Econ Study

Question 1

In a closed economy, national savings equals private savings:

Answer 1

plus the budget balance.

This highlights the relationship between savings and government fiscal policy.

Question 2

A decrease in the demand for money would result from a(n):

Answer 2

decrease in real gross domestic product.

Lower economic activity typically reduces the need for money.

Question 3

When interest rates decrease, the demand for commercial and residential real estate will _____ and the price of real estate will _____.

Answer 3

increase; increase.

Lower interest rates make borrowing cheaper, increasing real estate demand.

Question 4

A business will want to borrow to undertake an investment project when the rate of return on that project is _____ rate.

Answer 4

higher than the interest.

This ensures profitability in investments.

Question 5

A _____ sells policies to savers and guarantees a payment to the policyholder’s beneficiaries when the policyholder dies.

Answer 5

life insurance company.

This is a key function of life insurance companies.

Question 6

In a checkable-deposits-only monetary system with a 5% required reserve ratio, a bank deposit of $1,000 could increase the total amount of bank deposits by up to $:

Answer 6

20,000.

This is calculated using the money multiplier effect.

Question 7

Money is:

Answer 7

an asset that can be easily used to purchase goods and services.

Money serves as a medium of exchange.

Question 8

The cyclically balanced budget is important because it:

Answer 8

helps clarify whether the government’s taxing and spending policies are sustainable in the long run.

This concept is crucial for fiscal policy planning.

Question 9

The money demand curve is _____ sloping because a lower interest rate _____ the opportunity cost of holding money.

Answer 9

downward; decreases.

This reflects the inverse relationship between interest rates and money demand.

Question 10

If the public holds 50% of the money supply in currency and the reserve requirement is 20%, a customer deposits $4,000 in her checking account. As a result of the deposit, required reserves increase by $:

Answer 10

This is calculated as 20% of the deposit.

Question 11

Financial markets spread the potential gains and losses of borrowing and lending among many firms and individuals, decreasing overall uncertainty. The financial system thereby:

Answer 11

reduces risk.

This diversification helps stabilize the economy.

Question 12

When banks extend loans:

Answer 12

the money supply increases.

This process generates new money in the economy.

Question 13

All other things equal, a decrease in government borrowing will:

Answer 13

shift the demand curve for loanable funds to the left.

This indicates reduced demand for loans.

Question 14

The economy may move from point i to point h as a result of:

Answer 14

an increase in the money supply.

This reflects the effects of monetary policy on economic points.

Question 15

Governments can save when:

Answer 15

taxes are greater than expenditures.

This indicates a budget surplus.

Question 16

The reserve requirement is 10%, and Olga withdraws $5,000 for travel money from her checking account. As a result of the withdrawal, excess reserves _____ by $_____

Answer 16

decrease; 500.

This reflects the impact of withdrawals on bank reserves.

Question 17

A physical asset is:

Answer 17

a tangible asset that can be used to generate income and whose owner has the right to dispose of it at will.

This distinguishes physical assets from financial assets.

Question 18

The narrowest definition of money includes:

Answer 18

currency in circulation.

This definition is critical for understanding monetary supply.

Question 19

Contractionary monetary policy will, all else equal, _____ the interest rate and shift the aggregate demand curve to the _____.

Answer 19

increase; left.

This reflects the tightening of monetary conditions.

Question 20

A decrease in government spending of $300 billion and a tax increase of $300 billion will have _____ effects on the budget balance and _____ effects on real GDP.

Answer 20

equal; unequal.

This highlights the differing impacts on fiscal balance versus economic output.

Question 21

Which of these includes the most companies and provides the broadest measure of stock market performance?

Answer 21

the S&P 500.

This index is commonly used to gauge overall market performance.

Question 22

Lucia withdraws $6,000 from her checking account to pay tuition this semester. Immediately after the withdrawal, reserves _____, and checkable deposits _____.

Answer 22

decrease by $6,000; decrease by $6,000.

This reflects the direct impact of withdrawals on bank reserves.

Question 23

When nominal wages decrease, the short-run aggregate supply curve:

Answer 23

shifts to the right.

Lower wages reduce production costs, increasing supply.

Question 24

The quantity demanded of money is negatively related to _____, and the demand for money is positively related to _____.

Answer 24

the interest rate; real gross domestic product.

This captures the relationship between interest rates and economic activity.

Question 25

A major problem with bank runs is that they:

Answer 25

spread to other banks. ## Footnote This contagion effect can destabilize the entire banking system.

