economics econ 2313 final

Chapter 1

1 ) Drawing a production possibilities curve bowed out from the origin i a graphical way of showing the

law of increasing opportunity costs.

(5pts)

True False

Answer: IncorrectPoints: 0

2 )

Which is a factor of production?

(5pts)

money interest

rent

capital

Answer: CorrectPoints: 5

3 )

Desscribe how technoiogical advances will affect the production possibilities curve.

(5pts)

Answer:Advances in technolgies will improve the production possibilities curve, because as technology improves production output will improve.

Points: 5 4 ) Which is not considered to be an economic resource?

(5pts)

land (or natural resources) money

labor

tools and machinery


5 )

Which of the following is not a central focus of the "economic perspective"?

(5pts)

Scarcity and choice. The scientific method

Purposeful behavior.

Marginal analysis


6 )

The budget line shows all combinations of two products gtaht the consumer can purchase, given money income and the prices of the products.

(5pts)

True False


7 )

A point on the frontier of the production possibilities curve is:

(5pts)

attainable and the economy is efficient. attainable, but the economy is inefficient

unattainable, but the economy is inefficient.

unattainable and the economy is efficient.


8 )

The process of developing hypotheses, testing them against facts, and using the results to construct theories is called:

(5pts)

opportunity cost calculation. the scientific method.

marginal analysis.

microeconomics.


9 )

From the economist's perspective, investment refers to money income.

(5pts)

True False


10 )

Along a production possibilities curve, an increase in the production of one type of good can be accomplished only by:

(5pts)

decreasing the production of the other type of good. increasing the production of the other type of good

. holding constant the production of the other type of good.

decreasing the price of the other type of good.


11 )

Suppose a consumer has an income of $16, the price of A is $2, and the price of B is $1. Which combination is on the consumer's budget line?

(5pts)

4A and 9B 5A and 6B

5A and 7B

6A and 6B


12 )

The basic economic problem is essentially one of deciding how to make the best use of:

(5pts)

limited resources to satisfy limited economic wants limited resources to satisfy unlimited economic wants.

unlimited resources to satisfy unlimited economic wants.

unlimited resources to satisfy limited economic wants.


13 )

The production possibilities curve represents which of the following?

(5pts)

the amount of goods attainable with variable resources the maximum amount of goods attainable with variable resources

maximum combinations of goods attainable with fixed resources

the amount of goods attainable if prices decline


14 )

The alternative combinations of two goods which a consumer can purchase with a given money income is:

(5pts)

a production possibilities curve. a demand curve.

consumer equilibrium.

a budget line.


15 )

The utility of a specific product:

(5pts)

is determined by consumer income. is determined by the price of the product.

varies from person to person using the product.

is constant from person to person using the product.


16 )

Explain the difference between macroeconomics and microeconomics.

(5pts)

Answer:Macroeconomics examines either the economy as a whole or its basic subdivisions or aggregates. Microeconomics is the part of economics concerned with individual units.

Points: 5 17 ) Economics is the study of:

(5pts)

increasing the level of productive resources so there is maximum output in society. increasing the level of productive resources so there is a minimum level of income.

how people, institutions, and society make choices under conditions of scarcity.

the efficient use of scarce resources paid for at the minimum level of cost to consumers and businesses


18 )

The term scarcity in economics refers to the fact that:

(5pts)

economic wants are limited and resources are abused. even in the richest country some people go hungry.

no country can produce enough products to satisfy everybody's economic wants.

it is impossible to produce too much of any particular good or service in a market economy.


19 )

A point inside the production possibilities curve is:

(5pts)

attainable and the economy is efficient. attainable, but the economy is inefficient.

unattainable, but the economy is inefficient.

. unattainable and the economy is efficient


20 )

What are the four economic resources? How is each resource defined?

(5pts)

Answer:

Land includes all natural resources used in the production process. Labor consists of the physical and mental talents of individuals used in producing goods and services. Captial includes all manufactured aids used in producing consumer goods and services. Entrepreneurial ability is the entrepreneur that takes the initiative in combining the resources of land, labor, and capital to produce things.

Points: 5

Chapter 2

1 ) If an increase in the demand for a product and a rise in its price cause an increase in the quantity

supplied, price is successfully performing its

(5pts)

guiding function circular flow role

division-of-labor role

medium-of-exchange function


2 )

In the market system, the role of government is best described as

(5pts)

limited extensive

significant

nonexistent


3 )

Which is the primary factor determining the share of the total output of the econom received by a household?

