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ECO/372T Principles Of Macroeconomics The Latest Version A+ Study Guide

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ECO 372T Wk 1 - Practice: Knowledge Check

Gross Private Domestic Investment $46 Exports of the U.S. 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factor Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the U.S. 12 Taxes on Production and Imports 22 Personal Taxes38 Social Security Contributions 23 Statistical Discrepancy 0 Refer to the accompanying data. All figures are in billions of dollars. Personal income is Multiple Choice • $184. • $221. • $149. • $228.

If real GDP falls from one period to another, we can conclude that Multiple Choice • deflation occurred. • inflation occurred. • nominal GDP fell. • none of these necessarily occurred.

Real gross domestic product Multiple Choice • is a measure of inflation. • will increase if the price level increases. • will increase if the level of output increases. • can change from one year to the next even if there is no change in output.

GDP measured using current prices is called Multiple Choice • nominal GDP. • real GDP. • constant GDP. • deflated GDP.

Personal income will equal disposable income when Multiple Choice • corporate profits are zero. • personal taxes are zero. • transfer payments are zero. • Social Security contributions are zero.

Which of the following statements best describes price flexibility in the economy? Multiple Choice • Prices tend to be sticky in the short run and stuck in the long run. • Prices tend to be just as sticky in the short run as in the long run. • Prices tend to be sticky in the short run but become more flexible over time. • Prices tend to be flexible in the short run but become more sticky over time.

The amount of new output produced per year for both consumption and additions to capital stock is measured by

Multiple Choice • GDP. • net investment. • NDP. • net exports.

Value added refers to Multiple Choice • any increase in GDP that has been adjusted for adverse environmental effects. • the excess of gross investment over net investment. • the difference between the value of a firm's output and the value of the inputs it has purchased. • the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.

Which of the following is not a factor that increases short-run price stickiness? Multiple Choice • Consumers tend to prefer stable prices. • Stable prices make it easier for consumers to plan their spending. • A firm can lower its price without fear that rival firms will also lower their prices. • Firms try to avoid price wars.

A higher rate of investment now will generate Multiple Choice • more saving now. • more current consumption. • more future production. • more future inflation.

(Consider This) What is the difference between financial investment and economic investment? Multiple Choice • There is no difference between the two. • Financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods. • Economic investment is adjusted for inflation; financial investment is not. • Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

The GDP price index equals

Multiple Choice • gross private domestic investment less the consumption of fixed capital. • gross national product less net foreign factor income earned in the United States. • nominal GDP divided by real GDP. • real GDP divided by nominal GDP.

Gross domestic product (GDP) measures and reports output Multiple Choice • as an index number. • in percentage terms. • in dollar amounts. • in quantities of physical units (for example, pounds, gallons, and bushels).

Gross output (GO) for an economy in a given year Multiple Choice • will always be less than GDP for that economy in the same year. • will always equal GDP for that economy in the same year. • may be greater than or less than GDP for that economy in the same year. • will always exceed GDP for that economy in the same year.

Which of the following is not included in personal consumption expenditures? Multiple Choice • new furniture and appliances bought by homeowners • payments for cable and Internet services to homes • purchases of mutual funds by consumers • food purchased at supermarkets

Real GDP measures the Multiple Choice • total dollar value of all goods and services produced within the borders of a country using current prices. • value of final goods and services produced within the borders of a country, adjusted for price changes. • total dollar value of all goods and services consumed within the borders of a country, ed for price changes. • value of all goods and services produced in the world, using current prices.

Which of the following is not an effect of inflation that is troublesome to consumers? Multiple Choice

• • • •

Household incomes may be rising slower than the overall prices. The purchasing power of people's savings would decrease. Workers' wages may be rising faster than the overall price level. Their standard of living will fall if their household has a fixed nominal income.

Prices tend to be sticky because Multiple Choice • firms are worried that frequent price changes would annoy consumers. • most firms have agreements with each other to fix prices at profit-maximizing levels. • government controls most prices. • foreign competition discourages domestic firms from price changes.

Refer to the figures. Which figure(s) represent(s) a situation where prices are sticky? Multiple Choice • A only • B only • both A and B • neither A nor B

Which of the following statements is true? Multiple Choice • Short-run economic fluctuations are made worse because prices are flexible. • Short-run economic fluctuations would be less severe if prices were inflexible. • If prices were fully inflexible, there would be no short-run economic fluctuations. • If prices were fully flexible, there would be no short-run economic fluctuations.

In economics, the word "shocks" refers to Multiple Choice • situations where firms' expectations are not met. • any change in the demand for goods and services. • any change in the supply of goods and services. • a decrease in real GDP.

Personal Consumption Expenditures Government Purchases 128 Gross Private Domestic Investment

$400 88

Net Exports 7 Net Foreign Factor Income 0 Consumption of Fixed Capital 43 Taxes on Production and Imports 50 Compensation of Employees 369 Rents 12 Interest 15 Proprietors' Income 52 Corporate Income Taxes 36 Dividends 24 Undistributed Corporate Profits 22 Statistical Discrepancy 0 Refer to the accompanying national income data for the economy. All figures are in billions of dollars. The gross domestic product for this economy is Multiple Choice • $584. • $592. • $609. • $623.

Personal Consumption Expenditures $400 Government Purchases 128 Gross Private Domestic Investment 88 Net Exports 7 Net Foreign Factor Income 0 Consumption of Fixed Capital 43 Taxes on Production and Imports 50 Compensation of Employees 369 Rents 12 Interest 15 Proprietors' Income 52 Corporate Income Taxes 36 Dividends 24 Undistributed Corporate Profits 22 Statistical Discrepancy 0 Refer to the accompanying national income data for the economy. All figures are in billions of dollars. The national income is Multiple Choice • $561. • $573. • $580.

•

$530.

Refer to the figure. Assuming this market is representative of the economy as a whole, a positive demand shock will Multiple Choice • increase both the price level and the quantity of output produced. • increase output but leave prices unchanged. • lower the price level but leave output unchanged. • raise the price level but leave output unchanged.

"Corporate profits" in the national income accounts consists of the following, except Multiple Choice • retained earnings. • interest. • dividends. • corporate income taxes.

Modern economic growth refers to countries that have experienced an increase in Multiple Choice • real GDP over time. • nominal GDP over time. • real output spread evenly across all sectors of the economy.

•

output per person.

Which among the following countries had the highest GDP per person in 2017? Multiple Choice • Switzerland • United States • Japan • China

An economy is enlarging its stock of capital goods Multiple Choice • when net investment exceeds gross investment. • when gross investment exceeds depreciation. • whenever gross investment is positive. • when depreciation exceeds gross investment.

