E202F10Exam2
Douglas, Fall 2010 Version A Special Codes 00002__ PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________ PRINT NAME: __________________________________
Econ 202 Midterm 2
Suppose the Fed requires banks to hold 10% of their deposits as reserves. The Fed buys a Treasury bond from
1.
a bank for $9,000. How much could this action by the Fed eventually change the money supply?
a.$90,000
b.$9000
c.-$90,000
d.$900
Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 1,500, Consumption equals
2.
7,500, and Government purchases equal 2,000. What is national saving?
a.-500
b.0
c.1500
d.4500
Which of the following does the Federal Reserve not do?
3.
a.conduct monetary policy
b.pay interest to banks on their reserve deposits.
c.serve as a bank regulator
d.choose its own Board of Governors.
If you deposit $100 of currency into a demand deposit at a bank, this action by itself
4.
a.decreases the money supply.
b.does not change the money supply.
c.increases the money supply.
d.has an indeterminate effect on the money supply.
Which of the following is included in both M1 and M2?
5.
a.savings deposits
b.demand deposits (checking account balances)
c.money market mutual funds
d.small time deposits
Which of the following is not a prediction of the efficient market hypothesis?
6.
a.Technical analysis can be used to identify stocks whose price is likely to rise.
b.Index funds will typically outperform highly managed funds because their fees are lower.
c.There is no point in studying the business pages looking for undervalued stocks.
d.Stock prices will follow a random walk.
The inflation rate is calculated
7.
a.by adding up the price increases of all goods, but not services.
b.as the percentage increase in the CPI from the preceding year.
c.as the simple difference between one year’s CPI and the previous year’s. .
d.by computing a simple average of the price increases for all goods and services.
If a U.S. citizen buys a television made in Korea, how are the U.S. national income accounts
8.
(Y = C + I + G + NX) affected?
a.U.S. net exports increase, and consumption decreases.
b.U.S. net exports and consumption are both unaffected.
c.U.S. net exports decrease, and consumption increases.
d.U.S. net exports decrease, but consumption is not affected.
Table 24-1
year Peaches Pecans
2005$11 per bushel$6 per bushel
2006$9 per bushel$10 per bushel
Refer to Table 24-1. Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels 9.
of pecans. Using 2005 as the base year, the CPI for 2006 is
a.100.
b.120.
c.80.
d.240.
Which of the following could reduce the money multiplier?
10.
a.the Fed increases the rate of interest it pays banks on their reserve account balances.
b.the Fed decreases the required reserve ratio.
c.banks decide to lend out less of their excess reserves.
d.people decide to hold less of their wealth in the form of currency, and deposit more of it
in their checking accounts.
Which of the following events would cause the price of lawnmowers to rise?
11.
a.There is a mass movement of people away from suburbia and into urban apartments.
b.The price of fertilizer rises.
c.The cost of steel used in lawn mower blades increases.
d.Scientists develop a new strain of grass that stops growing when it is 3 inches tall.
The primary advantage of mutual funds is that they
12.
a.allow people with relatively small amounts of savings to diversify.
b.always make a return that "beats the market."
c.provide customers with a medium of exchange.
d.All of the above are correct.
Megasoft wants to purchase new equipment for developing a new software program, but they don’t have
13.
sufficient internal funds. Megasoft will likely
a.supply loanable funds by selling bonds.
b.supply loanable funds by buying bonds.
c.demand loanable funds by buying bonds.
d.demand loanable funds by selling bonds.
Table 29-5
Bank of Springfield
Assets Liabilities
Reserves$12,000Deposits$200,000
Loans$188,000
Refer to Table 29-5. If the required reserve ratio is 5%, what is the largest amount that the Bank of
14.
Springfield can lend from its current reserves?
a.$2000
b.$12,000
c.$200,000
d.$10,000
Interest rates and investment rise. Based on the model we studied of the Loanable Funds market, which of the 15.
following could explain these changes?
a.the government replaces the income tax with a consumption tax
b.the government institutes an investment tax credit
c.the government runs a larger deficit
d.None of the above is correct.
When you drive a car with airbags, you might drive less carefully than you would if it did not have airbags.
16.
