1.Which of the following statements is true?
a) A lender of last resort is supposed to prevent an outbreak of inflation by raising interest rates to stop excessive borrowing and lending.
b) A lender of last resort is supposed to prevent recessions by lowering interest rates to troubled borrowers.
c) A lender of last resort makes emergency loans to businesses and households when banks refuse to lend.
d) A lender of last resort bails out troubled financial institutions to prevent a financial panic.
e) A lender of last resort makes emergency loans to state and local governments to prevent massive layoffs.
2. The estate tax attempts to promote equity in the distribution of income and wealth by:
a) Taxing household income at rates that increase as income rises.
b) Taxing household wealth once it exceeds a certain threshold.
c) Taxing household income once it exceeds a certain threshold.
d) Taxing household wealth once it is transferred from one generation to the next.
e) Taxing capital gains on assets (capital gains are increases in an asset's value) at a very high rate.
3. A speculative bubble occurs when:
a) Buyers use credit to make purchases they cannot afford.
b) Investors buy an asset that they believe the market is undervaluing.
c) Investors bid up the price of an asset because they are overly optimistic that the price will continue rising.
d) Investors ignore obvious risks because they are foolish.
e) Investors are so afraid of taking risks that they buy only the safe assets.
4. A negative income tax is a tax where:
Tax rates are kept low for low income households.
Low income households receive payments from the government through the tax system.
Low income households pay no taxes.
Low income households are eligible for transfer payments.
Low income households receive a mix the transfer payments and low tax rates.
5. Banks are vulnerable to failing because:
The Federal Reserve uses the banking system to create excessive amounts of money.
Banks take large risks with their depositors' and creditors' funds to earn their profits.
Banks are rife with fraud.
Banks are over-regulated and unable to make sufficient profits to survive.
Banks are too large and poorly managed.
6. A progressive tax is a tax that:
Increases with income, meaning that the more one makes the more one pays.
Decreases with income, meaning the more one makes the lower the tax rate they pay.
Increases with income, meaning the more one makes their tax rate unchanged.
Decreases with income, meaning the more one makes their tax rate increases.
Increases with income, meaning the more one makes their tax rate increases.
7. Expansionary monetary and fiscal policies are used by policy makers in a recession to:
Prevent recessions from occurring.
Keep inflation under control.
Keep people from falling into poverty.
Keep businesses profitable.
Keep recessions as short and mild as possible.
8. To prevent the failure of large financial institutions from starting a financial panic and an economic crisis, policy makers can:
Make emergency loans to failing financial institutions to prevent the onset of the financial panic.
Raise interest rates to punish those borrowers with excessive debts to stop the panic.
Lower interest rates to encourage the use of credit to stop the panic.
Let the troubled financial institutions fail to prevent the spread of excessive risk taking.
Allow the troubled financial institutions to fail and then permit healthy financial institutions to take them over.
9. The social safety net of transfer payments in the U.S. is intended to:
Dramatically shift the distribution of income and wealth from affluent households to poor households.
Redistribute income and wealth from middle income households to the poor.
Reduce economic insecurity for the middle class and prevent poor households from falling into abject poverty.
Redistribute income and wealth from affluent households to middle income and poor households to prevent abject poverty.
Reduce crime and other social ills by aiding the poor.
10. To contain inflation policy makers can:
Use the anti-trust laws to prevent large firms from raising their prices.
Promote competition and make it more difficult for firms to raise their prices.
Use expansionary monetary and fiscal policies to increase the supply of goods and services to reduce prices.
Use contractionary monetary and fiscal policies to decrease demand to contain wage and price inflation.
Enforce regulations on "price gouging" to contain price inflation.
11. What impact would a rise in consumer income have on the demand for cars?
The demand for cars would decrease if cars are a normal good.
The demand for cars would increase if cars are a normal good.
The demand for cars would increase if cars are an inferior goods.
The demand for cars would decrease if car prices remain constant.
The demand for cars would increase if car prices were to fall.
12. Which of the following is NOT a reason why the demand curve for apples will shift out and to the right?
The price of bananas, a substitute good, rises.
The price of cereal, a complementary good, falls.
Consumer income rises and apples are a normal good.
Consumer income falls and apples are an inferior good.
The price of apples declines.
13. What impact would a fall in interest rates on loans used to purchase cars have on the demand for cars?
The demand for cars would decrease because the interest rate on auto loans is the price of a substitute good.
The demand for cars would increase because the interest rate on auto loans is the price of a complementary good.
The demand for cars would decrease because the interest rate on auto loans is the price of a complementary good.
The demand for cars would increase because gas is the price of a substitute good.
The quantity demanded of cars would increase as we move down the demand curve for cars.
14. The quantity demanded of cars will increase if the price of a car falls because:
The fall in price of cars leads consumers to buy less of other forms of transportation and raises consumers' real income.
The fall in the price of cars leads consumers to buy more of other forms of transportation and raises consumers' real income.
The fall in the price of cars leads consumers to buy less of other forms of transportation and lowers consumers' real income.
The fall in the price of cars leads consumers to buy less of other forms of transportation while keeping their real income unchanged.
The fall in the price of cars leads consumers to buy more small cars but less large cars.
15. Assume we are analyzing the demand cars. What impact would a rise in gas prices have on the demand curve for cars?
The demand for cars would decrease because gas is the price of a substitute good.
The demand for cars would increase because gas is the price of a complementary good.
The demand for cars would decrease because gas is the price of a complementary good.
The demand for cars would increase because gas is the price of a substitute good.
The quantity demanded of cars would decline as we move up along the demand curve for cars.
16. If a consumer reacts to a rise in the price of beef by purchasing less beef and more chicken, this is because chicken is:
A normal good.
An inferior good.
A substitute good for beef.
A complementary good for beef.
Both an inferior good and a complementary good for beef.
17. If a consumer reacts to a rise in the price of gas by not using their gas guzzling SUV because they no longer can afford to fill it up, this is an example of:
A normal good.
An inferior good.
The substitution effect.
The income effect.
An example of a change in tastes.
18. If stock investors anticipate the price of Apple's stock will fall they will
Increase their current demand for Apple's stock because they believe it will be selling at a lower price in the future.
Decrease their current demand for the stock because they believe it will fall in price.
Decrease their future demand for the stock because they believe the price will fall.
Decrease both their current and future demand for the stock because they believe the price will fall.
Increase both their current and future demand for the stock because they anticipate the price will fall.
19. Which of the following is NOT a reason why the demand curve for new homes might shift in and to the left?
The cost of renting, the price of a substitute good, falls.
Mortgage interest rates, the price of a complementary good, rise.
Home buyers anticipate new home prices to fall in the near future.
Household incomes fall and new homes are a normal good.
Population increases.
20. What impact would a fall in the price of cars have on the demand for cars?
The demand curve would decrease due to the lower price of cars.
The demand curve would increase due to the lower price of cars.
The quantity demand of cars would decrease as we move up on a given demand for cars.
The quantity demanded of cars would increase as we move down a given demand for cars.
The quantity demanded of cars would remain unchanged because there are no substitute for car travel.