Econ 204

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Econ 204 Final

The best definition of GDP is:
A. The sum of the physical amounts of goods and services in the economy.
B. A dollar measure of output produced during a given time period.
C. A measure of the per capita economic growth rate of the economy.
D. A physical measure of the capital stock of the economy.

B

Which of the following statements is true about the United States economy?
A. The U.S. produces approximately one-fifth of the world's production.
B. The U.S. has the world's third largest economy.
C. The U.S. produces less than half as much as China does.
D. The U.S. produces less than one-third as much as Japan does.

A

Per capita GDP is:
A. The sum of consumer goods, investment goods, government services, and net exports.
B. A dollar measure of the economic growth rate of a country.
C. The value of the factors of production used to produce output in a country.
D. The dollar value of GDP divided by total population.

D

Average living standards are best measured using:
A. GDP.
B. The economic growth of the economy.
C. Per capita GDP.
D. The capital stock of the economy.

C

The current U.S. economy is based primarily on the production of:
A. Agricultural goods.
B. Goods for Federal government use.
C. Manufacturing goods.
D. Services.

D

As the United States economy relies more and more heavily on the production of services rather than goods:
A. GDP will decrease since there will be less real production.
B. International trade will become more difficult.
C. Mass unemployment will result.
D. Nearly all of the future job growth will be in service-producing industries.

D

The government establishes the rules of the game for economic transactions in order to:
A. Legitimatize and enforce contracts.
B. Discourage the production of capital.
C. Discourage the ownership of property.
D. Encourage spillover costs.

A

The term externalities refer to:
A. Black-market economic activity.
B. The impact on markets of imported goods.
C. The costs and benefits of a market activity borne by a third party.
D. The inequitable distribution of income.

C

The government regulates food additives:
A. To keep food producers from dominating their markets.
B. To restrain the market power of food producers.
C. To assess their safety.
D. To prevent externalities.

C

When monopolies exist:
A. Prices tend to be higher.
B. Quality tends to be higher.
C. Production tends to be higher.
D. Externalities occur.

A

The goal of the consumer in a market economy is to use his/her limited income to buy:
A. The greatest number of goods and services possible.
B. The goods and services that maximize profits for businesses.
C. Those goods and services with the lowest prices.
D. The set of goods and services that maximizes their utility.

D

A factor market is any place where:
A. Finished goods are bought and sold.
B. Land, labor, or capital is bought and sold.
C. Finished services are bought and sold.
D. Factories are bought and sold.

B

Which of the following is purchased in a factor market?
A. A bag of jellybeans
B. National defense
C. The labor of a state university professor
D. A motorized scooter

C

International participants:
A. Take no part in American markets.
B. Participate only in American product markets.
C. Participate only in American factor markets.
D. Participate in both American factor markets and American product markets.

D

Ceteris paribus, if the price of a digital camera rises, then we can expect:
A. An increase in the demand for digital cameras.
B. An increase in the quantity demanded of digital cameras.
C. A decrease in the demand for digital cameras.
D. A decrease in the quantity demanded of digital cameras.

D

Ceteris paribus, which of the following would generally cause an increase in the demand for automobiles?
A. A decrease in the price of automobiles
B. An increase in consumers' income
C. The new models are perceived as ugly compared with old models
D. Consumer expectations that the price of automobiles will be lower next year

B

Ceteris paribus, if buyers expect the price of airline tickets to fall in the future, then right now there should be:
A. An increase in the demand for airline tickets.
B. A decrease in the supply of airline tickets.
C. A decrease in the demand for airline tickets.
D. No change in the supply of or demand for airline tickets because the price is not changing right now.

C

Assume that pencils and pens are substitutes. If the price of pencils rises, then we will see:
A. An increase in the demand for pens.
B. A decrease in the demand for pens.
C. An increase in the supply of pens.
D. A decrease in the supply of pens.

