Macroeconomics Final

Quiz by Koda M, updated more than 1 year ago
 Created by Koda M about 4 years ago
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Macroeconomics Final

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Question 1

Question
Refer to Exhibit A. The employment rate in year 4 is:
• 12.5 %
• 7.2 %
• 72%
• 10%
• 90%

Question 2

Question
The graph below shows the market for llamas and how that market would change with a new law requiring every pizza delivery company that has had a delivery driver cause a traffic collision to switch to a llama only delivery system. The Y-Axis from 0 to 800 indicates price. The X-Axis from 0 to 400 indicates quantity. What is the price per llama at the new equilibrium?
• \$365,000
• \$0
• \$500
• \$300

Question 3

Question
The graph below shows the market for llamas and how that market would change with a new law requiring every pizza delivery company that has had a delivery driver cause a traffic collision to switch to a llama only delivery system. The Y-Axis from 0 to 800 indicates price. The X-Axis from 0 to 400 indicates quantity. What is the price per llama at the initial equilibrium?
• \$200,000
• \$16.50
• \$500
• \$300

Question 4

Question
The graph below shows the market for llamas and how that market would change with a new law requiring every pizza delivery company that has had a delivery driver cause a traffic collision to switch to a llama only delivery system. The Y-Axis from 0 to 800 indicates price. The X-Axis from 0 to 400 indicates quantity How would the price of llamas react under this policy if the supply of llamas was, unlike the graph, actually a constant due to breeding and health limitations?
• Llamas would escape and attack the citizens of Terrell.
• The price of llamas would go up some but it would not reach the amount shown on the graph as the new equilibrium price.
• The price of llamas would go down.
• The price of llamas would go up and be higher than the amount shown on the graph as the new equilibrium price.

Question 5

Question
The graph below depicts the balance between the marginal benefits of exercise in terms of the number of times of exercise per week and the marginal costs of exercise in terms of the expenditure of time. Opportunity Cost is related to this graph because:
• Economic actors have to give up something to enter the market and hire accountant to calculate these amounts
• The transaction costs of owning a workout facility and being available to customers on a regular schedule are difficult for an entrepreneur to deliver on a consistent basis
• The more you exercise, the more you are not doing something else. The something else you choose not to do can likely be of low value for the first 4 hours of weekly exercise but is likely of a higher value in the 13th to 16th hours of exercise. Thus, the MC curve is upward sloping reflecting opportunity costs.
• The marginal benefit of all activities increase with increased consumption.

Question 6

Question
The graph below shows the market for llamas and how that market would change with a new law requiring every pizza delivery company that has had a delivery driver cause a traffic collision to switch to a llama only delivery system. The Y-Axis from 0 to 800 indicates price. The X-Axis from 0 to 400 indicates quantity. Is the movement from the Base Case Demand to the New Demand:
• A Change in the Quantity Demanded
• A Change in Demand
• Unfair Price Gouging by Suppliers
• An opportunity to invest in an auto repair business

Question 7

Question
• The market price is how much the corporate owner of the pencil making operation force people to pay.
• The market price is the amount that the government sets because people need pencils and should not have to pay too much.
• The market price of the pencil summarizes information about the supply and demand for the individual pieces of the pencil and rations the limited number pencils that are actually produced.
• The market price of the pencil conceals the actual danger of using pencils as a substitute for chop sticks.

Question 8

Question
Gross Domestic Product (GDP) is the total market value of all
• final goods and services produced annually within a country's borders
• final and intermediate goods and services produced annually within a country's borders
• intermediate goods and services produced annually within a country's borders
• final goods and services produced every month within a country's borders

Question 9

Question
• Military elites secret control of raw materials
• Wealthy elites in corporations controlling prices
• Intellectual elites in government and the media controlling your beliefs and perceptions about the world
• The uncoordinated activity of many who incidentally serve others in order to obtain the rationing device they desire for themselves
• Sauron’s pursuit of the one ring that will rule them all

