Econ222 test2 winter06 Lindahl

Econ222 test2 winter06 Lindahl - m dumb Winter 2006 Econ...

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Unformatted text preview: m dumb Winter 2006 Econ 222 Test 2 version A \ Name 1) If people use cigarettes as a medium of exchange, then they a) have a barter economy Cl? are using commodity money c are using commodity—backed money (1) are using fiat money e) will inevitably face hyperinflation 2) The original bankers were a) prostitutes b) governments c) savings and loan institutions d) Catholics @ goldsmiths 3) In the United States economy which one of the following is not money? a) a Susan B. Anthony $1 coin b) a checking account at a bank c) a 25-cent piece (i.e., a quarter) d) a $20 Federal Reserve note @ a $100 stock in IBM 4) T US. dollar is a good example of fiat money. True b) False 5) Fiat money a has value because people accept it a has intrinsic value c is backed by commodity reserves is money because of its metallic content y,” is frequently "clipped" 6) The discount rate is a) the interest rate charged by the Federal Reserve banks on loans to banking institutions b) the interest rate banks charge each other for loans 6 the rate banks charge their best business customers ‘d the rate of discount that banks use to determine the true mortgage rate e) the fraction of deposits that banks hold as reserves 7) Open-market operations involve a) clearing checks b) lending money to member banks c accepting deposits from member banks the Fed’s purchase and sale of government securities e) any monetary policy actions 8) 2 is defined as M1 plus savings accounts, small time deposits, and money market mutual funds ) coins, currency, and checkable deposits c) all near moneys d) M1 plus time deposits e) M1 plus money market mutual funds 9) From a bank's point of View, its deposits are a liability, not an asset. True b) False 10) If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a bank, what happens to the money supply, using the (theoretical) mone mul ' ier? a) Nothing. b) It increases by $5,000. @ It decreases by $5,000. \ d) It increases by $50,000. e) It decreases by $50,000. 11) The higher the required reserve ratio, \( f (T a the larger the money multiplier the smaller the money multiplier c) the more excess reserves there are after each round of the money-creation process d) the more money that can be lent in each round of the money-creation process e) the fewer required reserves after each round of the money-creation process 12) T e Fed can reduce the money supply by buying securities from a bank b) buying securities from a private citizen c) selling securities d) issuing new Federal Reserve notes e) saving failing banks 13) The appropriate open market operation for reducing the money supply is a) buying US. government securities b) limiting the amount loaned to banks c) buying up Federal Reserve notes d) selling US. government securities 3 increasing the reserve requirement 14) The primary tool the Fed uses to control the money supply today is a) the discount rate ) the required reserve ratio the discount window d) chartering e) open—market operations 15) Which of the following is not a tool of fiscal policy? a) money supply b) government purchases c) taxes d) Social Security program @ unemployment benefits 16) Discretionary fiscal policy is policy that a) is developed in secret b) applies to some states but not others c) applies to some industries but not others works automatically without public announcement or plan a is an intentional change in taxation or government spending 17) A $100 billion increase in government purchases will have the same effect on real GDP as a $100 billion decrease in taxes. @ True b) False 18) If the MPC equals 075 and G increases by $100, aggregate demand will increase by a) 75 percent (7 b) 25 percent a (a? $50 :15 d) $200 / e) $400 / 7(5) 19) The introduction of a $100 new tax in an economy with an MPC equal to 0.8 will: a) increase aggregate demand by $100 b) decrease aggregate demand by $100 c increase aggregate demand by more than $100 @ decrease aggregate demand by less_thaanm $100 fl 20) T ‘ tax multiplie ' gal/My“: ) 1 / c) 'f(1 — MPC) MPC/ (1 — MPC) e) -MPC/(1 — MPC) »-~ 4 M A / e) we aggregate demand by more than $100 / 21) By how much would government purchases have to change if the governmentwanted,t9,iIl§I€§§§31991313 by $1/I0,Q(land the a $100 $900 5‘ \50’0 X , q C) / e d) $10,000/9 Q60 ~ e) $10,000 \ f 22) If fiscal policy is used to close an inflationary gap, ’- SRAS curve shifts to the left and the price level falls SRAS curve shifts to the right and the price level increases ’1 SRAS curve shifts to the right and the price level falls AD curve shifts to the left and the price level decreases e) AD curve shifts to the right and the price level decreases 23) Which of the following is an example of an aWizer? tax reductions passed by Congress in times of unemployment 6) tax reductions passed by Congress in times of inflation c) government defense spending d) unemployment compensation @ interest rates " 0&9 K’(/— seas \_fi price Exhibit 0037 level Potential output SRAS RealEDP V1 V2 A? 24) Consider Exhibit 0037. In