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Econ Exam 2

Terms in this set (61)

The nation's disposable income increases by $400 billion and, as a result, consumer spending increases by $320 billion. Therefore, the MPC equals
80
A decrease in disposable income will
lead to a downward movement along the consumption function
Price level changes have their greatest effect on consumers'
wealth
Formula to find MPC
change in consumption/change in income = MPC
Which of the following would cause an upward shift in the consumption function?
a stock market crash
an increase in the price level
a decrease in disposable income
a decrease in the price level
A decrease in the price level
The most volatile component of aggregate demand is
investment spending
U.S. imports are most likely to increase when
U.S. GDP decreases.
U.S. unemployment rates fall.
U.S. prices fall
foreign prices rise.
US employment rates fall
At the equilibrium level of income it must be true that total
income equals total spending.
If total spending exceeds total output, then
inventory levels will fall
Using the standard 45-degree line diagram, how does an increase in investment spending effect the expenditure schedule?
It shifts the expenditure schedule upward.
Using the standard 45-degree line diagram, how does a decrease in net exports effect the expenditure schedule?
It shifts the expenditure schedule downward.
Investment spending
cannot be stimulated by decreasing the interest rate.
is often the cause of business fluctuations in the United States.
is a remarkably stable function of the level of real GDP.
is the primary solution to recessions and inflations, according to John Maynard Keynes.
is often the cause of business fluctuations in the United States.
The reason for the multiplier effect is that
one person's additional expenditure creates a new source of income for another person, and this additional income leads to still more spending
If the government increases defense spending by $1 billion and the MPC is 0.8, how much additional spending will occur as result of the multiplier effect?
$5 billion
The slope of the aggregate demand curve illustrates that as the price level rises,
real GDP demanded decreases
real GDP demanded increases.
the aggregate demand curve shifts rightward.
real GDP demanded decreases
If total spending is greater than the value of output, firms will
increase production levels.
Inventory reductions are a signal indicating that
manufacturers need to increase production
People buying insurance aim to shift consumption from states of the world when consumption is ___________ to states when consumption is ___________ and marginal utility is relatively ___________.
high; low; high
Which of the following can be said about the international comparison of per pupil spending and educational attainment?
US states generally spend less per student on educations that Western European Nations
The United States spends much more per student than most Western European Nations
U.S. eighth graders are no more proficient in math and science than students in much less wealthy countries.
The United States spends much more per student than most Western European Nations
U.S. eighth graders are no more proficient in math and science than students in much less wealthy countries.
Of the OEDC counties surveyed in class, America ranks the ________ on the healthcare Human Development Index (HDI)
Lowest
Of the OEDC counties surveyed in class, America spends the ________ portion of its GDP on healthcare
highest
Suppose that I pay into a plan by buying assets with the expectation that I can live on the accumulated assets when I retire. This is an example of:
a funded retirement plan.
The purpose of the individual mandate in the Affordable Care Act (ACA) is to...
Reduce adverse selection
Make it financially feasible for insurance companies to accept people with pre existing conditions
Which of the following is NOT a problem of school vouchers?
consumer sovereignty
excessive school specialization
school segregation
inefficient and inequitable use of public resources
consumer sovereignty
Which of the following is a reason there is redistribution from those born later to those born earlier?
Social Security benefits diminish with age, and those born earlier lived longer.
Those born earlier paid into the system for only part of their lives but received benefits throughout their retirement.
The size of the payroll tax has risen significantly over the years.
Those born earlier paid into the system for only part of their lives but received benefits throughout their retirement.
The size of the payroll tax has risen significantly over the years.
Which of the following is true with respect to workers' compensation?
When there is a qualifying injury, benefits are paid out, whether the injury was the worker's or the firm's fault.
When there is a qualifying injury, benefits are only paid out if the injury was the firm's fault, as established in court.
When there is a qualifying injury, benefits are only paid out if the injury was the firm's fault, as established by a committee paid by the federal government.
When there is a qualifying injury, benefits are only paid out if the injury was the worker's fault.
When there is a qualifying injury, benefits are paid out, whether the injury was the worker's or the firm's fault.
Which of the following provides insurance only against injuries and problems that end a worker's career?
unemployment insurance
Disability Insurance that is Social Security (DI)
workers' compensation
Medicare
Disability Insurance that is Social Security (DI)
The primary goal of supply-side economics is to
reduce inflation and increase growth at the same time.
