ECO372 Principles of Macroeconomics

University of Phoenix

ECO372T Week 1 Apply -Output, Income,

and Economic Growth SCORE
98 PERCENT
Question 1

he equation for net investment is written as:

multiple choice

Net Investment = Gross Investment – Depreciation

Net Investment = Nominal GDP – Gross Investment

Net Investment = Consumption – Gross Investment

Net Investment = Depreciation – Gross Investment

Question 2

The major difference between nominal GDP and real GDP is:

multiple choice

nominal GDP measures the value of output with constant output levels, while real GDP measures
output using current-year output levels.

nominal GDP measures the value of output in constant prices, while real GDP measures output
using current-year prices.

nominal GDP measures the value of output with current-year output levels, while real GDP
measures output using constant output levels.

nominal GDP measures the value of output in current-year prices, while real GDP measures output
using constant prices.

Question 3

Which of the following correctly describes GDP using the income approach?
multiple choice

GDP = Wages + Rents + Interest + Profits and Losses

GDP = National Income + Indirect Business Taxes + Depreciation + Net Foreign Factor Income

GDP = Wages + Rents + Interest + Profits and Losses + National Income

GDP = Consumption + Gross Investment + Net Exports + Government Purchases

Question 4

Which of the following scenarios would be included in GDP?

Multiple choice

Darius unclogs the drain in his sink using the plunger he owns.

Pam buys a new 40-inch television at Walmart.

Sandra is a waitress at Morton’s Steakhouse. She receives a cash tip of $50 that she pockets and
does not report.

Miguel won $100 in his office fantasy football league.

Question 5

Determine whether each of the following examples would be included in Gross Domestic Product
(GDP).

a. When Judy went to the grocery store yesterday, she bought three pounds of potatoes.

Judy's purchase of potatoes would be included in GDP as a consumption expenditure.

b. Ford Motor Company buys four tires to put on a new Ford Mustang.

The purchase of the tires would not be included in GDP.

c. The U.S. Air Force purchases two new fighter jets from Boeing.
 The purchase of the two fighter jets would be included in GDP as a government purchase.

d. When Joey had his birthday last week, his grandmother sent him a $100 bill that he could spend.

Joey's birthday gift of $100 would not be included in GDP

Question 6

Real GDP refers to _____.

Multiple Choice

GDP data that embodies changes in the price level but not changes in physical output

the value of the domestic output after adjustments have been made for environmental pollution
and changes in the distribution of income

GDP data that does not reflect changes in both physical output and the price level

GDP data that has been adjusted for changes in the price level

Question 7

The gross domestic product (GDP) concept accounts for society's valuation of the relative worth of
goods and services by using a _____.

Multiple Choice

measure of volume

utility measure

measure of physical weight

monetary measure

Question 8

“Net foreign factor income” in the national income accounts refers to the difference between the
_____.

Multiple Choice
 value of products sold by Americans to other nations and the value of products bought by
Americans from other nations.

income Americans gain from supplying resources abroad and the income that foreigners earn by
supplying resources in the U.S.

income earned by Americans in the U.S. minus the income earned by foreigners in the U.S.

value of investments that Americans made abroad and the value of investments made by
foreigners in the U.S.

Question 9

Personal consumption expenditures consist of _____.

Multiple Choice

domestic investments

foreign investments in the United States

foreign plus domestic investments

household and individual purchases of services and durable and nondurable goods

Question 10

A distinguishing characteristic of public transfer payments is that they _____.

Multiple Choice

include wages to government workers

are counted as part of government purchases in the calculation of the gross domestic product

involve no contribution to current production in return for the payment

include the cost of maintaining public parks

Question 11

Answer the next question based on the following price and output data over a five-year period for
an economy that produces only one good. Assume that year 2 is the base year.

Year Units of Output Price per Unit

1 8 $2
2 10 3
3 15 4
 4 18 5
5 20 6

In year 4, nominal GDP would be _____.

Multiple Choice

$316

$60

$120

$90

Question 12

GDP excludes most nonmarket transactions. Therefore, GDP tends to _____.

Multiple Choice

underestimate the rate of inflation in the economy

overestimate the rate of inflation in the economy

underestimate the amount of production in the economy

overestimate the amount of production of the economy

Question 13

In the treatment of U.S. exports and imports, national income accountants _____.

Multiple Choice

subtract exports but add imports in calculating GDP

add both exports and imports in calculating GDP

subtract both exports and imports in calculating GDP

add exports but subtract imports in calculating GDP

Question 14

GDP measured using base year prices is called _____.

Multiple Choice

nominal GDP

constant GDP

real GDP

deflated GDP

Question 15

Which of the following is not an example of an intermediate good?

Multiple Choice

gasoline bought by a trucking company

an oven bought by a homeowner

flour bought by a bakery

office supplies bought by an accounting firm

Question 16

Suppose that real GDP per capita in the United States is $49,000. If the long-term growth rate of real
GDP per capita is 1.6% per year, how many years will it take for real GDP per capita to reach
$98,000?

Instructions: Enter your answer as a whole number.

44 Numeric Response Edit Unavailable. 45. Years

Question 17

Suppose that Italy can produce either goods or services with its resources, and that its PPF
curve is shown on the graph as PPF1.

Using the graph, for each of the following situations, determine whether the PPF curve shifts.

a. Suppose that Italy increases its spending on education, which increases the amount of
human capital in Italy.

Italy's PPF curve would increase and move to PPF3.

b. A recession causes Italy's unemployment rate to increase above the natural rate of
unemployment.

Italy's PPF curve would remain the same at PPF1.

c. Italy experiences an influx of immigrants from surrounding countries, which causes the
population of Italy to increase.

Italy's PPF curve would increase and move to PPF3.

Question 18

The table below shows real GDP per capita for the United States between the years 1950–2016.

Real GDP per Capita over Time

Real GDP per Capita

Year (dollars)
1950 $13,819
1975 24,601
2000 43,935
2016 52,172

Instructions: Round your answers to one decimal place.

a. What is the growth rate in the standard of living from 1950 to 1975?

3.1 Numeric Response 1. Edit Unavailable. 3.1 incorrect. %

b. What is the growth rate in the standard of living from 1975 to 2000?

3.1 Numeric Response 2. Edit Unavailable. 3.1 incorrect. %

c. What is the growth rate in the standard of living from 2000 to 2016?

1.2 Numeric Response 3. Edit Unavailable. 1.2 incorrect. %

ANSWER
Correct answers should be:

78.0%

78.6%

18.7%

Question 19

Providing a constant number of workers with additional capital with which to work will
______ labor productivity at a(n) ______ rate.

Multiple Choice

increase; constant

decrease; decreasing

increase; increasing

increase; decreasing

Question 20

Use the following diagram to answer the next question.

The most likely cause for a shift in the production possibilities frontier from AB to CD is

Multiple Choice

an increase in government purchase of the economy's output.

the use of the economy's resources in a less efficient way.

an increase in the quantity and quality of labor resources.

an increase in the spending of business and consumers.

