If Government Increases Spending And Wants To Maintain A Balanced Budget

Lesson 4

Question 1 2.5 / 2.5 points

If government increases 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