If government increases spending and wants to maintain a balanced budget, it should __________.

Question options:

  

 

decrease   taxes by an equal amount

 

 

increase   taxes by an equal amount

 

 

decrease   taxes by an amount equal to the increase in spending multiplied by the tax   multiplier

 

 

increase   taxes by an amount equal to the increase in spending multiplied by the tax   multiplier

 

Question 2

 

2.5 / 2.5 points

        

Higher real interest rates resulting from a government budget deficit will __________ the amount of loanable funds a firm demands for their investments.

Question options:

  

 

stabilize

 

 

decrease

 

 

not   affect

 

 

increase

 

Question 3

 

0 / 2.5 points

        

Which of the following is NOT a key financial institution?

Question options:

  

 

insurance   companies

 

 

stock   markets

 

 

commercial   banks

 

 

government-sponsored   mortgage lenders

 

Question 4

 

2.5 / 2.5 points

        

What was one of the biggest contributing factors that led to the failure of financial institutions during the recent economic crisis?

Question options:

  

 

low   interest rates

 

 

high   employment rates

 

 

rising   home prices

 

 

strong   corporate management

 

Question 5

 

2.5 / 2.5 points

        

If a firm increases its capital stock per person while holding constant the number of workers employed, the firm is said to experience __________.

Question options:

  

 

capital   augmentation

 

 

investment   deepening

 

 

labor   intensity

 

 

capital   deepening

 

Question 6

 

2.5 / 2.5 points

        

Nations that borrow from abroad to support current investment will __________.

Question options:

  

 

always   be better off in the future

 

 

always   sacrifice future consumption

 

 

be   better off in the future if the investments are profitable

 

 

sacrifice   future consumption only if the investments are profitable

 

Question 7

 

2.5 / 2.5 points

        

According to the text, __________ is perhaps the most critical aspect of a country’s economic performance.

Question options:

  

 

growth   in GDP

 

 

the   inflation rate

 

 

the   unemployment rate

 

 

the   living standard

 

Question 8

 

2.5 / 2.5 points

        

In developing countries, the highest returns are from investing in __________.

Question options:

  

 

transportation   systems

 

 

sanitation   systems

 

 

education

 

 

defense

 

Question 9

 

2.5 / 2.5 points

        

Nations with low levels of GDP per capita may converge to richer nations if __________.

Question options:

  

 

nations   with high levels of income experience a continuously increasing growth rate

 

 

nations   with lower levels of income grow more quickly than those with higher levels   of income

 

 

nations   with lower levels of income spend less on investment

 

 

nations   with lower levels of income grow more slowly than those with higher levels of   income

 

Question 10

 

2.5 / 2.5 points

        

An increase in the capital stock will __________.

Question options:

  

 

shift   the production function downward

 

 

shift   the production function upward

 

 

flatten   the production function

 

 

steepen   the production function

 

Question 11

 

2.5 / 2.5 points

        

What happens to U.S. GDP when foreign countries experience prosperity?

Question options:

  

 

It   increases because the United States will export more product to those   countries.

 

 

It   decreases because the foreign countries will now buy more of their own   products.

 

 

It   decreases because the foreign countries will be able to export more at a   lower cost.

 

 

It   does not change because U.S. GDP is not affected by other countries’   prosperity.

 

Question 12

 

2.5 / 2.5 points

        

The multiplier that arises from equal increases in government spending and taxes is called the __________.

Question options:

  

 

simple   multiplier

 

 

tax   multiplier

 

 

balanced   budget multiplier

 

 

government   spending multiplier

 

Question 13

 

2.5 / 2.5 points

        

Convergence refers to closing the gap in __________ between poorer countries and richer countries.

Question options:

  

 

real   GDP

 

 

real   GDP per capita

 

 

the   growth rate in real GDP

 

 

the   growth rate in real GDP per capita

 

Question 14

 

2.5 / 2.5 points

        

Which of the following uses of tax revenues collected by the government leads to increased capital deepening?

