Chap 11 n 12 Learning Curve

7/28/2019 Chap 11 n 12 Learning Curve

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Which of the following statements about theloanable funds market is correct?

The actions of investors affect the supply curve in the market.

The actions of investors affect the demand curve in the market.

The actions of savers affect the demand curve in the market.

The actions of investors affect both the demand curve and the supply curve in the market.

Which of the following is a liability for a bank?

Deposits made by a firm

Required reserves

A loan to a firm

Excess reserves

Which of the following is true of the Federal Reserve's Board of Governors?

The Governors are appointed by the Senate.

All appointments of Governors occur in the same year.

Governor appointments must be approved by the chairman of the board.



The Governors serve 14-year terms.

Money is _______ when it provides a yardstick for measuring andcomparing the values of a wide range of goods and services.

a store of value

a medium of exchange

a unit of account

fiat money

The fixed future date when the seller of a the buyer the face value of that bond is:

the face value of the bond.

the coupon rate of a bond.

the maturity date of a bond.

the yield on a bond.

What is the potential money multiplier if trequirement is 25%?

1

2

3

4

The money multiplier (M) is 4. This is determined

so the equation is: M = 1 ÷ 0.25, or M = 4.



Which of the following is true of the Federal Reserve System?

It is not subject to oversight from Congress.

It is controlled by the executive branch of the federal government.

It has the power to create money.

It does not set the value of money.

As an independent central bank, the Federal Reserve System is not subject to

executive branch control but it is subject to oversight from Congress. The Federal

Reserve has the power to create money and set its value.

Which of the following must be true of a commodity for it to be used as

money?It must not be durable.

Its value must not be easy to determine.

It must not be divisible.

It must be readily accepted by many people

Which of the following scenarios would be most likely to cause the shiftin the supply for loanable funds from S 0 to S 1, shown in the followingdiagram?



Households decide to save less

Businesses decide to invest more

Households decide to save more

Businesses decide to invest less

If households decide to save less, this will decrease the supply of loanable funds.

This will cause an increase in interest rates and a decrease in the amount of funds

traded

How much money is potentially created if there is an initial deposit of $4,000 and the required reserve ratio is 20%?

$16,000

$20,000

$5,000

$2,000

The multiplier in this case would be 5 (calculated as 1 divided by 0.2) so there is$20,000 created. This is determined by multiplying the money multiplier by the

initial deposit, so the equation is: New Money = 5 × $4,000, or New Money =

$20,000.

_______ is/are the buying and selling of U.S. government securities.

The discount rate

The federal funds rate

Reserve requirements

Open market operations

Which of the following assets has the greatest liquidity?



A baseball card

A car

Money

Real estate

An asset's liquidity is determined by how fast, easily, and reliably it can be

converted into cash. Money is the most liquid asset because, as the medium of

exchange, it requires no conversion. Stocks and bonds are also liquid, but they do

require some time and often a commission fee to convert them into cash. Prices in

stock and bond markets fluctuate, causing the real value of these assets to be

uncertain. Real estate requires considerable time to liquidate, with transaction costs

that often approach 10% of a property's value

The amount of money a buyer will get back once a bond matures is:

the coupon rate of a bond.

the face value of the bond.

the maturity date of a bond.

the yield on a bond.

Which of the following will not reduce the actual money multiplier?

An increase in reserve requirements

People keeping money on hand for transactions

Banks keeping some excess reserves

A bank being loaned-up

If a bank lends out all of its excess reserves, it is doing all it can to make the actual

money multiplier as close as possible to the potential money multiplier.



Which of the following statements about the loanable funds market iscorrect?

The actions of investors affect the supply curve in the market.

The actions of savers affect the supply curve in the market.

The actions of savers affect the demand curve in the market.

The actions of savers affect both the demand curve and the supply curve in the market.

Which of the following assets has the greatest liquidity?

A checking account

A share of stock

A savings bond

Real estate

A checking account

→ An asset's liquidity is determined by how fast, easily, and reliably it can be

converted into cash. A checking account is the most liquid asset because, as the

medium of exchange, it requires no conversion. Stocks and bonds are also liquid,

but they do require some time and often a commission fee to convert them into

cash. Prices in stock and bond markets fluctuate, causing the real value of these

assets to be uncertain. Real estate requires considerable time to liquidate, with

transaction costs that often approach 10% of a property's value.

