Lesson 4
Question 1
2.5 / 2.5 points
If government increases spending and wants to maintain a balanced budget, it should __________.
Question options:
decrease taxes by an equal amount
increase taxes by an equal amount
decrease taxes by an amount equal to the increase in spending multiplied by the tax multiplier
increase taxes by an amount equal to the increase in spending multiplied by the tax multiplier
Question 2
2.5 / 2.5 points
Higher real interest rates resulting from a government budget deficit will __________ the amount of loanable funds a firm demands for their investments.
Question options:
stabilize
decrease
not affect
increase
Question 3
0 / 2.5 points
Which of the following is NOT a key financial institution?
Question options:
insurance companies
stock markets
commercial banks
government-sponsored mortgage lenders
Question 4
2.5 / 2.5 points
What was one of the biggest contributing factors that led to the failure of financial institutions during the recent economic crisis?
Question options:
low interest rates
high employment rates
rising home prices
strong corporate management
Question 5
2.5 / 2.5 points
If a firm increases its capital stock per person while holding constant the number of workers employed, the firm is said to experience __________.
Question options:
capital augmentation
investment deepening
labor intensity
capital deepening
Question 6
2.5 / 2.5 points
Nations that borrow from abroad to support current investment will __________.
Question options:
always be better off in the future
always sacrifice future consumption
be better off in the future if the investments are profitable
sacrifice future consumption only if the investments are profitable
Question 7
2.5 / 2.5 points
According to the text, __________ is perhaps the most critical aspect of a country’s economic performance.
Question options:
growth in GDP
the inflation rate
the unemployment rate
the living standard
Question 8
2.5 / 2.5 points
In developing countries, the highest returns are from investing in __________.
Question options:
transportation systems
sanitation systems
education
defense
Question 9
2.5 / 2.5 points
Nations with low levels of GDP per capita may converge to richer nations if __________.
Question options:
nations with high levels of income experience a continuously increasing growth rate
nations with lower levels of income grow more quickly than those with higher levels of income
nations with lower levels of income spend less on investment
nations with lower levels of income grow more slowly than those with higher levels of income
Question 10
2.5 / 2.5 points
An increase in the capital stock will __________.
Question options:
shift the production function downward
shift the production function upward
flatten the production function
steepen the production function
Question 11
2.5 / 2.5 points
What happens to U.S. GDP when foreign countries experience prosperity?
Question options:
It increases because the United States will export more product to those countries.
It decreases because the foreign countries will now buy more of their own products.
It decreases because the foreign countries will be able to export more at a lower cost.
It does not change because U.S. GDP is not affected by other countries’ prosperity.
Question 12
2.5 / 2.5 points
The multiplier that arises from equal increases in government spending and taxes is called the __________.
Question options:
simple multiplier
tax multiplier
balanced budget multiplier
government spending multiplier
Question 13
2.5 / 2.5 points
Convergence refers to closing the gap in __________ between poorer countries and richer countries.
Question options:
real GDP
real GDP per capita
the growth rate in real GDP
the growth rate in real GDP per capita
Question 14
2.5 / 2.5 points
Which of the following uses of tax revenues collected by the government leads to increased capital deepening?
Question options:
building roads
increased foreign aid
Medicare payments
Social Security payments
Question 15
2.5 / 2.5 points
The fraction of additional income spent on imports is called the __________.
Question options:
import function
marginal propensity to import
marginal propensity to export
trade balance
Question 16
2.5 / 2.5 points
Economic growth is severely impeded in economies __________.
Question options:
with a lack of clear property rights
with a strong market system
with high rates of convergence
which encourage induced innovation
Question 17
2.5 / 2.5 points
According to the method of growth accounting, which of the following contribute to economic growth?
Question options:
capital growth
labor growth
technological progress
all of the above
Question 18
0 / 2.5 points
Fluctuations in the demand and supply of loanable funds will in turn bring changes to the __________ of lent and borrowed funds.
Question options:
product recipient
mortgage-backed securities
equilibrium quantity
equilibrium quality
Question 19
2.5 / 2.5 points
Suppose that for a given firm, the increase in output resulting from the last worker hired is less than the increase in output of the previous worker hired. This is an example of __________.
Question options:
diminishing returns
constant returns
increasing return
capital deepening
Question 20
2.5 / 2.5 points
If the government __________ taxes to pay for spending on infrastructure, the result will most likely be a(n. __________ in capital deepening.
Question options:
increases; increase
decreases; increase
increases; decrease
eliminates; elimination
Lesson 5
Question 21
2.5 / 2.5 points
Equilibrium in the money market occurs when __________.
Question options:
the quantity of money demanded equals the quantity of money supplied
the quantity of money demanded is less than the quantity of money supplied
the quantity of money demanded is more than the quantity of money supplied
the interest rate equals the money supply
Question 22
2.5 / 2.5 points
The Federal Reserve System was created by the __________.