(5pts)

the tastes of the household the medium of exchange used by the household

the prices at which the household sells its resources

ethical considerations in the operation of a market economy


4 )

Property rights encourage investment, innovation, exchange, maintenance of property, and economic growth.

(5pts)

True False


5 )

The ownership of property resources by private individuals and organizations is the institution of private (resources, property)_____________. The freedom of private businesses to obtain resources and use them to produce goods and services is the freedom of (choice, enterprise)_______________, while the freedom to dispose of property or money as a person sees fit is the freedom of ______________.

(5pts)

Answer: property, enterprise, choice -- CorrectPoints: 5

6 ) How do consumers typically express self-interest?

(5pts)

by minimizing their economic losses by maximizing their economic profits

by seeking the lowest price for a product

by seeking jobs with the highest wagtes and benefits


7 )

The institutional arrangements and coordinating mechanisms used to respond to the economic problem are called (laissez-faire, an economic system)________________________.

(5pts)

Answer: pure capitalism -- IncorrectPoints: 0

8 ) When a market is competitive, the individual sellers of a product are unable to reduce the supply of the

product and control its prices

(5pts)

True False


9 )

In a market system, the government owns most of the property resources (land and caoutak).

(5pts)

True False


10 )

The two kinds of markets found in the cicular flow model are

(5pts)

real and money markets real and socialist markets

money and command markets

product and resource markets


11 )

The advent of personal computers and word processing software that eliminated the market for electric typewriters would be an example of

(5pts)

specialization derived demand

the "invisible hand"

creative destruction


12 )

In capitalism, property resources are primarily (publicly, privately)____________ owned. The means used to direct and cooridinate economic activity (is central planning, are markets and prices)________________.

(5pts)

Answer: privately, markets and prices -- Incorrect

Points: 0 13 ) Explain how the market system provides a strong incentive for technological advance and creative

destruction.

(5pts)

Answer:

In the market system, competition, freedom of choice, self-interest, and personal reward provide the opportunity and motivation for technological advance. It enables better products and processes to supplant inferior ones. With new technologies comes competition for other firms to keep up, so creative destruction doesn't occur.

Points: 5 14 ) In the circular flow model, businesses

(5pts)

buy products and resources sell products and resources

buy products and sell resources

sell products an buy resources


15 )

Who will get the output from a market economy? Explain

(5pts)

Answer: Consumers generally get the output if they can pay the price.Points: 5

16 ) The market system is a method of

(5pts)

making economic decisions by central planning communicating and coordinating economic decisions

promoting specialization, but not division of labor

allocating money, but not economic profits or losses


17 )

In a command economy, property resources are primarily (publicly, privately)__________ owned. The coordinating device(s) in this economic system (is central planning, are markets and prices)___________________________.

(5pts)

Answer: publicly, central planning -- IncorrectPoints: 5

18 ) In the circular flow model,

a. Households are buyers and businesses are sellers in (product, resource)________________ markets, and businesses are buyers and households are sellers in ______________ markets.

b. the flow of economic resources and finished goods and services is the (money, real)____________ flow, and the flow of income and expenditures is the __________________ flow.

(5pts)

Answer: A. product, resource B: real, money -- IncorrectPoints: 5

19 ) Explain the major characteristics--institutions and assumptions--embodied in a market system.

(5pts)

Answer:Market systems exist in order to promote economic growth for the future. Advances in technology, specializations, and freedoms of choice and enterprise help grow the economy. People can own what they want and do what they want with resources and property.

Points: 5 20 ) The chief economic virtue of the competitive market system is that it

(5pts)

allows extensive personal freedom promotes the efficient use of resources

provides an equitable distribution of income

eliminates the need for decision making


Chapter 3

1 ) Answer the next question(s) on the basis of the given supply and demand data for wheat:

Refer to the above data. Equilibrium price will be:

(10pts)

$4. $3.

$2.

$1.


2 )

A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:

(10pts)

beer and marijuana are substitute goods. beer and marijuana are complementary goods.

beer is an inferior good.

marijuana is an inferior good.