During the Great Depression, some people would withdraw all of their cash from the bank and hide it under their mattress rather than risklosing it. This is an example of which function of money?

Store of value

Medium of exchange

Unit of account



Barter

A store of value is the function that enables people to save the money they earn

today and use it to buy the goods and services they want tomorrow.

Which of the following scenarios would be most likely to cause the shiftin the demand of loanable funds from D0 to D1, shown in the followingdiagram?

An increase in investment tax credits

A technological advance that increases productivity

An increase in business taxes

The lifting of business regulations

An increase in business taxes will decrease the demand for loanable funds. This will

cause a decrease in both interest rates and the amount of funds traded.

During the period before 1776, tobacco was used in the Chesapeakecolonies of what is now the United States to make payments, even to

pay fines and taxes. Consider tobacco leaves as an example of commodity money; which of the following problems would it be mostlikely to have?

It was not readily accepted by people.



It was not divisible.

Its value was not easy to determine.

It was not durable.

For a commodity to be used as money, its value must be easy to determine, it must

be divisible, and it must be durable. A commodity must be accepted by many

people as money if it is to act as money. Clearly, tobacco was accepted and its

value could be determined. Leaves can be broken up, but they are probably not

durable.

Lauren has a savings account into which she puts money every monthso she will eventually have enough money for a down payment on ahouse. This is an example of which function of money?

Medium of exchange

Unit of account

Barter

Store of value

All else remaining equal, if the amount of checkable deposits increases,this will increase the size of:

M1.

M2.

M1 and M2.

neither M1 nor M2.

All else remaining equal, if the amount of checkable deposits increases, this will

increase the size of M1. Because the definition of M2 includes M1, M2 will increase

as well.



_____ represent(s) only a small fraction of government finance in theUnited States.

The sale of bonds to the Federal Reserve

Taxes

The sale of government assets

The sale of bonds to public entities

The sale of government assets, such as telecommunications spectra and offshore

oil leases, represents only a small fraction of government finance in the United

States.

How large is the current national debt held by the public?$19 trillion

$14 trillion

$5 trillion

$7 trillion

Which of the following approaches to federal finance would mandatethat expenditures and taxes have to be equal each year?

An annually balanced budget

Functional finance

Public choice theory

A cyclically balanced budget

How much is the budget deficit if savings is $3 trillion, investment is $1trillion, imports are $3 trillion, and exports are $4 trillion?



$2 trillion

$1 trillion

$5 trillion

$3 trillion

The budget deficit is $1 trillion. It is determined by adding the difference between

savings and investment to the difference between imports and exports. The

equation is: Deficit = ($3 trillion − $1 trillion) + ($3 trillion − $4 trillion), or Deficit =

$1 trillion.

Which of the following countries has the highest debt as a percentage of

GDP?Russia

Japan

India

Turkey

In his first year of office, President Bill Clinton pushed through a largetax increase, and (in 1994) he also proposed a federal budget withspending restraints. During his presidency the economy boomed. Basedon this information, you would likely correctly conclude that it would becorrect to state that while Clinton was President, the national debtprobably:

increased.

increased faster than previously.

stayed the same.

*decreased.



The combination of higher taxes and less spending, along with the economic boom

that brought in more tax revenues than had been expected, led to a budget surplus

for the first time in many years. According to estimates from the Congressional

Budget Office, the surplus rose to $236.2 billion in the year 2000. This would tend

to decrease the national debt.

How much money did the federal government spend if tax revenueswere $4.5 trillion, the change in the money supply was $0.3 trillion, thechange in bonds was $0.2 trillion, and there was no sale of governmentassets?

$4 trillion

$2 trillion

$5 trillion

$3 trillion

The federal government spent $5 trillion. It is determined using the equation for the

government budget constraint. The difference between spending and taxation (G Ð

T) equals the sum of the change in money supply, the change in bonds, and the

sale of government assets. The equation is: G Ð $3.5 trillion = $0.3 trillion + $0.2

trillion + $0, or G = $5 trillion.