Question options:
U.S. Treasury
President
Congress
Supreme Court
Question 23
2.5 / 2.5 points
What impact does the Fed’s raising the interest rate have on the money supply and on the price level?
Question options:
An increase in interest rates raises the money supply and eventually reduces prices.
An increase in interest rates reduces the money demand which will slow the growth in prices.
An increase in interest rates lowers the money supply and raises the money demand, which will neutralize price increases.
An increase in interest rates will increase investment spending and GDP, which will lower prices.
Question 24
2.5 / 2.5 points
Loans are examples of a bank’s __________.
Question options:
assets
liabilities
net worth
balance sheet
Question 25
2.5 / 2.5 points
One of the essential functions that a bank performs is __________.
Question options:
purchasing government bonds
creating deposits by lending required reserves
transferring money from savers to lenders
owning assets like real estate
Question 26
0 / 2.5 points
By law, banks are required to __________.
Question options:
hold 100 percent of customer deposits as reserves
hold a fraction of their reserves at the Federal Reserve bank
hold a fraction of demand deposits as reserves
lend out no more than the amount of their required reserves
Question 27
2.5 / 2.5 points
When checks are exchanged between banks, the Fed oversees the banks to ensure the appropriate funds have been transferred. This is known as __________.
Question options:
check kiting
check clearing
check floating
check balancing
Question 28
2.5 / 2.5 points
The supply of money in the U.S. economy is determined primarily by __________.
Question options:
decisions made by the Federal Reserve and the U.S. Treasury
the actions of the Federal Reserve and the banking system
consumers and the banking system
the demand for money in the economy
Question 29
2.5 / 2.5 points
Consider how the value of the U.S. dollar affects the worldwide increase in commodity prices to answer the following two question(s.. Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom. Some economists noticed that the change in the value of the U.S. dollar was largely due to the change in interest rates, and the change in interest rates occurred because of the Fed’s use of __________ to further stimulate the economy.
Question options:
open market sales
quantitative easing
discount operations
open market purchases
Question 30
2.5 / 2.5 points
M1 __________.
Question options:
is the sum of currency plus traveler’s checks
is the narrowest definition of the money supply
includes small time deposits
includes credit cards
Question 31
2.5 / 2.5 points
All of the following statements are true of the Federal Reserve EXCEPT __________.
Question options:
it acts as the central bank for all countries in the world
along with the Board of Governors, the chairperson of the Federal Reserve determines monetary policies and strategies based on the state of economy
it supplies currency to the economy
it holds reserves from banks and regulates banks
Question 32
2.5 / 2.5 points
An open market __________ by the Fed decreases the money supply, which leads to __________ interest rates and a fall in investment spending.
Question options:
sale; increased
sale; decreased
purchase; increased
purchase; decreased
Question 33
2.5 / 2.5 points
In the __________ , increases in the supply of money will __________.
Question options:
short run; raise total demand and output
long run; raise total demand and output
long run; lead to lower prices
short run; decrease total demand and output
Question 34
2.5 / 2.5 points
The group responsible for deciding on monetary policy is the __________.
Question options:
Federal Open Market Committee
Board of Governors only
Federal Advisory Council
group of 12 Federal Reserve Bank presidents only
Question 35
2.5 / 2.5 points
An increase in the reserve requirement __________.
Question options:
increases the money supply, which leads to increased interest rates and a decrease in GDP
increases the money supply, which leads to decreased interest rates and a decrease in GDP
decreases the money supply, which leads to increased interest rates and a decrease in GDP
decreases the money supply, which leads to decreased interest rates and a decrease in GDP
Question 36
2.5 / 2.5 points
Good news for the economy is bad news for bond prices, because __________.
Question options:
the increased demand for money will increase interest rates
when real GDP increases, demand for money will decrease
bond prices move in the same direction as interest rates
when interest rates increase during growing GDP, bond prices will increase
Question 37
2.5 / 2.5 points
A bank may make loans until its __________.
Question options:
required reserves are exhausted
excess reserves are exhausted
total assets are exhausted
total liabilities are exhausted
Question 38
2.5 / 2.5 points
Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should __________.
Question options:
stay the same
increase
decrease
increase to the same extent that the supply of money increases
Question 39
2.5 / 2.5 points
The Federal Reserve influences the level of interest rates in the short run by changing the __________.
Question options:
demand for money through open market operations
demand for money through changes in reserve requirements
supply of money through open market operations
supply of money through changes in stock market operations
Question 40
2.5 / 2.5 points
If money is used as a mechanism to hold purchasing power for a period of time, it is functioning as a __________.
Question options:
standard of value
store of value
medium of exchange
unit of account
