A..

1.On the market for widgets, the maximum price anyone is willing to pay is $100 (quantity demanded is zero at a higher price). The equilibrium price is $80 and the equilibrium quantity is 442. Calculate consumer surplus on the market.

2. Hester owns an ice cream shop. It costs her $1 per cone to make 48 ice cream cones. If she sells 48 cones for $5 each, her producer surplus is equal to

3. On a competitive market, consumers demand 116 units and producers supply 10 units at a price of 5. When price increases to 10, consumers demand 84 units and producers supply 35 units. By how much did the market shortage decreased because of this price increase?

4. The consumer surplus at the equilibrium price of $10 and equilibrium quantity of 100 units is 3000. The government imposes a price floor at $39, which reduces quantity traded to 60. What is the resulting consumer surplus?

5. A per-unit tax is introduced on a market. The tax increases the price paid by consumers by $19, decreases the price received by producers by $21, and decreases the quantity traded on the market from 850 to 500 units. What is the tax revenue?

6. After an excise tax of $30 is introduced on a market, consumer surplus drops from 6500 to 4500 while producer surplus drops from 5000 to 4000. The equilibrium price before the tax was introduced was $95. What is the price paid by consumers after the tax?

7. A perfectly competitive firm realizes a total revenue of $2500 and a profit of $500. The firm sold its product at a price of $17 per unit. What was the average total cost

8. The price of coffee rose 22 percent and the quantity of coffee demanded fell by 79 percent. What is the price elasticity of demand for coffee? Report your answer in its absolute value, rounded to 2 decimal places.

9. A monopolist with constant marginal cost of $20 produces 100 units of product that is sells for a price of $44. If this monopolist was a perfectly competitive firm, it would produce 150 units of product. What is the revenue of this firm if it was perfectly competitive?

10. The marginal cost is constant and equal to 20. There are no fixed costs of production. What is the average variable cost of producing 68 units?

B..

QUESTION 1

For barter to occur there must be

a double coincidence of wants for each good to be exchanged.

one person who pays cash.

two people willing to pay with credit.

hyperinflation.

1.11 points

QUESTION 2

A barter arrangement simply means

a direct exchange of goods without the use of money.

the government has paid for the goods.

a promise to pay in the future.

that gold must be offered from one party.

1.11 points

QUESTION 3

Money is defined as

anything people generally accept in exchange for goods and services.

a person's net worth.

a by product of a barter economy.

any financial instrument that is backed by gold.

1.11 points

QUESTION 4

When money is accepted as payment in a market transaction, it is functioning as a

medium of exchange.

store of value.

unit of accounting.

unit of investment.

1.11 points

QUESTION 5

When money provides a yardstick that allows individuals to compare the relative values of goods and services, it is functioning as a

store of value.

medium of exchange.

standard of deferred payment.

unit of accounting.

1.11 points

QUESTION 6

To function as money, something must hold its purchasing power over time. That is, it must be a

unit of accounting.

medium of exchange.

standard of deferred payment.

store of value.

1.11 points

QUESTION 7

One of the benefits of money as a medium of exchange is that

it allows for private transactions such as trading vegetables for medical services.

it allows individuals to compare the relative value of goods.

it allows for specialization that leads to economic efficiencies.

over time it will become more valuable so that individuals can purchase more goods and services.

1.11 points

QUESTION 8

The property of money that allows for the settling of debts that mature in the future is

liquidity.

standard of deferred payment.

acceptability.

store of value.

1.11 points

QUESTION 9

The advantage of holding money as an asset is that

money earns interest.

money is safe from thievery.

the value of money appreciates over time.

money is liquid.

1.11 points

QUESTION 10

The existence of money in an economy promotes efficiency by

creating incentives to be self-sufficient.

creating an equal distribution of income.

facilitating trade, thereby allowing for greater specialization.

allowing for the formation of corporations as legal entities.

1.11 points

QUESTION 11

The degree to which an asset can be acquired or disposed of without much loss of nominal value or transaction costs is known as

fiat money.

liquidity.

credit.

fiducia.

1.11 points

QUESTION 12

Which of the following is the most liquid asset?

short-term treasury bonds

currency

shares of stock

small denomination time deposits

1.11 points

QUESTION 13

The cost of holding money is best described as

the cost of printing money.

the yield that could have been earned had the asset been held in another form.

the yield which is paid to money holders by the U.S. government.

the cost which price decreases impose on money holders.

