ECON 2301 Final Exam Test Bank

question

Which of the following will shift the production curve to the right?

answer

A technological advance that allows farmers to produce more output from given inputs.

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The economic perspective entails:

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A comparison of marginal benefits and marginal cost in decision making.

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"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity". This statement is:

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Positive and correct.

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An increase in money income:

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Shifts the consumer's budget line to the right.

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Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates:

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Opportunity costs.

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If all discrimination in the United States were eliminated, the economy would:

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Produce at some point closer to its production possibilities curve.

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Refer to the diagram. Which of the following is a normative statement? (Bread {20} vs. Tractors {4})

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Point C is superior to point B because it is important to enhance the future of society.

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Refer to the diagram. The combination of computers and bicycles shown by point G is: (Bicycles {14} vs. Computers {8})

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Unattainable given currently available resources and technology.

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Innovation lagged in the centrally planned economies because:

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Enterprises resisted innovation in fear that their production targets would be raised.

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Which of the following statements is true about risk management in market systems versus command systems?

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Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions, where in command systems government decision makers don't bear those costs.

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"Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits". This quotation best identifies the:

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Coordination problem under central planning.

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The market system's answer to the fundamental question "Who will get the goods and services?" Is essentially:

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"Those willing and able to pay for them".

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"Consumer sovereignty" means that:

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Buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

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The invisible hand refers to the:

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Notion that, under competition, decisions motivated by self-interest promote the social interest.

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The presence of market failures implies that:

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There is a an active role for government, even in a market system.

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Economic profits and losses:

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Are essential to the reallocation of resources from less desired to more desired goods.

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The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

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"Through the profit potential that encourages development of new technology".

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Specialization in production is important primarily because it:

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Results in greater total output.

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Suppose that an individual sees a tremendous opportunity to produce and sell a new product but dismissed the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the:

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Incentive problem under communist central planning.

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Risk management in command economies:

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Tends to be done poorly because decision makers are insulated from the risk of making a poor decision.

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Property rights are important because they:

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Encourage cooperation by improving the chances of mutually agreeable transactions.

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If consumer desire for product X increases, all of the following will occur except:

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A decrease in the quantity of resources employed in industry X.

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A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

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Firms focus attention on prudent risk management, as it is profitable to manage risk.

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Firms are motivated to minimize production costs because:

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Competitive pressures in the market will drive out higher-cost producers.

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An effective price floor will:

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Result in a product surplus.

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College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are:

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Inferior goods.

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If consumer incomes increase, the demand for product X:

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May shift either to the left or right.

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If an economy produces its most wanted goods but uses outdated production methods, it is:

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Not achieving productive efficiency.

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A leftward shift of a product supply curve might be caused by:

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Some firms leaving an industry.

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The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

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Direct; inverse.

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An effective price floor on wheat will:

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Result in a surplus of wheat.

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The income and substitution effects account for:

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The downward-sloping demand curve.

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Increasing marginal cost of production explains:

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Why the supply curve is upsloping.

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Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: (Price x Quantity)

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An increase in demand has been more than offset by an increase in supply.

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A decrease in the price of digital cameras will:

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Shift the demand curve for memory cards to the right.

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The upward slope of the supply curve reflects the:

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Law of supply.

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A product market is in equilibrium:

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Where the demand and supply curves intersect.

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The equilibrium price and quantity in a market usually produce allocative efficiency because:

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Marginal benefit and marginal cost are equal at that point.

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Which of the following will cause the demand curve for product A to shift to the left?

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An increase in money income if A is an inferior good.

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Suppose that in 2007, Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements:

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Suggest that the demand for Mustangs increased between 2007 and 2008.

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If an economy wants to increase its current level of investment, it must:

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Sacrifice current consumption.

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The figure depicts a situation where: (Price x Quantity; P1/P2/P3 & D1/D2/D3)

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Prices are flexible, but output is constant.

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Real GDP is preferred to nominal GDP as a measure of economic performance because:

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Nominal GDP uses current prices and thus may over- or understate true changes in output.

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Which of the following is an example of a supply shock?

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A dramatic increase in energy prices increases production costs for firms in the economy.

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The figure depicts a situation where: (Price x Quantity; Q1/Q2/Q3 & D1/D2/D3)

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...

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In situations of sticky prices and negative demand shocks, we would expect firms to:

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Build up inventories before reducing production.

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When demand shocks lead to recessions, it is mainly due to:

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Price inflexibility.

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Refer to the figure. Assuming this market is representative of the economy as a whole, this economy:

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Is capable of always producing at its optimal capacity.

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If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

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Nominal GDP would rise, but real GDP would be unchanged.

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Which of the following is used to measure directly the average standard of living across countries?

answer

GDP per person.

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Prices tend to be sticky because:

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Firms are worried that frequent price changes would annoy consumers.

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Why are economists concerned about inflation?

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Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

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Refer to the figures. As an economy moves from the very short run to the longer run, we would expect: (Figure A = P3/P2/P1 & D3/D2/D1; Figure B = Q1/Q2/Q3 & D3/D2/D1)

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The representation of the economy to move from Figure B to Figure A.

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Why are high rates of unemployment of concern to economists?

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There is lost output that could have been produced if the unemployed had been working.