What does it mean for a fiscal policy to be fiscally sustainable?The future value of all projected future revenues must be equal to the future value of projected future

The future value of all projected present revenues must be equal to the present value of projected futuspending.

The present value of all projected future revenues must be equal to the present value of projected futuspending.

The present value of all projected future revenues must be equal to the future value of projected futurspending.

Which of the following approaches to federal finance essentially ignoresthe impact of the budget on the business cycle and focuses on fosteringeconomic growth and stable prices, while keeping the economy as closeas possible to full employment?

A cyclically balanced budget



An annually balanced budget

Functional finance

Public choice theory

he functional finance approach to federal finance essentially ignores the impact of

the budget on the business cycle and focuses on fostering economic growth and

stable prices, while keeping the economy as close as possible to full employment.

How large is the government's budget deficit if asset sales are $200billion, the money supply grows by $500 billion, the government sells $1trillion in bonds, and tax revenues are $500 billion?

$1.2 trillion.

The government actually ran a surplus of $300 billion.

$200 billion.

$1.7 trillion.

The government's budget deficit is financed by asset sales and bond sales. In this

case it equals $1.7 trillion.

How does increased deficit spending lead to a reduction in consumer spending according to the crowding-out effect?

Increased government spending leads to increased government borrowing, which leads to increased irates, which in turn lead to decreased consumer spending.

Increased government spending leads to increased government borrowing, which leads to decreased rates, which in turn lead to decreased consumer spending.

Increased government spending leads to decreased government borrowing, which leads to decreased

rates, which in turn lead to decreased consumer spending.

Decreased government spending leads to increased government borrowing, which leads to increased rates, which in turn lead to decreased consumer spending.

Suppose Congress creates a new Medicare benefit and finances it byraising payroll taxes such that each year's additional outlay is matchedby additional revenue. Would this be considered fiscally sustainable?



Yes, based on both the fiscal imbalance and the generational imbalance measures.

Yes, based on the fiscal imbalance measure.

Yes, based on the generational imbalance measure.

No, based neither on the fiscal imbalance nor on the generational imbalance measure.

Just because a given (or proposed) fiscal policy's fiscal imbalance is zero does not

necessarily mean that it is sustainable; this new Medicare benefit also clearly shifts

the burden to future generations. For fiscal policy to be fiscally sustainable, the

present value of all projected future revenues must equal the present value of

projected future spending.

Today, interest costs as a percentage of GDP is close to the level it wasin the:

1950s.

1970s.

1990s.

1980s.

Annually balancing the budget would:

aid fiscal policies aimed at maintaining full employment.

allow the government to build up surpluses during booms to use during recessions.

be compatible with countercyclical policy.

make expansionary fiscal policy impossible.

How much is the budget deficit if savings is $3 trillion, investment is $1trillion, imports are $4 trillion, and exports are $3 trillion?

$2 trillion



$4 trillion

$3 trillion

$5 trillion

The budget deficit is $3 trillion. It is determined by adding the difference between

savings and investment to the difference between imports and exports. The

equation is: Deficit = ($3 trillion − $1 trillion) + ($4 trillion − $3 trillion), or Deficit =

$3 trillion.

Annually balancing the budget would:

make it impossible for governments to use past surpluses during recessions.

aid fiscal policies aimed at maintaining full employment.

be compatible with countercyclical policy.

make it easier for the government to use expansionary fiscal policy.

Which of the following will not help the government pay for a risingbudget deficit?

Rising imports

Rising private saving

A trade deficit

Decreasing investment

A rising budget deficit must be paid for with rising trade deficits, rising privatesaving, falling investment, or some combination of the three.

_____ represents only a small fraction of government finance in theUnited States.

The sale of bonds to the Federal Reserve



The sale of bonds to domestic public entities

The sale of government assets

The sale of bonds to foreign public entities

_______ is/are what regional Federal Reserve Banks charge depositoryinstitutions for short-term loans to shore up their reserves.

The discount rate

Open market operations

The federal funds rate

Reserve requirements

Which of the following requires a double coincidence of wants?

