At any time, a business has a choice between keeping its current equipment and software or upgrading to the latest model. Ultimately, the decision depends on whether upgrading will________.
increase profits
One cost of the business is the airfare for the owners to fly to paris to participate in fashion shows. The cost of the trip is an example of.
the cost of accumulating business know-how
The classical view of the economy is characterized by
A laissez-faire approach
2. According to Keynesian theory, the correct fiscal policy action to stimulate the economy would be to
a. increase government expenditures to increase aggregate demand
3. A public good is:
a. the source of the free-rider dilemma
4. Externalities are the:
a. differences between social and private costs or benefit
5. Which of the following is the correct formula for the marginal propensity to consume?
a. 1-MPS
6. The multiplier is equal to
a. 1/MPS
7. Disposable income is
a. the after-tax income of consumers
8. The labor force is smaller than the total population because the labor force does not include
a. The very young and old
TRUE/FALSE: 9. Patents and copyrights contribute to market power for a firm.
True
13. Which of the following is necessary for an economy to self-adjust fairly quickly, according to classical economists
flexible wages and prices
16. As the economy falls from the peak to the trough of the business cycle:
a. cyclical unemployment should increase and real GDP should decline
17. A decline in real GDP for at least two consecutive quarters is referred to as
a. recession
19. Unemployment that occurs when there are not enough jobs for the number of people iin the labor force is referred to as
a. cyclical unemployment
20. In a graph of the aggregate demand curve, a decrease in investment by businesses is represented by a:
a. leftward shift of the curve
21. Keynes and classical economists disagree about whether
a. government intervention should be used to correct business cycles
27. Which of the following is an example of the interest-rate effect, assuming the U.S. price level decrease
a. the demand for loans decreases so interest rates decline and loan-financed purchases increase
31. Ceteris paribus, if Tamika pays off a loan at the bank then over time
a. the money supply become smaller
40. During the great depression, classical theorists believed that
a. decreases in production were temporary
39. Which of the following is not a basic measure of macroeconomic performance**
a. public goods
� Entrepaneurship is
people who are creators
� Ceteris paribus means:
Other things remaining equal
� Which of the following is absolutely necessary for economic growth to occur?
The allocation of some resources to investment rather than consumption
� The central problem of economics is the
Scarcity of resources relative to human wants
� Which of the following individuals is typically associated with a laissez faire economic policy?
Adam Smith
� Karl Marx wrote:
Das Kapital, which provided the rationale for centrally-planned economies
� Which of the following is not an example of investment?
A business owner uses his profits to play the lottery and wins
� Theories or models of economic behavior are used to:
Predict economic events and develop economic policy.
� The production possibilities curve shifts outward in response to
Improved technology or more resources or both
TRUE/FALSE: � Capital includes the machinery and buildings used to produce goods and services
True
� Macroeconomics focuses on
The economy as a whole
� Which of the following are available in limited quantity and contribute to the problem of scarcity?
Land, labor, capital, and entrepreneurship
� Given that resources are scarce:
Opportunity costs are experienced whenever choices are made.
� According to Karl Marx, goods should be distributed based on
Need
� The market mechanism
Uses prices as a means of communication between consumers and producers
� Which of the following groups of words best represents macroeconomic goals?
Full employment, price stability, economic growth
� Laissez faire refers to:
A belief of nonintervention by government in the market mechanism.
The central problem of economics is the:
Scarcity of resources relative to human wants.
Given that resources are scarce:
Opportunity costs are experienced whenever choices are made.
Which of the following are available in limited quantity and contribute to the problem of scarcity?
Land, labor, capital, and entrepreneurship.
Entrepreneurship refers to:
People who are creators.
Which of the following is not an example of an investment?
A business owner uses his profits to play the lottery and wins.
Which of the following is absolutely necessary for economic growth to occur?
The allocation of some resources to investment rather than consumption.
