question
6. If aggregate demand increases and aggregate supply decreases, the price level:
A. will decrease, but real output may increase, decrease, or remain unchanged.
B. will increase, but real output may increase, decrease, or remain unchanged.
C. and real output will both increase.
D. and real output will both decrease.
A. will decrease, but real output may increase, decrease, or remain unchanged.
B. will increase, but real output may increase, decrease, or remain unchanged.
C. and real output will both increase.
D. and real output will both decrease.
answer
B. will increase, but real output may increase, decrease, or remain unchanged.
question
7. If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect:
A. aggregate demand to decrease and aggregate supply to increase.
B. both aggregate demand and aggregate supply to decrease.
C. both aggregate demand and aggregate supply to increase.
D. aggregate demand to increase and aggregate supply to decrease.
A. aggregate demand to decrease and aggregate supply to increase.
B. both aggregate demand and aggregate supply to decrease.
C. both aggregate demand and aggregate supply to increase.
D. aggregate demand to increase and aggregate supply to decrease.
answer
A. aggregate demand to decrease and aggregate supply to increase.
question
8. An increase in input productivity will:
A. shift the aggregate supply curve leftward.
B. reduce the equilibrium price level, assuming downward flexible prices.
C. reduce the equilibrium real output.
D. reduce aggregate demand.
A. shift the aggregate supply curve leftward.
B. reduce the equilibrium price level, assuming downward flexible prices.
C. reduce the equilibrium real output.
D. reduce aggregate demand.
answer
B. reduce the equilibrium price level, assuming downward flexible prices.
question
9. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium:
