Wayground logo

Free Printable Worksheets

Font size

S
M
L
XL
Worksheets

Econ Final Exam Review

Total questions: 179

Worksheet time: 2hrs 40mins

Name
Class
Date
1.

Which of the following shifts the AD curve to the right?

  1. An increase in the stock market

  2. A decrease in real interest rates

  3. A decrease in government spending

a)

1 only

b)

1 and 2

c)

1 and 3

d)

2 and 3

e)

1, 2, and 3

2.

Which of the following shifts the AD curve to the left?

  1. Increased likelihood of a recession in the near future

  2. A decrease in taxes

  3. A decrease in government spending

a)

1 only

b)

1 and 2

c)

1 and 3

d)

2 and 3

e)

1, 2, and 3

3.

Which of the following shifts the AS curve to the right?

  1. Decrease in wages

  2. A decrease in taxes

  3. A decrease in government spending

a)

1 only

b)

1 and 2

c)

1 and 3

d)

2 and 3

e)

1, 2, and 3

4.

Which of the following shifts the AS curve to the left?

  1. Decrease in productivity

  2. A decrease in taxes

  3. Higher import prices because of tariffs

a)

1 only

b)

1 and 2

c)

1 and 3

d)

2 and 3

e)

1, 2, and 3

5.

Which of the following shifts the AS curve to the left?

  1. Decrease in subsidies

  2. An increase in government regulation

  3. Increase in the price of capital goods

a)

1 only

b)

1 and 2

c)

1 and 3

d)

2 and 3

e)

1, 2, and 3

6.

Which of the following shifts the AD curve to the right?

  1. Expectations that the economy will boom in the coming years

  2. An improvement in technology

  3. High excess capacity

  4. An increase in the price of real estate

a)

1 only

b)

1, 2, and 3

c)

1, 3, and 4

d)

1 and 2

e)

2, 3, and 4

7.

Other things equal, if the national income of the major trading partners of the United States were to rise, the US

a)

Aggregate demand curve would shift to the right

b)

Aggregate supply curve would shift to the left

c)

Aggregate supply curve would shift to the right

d)

Aggregate demand curve would shift to the left

8.

Suppose the consumer spending decreases sharply. Draw how the AD/AS model and show how this change would affect the model graphically. What will be the effect on GDP from this change?

(a)  

9.

Suppose the consumer spending decreases sharply. Draw how the AD/AS model and show how this change would affect the model graphically. What will be the effect on the Price Level from this change?

(a)  

10.

Suppose the consumer spending decreases sharply. Draw how the AD/AS model and show how this change would affect the model graphically. What will be the effect on unemployment from this change?

(a)  

11.

Suppose the consumer spending decreases sharply. Draw how the AD/AS model and show how this change would affect the model graphically. What stage of the business cycle is described in this situation?

(a)  

12.

Suppose the consumer spending decreases sharply. Draw how the AD/AS model and show how this change would affect the model graphically. Indicate the level of output (GDP) and prices (PL) that will be produced.

a)

A

b)

B

c)

C

d)

D

13.

What can we say about GDP gap when starting from full employment and AD decreases?

(a)  

14.

What can we say about GDP gap when starting from full employment and AD increases?

(a)  

15.

What can we say about unemployment when there is a decrease in AD?

(a)  

16.

What can we say about unemployment when there is a decrease in AD? (Don’t answer below) What type of unemployment is affected by this? (Answer this one)

(a)  

17.

Suppose that the government increases spending by $100 billion. If the MPS=0.6, how much will the change in government spending increase aggregate demand?

(a)  

18.

The aggregate demand curve

a)

Is upsloping because a higher price level is necessary to make production profitable as production costs rise

b)

Is downsloping because production costs decline as real output increases

c)

Shows the amount of expenditures required to induce the production of each possible level of real output

d)

Shows the amount of real output that will be purchased at each possible level of real output

19.

The determinants of aggregate demand

a)

Explain why the aggregate demand curve is downsloping

b)

Explain shifts in the aggregate demand curve

c)

Demonstrate why real output and the price level are inversely related

d)

Include input prices and resource productivity

20.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the US

a)

Aggregate demand curve would shift to the right

b)

Aggregate supply curve would shift to the left

c)

Aggregate supply curve would shift to the right

d)

Aggregate demand curve would shift to the left

21.

Other things equal, a decrease in the real interest rate will

a)

Expand investment and shift the AD curve to the left

b)

Expand investment and shift the AD curve to the right

c)

Reduce investment and shift the AD curve to the left

d)

Reduce investment and shift the Ad curve to the right

22.

If investment decreases by $20 billion and the economy’s MPC is 0.5, the aggregate demand curve will shift

a)

Leftward by $40 billion at each price level

b)

Rightward by $20 billion at each price level

c)

Rightward by $40 billion at each price level

d)

Leftward by $20 billion at each price level

23.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left) ?

a)

A reduced amount of excess capacity

b)

Increased government spending on military equipment

c)

An appreciation of the US dollar

d)

Increased consumer optimism regarding future economic conditions

24.