The production possibilities curve shifts outward in response to:
Improved technology or more resources or both.
Welfare programs are designed to address the:
FOR WHOM" question.
The market mechanism:
Uses prices as a means of communication between consumers and producers.
An externality is:
A cost or benefit of a market activity that impacts a third party.
Microeconomics focuses on:
The behavior of individuals, firms, and government agencies.
Ceteris paribus means:
Other things remaining equal.
A HEADLINE article in the text indicates that North Korea is expanding its missile programs, and at the same time it is running out of food. If North Korea is on its production possibilities curve and reduces food production so that it can increase the si
Opportunity costs.
Which of the following countries has the largest GDP?
United States.
GDP most closely measures:
The total value of all final goods and services produced within a nation's borders in a given year.
Nominal GDP measures the:
Value of output produced in current prices.
U.S. GDP for 2009 was approximately:
$15 trillion
In 2009, per capita GDP in the United States was approximately:
$49,000
When comparing GDP per capita, which list ranks countries correctly from largest to smallest?
Japan, Mexico, Haiti.
Economic growth
Is an increase in output or real GDP.
Suppose during a year an economy produces $6 trillion of consumer goods, $1 trillion of investment goods, $2 trillion in government services, and has $3 trillion of exports and $2 trillion of imports. GDP would be:
$10 trillion.
Consumer goods:
Account for two-thirds of total U.S. output.
As an economy moves out of a recession into a period of economic growth, consumers tend to increase expenditures on:
Durable goods.
Investment includes all of the following except:
Money in a retirement fund.
For the United States, investment accounts for approximately _____ percent of GDP.
17
Which of the following is not included in GDP as part of government services?
Social Security benefits.
U.S. net exports are:
Equal to the value of exports minus the value of imports
Currently, the U.S. economy is best described as:
A service economy
Education and job training are part of:
Human capital investment.
Factor mobility refers to:
How easily factors of production can be reallocated.
The primary way to distinguish among corporations, partnerships, and proprietorships is by observing:
Ownership characteristics.
Proprietorships:
Are the most common type of business firm.
A firm that produces the entire market supply of a certain good or service is known as:
A monopoly.
Which of the following is least likely to determine individual income in a market economy?
The government.
The purpose of the U.S. tax-transfer system is to:
Furnish lower income households with more goods and services than the market alone provides.
By definition, a progressive tax
Imposes a higher tax rate as income increases.
Income transfers include all of the following except:
Wages.
TRUE/FALSE: Economic growth is desirable because it creates more jobs and income.
True
Which of the following ranks the top three components of U.S. consumption correctly from largest to smallest?
Housing, transportation, food.
Which of the following is true about American spending habits?
Teenagers spend their money on electronics, cars and clothes.
Which of the following refers to the satisfaction a consumer receives from the consumption of a good?
Utility.
Marginal utility refers to the:
Additional utility from consuming the last unit of a good
The price elasticity of demand is defined as the:
Percentage change in quantity demanded divided by the percentage change in price.
Suppose the price elasticity of demand for tacos is 0.80. If the price of tacos increases by 10 percent, then the quantity demanded of tacos should, ceteris paribus
Decrease by 8 percent.
Suppose Suzuki increases the price of a particular motorcycle model by 12 percent and as a result the quantity demanded for that model decreases by 4 percent. The price elasticity of demand for that model is:
0.33.
A university's football games usually bring larger crowds than its stadium can seat. By which of the following means can the university reduce the size of the crowd and simultaneously earn more revenue to finance a new stadium?
By raising ticket prices when demand for tickets is inelastic.
TRUE/FALSE: Status and ego concerns are sociopsychiatric explanations for our consumption behavior.
True
Which of the following causes the market demand curve for a good to shift?
The number of buyers in the market.
If an individual demands a particular good, it means that he or she:
Is willing and able to purchase the good at some price.