Question 10

Question
If the CPI is 100 in the base year and 140 in the current year, how much did prices rise between these two years?
• 40 percent
• 140 percent
• 1.40 percent
• 0.14 percent

Question 11

Question
In 2007, the U.S. GDP was approximately
• \$13.84 trillion
• \$5.15 trillion
• \$12.67 billion
• \$19.83 million

Question 12

Question
In the business cycle, what is the difference between the recovery phase and the expansion phase?
• The expansion phase occurs in the rising portion of the business cycle, while the recovery phase occurs in the falling portion of the business cycle
• The expansion phase occurs in the falling portion of the business cycle, while the recovery phase occurs in the rising portion of the business cycle.
• The expansion phase is the period when Real GDP increases beyond the recovery phase
• The expansion phase must always precede the recovery phase

Question 13

Question
Read the following selection and answer the question which follows: There was a recent flap because three different members of the Obama administration, on three different Sunday television talk shows, gave three widely differing estimates of how many jobs the president has created. The big question that seldom-- if ever-- gets asked in the mainstream media is whether these are a net increase in jobs. Since the only resources that the government has are the resources it takes from the private sector, using those resources to create jobs means reducing the resources available to create jobs in the private sector. So long as most people do not look beyond superficial appearances, politicians can get away with playing Santa Claus on all sorts of issues, while leaving havoc in their wake-- such as growing unemployment, despite all the jobs being "created." Whatever position people take on health care reform, there seems to be a bipartisan consensus-- usually a sign of mushy thinking-- that it is a good idea for the government to force insurance companies to insure people whom politicians want them to insure, and to insure them for things that politicians think should be insured. … let's stop and think. Why aren't insurance companies already insuring the people and the conditions that they are now going to be forced to cover? Because that means additional costs-- and because the insurance companies don't think their customers are willing to pay those particular costs for those particular coverages. It costs politicians nothing to mandate more insurance coverage for more people. But that doesn't mean that the costs vanish into thin air. It simply means that both buyers and sellers of insurance are forced to pay costs that neither of them wants to pay. But, because soaring political rhetoric leaves out such grubby things as costs, it sounds like a great deal. It is not just costs that are left out. It is consequences in general. With all the laments in the media about skyrocketing unemployment among young people, and especially minority young people, few media pundits even try to connect the dots to explain why unemployment hits some groups much harder than others. Yet unusually high unemployment rates among young people is not something new or even something peculiar to the United States. Even before the current worldwide recession, unemployment rates were 20 percent or more among workers under 25 years of age in a number of Western European countries. The young have less experience to offer and are therefore less in demand. Before politicians stepped in, that just meant that younger workers were paid less. But this is not a permanent situation because youth itself is not permanent, and pay rises with experience. Enter politicians. By mandating a minimum wage that sounds reasonable for most workers, they put a price on inexperienced and unskilled labor that often exceeds what it is worth. Mandated pay rates, like mandated insurance coverage, impose on buyers and sellers alike things that they would not choose to do otherwise. Workers of course prefer higher wage rates. But the very fact that the government has to impose those wage rates means that workers were unwilling to risk not having a job by refusing to work for less than the wage rate that has been mandated. Now that choice has been taken out of their hands, with the hidden cost in this case being higher unemployment rates. By Thomas Sowell This analysis encourages the reader to consider:
• The marginal benefits and marginal costs faced by employers and employees.
• Changes in economic behavior caused by changes in governmental policy.
• Both of the above
• None of the above

Question 14

Question
Economics is the study of:
• Money
• Scarcity
• Abundance
• Ecology

Question 15

Question
Suppose that 1982 is the base year for the Consumer Price Index (CPI) and in 2007 the CPI is 320. What does this "320" mean?
• What cost \$100 in 1982 will on average cost 320 times as much in 2007
• What cost \$100 in 1982 will on average cost \$320 in 2007
• What cost \$100 in 1982 will on average cost 0.32 times as much in 2007 (that is, it will cost \$32 in 2007)
• What cost \$100 in 1982 will on average cost \$32 more in 2007

