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Ryan saved​ $50,000 last year in his bank account so that he could buy a car this year. In this​ case, money served the function of a​ ________.

A.

means of deferred payment

B.

unit of account

C.

store of value

D.

medium of exchange

A bank is said to have enough liquidity​ if:

A.

it holds deposits amounting to at least​ $100,000.

B.

it operates for seven days a week for more than 12 hours a day.

C.

it has enough funds to conduct its

dayminus−tominus−day

businesses and meet the regulatory requirements.

D.

the value of its assets exceeds the value of its liabilities by at least​ $50,000.

Consider an economy that only produces wooden chairs. In​ 2012, the economy produced 100 wooden chairs priced at​ $10 each. The nominal GDP of the economy for the year 2012 will​ be:

A.

​$10,000.

B.

​$10.

C.

​$100.

D.

​$1,000.

Hyperinflationary episodes are always related to extremely rapid growth​ of:

A.

real GDP.

B.

money supply.

C.

interest rates.

D.

money demand.

Which of the following financial organizations have the ability to influence the supply of reserves in the United​ States?

A.

The World Bank

B.

The Fed

C.

Only private commercial banks

D.

Only public sector banks

A retired worker receives a pension that is not indexed to inflation. Which of the following will happen if the rate of inflation​ rises?

A.

The retiree will be better off.

B.

The​ retiree's purchasing power will fall.

C.

The shareholders of the firm in which he worked will lose.

D.

The​ retiree's purchasing power will increase.

Assuming all else​ equal, what is likely to happen to the demand curve for reserves in an economy if it goes through a period of rapid​ expansion?

A.

There will be a n upward movement along the demand curve for reserves.

B.

The demand curve for reserves will shift to the left.

C.

There will be a downward movement along the demand curve for reserves.

D.

The demand curve for reserves will shift to the right.

If the nominal interest rate in an economy is​ 9% and the expected inflation rate is​ 6%, then the expected real interest rate in the economy​ is:

A.

​15%.

B.

​9%.

C.

​6%.

D.

​3%.

If nominal GDP​ increases, what might be the cause of this​ increase?

If nominal GDP​ increases, this could be caused​ by:

​(Select

all that

apply.​)

A.

An increase in the price level

B.

Deflation

C.

An increase in real GDP

D.

A decrease in the price level

Given the following​ information, what is the growth rate of nominal​ GDP?

Upper Y 0Y0

real GDP​ =

​$10001000

​(in millions)

Upper Y 1Y1

real GDP​ =

​$11001100

​(in millions)

Upper Y 0Y0

price level​ = 120120

Upper Y 1Y1

price level​ = 130130The growth rate of nominal GDP is

nothing ​%.

​ (Round

your answer to the nearest

hundredth.​)

According to the quantity theory of​ money, what must the growth rate of the money supply be given the following​ information?

The growth rate of real GDP is

1.01.0​%.

The growth rate of nominal GDP is

3.83.8​%.

The nominal interest rate is

7.17.1​%.

The real interest rate is

4.34.3​%.

The money supply​ (M2) is

​$10 comma 61210,612

​(in billions)According to the quantity theory of​ money, the growth rate of the money supply must be

nothing ​%.

​ (Round

your answer to the nearest

tenth.​)

According to the quantity theory of​ money, what is the inflation​ rate?

Use the information given above and calculate the inflation rate.

According to the quantity theory of​ money, the inflation rate is

nothing ​%.

​ (Round

your answer to the nearest

tenth.​)

According to the quantity theory of​ money, the inflation rate is

A.

the ratio of money supply to nominal GDP.

B.

the gap between the growth rate of money supply and the growth rate of real GDP.

C.

the gap between the nominal and real interest rates.

D.

the gap between the growth rate of money supply and the growth rate of nominal GDP.

If the inflation rate is

positivepositive​,

what must be​ true?

A.

The growth rate of nominal GDP

greater than>

the growth rate of money supply.

B.

The growth rate of real GDP

less than<

the growth rate of money supply.

C.

The growth rate of real GDP

greater than>

the growth rate of money supply.

D.

The growth rate of nominal GDP

less than<

the growth rate of money supply.

An open market operation is​ ____________.

A.

the process of selling​ Fed-issued IOUs between banks.