Javier goes to an all-you-can-eat buffet at a Chinese restaurant and consumes three plates of food. Which of the following explains why the third plate of food does not provide as much satisfaction as the second plate?
The law of diminishing marginal utility.
If demand is inelastic, then:
Quantity demanded is not very responsive to changes in price
TRUE/FALSE: Price elasticity of demand for a good with many substitutes is likely to be inelastic.
False
TRUE/FALSE: As long as marginal utility is positive, total utility must be increasing.
True
Sociopsychiatric explanations of consumer behavior include:
Desire for ego and status.
Total utility is maximized where:
Marginal utility is zero.
Ceteris paribus, total revenue definitely declines when price
Rises and demand is elastic.
Which of the following is relatively elastic with respect to demand?
A luxury good
Ceteris paribus means:
Only one determinant is being changed while all others remain unchanged.
TRUE/FALSE:The price elasticity of demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price for a particular good.
True
TRUE/FALSE: An increase in price will decrease total revenue if the price elasticity of demand is 1.8.
True
Given that resources are scarce:
Opportunity costs are experienced whenever choices are made.
Which of the following is an example of labor as a factor of production?
The skills and abilities of workers.
Which of the following is not included in U.S. GDP?
Toys produced by a U.S. firm located in China.
Consumer goods:
Account for two-thirds of total U.S. output.
As an economy moves out of a recession into a period of economic growth, consumers tend to increase
Durable goods.
Exports represent:
Goods and services sold to foreigners.
The factors of production include all of the following except:
Money.
Proprietorships:
Are owned by one individual.
A demand schedule refers to the combinations of price and quantity that represent the
Desires of consumers.
The market supply of a particular good:
Is the sum of the quantities of the good that all producers are willing and able to sell.
Economists make a distinction between changes in quantity demanded and changes in demand:
To distinguish a movement along a demand curve from a shift of the demand curve
According to the law of demand:
Price and quantity demanded are inversely related.
Which of the following events would cause a rightward shift in the supply curve for automobiles?
An improvement in the technology used to produce automobiles
A market is said to be in equilibrium when:
The quantity demanded equals the quantity supplied.
A market shortage occurs when
The market price is below equilibrium.
If supply is unchanged, a rightward shift in the demand curve for gourmet ice cream will result in
An increase in equilibrium quantity and a higher equilibrium price.
A market shortage is:
Caused by a price ceiling
The invisible hand is most consistent with
The market mechanism without government interference.
According to the law of diminishing marginal utility
Marginal utility of a good declines as more of it is consumed in a given time period.
Total utility is maximized when
Marginal utility is zero.
Suppose a university raises its tuition by 8 percent and as a result the enrollment of students drops by 4 percent. The price elasticity of demand is closest to:
0.5.
If demand is elastic, then:
Quantity demanded is very responsive to changes in price.
If demand is unitary elastic, then a price cut:
Does not change total revenue.
People find it difficult to get along without necessities, therefore demand for necessities
Is relatively inelastic.
If the price of battery-powered flashlights falls and the demand for flashlight batteries rises, then flashlights and batteries are
Complements.
When income decreases, the demand for most products
Decreases and the demand curve shifts to the left
The demand for such items as salt, sugar and hand soap tend to be
Relatively inelastic
Which of the following is a constraint that motivates economic interactions
The limited resources that individuals have
Which of the following is not a factor of production?
Wages.
A price floor:
Creates a market surplus
The law of demand states that:
Price and quantity demanded are inversely related
TRUE/FALSE: The goal of economic theory is to explain and predict consumption choices.
True
Which of the following is not an example of investment?
A business owner uses his profits to play the lottery and wins.
Which of the following is likely to cause an outward shift of the production possibilities curve?
Investment in telecommunications networks.
Suppose during a year an economy produces $10 trillion of consumer goods, $4 trillion of investment goods, $6 trillion in government services, and has $4 trillion of exports and $5 trillion of imports. GDP would be:
$19 trillion.