The immediate short-run aggregate supply curve represents circumstances where

a)

Both input and output prices are fixed

b)

Both input and output prices are flexible

c)

Input prices are fixed, but output prices are flexible

d)

Input prices are flexible, but output prices are fixed

25.

In the diagram, a shift from AS1 to AS3 might be caused by a(n)

a)

Increase in productivity

b)

Increase in the prices of imported resources

c)

Decrease in the prices of domestic resources

d)

Decrease in business taxes

26.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in

a)

Business taxes and government regulation

b)

The prices of imported resources

c)

The prices of domestic resources

d)

Productivity

27.

Refer to the diagrams, in which AD1 and AS1 are the “before” curves and AD2 and AS2 are the “after” curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by

a)

A

b)

B

c)

C

d)

B and C

28.

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

a)

The money supply has declined

b)

The price level is inflexible downward and a recession has occurred

c)

Cost-push inflation has occurred

d)

Productivity has declined

29.

A decrease in aggregate demand will cause a greater decline in real output the

a)

Less flexible is the economy’s price level

b)

More flexible is the economy’s price level

c)

Steeper in the economy’s AS curve

d)

Larger is the economy’s marginal prosperity to save

30.

Refer to the diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n)

a)

Increase in government regulation

b)

Increase in aggregate demand

c)

Increase in productivity

d)

Decline in nominal wages

31.

Which of the diagrams for the US economy best portrays the effects of declines in the incomes of US trading partners?

a)

A

b)

B

c)

C

d)

D

32.

The size of the multiplier associated with an initial increase in spending will be

a)

The same whether or not inflation occurs

b)

Diminished if inflation occurs

c)

Zero if any increase in the price level occurs

d)

Enhanced if inflation occurs

33.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may

a)

Reduce per-unit production costs

b)

Reduce worker morale and work effort and thus lower productivity

c)

Increase the firms’ cost of raising financial capital

d)

Reduce the demands for their products

34.

When aggregate demand declines, some firms may reduce employment rather than wages because wage reductions may

a)

Not be possible due to the minimum wage law

b)

Increase the cost of raising money capital

c)

Reduce the demands for their products

d)

Set off a price war

35.

What percentage of the average US firm’s costs is accounted for by wages and salaries?

a)

40

b)

60

c)

85

d)

75

36.

An economy’s aggregate demand curve shifts leftward or rightward more than changes in initial spending because of the

a)

Multiplier effect

b)

Real-balance effect

c)

Net export effect

d)

Wealth effect

37.

Refer to the diagrams, in which AD1 and AS1 are the “before” curves and AD2 and AS2 are the “after” curves. Other things equal, a decline in productivity is depicted by

a)

B and C

b)

C

c)

A

d)

B

38.

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to

a)

Reduce aggregate supply

b)

Affect neither aggregate supply nor aggregate demand

c)

Increase aggregate demand

d)

Reduce aggregate demand

39.

Refer to the diagrams, in which AD1 and AS1 are the “before” curves and AD2 and AS2 are the “after” curves. Cost-push inflation is depicted by

a)

B

b)

B and C

c)

A

d)

C

40.

Given a fixed upsloping AS curve, a rightward shift of the AD curve will

a)

Increase the price level but not real output

b)

Increase both the price level and real output

c)

Cause cost-push inflation

d)

Increase real output but not the price level

41.

The determinants of aggregate supply

a)

Are consumption, investment, government, and net export spending

b)

Explain why real domestic output and the price level are directly related

c)

Include resource prices and resource productivity

d)

Explain the three distinct ranges of the aggregate supply curve

42.

The fear of unwanted price wars may explain what many firms are reluctant to

a)

Reduce prices when a decline in aggregate demand occurs

b)

Provide wage increases when labor productivity rises

c)

Expand production capacity when an increase in aggregate demand occurs

d)

Reduce wages when a decline in aggregate demand occurs

43.

Which of the diagrams for the US economy best portrays the effects of a substantial reduction in government

a)

B

b)

D

c)

A

d)

C

44.

Refer to the diagrams, in which AD1 and AS1 are the “before” curves and AD2 and AS2 are the “after” curves. Other things equal, an increase in investment spending is depicted by

a)

B and C

b)

B

c)

A

d)

C

45.

A decline in investment will shift the AD curve to the

a)

Left by a multiple of the change in investment

b)

Right by a multiple of the change in investment

c)

Right by the same amount as the change in investment

d)

Left by the same amount as the change in investment

46.

Others things equal, an improvement in productivity will

a)

Increase the price level

b)

Shift the aggregate demand curve to the left

c)

Shift the aggregate supply curve to the left

d)

Shift the aggregate supply curve to the right

47.

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

a)

A reduction in household borrowing because of tighter lending practices

b)

Increased fear that a recession will cause workers to lose their jobs

c)

An increase in stock prices that increases consumer wealth

d)

An increase in personal income tax rates

48.

Refer to the diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n)

a)

Increase in investment spending

b)

Decrease in aggregate supply

c)

Decrease in the amount of output supplied

d)

Decrease in net export spending

49.