Question options:

  

 

building   roads

 

 

increased   foreign aid

 

 

Medicare   payments

 

 

Social   Security payments

 

Question 15

 

2.5 / 2.5 points

        

The fraction of additional income spent on imports is called the __________.

Question options:

  

 

import   function

 

 

marginal   propensity to import

 

 

marginal   propensity to export

 

 

trade   balance

 

Question 16

 

2.5 / 2.5 points

        

Economic growth is severely impeded in economies __________.

Question options:

  

 

with   a lack of clear property rights

 

 

with   a strong market system

 

 

with   high rates of convergence

 

 

which   encourage induced innovation

 

Question 17

 

2.5 / 2.5 points

        

According to the method of growth accounting, which of the following contribute to economic growth?

Question options:

  

 

capital   growth

 

 

labor   growth

 

 

technological   progress

 

 

all   of the above

 

Question 18

 

0 / 2.5 points

        

Fluctuations in the demand and supply of loanable funds will in turn bring changes to the __________ of lent and borrowed funds.

Question options:

  

 

product   recipient

 

 

mortgage-backed   securities

 

 

equilibrium   quantity

 

 

equilibrium   quality

 

Question 19

 

2.5 / 2.5 points

        

Suppose that for a given firm, the increase in output resulting from the last worker hired is less than the increase in output of the previous worker hired. This is an example of __________.

Question options:

  

 

diminishing   returns

 

 

constant   returns

 

 

increasing   return

 

 

capital   deepening

 

Question 20

 

2.5 / 2.5 points

        

If the government __________ taxes to pay for spending on infrastructure, the result will most likely be a(n. __________ in capital deepening.

Question options:

  

 

increases;   increase

 

 

decreases;   increase

 

 

increases;   decrease

 

 

eliminates;   elimination

 

Lesson 5

      

   

Question 21

 

2.5 / 2.5 points

Equilibrium in the money market occurs when __________.

Question options:

  

 

the   quantity of money demanded equals the quantity of money supplied

 

 

the   quantity of money demanded is less than the quantity of money supplied

 

 

the   quantity of money demanded is more than the quantity of money supplied

 

 

the   interest rate equals the money supply

 

Question 22

 

2.5 / 2.5 points

        

The Federal Reserve System was created by the __________.

Question options:

  

 

U.S.   Treasury

 

 

President

 

 

Congress

 

 

Supreme   Court

 

Question 23

 

2.5 / 2.5 points

        

What impact does the Fed’s raising the interest rate have on the money supply and on the price level?

Question options:

  

 

An   increase in interest rates raises the money supply and eventually reduces   prices.

 

 

An   increase in interest rates reduces the money demand which will slow the   growth in prices.

 

 

An   increase in interest rates lowers the money supply and raises the money   demand, which will neutralize price increases.

 

 

An   increase in interest rates will increase investment spending and GDP, which   will lower prices.

 

Question 24

 

2.5 / 2.5 points

        

Loans are examples of a bank’s __________.

Question options:

  

 

assets

 

 

liabilities

 

 

net   worth

 

 

balance   sheet

 

Question 25

 

2.5 / 2.5 points

        

One of the essential functions that a bank performs is __________.

Question options:

  

 

purchasing   government bonds

 

 

creating   deposits by lending required reserves

 

 

transferring   money from savers to lenders

 

 

owning   assets like real estate

 

Question 26

 

0 / 2.5 points

        

By law, banks are required to __________.

Question options:

  

 

hold   100 percent of customer deposits as reserves

 

 

hold   a fraction of their reserves at the Federal Reserve bank

 

 

hold   a fraction of demand deposits as reserves

 

 

lend   out no more than the amount of their required reserves

 

Question 27

 

2.5 / 2.5 points

        

When checks are exchanged between banks, the Fed oversees the banks to ensure the appropriate funds have been transferred. This is known as __________.

Question options:

  

 

check   kiting

 

 

check   clearing

 

 

check   floating

 

 

check   balancing

 

Question 28

 

2.5 / 2.5 points

        

The supply of money in the U.S. economy is determined primarily by __________.