this situation, the economy finds itself overheated andflApflhas risen. The economy might self-correct in time by a(n): a) increase in short-run aggregate supply as fiscal policy takes effect. b) decrease in short-run aggregate supply as wages rise in response to rising output prices @ decrease in short-run aggregate supply as monetary policy takes effect d) increase in short-run aggregate supply as output prices rise to match wages e) rightward shift of the aggregate demand curve as supply—side economics falters 25) Consider Exhibit 003,7. If this is a picture of the US economy in 1933, what factors would you list as cause(s) of the recession? a) Stock market crash b) Overly powerful fiscal policy c) Bank panics @Hyperinflafion A and C c6 26) In this situation (exhibit 0037), the economy finds itself in a recession. The economy might self-correct in time by a(n): a) increase in short-run aggregate supply as fiscal policy takes effect b) decrease in short-run aggregate supply as wages rise in response to rising output prices c) decrease in short-run aggregate supply as monetary policy takes effect d) increase in short-run aggregate supply as output—9W3 AS © rightward shift of the aggregate demand curve as supply-side economics falters 27) Refer again to exhibit 003%. What is appropriate fiscal policy for the problem? a) An increase in taxes or a decrease in government spending b) A decrease in taxes and a decrease in government spending L c) A decrease in taxes and an increase in government spending (:1) A decrease in interest rates G) B and D are correct ' . KL 3 28) Wage agreements may cause costs to be \9’ 5 flexible than prices so that \“WCO-‘in the price level cause in aggregate quantity supplied. ' \a)\ more; decreases; decreases more; increases; decreases less; increases; decreases (:1) less; decreases; increases e) less; decreases; decreases /'____________________________i, Exhibit 0038 Price level \ Potential output SRAS REBIGDP V1 4/31 29) In Exhibit 0038, the distance between Y1 and Y2 is called a an' ationar gap @a ciflamfi‘rebingT c an increase in potential output d) a decrease in potential output e) the natural rate of unemployment 30) What causes most recessions? a) A drop in SRAS @ A drop in AD, specifically consumer spending c) A drop in AD, specifically investment spending d) An increase in interest rates set by the Federal Reserve e) Celebrity divorces V 31) Investment spending is financed by a) Domestic savings and foreign savings b) Local and state sales taxes c Company profits w The federal government 32) ital inflow (KI) is one way of measuring . / / :I @p The amount of net exports / \VM b) The net inflow of funds into the country 9/ The amount of loanable funds in the country )1) The amount of capital in the country 33) ich of the following is the most liquid asset? A gold bar b) Stocks A bank deposit \ _ d) Bonds e) A llama ranch 34) The aggregate demand curve is downward sloping because of a) The law of demand b) Consumers' tendency to substitute toward cheaper goods . @7 The wealth and interest rate effects ' d) Fixed prices and wages in the short run 35) If oil prices fell significantly, what would happen to the economy? a SRAS would decrease b) RAS would increase c) AD would decrease d) AD would increase e) None of the above, oil prices are a long run phenomenon 36) If the stock market were to crash and lose 75% of its value, what would happen? a) SRAS would decrease b) SRAS would increase c) AD would decrease d) AD would increase @ None of the above 37) Which of the following is a dilemma that the government faces when using fiscal and/ or monetary policy to stabilize an economy (mgxeitout‘of recession)? a Stabilization policy will either worsen the fall in output or cause higher inflation. @Stabflization policy will shift short-run aggregate supply back to its initial position. c Stabilization policy cannot affect output in the face of a supply shock. d) Stabilization policy will shift short-run aggregate supply further to the left. 38) Which of the following is true regarding fiscal and monetary policies? a) Fiscal policy affects the AD curve while monetary policy affects the SRAS curve fl Fiscal policy and monetary policy both affect the AD curve <c) Fiscal policy affects the SRAS curve while monetary policy affects the AD curve Q) Fiscal policy and monetary policy both affect the SRAS curve e) None of the above 39) increase in personal income tax rates will do what? Shift AD left b) Shift AD right c) Shift SRAS right d) Shift SRAS left e) Shift LRAS right 40) A rightward shift in the (short run) aggregate supply curve is best explained by an increase in: a) business taxes b) Productivity @’ nominal wages d) the price of imported resources. 41) Which interest rate does the Federal Reserve target? a) The discount rate b) The prime rate c) The 30-year bond rate Q» The federal funds rate e) The mortgage rate 42) How does the fedeylresMange interest rates? a) By manipulating AD ‘~—/ b) By manipulating SRAS c) By manipulating money supply d) By manipulating money demand @ All of the above 43) If the MPC is 0.9, what is the MP8? a) 0.9 l ‘l/__ :— LO b) 0.1 \ __ q \ c 0.01 ' ) Impossible to calculate with the information given e) How much does a pirate have to pay to get his ears pierced? A buccaneer. 