Post quiz 16-18, Test 3-4

Which of the following is true for the developing countries that moved most rapidly toward economic freedom during 1980-2005 period?

They experienced both more rapid rates of economic growth and larger reductions in poverty rates than countries that were less free.

Which of the following is a primary action of modern banks?

They hold only a fraction of their assets in the form of required reserves relative to their deposits.

Countries that impose high tariffs, exchange rate controls, and other barriers that restrict international trade have, on average,

low rates of economic growth.

Politicians often instruct households to spend in order to help the economy. This advice overlooks the fact that

you cannot have a strong economy if all or most households are spending just about everything they earn.

According to data on GDP growth between 1980 and 2009, which of the following statements is true?

Many poor nations grew more rapidly than wealthy nations, while others continued to stagnate.

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

There is no initial change in the money supply, and the reserves of your bank decline.

If the Fed wanted to institute a more expansionary monetary policy, which of the following would it be most likely to do?

Buy government bonds from the public.

If a country allows trade and, for a certain good, the domestic price without trade is lower than the world price, which of the following conclusions can be made?

The country will be an exporter of the good.

How do high marginal tax rates affect the economic prosperity of a nation?

They reduce the incentive of individuals to earn reported income/They encourage the nation's most productive citizens to emigrate to countries where taxes are lower/ They discourage foreigners from investing in the country.

If a nation is going to achieve and sustain a high rate of economic growth, it must

have a mechanism capable of attracting savings and channeling them into wealth-creating projects.

The theory of comparative advantage suggests that nations should produce a good if they

have the lowest opportunity cost.

Which of the following policies would be most likely to reduce the efficiency of a country's economic organization?

imposition of tariffs and other barriers limiting international trade

If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run, the primary impact of this policy will tend to

increase real interest rates.

Obstacles that restrict trade, either domestic or international, will

reduce output, income, and the general living standard of the populace.

International trade does all the following except

reduce world output.

When the Fed purchases additional securities and shifts to a more expansionary monetary policy,

several months will typically pass before the shift in policy exerts much impact on output and employment.

Which of the following assets can a commercial bank count as reserves?

Its vault cash and deposits with the Fed

Which of the following provides the fuel for growth and achievement of high income levels?

gains from trade/ entrepreneurial discovery/capital formation

Monetary and price instability will....

generate uncertainty, and encourage investors and businesses to move their activities to countries with a more stable monetary environment.

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

Which of the following is a key characteristic of economic freedom?

institutions and policies supportive of voluntary exchange/freedom to compete/protection of people and their property from aggressors

Which of the following would be most likely to cause the per capita income of less-developed countries to rise?

investment expenditures that enhance the human capital of labor force participants

Which of the following is important if a country is going to achieve and sustain high rates of economic growth?

investment in physical and human capital/improvements in technology/ institutional and policy arrangements consistent with economic efficiency

The legal requirement that commercial banks hold required reserves equal to some fraction of their deposits

limits the ability of banks to expand the money supply by extending additional loans.

Compared to those in low-income countries, the residents of countries with high per person incomes nearly always

live longer/ have a lower illiteracy rate/ have a lower infant mortality rate.

If the government cuts the tax rate, workers get to keep

more of each additional dollar they earn, so work effort increases, and aggregate supply shifts right.

Other things constant, countries that invest more will grow

more rapidly.

Economically speaking, tariffs are

obstacles that limit voluntary exchange.

When the Fed buys bonds and injects additional reserves into the banking system, this action will

place downward pressure on short-term interest rates.

The shortsightedness effect suggests that

politicians have a strong incentive to support projects that yield immediate and easily recognized benefits, especially when the costs of the projects are difficult to identify and are observable only in the distant future.

When the tax to fund a government project is allocated among voters in proportion to the benefits they receive from the project,

projects that are productive (efficient) will tend to be favored by an overwhelming majority of voters.

