Final Exam Questions
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Final Exam Questions

Course Number: ACCOUNTING AC430, Winter 2011

College/University: Kaplan University

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Final Exam Questions 96/100 1. Economists assume that individuals (Points : 1) behave in unpredictable ways. will never take actions to help others. prefer to live in a society that values fairness above all else. are rational and respond to incentives. 2. The term "market" in economics refers to (Points : 1) a place where money changes hands. a legal institution where exchange can take place. a group...

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Exam Final Questions 96/100 1. Economists assume that individuals (Points : 1) behave in unpredictable ways. will never take actions to help others. prefer to live in a society that values fairness above all else. are rational and respond to incentives. 2. The term "market" in economics refers to (Points : 1) a place where money changes hands. a legal institution where exchange can take place. a group of buyers and sellers of a product and the arrangement by which they come together to trade. an organization which sells goods and services. 3. In the United States and in most European countries, aging populations and declining birthrates threaten public finances. As the population ages, there are fewer workers paying taxes relative to the number of retired people receiving government benefits. Which of the following government policies would NOT help reduce the pressure on public finances? (Points : 1) offer financial incentives to increase the birthrate reduce taxes paid by current workers so that they an save for their future reduce retiree benefit payments raise the retirement age 4. Consider the following statements: Which of the above statements demonstrates that economic agents respond to incentives? (Points : 1) a only. b only. c only. a and b. a, b, and c. 5. The revenue received from the sale of an additional unit of a product (Points : 1) is a marginal benefit to the firm. is called profit. is called gross sales. is called a net gain. 6. A successful market economy requires well defined property rights and (Points : 1) balanced supplies of all factors of production. an independent court system to adjudicate disputes based on the law. detailed government regulations. a safety net to ensure that those who cannot participate in the market economy can earn an income. 7. Table 2-3 Table 2-3 shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. Refer to Table 2-3. What is South Korea's opportunity cost of producing one pound of wheat? (Points : 1) 5 digital cameras 60 digital cameras 20 digital cameras 0.05 units of a digital camera 8. A worker is hired in a (Points : 1) goods and services market. product market. government market. factor market. 9. In 2002, BMW made a tactical decision to use a robot to attach the gearbox to the engines of its vehicles instead of using two workers as it had done previously. The robot method had a higher cost but installed the gearbox in exactly the right position. In making this decision, BMW (Points : 1) faced no tradeoffs because the robot method increased efficiency. faced a tradeoff between higher cost and lower precision (in installing the gearbox in exactly the right position). adopted a negative technological change because it replaced workers with robots. eroded some of its competitiveness in the luxury car market because of its increased cost of production. 10. The Great Depression of the 1930s with a large number of workers and factories unemployed would be represented in a production possibilities frontier graph by (Points : 1) a point inside the frontier. a point outside the frontier. a point on the frontier. an intercept on either the vertical or the horizontal axis. 11. Figure 2-7 Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. Refer to Figure 2-7. Which country has a comparative advantage in the production of cashews? (Points : 1) Indonesia They have equal productive abilities. Pakistan neither country 12. Table 3-1 Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tee of two individuals (Sunil and Mia) and the rest of the market. If the price of loose-tea raises from $3 to $4 the market quantity demanded would (Points : 1) decrease by 32 pounds. increase by 64 pounds. increase by 32 pounds. decrease by 64 pounds. 13. What is the difference between an "increase in supply" and an "increase in quantity supplied"? (Points : 1) There is no difference between the two terms; they both refer to a shift of the supply curve. There is no difference between the two terms; they both refer to a movement along a given supply curve An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" means at any given price supply has increased. An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price. 14. Figure 3-4 Refer to Figure 3-4. The figure above represents the market for canvas tote bags. Compare the conditions in the market when the price is $50 and when the price is $35. Which of the following describes how the market differs at these prices? (Points : 1) At each price there is a surplus; the surplus is greater at $35 than at $50. The difference between quantity supplied and quantity demanded is greater at $50 than at $35. At each price there is a surplus; firms will lower the equilibrium price in order to eliminate the surplus. At each price the supply of tote bags exceeds that demand for tote bags. 15. If the quantity demanded for a product exceeds the quantity supplied the market price will rise until (Points : 1) the quantity demanded equals the quantity supplied. The product will then no longer be scarce. quantity demanded equals quantity supplied. The equilibrium price will then be greater than the market price. only wealthy consumers will be able to afford the product. quantity demanded equals quantity supplied. The market price will then equal the equilibrium price. 16. Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase? (Points : 1) An increase in consumer income. A drought that sharply reduces barley output. A decrease in consumer income. Unusually good weather that results in a bumper crop of barley. 17. Suppose the demand curve for a product is downward sloping and the supply curve is upward sloping. If a unit tax is imposed in the market for this product, (Points : 1) sellers bear the entire burden of the tax. the tax burden will be shared among the government, buyers and sellers. buyers bear the entire burden of the tax. the tax burden will be shared by buyers and sellers. 18. Table 4-3 Table 4-3 shows the demand and supply schedules for the low-skilled labor market in the city of Westover. Refer to Table 4-3. If a minimum wage of $7.50 an hour is mandated, what is the quantity of labor supplied? (Points : 1) 390,000 370,000 340,000 380,000 19. Figure 4-7 Figure 4-7 shows the demand and supply curves for the almond market. The government believes that the equilibrium price is too low and tries to help almond growers by setting a price floor at Pf. Refer to Figure 4-7. What is the area that represents producer surplus after the imposition of the price floor? (Points : 1) A+B+E B+E B+E+F B+C+D+E 20. David Card and Alan Kruger conducted a study of fast-food restaurants in New Jersey and Pennsylvania. The study found that (Points : 1) there was a large reduction in employment of low-skilled workers when the minimum wage was raised in these states. the earned income tax credit is more effective in raising the incomes of low-skilled workers than increases in the minimum wage. increases in the minimum wage had a very small impact on employment. increases in the prices of food have a greater effect on wage increases in New Jersey than in Pennsylvania. 21. The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays is called (Points : 1) producer surplus. the substitution effect. the income effect. consumer surplus. 22. Brett buys a new cell phone for $100. He receives consumer surplus of $80 from the purchase. How much does Brett value his cell phone? (Points : 1) $180 $100 $80 $20 23. Consider the following pairs of items: Which of the pairs listed will have a positive cross-price elasticity? (Points : 1) a and b only c and d only e only a, b, and c only 24. The price elasticity of the supply of teenage labor services is approximately 1.36. Suppose the minimum wage rises from $6.60 per hour to $7.00. Using the midpoint formula, calculate the approximately change in the will the quantity supplied of teenage labor. (Points : 1) 5.9 percent 13.6 percent 8 percent There is insufficient information to answer the question. 25. Which of the following does not affect the price elasticity of demand for a product? (Points : 1) the number of close substitutes available for the product expenditures on the product relative to buyers' incomes how long buyers have to respond to any price change how much demand shifts when buyers' incomes change 26. Barbara, the consummate hostess proudly announced as she served dessert, "A port is often the perfect end to a meal, sipped with a piece of my scrumptious chocolate cake." Evidently, Barbara views (Points : 1) port and chocolate cake as luxury items. port and chocolate cake as necessities. port and chocolate cake as complementary goods. port and chocolate cake as substitutes to other desserts. 27. If the percentage change in price is 20 percent and the value of the price elasticity of demand is -5, then quantity demanded (Points : 1) will increase by 100 percent. will increase by 5 percent. will decrease by 100 percent. impossible to determine without additional information. 28. Which of the following is not a source of technological advancement for a producer? (Points : 1) better trained workers. more efficient physical capital. higher skill level of managers. outsourcing some aspect of production. 29. Which of the following is an example of a long run adjustment? (Points : 1) Your university offers Saturday morning classes next fall. Ford Motor Company lays off 2,000 assembly line workers. A soybean farmer turns on the irrigation system after a month long dry spell. Wal-Mart builds another Supercenter. 30. Table 10-2 Table 10-2 shows cost data for Lotus Lanterns, a producer of whimsical night lights. Refer to Table 10-2. What is the average variable cost per unit of production when the firm produces 90 lanterns? (Points : 1) $490 $33.67 $7.67 $5.40 31. The long run average cost curve shows (Points : 1) the lowest average cost of producing every level of output in the long run. where the most profitable level of output occurs. the average cost of producing where diminishing returns are not present. the plant size or scale that the firm should build. 32. The difference between technology and technological change is that (Points : 1) technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production. technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques. technology involves the use of capital equipment while technological change requires the use of brain power. 