The National Income and Product Accounts (NIPA) help economists and policymakers to Multiple Choice • determine which firms are likely to succeed or fail. • follow the long-run course of the economy to determine whether it has grown or stagnated. • measure what is occurring in each specific labor market. • accomplish all of these.

Which of the following is not an effect of inflation that is troublesome to consumers? Multiple Choice • Household incomes may be rising slower than the overall prices. • The purchasing power of people's savings would decrease. • Workers' wages may be rising faster than the overall price level. • Their standard of living will fall if their household has a fixed nominal income.

ECO 372T Wk 1 - Apply: Quiz If real GDP in a year was $3,668 billion and the price index was 112, then nominal GDP in that year was approximately Multiple Choice • $3,925 billion. • $4,108 billion. • $3,846 billion.

•

$4,379 billion.

Answer this question based on the given information for an economy in some year. I. II. III. IV.

Dollar value of resource extraction activity = $20 billion Dollar value of production activity = $50 billion Dollar value of distribution activity = $60 billion Dollar value of final output = $110 billion

Gross output for this economy equals Multiple Choice • $240 billion. • $170 billion. • $130 billion. • $110 billion.

Refer to the graphs. Suppose a firm is currently producing 500 computers per week and charging a price of $1,000. What happens to the firm's inventory of computers if there is a negative demand shock and prices are flexible? Multiple Choice • The firm’s inventory will not change. • The firm’s inventory will increase by 200 computers per week. • The firm’s inventory will decrease by 150 computers per week. • The firm’s inventory will increase by 350 computers per week.

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $500. Donita sells the dresses for $900 to kids attending the prom. The total contribution to GDP of this series of transactions is Multiple Choice • $900. • $1,700. • $1,800. • $800.

Suppose a small economy produces only smart TVs. In year one, 100,000 TVs are produced and sold at a price of $1,200 each. In year two, 75,000 TVs are produced and sold at a price of $1,200 each. As a result, Multiple Choice • real GDP decreased.

• • •

real GDP increased. nominal GDP increased. real GDP stayed the same.

Assume that a manufacturer of stereo speakers purchases $10 worth of components for each speaker. The completed speaker sells for $100. The value added by the manufacturer for each speaker is Multiple Choice • $90. • $10. • $1,000. • $110. • $100.

Refer to the graphs. Which of the following best represents a positive demand shock when prices are flexible? Multiple Choice • the shift from D2 to D3 in graph B • the shift from D2 to D3 in graph A • the shift from D2 to D1 in graph A • the shift from D2 to D1 in graph B

If in some year gross investment was $240 billion and net investment was $130 billion, then in that year the country's capital stock Multiple Choice increased by $130 billion. decreased by $110 billion. may have either increased or decreased. increased by $110 billion.

Higher rates of unemployment are linked with Multiple Choice higher rates of heart disease. greater political stability. less crime. better mental health.

Government Purchases $15

Personal Consumption 90 Gross Investment 20 Consumption of Fixed Capital (depreciation)5 Exports 8 Imports 12 Refer to the accompanying data (all figures in billions of dollars). GDP is Multiple Choice • $116. • $121. • $125. • $150.

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry’s produced 12,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $10 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas Multiple Choice • increased real GDP by $20,000. • did not change nominal GDP. • decreased real GDP by $20,000. • did not change real GDP.

Higher rates of unemployment are linked with Multiple Choice • increased social problems. • greater political stability. • less crime. • better mental health.

Gross Private Domestic Investment $1,593 Personal Taxes1,113 Transfer Payments 1,683 Taxes on Production and Imports 695 Corporate Income Taxes 236 Personal Consumption Expenditures 7,304 Consumption of Fixed Capital 1,393 US Exports 1,059 Dividends 434 Government Purchases 1,973 Net Foreign Factor Income 10

Undistributed Corporate Profits 141 Social Security Contributions 748 US Imports 1,483 Statistical Discrepancy 50 Refer to the accompanying national income data (in billions of dollars). Corporate profits are equal to Multiple Choice • $811. • $801. • $670. • $484.

Year Nominal GDP Real GDP 1 4,900 4,800 2 5,000 5,000 112 3 5,400 5,100

Price Index

Refer to the table. (GDP figures are in billions of dollars.) What is the GDP price index in Year 1? Multiple Choice • 98 • 102.1 • 115.7 • 100

ECO 372T Wk 2 - Practice: Knowledge Check Year Quantity of Labor Productivity of Labor 1 2,000 $200 2 2,000 210 3 2,000 210 The table shows the quantity of labor (measured in hours) and the productivity of labor (measured in real GDP per hour) in a hypothetical economy in three different years. Between Year 1 and Year 2, real GDP increased by Multiple Choice • 1.5 percent. • 2.5 percent. • 5.0 percent. • 6.0 percent.

The invention of the steam engine ushered in the following developments, except Multiple Choice • mass-production in industrial factories, for the first time. • much easier and cheaper transportation of resources and products. • a sharp reduction in trade as many societies specialized. • major population shifts, from farms to towns and cities. The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors? Multiple Choice • gold market and stock market • international trade and foreign exchange markets • real estate and financial markets • consumer and government spending A review of the trends in labor productivity growth in the U.S. for the periods 1973–1995, 1995– 2010, and 2010–2018 suggests which of the following patterns? Multiple Choice • a persistently strong growth averaging about 2.5 percent per year throughout the three periods • an initial strong growth averaging 2.5 percent per year in the period 1973–1995, followed by weak growth in 1995–2010, and a sharp rise again in 2010–2018 • an initial modest growth averaging 1.5 percent per year in 1973–1995, followed by much higher growth in 1995–2010, then a collapse to very slow growth in 2010–2018 • a relatively steady and modest growth throughout all three periods, averaging about 1.5 percent A nation's average annual real GDP growth rate is 2.5 percent. Based on the rule of 70, the approximate number of years that it would take for this nation's real GDP to double is Multiple Choice • 175 years. • 40 years. • 28 years. • 17.5 years. (Last Word) The entry of women into the workforce since the 1960s resulted in Multiple Choice • a shift outward in the production possibilities curve of the United States. • a shift inward in the production possibilities curve of the United States. • a movement along the existing production possibilities curve of the United States. • a falling real wage for female workers in the United States. In the depth of the Great Depression, the unemployment rate in the United States was about Multiple Choice

• • • •

15 percent. 33 percent. 25 percent. 40 percent.

A nation's real GDP will increase by increasing the following, except Multiple Choice • number of workers. • labor productivity. • technological progress. • Unemployment that occurs when there is insufficient demand for the goods and services of an economy is called Multiple Choice • frictional unemployment. • cyclical unemployment. • structural unemployment. •

Full-employment output is also called Multiple Choice • zero-unemployment output. • equilibrium output. • potential output. • zero-savings output.