A

Assume a series of forest fires reduces the supply of lumber which is an input in the production of wooden bats. Baseballs and wooden bats are complements. If the price of wooden bats increases, we can expect the:
A. Demand for baseballs to decrease.
B. Supply of baseballs to decrease.
C. Demand for baseballs to increase.
D. Supply of baseballs to increase.

A

Assume that steel is used to produce monkey wrenches. Ceteris paribus, if the price of steel rises, then:
A. The supply curve for monkey wrenches will shift to the left.
B. The supply curve for monkey wrenches will shift to the right.
C. There will be a leftward movement along the initial supply curve for monkey wrenches.
D. There will be a rightward movement along the initial supply curve for monkey wrenches.

A

The equilibrium price in a market is found where:
A. The market supply curve intersects the market demand curve.
B. The market supply curve intersects the y-axis.
C. The market demand curve intersects the y-axis.
D. The market supply curve intersects the x-axis.

A

If there is a shortage at a given price, then:
A. That price is the equilibrium price.
B. That price is greater than the equilibrium price.
C. That price is less than the equilibrium price.
D. There is no equilibrium price in the market.

C

If there is a surplus at a given price, then:
A. The market is in equilibrium at that price.
B. That price is greater than the equilibrium price.
C. That price is lower than the equilibrium price.
D. The price is zero.

B

Market failure implies that the market mechanism:
A. Leads the economy to a point outside the production-possibilities curve.
B. Leads the economy to the wrong mix of output.
C. Causes shortages or surpluses in the market.
D. Causes government failure.

B

Which of the following is not a source of market failure?
A. Public Goods
B. Market power
C. Government intervention
D. Equity

C

GDP per capita:
A. Is equal to a nation's GDP divided by its population.
B. Does not permit comparisons of the economic welfare of different nations.
C. Is real GDP corrected for price-level changes.
D. Indicates the most efficient use of resources.

A

If GDP grows more rapidly than population for a particular country over a period of time, then we can determine that:
A. Real GDP has increased.
B. All citizens of this country are better off.
C. GDP per capita has increased.
D. GDP must rise at a slower rate in the future.

C

Which of the following is excluded from calculations of GDP?
A. Goods that are produced but not sold during the time period
B. Income received by managers of corporations
C. The value of lawn mowing provided by a teenager for his own family
D. Goods that bring little value to society

C

Suppose a friend claims he is helping the economy by throwing trash on the street rather than in trash cans because the extra expenditures necessary to clean up the streets will increase GDP. Your friend is:
A. Wrong. GDP will not be affected because nothing new is being produced.
B. Right. GDP will increase, ceteris paribus.
C. Wrong. GDP will not be affected because this is not a socially desirable use of resources and will therefore not be included in GDP.
D. Wrong. GDP will decline because the neighborhood will be less clean.

B

Which of the following would not be included in the calculation of GDP?
A. Income earned by an attorney
B. Income earned by a CPA
C. Contract work performed by an electrician
D. Tips earned by a bartender who does not report it to the IRS

D

When an individual makes repairs to her own home instead of hiring a company to make the repairs, the activity is:
A. Included in GDP because it represents production.
B. Productive but excluded from GDP because it is a nonmarket activity.
C. Excluded from GDP because it is an intermediate good.
D. Included in GDP but not included in GNP.

B

Which of the following is not a final good or service?
A. A refrigerator purchased by a homeowner
B. Paper purchased by a textbook company
C. A computer purchased by a local middle school
D. A flu shot purchased by a teacher

B

A furniture factory produces dining room sets. The lumber they purchase from the lumberyard is a/an:
A. Factor of production.
B. Final good.
C. Intermediate good.
D. Service.

C

To avoid counting the same output more than once the calculation of GDP includes:
A. Intermediate goods plus final goods.
B. Only the value of final goods.
C. The value added at each stage of production plus intermediate goods.
D. Only the output produced by U.S. factors of production.