33. The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that (Points : 1) Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. as Toyota expanded its capacity, it experienced diseconomies of scale. Toyota was focused on "churning" out cars that it did not invest sufficiently in training its workers. high demand for Toyota's cars prevented the company from focusing on its strength: auto design. 34. Which of the following describes a situation in which a good or service is produced at the lowest possible cost? (Points : 1) productive efficiency allocative efficiency marginal efficiency profit maximization 35. Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it? (Points : 1) productive efficiency allocative efficiency marginal efficiency profit maximization 36. Figure 11-6 Figure 11-6 shows cost and demand curves facing a profit-maximizing perfectly competitive firm. Refer to Figure 11-6. At price P3, the firm would produce (Points : 1) Q2 units Q3 units. Q4 units. Q5 units. 37. The demand for each seller's product in perfect competition is horizontal at the market price because (Points : 1) each seller is too small to affect market price. the price is set by the government. all the sellers get together and set the price. all the demanders get together and set the price. 38. Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should (Points : 1) continue producing at the current output. produce a larger level of output. produce a smaller level of output. not enough information given to answer the question. 39. A patent or copyright is a barrier to entry based on (Points : 1) ownership of a key necessary raw material. large economies of scale as output increases. government action to protect a producer. widespread network externalities. 40. The Aluminum Company because (Points : 1) of America (Alcoa) had a monopoly until the 1940s it was a public enterprise. it had a patent on the manufacture of aluminum. the company had a secret technique for making aluminum from bauxite. it had control of almost all available supply of bauxite. 41. Economic efficiency in a free market occurs when (Points : 1) consumer surplus is maximized. producer surplus is maximized. the sum of consumer surplus and producer surplus is maximized. price is as low as possible. 42. If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then (Points : 1) to maximize profit the firm should increase output. to maximize profit the firm should decrease output. to maximize profit the firm should continue to produce the output it is producing. Not enough information is given to say what the firm should do to maximize profit. 43. A monopoly is characterized by all of the following except (Points : 1) there are only a few sellers each selling a unique product. entry barriers are high. there are no close substitutes to the firm's product. the firm has market power. 44. A merger between the Ford Motor Company and General Motors would be an example of a (Points : 1) vertical merger. horizontal merger. conglomerate merger. trust. 45. If : 1) price exceeds average variable cost but is less than average total cost, a firm (Points should further differentiate its product. should stay in business for a while longer until its fixed costs expire. is making some profit but less than maximum profit. should shut down. 46. What type of demand curve does a monopolistically competitive firm face? (Points : 1) Horizontal Vertical Downward sloping Upward sloping 47. Firms such as Caribou Coffee and Diedrich Coffee operate hundreds of coffeehouses nationwide while firms such as Dunn Brothers Coffee operate only in four states. How would you characterize these stores? (Points : 1) Caribou Coffee and Diedrich Coffee are oligopolists while Dunn Brothers is a monopolistic competitor. Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is a monopolistic competitor. Caribou Coffee and Diedrich Coffee are duopolists while Dunn Brothers is an oligopolist They are all monopolistic competitor. 48. Figure 12-4 Refer to Figure 12-4. The firm represented in the diagram is currently selling Qa units at a price of $Pa. Is this firm maximizing its profit and if it is not, what would you recommend to the firm? (Points : 1) Yes, it is maximizing its profit by charging the highest price possible. No, it is not; since its marginal cost is constant, it should produce and sell as much as it can. It should sell Qd units at a price of $Pd. No, it is not; it should lower its price to $Pc and sell Qc units. No, it is not; it should lower its price to $Pb and sell Qb units. 49. In what sense is a firm in monopolistically competition a monopoly in its market? (Points : 1) It acts independently of other sellers. It sells a unique product. It is able to erect entry barriers by deliberately lowering its price. It acts to maximize market share. 50. A cooperative equilibrium results when firms (Points : 1) choose the best strategy regardless of what other players do. choose the strategy that maximizes the total game payoff. choose the strategy that minimizes the payoff to other players. choose a strategy by random chance. 51. Figure 13-1 Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche. Refer to Figure 13-1. Should Lexus to lower its price in order to deter BMW's entry into the luxury hybrid automobile market? (Points : 1) In terms of profit earned, it makes no difference whether Lexus lowers its price or no; in either case it will make $280 million profit if BMW enters. No, it keep should the same price and work to capitalize on its brand loyalty. Yes, it will drive BMW out of the market. No, because BMW will enter the market regardless of Lexus' decision about its price. 