3 )

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:

(10pts)

an increase in the cost of making donuts. an increase in the price of coffee.

consumers expecting donut prices to fall.

a change in buyer tastes.


4 )

Which of the following is an example of a public good?

(10pts)

a fireworks display a hotdog

a barbeque grill

a personal computer


5 )

Nonrivalry and nonexcludability are the main characteristics of:

(10pts)

capital goods. private goods.

public goods.

consumption goods.


6 )

The division of labor means that:

(10pts)

labor markets are geographically segmented. unskilled workers outnumber skilled workers.

workers specialize in various production tasks.

each worker performs a large number of tasks.


7 )

Answer the next question(s) on the basis of the given supply and demand data for wheat:

Refer to the above data. If the price in this market was $4:

(10pts)

the market would clear; quantity demanded would equal quantity supplied. buyers would want to purchase more wheat than is currently being supplied.

farmers would not be able to sell all their wheat.

there would be a shortage of wheat.


8 )

Which of the above diagrams illustrate(s) the effect of a governmental subsidy on the market for AIDS research?

(10pts)

A only.

B only.

C only.

D only.


9 )

Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer?

(10pts)

A and C.

A only.

B only.

C only.


10 )

An example of a public good is:

(10pts)

a movie theater. a freight train.

the war on terrorism.

Disneyland.

Answer: Correct

Points: 10

Chapter 4

1 ) Social security taxes are regressive because:

(10pts)

the social security tax rate increases as income increases. no social security tax is collected for incomes in excess of a set income level.

each individual must pay a set percentage of his or her income in social security taxes.

as income increases, the social security tax rate increases at a decreasing rate.


2 )

A public good:

(10pts)

generally results in substantial spillover costs. can never be provided by a nongovernmental organization.

can't be provided to one person without making it available to others as well.

costs essentially nothing to produce and thus is provided by the government at a zero price.


3 )

When a person's income increases from $40,000 to $50,000 a year and tax payments increase from $3,000 to $6,000, the person's marginal tax rate is:

(10pts)

15 percent. 20 percent.

25 percent.

30 percent.


4 )

If an economy is being "allocatively efficient," then that means the economy is:

(10pts)

using the least costly production techniques. producing the products most wanted by society.

fully employing all economic resources.

maximizing the returns to factors of production.


5 )

Which is not one of the conditions for the Coase theorem to hold?

(10pts)

The ownership of property is clearly defined. The number of people involved is small.

The amount of money disputed is minor.

The costs of bargaining are negligible.


6 )

"Excludability" means that:

(10pts)

Sellers can restrict the benefits of a good to those who pay for it. Buyers can restrict other buyers from making purchases in that market.

When one person buys a good, it is not available for others to buy.

Government can prevent consumers from buying the good.


7 )

If an economy is being "productively efficient," then that means the economy is:

(10pts)

producing the products most wanted by society.

fully employing all economic resources.

maximizing the returns to factors of production.

using the least costly production techniques.


8 )

The average tax rate is the:

(10pts)

sum of all individual tax rates. tax rate paid by middle-income households.

total tax paid divided by total taxable income.

increase in taxes as a percentage of an increase in income.


9 )

When the competitive market system does not allocate resources to economically desirable goods, economists say what has occurred?

(10pts)

Market failure. Government failure.

Externalities.

Productive inefficiency.


10 )

Private firms cannot profitably produce a public good because of:

(10pts)

liability rules and lawsuits. inflation and unemployment.

nonrivalry and nonexcludability.

positive and negative externalities.


Chapter 5

1 ) With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of

6%. But, if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of:

(5pts)

2 percent 4 percent

6 percent

10 percent


2 )

In an economy, 35 million workers are employed, the labor force is 50 million, and total population is 70 million. The unemployment rate is:

(5pts)

15 percent 25 percent

30 percent

50 percent


3 )

When unanticipated inflation occurs:

(5pts)

Both creditors and debtors benefit Creditors are hurt, but debtors benefit

Debtors are hurt, but creditors benefit

Both creditors and debtors are hurt


4 )

A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate

(5pts)

4 percent 6 percent

9 percent

27 percent


5 )

Recurring upswings and downswings in an economy's real GDP over time are called:

(5pts)

recessions. business cycles.

output yo-yos.

total product oscillations.


