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Econ 101 Quiz on Practice Econ 3, created by mjheg on 05/05/2013.

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Practice Econ 3

Question 1 of 26

1

If, in the best case scenario, increased government spending were used to revive the economy from a recession, the increased spending would

Select one of the following:

  • be offset by a decrease in inflation

  • be a little more than the fall in consumer confidence in order to help make up for lost GDP

  • not need to be as large as the fall in consumer consumption

  • be exactly the same as the fall in consumer consumption.

Explanation

Question 2 of 26

1

In what way are monetary and fiscal policies similar?

Select one of the following:

  • They both involve borrowing from the public

  • They are both somewhat ineffective when it comes to combating real shocks

  • They both target the aggregate demand curve to combat the business cycle

  • All of these answers are correct

Explanation

Question 3 of 26

1

Mistimed contractionary fiscal policy can cause

Select one of the following:

  • a recession

  • inflation

  • a real shock

  • rising interest rates

Explanation

Question 4 of 26

1

Government spending becomes a more effective policy tool when

Select one of the following:

  • consumers are too pessimistic and not spending

  • interest rates in the economy are rising simultaneously

  • the government raises taxes to finance spending

  • the economy is above the Solow growth curve

Explanation

Question 5 of 26

1

An increase in government spending growth will cause inflation to fall in

Select one of the following:

  • the short run

  • the long run

  • both the short run and the long run

  • neither the short run nor the long run

Explanation

Question 6 of 26

1

An increase in government spending growth will cause the AD curve to

Select one of the following:

  • shift outward

  • shift inward

  • shift outward and then inward

  • remain unchanged

Explanation

Question 7 of 26

1

If the government increases its spending, financing methods that can cause crowding out include 1)Selling Bonds 2)Raising corporate investment taxes 3)raising individual income taxes

Select one of the following:

  • 1,2

  • 2,3

  • 2 only

  • none of the options

  • 1,2,3

Explanation

Question 8 of 26

1

The largest component of GDP is

Select one of the following:

  • consumption

  • investment

  • government spending

  • imports

Explanation

Question 9 of 26

1

When consumers reduce spending, the reduction in velocity of money is split between

Select one of the following:

  • decrease in inflation and decrease growth

  • decrease in inflation and increase in growth

  • decrease in the money supply and decrease in inflation

  • decrease in the money supply and decrease in growth

Explanation

Question 10 of 26

1

Examples of expansionary fiscal policy include increases
I. in government spending.
II. in income taxes.
III. of the money supply

Select one of the following:

  • I only

  • I & II

  • II only

  • II & III

Explanation

Question 11 of 26

1

Fiscal policy is well-suited to counteract a recession or depression when

Select one of the following:

  • unemployment is low.

  • taxes are high.

  • a real negative shock occurs.

  • resources are under utilized.

Explanation

Question 12 of 26

1

A decrease in consumption growth will cause aggregate demand to

Select one of the following:

  • shift inward

  • shift outward

  • remain unchanged

  • shift inward and then outward

Explanation

Question 13 of 26

1

In a typical year, changes in government spending compared to overall spending are relatively

Select one of the following:

  • small

  • large

  • unpredictable

  • well-timed

Explanation

Question 14 of 26

1

Which would be the most liquid?

Select one of the following:

  • Small time deposits

  • small cut diamonds

  • Monet oil painting

  • money market mutual funds

Explanation

Question 15 of 26

1

When the Federal Reserve makes an open market purchase, the reserves of the banking system will

Select one of the following:

  • increase

  • decrease

  • remain constant

  • be too difficult to predict

Explanation

Question 16 of 26

1

What part of the money pyramid does the Fed have direct control over?

Select one of the following:

  • the monetary base

  • M1

  • M1 plus the monetary base

  • M2

Explanation

Question 17 of 26

1

An increase in money growth will cause inflation to increase in

Select one of the following:

  • the long run

  • the short run

  • the long run and the short run

  • neither the long run nor the short run

Explanation

Question 18 of 26

1

The members of the Board of Governors of the Federal Reserve have 14-year non-renewable terms. Thus,

Select one of the following:

  • they are somewhat insulated from the political process.

  • the chairman of the board of governors also has a 14-year term.

  • every president of a federal reserve district bank will serve at least 14 years on the BOG.

  • the New York Federal Reserve District Bank President can only serve 14 years on the FOMC.

Explanation

Question 19 of 26

1

If the Fed buys government bonds, then all of the following will likely increase except

Select one of the following:

  • M1

  • bank reserves

  • the monetary base

  • Federal Funds rate

Explanation

Question 20 of 26

1

When the Federal Reserve buys bonds, the supply curve for bond

Select one of the following:

  • shifts inward

  • shifts outward

  • sometimes shifts inward, sometimes outward

  • remains unchanged

Explanation

Question 21 of 26

1

When the Federal Reserve conducts monetary policy, the Federal Reserve usually focuses on

Select one of the following:

  • M1

  • M2

  • Federal Funds rate

  • the discount rate

Explanation

Question 22 of 26

1

Required reserves are the percent of

Select one of the following:

  • deposits that banks are required to hold as reserves.

  • reserves that banks are required to hold as reserves.

  • loans that banks are required to hold as reserves.

  • None of the answers is correct.

Explanation

Question 23 of 26

1

Which of the following assets would you classify as being most liquid?

Select one of the following:

  • small time deposits

  • demand deposits

  • a gold nugget

  • a home

Explanation

Question 24 of 26

1

Which of the following is TRUE of the structure of the Fed?
I. All seven members of the Board of Governors are appointed by the President.
II. The Fed is an agency of the federal government.
III. The Secretary of the Treasury chairs the Federal Open Market Committee.

Select one of the following:

  • I only

  • I & II

  • I & III

  • I,II, & III

Explanation

Question 25 of 26

1

As a result of an increase in the growth rate of money supply

Select one of the following:

  • real GDP growth rate increases only in the short run, and the inflation rate increases in both the short run and the long run.

  • real GDP growth rate increases only in the long run, and the inflation rate increases only in the short run.

  • real GDP growth rate increases in both the short run and the long run, and the inflation rate increases only in the short run.

  • both the real growth rate and the inflation rate increase only in the short run.

Explanation

Question 26 of 26

1

When the Fed conducts open market operations to decrease the monetary base, real GDP growth

Select one of the following:

  • increases in the long run

  • decreases in the long run

  • decreases in both the short run and the long run

  • increases in both the short run and the long run

Explanation

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