Store of value

Medium of exchange

Fiat money

Barter

When the interest rate decreases, the amount of loanable fundsdemanded in the market:

increases; the entire demand curve shifts right.

decreases; the entire demand curve shifts left.

increases; this is a movement down and to the right along the demand curve.

decreases; this is a movement up and to the left along the demand curve.



What is the potential money multiplier if the reserve requirement is33.3%?

1

2

3

4

Which of the following is true of the Federal Reserve's Board of Governors?

All appointments of Governors occur in the same year.

The Governors serve 14-year terms.

The Governors are appointed by the Senate.

Governor appointments must be approved by the chairman of the board.

Which of the following scenarios would be most likely to cause the shift

in the demand of loanable funds from D0 to D1, shown in the followingdiagram?

An increase in investment tax credits



A technological advance that increases productivity

An increase in business taxes

The lifting of business regulations

What happens to bond prices when the interest rate decreases?

They would increase.

They would decrease.

They would stay the same.

They would fluctuate based on the quantity of money.

How much money is potentially created if there is an initial deposit of $5,000 and the required reserve ratio is 10%?

$500,000

$5,000

$15,000

$50,000

Which function of money allows people who are car shopping tocompare the costs of different optional features in order to determine if they want them or not?

Medium of exchange

Barter

Store of value



Unit of account

Money as a unit of account provides a yardstick for measuring and comparing the

values of a wide range of goods and services.

Which of the following is a major hurdle that must be overcome whenintroducing a coin to replace paper currency?

Coins weigh more than paper currency.

Some industries will incur costs.

Coins are more durable than paper currency.

The coins will not be worth as much as the paper currency.

Suppose Congress enacted investment tax credits to spur morebusiness investment. What impact would this have on the loanablefunds market?

There would be a decrease in supply; the entire supply curve shifts left.

There would be a decrease in demand; the entire demand curve shifts left.

There would be an increase in supply; the entire supply curve shifts right.

There would be an increase in demand; the entire demand curve shifts right.

During times of low unemployment:

employers decrease worker benefits

packages.

the government increases taxes for higher-paid workers.

employers compete for labor by offering

higher wages.



government regulation forces reductions in the number of

hours worked.

According to efficiency wage theory, the primary reason wages are "sticky" is

because of:

imperfectinformation.

increases in

productivity.

minimum wage

laws.

laborunions.

Recessions associated with bank-centered financial crises:

tend to lead to jobless

recoveries.

tend to last much

longer.

tend to be

shorter.

are milder than recessions caused by

other factors.

The basic relationship among the rate of increase in nominal wages (w), inflation

(p), and the rate of increase in labor productivity (q) is:

p = w

− q.

p = w

+ q.



w = q

÷ p.

p = q ÷

w.

Which of the following is an example of rational expectations?

Jed assumes that there will be high inflation this year because there was high

inflation the past three years.

Jed assumes that there will be high inflation this year because there hasn't been

high inflation in a long time and he figures that it's due.

Jed assumes that there will be high inflation because that is what he was told

on the evening news.

Jed assumes that there will be high inflation this year because that's what all of

the economic data is pointing to.

Which of the following are policies suggested by economists during the 1930s that

made the Depression worse?

Investing in human

capital

Increasing government

spending

Raising

taxes

Running a budget

deficit

Which of the following was included in President Ronald Reagan's plan to increase

economic growth?

Increase government

spending



Increase income tax

rates

Increase government

regulations

Reduce

inflation

Which of the following is true of the rational expectations model?

It assumes that labor markets are highly

competitive.

It suggests that it will take time for workers' inflationary expectations to increase

after an increase in aggregate demand.

It suggests that policymakers must fool the public if its policies are to have

long-term benefits.

It suggests that policies will be most effective when policymakers

are transparent.

Which of the following are policies suggested by economists during the 1930s that

made the Depression worse?


spending

Investing in human

capital

Balancing the federal

budget

Running a budget

deficit

What drives up wages during times of low unemployment?



Competition for

labor

The decrease in benefits

packages

The increase in taxes for higher-

paid workers

Government

regulation

Which of the following made the Depression worse?

Not providing liquidity to

banks

Running a budget

deficit


spending

Investing in human

capital

Which of the following is true of the rational expectations model?