Question options:

  

 

decisions   made by the Federal Reserve and the U.S. Treasury

 

 

the   actions of the Federal Reserve and the banking system

 

 

consumers   and the banking system

 

 

the   demand for money in the economy

 

Question 29

 

2.5 / 2.5 points

        

Consider how the value of the U.S. dollar affects the worldwide increase in commodity prices to answer the following two question(s.. Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom. Some economists noticed that the change in the value of the U.S. dollar was largely due to the change in interest rates, and the change in interest rates occurred because of the Fed’s use of __________ to further stimulate the economy.

Question options:

  

 

open   market sales

 

 

quantitative   easing

 

 

discount   operations

 

 

open   market purchases

 

Question 30

 

2.5 / 2.5 points

        

M1 __________.

Question options:

  

 

is   the sum of currency plus traveler’s checks

 

 

is   the narrowest definition of the money supply

 

 

includes   small time deposits

 

 

includes   credit cards

 

Question 31

 

2.5 / 2.5 points

        

All of the following statements are true of the Federal Reserve EXCEPT __________.

Question options:

  

 

it   acts as the central bank for all countries in the world

 

 

along with the Board of Governors, the chairperson of the Federal   Reserve determines monetary policies and strategies based on the state of   economy

 

 

it supplies currency to the economy

 

 

it holds reserves from banks and regulates banks

 

Question 32

 

2.5 / 2.5 points

        

An open market __________ by the Fed decreases the money supply, which leads to __________ interest rates and a fall in investment spending.

Question options:

  

 

sale; increased

 

 

sale; decreased

 

 

purchase; increased

 

 

purchase; decreased

 

Question 33

 

2.5 / 2.5 points

        

In the __________ , increases in the supply of money will __________.

Question options:

  

 

short run; raise total demand and output

 

 

long run; raise total demand and output

 

 

long run; lead to lower prices

 

 

short run; decrease total demand and output

 

Question 34

 

2.5 / 2.5 points

        

The group responsible for deciding on monetary policy is the __________.

Question options:

  

 

Federal Open Market Committee

 

 

Board of Governors only

 

 

Federal Advisory Council

 

 

group of 12 Federal Reserve Bank presidents only

 

Question 35

 

2.5 / 2.5 points

        

An increase in the reserve requirement __________.

Question options:

  

 

increases the money supply, which leads to increased interest rates and   a decrease in GDP

 

 

increases the money supply, which leads to decreased interest rates and   a decrease in GDP

 

 

decreases the money supply, which leads to increased interest rates and   a decrease in GDP

 

 

decreases the money supply, which leads to decreased interest rates and   a decrease in GDP

 

Question 36

 

2.5 / 2.5 points

        

Good news for the economy is bad news for bond prices, because __________.

Question options:

  

 

the increased demand for money will increase interest rates

 

 

when real GDP increases, demand for money will decrease

 

 

bond prices move in the same direction as interest rates

 

 

when interest rates increase during growing GDP, bond prices will   increase

 

Question 37

 

2.5 / 2.5 points

        

A bank may make loans until its __________.

Question options:

  

 

required reserves are exhausted

 

 

excess reserves are exhausted

 

 

total assets are exhausted

 

 

total liabilities are exhausted

 

Question 38

 

2.5 / 2.5 points

        

Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should __________.

Question options:

  

stay the same

 

 

increase

 

 

decrease

 

 

increase to the same extent that the supply of money increases

 

Question 39

 

2.5 / 2.5 points

        

The Federal Reserve influences the level of interest rates in the short run by changing the __________.

Question options:

  

 

demand for money through open market operations

 

 

demand for money through changes in reserve requirements

 

 

supply of money through open market operations

 

 

supply of money through changes in stock market operations

 

Question 40

 

2.5 / 2.5 points

        

If money is used as a mechanism to hold purchasing power for a period of time, it is functioning as a __________.

Question options:

  

 

standard of value

 

 

store of value

 

 

medium of exchange

 

 

unit of account