Question 21

The application of new technologies to the production process will increase

Multiple Choice

labor productivity.

the quantity of human capital.

the unemployment rate.

the share of the population employed.

Question 22

The key variable in determining changes in a country’s standard of living is the

Multiple Choice

interest rate.

long-run rate of economic growth.

unemployment rate.

inflation rate.

Question 23

Given the annual rate of economic growth, the “rule of 72” allows one to

Multiple Choice

determine the accompanying rate of inflation.

calculate the size of the GDP gap.

determine the growth rate of per capita GDP.

calculate the number of years required for real GDP to double.

Question 24

Before the Industrial Revolution, living standards in the world

Multiple Choice
 were relatively stagnant for long periods of time.

were already rising significantly for many decades.

were declining because of rapid increases in population.

are not known, for lack of reliable records from that period.

Question 25

the two countries are the same. According to the principle of diminishing returns to capital,
an additional unit of capital will ______ in Alpha compared to Beta, holding other factors
constant.

Multiple Choice

increase output by the same amount

have no effect on output

increase output less

increase output more

Question 26

When a firm builds a new factory, this is an example of an investment in

Multiple Choice

the market.

human capital.

physical capital.

research and development.

Question 27

Increasing the capital available to the workforce, holding other factors constant, tends to
______ total output while ______ labor productivity.

Multiple Choice
 increase; decreasing

increase; not changing

increase; increasing

decrease; increasing

Question 28

To increase future living standards by pursuing higher current rates of investment spending,
an economy must

Multiple Choice

reduce current rates of consumption spending.

allow higher rates of current consumption.

reduce the current capital stock.

decrease the amount of future research and development spending.

Question 29

Between the U.S. and Nepal, Nepal invests less in new factories and equipment. This will
likely cause

Multiple Choice

the U.S.'s production possibilities frontier to shift inward faster than Nepal's.

Nepal's production possibilities frontier to shift outward faster than the U.S.'s.

Nepal's production possibilities frontier to shift inward faster than the U.S.'s.

the U.S.'s production possibilities frontier to shift outward faster than Nepal's.

Question 30

Which of the following will not increase a nation’s real GDP?

Multiple Choice

number of workers

average price level

technological progress

labor productivity

ECO372 Week 2 Discussion

Compare and contrast the phases of the business cycle.

ECO372T Week 2 Apply Business Cycles,

Unemployment, and Inflation SCORE
100 PERCENT
Question 1

Using the graph below, identify the different stages of the business cycle. Assume that A, B,
and C represent consecutive years.
a. A time period when the economy is growing toward full employment is known as an expansion.

It is depicted in the graph as B through C .

b. A time period characterized by full or near-full employment is known as a peak

It is depicted in the graph as A.

c. A time period with two consecutive quarters of declining output is known as a recession .

It is depicted in the graph as A through B

d. A time period when employment and real output are at their lowest levels is known as a trough

It is depicted in the graph as B

Question 2

Suppose Marcus eats nothing but burritos for dinner. He buys 30 burritos each month. During the
last couple of weeks, Marcus noticed an increase in the price of burritos. The price of burritos rose
from $5.50 per burrito last month to $6.60 per burrito this month. Assume that Marcus has a fixed
income of $165 that he can spend on burritos.
How many burritos can Marcus afford to buy at the new price of $6.60?
25 burritos
Question 3
In each of the following examples, identify whether the person is counted in the official labor force
or not.

a. Cynthia owns and operates her own retail store.

In the labor force

b. Elder has recently moved to a retirement community in Florida where he enjoys his “golden
years” as a retiree.
Not in the labor force

c. Drew lost his job at the bank last year. He spent 6 months applying for every job possible before
giving up 2 months ago.
Not in the labor force

d. Katherine works part-time at a small retail store. She would like to work full-time, but her
employer is unable to extend her hours.
In the labor force

e. Latisha is an ambitious 15-year-old who spends her summer working as a lifeguard at a local
pool.
Not in the labor force

f. Bill is currently serving a prison sentence, and works making license plates.
Not in the labor force

g. Tyrell just graduated college with a business degree. He is currently looking for a banking job in
the major city he just moved to.
In the labor force

Question 4
For each of the following items, indicate to which major group of the CPI the item belongs:
a. Tuition payments to your university: Education and communication Correct
b. A new desk for your dorm room or apartment: Housing
c. An airline ticket to Florida to be used during spring break: Transportation
 d. A 12-pack of beer to be used during spring break: Food and beverages
e. Tickets to a local concert: Recreation
f. A late night visit to the emergency room: Medical

Question 5

In the United States, business cycles have occurred against a backdrop of a long-run trend of

Multiple Choice

rising inflation.

rising real GDP.

stagnant productivity growth.

declining unemployment.

Question 6

Use the table below to answer the next question.

Year Employed Structural Frictional Cyclical Unemployed

2003 1,800 50 100 50 200
2004 2,400 100 100 300
2005 2,000 150 180 500
2006 2,660 40 0 140

Determine the number of people frictionally unemployed for the year 2006.
Multiple Choice

100

-100

200

Question 7

The unemployed are those people who

Multiple Choice
 are not employed but are seeking work.

are not working.

do not have jobs.

are not in the workforce.

Question 8

A trough in the business cycle occurs when

Multiple Choice

cyclical unemployment is at a minimum point.

employment and output reach their lowest levels.

the inflation rate is at its lowest level.

the natural rate of unemployment is at a minimum point.

Question 9

The unemployment rate of full-employment is also called the

Multiple Choice

frictional rate of unemployment.

potential rate of unemployment.

natural rate of unemployment.

cyclical rate of unemployment.

Question 10

The rate of unemployment when the economy is fully employed is called the

Multiple Choice

full-employment rate of unemployment.

natural rate of unemployment.

frictional rate of unemployment.

structural rate of unemployment.

Question 11
The labor force includes

Multiple Choice

employed workers and persons who are officially unemployed.

full-time workers but excludes part-time workers.

permanent employees but excludes temporary employees.

employed workers but excludes persons who are officially unemployed.

Question 12

Use the table below to answer the next question.

Year Employed Structural Frictional Cyclical Unemployed

2003 1,800 50 100 50 200
2004 2,400 100 100 300
2005 2,000 150 180 500
2006 2,660 40 0 140

Determine the number of people cyclically unemployed for the year 2004.
Multiple Choice

100

200

-100

Question 13

According to the Bureau of Labor Statistics, to be officially unemployed a person must

Multiple Choice

be in the labor force.

be 21 years of age or older.

have lost a job.

be waiting to be called back from a layoff.

Question 14
Use the following diagram to answer the next question.

The straight line E drawn through the wavy lines would provide an estimate of the
Multiple Choice

natural rate of unemployment.

economic growth trend.
recovery trend.
recession fluctuation.

Question 15
In calculating the unemployment rate, part-time workers are

Multiple Choice

used to determine the size of the labor force, but not the unemployment rate.
counted as unemployed because they are not working full-time.
counted as employed because they are receiving payment for work.
treated the same as “discouraged” workers who are not actively seeking employment.

