Long-term bonds are

less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than
interest rates on short-term bonds.
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than
interest rates on short-term bonds.
riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than
interest rates on short-term bonds.
less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than
interest rates on short-term bonds.
Correct
1/1 Points
2.Which of the following statements is correct?
A general, persistent decline in stock prices may signal that the economy is about to enter a
recession because low stock prices mean that corporations have had low profits in the past
A general, persistent decline in stock prices may signal that the economy is about to enter a boom
period because people will be able to buy stock for less money
Expectations about the business cycle have no impact on stock prices
A general, persistent decline in stock prices may signal that the economy is about to enter a
recession because low stock prices may mean that people are expecting low corporate profits
Incorrect
0/1 Points
3.You observe a closed economy that has a government surplus and negative
investment. Which of the following is correct?
Both private saving and public saving are negative
Private saving is negative; public saving is positive
Private saving is positive; public saving is negative.
Private and public saving are both positive
Correct
1/1 Points
4.In which of the following cases would it necessarily be true that national saving
and private saving are equal for a closed economy?
After paying their taxes and paying for their consumption, households have nothing left.
Private saving is equal to government expenditures
The government’s tax revenue is equal to its expenditures.
Public saving is equal to investment
Correct
1/1 Points
5.According to the definitions of private and public saving, if Y, C, and G remained
the same, a decrease in taxes would
raise private saving and lower public saving.
lower private saving and raise public saving.
lower private and public saving.
 raise both private and public saving.
Correct
1/1 Points
6.Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to
2,500 consumption equals 7,500 and government purchases equal 2,000. What are
private saving, public saving, and national saving?
1,500, 1,000, and 500, respectively
500, 1,500, and 1,000, respectively
1,000, 500, and 1,500, respectively
None of the above is correct.
Correct
1/1 Points
7.For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2
trillion and the government runs a deficit of $1 trillion. What are private saving and
national saving?
$4 trillion and $-1 trillion, respectively
$4 trillion and $1 trillion, respectively
$2 trillion and $1 trillion, respectively
$2 trillion and $-1 trillion, respectively
Correct
1/1 Points
8.The country of Cedarland does not trade with any other country. Its GDP is $20
billion. Its government purchases $3 billion worth of goods and services each year,
collects $6 billion in taxes, and provides $3 billion in transfer payments to
households. Private saving in Cedarland is $4 billion. What is investment in
Cedarland?
$3 billion
$4 billion
$2 billion
$5 billion
Correct
1/1 Points
9.The Eye of Horus incense company has $10 million in cash which it has
accumulated from retained earnings. It was planning to use the money to build a
new factory. Recently, the rate of interest has increased. The increase in the rate of
interest should
make it less likely that The Eye of Horus will build the factory because the opportunity cost of the
$10 million is now higher
not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any
money
not influence the decision to build the factory because its stockholders are expecting a new factory.
 make it more likely that The Eye of Horus will build the factory because a higher interest rate will
make the factory more valuable
Correct
1/1 Points
10.If there is surplus of loanable funds, then
the supply for loanable funds shifts right and the demand shifts left.
neither curve shifts, but the quantity of loanable funds supplied increases and the quantity
demanded decreases as the interest rate rises to equilibrium.
the supply for loanable funds shifts left and the demand shifts right.
neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity
demanded increases as the interest rate falls to equilibrium.
Correct
1/1 Points
11.Suppose the government deficit increases, but the interest rate remains the
same. Which of the following things might have happened simultaneously to keep
interest rates the same?
Consumers decide to decrease consumption and work more.
The government reduces the amount that people may put into savings accounts on which the
interest is tax exempt.
All of the above could explain why the interest rate would be unchanged.
Because they are optimistic about the future of the economy, firms desire to borrow more to
purchase physical capital.
Correct
1/1 Points
12.Which of the following events could explain a decrease in interest rates together
with an increase in investment?
None of the above is correct.
The government reduced the tax rate on savings.
The government went from surplus to deficit.
The government instituted an investment tax credit.
Correct
1/1 Points
13.A change in the tax laws that increases the supply of loanable funds will have a
bigger effect on investment when
the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic.
the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic.
both the demand for and supply of loanable funds are more elastic.
both the demand for and supply of loanable funds are more inelastic.
