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Economic Survey
Mr. Rubin de Celis
Semester Exam - First Semester 2011
Multiple choice:
You may write your answer on the final and transfer onto the Scan-tron.
1. A country's production possibilities depend on
a)its technological level and its available resources.
b)its natural resources.
c) its human capital and its physical capital.
d) all of the above.
2. Production possibilities graphs are important tools for
a) comparing costs and profits of producing goods and services.
b) showing ways to use an economy's productive resources.
c) demonstrating which products will sell better than others.
d) determining the underutilization of an economy's resources.
3. Why are there always opportunity costs when we shift from making one product to another?
a) Some resources are better suited for use in making the first product.
b) There is always more demand for the first product than the second product.
c) Consumers must be convinced to buy the second product.
d) The quantity and quality of available resources constantly change.
4. Using the factors of production to make one product always means that
a) a nation can make more money.
b) a company may experience a shortage of materials.
c) fewer resources are left to make something else.
d) it is possible to make too many of that product.
5. What is the name of the law that states that as we shift factors of production from making one good
or service to another, the cost of producing the second item increases?
a) the law of efficient production
b) the law of effective production
c) the law of decreasing costs
d) the law of increasing costs
6. On a production possibilities graph, a point of underutilization would appear
a) above or to the right of the production possibilities frontier.
b) directly on the production possibilities frontier.
c) just beyond the future production possibilities frontier.
d) below or to the left of the production possibilities frontier.
7. Efficiency is
a) using the maximum number of resources to produce goods and services.
b) using resources in such a way as to maximize the production of goods and services.
c) finding the most expensive, time-consuming way to produce a good or service.
d) replacing old ways of producing goods and services with new tools and methods.
8. The production possibilities frontier is
a) the line on a production possibilities graph that shows the maximum possible output.
b) the points on a production possibilities graph that show an underutilization of resources.
c) the points on a production possibilities graph that show the total revenue of an economy.
d) the line on a production possibilities graph that shows how production increases as new technologies
are introduced.
9. What is the purpose of a firm?
a) to provide competition for households
b) to use natural resources wisely
c) to produce goods and services
d) to direct a centrally planned economy
10. Which of the following is an example of competition in the marketplace?
a) A small town has only two grocery stores, which are located one block away from each other.
b)Two neighbors buy the same model of automobile.
c) Two farms are separated by a stream that provides water for the cattle raised on each farm.
d) Two high schools have excellent football teams.
11. In the study of economics, the definition of a market is
a) the concentration of the productive efforts of individuals and firms on a limited number of activities.
b) an arrangement that allows buyers and sellers to exchange things.
c) a place to buy groceries and other household items.
d) a place where producers display their wares for sale.
12. A household is a person or a group of people who live in the same residence. In economics,
households are also
a) considered to be firms that product products.
b) consumers of goods and services.
c) involved in specialization.
d) called "the invisible hand."
13. According to Adam Smith, what are the two factors that regulate a marketplace?
a) competition and self-interest
b) elected officials and voters
c) the size of the town and the number of customers
d) natural resources and manufacturing
14. The invisible hand is
a) the concentration of the productive efforts of individuals and firms on a limited number of activities.
b) an organization that uses resources to produce a product.
c) a term economists use to describe the self-regulating nature of the marketplace.
d) the market in which households purchase the goods and services that firms produce.
15. Consumer sovereignty is
a) the concentration of the productive efforts of individuals and firms on a limited number of activities.
b)a person or group of people living off the land.
c) a market where consumers purchase goods and services collectively.
d) the power of consumers to decide what gets produced.
16. How does a country such as the United States increase its productivity?
a) through a strong work ethic and the use of technology
b) by lowering wages and lengthening the workday
c) through regulations that limit innovation
d) by raising wages and shortening the workday
17. The total value of all final goods and services produced in a particular economy is called
a) the work ethic.
b) microeconomics.
c) macroeconomics.
d) the gross domestic product.
