A+ Answers

Question 1
According to the equation of exchange, if total output is 2,000 units, the velocity of money is 5, and the money supply is $1,000, the average price per transaction will be
$0.50
$2.50
$5.00
$7.50
 
 Question 2
The current base year for the CPI is 1985.
 True
False
 
 Question 3
If the money supply is $350 and PQ is $1,400, according to the quantity theory of money, the velocity of money is
35.0
 7.5
 4.0
 0.25
 
 Question 4
The higher the reserve requirement,
the more the money supply can expand
 the more interest the bank will earn on its reserve account
 the less the money supply can expand
 both (a) and (b)
 
 Question 5
The current base period for the CPI is
1967
 1977
 1982–1984
 1990
 
 Question 6
In calculating a price index, the period to which prices in all other periods are compared is known as the
comparison period
 average period
 current period
 base period
 
 Question 7
Anything that would cause people to want to hold more of their money as cash and less in the form of checkable deposits would
increase the multiple expansion of the money supply
 cause the Federal Reserve to raise the reserve requirement
 reduce the multiple expansion of the money supply
 increase the size of the money supply
 
 Question 8
Your nominal wages rose during the same period from $200 a week to $260. By how much did your real income rise?
30 percent
 16.7 percent
 8.33 percent
 12 percent
 
 Question 9
Included in the official U.S. money supply are
U.S. government bonds
 corporate stocks
 checkable deposits
 all of the above
 
 Question 10
If a $1,000 cash deposit is made in a bank where the reserve requirement is 10 percent, then the maximum total loans in the form of checkable deposits that may be made as a result of that cash deposit is
$1,000
$5,000
$9,000
$10,000
 
 Question 11
The Producer Price Index (PPI) measures
the price level of aggregate output
 the prices charged by manufacturers
 changes in the prices received by producers
 price changes passed along to consumers
 
 Question 12
In the equation of exchange MV = PQ, V stands for
inventory turnover
 total transactions in the economy
 average rate of turnover of the money supply
 variation in interest rates
 
 Question 13
The 45-degree line in the Keynesian income-expenditure graph indicates
the basic size of the spending flow
 points where total output is equal to aggregate expenditure
 the size of the multiplier
 the size of the marginal propensity to save
 
 Question 14
If planned investment increases by $20 billion, other things remaining the same, planned saving eventually will increase by $20 billion, regardless of the size of the multiplier.
 True
False
 
 Question 15
The multiplier is equal to
the reciprocal of MPC
 the reciprocal of MPS
 MPC + MPS
 MPC/MPS
 
 Question 16
The consumption function shows the relationship between the income received by the economy’s households and the
amount they plan to spend on currently produced final output
 amount of government spending
 amount businesses plans to spend on investment
 level of taxes on personal income
 
 Question 17
Which of the following is not one of the four major sectors of the economy to which GDP is allocated?
consumer
 investment
 agriculture
 government
 
 Question 18
Aggregate expenditure (AE) equals
C + I + G
 C + G
 C – I – (X – IM)
 C + I + G + (X – IM)
 
 Question 19
In the simple Keynesian model, if output exceeds aggregate expenditures,
there will be no response from businesses
 inventories will decrease and businesses will increase output
 inventories will increase and businesses will increase output
 inventories will increase and businesses will decrease output
 
 Question 20
According to Keynes, the aggregate supply curve is
vertical in both the long run and the short run
 vertical only in the long run
 vertical only in the short run
 never vertical
 
 Question 21
As income increases, the absolute level of planned consumption will increase.
 True
False
 
 Question 22
The classical economists held that the rate of interest would equate planned investment and planned saving, so that all saving would eventually be invested.
 True
False
 
 Question 23
The higher the marginal propensity to consume, the
smaller the size of the multiplier
 larger the size of the multiplier
 larger the propensity to save
 larger the velocity
 
 Question 24
In the Keynesian model, if planned investment exceeds planned saving at full-employment output,
unemployment is likely to develop
 government spending may be needed to balance the economy
 inflation is likely to occur
 none of the above
 
 Question 25
Total planned consumption
exceeds total income at very low levels of output
 is always less than total income
 exceeds total income at very high levels of output
 always equals total income
 
 Question 26
The value of leisure is not taken into consideration in GDP accounting.
 True
False
 
 Question 27
Gross national product measures the current market value of final output produced within a country by both domestic and foreign resources.
 True
False
 
 Question 28
Personal consumption expenditures account for approximately two-thirds of the GDP in the United States.
 True
False
 
 Question 29
Most national wealth in the United States is held in the private sector.
 True
False
 
 Question 30
When final sales are larger than GDP,
inventories did not change
 a net increase in inventories took place
 a net decrease in inventories took place
 the direction of any net change in inventories is uncertain
 
 Question 31
The measurements of business cycles tend to be exaggerated as a result of the GDP treatment of
services
 perishable goods
 government services
 durable goods
 
 Question 32
The unregulated portion of the economy involving goods and services that are produced and exchanged without monetary transactions is known as
the underground economy
 the secret economy
 the capital consumption
 transfer payments
 
 Question 33
The best measure of a change in the standard of living is the change in
nominal GDP
 real GDP
 real per capita disposable income
 net national product
 
 Question 34
In dollar value, the nominal GDP in the United States is in the vicinity of
between 3 and 4 billion
 between 4 and 5 billion
 between 4 and 5 trillion
 between 10 and 12 trillion
 
 Question 35
The difference between GDP and final sales equals
depreciation
 exports
 imports
 net inventory change
 
 Question 36
In national income accounting, machine depreciation is treated as a cost of production, but damage to a region’s air quality is not.
 True
False
 
 Question 37
Transfer payments are added to NI in the process of determining personal income.
 True
False
 
 Question 38
If member banks need to borrow reserves, they must do so through the discount window.
 True
False
 
 Question 39
Which of the following is not part of the Federal Reserve System?
the Federal Advisory Council
 the Federal Open Market Committee
 the Council of Economic Advisers
 the Conference of Presidents of the Reserve Banks
 
 Question 40
The discount rate is
set in the money market
 set by each member bank
 set by the Federal Reserve Bank
 the same as the federal funds rate
 
 Question 41
The First Bank of the United States was chartered by
the federal government
 the state of New York
 the city of New York
 Suffolk County
 
 Question 42
Instead of having one central bank, the Federal Reserve in effect has 12 district banks, each with some amount of autonomy.
 True
False
 
 Question 43
Any bank reserves over and above the level of required reserves are known as
federal funds
 discounted reserves
 excess reserves
 surplus reserves
 
 Question 44
Electronic banking does not include
credit cards
 debit cards
 smart cards
 direct deposit of paychecks
 
 Question 45
The Board of Governors of the Federal Reserve System has
6 members
 7 members
 1 member from each Federal Reserve Bank
 20 members
 
 Question 46
The interest rate at which banks borrow excess reserves from each other is known as the
prime rate
 federal funds rate
 discount rate
 T-bill rate
 
 Question 47
The first attempt at centralized banking in the United States was the Federal Reserve System.
 True
False
 
 Question 48
The chair of the Board of Governors of the Federal Reserve is
appointed by the U.S. President
 elected by the 12 Federal Reserve Banks
 elected by member banks
 appointed by Congress
 
 Question 49
Changes in the discount rate are initiated by
the Federal Open Market Committee
 Federal Reserve Banks
 member banks of the Fed
 the president of the New York Federal Reserve Bank
 
 Question 50
If a Federal Reserve Bank wanted to tighten the money supply, it would
lower the reserve requirement
 buy securities in the open market
 raise the discount rate
 lower the discount rate