Suppose that an economy's labor productivity and total worker-hours each grew by 3 percent between year 1 and year 2. We could conclude that this economy's Multiple Choice • real GDP remained constant. • capital stock increased by 3 percent. • production possibilities curve shifted inward. • production possibilities curve shifted outward.

In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? Multiple Choice • military goods • capital goods • textile products

•

agricultural commodities

Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is Multiple Choice • anticipated inflation. • demand-pull inflation. • cost-push inflation. • unanticipated inflation.

The percentage of U.S. adults with a high school education has Multiple Choice • remained constant since the 1960s. • risen from 8 percent in 1960 to 35 percent in 2018. • risen to 100 percent in the 21st century. • risen from 44 percent in 1960 to 90 percent in 2018.

Critics of economic growth Multiple Choice • contend that growth and industrialization reduce pollution. • argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth. • point out that growth results in greater economic security for workers. • say that its benefits accrue nearly exclusively to white males.

One concern regarding educational attainment in the U.S. is that Multiple Choice • the percentage of adults finishing college is falling. • there are fewer college graduates in science and engineering. • students are graduating later and later. • fewer high school graduates are going on to college.

Given the annual rate of economic growth, the "rule of 70" allows one to Multiple Choice • determine the accompanying rate of inflation. • calculate the size of the GDP gap. • calculate the number of years required for real GDP to double. • determine the growth rate of per capita GDP.

The unemployment rate is interpreted as the percentage of the Multiple Choice • adult population who are unemployed. • labor force that are not employed. • able-bodied population who are not working. • workforce that have been laid off.

Economies of scale refers to Multiple Choice • the idea that proprietorships are less bureaucratic and therefore more efficient than corporations. • public investments in highways, schools, utilities, and such. • the fact that large producers may be able to use more efficient technologies than smaller producers. • the reallocation of labor from less-productive to more-productive uses.

Labor productivity in the U.S. in the periods 1973–1995 and 1995–2010 grew at average rates of Multiple Choice • 7.5 percent and 5.2 percent, respectively. • 1.5 percent and 2.8 percent, respectively. • 3.1 percent and 1.5 percent, respectively. • 4.1 percent and 4.3 percent, respectively. Modern economic growth often results in the following, except Multiple Choice • less time for ordinary people to enjoy leisure activities because the primary focus is on production and work. • vast increases in wealth and living standards for many groups in the economy. • the spread of universal education and elimination of ancient social norms. • movement toward democracy and the abolition of feudalism. Inflation is a rise in Multiple Choice • the general level of prices over time. • the standard of living over time. • unemployment over time. • real GDP over time.

The natural rate of unemployment is Multiple Choice

• • • •

higher than the full-employment rate of unemployment. lower than the full-employment rate of unemployment. that rate of unemployment occurring when the economy is at its potential output. found by dividing total unemployment by the size of the labor force.

Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The table contains information about the hypothetical economy of Scoob. All figures are in millions. If the natural rate of unemployment in Scoob is 5 percent, then Multiple Choice • structural unemployment is about 3 percent. • frictional unemployment is about 2 percent. • cyclical unemployment is about 2 percent. • hidden unemployment is about 5 percent.

Inflation rates in the United States reached double-digit rates in the Multiple Choice • 1960s. • 1970s. • 1990s. • 2000s.

Which of the following formulas is ? Percentage change in Multiple Choice • price level approximates percentage change in real income minus percentage change in nominal income. • real income approximates percentage change in nominal income minus percentage change in price level. • nominal income approximates percentage change in price level minus percentage change in real income. • real income approximates percentage change in price level minus percentage change in nominal income.

The full-employment unemployment rate for the United States economy is now generally considered to be Multiple Choice • 2 percent of the labor force.

• • •

6 percent of the labor force. 4 to 5 percent of the labor force. 8 to 9 percent of the labor force.

In the accompanying diagram, the phases of the business cycle from points A to D are Multiple Choice • peak, recession, expansion, trough, respectively. • trough, recovery, expansion, peak, respectively. • expansion, recession, trough, peak, respectively. • peak, recession, trough, expansion, respectively.

Which of the following factors is projected to be the dominant source of economic growth in the U.S. from now until 2029? Multiple Choice an increase in hours per worker an increase in the labor force an increase in the population an increase in labor productivity

Which of the following is a statement? Multiple Choice It is relatively easy to distinguish between cost-push and demand-pull inflation even if you don't know the source of the inflation. A supply shock will cause a variation of demand-pull inflation that can lead to hyperinflation. Demand-pull inflation will continue so long as there is excess total spending in the economy. Demand-pull inflation is usually accompanied by higher unemployment rates

ECO 372T Wk 2 - Apply: Quiz Assuming the total population is 100 million, the civilian labor force is 50 million, and 45 million workers are employed, the unemployment rate is Multiple Choice • 10 percent. • 5 percent. • 55 percent. • 9 percent.

• With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6 percent. But if the rate of inflation was anticipated to be 5 percent, the bank would most likely charge the firm an annual interest rate of Multiple Choice • 11 percent. • 1 percent. • 5 percent. • 6 percent. With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 8 percent. But if the rate of inflation was anticipated to be 5 percent, the bank would most likely charge the firm an annual interest rate of Multiple Choice • 13 percent. • 3 percent. • 5 percent. • 8 percent.

If the number of worker-hours in an economy is 100 and its labor productivity is $7 of output per worker-hour, the economy's real GDP Multiple Choice • is $700. • is $13. • is $7,000. • cannot be calculated.

A nation's real GDP was $250 billion in Year 1 and $258 billion in Year 2. Its population was 120 million in Year 1 and 125 million in Year 2. What is its real GDP per capita in Year 2? Multiple Choice • $2,064 per person • $206 per person • $20,640 per person • $133 per person A nation's real GDP was $250 billion in Year 1 and $260 billion in Year 2. Its population was 120 million in Year 1 and 100 million in Year 2. What is its real GDP per capita in Year 2? Multiple Choice • $2,600 per person • $260 per person • $26,000 per person

•

$160 per person

If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately Multiple Choice • 14 years. • 22 years. • 20 years. • 8 years. If a nation's real GDP is growing by 2.5 percent per year, its real GDP will double in approximately Multiple Choice • 28 years. • 7 years. • 25 years. • 22 years.