6 )

In the expansion phase of a business cycle:

(5pts)

The inflation rate decreases, but productive capacity increases The inflation rate and productive capacity decrease

Employment increases, but output decreases

Employment and output increase


7 )

The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:

(5pts)

6 million 9 million

12 million

24 million


8 )

Rising per-unit production costs are most directly associated with:

(5pts)

frictional unemployment. structural unemployment.

demand-pull inflation.

cost-push inflation.


9 )

After the First World War, Germany experienced an economic condition which can be best described as:

(5pts)

Hyperinflation Cost-push inflation

Unanticipated inflation

Anticipated inflation


10 )

The production of durable goods is more stable than the production of nondurables over the business cycle.

(5pts)

True False


Chapter 6

11 ) When an economy's production capacity is expanding:

(5pts)

nominal GDP, but not necessarily real GDP, is rising. net exports is always a positive amount.

DI exceeds PI.

domestic investment exceeds depreciation.


12 )

If depreciation exceeds gross investment:

(5pts)

the economy's stock of capital may be either growing or shrinking. the economy's stock of capital is shrinking.

the economy's stock of capital is growing.

net investment is zero.


13 )

Historically, real GDP has increased less rapidly than nominal GDP because:

(5pts)

price indices have not reflected improvements in product quality. the general price level has increased.

technological progress has resulted in more efficient production.

the general price level has declined.


14 )

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index (1985 = 100) was 120 in 1990 and 125 in 2000. Between 1990 and 2000 real GDP:

(5pts)

increased by $60 billion. decreased by $32 billion.

increased by $100 billion.

increased by $117 billion.


15 )

Suppose nominal GDP in 2002 was $100 billion and in 2003 it was $260 billion. The general price index in 2002 was 100 and in 2003 it was 180. Between 2002 and 2003 the real GDP rose by:

(5pts)

160 percent. 44 percent.

37 percent.

12 percent.


16 )

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is:

(5pts)

100. 200.

240.

300.


17 )

Use the following table for a hypothetical single-product economy.

Refer to the above data. Nominal GDP in year 4 is:

(5pts)

$320. $450.

$225.

$800.


18 )

The concept of net domestic investment refers to:

(5pts)

the amount of machinery and equipment used up in producing the GDP in a specific year. the difference between the market value and book value of outstanding capital stock.

gross domestic investment less net exports.

total investment less the amount of investment goods used up in producing the year's output.


19 )

Suppose a nation's 2003 nominal GDP was $972 billion and the general price index was 90. To make the 2003 GDP comparable with the base year GDP, the 2003 GDP must be:

(5pts)

adjusted downward to $678 billion. deflated to $896 billion.

inflated to $1080 billion.

deflated to $1080 billion.


20 )

If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that:

(5pts)

nominal GDP is rising but real GDP is declining. net investment is negative.

the economy is importing more than it exports.

the economy's production capacity is expanding.


Chapter 7

1 ) When there is an increase in aggregate demand, there will be an increase in the price level but not in the

level of output or employment.

(5pts)

True False


2 )

An increase in consumer wealth will decrease aggregate demand.

(5pts)

True False


3 )

Which would be one of the factors that increase aggregate demand?

(5pts)

An increase in personal income tax rates An increase in the productivity of labor

An increase in consumer wealth

An increase in real interest rates


4 )

A fall in prices of imported resources will cause aggregate:

(5pts)

Supply to increase Demand to increase

Supply to decrease

Demand to decrease


5 )

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this output. The per unit cost of production is:

(5pts)

$1.42 $1.24

$0.70

$0.40


6 )

Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50 and the price of each input is $9. The per-unit cost of production is: A. $0.67

(5pts)

$1.50 $0.67

$55.00

$33.33


7 )

A decrease in aggregate demand will have no effect on the real equilibrium GDP of the economy and will lower its price level.

(5pts)

True False


8 )

The long-run aggregate supply curve slope is horizontal

(5pts)

True False


9 )

If the prices of imported resources decrease, then this event would most likely:

(5pts)

Decrease aggregate supply Increase aggregate supply

Increase aggregate demand

Decrease aggregate demand


10 )

Which would most likely shift the aggregate supply curve? A change in:

(5pts)

Consumer expectations Government spending

Excess capacity in business

Prices of imported resources


11 )

The aggregate demand curve shows the:

(5pts)

Inverse relationship between the price level and real GDP purchased Direct relationship between the price level and real GDP produced

Inverse relationship between interest rates and real GDP produced

Direct relationship between real-balances and real GDP purchased


12 )

The aggregate demand curve is the relationship between the:

(5pts)

Price level and the sales of producers Price level and the purchasing of real domestic output

Price level and the distribution of real domestic output

Real domestic output bought and the real domestic output sold


13 )

Which would most likely increase aggregate supply?

