Econ Test 3

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In economics, money is defined as
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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
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a unit of account.
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Which of the following functions of money would be violated if inflation were high?
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store of value
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Which of the following information about fiat money is false? Fiat money
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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 ________.
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increase; not change
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The M2 measure of the money supply equals
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M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.
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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.
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deposits multiplied by
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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
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$10,000
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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
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actual reserves equal their required reserves
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Which of the following best describes how banks create money?
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Banks create checking account deposits when making loans from excess reserves.
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Economies cannot function without money.
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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
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If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands.
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True
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The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.
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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
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taxes
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Economists first began studying the relationship between changes in aggregate expenditures and changes in GDP
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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?
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There was an unplanned increase in inventories equal to $2 million
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At macroeconomic equilibrium
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total spending equals total production.
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If aggregate expenditure is less than GDP, how will the economy reach macroeconomic equilibrium?
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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?
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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.
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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
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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
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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
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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?
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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?
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a decrease in government purchases
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Aggregate expenditure includes consumption spending, unplanned investment spending, government purchases, and net exports.
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False
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An increase in the price level in the United States will reduce exports and increase imports.
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True
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Higher interest rates increase both consumption and investment spending.
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False

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