midterm practice test

Refer to Table 10.1. The required reserve ratio is 25%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its loans equal

$1,000

A company produced 8 dishwasher machines in 2010. The company sold 6 in 2010 and added 2 to its inventories. The market value of the dishwasher machines in 2010 was $200 per unit. What is the value of this company's output that will be included in the 2010 GDP?

$1,600

Refer to Table 10.1. The required reserve ratio is 25%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its reserves equal

$200

Refer to Table 9.4. The economy is at the equilibrium level of output. If government spending decreases by $100 billion, the new equilibrium level of output is

$3,100 billion

Refer to Table 9.4. The equilibrium level of income is

$3,400 billion

Napoli National Bank has liabilities of $3 million and net worth of $200,000. Napoli National Bank's assets are

$3.2 million

Refer to Table 8.4. At an aggregate output level of $400 billion, planned expenditure equals

$550 billion

Neon Bank has $300 million in deposits. The required reserve ratio is 25%. Neon Bank must keep ________ in reserves.

$75 million

Suppose the required reserve ratio is 10%. A $75 million cash deposit will allow commercial banks to create at most

$750 million

The value of what KFC produces in Japan is included in the U.S. ________ and in the Japanese ________.

GNP; GDP

saving equals

Y-C

Refer to Figure 10.1. A movement from Point D to Point A can be caused by

a decrease in nominal income

Refer to Figure 10.1. A movement from Point A to Point C can be caused by

an increase in the interest rate

if the fed buys government securities, then there is

an increase in the supply of money

money is

anything that is generally accepted as a medium of exchange

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

buying government securities in the open market

Serena transfers $8,000 from her home safe to her savings account. This transaction will

decrease M1 and not change M2

If the government spending multiplier is 5 and government spending decreases by $200 billion, output will ________ by $________ billion.

decrease; 1,000

Refer to Table 9.3. Suppose the economy is in equilibrium and the government raises taxes from $200 million to $220 million, equilibrium output will ________ by $________ million.

decrease; 80

a commercial bank lists

deposits as liabilities

if the change in business inventories is zero, then the final sales are

equal to GDP

The total market value of all final goods and services produced within a given period by factors of production located within a country is

gross domestic product

real GDP is gross domestic product measured

in the prices of a base year

You are hired by the Council of Economic Advisors (CEA) as an economic consultant. The chairperson of the CEA tells you that she believes the current unemployment rate is too high. The unemployment rate can be reduced if aggregate output increases. She wants to know what policy to pursue to increase aggregate output by $300 billion. The best estimate she has for the MPC is 0.8. Which of the following policies should you recommend?

increase both government spending and taxes by $300 billion

inflation is a(n)

increase in the overall price level

if the tax multiplier is -9 and taxes are reduced by $100 billion, output

increases by $900 billion

Refer to Table 10.2. The required reserve ratio

is 10%

Refer to Table 10.4. If the required reserve ratio is 15%, First Charter Bank

is loaned up

When banks hold a large amount of excess reserves, which of the following tools would the Fed most likely use to encourage banks to lend more of these excess reserves?

lowering the interest rate it pays to banks on their reserves

commercial banks create money through

making loans

if interest rates increase to a very high level, people will most likely hold

more money in savings accounts and less cash

the price of bonds and the interest rate are

negatively related

a decrease in planned investment causes

output to decrease, but by a larger amount than the decrease in investment

when the interest rate falls, bond values

rise

Unemployment generally ________ during recessions and ________ during expansions.

rises; falls

the term business cycle refers to the

short-term ups and downs in the level of economic activity

when you keep your savings in a saving account, you are using money as a(n)

store of value

the discount rate is

the interest rate the Fed charges commercial banks for borrowing funds

which of the following is an example of an intermediate good?

the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to

which of the following is NOT a topic studied in Macroeconomics?

the price of IBM computers

which of the following is NOT included in 2011's GDP?

the value of a motor that is used in the production of a lawn mower

the fed acts as a lender of last resort for the banking system

true

Refer to Figure 8.10. At aggregate output levels below $1,000 million, there are

unplanned decreases in inventories and output increases

assuming no government or foreign sector, the formula for the multiplier is

1/MPS

if 20 million workers are unemployed and 180 million workers are employed, then the unemployment rate is

10%

The GDP deflator in year 2 is 110 using year 1 as a base year. This means that, on average, the price of goods and services is

10% higher in year 2 than in year 1

Refer to Table 9.3. Assuming constant MPC, at income of $1,200 million, saving is $________ million, at income of $1,600 million, saving is $________ million.

160; 240

Refer to Figure 8.1. This household's consumption function is

C = 500 + 0.5Y

If gross investment in 2010 is $750 billion and depreciation in 2010 is $850 billion, net investment in 2010 is

-$100 billion

Assume that in Scandia, planned investment is $80 billion but actual investment is $60 billion. Unplanned inventory investment is

-$20 billion

Assume there is no leakage from the banking system and that all commercial banks are loaned up. The required reserve ratio is 25%. If the Fed sells $5 million worth of government securities to the public, the change in the money supply will be

-$20 million

Refer to Table 8.4. At an aggregate output level of $200 billion, the unplanned inventory change is

-$200 billion

The Jackson Tool Company manufactures only tools. In 2012 Jackson Tools manufactured 20,000 tools, but sold 21,000 tools. In 2012 Jackson Tools' change in inventory was

-1,000 tools

If the MPS is 0.4, the tax multiplier is

-1.5

Refer to Figure 8.1. The MPS for this household is ________ and the MPC is ________.

0.5; 0.5

If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income increases to $43,000, the MPC is

0.75

assuming there is no government or foreign sector, if the multiplier is 10, the MPC is

0.9

If the MPS is 0.05, the MPC is

0.95

Refer to Table 9.3. Suppose the economy is in equilibrium and the government increases spending by $50 million, the new equilibrium output is $________ million

1,650

If the MPC is 0.75, the government spending multiplier is

4

transaction money is

M1

saving account balances are included in

M2

The GDP of the U.S. in 2010 was around $14.7 trillion. This means

all of the above

The money supply has increased from $1.4 trillion to $1.45 trillion. Which of the following could have caused this increase?

consumers who were holding money outside the banking system deposit this money