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QUESTION 16 In a two sector (households and business) model, if the business sector plans to sell $90 billion of total output and both sectors of the economy purchase a total of $100 billion: O a. actual investment will be less than planned investment O b. inventories will decrease by $10 billion O c. the tendency of the economy will be to expand O d. all of the above QUESTION 17 Fractional reserve banking occurs when O a. a bank has reserves that exceed its deposits O b. a bank has reserves that are equal to its deposits O c. a bank has reserves that are less than its deposits O d. some depositors lose their deposits through poor bank management QUESTION 18 Which of the following is true of the relationship between disposable income and consumption? O a. Disposable income a sumption are both dependent variables O b. Disposable income tion are both in dependent variables O c. Disposable income is the dependent variable and consumption is the independent variable O d. Disposable income is the independent variable and consumption is the dependent variable QUESTION 19 The liquidity of an asset O a. is its cash value relative to other assets O b. describes the ease of conversion to cash O c. indicates how much interest would flow from it if it were a financial instrument O d. usually rises along with an asset's rate of return STION 20 The marginal propensity to consume O a. is the proportion of disposable income consumed O b. is the reciprocal of the ratio of disposable income to saving O c. is the change in consumption divided by the change in disposable income O d. is greater than 1 at all levels of income QUESTION 21 The deposit expansion multiplier is defined as O a. 1/required reserve ratio O b. excess reserves plus required reserves O c. the reciprocal of the federal funds rate O d. the reciprocal of the discount rate QUESTION 22 In the United States, monetary policy is the responsibility of O a. U.S. Department of Treasury O b. U.S. Department of Commerce O c. Federal Reserve System O d. U.S. Congress QUESTION 23 Which of the following is a function of money? O a. medium of exchange O b. standard of value O c. store of wealth O d. all of the aboveQUESTION 24 The smaller the marginal propensity to save, other things constant, a. the smaller the marginal propensity to consume O b. the larger the multiplier O c. the smaller the multiplier O d. none of the above QUESTION 25 The distance between the 45 degree guide line and the consumption function at each income level measures O a. taxes O b. saving O c. net income O d. consumption on consumer durables QUESTION 26 The reserve requirement is O a. the Treasury deposits held by the Fed O b. the amount of gold required to back up all Federal Reserve notes O c. the percentage of deposits that banks are required to hold as reserves O d. the requirement that Reserve bank presidents be part of the FOMC QUESTION 27 An increase in the interest rate, other things equal, would O a. have no effect on investment O b. increase investment O c. reduce investment O d. none of the above QUESTION 28 A general tightening of credit conditions, other things remaining the same, may be expected to result in O a. a movement to the left along the consumption function O b. a downward shift of the consumption function O c. an upward shift of the consumption function O d. no change in the consumption function QUESTION 29 As disposable income increases, consumption spending O a. increases by the same amount O b. decreases by the same amount O c. increases by less than the increase in disposable income O d. decreases by less than than the increase in disposable income QUESTION 30 The consumption function assumes that O a. only disposable income affects consumption O b. only the price level affects consumption O c. many factors other than disposable income affect consumption, and each is allowed to vary along the consumption function O d. factors other than disposable income affect consumption, but those are held constant along the consumption function QUESTION 31 The primary purpose of the Federal Open Market Committee (FOMC) is to O a. set reserve requirements O b. extend loans to member banks of the Fed O c. distribute Federal Reserve notes O d. engage in open market operations