This is an example of
a.moral hazard.
b.adverse selection.
c.market risk.
d.risk aversion.
Figure 28-2
Refer to Figure 28-2. If the minimum wage fell from $7 to $5, in this market unemployment would
17.
a.would fall by 80.
b.fall by 40.
c.be unchange
d.
d.fall by 20.
Which of the following events would definitely result in a lower price in the market for ice cream?
18.
a.Demand for ice cream decreases and supply of ice cream increases.
b.Demand for ice cream and supply of ice cream both increase
c.Demand for ice cream increases and supply of ice cream decreases.
d.Demand for ice cream and supply of ice cream both decreas
e.
A share of stock represents
19.
a. a claim to a share of the profits of a firm.
b.ownership in a firm.
c.equity finance.
d.All of the above are correct
What kind(s) of risk can a buyer of stocks reduce through diversification?
20.
a.Only firm-specific (“idiosyncratic”) risk.
b.Both market and firm-specific risk.
c.Neither market or firm-specific risk.
d.Only market (“aggregate” or “systematic”) risk.
UPS Corporation develops a way to speed up its deliveries and reduce its costs. This would probably
21.
a.decrease the demand for existing shares of UPS stock, causing the price to fall.
b.raise the supply of the existing shares of UPS stock, causing the price to rise.
c.raise the demand for existing shares of UPS stock, causing the price to rise.
d.raise the supply of the existing shares of UPS stock, causing the price to fall.
If the supply for a product decreases, we would expect
22.
a.equilibrium price to increase and equilibrium quantity to decrease.
b.equilibrium price and equilibrium quantity to both decrease.
c.equilibrium price and equilibrium quantity to both increase.
d.equilibrium price to decrease and equilibrium quantity to increas
e.
In the language of macroeconomics, the word “investment” refers to
23.
a.the purchase of stocks, bonds, or mutual funds.
b.the purchase of new capital equipment and buildings.
c.saving.
d.All of the above are correct.
When a bank loans out $1,000, the money supply
24.
a.does not change.
b.decreases.
c.increases.
d.may do any of the abov
e.
Which of the following is correct?
25.
a.Risk-averse people will take a risk if they are compensated for it.
b.Stock prices are determined by fundamental analysis rather than supply and demand.
c.Diversification cannot reduce firm-specific risk.
d.Risk-averse people will not hold stock.
If the supply for loanable funds shifts right, the equilibrium interest rate
26.
a.falls and equilibrium investment rises.
b.rises and equilibrium investment falls.
c.and equilibrium investment rise.
d.and equilibrium investment fall.
After Anna finishes high school she starts looking for her first job. As a result, the unemployment rate
27.
a.increases, and the labor-force participation rate is unaffected.
b.is unaffected, and the labor-force participation rate increases.
c.increases, and the labor-force participation rate increases.
d.decreases, and the labor-force participation rate decreases.
You get money for babysitting the neighbors' children. This best illustrates which function of money?
28.
a.store of value
b.liquidity
c.medium of exchange
d.unit of account
Who would be included in the labor force?
29.
a.Brad, a full-time student not looking for work
b.Dakota, an unpaid homemaker not looking for other work
c.Maggie, who does not have a job, but is looking for work
d.None of the above is included in the labor forc
e.
Which markets are represented in the simple circular-flow diagram from Chapter 2?
30.
a.markets for goods and services and markets for factors of production
b.markets for factors of production and markets for financial assets
c.markets for goods and services and markets for imports and exports
d.markets for goods and services and markets for financial assets
Marcus takes some of his savings out of the stock market and moves it into U.S. Treasury bonds. Based on 31.
historical outcomes in the bond and stock markets, this
a.increases both his risk and his expected rate of return
b.decreases risk, but increases his expected rate of return
c.increases his risk, but decreases his expected rate of return
d.decreases both his risk and his expected rate of return
The Fed can increase the money supply by conducting open market
32.
a.purchases and lowering the discount rate.
b.sales and lowering the discount rate.
c.purchases and raising the discount rate.
d.sales and raising the discount rat
e.
Compared to the United States, Germany historically has had higher unemployment rates. One explanation 33.
for this difference could be
a.the relatively high unemployment insurance in Germany.
b.the relatively low expenditures of the German government..
c.the refusal of German firms to set wages according to efficiency wage theory.
d. a very low minimum wage in German.