Refer to the diagram. Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n)

a)

Increase in productivity

b)

Increase in aggregate demand

c)

Increase in government regulation

d)

Decline in nominal wages

50.

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves, and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by

a)

An increase in business taxes

b)

A reduction in the price level

c)

The increase in productivity

d)

The real-balances, interest-rate, and foreign purchases effects

51.

Which of the diagrams for the US economy best portrays the effects of an increase in foreign spending on US products?

a)

C

b)

B

c)

A

d)

D

52.

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC=0.6, how much will the change in investment increase aggregate demand?

a)

$12 billion

b)

$20 billion

c)

$50 billion

d)

$33.3 billion

53.

Which of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

a)

Production bottlenecks occurring when producers near full plant capacity

b)

A reduction in business taxes

c)

An increase in the price of imported resources

d)

Deregulation of industry

54.

An increase in net exports will shift the AD curve to the

a)

Left by a multiple of the change in net exports

b)

Left by the same amount as the change in net exports

c)

Right by the same amount as the change in net exports

d)

Right by a multiple of the change in net exports

55.

The International Monetary Fund chief, Christine Lagarde, in a widely broadcasted interview on Tuesday April 2, 2019 stated that she expects the global economy to slow down this year and that the global economy is in “delicate moment” now. In a graph below show the AD/AS model and show how this news would affect the model. Indicate the level of of output (GDP) and prices (PL) that will be produced after this news became public.

(a)  

56.

The International Monetary Fund chief, Christine lagarde, in a widely broadcasted interview on Tuesday April 2, 2019 stated that she expects the global economy to slow down this year and that the global economy is in a “delicate moment” now. In a graph below show the AD/AS model and show how this news will affect the model. What will be the affect of GDP from this change?

(a)  

57.

The International Monetary Fund chief, Christine lagarde, in a widely broadcasted interview on Tuesday April 2, 2019 stated that she expects the global economy to slow down this year and that the global economy is in a “delicate moment” now. In a graph below show the AD/AS model and show how this news will affect the model. What will the effect be on the Price Level from this change?

(a)  

58.

The International Monetary Fund chief, Christine lagarde, in a widely broadcasted interview on Tuesday April 2, 2019 stated that she expects the global economy to slow down this year and that the global economy is in a “delicate moment” now. In a graph below show the AD/AS model and show how this news will affect the model. What will be the effect of unemployment from this change?

(a)  

59.

The International Monetary Fund chief, Christine lagarde, in a widely broadcasted interview on Tuesday April 2, 2019 stated that she expects the global economy to slow down this year and that the global economy is in a “delicate moment” now. In a graph below show the AD/AS model and show how this news will affect the model. What stage of the business cycle is described by this situation?

(a)  

60.

The International Monetary Fund chief, Christine lagarde, in a widely broadcasted interview on Tuesday April 2, 2019 stated that she expects the global economy to slow down this year and that the global economy is in a “delicate moment” now. In a graph below show the AD/AS model and show how this news will affect the model. If the fiscal policy was the only tool you have to affect the economy, what type of fiscal policy would you implement?

(a)  

61.

By how much should the government changing spending in order to shift the aggregate demand curve rightward by $40 billion? (Increase or decrease)

(a)  

62.

In order to shift the aggregate demand curve rightward by $40 billion, the change in spending was increased by $4 billion. What if the government wanted to change taxes only, how much should they change them?

(a)  

63.

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy’s present aggregate demand curve were at

(a)  

64.

Refer to the diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy’s present aggregate demand curve were at

(a)  

65.

Refer to the diagram, in which Qf is the full-employment output. The shift in the aggregate demand curve from AD3 to AD2 could result from which of the following fiscal policy actions?

a)

A tax reduction

b)

A tax reduction accompanied by an even larger reduction in government spending

c)

A tax increase accompanied by an even larger increase in government spending

d)

An increase in government spending

66.

Which of the following represents the most contractionary fiscal policy?

a)

a $30 billion tax cut

b)

A $30 billion increase in government spending

c)

A $30 billion tax increase

d)

A $30 billion decrease in government spending

67.

The government hires 2000 workers for new infrastructure projects. Over half of the newly hired construction workers, however, were employed in other sectors of the economy and quit their job to take this better paying opportunity. Which of the options below is described here?

a)

Expansionary fiscal policy

b)

Contractionary fiscal policy

c)

Crowding out

d)

A and C only

e)

B and multiplier effect

68.

Discretionary fiscal policy refers to

a)

Any change in government spending or taxes that destabilizes the economy

b)

the authority that the president has to change personal income tax rates

c)

Intentional changes in taxes and government expenditures made by congress to stabilize the economy

d)

The changes in taxes and transfers that occur as GDP changes

69.

Expansionary fiscal policy is so named because

a)

Involves an expansion of the nations money supply

b)

Necessarily expands the size of government

c)

Is aimed at achieving greater price stability

d)

Is designed to expand real GDP

70.