Question 16
Search and wait unemployment is another way to describe

Multiple Choice
 frictional unemployment.
structural unemployment.
cyclical unemployment.
noncyclical unemployment.

Question 17
Use the table below to answer the next question.

Year Employed Structural Frictional Cyclical Unemployed

2003 1,800 50 100 50 200
2004 2,400 100 100 300
2005 2,000 150 180 500
2006 2,660 40 0 140

Determine the number of people structurally unemployed for the year 2005.
Multiple Choice

150
0
220
170

Question 18
The GDP gap measures the amount by which
Multiple Choice
potential GDP differs from actual GDP.
actual GDP exceeds equilibrium GDP.
nominal GDP exceeds real GDP.
actual GDP exceeds national income.

Question 19
The unemployment rate is interpreted as the percentage of the

Multiple Choice
 adult population who are unemployed.
workforce that have been laid off.
able-bodied population who are not working.
labor force that are not employed.
Question 20
Which of the following statements is true about causes of business cycle fluctuations?

Multiple Choice
Economists all agree that productivity shocks are the cause of most business cycle changes.
There are a wide range of theories as to the underlying causes of business cycle movements.
Economists all agree that monetary changes are primarily responsible for business cycle
fluctuations.
Economists all agree that supply shocks are the cause of most business cycle fluctuations.

Question 21
What is an advantage of mild inflation according to some economists?
Multiple Choice
It helps to close the GDP gap.
It reduces frictional, structural, and cyclical unemployment in the economy to make the economy
more productive.
It reduces the inflation premium.
It makes it easier for firms to adjust real wages downward as demand for their products falls.

Question 22
In an economy, the total expenditures for a market basket of goods in year 1 (the base year) was
$5,000 billion. In year 2, the total expenditure for the same market basket of goods was $5,500
billion. What was the Consumer Price Index for the economy in year 2?
Multiple Choice
110
100
120
115

Question 23
Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unexpected
inflation occurs in the economy, then

Multiple Choice
both lenders and borrowers benefit.
borrowers are hurt, but lenders benefit.
lenders are hurt, but borrowers benefit.
both lenders and borrowers are hurt.

Question 24
Inflation is a rise in
Multiple Choice
the standard of living over time.
real GDP over time.
unemployment over time.
the general level of prices over time.

Question 25
Inflation that occurs when total spending is greater than the economy's ability to produce output at
the existing price level is

Multiple Choice

unexpected inflation.
cost-push inflation.
demand-pull inflation.
expected inflation.

Question 26
Which of the following measures the changes in the prices of a “market basket” of some 300 goods
and services purchased by typical urban consumers?
Multiple Choice
the Retail Trade survey
the GDP Price Index
 the Wholesale Price Index
the Consumer Price Index

Question 27
The CPI compiled by the Bureau of Labor Statistics is used in the computations for the
Multiple Choice
inflation rate.
interest rate.
unemployment rate.
foreign exchange rate.

Question 28
Inflation caused by a rise in the prices of inputs is referred to as
Multiple Choice
hyperinflation.
cost-push inflation.
unexpected inflation.
demand-pull inflation.

Question 29
What is the main problem with mild inflation according to some economists?
Multiple Choice
It diverts productive time towards activities to hedge against inflation.
It leads to unexpected deflation.
It reduces the size of the GDP gap.
It increases frictional and structural unemployment in the economy.

Question 30
Core inflation refers to the inflation picture after stripping away the
Multiple Choice

service-sector prices.
 food and energy prices.
government-regulated prices.
capital goods prices.

ECO372 Wk 3 Discussion – Government

Revenue and Expenditures
Identify the main sources of revenue for and the largest expenditures made by federal, state, and
local governments.

ECO372T Week 3 Apply Public Finance

and Aggregate Demand and
Supply Homework
Question 1

Which of the following transactions best represents the government making a transfer payment to a
household or business?

multiple choice

The federal government’s Supplemental Nutritional Assistance Program assists low-income

families with purchasing food.

The federal government’s Internal Revenue Service hires extra accountants during the tax season
to audit tax returns.

The state government’s Office of Motor Vehicles imposes an annual licensing fee for all in-state
vehicles.

The local government’s Department of Parks and Recreation operates a local pool for residents in
the summer.

Question 2

Which of the following descriptions is most representative of the mix of revenues and expenditures
of the federal government?
multiple choice

Revenue is predominantly from property taxes but may include sales taxes or income taxes.
Expenditures include investments in education and public welfare.

Revenue is predominantly from sales taxes and may include personal or corporate income taxes.
Expenditures include investments in education and infrastructure.

Revenue is predominantly from income taxes and payroll taxes. Expenditures include income
security and interest on the national debt.

Revenue is predominantly from excise taxes and property taxes. Expenditures include investments
in infrastructure and national defense.

Question 3

How is the public debt calculated?

rev: 06_21_2018

Multiple Choice

By subtracting current government spending from current government tax revenues

By summing the annual government purchases over time

By subtracting the government’s total liabilities from its total assets

By summing the annual difference between tax revenues and government spending over the years

Question 4

Which of the following is not a significant source of revenue for the U.S. federal government?

Multiple Choice

Personal income taxes

Corporate income taxes

Property taxes

Payroll taxes

Question 5

Which one of the following is not an excise tax of the federal government?
Multiple Choice

Gasoline tax

General sales tax

Correct

Alcoholic beverage tax

Tobacco tax

Question 6

A federal budget deficit exists when federal government

Multiple Choice

taxation is decreasing in a given year.

spending is increasing in a given year.

assets are less than liabilities in a given year.

spending exceeds tax revenues in a given year.

Question 7

Which of the following is the largest expenditure item of local governments?

Multiple Choice

Highways

Public safety

Welfare

Education

Question 8

A tax is regressive if it

Multiple Choice
 takes a higher percentage of income as income increases.

takes the same percentage of income regardless of income level.

is levied on consumers.

takes a smaller percentage of income as income increases.

Question 9

Many states in the U.S. acquire significant amounts of funds from the following, except

Multiple Choice

property taxes.

state-run lotteries.

personal income taxes.

grants from the Federal government.

Question 10

One important reason why the United States government is not likely to go bankrupt even with a
large public debt is that it has

Multiple Choice

the power to print money to finance the debt.

a strong military to protect it from creditors.

the capacity to pay off its outstanding debt with gold.

the ability to decrease interest rates and increase investment spending.

Question 11

The circular flow model with government included would show that government

Multiple Choice

obtains revenues in the product market and uses it to cover costs in the resource market.

produces goods and services and sells them in the product market to generate net taxes.

controls economic resources and sells them in the resource market.

 provides goods and services to businesses and households and pays for them with net taxes.

Question 12

A public debt that is owed to foreigners can be burdensome because

Multiple Choice

the payment of interest will conflict with a nation's foreign aid programs.

the payment of interest reduces the volume of goods and services available for domestic uses.

the payment of interest will necessarily have a deflationary effect on prices in the paying nation.

foreign interest rates are persistently higher than domestic interest rates.

Question 13

Which of the following is not a government activity that is involved in public finance?