B

Market failure implies that the market mechanism:
A. Leads the economy to a point outside the production-possibilities curve.
B. Leads the economy to the wrong mix of output.
C. Causes shortages or surpluses in the market.
D. Causes government failure.

B

When market failure occurs, the role of government is to:
A. Eliminate markets.
B. Push market outcomes closer to the ideal.
C. Create an alternative to markets.
D. Do nothing.

B

A private good:
A. Is consumed by one person and excludes consumption by others.
B. Experiences free riders.
C. Results in market failure when provided in markets characterized by laissez faire.
D. Is provided most efficiently by the government.

A

In economics, a public good:
A. Is any good produced by the government.
B. Has social costs of production lower than private costs of production.
C. Is provided in an optimal amount by the market.
D. Cannot be denied to consumers who have not paid.

D

The free-rider problem:
A. Arises from the ability to exclude an individual from the benefits of someone else's purchase.
B. Is a government failure resulting from consumption of private goods.
C. Reflects the inability to exclude an individual from the benefits of someone else's purchase.
D. Means that the market mechanism is the most efficient way to produce public goods.

C

When external costs result from the production of a good:
A. Producers have an incentive to produce too little.
B. Consumers have an incentive to consume too little.
C. Both producers and consumers have an incentive to produce and consume too much.
D. Producers and consumers are not affected.

C

The market will overproduce goods that have external costs because:
A. Producers experience lower costs than society.
B. Producers experience higher costs than society.
C. The government is not able to produce these goods.
D. Producers cannot keep these goods from consumers who do not pay so they have to produce greater amounts.

A

Antitrust activity addresses:
A. Market power.
B. Inequity.
C. Macro instability.
D. Public goods.

A

Which of the following is a source of government failure but is not typically an example of market failure?
A. Monopoly
B. Externalities
C. Equity
D. Waste

D

Government intervention in the market:
A. Involves an opportunity cost.
B. Never involves an opportunity cost because only market activities result in other goods and services being given up.
C. Does not involve an opportunity cost if market outcomes are improved.
D. Results in the free-rider dilemma.

A

According to cost-benefit analysis, a government project should be undertaken as long as the:
A. Opportunity costs exceed the welfare benefits.
B. Benefits exceed the opportunity costs.
C. Benefits equal the costs.
D. Voters approve the project.

B

The value of final output produced in a given period, measured in current prices is:
A. Real GDP.
B. Nominal GDP.
C. NDP.
D. GNP.

B

Real GDP is more accurate than nominal GDP in making comparisons of output over time because:
A. Nominal GDP can increase simply because of price increases over time.
B. Real GDP is not affected by output changes.
C. Nominal GDP is the hypothetical output that would be produced at full employment.
D. Real GDP is not affected by changes in productivity or the size of the labor force.

A

If real GDP falls from one period to another and the price level stays the same we can conclude that:
A. Nominal GDP increased.
B. Inflation increased.
C. Nominal GDP decreased.
D. NDP decreased.

C

Investment is the:
A. Expenditure on new plant, equipment, and structures plus changes in business inventories.
B. Consumption of capital in the production process.
C. Wearing out of plant and equipment.
D. Alternative combinations of final goods and services that can be produced with all available resources and technology.

A

An increase in business inventories during a time period, ceteris paribus, will:
A. Decrease GDP during that period.
B. Increase GDP during that period.
C. Not affect GDP during that period but will increase GDP in later periods when the inventory is sold.
D. Never affect GDP because changes in inventories are not included in the calculation of GDP.

B

When calculating GDP, government spending on goods and services makes up approximately:
A. One-fifth of total output.
B. One-half of total output.
C. One-tenth of total output.
D. One-third of total output.

A

Net exports are:
A. Goods sold to foreigners.
B. Not included in GDP.
C. The value of exports minus the value of imports.
D. Exports that ultimately are imported back into the United States

C

In calculating GDP imports are:
A. Subtracted from exports because they are part of another country's GDP.
B. Added to exports because both represent purchases of final goods.
C. Subtracted from exports to obtain gross exports.
D. Subtracted from exports and included in gross investment.