When competition is present and property rights secure, people will be encouraged to

provide others with things that they value in exchange for income

The primary source of purchasing power used to buy imported goods is

the exports of a nation.

Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if

the higher taxes cause workers to work less.

Which of the following attributes of fiscal policy will most likely be stressed by a supporter of supply-side economics?

the impact of marginal tax rates on the supply and productivity of resources

The GDP figures fail to count labor services and other household production. Once this omission is taken into account,

the income differences between the high and low income countries are still huge.

In the Keynesian view, equilibrium takes place when

the level of total spending in the economy is equal to current output.

Which of the following arguments in support of trade restrictions limiting U.S. dependence on foreign suppliers of petroleum and aircraft is most valid when applied to the United States?

the national defense argument

In a market economy, what determines whether an entrepreneur will continue in business or terminate the production of a new product?

the profit or loss of the business

According to the Economic Freedom of the World measure, the United States was

the third freest economy in the world, behind only Hong Kong and Singapore during 1980-2000.

Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

$500 million decrease.

Why does a tax change affect aggregate demand?

A tax change alters disposable income and consumption spending

Why is globalization becoming more of a worldwide phenomenon?

Technological advancements are decreasing transportation costs.

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

It would buy U.S. securities.

Which of the following about trade is true?

Specialization and trade leads to mutual gains for countries.

A shift to a more expansionary monetary policy will

Stimulate output and employment, but only after a time lag that is generally long and variable.

Which of the following will cause the U.S. money supply to expand?

A commercial bank uses excess reserves to extend a loan to a customer.

According to the Keynesian view, if policy makers thought the economy was about to enter an expansionary period, which of the following would be most appropriate?

A tax increase

The recent growth records of Japan and Hong Kong during the last fifty years indicate that a nation can grow rapidly without which of the following?

Abundant domestic natural resources.

Countries with more economic freedom during 1980-2009 tended to do which of the following?

Achieve both more rapid growth and higher income levels than those that were less free.

Which of the following is most likely to result in an increase in crony capitalism?

An increase in government spending and growth of government regulation.

Which of the following is the strongest evidence of a shift toward a more expansionary fiscal policy?

An increase in government spending as a share of the economy and an expansion in the size of the budget deficit

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

An increase in real output.

Which of the following best expresses the central idea of countercyclical fiscal policy?

Deficits are planned during economic recessions, and surpluses are utilized to restrain expansionary periods.

Compared to the no-trade situation, when a country imports a good, which of the following will occur?

Domestic consumers gain, domestic producers lose, and the gains outweigh the losses.

Which of the following statements concerning economic growth is true?

Economic growth is primarily the result of gains from trade, discovery of better ways of doing things, and capital investment

Nations will attract investment and its citizens will engage in productive activities when the institutions and policies of that country do which of the following?

Encourage market exchange/ Reward innovation/ Protect people and their property.

Economic growth will have which of the following effects?

Expand the production possibilities of an economy.

A decrease in the money supply will have which of the following effects?

It will raise the interest rate, causing a decrease in investment and a decrease in GDP.

Which of the following is true of modern technology?

Improvements in technology have propelled the production possibilities and living standards of people in North America, Western Europe, and several other parts of the world/ In low-income countries, proven technologies can be either emulated or imported at a low cost/ Often, perverse institutions and policies in low-income countries undermine the gains from improvements in technology.

Which of the following about international trade is true?

In recent decades, the volume of U.S. international trade has been increasing as a share of the economy.

How does an open capital market affect a nation's economic growth?

It channels capital into productive projects and away from wasteful projects/ It rewards investors who find the most productive projects and invest in them/ It makes the lowest-cost capital available from around the world.

According to the Economic Freedom of the World measure, between 2000 and 2009 what happened to the economic freedom of the United States?

It declined and its rank fell from third to tenth during this period.

Which of the following is true regarding the methodology of public choice analysis?

