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Lesson 4

   

Question 1

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2.5   / 2.5 points

If government

increase

s spending and wants to maintain a balanced budget, it should __________.

Question options:

  

decrease

taxes by an equal amount

 

increase taxes by an equal amount

 

decrease taxes by an amount equal   to the increase in spending multiplied by the

tax multiplier

 

increase taxes by an amount equal   to the increase in spending multiplied by the tax multiplier

 

Question 2

2.5   / 2.5 points

      

  

Higher real interest rates resulting from a government budget deficit will __________ the amount of loanable funds a firm demands for their investments.

Question options:
  

stabilize

 
decrease
 

not affect

 
increase
 

Question 3

0   / 2.5 points

        

Which of the following is NOT a key financial institution?

Question options:
  

insurance companies

 

stock markets

 

commercial banks

 

government-sponsored mortgage   lenders

 

Question 4

2.5   / 2.5 points
        

What was one of the biggest contributing factors that led to the failure of financial institutions during the recent economic crisis?

Question options:
  

low interest rates

 

high employment rates

 

rising home prices

 

strong corporate management

 

Question 5

2.5   / 2.5 points
        

If a firm increases its capital stock per person while holding constant the number of workers employed, the firm is said to experience __________.

Question options:
  

capital augmentation

 

investment deepening

 

labor intensity

 

capital deepening

 

Question 6

2.5   / 2.5 points
        

Nations that borrow from abroad to support current investment will __________.

Question options:
  

always be better off in the future

 

always sacrifice future   consumption

 

be better off in the future if the   investments are profitable

 

sacrifice future consumption only   if the investments are profitable

 

Question 7

2.5   / 2.5 points
        

According to the text, __________ is perhaps the most critical aspect of a country’s economic performance.

Question options:
  

growth in GDP

 

the inflation rate

 

the unemployment rate

 

the living standard

 

Question 8

2.5   / 2.5 points
        

In developing countries, the highest returns are from investing in __________.

Question options:
  

transportation systems

 

sanitation systems

 

education

 

defense

 

Question 9

2.5   / 2.5 points
        

Nations with low levels of GDP per capita may converge to richer nations if __________.

Question options:
  

nations with high levels of income   experience a continuously increasing growth rate

 

nations with lower levels of   income grow more quickly than those with higher levels of income

 

nations with lower levels of   income spend less on investment

 

nations with lower levels of   income grow more slowly than those with higher levels of income

 

Question 10

2.5   / 2.5 points
        

An increase in the capital stock will __________.

Question options:
  

shift the production function   downward

 

shift the production function   upward

 

flatten the production function

 

steepen the production function

 

Question 11

2.5   / 2.5 points
        

What happens to U.S. GDP when foreign countries experience prosperity?

Question options:
  

It increases because the United   States will export more product to those countries.

 

It decreases because the foreign   countries will now buy more of their own products.

 

It decreases because the foreign   countries will be able to export more at a lower cost.

 

It does not change because U.S.   GDP is not affected by other countries’ prosperity.

 

Question 12

2.5   / 2.5 points
        

The multiplier that arises from equal increases in government spending and taxes is called the __________.

Question options:
  

simple multiplier

 
tax multiplier
 

balanced budget multiplier

 

government spending multiplier

 

Question 13

2.5   / 2.5 points
        

Convergence refers to closing the gap in __________ between poorer countries and richer countries.

Question options:
  

real GDP

 

real GDP per capita

 

the growth rate in real GDP

 

the growth rate in real GDP per   capita

 

Question 14

2.5   / 2.5 points
        

Which of the following uses of tax revenues collected by the government leads to increased capital deepening?

Question options:
  

building roads

 

increased foreign aid

 

Medicare payments

 

Social Security payments

 

Question 15

2.5   / 2.5 points
        

The fraction of additional income spent on imports is called the __________.

Question options:
  

import function

 

marginal propensity to import

 

marginal propensity to export

 

trade balance

 

Question 16

2.5   / 2.5 points
        

Economic growth is severely impeded in economies __________.

Question options:
  

with a lack of clear property   rights

 

with a strong market system

 

with high rates of convergence

 

which encourage induced innovation

 

Question 17

2.5   / 2.5 points
        

According to the method of growth accounting, which of the following contribute to economic growth?

Question options:
  

capital growth

 

labor growth

 

technological progress

 

all of the above

 

Question 18

0   / 2.5 points
        

Fluctuations in the demand and supply of loanable funds will in turn bring changes to the __________ of lent and borrowed funds.

Question options:
  

product recipient

 

mortgage-backed securities

 

equilibrium quantity

 

equilibrium quality

 

Question 19

2.5   / 2.5 points
        

Suppose that for a given firm, the increase in output resulting from the last worker hired is less than the increase in output of the previous worker hired. This is an example of __________.

Question options:
  

diminishing returns

 

constant returns

 

increasing return

 
capital deepening
 

Question 20

2.5   / 2.5 points
        

If the government __________ taxes to pay for spending on infrastructure, the result will most likely be a(n. __________ in capital deepening.

Question options:
  

increases; increase

 

decreases; increase

 

increases; decrease

 

eliminates; elimination

 

Lesson   5

      
   

Question 21

2.5   / 2.5 points

Equilibrium in the money market occurs when __________.

Question options:
  

the quantity of money demanded   equals the quantity of money supplied

 

the quantity of money demanded is   less than the quantity of money supplied

 

the quantity of money demanded is   more than the quantity of money supplied

 

the interest rate equals the money   supply

 

Question 22

2.5   / 2.5 points
        

The Federal Reserve System was created by the __________.