Year Alta (Real GDP) Zorn (Real GDP) 1 $3,000 $150,000 200 500 2 3,090 152,000 202 505 3 3,100 154,000 210 508

Alta (Population)

Zorn (Population)

Refer to the table. Between years 1 and 2, real GDP grew by __________ percent in Alta. Multiple Choice • 3 • 6 • 5 • 9

Year Alta (Real GDP) Zorn (Real GDP) 1 $4,000 $150,000 200 500 2 4,320 152,000 202 505 3 4,400 154,000 210 508

Alta (Population)

Zorn (Population)

Refer to the table. Between years 1 and 2, real GDP grew by __________ percent in Alta. Multiple Choice • 8 • 4 • 5 • 10

Potential Real GDP $200 billion Natural Rate of Unemployment Actual Rate of Unemployment

6% 9%

Refer to the accompanying data, which is for a specific year in a hypothetical economy for which Okun's law is applicable. The amount of output being forgone by the economy is Multiple Choice • $12 billion. • $18 billion. • $218 billion. • $6 billion.

If actual GDP is $460 billion and there is a positive GDP gap of $40 billion, potential GDP is Multiple Choice • $420 billion. • $500 billion. • $880 billion. • $40 billion. If actual GDP is $460 billion and there is a positive GDP gap of $10 billion, potential GDP is Multiple Choice • $450 billion. • $470 billion. • $910 billion. • $10 billion.

A nation's average annual real GDP growth rate is 5 percent. Based on the rule of 70, the approximate number of years that it would take for this nation's real GDP to double is Multiple Choice • 14. • 10. • 75. • 350. A nation's average annual real GDP growth rate is 1.4 percent. Based on the rule of 70, the approximate number of years that it would take for this nation's real GDP to double is Multiple Choice • 50. • 28. • 14. • 98.

If the natural rate of unemployment is 5 percent and the actual unemployment rate is 8 percent, then Okun's law indicates that the GDP gap is Multiple Choice • 6 percent. • 3 percent. • 5 percent. • 13 percent.

Suppose total output (real GDP) is $4,000 and labor productivity is $10. We can conclude that the number of worker hours must be Multiple Choice • 400. • 4,000. • 40. • 800. Suppose total output (real GDP) is $4,000 and labor productivity is $8. We can conclude that the number of worker hours must be Multiple Choice • 500. • 3,200. • 50. • 32.

Assume the natural rate of unemployment in the U.S. economy is 4 percent and the actual rate of unemployment is 7 percent. According to Okun's law, the GDP gap as a percentage of potential GDP is Multiple Choice • 6 percent. • 11 percent. • 4 percent. • 3 percent.

If actual GDP is $700 billion and there is a negative GDP gap of $30 billion, potential GDP is Multiple Choice • $730 billion. • $670 billion. • $1,370 billion. • $30 billion.

If actual GDP is $500 billion and there is a negative GDP gap of $15 billion, potential GDP is Multiple Choice • $515 billion. • $485 billion. • $985 billion. • $15 billion.

A nation's real GDP was $250 billion in Year 1 and $255 billion in Year 2. Its population was 120 million in Year 1 and 125 million in Year 2. What is its real GDP growth rate in Year 2? Multiple Choice • 2 percent • 5 percent • 1.6 percent • 8 percent A nation's real GDP was $200 billion in Year 1 and $220 billion in Year 2. Its population was 120 million in Year 1 and 125 million in Year 2. What is its real GDP growth rate in Year 2? Multiple Choice • 10 percent • 20 percent • 8.9 percent • 6 percent

Suppose total output (real GDP) is $2,000 and worker-hours are 10,000. We can conclude that labor productivity is Multiple Choice • $0.20. • $20,000. • $2. • $0.10. Suppose total output (real GDP) is $2,000 and worker-hours are 800. We can conclude that labor productivity is Multiple Choice • $2.50. • $16,000. • $25. • $0.80.

If 20,000 worker-hours produced a total output of $800,000 in an economy, then the labor productivity is Multiple Choice • $40 per worker-hour. • $80 per worker-hour. • $16 per worker-hour. • $160 per worker-hour. • $20 per worker-hour. If 40,000 worker-hours produced a total output of $800,000 in an economy, then the labor productivity is Multiple Choice • $20 per worker-hour. • $80 per worker-hour. • $32 per worker-hour. • $320 per worker-hour. • $40 per worker-hour.

You are given the following information about the economy: the nominal interest rate = 10 percent, and the real rate of interest = 3 percent. The inflation premium is Multiple Choice • 7 percent. • 13 percent. • 10 percent. • 3 percent.

Assume that an economy has 500 workers, each working 1,000 hours per year. If the average real output per worker-hour is $20, then total output, or real GDP, will be rev: 10_12_2020_QC_CS-234699 Multiple Choice • $5 million. • $20 million. • $25 million. • $10 million.

If the natural rate of unemployment was 4 percent, the current unemployment rate was 8.5 percent, and potential GDP was $4,000 billion, then according to Okun's law the economy would have sacrificed Multiple Choice • $360 billion in output not produced.

• • •

$850 billion in output not produced. $400 billion in output not produced. $160 billion in output not produced.

If the rate of inflation is 14 percent per year, the price level will double in about Multiple Choice • 5 years. • 14 years. • 7 years. • 28 years. If the rate of inflation is 5 percent per year, the price level will double in about Multiple Choice • 14 years. • 5 years. • 18 years. • 10 years.

You are given the following information about the economy: the nominal interest rate = 8 percent, and the real rate of interest = 5 percent. The inflation premium is Multiple Choice • 3 percent. • 13 percent. • 8 percent. • 5 percent.

ECO 372T Wk 3 - Practice: Knowledge Check 1. 2. 3. 4. 5. 6. 7. 8. 9.

Government Spending Consumer Expectations Degree of Excess Capacity Personal Income Tax Rates Productivity National Income Abroad Business Taxes Domestic Resource Availability Prices of Imported Products

10. Profit Expectations on Investments Answer the question based on the accompanying list of items related to aggregate demand or aggregate supply. Changes in which combination of factors best explain why the aggregate supply curve would shift? Multiple Choice • 1 and 2 • 2 and 10 • 3 and 6 • 7 and 8

GDP Consumption $440 $450 490 490 540 530 590 570 640 610 Refer to the accompanying consumption schedule in an economy. All figures are in billions of dollars. If gross investment is $34 billion, net exports are zero, and there is a lump-sum tax of $30 billion at all levels of GDP, then the after-tax equilibrium level of GDP will be Multiple Choice • $490 billion. • $540 billion. • $590 billion. • $640 billion.

The graph shows the relationship between consumption and income. The ratio LM/PL would be a measure of the Multiple Choice • marginal propensity to consume. • marginal propensity to save. • average propensity to consume. • average propensity to save.