A. output would necessarily rise.
B. output would necessarily fall.
C. price level would necessarily fall.
D. price level would necessarily rise.
A. output would necessarily rise.
B. output would necessarily fall.
C. price level would necessarily fall.
D. price level would necessarily rise.
answer
A. output would necessarily rise.
question
10. In which of the following sets of circumstances can we confidently expect inflation?
A. aggregate supply and aggregate demand both increase
B. aggregate supply and aggregate demand both decrease
C. aggregate supply decreases and aggregate demand increases
D. aggregate supply increases and aggregate demand decreases
A. aggregate supply and aggregate demand both increase
B. aggregate supply and aggregate demand both decrease
C. aggregate supply decreases and aggregate demand increases
D. aggregate supply increases and aggregate demand decreases
answer
C. aggregate supply decreases and aggregate demand increases
question
11. Fiscal policy is enacted through changes in:
A. Interest rates and the price level
B. The supply of money and foreign exchange
C. Unemployment and inflation
D. Taxation and government spending
A. Interest rates and the price level
B. The supply of money and foreign exchange
C. Unemployment and inflation
D. Taxation and government spending
answer
D. Taxation and government spending
question
12. The group that often initiates changes in fiscal policy is the:
A. Congressional Budget Office
B. Council of Economic Advisors
C. Joint Economic Committee
D. Federal Reserve Board
A. Congressional Budget Office
B. Council of Economic Advisors
C. Joint Economic Committee
D. Federal Reserve Board
answer
B. Council of Economic Advisors
question
13. If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):
A. Supply-side fiscal policy
B. Expansionary fiscal policy
C. Contractionary fiscal policy
D. Nondiscretionary fiscal policy
A. Supply-side fiscal policy
B. Expansionary fiscal policy
C. Contractionary fiscal policy
D. Nondiscretionary fiscal policy
answer
B. Expansionary fiscal policy
question
14. If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):
A. Supply-side fiscal policy
B. Expansionary fiscal policy
C. Contractionary fiscal policy
D. Nondiscretionary fiscal policy
A. Supply-side fiscal policy
B. Expansionary fiscal policy
C. Contractionary fiscal policy
D. Nondiscretionary fiscal policy
answer
C. Contractionary fiscal policy
question
15. The set of fiscal policies that would be most contractionary would be a(n):
A. Increase in government spending and taxes
B. Decrease in government spending and taxes
C. Increase in government spending and a decrease in taxes
D. Decrease in government spending and an increase in taxes
A. Increase in government spending and taxes
B. Decrease in government spending and taxes
C. Increase in government spending and a decrease in taxes
D. Decrease in government spending and an increase in taxes
answer
D. Decrease in government spending and an increase in taxes
question
16. The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. 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?
A. $6 billion
B. $8 billion
C. $10 billion
D. $16 billion
A. $6 billion
B. $8 billion
C. $10 billion
D. $16 billion
answer
C. $10 billion
question
17. In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:
A. $10 billion
B. $20 billion
C. $31.25 billion
D. $40.50 billion
A. $10 billion
B. $20 billion
C. $31.25 billion
D. $40.50 billion
answer
B. $20 billion
question
18. In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.9, then it could:
A. Decrease taxes by $6 billion
B. Decrease taxes by $12 billion
C. Increase government spending by $6 billion
D. Increase government spending by $12 billion
A. Decrease taxes by $6 billion
B. Decrease taxes by $12 billion
C. Increase government spending by $6 billion
D. Increase government spending by $12 billion
answer
C. Increase government spending by $6 billion
question
19. Which of the following fiscal policy changes would be the most contractionary?
A. A $40 billion increase in taxes
B. A $10 billion increase in taxes and a $30 billion cut in government spending
C. A $20 billion increase in taxes and a $20 billion cut in government spending
D. A $30 billion increase in taxes and a $10 billion cut in government spending
A. A $40 billion increase in taxes
B. A $10 billion increase in taxes and a $30 billion cut in government spending
C. A $20 billion increase in taxes and a $20 billion cut in government spending
D. A $30 billion increase in taxes and a $10 billion cut in government spending
answer
B. A $10 billion increase in taxes and a $30 billion cut in government spending
question
20. An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?
A. $6 billion
B. $9 billion
C. $12 billion
D. $16 billion
A. $6 billion
B. $9 billion
C. $12 billion
D. $16 billion
answer
C. $12 billion
question
21. Checkable deposits are:
A. Debts of commercial banks and savings institutions
B. Debts of the Federal government and government agencies
C. Assets of the Federal government and government agencies
D. Assets of commercial banks and savings institutions
A. Debts of commercial banks and savings institutions
B. Debts of the Federal government and government agencies
C. Assets of the Federal government and government agencies
D. Assets of commercial banks and savings institutions
answer
A. Debts of commercial banks and savings institutions
question
22. Currency and checkable deposits are:
A. Assets of the Federal Reserve Banks or of financial institutions
B. Redeemable for gold and silver from the Federal Reserve System
C. Of intrinsic value which determines the relative worth of money
D. The major components of money supply M1
A. Assets of the Federal Reserve Banks or of financial institutions
B. Redeemable for gold and silver from the Federal Reserve System
C. Of intrinsic value which determines the relative worth of money
D. The major components of money supply M1
answer
D. The major components of money supply M1
question
23. The paper currencies of the U.S. are also called:
A. Federal Reserve notes
B. Treasury Bills
C. U.S. Government notes
D. Treasury bonds
A. Federal Reserve notes
B. Treasury Bills
C. U.S. Government notes
D. Treasury bonds
answer
A. Federal Reserve notes
question
24. As of January 2010, slightly more than half of the money supply (M1) was in the form of:
A. Currency
B. Checkable deposits
C. Gold coins and bars
D. Savings deposits
A. Currency
B. Checkable deposits
C. Gold coins and bars
D. Savings deposits
answer
B. Checkable deposits
question
25. Which of the following institutions does not provide checkable-deposit services to the general public?
A. Commercial banks
B. Savings and loan associations
C. U.S. Treasury
D. Credit unions
A. Commercial banks
B. Savings and loan associations
C. U.S. Treasury
D. Credit unions
answer
C. U.S. Treasury
question
26. The M1 money supply is composed of:
A. All coins and paper money held by the general public and the banks
B. Bank deposits of households and business firms
C. Bank deposits and mutual funds
D. Checkable deposits and currency in circulation
A. All coins and paper money held by the general public and the banks
B. Bank deposits of households and business firms
C. Bank deposits and mutual funds
D. Checkable deposits and currency in circulation
answer
D. Checkable deposits and currency in circulation
question
27. Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange?
A. M1
B. M2
C. Neither M1 nor M2
D. M1 and M2
A. M1
B. M2
C. Neither M1 nor M2
D. M1 and M2
answer
A. M1
question
28. Money supply M1 does not include the currency held by:
A. Households in their wallets or purses
B. Business firms
C. Commercial banks
D. State and local governments
A. Households in their wallets or purses
B. Business firms
C. Commercial banks
D. State and local governments
answer
C. Commercial banks
question
1. A commercial bank has required reserves of $6,000 and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?
A. $1,200
B. $9,000
C. $30,000
D. $120,000
A. $1,200
B. $9,000
C. $30,000
D. $120,000
answer
C. $30,000
question
2. A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20 percent. What is the amount of required reserves?
A. $10,000
B. $50,000
C. $250,000
D. $1 million
A. $10,000
B. $50,000
C. $250,000
D. $1 million
answer
A. $10,000
question
3. A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:
A. $50,000
B. $100,000
C. $900,000
D. $1 million
A. $50,000
B. $100,000
C. $900,000
D. $1 million
answer
B. $100,000
question
4. A bank is in the position to make loans when required reserves:
A. Equal actual reserves
B. Equal excess reserves
C. Are less than actual reserves
D. Are greater than actual reserves
A. Equal actual reserves
B. Equal excess reserves
C. Are less than actual reserves
D. Are greater than actual reserves
answer
C. Are less than actual reserves
question
5. Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 balance before this deposit. The reserves of First Commerce Bank would:
A. Increase by $4,750,000
B. Increase by $4,600,000
C. Decrease by $4,600,000
D. Decrease by $4,450,000
A. Increase by $4,750,000
B. Increase by $4,600,000
C. Decrease by $4,600,000
D. Decrease by $4,450,000
answer
B. Increase by $4,600,000
question
6. An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by:
A. $11,000
B. $10,800
C. $9,600
D. $6,000
A. $11,000
B. $10,800
C. $9,600
D. $6,000
answer
B. $10,800
question
7. A bank's checkable deposits shrink from $40 million to $33 million. What happens to its required reserves if the reserve ratio is 3%?