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Supply shocks:

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Occur when sellers face unexpected changes in the availability and/or prices of key inputs.

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Refer to the figures. Which figure(s) represent(s) a situation where prices are flexible? (Figure A: P3/P2/P1 & D3/D2/D1; Figure B: Q1/Q2/Q3 & D3/D2/D1)

answer

A only.

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Which of the following results from firms holding inventories?

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Firms can maintain production levels and adjust inventories in response to demand shocks.

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Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

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Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.

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Which of the following best explains why prices tend to be flexible even when demand changes?

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Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

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Which of the following is an example of a demand shock?

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Consumers become worried about job loss and buy fewer goods and services than expected.

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Tom Atoe grows fruits and vegetables for home consumption. This activity is:

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Productive but is excluded from GDP because no market transaction occurs.

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If real disposable income fell during a particular year, we can conclude that:

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None of these necessarily occurred.

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Which of the following is a final good or service?

answer

A haircut purchased by a father for his 12 year-old son.

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Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:

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$210 billion.

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If there are no statistical discrepancies, NDP (Net Domestic Product) is:

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NI minus net foreign factor income.

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Which of the following transactions would be included in GDP?

answer

Peter buys a newly constructed house.

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Refer to the data. In determining real GDP, the nominal GDP for: (Table: Year 1 [3 output units + $3 per unit], Year 2 [4 output units + $4 per unit], Year 3 [6 output units + $5 per unit], Year 4 [7 output units + $7 per unit], Year 5 [8 output units + $8 per unit])

answer

Years 1 and 2 must be inflated

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Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is:

answer

$190 billion.

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If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock:

answer

Increased by $65 billion.

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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 $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is:

answer

$1,200.

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Real GDP measures:

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Current output at base year prices.

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Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately:

answer

44 percent.

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Refer to the data. The nominal GDP for year 3 is: (Table: Year 1 [20 output units + $4 per unit], Year 2 [25 output units + $4 per unit], Year 3 [30 output units + $6 per unit])

answer

125% higher than nominal GDP for year 1.

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Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is:

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$200,000.

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In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because:

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The price level may change over time.

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If intermediate goods and services were included in GDP:

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The GDP would be overstated.

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Suppose that an economy's labor productivity and total worker-hours each grew by 3% between year 1 and year 2. We could conclude that this economy's:

answer

Production possibilities curve shifted outward.

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At an annual growth rate of 7 percent, real GDP will double in about:

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10 years.

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Refer to the graph. Growth of production capacity is shown by the: (Capital Goods [C/A] vs. Consumer Goods [B/D])

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shift from AB to CD.

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Which of the following best measures improvements in the standard of living of a nation?

answer

Growth of real GDP per capita.

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Which of the following statements is most accurate about modern economic growth?

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Modern economic growth is characterized by sustained and ongoing increases in living standards.

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For comparing changes in potential military strength and political preeminence, the most meaningful measure of economic growth would be changes in:

answer

Total real output.

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If the growth trend of labor productivity is 3% per year, the number of years that it will take for the standard of living to double will be about:

answer

23 years.

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Which of the following would not be expected to increase labor productivity?

answer

An increase in the size of the labor force.

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Refer to the diagram. The most likely cause of a shift from AB to CD would be a(n): (Capital Goods = CA; Consumer Goods = BD)

answer

Increase in productivity.

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Use the list below to answer the following question:

1. Improvements in technology.
2. Increases in the supply (stock) of capital goods.
3. Purchases of expanding output.
4. Obtaining the optimal combination of goods, each at least-cost production.
5. Increases in the quantity and quality of natural resources.
6. Increases in the quantity and quality of human resources.

Refer to the list. As distinct from the demand and efficiency factors of economic growth, the supply factors of economic growth are:

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1, 2, 5, and 6 only.

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Strong property rights are important for modern economic growth because:

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People are more likely to invest if they don't fear that others can take their returns on investment without compensation.

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The largest contributor to increases in the productivity of American labor is:

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Technological advance.

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For a nation's real GDP per capita to rise during a year:

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Real GDP must increase more rapidly than population.

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If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately:

answer

14 years.

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Free trade:

answer

Encourages growth by promoting the rapid spread of new inventions and innovations.

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If the number of worker-hours in an economy is 100 and its labor productivity is $5 of output per worker-hour, the economy's real GDP:

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Is $500.

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Which of the following would most likely move the economy into a recession in the short term?

answer

The central bank printing less money than was anticipated.

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If both the real interest rate and the nominal interest rate are 3 percent, then the:

answer

Inflation premium is zero.

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What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

answer

Prices are sticky in the short run.

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Answer the question on the basis of the following information about a hypothetical economy:

• Full-Time Employed = 80
• Part-Tine Employed = 25
• Unemployed = 15
• Discouraged Workers = 5
• Members of Underground Economy = 6
• Consumer Price Index = 110

Refer to the given information. If the members of the underground economy are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by about:

answer

5 percentage points.

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Answer the question on the basis of the following information about a hypothetical economy of Scoob. All figure are in millions.

• Unemployed = 7
• Total Population = 145
• Employed = 95
• Discouraged Workers = 3

Refer to the given information. If the natural rate of unemployment in Scoob is 5 percent, then:

answer

Cyclical unemployment is about 2 percent.