B.

an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks.

C.

where a bank borrows reserves or bonds from the Federal​ Reserve's discount window.

D.

an exchange between private banks where the banks buy or sell bonds to each other.

The Federal Reserve conducts open market operations when it wants to​ ____________.

A.

change the liquidity levels of banks.

B.

influence the discount rate.

C.

influence the federal funds rate.

D.

change the level of reserves it holds for banks.

When the Fed

sellssells

government bonds

toto

private​ banks, it

▼

the electronic reserves that banks hold.

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28 Sep 2019

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Related textbook solutions

Principles of Economics
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Related questions

1. Open-market operations refer to:

A) purchases of stocks in the New York Stock Exchange.

B) the purchase or sale of government securities by the Fed.

C) central bank lending to commercial banks.

D) the specifying of loan maximums on stock purchases.

 

2. Money functions as

A) a store of value.

B) a unit of account.

C) a medium of exchange

D) all of the above.

 

3. An increase in nominal GDP increases the demand for money because

A)  interest rates will rise

B) more money is needed to finance a larger volume of transactions

C)  bond prices will fall

D)  the opportunity cost of holding money will decline

 

4. If the economy is operating within the intermediate or vertical range of the aggregate supply curve, an increase in aggregate demand will produce:

A) a decline in real GDP

B) the same sized multiplier as if the economy were in the horizontal range.

C) a larger multiplier than if the economy were in the horizontal range.

D) a smaller multiplier than if the economy were in the horizontal range. 

 

5. Built-in automatic fiscal stabilization means that:

A) an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy

 B) with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

C) Congress will automatically change the tax structure and expenditure programs to correct upswings and downswing

D) government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

6. It is costly to hold money because:

A) deflation may reduce its purchasing power

B) in doing so one sacrifices interest income.

C) bond prices are highly variable.

D) the velocity of money may decline. 

TRUE / FALSE

1. True False In the aggregate expenditures model presented in the textbook,

investment is assumed to rise with increases in real GDP and fall with decreases in real GDP.

2. True False When C + Ig = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories.

3. True False The risk-free interest rate is the rate on long-term U.S. government bonds.

4. True False Bond prices and interest rates are directly or positively related.

5. True False The public debt is the accumulation of all deficits and surpluses that have occurred through time.

6. True False The M2 money supply may be larger or smaller than the M1 money supply depending on the size of small-denominated time deposit balances and Money Market Mutual Fund balances held by individuals.

7. True False Excess reserves are the amount by which required reserves exceed actual reserves.

8. True False The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

9. True False The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.

10. True False Investment is highly stable; it increases over time at a very steady rate.

MULTIPLE CHOICE

11. A recessionary expenditure gap is:

A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

B. the amount by which equilibrium GDP falls short of the full-employment GDP.

C. the amount by which investment exceeds saving at the full-employment GDP.

D. the amount by which aggregate expenditures exceed the full-employment level of GDP.

12. The multiplier effect indicates that:

A. a decline in the interest rate will cause a proportionately larger increase in investment.

B. a change in spending will change aggregate income by a larger amount.

C. a change in spending will increase aggregate income by the same amount.

D. an increase in total income will generate a larger change in aggregate expenditures.

13. Which one of the following is true about the U.S. Federal Reserve System?

  1. There are 12 regional Federal Reserve Banks.


B. The head of the U.S. Treasury also chairs the Federal Reserve Board.

C. There are 14 members of the Federal Reserve Board.

D. The Open Market Committee is smaller in size than the Federal Reserve Board.

14. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

A. 18 percent.

B. 24 percent.

C. 12 percent.

D. 6 percent.

15.

Refer to the above diagram for a private closed economy. The equilibrium level of GDP is:

A. $400.

B. $300.

C. $200.

D. $100.

16. Which of the following represents the most expansionary fiscal policy?

A. a $10 billion tax cut

B. a $10 billion increase in government spending

C. a $10 billion tax increase

D. a $10 billion decrease in government spending

17.