1.11 points

QUESTION 14

A checkable and debitable account

is one on which the holder can write checks.

cannot serve as a store of value.

is a very illiquid asset.

must be traded on the stock exchange.

1.11 points

QUESTION 15

A fiduciary monetary system is

fully backed by gold.

one which cannot have any inflation.

dependent on the public's faith to accept the currency.

dependent on barter for exchanges of goods and services.

1.11 points

QUESTION 16

The value of a dollar varies

directly with the price level.

inversely with the price of gold.

inversely with the price level.

directly with the purchasing power of other major currencies.

1.11 points

QUESTION 17

Which of the following institutions has responsibility for distributing currency and coins to the U.S. banking system?

The Federal Reserve System

The Office of the Comptroller of the Currency

The U.S Bureau of Engraving and Printing

The U.S. Mint

1.11 points

QUESTION 18

Which of the following institutions has responsibility for producing the coins that are distributed in the United States?

The Federal Reserve System

The Office of the Comptroller of the Currency

The U.S Bureau of Engraving and Printing

The U.S. Mint

1.11 points

QUESTION 19

The designate M1 measure of money consists of

gold and gold coins.

credit cards and ATM cards.

small time deposits only.

the most liquid types of money in the U.S. system.

1.11 points

QUESTION 20

What differentiates a savings deposit from a small-denomination certificate of deposit (CD)?

Only a savings deposit is a time deposit.

All depository institutions accept savings deposits, whereas only a thrift institution can issue a CD.

A CD has a fixed maturity date; a savings deposit can be withdrawn at any time.

A savings deposit cannot be withdrawn before its maturity date without incurring a penalty; funds in a CD are available at any time with no interest penalty.

1.11 points

QUESTION 21

The money supply is

limited to currency and coins.

the amount of money in circulation.

the rate at which the Federal Reserve Board prints currency.

the rate at which the Federal Reserve Board creates money.

1.11 points

QUESTION 22

Small-denomination time deposits are less than

$1 million.

$100,000.

$10,000.

$1,000.

1.11 points

QUESTION 23

The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known as

parachuting.

financial intermediation.

money laundering.

lobbying.

1.11 points

QUESTION 24

Suppose you place your savings in a time deposit at the bank, and that bank lends some of those funds to a business that desires a loan. This is an example of

adverse selection.

direct finance.

indirect finance.

asymmetric information.

1.11 points

QUESTION 25

If knowledge possessed by one party in a financial transaction is not known to the other party, ________ exists.

no financial intermediation

disintermediation

asymmetric information

fraud

1.11 points

QUESTION 26

Who benefits from the process of financial intermediation?

Borrowers only.

There is no benefit, because money does not create wealth.

Both savers and borrowers.

Savers only.

1.11 points

QUESTION 27

The likelihood that individuals who seek to borrow money may use the funds for unworthy, high-risk projects is

adverse selection.

financial intermediation.

moral hazard.

asymmetric information.

1.11 points

QUESTION 28

The possibility that a borrower might engage in riskier behavior after a loan has been obtained is

adverse selection.

financial intermediation.

asymmetric information.

moral hazard.

1.11 points

QUESTION 29

The central bank for the United States is

the Federal Reserve System.

the Congressional Bank.

First National Bank of New York.

Chase Manhattan Bank.

1.11 points

QUESTION 30

The part of the Federal Reserve System that determines monetary policy actions is the

Federal Deposit Insurance Corporation (FDIC).

District Bank Board.

Federal Open Market Committee.

Comptroller's Office.

1.11 points

QUESTION 31

The Board of Governors of the Federal Reserve System is

composed of seven members who are appointed by the President and approved by the Senate.

composed of 12 members of the Senate and the U.S. House of Representatives.

elected by the general public.

composed of representatives from the country's 12 largest commercial banks.

1.11 points

QUESTION 32

The Fed is said to be the "lender of last resort" in that

it charges a higher interest rate to borrowers than does any other bank.

it functions as the government's bank only when commercial banks fail to do so.

it makes loans to individuals whom commercial banks do not believe are credit-worthy.

it stands ready to lend to any depository institution that it has decided should not fail.