Question 16

Question
Economics categorizes resources into several categories, these are:
• Money, Debt, Scarcity, and Abundance
• Price, Quantity and Exchange
• Land, Labor, Entrepreneurship and Capital
• Investment, Labor, Natural Resources, and Finance

Question 17

Question
Something must be happening in the two Production Possibility Frontier graphs below that make them change in different ways. Which of the following best describes the difference between these two?
• In A, there has been tornado which destroyed both types of manufacturing capacity and caused a shift from PPF1 to PPF2. In B, there has been a tornado which destroyed only the civilian goods manufacturing capacity.
• In A, there has been a technological breakthrough which helped all manufacturing equally and caused a shift from PPF2 to PPF1. In B, there has been technological breakthrough which helped only the military goods manufacturing capacity.
• In A, there has been a productivity improvement for military goods and civilian goods causing the shift from PPF1 to PPF2. In B, there has been a productivity improvement for only civilian goods.
• None of the above.

Question 18

Question
Water-proof poncho production increases under which of the following situations:
• It stops raining and the forecast is for dry weather.
• Pop-stars wearing water-proof ponchos to major events cause a general increase in the demand for ponchos; causing several existing clothing manufactures to get into the poncho production business.
• Several traffic fatalities are blamed on the lack of visibility from hooded poncho wearing drivers; public acceptance for ponchos drops and surpluses of ponchos are sent to warehouses for storage.
• New rules make poncho sales illegal in most international markets.

Question 19

Question
Refer to Exhibit A. How many people are not in the labor force in year 1?
• 25 million
• 50 million
• 75 million
• 175 million
• 200 million

Question 20

Question
A recession is always part of a
• Contraction
• Recovery
• Detraction
• Party Mix Tape

Question 21

Question
When the opportunity cost of an activity is high, then:
• The marginal costs go to zero.
• The marginal benefits go to zero.
• It must have high marginal benefits to be the subject of an economic exchange.
• The transaction costs are low.

Question 22

Question
The graph below shows the market for llamas and how that market would change with a new law imposing a maximum price for llamas. The new law will create:
• A price per llama that exceeds the base case
• A shortage of llamas
• A surplus of llamas
• A new equilibrium that fully satisfies the supply and demand

Question 23

Question
The graph below depicts the balance between the marginal benefits of exercise in terms of the number of times of exercise per week and the marginal costs of exercise in terms of the expenditure of time. The point of economic efficiency is:
• The end point of the Marginal Cost curve (MC).
• Something that can be determined only through mathematical equations.
• The starting point of the Marginal Benefit curve (MB).
• The intersection of the MB curve and the MC curve.

Question 24

Question
The graph below shows the market for llamas and how that market would change with a new law imposing a maximum price for llamas. Prior to the law, what was the market determined price for a llama?
• \$200
• \$400
• \$250
• \$600

Question 25

Question
Consider the following equations: Qd = 1500 - 32P Qs = 1200 + 43P Qd = Qs Which statement is correct?
• The equilibrium price is \$16 and the equilibrium quantity is 5532.
• The equilibrium price is \$2 and the equilibrium quantity is 418.
• The equilibrium price is \$4 and the equilibrium quantity is 1372.
• It is not possible to determine an answer from the information given.

Question 26

Question
According to the author, Keynes disagreed with previous economists regarding:
• The importance of eco-friendly projects in long-term growth.
• The importance of inflexible wages in preventing recovery.
• The importance of America as a trading partner for Asian countries.
• The importance of the exchange rate in the long-term.

Question 27

Question
Regarding the classical economics position with respect to (a) wages, (b) prices, and (c) interest rates, all three are considered by classical economics to be___________________, and to be determined by the interaction of supply and demand in their respective markets, leading to a position of equilibrium. The correct missing phrase is:
• intangible in long-term
• incoherent under detailed scrutiny
• flexible both up and down
• inflexible either up or down

Question 28

Question
According to economists who believe in a self-regulating economy, what happens when the economy is in an inflationary gap?
• Excess unemployment exists. This will cause wages to fall, and the SRAS curve will shift to the right, moving along the AD curve until the economy returns to its long-run equilibrium.
• Unemployment is below its natural rate, creating wage inflation. This shifts the SRAS curve to the left, moving along the AD curve until the economy returns to its long-run equilibrium.
• Hayek has to come and turn the knob that says, “reach equilibrium”.
• None of the above.

