question

In economics, money is defined as

answer

any asset people generally accept in exchange for goods and services.

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The major shortcoming of a barter economy is

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the requirement of a double coincidence of wants.

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Silver is an example of a

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commodity money

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The statement, "My iPhone is worth $300" represents money's function as

answer

a unit of account.

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Which of the following functions of money would be violated if inflation were high?

answer

store of value

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Which of the following information about fiat money is false? Fiat money

answer

is backed by gold.

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The M1 measure of the money supply equals

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currency plus checking account balances plus traveler's checks.

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If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.

answer

increase; not change

question

The M2 measure of the money supply equals

answer

M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.

question

The major assets on a bank's balance sheet are its

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reserves, loans, and holdings of securities.

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The largest liability on the balance sheet of most banks is its

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checking account and savings account deposits of its customers.

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The required reserves of a bank equal its ________ the required reserve ratio.

answer

deposits multiplied by

question

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A's reserves immediately increase by

answer

$10,000

question

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

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$5,000

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Banks can continue to make loans until their

answer

actual reserves equal their required reserves

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Which of the following best describes how banks create money?

answer

Banks create checking account deposits when making loans from excess reserves.

question

Economies cannot function without money.

answer

False

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The amount of national income in an economy equals the money supply in an economy.

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False

question

If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands.

answer

True

question

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

answer

total spending; real GDP; the price level

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All of the following are one of the four main categories of spending identified by John Maynard Keynes except

answer

taxes

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Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP

answer

during the Great Depression

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Actual investment spending does not include

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spending on consumer durable goods

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An unplanned increase in inventories results from

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actual investment that is greater than planned investment

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Consumption is $5 million, planned investment spending is $8 million, government purchases are $10 million, and net exports are equal to $2 million. If GDP during that same time period is equal to $27 million, what unplanned changes in inventories occurred?

answer

There was an unplanned increase in inventories equal to $2 million

question

At macroeconomic equilibrium

answer

total spending equals total production.

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If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?

answer

Inventories will rise, and GDP and employment will decline

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Which of the following will cause a direct increase in consumption spending?

answer

an increase in disposable income

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________ is defined as the value of a household's assets minus the value of its liabilities.

answer

Household Wealth

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Decreases in the price level will

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raise consumption because real wealth increases

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The slope of the consumption function is equal to

answer

the change in consumption divided by the change in disposable income.

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If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is

answer

0.9

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If firms are more optimistic that future profits will rise and remain strong for the next few years, then

answer

investment spending will rise

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If inflation in the United States is higher than inflation in other countries, what will be the effect on net exports for the United States?

answer

Net exports will decrease as U.S. exports decrease.

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Which of the following will decrease aggregate expenditure in the United States?

answer

a decrease in government purchases

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Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports.

answer

False

question

An increase in the price level in the United States will reduce exports and increase imports.

answer

True

question

Higher interest rates increase both consumption and investment spending.

answer

False

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