ECON EXAM 2

Q11) Open-market operations are: A)Commerce Department efforts to open foreign markets to international trade B) Federal Reserve purchases and sales of government bonds C) Securities and Exchange Commission rules requiring open disclosure of market trades D) Treasury Department purchases and sales of the U.S. gold stock

B) Federal Reserve purchases and sales of government bonds

Q13) Using average rates of money growth and inflation in the United States over many decades, Friedman and Schwartz found that decades of high money growth tended to have___ rates of inflation and decades of low money growth tended to have ___ rates of inflation. A) High; high B) High; low C) Low; low D) Low; high

B) High; low

Q20) If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation: A) Increases by 2 percent B) Increases by 1 percent C) Remains constant D) Decreases by 1 percent

B) Increases by 1 percent

Q19) Inflation ___ the variability of relative prices and ___ the efficiency of the allocation of resources A) Increase; increases B) Increases; decreases C) Decreases; decreases D) Decreases; increases

B) Increases; decreases

Q4) In a system with 100-percent-reserve banking: A) All banks must hold reserves equal to 100 percent of their loans B) No banks can make loans using deposits made at their institutions C) The banking system completely controls the size of the money supply D) No bank can accept deposits

B) No banks can make loans using deposits made at their institutions

Q3) if a central bank wants to increase the money supply it can ________ bonds in open market operations or _____ reserve requirements. A) buy, increase B) buy, decrease C) sell, increase D) sell, decrease

B) buy, decrease

Q18) The inflation tax is paid: A) only by the central bank B) by all holders of money C) only by government bond holders D) equally by every household

B) by all holders of money

Q6) suppose that a change in transaction technology reduces the amount of currency people want to hold relative to demand deposits. If the Fed does nothing, the money supply tends to ______. But the Fed can hold the money supply constant by ______ bonds and open market operations. A) increase, buying B) increase, selling C) decrease, buying D) decrease, selling

B) increase, selling

Q2) In a system of fractional reserve banking bank lending increases the: A) monetary base B) money supply C) amount of excess reserves D) economies net worth

B) money supply

Q19) Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's: A) desire to increase prices throughout the economy B) need to generate revenue to pay for spending C) responsibility tp increase nominal interest rates by increasing expected inflation D) inability to conduct open-market operations

B) need to generate revenue to pay for spending

Q7) All of the following are considered major functions of money except as a: A) medium of exchange B) way to display wealth C) unit of account D) store of value

B) way to display wealth

Q1) A manager of a perfectly competitive firm observes that the marginal product of labor is 5 units per hour, the marginal product of capital is 40 units per machine, the wage is $20 per hour, the rental price of capital is $120 per machine, and the price of output is $5 per unit. To maximize profit, the manager should hire ______ labor and rent ______ capital. A) More, more B) More, less C) Less, more D) Less, less

A) More, more

Q18) Variables expressed in terms of physical units or quantities are called ___ variables A) Real B) Nominal C) Endogenous D) Exogenous

A) Real

Q5) because of leverage, a 5 percent decline in the value of a bank's assets cause the value of the banks _____ to fall by ______ than 5 percent. A) capital, more B) capital, less C) deposits, more D) deposits, less

A) capital, more

Q8) People use money as a store of value when they: A) hold money to transfer purchasing power into the future B) use money as a measure of economic transactions C) use money to buy goods and services D) hold money to gain power and esteem

A) hold money to transfer purchasing power into the future

Q4) when the Federal Reserve reduces the interest rate it pays on reserves, this tends to ______ the money multiplier and _______ the money supply. A) increase, increase B) increase, decrease C) decrease, increase D) decrease, decrease

A) increase, increase

Q3) In a closed economy, Y - C - G equals: A) national saving B) private saving C) public saving D) financial saving

A) national saving

Q15) If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is _______ times per year. A) 0.2 B) 2 C) 5 D) 10

C) 5

Q10) Economists use the term money to refer to: A) Income B) Profits C) Assets used for transactions D) Earnings from labor

C) Assets used for transactions

Q1) Demand Deposits are funds held in: A) Currency B) Certificates of deposit C) Checking accounts D) Money markets

C) Checking accounts

Q17) The ex ante interest rate is equal to the nominal interest rate: A) Minus the inflation rate B) Plus the inflation rate C) Minus the expected inflation rate D) Plus the expected inflation rate

C) Minus the expected inflation rate

Q11) The preferences of households determine the: A) Reserve-deposit ratio B) Currency-deposit ratio C) Size of the monetary base D) Loan-deposit ratio

B) Currency-deposit ratio

Q9) Open-market operations change the ___; change in interest rate paid on reserves change the ____; and changes in the discount rate changes the ____. A) Monetary base; monetary base; monetary base B) Money multiplier; money multiplier; money multiplier C) Monetary base; money multiplier; monetary base D) Money multiplier; monetary base; money multiplier

C) Monetary base; money multiplier; monetary base

Q16) According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by: A) The Organization of the Petroleum Exporting Countries (OPEC) B) The U.S. Treasury C) The Federal Reserve D) Private citizens

C) The Federal Reserve

Q6) High-powered money is another name for: A) Currency B) Demand deposits C) The monetary base D) M2

C) The monetary base

Q5) According to the model developed in Chapter 3, when taxes decrease without a change in government spending: A) consumption and investment both increase B) consumption and investment both decrease C) consumption increases and investment decreases D) consumption decreases and investment increases