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The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

answer

1.6 percent.

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Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

answer

6 percent.

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If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

answer

Deflation of 3.33 percent.

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Who is least likely to be hurt by unanticipated inflation?

answer

An owner of a small business.

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In which of the following cases would real income rise?

answer

Nominal income rises by 2 percent, and the price level remains unchanged.

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Unanticipated inflation:

answer

Reduces the real burden of the public debt to the federal government.

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The aggregate cost of unemployment can be measured by the:

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Amount by which potential GDP exceeds actual GDP.

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Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

answer

Rise by about 15 percent.

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Suppose that leaders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

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7 percent.

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Under which of the following circumstances would we observe the greatest increase in real income?

answer

Nominal income falls by 2 percent, and the price level falls by 10 percent.

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Unlike demand-pull inflation, cost-push inflation:

answer

Is self limiting.

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Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is:

answer

8 percent.

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If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by:

answer

$400 billion.

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An upward shift of the saving schedule suggests:

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That the APC has decreased and the APS has increased at each GDP level.

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At the point where the consumption schedule intersects the 45-degree line:

answer

The APC is 1.00.

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Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the: [Consumption x Disposable Income]

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MPC is greater in A than in B.

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The most important determinant of consumption and saving is the:

answer

Level of income.

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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 $2,300. The expected rate of return on this machine is:

answer

15 percent.

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If 100 percent of any change in income is spent, the multiplier will be:

answer

Infinitely large.

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Refer to the figure. That consumption schedule indicates that: [Consumption x Income; 45°]

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Up to a point consumption exceeds income but then falls below income.

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The greater is the marginal propensity to consume, the:

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Smaller is the marginal propensity to save.

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Which of the following will not cause the consumption schedule to shift?

answer

A change in consumer incomes.

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One can determine the amount of any level of total income that is consumed by:

answer

Multiplying total income by the APC.

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Refer to the given diagram. Suppose the economy's consumption schedule shifts from C1 to C2 as shown in the diagram. We can say that its: [Consumption x Disposable Income]

answer

MPC and APC at each income level have both increased.

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The multiplier effect indicates that:

answer

A change in aggregate expenditures will change aggregate income by a larger amount.

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Refer to the given diagram. Suppose the economy's saving schedule shifts from S1 to S2 as shown in the given diagram. We can say that its: [Saving x Disposable Income]

answer

MPS has increased.

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If the economy is in equilibrium at $400 billion of GDP and full-employment is $500 billion:

answer

GDP will remain at $400 billion aggregate expenditures change.

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Which aggregate expenditure schedule AE in the diagram for a private closed economy implies the largest MPC, assuming investment is the same at each level of income? [Consumption & Investment x Real GDP; 45°]

answer

AE4.

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In an aggregate expenditures diagram, equal increases in government spending and in lump-sum taxes will:

answer

Shift the aggregate expenditures line upward.

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It is true that:

answer

Equal increases in government spending and taxes increase the equilibrium GDP.

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If the marginal propensity in an economy is .8, net exports are zero, and government spending is $33 billion at each level of real GDP, the slope of the economy's aggregate expenditures schedule will be:

answer

.8.

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Refer to the diagram for a private closed economy. Gross investment: [C + Ig x GDP; 45°]

answer

Is independent of the level of GDP.

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Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero. If at the equilibrium income the public sector's budget shows a surplus:

answer

Planned investment must exceed saving.

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All else equal, a large decline in the real interest rate will shift the:

answer

Investment schedule upward.

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Refer to the diagram for a private closed economy. At the equilibrium level of GDP, the APC and APS: [C + Ig x GDP; 45°]

answer

Are 5/6 and 1/6 respectively.

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At equilibrium real GDP in a private closed economy:

answer

Aggregate expenditures and real GDP are equal.

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Refer to the diagrams. Other things equal, curve B will shift upward when: [2 Graphs; #1 = \>A; #2 —>B]

answer

Curve A shifts to the right.

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An upward shift of the aggregate expenditures schedule might be caused by:

answer

A decrease in imports, with no change in exports.

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If the dollar appreciates relative to foreign currencies, we would expect:

answer

A country's net exports to fall.

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At the equilibrium GDP for a private open economy:

answer

Net exports may be either positive or negative.

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If the marginal propensity to consume is .9 in a private closed economy, a $20 billion decline in investment spending will decrease:

answer

Saving by $20.

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An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because:

answer

Some of the tax increase will be paid out of income that would otherwise have been saved.

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Imports have the same effect on the current size of GDP as:

answer

Saving.

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Which of the following would reduce GDP by the greatest amount?

answer

A $20 billion decrease in government spending.

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The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

answer

Increase U.S. imports and decrease U.S. exports.

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Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:

answer

Supply curve will shift rightward.

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An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to:

answer

A rightward shift of the aggregate demand curve in the AD-AS model.

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Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand?

answer

$50 billion.

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Use the following diagrams for the U.S. economy to answer the following question. Which of the diagrams best portrays the effects of declines in the prices of imported resources? [4 Graphs; Price Level x Real Domestic Output]

answer

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The shape of the immediate-short-run aggregate supply curve implies that:

answer

Total output depends on the volume of spending.