What will happen to the equilibrium price and quantity of cellphones if the price of land-line phones (a
34.
substitute) rises, and a new technology is developed for producing cellphones?
a.Quantity will fall and price may either rise or fall.
b.Price will rise and quantity may either rise or fall.
c.Price will fall and quantity may either rise or fall.
d.Quantity will rise and price may either rise or fall.
The supply of loanable funds slopes
35.
a.downward because an increase in the interest rate induces people to save less.
b.upward because an increase in the interest rate induces people to invest more.
c.downward because an increase in the interest rate induces people to invest less.
d.upward because an increase in the interest rate induces people to save mor
e.
ID: A Econ 202 Midterm 2
Answer Section
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Applicative
11.
C MSC:
ANS:
Definitional
A MSC:
ANS:
12.
D MSC:
Interpretive
ANS:
13.
A MSC:
Analytical
ANS:
14.
B MSC:
Analytical
ANS:
15.
A MSC:
Interpretive
ANS:
16.
B MSC:
Analytical
ANS:
17.
Applicative
A MSC:
ANS:
18.
Definitional
D MSC:
ANS:
19.
Definitional
A MSC:
ANS:
20.
Analytical
C MSC:
ANS:
21.
A MSC:
Interpretive
ANS:
22.
B MSC:
Definitional
ANS:
23.
C MSC:
Definitional
ANS:
24.
Definitional
A MSC:
ANS:
25.
Applicative
A MSC:
ANS:
26.
Applicative
C MSC:
ANS:
27.
Definitional
C MSC:
ANS:
28.
Interpretive
C MSC:
ANS:
29.
Definitional
A MSC:
ANS:
30.
Interpretive
D MSC:
31.
ANS:
Definitional
A MSC:
32.
ANS:
Definitional
A MSC:
33.
ANS:
D MSC:
Analytical
ANS:
34.
Definitional
D MSC:
ANS:
35.
Douglas, Fall 2010 Version B Special Codes 00002__ PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________ PRINT NAME: __________________________________
Econ 202 Midterm 2
The Fed can increase the money supply by conducting open market
1.
a.purchases and lowering the discount rate.
b.sales and lowering the discount rate.
c.purchases and raising the discount rate.
d.sales and raising the discount rat
e.
A share of stock represents
2.
a.ownership in a firm.
b.equity finance.
c. a claim to a share of the profits of a firm.
d.All of the above are correct
When you drive a car with airbags, you might drive less carefully than you would if it did not have airbags.
3.
This is an example of
a.market risk.
b.moral hazard.
c.adverse selection.
d.risk aversion.
Megasoft wants to purchase new equipment for developing a new software program, but they don’t have 4.
sufficient internal funds. Megasoft will likely
a.supply loanable funds by selling bonds.
b.demand loanable funds by buying bonds.
c.supply loanable funds by buying bonds.
d.demand loanable funds by selling bonds.
You get money for babysitting the neighbors' children. This best illustrates which function of money?
5.
a.unit of account
b.store of value
c.medium of exchange
d.liquidity
If the supply for loanable funds shifts right, the equilibrium interest rate
6.
a.rises and equilibrium investment falls.
b.falls and equilibrium investment rises.
c.and equilibrium investment rise.
d.and equilibrium investment fall.
Table 29-5
Bank of Springfield
Assets Liabilities
Reserves$12,000Deposits$200,000
Loans$188,000
Refer to Table 29-5. If the required reserve ratio is 5%, what is the largest amount that the Bank of
7.
Springfield can lend from its current reserves?
a.$12,000
b.$10,000
c.$200,000
d.$2000
Which of the following events would cause the price of lawnmowers to rise?
8.
a.There is a mass movement of people away from suburbia and into urban apartments.
b.The price of fertilizer rises.
c.The cost of steel used in lawn mower blades increases.
d.Scientists develop a new strain of grass that stops growing when it is 3 inches tall.
What kind(s) of risk can a buyer of stocks reduce through diversification?
