Kwame Nkrumah University of Science and Technology

Institute of Distance Learning

CEMBA 552: Economic Environment of Business Take Home Quiz 2 - Macroeconomics INDEX NO:_________________________________ Name________________________________ Deadline For Submission: 9th April (HO, Sunyani, Tamale, Koforidua, Central) and 16th April (Kumasi and Accra) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Of the following, modern macroeconomics is LEAST concerned with A) inflation. B) population growth. C) long-term economic growth. D) the unemployment rate. 2) A) B) C) D) Economic growth is measured by changes in real GDP. changes in the employment rate. changes in employment. All of the above are used to measure economic growth.

3) In the above figure, economic growth can be represented as the movement from A) point a to point b. B) point c to point d. C) point b to point c. D) point d to point a. 4) Real GDP is defined as A) the value of total production when the unemployment rate is 6 per cent.

B) the value of total production of all the nation’s farms, factories, shops and offices measured at the prices of the year it was produced. C) the value of total production of all the nation’s farms, factories, shops and offices measured in the prices of a single year. D) an increase in the average level of prices. 5) Potential GDP is A) the maximum GDP that an economy actually achieves throughout its entire history. B) the value of production when all the nation’s labour, land, capital, and entrepreneurial ability are fully employed. C) the level of GDP achieved during periods when 100 per cent of the labour force is employed. D) a goal that can never be achieved by the economy. 6) A business cycle is the A) pattern of short-run upward and downward movements in total output. B) cyclical movement in the interest rates. C) increase in consumer spending that accompanies an increase in disposable income. D) cyclical change in the nation’s balance of trade. 7) A recession is A) a period during which real successive quarters. B) a period during which real successive quarters. C) the upper turning point of D) the lower turning point of

GDP increases for at least two GDP decreases for at least two a business cycle. a business cycle.

8) In the above figure, a recession begins at point ________ and an expansion begins at point

________. A) b; a B) d; c C) a; b D) b; c 9) A) B) C) D) One of the costs of more rapid growth in GDP is that too many goods eventually are available for consumption. it does not increase the wealth available for all. people must give up current consumption. more money is available for research and development.

10) In the above figure, a trough is at point ________ and a peak is at point ________. A) b; c B) b; a C) a; b D) d; c 11) The unemployment rate generally ________ during recessions and ________ during expansions. A) falls; falls B) falls; rises C) rises; falls D) rises; rises 12) Which of the following points is likely to be associated with the highest unemployment rate? A) a. B) b. C) c. D) d. 13) Inflation is a A) process of falling prices. B) minor change in the price level. C) process of rising prices. D) large, one-time fall in the price level. 14) The CPI can be used to measure A) changes in average price of the goods and services bought by a typical household. B) expectations of the future rate of inflation. C) the unemployment rates of discouraged workers. D) how retail unemployment has changed. 15) If the inflation rate is negative, the ________ is falling and there is ________.

5 per cent. month 21) When the government spends less than it collects in tax revenue. C) it must enact monetary policy. the inflation rate A) is always rising. month C) superinflation. which is defined as occurring when the inflation rate exceeds 50 per cent a ________. . 17) The price level last year was 120 and this year is 150. A) hyperinflation. B) 108 per cent. in 2004 it was 112. B) causes the value of money to vary unpredictably.0 per cent. inflation D) unemployment rate. C) rises and falls over the years. year D) hyperinflation. C) 112 per cent. B) 30 per cent. 19) Inflation is a problem when it A) diverts resources from productive uses. D) All of the above answers are correct. A) it has a government budget surplus. inflation B) price level. year B) superinflation. C) 25 per cent. What is the inflation rate between these two years? A) 2.7 per cent. B) it has a government budget deficit. D) 20 per cent. C) is unpredictable. B) is always falling. 18) In the Ghana. D) it must enact fiscal policy. D) remains a stable 3 per cent over the years. deflation 16) In 2003 the CPI was 108. deflation C) unemployment rate. The inflation rate between 2003 and 2004 was A) 4. 20) The most serious type of inflation is called ________.A) price level. D) 3.

25) The current account A) is part of GDP. C) is zero. D) stabilize the business cycle. B) make payments to the rest of the world. 26) All of the following are policy goals targeted by macroeconomic policy EXCEPT A) increase the current account deficit. 27) All of the following are part of fiscal policy EXCEPT A) setting government spending. B) is less than tax receipts. B) the ratio of the deficit to GDP decreases. C) receive payments from the rest of the world. B) does not account for interest payments paid to and received from the rest of the world. it is impossible to determine if the ratio of the deficit to GDP increases. D) equals tax receipts. B) reduce unemployment. 23) If the government budget deficit stays the same and GDP increases. C) the ratio of the deficit to GDP increases. we A) increase our inflation rate. D) without more information. C) keep inflation low. or stays the same. . 24) When we export goods to foreign countries. D) decrease our inflation rate.22) The government has a budget deficit when government spending A) exceeds tax receipts. then A) the ratio of the deficit to GDP stays the same. decreases. C) measures our exports minus our imports taking into account interest payments paid to and received from the rest of the world. D) measures our imports minus our exports.

