If the demand for new automobiles falls when income falls, automobiles are said to be
normal goods.
If the required reserve ratio is 0.2, and a bank has $100 million in demand deposits and
$40 million in property and buildings, it must hold reserves of at least
a. $28 million
b. $20 million
c. $26 million
d. $12 million
e. $8 million
The most liquid asset(s) of all is (are)
a. cash in the hands of the public
b. cash in the hands of banks
c. demand deposits held by households and businesses at commercial banks
d. travelers’ checks
e. credit cards
Which of the following would not cause a movement along the AD curve?
a. An increase in the price level.
b. A decrease in the price level.
c. A change in the interest rate caused by a change in the price level.
d. A change in autonomous consumption
e. Both a change in the interest rate caused by a change in the price level, and a change
in autonomous consumption.
Commercial banks that are members of the Federal Reserve System actually choose
some of the directors of the 12 Federal Reserve District banks.
The production possibilities frontier is useful for demonstrating both scarcity and
productive inefficiency.
The total stock of capital will always increase when
a. depreciation is zero.
b. investment is greater than depreciation.
c. investment is greater than population growth.
d. investment is positive.
e. depreciation is greater than investment.
The inflation rate in the United States has always been positive.
Land, labor, and money are the three categories of economic resources.
A reduced interest rate stimulates investment by
a. improving the prospects for a large profit from new investment
b. enabling firms to ignore the opportunity costs of financing new investment
c. increasing the opportunity cost of the investment
d. reducing the cost of the investment
e. signaling the existence of eager buyers
Which of the following would lead to a change in both the quantity of a good buyers
wish to purchase and in the quantity sellers wish to sell?
a. a change in the price of a substitute good
b. a change in buyers’ incomes
c. a change in the price of a key input
d. a technological improvement
e. a change in the expected future price of the good
Given the balance sheet below and assuming a required reserve ratio of 20 percent, how
much (indollar terms) is this bank holding in excess reserves?
Assets
Liabilities and Net Worth
Property $5 million Demand deposits $80 million
Government bonds $10 million
Vault cash $15 million
Deposited in $20 million Net worth $20 million
Federal Reserve accounts Loans $50 million
TOTAL LIABILITIES
TOTAL ASSETS $100 million PLUS NET WORTH $100 million
a. $3.5 million
b. $8 million
c. $15 million
d. $19 million
e. $35 million
In the classical model,
a. markets do not automatically clear.
b. business demand for loanable fund exceeds business planned investment spending.
c. business demand for loanable fund is equal to business planned investment spending.
d. businesses engage in interest-free borrowing.
e. the government’s demand for funds is downward sloping.
The assumption that labor markets clear makes it very easy for the classical model to
explain recessions.