Question 26

If the economy is producing at Y1, it faces a(n) _____ gap, as _____ real gross domestic product exceeds _____ real gross domestic product.

Answer 26

inflationary; potential; actual. ## Footnote This indicates an economy operating above its sustainable capacity.

Question 27

The automatic stabilizer in government tax revenue that occurs when GDP rises _____ the multiplier.

Answer 27

increases. ## Footnote This reflects the relationship between economic growth and tax revenue.

Question 28

Some economists have challenged the _____, arguing that markets often behave irrationally.

Answer 28

efficient markets hypothesis. ## Footnote This debate highlights the complexity of market behavior.

Question 29

If the economy is at potential output, and the Fed decreases the money supply, in the long run, real gross domestic product will likely:

Answer 29

remain the same. ## Footnote This suggests that output is determined by real factors in the long run.

Question 30

If the Federal Reserve intended to encourage investment and expand the economy, it would _____ Treasury bills, _____ the money supply, and _____ interest rates.

Answer 30

buy; increase; lower. ## Footnote This outlines the tools of monetary policy.

Question 31

If the aggregate price level doubles:

Answer 31

both money demand and the money supply will rise proportionally. ## Footnote This reflects the relationship between price levels and money.

Question 32

Assume that the marginal propensity to consume is 0.8 and that potential output is $900 billion. If real GDP is $700 billion, _____ government spending by $_____ billion would bring the economy to potential output.

Answer 32

increasing; 100. ## Footnote This is based on the multiplier effect of fiscal policy.

Question 33

Suppose an economy faces a recessionary gap, and the government uses expansionary fiscal policy to correct the problem. The policy may:

Answer 33

be ineffective, especially if the level of public debt is already very high. ## Footnote This highlights potential limitations of fiscal interventions.

Question 34

A household's wealth is:

Answer 34

the value of its accumulated savings. ## Footnote This is a key measure of financial health.

Question 35

Consider an economy that already has a sizable budget deficit. If the economy faces a major downturn, most economists agree, the government should:

Answer 35

stimulate the economy by raising expenditure irrespective of the ratio of debt to GDP. ## Footnote This reflects the need for counter-cyclical fiscal policy.

Question 36

To close a(n) _____ gap, the central bank could adopt a(n) _____ economic policy.

Answer 36

recessionary; expansionary. ## Footnote This indicates the direction of monetary policy needed.

Question 37

If the economy is at potential output, and the Fed _____ the money supply, the likely result will be a(n) _____ in investment spending and a(n) _____ in consumer spending in the short run.

Answer 37

decreases; decrease; decrease. ## Footnote This reflects the contractionary impact of reduced money supply.

Question 38

Suppose that the economy is operating at potential output, and the money supply increases. Aggregate output will _____ potential output, nominal wages will _____, and the short-run aggregate supply will shift _____.

Answer 38

rise above; rise; leftward. ## Footnote This describes the dynamic effects of expansionary monetary policy.

Question 39

An increase in government spending of $300 billion and a tax cut of $300 billion will have _____ effects on the budget balance and _____ effects on real GDP.

Answer 39

unequal; equal. ## Footnote This highlights the differing fiscal impacts of spending versus tax cuts.

Question 40

Assume an open economy in which GDP is $20 trillion. If consumption is $14 trillion, government spending is $3 trillion, taxes are $2 trillion, government transfers are $0, exports are $2 trillion, and imports are $3 trillion, what is private savings?

Answer 40

$3 trillion. ## Footnote This is derived from the national income accounting identity.

Question 41

Which of these is a tool of monetary policy used by the Federal Reserve?

Answer 41

I only. ## Footnote Open market operations are a primary tool for managing money supply.

Question 42

You will break even if the annual nominal interest rate is _____%.

Answer 42

10. ## Footnote This is calculated based on the loan repayment structure.

Question 43

The cyclically adjusted budget balance refers to the:

Answer 43

budget balance if aggregate output were equal to potential output. ## Footnote This reflects an adjustment for economic cycles.

Question 44

Given a recessionary gap, the Federal Reserve will use monetary policy to _____ real gross domestic product and _____ aggregate demand.

Answer 44

increase; increase. ## Footnote This shows the goal of expansionary monetary policy.

Question 45

The multiplier effect of a(n) _____ in transfer payments is _____ that of an equal increase in government purchases of goods and services.

Answer 45

increase; smaller than. ## Footnote This illustrates the differing impacts of fiscal policies.