Correct
1/1 Points
14.For purposes of analyzing the money stock and its relationship to relevant
economic variables, money is best thought of as
 currency plus all bank accounts plus bonds.
currency plus all bank accounts.
those items that can be readily accessed and used to buy goods and services.
currency only.
Correct
1/1 Points
15.Money is
the most liquid asset but an imperfect store of value.
the most liquid asset and a perfect store of value.
the least liquid asset but a perfect store of value.
the least liquid asset and an imperfect store of value.
Correct
1/1 Points
16.Which of the following is not included in either M1 or M2?
demand deposits
U.S. Treasury bills
money market mutual funds
small time deposits
Correct
1/1 Points
17.Credit card limits are included in
M2 but not M1
M1 and M2
M1 but not M2
neither M1 nor M2
Correct
1/1 Points
18.Monetary policy affects employment
in neither the long run nor the short run.
only in the short run.
only in the long run.
in both the long run and the short run.
Correct
1/1 Points
19.Suppose the Fed requires banks to hold 10 percent of their deposits as reserves.
A bank has $20,000 of excess reserves and then sells the Fed a Treasury bill for
$9,000. How much does this bank now have to lend out if it decides to hold only
required reserves?
$29,000
$28,100
$19,100
$11,000
Correct
1/1 Points
20.Which of the following statements is correct?
When the reserve ratio is 0.125, then the money multiplier is 8, and each bank loans $8 for every $1
that it accept in deposits.
In the special case of 100-percent-reserve banking, the reserve ratio is 1, the money multiplier is 2,
and banks create money.
In the special case of 100-percent-reserve banking, the reserve ratio is 1, the money multiplier is 1,
and banks do not create money.
When the reserve ratio is 0.5, then the money multiplier is 1 and banks do not create money.
Correct
1/1 Points
21.If $300 of new reserves generates $800 of new money in the economy, then the
reserve ratio is
37.5 percent
12.5 percent.
2.7 percent
40 percent.
Correct
1/1 Points
22.When the Fed purchases $200 worth of government bonds from the public, the
U.S. money supply eventually increases by
All of the above are possible
less than $200.
exactly $200
more than $200
Correct
1/1 Points
23.To decrease the money supply, the Fed can
buy government bonds or decrease the discount rate.
sell government bonds or decrease the discount rate.
sell government bonds or increase the discount rate.
buy government bonds or increase the discount rate.
Correct
1/1 Points
24.In a 100-percent-reserve banking system, if people decided to decrease the
amount of currency they held by increasing the amount they held in checkable
deposits, then
M1 would increase
M1 might rise or fall.
M1 would not change.
M1 would decrease.
Correct
1/1 Points
25.On a bank's T-account
both deposits and reserves are assets.
reserves are assets and deposits are liabilities.
both deposits and reserves are liabilities.
deposits are assets and reserves are liabilities.
Correct
1/1 Points
26.The manager of the bank where you work tells you that your bank has $5 million
in excess reserves. She also tells you that the bank has $300 million in deposits and
$255 million dollars in loans. Given this information you find that the reserve
requirement must be
40/255
50/300
50/255
40/300
Correct
1/1 Points
27.If the reserve ratio is 15 percent, and banks do not hold excess reserves, and
people hold only deposits and no currency, then when the Fed sells $65 million of
bonds to the public, bank reserves
decrease by $65 million and the money supply eventually decreases by $266.67 million.
increase by $65 million and the money supply eventually increases by $266.67 million.
decrease by $65 million and the money supply eventually decreases by $433.33 million.
increase by $65 million and the money supply eventually increases by $433.33 million.
Correct
1/1 Points
28.If people decide to hold more currency relative to deposits, the money supply
falls. The larger the reserve ratio is, the less the money supply falls.
falls. The larger the reserve ratio is, the more the money supply falls
rises. The larger the reserve ratio is, the more the money supply rises.
rises. The larger the reserve ratio is, the less the money supply rises.
Correct
1/1 Points
29.When money is neutral, which of the following increases when the money supply
growth rate increases?
real interest rates
nominal interest rates
the money supply divided by the price level
real output growth
Correct
1/1 Points
30.According to monetary neutrality and the Fisher effect, an increase in the money
supply growth rate eventually increases
inflation and real interest rates, but does not change nominal interest rates.
neither inflation, nominal interest rates, or real interest rates
inflation and nominal interest rates, but does not change real interest rates
inflation, nominal interest rates, and real interest rates