1.11 points

QUESTION 33

The Federal Reserve System acts as the government's fiscal agent by

providing checking account services for the government.

preparing the budget the President presents to Congress every year.

determining how to finance a deficit.

auditing taxpayers.

1.11 points

QUESTION 34

The Federal Reserve System was established in which year?

1913.

1929.

1865.

1941.

1.11 points

QUESTION 35

By serving as the lender of last resort,

the Fed provides check clearing services.

the Fed aids in the sale of government securities.

the Fed supervises depository institutions.

the Fed can prevent bank failures.

1.11 points

QUESTION 36

Depository institutions must

use and pay for the services of the Federal Reserve System.

set their interest rates according to schedules established by the Federal Reserve System.

keep a certain percentage of their deposits as reserves.

turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed.

1.11 points

QUESTION 37

The Federal Reserve System has

50 district banks.

24 district banks.

12 district banks.

7 district banks.

1.11 points

QUESTION 38

The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is

the Board of Governors.

the Federal Advisory Committee.

the Federal Open Market Committee.

the Federal Reserve district banks.

1.11 points

QUESTION 39

The potential for a financial breakdown at one financial institution to spread throughout the financial system is known as a

systemic risk.

liquidity risk.

lending risk.

moral hazard.

1.11 points

QUESTION 40

A system in which depository institutions hold reserves that are less than the amount of total deposits is called

fiat money banking.

required reserve banking.

fractional reserve banking.

central banking system.

1.11 points

QUESTION 41

Total reserves of private banks are

all customer deposits.

the minimum amount banks need to hold against time deposits.

federal reserve notes.

deposits held at the Fed and vault cash.

1.11 points

QUESTION 42

A statement of assets and liabilities of any business entity is called

a cash flow statement.

an income statement.

a balance sheet.

a statement of net worth.

1.11 points

QUESTION 43

Which of the following actions has no effect on the total money supply?

The Federal Open Market Committee buys government securities.

There is a transfer of deposits from one bank to another bank.

There is change in the money multiplier.

The Federal Open Market Committee sells government securities.

1.11 points

QUESTION 44

Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of

$80.

$0.

$400.

$20.

1.11 points

QUESTION 45

The Federal Open Market Committee has responsibility for

appointing members to the Board of Governors of the Federal Reserve system.

issuing orders to buy or sell government securities for the Fed.

advising the Treasury Department on monetary policy.

printing money.

1.11 points

QUESTION 46

When the Fed buys a U.S. bond in the open market

its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another.

its action expands total reserves and the money supply.

its action contracts total reserves and the money supply.

total reserves increase by the amount of the purchase but the money supply stays the same.

1.11 points

QUESTION 47

When the Fed sells government securities,

reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities.

reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities.

reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities.

reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities.

1.11 points

QUESTION 48

The maximum potential money multiplier is equal to

the reserve ratio.

one minus the reserve ratio

the inverse of the required reserve ratio.

the number of dollars on reserve.

1.11 points

QUESTION 49

The potential money multiplier gives us

the growth in the money supply when income increases.

the growth in real national income when the money supply increases.

the maximum potential change in the money supply due to a change in income.

the maximum potential change in the money supply due to a change in reserves.

1.11 points

QUESTION 50

An increase in the reserve ratio

increases the money multiplier.

will cause banks to make more loans.

has an expansionary effect on the money supply.

has a contractionary effect on the money supply.

1.11 points

QUESTION 51

The Federal Deposit Insurance Corporation insures

banks against lawsuits.

the deposits held in member banks.

the deposits held in the Fed.

the federal funds market.

1.11 points

QUESTION 52

Bank runs are a possibility because

in difficult times people want currency instead of demand deposits.

the FDIC is inefficient.

banks do not keep enough reserves to cover all their depository liabilities.

bankers are often poor businesspeople.

1.11 points

QUESTION 53

The manner in which FDIC deposit insurance is set up in the United States encourages banks to

make riskier loans than they otherwise would.

reject some loans that probably would be profitable.

maintain excess reserves that are too great.

be too conservative in their lending practices.

1.11 points

QUESTION 54

The Federal Deposit Insurance Corporation

discourages banks from engaging in excessive risk taking.

was established after the Panic of 1907.

only insures deposits in money-center banks.

increases the stability of the banking system by reducing the likelihood of bank runs.

1.11 points

QUESTION 55

What are the two features of money that distinguish it from all other goods in the economy?

