course material

1. Cassie’s quilts alters, reconstructs and restores heirloom quilts.
Cassie’s Quilts alters, reconstructs and restores heirloom quilts. Cassie has just spent $800
purchasing, cleaning and reconstructing an antique quilt which she expects to sell for
$1,500 once she is finished. After having spent $800, Cassie discovers that she would need
some special period fabric that would cost her $200 in material and time in order to
complete the task. Alternatively, she can sell the quilt “as is” now for $900. What is the
marginal cost of completing the task? (Points : 1) $200 $500 $1,000 $1,000
plus the value of her time 2. Where do economic agents such as individuals, firms and
nations, interact with each other? (Points : 1) in public locations monitored by the
government. in any arena that brings together buyers and sellers. in any physical
location people where people can physically get together for selling goods, such as shopping
malls. in any location where transactions can be monitored by consumer groups and
taxed by the government. 3. Consider the following two factors:These statements suggest
that (Points : 1) it is highly likely that the average person will lose her job due to
outsourcing. the likelihood that the average person will lose her job due to outsourcing
is large small to losing her job due to other causes. the likelihood that the average person
will lose her job due to outsourcing is very small compared to losing her job due to other
causes. the US is not creating jobs fast enough to offset jobs lost due to outsourcing and
other causes. 4. Cassie’s Quilts alters, reconstructs and restores heirloom quilts. Cassie
has just spent $800 purchasing, cleaning and reconstructing an antique quilt which she
expects to sell for $1,500 once she is finished. After having spent $800, Cassie discovers that
she would need some special period fabric that would cost her $200 in material and time in
order to complete the task. Alternatively, she can sell the quilt “as is” now for $900. What
should she do? (Points : 1) She should cut her losses and sell the quilt now. It does
not matter what she does; she is going to take a loss on her project. She should purchase
the period fabric, complete the task and then sell the quilt. She should not do anymore
work on the quilt because she has already spent too much time on it and has not been paid
for that time. 5. A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of
the following is a term used by economists to describe the money received from the sale of
an additional bag of potatoes? (Points : 1) marginal revenue gross earnings pure
profit marginal costs net benefit 6. A successful market economy requires well
defined property rights and (Points : 1) balanced supplies of all factors of production.
an independent court system to adjudicate disputes based on the law. detailed
government regulations. a safety net to ensure that those who cannot participate in the

2. market economy can earn an income. 7. Figure 2-11Refer to Figure 2-11. Which two
arrows in the diagram depict the following transaction: Lizzie Haxem hires “The Paint Pros,”
a professional painting company, to paint her home. (Points : 1) J and M K and G K
and M J and G 8. A production possibilities frontier with a bowed outward shape
indicates (Points : 1) the possibility of inefficient production. constant opportunity
costs as more and more of one good is produced. increasing opportunity costs as more
and more of one good is produced. decreasing opportunity costs as more and more of
one good is produced. 9. Table 2-3Table 2-3 shows the number of labor hours required to
produce a digital camera and a pound of wheat in China and South Korea.Refer to Table 2-3.
What is South Korea’s opportunity cost of producing one pound of wheat? (Points : 1) 5
digital cameras 60 digital cameras 20 digital cameras 0.05 units of a digital camera
10. Table 2-3Table 2-3 shows the number of labor hours required to produce a digital
camera and a pound of wheat in China and South Korea.Refer to Table 2-3. What is China’s
opportunity cost of producing one pound of wheat? (Points : 1) 0.04 units of a digital
camera 40 digital cameras 25 digital cameras 4 digital cameras 11. All of the
following are examples of spending on factors of production in the circular flow model
except (Points : 1) Bima hires two students to work at his ice-cream store. “Get Fit
Together'” purchases 3 new treadmills for its gym. Iris buys a dozen roses for her
mother’s birthday. The Banyan Tree rents a much larger property so that it can add a
restaurant to its facilities. 12. Figure 3-5Refer to Figure 3-5. Assume that the graphs in
this figure represent the demand and supply curves for used clothing, an inferior good.
Which panel describes what happens in this market as a result of a decrease in income?
(Points : 1) Panel (a) Panel (b) Panel (c) Panel (d) 13. How does the
increasing use of digital cameras affect the market for traditional camera film? (Points : 1)
The demand curve for traditional camera film shifts to the right. The supply curve for
traditional camera film shifts to the left. The supply curve for traditional camera film
shifts to the right. The demand curve for traditional camera film shifts to the left. 14.
