QUESTION 31

1. Total output may decrease when interest rate increases because investment may decrease
2. True
3. False

QUESTION 32

1. Which of the following is a function of the financial system?
2. A.transfers resources across time, sectors, and regions.
3. B.manages risks for the economy.
4. C.pools and subdivides funds, depending upon the need of the individual saver or investor.
5. D.clearinghouse functions.
6. E.all of the above.

QUESTION 33

1. When people switch their preferences away from currency toward bonds, the interest rate will drop and investment will be stimulated.
2. True
3. False

QUESTION 34

1. The objectives of Central Banks include
2. A.economic stability.
3. B.high inflation.
4. C.low employment.
5. D.unstable exchange rate.
6. E.all of the above.

QUESTION 35

1. Which of the following should be expected to shift the aggregate demand curve to the left?
2. A.an increase in government spending.
3. B.an increase in the money-supply.
4. C.an increase in labor force participation.
5. D.a reduction in net exports.
6. E.a decrease in taxes.

QUESTION 36

1. Which of the following would contribute to a leftward shift in the aggregate demand curve?
2. A.An increase in the money supply.
3. B.An increase in government purchases of goods and services.
4. C.Technological advances.
5. D.All of the above.
6. E.None of the above.

QUESTION 37

1. The "peak" of the business cycle comes when economic activity is at its lowest.
2. True
3. False

QUESTION 38

1. Which of the following situations would you expect to see during a period of economic recession?
2. A.Falling tax receipts.
3. B.Falling corporate profits.
4. C.Falling employment claims.
5. D.Falling stock prices.
6. E.All of the above.

QUESTION 39

1. Which of the following are typical characteristics of an expansion?
2. A.Consumer purchases increase sharply.
3. B.The demand for labor rises.
4. C.Business inventories of durable goods increase.
5. D.All of the above.
6. E.Choices A and B only.

QUESTION 40

1. Required reserve ratios:
2. A.exist primarily to ensure that deposits are safe.
3. B.exist to penalize banks that are members of the Federal Reserve System.
4. C.exist primarily to help the Fed control the money supply.
5. D.exist for all of the above reasons.
6. E.exist for none of the above reasons.

QUESTION 41

1. Regardless of what you pay for a stock, you get paid back the value of the original principal, plus interest, when it matures.
2. True
3. False

QUESTION 42

1. An asset is said to be illiquid if it can be converted quickly into cash.
2. True
3. False

QUESTION 43

1. The riskiness of an investment is measured by the average of the returns on the investment.
2. True
3. False

QUESTION 44

1. M2 includes checking accounts but not saving accounts.
2. True
3. False

QUESTION 45

1. Most paper currency in the United States is not backed by precious metals such as gold or silver.
2. True
3. False

QUESTION 46

1. The discount rate is determined by the forces of supply and demand in the money market.
2. True
3. False

QUESTION 47

1. By selling government securities in the open market, the Federal Reserve authorities hope ultimately to accomplish:
2. A.an equal increase in bank reserves and Federal Reserve notes.
3. B.a decrease in bank reserves.
4. C.an increase in bank reserves larger than the original purchases by the appropriate multiple.
5. D.an increase in bank reserves by the amount of the original purchase.
6. E.a decrease in bank reserves by the amount of the original purchase.

QUESTION 48

1. The link from monetary policy to changes in real macroeconomic variables is one that:
2. A.depends upon the sensitivity of both investment and the demand for money to changes in the interest rate.
3. B.depends only upon the sensitivity of investment to changes in the interest rate.
4. C.is direct, and works automatically within the walls of domestic banks.
5. D.depends only upon the sensitivity of demand for money to changes in the interest rate.
6. E.depends not at all on the interest rate.

QUESTION 49

1. Bonds tend to be riskier investments than stocks.
2. True
3. False

QUESTION 50

1. Assuming a 20% reserve ratio, an increase in deposits of $200,000 could eventually result in:
2. A.a $40,000 increase in the money supply.
3. B.a $1 million increase in the money supply.
4. C.there would be no change in the money supply.
5. D.a $1.5 million increase in the money supply.
6. E.a $160,000 increase in the money supply.

QUESTION 51

1. The fundamental explanation of why commercial banks can create money lies in:
2. A.fractional reserves.
3. B.the consumption function.
4. C.maintaining a marginal propensity to consume less than 1.
5. D.private ownership.
6. E.the Federal Reserve or other central banks.

QUESTION 52

1. A rise in the interest rate will cause the investment schedule to shift up and out.
2. True
3. False

QUESTION 53

1. Interest rates affect investment and consumption spending on consumer durables.
2. True
3. False

QUESTION 54

1. When a central bank wishes to decrease the quantity of money held by the public, it:
2. A.sells securities.
3. B.buys securities.
4. C.sells goods or services.
5. D.buys goods or services.

E.does none of the above, since its function is not to change the quantity of publicly held money.

QUESTION 55

1. The balances kept on deposit at the Federal Reserve by commercial banks are considered assets of the Federal Reserve.
2. True
3. False

QUESTION 56

1. An open-market sale increases the liabilities of the Federal Reserve.
2. True
3. False

QUESTION 57

1. A Central Bank's open-market operation designed to increase the money supply would seek to sell government bonds.
2. True
3. False

QUESTION 58

1. Which of the following would not usually be associated with a movement up the AD schedule?
2. A.A higher level of interest rates.
3. B.A booming stock market.
4. C.A reduction in output.
5. D.All of the above.
6. E.None of the above.

QUESTION 59

1. People who are voluntarily unemployed may or may not be part of the labor force in the official statistics, but they would never be counted as employed.
2. True
3. False

QUESTION 60

1. An individual that has not looked for work in the past 2 weeks is considered out of the labor force.
2. True
3. False

QUESTION 61

1. One of the similarities between microeconomic and macroeconomic demand is that both:
2. hold income constant.
3. rely on the substitution effect to explain demand.
4. rely on the money-supply effect to explain demand.
5. vary inversely with price.
6. hold the prices of all other goods constant.