Question 1

Professor Williams tutors her next-door neighbor\'s son in economics. Instead of paying her for this service, the neighbor washes the professor\'s car. This is an example of:

Accepted Answer

b. Barter  (exchange of a service without the use of money)

Question 2

Which of the following is not true about money?

Accepted Answer

c. It must be minted by the government in order to have value (money is anything generally accepted as a medium of exchange)

Question 3

Money is functioning as a medium of exchange if you:

Accepted Answer

c. Purchase coffee at the local coffee shop before class. (a medium of exchange is accepted as payment for goods and services).

Question 4

If Justin takes $75 from his cookie jar and deposits it in his checking account, the immediate result is that:

Accepted Answer

a. The value of M1 stays the same (this cash was already counted in the money supply)

Question 5

When a bank makes a loan:

Accepted Answer

b. it creates a transactions-account balance for the borrower (the loan becomes funds made available to the borrower to make purchases).

Question 6

Ceteris paribus, if Tamika pays off a loan at the bank then over time:

Accepted Answer

d. The money supply becomes smaller. (repayment of loans decreases the money supply because there is less money in circulation)

Question 7

Which of the following is true for U.S. banks?

Accepted Answer

a. Banks must keep only a fraction of total deposits as reserves (banks keep a fraction of deposits and loan out the rest)

Question 8

The reserve requirement directly limits the ability of banks to:

Accepted Answer

d. Make new loans. (banks cannot loan out all the money they take in)

Question 9

Suppose a bank a $1,000,000 in deposits and a minimum reserve requirements of 20 percent. Then required reserves are:

Accepted Answer

c. $200,000 (twenty percent times $100,000,000 is $200,000)

Question 10

If excess reserves are $25,000, demand deposits are $100,000 and the minimum reserve requirement is 20 percent, then total reserves are:

Accepted Answer

c. $45,000 (percentage of requirement of demand deposits plus excess reserves equals total reserves. Example: twenty percent of $100,000 is $20,000 which means 20,000 must be held in reserve. the 25,000 in excess reserves plus the 20,000 that is the minimum reserves equals 45,000)

Question 11

Initially a bank has a minimum reserve requirement of 20 percent and no excess reserves. If $20,000 is deposited in the bank, then the bank can, ceteris paribus:

Accepted Answer

b. Lend $16,000 (deposit-0.20xdeposit)

Question 12

If the banking system has a required reserve ration of 15 percent, then the money multiplier is:

Accepted Answer

b. 6.67 (Multiplier= 1 divided by required reserve ratio)

Question 13

If total reserves for a bank are $10,000, excess reserves are zero, and demand deposits are $100,000, then the money multiplier must be:

Accepted Answer

b. 10 (multiplier= 1 divided by required reserve ratio)

Question 14

Suppose the entire banking system has $50 million in excess reserves and a required reserve ration of 10 percent. The deposit-creation potential of the banking system is:

Accepted Answer

a. $500 million (excess reserves of banking system x money multiplier = potential deposit creation)

Question 15

An increase in the amount of bank loans should shift the aggregate:

Accepted Answer

d. Demand curve to the right (the loans banks offer to their customers will be used to purchase new cars, homes, business equipment, and other output).

Question 16

U.S. monetary policy relies on the:

Accepted Answer

b. Federal Reserve System\'s control over the money supply (the Federal Reserve is the government agency that controls the nation\'s money supply).

Question 17

The 12 regional Fed banks do not:

Accepted Answer

c. Accept deposits from individuals (The Fed Banks act as a central banks for private banks, not for individuals).

Question 18

The Federal Reserve Board of Governors has:

Accepted Answer

a. Seven members appointed by the president of the United States (the 7 members of the board are appointed by the president and confirmed by the U.S. Senate).

Question 19

Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:

Accepted Answer

c. Make decisions based on economic, rather than political considerations. (They are not beholden to any elected official and will hold office longer than any president).

Question 20

Requires reserves:

Accepted Answer

c. Are the minimum amount of reserves a bank is required to hold. (Banks must hold a minimum amount of deposits in reserve).

Question 21

Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by:

Accepted Answer

b. $20 million (reserve requirement equals Reserve Ratio multiplied by transaction accounts).

Question 22

The rate of interest banks charge each other for lending reserves is the:

Accepted Answer

a. Federal fund rate (Interbank borrowing is the federal funds market; and the interest rate banks charge each other is the federal funds rate).

Question 23

By raising or lowering the ____, the Fed changes the cost of money for banks, which impacts the incentive to borrow reserves.

Accepted Answer

b. Discount rate (By raising or lowering the discount rate, the Fed changes the cost of money for banks and therewith the incentive to borrow reserves).

Question 24

The principal mechanism for directly changing the reserves of the banking system is:

Accepted Answer

c. Open-market operations (The Fed purchases and sales of government bonds for the purpose of altering bank reserves).

Question 25

Which of the following is not a monetary policy tool for shifting the aggregate demand curve?

Accepted Answer

b. Government spending (Government spending does not cause a shift because it does not affect quantity output demanded by individual consumers. government spending is considered fiscal policy).

Question 26

Which of the following will cause an increase in aggregate demand?

Accepted Answer

c. Expansionary monetary policy (When the government increases its own spending, aggregate demand shifts to the right).

Question 27

To increase the money supply the Fed can:

Accepted Answer

c. Reduces the reserve requirement, reduces the discount rate, or buy bonds. (By reducing the reserve requirement, reducing the discount rate and buying bonds the Fed does what is needed to increase the money supply allowing consumers access to more loans).

Question 28

If the Fed wants to increase bank reserves, it can:

Accepted Answer

a. Buy bonds. (If the Fed offers to pay high prices for bonds, people will sell some of their bonds to the Fed. They will deposit the proceeds into their bank accounts).