Multiple Choice

Running government-owned enterprises such as hospitals, utilities, and lotteries.

Regulating the activities of firms in the financial sector of the economy.

Providing public goods and services such as national defense and education.

Redistributing income through various taxes and income-transfer payments.

Question 14

The Social Security tax is regressive because

Multiple Choice

the Social Security tax rate applied does not rise with the salary level.

each individual must pay a set percentage of his or her income in Social Security taxes.

as income increases, the Social Security tax rate increases at a decreasing rate.

no Social Security tax is collected for incomes in excess of a “cap” income level.

Question 15

Which of the following is the largest expenditure item of state governments?

Multiple Choice

Public welfare

Highways

Education

Health and hospitals

Question 16

Aggregate demand is best described as the relationship between the:

multiple choice

quantity demanded of a good or service and the price of the good or service.

quantity demanded in a market and the market price.

quantity of real GDP demanded in the economy and the price level.

quantity demanded and the price.

Question 17

For each of the following scenarios, determine the effect on aggregate supply.

a. There is an unexpected decrease in oil prices. This causes:

multiple choice 1

a movement along the aggregate supply curve to the right, indicating an increase in the quantity
of real GDP supplied.

a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of
real GDP supplied.

an increase in aggregate supply, shifting the aggregate supply curve to the right.

a decrease in aggregate supply, shifting the aggregate supply curve to the left.

b. The government increases the amount that all producers are required to contribute to health
insurance coverage. This causes:

multiple choice 2
 a movement along the aggregate supply curve to the right, indicating an increase in the quantity
of real GDP supplied.

a movement along the aggregate supply curve to the left, indicating a decrease in the quantity of
real GDP supplied.

a decrease in aggregate supply, shifting the aggregate supply curve to the left.

an increase in aggregate supply, shifting the aggregate supply curve to the right.

Question 18

Determine the effect on aggregate demand for each of the scenarios described below.

a. All European countries experience an economic expansion, raising incomes in each of the
European countries. This causes:

multiple choice 1

an increase in aggregate demand, shifting the aggregate demand curve to the right.

a decrease in aggregate demand, shifting the aggregate demand curve to the left.

a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of
real GDP demanded.

a movement along the aggregate demand curve to the right, indicating an increase in the quantity
of real GDP demanded.

b. The government decides to decrease the amount it spends on the military. This causes:

multiple choice 2

a decrease in aggregate demand, shifting the aggregate demand curve to the left.

an increase in aggregate demand, shifting the aggregate demand curve to the right.

a movement along the aggregate demand curve to the right, indicating an increase in the quantity
of real GDP demanded.

a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of
real GDP demanded.

Question 19
The long-run aggregate supply curve is vertical because:

multiple choice

firms cannot change prices or input prices in the long run.

some input prices are sticky in the long run.

all input prices are flexible in the long run.

all input prices are sticky in the long run.

Question 20

For each of the examples below, determine the effect on aggregate demand.

a. In order to reduce the deficit, the government decides to increase the level of taxes in the
economy. This causes:

multiple choice 1

an increase in aggregate demand, shifting the aggregate demand curve to the right.

a movement along the aggregate demand curve to the right, indicating an increase in the quantity
of real GDP demanded.

a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of
real GDP demanded.

a decrease in aggregate demand, shifting the aggregate demand curve to the left.

b. The economy experiences a sustained expansion in stock prices for the majority of companies in
the country. This causes:

multiple choice 2

a movement along the aggregate demand curve to the left, indicating a decrease in the quantity of
real GDP demanded.

a movement along the aggregate demand curve to the right, indicating an increase in the quantity
of real GDP demanded.

a decrease in aggregate demand, shifting the aggregate demand curve to the left.
 an increase in aggregate demand, shifting the aggregate demand curve to the right.

Question 21

Which would most likely shift the aggregate supply curve? A change in the prices of _____.

Multiple Choice

foreign products

domestic products

financial assets

resources

Question 22

Use the following graph to answer the next question.

When output increases from Q1 and the price level decreases from P1, this change will _____.

Multiple Choice

be caused by a shift in the aggregate supply curve from AS1 to AS3

result in a movement along the aggregate demand curve from e1 to e2

result in a movement along the aggregate demand curve from e3 to e1

be caused by a shift in the aggregate supply curve from AS1 to AS2

Question 23

In the aggregate demand-aggregate supply model, the economy’s price level is assumed to be
_____.

Multiple Choice

variable, unlike in the aggregate expenditures model

constant, just like in the aggregate expenditures model

variable, just like in the aggregate expenditures model

constant, unlike in the aggregate expenditures model

Question 24

The aggregate demand curve or schedule shows the relationship between the total demand for
output and the _____.

Multiple Choice

price level

income level

real GDP

interest rate

Question 25

An increase in aggregate demand is most likely to be caused by a(n) _____.

Multiple Choice

decrease in government spending

decrease in the tax rates on household income

decrease in expected returns on investment

increase in real interest rates

Question 26

An increase in personal income taxes will cause a(n) _____.

Multiple Choice

increase (or shift right) in aggregate demand

decrease (or shift left) in aggregate demand

increase in the quantity of real output demanded (or movement down along AD)

decrease in the quantity of real output demanded (or movement up along AD)

Question 27

Which of the following events would most likely reduce aggregate demand?

Multiple Choice

A reduction in the amount of existing capital stock.

 An increase in real interest rates.

A reduction in business and personal tax rates.

An increase in expected returns on investment.

Question 28

Which would most likely increase aggregate supply?

Multiple Choice

An increase in productivity

A decrease in personal income taxes

A decrease in business subsidies

An increase in the prices of imported products

Question 29

Use the following table which shows the aggregate demand and aggregate supply schedules for a
hypothetical economy to answer the next question.

Real Domestic Output Demanded (in billions) Price Level (index value) Real Domestic
Output Supplied (in billions)

$3,000 350 $9,000

4,000 300 8,000

5,000 250 7,000

6,000 200 6,000

7,000 150 5,000

8,000 100 4,000

The equilibrium price and output levels will be _____.

Multiple Choice

250 and $7,000

 200 and $5,000

300 and $8,000

200 and $6,000

Question 30

The long-run aggregate supply curve is _____.

Multiple Choice

upward-sloping and becomes flatter at output levels above the full-employment output

upward-sloping and becomes steeper at output levels above the full-employment output

horizontal

vertical

ECO372 Week 4 Discussion

Explain what happens to the interest rate if the money supply increases or decreases and the
money demand remains unchanged. Explain what happens to the interest rate if the money
demand increases or decreases and the money supply remains unchanged.

ECO372T Week 4 Apply Money and the

Federal Reserve SCORE 100 PERCENT
Question 1

Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money
supply increases by $500 million.

Instructions: Enter your answers as a whole number.

a. What is the money multiplier?

5
b. Using the money multiplier from part a, how much will the money supply change if the Federal
Reserve increases reserves by $50 million?

$ 250 Million

Question 2

Use the following table to determine the levels of M1 and M2 in the United States.