Question 29

Question
What is the state of the labor market in a recessionary gap:
• There is a labor market surplus.
• There is a labor market shortage.
• The labor market is in equilibrium.
• The labor market is spastic.

Question 30

Question
The graph below illustrates how government can use supply-side fiscal policy to get an economy out of a recessionary gap. The following provides a correct explanation of the graph:
• The economy is in an inflationary gap at Qe. We implement a permanent income tax cut that moves SRAS to SRAS2 and LRAS to LRAS2, removing the gap at QN.
• The economy is in a recessionary gap at Qe. We implement a permanent income tax increase that moves SRAS to SRAS2 and LRAS to LRAS2, removing the gap at QN.
• The economy is in a inflationary gap at Qe. We implement a permanent income tax increase that moves SRAS to SRAS2 and LRAS to LRAS2, removing the gap at QN.
• The economy is in a recessionary gap at Qe. We implement a permanent income tax cut that moves SRAS to SRAS2 and LRAS to LRAS2, removing the gap at QN.

Question 31

Question
The graph below shows Aggregate Demand and Short Run Aggregate Supply depicting a decrease in wealth. What is the correct interpretation of the resulting new equilibrium:
• The price level will stay the same and Real GDP will fall .
• The price level will fall and Real GDP will stay the same .
• The price level will rise and Real GDP will rise .
• The price level will drop and Real GDP will fall .
• The price level will stabilize and Real GDP will oscillate .

Question 32

Question
• Adopt aggressive fiscal policy according to recent refinements to Keynesian theory.
• Invade one another, causing damage consistent with the “broken window” theory.
• Manipulate interest rates according to Friedman and Hayek’s theories.
• The importance of the exchange rate in the long-term.

Question 33

Question
Candide believes that there is always sufficient (aggregate) demand in the economy to buy all the goods and services supplied at full employment, as shown in the graph below: If true, the economy would always be at:
• Natural Real GDP, where P equals Q.
• Natural Real GDP, where LRAS exceeds SRAS.
• Natural Real GDP, where SRAS is a downward sloping line.
• Natural Real GDP, where LRAS equals SRAS.

Question 34

Question
Suppose the economy is self-regulating, the price level is 132, the quantity demanded of Real GDP is \$4 trillion (or \$4,000 billion), and the quantity supplied of Real GDP in the short run is \$3.9 trillion (or, \$3,900 billion). Refer to the graph below. Will the price level in the long-run equilibrium be greater than, less than, or equal to 132?
• Greater than 132
• Equal to 132
• Less than 132
• Negative 132

Question 35

Question
Use the following table: Taxable Income Taxes \$1,000-\$5,000 10% of taxable income \$5,001-\$10,000 \$500 + 12% of everything over \$5,000 \$10,001-\$15,000 \$1,100 + 15% of everything over \$10,000 \$15,001 or more \$1,850 +95% of everything over \$15,000 If a day laborer’s income is \$7,000, how much does he pay in taxes and how much does he keep?
• \$620 in taxes and \$6,380 to keep
• \$730 in taxes and \$6,270 to keep
• \$740 in taxes and \$6,260 to keep
• \$850 in taxes and \$6,150 to keep

Question 36

Question
What is the explanation for why investment falls as the interest rate rises?
• The interest rate is the cost of borrowing funds. The higher the cost of borrowing funds is, the fewer funds firms will borrow and invest.
• Bono’s Law: What you don’t have, you don’t need it now.
• The cost of borrowing funds is balanced with changes in the stock market.
• Equilibrium conditions such as this are not observed in the real world.