(5pts)

An increase in the prices of imported products An increase in productivity

A decrease in business subsidies

A decrease in net exports


14 )

Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50 and the price of each input is $9. The level of productivity in this economy is:

(5pts)

5 6

9

50


15 )

An increase in aggregate demand is most likely to be caused by a decrease in:

(5pts)

The wealth of consumers Consumer confidence

Interest rates for home mortgages

The tax rates on household income


16 )

An aggregate supply curve shows the:

(5pts)

Level of real domestic output which will be produced at each possible price level Level of real domestic output which will be purchased at each possible price level

Price level at which real domestic output will be purchased

Price level at which real domestic output will be in equilibrium


17 )

Suppose that real domestic output in an economy is 300 units, the quantity of inputs is 50 and the price of each input is $9. If the price of each input decreased from $9 to $7, productivity would:

(5pts)

Decrease and aggregate supply would decrease Increase and aggregate supply would increase

Remain unchanged and aggregate supply would increase

Remain unchanged and aggregate supply would


18 )

An increase in productivity will:

(5pts)

Increase aggregate demand Increase aggregate supply

Increase aggregate supply and aggregate demand

Decrease aggregate supply and aggregate demand


19 )

If the prices of imported resources increase, then aggregate supply will decrease.

(5pts)

True False


20 )

If Congress passed new laws significantly increasing the regulation of business, this action would tend to

(5pts)

Increase per-unit production costs and shift the aggregate supply curve to the left Increase per-unit production costs and shift theaggregate supply curve to the right

Increase per-unit production costs and shift . the aggregate demand curve to the left

Decrease per-unit production costs and shift


Chapter 8

1 ) When the public debt is held by foreigners it is not a real burden on real domestic output.

(6.67pts)

True

False

Answer: CorrectPoints: 6.67

2 )

If government spending that gives rise to a budget deficit is for public investment projects, such as highways, then this spending can increase the economy's future production capacity.

(6.67pts)

True False


3 )

The payment of interest on the public debt probably decreases pincome inequality.

(6.67pts)

True False


4 )

If the Congress passes legislation to decrease government spending to control demand-pull inflation, then this would be an example of a(n):

(6.67pts)

Automatic stabilizers Expansionary fiscal policy

Contractionary fiscal policy

Nondiscretionary fiscal policy


5 )

When the Federal government takes action to change taxes and spending to stimulate the economy such policy is

(6.67pts)

Passive Automatic

Discretionary

Nondiscretionary


6 )

A contractionary fiscal policy can be illustrated by a(n):

(6.67pts)

Increase in aggregate demand Decrease in aggregate demand

Increase in aggregate supply

Change in the price level


7 )

Fiscal policy is enacted through changes in:

(6.67pts)

Interest rates The supply of money

Unemployment and inflation

Taxation and government spending


8 )

When changes to taxes and spending occur in the economy without explicit action by the Federal government, such policy is:

(6.67pts)

Cyclical Variable

Discretionary

Nondiscretionary


9 )

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

(6.67pts)

Fiscal policy Incomes policy

Monetary policy

Employment policy


10 )

The financing of the public debt can increase interest rates and reduce private investment spending.

(6.67pts)

True False


11 )

The financing of the public debt can increase interest rates and reduce private investment spending.

(6.67pts)

True False


12 )

If the Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

(6.67pts)

Political business cycle Expansionary fiscal policy

Contractionary fiscal policy

Nondiscretionary fiscal policy


13 )

The combination of fiscal policies that would reinforce each other and be most expansionary would be a(n):

(6.67pts)

Increase in government spending and taxes Decrease in government spending and taxes

Decrease in government spending and an increase in taxes

Increase in government spending and a decrease in taxes


14 )

Which group has a direct responsibility for providing analysis, advice and assistance to the U.S. President on economic matters?