Suppose your tax is $4,000 if your income is $40,000, and your tax is $9,000 if your income is $70,000. Such a tax structure is
Progressive
An increase in the supply of frozen yogurt will take place when:
The cost of producing frozen yogurt decreases.
If supply is constant, a decrease in the demand for potato chips will cause:
A decrease in equilibrium price and a decrease in equilibrium quantity.
If a state adopts a free college tuition program, ceteris paribus, economists expect there to be a
A shortage of college education opportunities in the state.
The factors of production include
Land, labor, capital, and entrepreneurship.
If the first, second, third and forth worker employed by the firm add 15, 21, 12 and 8 units of total product respectively, we can conclude that..
after the second worker marginal product declines.
The change in total output that results from one additional unit of input is the:
Marginal physical product
Ceteris paribus, the law of diminishing returns states that beyond some point the:
Marginal physical product of a variable input declines as more of it is used
Total revenue minus total cost equals:
Profit
Which of the following is equivalent to total cost?
Fixed costs plus variable costs
Costs of production that change with the rate of output are
Variable costs
The average total cost curve is
U-shaped
Marginal cost is equal to
The change in total cost divided by the change in output.
In the long run, a company will stay in business as long as price is
Greater than or equal to average total costs
The decision to build, buy, or lease a plant is known as the:
Investment decision
The main difference to an economist between "short-run" and "long-run" is that
In the long-run all resources are variable where as in the short-run at least one resource is fixed
During the short run
Some inputs are fixed.
In defining costs, economists recognize
Explicit and implicit costs while accountants recognize only explicit costs
Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the buildi
-$470
-$470
-$70
Which of the following government policies is least likely to increase productivity?
Transfer payments to unemployed workers
A firm can be identified as profitable if the:
Difference between its total revenue and total costs is positive.
Which of the following is most likely a fixed cost?
Property taxes
When producing jeans, which of the following is not a variable cost in the short run?
Rent for the factory
Explicit costs
Are the sum of actual monetary payments made for resources used to produce a good.
Suppose the price elasticity of demand for tacos is 0.80. If the price of tacos increases by 10 percent, then the quantity demanded of tacos should, ceteris paribus
Decrease by 8 percent.
The study of economics focuses on:
How best to allocate scarce resources
A perfectly competitive firm
Can sell all of its output at the prevailing price
Which of the following is an example of perfect competition?
Many small firms all produce the same good
Which of the following is an example of a monopoly
One large firm supplies the entire product to the market
If a firm can change market prices by altering its output then it
Has market power.
If Pepsi and Coke are the only two soft drink producers, they could be considered:
A duopoly
If there are only four companies that produce tennis balls, the market could be considered:
An oligopoly
Which of the following is not an example of monopolistic competition?
Lettuce farmers
Which of the following is the best example of a perfectly competitive market?
Dairy farming.
The price of a good multiplied by the quantity sold equals:
Total revenue
Total profit is equal to
The difference between total revenue and total cost
Economists assume that the principal motivation of producers is:
Profit.
Marginal cost is:
The change in total costs because of a one-unit increase in output.
A rightward shift in market supply curve could be caused by:
An improvement in technology.
If the cost of production rises for all the firms in a perfectly competitive industry
Each firm will supply less output at any given price.
Equilibrium price refers to the:
Price at which the quantity demanded of a good equals the quantity supplied
In a competitive market, in the long run, economic profits will cause:
New firms to enter the market.
A flat or horizontal demand curve for a firm indicates that:
The firm has no market power.
When a new firm enters a market, it:
Reduces the profits of existing firms.
Obstacles that make it difficult or impossible for additional producers to begin producing or selling in a new market are referred to as:
Barriers to entry.
Which of the following market structures has the fewest barriers to entry?
Perfect competition
TRUE/FALSE perfectly competitive firm has some competitors but it is still able to influence the market price.