If the MPS in the economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

a)

Increasing government spending by $4 billion

b)

increase government spending by $40 billion

c)

Decreasing taxes by $4 billion

d)

increasing taxes by $4 billion

71.

If the MPC in an economy is 0.75, government should a shift the aggregate demand curve leftward by $60 billion by

a)

Reducing government expenditures by $12 billion

b)

reducing government expenditures by $60 billion

c)

increasing taxes by $15 billion

d)

increasing taxes by $20 billion

72.

In a certain year the aggregate amount demanded at the existing price level consisted of $100 billion of consumption,$40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To achieve full employment under these conditions, the government should

a)

encourage personal savings by increasing the interest rate on government bonds

b)

Decrease government expenditures

c)

Reduce tax rates and/or increase government spending

d)

Discourage private investment by increasing corporate income taxes

73.

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

a)

shift the AD curve to the right

b)

Increase the equilibrium GDP

c)

not affect the AD curve

d)

Shift the AD curve to the left

74.

A tax reduction of a specific amount will be more expansionary the

a)

Smaller is the economy’s MPC

b)

larger is the economy’s MPC

c)

Smaller is the economy’s multiplier

d)

Less is the economy’s built in stability

75.

The cyclically adjusted budget refers to

a)

The inflationary impact that the automatics stabilizers have in a full-employment economy

b)

the portion of a full-employment GDP that is not consumed in the year it is produced

c)

The size of the federal governments budgetary surplus or deficit when the economy is operating at full employment

d)

The number of workers who are underemployed when the level of unemployment is 4-5 percent

76.

The amount by which government expenditures exceeds revenues during a particular year is the

a)

public debt

b)

budget deficit

c)

Full employment

d)

GDP gap

77.

The US public debt

a)

Refers to the debts off all units of government - federal, state, and local

b)

consists of the total debt of US households, businesses, and government

c)

Refers to the collective amount that US citizens and business owners to foreigners

d)

Consists of the historical accumulation of all past federal deficits and surpluses

78.

The crowding-out effect of expansionary fiscal policy suggests that

a)

Government spending increases at the expense of private investment

b)

Imports replace domestic production

c)

private investment increases at the expense of investment

d)

Saving increases at the expense of investment

79.

Other things equal, the stock of capital inherited by future generations is likely to be smaller when government spending

a)

Is financed by borrowing

b)

Is primary for capital-type goods

c)

Increases during a period of recession, rather than prosperity

d)

Is financed by taxation

80.

Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of the graph B, which of the following might explain why GDP increases to Y rather than Z?

a)

Deprecation of the dollar

b)

Reduction in tariffs imposed by our trading partners

c)

Crowding-out effect

d)

Decrease in the saving schedule

81.

Refer to the diagrams, in which Qf is the full-employment output. If the economy’s current aggregate demand curve is AD3, it would be appropriate for the government to

a)

Reduce unemployment compensation benefits

b)

Reduce government expenditures and taxes by equal-size amounts

c)

increase government expenditures or reduce taxes

d)

reduce government expenditures or increase taxes

82.

Refer to the diagrams, in which Qf is the full-employment output. If the economy’s current aggregate demand curve is AD0, it is experiencing

a)

a negative GDP gap

b)

An adverse supply shock

c)

inflation

d)

A positive GDP gap

83.

Which of the following did not contribute directly to the Great Recesiion?

a)

Crisis in mortgage lending market

b)

Pessimism originating from financial market turmoil

c)

Freezing credit markets

d)

Bursting of the dot-com stock market bubble

84.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the

a)

public debt

b)

federal reserve

c)

Budget surplus

d)

budget deficit

85.

Which of the following represents the most expansionary fiscal policy?

a)

A $10 billion tax cut

b)

A $10 billion increase in government spending

c)

A $10 billion tax increase

d)

a $10 billion decrease in government spending

86.

The most likely way the public debt burdens future generations, if at all, is by

a)

Reducing the current level of investment

b)

Causing deflation

c)

reducing real interest rates

d)

Causing future unemployment

87.

Refer to the diagrams, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to

a)

Reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2

b)

Increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2

c)

do nothing since the economy appears to be achieving full-employment real GDP

d)

reduce taxes on businesses to shift the aggregate supply curve leftward

88.

The American recovery and reinvestment act of 2009 was implemented primarily to

a)

reduce inflationary pressure caused by oil price increases

b)

curb the overspending by households that contributed to the Great Recession

c)

Bring the federal budget back into balance

d)

Stimulate aggregate demand and employment

89.

Refer to the figure. Suppose that the economy’s current aggregate is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. Because of the ratchet effect,

a)

fiscal policy will need to be more contractionary to reduce output to Y than if no ratchet effect occurred

b)

Contractionary fiscal policy that shifts aggregate demand to AD1 will cause real GDP to fall below its full-employment level

c)

Tax increases will be more effective at reducing demand-pull inflation than cuts in government spending

d)

It is impossible to enact fiscal policy that will both reduce output to Y and reduce demand-pull inflation

90.