31) If the economy is in a recession. C) increase interest rates. the monetary policy committee (MPC) might A) increase government spending. A) amount of final and intermediate goods and services B) market value of all final and intermediate goods and services plus investment and depreciation C) market value of all final and intermediate goods and services D) market value of all final goods and services . D) the finance minister. B) maintain low inflation. 30) The principal aim of monetary policy is to A) keep the budget deficit small and/or the budget surplus large. C) reverse the productivity growth slowdown. D) reduce interest rates to stimulate the economy. 32) Gross domestic product is the total ________ produced within a country in a given time period. B) Changes in taxes. C) the Bank of Ghana. 29) Which of the following is a policy tool of the Bank of Ghana? A) Changes in interest rates. C) Changes in the government deficit. C) setting tax rates. 28) Monetary policy in Ghana is controlled by A) Parliament. D) lower taxes. B) cut taxes to stimulate the economy.B) choosing the size of the government deficit. B) the Government. D) Changes in government spending. D) controlling the quantity of money.

C) national saving cannot fund investment. 34) If Ghana imports are less than exports. 37) A feature of a stock variable and a flow variable is that A) an example of a stock variable is real GDP and an example of a flow variable is consumption expenditure. B) a stock only measures the value of goods and services produced in a country during a given time period. the A) Rest of the world borrows from Ghana. but not III. 35) Which of the following are equal to one another? I. C) I equals II equals III. D) Ghana government has a budget surplus. aggregate production II. but not I. D) part of private saving finances the deficit.33) In the circular flow model of an economy with no government sector and no international trade. then A) household but not business saving must pay for the deficit. B) receive income from buyers of goods and services. households A) receive income from producers for the use of factors in the factor markets. C) pay firms for the use of their factors. D) receive income from the sale of factors in the goods markets. B) Ghana borrows from the rest of the world. C) a stock is a quantity per unit of time and a flow is a quantity that exists at a point in time. aggregate income A) II equals III. . 36) If the government runs a budget deficit. but not II. C) Ghana government has a budget deficit. B) I equals III. aggregate expenditure III. B) national saving is negative. D) I equals II.

B) The amount of money in your savings account. B) Saving. D) £20.D) a stock is a quantity that exists at a point in time and a flow is a quantity per unit of time.000. 38) Which of the following is a stock variable? A) Income. 43) Which of the following is not included in the investment component of GDP? A) A business fails to sell all of its output and therefore experiences an increase in inventories. C) is the decrease in the capital stock because of wear and tear.000.000 and you spend £30. left after paying taxes can either be consumed or saved.00. D) The number of CD’s you own. B) A household invests in an expensive dinner. C) £40. 42) Depreciation A) does not change the level of capital in the economy. B) £80. You pay no taxes.00.00. equals wealth minus consumption expenditures. your wealth is £10.000 on consumption. 40) Which A) Saving B) Income C) Saving D) Saving of the following is FALSE about saving? is a flow variable. D) Wealth. adds to wealth.000. Your wealth at the end of the year is A) £0. . D) Both answers B and C are correct. 39) Which of the following is a flow variable? A) Investment. C) Investment. During the year. you have an income of £40.000. B) is a stock variable. C) Capital. 41) At the beginning of the year.

NX. government expenditures on goods and services. 47) The largest component of GDP is A) investment. and then sold to consumers next year A) count in next year’s GDP. 44) The total amount spent on adding to the stock of capital and on replacing depreciated capital is A) capital consumption. investment. C) the total expenditures of consumers and business over a period of time. C) gross investment. stored in inventories. 48) Goods that are produced this year. B) net exports of goods and services. investment. B) the total expenditures of consumption. and net exports over a period of time. D) C + S + G . D) all sales that have taken place in an economy over a period of time. and NX net exports of goods and services. G government expenditures on goods and services. D) A firm builds a new warehouse. C) C + I + G + NX. . C) consumption expenditures. B) the net stock of investment. D) depreciation. S saving. 46) Let C represent consumption expenditure.C) Purchase of new equipment by a business. D) government purchases of goods and services. and government expenditures on goods and services over a period of time.NX. Then GDP equals A) C + I + G . I gross investment. 45) GDP can be computed as the sum of A) the total expenditures of consumption. B) C + S + G + NX.