Refer to the above table. The economy shown is a:

A. private economy.

B. private open economy.

C. mixed closed economy.

D. mixed open economy.

18. Currency held in the vault of First National Bank is:

A. counted as part of M1.

B. counted as part of M2, but not M1.

C. only counted as part of M1 if it was deposited into a checking account.

D. not counted as part of the money supply.

19. If the dollar appreciates relative to foreign currencies, we would expect:

A. the multiplier to decrease.

B. the country's exports and imports to both fall.

C. the country's net exports to rise.

D. the country's net exports to fall.

20. The most important determinant of consumption and saving is the:

A. level of bank credit.

B. level of income.

C. interest rate.

D. price level.

21. The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

A. the reciprocal of the required reserve ratio.

B. 1 minus the required reserve ratio.

C. the reciprocal of the income velocity of money.

D. 1/MPS.

22. Which one of the following would not shift the aggregate demand curve?

A. a change in the price level

B. depreciation of the international value of the dollar

C. a decline in the interest rate at each possible price level

D. an increase in personal income tax rate

23. The cyclically-adjusted budget tells us:

A. that in a full-employment economy the Federal budget should be in balance.

B. that tax revenues should vary inversely with GDP.

C. what the size of the Federal budget deficit or surplus would be if the economy was at full

employment.

D. the actual budget deficit or surplus realized in any given year.

24. The aggregate supply curve:

A. is explained by the interest rate, real-balances, and foreign purchases effects.

B. gets steeper as the economy moves from the top of the curve to the bottom of the curve.

C. shows the various amounts of real output that businesses will produce at each price level.

D. is downsloping because real purchasing power increases as the price level falls.

25.

Refer to the above diagram. If the equilibrium price level is P1, then:

A. aggregate demand is AD2.

B. the equilibrium output level is Q3.

C. the equilibrium output level is Q2.

D. producers will supply output level Q1

26. Discretionary fiscal policy refers to:

A. any change in government spending or taxes that destabilizes the economy.

B. the authority that the President has to change personal income tax rates.

C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

D. the changes in taxes and transfers that occur as GDP changes.

27.

Refer to the above diagram. Which tax system has the most built-in stability?

A. T4

B. T3

C. T2

D. T1

28.


Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n):

A.

recession.

B.

wealth effect of an increase in stock market prices.

C.

increase in income tax rates.

D.

increase in saving.

29. When a bank loan is repaid the supply of money:

A. is constant, but its composition will have changed.

B. is decreased.

C. is increased.

D. may either increase or decrease.

30. The Federal budget deficit is found by:

A. subtracting government tax revenues plus government borrowing from government spending in a particular year.

B. subtracting government tax revenues from government spending in a particular year.

C. cumulating the differences between government spending and tax revenues over all years since the nation's founding.

D. subtracting government revenues from the noninvestment-type government spending in a particular year.

31.

Refer to the above information. Money supply M1 for this economy is:

A. $ 60.

B. $ 70.

C. $ 130.

D. $ 140.

32. Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008?

  1. From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen.

B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held.

C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.

D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.

33. Which of the following is the basic economic policy function of the Federal Reserve Banks?

  1. holding the deposits or reserves of commercial banks

B. acting as fiscal agents for the Federal government

C. controlling the supply of money

D. the collection or clearing of checks among commercial banks

34. In a fractional reserve banking system:

A. bank panics cannot occur.

B. the monetary system must be backed by gold.

C. banks can create money through the lending process.

D. the Federal Reserve has no control over the amount of money in circulation.

35.



Refer to the diagram that applies to a private closed economy. The APC is equal to 1 at income level:

A.

J

B.

M

C.

H

D.

G

36. Assume the Continental National Bank's balance statement is as follows:

Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?

A. $ 3,000

B. $ 24,000

C. $ 6,000

D. $ 16,000

37. Answer the question on the basis of the following table for a commercial bank or thrift:

Refer to the above table. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are:

A. $0.

B. $1,000.

C. $5,000.

D. $30,000.

38. Which of the following is a tool of monetary policy?

A. open market operations

B. changes in banking laws

C. changes in tax rates

D. changes in government spending

39. An increase in nominal GDP increases the demand for money because:

A. interest rates will rise.

B. more money is needed to finance a larger volume of transactions.

C. bond prices will fall.

D. the opportunity cost of holding money will decline.

40. Answer the next question on the basis of the following table:

At equilibrium in the above market for money, the total amount of money demanded is:

A. $500.

B. $480.

C. $460.

D. $440.

41. For most financial assets investors must be compensated for:

A. non-diversifiable and diversifiable risk.

B. diversifiable risk and time preference.

C. non-diversifiable risk and time preference.

D. non-diversifiable and diversifiable risk, and time preference.

42. Reserves must be deposited in the Federal Reserve Banks by:

A. only commercial banks which are members of the Federal Reserve System.

B. all depository institutions, that is, all commercial banks and thrift institutions.

C. state chartered commercial banks only.

D. federally chartered commercial banks only.

43.