18. Macroeconomics is
a) the study of the economic behavior and decision making of small units, such as individuals, families,
and businesses.
b) the study of the behavior and decision making of entire economies.
c) the concept that everyone can compete in the marketplace.
d) a commitment to the value of work and purposeful activity.
19. Why is the free enterprise system subject to business cycles?
a) because of minor fluctuations like the day-to-day fluctuations of the stock market
b) because the government plays a role in making decisions about factors such as prices, production,
and consumption.
c) because individuals and businesses acting in their own self-interest make economic decisions
about factors such as prices, production, and consumption.
d) because for each generation, the American Dream of a higher standard of living than their parents'
generation becomes harder to reach.
20. How do patents and copyrights encourage innovation?
a) They grant companies the right to copy the inventions and creative works of individuals at little or
no cost.
b) They prevent inventors, writers, and other creative people from making huge profits, thus keeping
prices low for consumers.
c) They limit the number of inventions a single individual or business may patent or copyright, so more
people have the opportunity to invent things.
d) They give inventors and writers exclusive rights to produce and sell their inventions and
works, possibly making large profits.
21. Normal goods are
a) goods that consumers demand less of when their incomes increase.
b) goods that consumers demand more of when their incomes increase.
c) two goods that are bought and used together.
d) goods used in place of one another.
22. The shift to the right in a demand curve means a(n)
a) decrease in demand.
b) increase in demand.
c) decrease in income.
d) increase in substitution.
23. Substitutes are
a) goods that consumers demand less of when their incomes increase.
b) goods that consumers demand no matter what the cost.
c) two goods that are bought and used together.
c) goods used in place of one another.
24. Ceteris paribus is
a) a phrase that means "all other things held constant."
b) a graphic representation of a demand schedule.
c) a phrase that means the change in consumption resulting from a change in real income.
d) the desire to own something and the ability to pay for it.
25. A demand curve is an accurate tool for predicting the decisions of consumers as long as
a) there are no changes other than price that could affect consumers.
b) there are no changes other than income that could affect consumers.
c) price and all other factors remain the same.
d) none of the above
26. Inferior goods are
a) goods that consumers demand less of when their incomes increase.
b) goods that consumers demand more of when their incomes increase.
c) two goods that are bought and used together.
d) goods used in place of one another.
27. Complements are
a) goods that consumers demand less of when their incomes increase.
b) goods, such as medicines, that consumers must buy no matter how much they cost.
c) two goods that are bought and used together.
d) goods used in place of one another.
28. If a consumer is waiting to buy a sweater he or she found at a department store until after the
holiday season, which factor is MOST LIKELY influencing the decision to wait?
a) income
b) population
c) consumer expectations
d) advertising
29. What is elasticity of demand?
a) demand that is not very sensitive to a change in price
b) demand that is very sensitive to a change in price
c) demand whose elasticity is exactly equal to 1
d) a measure of how consumers react to a change in price.
30. Which of the following is NOT a factor in determining the elasticity of demand for a good?
a) the consumer's perception of the good as necessity or luxury
b) the importance of the good to the consumer
c) an increase in population
d) how many substitute goods are available
31. The total amount of money a firm receives by selling goods or services is
a) total profit.
b) total revenue.
c) total cost.
d) ceteris paribus.
32. If elasticity of demand is exactly 1, what does an increase in price of a good mean?
a) The percentage change in quantity demanded equals the percentage change in price.
b) Customers are very sensitive to changes in price.
c) There are few or no good substitutes available.
d) The quantity demanded will remain the same regardless of the increase in price.
33. After a producer determines that the demand for one of its products is inelastic, why would this firm
probably raise the price of this product?
a) The firm's total revenues would probably increase.
b) Consumer demand would probably increase.
c) The firm's costs of production would probably decrease.
d) Competition would decrease.
34. Why do consumers sometimes take a while to respond to price changes?
a) Price changes do not affect consumers.
b) They need time to decide whether the good is a luxury or a necessity.
c) They cannot find acceptable substitutes immediately.
d) Demand sometimes becomes less elastic over time.