A

The components of GDP are:
A. C + I + X - (G + M).
B. C + I + G + (X - M).
C. C + I - G + (X - M).
D. C + I + G - (X + M).

B

Which of the following are included in the labor force?
A. A student who is still in school, but not working or looking for work
B. A part-time store clerk who is looking for another job
C. A person who voluntarily runs a charity
D. A person who spends the entire day taking care of his or her own young children at home

B

The labor-force participation rate is the number:
A. Of unemployed divided by the number of employed.
B. Of employed divided by the number in the labor force.
C. Of employed divided by the total population.
D. In the labor force divided by the working-age population.

D

Suppose that in a population of 50 million persons, 40 million are in the labor force, 36 million are employed, 2 million are classified as unable to work, and 1 million are classified as unwilling to work. The unemployment rate is:
A. 10.0 percent.
B. 72.0 percent.
C. 8.0 percent.
D. 80.0 percent.

A

Discouraged workers:
A. Do not actively seek employment, although they desire to be employed.
B. Are part of the labor force.
C. Are workers who are unhappy in their jobs.
D. Are counted as part of total unemployment.

A

The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is:
A. Frictional unemployment.
B. Seasonal unemployment.
C. Cyclical unemployment.
D. Structural unemployment.

A

When there is a mismatch between the skills required for a job and the skills of job seekers, the unemployment that results is an example of:
A. Frictional unemployment.
B. Structural unemployment.
C. Cyclical unemployment.
D. Seasonal unemployment.

B

Tom worked at NASA for thirteen years. In the fourteenth year, his job was automated, resulting in him losing his job. He looked for a new job for eighteen months before finding a job that paid less. During his eighteen month job search, Tom was considered to be:
A. Cyclically unemployed.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.

B

During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs, and the laid off workers are classified as:
A. Cyclically unemployed.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.

A

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded:
A. Results from a change in price of other goods.
B. Means a shortage or surplus will result from holding prices constant.
C. Also means demand has shifted.
D. Means that price has changed and there is movement along the demand curve.

D

If the economy relies entirely on the market mechanism to answer the WHAT, HOW, and FOR WHOM questions, it tends to:
A. Overproduce goods that yield external benefits and overproduce those that generate external costs.
B. Overproduce goods that yield external benefits and under-produce those that generate external costs.
C. Under-produce goods that yield external benefits and overproduce those that generate external costs.
D. Under-produce goods that yield external benefits and under-produce those that generate external costs.

C

The development of market power by a firm is considered to be a market failure because firms with market power will:
A. Produce more and charge a lower price than what would be socially optimal.
B. Tend to ignore external costs.
C. Produce less and charge a higher price than what would be socially optimal.
D. Not respond to consumer demand.

C

A nation's GDP is:
A. C + I + G + (X - M)
B. The sum of value added at some stages of the production process.
C. The total market value of all intermediate goods and services.
D. The total amount of money in circulation.

A

The economic definition of investment includes all of the following except:
A. Residential construction.
B. Net changes in inventory.
C. Spending for plant and capital equipment.
D. A retirement portfolio of stocks and bonds.

D

After being fired from a job, some people find that it may take several months to find a new job. This is an example of which of the following types of unemployment?
A. Structural unemployment
B. Frictional unemployment
C. Cyclical unemployment
D. Seasonal unemployment

B

Automobile workers in Detroit who are unemployed because of foreign imports at the same time that job vacancies exist for coal miners in West Virginia would most likely be classified as:
A. Structurally unemployed.
B. Cyclically unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.

A

During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs, and the laid off workers are classified as:
A. Cyclically unemployed.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.

A

A sudden increase in inflation, ceteris paribus:
A. Raises the real income of lenders relative to borrowers.
B. Raises the CPI and reduces real income.
C. Reduces the nominal income of those who have constant real incomes.
D. Makes everyone worse off.

