ECO100Y5- Final Exam Guide - Comprehensive Notes for the exam ( 97 pages long!)

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Definitions: economics: a study of the allocation of scarce resources that have unlimited human want. For example; the cost of watching tv is the value of the other things that could have been done in that time. Book: demand curve: graph showing how demand for a commodity is related with its price. Example demand function; q(uantity) = 24 3p(rice). Sloping downward: supply curve: graph showing how supply for a commodity is related with its price. Example supply function; q(uantity) = 3 + 4p(rice). If technology improves (for example), slope or intercept increases: production possibilities frontier/curve: a curve plotting all output possibilities for two goods, given a set of inputs/resources. For example, two goods could be exam points and leisure time and input is raw time. By graphing this, you"re able to see technical maximum efficiency: technical/pareto efficiency: using technology to maximize output given input.

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Fact Pattern

1. On 18 Sept 2017, Officer Steve Jones received an anonymous tip that Mr. James Fox lived in a house at 120 Verlinden Drive and is growing marijuana in the basement â at least 400 plants.

2. Officer Jones completed the 26 week Police Academy. During the academy, he had 40 hours of instruction specifically related to identification, detection and manufacturing of controlled dangerous substances, including marijuana. He has been an officer for over 20 years and has been assigned as an investigator in the Drug Enforcement Division for the last 15 years. Over the last 15 years, he has received additional training with regard to controlled dangerous substances, including NIK Polytesting System on narcotics identification; Counterdrug Training Center Basic Drug Identification Course; the "Top Gun" basic drug investigators school hosted by the National Drug Training Center and the State Police; the Aerial Marijuana Observation course hosted by the Department of Justice and Drug Enforcement Division; and the MAGLOCLEN Drug Investigation Seminars in 2010, 2011 and 2012. He has made hundreds of arrests for controlled dangerous substances and has written numerous drug-related search and seizure warrants and participated in the execution of many, including those related to the manufacturing and distribution of marijuana.

3. Officer Jones enlisted an informant to check out the house and try to buy some marijuana. The informant has no track record working for the police but the prosecutor referred him to Jones because the informant wanted to help reduce a possible drug distribution sentence.

4. The informant came back a few days later and told Jones that on 19 September he saw Fox and another man carry a carbon dioxide tank and other equipment into the house and drag two laundry bags to a Chevy (a 1990 Malibu) parked on the street in front of the house. (Officer Jones later runs the tag and the car is registered to James Fox). The informant tried to buy marijuana that evening and as soon as he entered the house the informant could smell the odor of marijuana. Fox bragged he had an unlimited supply of marijuana so he could do business with the informant, but begged off selling any marijuana that evening. Fox excused himself and went to the basement door. When the door was open the informant saw extremely bright light emanating from the basement.

5. Based on this informant on 21 September, Officer Jones pulled Foxâs electric bills. Foxâs average kilowatt usage was more than three times the normal usage as verified by the electric companyâs manager, Joe Thornton. Officer Jones then drove to Foxâs house saw the Malibu parked on the street. Officer Jones looked through his binoculars while standing on the street and observed very bright glowing lights and the top of marijuana plants.

6. Officer Jones reviews all the evidence and decides to get a warrant. Today is 22 September and a check of Foxâs bank accounts show deposits in cash weekly from $1000 to $5000. Mr. Fox does not appear to have other employment as confirmed by the State Unemployment Office. Mr. Fox gets from the State $1500 a month which matches deposits made into Mr. Foxâs account.

CRIMINAL JUSTICE QUESTION. I JUST NEED A DECENT SIZE PARAGRAPH SO I CAN EXPAND ON IT FOR MY ESSAY.

Assuming Officer Jones now has the information set forth in paragraphs #1 through #5 below, would he have probable cause for a the search warrant? Why or why not?

Chapter 16 The Monetary System

1.Economists use the term âmoneyâ to refer to

A.all wealth.

B.all assets, including real assets and financial assets.

C.all financial assets, but not real assets.

D.those types of wealth that are regularly accepted by sellers in exchange for goods and services.

2.Which of the following is a function of money?

A.a unit of account

B.a store of value

C.medium of exchange

D.All of the above are correct.

3.You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

A.medium of exchange

B.unit of account

C.store of value

D.liquidity

4.Any item that people can use to transfer purchasing power from the present to the future is called

A.a medium of exchange.

B.a unit of account.

C.a store of value.

D.None of the above is correct.

5.Liquidity refers to

A.the ease with which an asset is converted to the medium of exchange.

B.the measurement of the intrinsic value of commodity money.

C.the measurment of the durability of a good.

D.how many time a dollar circulates in a given year.