35. The term "unitary elastic"
a) describes demand that is not very sensitive to a change in price.
b) describes demand that is very sensitive to a change in price.
c) describes demand whose elasticity is exactly equal to 1.
d ) refers to how consumers make substitutions.
36. Which of the following is most likely to happen when the price of a good with elastic demand is
raised by 10 percent?
a) The quantity sold will increase by 10 percent.
b) The quantity sold will decrease by 10 percent.
c) The quantity sold will decrease by 5 percent.
d) The quantity sold will decrease by 15 percent.
37. The term "inelastic"
a) describes demand that is not very sensitive to a change in price.
b) describes demand that is very sensitive to a change in price.
c) describes demand whose elasticity is exactly equal to 1.
d) refers to how consumers make substitutions.
38. The term "elastic"
a) describes demand that is not very sensitive to a change in price.
b) describes demand that is very sensitive to a change in price.
c) describes demand whose elasticity is exactly equal to 1.
d) refers to how consumers make substitutions.
39. A cost that does not change, no matter how much of a good is produced is a(n)
a) fixed cost.
b) variable cost.
c) operating cost.
d) marginal cost.
40. The cost of producing one more unit of a good is known as a(n)
a) fixed cost.
b) variable cost.
c) operating cost.
d) marginal cost.
41. Total cost is
a) the cost of operating a facility, such as a store or factory.
b) fixed costs plus variable costs.
c) a level of production at which the marginal product of labor decreases as the number or workers
increases.
d) the change in output from hiring one additional unit of labor.
42. What is the level of output every firm strives for?
a) when marginal revenue equals marginal cost
b) when marginal revenue is greater than marginal cost
c) when variable cost and marginal cost rise at the same rate
d) when fixed cost and marginal cost are equal
43. How does a firm calculate its profit?
a) marginal revenue minus marginal cost
b) total revenue minus total cost
c) variable cost plus total cost
d) total revenue minus marginal revenue
44. A cost that rises or falls depending on how much is produced is a(n)
a) fixed cost.
b) variable cost.
c) operating cost.
d) labor cost
45. If the fixed cost of producing seven “Base in a Box” string instruments is $14, and the variable cost
is $12, how much is the total cost of producing seven “Base in a Box” instruments?
a) $2
b) $12
c) $14
d) $26
46. The additional income from selling one more unit of a good, sometimes equal to price, is
a) marginal revenue.
b) increasing marginal returns.
c) the marginal product of labor.
d) a variable.
47. If the total cost of producing 300 leather jackets is $400 and the total cost of producing 301 leather
jackets is $435, what is the marginal cost of production at 300 leather jackets?
a) $835
b) $435
c) $400
d) $35
48. New advances in technology usually
a) cause input costs to drop.
b) increase supply at all price levels.
c) cause the supply curve to shift to the right.
d) all of the above.
49. Why would a farmer store his or her soybeans for future sale instead of selling them right after
harvest?
a) Inflation is running at 25 percent.
b) The government imposes an excise tax effective next year.
c) A new technology decreases the chance of rot.
d) The government lifts restrictions on the importation of soy beans.
50. Which of the following will always cause a supply curve to shift to the left?
a) advances in technology
b) future expectations of falling prices
c) excise taxes
d) fewer inputs
51. What happens to supply when input costs go up?
a) It decreases because the good becomes more expensive to produce.
b) It increases because the good becomes cheaper to produce.
c) It increases because the good becomes more expensive to produce.
d) It decreases because consumers find a substitute product.
52. A government payment that supports a business or market is
a) quantity supplied.
b) a regulation.
c) an excise tax.
d) a subsidy.
53. Government intervention in a market that affects the production of a good is
a) regulation.
b) an excise tax.
c) quantity supplied.
d) an input cost.
54. A tax on the production or sale of a good is called
a) income tax.
b) a revenue tax.
c) an excise tax.
d) a subsidy.
55. When there is excess demand, there is
a) excess supply.
b) disequilibrium.
c) an equilibrium.
d) a price floor.