Question 37

Question
An increase in labor productivity would result in the following:
• The price level will rise and Real GDP will rotate .
• The price level will rise and Real GDP will stay the same .
• The price level will stay the same and Real GDP will rise .
• The price level will drop and Real GDP will fall .
• The price level will fall and Real GDP will rise .

Question 38

Question
• Using school vouchers to balance international trade.
• Using a flat tax to balance GDP with the CPI.
• Stable interest rates and a predictable, transparent regulatory scheme to balance economic fluctuations.
• Preparing young men and women to give their life in defense of their country as a way to reduce long-term labor supply and unemployment.

Question 39

Question
Use the following table: Taxable Income Taxes \$1,000-\$5,000 10% of taxable income \$5,001-\$10,000 \$500 + 12% of everything over \$5,000 \$10,001-\$15,000 \$1,100 + 15% of everything over \$10,000 \$15,001 or more \$1,850 +95% of everything over \$15,000 The table above an example of which kind of tax system:
• The right-way to happiness system
• A progressive tax system
• A proportional or flat tax system
• A fair tax, or a national consumption tax system
• A regressive tax system

Question 40

Question
Suppose the economy is self-regulating, the price level is 132, the quantity demanded of Real GDP is \$4 trillion (or \$4,000 billion), and the quantity supplied of Real GDP in the short run is \$3.9 trillion (or, \$3,900 billion). Refer to the graph below. What is the quantity supplied of Real GDP in the long run?
• \$4.3 trillion or \$4,300 billion
• \$4.0 trillion or \$4,000 billion
• \$3.9 trillion or \$3,900 billion
• \$132 billion

Question 41

Question
An increase in wealth would result in the following:
• The price level will rise and Real GDP will fall .
• The price level will rise and Real GDP will stay the same .
• The price level will rise and Real GDP will rise .
• The price level will drop and Real GDP will fall .
• The price level will fall and Real GDP will fall .

Question 42

Question
An increase in wealth would:
• Cause a movement along the aggregate demand line.
• Cause a decrease in aggregate demand at every price.
• Cause an increase in aggregate demand at every price.
• Shift the short run aggregate supply line.

Question 43

Question
According to the author, the concept that Keynes was the better economist of the last 100 years:
• Will forever be unquestioned.
• Is accurate because Milton Friedman was wrong about exchange rates.
• Will change when people find out about his rap career.
• May be changing to recognize Milton Freidman instead.

Question 44

Question
Use the following table: Taxable Income Taxes \$1,000-\$5,000 10% of taxable income \$5,001-\$10,000 \$500 + 12% of everything over \$5,000 \$10,001-\$15,000 \$1,100 + 15% of everything over \$10,000 \$15,001 or more \$1,850 +95% of everything over \$15,000 If a doctor’s income is \$115,000, how much does she pay in taxes and how much does she keep?
• \$1,500 in taxes and \$113,500 to keep
• \$15,000 in taxes and \$100,000 to keep
• \$5,850 in taxes and \$109,150 to keep
• \$96,850 in taxes and \$18,150 to keep

Question 45

Question
What factors will shift the AD curve in the simple Keynesian model?
• Imports, Exports and Net Exports.
• Consumption, Business Investment, and Government Purchases.
• Land, Labor and Capital
• Taxes, Regulation, and International Exchange Rates