The crowding-out effect is

a)

strongest when the economy is at full employment

b)

Weakest when there is demand-pull inflation

c)

strongest when the economy is in a deep recession

d)

equally strong, regardless of the state of the macroeconomy

91.

The public debt is the amount of money that

a)

the federal government owes to taxpayers

b)

americans owe to foreigners

c)

State and local governments owe to the federal government

d)

The federal government owes to holders of US securities

92.

An appropriate fiscal policy for severe demand-pull inflation is

a)

a tax rate increase

b)

A reduction in interest rates

c)

an increase in government spending

d)

depreciation of the dollar

93.

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) the composition index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) economists reach agreement that the economy is moving into a recession. (3) a tax cut is proposed to congress. (4) the tax cut is passed by congress and signed by president. (5) consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative lag of fiscal policy is reflected in events

a)

1 and 2

b)

3 and 4

c)

4 and 5

d)

2 and 3

94.

Suppose that the economy’s current aggregate is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

a)

Reductions in agricultural subsidies and veterans benefits

b)

Postponement of a highway construction program

c)

reductions in federal tax rates on personal and corporate income

d)

A congressional proposal to incur a federal surplus to be used for the retirement of public debt

95.

Discretionary fiscal policy will stabilize the economy most when

a)

Deficits are incurred during recessions and surpluses during inflations

b)

Budget surpluses are continuously incurred

c)

the budget is balanced each year

d)

defecits are incurred during inflations and surpluses during recessions

96.

Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD3 to AD2 is consistent with

a)

a major recession

b)

An expansionary fiscal policy

c)

demand-pull inflation

d)

A contractionary fiscal policy

97.

Refer to the diagram, in which Qf is the full-employment output. If the economy’s current aggregate demand curve is AD3, it is experiencing

a)

Cost-push inflation

b)

a negative GDP gap

c)

A recession

d)

A positive GDP gap

98.

An expansionary fiscal policy is shown as a

a)

Leftward shift in the economy’s aggregate supply curve

b)

movement along an existing aggregate demand curve

c)

Leftward shift in the economy’s aggregate demand curve

d)

rightward shift in the economy’s aggregate demand curve

99.

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

a)

a medium of exchange

b)

A store of value

c)

A unit of account

d)

An economic investment

100.

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

a)

Unit of account

b)

Standard of deferred payments

c)

store of value

d)

medium of exchange

101.

In the united stated, the money supply (M1) includes

a)

Coins, paper currency, and checkable deposits

b)

Currency, checkable deposits, and series E bonds

c)

coins, paper currency, checkable deposits, and credit balances with brokers

d)

Paper currency, coins, gold certificates, and time deposits

102.

Currency held in the vault of first national bank is

a)

Counted as part of M1

b)

Counted as part of M2 but not M1

c)

Only counted as part of M1 if it was deposited into a checking account

d)

Not counted as part of the money supply

103.

In defining money as M1, economists exclude time deposits because

a)

The intrinsic value of time deposits is nil

b)

The purchasing power of time deposits is much less stable than that of checkable deposits and currency

c)

They are not directly or immediately a medium of exchange

d)

They are not recognized by the federal government as a legal tender

104.

The M2 money supply includes

a)

Stock certificates

b)

Currency in bank vaults

c)

The cash value of life insurance policies

d)

Individual shares in money market mutual funds

105.

Money market deposit accounts are included in

a)

M1 only

b)

M2 only

c)

Neither M1 or M2

d)

Both M1 and M2

106.

The largest component of the money supply (M1) is

a)

Currency in bank vaults

b)

Currency in circulation

c)

Checkable deposits

d)

Stock certificates

107.

Coins in peoples pockets and purses are

a)

Included in M1 but not in M2

b)

Included both in M1 and M2

c)

Included in M2 but not M1

d)

Excluded from M1 and M2 because people can exchange them for federal reserve notes

108.

The money supply is backed

a)

By the governments ability to control the supply of money and therefore to keep its value relatively stable

b)

By government bonds

c)

Dollar-for-dollar by gold and silver

d)

By gold reserves representing a fraction of the total value of dollars in circulation

109.

The purchasing power of money and the price level vary

a)

Inversely

b)

Directing during recessions but inversely during inflations

c)

Directly but not proportionately

d)

Directly and proportionately

110.

If the price index rises from 200 to 250, the purchasing power value of the dollar

a)

May either rise or fall

b)

Will rise by 25 percent

c)

Will fall by 25 percent

d)

Will fall by 20 percent

111.

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

a)

Unless it has been designated legal tender

b)

Unless it is backed by gold

c)

Because it is to scarce for everyone to have enough for transactions

d)

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

112.

The central authority of the US banking system is the

a)

Federal open market committee (FOMC)

b)

Board of governors of the federal reserve

c)

Federal monetary authority

d)

Council of economic advisors

113.

The board of governors of federal reserve has (a)   members.

114.

The members of the federal reserve board

a)

Serve seven-year terms

b)

Are appointed by the American economic association

c)

Are elected by votes of the 12 presidents of the federal reserve banks

d)

Are appointed for 14-year terms

115.