9.
a.Neither market or firm-specific risk.
b.Both market and firm-specific risk.
c.Only market (“aggregate” or “systematic”) risk.
d.Only firm-specific (“idiosyncratic”) risk.
When a bank loans out $1,000, the money supply
10.
a.increases.
b.decreases.
c.does not change.
d.may do any of the abov
e.
Suppose the Fed requires banks to hold 10% of their deposits as reserves. The Fed buys a Treasury bond from
11.
a bank for $9,000. How much could this action by the Fed eventually change the money supply?
a.$900
b.$9000
c.$90,000
d.-$90,000
Which of the following is correct?
12.
a.Risk-averse people will not hold stock.
b.Risk-averse people will take a risk if they are compensated for it.
c.Diversification cannot reduce firm-specific risk.
d.Stock prices are determined by fundamental analysis rather than supply and demand.
The inflation rate is calculated
13.
a.by adding up the price increases of all goods, but not services.
b.as the simple difference between one year’s CPI and the previous year’s. .
c.by computing a simple average of the price increases for all goods and services.
d.as the percentage increase in the CPI from the preceding year.
Which of the following is included in both M1 and M2?
14.
a.demand deposits (checking account balances)
b.money market mutual funds
c.small time deposits
d.savings deposits
Compared to the United States, Germany historically has had higher unemployment rates. One explanation 15.
for this difference could be
a. a very low minimum wage in German.
b.the relatively high unemployment insurance in Germany.
c.the refusal of German firms to set wages according to efficiency wage theory.
d.the relatively low expenditures of the German government..
What will happen to the equilibrium price and quantity of cellphones if the price of land-line phones (a
16.
substitute) rises, and a new technology is developed for producing cellphones?
a.Quantity will fall and price may either rise or fall.
b.Quantity will rise and price may either rise or fall.
c.Price will fall and quantity may either rise or fall.
d.Price will rise and quantity may either rise or fall.
Marcus takes some of his savings out of the stock market and moves it into U.S. Treasury bonds. Based on 17.
historical outcomes in the bond and stock markets, this
a.increases both his risk and his expected rate of return
b.decreases risk, but increases his expected rate of return
c.increases his risk, but decreases his expected rate of return
d.decreases both his risk and his expected rate of return
Table 24-1
year Peaches Pecans
2005$11 per bushel$6 per bushel
2006$9 per bushel$10 per bushel
Refer to Table 24-1. Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels 18.
of pecans. Using 2005 as the base year, the CPI for 2006 is
a.240.
b.80.
c.100.
d.120.
The supply of loanable funds slopes
19.
a.downward because an increase in the interest rate induces people to save less.
b.downward because an increase in the interest rate induces people to invest less.
c.upward because an increase in the interest rate induces people to invest more.
d.upward because an increase in the interest rate induces people to save mor
e.
UPS Corporation develops a way to speed up its deliveries and reduce its costs. This would probably
20.
a.raise the demand for existing shares of UPS stock, causing the price to rise.
b.raise the supply of the existing shares of UPS stock, causing the price to rise.
c.raise the supply of the existing shares of UPS stock, causing the price to fall.
d.decrease the demand for existing shares of UPS stock, causing the price to fall.
If the supply for a product decreases, we would expect
21.
a.equilibrium price to increase and equilibrium quantity to decrease.
b.equilibrium price to decrease and equilibrium quantity to increase.
c.equilibrium price and equilibrium quantity to both increase.
d.equilibrium price and equilibrium quantity to both decreas
e.
After Anna finishes high school she starts looking for her first job. As a result, the unemployment rate
22.
a.decreases, and the labor-force participation rate decreases.
b.increases, and the labor-force participation rate is unaffected.
c.increases, and the labor-force participation rate increases.
d.is unaffected, and the labor-force participation rate increases.
Who would be included in the labor force?
23.
a.Maggie, who does not have a job, but is looking for work
b.Brad, a full-time student not looking for work
c.Dakota, an unpaid homemaker not looking for other work
d.None of the above is included in the labor forc
e.
Interest rates and investment rise. Based on the model we studied of the Loanable Funds market, which of the 24.
following could explain these changes?
a.the government institutes an investment tax credit
b.the government runs a larger deficit
c.the government replaces the income tax with a consumption tax
d.None of the above is correct.