44) A major advantage of automatic stabilizers is that they: a) stabilize the economy and reduce the debt at the same time (5—D automatically produce surpluses during recessions and deficits during inflation c) require no legislative action by Congress to be made effective (1) guarantee that the Federal budget will be balanced each year 45) Which of the following will INCREASE the nation's money supply? \a.)__an increase in the reserve ratio b the purchase of bonds on the open market by the Federal Reserve the sale of bonds on the open market by the Federal Reserve é an increase in the discount rate 46) Which of the following is NOT a tool of monetary policy? a) open market operations * b changes in reserve requirements Q5 changes in tax rates d) changes in the discount rate 47) If a person writes a check to purchase a '67 Plymouth Valiant, he is using money as: a) a medium of exchange b a store of value Eb a commodity-backed unit of account d) a unit of account e) a means of barter 48) It is costly to hold money because: a deflation may reduce its purchasing power in doing so one sacrifices interest income c bond prices are highly variable d) the velocity of money may decline 49) Which of the following will cause the money demand curve to increase (shiftto ther‘ig’h/t)? a an increase in GDP ‘ A i b) a decrease in the price level c) an increase in the interest rate d) an increase in money supply 50) Credit card balances are: a) a component of M1 b) a component of M2, but not of M1 c) a component of M3, but not M2 @ not a component of M1, M2, or MS a) will decrease the interest rate will increase the interest rate c) will not affect the interest rate d) will decrease the SRAS e) none of the above 51)<?increase in the money supply, all else equal, : 52) The Federal Debt is: a the summation of all past yearly federal deficits m the amount by which imports exceeds exports c the amount by which federal spending exceeds federal revenues in fiscal year d) held mostly by foreigners 53) The "crowding—out effect" suggests that: a imports are replacing domestic investment c private investment is increasing at the expense of government investment investment is increasing at the expense of consumption d) governments inadvertently push 11 interest rates w e run deficits 54) Why is the SRAS upward sloping? a) Because inflation and interest rates are linked ’ b) Because consumers spend more when prices are lower 6) Because wages are slower to change than output prices; d) Because business tax rates change with prices e) All of the above 55) If the mpc were 0.75, how much would taxes have to be cut in order to achieve a spending increase of $12 b' 'on? — $3 billion _ a $4 billion \ I) c) $12 billion d) $36 billion \/ 3‘77 e) $48 billion L 56) An inflationary gap is equal to: a) real GDP minus nominal GDP ' b nominal GDP minus real gDP @actual short run output minus potential output d) this period’s nominal GDP less last period’s nominal GDP e) this period's real GDP less last period’s real GDP 57) To eliminate a recessionary gap, the Fed can the money supply, which would "‘ N?" ‘W a increase; increase the interest rate and increase AD I increase; decrease the interest rate and decreaseAD \n M6198 A D decrease; increase the interest rate and increase AD ) decrease; decrease the interest rate and decrease investment ) decrease; increase the interest rate and decrease investment Ll /_______________________i,, \ 58) Why is the money demand curve downward sloping? a) Because the Fed controls it b) Because of the wealth effect @ Because people will hold less money if the interest rates on other assets is high All of the above e) Because wages are slower to change than all other prices 59)§at shape does the money supply (not the loanable funds supply) curve have? / Upward sloping ;/ b) Downward sloping / ' c) Vertical ' / d) Depends on the situation 60) What is the appropriate monetary policy for an inflationary gap? a Increase government spending or cut taxes ) Decrease government spending or increase taxes Increase the money supply and cut interest rates d) Decrease the money supply and increase interest rates e) Reduce the government deficit 61) If the Fed wanted to increase the money supply by $20 billion and the required reserve ratio were 20%, what should it do? a) Buy $4 billion of government bonds b Sell $4 billion of government bonds ‘ c Buy $1 billion of government bonds i/_, (1) Sell $1 billion of government bonds “ " 7/ e) Increase the discount rate several percentage points O 62)//§thra credit) Who is the new Chairman of the Federal Reserve? 9‘ . ‘ay Alan Greenspan b) Ben Roethlesberger c) Steven Kellogg d) Condoleezza Rice e) Ben Bernanke ...
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This homework help was uploaded on 02/06/2008 for the course ECON 222 taught by Professor Lindahl during the Winter '06 term at Cal Poly.

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Econ222 test2 winter06 Lindahl - m dumb Winter 2006 Econ...

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