(6.67pts)

The Congressional Budget Office The Council of Economic Advisors

The Joint Economic Committee

The Federal Reserve Board


15 )

The set of fiscal policies that would be most contractionary would be a(n):

(6.67pts)

Increase in government spending and taxes Decrease in government spending and taxes

Increase in government spending and a decrease in taxes

Decrease in government spending and an increase in taxes


Chapter 9

1 ) Firms whose central business is providing individual account shares of collections of stocks, bonds, or

both are known as:

(6.67pts)

insurance companies. mutual funds companies.

commercial banks.

thrifts


2 )

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is:

(6.67pts)

4. 5.

10.

2.


3 )

When commercial banks use excess reserves to buy government securities from the public:

(6.67pts)

the money supply falls. checkable deposits decline.

commercial bank reserves increase.

new money is created.


4 )

In the 1990s, Congress passed legislation that:

(6.67pts)

allows non-bank firms such as Chrysler and IBM to own large commercial banks or thrifts. will eventually replace the $1 bill with a $1 coin.

replaces the twelve Federal Reserve Banks with a single Central Bank.

ends the legal separation of the banking industry and securities firms.


5 )

The goldsmith's ability to create money was based on the fact that:

(6.67pts)

paper money in the form of gold receipts was rarely redeemed for gold. the goldsmith was required to keep 100 percent gold reserves.

withdrawals of gold tended to exceed deposits of gold in any given time period.

consumers and merchants preferred to use gold for transactions, rather than paper money.


6 )

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

(6.67pts)

the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities. the MPC of borrowers is greater than zero, but less than 1.

reserves lost by any particular bank will be gained by some other bank.

the central banks follow policies that prevent reserves from falling below the level required by law.


7 )

Which one of the following is presently a major deterrent to bank panics in the United States?

(6.67pts)

the legal reserve requirement the gold standard

deposit insurance

the fractional reserve system


8 )

When the receipts given by goldsmiths to depositors were used to make purchases:

(6.67pts)

existing banking laws were violated. the receipts became in effect paper money.

the gold standard was created.

a fractional reserve banking system was created.


9 )

Which of these pairs of financial institutions are most alike in terms of their main lines of business?

(6.67pts)

insurance companies and mutual fund companies. thrifts and securities firms.

commercial banks and thrifts.

pension fund companies and commercial banks.


10 )

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $100,000 in:

(6.67pts)

mutual fund companies and pension fund companies. thrifts and insurance companies.

securities firms and insurance companies.

commercial banks and thrifts.


11 )

Which one of the following is presently a major deterrent to bank panics in the United States?

(6.67pts)

the legal reserve requirement the fractional reserve system

deposit insurance

the gold standard


12 )

Assuming no other changes, if balances in small time deposits increase by $30 billion and money market mutual funds held by businesses decrease by $30 billion, the:

(6.67pts)

M1, M2, and MZM money supplies will decline. M2 money supply will increase and MZM money supply will decrease.

M2 and MZM money supplies will increase.

M1 and M2 money supplies will not change.


13 )

Within the past decade, Congress has:

(6.67pts)

ended restrictions on banks' buying of non-bank firms such as manufacturers, corporate farms, and real estate companies.

allowed holders of government bonds to add these bonds to their insured checking accounts.

permitted banks and thrifts to "self-insure" rather than participate in the FDIC system.

ended restrictions on banks' merging with insurance companies, securities firms, and other firms offering financial services.


14 )

The reserves of a commercial bank consist of:

(6.67pts)

government securities that the bank holds. the bank's net worth.

deposits at the Federal Reserve Bank and vault cash.

the amount of money market funds it holds.


15 )

Consider This) Credit card balances are:

(6.67pts)

a component of MZM but not of M2 or M1. not a component of M1, M2, or MZM.

a component of M2 but not of M1.

a component of M1.


Chapter 10

1 ) The transactions demand for money is least likely to be a function of the

(5pts)

Price level Interest rate

Level of national income

Frequency of wage and salary payments


2 )

A consumer holds money to meet spending needs. This would be an example of the:

(5pts)

Use of money as a measure of value Use of money as legal tender

Transactions demand for money

Asset demand for money


3 )

Changes in the rate of interest will most likely affect:

(5pts)

The reserve ratio Government spending

Investment spending

Aggregate supply


4 )

What is one of the advantages of monetary policy over fiscal policy?