Which of the following is not a prediction of the efficient market hypothesis?
25.
a.Stock prices will follow a random walk.
b.There is no point in studying the business pages looking for undervalued stocks.
c.Technical analysis can be used to identify stocks whose price is likely to rise.
d.Index funds will typically outperform highly managed funds because their fees are lower.
Which markets are represented in the simple circular-flow diagram from Chapter 2?
26.
a.markets for goods and services and markets for factors of production
b.markets for goods and services and markets for imports and exports
c.markets for factors of production and markets for financial assets
d.markets for goods and services and markets for financial assets
If you deposit $100 of currency into a demand deposit at a bank, this action by itself
27.
a.has an indeterminate effect on the money supply.
b.does not change the money supply.
c.increases the money supply.
d.decreases the money supply.
Figure 28-2
Refer to Figure 28-2. If the minimum wage fell from $7 to $5, in this market unemployment would
28.
a.fall by 40.
b.be unchanged.
c.would fall by 80.
d.fall by 20.
Which of the following does the Federal Reserve not do?
29.
a.serve as a bank regulator
b.conduct monetary policy
c.choose its own Board of Governors.
d.pay interest to banks on their reserve deposits.
Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 1,500, Consumption equals 30.
7,500, and Government purchases equal 2,000. What is national saving?
a.4500
b.-500
c.1500
d.0
Which of the following events would definitely result in a lower price in the market for ice cream?
31.
a.Demand for ice cream and supply of ice cream both increase
b.Demand for ice cream increases and supply of ice cream decreases.
c.Demand for ice cream decreases and supply of ice cream increases.
d.Demand for ice cream and supply of ice cream both decreas
e.
If a U.S. citizen buys a television made in Korea, how are the U.S. national income accounts
32.
(Y = C + I + G + NX) affected?
a.U.S. net exports decrease, and consumption increases.
b.U.S. net exports decrease, but consumption is not affected.
c.U.S. net exports and consumption are both unaffecte
d.
d.U.S. net exports increase, and consumption decreases.
Which of the following could reduce the money multiplier?
33.
a.the Fed decreases the required reserve ratio.
b.people decide to hold less of their wealth in the form of currency, and deposit more of it
in their checking accounts.
c.the Fed increases the rate of interest it pays banks on their reserve account balances.
d.banks decide to lend out less of their excess reserves.
The primary advantage of mutual funds is that they
34.
a.allow people with relatively small amounts of savings to diversify.
b.provide customers with a medium of exchange.
c.always make a return that "beats the market."
d.All of the above are correct.
In the language of macroeconomics, the word “investment” refers to
35.
a.the purchase of stocks, bonds, or mutual funds.
b.the purchase of new capital equipment and buildings.
c.saving.
d.All of the above are correct.
ID: B
Econ 202 Midterm 2Answer Section
MULTIPLE CHOICE
1. ANS: A MSC: Definitional
2. ANS: D MSC: Definitional
3. ANS: B MSC: Interpretive
4. ANS: D MSC: Interpretive
5. ANS: C MSC: Definitional
6. ANS: B MSC: Applicative
7. ANS: D MSC: Analytical
8. ANS: C MSC: Applicative
9. ANS: D MSC: Definitional 10. ANS: A MSC: Definitional 11. ANS: C MSC: Applicative 12. ANS: B MSC: Definitional 13. ANS: D MSC: Definitional 14. ANS: A MSC: Definitional 15. ANS: B MSC: Definitional 16. ANS: B MSC: Analytical 17. ANS: D MSC: Interpretive 18. ANS: D MSC: Applicative 19. ANS: D MSC: Definitional 20. ANS: A MSC: Analytical 21. ANS: A MSC: Interpretive 22. ANS: C MSC: Applicative 23. ANS: A MSC: Interpretive 24. ANS: A MSC: Analytical 25. ANS: C MSC: Interpretive 26.
27. 28. 29. 30. 31. 32. 33. 34. 35. ANS: B
MSC: Definitional
Douglas, Fall 2010 Version C
PLEDGE: I have neither given nor received unauthorized help on this exam.