D) count in this year’s GDP. government expenditures on goods and services exclude A) city government purchases. Gross domestic product is A) £4. . D) £4. C) count in both this year’s and next year’s GDP.049 billion. B) a retail store’s purchase of shoes to add to its inventory. D) household’s purchase of a new house. C) business’s purchase of a fleet of cars. 50) In the national accounts. 49) All of the following are included in gross investment expenditure EXCEPT a A) business’s purchase of another company’s stock.339 billion.B) are not counted as a part of GDP. Component Amount (billions of pounds) Gross investment 1300 Personal consumption expenditure 1475 Depreciation 25 Government expenditures on goods and services 1315 UK imports 260 UK exports 249 Compensation of employees 65 51) The above table gives data for a hypothetical nation. C) spending on national defence. C) £4. B) £4. B) transfer payments.054 billion. D) city government purchases but include national government purchases.079 billion.

hospital. the GDP deflator can used to adjust nominal GDP for changes in A) the cost of the typical worker’s market basket. or other institution. B) people looking for work and those in the armed forces. sometimes slower. C) people in the workforce and people looking for work. . 56) The working-age population can be divided into two groups. A) people in the workforce and people who are not in the workforce. A) at the same rate as B) slower than C) faster than D) sometimes faster. nominal GDP increases ________ real GDP. C) people between the age of 16 and retirement who are not in jail. B) people looking for work. and sometimes at the same rate as 55) The working-age population is defined as the number of A) people working full-time jobs who are over the age of 16.52) Which of the following relationships is correct? A) Real GDP = Nominal GDP × 100 B) Nominal GDP = (GDP Deflator ÷ Real GDP) × 100 C) GDP Deflator = (Nominal GDP ÷ Real GDP) × 100 D) Real GDP = (Nominal GDP × GDP Deflator) ÷ 100 53) To calculate real GDP. C) the general price level. D) people in the workforce and people with a job. B) the unemployment rate. 54) In years with inflation. D) people who have a job. D) national income.

Component Number of people Total population Working-age population (millions) 246 207 . D) are available and looking for work but unable to find employment. B) the number of employed people and the number of unemployed people. C) A person who is not working and who has not tried to find a job. D) the total population and the number of unemployed people. C) would like to have a job but have stopped seeking work. 59) Which of the following is NOT considered to be in the workforce? A) A person who is waiting to start a new job in the next 30 days. D) A person who is not working but who has tried to find a job in the past week. 60) The unemployment rate is calculated as A) [(number of people unemployed) ÷ (working-age population)] × 100 B) [(workforce) ÷ (number of people unemployed)] × 100. B) have jobs or are currently looking for jobs. C) the number of employed people and the working-age population.57) The workforce is the sum of A) the working-age population and the number of unemployed people. 58) Unemployment as measured includes the total number of people who A) would like to have a full-time job but are working part-time. B) A student who works part-time. D) [(workforce) ÷ (population)] × 100. C) [(number of people unemployed) ÷ (workforce)] × 100.

B) frictional and cyclical unemployment increase. 66) When a student finishes college and begins looking for work. B) 6. 65) Frictional unemployment A) is unemployment associated with declining industries. 63) The employment rate is A) 64 percent. 62) The economic activity rate is A) 95.1 percent. C) 64. 64) The duration of unemployment is the length of time a person A) is unemployed even though that person is not looking for work. D) 62 percent. D) structural unemployment increases.3 percent. C) spends working in a job. .5 percent. C) 50 percent. D) includes discouraged workers.Workforce Employed Unemployed 139 133 6 61) Using the information in the above table. 67) Structural unemployment is the result of A) irresponsible workers with poor work habits. B) 67 percent. B) 67.7 percent. the unemployment rate is A) 4.0 percent. C) is unemployment associated with the changing of jobs in a changing economy.0 percent. C) frictional unemployment increases. D) is employed while looking for work. D) 4. C) 2. D) 56 percent. B) is voluntary part-time unemployment. A) cyclical unemployment increases.8 percent. B) is unemployed while looking for work.

B) a slowdown in the rate of economic expansion. 68) When the economy switches production toward services and away from manufacturing and workers in the manufacturing industry are permanently made redundant. 71) Cyclical unemployment ________ during expansions and ________ during recessions. C) structural unemployment D) discouraged workers. D) technological change or foreign competition. C) is due mainly to job leavers. A) decreases. C) cyclical unemployment increases. decreases B) decreases. B) frictional unemployment is zero. decreases D) increases. C) normal labour market turnover. The workers who lost their jobs would best be considered part of A) cyclical unemployment. 69) Suppose the country of Tiny Town decided to open its borders to free trade. A) frictional and cyclical unemployment increase. As a result. B) frictional unemployment. a number of its workers lost their jobs to international competition and can’t find new jobs because their skills don’t match what is required for job openings. 70) Cyclical unemployment A) occurs when technology improvements change job requirements. B) fluctuates over the business cycle. increases C) increases. increases 72) Full employment occurs when A) cyclical unemployment is zero. . D) structural unemployment increases. B) frictional unemployment decreases. D) may increase or decrease during an expansion.

