Multiple choice questions:
Question 1
It is possible for an economy to become more productive and per-capita output to increase if __________.
A. new ideas are generated
B. inventions are developed
C. technology is improved
D. all of the above
Question 2
An increase in the level of U.S. exports __________ the demand for goods and service produced in the United States.
A. decreases
B. increases
C. increases or decreases
D. does not affect
Question 3
The fraction of additional income spent on imports is called the __________.
A. import function
B. marginal propensity to import
C. marginal propensity to export
D. trade balance
Question 4
An event that allows the economy to operate more efficiently by producing more outputs without using any more inputs is referred to as __________.
A. absolute progress
B. efficiency progress
C. capital investment
D. technological progress
Question 5
What happens to U.S. GDP when foreign countries experience prosperity?
A. It increases because the United States will export more product to those countries.
B. It decreases because the foreign countries will now buy more of their own products.
C. It decreases because the foreign countries will be able to export more at a lower cost.
D. It does not change because U.S. GDP is not affected by other countries' prosperity.
Question 5
What happens to U.S. GDP when foreign countries experience prosperity?
A. It increases because the United States will export more product to those countries.
B. It decreases because the foreign countries will now buy more of their own products.
C. It decreases because the foreign countries will be able to export more at a lower cost.
D. It does not change because U.S. GDP is not affected by other countries' prosperity.
Question 6
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 __________.
A. diminishing returns
B. constant returns
C. increasing return
D. capital deepening
Question 7
According to the text, __________ is perhaps the most critical aspect of a country's economic performance.
A. growth in GDP
B. the inflation rate
C. the unemployment rate
D. the living standard
Question 8
Which of the following is NOT a key financial institution?
A. insurance companies
B. stock markets
C. commercial banks
D. government-sponsored mortgage lenders
Question 9
Nations that borrow from abroad to support current investment will __________.
A. always be better off in the future
B. always sacrifice future consumption
C. be better off in the future if the investments are profitable
D. sacrifice future consumption only if the investments are profitable
Question 10
If a firm increases its capital stock per person while holding constant the number of workers employed, the firm is said to experience __________.
A. capital augmentation
B. investment deepening
C. labor intensity
D. capital deepening
Question 11
When the government has a budget deficit or surplus, it enters the __________.
A. market for loanable funds
B. subprime housing market
C. bond market
D. government-sponsored mortgage lenders market
Question 12
The idea that investment in comprehensive education in developing countries leads to permanent increases in the rate of technological progress is an example of __________.
A. increasing economic inequality
B. capital deepening
C. new growth theory
D. a trade-off between human capital and technology
Question 13
If the government __________ taxes to pay for spending on infrastructure, the result will most likely be a(n. __________ in capital deepening.
A. increases; increase
B. decreases; increase
C. increases; decrease
D. eliminates; elimination
Question 14
Higher real interest rates resulting from a government budget deficit will __________ the amount of loanable funds a firm demands for their investments.
A. stabilize
B. decrease
C. not affect
D. increase
Question 15
Trade deficits always lead to future decreases in consumption if the trade deficits __________.
A. support current investment
B. support current consumption
C. support either current investment or current consumption
D. require borrowing from abroad
Question 16
In developing countries, the highest returns are from investing in __________.
A. transportation systems
B. sanitation systems
C. education
D. defense
Question 17
According to the method of growth accounting, which of the following contribute to economic growth?
A. capital growth
B. labor growth
C. technological progress
D. all of the above
Question 18
In a simple economy without government or foreign trade, any income not consumed is called __________.
A. investment
B. net investment
C. saving
D. depreciation
Question 19
An increase in a country's capital stock relative to its work force is known as __________.
A. capital deepening
B. capital growth
C. capital improvement
D. capital augmentation
Question 20
Fluctuations in the demand and supply of loanable funds will in turn bring changes to the __________ of lent and borrowed funds.
A. product recipient
B. mortgage-backed securities
C. equilibrium quantity
D. equilibrium quality
Question 21
An open market __________ by the Fed decreases the money supply, which leads to __________ interest rates and a fall in investment spending.