A. They fall by about $1.2 million
B. They fall by about $1 million
C. They rise by about $1 million
D. They fall by about $0.2 million
A. They fall by about $1.2 million
B. They fall by about $1 million
C. They rise by about $1 million
D. They fall by about $0.2 million
answer
D. They fall by about $0.2 million
question
1. A consumer holds money to meet spending needs. This would be an example of the:
A. Use of money as a measure of value
B. Use of money as legal tender
C. Transactions demand for money
D. Asset demand for money
A. Use of money as a measure of value
B. Use of money as legal tender
C. Transactions demand for money
D. Asset demand for money
answer
C. Transactions demand for money
question
2. The transactions demand for money will shift to the:
A. Left when nominal GDP increases
B. Left when nominal GDP decreases
C. Right when nominal GDP decreases
D. Right when the interest rate increases
A. Left when nominal GDP increases
B. Left when nominal GDP decreases
C. Right when nominal GDP decreases
D. Right when the interest rate increases
answer
B. Left when nominal GDP decreases
question
3. The transactions demand for money is least likely to be a function of the:
A. Price level
B. Interest rate
C. Level of national income
D. Frequency of wage and salary payments
A. Price level
B. Interest rate
C. Level of national income
D. Frequency of wage and salary payments
answer
B. Interest rate
question
4. If the dollars held for transactions purposes are, on the average, spent four times a year for final goods and services, then the quantity of money people will wish to hold for transactions is equal to:
A. Four percent of nominal GDP
B. 25 percent of nominal GDP
C. Nominal GDP multiplied times 4
D. Nominal GDP divided by 25
A. Four percent of nominal GDP
B. 25 percent of nominal GDP
C. Nominal GDP multiplied times 4
D. Nominal GDP divided by 25
answer
B. 25 percent of nominal GDP
question
5. When nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, the quantity of money demanded for transactions purposes will be:
A. $200 billion
B. $400 billion
C. $800 billion
D. $3,200 billion
A. $200 billion
B. $400 billion
C. $800 billion
D. $3,200 billion
answer
A. $200 billion
question
6. If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that:
A. The asset demand for money will be $3,200 billion
B. The total demand for money will be $4,800 billion
C. On average, each dollar will be spent five times a year
D. The supply of money needs to be increased to meet the demand
A. The asset demand for money will be $3,200 billion
B. The total demand for money will be $4,800 billion
C. On average, each dollar will be spent five times a year
D. The supply of money needs to be increased to meet the demand
answer
C. On average, each dollar will be spent five times a year
question
7. A decrease in the interest rate will cause a(n):
A. Increase in the transactions demand for money
B. Decrease in the transactions demand for money
C. Decrease in the amount of money held as an asset
D. Increase in the amount of money held as an asset
A. Increase in the transactions demand for money
B. Decrease in the transactions demand for money
C. Decrease in the amount of money held as an asset
D. Increase in the amount of money held as an asset
answer
D. Increase in the amount of money held as an asset
question
8. Which of the following varies directly with the interest rate?
A. The opportunity cost of holding money
B. The transactions demand for money
C. The asset demand for money
D. The level of investment
A. The opportunity cost of holding money
B. The transactions demand for money
C. The asset demand for money
D. The level of investment
answer
A. The opportunity cost of holding money
question
9. A wealthy executive is holding money for a good time to invest in the stock market. This action would be an example of the:
A. Transactions demand for money
B. Asset demand for money
C. Creation of fiat money
D. Use of money as a medium of exchange
A. Transactions demand for money
B. Asset demand for money
C. Creation of fiat money
D. Use of money as a medium of exchange
answer
B. Asset demand for money
question
10. A few years ago, you bought a bond with no expiration and a fixed annual interest payment of $1000 at a price of $10,000. If the interest rate in the economy is now 12.5% a year and you want to sell the bond, the maximum price that you can get for it is:
A. $7,500
B. $8,000
C. $9,750
D. $12,500
A. $7,500
B. $8,000
C. $9,750
D. $12,500
answer
B. $8,000
question
11. A bond with no expiration date has a face value of $10,000 and pays a fixed 10 percent interest. If the market price of the bond rises to $11,000, the annual yield approximately equals:
A. 11 percent
B. 10 percent
C. 9 percent
D. 8 percent
A. 11 percent
B. 10 percent
C. 9 percent
D. 8 percent
answer
C. 9 percent
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