Question 46

The reserve requirement is 10%, and Olga withdraws $3,000 for travel money from her checking account. As a result of the withdrawal, excess reserves _____ by $_____

Answer 46

decrease; 300. ## Footnote This reflects the effect of withdrawals on bank reserves.

Question 47

Financial markets:

Answer 47

provide liquidity. ## Footnote This is essential for market efficiency and functionality.

Question 48

The demand for loanable funds curve is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds.

Answer 48

downward; investors; increasing. ## Footnote This captures the behavior of borrowers in response to interest rates.

Question 49

What do financial markets provide?

Answer 49

Liquidity ## Footnote Financial markets facilitate the buying and selling of assets, providing liquidity to investors.

Question 50

The demand for loanable funds curve is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds.

Answer 50

downward; investors; increasing

Question 51

According to the loanable funds model, in the short run, expansionary monetary policy:

Answer 51

increases the quantity of loanable funds supplied.

Question 52

According to the concept of monetary neutrality, _____ in the money supply _____ real gross domestic product but _____ the price level.

Answer 52

increases; do not change; do raise

Question 53

Improvements in information technology have:

Answer 53

decreased the demand for money.

Question 54

If the economy is in an inflationary gap at point h, it can move to point i as a result of:

Answer 54

a decrease in the money supply.

Question 55

If the government increases its spending when the economy is expanding, automatic stabilizers _____ the government spending multiplier.

Answer 55

will not affect

Question 56

If the Fed conducts an open-market sale, bank reserves _____, and the money supply is likely to _____

Answer 56

decrease; decrease

Question 57

A recession causes the size of the multiplier to _____ because revenue from personal income taxes automatically decreases as disposable income decreases.

Answer 57

decrease

Question 58

What would be the immediate effect if an individual made a $20,000 cash deposit in a bank?

Answer 58

The money supply would not be affected.

Question 59

An increase in taxes _____, shifting the aggregate demand curve to the _____

Answer 59

decreases disposable income and consumption; left

Question 60

All assets that are included in _____ are also included in _____

Answer 60

M2; M1

Question 61

_____ are financial intermediaries that sell policies to savers and guarantee a payment to the policyholder's beneficiaries when the policyholder dies.

Answer 61

Life insurance companies

Question 62

What is an advantage to a foreign country of investment by U.S. firms?

Answer 62

U.S. companies often bring new technology to the foreign countries in which they invest, raising their productivity.

Question 63

The efficient markets hypothesis states that:

Answer 63

at any given time, stock prices are fairly valued, reflecting all available information.

Question 64

A change in taxes shifts the aggregate _____ curve by _____ than a change in government purchases of goods and services.

Answer 64

demand; less

Question 65

Which of these statements about bank runs is false?

Answer 65

Bank runs typically happen only to small banks with few financial assets.

Question 66

Given the scenario depicted in the graph, which equation measures an inflationary gap?

Answer 66

Y3 – Y2

Question 67

A checking account with $500 is:

Answer 67

more liquid than a new car.

Question 68

The federal budget tends to move toward _____ as the economy _____

Answer 68

deficit; contracts

Question 69

If the marginal propensity to consume is 0.75, and government purchases of goods and services decrease by $30 billion, real GDP will:

Answer 69

decrease by $120 billion.

Question 70

Shares of stock are:

Answer 70

shares of ownership in the issuing company.

Question 71

Currency in the United States today is _____ money.

Answer 71

fiat

Question 72

Bank-like activities undertaken by nonbank financial firms are known as _____

Answer 72

shadow banking

Question 73

If there is a decrease in taxes, _____ will shift to the _____, causing a(n) _____ in the price level and a(n) _____ in real GDP.

Answer 73

AD1; right; increase; increase

Question 74

If U.S. debt is $7 trillion at the beginning of the fiscal year, what will it be at the end of the fiscal year if purchases and transfers are $2 trillion and tax revenues are $2 trillion?

Answer 74

7 trillion.

Question 75

If the market interest rate is 13.5%, the amount of planned investment spending is $:

Answer 75

800.

Question 76

The size of the multiplier _____ as the marginal propensity to consume _____

Answer 76

increases; increases

Question 77

Commodity money is:

Answer 77

a good used as a medium of exchange that has other uses.