Figure 3-6Refer to Figure 3-6. The graph in this figure illustrates an initial competitive
equilibrium in the market for apples at the intersection of D1 and S1 (point A). If there is a
shortage of apples how will the equilibrium point change? (Points : 1) The equilibrium
point will move from A to B. The equilibrium point will move from A to C. There will
be no change in the equilibrium point. The equilibrium point will move from A to E.
15. If in the market for apples the supply has decreased then (Points : 1) the supply
curve for apples has shifted to the right. there has been a movement upwards along the
supply curve for apples. the supply curve for apples has shifted to the left. there has
been a movement downwards along the supply curve for apples. 16. If the price of
automobiles were to increase, then (Points : 1) the demand for gasoline would decrease.
the demand for gasoline would increase. the supply of gasoline would increase. the
quantity demanded of gasoline would decrease. 17. Figure 4-7Figure 4-7 shows the
demand and supply curves for the almond market. The government believes that the
equilibrium price is too low and tries to help almond growers by setting a price floor at Pf.
Refer to Figure 4-7. What is the area that represents producer surplus after the imposition
of the price floor? (Points : 1) A + B + E B + E B + E + F B + C + D + E 18.

3. Suppose the demand curve for a product is downward sloping and the supply curve is
upward sloping. If a unit tax is imposed in the market for this product, (Points : 1)
sellers bear the entire burden of the tax. the tax burden will be shared among the
government, buyers and sellers. buyers bear the entire burden of the tax. the tax
burden will be shared by buyers and sellers. 19. Table 4-3 Table 4-3 shows the demand
and supply schedules for the low-skilled labor market in the city of Westover. Refer to Table
4-3. If a minimum wage of $7.50 an hour is mandated, what is the quantity of labor
supplied? (Points : 1) 390,000 370,000 340,000 380,000 20. Figure 4-2Refer
to Figure 4-2. What area represents producer surplus at a price of P2? (Points : 1) A + B
B + D A + B + C A + B + C + D + E 21. The difference between the highest price a
consumer is willing to pay for a good and the price the consumer actually pays is called
(Points : 1) producer surplus. the substitution effect. the income effect.
consumer surplus. 22. Figure 4-5Refer to Figure 4-5. The figure above represents the
market for iced tea. Assume that this is a competitive market. If 20,000 units of iced tea are
sold (Points : 1) the deadweight loss is equal to economic surplus. producer surplus
equals consumer surplus. the marginal benefit of each of the 20,000 units of iced tea
equals $3. marginal benefit is equal to marginal cost. 23. Figure 6-7Refer to Figure 6-7.
A perfectly inelastic supply curve is shown in (Points : 1) Panel A. Panel B. Panel C.
Panel D. 24. Suppose at the going wage rate of $20 per hour, firms can hire as many hours
of janitorial services as it desires. If any firm tries to lower the wage rate to $19, it will not
be able to hire any janitor. What does this indicate about the supply of janitorial services
curve? (Points : 1) Supply is unit price elastic. Supply is perfectly price elastic.
Supply is perfectly price inelastic. Supply is relatively price inelastic. 25. When demand
is unit price elastic, a change in price causes total revenue to stay the same because (Points :
1) the percentage change in quantity demanded exactly offsets the percentage change in
price. buyers are buying the same quantity. total revenue never changes with price
changes. the change in profit is offset by the change in production cost. 26. Which of
the following statements about the price elasticity of demand is correct? (Points : 1) The
elasticity of demand for a good in general is equal to the elasticity of demand for a specific
brand of the good. The absolute value of the elasticity of demand ranges from zero to
one. Demand is more elastic in the long run than it is in the short run. Demand is
more elastic the smaller percentage of the consumer’s budget the item takes up. 27. If the
percentage change in price is 20 percent and the value of the price elasticity of demand is -5,
then quantity demanded (Points : 1) will increase by 100 percent. will increase by 5
percent. will decrease by 100 percent. impossible to determine without additional
information. 28. Table 10-2Table 10-2 shows cost data for Lotus Lanterns, a producer of
whimsical night lights.Refer to Table 10-2. What is the average variable cost per unit of
production when the firm produces 90 lanterns? (Points : 1) $490 $33.67 $7.67
$5.40 29. Figure 10-7Refer to Figure 10-7. The lines shown in the diagram are isocost
lines. Which of the following shows an increase in the firm’s total cost budget while the
price of labor and capital remain unchanged? (Points : 1) the movement from CE to BF
the movement from CE to AF the movement from BD to AF the movement from BD to
CE 30. A firm has successfully adopted a positive technological change when (Points : 1)

4. it can produce more output using the same inputs. it produces less pollution in its
production process. can pay its workers less yet increase its output. it sees an
increase in worker productivity. 31. Which of the following is an example of a long run
adjustment? (Points : 1) Your university offers Saturday morning classes next fall.