Unintended changes in inventories Multiple Choice • cause the economy to move away from the equilibrium GDP. • are treated as components of consumption. • bring actual investment and saving into equality only at the equilibrium level of GDP. • bring actual investment and saving into equality at all levels of GDP.

The simple multiplier 1/MPS Multiple Choice • understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. • understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes. • overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. • overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

Amount of Real Output Demanded Supplied $200 300 $500 300 250 450 400 200 400 500 150 300 600 100 200

Price Level (Index Value)

Amount of Real Output

The table gives aggregate demand and supply schedules for a hypothetical economy. If the price level is 250 and producers supply $450 of real output, Multiple Choice • a shortage of real output of $150 will occur. • a shortage of real output of $100 will occur. • a surplus of real output of $150 will occur. • neither a shortage nor a surplus of real output will occur.

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the Multiple Choice • MPC is greater in B than in A. • APC at any given income level is greater in B than in A. • MPS is smaller in B than in A. • MPC is greater in A than in B.

If actual investment exceeds planned investment in a private closed economy, then Multiple Choice • real GDP will decrease. • real GDP will increase. • saving exceeds planned investment. • there is an unplanned decrease in inventories.

As disposable income goes up, the Multiple Choice • average propensity to consume falls. • average propensity to save falls. • volume of consumption declines absolutely. • volume of investment diminishes.

In a private closed economy, the two components of aggregate expenditures are Multiple Choice • consumption and government spending. • consumption and net exports. • consumption, investment, and net exports. • consumption and investment.

The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to Multiple Choice • shift the aggregate expenditures schedule down. • close an inflationary expenditures gap. • bring inflation down. • push the aggregate expenditures schedule upward.

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is Multiple Choice • $1.42. • $1.24. • $0.70. • $0.40.

The long-run aggregate supply analysis assumes that Multiple Choice

• • • •

input prices are fixed, while product prices are variable. input prices are variable, while product prices are fixed. both input and product prices are variable. both input and product prices are fixed.

The consumption and saving schedules reveal that the Multiple Choice • MPC is greater than zero but less than one. • MPC and APC are equal at the point where the consumption schedule intersects the 45degree line. • APS is positive at all income levels. • MPC is equal to or greater than one at all income levels.

When a consumption schedule is plotted as a straight line, the slope of the consumption line is Multiple Choice • vertical. • horizontal. • greater than the slope of the 45° line. • less than the slope of the 45° line.

Real GDP Purchases $0 −$20 10 0 10 40 20 10 70 40 10 100 60 10 130 80 10 160 100 10

Consumption (after taxes) $10 +5 +5 +5 +5 +5 +5

Gross Investment Net Exports

Government

$+5 $15 15 15 15 15 15 15

Refer to the table. If the full-employment real GDP is $100, the Multiple Choice • inflationary expenditure gap is $30. • inflationary expenditure gap is $10. • recessionary expenditure gap is $30. • recessionary expenditure gap is $10.

(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is

Multiple Choice • 3. • 4. • 5. • 10.

(1) DI $0 10 20 30 40 50

(2) C $4 11 18 25 32 39

(3) DI $0 80 160 240 320 400

C $65 125 185 245 305 365

DI $0 20 40 60 80 100

C $2 20 38 56 74 92

Refer to the given consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. A $2 billion increase in consumption at each level of DI could be caused by Multiple Choice • a decrease in consumer wealth. • new expectations of higher future income. • an increase in taxation. • an increase in saving.

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left? Multiple Choice • a reduction in business taxes • production bottlenecks occurring when producers near full plant capacity • an increase in the price of imported resources • deregulation of industry

The consumption schedule is such that Multiple Choice • both the APC and the MPC increase as income rises. • the APC is constant and the MPC declines as income rises. • the MPC is constant and the APC declines as income rises. • the MPC and the APC must be equal at all levels of income.

Equal increases in government purchases and taxes will

Multiple Choice • increase the equilibrium GDP, and the size of that increase varies directly with the size of the MPC. • increase the equilibrium GDP, and the size of that increase is independent of the size of the MPC. • increase the equilibrium GDP, and the size of that increase varies inversely with the size of the MPC. • decrease the equilibrium GDP, and the size of that decrease is independent of the size of the MPC.

Dissaving occurs where Multiple Choice • income exceeds consumption. • saving exceeds consumption. • consumption exceeds income. • saving exceeds income.

When a consumption schedule is plotted as a straight line, the slope of the consumption line is

Multiple Choice • vertical. • horizontal. • greater than the slope of the 45° line. less than the slope of the 45° line.

The long-run aggregate supply analysis assumes that Multiple Choice • input prices are fixed, while product prices are variable. • input prices are variable, while product prices are fixed. • both input and product prices are variable. • both input and product prices are fixed.

The level of aggregate expenditures in a mixed open economy consists of Multiple Choice • Ca + Ig + Xn. • Ca + Ig + G + T + Xn. • Ca + Ig + Xn + G. • Ca + G.

If GDP exceeds aggregate expenditures in a private closed economy, Multiple Choice saving will exceed planned investment. planned investment will exceed saving. planned investment will exceed actual investment. injections will exceed leakages.

Refer to the diagram. The average propensity to consume Multiple Choice • is greater than 1 at all levels of disposable income above $100. • is greater than 1 at all levels of disposable income below $100. • is equal to the average propensity to save. • cannot be determined from the information given.

Ca = 25 + 0.75 (Y – T) Ig = 50 Xn = 10 G = 70 T = 30 (Advanced analysis) The accompanying equations are for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively. Figures are in billions of dollars. The multiplier for this economy is Multiple Choice • 4. • 3. • 2. •

Which of the following is not true when there is an unplanned decrease in inventories? Multiple Choice • GDP is less than aggregate expenditures. • Saving is less than planned investment. • Actual investment is greater than planned investment. • Real GDP will be rising.

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the

Multiple Choice • MPC is greater in B than in A. • APC at any given income level is greater in B than in A. • MPS is smaller in B than in A. • MPC is greater in A than in B.

Which of the diagrams for the U.S. economy best portrays the effects of a substantial reduction in government spending? Multiple Choice • A • B • C • D Real GDP Purchases $0 −$20 10 0 10 40 20 10 70 40 10 100 60 10 130 80 10 160 100 10

Consumption (after taxes) $10 +5 +5 +5 +5 +5 +5

Gross Investment Net Exports

Government

$+5 $15 15 15 15 15 15 15

The long-run aggregate supply curve is Multiple Choice • upward-sloping and becomes steeper at output levels above the full-employment output. • upward-sloping and becomes flatter at output levels above the full-employment output. • horizontal. • vertical.