56. Equilibrium is
a) when quantity supplied is not equal to quantity demanded in a market.
b) the point at which quantity demanded and quantity supplied are equal.
c) when quantity demanded is more than quantity supplied.
d) when quantity supplied is more than quantity demanded.
57. If for a certain market, the quantity demanded is 200 units and the quantity supplied is 250 units,
then there is
a) equilibrium in this market.
b) excess demand in this market.
c) excess supply in this market.
d) a price ceiling in this market.
58. All of the following are disadvantages of rent control EXCEPT that it
a) leaves many customers without housing.
b) gives landlords an incentive to attract renters.
c) might encourage discrimination by landlords and bribery.
d)results in lower quality apartment buildings.
59. A minimum price for a good or a service is a
a) rent control.
b) disequilibrium.
c) price ceiling.
d) price floor.
60. A maximum price that can be legally charged for a good or service is a
a) maximum wage.
b) minimum wage.
c) price ceiling.
d) price floor.
61. A price ceiling placed on the monthly cost of renting a house or apartment is a(n)
a) rent control.
b) search cost.
c) housing increase.
d) excess demand.
62. With the advances of technology and increased availability over time for IPod 4S players,
a) the supply curve for IPods 4S has shifted left.
b) the supply curve for IPods 4S has shifted right.
c) prices of IPods 4S have risen.
d) IPods 4S have become less expensive and are lower quality.
63. An increase in quantity supplied is represented by a(n)
a) shift to the right of the supply curve.
b) shift to the left of the supply curve.
c) upward movement along the supply curve.
d) downward movement along the supply curve.
64. An increase in demand is represented by a(n)
a) shift to the right of the demand curve.
b) shift to the left of the demand curve.
c) upward movement along the demand curve.
d) downward movement along the demand curve.
65. If automobile workers went on strike causing a decreased supply of cars, the supply curve would
shift inward to the left, and
a) the demand curve would eventually shift to the left, reestablishing equilibrium.
b) the demand curve would eventually shift to the right, reestablishing equilibrium.
c) there would be an eventual upward movement along the demand curve, reestablishing equilibrium.
d) there would be an eventual downward movement along the demand curve, reestablishing
equilibrium.
66. Surplus is
a) the point at which quantity demanded and quantity supplied are equal.
b) the financial and opportunity costs consumers pay when searching for a good or service.
c) a situation in which quantity supplied is greater than quantity demanded.
d)a situation in which quantity demanded is greater than quantity supplied.
67. Shortage is
a) the point at which quantity demanded and quantity supplied are equal.
b) the financial and opportunity costs consumers pay when searching for a good or service.
c) a situation in which quantity supplied is greater than quantity demanded.
d) a situation in which quantity demanded is greater than quantity supplied.
68. If the quantity demanded of a new mountain bike is 8,000 and the quantity supplied is 6,000, then
a) there is a shortage of 14,000 bikes.
b) there is a shortage of 2,000 bikes.
c) there is a surplus of 1,000 bikes.
d) there is a surplus of 2,000 bikes.
69. A product that is the same no matter who produces it, such as beef, gasoline, or corn is
a) perfect competition.
b) a start-up cost.
c) a barrier to entry.
d) a commodity.
70. A series of competitive price cuts that lowers the market price below the cost of production is
a) differentiation.
b) a price war.
c) price fixing.
c) non-price competition.
71. A collection of financial assets is known as an investor's
a) a mutual fund.
b) prospectus.
c) portfolio.
d) diversification.
72. After researching investment opportunities one month ago, Janice invested $1,500 in a one year
certificate of deposit (CD), which offered 4.25% annual interest. Today, she learned of a nearby credit
union that just started offering one year CDs at 4.75% annual interest. This is an example of a
a) credit risk.
b) liquidity risk.
c) inflation rate risk.
d) time risk.
73. Spreading out investments to reduce risk is
a) a financial system.
b) a financial intermediary.
c) a financial asset.
d) diversification.