Refer to the diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE1to AE2 would:

A.

move the economy from A to C along AD1.

B.

move the economy from C to A along AD1.

C.

increase aggregate demand from AD1 to AD2.

D.

decrease aggregate demand from AD2 to AD1.

44. The discount rate is the interest:

A. rate at which the central banks lend to the U.S. Treasury.

B. rate at which the Federal Reserve Banks lend to commercial banks.

C. yield on long-term government bonds.

D. rate at which commercial banks lend to the public.

45. What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?

A. present value

B. future value

C. compound interest

D. real rate of interest

46. The aggregate demand curve:

A. is upsloping because a higher price level is necessary to make production profitable as production costs rise.

B. is downsloping because production costs decline as real output increases.

C. shows the amount of expenditures required to induce the production of each possible level of real output.

D. shows the amount of real output that will be purchased at each possible price level.

47. The Security Market Line depicts the relationship between the:

A. average expected rate of return on stocks and the average expected rate of return on bonds.

B. average expected rate of return of a financial asset and the discount rate.

C. risk level of a financial asset and the prime interest rate.

D. average expected rate of return and risk level of a financial asset.

48. Arbitrage causes all financial assets:


A. of the same risk level to have the same price.

B. to have the same expected rate of return.

C. to have the same beta.

D. of the same risk level to have the same average expected rate of return.

49.



Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should:

A.

increase the money supply from $80 to $100.

B.

increase the money supply from $80 to $120.

C.

maintain the money supply at $80.

D.

decrease the money supply from $80 to $60.

50. Given the expected rate of return on all possible investment opportunities in the economy:


A. an increase in the real rate of interest will reduce the level of investment.

B. a decrease in the real rate of interest will reduce the level of investment.

C. a change in the real interest rate will have no impact on the level of investment.

D. an increase in the real interest rate will increase the level of investment.

END OF THE EXAM

1.The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?

A. $2,910
B. $300
C. $2700
D. $3,000
E. $900

2. Suppose a price ceiling has no effect; this means that

A. people are finding a way to circumvent the law.
B. it has no legal enforcement mechanism.
C. the equilibrium price is below the price ceiling.
D. the equilibrium price is above the price ceiling.

3. An example of household production excluded from GDP is

A. plumbing work completed by Joe Fix-it.
B. household cleaning services provided by Merry Maids Incorporated.
C. child care provided by a certified nanny.
D. lawn care provided by a local lawn care company.
E. tree trimming you provide at your parents' home.

4.In the United States, between 1961 and 2011, there has been

i. a consistent , non-changing growth rate of potential GDP per person.
ii. an increase in the standard of living based on real GDP per person.
iii. fluctuations in real GDP per person around potential GDP per person.

A. ii only
B. ii and iii
C. i only
D. i and ii only
E. i, ii and iii

5. When goldsmiths issued receipts to gold owners, and those gold receipts circulated while gold stayed in the goldsmiths' safes,

A. the gold receipts were considered money because they were used as a means of payment.
B. an infant banking system developed in sixteenth century Europe.
C. money was invented.
D. fiat money was created.
E. Both A and B are correct.

6.The "double coincidence of wants" is B??

A. what is needed to use money.
B. eliminated when we barter instead of using money.
C. money's role as a unit of account.
D. how value is stored when we transact with money.
E. eliminated with the use of money.

7. The process of money creation by the banking system is limited, in part, by the

A. laws passed each year by the U.S. Congress.
B. number of banks.
C. number of depositors.
D. Comptroller of the Currency.
E. desired reserve ratio.

8. Which of the following is a policy tool of the Fed?

i. setting the required reserve ratios
ii. conducting open market operations
iii. quantitative easing

A. i, ii, and iii
B. Both i and ii
C. i only
D. ii only
E. iii only

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