Question 29

If the Fed buys more bonds from the public, then the money supply will:

Accepted Answer

b. Increase and the aggregate demand curve will shift to the right (If the Fed buys at a high price for bonds, consumers will have more money to spend on output).

Question 30

The maximum output that can be produced from a set of inputs is measured by:

Accepted Answer

a. the production function.  -A production function gives the maximum amount of output with a given amount of inputs.

Question 31

If the first, second, third and forth worker employed by the firm add 15, 21, 12, & 8 units of total product respectively, we can conclude that:

Accepted Answer

c. after the second worker marginal product declines.  -At first marginal physical product increases but eventually the law of diminishing returns will cause marginal physical product to decline.

Question 32

Ceteris paribus, THE LAW OF DIMINISHING RETURNS states that beyond some point the:

Accepted Answer

c. Marginal physical product of a variable input declines as more of it is used.  -By varying one factor while holding all other factors of production constant less and less additional output will be produced.

Question 33

Assume a restraunt hires an additional chef who is as qualified as the current chefs. As a result, the level of output increases but by a smaller amount than when the previous additional chef was hired. Which of the following best explains this occurence?

Accepted Answer

a. the chefs are working with a fixed amount of space and equipment and they get in each other\'s way.  -since the other factors of production are fixed, they must be used with more of the variable input which means that while the total output will increase each chef will yield less output.

Question 34

The most desirable rate of output is the one that:

Accepted Answer

b. Maximizes total profit.  -Profit maximized when the difference between total revenue and total costs is greatest.

Question 35

Cost of production that do not change with the rate of output are:

Accepted Answer

c. fixed costs -Fixed costs in the short run are constant and do not vary with output.

Question 36

When producing jeans, which of the following is not a variable cost in the short run?

Accepted Answer

c. Rent of the factory  -Factory rent would not normally be related to production volume and would be defines as fixed costs.

Question 37

Average total cost is defined as:

Accepted Answer

a. total cost divided by the quantity produced.  -Average total cost is found at any point of the total cost curve by dividing total cost by units of output.

Question 38

The average total cost curve is:

Accepted Answer

b. U-shaped -The average total costs curve falls at first because both the average variable cost curve and the average fixed cost curve are falling since the average variable cost curve will start to rise beyond some point in production volume (because of the law of diminishing returns), average total cost curve will also rise.

Question 39

The selection of the short-run rate of output is the:

Accepted Answer

a. production decision  -in the short run a producer can only make changes to variable factors of production.

Question 40

The main difference to an economist between \"short-run\" and \"long-run\" is that:

Accepted Answer

c. in the long- run all resources are variable where as in the short-run at least one resource is fixed.  -in the long-run capital investment decisions are considered while in the short run the emphasis is on making production decisions.

Question 41

During the long run:

Accepted Answer

b. the firm can build or lease any size factory  -unlike the short-run where only variable factors can be changed, the long run assumes that all factors of production can be changed.

Question 42

Economic costs are greater than accounting costs:

Accepted Answer

a. only if implicit costs are greater than zero.  -since implicit costs are cost in which no monetary payment is made, they would not be counted in accounting costs but would be included in economic costs.

Question 43

Suppose a firm has the following expenditures per day: $240 for wages, $150 for materials, and $80 for equipment rental. The owner of the firm owns the building in which it operates. If the firm were not operating in the building, he could rent the building for $70 per day. Total daily revenue is $600. What are the daily implicit costs for the firm described above?

Accepted Answer

a. $70  -implicit costs are the monetary income that a firm sacrifices when it uses a resource that it owns.

Question 44

Total Revenue is:

Accepted Answer

The price of a product times the quantity sold in a given time. P x Q

Question 45

Price elasticity of demand

Accepted Answer

The amount by which price will change if quantity demanded changed is measured by

Question 46

Utility is

Accepted Answer

The pleasure or satisfaction obtained from goods and services

Question 47

Total utility is maximized when marginal utility is

Accepted Answer

maximized

Question 48

The largest portion of the average U.S. consumer dollar is spent on

Accepted Answer

Housing

Question 49

The maximum output that can be produced from a set of inputs is measured by

Accepted Answer

The production function

Question 50

What is most likely a fixed cost?

Accepted Answer

Property insurance

Question 51

Marginal physical product is

Accepted Answer

The additional output from using one more unit of labor

Question 52

The law of diminishing returns implies that at some output level

Accepted Answer

Marginal costs must rise

Question 53

Marginal cost is

Accepted Answer

The change in total cost from producing one additional unit of output, the change in total variable cost from producing one additional unit of output, and eventually rises with greater output because of declining marginal physical product

Question 54

Factors of production

Accepted Answer

Land, labor, capital, and entrepreneurship

Question 55

In the long run, the firm

Accepted Answer

can change the scale of operations

Question 56

Explicity costs

Accepted Answer

Are the sum of actual monetary payments made for resources used to produce a good

Question 57

The long run refers to

Accepted Answer

a period of time long enough for all inputs to be varied

Question 58

When a firm makes a investment decision, it views all inputs as

Accepted Answer

Variable over the long run

Question 59

Which of the following is U-shaped?

Accepted Answer

Average total cost curve

Question 60

The reason the ATC curve has an upturn is because of

Accepted Answer

rising marginal costs

Question 61

Which of the following is a short-run choice?

Accepted Answer

the product decision

Question 62

Ceteris paribus, the law of diminishing returns states that the

Accepted Answer

Marginal physical product of a variable input declines as more of it is used

Question 63

The law of diminishing returns indicates that the marginal physical product of a factor declines as more

Accepted Answer

of the factor is used, holding other inputs constant

Question 64

The limits to the production of any good are reflected in the

Accepted Answer

production function

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