Money is government issued and it is redeemable for gold or silver.

Money is part of every barter transaction and it is divisible.

Money is accepted as a medium of exchange and it is the common unit of account used to express prices.

Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate.

1.11 points

QUESTION 56

Holding money to meet unplanned expenditures and emergencies is known as

asset demand.

precautionary demand.

aggregate demand.

transactions demand.

1.11 points

QUESTION 57

When people want to hold money to make regular planned expenditures, this is

the transaction demand for money.

the spending demand for money.

the asset demand for money.

the precautionary demand for money.

1.11 points

QUESTION 58

When interest rates rise, the transactions demand for money usually

decreases.

increases.

decreases initially and then increases to the original position.

does not change.

1.11 points

QUESTION 59

As nominal Gross Domestic Product (GDP) rises, the transactions demand for money

increases, and the money demand curve shifts to the right.

remains constant, and the money demand curve remains the same.

decreases, and the money demand curve shifts to the left.

increases, and the money demand curve shifts to the left.

1.11 points

QUESTION 60

One of the economic costs of holding currency is that

it fulfills no precautionary role.

it fulfills no transactions role.

it earns no interest income.

its real value always increases.

1.11 points

QUESTION 61

When the rate of interest in the economy increases,

the market price of existing bonds will fall.

the transaction demand for money will increase.

real Gross Domestic Product (GDP) will increase.

the asset demand for money will increase.

1.11 points

QUESTION 62

When the rate of interest in the economy falls, there will be

an increase in nominal Gross Domestic Product (GDP).

less investment by businesses.

a decrease in the transaction demand for money.

an increase in the market price of existing bonds.

1.11 points

QUESTION 63

Asset demand for money is holding money

to speculate on the stock market and bonds.

to meet unplanned expenditures and emergencies.

as a store of value instead of other assets.

as a medium of exchange to make payments.

1.11 points

QUESTION 64

Something that affects the amount of money in existence will

have an effect only if the change in money is large.

not affect the economy as a whole but may affect certain key markets such as the market for loans.

have no particular effect.

affect all markets.

1.11 points

QUESTION 65

An excess quantity of money demanded will lead to a rise in

bond prices.

investment.

the interest rate.

income.

1.11 points

QUESTION 66

An increase in the money supply typically leads to

an inward shift in money demand.

a decrease in the price level.

a reduction in the velocity of money.

a reduction in the rate of interest.

1.11 points

QUESTION 67

A sale of bonds by the Fed generates

a decrease in the demand for money balances.

an increase in the demand for bonds and a rise in bond prices.

an increase in the demand for money balances.

an increase in the supply of bonds and a fall in bond prices.

1.11 points

QUESTION 68

The purchase of government bonds by the Fed leads to a(n)

decrease in the demand of bonds and an increase in the price of bonds.

increase in the demand of bonds and a decrease in the price of bonds.

decrease in the supply of bonds and an increase in bond prices.

increase in the supply of bonds and a decrease in bond prices.

1.11 points

QUESTION 69

When the Fed purchases federal government bonds in the open market,

the money supply contracts.

the money supply expands.

there is no change in the money supply.

the demand for money expands.

1.11 points

QUESTION 70

If the Fed sells U.S. government securities , the

money supply increases, and the money supply curve shifts to the right.

money supply decreases, and the money supply curve shifts to the right.

money supply decreases, and the money supply curve shifts to the left.

money supply increases, and the money supply curve shifts to the left.

1.11 points

QUESTION 71

To close a recessionary gap, the Fed would

increase the money supply.

increase interest rates.

sell bonds.

decrease the money supply.

1.11 points

QUESTION 72

The "direct effect" of an increase in the money supply is to

increase aggregate demand as interest rates fall and investment spending increases.

increase aggregate supply as producers anticipate higher future profits.

increase aggregate demand as people spend their excess money balances.

decrease the rate of inflation.

1.11 points

QUESTION 73

The "indirect effect" of an increase in the money supply is to

increase aggregate supply as firms anticipate future profits.

increase aggregate demand as interest rates fall and investment spending increases.

decrease the price level.

increase aggregate demand as people try to spend their excess money balances.