ECO 372T Wk 3 - Apply: Quiz If the MPC in an economy is 0.75 and aggregate expenditures increase by $8 billion, then equilibrium GDP will increase by Multiple Choice • $32 billion. • $2.75 billion. • $6 billion. • $40 billion.

Suppose the economy's multiplier is 5. Other things equal, a $40 billion decrease in government expenditures on national defense will cause equilibrium GDP to Multiple Choice • decrease by $200 billion. • decrease by $80 billion. • increase by $200 billion. • decrease by $40 billion. • remain unchanged.

Suppose that an economy produces 500 units of output. It takes 20 units of labor at $15 a unit and 6 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is Multiple Choice • $1.20. • $0.83. • $2.40. • $0.60.

If the marginal propensity to save is 0.1 in an economy, a $30 billion rise in investment spending will increase consumption by Multiple Choice • 270. • 300. • 30.

•

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $180 billion in the second round, the multiplier in the economy is Multiple Choice • 10. • 5. • 9. • 2.

If the MPC is 0.9 and investment increases by $4 billion, the equilibrium GDP will Multiple Choice • increase by $40 billion. • increase by $3.6 billion. • decrease by $4.44 billion. • increase by $4.44 billion.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $88,000. The expected rate of return on this tool is Multiple Choice • 10 percent. • 90 percent. • 9 percent. • 1 percent.

Suppose that real domestic output in an economy is 240 units, the quantity of inputs is 10, and the price of each input is $4. The level of productivity is Multiple Choice • 24. • 240. • 10. • 20.

If the MPC in an economy is 0.60, government could close a recessionary expenditure gap of $15 billion by cutting taxes by Multiple Choice • $25 billion.

• • •

$15 billion. $60 billion. $9 billion.

Suppose that an economy produces 2,400 units of output, employing 30 units of input, and the price of the input is $20 per unit. The per-unit cost of production is Multiple Choice • $0.25. • $0.50. • $0.10. • $0.80.

If the multiplier in an economy is 3, a $10 billion increase in net exports will Multiple Choice • increase GDP by $30 billion. • reduce GDP by $6 billion. • decrease GDP by $30 billion. • increase GDP by $10 billion.

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. At a(n) $600 level of disposable income, the level of saving is Multiple Choice • $40. • $560. • $180. • $18.

Input Quantity Real Domestic Output 100 200 150 300 200 400 The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. If the price of each input is $5, the per-unit cost of production in the economy is Multiple Choice • $2.50. • $5.00. • $2.75.

•

$0.40.

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,100. The expected rate of return on this machine is Multiple Choice • 5 percent. • 10 percent. • 20 percent. • 1 percent.

If investment increases by $30 billion and the economy's MPC is 0.75, the aggregate demand curve will shift Multiple Choice • rightward by $120 billion at each price level. • rightward by $30 billion at each price level. • leftward by $120 billion at each price level. • leftward by $90 billion at each price level.

If a lump-sum income tax of $50 billion is levied and the MPS is 0.2, the consumption schedule will shift Multiple Choice • downward by $40 billion. • upward by $40 billion. • downward by $50 billion. • downward by $10 billion.

If investment decreases by $6 billion and the economy's MPC is 0.9, the aggregate demand curve will shift Multiple Choice • leftward by $60 billion at each price level. • rightward by $6 billion at each price level. • rightward by $60 billion at each price level. • leftward by $3 billion at each price level.

Suppose that technological advancements stimulate $14 billion in additional investment spending. If the MPC = 0.8, how much will the change in investment increase aggregate demand? Multiple Choice • $70 billion

• • •

$14 billion $112 billion $22.2 billion

Assume the MPC is 0.6. If government were to impose $30 billion of new taxes on household income, consumption spending would initially decrease by Multiple Choice • $18 billion. • $30 billion. • $12 billion. • $6 billion.

If the MPC in an economy is 0.8, a $4 billion increase in government spending will ultimately increase consumption by Multiple Choice • $16 billion. • $4 billion. • $0.8 billion. • $20 billion. Suppose that the level of GDP increased by $300 billion in a private closed economy where the marginal propensity to consume is 0.9. Aggregate expenditures must have increased by Multiple Choice • $30 billion.Correct • $300 billion. • $270 billion. • $250 billion.

If the nominal interest rate is 18 percent and the real interest rate is 10 percent, the inflation rate is Multiple Choice • 8 percent.Correct • 18 percent. • 28 percent. • 10 percent.

If the marginal propensity to consume is 0.9 then the marginal propensity to save must be Multiple Choice • 0.1.Correct • 1. • 1.1.

•

0.9.

In a private closed economy where MPC = 0.75, if consumers reduce their spending by $30 billion and firms cut investments by $10 billion, then equilibrium GDP will decrease by Multiple Choice • $160 billion.Correct • $40 billion. • $120 billion. • $4 billion. If the MPC is 0.5 and the equilibrium GDP is $60 billion below the full-employment GDP, then the size of the recessionary expenditure gap is Multiple Choice $30 billion. $50 billion. $60 billion. $120 billion. An economy is employing 1 units of capital, 5 units of raw materials, and 4 units of labor to produce its total output of 840 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is Multiple Choice $0.05. $10.00. $0.40. $0.50.

ECO 372T Wk 4 - Practice: Knowledge Check Government Spending Tax Revenues GDP Year 1 $450 $425 $2,000 Year 2 500 450 3,000 Year 3 600 500 4,000 Year 4 640 620 5,000 Year 5 680 580 4,800 Year 6 600 620 5,000 The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The budget deficit in year 3 is Multiple Choice • $175 billion. • $3,050 billion. • $100 billion.

•

$295 billion.

The cyclically adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be Multiple Choice • balanced. • in deficit. • in surplus. • expanding.

The basic requirement for an item to function as money is that it be Multiple Choice • backed by precious metals—gold or silver. • authorized as legal tender by the central government. • generally accepted as a medium of exchange. • some form of debt or credit.

The government bailout of large institutions creates the problem of moral hazard, which means that these large firms will Multiple Choice • not be able to pay back the bailout money. • have an incentive to make highly risky investments. • now have to play it safer to reduce their risks. • be limited in terms of the securities and services that they get involved in.

Theoretically, during a financial crisis, the Fed is supposed to act as a lender of last resort to Multiple Choice • all insolvent banks. • insolvent banks that are illiquid. • solvent banks that are illiquid. • insolvent banks that are highly liquid.

If the economy has a cyclically adjusted budget surplus, this means that Multiple Choice • the public sector is exerting an expansionary impact on the economy. • tax revenues would exceed government expenditures if full employment were achieved. • the actual budget is necessarily also in surplus. • the economy is actually operating at full employment.