Money Categories in the United States

Amount
(billions of
Asset dollars)
Currency $82
Demand deposits 80
Money market funds 44
Other checkable deposits 37
Savings deposits 460
Small time deposits 22
Traveler's checks 4

Instructions: Enter your answers as a whole number.

a. Calculate the M1 money supply.

$ 203 billion

b. Calculate the M2 money supply.

$ 729 billion

Question 3

The part of the Federal Reserve that determines and implements the nation's monetary policy and
controls the money supply to promote stable prices and economic growth is the:

multiple choice
 12 Federal Reserve District Banks.

president of the Board of Governors.

Board of Governors.

Federal Open Market Committee.

Question 4

For each of the following scenarios, determine whether money is being used as a medium of
account, store of value, or unit of account.

a. Sam gives the grocery store clerk a $5 bill to pay for his purchase.

multiple choice 1

Medium of exchange

Store of value

Unit of account

b. Bill looks at the $20 price tag on a clock to see how much money he would need to purchase it.

multiple choice 2

Medium of exchange

Store of value

Unit of account

c. Maria writes a check to pay her electric bill.

multiple choice 3

Store of value

Medium of exchange

Unit of account

d. Susan transfers some of her wealth from her checking account into a certificate of deposit that
earns interest.

multiple choice 4
 Unit of account

Store of value

Medium of exchange

Question 5

The Federal Reserve District Banks are divided:

multiple choice

into geographical regions with the majority of the district banks located in the eastern half of the
United States.

evenly geographically to ensure the same amount of area coverage for the regions of the United
States.

geographically to encompass the 12 largest metropolitan and financial areas in the United States.

into geographical regions with the same number of states located in each of the districts.

Question 6

Which of the following are liabilities to a bank?

Multiple Choice

vault cash and demand deposits

property and capital stock

demand and time deposits

capital stock and reserves

Question 7

If the reserve requirement is 20% and commercial bankers decide to hold additional excess reserves
equal to 5% of any newly acquired checkable deposits, then the effective monetary multiplier for the
banking system will be

Multiple Choice

4.

5.

6.

3.
Question 8

Members of the Federal Reserve Board of Governors are

Multiple Choice

selected by the Federal Open Market Committee for 4-year terms.

appointed by the president to staggered 14-year terms.

appointed by Congress to staggered 14-year terms.

selected by each of the Federal Reserve banks for 4-year terms.

Question 9

Money is \”created\” when

Multiple Choice

people use money to pay for stuff they buy from one another.

someone lends money to a friend or a family member.

a bank grants a loan to a customer.

a depositor deposits money at the bank.

Question 10

A checkable deposit at a commercial bank is a(n)

Multiple Choice

asset to the depositor and a liability to the bank.

liability to both the depositor and the bank.

liability to the depositor and an asset to the bank.

asset to both the depositor and the bank.

Question 11

Money eliminates the need for a coincidence of wants in trading primarily through its role as a

Multiple Choice

medium of deferred payment.

medium of exchange.
 unit of account.

store of value.

Question 12

The coupon rate is the

Multiple Choice

interest rate promised when a bond is issued.

amount originally lent.

regular payment of interest to a bondholder.

maximum interest rate that can be paid on a bond.

Question 13

The reason for the Fed being set up as an independent agency of government is to

Multiple Choice

allow it to earn profits like private firms.

protect it from political pressure.

let it be able to compete with other financial institutions.

make it be managed and controlled by member banks.

Question 14

A bank's required reserves can be calculated by

Multiple Choice

multiplying its checkable-deposit liabilities by its excess reserves.

dividing its excess reserves by its required reserves.

dividing its required reserves by its excess reserves.

multiplying its checkable-deposit liabilities by the reserve ratio.

Question 15

The Federal Open Market Committee (FOMC)

Multiple Choice

monitors regulatory banking laws for member banks.

 provides advice on banking stability to the Fed.

follows the actions and operations of financial markets to keep them open and competitive.

sets policy on the sale and purchase of government bonds by the Fed.

Question 16

When a consumer wants to compare the price of one product with another, money is primarily
functioning as a

Multiple Choice

checkable deposit.

medium of exchange.

unit of account.

store of value.

Question 17

Which definition(s) of the money supply include(s) only items that are directly and immediately
usable as a medium of exchange?

Multiple Choice

M2

M1

M1 and M2

neither M1 nor M2

Question 18

The Federal Reserve System consists of which of the following?

Multiple Choice

Federal Open Market Committee and Office of Thrift Supervision

U.S. Treasury Department and Bureau of Engraving and Printing

Board of Governors and the 12 Federal Reserve Banks

Federal Deposit Insurance Corporation and Controller of the Currency

Question 19

Assets of the commercial banking system include

Multiple Choice

reserves and deposits.

reserves and loans.

loans and deposits.

deposits.

Question 20

If the reserve requirement were 15% percent, the value of the monetary multiplier would be

Multiple Choice

7.32.

6.67.

5.50.

8.54.

Question 21

Assume that the required reserve ratio is 20%. A business deposits a $50,000 check at Bank A; the
check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?

Multiple Choice

increase by $10,000 at Bank A and decrease by $50,000 at Bank B

Reserves stay the same in both banks.

increase by $10,000 at Bank A and decrease by $10,000 at Bank B

increase by $50,000 at Bank A and decrease by $50,000 at Bank B

Question 22

An increase in nominal GDP will

Multiple Choice

increase the transactions demand for money but decrease the total demand for money.

decrease the transactions demand for money but increase the total demand for money.
 increase the transactions demand and the total demand for money.

decrease the transactions demand and the total demand for money.

Question 23

Traditionally, the Federal Reserve can give emergency loans only to

Multiple Choice

manufacturing firms.

securities firms.

investment banks.

commercial banks.

Question 24

Use the following graph to answer the next question.

Which line in the graph above would best illustrate the asset demand for money curve?
Multiple Choice

Line 3

Line 2

Line 4

Line 1

Question 25

Fractional reserve banking refers to a system where banks

Multiple Choice

grant loans to their borrowing customers.

accept a portion of their deposits in checkable accounts.

deposit a fraction of their reserves at the central bank.

hold only a fraction of their deposits in their reserves.

Question 26

What function is money serving when you deposit it in a savings account?

Multiple Choice

a checkable deposit

a medium of exchange

a store of value

a unit of account

Question 27

Which of the following items are included in money supply M2 but not M1?

Multiple Choice

savings deposits

Federal Reserve notes

checkable deposits

coins
Question 28

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This
action would be an example of the

Multiple Choice

asset demand for money.

transactions demand for money.

creation of fiat money.

use of money as a medium of exchange.

Question 29

The main function of the Federal Reserve System is to

Multiple Choice

clear checks from member banks.

set reserve requirements of banks.

control the money supply.

serve as the fiscal agent for the federal government.

Question 30

Cash held by a bank in its vault is a part of the bank\’s

Multiple Choice

liabilities.

money supply.

net worth.

reserves.