(5pts)

Its control over the size of Federal budget deficits The quickness with which it can be used

The opportunity for broad political influence

Its domination of major sectors of the economy


5 )

Which is an expansionary money policy?

(5pts)

Increase the money supply to shift the aggregate demand curve rightward Increase the money supply to shift the aggregate demand curve leftward

Increase the money supply to shift the aggregate supply curve leftward

Decrease the money supply to shift the aggregate demand curve leftward


6 )

Which one is considered a limitation of monetary policy?

(5pts)

The cause-effect chain Its cyclical asymmetry

Its isolation from political pressure

The speed with which it can be implemented


7 )

When nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, the quantity of money demanded for transactions purposes will be:

(5pts)

$200 billion $400 billion

$800 billion

$3,200 billion


8 )

In the chain of cause and effect between changes in the excess reserves of commercial banks and the resulting changes in output and employment in the economy:

(5pts)

A decrease in aggregate demand will increase output and employment A decrease in the rate of interest will decrease aggregate demand

An increase in the money supply will decrease the rate of interest

An increase in excess reserves will decrease the money supply


9 )

Which one of the following is a tool of monetary policy for altering the reserves of commercial banks?

(5pts)

Issuing currency Check collection

Open-market operations

Acting as the fiscal agent for the Federal government


10 )

The tools of monetary policy for altering the reserves of commercial banks are the:

(5pts)

Tax rate and level of government spending Consumer price index and unemployment rate

Public debt, budget surplus, and budget deficit

Discount rate, reserve ratio, and open-market operations


11 )

The conduct of monetary policy in the United States is the main responsibility of the:

(5pts)

U.S. Treasury Federal Reserve

Bureau of the Public Debt

Bureau of Economic Analysis


12 )

If Federal Reserve officials attempt to pull the economy out of a recession when the price level is relatively stable, the policies they would most likely use would be to:

(5pts)

Buy government securities and increase the discount rate Sell government securities and decrease the discount rate

Buy government securities and decrease the discount rate

Sell government securities and increase the discount rate


13 )

The fundamental objective of monetary policy is to assist the economy in achieving:

(5pts)

A rapid pace of economic growth A money supply which is based on the gold standard

A full-employment, noninflationary level of total output

A balanced-budget consistent with full-employment


14 )

If interest rates rise, there will be a(n):

(5pts)

Increase in the total amount of money demanded Decrease in the total amount of money demanded

. Decrease in the total amount of money supplied

Increase in the asset demand for money


15 )

The Federal Reserve alters the amount of the nation's money supply by:

(5pts)

Reducing the liabilities of the banking system Controlling the assets of the nation's largest banks

Minting coins and printing currency that is distributed to banks

Manipulating the size of excess reserves held by commercial banks


16 )

Assume that there is a 25 percent reserve ratio and that the Federal Reserve buys $200 million worth of government securities. If the securities are purchased from the public, then this action has the potential to increase bank lending by a maximum of:

(5pts)

$600 million, and also by $600 million if the securities are purchased directly from commercial banks $800 million, and also by $800 million if the securities are purchased directly from commercial banks

$600 million, but by $800 million if the securities are purchased directly from commercial banks

$800 million, but only by $600 million if the securities are purchased directly from commercial banks


17 )

When the interest rate falls, the:

(5pts)

Asset demand for money decreases Transactions demand for money increases

Total amount of money demanded increases

Total amount of money demanded decreases


18 )

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?

(5pts)

The purchase of government securities in the open market and an increase in taxes The sale of government securities in the open market and a decrease in taxes

The sale of government securities in the open market and a decrease in government spending

The purchase of government securities in the open market and an increase in government spending


19 )

If the dollars held for transactions purposes are, on the average, spent four times a year for final goods and services, then the quantity of money people will wish to hold for transactions is equal to:

(5pts)

Four percent of nominal GDP 25 percent of nominal GDP

Nominal GDP multiplied times 4

Nominal GDP divided by 25


20 )

The economy is experiencing a low rate of economic growth and the Fed decides to pursue an expansionary money policy. Which set of actions by the Fed would be most consistent with this policy?

(5pts)

Selling government securities and lowering the discount rate Selling government securities and raising the discount rate

Buying government securities and raising the discount rate

Buying government securities and lowering the discount rate


economics econ 2313 final

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