Grand canyon ECN360 final exam 2015

· Which of the following represents the relationship between disposable income (DI), consumption (C), and saving (S)?

o

DI + C = S

o

DI = C * S

o

DI = C - S

o

DI = C + S

· Which of the following is NOT a method for promoting global economic growth?

o

Count on the world's governments to develop policies that promote economic growth in developing nations.

o

Reliance on private markets to direct capital goods toward their best use.

o

Encourage population growth so that developing nations' labor supply increases.

o

Market based approach.

· In the classical model, an increase in aggregate demand will cause

o

a decrease in price level.

o

an increase in actual output, or Gross Domestic Product (GDP).

o

an increase in price level.

o

a decrease in actual output, or Gross Domestic Product (GDP).

· Of the relationships below, which is the least stable?

o

Consumption

o

Net exports

o

Investment

o

Saving

· When investment occurs in developing nations

o

investors hope to gain significant returns on their investment and residents gain higher rates of economic growth.

o

significant levels of pollution usually occur.

o

government politicians usually benefit from the illegal payments made to secure the investment.

o

higher rates of economic growth are usually not achieved.

· A multinational agency that specializes solely in making loans to promote long-term development and growth in developing countries is the

o

Federal Reserve System.

o

International Monetary Fund.

o

International World Fund.

o

World Bank.

· The Board of Governors of the Federal Reserve System is

o

composed of seven members who are appointed by the President and approved by the Senate.

o

elected by the general public.

o

composed of 12 members of the Senate and the U.S. House of Representatives.

o

composed of representatives from the country's 12 largest commercial banks.

· Supply-side inflation is caused by

o

an increase in aggregate demand and no change in aggregate supply.

o

a decrease in aggregate supply and no change in aggregate demand.

o

an increase in aggregate supply and no change in aggregate demand.

o

a decrease in aggregate demand and no change in aggregate supply.

· Keynesian theory is based on the concept that

o

planned savings equal planned investment only at full employment.

o

full employment is automatically attained in any economy.

o

saving and consumption are influenced primarily by real current disposable income.

o

saving is influenced primarily by the interest rate.

· When the Fed conducts open market operations, it

o

also raises taxes at the same time.

o

shifts the demand for money curve.

o

purchases or sells government bonds issued by the U.S. Treasury.

o

is engaging in fiscal policy.

· An increase in the money supply will

o

decrease aggregate demand.

o

increase aggregate demand.

o

increase aggregate supply.

o

decrease aggregate supply.

· According to the quantity theory of money, an excess quantity of money supplied will lead to

o

a higher price level.

o

a reduced level of real Gross Domestic Product (GDP).

o

a reduction in spending and higher interest rates.

o

a higher level of employment.

· Adverse selection is a barrier to financing global growth because

o

of the differences between financing using loans, portfolio investment and foreign direct investment.

o

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

o

firms sometimes have trouble determining whether they need funds or not.

o

if investors have trouble identifying high-risk firms they may be unwilling to lend funds to creditworthy firms.

· An increase in the money supply will cause which of the following to occur?

o

a rightward shift of the aggregate supply curve

o

a leftward shift of the aggregate demand curve

o

a leftward shift of the aggregate supply curve

o

a rightward shift of the aggregate demand curve

· In the above figure, when disposable income is greater than 600,

·

Enlarged View

o

saving is positive.

o

the MPS is negative.

o

the MPC is greater than 1.

o

saving is negative.

· Which of the following is true about the World Bank?

o

It is a U.N. sponsored agency that specializes in development loans.

o

It is a multinational agency that specializes in development loans.

o

It is a U.S. agency that specializes in development loans.

o

It is made up of all central banks in the worl

· A higher domestic price level should

A.

decrease net exports.

B.

increase desired investment.

C.

increase real wealth and consumption.

D.

none of these.

· Moral hazard is a barrier to financing global growth because

o

if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.

o

firms sometimes have trouble determining whether they need funds or not.

o

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

o

of the differences between financing using loans, portfolio investment and foreign direct investment.

· In the Keynesian model, whenever planned investment is greater than planned saving,

o

the amount of planned investment will decrease, and real GDP will decrease.

o

there will be an unplanned inventory decrease, and GDP will eventually increase.

o

the amount of planned investment will decrease, and real GDP will remain unchanged.

o

there will be an unplanned inventory increase, and GDP will eventually decrease

· Country X has experienced GDP growth of 6 percent and a population growth of 4 percent. What is this country's growth of per capita real GDP?

o

10 percent

o

-2 percent

o

6 percent

o

2 percent

· Fractional reserve banking can be thought of as a bank

o

withholding a portion of its total deposits that are not loaned out.

o

holding deposits equal to its net worth.

o

paying a fraction of its profit to depositors.

o

loaning out all of its reserves

· Suppose that a new customer opens a checking account and a saving account, placing $50,000 in each. Later, the bank makes a loan of $100,000 to a business firm. For this bank,

o

assets remained unchanged but liabilities increased by $100,000 because of the loan.

o

assets increased by $100,000 because the checking and saving accounts are assets, and liabilities increased by $100,000 because the loan is a liability.

o

assets increased by $100,000 because the loan is an asset, and liabilities increased by $100,000 because the checking and saving accounts are liabilities.

o

assets increased by $50,000 because the saving account is an asset, while liabilities increased by $50,000 because the checking account is a liability.

