Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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Which
statement is consistent with what Keynes believed about consumption and disposable
income? a. | Consumption
depends upon disposable income and falls as disposable income rises. | b. | Consumption
rises by the same amount as disposable income rises. | c. | Consumption
rises by less than disposable income rises. | d. | Disposable
income depends upon consumption. | | |
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2.
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Autonomous consumption is a. | the change in consumption that results as a person's (or
nation's) income increases or decreases. | b. | that portion of total consumption that is dependent upon the
level of income. | c. | the steady increase in the consumption of goods and services
that automatically occurs as a person grows from a child to an adult. | d. | that portion of
total consumption that is independent of the level of income. | | |
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3.
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The
ratio of the change in consumption to the change in income is called the a. | marginal utility
of consumption. | b. | average utility of consumption. | c. | marginal
propensity to consume. | d. | average propensity to consume. | | |
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4.
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The
change in disposable income is $200 and the change in saving is $50.What is the marginal propensity
to consume (MPC)? a. | 0.25 | b. | 0.50 | c. | 0.66 | d. | 0.75 | e. | There is not enough information to answer the
question. | | |
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5.
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Fiscal policy refers to a. | efforts to balance a government's
budget. | b. | changes in the money supply to achieve particular economic
goals. | c. | changes in government expenditures and taxation to achieve
particular economic goals. | d. | the change in private expenditures that occurs as a consequence
of changes in government spending. | | |
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6.
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To
eliminate a recessionary gap, Keynesian theory indicates that government should a. | increase
taxes. | b. | decrease taxes. | c. | increase
government purchases. | d. | decrease government purchases. | e. | either b or
c | | |
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Exhibit 10-1
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7.
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Refer
to Exhibit 10-1. The economy is currently at point 1. In this situation, Keynesian economists would
most likely propose a. | an increase in government purchases. | b. | a decrease in
government purchases. | c. | an increase in taxes. | d. | a and
c | e. | b and
c | | |
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8.
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Suppose the economy is in short run equilibrium at a point below the natural level of
RGDP. In response to this situation, Keynesian economists would propose
that
government __________ taxes, which will cause the aggregate demand curve
to shift to the __________,
which, in turn, will cause Real GDP to __________. a. | increase; right;
increase | b. | increase; left; decrease | c. | decrease; left;
decrease | d. | decrease; right; decrease | e. | decrease; right;
increase | | |
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9.
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How
is the multiplier expressed in terms of the MPS? a. | 1 - MPS | b. | 1/MPS | c. | 1/(1 - MPS) | d. | 1/(1 +
MPS) | | |
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10.
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Government purchases rise by $100 billion and the MPC is equal 0.80. Assuming that
idle resources exist at each expenditure round, and the multiplier is operative, the change in Real
GDP equals a. | $80
billion | b. | $100 billion | c. | $200
billion | d. | $400 billion | e. | $500
billion | | |
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11.
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Which
of the following is an example of crowding out? a. | A decrease in the rate of growth of the stock of money
decreases GDP. | b. | A deficit causes an increase in interest rates, which causes a
decrease in investment spending. | c. | An increase in tariffs causes a decrease in
imports. | d. | A decrease in government housing subsidies causes an increase
in private spending on housing. | | |
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12.
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Fiscal policy may not work as policymakers intend it to work because
of a. | crowding
out. | b. | lags. | c. | the position of the production possibilities
frontier. | d. | a and b | e. | a, b, and
c | | |
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13.
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The
lag between an increase in government spending and the impact of this increased spending on the
economy is called the __________ lag. a. | effectiveness | b. | transmission | c. | legislative | d. | data | | |
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14.
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In
the "Anatomy of A Crisis," Milton Friedman cited which of the following as evidence to back
up his argument that the Great Depression was exported from the United States to other
countries? a. | the flow of gold
into the Federal Reserve from other countries | b. | the flow of gold
out of the Federal Reserve to other countries | c. | the collapse of
the Bank of the United States | d. | the inflation the United States has experienced ever since the
Great Depression | | |
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15.
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Money
is defined as a. | the market value
of an asset. | b. | the funds one receives during a specified period of
time. | c. | any good that is widely accepted in exchange and for the
repayment of debt. | d. | both b and c | e. | all of the
above | | |
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16.