(Consider This) Credit cards are Multiple Choice • the fastest-growing component of the M1 money supply. • near monies that are part of the M2 money supply but not the M1 money supply. • not money, as officially defined. • also known as time deposits.

Year Actual Budget Deficit (-) or Surplus (+)Cyclically Adjusted Deficit (-) or Surplus (+) 1 +1.4% +0.1% 2 +2.5 +1.1 3 +1.3 +1.1 4 -1.5 -1.1 5 -3.4 -2.7 6 -3.5 -2.4 7 -2.6 -1.8 8 -1.9 -1.8 9 -1.3 -1.4 Refer to the data in the table. The direction of fiscal policy became more expansionary from Multiple Choice • Year 1 to 2. • Year 6 to 7. • Year 4 to 5. • Year 5 to 6.

Refer to the graph. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? Multiple Choice • P2 and Q4 • P1 and Q1 • P2 and Q2 • P1 and Q3

A checking account entry is money because it Multiple Choice • is ensured by the Federal Deposit Insurance Corporation. • has been declared as such by the federal government. • performs the functions of money.

•

can be sold for currency.

Time deposits of $100,000 or more are Multiple Choice • a component of M1. • a component of M2 but not of M1. • a component of M1 but not of M2. • not a component of M1 or M2.

(Consider This) Which of the following is not part of the M2 money supply? Multiple Choice • currency in circulation • credit card balances • small-denominated time deposits of less than $100,000 • checkable deposits

Which of the following institutions does not provide checkable-deposit services to the general public? Multiple Choice • commercial banks • savings and loan associations • U.S. Treasury • credit unions

Which of the following represents the most expansionary fiscal policy? Multiple Choice • a $10 billion tax cut • a $10 billion increase in government spending • a $10 billion tax increase • a $10 billion decrease in government spending

The Financial Crisis of 2007–2008 started in which sector of the economy? Multiple Choice • foreign trade sector • consumer durables sector • dot-com and technology sector • real estate and housing sector

Refer to the diagram. Discretionary fiscal policy designed to slow the economy is illustrated by Multiple Choice • the shift of curve T1 to T2. • the shift of curve T2 to T1. • a movement from a to c along curve T2. • a movement from d to b along curve T1.

The American Recovery and Reinvestment Act of 2009 was implemented primarily to Multiple Choice • reduce inflationary pressure caused by oil price increases. • curb the overspending by households that contributed to the Great Recession. • bring the federal budget back into balance. • stimulate aggregate demand and employment.

Which of the following fiscal policy changes would be the most contractionary? Multiple Choice • a $40 billion increase in taxes • a $10 billion increase in taxes and a $30 billion cut in government spending • a $20 billion increase in taxes and a $20 billion cut in government spending • a $30 billion increase in taxes and a $10 billion cut in government spending

Discretionary fiscal policy will stabilize the economy most when Multiple Choice • deficits are incurred during recessions and surpluses during inflations. • the budget is balanced each year. • deficits are incurred during inflations and surpluses during recessions. • budget surpluses are continuously incurred.

The money supply is backed Multiple Choice • by the government's ability to control the supply of money and therefore to keep its value relatively stable. • by government bonds. • dollar-for-dollar by gold and silver. • by gold reserves representing a fraction of the total value of dollars in circulation.

ECO 372T Wk 4 - Apply: Quiz he economy is in a recession. The government enacts a policy to increase spending by $6 billion. The MPS is 0.25. What would be the full increase in real GDP from the change in government spending, assuming that the aggregate supply curve is horizontal across the range of GDP being considered? Multiple Choice • $24 billion • $6 billion • $144 billion • $12 billion

Money Market Mutual Fund Balances Held by Businesses $100 Money Market Mutual Fund Balances Held by Individuals 250 Currency in Banks 10 Currency in Circulation 60 Savings Deposits, Including Money Market Deposit Accounts 80 Large-denominated ($100,000 or more) Time Deposits 180 Small-denominated ($100,000 or less) Time Deposits 110 Checkable Deposits70 Refer to the table. The value of the near monies that are part of M2 is Multiple Choice • $440. • $250. • $80. • $450.

Money Market Mutual Fund Balances Held by Businesses $100 Money Market Mutual Fund Balances Held by Individuals 220 Currency in Banks 10 Currency in Circulation 70 Savings Deposits, Including Money Market Deposit Accounts 50 Large-denominated ($100,000 or more) Time Deposits 180 Small-denominated ($100,000 or less) Time Deposits 80 Checkable Deposits80 Refer to the table. Money supply M2 for this economy is Multiple Choice • $500.

• • •

$70. $80. $510.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $90 billion by Multiple Choice • increasing taxes by $30 billion. • reducing government expenditures by $14 billion. • increasing taxes by $22.5 billion. • reducing government expenditures by $90 billion.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve rightward by $36 billion by Multiple Choice • decreasing taxes by $12 billion. • increasing government spending by $12 billion. • increasing government spending by $27 billion. • decreasing taxes by $36 billion.

Suppose the federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $10 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have Multiple Choice • increased by $30 billion. • increased by $90 billion. • decreased by $60 billion. • decreased by $30 billion.

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $50 billion by Multiple Choice • increasing government spending by $5 billion. • increasing government spending by $50 billion. • decreasing taxes by $5 billion. • increasing taxes by $5 billion.

If the MPS in an economy is 0.25, government could shift the aggregate demand curve leftward by

$48 billion by Multiple Choice • reducing government expenditures by $12 billion. • reducing government expenditures by $192 billion. • increasing taxes by $48 billion. • increasing taxes by $384 billion.

Item Billions of Dollars Checkable Deposits$597 Small Time Deposits 818 Currency 639 Money-Market Mutual Funds Held by Businesses1,045 Savings Deposits, Including Money-Market Deposit Accounts Money-Market Mutual Funds Held by Individuals 979

2,866

Refer to the accompanying table. The size of the M2 money supply is Multiple Choice • $5,899 billion. • $2,054 billion. • $2,696 billion. • $6,792 billion.

Security Amount (in Billions) Treasury Bills $300 Corporate Bonds 140 Treasury Notes 80 Corporate Stock 200 US Savings Bonds 60 Treasury Bonds 100 The public debt for the economy is Multiple Choice • $540 billion. • $680 billion. • $480 billion. • $740 billion.

ECO 372T Wk 5 - Practice: Knowledge Check If severe demand-pull inflation was occurring in the economy, proper government policies would

involve a government Multiple Choice • budget deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements. • budget deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements. • budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements. • budget surplus, the purchase of securities in the open market, a lower discount rate, and lower reserve requirements.