One oone objection to supply-side tax cuts is that demand-side changes
are larger than supply-side changes.
If the demand-side effects of supply-side tax cuts are greater than the supply-side effects, then we can expect the result to be a(n)
increase in output and prices.
Supply-side tax cuts tend to benefit the rich because tax cuts
on income tend to benefit high income earners more than low income earners.
on savings benefit high income earners who do most of the personal saving.
for capital formation tend to benefit those with the means to accumulate capital.
on capital gains tend to benefit those with larger financial assets.
on income tend to benefit high income earners more than low income earners.
on savings benefit high income earners who do most of the personal saving.
for capital formation tend to benefit those with the means to accumulate capital.
on capital gains tend to benefit those with larger financial assets.
The primary benefit of a monetary system of exchange compared to a barter system is the increased
efficiency in arranging transactions.
Liquidity refers to the
the ease with which an asset can be converted into cash
Which of the following is an example of money serving as a medium of exchange?
Richard puts money into a piggy bank.
Ellen deposits cash into a money market account
Sean puts a new $20 bill into his currency collection.
Marian buys a carbo-loaded drink before a marathon
Marian buys a carbo-loaded drink before a marathon
One inconvenience of commodity money is the need for
money to be divisible.
uniform quality.
portability.
money to be divisible.
uniform quality.
portability.
The official definition of the money supply that includes coins, paper money, travelers' checks, conventional checking accounts, and other checkable deposits at banks and savings institutions is called ____.
M1
Fiat money is money
backed by land.
backed by gold or silver.
that can be converted to gold or silver
because a government says it is.
because a government says it is.
Which of the following is included in M1?
savings accounts
money market deposit accounts
money market mutual funds
certificates of deposit
None of the above are included
The distinction between M1 and M2 is based on
liquidity-the ease with which an asset can be converted into cash.
The early goldsmiths issued money in the form of
receipts for the acceptance of gold deposits.
Under fractional banking, when a bank lends to a customer
the money supply increases.
The moral hazard problem refers to
banks taking on more risk in their lending because they know their depositors are insured.
Banks that are managed in a very safe and conservative manner can be expected to earn
low and consistent profits
The government regulates the banking industry by
conducting frequent audits and examinations
limiting the kinds of assets that a bank may own.
limiting the quantity of some kinds of assets that a bank may own.
All of the above are correct.
The Federal Deposit Insurance Corporation insures
bank deposits against the failure of an individual bank.
The oversimplified money multiplier formula, when the required reserve ratio is m, is
change in money supply = (1/m) x initial deposit
The government banking regulation that places an upper limit on the money supply is
reserve requirements on bank deposits
The president has influence on Federal Reserve policy because
he appoints the board members and the chair.
The actual control of the Federal Reserve System resides in the
Board of Governors.
The Federal Reserve Board of Governors
serve at the pleasure of the president similar to other cabinet positions.
report directly to Congress and are controlled by Congress.
consists of 12 members, one from each district bank
is structurally independent of the executive and legislative branches of the federal government
is structurally independent of the executive and legislative branches of the federal government
The monetary policies carried out by the Fed
must be ratified by Congress.
must be consistent with fiscal policies passed by Congress.
are sometimes inconsistent with fiscal policy
must be approved by the president.
are sometimes inconsistent with fiscal policy
Proponents of Fed independence maintain that
independence helps ensure low unemployment rates.
money is too important to be left to the bankers
independence permits objective decisions not based on politics.
only the Federal Reserve knows how to act wisely.
independence permits objective decisions not based on politics.
Open market operations have their initial effect on bank
interest rates.
If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?
It will credit the bank's reserve account
When the Fed wants to expand the money supply through open market operation, it
buys government securities from member banks
The money supply contracts and interest rates rise when the Fed
sells government securities
The Fed conducts an open market purchase of Treasury bills of $10 million. If the required reserve ratio is .10, what change in the money supply can be expected using the oversimplified money multiplier?
$100 million
If the price level rises, what will happen to the demand for reserves?
It will shift outward
The quantity of reserves demanded decreases as the federal funds rate rises because
the opportunity cost of holding excess reserves increases as the federal funds rate rises
The demand for reserves increases as the price level rises because
people need more money to finance transactions
As a knowledgeable investor in 2001, you should have realized that as interest rates fell, bond prices would
rise.
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