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If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

answer

The price level is inflexible downward and a recession has occurred.

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Use the following diagrams for the U.S. economy to answer the following question. Which of the diagrams best portrays the effects of an increase in resource productivity? [4 Graphs; Price Level x Real Domestic Output]

answer

question

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

answer

Leftward by $40 billion at each price level.

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Other things equal, an improvement in productivity will:

answer

Shift the aggregate supply curve to the right.

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In the diagram, a shift from AS3 to AS2 might be caused by an increase in: [Price Level x Real Domestic Output, GDP]

answer

Productivity.

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An increase in investment spending caused by higher expected rates of return will:

answer

Shift the aggregate expenditures curve upward and the aggregate demand curve to the right.

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Which of the following is incorrect?

answer

When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.

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Which of the following would most likely shift the aggregate demand curve to the right?

answer

An increase in stock prices that increases consumer wealth.

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Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the: [3 Graphs; Price x Quantity]

answer

Move from point a to point b in panel (B).

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When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

answer

Wage contracts.

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When deriving the aggregate demand (AD) curve from the aggregate expenditure model, an increase in U.S. product prices would cause an increase in:

answer

Interest rates and lower consumption expenditures.

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Refer to the diagram. Assume that G and T1 are the relevant curves, the economy is currently at B, and the full-employment GDP is A. This economy has a(n): [Government Purchases and Tax Revenues x GDP]

answer

Actual budget surplus.

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An appropriate fiscal policy for a severe recession is:

answer

A decrease in tax rates.

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Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy: [T, G ($) x GDP]

answer

Tax revenues vary directly with GDP, but government spending is independent of GDP.

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Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400: [T, G ($) x GDP]

answer

The budget will be balanced.

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In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

answer

Shift the AD curve to the left.

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Which one of the following might offset a crowding-out effect of financing a large public debt?

answer

An increase in public investment.

question

Refer to the diagram. Assume G and T1 are the relevant curves, the economy is currently at A, and the full-employment GDP is B. This economy has a(n): [Government Purchases and Tax Revenues x GDP]

answer

Cyclically adjusted budget surplus.

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Discretionary fiscal policy will stabilize the economy most when:

answer

Deficits are incurred during recessions and surpluses during inflations.

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Refer to the diagram, in which Qf is the full-employment output. The shift if the aggregate demand curve from AD3 to AD2 is consistent with: [Price Level x Real GDP]

answer

A contractionary fiscal policy.

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Which of the following best describes the built-in stabilizers as they function in the United States?

answer

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

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The actual budget deficit of the federal government in 2009 was about $1.4 trillion. On the basis of this information, it:

answer

Cannot be determined whether the government engaged in expansionary or contractionary fiscal policy in 2009.

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If government increased the size of its cyclically adjusted surplus, we can:

answer

Assume that government is having a contractionary effect on the economy.

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(Advanced analysis) Answer the question on the basis of the following before-tax consumption schedule for an economy:
GDP / Consumption (C)
$100 : $140
$200 : $200
$300 : $260
$400 : $320
$500 : $380
Refer to the data. A 10 percent proportional tax on income would:

answer

Reduce the size of the multiplier and make the economy more stable.

question

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:

answer

Decreasing taxes by $25 billion.

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Countercyclical discretionary fiscal policy calls for:

answer

Deficits during recessions and surpluses during periods of demand-pull inflation.

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Stock market price quotations best exemplify money serving as a:

answer

Unit of account.

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Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the:

answer

M1 money supply will not change.

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Answer the question on the basis of the following table:
Year / Price Level / Value of Dollar
1 : 1.00 : $1.00
2 : 1.25
3 : 0.80
4 : 0.50
Refer to the table. The value of the dollar in year 2 is:

answer

$0.80.

question

Collateralized default swaps:

answer

Insured holders of loan-backed securities in case the underlying loans were not repaid.

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During periods of rapid inflation, money may cease to work as a medium of exchange:

answer

Because people and businesses will not want to accept it in transactions.

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A checking account entry is money because it:

answer

Performs the functions of money.

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What is the primary function of the Term Asset-Backed Securities Loan Facility?

answer

Provide funding support for collateralized securities such as student, auto, and credit card loans.

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Other things equal, an excessive increase in the money supply will:

answer

Decrease the purchasing power of each dollar.

question

Checkable deposits are classified as money because:

answer

They can be readily used in purchasing goods and paying debts.

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Which role of the Federal Reserve was expanded directly as a result of the PDCF and TSLF?

answer

Lender of last resort.

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A $70 price tag on a sweater in a department store window is an example of money functioning as a:

answer

Unit of account.