FALSE
TRUE/ FALSE: The marginal cost curve is the short-run supply curve for a competitive firm.
TRUE
Market power exists if a firm can alter:
The market price.
The demand curve for an individual monopolist:
Is the same as the market demand curve
In order to sell one additional unit of output, a profit-maximizing monopolist must:
Reduce the price of all units sold.
Suppose a monopoly pharmaceutical company produces a drug and sells 100 prescriptions for $25 each. In order to sell 101 prescriptions, the monopolist must lower the price to $24 per prescription. The marginal revenue of the 101st prescription is:
-$76
Which of the following statements is true, assuming the same cost and demand conditions?
A monopoly produces less output than a competitive firm.
Suppose two firms dominate a market and control price and output. This type of market is called
A duopoly.
Which market structure is characterized by a few interdependent firms?
Oligopoly.
A market made up of many firms, each of which has some distinct brand image, is called:
A monopolistically competitive market.
An industry in which one firm can achieve economies of scale over the entire range of output is referred to as:
A natural monopoly.
TRUE/FALSE: An oligopolist may decide to coordinate with others in the industry in order to maximize profits.
True
TRUE/FALSE: Economies of scale occur when the long-run average cost curve slopes downward.
True
The total quantities of a good that people are willing and able to buy at alternative prices defines:
Market demand.
TRUE/FALSE: A natural monopoly uses legal harassment and bundling of products to keep others out of the market.
False
If American Airlines engages in predatory pricing, it might:
Lower fares when a new carrier enters the market and then raise fares once the new carrier is driven out of business.
Suppose a monopoly firm produces a medical device and can sell 15 items per month at a price of $2,000 each. In order to increase sales by one item per month, the monopolist must lower the price of its medical device by $100 to $1,900. The marginal revenu
$400.
Which of the following is an argument in support of market power?
Economies of scale.
TRUE/FALSE: For a profit-maximizing monopolist, price exceeds marginal cost at all times.
True
The market structure of the U.S. soft drink industry is most likely:
An oligopoly.
Which of the following is likely to be a monopolist?
A small firm with a patent granting it the exclusive right to produce a drug.
In order to sell one additional unit of output, a profit-maximizing monopolist must:
Reduce the price of all units sold.
If the entire output of a market is produced by a single seller, the firm:
Is a monopoly.
In comparison to a competitive industry how is a monopoly different?
During price adjustments price equals marginal cost throughout the process.
TRUE/FALSE: Even if society is producing a combination of goods and services on the production possibilities curve, it may not be producing the optimal mix of output.
True
One HEADLINE article in the text links secondhand smoke to cancer, heart attacks and strokes. This implies that:
There are external costs associated with smoking.
Externalities are a type of market failure because:
Third parties bears the costs or benefits of a market activity.
An emission charge can be used to:
Reduce the difference between social and private costs.
TRUE/FALSE: The market mechanism always leads the economy to the optimal mix of output.
False
A private good is unique because:
Nonpayers can be prevented from consuming it.
According to the text, what type of market failure provided the justification for the antitrust case against Microsoft?
Market power.
The uncertainty that results from inflation causes changes in:
Consumption, saving, and investment behavior.
The production possibilities will definitely shift outward if:
The labor force increases and, at the same time, technology improves.
The production possibilities will definitely shift outward if:
The labor force increases and, at the same time, technology improves.
Deflation occurs when the:
Price decreases for some goods and services outweigh price increases on all other goods and services.
Who among the following would be counted as unemployed?
Bob, a college student looking for summer work.
TRUE/FALSE: The basic measures of macroeconomic performance include the national debt, the trade deficit, and interest rates.
False
Which of the following types of unemployment is most directly related to real GDP growth?
Cyclical unemployment
Business cycles in the United States:
Vary greatly in length, frequency, and magnitude.
Which of the following is characteristic of a downturn in the business cycle?