Ford Motor Company lays off 2,000 assembly line workers. A soybean farmer turns on
the irrigation system after a month long dry spell. Wal-Mart builds another Supercenter.
32. The difference between technology and technological change is that (Points : 1)
technology refers to the processes used by a firm to transform inputs into output while
technological change is a change in a firm’s ability to produce a given level of output with a
given quantity of inputs. technology is carried out by firms producing physical goods but
technological change is an intellectual exercise into seeking ways to improve production.
technology is product-centered, that is, developing new products with our limited resources
while technological change is process-centered in that it focuses on developing new
production techniques. technology involves the use of capital equipment while
technological change requires the use of brain power. 33. The formula for total fixed cost
is (Points : 1) TFC = TC + TVC. TFC = TVC – TC. TFC = TC/TVC. TFC = TC – TVC.
34. Figure 11-1Refer to Figure 11-1. If the firm is producing 200 units, (Points : 1) it
breaks even. it is making a loss. it should cut back its output to maximize profit. it
should increase its output to maximize profit. 35. Assume that price is greater than
average variable cost. If a perfectly competitive seller is producing at an output where price
is $11 and the marginal cost is $14.54, then to maximize profits the firm should (Points : 1)
continue producing at the current output. produce a larger level of output. produce a
smaller level of output. not enough information given to answer the question. 36.
Figure 11-1Refer to Figure 11-1. If the firm is producing 700 units, what is the amount of its
profit or loss? (Points : 1) loss of $280 loss equivalent to the area A. profit
equivalent to the area A. There is insufficient information to answer the question. 37.
The demand for each seller’s product in perfect competition is horizontal at the market
price because (Points : 1) each seller is too small to affect market price. the price is
set by the government. all the sellers get together and set the price. all the demanders
get together and set the price. 38. For a perfectly competitive firm, at profit maximization
(Points : 1) market price exceeds marginal cost. total revenue is maximized.
marginal revenue equals marginal cost. production must occur where average cost is
minimized. 39. A monopoly is characterized by all of the following except (Points : 1)
there are only a few sellers each selling a unique product. entry barriers are high.
there are no close substitutes to the firm’s product. the firm has market power. 40.
Economic efficiency requires that a natural monopoly’s price be (Points : 1) equal to
average total cost where it intersects the demand curve. equal to marginal cost where it
intersects the demand curve. equal to average variable cost where it intersects the
demand curve. equal to the lowest price the firm can charge and still make a normal
profit. 41. Table 14-2Shakti Inc. has been granted a patent for its arnica toothache balm.
Table 14-2 shows the demand and the total cost schedule for the firm. Refer to Table 14-2.
What is Shakti’s profit-maximizing output? (Points : 1) 4 units 5 units 6 units 7
units 42. A patent or copyright is a barrier to entry based on (Points : 1) ownership of

5. a key necessary raw material. large economies of scale as output increases.
government action to protect a producer. widespread network externalities. 43. The
Aluminum Company of America (Alcoa) had a monopoly until the 1940s because (Points : 1)
it was a public enterprise. it had a patent on the manufacture of aluminum. the
company had a secret technique for making aluminum from bauxite. it had control of
almost all available supply of bauxite. 44. A possible advantage of a horizontal merger for
the economy is that (Points : 1) the merging firms could avoid losses. the merged
firm might reap economies of scale which could translate into lower prices. the degree of
competition in the industry will be intensified. the government stands to collect more
corporate income tax revenue. 45. Table 12-2Eco Energy is a monopolistically
competitive producer of a sports beverage called Power On. Table 12-2 shows the firm’s
demand and cost schedules. Refer to Table 12-2. What is likely to happen to the product’s
price in the long run? (Points : 1) It will fall. It will increase. It will remain
constant. Cannot be determined without information on its long run demand curve.