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Barter is a. | the exchange of money for goods and then the exchange of those
goods for money. | b. | the exchange of money for money, or the exchange of money for
stocks and bonds. | c. | the exchange of goods and services for goods and services
without the use of money. | d. | any exchange, with or without the use of money, in which the
participants negotiate (or barter) the price of the goods to be exchanged. | | |
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17.
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Which
of the following is a correct listing of money's functions? a. | source of
credit, value of transaction costs, unit of barter | b. | medium of
barter, medium of exchange, medium of transactions | c. | unit of barter,
unit of account, a unit of income | d. | store of value, store of exchange, measure of
account | e. | store of value, medium of exchange, unit of
account | | |
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18.
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In
the history of banking, warehouse receipts refer to receipts a. | that goldsmiths
once issued acknowledging that they held a customer's gold. | b. | for storing
furniture in a warehouse. | c. | goldsmiths issued to each other when they borrowed
gold. | d. | for storing food and other perishables in a
warehouse. | | |
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19.
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Fractional reserve banking is a term used to describe a banking system
whereby a. | individual banks
share a fraction of the total funds deposited in the whole banking system. | b. | banks are
required to quote interest rates in fractions. | c. | banks hold
reserves equal to only a fraction of their deposit liabilities. | d. | banks hold
reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really
means multiple. | e. | banks are required to maintain a certain fraction of their
deposits in the form of checkable deposits, a certain fraction of their deposits in the form of
savings deposits, etc. | | |
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20.
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The
banking system increases the money supply by creating a. | checkable
deposits. | b. | currency. | c. | checkable
deposits and currency. | d. | Federal Reserve Notes. | | |
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21.
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Reserves held beyond the required amount are called __________
reserves. a. | redundant | b. | precautionary | c. | excess | d. | surplus | | |
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22.
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The
United States is divided into __________ Federal Reserve districts, each with a district
bank. a. | three | b. | eight | c. | twelve | d. | twenty | | |
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23.
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Which
of the following is not a function of the Federal Reserve System? a. | to clear
checks | b. | to supervise member banks | c. | to serve as the
lender of last resort | d. | to serve as a fiscal agent for the U.S.
Treasury | e. | to serve as the government's tax
collector | | |
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24.
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Open
market operations are the a. | buying and selling of Federal Reserve Notes in the open
market. | b. | means by which the Fed supplies the economy with
currency. | c. | means by which the Fed acts as the government's
banker. | d. | buying and selling of government securities by the
Fed. | e. | buying and
selling of government securities by the Treasury. | | |
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25.
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The
Fed can change the money supply by changing a. | the required-reserve ratio. | b. | marginal income
tax rates. | c. | federal excise taxes. | d. | unemployment
benefits. | | |
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26.
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When the monetary base increases, the money supply
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a.
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increases.
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b.
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decreases.
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c.
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is unaffected.
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d.
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increases, then decreases.
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e.
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decreases, then increases.
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27.
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In
the equation of exchange, the money supply multiplied by velocity equals a. | GDP. | b. | the price level. | c. | the quantity of
goods produced. | d. | the average number of times that a dollar is used to purchase a
final good or service. | | |
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28.
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If V
is constant, the rate of growth of M that is consistent with a stable price level is a. | zero. | b. | the rate of growth of PQ. | c. | the rate of
growth of Q. | d. | the expected rate of inflation. | e. | none of the
above | | |
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29.
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Which
best describes the Keynesian transmission mechanism when the money supply rises? a. | The interest
rate rises; this in turn cuts back investment spending, which in turn lowers total expenditures and
shifts the AD curve leftward. | b. | The interest rate rises; this in turn stimulates investment
spending, which in turn raises total expenditures and shifts the AD curve
rightward. | c. | The interest rate falls; this in turn stimulates investment
spending, which in turn raises total expenditures and shifts the AD curve
rightward. | d. | The interest rate falls; this in turn cuts back investment
spending, which in turn lowers total expenditures and shifts the AD curve
leftward. | | |
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30.
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The
Keynesian transmission mechanism might get blocked if a. | investment is
insensitive to changes in interest rates. | b. | the goods market is not in
equilibrium. | c. | the money supply rises too quickly. | d. | interest rates
are too high before they fall. | | |
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