Download Quiz for Chapters 8-12 - Porterville College Home

MACRO TAKE-HOME QUIZ: CH 8-12
Mark your answers on a Scantron and get it to the box at my office door before 12:00 Noon on
Friday, May 9. I will post the answers on the web page sometime that afternoon.
Because this is a multiple chapter quiz I ended up with 36 questions. The quiz will be worth 35
points, one point per question.
1. Economic growth has occurred when an economy's:
A) ability to produce has increased.
B) nominal GDP has increased.
C) nominal GDP per capita has increased.
D) short-run real GDP has increased.
2. The rule of 72 indicates that a 6 percent annual increase in the potential level of real
GDP would lead to the potential output doubling in _______ years.
A) 6
B) 12
C) 24
D) 30
Use the following to answer question 3:
3. (Exhibit: Economic Growth and the LRAS Curve) Economic growth means that:
A) the economy's potential output is rising.
B) the economy's actual real GDP is rising.
C) the economy's growth is steady.
D) all people benefit from the growth.
4. Investment in human capital:
A) shifts the aggregate production function downward.
B) shifts the LRAS to the left.
C) shifts the aggregate production function upward.
D) decreases the aggregate demand for labor.
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5. Money is anything that:
A) serves as a medium of exchange for goods and services.
B) can be converted into silver with relatively little loss in value.
C) can be converted into gold with relatively little loss in value.
D) facilitates a connecting link between credit instruments and debt instruments.
6. Money that some authority, generally a government, has ordered to be accepted as a
medium of exchange is called _______ money.
A) fiat
B) intrinsic
C) commodity
D) debt
7. The ease with which an asset can be converted into currency is called the asset's:
A) value.
B) price.
C) interest value.
D) liquidity.
8. Money is _______ when banks _______ .
A) destroyed; make loans
B) created; call in loans
C) created; make loans
D) created; fail
9. An example of a bank's reserves is:
A) demand deposits with other banks.
B) deposits with the Federal Reserve.
C) Treasury bonds and bills.
D) state bonds of the state in which the bank is located but not state bonds of other
states.
10. The ratio of reserves to checkable deposits banks are required to maintain is called
the:
A) federal reserve ratio.
B) legal reserve ratio.
C) excess reserve ratio.
D) required reserve ratio.
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11. The Federal Reserve System is the _______ for the United States.
A) central bank
B) government owned bank
C) U.S. Treasury Bank
D) bank described in B and C
12. When the Fed buys securities in the open market, banks' reserves:
A) increase.
B) decrease.
C) are unaffected.
D) may increase or decrease, depending on the discount rate.
Use the following to answer question 13:
13. (Exhibit: The Bond Market) A higher price of bonds means a _______ rate of interest
and a lower price of bonds means a _______ rate of interest.
A) higher, lower
B) lower, lower
C) lower, higher
D) higher, higher
14. The deposit multiplier is the inverse of:
A) legal reserves.
B) excess reserves.
C) required reserves.
D) the required reserve ratio.
15. If the Fed wanted to decrease economic activity, it would _______ government bonds in
the open market.
A) sell
B) buy
C) issue old
D) reduce the interest rate on
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16. If you buy bond with $1,000 printed on the bond, $1,000 is the _______ of the bond.
A) price
B) maturity
C) face value
D) value
Use the following to answer question 17:
17. (Exhibit: The Bond Market) Given a face value of $1,000, a price of $900, and quantity
of Q1, the interest rate is _______ percent.
A) 1.11
B) 10.0
C) 11.1
D) 17.6
18. If investment falls, aggregate demand will:
A) rise.
B) fall.
C) stay the same.
D) fall, and short-run aggregate supply will rise.
19. The quantity of money demanded at each interest rate, all other determinants of demand
unchanged, may be graphically depicted by the:
A) demand curve for money.
B) demand curve for bonds.
C) expectations curve for money.
D) transfer cost curve.
20. The money households and firms hold because of a concern that bond prices and the
prices of other financial assets might fall is the:
A) precautionary demand.
B) transactions demand.
C) transfer demand.
D) speculative demand.
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21. Suppose the Fed buys bonds. We can expect this transaction to:
A) reduce the money supply, increase bond prices, and lower interest rates.
B) increase the money supply, lower bond prices, and lower interest rates.
C) increase the money supply, raise bond prices, and lower interest rates.
D) reduce the money supply, reduce bond prices, and increase interest rates.
Use the following to answer question 22:
22. (Exhibit: The Money Supply and Aggregate Demand) Panel (b) illustrates what happens
when the Fed decides to _______ the money supply and _______ interest rates.
A) lower, lower
B) increase, increase
C) increase, lower
D) lower, increase
Use the following to answer question 23:
23. (Exhibit: Economic Adjustments) Short-run but not long-run equilibrium positions
occur at points:
A) a and b.
B) b and c.
C) c and d.
D) a and c.
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24. Given a recessionary gap, expansionary monetary policy will _______ real GDP and
_______ the price level.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
25. Given a recessionary gap, expansionary monetary policy will _______ investment and
_______ interest rates.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
26. Given an inflationary gap, contractionary monetary policy will _______ real GDP and
_______ the price level.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
27. In terms of political pressure, the Fed is:
A) totally independent of Congress and the President.
B) relatively independent of Congress and the President.
C) a political agency of the President.
D) a political agency of Congress.
28. Adjusting monetary growth based on previous changes in nominal GDP:
A) is always easy for the Fed to do.
B) could be destabilizing.
C) is effective, but only if the economy is producing its potential output.
D) described by B and C.
29. Public investment expenditure for highways, schools, and national defense is included
in _______ purchases.
A) household
B) investment
C) government
D) consumption
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30. If the government's total revenues are less than its total expenditures, then it has a
budget:
A) deficit.
B) surplus.
C) balance.
D) equality.
31. Automatic stabilizers tend to:
A) stimulate inflations.
B) intensify recessions.
C) cushion the economy against recessions.
D) stabilize income but destabilize employment.
32. An example of an automatic stabilizer is:
A) gasoline taxes.
B) property taxes.
C) personal income taxes.
D) estate taxes.
33. An example of an automatic stabilizer is:
A) inheritance taxes.
B) veterans' benefits.
C) national defense expenditures.
D) unemployment compensation.
34. A recessionary gap could be closed with:
A) contractionary monetary policy.
B) an increase in taxes.
C) a decrease in government purchases.
D) expansionary fiscal policy.
Use the following to answer questions 35-36:
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35. (Exhibit: Fiscal Policy) Given the use of discretionary fiscal policy, government
spending is likely to be _______ and taxes are likely to be _______ in Panel (b) if real
GDP is currently Y1.
A) decreased; decreased
B) increased; increased
C) decreased; increased
D) increased; decreased
36. (Exhibit: Fiscal Policy) Assume that the economy is initially at Y1 in Panel (b). A
nonintervention policy would result in the restoration of potential output by allowing the
_______ to shift _______ .
A) short-run aggregate supply; right
B) aggregate demand; to the left
C) short-run aggregate supply; to the left
D) aggregate demand; to the right
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