SIGNED:__________________________ PRINT NAME: __________________________________
Econ 202 Midterm 2
Who would be included in the labor force?
1.
a.Dakota, an unpaid homemaker not looking for other work
b.Maggie, who does not have a job, but is looking for work
c.Brad, a full-time student not looking for work
d.None of the above is included in the labor forc
e.
What will happen to the equilibrium price and quantity of cellphones if the price of land-line phones (a
2.
substitute) rises, and a new technology is developed for producing cellphones?
a.Quantity will fall and price may either rise or fall.
b.Price will rise and quantity may either rise or fall.
c.Price will fall and quantity may either rise or fall.
d.Quantity will rise and price may either rise or fall.
Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 1,500, Consumption equals
3.
7,500, and Government purchases equal 2,000. What is national saving?
a.1500
b.0
c.-500
d.4500
If the supply for a product decreases, we would expect
4.
a.equilibrium price and equilibrium quantity to both increase.
b.equilibrium price and equilibrium quantity to both decrease.
c.equilibrium price to increase and equilibrium quantity to decrease.
d.equilibrium price to decrease and equilibrium quantity to increas
e.
Which of the following is not a prediction of the efficient market hypothesis?
5.
a.There is no point in studying the business pages looking for undervalued stocks.
b.Technical analysis can be used to identify stocks whose price is likely to rise.
c.Index funds will typically outperform highly managed funds because their fees are lower.
d.Stock prices will follow a random walk.
A share of stock represents
6.
a.equity finance.
b. a claim to a share of the profits of a firm.
c.ownership in a firm.
d.All of the above are correct
Interest rates and investment rise. Based on the model we studied of the Loanable Funds market, which of the 7.
following could explain these changes?
a.the government runs a larger deficit
b.the government replaces the income tax with a consumption tax
c.the government institutes an investment tax credit
d.None of the above is correct.
When a bank loans out $1,000, the money supply
8.
a.decreases.
b.does not change.
c.increases.
d.may do any of the abov
e.
After Anna finishes high school she starts looking for her first job. As a result, the unemployment rate
9.
a.increases, and the labor-force participation rate is unaffected.
b.is unaffected, and the labor-force participation rate increases.
c.increases, and the labor-force participation rate increases.
d.decreases, and the labor-force participation rate decreases.
Which of the following is correct?
10.
a.Stock prices are determined by fundamental analysis rather than supply and demand.
b.Risk-averse people will take a risk if they are compensated for it.
c.Risk-averse people will not hold stock.
d.Diversification cannot reduce firm-specific risk.
UPS Corporation develops a way to speed up its deliveries and reduce its costs. This would probably
11.
a.decrease the demand for existing shares of UPS stock, causing the price to fall.
b.raise the supply of the existing shares of UPS stock, causing the price to rise.
c.raise the demand for existing shares of UPS stock, causing the price to rise.
d.raise the supply of the existing shares of UPS stock, causing the price to fall.
If the supply for loanable funds shifts right, the equilibrium interest rate
12.
a.rises and equilibrium investment falls.
b.and equilibrium investment rise.
c.falls and equilibrium investment rises.
d.and equilibrium investment fall.
Megasoft wants to purchase new equipment for developing a new software program, but they don’t have 13.
sufficient internal funds. Megasoft will likely
a.demand loanable funds by buying bonds.
b.demand loanable funds by selling bonds.
c.supply loanable funds by buying bonds.
d.supply loanable funds by selling bonds.
The primary advantage of mutual funds is that they
14.
a.always make a return that "beats the market."
b.allow people with relatively small amounts of savings to diversify.
c.provide customers with a medium of exchange.
d.All of the above are correct.
The supply of loanable funds slopes
15.
a.downward because an increase in the interest rate induces people to save less.
b.downward because an increase in the interest rate induces people to invest less.
c.upward because an increase in the interest rate induces people to save more.
d.upward because an increase in the interest rate induces people to invest mor
e.
What kind(s) of risk can a buyer of stocks reduce through diversification?
16.
a.Both market and firm-specific risk.
b.Neither market or firm-specific risk.
c.Only firm-specific (“idiosyncratic”) risk.
d.Only market (“aggregate” or “systematic”) risk.
Which of the following does the Federal Reserve not do?
