Georgia Military College Macr

An open market purchase of government bonds by the Federal Reserve results in _________ in the supply of money and _________ in interest rates.

Question 1 options:

a decrease; a decrease

a decrease; an increase

an increase; an increase

an increase; a decrease

2. Refer to Table 1. The required reserve ratio based on the information provided below must be_______.

Details: Table 1. Suppose that at a point in time the 1st Bank of Kennesaw has a
deposits volume of $14,000 and its loans to its customers amount to $11,900. In
addition, the bank is currently loaned-up and its total reserves are $2,100. The
Balance Sheet of the bank is shown below.

1st Bank of Kennesaw

Assets Liabilities
Total Reserves $2,100 Deposits $14,000
Loans $11,900
Total Assets $14,000 Total Liabilities $14,000
Question 2 options:

12 percent

15 percent

10 percent

8 percent

Question 3

Jane has a savings account into which she puts money every month so she will eventually have enough money for a down payment on a house. This is an example of which function of money?

Question 3 options:

unit of account

barter

medium of exchange

store of value

Question 4 Saved

Suppose the required reserve ratio is 6.5%, the banking system has $1,950 in total
reserves, and is loaned-up. The deposits in the banking system must be

Hint: Recall the formula: Reserve ratio=Reserves/(Customers Deposits)

Question 4 options:

$30,000

$22,500

$127

$63

Question 5

If the reserve requirement is 20%, a new deposit of $1,500 leads to a potential increase

in the money supply of:

Hint: consider using the formula for money multiplier:

1) Money Multiplier=1/Reserve Requirement

2) Apply the money multiplier to the value of new deposit

Question 5 options:

$4,000

$10,000

$8,000

$7,500

Question 6

Which of the following is not included in M1?

Question 6 options:

a $500 bill in your wallet

a $500 bill in your checking account

a $500 bill in your friend’s wallet

a $500 bill in your savings account

Question 7

Money is _______ when it has no intrinsic value, but it is nonetheless accepted as money because the government has decreed it to be money.

Question 7 options:

a store of value

a medium of exchange

a unit of account

fiat money

Question 8

Assume initially that market interest rates are 7% and the bondholder is receiving a $70
coupon payment per year on a bond with a face value of $1,000. If market interest rates rise to 10%, the bond price_______

Question 8 options:

rise to $800

rise to $700

falls to $700

falls to $800

Question 9

Which of these is a liability for a bank?

Question 9 options:

required reserves

excess reserves

a loan to a firm

deposits made by a firm

Question 10

If the money multiplier increased, what probably happened to the reserve requirement?

Hint: Recall the formula for money multiplier:

Money multiplier=1/Reserve requirement

Question 10 options:

It remains equal to 1.

It stayed the same.

It decreased.

It increased.According to the Saving/Investment approach to equilibrium, if government spending (G) is $4 trillion, business investment (I) is $3 trillion, and taxes (T) are $3 trillion, how much is savings (S) in a closed economy?

Question 1 options:

$5 trillion

$3 trillion

$6 trillion

$4 trillion

Question 2

Refer to the information provided in Table 9.1 below to answer the question(s) that follow.

Table 9.1

Refer to Table 9.1. At an output level of $2,000 billion, there is an unplanned inventory change of

Question 2 options:

View hint for Question 2

Question 3

Assume that the MPS is 0.25. Full employment is considered to be at aggregate output level of $900 billion. Currently, the aggregate output is $800 billion. What should the government do to achieve full employment?

Question 3 options:

reduce government spending by $20 billion

increase government spending by $20 billion

reduce government spending by $25 billion

increase government spending by $25 billion

View hint for Question 3

Question 4

If the MPC is 0.7, the tax multiplier is

Question 4 options:

View hint for Question 4

Question 5

Assume that the MPS is 0.25. Full employment is considered to be at aggregate output level of $800 billion. Currently, the aggregate output is $700 billion. What should the government do to achieve full employment, while also maintaining the federal budget balanced (not increasing the deficit)?

Question 5 options:

increase government spending and reduce taxes by $100 billion

reduce government spending and taxes by $100 billion

increase government spending and taxes by $100 billion.

none of the above

View hint for Question 5

Question 6

Under a cyclically balanced budget, a government should _____ when the economy is growing and _____ when GDP is declining.

Question 6 options:

raise taxes; raise spending

raise taxes; reduce spending

reduce taxes; reduce spending

reduce taxes; raise spending

View hint for Question 6

Question 7

If Sandra has an income of $40,000 and disposable income of $30,000, how much does she pay in taxes?

Question 7 options:

40,000

0

30,000

10,000

View hint for Question 7

Question 8

Automatic stabilizers include all of the following EXCEPT:

Question 8 options:

All of the answers are correct.

Transfer payments.

Increased research and development.

Tax revenues.

View hint for Question 8

Question 9

According to the full aggregate expenditures model, which will have the greater stimulus effect on the economy: the same amount increase in government spending or decrease in taxes?

Question 9 options:

It depends on marginal propensity to consume (MPC).

The decrease in taxes will have the greater stimulus effect on the economy.

The increase in government spending will have the greater stimulus effect on the economy.

The two have the same effect.

View hint for Question 9

Question 10

Which of these is a description of an automatic stabilizer of the economy?

Question 10 options:

When the economy is booming, tax receipts decrease.

When the economy declines, tax receipts decrease.

When the economy is booming, transfer payments increase.

When the economy declines, transfer payments decrease.


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