Question 78

Lucia withdraws $6,000 from her checking account to pay tuition. If the reserve requirement is 20% and banks hold no excess reserves, excess reserves _____ by $_____

Answer 78

decrease; 6,000

Question 79

If your grandma sends you $200 for your birthday and you deposit it in your checking account with a reserve ratio of 10%, how much could the money supply grow?

Answer 79

by as much as an additional $2,000.

Question 80

If the reserve ratio is 9%, and the banking system does not want to hold excess reserves, how much more can be added to the money supply?

Answer 80

about $667,000

Question 81

_____ targeting occurs when the central bank sets an explicit goal for the _____ rate.

Answer 81

Inflation; inflation

Question 82

_____ is the most liquid asset in the economy.

Answer 82

Money

Question 83

When the Federal Reserve decides to _____ the money supply and _____ interest rates, what happens?

Answer 83

increase; lower

Question 84

The multiplier effect of changes in government purchases of goods and services is equal to:

Answer 84

1/(1 – MPC).

Question 85

An increase in real aggregate spending will shift the money:

Answer 85

demand curve rightward.

Question 86

An increase in government transfer payments of $250 billion and a tax cut of $250 billion will have _____ effects on the budget balance.

Answer 86

unequal; equal

Question 87

Included in M1 are:

Answer 87

checkable bank deposits.

Question 88

The value of investment spending is $:

Answer 88

3 trillion.

Question 89

To close an inflationary gap using monetary policy, the Federal Reserve should _____ the money supply to _____ investment and consumer spending.

Answer 89

decrease; decrease

Question 90

If banks lack sufficient funds to pay their depositors, they can borrow the needed funds at the Federal Reserve _____

Answer 90

discount window.

Question 91

One reason financial institutions become very large is to:

Answer 91

decrease transaction costs.

Question 92

Which fiscal policy would make a budget surplus larger or a budget deficit smaller?

Answer 92

lower government transfers.

Question 93

If the economy is in short-run macroeconomic equilibrium at E1, the government might use _____ fiscal policy to shift the aggregate demand curve to the _____

Answer 93

expansionary; right

Question 94

The introduction of alternative forms of payment like Venmo and PayPal has:

Answer 94

decreased the demand for cash.

Question 95

A 20% increase in the aggregate price level will increase the quantity of money demanded by:

Answer 95

20%.

Question 96

_____ are the underlying determinants of a company's future profits.

Answer 96

Fundamentals

Question 97

If the reserve ratio is 8%, and the banking system does NOT want to hold excess reserves, how much more can be added to the money supply?

Answer 97

about $667,000

Question 98

The short-term interest rate applies to financial assets that mature:

Answer 98

in less than a year.

Question 99

A cyclically adjusted budget balance:

Answer 99

is an estimate of what the budget balance would be if real GDP were equal to potential output.

Question 100

What is the approximate value of $667,000?

Answer 100

about $667,000

Question 101

What is the approximate value of $111,000?

Answer 101

about $111,000

Question 102

What is the value of $250,000?

Answer 102

$250,000

Question 103

What is the value of $1 million?

Answer 103

$1 million

Question 104

The short-term interest rate applies to financial assets that mature: _______

Answer 104

in less than a year.

Question 105

A cyclically adjusted budget balance is an estimate of what the budget balance would be if real GDP were equal to _______.

Answer 105

potential output.

Question 106

The government's budget balance is calculated as: _______

Answer 106

T – G.

Question 107

An increase in the money supply is most likely to cause a shift from: _______

Answer 107

AD to AD'.

Question 108

A cyclically adjusted budget balance shows what the budget balance would be with a significant amount of _______.

Answer 108

cyclical unemployment.

Question 109

The formula for the government's budget balance can also be expressed as: _______

Answer 109

T – G – TR.

Question 110

The national debt rises as _______ costs are accrued.

Answer 110

interest

Question 111

What does AD stand for in the context of monetary policy?

Answer 111

Aggregate Demand

Question 112

What does SRAS stand for in the context of the AD–SRAS model?

Answer 112

Short-Run Aggregate Supply

Question 113

True or False: A cyclically adjusted budget balance is the same as the national debt.

Answer 113

False

Question 114

The total government budget balance can be affected by: _______

Answer 114

Taxes (T), Government Spending (G), and Transfer Payments (TR).

Question 115

An increase in the money supply typically leads to a shift in the AD curve to the _______.

Answer 115

right

Question 116

Which of the following is not a component of the government budget balance? a. T b. G c. TR d. P

Answer 116

d. P

Question 117

What does TR represent in the context of government budget balance?

Answer 117

Transfer Payments