ECO372 Week 4 Practice Money and the

Federal Reserve Quiz – SCORE
100 PERCENT
Question 1
Suppose that Ava withdraws $300 from her savings account at Second Bank. The reserve
requirement facing Second Bank is 10%. Assume the bank does not wish to hold any excess reserves
of new deposits.

Use this information to complete the balance sheet below to show how Second Bank's assets and
liabilities change when Ava withdraws the $300 from the bank.

Instructions: Enter your answers as a whole number. If you are entering any negative numbers be
sure to include a negative sign (-) in front of those numbers.

A Simple Bank Balance Sheet

Assets Liabilities
Change in Reserves: $ -30 Numeric Change in Deposits: $ -300 Numeric
Response 1. Edit Unavailable. -30 correct. Response 2. Edit Unavailable. -300 correct.
Change in Loans: $ -270 Numeric Response
3. Edit Unavailable. -270 correct.

Question 2

The Federal Reserve District Banks are divided:

multiple choice

evenly geographically to ensure the same amount of area coverage for the regions of the United
States.

into geographical regions with the majority of the district banks located in the eastern half of the
United States.

into geographical regions with the same number of states located in each of the districts.

geographically to encompass the 12 largest metropolitan and financial areas in the United States.

Question 3

Suppose the Federal Reserve increases the amount of reserves by $100 million and the total
money supply increases by $500 million.

Instructions: Enter your answers as a whole number.

a. What is the money multiplier?

5 million

b. Using the money multiplier from part a, how much will the money supply change if the
Federal Reserve increases reserves by $50 million?

$ 250 million

Question 4

Use the following table to determine the levels of M1 and M2 in the United States.

Money Categories in the United States

Amount
(billions of
Asset dollars)
Currency $82
Demand deposits 80
Money market funds 44
Other checkable deposits 37
Savings deposits 460
Small time deposits 22
Traveler's checks 4

Instructions: Enter your answers as a whole number.

a. Calculate the M1 money supply.

$ 203 billion

b. Calculate the M2 money supply.

$ 729 billion
Question 5

Money is:

multiple choice

the gold and silver behind the currency and the coins that are issued by the government.

anything that both buyers and sellers will accept in exchange for goods and services.

only the printed paper currency and the coins that are produced by the government.

any good that buyers and sellers have a desire to purchase, use, or hold.

Question 6

The part of the Federal Reserve that determines and implements the nation's monetary policy and
controls the money supply to promote stable prices and economic growth is the:

multiple choice

president of the Board of Governors.

12 Federal Reserve District Banks.

Federal Open Market Committee.

Board of Governors.

Question 7

For each of the following scenarios, determine whether money is being used as a medium of
account, store of value, or unit of account.

a. Sam gives the grocery store clerk a $5 bill to pay for his purchase.

multiple choice 1

Unit of account

Store of value

Medium of exchange
b. Bill looks at the $20 price tag on a clock to see how much money he would need to purchase it.

multiple choice 2

Unit of account

Medium of exchange

Store of value

c. Maria writes a check to pay her electric bill.

multiple choice 3

Store of value

Unit of account

Medium of exchange

d. Susan transfers some of her wealth from her checking account into a certificate of deposit that
earns interest.

multiple choice 4

Store of value

Unit of account

Medium of exchange

Question 8

The Federal Reserve System consists of which of the following?

Multiple Choice

Federal Deposit Insurance Corporation and Controller of the Currency

Board of Governors and the 12 Federal Reserve Banks

U.S. Treasury Department and Bureau of Engraving and Printing

Federal Open Market Committee and Office of Thrift Supervision

Question 9

Money functions as a store of value if it allows you to

Multiple Choice

make exchanges in a more efficient manner.

delay purchases until you want the goods.

measure the value of goods in a reliable way.

increase your confidence in money.

Question 10

The Federal Reserve System was established by the Federal Reserve Act of

Multiple Choice

1913.

1933.

1955.

1945.

Question 11

The M1 measure of money consists of the sum of

Multiple Choice

currency and travelers' checks.

currency, checking deposits, and savings deposits.

currency, checking deposits, and travelers' checks.

checking deposits and travelers' checks.

Question 12

The M2 measure of money consists of the sum of

Multiple Choice

savings deposits, small time deposits, and money market mutual funds.

M1, savings deposits, small time deposits, and money market mutual funds.

M1, checking and savings deposits, and currency.

 currency, checking and savings deposits, and small time deposits.

Question 13

Money is \”created\” when

Multiple Choice

people use money to pay for stuff they buy from one another.

someone lends money to a friend or a family member.

a depositor deposits money at the bank.

a bank grants a loan to a customer.

Question 14

When a consumer wants to compare the price of one product with another, money is primarily
functioning as a

Multiple Choice

unit of account.

checkable deposit.

store of value.

medium of exchange.

Question 15

Which of the following are liabilities to a bank?

Multiple Choice

capital stock and reserves

demand and time deposits

vault cash and demand deposits

property and capital stock

Question 16

The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for
Multiple Choice

supervising banks to make sure that markets are open to all and remain competitive.

setting the Fed's monetary policy and directing the purchase and sale of government securities.

issuing currency and acting as the fiscal agent for the federal government.

maintaining cash reserves that can be used to settle international transactions.

Question 17

If you put a $20 bill in the pocket of your winter coat at the beginning of spring so that you will be
surprised when you find it again next winter, you are using money as

Multiple Choice

a unit of account.

bank reserves.

a medium of exchange.

a store of value.

Question 18

If the reserve requirement were 15% percent, the value of the monetary multiplier would be

Multiple Choice

7.32.

5.50.

6.67.

8.54.

Question 19

Which definition(s) of the money supply include(s) only items that are directly and immediately
usable as a medium of exchange?

Multiple Choice

M2

M1 and M2

neither M1 nor M2
 M1

Question 20

Members of the Federal Reserve Board of Governors are

Multiple Choice

appointed by the president to staggered 14-year terms.

appointed by Congress to staggered 14-year terms.

selected by each of the Federal Reserve banks for 4-year terms.

selected by the Federal Open Market Committee for 4-year terms.

Question 21

The Federal Open Market Committee (FOMC)

Multiple Choice

monitors regulatory banking laws for member banks.

sets policy on the sale and purchase of government bonds by the Fed.

follows the actions and operations of financial markets to keep them open and competitive.

provides advice on banking stability to the Fed.

Question 22

Use the following graph to answer the next question.

Which line in the graph would best illustrate the supply of money curve?

Multiple Choice

Line 1

Line 4

Line 3

Line 2

Question 23

Other things being equal, an expansion of commercial bank lending

Multiple Choice

increases the money supply.

 changes the composition, but not the size, of the money supply.

is desirable during a period of demand-pull inflation.

reduces the money supply.

Question 24

The required-reserve ratio is equal to a commercial bank\’s

Multiple Choice

checkable-deposit liabilities multiplied by its excess reserves.

required reserves divided by its checkable-deposit liabilities.

excess reserves divided by its required reserves.

checkable-deposit liabilities divided by its required reserves.

Question 25

A checkable deposit at a commercial bank is a(n)

Multiple Choice

liability to both the depositor and the bank.

asset to both the depositor and the bank.

liability to the depositor and an asset to the bank.

asset to the depositor and a liability to the bank.