17.
a.serve as a bank regulator
b.choose its own Board of Governors.
c.pay interest to banks on their reserve deposits.
d.conduct monetary policy
Suppose the Fed requires banks to hold 10% of their deposits as reserves. The Fed buys a Treasury bond from
18.
a bank for $9,000. How much could this action by the Fed eventually change the money supply?
a.$90,000
b.$9000
c.$900
d.-$90,000
Which of the following events would cause the price of lawnmowers to rise?
19.
a.There is a mass movement of people away from suburbia and into urban apartments.
b.Scientists develop a new strain of grass that stops growing when it is 3 inches tall.
c.The cost of steel used in lawn mower blades increases.
d.The price of fertilizer rises.
The Fed can increase the money supply by conducting open market
20.
a.sales and lowering the discount rate.
b.sales and raising the discount rate.
c.purchases and lowering the discount rate.
d.purchases and raising the discount rat
e.
Which of the following could reduce the money multiplier?
21.
a.people decide to hold less of their wealth in the form of currency, and deposit more of it
in their checking accounts.
b.the Fed decreases the required reserve ratio.
c.the Fed increases the rate of interest it pays banks on their reserve account balances.
d.banks decide to lend out less of their excess reserves.
Which of the following is included in both M1 and M2?
22.
a.money market mutual funds
b.small time deposits
c.demand deposits (checking account balances)
d.savings deposits
You get money for babysitting the neighbors' children. This best illustrates which function of money?
23.
a.liquidity
b.medium of exchange
c.unit of account
d.store of value
Compared to the United States, Germany historically has had higher unemployment rates. One explanation
24.
for this difference could be
a. a very low minimum wage in German.
b.the relatively high unemployment insurance in Germany.
c.the refusal of German firms to set wages according to efficiency wage theory.
d.the relatively low expenditures of the German government..
Which markets are represented in the simple circular-flow diagram from Chapter 2?
25.
a.markets for factors of production and markets for financial assets
b.markets for goods and services and markets for financial assets
c.markets for goods and services and markets for imports and exports
d.markets for goods and services and markets for factors of production
The inflation rate is calculated
26.
a.as the simple difference between one year’s CPI and the previous year’s. .
b.as the percentage increase in the CPI from the preceding year.
c.by computing a simple average of the price increases for all goods and services.
d.by adding up the price increases of all goods, but not services.
Bank of Springfield
Assets Liabilities
Reserves$12,000Deposits$200,000
Loans$188,000
Refer to Table 29-5. If the required reserve ratio is 5%, what is the largest amount that the Bank of
27.
Springfield can lend from its current reserves?
a.$10,000
b.$12,000
c.$2000
d.$200,000
When you drive a car with airbags, you might drive less carefully than you would if it did not have airbags.
28.
This is an example of
a.adverse selection.
b.market risk.
c.moral hazar
d.
d.risk aversion.
Figure 28-2
Refer to Figure 28-2. If the minimum wage fell from $7 to $5, in this market unemployment would
29.
a.be unchanged.
b.would fall by 80.
c.fall by 20.
d.fall by 40.
Marcus takes some of his savings out of the stock market and moves it into U.S. Treasury bonds. Based on 30.
historical outcomes in the bond and stock markets, this
a.decreases risk, but increases his expected rate of return
b.increases both his risk and his expected rate of return
c.decreases both his risk and his expected rate of return
d.increases his risk, but decreases his expected rate of return
year Peaches Pecans
2005$11 per bushel$6 per bushel
2006$9 per bushel$10 per bushel
Refer to Table 24-1. Suppose the typical consumer basket consists of 10 bushels of peaches and 15 bushels 31.
of pecans. Using 2005 as the base year, the CPI for 2006 is
a.80.
b.120.
c.100.
d.240.
If a U.S. citizen buys a television made in Korea, how are the U.S. national income accounts
32.
(Y = C + I + G + NX) affected?
a.U.S. net exports decrease, and consumption increases.
b.U.S. net exports and consumption are both unaffected.
c.U.S. net exports increase, and consumption decreases.
d.U.S. net exports decrease, but consumption is not affected.