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When economists say that money serves as a unit of account, they mean that it is:

answer

A monetary unit for measuring and comparing the relative values of goods.

question

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the:

answer

M1 money supply will decline and the M2 money supply will remain unchanged.

question

To say money is socially defined means that:

answer

Whatever performs the functions of money extremely well is considered to be money.

question

In defining money as M1, economists exclude time deposits because:

answer

They are not directly or immediately a medium of exchange.

question

If you are estimating your total expenses for school next semester, you are using money primarily as:

answer

Unit of account.

question

If you place a part of your summer earnings in a savings account, you are using money primarily as a:

answer

Store of value.

question

The money supply is backed:

answer

By the government's ability to control the supply of money and therefore to keep its value relatively stable.

question

A bank that has liabilities of $150 billion and a net worth of $20 billion must have:

answer

Assets of $170 billion.

question

Commercial banks monetize claims when they:

answer

Make loans to the public.

question

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of:

answer

$3,750.

question

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction:

answer

The supply of money is increased by $5,000.

question

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

answer

$450.

question

The primary purpose of the legal reserve requirement is to:

answer

Provide a means by which the monetary authorities can influence the lending ability of commercial banks.

question

A frictional reserve banking system:

answer

Is susceptible to bank "panics" or "runs".

question

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will:

answer

Decrease.

question

If the monetary authorities want to reduce the monetary multiplier, they should:

answer

Raise the required reserve ratio.

1 of 200

question

Which of the following will shift the production curve to the right?

answer

A technological advance that allows farmers to produce more output from given inputs.

question

The economic perspective entails:

answer

A comparison of marginal benefits and marginal cost in decision making.

question

"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity". This statement is:

answer

Positive and correct.

question

An increase in money income:

answer

Shifts the consumer's budget line to the right.

question

answer

Opportunity costs.

question

If all discrimination in the United States were eliminated, the economy would:

answer

Produce at some point closer to its production possibilities curve.

question

Refer to the diagram. Which of the following is a normative statement? (Bread {20} vs. Tractors {4})

answer

Point C is superior to point B because it is important to enhance the future of society.

question

Refer to the diagram. The combination of computers and bicycles shown by point G is: (Bicycles {14} vs. Computers {8})

answer

Unattainable given currently available resources and technology.

question

Innovation lagged in the centrally planned economies because:

answer

Enterprises resisted innovation in fear that their production targets would be raised.

question

Which of the following statements is true about risk management in market systems versus command systems?

answer

Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions, where in command systems government decision makers don't bear those costs.

question

answer

Coordination problem under central planning.

question

The market system's answer to the fundamental question "Who will get the goods and services?" Is essentially:

answer

"Those willing and able to pay for them".

question

"Consumer sovereignty" means that:

answer

Buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers.

question

The invisible hand refers to the:

answer

Notion that, under competition, decisions motivated by self-interest promote the social interest.

question

The presence of market failures implies that:

answer

There is a an active role for government, even in a market system.

question

Economic profits and losses:

answer

Are essential to the reallocation of resources from less desired to more desired goods.

question

The market system's answer to the fundamental question "How will the system promote progress?" is essentially:

answer

"Through the profit potential that encourages development of new technology".

question

Specialization in production is important primarily because it:

answer

Results in greater total output.

question

answer

Incentive problem under communist central planning.

question

Risk management in command economies:

answer

Tends to be done poorly because decision makers are insulated from the risk of making a poor decision.

question

Property rights are important because they:

answer

Encourage cooperation by improving the chances of mutually agreeable transactions.

question

If consumer desire for product X increases, all of the following will occur except:

answer

A decrease in the quantity of resources employed in industry X.

question

A market system tends to restrict business risk to owners and investors. This results in which of the following benefits?

answer

Firms focus attention on prudent risk management, as it is profitable to manage risk.

question

Firms are motivated to minimize production costs because:

answer

Competitive pressures in the market will drive out higher-cost producers.

question

An effective price floor will:

answer

Result in a product surplus.

question

answer

Inferior goods.

question

If consumer incomes increase, the demand for product X:

answer

May shift either to the left or right.

question

If an economy produces its most wanted goods but uses outdated production methods, it is:

answer

Not achieving productive efficiency.

question

A leftward shift of a product supply curve might be caused by:

answer

Some firms leaving an industry.

question

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____.

answer

Direct; inverse.

question

An effective price floor on wheat will:

answer

Result in a surplus of wheat.

question

The income and substitution effects account for:

answer

The downward-sloping demand curve.

question

Increasing marginal cost of production explains:

answer

Why the supply curve is upsloping.

question

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: (Price x Quantity)

answer

An increase in demand has been more than offset by an increase in supply.

question

A decrease in the price of digital cameras will:

answer

Shift the demand curve for memory cards to the right.

question

The upward slope of the supply curve reflects the:

answer

Law of supply.

question

A product market is in equilibrium:

answer

Where the demand and supply curves intersect.

question

The equilibrium price and quantity in a market usually produce allocative efficiency because:

answer

Marginal benefit and marginal cost are equal at that point.

question

Which of the following will cause the demand curve for product A to shift to the left?

answer

An increase in money income if A is an inferior good.

question

Suppose that in 2007, Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements:

answer

Suggest that the demand for Mustangs increased between 2007 and 2008.

question

If an economy wants to increase its current level of investment, it must:

answer

Sacrifice current consumption.

question

The figure depicts a situation where: (Price x Quantity; P1/P2/P3 & D1/D2/D3)

answer

Prices are flexible, but output is constant.

question

Real GDP is preferred to nominal GDP as a measure of economic performance because:

answer

Nominal GDP uses current prices and thus may over- or understate true changes in output.

question

Which of the following is an example of a supply shock?

