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ECON 201 FINAL EXAM SPRING 2013

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TRUE / FALSE;1. True False A side benefit of international trade is that it links national interests and increases the opportunity costs of war.;2. True False When C + Ig = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories.;3. True False The risk-free interest rate is the rate on long-term U.S. government bonds.;4. True False Bond prices and interest rates are directly or positively related.;5. True False The public debt is the accumulation of all deficits and surpluses that have occurred through time.;6. True False The M2 money supply may be larger or smaller than the M1 money supply depending on the size of small-denominated time deposit balances and Money Market Mutual Fund balances held by individuals.;7. True False Excess reserves are the amount by which required reserves exceed actual reserves.;8. True False The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.;9. True False The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.;10. True False Investment is highly stable, it increases over time at a very steady rate.;MULTIPLE CHOICE;11. A recessionary expenditure gap is;A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures.;B. the amount by which equilibrium GDP falls short of the full-employment GDP.;C. the amount by which investment exceeds saving at the full-employment GDP.;D. the amount by which aggregate expenditures exceed the full-employment level of GDP.;12. The multiplier effect indicates that;A. a decline in the interest rate will cause a proportionately larger increase in investment.;B. a change in spending will change aggregate income by a larger amount.;C. a change in spending will increase aggregate income by the same amount.;D. an increase in total income will generate a larger change in aggregate expenditures.;13. Which one of the following is true about the U.S. Federal Reserve System?;A. There are 12 regional Federal Reserve Banks.;B. The head of the U.S. Treasury also chairs the Federal Reserve Board.;C. There are 14 members of the Federal Reserve Board.;D. The Open Market Committee is smaller in size than the Federal Reserve Board.;14. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is;A. 18 percent.;B. 24 percent.;C. 12 percent.;D. 6 percent.;15.;Refer to the above diagram for a private closed economy. The equilibrium level of GDP is;A. $400.;B. $300.;C. $200.;D. $100.;16. Which of the following represents the most expansionary fiscal policy?;A. a $10 billion tax cut;B. a $10 billion increase in government spending;C. a $10 billion tax increase;D. a $10 billion decrease in government spending;17.;Refer to the above table. The economy shown is a;A. private economy.;B. private open economy.;C. mixed closed economy.;D. mixed open economy.;18. Currency held in the vault of First National Bank is;A. counted as part of M1.;B. counted as part of M2, but not M1.;C. only counted as part of M1 if it was deposited into a checking account.;D. not counted as part of the money supply.;19. If the dollar appreciates relative to foreign currencies, we would expect;A. the multiplier to decrease.;B. a country's exports and imports to both fall.;C. a country's net exports to rise.;D. a country's net exports to fall.;20. The most important determinant of consumption and saving is the;A. level of bank credit.;B. level of income.;C. interest rate.;D. price level.;21. The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to;A. the reciprocal of the required reserve ratio.;B. 1 minus the required reserve ratio.;C. the reciprocal of the income velocity of money.;D. 1/MPS.;22. Which one of the following would not shift the aggregate demand curve?;A. a change in the price level;B. depreciation of the international value of the dollar;C. a decline in the interest rate at each possible price level;D. an increase in personal income tax rate;23. The cyclically-adjusted budget tells us;A. that in a full-employment economy the Federal budget should be in balance.;B. that tax revenues should vary inversely with GDP.;C. what the size of the Federal budget deficit or surplus would be if the economy was at full;employment.;D. the actual budget deficit or surplus realized in any given year.;24. The aggregate supply curve;A. is explained by the interest rate, real-balances, and foreign purchases effects.;B. gets steeper as the economy moves from the top of the curve to the bottom of the curve.;C. shows the various amounts of real output that businesses will produce at each price level.;D. is downsloping because real purchasing power increases as the price level falls.;25.;Refer to the above diagram. If the equilibrium price level is P1, then;A. aggregate demand is AD2.;B. the equilibrium output level is Q3.;C. the equilibrium output level is Q2.;D. producers will supply output level Q1;26. Discretionary fiscal policy refers to;A. any change in government spending or taxes that destabilizes the economy.;B. the authority that the President has to change personal income tax rates.;C. intentional changes in taxes and government expenditures made by Congress to stabilize the;economy.;D. the changes in taxes and transfers that occur as GDP changes.;27.;Refer to the above diagram. Which tax system has the most built-in stability?;A. T4;B. T3;C. T2;D. T1;28. Countries engaged in international trade specialize in production based on;A. relative levels of GDP.;B. comparative advantage.;C. relative exchange rates.;D. relative inflation rates.;29. When a bank loan is repaid the supply of money;A. is constant, but its composition will have changed.;B. is decreased.;C. is increased.;D. may either increase or decrease.;30. The Federal budget deficit is found by;A. subtracting government tax revenues plus government borrowing from government spending in a particular year.;B. subtracting government tax revenues from government spending in a particular year.;C. cumulating the differences between government spending and tax revenues over all years since the nation's founding.;D. subtracting government revenues from the noninvestment-type government spending in a particular year.;31.;Refer to the above information. Money supply M1 for this economy is;A. $60.;B. $70.;C. $130.;D. $140.;32. Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008?;A. From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen.;B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held.;C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.;D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.;33. Which of the following is the basic economic policy function of the Federal Reserve Banks?;A. holding the deposits or reserves of commercial banks;B. acting as fiscal agents for the Federal government;C. controlling the supply of money;D. the collection or clearing of checks among commercial banks;34. In a fractional reserve banking system;A. bank panics cannot occur.;B. the monetary system must be backed by gold.;C. banks can create money through the lending process.;D. the Federal Reserve has no control over the amount of money in circulation.;35. The primary gain from international trade is;A. increased employment in the domestic export sector.;B. more goods than would be attainable through domestic production alone.;C. tariff revenue.;D. increased employment in the domestic import sector.;36. Assume the Continental National Bank's balance statement is as follows;Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?;A. $3,000;B. $24,000;C. $6,000;D. $16,000;37. Answer the question on the basis of the following table for a commercial bank or thrift;Refer to the above table. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are;A. $0.;B. $1,000.;C. $5,000.;D. $30,000.;38. Which of the following is a tool of monetary policy?;A. open market operations;B. changes in banking laws;C. changes in tax rates;D. changes in government spending;39. An increase in nominal GDP increases the demand for money because;A. interest rates will rise.;B. more money is needed to finance a larger volume of transactions.;C. bond prices will fall.;D. the opportunity cost of holding money will decline.;40. Answer the next question on the basis of the following table;At equilibrium in the above market for money, the total amount of money demanded is;A. $500.;B. $480.;C. $460.;D. $440.;41. For most financial assets investors must be compensated for;NOT SURE;A. non-diversifiable and diversifiable risk.;B. diversifiable risk and time preference.;C. non-diversifiable risk and time preference.;D. non-diversifiable and diversifiable risk, and time preference.;42. Reserves must be deposited in the Federal Reserve Banks by;A. only commercial banks which are members of the Federal Reserve System.;B. all depository institutions, that is, all commercial banks and thrift institutions.;C. state chartered commercial banks only.;D. federally chartered commercial banks only.;43. Tariffs;A. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).;B. are also called import quotas.;C. are excise taxes on goods exported abroad.;D. are per unit subsidies designed to promote exports.;44. The discount rate is the interest;A. rate at which the central banks lend to the U.S. Treasury.;B. rate at which the Federal Reserve Banks lend to commercial banks.;C. yield on long-term government bonds.;D. rate at which commercial banks lend to the public.;45. What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?;A. present value;B. future value;C. compound interest;D. real rate of interest;46. The aggregate demand curve;A. is upsloping because a higher price level is necessary to make production profitable as production costs rise.;B. is downsloping because production costs decline as real output increases.;C. shows the amount of expenditures required to induce the production of each possible level of real output.;D. shows the amount of real output that will be purchased at each possible price level.;47. The Security Market Line depicts the relationship between the;A. average expected rate of return on stocks and the average expected rate of return on bonds.;B. average expected rate of return of a financial asset and the discount rate.;C. risk level of a financial asset and the prime interest rate.;D. average expected rate of return and risk level of a financial asset.;48. Arbitrage causes all financial assets;NOT SURE;A. of the same risk level to have the same price.;B. to have the same expected rate of return.;C. to have the same beta.;D. of the same risk level to have the same average expected rate of return.;49. Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will;A. have a domestic surplus of copper.;B. export copper.;C. import copper.;D. neither export nor import copper.;50. Given the expected rate of return on all possible investment opportunities in the economy;A. an increase in the real rate of interest will reduce the level of investment.;B. a decrease in the real rate of interest will reduce the level of investment.;C. a change in the real interest rate will have no impact on the level of investment.;D. an increase in the real interest rate will increase the level of investment.

 

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