If you deposit $100 of currency into a demand deposit at a bank, this action by itself
33.
a.does not change the money supply.
b.has an indeterminate effect on the money supply.
c.decreases the money supply.
d.increases the money supply.
Which of the following events would definitely result in a lower price in the market for ice cream?
34.
a.Demand for ice cream and supply of ice cream both decrease.
b.Demand for ice cream increases and supply of ice cream decreases.
c.Demand for ice cream decreases and supply of ice cream increases.
d.Demand for ice cream and supply of ice cream both increase
In the language of macroeconomics, the word “investment” refers to
35.
a.the purchase of new capital equipment and buildings.
b.saving.
c.the purchase of stocks, bonds, or mutual funds.
d.All of the above are correct.
ID: C
Econ 202 Midterm 2Answer Section
MULTIPLE CHOICE
1. ANS: B MSC: Interpretive
2. ANS: D MSC: Analytical
3. ANS: A MSC: Applicative
4. ANS: C MSC: Interpretive
5. ANS: B MSC: Interpretive
6. ANS: D MSC: Definitional
7. ANS: C MSC: Analytical
8. ANS: C MSC: Definitional
9. ANS: C MSC: Applicative 10. ANS: B MSC: Definitional 11. ANS: C MSC: Analytical 12. ANS: C MSC: Applicative 13. ANS: B MSC: Interpretive 14. ANS: B MSC: Definitional 15. ANS: C MSC: Definitional 16. ANS: C MSC: Definitional 17. ANS: B MSC: Definitional 18.
19. 20. 21. 22. 23. ANS: B MSC: Definitional 24. ANS: B MSC: Definitional 25. ANS: D MSC: Definitional 26. ANS: B MSC: Definitional 27. ANS: C MSC: Analytical 28. ANS: C MSC: Interpretive 29. ANS: D MSC: Analytical 30. ANS: C MSC: Interpretive 31. ANS: B MSC: Applicative 32. ANS: A MSC: Applicative 33. ANS: A MSC: Applicative 34. ANS: C MSC: Applicative 35. ANS: A
MSC: Definitional
Douglas, Fall 2010 Version D Special Codes 00002__ PLEDGE: I have neither given nor received unauthorized help on this exam.
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Econ 202 Midterm 2
Which of the following is correct?
1.
a.Risk-averse people will take a risk if they are compensated for it.
b.Risk-averse people will not hold stock.
c.Stock prices are determined by fundamental analysis rather than supply and deman
d.
d.Diversification cannot reduce firm-specific risk.
When a bank loans out $1,000, the money supply
2.
a.decreases.
b.does not change.
c.increases.
d.may do any of the abov
e.
Marcus takes some of his savings out of the stock market and moves it into U.S. Treasury bonds. Based on
3.
historical outcomes in the bond and stock markets, this
a.decreases both his risk and his expected rate of return
b.increases his risk, but decreases his expected rate of return
c.increases both his risk and his expected rate of return
d.decreases risk, but increases his expected rate of return
Interest rates and investment rise. Based on the model we studied of the Loanable Funds market, which of the 4.
following could explain these changes?
a.the government institutes an investment tax credit
b.the government replaces the income tax with a consumption tax
c.the government runs a larger deficit
d.None of the above is correct.
If the supply for a product decreases, we would expect
5.
a.equilibrium price to decrease and equilibrium quantity to increase.
b.equilibrium price to increase and equilibrium quantity to decrease.
c.equilibrium price and equilibrium quantity to both decrease.
d.equilibrium price and equilibrium quantity to both increas
e.
Compared to the United States, Germany historically has had higher unemployment rates. One explanation 6.
for this difference could be
a.the relatively low expenditures of the German government..
b.the refusal of German firms to set wages according to efficiency wage theory.
c. a very low minimum wage in German.
d.the relatively high unemployment insurance in Germany.
UPS Corporation develops a way to speed up its deliveries and reduce its costs. This would probably
7.
a.decrease the demand for existing shares of UPS stock, causing the price to fall.
b.raise the supply of the existing shares of UPS stock, causing the price to fall.
c.raise the demand for existing shares of UPS stock, causing the price to rise.
d.raise the supply of the existing shares of UPS stock, causing the price to ris
e.