Question 26

The reason for the Fed being set up as an independent agency of government is to

Multiple Choice

make it be managed and controlled by member banks.

let it be able to compete with other financial institutions.

allow it to earn profits like private firms.

protect it from political pressure.

Question 27

The equilibrium rate of interest in the market for money is determined by the intersection of the
Multiple Choice

supply-of-money curve and the transactions-demand-for-money curve.

supply-of-money curve and the asset-demand-for-money curve.

investment-demand curve and the total-demand-for-money curve.

supply-of-money curve and the total-demand-for-money curve.

Question 28

If the reserve requirement is 20% and commercial bankers decide to hold additional excess reserves
equal to 5% of any newly acquired checkable deposits, then the effective monetary multiplier for the
banking system will be

Multiple Choice

6.

3.

5.

4.

Question 29

The coupon rate is the

Multiple Choice

amount originally lent.

regular payment of interest to a bondholder.

maximum interest rate that can be paid on a bond.

interest rate promised when a bond is issued.

Question 30

Money eliminates the need for a coincidence of wants in trading primarily through its role as a

Multiple Choice

medium of deferred payment.

store of value.

medium of exchange.

unit of account.
Question 31

A bank's required reserves can be calculated by

Multiple Choice

multiplying its checkable-deposit liabilities by the reserve ratio.

multiplying its checkable-deposit liabilities by its excess reserves.

dividing its required reserves by its excess reserves.

dividing its excess reserves by its required reserves.

Question 32

One hundred percent reserve banking refers to a situation in which banks' reserves equal One
hundred percent of their

Multiple Choice

income.

deposits.

loans.

profits.

Question 33

Credit card balances are not considered to be money primarily because they

Multiple Choice

are rarely used to make purchases.

do not represent an obligation to pay someone else.

are an asset used in making transactions.

are not part of people's wealth.

Question 34

Fractional reserve banking refers to a system where banks

Multiple Choice

grant loans to their borrowing customers.

accept a portion of their deposits in checkable accounts.

deposit a fraction of their reserves at the central bank.

 hold only a fraction of their deposits in their reserves.

Question 35

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of

Multiple Choice

net worth.

liabilities.

assets.

capital stock.

Question 36

drawn against Bank B. What happens to the reserves at Bank A and Bank B?

Multiple Choice

Reserves stay the same in both banks.

increase by $10,000 at Bank A and decrease by $10,000 at Bank B

increase by $50,000 at Bank A and decrease by $50,000 at Bank B

increase by $10,000 at Bank A and decrease by $50,000 at Bank B

Question 37

Assume that the required reserve ratio is 20%. A business deposits a $50,000 check at Bank A; the
check is

A wealthy executive is holding money, waiting for a good time to invest in the stock market. This
action would be an example of the

Multiple Choice

asset demand for money.

transactions demand for money.

use of money as a medium of exchange.

creation of fiat money.

Question 38
The transactions demand for money is least likely to be a function of the

Multiple Choice

frequency of wage and salary payments.

interest rate.

price level.

level of national income.

Question 39

An increase in nominal GDP will

Multiple Choice

increase the transactions demand for money but decrease the total demand for money.

decrease the transactions demand and the total demand for money.

increase the transactions demand and the total demand for money.

decrease the transactions demand for money but increase the total demand for money.

Question 40

One year before maturity the price of a bond with a principal amount of $1,000 and a coupon rate of
5% paid annually fell to $981. The one year interest rate must be

Multiple Choice

7.0%.

8.5%.

5.0%.

1.9%.

Question 41

A consumer holds money to meet spending needs. This would be an example of the

Multiple Choice
 use of money as legal tender.

asset demand for money.

transactions demand for money.

use of money as a measure of value.

Question 42

The main function of the Federal Reserve System is to

Multiple Choice

control the money supply.

set reserve requirements of banks.

serve as the fiscal agent for the federal government.

clear checks from member banks.

Question 43

Which of the following items are included in money supply M2 but not M1?

Multiple Choice

Federal Reserve notes

checkable deposits

coins

savings deposits

Question 44

The functions of money are to serve as a

Multiple Choice

factor of production, exchange, and aggregate supply.

unit of account, a store of value, and a medium of exchange.

resource allocator, a method for accounting, and a means of income distribution.

determinant of consumption, investment, and government spending.

Question 45

A bank\’s net worth is equal to its

Multiple Choice

profits plus its assets.

assets minus its liabilities.

liabilities minus its assets.

assets plus its liabilities.

Question 46

Traditionally, the Federal Reserve can give emergency loans only to

Multiple Choice

securities firms.

investment banks.

manufacturing firms.

commercial banks.

Question 47

Which group is responsible for the policy decision of changing the money supply?

Multiple Choice

Federal Open Market Committee

Federal Advisory Council

Office of Management and Budget

Thrift Advisory Council

Question 48

Use the following graph to answer the next question.

Which line in the graph above would best illustrate the asset demand for money curve?

Multiple Choice

Line 2

Line 1

Line 3

Line 4

Question 49

Cash held by a bank in its vault is a part of the bank\’s

Multiple Choice
 reserves.

money supply.

net worth.

liabilities.

Question 50

If product prices were stated in terms of tobacco leaves, then tobacco leaves would be functioning
primarily as

Multiple Choice

legal tender.

a unit of account.

fiat money.

a store of value.

ECO372 Week 5 Discussion – Fiscal Policy

Compare and contrast expansionary and contractionary fiscal policy.

ECO372T Week 5 Apply Fiscal and

Monetary Policy SCORE 98 PERCENT
Question 1

The graph below depicts an economy where an increase in aggregate demand has caused
inflation. The economy's current level of real GDP (Y2) is above its long-run equilibrium.
This is illustrated by the long-run aggregate supply curve (LRAS) and a price level (P2)
above the equilibrium value of Pe.

Which of the following is an example of an automatic stabilizer that would help this economy
move toward full employment again?
multiple choice

A reduction in the average tax rate

An increase in the average tax rate

A decrease in government purchases

A reduced need for government transfer payments

Question 2

For each of the following scenarios, determine which time lag is most likely to result when
designing and implementing fiscal policy.

a. The separation of power demonstrated between the legislative and executive branches of
government combined with strong partisanship attitude among our elected politicians.

multiple choice 1

Recognition lag

Legislative lag

Implementation lag

All of these lags

b. The fact that it takes economists working for the National Bureau of Economic Research
months to declare the dates of peaks and troughs.

multiple choice 2

Recognition lag

Legislative lag
 Implementation lag (Incorrect)

All of these lags

c. The time it takes to design and build new infrastructure after these projects have been
passed by the legislature.

multiple choice 3

Recognition lag (Incorrect)

Legislative lag

Implementation lag

All of these lags

Question 3

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then
this would be an example of a(n)

Multiple Choice

contractionary fiscal policy.

supply-side fiscal policy.

nondiscretionary fiscal policy.

expansionary fiscal policy.

