Econ 2301 Mock Final Exam Answers
Which of the following may shift the consumption schedule upward?
A decrease in interest rates
Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable time deposits of $300,000 million, and reserves of $8 million. What are the excess reserves of this bank?
$2 million
Refer to the above data. If the balance sheet was for the whole commercial banking system rather than a single bank, then loans and deposit could expand by a maximum of approximately:
$213,333
A commercial bank has checkable-deposit liabilities of $500,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively:
$50,000 and $250,000
Refer to the above information. The maximum amount by which this commercial banking system can expand the supply of money by lending is:
$900,000 billion
Refer to the data in the table above. In which year was the cyclical deficit the largest?
2004
Which of the following fiscal policy changes would be the most contractionary?
A $10 billion increase in taxes and a $30 billion cut in government spending
Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID3:
A more rapid rate of technological progress
An increase in investment and government spending can be expected to shift the:
Aggregate expenditures curve upward and the aggregate demand curve rightward
One major advantage of credit cards used for transactions is that they:
Allow consumers to coordinate timing and payment for purchases
In the cause-effect chain linking changes in the banks' excess reserves and the resulting changes in output and employment in the economy:
An increase in the money supply will decrease the rate of interest
Which of the following would shift the consumption schedule downwards?
An increase in the probability of a recession
The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective?
Buying government securities and raising the discount rate
The built-in stabilizers in the economy tend to:
Dampen the irregular swings in real GDP
If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
Decrease aggregate demand and increase aggregate supply
Assume that the required reserve ratio is 25 percent. If the Federal Reserve sells $120 million in government securities to the general public, the money supply will immediately:
Decrease by $120 million with this transaction, and the increase in money supply could eventually reach a maximum of $360 million
An increase in the money supply, ceteris paribus, usually:
Decreases the interest rate and increases aggregate demand
The short-run aggregate supply curve shows the:
Direct relationship between the price level and real GDP purchased
Expansionary fiscal policy will tend to reduce the budget deficit.
False
The TARP loans and the Fed's lender-of-last-resort actions that bailed out large, falling financial institutions helped reduce the moral-hazard problem in financial management.
False
The general public can open deposit accounts at their district's Federal Reserve Bank.
False
The short-run version of aggregate supply assumes that produce prices are:
Flexible while resource prices are fixed
As of 2012, most of the U.S. Federal debt was owed to:
Foreign governments
In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:
Increase taxes by $16 billion
Refer to the graph above. Which of the following would shift the investment demand curve from ID2 to ID1?
Increasing business taxes
The fractional reserve system of banking started when goldsmiths began:
Issuing paper receipts in excess of the amount of gold held
Which of the following is considered a limitation of monetary policy?
Its cyclical asymmetry
Michelle transfers $4,000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
M1 increase and M2 stays the same
If the consumption schedule is a straight line, it can be concluded that the:
MPC is constant at various levels of income
Inflation tends to:
Reduce the strength of the multiplier
When a bank's loans are written off, it means that the bank's:
Reserves shrink, whereas its debt remains the same
If businesses feel more optimistic about the state of the economy, then this change is likely to:
Shift the investment demand curve to the right
The level of GDP, ceteris paribus, will tend to increase when:
The Federal Reserve buys government securities in the open market
Which of the following "backs" the value of money in the United States?
The acceptability of it as a medium of exchange
When the price level decreases:
The demand for money falls and the interest rate falls
A major reason that the public debt cannot bankrupt the Federal government is because:
The public debt can be easily refinanced by issuing new bonds
One bank can borrow reserves from another bank, and the interest on the loan is called the federal funds rate.
True
Subprime mortgages, which played a central role in the Financial Crisis of 2007-2008, had been strongly encouraged and supported by the government before the crisis.
True
The equivalent of the aggregate supply curve in the aggregate expenditures model is the 45-degree line.
True
There are only two things that people could do with their disposable income - spend it or save it.
True
There is an asset demand for money because households and business firms use money as a store of value.
True
When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.
True