74) Full employment means A) zero unemployment. B) household expenditures and household income. D) the price level and the aggregate quantity demanded. 77) An aggregate supply curve depicts the relationship between A) the price level and the aggregate quantity supplied. D) None of the above answers are correct. C) is horizontal. D) is vertical. D) cyclical and frictional unemployment are zero. C) do not contain the prices of services. 75) Price indexes can overstate inflation because they A) do not contain the prices of foreign goods. B) is not a fixed percentage of the workforce. 76) Aggregate supply describes the behaviour of A) producers. D) government. D) All of the above answers are correct.C) structural unemployment is zero. C) only cyclical unemployment. . B) do not contain the correct collection of goods purchased by consumers. B) has a negative slope. 78) The long-run aggregate supply (LAS) curve A) has a positive slope. C) the price level and nominal GDP. B) only frictional and structural unemployment. B) households. C) occurs when only there is no cyclical unemployment present. C) foreign buyers. D) omit some quality improvements. 73) The natural rate of unemployment A) is the unemployment rate when the economy is at potential GDP.

D) amount of assets you have in dollar terms. D) has a positive slope. C) amount of money you have. .79) In the macroeconomic long run. B) people earn more money when output rises. 81) The short-run aggregate supply curve A) illustrates the level of potential real GDP. 82) Your real wealth is measured as the A) amount of goods and services your wealth will buy. C) shifts because of changes in the price level. B) is vertical. D) The premise of the question is wrong because the aggregate demand curve has a positive slope. B) amount of goods you have divided by the price level. C) is horizontal. D) shows the impact changes in the price level have on the quantity of real GDP when factor prices are constant. an increase in the price level ________ real wealth and ________ consumption expenditure. the economy is producing at potential GDP. B) has a negative slope. B) the economy is at full employment. C) real GDP = potential GDP. D) All of the above answers are correct. 80) The short-run aggregate supply curve A) is vertical. C) firms produce more when the price rises. A) regardless of the price level. 83) One reason that the aggregate demand curve has a negative slope is because A) people buy fewer goods and save more when the price level rises because their real wealth decreases. 84) According to the wealth effect.

D) £900 billion. B) £1. 86) In the Keynesian model of aggregate expenditure. real GDP is determined by the A) level of aggregate demand. decreases 85) In the above figure.050 billion. D) time on the horizontal axis. C) total income divided by the price level. decreases B) increases. C) £950 billion. increases C) decreases.000 billion. C) negative (inverse) relationship between consumption expenditure and saving. B) price level.A) increases. the quantity of real GDP demanded is A) £1. 88) The graph of the consumption function has consumption expenditure on the vertical axis and A) the interest rate on the horizontal axis. increases D) decreases. 89) Disposable income is A) income plus transfer payments minus consumption expenditure. D) negative (inverse) relationship between consumption expenditure and the price level. B) positive (direct) relationship between consumption expenditure and the price level. D) level of aggregate supply. B) the price level on the horizontal axis. C) disposable income on the horizontal axis. C) level of taxes. 87) A consumption function shows a A) positive (direct) relationship between consumption expenditure and disposable income. . when the price level is 130. B) income minus net taxes.

92) Autonomous consumption is that portion of consumption expenditure that is not influenced by A) the legal authorities. B) Wealth. D) the MPC = 0. C) saving = -£2000. 93) Dissaving occurs when a household A) spends less than it receives in disposable income. . B) cyclical unemployment rate equals the natural rate of unemployment.2. Then A) saving = £2000. B) saving = 0. D) Expected future income. C) consumes more than it receives in disposable income. B) one minus the fraction of total disposable income that is saved. D) unemployment rate equals the natural rate of unemployment. C) Expected future profits. C) prices. 90) Full employment occurs when the A) structural unemployment rate equals the frictional unemployment rate. consumption is £2000.D) income minus saving. B) spends more than it saves. C) natural rate of unemployment equals the frictional unemployment rate. 91) Which of the following variables does NOT have a direct effect of changing consumption expenditure? A) Disposable income. D) preferences. B) income. 94) When disposable income is 0. D) saves more than it spends. 95) The marginal propensity to consume is A) the fraction of a change in disposable income that is consumed.

C) the percentage of a given income that is consumed. equilibrium expenditure along AE2 is A) £1. 99) The larger the MPC. D) an amount not given in the above answers. D) smaller the value of the multiplier. D) 0. C) £0.5. C) £300 billion. . 101) In the above figure. B) equals 1.2. C) less likely that the multiplier will be affected. B) £600 billion. B) disposable income is consumed. autonomous expenditure along AE1 equals A) £300 billion.3. B) larger the value of the multiplier. C) 0. the A) more likely that the multiplier will be inconsequential. 96) The marginal propensity to consume A) exceeds 1.200 billion. C) is negative if dissaving is present. 100) In the above figure. 98) The marginal propensity to consume measures how much A) consumption expenditure occurs at the equilibrium income.8. D) disposable income goes to saving. D) is between 0 and 1. B) 0. D) the percentage of interest income consumed. C) of a change in disposable income will be consumed. the marginal propensity to consume is A) 0. B) £600 billion. 97) If consumption expenditures for a household increase from £1000 to £1800 when disposable income rises from £1000 to £2000.

