Assume the Fed purchases a government security from a private dealer and pays with a
Fed check of $100,000. If this check is deposited by the dealer in a bank with a 10
percent required reserve ratio, the bank can extend new loans in the amount of:
a. $20,000.
b. $90,000.
c. $100,000.
d. $120,000.
The fraction of each added dollar of disposable income that is used for consumption is
called the:
a. average propensity to consumer (APC).
b. autonomous consumption rate (ACR).
c. marginal consumption propensity (MCP).
d. marginal propensity to consume (MPC).
The term Ceteris paribus means that:
a. the model includes all important variables occurring in the real world.
b. all factors which influence the event are changing at the same time.
c. one influence is changing and everything else is being held constant.
d. the consumer is king.
If exports rise and imports fall, then:
a. GDP will increase.
b. GDP will decrease.
c. GDP may remain unchanged.
d. net exports will fall.
e. transfer will rise.
Assume that the Paris First National Bank’s loan position contracted from $16 million
to $12 million. If the required reserve ratio was increased from 20 percent to 40 percent,
how much would the money supply shrink?
a. $5 million.
b. $10 million.
c. $15 million.
d. $20 million.
e. $24 million.
Use the aggregate expenditures model and assume an economy is in equilibrium at $5
trillion which is $250 billion below full-employment GDP. If the marginal propensity to
consume (MPC) is 0.60, full-employment GDP can be reached if government spending:
a. decreases by $60 billion.
b. decreases by $100 billion.
c. decreases by $250 billion.
d. is held constant.
Which one of the following is an example of the circular flow model and shows the
interdependence of households and firms?
a. Households demand their resources from the firms in the factor markets and, in turn,
supply in the product market the goods and services produced by firms.
b. The firms go to the resource market to supply resources that households demand and,
in turn, provide households with the goods and services produced for the product
markets.
c. Households supply their resources to the firms in the factor markets and, in turn,
demand in the product market the goods and services produced by the firms.
d. The firms in the factor markets pay to households in the form of wages, interest, rent
and profit¾for resources demanded.
e. The circuit is completed when the payments flow from households, through the
product markets, and to the firms for the goods and services they demand.
Which of the following is one common criticism of capitalism?
a. Poor product quality and little product diversity.
b. Inefficiency of nationalized industries.
c. Inability to adjust quickly to changing economic conditions.
d. Inadequate environmental protection.
The period during which real output falls during a business cycle is called:
a. peak.
b. recession.
c. recovery.
d. trough.
An economics textbook is an example of:
a. capital.
b. labor.
c. a natural resource.
d. entrepreneurship.
Which one of the following groups is considered an internal user of financial
statements?
a. A bank reviewing a loan application from a corporation.
b. The labor union representing employees of a company that is involved in labor
negotiations
c. The financial analysts for a brokerage firm who are preparing recommendations for
the firm’s brokers on companies in a certain industry,
d. Factory managers that supervise production line workers.
Exhibit 15-3 Balance sheet of Tucker National Bank Assets Liabilities
Required reserves $ 20,000 Checkable deposits $100,000
Excess reserves 0
Loans 80,000
Total $100,000 Total $100,000 Assume all banks in the system started with balance
sheets as shown in Exhibit 15-3 and the Fed made a $100,000 open market purchase.
The result would be a(n):
a. $500,000 expansion of the money supply.
b. $100,000 expansion of the money supply.
c. $20,000 contraction of the money supply.
d. infinite contraction of the money supply.
e. infinite expansion of the money supply.
Ryan Black does not work and has not looked for work because of a disability. He is:
a. a member of the civilian labor force who is employed.
b. a member of the civilian labor force who is unemployed.
c. a member of the civilian labor force who is underemployed.
d. a discouraged worker who is not a member of the labor force.
e. not a member of the labor force.
Suppose a new law requires all piercing studios to pass tougher licensing tests and to
begin using more costly sterilization methods. Other things constant, this law would
cause:
a. an increase in the supply of piercings and a lower price for piercings.
b. an increase in the supply of piercings and a higher price for piercings.
c. a decrease in the supply of piercings and a higher price for piercings.
d. a decrease in the supply of piercings and a lower price for piercings.