Question 46

Question
The Minimum Wage and Job Loss from 2006 through 2010 By Staff at the Political Calculations Blog March 9, 2011 In 2006, the last full year in which the U.S. federal minimum wage was a constant value throughout the whole year, at least before 2010, approximately 6,595,383 individuals in the United States earned \$7.25 per hour1 or less. For 2010, the first full year in which the U.S. federal minimum wage was a constant value through the year since 2006, the U.S. Bureau of Labor Statistics estimates that an average of just 4,361,000 individuals in the United States earned the same equivalent of the current prevailing federal minimum wage of \$7.25 or less throughout the year. In terms of jobs lost, that means that 2,234,383 of the jobs lost in the U.S. economy since 2006 have been jobs that were directly impacted by the series of minimum wage increases that were mandated by the federal government in 2007, 2008 and 2009. Interestingly, the average number of employed members of the civilian labor force in 2006 was 144,427,000. In 2010, the average number of employed members of the civilian labor force in the U.S. was 5,363,000 less, standing at 139,064,000. So, in percentage terms of the change in total employment level from 2006 to 2010, jobs affected by the federal minimum wage hikes of 2007, 2008 and 2009 account for 41.8% of the total reduction in jobs seen since 2006. What would Hayek or Freidman say about this data:
• This is an example of how Keynes’ sticky wages are not a free market dynamic, but a government regulatory dynamic.
• Instead of using fiscal stimulus to fix a problem caused by government regulation, simply deregulate the labor market to remove government induced sticky wages.
• The good feelings caused by passing a minimum wage increase are out-weighed by the real-world negative impact on the people who can no longer find employment.
• All of the above.

Question 47

Question
If wage rates are not flexible, can the economy be self-regulating?
• No, to achieve a “favorable” balance of trade a country must bring gold and silver into the country and that will maintain domestic employment.
• No, according to both the agricultural system of the physiocrats and the laissez-faire of the nineteenth and early twentieth centuries,
• No, flexible wages are an essential assumption of the self-regulating economy. Without flexible wages, the SRAS curve would not shift in response to an inflationary gap or a recessionary gap. Without this flexibility, the economy could not move back to its long-run equilibrium, and the economy would not be self-regulating.
• Yes, because I gravitate to answering yes and this is the only answer with the word yes in it.

Question 48

Question
Suppose the economy is self-regulating, the price level is 132, the quantity demanded of Real GDP is \$4 trillion (or \$4,000 billion), and the quantity supplied of Real GDP in the short run is \$3.9 trillion (or, \$3,900 billion). Refer to the graph below. In the starting condition (SRAS), is the economy in short-run equilibrium?
• Yes, SRAS and LRAS are equal
• Yes, SRAS is less than LRAS
• No, AD is greater than SRAS
• No, AD is less than SRAS

Question 49

Question
What is the explanation for why saving rises as the interest rate rises?
• The interest rate is the cost of borrowing funds. The higher the cost of borrowing funds is, the more funds firms will borrow and invest.
• The higher the interest rate, the higher the reward for saving (or the higher the opportunity cost of consuming), and therefore, the fewer funds consumed and the more funds saved.
• The interest rate is the cost of borrowing funds. The lower the cost of borrowing funds is, the more funds firms will borrow and invest.
• The higher the interest rate, the higher the reward for saving (or the higher the opportunity cost of consuming), and therefore, the more funds consumed and the more funds saved.

Question 50

Question
What does it mean to say the economy is in a recessionary gap?
• In a recessionary gap, Real GDP < Natural Real GDP.
• In a recessionary gap, Real GDP > Natural Real GDP.
• In a recessionary gap, Real GDP = Natural Real GDP.
• In a recessionary gap, Real GDP - CPI < Zero

Question 51

Question
If the Federal Reserve were to conduct an open market purchase, how would money supply change?
• Money supply will increase
• Money supply will decrease
• Money supply will stay the same
• It cannot be determined from the information provided

Question 52

Question
How will action by the Federal Reserve to lower the discount rate impact the money supply?
• Money supply will increase
• Money supply will decrease
• Money supply will stay the same
• It cannot be determined from the information provided

Question 53

Question
• Unemployment and labor force participation.
• Inflation and inflation forecasts.
• Gold prices and the dollar exchange rate.
• Managing the debt of the Federal Government and Social Security.

Question 54

Question
• The Federal Reserve
• The U.S. Department of the Treasury
• Individual Federal Reserve Districts such as the Federal Reserve Bank of San Francisco

Question 55

Question
• Follow a drop in velocity with a Federal rule to increase credit card use to offset the decline in nominal wages.
• Follow a drop in velocity with an invasion of France
• Follow a drop in velocity with a corresponding Federal Reserve decrease in money supply.
• Follow a drop in velocity with a corresponding Federal Reserve increase in money supply.