What is the equation for the aggregate expenditure curve? A) AE = 30 + 0.5Y. To finance the activities of the government. What is the equilibrium level of consumption expenditure? A) 60. What is the equilibrium level of expenditure? A) 90. 104) The equations above describe the economy of La La Land. the value of transfer payments. B) I. and tax revenue. B) 40. B) 29.9Y. III.5Y. C)AE = 13 + 0. B) only decisions related to the value of transfer payments and tax revenue. Consumption expenditure: C = 8 + 0.2Y 102) The equations above describe the economy of La La Land. 105) Which of the following is a purpose of the government’s budget? I. II and III. To promote sustained economic growth. 103) The equations above describe the economy of La La Land. D) I and III.5Y. D) None of the above answers are correct. To help the economy achieve full employment. C) 50. B)AE = 30 + 0. A) II and III. C) 60. D)AE = 30 0.7Y Investment: I = 5 Government expenditures: G = 7 Exports: X = 10 Imports: M = 0. C) I and II. D) 30. II.D) an amount not given in the above answers. 106) Fiscal policy includes A) decisions related to the purchase of government goods and services. .

C) revenue exceeds expenditures. 111) The difference between the government debt and the budget deficit is A) the government debt shows the annual discrepancy between government outlays and tax revenue and the budget deficit shows the accumulated balance of past government debts. B) needs to borrow. B) zero. C) debt increases. 108) A balanced budget occurs when government A) outlays exceeds revenue. B) the budget deficit shows the annual discrepancy between government outlays and tax . the government A) incurs a budget deficit. D) All of the above answers are correct. D) None of the above answers is correct because they all list sources of revenue. the total amount of government debt is A) constant. 107) Which of the following is NOT a source of revenue for Ghana government? A) National insurance contributions. 110) When the government’s expenditures exceed its revenues. 109) If the government runs a deficit. B) Transfer payments. D) only decisions related to the purchase of government goods and services. D) revenue equals outlays. D) decreasing. C) Taxes on income.C) only decisions related to the purchase of government goods and services and the value of transfer payments. C) increasing. B) revenue is counted as an outlay.

C) only when there is a decrease in expenditures.1 billion. C) autonomous taxes are constant.1 billion. C) discretionary fiscal policy. B) automatic fiscal policy. D) the government debt is equal to £0.1 billion. D) none. D) contractionary fiscal policy. 112) If tax revenue equal £1.5 billion and government outlays equal £1. 114) The tax increases passed to help move the economy more rapidly toward potential GDP are an example of A) lump-sum taxes. then A) the government budget has a deficit of £0. B) unemployment payments rise with unemployment rates. C) the government debt declines by £0. D) tax revenues fall as incomes fall. C) requires action by the Chancellor of the Exchequer. B) the government budget has a surplus of £0. 116) The effects of a change in government expenditures is multiplied throughout an economy A) only when there is an increase in expenditures. B) involves a change in government defence spending. 113) A discretionary fiscal policy is a fiscal policy that A) involves a change in tax rates.6 billion. .revenue and the government debt shows the accumulated balance of past government debts. D) is triggered by the state of the economy.1 billion. 115) An example of a discretionary fiscal policy is when A) laws are passed that raise taxes. B) because taxes are left unchanged. C) not significant because both move in the same direction.

B) the rise in taxes that are the result of an increase in real GDP. 118) An automatic stabilizer A) requires action by Parliament for it to take effect. B) involves a change in tax rates. D) government expenditures increase and tax revenues decrease. D) is triggered by the state of the economy. C) government expenditures decrease and tax revenues increase. 120) An example of an expansionary fiscal policy is A) a decrease in government expenditures. D) local property taxes that we pay in addition to the income tax.D) because these purchases generate changes in consumption expenditure. 117) The term ʺ induced taxesʺ refers to A) sales taxes that we pay but could avoid if we choose not to purchase the item. B) the economy automatically goes to full employment. D) None of the above is an expansionary fiscal policy. C) an increase in taxes. when real GDP decreases A) government expenditures equal tax revenues. 121) An example of a contractionary fiscal policy is A) a cut in taxes. C) involves a change in government expenditures. 119) Because of automatic stabilizers. . B) an increase in government expenditures. B) a cut in taxes. D) None of the above is a contractionary fiscal policy. C) the taxes that we are forced to pay. C) an increase in taxes.

unit of account. C) increase the long-run income growth rate. . B) A unit of account. C) medium of exchange and the ability to buy goods and services. and store of value. leftward D) rightward. 127) Which of the following does NOT describe a function of money? A) A hedge against inflation. A) rightward. C) the budget deficit moves into a surplus during a recession. and means of payment. decrease aggregate demand C) increase. rightward C) leftward. and means of payment. 126) An example of an automatic fiscal policy stabilizer is when A) the government passes a law that raises tax rates. it could ________ government expenditures in order to ________. B) tax revenues decrease as real GDP decreases. D) medium of exchange. unit of account. 125) Income taxes and transfer payments A) increase the effects of investment and imports. leftward 124) The functions of money are A) medium of exchange. contracts. increase aggregate supply D) increase. A) decrease increase aggregate supply B) decrease. B) pricing. D) act like economic shock absorbers and stabilize fluctuations in income. rightward B) leftward. B) prevent the economy from moving toward equilibrium. D) the government decides to cut government expenditures.122) If the government wants to engage in fiscal policy to increase real GDP. increase aggregate demand 123) An increase in government expenditures shifts the AD curve ________ and an increase in taxes shifts the AD curve ________.