What are “mortgage-backed securities”?

a)

Company stock shares for financial institutions that lend to home buyers

b)

Bonds backed by mortgage payments

c)

Treasury bills and saving bonds that banks sold to maintain liquidity during the Mortgage default crisis

d)

Insurance against mortgage loan defaults

116.

An assets liquidity refers to its ability to be

a)

Bought and stored

b)

Increasing in value over time

c)

Used and enjoyed

d)

A means of payment

117.

Some economists are concerned that the financial rescue provided by TARP will encourage financial investors and firms to take on greater risks in the future. This is an example of

a)

Moral hazard

b)

Adverse selection

c)

A prisoners dilemma

d)

Shadow banking

118.

The Federal Open Market Committee (FOMC) is made up of

a)

the chair of the Board of Governors along with the 12 presidents of the Federal Reserve Banks

b)

The seven members of the Board of Governors along with the president of the New York Federal Reserve Bank

c)

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis

d)

The seven members of the Board of Governors of the Federal Reserve System along with the three members of the Council of Economic Advisers

119.

As it relates to the Federal reserve activities, the acronym FOMC describes the

a)

Federal Organization for Money Creation

b)

Federal Options Market Committee

c)

Federal Organization for Monetary Control

d)

Federal Open Market Committee

120.

The Federal Reserve System is a bankers’ bank and thereby acts as a “lender of last resort” to banks.

a)

True

b)

False

121.

An important routine function of the Federal Reserve Bank is to

a)

Help large commercial banks develop correspondent relationships with smaller commercial banks

b)

supervise the liquidation of the assets of bankrupt state banks

c)

Provide facilities by which commercial banks and thrift institutions may collect checks

d)

Advise commercial banks as to the most profitable ways of reinvesting profits

122.

Stock market price quotations best exemplify money serving as a

a)

Index of satisfaction

b)

Unit of account

c)

Medium of exchange

d)

Store of value

123.

The value (or purchasing power) of money increases when the price level increases.

a)

true

b)

False

124.

The paper money used in the United States is

a)

National Bank notes

b)

United States notes

c)

Treasury notes

d)

Federal Reserve notes

125.

If you write a check on the bank to purchase a used Honda Civic, you are using money primarily as

a)

A store in value

b)

an economic investment

c)

A medium of exchange

d)

A unit of account

126.

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

a)

Unit of account

b)

Store of value

c)

medium of exchange

d)

Checkable deposit

127.

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

a)

Decrease the purchasing power of each dollar

b)

Reduce the price level

c)

Increase the purchasing power of each dollar

d)

have no impact on the purchasing power of the dollar

128.

The most important function of the Fed is:

a)

Act as a fiscal agent for US government

b)

Supervise banks

c)

Control the money supply

d)

Lender of last resort

129.

Which of the following does not explain what backs the money supply in the United States?

a)

it is relatively scarce

b)

It is backed by gold

c)

It is designated “legal tender” by the federal government

d)

It is widely accepted in transactions

130.

The value of money varies

a)

Directly with the price level

b)

directly with the interest rate

c)

inversely with the price level

d)

Directly with the volume of employment

131.

Correctly in circulation is part of

a)

Neither M1 nor M2

b)

M1 only

c)

both M1 and M2

d)

M2 only

132.

When economists say that money serves as a store of value, they mean that it is

a)

A means of payment

b)

A monetary unit for measuring and comparing the relative value of goods

c)

a way to keep wealth readily spendable form future use

d)

Declared as legal tender by the government

133.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

a)

Treasury rate

b)

Prime rate

c)

Federal funds rate

d)

Discount rate

134.

Mostly modern banking systems are based on

a)

Commodity money

b)

fractional reserves

c)

Money of intrinsic value

d)

100 percent reserves

135.

The goldsmiths ability to create the money was based on the fact that

a)

the goldsmiths was required to keep 100 percent gold reserves

b)

Paper money in the form of gold receipts was rarely redeemed for gold

c)

Consumers and merchants preferred to use gold for transactions, rather than paper money

d)

Withdrawals of gold tended to exceed deposits of gold in any given time period

136.

Items: 1. Money market mutual funds held by individuals 2. Money market mutual funds held by businesses 3. Currency held by the public 4. Small time deposits 5. Checkable deposits

Refer to the accompanying list. The M1 money supply is composed of items

a)

1 and 4

b)

1, 2, and 4

c)

3 and 4

d)

4 and 5

137.

The money supply is vertical (does not change with the interest rate) because:

a)

Because at any point in time the amount of gold that backs the money supply is fixed

b)

It is hard to change the money supply of money

c)

banks always supply a fixed amount of money regardless of the interest rate

d)

It is controlled by the Fed

138.

The asset demand for money

a)

is unrelated for both the interest rate and the level of GDP

b)

varies inversely with the rate of interest

c)

Varies inversely with the level of real GDP

d)

Varies directly with the level of nominal GDP

139.

The total demand for money curve will shift to the right as a result of

a)

An increase in nominal GDP

b)

An increase in the interest rate

c)

A decline in the interest rate

d)

A decline in nominal GDP

140.