Higher unemployment rates
According to macroeconomists, a goal for the economy is a:
Low unemployment rate.
When a person's nominal income falls in a period of inflation then the person's real income:
Definitely falls.
The study of aggregate economic behavior is referred to as:
Macroeconomics.
Which of the following is not a basic measure of macroeconomic performance?
Public goods
If the Consumer Price Index (CPI) had a value of 128 in 2007, this means that during the period between the base year and 2007:
Prices of goods and services that the typical consumer buys increased by an average of 28 percent.
If the population of a country is 1,000,000 people, its labor force consists of 600,000, and 60,000 people are unemployed, the unemployment rate is:
10.0 percent
TRUE/FALSE: An important measure of macroeconomic performance is the growth of GDP.
True
Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus?
Aggregate supply will increase or shift to the right.
Ceteris paribus, a rightward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to ______.
decrease; increase
TRUE/FALSE: Supply-side theories focus on stimulating production by increasing the demand for goods and services.
False
TRUE/FALSE: According to Keynes, the economy is basically stable and government intervention is not required.
False
Say's Law implies that:
The economy will not experience a long-term decrease in output.
Which of the following is a mechanism Keynes advocated for dealing with a situation of depressed output?
Increasing government expenditure
If the stock market plunged over the next week, consumers would:
Demand fewer goods and services.
According to monetary theories, a decrease in the money supply shifts the aggregate:
Demand curve to the left.
Ceteris paribus, a leftward shift of the aggregate demand curve will cause the equilibrium price level to _______ and equilibrium real output to ______.
Decrease; decrease
A tax cut can best be characterized as:
Both fiscal and supply-side policy.
The Classical approach dominated economic policy during:
The period before the Great Depression.
The intersection of the aggregate demand and supply curves definitely establishes:
Macro equilibrium.
Ceteris paribus, based on the real balances effect, if the price level falls:
Purchasing power increases.
TRUE/FALSE: If, at the prevailing price level, the aggregate quantity supplied exceeds the aggregate quantity demanded, the price level will tend to fall.
True
Macro equilibrium always occurs:
When aggregate demand equals aggregate supply at the average price level.
TRUE/FALSE: According to the foreign trade effect, if the U.S. price level rises then U.S. exports are more expensive for foreigners to buy so the level of real GDP decreases.
True
Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus?
An increase in the cost of natural gas
The aggregate supply curve is positively sloped because as the price level increases:
Profit margins increase in the short run.
If an economy is experiencing a recession, the classical approach to achieving full employment is to:
Do nothing and wait for natural market forces to improve the economy.
Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases.
Increases; produced
If the price level is:
Above equilibrium, this results in excess supply.
Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should:
Cut taxes and/or increase government spending.
TRUE/FALSE: According to the real balances effect, if the price level rises then the real value of savings increases and individuals will buy more output.
False
If excessive aggregate demand causes prices to rise, which of the following would be a correct fiscal-policy action?
A tax increase
Net exports in the United States are:
Included in the calculation of GDP.
Exports minus imports are referred to as:
Net exports.
According to Keynes, which of the following is possible at the intersection of aggregate supply and aggregate demand?
Inflation, full employment, or high levels of unemployment
Inflation occurs when:
Aggregate demand increases faster than output.
TRUE/FALSE: A tax hike causes a decrease in disposable income.
True
Equilibrium:
Can occur at any output level.
Which of the following helps explain the multiplier effect?
Income is spent and re-spent in the circular flow model.
Expenditures on new plant and equipment plus changes in business inventories defines:
Investment.
Which of the following is consistent with what Keynes believed?
Fiscal policy should be used to shift the aggregate demand curve
Which of the following could cause a recession?
A decline in aggregate demand
TRUE/FALSE: A tax cut causes a decrease in disposable income.
False
If aggregate supply is upward sloping, fiscal stimulus causes _______ in aggregate demand and _______ in prices.