74. An institution that helps channel funds from savers to borrowers is a
a) prospectus.
b) financial intermediary.
c) mutual fund.
d) portfolio.
75. The higher the potential return, the
a) higher the liquidity of an investment.
b) higher the time risk for an investment.
c) higher the risk for an investment.
d) higher the inflation risk for an investment.
76. A fund that pools the savings of many individuals and invests this money in a variety of stocks,
bonds, and other financial assets is called a(n)
a) mutual fund.
b) investment.
c) financial system.
d) prospectus.
77. Pension funds
a) are set up by employers to collect deposits and distribute payments.
b) require employer contributions and must withhold a percentage of workers' salaries.
c) are income distributed only to retirees who have worked a certain amount of years.
d) are deposits that are invested in bonds, not stocks or other higher risk financial assets.
78. The interest rate that a bond issuer will pay to a bondholder is the
a) maturity.
b) coupon rate.
c) par value.
d) yield.
79. An investor purchases a company's bond from two years ago with a lower coupon rate than this
year's bond. Why would the investor want to buy a lower-interest bond in the secondary market?
a) opportunity to negotiate a longer maturity
b) opportunity to negotiate a lower par value to offset the lower interest rate
c) opportunity to negotiate a higher yield from the other investor
d) opportunity to negotiate a higher par value to increase the yield
80. The market for selling financial assets that can only be redeemed by the original holder is the
a) primary market.
b) secondary market.
c) capital market.
d) money market.
81. The annual rate of return on a bond bought on the open market is called the
a) par value.
b) coupon rate.
c) yield.
d) maturity.
82. If the Fed were to impose a slight increase in the required reserves ratio, then there would be
a) an increase in the money supply.
b) a decrease in the money supply.
c) no change in the money supply.
d) an increase, then a decrease in the money supply.
83. How do banks create money?
a) by charging interest
b) by printing it
c) by issuing loans and opening checking accounts
d) by holding money in their vaults
84. The rate of interest banks charge on short-term loans to their best customers is the
a) prime rate.
b) federal funds rate.
c) required reserve ration (RRR).
d) money multiplier formula.
85. If the required reserve ratio is 20 percent and a customer deposited $5,000 in the bank, how much is
available to the bank for lending?
a) $1,000
b) $4,000
c) $3,500
d) $5,000
86. Which of the following would create the most money?
a) The initial deposit is $3,000 and the required reserve ratio is 10%.
b) The initial deposit is $4,500 and the required reserve ratio is 15%.
c) The initial deposit is $6,500 and the required reserve ratio is 20%.
d) The initial deposit is $7,500 and the required reserve ratio is 25%.
87. How much money will be created by each deposit? 2 pts
a) ___27,000
b) ___25,000
c) ___26,000
d) ___22,500
88. Excess reserves are
a) the ratio of reserves to deposits required of banks by the Federal Reserve.
b) reserves greater than the required amounts.
c) the buying and selling of government securities to alter the supply of money.
d) rates of interest banks charge on short-term loans to their best customers.
89. The process by which money enters into circulation is
a) open market operation.
b) excess reserves.
c) the money multiplier formula.
d) money creation.
90. The ratio of reserves to deposits required of banks by the Federal Reserve is
a) money creation.
b) the required reserve ratio (RRR).
c) the prime rate.
d) the federal funds rate.
91. In the recent past, the Federal Reserve has set the discount rate
a) above the federal funds rate.
b) below the federal funds rate.
c) above the prime rate.
d) equal to the prime rate.
92. Suppose the ABC bank has excess reserves of $4,000 and demand deposits of $80,000.
If the reserve requirement is 25 percent, what is the size of the bank’s actual reserves?
a) $16,000
b) $84,000
c) $24,000
d) $20,000
93. A single commercial bank must meet a 25 percent reserve requirement. If the bank has no
excess reserves initially and $500 of cash is deposited into the bank, it can increase its loans by a
maximum of :
a) $450
b) $550
c) $375
d) $500
94. The amount of reserves that a commercial bank is required to hold is equal to:
a) The amount of its demand deposits
b)The sum of its demand deposits and time deposits
c) Their demand deposits multiplied by the reserve requirement
d) Its demand deposits divided by its total assets.