Question 4

When changes in taxes and government purchases occur in the economy without explicit
action by Congress, such changes are referred to as

implicit stabilization.

cyclical stabilization.
 automatic stabilizers.

discretionary fiscal policy.

Question 5

If taxes and government expenses did not vary with income, then income would

Multiple Choice

be less stable.

be more stable.

be closer to potential income.

not change.

Question 6

When the federal government changes purchases and/or taxes to stimulate the economy or rein in
inflation, such policy is

Multiple Choice

active monetary policy.

discretionary fiscal policy.

automatic fiscal policy.

active federal policy.

Question 7

As the economy declines into recession, the collection of personal income tax revenues
automatically falls. This phenomenon best illustrates how a progressive income-tax system

Multiple Choice

increases crowding out in the economy.

serves as an automatic stabilizer for the economy.

offsets the timing problem for fiscal policy.

 decreases real interest rates in the economy.

Question 8

When the federal government cuts taxes and increases purchases to stimulate the economy during a
period of recession, such actions are designed to be

Multiple Choice

expansionary.

contractionary.

passive.

automatic.

Question 9

Due to automatic stabilizers, when the nation’s total income rises, government transfer payments

Multiple Choice

and tax revenues increase.

increase and tax revenues decrease.

decrease and tax revenues increase.

and tax revenues decrease.

Question 10

Which of the following is an example of built-in stability? As real GDP decreases,

Multiple Choice

income tax revenues decrease and transfer payments increase.

income tax revenues and transfer payments both decrease.

income tax revenues increase and transfer payments decrease.

income tax revenues and transfer payments both increase.

Question 11
One timing problem in using fiscal policy to counter a recession is the “legislative lag” that occurs
between the

Multiple Choice

time fiscal action is taken and the time that the action has its effect on the economy.

start of the recession and the time it takes to recognize that the recession has started.

time the need for the fiscal action is recognized and the time that the action is taken.

start of a predicted recession and the actual start of the recession.

Question 12

When the federal government uses taxation and purchasing actions to stimulate the economy it is
conducting

Multiple Choice

monetary policy.

employment policy.

incomes policy.

fiscal policy.

Question 13

Using fiscal policy to stabilize the economy is difficult because

Multiple Choice

there are time lags involved in the use of fiscal policy.

potential income is known.

the effects of policy changes are known with certainty.

the size of the government debt doesn't matter.

Question 14

Fiscal policy is enacted through changes in

Multiple Choice

the supply of money and foreign exchange.

interest rates and the price level.

unemployment and inflation.

taxation and government purchases.

Question 15

The time that elapses between the beginning of a recession or an inflationary episode and the
identification of the macroeconomic problem is referred to as a(n)

Multiple Choice

recognition lag.

budget lag.

implementation lag.

legislative lag.

Question 16

Choose the best response for each of the following statements.

a. When the Federal Reserve makes an open market purchase, the Fed:

multiple choice

sells bonds to the public, which decreases the money supply.

buys bonds from the public, which increases the money supply.

sells bonds to the public, which increases the money supply.

buys bonds from the public, which decreases the money supply.

b. If the Fed wants to increase interest rates, it should make an open market sale .

This would decrease the money supply and achieve the increase in interest rates.
Question 17

a. The discount rate is the:

multiple choice 1

interest rate at which banks can borrow reserves from the Federal Reserve.

interest rate at which banks can borrow reserves from other banks.

lowest interest rate that banks can charge for loans to their most creditworthy customers.

lowest interest rate that banks can charge for lending reserves to other banks or financial
institutions.

b. If the Fed were to decrease the discount rate, banks will borrow:

multiple choice 2

more reserves, causing a decrease in lending and the money supply.

more reserves, causing an increase in lending and the money supply.

fewer reserves, causing a decrease in lending and the money supply.

fewer reserves, causing an increase in lending and the money supply.

Question 18

The interest rate that the Fed charges on loans made directly to banks is called _____.

Multiple Choice

the prime rate

interest on reserves

the federal funds rate

the discount rate

Question 19

Economic investment refers to _____.

Multiple Choice

postponing purchases of goods and services.

making new additions to a firm’s stock of capital.

selling a financial asset for a gain.

buying a financial asset for a gain.

Question 20

An increase in the money supply, all else held constant, usually _____.

Multiple Choice

decreases the interest rate and decreases aggregate demand

decreases the interest rate and increases aggregate demand

increases the interest rate and decreases aggregate demand

increases the interest rate and increases aggregate demand

Question 21

If the Fed sells government securities to the general public in the open market, the _____.

Multiple Choice

Fed gives the securities to the public; the public pays for the securities by writing checks that when
cleared will increase commercial bank reserves at the Fed

public gives the securities to the Fed in exchange for a Fed check, which when deposited at
commercial banks will decrease their reserves at the Fed

public gives the securities to the Fed in exchange for a Fed check, which when deposited at
commercial banks will increase their reserves at the Fed

Fed gives the securities to the public; the public pays for the securities by writing checks that when
cleared will decrease commercial bank reserves at

Question 22

Which of the monetary policy tools can alter both the level of excess reserves and the money
multiplier?

Multiple Choice
 The federal funds rate

The reserve requirement

The discount rate

Open-market operations

Question 23

The interest rate at which the Federal Reserve Banks lend to commercial banks is called the _____.

Multiple Choice

short-term rate

federal funds rate

discount rate

prime rate

Question 24

The purchase and sale of government securities by the Fed is called _____.

Multiple Choice

federal funds market

money market transactions

term auction facility

open market operations

Question 25

The purpose of expansionary monetary policy is to increase _____.

Multiple Choice

real GDP

the GDP gap

interest rates

the inflation rate

Question 26

The discount rate is the interest _____.

Multiple Choice

rate at which commercial banks lend to the public

yield on long-term government bonds

rate at which the Federal Reserve Banks lend to commercial banks

rate at which the central banks lend to the U.S. Treasury

Question 27

Financial markets pay close attention to changes in the federal funds rate because these changes
_____.

Multiple Choice

affect other interest rates in the economy

indicate commercial bank lending policies

directly affect the interest payments on the national debt

directly affect a large volume of loans

Question 28

The Fed directly sets _____.The Fed directly sets _____.

Multiple Choice

neither the federal funds rate nor the prime rate

the prime rate but not the federal funds rate

the discount rate and the prime rate

both the federal funds rate and the prime rate

Question 29

Which of the following statements is true?

Multiple Choice

The Federal Reserve does not set the federal funds rate, but it influences it through the use of its
open-market operations.

The Federal Reserve sets the federal funds rate.

 The Federal Reserve will set a higher target for the federal funds rate if pursuing an expansionary
monetary policy.

The Federal Reserve sets the target for the federal funds rate, and then uses the reserve
requirement to push banks toward that target.

Question 30

When the Federal Reserve Banks decide to buy government bonds from banks and the public, the
supply of reserves in the federal funds market _____.

Multiple Choice

increases and the federal funds rate increases

decreases and the federal funds rate increases

decreases and the federal funds rate decreases

increases and the federal funds rate decreases