Refer to Figure 14-3. What are the equilibrium interest rate and quantity of money?
a. 10 percent and $500 billion
b. 8 percent and $500 billion
c. 6 percent and $500 billion
d. 8 percent and $750 billion
e. 6 percent and $750 billion
Given the balance sheet below and assuming a required reserve ratio of 20 percent, how
much (in dollar terms) must the bank hold in required reserves?
a. $2 million
b. $3 million
c. $4 million
d. $7 million
e. $16 million
A decrease in equilibrium price and an increase in equilibrium quantity could be
brought about by a(n)
a. increase in demand
b. decrease in demand
c. increase in resource prices
d. improvement in production technology
e. favorable shift in tastes and preferences
Which of the following would decrease the likelihood that foreign business firms will
invest in a country?
a. A low corporate profit tax rate
b. Political stability
c. A well-established legal system
d. Good law enforcement
e. Political corruption
An economic model is a(n)
a. philosophical inquiry
b. set of numbers that describe a firm (e.g., profits and assets)
c. abstract representation of reality
d. concrete representation of reality
e. ideal to which economic entities are compared
If the Federal Reserve purchases a $2,000 bond from a bond dealer who deposits the
check in a bank, what changes will occur on that bank’s balance sheet?
a. Reserves, demand deposits, total assets, and total liabilities will all increase by
$2,000.
b. Reserves and assets will increase by $2,000; demand deposits and total liabilities will
decrease by $2,000.
c. Reserves and total assets will decrease by $2,000; demand deposits and total
liabilities will increase by $2,000.
d. Reserves and total liabilities will decrease by $2,000; demand deposits and total
assets will increase by $2,000.
e. Reserves and assets will increase by $2,000; demand deposits and total assets will
decrease by $2,000.
Which of the following is the most liquid asset?
a. a certificate of deposit
b. a government bond
c. a share of corporate stock
d. a checking account balance
e. fine jewelry
The supply of loanable funds curve is upward-sloping because a rise in the interest rate
a. decreases the opportunity cost of firms’ investment spending
b. stimulates the economy
c. decreases the opportunity cost to households of consuming
d. increases the opportunity cost to households of consuming
e. increases the government’s desire to run a budget deficit
Creating money is the same as creating wealth.
Gimmicks like the National Debt Clock
a. are misleading because they show the debt in nominal dollars rather than real dollars.
b. are misleading because they show the debt in dollars rather than as a percentage of
GDP.
c. are misleading because they dot not show industrial production figures.
d. are needed to inform the American public about the massive amounts of debt the
government is accumulating.
e. are misleading because they show the debt as a percentage of GDP rather than in
dollars.
Which of the following will lead to an increase in the quantity of money demanded?
a. A decrease in the overall level of wealth in the economy
b. A decrease in the price level
c. A decrease in nominal income
d. An increase in real income
e. A decrease in real income