B

If the CPI increases from 250 to 275 for one year, the rate of inflation for that year is:
A. 13 percent.
B. 10 percent.
C. 25 percent.
D. 15 percent.

B

Say's Law states that:
A. Supply creates its own demand.
B. Shifts of either supply or demand can achieve a given market equilibrium.
C. Wages and prices are inflexible, which prevents the achievement of market equilibrium.
D. Increased prices lead to increased supply.

A

Determinants of macro performance work on macro outcomes through:
A. Aggregate supply and demand.
B. International balances.
C. External shocks.
D. Internal market forces.

A

The real-balances effect says that an increase in the price level:
A. Increases the price of U.S. produced goods, causing Americans to buy more imported goods.
B. Increases the price of U.S. produced goods, causing foreign consumers to buy fewer U.S. goods.
C. Increases the need to borrow, which drives up interest rates and reduces loan-financed purchases.
D. Reduces the value of savings, which reduces the purchase of goods and services.

D

Ceteris paribus, if average prices in the U.S. economy fall, then the:
A. Real-balances effect will lead to a lower quantity of output demanded.
B. Foreign-trade effect will lead to a lower quantity of output demanded.
C. Interest-rate effect will lead to a higher quantity of output demanded.
D. Cost effect will lead to a higher quantity of output demanded.

C

Alternating periods of economic growth and contraction are:
A. The result of government intervention according to Keynes.
B. The result of recurrent shifts of aggregate demand and aggregate supply.
C. Indicative of an unstable economy and require government intervention according to classical economists.
D. Not typical of the U.S. economy.

B

If full employment is associated with an output that is greater than the current macro equilibrium, which of the following best describes the impact of a rightward shift of the aggregate supply curve, ceteris paribus?
A. A higher price level and a higher level of output
B. A higher price level and a lower level of output
C. A recession or depression
D. A lower price level and a higher level of output

D

Which of the following economic perspectives focuses on the need for government to shift aggregate supply to correct problems of unemployment and inflation?
A. Supply-side
B. Keynesian
C. Classical
D. Monetary

A

A vertical aggregate supply curve:
A. Implies that supply-side policies will have no effect on the macro equilibrium.
B. Implies that aggregate demand shifts have no impact on output.
C. Is likely in the short run.
D. Reflects the inflexibility of prices and wages.

B

The only policy lever that is effective against unemployment when the AS curve is vertical is:
A. Fiscal policy.
B. Monetary policy.
C. Supply-side policy.
D. Laissez-faire policy.

C

Aggregate demand is the total quantity of output:
A. Demanded if the economy is in equilibrium.
B. Demanded at alternative price levels in a given time period.
C. Producers are willing and able to supply at alternative price levels.
D. Consumers actually buy.

B

The components of aggregate demand are:
A. Consumption, government spending, net exports, and investment.
B. Consumption, exports, imports, and disposable income.
C. Consumption, inventory, government spending, and disposable income.
D. fExports, imports, investment, and disposable income.

A

If consumption is $340 and saving is $20, then disposable income is:
A. $340.
B. $360.
C. $320.
D. Cannot be determined from the information given.

B

If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion, then consumption will increase by:
A. $2,000 billion.
B. $800 billion.
C. $1,200 billion.
D. $600 billion.

C

A leakage is:
A. An export from the economy.
B. A decline in the capacity of the economy to produce goods.
C. A diversion of income from spending on output.
D. A decrease in aggregate supply.

C

Which of the following is a leakage?
A. Imports
B. Investment
C. Government spending
D. Aggregate demand

A

Injections include:
A. Business saving.
B. Taxes.
C. Exports.
D. Consumer saving.

C

Actual investment equals:
A. Desired investment plus planned investment.
B. Planned investment minus undesired investment.
C. Desired investment plus undesired investment.
D. Desired investment minus undesired investment.