52. In an oligopoly market (Points : 1) the pricing decisions of all other firms have no effect on an individual firm. individual firms pay no attention to the behavior of other firms. advertising of one firm has no effect on all other firms. one firm's pricing decision affects all the other firms. 53. One reason why, in the last four decades, the number of new auto makers in the world has been very small compared to the past is that (Points : 1) the automobile cannot be improved upon in any way by new producers. new auto makers cannot obtain necessary inputs to produce new cars. governments restrict who can produce automobiles. new producers cannot match the economies of scale of existing auto makers. 54. An oligopoly firm is similar to a monopolistically competitive firm in that (Points : 1) both firms face the prisoners' dilemma. both operate in a market in which there are entry barriers. both firms have market power. both firms are in industries characterized by an interdependent firm. 55. OPEC periodically meets to agree to restrict the cartel's oil output, and yet almost every member of OPEC produces more than its own output quota. This suggests that OPEC has a (Points : 1) cooperative equilibrium. noncooperative equilibrium. new potential entrants. threat of substitute goods. 56. Consider this quote from an article in the Wall Street Journal: "The stock of educated workers isn't increasing fast enough to keep up with rising demand. ....... Employers are paying the typical four-year college graduate [without graduate school] 75% more than they pay high-school grads. Twenty-five years ago, they were paying 40% more. Employers insist on ever better-educated, skilled workers. " Source: David Wessel, "Lack of Well-Educated Workers Has Lots of Roots, No Quick Fix", Wall Street Journal, April 19, 2007, Page A2. Which of the following best explains the rapid increase in the wage differential between college graduates and high school graduates? (Points : 1) The demand for college educated workers shifted to the right while the supply of college educated workers shifted to the left. The supply of high-school educated workers shifted to the right faster than the demand for college educated workers shifted to the right. The demand for college educated workers shifted to the right faster than the supply of college educated workers shifted to the right. The demand for high-school educated workers shifted to the left faster than the supply of college educated workers shifted to the right. 57. The town of Saddle Peak has a fixed supply of mountain view lots. In this case, the price per square foot of mountain view lots is (Points : 1) determined only by supply. determined only by demand. set by government officials of Saddle Peak. negotiated by environmental groups and property developers. 58. Economic discrimination takes place when an employer (Points : 1) pays workers the lowest wage possible. pays workers different wages on the basis of some arbitrary characteristics of workers that are irrelevant to the job performed. pays lower wages to workers who are not as productive as other workers. pays workers compensating wage differentials. 59. Table 16-2 Refer to Table 16-2. The marginal revenue product from the third unit of labor is (Points : 1) $5,460. $1,560. $1,260. $780. 60. Table 16-2 Refer to Table 16-2. What is the profit-maximizing quantity of labor that the firm should hire? (Points : 1) 5 units $4 units $3 units 2 units 61. Customer discrimination occurs when (Points : 1) a firm pays workers different wages based on irrelevant factors. customers refuse to buy products produced by a racially diverse workforce. customers refuse to buy products they believe to be of poor quality. workers refuse to serve customers of a different race. 62. If Molly Bee increases her work hours when her wage increases, then (Points : 1) the income effect of the wage increase outweighs the substitution effect. the substitution effect of the wage increase outweighs the income effect. leisure is an inferior good to Molly. Molly' is spending beyond her means. 63. Consider the market for pilots. What is likely to happen to the equilibrium wage and quantity of pilots if the government enforces a lower mandatory retirement age, say from the age 65 years to the age 62? (Points : 1) The equilibrium wage and the equilibrium quantity of pilots rise. The equilibrium wage and the equilibrium quantity of pilots fall. The equilibrium wage falls and the equilibrium quantity of pilots rises. The equilibrium wage rises and the equilibrium quantity of pilots falls. 64. Which of the pay? (Points : 1) following is a reason why some firms do not use commission It gives workers incentive to produce more. It increases firm profits. It is difficult to measure the output and attribute output to a particular worker. The best workers stay and less productive workers leave. 65. Suppose a competitive firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input. If the last worker hired increases output by three units per hour, then to maximize profits the firm should (Points : 1) not change the number of workers it currently hires. lay off some of its workers. hire additional workers. There is not enough information to answer the question. 66. If national laws protecting the health and safety of workers completely eliminate any and all risk, then (Points : 1) workers in risky occupations become better off. compensating wage differentials disappear and workers in risky occupations may be no better off. compensating differentials would grow because workers could not be compensated by being given lower risk jobs. more people would be employed. 