D) Paying cash for a new automobile. D) standard of deferred payment. C) unit of account. 133) In Ghana M2+ is a measure of . C) a double coincidence of wants. of goods and services directly for other goods and much money. of money. B) a medium of exchange. D) the way in which prices are quoted. B) only currency.C) A store of value. D) A medium of exchange. B) Paying rent with a cheque on a demand deposit. 132) In the Ghana today. 130) The unit of account function occurs when money serves as A) a means of payment. 129) The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a A) medium of exchange. C) only coins. money consists of A) only deposits at banks and other financial institutions. C) Paying for a new dress with a credit card. D) currency and deposits at banks and other financial institutions. 128) Barter is A) the exchange B) another type C) the exchange services. D) printing too of goods and services for any type of money. B) store of value. 131) Which of the following is an example of using money as a store of value? A) Keeping £200 on hand for an emergency.

C) using any other form of money because you immediately get to take the goods home. but credit cards are not. D) None of the above answers is correct because all the answers listed are financial intermediaries. D) as the lender of last resort. 134) Cheques are A) money. D) money. D) writing a cheque on your demand deposit account. 135) Using a credit card can best be likened to A) a barter exchange. as are credit cards.A) B) C) D) liquidity money and money and money and and in which the most liquid asset is money. but credit cards are. . includes both currency and all deposits. B) the most powerful body within the Bank of England. 136) Which of the following institutions is NOT a financial intermediary? A) A rural bank. B) taking out a loan. B) not money. 138) The major role of a commercial bank is to A) make mortgage loans. C) as a firm that accepts deposits from households and makes loans to other households. B) A commercial bank. includes only currency. includes sight deposits but not time deposits. C) The bank of Ghana. such as the Bank of England. 137) A financial intermediary is best defined as A) a government agency. and neither are credit cards. C) not money.

B) Ghana government Treasury bills. C) receive deposits and make loans. D) sell shares and use the proceeds to buy stocks. a means of a loss of value. B) the cash in its vaults and deposits at the Bank of Ghana. D) Reserves of the bank at the Bank of Ghana. means of asset with 143) Financial intermediaries create liquidity when they A) buy assets that are liquid. C) the profit that the bank retains at the end of the year. 139) Which of the following balance sheet items is a liability of a commercial bank? A) The public’s deposits with the bank. 141) Of the following. D) Ghana government bonds. the term ʺ reservesʺ refers to A) a banker’s concern (ʺ reservationʺ ) in making loans to an individual without a job. D) the net interest that it earns on loans. the riskiest assets held by commercial banks are A) reserves. D) degree to which money can be converted into an little loss of value. C) The bank’s holdings of Brazilian government bonds.B) restrain the growth of the quantity of money. B) The bank’s holdings of Ghana government bonds. C) loans made to business firms. . 140) For a commercial bank. B) borrow long and lend short. B) degree to which an asset acts as money without C) ease with which credit cards are accepted as a payment. 142) Liquidity is the A) ease with which an asset can be converted into payment with little loss of value.

C) £1. C) larger is the ratio of loans to deposits. B) specialize in loaning only to good borrowers. B) 10. 146) You make a deposit of £2. C) banks’ assets being more than their liabilities.desired reserves). C) 1/(1 . D) higher is the interest rates that banks pay depositors. C) bring lenders together. D) borrow short and lend long 144) Pooling of risk occurs when financial intermediaries A) lend to a variety of different borrowers.000 in currency at your bank. D) None of the above answers is correct. the A) lower is the interest rate that banks charge borrowers. Your bank has a desired reserve ratio of 25 per cent.C) have liabilities that are illiquid. B) £2. your bank will be able to loan A) £500. 145) The banking system in Ghana creates money through the combination of excess reserves and A) stringent Bank of Ghana regulations.actual reserves). D) make assets more liquid. B) smaller is the deposit multiplier. B) 1/(1 . As a result of your deposit.25. 147) The formula for the deposit multiplier is A) 1/(desired reserve ratio).desired reserve ratio).000. B) banks loaning excess reserves.0.500. 148) The larger the desired reserve ratio. D) 20. . 149) A desired reserve ratio of 5 per cent yields a deposit multiplier of A) 5. D) 1/(1 . D) commodity money. C) 1.