It is costly to hold money because

a)

deflation may reduce its purchasing power

b)

In doing so, one sacrifices interest income

c)

Bond prices are highly variable

d)

The rate at which money is spent may decline

141.

The asset demand for money is downsloping because

a)

The opportunity cost of holding money increases as the interest rate rises

b)

It is more attractive to hold money at high interest rates than at low interest rates

c)

Bond prices rise as interest rates rise

d)

The opportunity cost of holding money declines as the interest rate rises

142.

If the quantity of money demanded exceeds the quantity supplied,

a)

the supply-of-money curve will shift to the left

b)

the demand-for-money curve will shift to the right

c)

the interest rate will rise

d)

The interest rate will fall

143.

Refer to the given market-for-money diagrams. If the Federal Reserve increased the stock of money, the

a)

s curve would shift leftward and the equilibrium interest rate would rise

b)

S curve would shift rightward and the equilibrium interest rate would fall

c)

D3 curve would shift leftward and the equilibrium interest rate would fall

d)

D3 curve would shift leftward and the equilibrium interest rate would rise

144.

Since the financial crisis that began in 2007, the Federal Reserve has added a significant amount of which of the following securities?

a)

Corporate bonds

b)

mortgage-backed securities

c)

Common stock of financial institutions

d)

Certificate of deposit

145.

When a commercial bank borrows from a Federal Reserve Bank,

a)

the supply of money automatically increases

b)

it indicates that the commercial bank is unsound financially

c)

The commercial banks lending ability is increased

d)

The commercial banks reserves are reduced

146.

Open-market operations include

a)

Changes in the reserve ration

b)

Repos and reverse repos

c)

Paying interest on excess reserves held at Federal Reserve Banks

d)

changes in the discount rate

147.

Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 billion of US securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is

a)

Not directly affected, but the money-creating potential of the commercial banking system is increased by $12 billion

b)

Directly increased by $4 billion and the money-creating potential of the commercial banking system is increased by an additional $16 billion

c)

Directly reduced by $4 billion and the money-creating potential of the commercial banking system is decreased by an additional $12 billion

d)

directly increased by $4 billion and the money-creating potential of the commercial banking system is increased by an additional $12 billion

148.

Open market operations refer to

a)

purchases of stock in the New York Stock Exchange

b)

the purchase or sale of government securities, as well as collateralized money loans, by the Fed

c)

Central bank lending to commercial banks

d)

the specifying of loam maximums on stock purchases

149.

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

a)

A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP

b)

A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP

c)

An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP

d)

An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP

150.

The purpose of an expansionary monetary policy is to shift the

a)

aggregate demand curve leftward

b)

Aggregate demand curve rightward

c)

Aggregate supply curve leftward

d)

Investment demand curve leftward

151.

If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government

a)

Budget deficit, the purchase of securities in the open market, a higher discount rate, and higher reserve requirements

b)

Budget deficit, the sale of securities in the open market, a higher discount rate, and lower reserve requirements

c)

Budget surplus, the sale of securities in the open market, a higher discount rate, and higher reserve requirements

d)

Budget surplus, the sale of securities in the open market, a lower discount rate, and lower reserve requirements

152.

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to _____, which will _____ investment spending.

a)

decrease; decrease

b)

decrease; increase

c)

Increase; increase

d)

increase; decrease

153.

Which of the following actions by the Fed would cause the money supply to increase?

a)

Purchases of government bonds from banks

b)

An increases in the reserve requirement

c)

An increase in the discount rate

d)

sales of government bonds to the public

154.

The purpose of a restrictive monetary policy is to

a)

Alleviate recessions

b)

raise interest rates and restrict the availability of bank credit

c)

Increase aggregate demand and GDP

d)

increase investment spending

155.

To increase the federal funds rate, the Fed historically has

a)

bought government bonds from the public

b)

decreased the discount rate

c)

decreased the prime interest rate

d)

sold government bonds to commercial banks

156.

The Feds response to the zero lower bound problem was

a)

To raise the lower bound

b)

Quantitive easing

c)

To lower the reserve ratio

d)

restrictive monetary policy

157.

The Federal Reserve System regulates the money supply primarily by

a)

controlling the production of coins of the US mint

b)

altering the reserve requirements of commercial banks and thereby the ability of banks to make loans

c)

Altering the reserves of commercial banks, largely through sales and purchases of government bonds

d)

Restricting the issuance of Federal Reserve Notes because paper money is the largest portion of the money supply

158.

Open-market operations change

a)

the size of the monetary multiplier but not commercial banks reserves

b)

commercial banks reserves but not the size of the monetary multiplier

c)

Neither commercial bank reserves nor the size of the monetary multiplier

d)

Both commercial bank reserves and the size of the monetary multiplier

159.

If the Fed were to reduce the legal reserve ratio, we would expect

a)

Lower interest rates, an expanded GDP, and a higher rate of inflation

b)

Lower interest rates, an expanded GDP, and a lower rate of inflation

c)

Higher interest rates, a contracted GDP and a higher rate of inflation

d)

higher interest rates, a contracted GDP, and a lower rate of inflation

160.