95. A bank temporarily short of required reserves may be able to remedy this situation by:
a) Borrowing funds in the Federal funds market
b) Granting new loans
c) Shifting some of its vault cash to its reserve account at the Federal Reserve.
d) Buying bonds from the public
96. The Federal funds market is the market in which:
a) Banks borrow from the Federal Reserve Banks
b) US securities are bought and sold
c) Banks borrow reserves from one another
d) Federal Reserve Banks borrow from one another
97. If the monetary authorities want to reduce the monetary multiplier, they should:
a) Lower the required reserve ratio
b) Raise the reserve ratio
c) Increase bank reserves
d) Lower interest rates
98. A decrease in the reserve ratio increase the:
a) Amount of actual reserves in the banking system
b )Amount of excess reserves in the banking system
c) Number of government securities held by the Federal Reserve Banks
d) Ratio of coins to paper currency into the economy
99. An increase in the reserve ratio
a) increases the size of the spending income multiplier
b) decreases the size of the spending income multiplier
c) increases the size of the monetary multiplier
d) decreases the size of the monetary multiplier
100. Projecting that it might temporarily fall short of legally required reserves in the coming days,
the Farmers Bank decides to borrow money from its regional Federal Reserve Bank. The interest rate
on the loan is called the:
a) Prime rate
b) Federal funds rate
c) Treasury bill rate
d )Discount rate
101. If the reserve requirement is 10 percent, the monetary multiplier will be 10
a) True
b) False
102. The two main functions of the Federal Reserve are to stabilize prices, and to provide stimulus
money to businesses that are failing.
a) True
b) False
103. Principal is the
a) Ability to be used as, or directly converted to cash
b) Amount of money borrowed
c) Failure to pay back a loan
d) Price paid for the use of borrowed money.
104. The price paid for the use of borrowed money is referred to as the
a) Liquidity
b) Default
c) Principal
d) Interest
105. What is the simple interest of a loan for $1,000 with 7.5% interest after 5 years?
a) $50
b) $250
c) $375
d) $1,150
106. ”Default" refers to the
a) ability to be used as, or directly converted to cash
b) amount of money borrowed
c) failure to pay back a loan
d) price paid for the use of borrowed money
107. The rate of unemployment to date stands at what rate?
a) 8.6%
b) 9.6%
c) 12.3%
d) 7.0%
108. People who are underemployed
a) no longer look for work.
b) work part time or at jobs that are below their skill level
c) are the same as unemployed workers
d) experience only frictional employment
109. Which of the following statements best describes income distribution in the United States?
a) most people earn the same income
b) the richest 20 percent of the population has about 20 percent of the national income
c) the richest 20 percent of the population has a much greater share of income that the poorest 20
percent http://www.nationsencyclopedia.com/economies/Americas/United-States-of-America-POVERTY-AND-WEALTH.html
d) the richest 20 percent of the population has slightly more income than the poorest 20 percent.
110. All of the following are examples of frictional unemployment EXCEPT a person
a) laid off from his or her current job
b) who doesn’t have the skill to match the jobs available
c) looking for a job after graduating from college
d) who leaves his or her current job to look for a new job.
111. Which statement describes full employment?
a) Everybody who wants a job has a job.
b) there is no unemployment at all
c) there is no cyclical unemployment
d) there is no structural unemployment
112. What is the poverty threshold?
a) the income level below that which is needed to support a family
b) the income of the lowest 20 percent of families
c) the percentage of people who live in poverty
d) the income needed to live in an inner city or rural area
113. The inflation rate is
a) the ability to buy goods or services
b) measured in fixed dollars
c) not an important measure to economists.
d) the percentage change in prices over time.
