Which of the following is true?
a. GDP is a “flow” concept.
b. The purchase prices of both intermediate goods and final goods are included in GDP.
c. GDP measures economic welfare.
d. GDP is a measure of changes in the general level of prices.
The M1 definition of the money supply includes:
a. coins and currency in circulation.
b. coins and currency in circulation and checkable deposits.
c. Federal Reserve notes, gold certificates, and checkable deposits.
d. Federal Reserve notes and bank loans.
The independent auditor’s report conveys whether or not the business is a good
investment.
a. True
b. False
In the Keynesian model, investment, government spending, and net exports are treated
as autonomous expenditures, which means they are independent of:
a. expectations.
b. the price level.
c. political processes.
d. real GDP.
According to the quantity theory of money, if an economy produces 5,000 units of
output, its money supply equals $40,000 and the velocity of money equals one, then the
price level will equal:
a. $0.13.
b. $1.25.
c. $8.
d. $200.
e. $8,000.
When the Federal Reserve sells government bonds to the public, it:
a. increases the M1 money supply and increases the reserves of the commercial banking
system.
b. increases the M1 money supply, while reducing the reserves of the commercial
banking system.
c. reduces the M1 money supply, while increasing the reserves of the commercial
banking system.
d. reduces the M1 money supply and decreases the reserves of the commercial banking
system.
Decisions regarding purchases and sales of government securities by the Fed are made
by the:
a. Federal Deposit Insurance Commission (FDIC).
b. Discount Committee (DC).
c. Federal Open Market Committee (FOMC).
d. Federal Funds Committee (FFC).
Classify the following items according to the financial statement on which each
belongs, either the income statement (IS) or the balance sheet (BS). Also indicate
whether each is a revenue (R), expense (E), asset (A), liability (L), or owners’ equity
(OE) item.
The consumption function shows the relationship between consumption and:
a. interest rates.
b. saving.
c. price level changes.
d. disposable income.
Economics, according to its definition, studies how people:
a. earn and spend money.
b. invest in the stock and bond markets.
c. make choices in the face of scarcity.
d. supply goods in response to demand.
Which of the following is the most liquid store of purchasing power?
a. A dollar bill.
b. Common stock.
c. Gold.
d. Real estate.
A third party is a person, or persons, who:
a. consume goods produced from at least two intermediate inputs.
b. avoids the transactions of the two principal parties.
c. takes risks to avoid externalities.
d. internalizes the costs of market failure.
e. is imposed upon by the activity of others.
If the marginal propensity to save (MPS) is 0.25, the value of the spending multiplier is:
a. 1.
b. 2.
c. 4.
d. 9.
Complete the following analogy: A criminal is to a police artist’s sketch as the economy
is to:
a. money.
b. an economic model.
c. a resource.
d. Ceteris paribus.
e. scarcity.
Which of the following statements is true?
a. Money must be relatively ‘scarce” if it is to have value.
b. Money must be divisible and portable.
c. M1 is the narrowest definition of money.
d. All of these.
Exhibit 15-1 Balance sheet of First Iliad State Bank AssetsLiabilities
Required reserves $ 1,000,000 Demand deposits $10,000,000
Excess reserves 0
Loans $
In Exhibit 15-1, if the required reserve ratio is lowered to 5 percent, First Iliad State
will be able to make additional loans worth:
a. $9,000,000.
b. $1,500,000.
c. $500,000.
d. $1,000,000.
e. $450,000.
Which of the following appears on the asset side of a bank’s balance sheet?
a. Excess reserves.
b. Loans.
c. Required reserves.
d. All of the above.
A tax for which the rate varies directly with the income of the person taxed is known as
a(n):
a. regressive tax.
b. progressive tax.
c. proportional tax.
d. flat tax.
e. excise tax.