Question 56

Question
• Zimbabwe has low inflation and a stable economy; Japan is the opposite.
• Zimbabwe had high inflation and abandoned its currency; Japan tried so hard to prevent inflation they hurt long-term growth.
• Japan had high inflation and abandoned its currency; Zimbabwe tried so hard to prevent inflation they hurt long-term growth.
• Japan has low inflation causing a low growth but stable economy; Zimbabwe’s has high inflation causing other nations to adopt the Zimbabwe currency.

Question 57

Question
Refer to the graph below: Suppose the economy starts out at point A. Next, the public anticipates that the Fed will shift the AD curve from AD1 to AD2. What happens, instead, is that the Fed does not raise aggregate demand as much as the public expects-it pushes the AD curve from AD1 to AD3. As a result, according to new classical theory the economy moves to point
• Point "A"
• Point "F"
• Point "C"
• Point "D"

Question 58

Question
• To increase the average inflation rate overtime
• To “anchor” inflation expectations
• To eliminate all annual CPI increases
• To raise salaries for UC Santa Cruz Professors

Question 59

Question
The Federal Reserve System was created by the Federal Reserve Act of 1913. The act divided the country into Federal Reserve Districts; each has a Federal Reserve Bank with its own president. It includes a Board of Governors and a Federal Open Market Committee. Which list below correctly identifies all of their major functions:
• Controlling the Money Supply; Supplying the Economy with Paper Money (Federal Reserve Notes); Providing Check-Clearing Services; Handling the sale of U.S. Treasury Securities (Auctions)
• Controlling the Money Supply; Supplying the Economy with Paper Money (Federal Reserve Notes); Providing Check-Clearing Services; Holding Depository Institutions’ Reserves; Supervising Member Banks; Serving as the Government’s Banker; Serving as a Lender of Last Resort; Handling the sale of U.S. Treasury Securities (Auctions)
• Overseeing the sale of Senators and Representatives votes on the U.S. Capital to the highest corporate bidders; hoarding gold supplies away from the free men and women that work hard and make America great; maintaining the President’s collection of bobble-head basketball player figurines; providing Chris Brown a new luxury poncho every day; providing prosthetic hands to economists injured by saying, “on the other hand” to often.
• Controlling the Money Supply; Supplying the Economy with Paper Money (Federal Reserve Notes); Providing Check-Clearing Services; Supervising Member Banks; Serving as the Government’s Banker; Serving as a Lender of Last Resort; Handling the sale of U.S. Treasury Securities (Auctions); Administering the North American Free Trade Agreement
• Administering the North American Free Trade Agreement; Awarding the Noble Prize in Economics; Overseeing the Congressional Budget Office; Providing Rating Agency Services to Federal Agencies; Running Federal Open Market Committee Meetings; Handling meetings of the Governors of the Federal Reserve Districts.

Question 60

Question
If the interest rate falls, the bank’s opportunity cost of holding money __________ and the consumer’s quantity demanded of money __________.
• rises; rises
• rises; falls
• falls; rises
• falls; falls

Question 61

Question
How will action by the Federal Reserve to conduct an open market sale impact the money supply?
• Money supply will increase
• Money supply will decrease
• Money supply will stay the same
• It cannot be determined from the information provided

Question 62

Question
Suppose the Fed buys government securities from a commercial bank. At the end of the transaction, the Fed has more government securities than before, and the commercial bank has fewer. What the commercial bank does have, however, is a higher balance in its account at the Fed. Since deposits at the Fed are part of reserves (reserves = deposits at the Fed + vault cash), then reserves in the banking system have risen. Since the United States has a fractional reserve banking system, only a fraction of the increased amount of reserves has to be placed in required reserves. The remainder, or the positive excess reserves, can be used to extend more loans, create more demand deposits, and increase the money supply. Which statement below describes the likely real world policy implications of this process:
• This would be an effective contractionary policy to follow when there is an inflationary gap in the economy.
• This would be an effective expansionary policy to follow when there is a recessionary gap in the economy.
• This would not be as effective as invading a country with a stable crop and razing it to reduce international competition and boost the sales of domestic companies.
• This would be an effective investment strategy to follow when there is an inadequate supply of banks in the country.