answer

A dramatic increase in energy prices increases production costs for firms in the economy.

question

The figure depicts a situation where: (Price x Quantity; Q1/Q2/Q3 & D1/D2/D3)

answer

...

question

In situations of sticky prices and negative demand shocks, we would expect firms to:

answer

Build up inventories before reducing production.

question

When demand shocks lead to recessions, it is mainly due to:

answer

Price inflexibility.

question

Refer to the figure. Assuming this market is representative of the economy as a whole, this economy:

answer

Is capable of always producing at its optimal capacity.

question

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

answer

Nominal GDP would rise, but real GDP would be unchanged.

question

Which of the following is used to measure directly the average standard of living across countries?

answer

GDP per person.

question

Prices tend to be sticky because:

answer

Firms are worried that frequent price changes would annoy consumers.

question

Why are economists concerned about inflation?

answer

Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

question

Refer to the figures. As an economy moves from the very short run to the longer run, we would expect: (Figure A = P3/P2/P1 & D3/D2/D1; Figure B = Q1/Q2/Q3 & D3/D2/D1)

answer

The representation of the economy to move from Figure B to Figure A.

question

Why are high rates of unemployment of concern to economists?

answer

There is lost output that could have been produced if the unemployed had been working.

question

Supply shocks:

answer

Occur when sellers face unexpected changes in the availability and/or prices of key inputs.

question

Refer to the figures. Which figure(s) represent(s) a situation where prices are flexible? (Figure A: P3/P2/P1 & D3/D2/D1; Figure B: Q1/Q2/Q3 & D3/D2/D1)

answer

A only.

question

Which of the following results from firms holding inventories?

answer

Firms can maintain production levels and adjust inventories in response to demand shocks.

question

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

answer

Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.

question

Which of the following best explains why prices tend to be flexible even when demand changes?

answer

Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

question

Which of the following is an example of a demand shock?

answer

Consumers become worried about job loss and buy fewer goods and services than expected.

question

Tom Atoe grows fruits and vegetables for home consumption. This activity is:

answer

Productive but is excluded from GDP because no market transaction occurs.

question

If real disposable income fell during a particular year, we can conclude that:

answer

None of these necessarily occurred.

question

Which of the following is a final good or service?

answer

A haircut purchased by a father for his 12 year-old son.

question

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:

answer

$210 billion.

question

If there are no statistical discrepancies, NDP (Net Domestic Product) is:

answer

NI minus net foreign factor income.

question

Which of the following transactions would be included in GDP?

answer

Peter buys a newly constructed house.

question

answer

Years 1 and 2 must be inflated

question

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is:

answer

$190 billion.

question

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock:

answer

Increased by $65 billion.

question

answer

$1,200.

question

Real GDP measures:

answer

Current output at base year prices.

question

Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately:

answer

44 percent.

question

Refer to the data. The nominal GDP for year 3 is: (Table: Year 1 [20 output units + $4 per unit], Year 2 [25 output units + $4 per unit], Year 3 [30 output units + $6 per unit])

answer

125% higher than nominal GDP for year 1.

question

Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is:

answer

$200,000.

question

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because:

answer

The price level may change over time.

question

If intermediate goods and services were included in GDP:

answer

The GDP would be overstated.

question

Suppose that an economy's labor productivity and total worker-hours each grew by 3% between year 1 and year 2. We could conclude that this economy's:

answer

Production possibilities curve shifted outward.

question

At an annual growth rate of 7 percent, real GDP will double in about:

answer

10 years.

question

Refer to the graph. Growth of production capacity is shown by the: (Capital Goods [C/A] vs. Consumer Goods [B/D])

answer

shift from AB to CD.

question

Which of the following best measures improvements in the standard of living of a nation?

answer

Growth of real GDP per capita.

question

Which of the following statements is most accurate about modern economic growth?

answer

Modern economic growth is characterized by sustained and ongoing increases in living standards.

question

For comparing changes in potential military strength and political preeminence, the most meaningful measure of economic growth would be changes in:

answer

Total real output.

question

If the growth trend of labor productivity is 3% per year, the number of years that it will take for the standard of living to double will be about:

answer

23 years.

question

Which of the following would not be expected to increase labor productivity?

answer

An increase in the size of the labor force.

question

Refer to the diagram. The most likely cause of a shift from AB to CD would be a(n): (Capital Goods = CA; Consumer Goods = BD)

answer

Increase in productivity.

question

answer

1, 2, 5, and 6 only.

question

Strong property rights are important for modern economic growth because:

answer

People are more likely to invest if they don't fear that others can take their returns on investment without compensation.

question

The largest contributor to increases in the productivity of American labor is:

answer

Technological advance.

question

For a nation's real GDP per capita to rise during a year:

answer

Real GDP must increase more rapidly than population.

question

If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately:

answer

14 years.

question

Free trade:

answer

Encourages growth by promoting the rapid spread of new inventions and innovations.

question

If the number of worker-hours in an economy is 100 and its labor productivity is $5 of output per worker-hour, the economy's real GDP:

answer

Is $500.

question

Which of the following would most likely move the economy into a recession in the short term?

answer

The central bank printing less money than was anticipated.

question

If both the real interest rate and the nominal interest rate are 3 percent, then the:

answer

Inflation premium is zero.