C) consumption increases and investment decreases

Q3) If immigration increases the labor force in an economy described by Cobb-Douglas production function, the wage _____ and the rental price of capital ______. A) increase, increase B) increase, decrease C) decrease, increase D) decrease, decrease

C) decrease, increase

Q6) a decrease in government's purchases of goods and services, holding taxes constant will _____ the equilibrium real interest rate and ______ investment. A) increase, increase B) increase, decrease C) decrease, increase D) decrease, decrease

C) decrease, increase

Q17) The demand for real money balances is generally assumed to: A) be exogenous B) be constant C) increase as real income increases D) decreases as real income increases

C) increase as real income increases

Q4) When the demand for loanable funds exceeds the supply of loanable funds, households want to save _______ than firms want to invest and the interest rate __________. A) more; rises B) more; falls C) less; rises D) less; falls

C) less; rises

Q6) Macroeconomists call assets used to make transactions: A) real income B) nominal income C) money D) consumption

C) money

Q14) The rate of inflation is the: A) median level of prices B) average level of prices C) percentage change in the level of prices D) measure of the overall level of prices

C) percentage change in the level of prices

Q20) The hyperinflation experienced by interwar Germany illiustrates how fiscal policy can be connected to monetary policy when government expenditures are financed by: A) new taxes B) borrowing in the open market C) printing large quantities of money D) selling gold

C) printing large quantities of money

Q1) which of the following is not part of the money supply A) the metal coins in your pocket B) the paper currency in your wallet C) the balances in your retirement account D) the funds in your checking account

C) the balances in your retirement account

Q5) When the Fed makes an open-market sale, it: A) Increases the money multiplier (m) B) Increases the currency- deposit ratio (cr) C) Increases the monetary base (B) D) Decreases the monetary base (B)

D) Decreases the monetary base (B)

Q10) the central bank in the united states is the: A) Bank of America B) U.S. Treasury C) U.S. National Bank D) Federal Reserve

D) Federal Reserve

Q8) When the Fed increases the discounted rate, it: A) Increases the reserve to deposit ratio (rr) B) Decreases the reserve to deposit ratio (rr) C) Is likely to increase the monetary base (B) D) Is likely to decrease the monetary base (B)

D) Is likely to decrease the monetary base (B)

Q7) Credit card balances are included in: A) M1 only B) M2 only C) Both M1 and M2 D) Neither M1 or M2

D) Neither M1 or M2

Q14) According to the quantity equation, if the transactions velocity of money remains constant while the quantity of money doubles then: A) Price of the average transaction must double B) Number of transactions must remain constant C) Price of the average transaction multiplied by the number of transactions must remain constant D) Price of the average transaction multiplied by the number of transactions must double

D) Price of the average transaction multiplied by the number of transactions must double

Q12) The definition of the transactions velocity of money is: A) Money multiplied by prices divided by transactions B) Transactions divided by prices multiplied by money C) Money divided by prices multiplied by transactions D) Prices multiplied by transactions divided by money

D) Prices multiplied by transactions divided by money

Q2) Compared to typical open-market operations, when engaging in quantitative easing operations conducted by the federal reserve between 2007 and 2011, federal reserve purchases tended to be ____ securities. A) Safer and shorter-term B) Tax-favored and foreign C) Smaller-denominations and higher-grade D) Risker and longer-term

D) Risker and longer-term

Q16) The quantity equation, viewed as an identity, is a definition of the A) quantity of money B) quantity of transactions C) Price level D) Transactions velocity of money

D) Transactions velocity of money

Q5) if national income is $1,200, consumption is $600.00, taxes are $200.00, and the government purchases are $300.00, then national saving is A) $300 B) $400 C) $500 D) $600

A) $300

Q15) If more money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real gross domestic product (GDP) must be____ percent. A) 3 B) 4 C) 9 D) 11

A) 3

Q3) An important factor in the evolution of commodity money to fiat money is: A) A desire to reduce transaction costs B) A desire to increase transaction costs C) The fact that gold is no longer highly valued D) A desire to use gold for jewelry

A) A desire to reduce transaction costs

Q9) A country that is on a gold standard primarily uses: A) Commodity money B) Fiat Money C) Credit Money D) the barter system

A) Commodity money

Q13) If the monetary base equal $400 billion and the money multiplier equals 2, then the money supply equals: A) $200 billion B) $400 billion C) $800 billion D) $1,000 billion

C) $800 billion

Public Saving is: A) always positive B) always negative C) always zero D) either positive, negative, or zero

D) either positive, negative, or zero

1) In the classical model with fixed output, the supply and demand for goods and services are balanced by: A) government spending B) taxes C) fiscal policy D) interest rate

D) interest rate

Q12) Credit Card balances are included in: A) M1 only B) M2 only C) both M1 and M2 D) neither M1 or M2

D) neither M1 or M2

Q4) An increase in the ______ interest rate ______. A) nominal, increase B) nominal, decrease C) real, increase D) real, decrease

D) real, decrease

Q2) An economy has the Cobb-Douglas production function Y = 10K1/3L2/3. if the economy stock of capital doubles, the share of total income paid to the owners of capital will A) increase by 10% B) increase by 1/3 C) increase by 2/3 D) stay the same

D) stay the same