C

If actual investment exceeds desired investment, then:
A. A recession can develop.
B. Leakages are greater than injections.
C. An inflationary spiral can develop.
D. Inventories are being depleted.

A

Which of the following is an example of the multiplier at work as a result of an increase in consumption expenditures?
A. Consumers compete with the government by increasing their expenditures, causing businesses to increase their investments in order to satisfy the increased demand.
B. Consumption expenditures increase inflation, which reduces real incomes; consumer expenditures and investment decline, which reduces aggregate spending.
C. Households and businesses receive income from consumption expenditures; they spend a portion of this new income; these expenditures in turn generate income for other businesses and households, which in turn spend a portion of the new income, and so on.
D. Consumption expenditures stimulate investment in new plant and equipment in order to produce goods and services for the government, which provides jobs and increases incomes.

C

A decrease in a recessionary GDP gap will most likely be associated with a decrease in:
A. Structural unemployment.
B. Cyclical unemployment.
C. The price level.
D. Frictional unemployment.

B

Which of the following is an income transfer?
A. Free medical care made available to the poor by a private physician
B. Unemployment benefits paid to a factory worker who was laid off
C. A new highway built by the federal government
D. A gift of money from a parent to a child

B

Fiscal policy works primarily through:
A. Shifts of the AS curve.
B. Shifts of the AD curve.
C. The improvement of worker skills through subsidized training programs.
D. Shifts of both AD and AS, as a result of changes in the interest rate.

B

In a diagram of aggregate demand and supply curves, the GDP gap is measured as the:
A. Horizontal distance between the equilibrium output and the full-employment output.
B. Vertical distance between the equilibrium price and the price at which the aggregate demand would intersect aggregate supply at full employment.
C. Horizontal distance between the aggregate demand necessary to achieve full employment and the aggregate demand curve at equilibrium output.
D. Vertical distance between the equilibrium output and the full-employment output.

A

The AD shortfall is the amount of additional aggregate demand needed to achieve full employment after allowing for:
A. Multiplier effects.
B. Price-level changes.
C. Feedback effects.
D. Fiscal stimulus.

B

Given an economy that is experiencing high unemployment, the amount of additional aggregate demand needed to achieve full employment after allowing for price-level changes is:
A. The AD shortfall.
B. The AD excess.
C. The recessionary GDP gap.
D. The inflationary GDP gap.

A

Which of the following is true when the government attempts to move the economy to full employment by increasing spending?
A. The desired stimulus should be set by the AD shortfall multiplied by the multiplier.
B. It must initially spend more than the GDP gap if the aggregate supply curve is upward-sloping.
C. The total change in spending includes both the new government spending and the subsequent increases in consumer spending.
D. c The desired stimulus should be set by the multiplier divided by the AD shortfall.

C

The desired tax cut to close a GDP gap is given by:
A. AD shortfall × MPS.
B. Desired fiscal stimulus ÷ MPC.
C. AD shortfall ÷ MPC.
D. Desired fiscal stimulus × MPC.

B

Assume the MPC is 0.80. If the government wants to eliminate an AD shortfall of $300 billion it should:
A. Cut taxes by $75 billion.
B. Cut taxes by $240 billion.
C. Increase taxes by $60 billion.
D. Cut taxes by $60 billion.

A

Which of the following would cause the level of income to change by the greatest amount, ceteris paribus?
A. An increase in social security payments of $10 billion
B. A reduction in personal income taxes of $10 billion
C. An increase in defense spending of $10 billion
D. The changes suggested above have equal impacts on the level of income

C

When the macro equilibrium is above full employment, fiscal policy should be used to shift aggregate demand by the amount of:
A. The difference between saving and investment.
B. The difference between desired saving and desired investment.
C. The AD excess.
D. None of the above because aggregate supply is the curve that must be shifted.

C

The desired fiscal restraint is equal to:
A. Excess AD times the multiplier.
B. Excess AD divided by the multiplier.
C. Desired AD reduction.
D. GDP gap divided by the multiplier.