question

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

answer

Prices are sticky in the short run.

question

answer

5 percentage points.

question

answer

Cyclical unemployment is about 2 percent.

question

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

answer

1.6 percent.

question

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

answer

6 percent.

question

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

answer

Deflation of 3.33 percent.

question

Who is least likely to be hurt by unanticipated inflation?

answer

An owner of a small business.

question

In which of the following cases would real income rise?

answer

Nominal income rises by 2 percent, and the price level remains unchanged.

question

Unanticipated inflation:

answer

Reduces the real burden of the public debt to the federal government.

question

The aggregate cost of unemployment can be measured by the:

answer

Amount by which potential GDP exceeds actual GDP.

question

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

answer

Rise by about 15 percent.

question

answer

7 percent.

question

Under which of the following circumstances would we observe the greatest increase in real income?

answer

Nominal income falls by 2 percent, and the price level falls by 10 percent.

question

Unlike demand-pull inflation, cost-push inflation:

answer

Is self limiting.

question

answer

8 percent.

question

answer

$400 billion.

question

An upward shift of the saving schedule suggests:

answer

That the APC has decreased and the APS has increased at each GDP level.

question

At the point where the consumption schedule intersects the 45-degree line:

answer

The APC is 1.00.

question

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the: [Consumption x Disposable Income]

answer

MPC is greater in A than in B.

question

The most important determinant of consumption and saving is the:

answer

Level of income.

question

answer

15 percent.

question

If 100 percent of any change in income is spent, the multiplier will be:

answer

Infinitely large.

question

Refer to the figure. That consumption schedule indicates that: [Consumption x Income; 45°]

answer

Up to a point consumption exceeds income but then falls below income.

question

The greater is the marginal propensity to consume, the:

answer

Smaller is the marginal propensity to save.

question

Which of the following will not cause the consumption schedule to shift?

answer

A change in consumer incomes.

question

One can determine the amount of any level of total income that is consumed by:

answer

Multiplying total income by the APC.

question

Refer to the given diagram. Suppose the economy's consumption schedule shifts from C1 to C2 as shown in the diagram. We can say that its: [Consumption x Disposable Income]

answer

MPC and APC at each income level have both increased.

question

The multiplier effect indicates that:

answer

A change in aggregate expenditures will change aggregate income by a larger amount.

question

Refer to the given diagram. Suppose the economy's saving schedule shifts from S1 to S2 as shown in the given diagram. We can say that its: [Saving x Disposable Income]

answer

MPS has increased.

question

If the economy is in equilibrium at $400 billion of GDP and full-employment is $500 billion:

answer

GDP will remain at $400 billion aggregate expenditures change.

question

answer

AE4.

question

In an aggregate expenditures diagram, equal increases in government spending and in lump-sum taxes will:

answer

Shift the aggregate expenditures line upward.

question

It is true that:

answer

Equal increases in government spending and taxes increase the equilibrium GDP.

question

answer

.8.

question

Refer to the diagram for a private closed economy. Gross investment: [C + Ig x GDP; 45°]

answer

Is independent of the level of GDP.

question

Suppose that a mixed open economy is producing at its equilibrium income and that net exports are zero. If at the equilibrium income the public sector's budget shows a surplus:

answer

Planned investment must exceed saving.

question

All else equal, a large decline in the real interest rate will shift the:

answer

Investment schedule upward.

question

Refer to the diagram for a private closed economy. At the equilibrium level of GDP, the APC and APS: [C + Ig x GDP; 45°]

answer

Are 5/6 and 1/6 respectively.

question

At equilibrium real GDP in a private closed economy:

answer

Aggregate expenditures and real GDP are equal.

question

Refer to the diagrams. Other things equal, curve B will shift upward when: [2 Graphs; #1 = \>A; #2 —>B]

answer

Curve A shifts to the right.

question

An upward shift of the aggregate expenditures schedule might be caused by:

answer

A decrease in imports, with no change in exports.

question

If the dollar appreciates relative to foreign currencies, we would expect:

answer

A country's net exports to fall.

question

At the equilibrium GDP for a private open economy:

answer

Net exports may be either positive or negative.

question

If the marginal propensity to consume is .9 in a private closed economy, a $20 billion decline in investment spending will decrease:

answer

Saving by $20.

question

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because:

answer

Some of the tax increase will be paid out of income that would otherwise have been saved.

question

Imports have the same effect on the current size of GDP as:

answer

Saving.

question

Which of the following would reduce GDP by the greatest amount?

answer

A $20 billion decrease in government spending.

question

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

answer

Increase U.S. imports and decrease U.S. exports.

question

Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:

answer

Supply curve will shift rightward.

question

An increase in aggregate expenditures resulting from some factor other than a change in the price level is equivalent to:

answer

A rightward shift of the aggregate demand curve in the AD-AS model.

question

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand?

answer

$50 billion.

question

answer

question

The shape of the immediate-short-run aggregate supply curve implies that:

answer

Total output depends on the volume of spending.

question

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

answer

The price level is inflexible downward and a recession has occurred.

question

answer

question

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

answer

Leftward by $40 billion at each price level.

question

Other things equal, an improvement in productivity will:

answer

Shift the aggregate supply curve to the right.