114. Globalization, the development of new technology, changes in consumer demand, and the discovery of new resources are all causes of
a) frictional unemployment
b) structural unemployment
c) seasonal unemployment
d) cyclical unemployment
115. Wage-price spiral of increasing prices can result from
a) core inflation
b) demand-pull inflation
c) cost push inflation
d) hyperinflation
116. Inflation reduces people's purchasing power because
a) the same amount for money buys more goods and services
b) the same amount of money buys fewer goods and services.
c) the market basket has to be changed every year
d) there is not enough money in the economy
117. An enterprise zone is a(n)
a) wealthy, rural area where everybody has a good job.
b) part of a city with many old, closed factories
c) government office where people can work in exchange for temporary assistance
d) area of high unemployment where the government encourages companies to locate by providing tax breaks.
118. What theory claims that too much money in the economy causes inflation?
a) quantity
b) demand-pull
c) cost-push
d) core inflation
119. Which of the following applies to discouraged workers?
a) they are workers who move to another country to look for work.
b) they are not included in the unemployment rate.
c) they are workers who were injured on the ob and can no longer work.
d) they are included in the unemployment rate.
Problems:
Formulas
Required Reserve Ratio (m) = Required Reserves/Demand Deposits
Required Reserves = RRR x Demand Deposits (checkable deposits)
Actual Reserve = Excess Reserve + Required Reserve
Money Multiplier = 1/RRR
A=P(1+r/n)
Months/12; Days/360
I=PxR xT
P = I/R x T
R = I/ P x T
Elasticity of supply and demand
Change of Quantity / Change of Price = Elasticity
(QN-QO)/QO / (PN – PO) / PO = Elasticity
Determining Inflation Rate:
CPI new – CPI old / CPI old = inflation rate
Supply and Demand
The following determinants cause shifts in the entire demand curve:
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change in consumer tastes
change in the number of buyers
change in consumer incomes
change in the prices of complementary and substitute goods
change in consumer expectations
The following determinants cause shifts in the entire supply curve:
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change in input prices
change in technology
change in taxes and subsidies
change in the prices of other goods
change in producer expectations
change in the number of suppliers
Any factor that increases the cost of production decreases supply.
Any factor that decreases the cost of production increases supply.
Problems:
1
Suppose the required reserve ratio is 10 percent. Assume that the banking system has $20
million in checkable deposits and $12 million in Actual Reserves. 3 pt
a)
Find the Required Reserves:
b)
Find the Excess Reserve:
c)
What is the maximum amount by which the money supply could expand?
2
Wilber National Bank has Actual reserves of $80 million and demand deposits of $500
million. It determines that it may increase its excess reserves by up to $55 million. Given the
information, what is the value of the money multiplier? 4 pt
a)
Find the Required:
b)
Find the Required Reserve Ratio:
c)
Find the value of the Money Multiplier:
d)
What is the maximum amount by which the money supply could expand?
3
With a reserve requirement of 10 percent, if a bank has $8 million of checkable deposits
and actual reserves of $800,000, the bank: 1pt
a)
b)
c)
d)
Can safely lend out $800,000
Can safely lend out $8 million.
Can safely lend out $80,000
Cannot safely lend out more money
4
Mr. X deposits $1,000 cash in a checking account. If the required reserve ratio, RRR, is
20%, then what will be the maximum (potential) resultant increase in the money supply as a
result of this deposit? 3pt.
a)
Find the Required Reserve:
b)
Find the Excess Reserve:
c)
What is the maximum amount by which the money supply could expand?
5
A bank has demand deposits of $300 million and actual reserves of $72 million. If the
required reserve ratio is 16%, then the bank can increase its loans by: 2 pt
a)
Find the Required Reserve Ratio?
b)
The bank can increase its loans by?