B

Which of the following policies will reduce the budget deficit while achieving greater fiscal restraint?
A. More government expenditure and higher taxes
B. More government expenditure and lower taxes
C. Less government expenditure and higher taxes
D. Less government expenditure and lower taxes

C

If full-employment output exceeds equilibrium output, greater deficit spending will result in a:
A. Smaller recessionary gap.
B. Smaller inflationary gap.
C. Larger recessionary gap.
D. Larger inflationary gap.

A

When there is excess aggregate demand, the appropriate policy would be for the government to:
A. Make budget surpluses smaller.
B. Make budget surpluses larger.
C. Make budget deficits larger.
D. Increase the public debt.

B

The elements of the federal budget not determined by past legislative or executive commitments are:
A. Uncontrollable fiscal spending.
B. Fiscal restraint items.
C. Discretionary fiscal spending.
D. Automatic stabilizers.

C

Which of the following is not an automatic stabilizer?
A. Income taxes
B. Unemployment benefits
C. Welfare payments
D. Defense spending

D

Automatic stabilizers tend to stabilize the level of economic activity because they:
A. Are changed quickly by Congress.
B. Increase the size of the multiplier.
C. Increase spending during recessions and reduce spending during inflationary periods.
D. Control the rate of change in prices.

C

Which of the following is most likely to increase a federal budget surplus?
A. A higher inflation rate and a higher unemployment rate
B. A higher inflation rate and a lower unemployment rate
C. A lower inflation rate and a higher unemployment rate
D. A lower inflation rate and a lower unemployment rate

B

In contrast to the structural deficit, the cyclical deficit reflects:
A. Fluctuations in economic activity.
B. Fiscal-policy decisions.
C. Changes in discretionary fiscal policy.
D. Changes in the "full-employment" deficit.

A

Which of the following would occur if the federal government decided to use a budget surplus to reduce the existing debt?
A. Crowding out and public-sector output would increase
B. Crowding out and public-sector output would decrease
C. Crowding in and private-sector output would increase
D. Crowding in and private-sector output would decrease

C

Policies designed to pay off the national debt will result in:
A. A higher level of aggregate demand.
B. A redistribution of income but not wealth.
C. A smaller level of AD.
D. Inflation.

C

Interest payments on the national debt:
A. Make it easier for the government to balance the national budget.
B. Are a redistribution of income from taxpayers to bondholders.
C. Have high opportunity costs.
D. Are the "real burden" of the debt.

B

When money serves as a mechanism for transforming current income into future purchases it is functioning as a:
A. Medium of exchange.
B. Store of value.
C. Standard of account.
D. Standard of value.

B

Which of the following is not included in the narrowest definition of the money supply?
A. Currency in circulation
B. Transactions account balances
C. Credit card balances
D. Traveler's checks

C

The different components of the money supply reflect:
A. Variations in liquidity and accessibility of assets.
B. Whether deposits are domestic or international.
C. How often depositors use their accounts.
D. Whether the deposits are earned or inherited.

A

Deposit creation occurs when:
A. A bank lends money.
B. A person takes money out of one bank and puts it in another bank.
C. A bank borrows dollars from the Federal Reserve.
D. A person takes money out of the banking system and holds it as cash.

A

Suppose a bank has $1 million in deposits, a required reserve ratio of 25 percent, and total reserves of $600,000. Then it has excess reserves of:
A. $250,000.
B. $600,000.
C. $350,000.
D. $1,000,000.

C

The government uses ____________ to regulate the amount of money banks lend.
A. Monetary policy
B. Fiscal policy
C. Banking policy
D. Tax cuts

A

Which of the following services is performed by the regional Federal Reserve banks?
A. Holding deposits for individuals
B. Providing loans to individuals
C. Providing currency to private banks
D. Check cashing for large corporations

C

The Board of Governors consists of:
A. 7 members, appointed for 14 year terms.
B. 26 members, appointed for 2 year terms.
C. 14 members, appointed for 7 year terms.
D. 50 members, appointed for 7 year terms.