D) I and III.50. B) I. B) proportional to the price level. Financial innovation.150) The quantity of money that people choose to hold depends on which of the following? I. D) must increase. A) I and II. D) level of wage and rental income. The price level. D) the purchasing power of money rises. C) can decrease by £5. The exchange rate. 154) The opportunity cost of holding money increases when A) the price of goods and services falls. C) consumers’ incomes increase. 151) The nominal demand for money is A) measured in constant pounds. B) must increase by £2. III. II. B) price of goods and services. your nominal money holdings A) must increase by £5. 153) The opportunity cost of holding money is the A) ease with which an asset can become money. C) I. 152) Suppose you hold £50 to buy groceries weekly and then the price of groceries increases by 5 per cent. B) the interest rate rises. but the amount of the increase is different than the above answers. To be able to buy the same amount of groceries. and III. D) inversely related to the price level. C) interest rate. C) inversely related to GDP. II. .

B) has a negative slope. 158) The supply of money curve A) is horizontal. 156) ________ in real GDP increase the demand for money and ________ in the interest rate decrease the quantity of money demanded. increases B) Increases. C) inversely related.155) When the interest rate rises. B) is vertical. B) independent of any action by the Bank of England. C) households increase cash holdings. . 159) Bond prices and interest rates are A) unrelated. C) people shift funds from money holdings to interest-bearing assets. D) people move funds from interest-bearing assets into money. C) has a positive slope. D) is horizontal. 160) If bond prices fall. increases C) Increases. D) interest rates fall. D) is vertical. C) has a positive slope. B) bank reserves grow. decreases D) Decreases. the quantity of money demanded decreases because A) the price level also rises and people decrease their demand for money. B) people will buy fewer goods and hold less money. decreases 157) The demand for money curve A) has a negative slope. A) Decreases. D) positively related. A) interest rates rise.

coins. D) foreign policy. B) Operating as a bank for the government. 164) Controlling the quantity of money and interest rates to influence aggregate economic activity is called A) fiscal policy. 165) The monetary base (high-powered money) is the sum of A) banks’ reserves at the Bank of Ghana and repo loans to banks. A) I. 162) The Bank of Ghana A) regulates the nation’s financial institutions. C) Treasury bills and other government securities. III. notes held by the public. C) monetary policy. D) notes held by the public. and banks reserves at the Bank of England. D) Neither answer A nor B is correct. C) I and III. The quantity of money automatically increases. II. B) conducts the nation’s monetary policy. D) Operating as a bank for commercial banks. 166) Which of the following is a tool that is used by the Bank of Ghana to control the supply of money? . II and III. C) Both answers A and B are correct. B) I and II. coins. C) Operating as a borrower of first resort. 163) Which of the following is NOT a function of a central bank? A) Regulating banks. B) bank policy. and banks’ reserves at the Bank of Ghana.161) Suppose that the interest rate is greater than the equilibrium interest rate. Which of the following occurs? I. B) government deposits at the Bank of Ghana. There is an excess quantity of money. D) I. People start buying bonds.

B) investment expenditures increase. D) Open market operations. B) the quantity of money will expand given a change in the monetary base. D) real GDP will expand given an increase in autonomous investment. C) long-run aggregate supply decreases. D) the pound exchange rate rises. B) an example of the Bank of Ghana using its repo rate. D) an example of the Bank of Ghana acting as a lender of last resort. 168) The money multiplier determines how much A) the monetary base will expand given a change in the quantity of money. 169) When the real interest rate falls. B) Government expenditure multiplier. C) consumption expenditures decrease. C) Real interest rates. 167) The Bank of Ghana’s purchase or sale of Ghana government securities is A) done less frequently than any of the Bank of Ghana’s other monetary policy tools.A) Excess reserves. C) called an open market operation. B) long-run aggregate supply increases. C) money demand will expand given a change in the quantity of money. then A) aggregate demand decreases. A) net exports decrease. 170) If the Bank of Ghana decreases the supply of money. D) aggregate demand increases. . 171) The Bank of England’s actions to fight inflation shift the A) long-run aggregate supply curve rightward.

C) government-investment effect. in the interest rate has a small effect on the money demanded. A) lowers B) raises C) does not change D) None of the above answers is correct because the effect on the interest rate depends on whether the expansionary fiscal policy was an increase in government expenditures or a cut in taxes. 174) A tax cut increases real GDP. B) price level. B) crowding-out effect. 172) The supply of and demand for money determine the equilibrium A) interest rate. D) aggregate demand curve rightward. C) real wage rate. A) increases B) decreases C) does not change D) probably changes but more information is needed to determine if it increases or decreases 175) The idea that an expansionary fiscal policy decreases investment is called the A) capital investment effect. D) level of real GDP. 176) Fiscal A) a change quantity of B) a change quantity of policy is most effective if in the interest rate has a large effect on the money demanded. .B) long-run aggregate supply curve leftward. C) aggregate demand curve leftward. The increase in real GDP ________ the demand for money. D) offset effect. 173) An expansionary fiscal policy ________ the interest rate.