46. In the long run, if price is less than average cost, (Points : 1) there is an incentive for
firms to exit the market. there is profit incentive for firms to enter the market. the
market must be in long-run equilibrium. there is no incentive for the number of firms in
the market to change. 47. Table 12-3Table 12-3 shows the firm’s demand and cost
schedules for a firm in monopolistic competition.Refer to Table 12-3. What is the best
course of action for the firm in the short run? (Points : 1) It should shut down. It
should stay in business because it covers some of its fixed cost. It should increase its
sales by lowering its price. It should not cut its price but it should increase its sales by
advertising. 48. Long run equilibrium under monopolistic competition is similar to that
under perfect competition in that (Points : 1) firms produce at the minimum point of
their average cost curves. price equals marginal cost. firms earn normal profits.
price equals marginal revenue. 49. Figure 12-4Refer to Figure 12-4. The firm represented
in the diagram is currently selling Qa units at a price of $Pa. Is this firm maximizing its profit
and if it is not, what would you recommend to the firm? (Points : 1) Yes, it is maximizing
its profit by charging the highest price possible. No, it is not; since its marginal cost is
constant, it should produce and sell as much as it can. It should sell Qd units at a price of
$Pd. No, it is not; it should lower its price to $Pc and sell Qc units. No, it is not; it
should lower its price to $Pb and sell Qb units. 50. The DeBeers Company of South Africa
was able to block competition through (Points : 1) economies of scale. ownership of
an essential input. government-imposed barriers. differentiating its product. 51.
One reason why, in the last four decades, the number of new auto makers in the world has
been very small compared to the past is that (Points : 1) the automobile cannot be
improved upon in any way by new producers. new auto makers cannot obtain necessary
inputs to produce new cars. governments restrict who can produce automobiles. new
producers cannot match the economies of scale of existing auto makers. 52. What is a
prisoners’ dilemma? (Points : 1) a game that involves no dominant strategies a game
in which prisoners are stumped because they cannot communicate with each other a
game in which players act in rational, self-interested ways that leave everyone worse off
a game in which players collude to outfox authorities 53. Consider two oligopolistic

6. industries selling the same product in different locations. In the first industry, firms always
match price changes by any other firm in the industry. In the second industry, firms always
ignore price changes by any other firm. which of the following statements is true about
these two industries, holding everything else constant? (Points : 1) Market prices are
likely to be higher in the first industry in which firms always match price changes by rival
firms than in the second where firms ignore their rivals’ price changes. Market prices are
likely to be lower in the first industry where firms always match price changes by rival
firms than in the second where firms ignore their rivals’ price changes. Market prices are
likely to be the same in both markets because they are both oligopolistic markets. No
conclusions can be drawn about the pricing behavior under these very different firm
behavior. 54. OPEC periodically meets to agree to restrict the cartel’s oil output, and yet
almost every member of OPEC produces more than its own output quota. This suggests that
OPEC has a (Points : 1) cooperative equilibrium. noncooperative equilibrium. new
potential entrants. threat of substitute goods. 55. Table 13-5Suppose OPEC has only
two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the
lower cost producer compared to Nigeria. The payoff matrix in Table 13-5 shows the profits
earned per day by each country. “Low output” corresponds to producing the OPEC assigned
quota and “high output” corresponds to producing the maximum capacity beyond the
assigned quota.Refer to Table 13-5. What is the Nash equilibrium in this game? (Points : 1)
In the Nash equilibrium both Saudi Arabia produce a low output and earn a profit of $100
million and $20 million respectively. In the Nash equilibrium both Saudi Arabia produce
a high output and earn a profit of $60 million and $20 million respectively. In the Nash
equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and
Nigeria produces a high output and $30 million respectively. There is no Nash
equilibrium. 56. Economic discrimination takes place when an employer (Points : 1)
pays workers the lowest wage possible. pays workers different wages on the basis of
some arbitrary characteristics of workers that are irrelevant to the job performed. pays
lower wages to workers who are not as productive as other workers. pays workers
compensating wage differentials. 57. Painters who paint water towers earn higher wages
relative to painters who paint houses because (Points : 1) the demand for tower
painters is greater than the demand for residential painters. painting water towers is
more risky than painting houses. the tower painters’ union is probably more powerful
than the wall painters’ union. the supply of water tower painters exceeds the supply of
wall painters. 58. Which of the following is a reason why some firms do not use
commission pay? (Points : 1) It gives workers incentive to produce more. It increases
firm profits. It is difficult to measure the output and attribute output to a particular
worker. The best workers stay and less productive workers leave. 59. The town of
Saddle Peak has a fixed supply of mountain view lots. In this case, the price per square foot
of mountain view lots is (Points : 1) determined only by supply. determined only by
demand. set by government officials of Saddle Peak. negotiated by environmental
groups and property developers. 60. Worker discrimination occurs when (Points : 1)
workers refuse to perform risky tasks. workers refuse to work with persons of a
different race. customers refuse to buy products produced by a racially diverse

7. workforce. employers pay different employees different wages based on race. 61.