An increase; an increase
The fraction of each additional dollar of disposable income not spent on consumption is referred to as:
The MPS.
Which of the following is not an example of investment spending?
The purchase of stock in the stock market
One HEADLINE article in the text says, "After years of living happily beyond their means, Americans are finally facing financial reality." Ceteris paribus, a decrease in consumer confidence will result in:
A decrease in the equilibrium level of output.
Which of the following will definitely reduce a budget deficit and provide fiscal restraint?
Lower government spending and higher taxes.
Ceteris paribus, an increase in _______ will cause an increase in ______.
Consumer confidence; aggregate demand
If the marginal propensity to save is 0.1 and government spending is raised by $5 billion, then total aggregate spending will rise by:
$50 billion. (1/(1 - 0.9) x 5 = 50)
If consumers spend 80 cents out of every extra dollar received, the:
Multiplier is 5. (1� (1- .80) =5)
TRUE/FALSE: If the aggregate supply curve is upward sloping, an increase in aggregate demand will cause an increase in output and no change in prices
False
Assume an MPC of 0.75. The change in total spending for the economy as a result of a $20 billion new government spending injection would be:
$80 billion. (1/(1 - 0.75) x 20 = 80)
TRUE/FALSE: The greater the upward slope of the aggregate supply curve, the greater the increase in the price level when aggregate demand increases.
True
The GDP gap is:
The difference between equilibrium output and full-employment output.
TRUE/FALSE: If the required reserve ratio decreases, the money multiplier decreases.
False
TRUE/FALSE: When a bank makes a loan, transactions account balances are created but the money supply is not affected.
False
Suppose a bank has $200,000 in deposits and a minimum reserve requirement of 15 percent. Then required reserves are:
$30,000
Deposit creation occurs when:
Money enters the banking system and a portion of it is lent out.
TRUE/FALSE: Deposit creation is constrained by the willingness of consumers and businesses to use and accept checks rather than cash for market transactions.
True
TRUE/FALSE: The distinguishing feature of transactions accounts is that they allow for direct payment to a third party.
True
Banks are most profitable when:
Loans are initiated.
Which of the following is not part of M1 but is included in "near money" according to the text?
Savings accounts
TRUE/FALSE: Money functions well as a store of value when prices are rising.
False
When the market value of goods and services is expressed in prices, money is functioning as a:
Standard of value.
Which of the following is not a monetary policy tool for shifting the aggregate demand curve?
Government spending.
TRUE/FALSE: For a given amount of total reserves, a decrease in required reserves causes an increase in excess reserves.
True
Checks are cleared between private banks by:
The 12 regional Federal Reserve banks.
Using the aggregate supply drawn under the monetarist view, what should happen to the equilibrium price level and quantity of output if the Fed buys bonds
Equilibrium price level should increase and equilibrium output should stay constant.
Restrictive monetary policy will:
Decrease the lending capacity for banks.
The 12 regional Fed banks do all of the following except:
Lend money to individuals
The Board of Governors has ___ members, and they are appointed for ___ year terms.
7; 14
The chairman of the Federal Reserve Board of Governors:
Serves a four-year term and can be reappointed.
Which of the following is not a basic monetary policy tool used by the Fed?
Taxes.
Excess reserves are:
Bank reserves in excess of required reserves
Suppose the banks in the Federal Reserve System have $1 billion in transactions accounts and the reserve requirement is 0.20. Ceteris paribus, if the reserve requirement is increased to 0.25, then excess reserves will:
Decrease by $50 million.
The discount rate is the interest rate charged by:
The Federal Reserve when it lends money to private banks.
If the Fed wishes to decrease the money supply it can:
Raise the discount rate.
To increase the money supply the Fed can:
Reduce the reserve requirement, reduce the discount rate, or buy bonds
TRUE/FALSE: Profit-maximizing banks try to keep their excess reserves as high as possible.
False