A. sale; increased
B. sale; decreased
C. purchase; increased
D. purchase; decreased
Question 22
One of the essential functions that a bank performs is __________.
A. purchasing government bonds
B. creating deposits by lending required reserves
C. transferring money from savers to lenders
D. owning assets like real estate
Question 23
The Federal Reserve influences the level of interest rates in the short run by changing the __________.
A. demand for money through open market operations
B. demand for money through changes in reserve requirements
C. supply of money through open market operations
D. supply of money through changes in stock market operations
Question 24
A bank's reserves __________.
A. are the sum of its excess and required reserves
B. can be held as cash in its vault
C. can be held as deposits with the Federal Reserve
D. all of the above
Question 25
Which of the following serves as the central bank for the United States?
A. the Federal Reserve System
B. the Treasury Department
C. the Federal Deposit Insurance Corporation
D. the Congress
Question 26
By law, banks are required to __________.
A. hold 100 percent of customer deposits as reserves
B. hold a fraction of their reserves at the Federal Reserve bank
C. hold a fraction of demand deposits as reserves
D. lend out no more than the amount of their required reserves
Question 27
Loans are examples of a bank's __________.
A. assets
B. liabilities
C. net worth
D. balance sheet
Question 28
When money is used to express the value of goods and services, it is functioning as a __________.
A. medium of exchange
B. store of value
C. unit of account
D. store of purchasing power
Question 29
The group responsible for deciding on monetary policy is the __________.
A. Federal Open Market Committee
B. Board of Governors only
C. Federal Advisory Council
D. group of 12 Federal Reserve Bank presidents only
Question 30
Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should __________.
A. stay the same
B. increase
C. decrease
D. increase to the same extent that the supply of money increases
Question 31
An open market __________ by the Fed increases the money supply, which leads to __________ interest rates and increased GDP.
A. purchase; increased
B. purchase; decreased
C. sale; increased
D. sale; decreased
Question 32
The Federal Reserve System was created by the __________.
A. U.S. Treasury
B. President
C. Congress
D. Supreme Court
Question 33
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. According to this scenario, some economists noticed that the U.S. dollar __________ largely because monetary policy in the United States had driven interest rates __________.
A. depreciated; down
B. depreciated; up
C. appreciated; down
D. appreciated; up
Question 34
M1 __________.
A. is the sum of currency plus traveler's checks
B. is the narrowest definition of the money supply
C. includes small time deposits
D. includes credit cards
Question 35
While some tokens, such as a metro fair card or plane ticket, are only acceptable forms of payment in a specific arena, money is __________, meaning it can be used to purchase anything.
A. a government note
B. generally accepted
C. purchase specific
D. a representation of currency
Question 36
An increase in the reserve requirement __________.
A. increases the money supply, which leads to increased interest rates and a decrease in GDP
B. increases the money supply, which leads to decreased interest rates and a decrease in GDP
C. decreases the money supply, which leads to increased interest rates and a decrease in GDP
D. decreases the money supply, which leads to decreased interest rates and a decrease in GDP
Question 37
All of the following statements are true of the Federal Reserve EXCEPT __________.
A. it acts as the central bank for all countries in the world
B. along with the Board of Governors, the chairperson of the Federal Reserve determines monetary policies and strategies based on the state of economy
C. it supplies currency to the economy
D. it holds reserves from banks and regulates banks
Question 38
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 tåhe economy.
A. open market sales
B. quantitative easing
C. discount operations
D. open market purchases
Question 39
Good news for the economy is bad news for bond prices, because __________.
A. the increased demand for money will increase interest rates
B. when real GDP increases, demand for money will decrease
C. bond prices move in the same direction as interest rates
D. when interest rates increase during growing GDP, bond prices will increase
Question 40
A bank may make loans until its __________.
A. required reserves are exhausted
B. excess reserves are exhausted
C. total assets are exhausted
D. total liabilities are exhausted