D) the value of exports minus the value of imports. D) at lower average cost. 180) A country has a comparative advantage in producing a good if in comparison to any other country. the result is that A) both countries gain because they each produce more than before.C) a change in the interest rate has no effect on the quantity of money demanded. . C) total UK trade minus the total trade of the rest of the world. C) at a lower opportunity cost. the money supply has no effect on the 178) The goods and services that a country buys from other countries are called its A) imports. C) the interest rate D) a given change in interest rate. B) one country gains because it can consume more than before and the other country loses. D) quotas. D) there is a lot of crowding out. 181) When trade between two countries occurs. it can produce that good A) with a smaller weighted average of inputs. C) tariffs. B) with less labour. B) exports. is most effective when the money supply has a large effect on the the money supply has a large effect on does not influence aggregate expenditures. 179) Net exports is A) the volume of exports minus the volume of imports. 177) Monetary policy A) a given change in interest rate. B) a given change in inflation. B) the volume of trade minus the value of trade.

182) A tariff is a A) subsidy on an exported good. B) discourage exports. D) tax on an exported good or service. membership in the WTO. B) tax on an imported good or service.C) both countries lose because the increase in demand for each country’s output causes prices to rise. D) surcharge. 184) Any action other than a tariff that restricts international trade is called a A) subsidy. 185) A non-tariff barrier is A) a license fee that must be paid to get an export license in the United Kingdom. D) encourage imports. B) non-tariff barrier. tariffs. B) an amount of money paid for the privilege of selling a good exported from the country. 183) A major purpose of tariffs is to A) discourage imports. D) any action other than a tariff that limits the production of goods and services. C) subsidy on an imported good. II. C) any action other than a tariff that limits the imports of goods and services. C) encourage exports. 186) Tools used to protect domestic industries from foreign competition include which of the following? I. C) quota. . D) both countries gain because both can consume more than before.

C) set the minimum percentage of the value of a product that must consist of imported components. producers C) imports. participation in GATT. II. C) encourage consumers to buy more imports. consumers 191) All of the following are arguments for protection from international free trade EXCEPT A) protection strengthens the efficiency gains from a comparative advantage. producers B) imports. D) earn revenue for the government. B) earn revenue for consumers. 190) A quota directly restricts ________ and so it protects domestic ________. C) protection promotes diversity and stability.III. B) I and II. 187) UK trade barriers on beef A) reduce UK beef prices and decrease UK jobs raising cattle. B) raise UK beef prices and decrease UK jobs raising cattle. D) protection preserves domestic culture. C) II and III. . D) raise UK beef prices and increase UK jobs raising cattle. A) I. 188) Tariffs A) encourage producers to produce less. B) protection penalizes lax environmental standards. B) are the same as tariffs. A) exports. C) reduce UK beef prices and increase UK jobs raising cattle. 189) Quotas A) are not used by the United Kingdom. D) I. and III. consumers D) exports. D) set the number of units of a good that can be imported.

193) The balance of payments account used to record payments for imported goods and services is the A) current account. . B) exports exceed its imports. C) total investments in the rest of the world are less than the rest of the world’s investments in that country. 196) A debtor nation means a nation whose A) current account is less than its capital account. D) foreign investment in the United Kingdom minus UK investment abroad. B) net transfer payments between UK residents and foreigners.192) The most efficient way to encourage the growth of an infantindustry is through a A) tariff. B) quota. B) imports exceeds its exports. D) subsidy. D) exim account. D) total investments in the rest of the world exceeds the rest of the world’s investments in that country. C) voluntary export restraint. C) net increases and decreases in the UK holdings of foreign currency. 194) The UK capital account measures A) receipts from goods and services sold and transfers to and from foreigners. 195) A creditor nation means a nation whose A) lending to the rest of the world exceeds its borrowing from the rest of the world. C) import account. C) current account is larger than its capital account. B) capital account.

The exchange rate is a price. the smaller the quantity of cedis demanded. .D) lending to the rest of the world exceeds its borrowing from the rest of the world. D) smaller is the quantity of Ghana pounds demanded. the A) larger is the current account deficit. 198) By definition. D) Both answers A and B are correct. B) I. the smaller the quantity of Ghana exports demanded. III. The foreign exchange rate is different from other prices because it is NOT determined by supply and demand. C) lower the exchange rate. The exchange rate for a currency depends on which foreign exchange market you use. D) gold falls relative to the value of currencies. B) the currency falls relative to another currency. D) I and II. B) higher the exchange rate. A) II and III. 200) The greater the demand for Ghana exports. B) larger is the quantity of Ghana pounds demanded. the greater the quantity of cedis demanded. C) I. II. C) larger is the demand for non-Ghana currencies. and III. 199) The law of demand for cedis means that the A) lower the exchange rate. II. currency depreciation occurs when the value of A) the currency rises relative to another currency. 197) Which of the following apply to exchange rates? I. C) all currencies fall relative to gold.