The discount rate is the interest

a)

Rate at which commercial banks lend to the public

b)

Rate at which the Federal Reserve Banks lend to commercial banks

c)

Yield on long-term government bonds

d)

Rate at which the central banks lend to the US treasury

161.

Which of the following is part of Congress’s dual mandate to the Fed?

  1. 1. Stable inflation

  2. 2. Stable money supply

  3. 3. Stable government spending

  4. 4. No cyclical unemployment

  5. 5. Stable bond purchases

a)

1 and 4

b)

1, 2, and 4

c)

1, 2, and 3

d)

4 and 5

e)

2, 3, and 4

162.

An increase in the money supply will

a)

lower interest rates and lower equilibrium GDP

b)

increase interest rates and increase the equilibrium GDP

c)

Lower interest rates and increase the equilibrium GDP

d)

Increase interest rates and lower the equilibrium GDP

163.

Which of the following is the most important tool of the Fed today?

a)

Reserve Ratio

b)

Forward Guidance

c)

Interest on reserves

d)

Discount Rate

164.

When the Fed lends money to a commercial bank, the bank

a)

Increases its reserves and enhances its ability to extend credit to bank customers

b)

Pays the prime interest rates on the loan

c)

pays the federal funds interest rate on the loan

d)

Decreases its reserves and reduces its ability to extend credit to bank customers

165.

If the Federal Reserve system buys government securities from commercial banks and thereby public,

a)

commercial bank reserves will be unaffected

b)

The money supply will contract

c)

It will be easier to obtain loans at commercial banks

d)

Commercial bank reserves will decline

166.

One of the m=reasons many economists favor monetary policy to be used first is because it:

a)

can be implemented very fast

b)

Can help the government have a low cost of borrowing during recessions

c)

it can be easily approved by congress and the president

d)

Can affect interest rates and through that affect investment

167.

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits

a)

Of commercial banks are unchanged, but their reserves increase

b)

and reserves of commercial banks both decrease

c)

And reserves of commercial banks are both unchanged

d)

Of commercial banks are unchanged, but their reserves decrease

168.

The federal funds rate is the interest rate that _____ charge(s) ______.

a)

the Fed; commercial banks

b)

Banks; on federal student loans

c)

banks; other banks

d)

Banks; their best corporate customers

169.

A contraction of the money supply

a)

increases both the interest rate and aggregate demand

b)

Lowers the interest rate and increases aggregate demand

c)

Lowers both the interest rate and aggregate demand

d)

increases the interest rate and decreases aggregate demand

170.

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. Which of the following would shift the money supply curve from MS1 to MS3?

a)

an increase in the discount rate

b)

purchases of US securities by the Fed in the open market

c)

An increase in the reserve ratio

d)

Sales of US securities by the Fed in the open market

171.

Quantitive Easing (QE) was implemented by the Fed when:

a)

The banks needed more money to lend

b)

Fiscal policy was no longer helpful

c)

It reached the zero lower bound

d)

The fed no longer could control the money supply

172.

If the economy were encountering a severe recession, proper monetary and fiscal policies would call for

a)

Buying government securities, reducing the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit

b)

Selling government securities, lowering the discount rate, increasing interest paid on reserves held at Fed banks, and a budgetary surplus

c)

buying government securities, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary deficit

d)

buying government securities, raising the discount rate, reducing interest paid on reserves held at Fed banks, and a budgetary surplus

173.

Refer to the diagrams of the market for money. The vertical money supply curve Sm reflects the fact that

a)

lower interest rates result in lower opportunity costs of supplying money

b)

the rate at which money is spent is zero

c)

The stock of money is determined by the Federal reserve System and does not change when the interest rate changes

d)

Bond prices and interest rates are inversely related

174.

Before the Great Recession the most important tool of the Fed was:

a)

the reserve ratio

b)

The interest on reserves

c)

Open market operations

d)

The discount rate

175.

It is costly to hold money because

a)

The rate at which money is spent may decline

b)

deflation may reduce its purchasing power

c)

in doing so, one sacrifices interest income

d)

Bond prices are highly variable

176.

A restrictive monetary policy is designed to shift the

a)

Aggregate supply curve rightward

b)

aggregate demand curve leftward

c)

Aggregate supply curve leftward

d)

aggregate demand curve rightward

177.

Which of the following statements is correct?

a)

Interest rates and bond prices are unrelated

b)

interest rates and bond prices vary inversely

c)

Interest rates and bond prices vary directly

d)

Interest rates and bond prices vary directly during inflations and inversely during recessions

178.

If the Fed wants to discourage commercial bank lending, it will

a)

increase the interest paid on excess reserves held at the Fed

b)

Buy government securities from commercial banks

c)

Decrease the interest paid on excess revenues held at the Fed

d)

lower the federal funds rate target

179.

Which of the following is a tool of monetary policy?

a)

Changes in tax rates

b)

open-market operations

c)

Changes in banking laws

d)

Changes in government spending