67. Disposable personal income equals personal income (Points : 1) minus personal tax payments. plus government transfer payments. minus personal tax payments plus government transfer payments. minus government transfer payments plus personal tax payments. 68. Statistics on real GDP during World War II may give a misleading indication of whether World War II was a period of prosperity because (Points : 1) inflation may have been considerably higher than estimated. most of the increased production was for military goods, not consumption goods. government agents purposely inflated the production numbers to maintain American support for the war. government agencies were shorthanded and did a particularly poor job of collecting data. 69. If prices in the economy rise, then (Points : 1) the purchasing power of a dollar rises. the purchasing power of a dollar stays constant. the purchasing power of a dollar declines. the purchasing power of a dollar cannot be determined. 70. The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude (Points : 1) a typical person in Vietnam is 10 times as well off as the typical person in the Philippines. a typical person in Vietnam is more than 10 times as well off as the typical person in the Philippines. a typical person in Vietnam is less than 10 times as well off as the typical person in the Philippines. it is not possible to make a good comparison of the economic well being of a typical individual in the 2 countries without additional information. 71. Which of the following is included in both the U.S. GDP and U.S. GNP? (Points : 1) the value of all cars produced by General Motors in the U.S. the value of all cars produced by Ford in Mexico the value of all cars produced by Toyota in the U.S. the value of all cars produced by Nissan in Japan and the U.S. 72. In a closed economy, public saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers) (Points : 1) Y-C-T Y-G-T T - G - TR Y - C - T + TR 73. If net taxes fall by $80 billion, we would expect (Points : 1) the government deficit to fall by $80 billion. household savings to rise by $80 billion. household savings to rise by less than $80 billion. household savings to fall by more than $80 billion. 74. Which of the following explains the causes of the changes in the unemployment rate at the end of a recession? (Points : 1) Firms are hesitant to rehire laid off workers as they continue to operate below capacity. Firms rapidly hire new workers at the first sign of on an increase in demand for their goods. Discouraged workers return to the labor force and this makes the unemployment rate fall. Discouraged workers leave the labor force and this makes the unemployment rate rise. 75. Increases in real GDP since 1900 can actually underestimate growth in the standard of living for Americans since 1900 because (Points : 1) the level of pollution in 1900 was much higher than it is today. the crime rate was higher in 1900 than it is today. goods and services are more expensive today as compared to 1900. the quality of health care that exists today was not available in 1900. 76. What two factors are the keys to determining labor productivity? (Points : 1) the business cycle and the growth rate of real GDP the growth rate of real GDP and the interest rate technology and the quantity of capital per hour worked the average level of education of the workforce and the price level 77. Figure 21-4 Refer to Figure 21-4. Which of the following is consistent with the graph depicted? (Points : 1) an increase in household income an increase in transfer payments to households an increase in the proportion of income after net taxes used for consumption an increase in tax revenues collected by the government 78. The labor force equals the number of people (Points : 1) employed. unemployed. employed plus unemployed. in the working-age population. 79. Which of the following would decrease the unemployment rate? (Points : 1) an increase in the minimum wage an increase in the efficiency wage an increase in labor union membership government aid to retrain unemployed workers 80. Table 20-1 Consider the data above for a simple economy. Refer to Table 20-1. The labor force participation rate for this simple economy equals (Points : 1) (1,000/1,100) x 100. (1,000/15,000) x 100. (1,100/15,000) x 100. (1,100/20,000) x 100. 81. The industrialized group of countries has growth rates that are consistent with the findings of the economic growth model. That is, Ireland and Japan had ________ incomes in 1960 than the U.S. and Switzerland, and Ireland and Japan grew ________ than the U.S. and Switzerland between 1960 and 2004. (Points : 1) lower; more rapidly greater; less rapidly lower; less rapidly greater; more rapidly 82. Productivity gains in the United States since 1995 have been ________ productivity gains in other leading industrial nations. (Points : 1) the same as lower than higher than more variable than 83. By offering more generous unemployment insurance programs, European countries can expect (Points : 1) to pay less in taxes than in the United States. workers to gain new skills quickly in response to fluctuations in the labor market. shorter periods of unemployment for their workers. longer periods of unemployment for their workers. 84. Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if (Points : 1) there are decreases in human capital. the per-worker production function shifts downward. there continue to be decreases in capital per hour worked. there is technological change. 