A

The Federal Open Market Committee includes:
A. All 7 governors and 5 of the regional Reserve bank presidents.
B. 5 of the governors and all of the regional Reserve bank presidents.
C. 12 of the regional Reserve bank presidents plus the Chairman of the Fed.
D. All 7 of the governors and all 12 of the regional Reserve bank presidents.

A

The current chairman of the Federal Reserve is:
A. Alan Greenspan.
B. George W. Bush.
C. Ben Bernanke.
D. Nancy Pelosi.

C

The federal funds rate is the interest rate charged when:
A. One bank lends to another bank.
B. The Fed lends to banks.
C. The Fed lends to individuals.
D. Individual banks lend to the Fed.

A

he rate of interest charged by Federal Reserve banks for lending reserves to member banks is the:
A. Federal funds rate.
B. Prime rate.
C. Discount rate.
D. Commercial paper rate.

C

By raising and lowering the discount rate, the Fed changes the:
A. Level of required reserves held by individuals.
B. Incentive for banks to buy common stock.
C. Incentive for banks to borrow reserves.
D. Money multiplier.

C

Which of the following is the principal mechanism used by the Federal Reserve to directly alter the reserves of the banking system?
A. Changes in the discount rate
B. Changes in the required reserve ratio
C. Open market operations
D. Foreign-exchange operations

C

Open market operations involve the Fed:
A. Buying or selling bonds.
B. Buying or selling shares of stock.
C. Borrowing money from a bank.
D. Lending money to individuals.

A

Which of the following causes the opportunity cost of holding money in the form of cash to decrease?
A. Lower interest rates
B. Higher short-term yields
C. Higher reserve requirement
D. Higher ling-term yields

A

Money held for making everyday market purchases represents the:
A. Crisis demand for money.
B. Speculative demand for money.
C. Transactions demand for money.
D. Precautionary demand for money.

C

The transactions demand for money is most closely associated with which of the following functions of money?
A. Standard of deferred payment
B. Store of value
C. Standard of value
D. Medium of exchange

D

Money held to take advantage of future financial opportunities is the:
A. Transactions demand for money.
B. Precautionary demand for money.
C. Speculative demand for money.
D. Portfolio demand for money.

C

The market demand curve for money is:
A. Vertical because it is a fixed amount regardless of changes in the interest rate.
B. Horizontal because it is determined by the individual.
C. Upward sloping to the right because people wish to hold more money at higher interest rates and less money at lower interest rates.
D. Downward sloping to the right because people wish to hold less money at higher interest rates and more money at lower interest rates.

D

The money supply curve is:
A. Vertical since it's not determined by the interest rate.
B. Horizontal since it's not determined by the interest rate.
C. Upward sloping to the right.
D. Downward sloping to the right.

A

If the Fed's objective is to stimulate the economy, which of the following gives the correct sequence of events?
A. The money supply increases, interest rates decrease, investment increases, AD increases
B. The money supply increases, interest rates decrease, investment increases, AS increases
C. The money supply decreases, interest rates increase, investment decreases, AD decreases
D. The money supply decreases, interest rates increase, investment increases, AD increases

A

The success of Fed intervention depends on how well:
A. Congress performs when manipulating the money supply.
B. Individuals respond to the Fed's direct requests of the public.
C. The Treasury follows the Fed's directions for releasing money.
D. Changes in long-term interest rates mirror changes in short-term interest rates.

D

Monetary stimulus will fail if:
A. Banks are reluctant to lend money.
B. The investment demand curve is fairly flat.
C. The money demand curve is fairly steep.
D. Consumers begin to spend more.

A

Banks and customers are most likely to be reluctant to use the full lending capacity made available by the Federal Reserve when the economy experiences:
A. Growth and low interest rates.
B. Growth and inflation rates higher than the interest rate.
C. High inflation rates.
D. A deep recession.

D

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