question

In the diagram, a shift from AS3 to AS2 might be caused by an increase in: [Price Level x Real Domestic Output, GDP]

answer

Productivity.

question

An increase in investment spending caused by higher expected rates of return will:

answer

Shift the aggregate expenditures curve upward and the aggregate demand curve to the right.

question

Which of the following is incorrect?

answer

When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending.

question

Which of the following would most likely shift the aggregate demand curve to the right?

answer

An increase in stock prices that increases consumer wealth.

question

answer

Move from point a to point b in panel (B).

question

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

answer

Wage contracts.

question

When deriving the aggregate demand (AD) curve from the aggregate expenditure model, an increase in U.S. product prices would cause an increase in:

answer

Interest rates and lower consumption expenditures.

question

answer

Actual budget surplus.

question

An appropriate fiscal policy for a severe recession is:

answer

A decrease in tax rates.

question

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. In this economy: [T, G ($) x GDP]

answer

Tax revenues vary directly with GDP, but government spending is independent of GDP.

question

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400: [T, G ($) x GDP]

answer

The budget will be balanced.

question

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

answer

Shift the AD curve to the left.

question

Which one of the following might offset a crowding-out effect of financing a large public debt?

answer

An increase in public investment.

question

Refer to the diagram. Assume G and T1 are the relevant curves, the economy is currently at A, and the full-employment GDP is B. This economy has a(n): [Government Purchases and Tax Revenues x GDP]

answer

Cyclically adjusted budget surplus.

question

Discretionary fiscal policy will stabilize the economy most when:

answer

Deficits are incurred during recessions and surpluses during inflations.

question

Refer to the diagram, in which Qf is the full-employment output. The shift if the aggregate demand curve from AD3 to AD2 is consistent with: [Price Level x Real GDP]

answer

A contractionary fiscal policy.

question

Which of the following best describes the built-in stabilizers as they function in the United States?

answer

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

question

The actual budget deficit of the federal government in 2009 was about $1.4 trillion. On the basis of this information, it:

answer

Cannot be determined whether the government engaged in expansionary or contractionary fiscal policy in 2009.

question

If government increased the size of its cyclically adjusted surplus, we can:

answer

Assume that government is having a contractionary effect on the economy.

question

answer

Reduce the size of the multiplier and make the economy more stable.

question

If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:

answer

Decreasing taxes by $25 billion.

question

Countercyclical discretionary fiscal policy calls for:

answer

Deficits during recessions and surpluses during periods of demand-pull inflation.

question

Stock market price quotations best exemplify money serving as a:

answer

Unit of account.

question

Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the:

answer

M1 money supply will not change.

question

Answer the question on the basis of the following table:
Year / Price Level / Value of Dollar
1 : 1.00 : $1.00
2 : 1.25
3 : 0.80
4 : 0.50
Refer to the table. The value of the dollar in year 2 is:

answer

$0.80.

question

Collateralized default swaps:

answer

Insured holders of loan-backed securities in case the underlying loans were not repaid.

question

During periods of rapid inflation, money may cease to work as a medium of exchange:

answer

Because people and businesses will not want to accept it in transactions.

question

A checking account entry is money because it:

answer

Performs the functions of money.

question

What is the primary function of the Term Asset-Backed Securities Loan Facility?

answer

Provide funding support for collateralized securities such as student, auto, and credit card loans.

question

Other things equal, an excessive increase in the money supply will:

answer

Decrease the purchasing power of each dollar.

question

Checkable deposits are classified as money because:

answer

They can be readily used in purchasing goods and paying debts.

question

Which role of the Federal Reserve was expanded directly as a result of the PDCF and TSLF?

answer

Lender of last resort.

question

A $70 price tag on a sweater in a department store window is an example of money functioning as a:

answer

Unit of account.

question

When economists say that money serves as a unit of account, they mean that it is:

answer

A monetary unit for measuring and comparing the relative values of goods.

question

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the:

answer

M1 money supply will decline and the M2 money supply will remain unchanged.

question

To say money is socially defined means that:

answer

Whatever performs the functions of money extremely well is considered to be money.

question

In defining money as M1, economists exclude time deposits because:

answer

They are not directly or immediately a medium of exchange.

question

If you are estimating your total expenses for school next semester, you are using money primarily as:

answer

Unit of account.

question

If you place a part of your summer earnings in a savings account, you are using money primarily as a:

answer

Store of value.

question

The money supply is backed:

answer

By the government's ability to control the supply of money and therefore to keep its value relatively stable.

question

A bank that has liabilities of $150 billion and a net worth of $20 billion must have:

answer

Assets of $170 billion.

question

Commercial banks monetize claims when they:

answer

Make loans to the public.

question

answer

$3,750.

question

answer

The supply of money is increased by $5,000.

question

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

answer

$450.

question

The primary purpose of the legal reserve requirement is to:

answer

Provide a means by which the monetary authorities can influence the lending ability of commercial banks.

question

A frictional reserve banking system:

answer

Is susceptible to bank "panics" or "runs".

question

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will:

answer

Decrease.

question

If the monetary authorities want to reduce the monetary multiplier, they should:

answer

Raise the required reserve ratio.

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