6.Which list ranks assets from most to least liquid?

A.money, bonds, cars, houses

B.money, cars, houses, bonds

C.bonds, money, cars, houses

D.bonds, cars, money, houses

7.When we measure and record economic value, we use money as the

A.liquid asset.

B.medium of exchange.

C.unit of account.

D.store of value.

8.Commodity money is

A.backed by gold.

B.the principal type of money in use today.

C.money with intrinsic value.

D.receipts created in international trade that are used as a medium of exchange.

9.Fiat money

A.has no intrinsic value.

B.is backed by gold.

C.is a medium of exchange but not a unit of account.

D.is any close substitute for currency such as checkable deposits.

10.M1 includes

A.currency.

B.demand deposits.

C.traveler's checks.

D.All of the above are correct.

11.Which of the following items is included in M2?

A.credit cards

B.money market mutual funds

C.corporate bonds

D.large time deposits

12.Which of the following does the Federal Reserve not do?

A.conduct monetary policy

B.act as a lender of last resort

C.convert Federal Reserve Notes into gold

D.serve as a bank regulator

13.The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of

A.the Board of Governors.

B.the FOMC.

C.the regional Federal Reserve Bank presidents.

D. the U.S. Treasury.

14.When conducting an open-market sale, the Fed

A.buys government bonds, and in so doing increases the money supply.

B.buys government bonds, and in so doing decreases the money supply.

C.sells government bonds, and in so doing increases the money supply.

D.sells government bonds, and in so doing decreases the money supply.

15.An open-market purchase

A.increases the number of dollars and the number of bonds in the hands of the public.

B.increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.

C.decreases the number of dollars and the number of bonds in the hands of the public.

D.decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

16. If a bank has a reserve ratio of 8 percent, then

A.government regulation requires the bank to use at least 8 percent of its deposits to make loans.

B.the bankâs ratio of loans to deposits is 8 percent.

C.the bank keeps 8 percent of its deposits as reserves and loans out the rest.

D.the bank keeps 8 percent of its assets as reserves and loans out the rest.

17.If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 20 percent, this action by itself initially makes the money supply

A.and wealth increase by $100.

B.and wealth decrease by $100.

C.increase by $100 while wealth does not change.

D.decrease by $100 while wealth decreases by $100.

18.The money multiplier equals

A.1/R, where R represents the quantity of reserves in the economy.

B.1/R, where R represents the reserve ratio for all banks in the economy.

C.1/(1+R), where R represents the quantity of reserves in the economy.

D.1/(1+R), where R represents the reserve ratio for all banks in the economy.

19.If the reserve ratio is 10 percent, the money multiplier is

A.100.

B.10.

C.9/10.

D.1/10.

20.As the reserve ratio increases, the money multiplier

A.increases.

B.does not change.

C.decreases.

D.could do any of the above.

21.If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to

A.$200 of new money.

B.$2,000 of new money.

C.$20,000 of new money.

D.None of the above is correct.

22.When the Fed makes open-market purchases, bank

A.withdrawals and lending increase.

B.withdrawals increase and lending decreases.

C.deposits and lending increase.

D.deposits increase and lending decreases.

23.The discount rate is the interest rate that

A.banks charge one another for loans.

B.banks charge the Fed for loans.

C.the Fed charges banks for loans.

D.the Fed charges Congress for loans.

24.If the discount rate is lowered, banks borrow

A.less from the Fed so reserves increase.

B.less from the Fed so reserves decrease.

C.more from the Fed so reserves increase.

D.more from the Fed so reserves decrease.

26.The Fed can increase the money supply by conducting open-market

A.sales or by raising the discount rate.

B.sales or by lowering the discount rate.

C.purchases or by raising the discount rate.

D.purchases or by lowering the discount rate.

26.The Fed can directly protect a bank during a bank run by

A.increasing reserve requirements.

B.selling government bonds to the bank.

C.lending reserves to the bank.

D.doing any of the above.

27.The federal funds rate is the interest rate

A.the Federal Reserves charges for loans it makes to the federal government.

B.the Federal Reserve charges banks for short-term loans.

C.banks charge each other for short-term loans of reserves.

D.on newly issued one-year Treasury bonds.

28.If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

A.buying bonds. This buying would increase the money supply.

B.buying bonds. This buying would reduce the money supply.

C.selling bonds. This selling would increase the money supply.

D.selling bonds. This selling would reduce the money supply

brownguinea-pig705

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 + I_g = GDP in a private closed economy, S = I_g 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?

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?

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?

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:

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 Q_f, 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

ECO100Y5- Final Exam Guide - Comprehensive Notes for the exam ( 97 pages long!)

ECO100Y5 Full Course Notes

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