

In the former USSR, state planners decided what was to be produced. They passed orders down to factories, allocating raw materials, workers, and other factors of production to them. This is an example of (a): government as a referee. corporation. command economy. market economy.

C

Socialism in theory is based on the principle that individuals should: rely on the government to meet their needs. compete with one another to meet their needs. cooperate with one another to meet their needs. look out for their own interests and let the government look out for the public interest.

C

State and local governments do not receive income directly from which source? Property taxes Sales taxes Social security taxes Local income taxes

C

The risk that all loans will default at the same time is called: liquid risk. security risk. systemic risk. diversified risk.

C

Which of the following occur in the real world? Neither market failures nor government failures Market failures but not government failures Both market failures and government failures Government failures but not market failures

C

A partnership is a business: that has only one owner. in which each owner is liable only to the extent of his or her own investment. legally treated as a person and owned by stockholders who are not liable for the actions of the corporate "person." with two or more owners, with each owner liable for every other owner's actions.

D

An asset is best able to serve as a medium of exchange if it is: a store of value. not a store of value. non-liquid. liquid.

D

Business decisions about what and how much to produce are based on what: the government wants. consumers want. maximizes market share. maximizes profits.

D

Checking account balances are: not included in M₁. included in M₂ but not M₁. not money. included in M₁ and serve as a medium of exchange.

D

If the reserves in U.S. banks totaled $10,000 and total deposits were $20,000, the banking system's reserve ratio would be: 0.95. 0.05. 0.20. 0.50.

D

Profit is: the same as revenue. the same as cost. what is left over from total cost after all of the appropriate revenues have been subtracted. what is left over from total revenue after all of the appropriate costs have been subtracted.

D

The largest component of M1 is: traveler's checks. currency. saving and money market accounts. checking accounts.

D

The process of packaging a variety of loans together and slicing them up into new financial instruments is called: defaulting. liquidating. diversifying. securitization.

D

Waste produced by a power plant that harms local fishing industries is an example of a: limited liability. demerit good. private good. negative externality.

D

When a government bans prostitutions, it may do so because it considers prostitution to be a: public good. regressive good. progressive good. demerit good.

D

Which of the following is not a characteristic of pure capitalism? Freedom of enterprise Private ownership of land Worker freedom Government ownership of capital

D