Question 63

Question
If the interest rate is below the equilibrium interest rate, then the quantity demanded of money exceeds the quantity __________ of money, and there is a __________ of money.
• requested; glut
• desired; surplus
• supplied; shortage
• supplied; surplus

Question 64

Question
Is the following true or false: Credit cards are not money, but rather devices by which money is lent—money that must be paid back. If we counted the value of credit card balances, as well as the value of the money that must be used to pay those balances off, we would be guilty of double counting in the money supply. For the consumer, a credit card is not an expenditure of their own money supply but a high interest rate loan that allows access to another entity’s money supply.
• True
• False

Question 65

Question
The Fed creates \$100,000 in new money that is deposited in someone’s checking account in a bank. What is the maximum change in the money supply if the required reserve ratio is 5 percent?
• 1 / 0.05 × \$100,000 = \$2,000,000
• 1 / 0.1 × \$100,000 = \$1,000,000
• 1 / 0.2 × \$100,000 = \$500,000
• 1 / 0.50 × \$100,000 = \$20,000,000

Question 66

Question
What is M1 Currency?
• Credit Cards
• Only cash and coins held by consumers
• Savings deposits of any type
• Objects of barter between two trading partners
• All currency held outside banks + checkable deposits + traveler’s checks

Question 67

Question
The Friedman natural rate theory states that
• in both the short run and the long run the economy stays at its natural rate of unemployment.
• the economy will not return to its natural rate of unemployment in either the short run or the long run.
• the economy stays at its natural rate of unemployment in the short run, but not in the long run.
• in the long run the economy returns to its natural rate of unemployment.

Question 68

Question
The short-run Phillips Curve holds that:
• high inflation and high unemployment can occur together.
• low inflation and high unemployment can occur together.
• high inflation and low unemployment can occur together.
• B and C

Question 69

Question
If the Federal Reserve were to lower the required reserve ratio, how would money supply change?
• Money supply will increase
• Money supply will decrease
• Money supply will stay the same
• It cannot be determined from the information provided

Question 70

Question
If the Federal Reserve raises the discount rate, how will money supply change?
• Money supply will increase
• Money supply will decrease
• Money supply will stay the same
• It cannot be determined from the information given

Question 71

Question
• Velocity dropped significantly
• The money multiplier dropped.
• Monetary base grew, but not enough.
• All of the above.
• None of the above.

Question 72

Question
• The French are taxed more than Americans. In 2009, taxes were 24 percent of G.D.P. in the United States but 42 percent in France.
• The economists in the Obama administration are also well aware of the Japanese experience. That is one reason they are pushing for more stimulus spending to prop up the aggregate demand for goods and services.
• The bond market doesn’t seem particularly worried about the solvency of the federal government. It is still willing to lend to the United States at low rates of interest. But the same thing was true of Greece four years ago.
• If American policy makers don’t rein in entitlement spending over the next several decades, they will have little choice but to raise taxes close to European levels.

Question 73

Question
• Worked because it was an expansionary policy launched during a recessionary period and because it created expectations that the Fed would continue to manage the economy for growth.
• Helped correct a problem with a lack of money supply.
• Did not cause the inflation some predicted.
• All of the above.
• None of the Above

Question 74

Question
If the Federal Reserve takes action to raise the required reserve ratio, what will be the impact on the money supply?
• Money supply will increase
• Money supply will decrease
• Money supply will stay the same
• It cannot be determined from the information given

Question 75

Question
In monetarism with velocity and natural GDP static, how will a decrease in the money supply affect the price level in the short run?
• A decrease in M will tend to keep the price level static.
• A decrease in M will tend to increase the price level.
• A decrease in M will tend to decrease the price level.
• None of the above

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