1. What rationale could you use to explain the following statement: " income mobility makes lifelong incomes much less unequal than annual incomes." There will always be an element of the haves, and the have-nots in a market economy. People whose incomes are low over their lifetime skew annual income averages. Because individuals are free to move up and down the income scale, they have the ability to spread annual income inequalities over their lifetime. Annual incomes do not always affect lifelong incomes. Question 2.2. The GNP for Never Never Land increased from $1 million to $4 million in one year. Stan says that this is because the number of units produced increased; Sally said it was because of price increases. Who is right? They could both be correct Stan Sally Neither Question 3.3. A group of economics students gathered to study for a test on the money and banking system in the U.S. During a fast and furious brainstorm session, Jill scribbled down several key phrases she will use to study tomorrow. Unfortunately, in her haste, all the statements in her notes are incorrect: - Two forms of money include cash and credit cards because both are accepted as payment. - All savings accounts are considered transaction accounts because they represent money. - Consumers who make loan payments create transaction accounts. - If I open a savings account at a bank with cash received as a birthday gift, I'll increase the money supply in the economy. - By creating transaction accounts, even a single bank has unlimited power to affect the money supply. - If a bank has $10 million in reserves and an additional $3 million in excess reserves, it can make loans up to $13 million. What advise would you offer Jill about statement A above? Credit cards are a form of money only if the balance is paid in full each month. Credit cards are not a form of money because their balances don't affect the money supply. Credit cards are not a form of money because they are not a store of value. Credit cards are not a form of money because they are not universally accepted as payment for goods and services. Question 4.4. Which of the following analogies correctly reflects the relationship between progressive taxes and regressive taxes? Progressive is to decrease as regressive it to increase. Progressive is to increase as regressive it to decrease. Income tax is to regressive as sales tax is to progressive Income tax is to progressive as sales tax is to regressive Question 5.5. Which of the following could you cite as in-kind income? Comp time Overtime Bartering Federally sponsored student loans Question 6.6. A group of economics students gathered to study for a test on the money and banking system in the U.S. During a fast and furious brainstorm session, Jill scribbled down several key phrases she will use to study tomorrow. Unfortunately, in her haste, all the statements in her notes are incorrect: - Two forms of money include cash and credit cards because both are accepted as payment. - All savings accounts are considered transaction accounts because they represent money. - Consumers who make loan payments create transaction accounts. - If I open a savings account at a bank with cash received as a birthday gift, I'll increase the money supply in the economy. - By creating transaction accounts, even a single bank has unlimited power to affect the money supply. - If a bank has $10 million in reserves and an additional $3 million in excess reserves, it can make loans up to $13 million. What advise would you offer Jill about statement F above? The amount of loans a bank can make is limited to the amount equal to its excess reserves. The amount of loans a bank can make is limited to the amount calculated by its money multiplier, not withstanding its reserves or excess reserves. The amount of loans a bank can make is in relationship to its debt ratio, in addition to its reserves or excess reserves. The amount of loans a bank can make is determined by the banks' oversight board. Question 7.7. A group of economics students gathered to study for a test on the money and banking system in the U.S. During a fast and furious brainstorm session, Jill scribbled down several key phrases she will use to study tomorrow. Unfortunately, in her haste, all the statements in her notes are incorrect: - Two forms of money include cash and credit cards because both are accepted as payment. - All savings accounts are considered transaction accounts because they represent money. - Consumers who make loan payments create transaction accounts. - If I open a savings account at a bank with cash received as a birthday gift, I'll increase the money supply in the economy. - By creating transaction accounts, even a single bank has unlimited power to affect the money supply. - If a bank has $10 million in reserves and an additional $3 million in excess reserves, it can make loans up to $13 million. What advise would you offer Jill about statement E above? By creating transaction accounts of an amount that exceeds a bank's excess reserves, even a single bank has unlimited power to affect the money supply. A single bank is limited in its power to affect the money supply due to the number of banks in existence and because of regulations that the Federal Reserve impose. Only a single bank that has assets in excess of its liabilities can affect the money supply. Only a bank that has been granted a waiver by the FDIC has authority to affect the money supply. Question 8.8. One of your classmates says that the trade imbalance in the U. S. will continue for a long time because of improvements in communication and transportation. What has your classmate overlooked in this assessment? The trade imbalance will continue because we export more than we import; not because of improvements in communication and transportation. The trade imbalance will continue because we import more than we export; not because of improvements in communication and transportation. The trade imbalance will continue because of Congressional regulation; not because of improvements in communication and transportation. The trade imbalance will continue because of our global economy; not because of improvements in communication and transportation. Question 9.9. A group of economics students gathered to study for a test on the money and banking system in the U.S. During a fast and furious brainstorm session, Jill scribbled down several key phrases she will use to study tomorrow. Unfortunately, in her haste, all the statements in her notes are incorrect: - Two forms of money include cash and credit cards because both are accepted as payment. - All savings accounts are considered transaction accounts because they represent money. - Consumers who make loan payments create transaction accounts. - If I open a savings account at a bank with cash received as a birthday gift, I'll increase the money supply in the economy. - By creating transaction accounts, even a single bank has unlimited power to affect the money supply. - If a bank has $10 million in reserves and an additional $3 million in excess reserves, it can make loans up to $13 million. What advise would you offer Jill about statement B above? Certificates of deposit are not considered transaction accounts because they are not accepted as payment for goods and services. Certificates of deposit are not considered transaction accounts because the FDIC does not insure them. Savings accounts are not considered transaction accounts because they are not accepted as payment for goods and services. Money market accounts are not considered transaction accounts because they have limited availability. Question 10.10. A group of economics students gathered to study for a test on the money and banking system in the U.S. During a fast and furious brainstorm session, Jill scribbled down several key phrases she will use to study tomorrow. Unfortunately, in her haste, all the statements in her notes are incorrect: - Two forms of money include cash and credit cards because both are accepted as payment. - All savings accounts are considered transaction accounts because they represent money. - Consumers who make loan payments create transaction accounts. - If I open a savings account at a bank with cash received as a birthday gift, I'll increase the money supply in the economy. - By creating transaction accounts, even a single bank has unlimited power to affect the money supply. - If a bank has $10 million in reserves and an additional $3 million in excess reserves, it can make loans up to $13 million. What advise would you offer Jill about statement C above? The Federal Reserve system creates transaction accounts. Various regulatory bodies create transaction accounts. Individual groups of investors create transaction accounts. When banks make loans, they create transaction accounts