It develops a logically consistent theory based on how individual actors (such as voters, politicians, and bureaucrats) respond to incentives.

What has income per person done during the past 200 years?

It increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800.

Which of the following is true about public choice analysis?

It is the study of the decision making of individual actors (such as voters, politicians, and bureaucrats) in the public sector.

When the Federal Reserve System wants to increase the money supply, what does it typically do?

It purchases U.S. government securities.

If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?

Loans and investments generally earn more interest income for the banks than excess reserves.

Why do opportunity costs primarily differ among nations?

Nations have different endowments of land, labor skills, capital, and technology.

One-third of the world's population live in China and India. How did the growth rate of these two countries compare with the growth of high income industrial countries during 1980-2009?

Per capita GDP increased more rapidly in China and India than in the high income industrial countries.

Which of the following most accurately indicates the political incentive to spend and/or tax?

Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes.

As methods of economic organization, the market and the public sector are similar in which of the following ways?

Someone must cover the cost associated with the provision of scarce goods in both sectors.

Which of the following was true of the actions of the Federal Reserve in response to the recession of 2008?

The Fed introduced several new procedures for the conduct of monetary policy and substantially increased bank reserves as the recession worsened.

Which of the following indicates the primary mechanism by which the money supply expands?

The Fed purchases additional bonds, which increases the reserves available to the banking system.

If a country allows trade and, for a certain good, the domestic price without trade is higher than the world price, which of the following conclusions can be made?

The country will be an importer of the good.

Which of the following tends to make the size of a shift in aggregate demand resulting from a tax change smaller than would otherwise be the case?

The crowding-out effect

Who would most likely be helped by an increase in the tariff on foreign-produced automobiles?

The domestic producers of automobiles.

In which one of the following situations is the political process most likely to result in both the acceptance of efficient (productive) programs and the rejection of inefficient (counterproductive) political activities?

The people who benefit from a government program pay the costs of the program roughly in proportion to the benefits that each receives.

In which of the following situations is representative democracy most likely to lead to the adoption of an inefficient government program?

The program provides substantial benefits to a small interest group, and the costs are widespread among voters.

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

The reserve requirements mandated by the Fed

In a world where capital moves rapidly across national boundaries, if a larger budget deficit leads to higher real interest rates, which of the following is likely to occur?

There will be a net inflow of capital, which will cause the dollar to appreciate and net exports to decline.

What would opening trade between two nations do?

Trade would leave the production possibilities unchanged and increase their consumption possibilities.

In which of the following situations is the political process likely to result in the inefficient and wasteful use of resources?

When the benefits are concentrated and the costs widespread.

Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?

a higher rate of investment

If the Federal Reserve wanted to expand the money supply in order to increase output, it should

buy government bonds, which will increase the money supply; this will cause interest rates to fall and aggregate demand to rise.

If the Federal Reserve is engaging in open market operations designed to expand the money supply, it is probably

buying government securities from the public.

An analysis of countries experiencing rapid inflation indicates that inflation is generally

caused by rapid growth in the money supply.

The expenditure multiplier indicates that

changes in investment, government, or consumption spending can trigger much larger changes in output.

Within the framework of the Keynesian model,

changes in output rather than changes in prices direct the economy to equilibrium.

Democracy tends to best promote freedom when there is

constitutional protection of private property rights.

The political incentive structure tends to

encourage budget deficits during both recessions and expansions.

Expansionary fiscal policy during a recession is most effective when it

directs the economy to full employment and resources into productive projects.

In order to achieve a high economic freedom rating, a country must

provide secure protection of privately owned property and evenhanded enforcement of contracts/refrain from creating barriers that limit domestic and international trade/rely more fully on markets rather than governments to allocate goods and resources.

An unanticipated shift to a more expansionary monetary policy by the Fed will

reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.

The major overall purpose of the Federal Reserve System is to

regulate the money supply and, thereby, provide a monetary climate that is in the best interest of the economy.