85. Which of the following is a true statement about the multiplier? (Points : 1) The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate. The larger the MPC, the smaller the multiplier. The multiplier is the ratio of the change in spending to the change in GDP. The multiplier makes the economy less sensitive to changes in autonomous expenditure. 86. Table 23-2 Refer to Table 23-2. Given the consumption schedule in the table above, the marginal propensity to save is (Points : 1) 0.5 0.6 0.3 0.4 87. If firms find that consumers are purchasing more than expected, which of the following would you expect? (Points : 1) Aggregate expenditure will likely be greater than GDP. Aggregate expenditure will likely be less than GDP. The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment fall. The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment fall. 88. Which of the following is a reason why increases in the price level results in a decline in aggregate expenditure? (Points : 1) Price level increases raise real wealth which causes consumption spending and aggregate expenditures to decline. Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditures. Price level increases in the U.S. relative to other countries, raise net exports, which lowers aggregate expenditures. As the price level rises, government spending falls, which lowers aggregate expenditures. 89. The M1 measure of the money supply equals (Points : 1) paper money plus coins in circulation. currency plus checking account balances. currency plus checking account balances plus traveler's checks. currency plus checking account balances plus traveler's checks plus savings account balances. 90. If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________. (Points : 1) increase; increase not change; increase decrease; increase decrease; not change increase; decrease 91. The seven by (Points : 1) members of the Board of Governors of the Federal Reserve are appointed the Congress. the President. the Governors of the States. leaders in the banking industry. the Treasury Department. 92. Argentine banks were hampered by the government's decision to tie the peso to the U.S. dollar at a rate of one to one. This policy of fixing the peso to the dollar (Points : 1) prevented the central bank from acting as the lender of last resort during a banking panic. caused the Argentine public to lose faith in the ability of the Argentine currency to retain its value. encouraged faith in the banking system and resulted in the public depositing large sums into Argentine banks. caused inflation in the Argentine economy to greatly increase and subsequently decrease the purchasing power of the currency. 93. Which of the following describes a similarity between the current European residential housing and mortgage market and the U.S. residential housing and mortgage market? (Points : 1) The housing markets in both geographic areas are slowing down after a long period of growth and rapidly rising prices. Both have central banks that have raised the lending rate by a factor of 2 since a few years ago. The majority of new mortgages issued in both markets are the long-term, fixed rate variety. Most banks in both geographic regions do not offer home-equity withdrawals. 94. Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________. (Points : 1) fiscal; publicly announced level of inflation fiscal; zero inflation rate monetary; publicly announced level of inflation monetary; zero inflation rate 95. An increase in the interest rate (Points : 1) decreases the opportunity cost of holding money. increases the opportunity cost of holding money. decreases the percentage yield of holding money. increases the percentage yield of holding money. 96. Using the money demand and money supply model, if the economy goes into a recession and the Fed does not pursue policy, then (Points : 1) interest rates will rise. interest rates will fall. interest rates will rise and unemployment will rise. interest rates will rise and inflation will rise. 97. The Federal Reserve plays a larger role than the president and the Congress in stabilizing the economy because (Points : 1) the Federal Reserve can more quickly change monetary policy than the president and the Congress can change fiscal policy. the Federal Reserve can immediately recognize when the economy is below or above potential. changes in interest rates have a considerably larger effect on the economy than changes in government purchases or taxes. changes in interest rates have their full effect on the economy in a short period of time, whereas changes in government spending and taxes have their full effect over a long period of time. 98. Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________. (Points : 1) higher; higher higher; lower lower; higher lower; lower 99. Which of the following would be classified as fiscal policy? (Points : 1) The federal government passes tax cuts to encourage firms to reduce air pollution. The Federal Reserve cuts interest rates to stimulate the economy. A state government cuts taxes to help the economy of the state. The federal government cuts taxes to stimulate the economy. States increase taxes to fund education. 100. Increased if (Points : 1) government spending will reduce long-run growth rate of real GDP the government spending involves building dams and levees. the private spending that is crowded out is investment spending. the private spending that is crowded out is consumption spending. the government spending involves increased spending on highways and bridges.
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