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ECO 102 FINAL EXAM PART 2
1. If a federal budget deficit causes crowding out,
a. real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because bondholders’ saving declines
b. real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment declines
c. interest rates fall, reducing the burden of the debt
d. interest rates fall, bringing the current deficit back down
e. interest rates fall, so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficit
2. Which of the following would decrease the size of a federal budget deficit?
a. a recession
b. an increase in defense spending
c. growth in real GDP
d. a decrease in taxes
e. an increase in transfer payments
3. A possible explanation for the persistence of the U.S. federal budget deficits is that
a. it is easier politically to increase government spending than to decrease taxes
b. it is easier politically to decrease government spending than to decrease taxes
c. it is easier politically to increase government spending than to increase taxes
d. the economy naturally tends toward recessions
e. the economy naturally tends toward full employment
4. Problems Problems with the federal government budget process include
a. the use of continuing resolutions that reward last year’s programs without adequate review of performance
b. Congress having too much control over the budget since most government programs can be cut at any time
c. a short review period in Congress that results in poor choices in funding programs
d. a detailed revenue analysis that allows Congress to reward political favors through tax increases
e. the President’s constitutional power to cancel any proposed expenditure without the possibility of a Congressional override
4. The President’s budget is presented to Congress each year
a. in the Economic Report of the President
b. in a report followed shortly by the Economic Report of the President
c. at the beginning of the fiscal year
d. in a form that must be voted up or down within 60 days
e. and requires a two-third vote for ratification
5. The law that established the Federal Reserve System is the
a. Federal Reserve Act of 1913
b. National Banking Act of 1863
c. Banking Act of 1933
d. law that also established the FDIC
e. law that also established the Comptroller of the Currency
6. Commitments to make or receive payments in the future are made easier by money’s function as a
a. unit of account
b. store of value
c. medium of exchange
d. form of barter
e. Commodity
7. Whatever serves as a medium of exchange is
a. money
b. money, so long as it also is the best such medium of exchange available
c. money, so long as it is not also a commodity
d. money, so long as it is not also legal tender
e. not money unless it continues to be backed by its issuing institution
8. The tendency of bankers to take unwarranted risks in making loans because deposits were insured is an example of what is referred to as a
a. golf course hazard
b. weather hazard
c. moral hazard
d. hazard pay
e. duke of hazard
9. The earliest type of exchange involved
a. coins
b. barter
c. commodity money
d. fiduciary money
e. fiat money
10. In financial markets, asymmetric information exists when
a. one party to a transaction has more knowledge of relevant details than the other does
b. both parties to a transaction have less knowledge of relevant details than the Fed does
c. lenders know more about the borrowers than the borrowers know about themselves
d. all parties to a transaction have exactly the same information
e. all the information which the parties have is inaccurate
11. Banks differ from other types of businesses because banks
a. earn profits
b. combine economic resources to produce services
c. can go out of business
d. can create money
e. are regulated by the government
12. Banks create new deposits by
a. lending out excess reserves
b. lending out required reserves
c. raising interest rates on loans
d. calling in loans
e. printing new checks
13. On a bank’s balance sheet,
a. deposits and loans are assets
b. deposits and loans are liabilities
c. deposits are liabilities; loans are assets
d. deposits are assets; loans are liabilities
e. deposits and loans are not listed
,
14. Banks borrow excess reserves from each other on a day-to-day basis in the
a. federal reserve market
b. stock market
c. bond market
d. federal funds market
e. discount window at the Fed
15. In recent years, much of the emphasis of Fed policy has been on
a. controlling short-term interest rates
b. implementing a system of price controls
c. regulating bank managers
d. controlling the money supply
e. making changes in the international financial markets
16. The
The demand for money
a. is unrelated to the interest rate
b. is directly related to the interest rate
c. is inversely related to the interest rate
d. is inversely related to the volume of transactions
e. is largely independent of the volume of transactions
17. The opportunity cost of holding money is measured by the
a. interest rate
b. liquidity lost by holding money
c. money supply curve
d. inflation rate
e. cost of cashing in financial assets
18. Which of the following is an example of a contractionary monetary policy?
a. Transfer payments to poor families are reduced.
b. The Fed buys government securities in the open market.
c. The discount rate is raised.
d. The required reserve ratio is lowered.
e. Anything the Fed does to shift the money supply to the right is a contractionary policy.
19. The interest rate that banks charge one another for overnight lending of reserves is the
a. federal funds rate
b. interbank credit card rate
c. subprime mortgage rate
d. prime rate
e. local funds rate
20. The long-run Phillips curve
The long-run Phillips curve
a. is vertical
b. is the same as the short-run Phillips curve
c. slopes downward
d. slopes upward
e. is horizontal
21. The formulation of active policy is
a. made easier if the natural unemployment rate can be easily calculated
b. made easier if the natural unemployment rate cannot be easily calculated
c. made more difficult if the natural unemployment rate can be easily calculated
d. made more difficult if the natural unemployment rate cannot be easily calculated
e. done without considering the natural unemployment rate because such a policy focuses on rules to follow in any unemployment situation
22. A new policy is actually put in force during the
a. activity lag
b. decision-making lag
c. effectiveness lag
d. implementation lag
e. recognition lag
23. In the early 1960s, the discovery of the Phillips curve relationship caused economists and policy makers to think that they understood the tradeoffs between
a. aggregate supply and aggregate demand
b. excess aggregate supply and excess aggregate demand
c. inflation and unemployment
d. monetary and fiscal policy
e. rule-making and discretionary policy
24. The short-run Phillips curve portrays a(n)
a. direct relationship between total employment and the inflation rate
b. inverse relationship between inflation and total employment
c. direct relationship between the unemployment rate and the inflation rate
d. inverse relationship between the unemployment rate and the inflation rate
e. inverse relationship between the price level and the unemployment rate
25. The short-run Phillips curve portrays a(n)
a. direct relationship between total employment and the inflation rate
b. inverse relationship between inflation and total employment
c. direct relationship between the unemployment rate and the inflation rate
d. inverse relationship between the unemployment rate and the inflation rate
e. inverse relationship between the price level and the unemployment rate
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