Lowering the discount rate has the effect of Multiple Choice • turning required into excess reserves. • turning excess into required reserves. • making it less expensive for commercial banks to borrow from central banks. • forcing commercial banks to call in outstanding loans from their best customers.

Assets Liabilities and Net Worth Reserves $51 Checkable Deposits$140 Loans 109 Stock Shares 130 Securities100 Property 10 Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. The commercial banking system has excess reserves of Multiple Choice • $9 billion. • $7 billion. • $6.1 billion. • $5 billion.

Which of the following statements about quantitative easing is most accurate? Multiple Choice • Quantitative easing refers to the Fed’s use of open-market operations to buy trillions of dollars’ worth of medium- and longer-maturity financial assets. • Quantitative easing has become one of the permanently recognized tools of monetary policy. • Quantitative easing significantly lowered interest rates in the aftermath of the financial crisis. • Quantitative easing is the new official name for open-market operations.

The possible asymmetry of monetary policy is the central idea of the Multiple Choice • invisible hand concept. • ratchet analogy. • pushing-on-a-string analogy. • bandwagon effect.

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out Multiple Choice • $1 million. • $1.2 million. • $200,000. • $800,000.

Reserves $100 Checkable Deposits1,000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's Multiple Choice • assets are $1,100. • liabilities are $1,100. • net worth is $300. • profit is $1,000.

When a check is drawn and cleared, the Multiple Choice • reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction. • bank against which the check is cleared loses reserves and deposits equal to the amount of the check. • bank receiving the check loses reserves and deposits equal to the amount of the check. • bank against which the check is cleared acquires reserves and deposits equal to the amount

of the check.

The Fed’s normalization plan for monetary policy included Multiple Choice • raising the federal funds target rate. • raising the interest rate paid on excess reserves. • using repos to insure adequate excess reserves in the banking system. • raising the reserve ratio on deposits to soak up the excess liquidity in the system.

Assets Liabilities and Net Worth Reserves $20 Checkable Deposits$100 Loans 25 Stock Shares 50 Securities15 Property 90 Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures are in millions. If this bank has excess reserves of $6 million, the legal reserve ratio must be Multiple Choice • 10 percent. • 12 percent. • 14 percent. • 20 percent.

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of Multiple Choice • the MPS. • its actual reserves. • its excess reserves. • the reserve ratio.

The basic purpose of imposing legal reserve requirements on commercial banks is to Multiple Choice • assure the liquidity of commercial banks. • provide a device through which the credit-creating activities of banks can be controlled. • provide a proper ratio between earning and no-earning bank assets. • provide the central banks with necessary working capital.

Which of the following would not be a consequence of negative interest rates? Multiple Choice • People’s deposits in banks would have shrinking balances over time. • Reduced bank reserves that could cause a contraction in the economy. • People would want to put more money in banks. • People would rather hold cash than bank deposits

Banks' borrowed funds come mostly from Multiple Choice • buying bonds and loans. • buying stocks and selling Treasury bonds. • issuing stocks and buying Treasury bonds. • issuing bonds and accepting deposits.

Which of the following would reduce the money supply? Multiple Choice • Commercial banks use excess reserves to buy government bonds from the public. • Commercial banks loan out excess reserves. • Commercial banks sell government bonds to the public. • A check clears from Bank A to Bank B.

If the demand for money increases and the Fed wants interest rates to remain unchanged, which of the following would be appropriate policy? Multiple Choice • recall Federal Reserve Notes from circulation • raise the legal reserve requirement • buy bonds in the open market • raise the discount rate

Monetary policy is thought to be Multiple Choice • equally effective in moving the economy out of a depression as in controlling demand-pull inflation. • more effective in moving the economy out of a depression than in controlling demand-pull inflation. • more effective in controlling demand-pull inflation than in moving the economy out of a recession. • only effective in moving the economy out of a depression

A decrease in the interest rate will cause a(n) Multiple Choice • increase in the transactions demand for money. • decrease in the transactions demand for money. • decrease in the amount of money held as an asset. • increase in the amount of money held as an asset.

Type of Deposit Reserve Requirement Checkable Deposits $7.8 - 48.3 Million 3% Over $48.3 Million 10 Noncheckable personal savings and time deposits 0 Refer to the accompanying table. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are Multiple Choice • $30 million. • $3 million. • $1.8 million. • $1.2 million.

Assets Liabilities + Net Worth Reserves $60 Checkable Deposits$150 Loans 100 Stock Shares 135 Securities25 Property 100 Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. The maximum amount by which the commercial banking system can expand the supply of money by lending is Multiple Choice • $250 billion. • $350 billion. • $450 billion. • $600 billion.

ECO 372T Wk 5 - Apply: Quiz (Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 − 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 percent, what amount of money will society want to hold? Multiple Choice • 144. • 100. • 120. • 160. • 200.

Item in Balance Sheet Amount 1) Treasury Deposits $7 2) Reserves of Commercial Banks 31 3) Federal Reserve Notes 275 4) Loans to Commercial Banks 3 5) All Other Assets 66 6) Securities 241 7) All Other Liabilities and Net Worth 7 The table shows items and figures taken from a consolidated balance sheet of the 12 Federal Reserve Banks. All figures are in billions of dollars. In this balance sheet, there would be assets of Multiple Choice • $317 billion. • $309 billion. • $341 billion. • $310 billion.

A reserve requirement of 10 percent means a bank must have at least $300 of reserves if its

checkable deposits are Multiple Choice • $3,000. • $30. • $300. • $30,000.

Suppose a credit union has checkable deposits of $400,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $8,000, then its actual reserves are Multiple Choice • $48,000. • $32,000. • $8,000. • $40,000.

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be Multiple Choice • 3,200 • 200 • 800 • 600 • 400

Suppose a commercial bank has checkable deposits of $60,000 and the legal reserve ratio is 25 percent. If the bank's required and excess reserves are equal, then its actual reserves Multiple Choice • are $30,000. • are $15,000. • are $1,500,000. • cannot be determined from the given information.

Answer the question based on the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1,250, the interest rate will Multiple Choice • fall to 1.25 percent. • rise to 12.5 percent.

• rise to 18 percent. • fall to 8 percent. • fall to 2.5 percent.

A commercial bank buys a $20,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $20,000. The money supply has Multiple Choice • increased by $20,000. • decreased by $20,000. • not been affected. • increased by $20,000 multiplied by the reserve ratio.

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? Multiple Choice • increased by $1,200 • decreased by $600 • increased by $1,800 • increased by $600

Refer to the graph. If the initial equilibrium interest rate was 5 percent and the money supply increased by $200 billion, then the new interest rate would be

Multiple Choice • 3 percent. • 1 percent. • 2 percent. • 4 percent.