Find the Compound or Simple interest amounts
6
Compute the interest compounded, assuming a deposit of $5,000 in a CD with interest
compounded semi annually. The Annual Percentage Yield is 3.73% percent. The certificate
matures in two years. 2 pt
Actual amount : _________
Total interest earned _________
7
Compute the interest compounded, assuming a deposit of $5,000 in a CD with interest
compounded quarterly. The Annual Percentage Yield is 3.73% percent. The certificate matures
in two years. 2pt
Actual amount : _________
Total interest earned _________
8
Compute the interest compounded, assuming a deposit of $5,000 in a CD with interest
compounded monthly. The Annual Percentage Yield is 3.73% percent. The certificate matures in
two years. 2pt
Actual amount : _________
Total interest earned _________
9
Using the data in problem 11, 12, and 13, which of the three investment options would you
select? Explain. 1 pt.
Elasticity of Demand and Supply
10. The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). Other
things equal, this means that a 20 percent increase in the price of beef will cause the quantity of
beef demanded to
a) decrease by approximately 12 percent.
b) decrease by approximately 60 percent.
c) decrease by approximately 32 percent
d) decrease by approximately 26 percent.
11. A newspaper story on the effect of higher milk prices on the market for ice cream contained
the following: As a result [of the increase in milk prices], retail prices for ice cream are up 4
percent from last year. . . . And ice cream consumption is down 3 percent.
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices,"
Associated Press, July 23, 2001.
Based on the information given, calculate the price elasticity of demand for ice-cream
a) 0.75 (in absolute value)
b) 1.33 (in absolute value)
c) 12%
d) We do not have enough information to calculate elasticity.
12. Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by 16 percent.
Based on this information, calculate the value of the price elasticity of supply of jean-jackets.
a) 1.6
b) 0.625
c) 6%
d) There is insufficient information to answer the question
Find the Equilibrium Qs and Qd
13.
Qs=-6+12P
Qd=50-2p
Price equilibrium = ____________
Quantity Equilibrium = ________
14. If the quantity demanded changes from 5 to 10 units as the price changes from $14 to $9, the
Elasticity is ____________ and is called ____________ .
15.If the quantity demanded changes from 25 to 22 units as the price changes from $3 to $10, the
elasticity is ____________ and is called ____________ .
Supply and Demand Curve:
16. Problems 1–4 are based on the following demand and supply schedules for corn (all quantities
are in millions of bushels per year).
Price per bushel
$0
1
2
3
4
5
6
Quantity demanded
6
5
4
3
2
1
0
Quantity supplied
0
1
2
3
4
5
6
a) Draw the demand and supply curves for corn. What is the equilibrium price? The equilibrium quantity?
b) Suppose the government now imposes a price floor at $4 per bushel. Show the effect of this program graphically.
How large is the surplus of corn?
C) With the price floor, how much do farmers receive for their corn? How much would they have received if there
were no price floor?
d) If the government buys all the surplus wheat, how much will it spend?
Double shifts (again, draw graphs to help your intuition)
17. Wages of bus drivers increase. At the same time, incomes of consumers generally increase. In the
market for bus rides, we should expect to see curves shift. The supply curve will --- and the demand
curve will ---.
a. shift up – shift to the left e. shift up – remain unchanged
b. shift up – shift to the right f. shift down – remain unchanged
c. shift down – shift to the left g. remain unchanged – shift left
d. shift down – shift to the right h. remain unchanged – shift right
18. As a result of the simultaneous increase in the wages of bus drivers and of consumer incomes, we
would
expect that price will -- and the quantity of bus rides will --- in the new equilibrium.
a. increase – increase e. increase – be uncertain
b. increase – decrease f. decrease – be uncertain
c. decrease – increase g. be uncertain -- increase
d. decrease – decrease h. be uncertain – decrease.
Market ___________________
Demand determinant ___________________
Supply determinant ___________________
What happens to both P and Q
______________
19. The price of gasoline falls and consumer incomes generally increase. In the market for bus rides, we
should expect to see a curve or curves shift. The supply curve will – and the demand curve will --.
[same options as question 17]
20. As a result of the simultaneous fall in gasoline prices and the rise in consumer incomes, we should
expect to
see in the new equilibrium that price will – and the quantity of bus rides will --.
[same options as question 18]
Market ___________________
Demand determinant ___________________
Supply determinant ___________________
What happens to both P and Q
______________