· Consider the above figure. At a price level of 150,

·

Enlarged View

o

inventories of unsold goods decline.

o

total planned real expenditures exceed total planned real production.

o

the price level would rise.

o

total planned production exceeds total planned real expenditures.

· urope and Asia both fall into deep economic recessions. What impact will this have on U.S. aggregate demand?

o

The U.S. aggregate demand curve will shift to the right.

o

U.S. aggregate demand will remain unchanged.

o

None. A nation's aggregate demand is only affected by its own economic conditions.

o

U.S. aggregate demand will decrease.

· How does the Fed increase the level of reserves in the banking system?

o

by raising interest rates

o

by selling bonds

o

by buying bonds

o

by lowering interest rates

· Involuntary unemployment

o

will increase as the wage rate falls.

o

exists when there is a shortage of labor.

o

exists when there is an excess quantity of labor supplied.

o

occurs when the wage rate is below the equilibrium wage rate.

· At a level of real disposable income of $0, suppose consumption is $2,000. Given this information, we know with certainty that saving equals

o

-$2,000.

o

-$1,000.

o

$0.

o

$2,000.

· Suppose that when disposable income decreases by $2,000, consumption spending increases by $1500. Given this information, we know that the marginal propensity to consume (MPC) is

o

1/.25 = 4.

o

$1,000/$750 = 1.33.

o

.75.

o

.25.

· In the Keynesian model, an aggregate demand shock

o

will cause the aggregate demand curve to shift, leading to a change in the price level but not real GDP.

o

will cause the aggregate demand curve to shift, leading to a change in the price level and real GDP.

o

will cause the aggregate demand curve to shift, leading to a change in real GDP but not the price level.

o

will not lead to a shift of the aggregate demand curve.

· The planned investment function will shift downward if

o

the existing stock of capital decreases.

o

business expectations become more pessimistic.

o

the interest rate falls.

o

real disposable income increases.

· Which of the following is NOT a function of the Fed?

o

Regulating the money supply

o

Holding reserves for depository institutions

o

Lending funds to credit-worthy private firms

o

Supervising member banks

· Refer to the above figure. If the MPC is unchanged and level of autonomous consumption increases, what occurs?

·

Enlarged View

o

Line ABC will drop down.

o

Line EBD rotates and becomes steeper.

o

Line ABC shifts up.

o

Line EBD will shift up.

· When a nation's currency suddenly loses value, the ________ may step in to buy the afflicted currency.

o

World Bank

o

United Nations

o

Federal Reserve Bank

o

International Monetary Fund

· A checking account is

o

an asset to a commercial bank.

o

a liability to a commercial bank.

o

an asset for the Federal Reserve System.

o

a liability to the household or firm that has the account.

· A decrease in aggregate demand will cause

o

aggregate supply to fall according to classical economists, and prices to fall according to Keynes.

o

prices to fall and unemployment to increase according to both classical economists and Keynes.

o

aggregate supply to fall according to Keynes, and unemployment to increase according to classical economists.

o

prices to fall according to classical economists, and unemployment to increase according to Keynes.

· The classical model uses the assumption that

o

all wages and prices are flexible.

o

monopoly is widespread in the economy.

o

interest rates are not flexible.

o

economic markets are fragile and have no tendency to move towards an equilibrium.

· Investment includes spending on

o

capital goods, consumer durable goods, and changes in business inventories.

o

capital goods, buildings, and consumer durable goods.

o

capital goods, buildings, and changes in business savings.

o

capital goods, buildings, and changes in business inventories.

· The multinational organization that aims to promote world economic growth by fostering financial stability is the

o

International Monetary Fund.

o

World Trade Organization.

o

United Nations.

o

World Bank.

· When the U.S. dollar appreciates,

o

foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.

o

foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase more foreign goods.

o

foreign residents demand more of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.

o

foreign residents demand more of U.S. goods, and U.S. residents desire to purchase more foreign goods.

· The international unit of accounting used by the International Monetary Fund (IMF) is called

o

the IMF dollar.

o

special drawing rights.

o

the Eurodollar.

o

the quota subscription.