1.11 points

QUESTION 74

An inflationary gap currently exists. The Fed wants to bring the economy to a full employment level by using open market operations. The Fed should

increase the differential between the discount rate and the federal funds rate.

buy government securities.

decrease the differential between the discount rate and the federal funds rate.

sell government securities.

1.11 points

QUESTION 75

In the real world, contractionary monetary policy would be used to

increase nominal GDP.

combat a recession.

increase long-run aggregate supply.

reduce the rate of inflation.

1.11 points

QUESTION 76

It has been observed that a change in monetary policy in the United States

has little or no effect on foreign markets.

leads to corresponding changes in other countries.

has only short run influences.

impacts net exports.

1.11 points

QUESTION 77

The net-export effect of expansionary monetary policy is a(n)

depreciation of the value of the dollar and the increase of U.S. net exports.

depreciation of the value of the dollar and the decrease of U.S. net exports.

appreciation of the value of the dollar and the decrease of U.S. net exports.

appreciation of the value of the dollar and the increase of U.S. net exports.

1.11 points

QUESTION 78

The net-export effect of contractionary monetary policy is a(n)

appreciation of the value of the dollar and the decrease of U.S. net exports.

depreciation of the value of the dollar and the decrease of U.S. net exports.

appreciation of the value of the dollar and the increase of U.S. net exports.

depreciation of the value of the dollar and the increase of U.S. net exports.

1.11 points

QUESTION 79

Other things being equal, the quantity theory of money suggests that any increase in the money supply

results in a decrease in the aggregate price level.

causes a reduction in the demand for money.

causes the aggregate level of nominal Gross Domestic Product (GDP) to fall.

results in a proportionate increase in the price level.

1.11 points

QUESTION 80

The velocity of money

indicates the speed with which the U.S. Treasury can mint new coins.

is, according to the equation of exchange, equal to P/M.

indicates the number of times per year a dollar is spent on final goods and services.

is, according to the equation of exchange, equal to M/Y.

1.11 points

QUESTION 81

The equation of exchange specifies that

Ms = PVY.

MsP = VY.

MsV = PY.

velocity and money supply are directly related.

1.11 points

QUESTION 82

The monetary transmission mechanism that assumes that money supply growth stimulates the economy primarily by encouraging investment is

pre-Keynesian transmission mechanism.

the interest-rate-based transmission mechanism.

the classical transmission mechanism.

the post-Keynesian transmission mechanism.

1.11 points

QUESTION 83

The interest-rate-based monetary policy transmission mechanism emphasizes the

direct effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level.

indirect effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate.

direct effect of a change in the money supply that operates via a change in total planned expenditures generated by a change in the interest rate.

indirect effect of a change in the money supply that operates via a change in total planned production generated by a change in the price level.

1.11 points

QUESTION 84

If the Fed wants to target interest rates, it must

control the value for velocity.

coordinate its activities with the largest private banks in the United States.

give up trying to control the money supply.

control the money supply.

1.11 points

QUESTION 85

The interest rate that the Fed charges banks to borrow funds from the Fed is the

money market rate.

discount rate.

nominal interest rate.

federal funds rate.

1.11 points

QUESTION 86

The federal funds rate is

the interest rate paid on reserves held with the Fed.

the interest rate at which banks can borrow excess reserves from other banks.

the interest rate on bonds issued by the federal government.

none of the above.

1.11 points

QUESTION 87

In addition to open market operations and the required reserve ratio, another tool of monetary policy available to the Fed is

tax rates and the progressivity of the income-tax system.

fiscal policy.

the difference between the discount rate and the federal funds rate.

government spending and various transfer-payment programs.

1.11 points

QUESTION 88

The Taylor rule implies that the Fed should set the federal funds target based on which of the following?

an estimated long-run real interest rate

the current deviation of the actual inflation rate from the Fed's inflation objective

the proportionate gap between actual real GDP and a measure of potential real GDP

all of the above

1.11 points

QUESTION 89

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of an increase in the money supply

impacts the economy by increasing the value of the U.S. dollar.

impacts the economy by reducing the deficit.

does not impact the economy.

impacts the economy through the multiplier.

1.11 points

QUESTION 90

According to Keynes, the effect on planned real investment spending resulting from the interest-rate impact of a decrease in the money supply

impacts the economy by reducing the value of the U.S. dollar.

does not impact the economy.

impacts the economy by increasing the deficit.

impacts the economy through the multiplier.