It suggests that policymakers must fool the public if its policies are to have

short-term benefits.

It suggests that it will take time for workers' inflationary expectations to increase

after an increase in aggregate demand.

It suggests that policies will be most effective when policymakers are

transparent and truthful.

It assumes that labor markets are not highly

competitive.



Suppose the economy is in long-run macroeconomic equilibrium and unemployment

is at its natural rate. If policymakers decide to decrease aggregate demand, what

will happen in the long run according to the expectations-augmented Phillips curve

model?

Unemployment will increase and inflation will

decrease.

Unemployment will decline and inflation

will increase.

Unemployment will gravitate back to its natural rate and

inflation will be higher.

Unemployment will gravitate back to its natural rate and

inflation will be lower.

According to adaptive expectations theory, expansionary macroeconomic policy:

will not be effective in the short run or

the long run.

will always be

effective.

will be effective in the short run but not in

the long run.

will be effective in the long run but not in

the short run.


Increasing the money

supply


banks

Lowering

taxes



Incentivizing capital

investment

Rational expectations are _____, while adaptive expectations are _____.

driven by emotions; forward

looking

forward looking; driven by

emotions

forward looking; backward

looking

backward looking; forward

looking


Incentivizing capital

investment

Increasing the money

supply


banks

Lowering

taxes

Suppose that there are two countries, A and B, each of which produces two goods, X

and Y. The production possibilities frontier (PPF) for each country is linear with

quantities of Y plotted on the vertical axis and quantities of X plotted on the

horizontal axis. The PPF for Country A has a vertical intercept of 10 and a horizontalintercept of 20. The PPF for Country B has a vertical intercept of 20 and a horizontal

intercept of 10. Which of the following statements is correct?

Country A has the absolute advantage and comparative

advantage in X. Right



Country A has the absolute advantage in X and Y but the comparative

advantage in producing Y.

Country B has the absolute advantage in X and Y but the comparative

advantage in producing Y.

Country B has the absolute advantage in X and Y but the comparative

advantage in producing X.

Which of the following is a practical constraint on trade?

There are no communications costs associated

with trade.

The production possibilities curves for nations exhibit increasing costs and

diminishing returns.

Countries find it easier to specialize in producing

one product.

There are no costs associated with

transporting goods.

What happened to the level of total world imports after the passage of the Tariff Act

of 1930?

It stayed the

same.

It

increased

.

It

decreased.

It moved closer to the level of world

exports.

Which of the following groups benefit from tariffs?



Domestic producers and foreign

producers

The importing government and domestic

consumers

Domestic producers and foreign

consumers

The exporting government and domestic

producers

Suppose that there are two countries, A and B, each of which produces two goods, X

and Y. The production possibilities frontier (PPF) for each country is linear with


horizontal axis. The PPF for Country A has a vertical intercept of 60 and a horizontal

intercept of 60. The PPF for Country B has a vertical intercept of 30 and a horizontal

intercept of 15. Which of the following statements is correct?

Country B will most likely export X and Y to

country A.

Country B will most likely import X and Y

from Country A

Country B will most likely export Y and import X

from country A.

Country B will most likely export X and import Y

from country A.

When were average tariffs on dutiable imports the highest in the United States?

194

5

193

2

198



0

199

5

Suppose that there are two countries, A and B, each of which produces two goods, Xand Y. The production possibilities frontier (PPF) for each country is linear with


horizontal axis. The PPF for Country A has a vertical intercept of 10 and a horizontal

intercept of 20. The PPF for Country B has a vertical intercept of 20 and a horizontal

intercept of 10. Assume that before trade, Country A produced 10 X and 5 Y, and

Country B produced 6 X and 8 Y. If there is free trade and both countries specialize

completely in the production of the good in which they have a comparative

advantage, what will be the total gains from trade for the two countries combined?

20 X and

20 Y

4 X and

7 Y

10

X

13

Y

Which of the following is not a way in which governments restrict trade?

Setting a limit on the amount of a good that can

be imported

Subsidizing foreign

firms

Banning trade with a

country

Limiting the amount of foreign currency available

to importers



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Chap 11 n 12 Learning Curve