Question options:
  

U.S. Treasury

 

President

 

Congress

 

Supreme Court

 

Question 23

2.5   / 2.5 points
        

What impact does the Fed’s raising the interest rate have on the money supply and on the price level?

Question options:
  

An increase in interest rates   raises the money supply and eventually reduces prices.

 

An increase in interest rates   reduces the money demand which will slow the growth in prices.

 

An increase in interest rates   lowers the money supply and raises the money demand, which will neutralize   price increases.

 

An increase in interest rates will   increase investment spending and GDP, which will lower prices.

 

Question 24

2.5   / 2.5 points
        

Loans are examples of a bank’s __________.

Question options:
  

assets

 

liabilities

 

net worth

 

balance sheet

 

Question 25

2.5   / 2.5 points
        

One of the essential functions that a bank performs is __________.

Question options:
  

purchasing government bonds

 

creating deposits by lending   required reserves

 

transferring money from savers to   lenders

 

owning assets like real estate

 

Question 26

0   / 2.5 points
        

By law, banks are required to __________.

Question options:
  

hold 100 percent of customer deposits   as reserves

 

hold a fraction of their reserves   at the Federal Reserve bank

 

hold a fraction of demand deposits   as reserves

 

lend out no more than the amount   of their required reserves

 

Question 27

2.5   / 2.5 points
        

When checks are exchanged between banks, the Fed oversees the banks to ensure the appropriate funds have been transferred. This is known as __________.

Question options:
  

check kiting

 

check clearing

 

check floating

 

check balancing

 

Question 28

2.5   / 2.5 points
        

The supply of money in the U.S. economy is determined primarily by __________.

Question options:
  

decisions made by the Federal   Reserve and the U.S. Treasury

 

the actions of the Federal Reserve   and the banking system

 

consumers and the banking system

 

the demand for money in the   economy

 

Question 29

2.5   / 2.5 points
        

Consider how the value of the U.S. dollar affects the worldwide increase in commodity prices to answer the following two question(s.. Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom. Some economists noticed that the change in the value of the U.S. dollar was largely due to the change in interest rates, and the change in interest rates occurred because of the Fed’s use of __________ to further stimulate the economy.

Question options:
  

open market sales

 

quantitative easing

 

discount operations

 

open market purchases

 

Question 30

2.5   / 2.5 points
        

M1 __________.

Question options:
  

is the sum of currency plus   traveler’s checks

 

is the narrowest definition of the   money supply

 

includes small time deposits

 

includes credit cards

 

Question 31

2.5   / 2.5 points
        

All of the following statements are true of the Federal Reserve EXCEPT __________.

Question options:
  

it acts as the central bank for   all countries in the world

 

along with the Board of   Governors, the chairperson of the Federal Reserve determines monetary   policies and strategies based on the state of economy

 

it supplies currency to the   economy

 

it holds reserves from banks and   regulates banks

 

Question 32

2.5 / 2.5 points

        

An open market __________ by the Fed decreases the money supply, which leads to __________ interest rates and a fall in investment spending.

Question options:
  

sale; increased

 

sale; decreased

 

purchase; increased

 

purchase; decreased

 

Question 33

2.5 / 2.5 points
        

In the __________ , increases in the supply of money will __________.

Question options:
  

short run; raise total demand and   output

 

long run; raise total demand and   output

 

long run; lead to lower prices

 

short run; decrease total demand   and output

 

Question 34

2.5 / 2.5 points
        

The group responsible for deciding on monetary policy is the __________.

Question options:
  

Federal Open Market Committee

 

Board of Governors only

 

Federal Advisory Council

 

group of 12 Federal Reserve Bank   presidents only

 

Question 35

2.5 / 2.5 points
        

An increase in the reserve requirement __________.

Question options:
  

increases the money supply, which   leads to increased interest rates and a decrease in GDP

 

increases the money supply, which   leads to decreased interest rates and a decrease in GDP

 

decreases the money supply, which   leads to increased interest rates and a decrease in GDP

 

decreases the money supply, which   leads to decreased interest rates and a decrease in GDP

 

Question 36

2.5 / 2.5 points
        

Good news for the economy is bad news for bond prices, because __________.

Question options:
  

the increased demand for money   will increase interest rates

 

when real GDP increases, demand   for money will decrease

 

bond prices move in the same   direction as interest rates

 

when interest rates increase   during growing GDP, bond prices will increase

 

Question 37

2.5 / 2.5 points
        

A bank may make loans until its __________.

Question options:
  

required reserves are exhausted

 

excess reserves are exhausted

 

total assets are exhausted

 

total liabilities are exhausted

 

Question 38

2.5 / 2.5 points
        

Based on the model of the money market, if prices in the economy decrease, the equilibrium interest rate should __________.

Question options:
  

stay the same

 
increase
 
decrease
 

increase to the same extent that   the supply of money increases

 

Question 39

2.5 / 2.5 points
        

The Federal Reserve influences the level of interest rates in the short run by changing the __________.

Question options:
  

demand for money through open   market operations

 

demand for money through changes   in reserve requirements

 

supply of money through open market   operations

 

supply of money through changes   in stock market operations

 

Question 40

2.5 / 2.5 points
        

If money is used as a mechanism to hold purchasing power for a period of time, it is functioning as a __________.

Question options:
  

standard of value

 

store of value

 

medium of exchange

 

unit of account

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