According to the signaling hypothesis, (Points : 1) signaling about job openings occur in
help wanted classified ads. a college diploma signals to employers that a person has
certain desirable characteristics. a slowdown in output signals to companies the need to
hire more labor. a high unemployment rate is a signal to the government to take some
policy action. 62. If Molly Bee increases her work hours when her wage increases, then
(Points : 1) the income effect of the wage increase outweighs the substitution effect.
the substitution effect of the wage increase outweighs the income effect. leisure is an
inferior good to Molly. Molly’ is spending beyond her means. 63. Suppose a competitive
firm is paying a wage of $12 an hour and sells its product at $3 per unit. Assume that labor
is the only input. If, hiring another worker would increase output by three units per hour,
then to maximize profits the firm should (Points : 1) not change the number of workers
it currently hires. not hire an additional worker. hire another worker. There is not
enough information to answer the question. 64. Suppose a competitive firm is paying a
wage of $12 an hour and sells its product at $3 per unit. Assume that labor is the only input.
If the last worker hired increases output by three units per hour, then to maximize profits
the firm should (Points : 1) not change the number of workers it currently hires. lay
off some of its workers. hire additional workers. There is not enough information to
answer the question. 65. Table 16-2Refer to Table 16-2. What is the profit-maximizing
quantity of labor that the firm should hire? (Points : 1) 5 units $4 units $3 units
2 units 66. Table 16-2Refer to Table 16-2. The marginal revenue product from the third
unit of labor is (Points : 1) $5,460. $1,560. $1,260. $780. 67. Table 19-
10Consider the data shown above for a fictional economy that produces only two products:
oranges and shirts.Refer to Table 19-10. Nominal GDP for this fictional economy for 1998
equals (Points : 1) $4,620. $5,100. $5,300. $5,850. 68. Disposable personal
income equals personal income (Points : 1) minus personal tax payments. plus
government transfer payments. minus personal tax payments plus government transfer
payments. minus government transfer payments plus personal tax payments. 69. Table
19-8Consider the following data for a fictional economy that produces only two products:
guns and butter.Refer to Table 19-8. Nominal GDP for this fictional economy in 2006 equals
(Points : 1) $1,140. $880. $690. $560. 70. The Philippines and Vietnam have
roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and
the GDP of Vietnam is $10,000 billion. You should conclude (Points : 1) a typical person
in Vietnam is 10 times as well off as the typical person in the Philippines. a typical person
in Vietnam is more than 10 times as well off as the typical person in the Philippines. a
typical person in Vietnam is less than 10 times as well off as the typical person in the
Philippines. it is not possible to make a good comparison of the economic well being of a
typical individual in the 2 countries without additional information. 71. If prices in the
economy rise, then (Points : 1) the purchasing power of a dollar rises. the purchasing
power of a dollar stays constant. the purchasing power of a dollar declines. the
purchasing power of a dollar cannot be determined. 72. Since 1950, expansions in the
United States have become ________, while recessions have become ________. (Points : 1)
longer; longer shorter; shorter shorter; longer longer; shorter 73. The response

8. of firm investment to an increase in the government budget deficit is called (Points : 1)
expansionary investment. private dissaving. crowding out. income minus net
taxes. 74. What two factors are the keys to determining labor productivity? (Points : 1)
the business cycle and the growth rate of real GDP the growth rate of real GDP and the
interest rate technology and the quantity of capital per hour worked the average level
of education of the workforce and the price level 75. Since 1900, real GDP in the U.S. has
grown (Points : 1) more rapidly than the population. more slowly than the
population. as rapidly as the population. in a random unpredictable manner relative
to the population. 76. Scenario 21-1Consider the following data for a closed
economy:Refer to Scenario 21-1. Based on the information above, what is the level of
private saving in the economy? (Points : 1) $3 trillion $4 trillion $5 trillion $8
trillion 77. If net taxes fall by $80 billion, we would expect (Points : 1) the government
deficit to fall by $80 billion. household savings to rise by $80 billion. household
savings to rise by less than $80 billion. household savings to fall by more than $80
billion. 78. Which of the following would decrease the unemployment rate? (Points : 1)
an increase in the minimum wage an increase in the efficiency wage an increase in
labor union membership government aid to retrain unemployed workers 79. Suppose
that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is
currently 6%. If actual inflation turns out to be 7% over the loan contract period, then
(Points : 1) borrowers gain 1%. lenders gain 1%. borrowers lose 3%. lenders
gain 3%. 80. Suppose that homemakers are included as employed in the labor force
statistics, rather than being counted as out of the labor force. This would (Points : 1)
increase the measured unemployment rate. increase the measured labor force
participation rate. decrease the number of persons in the labor force. decrease the
number of persons in the working-age population. 81. Creative destruction means that
(Points : 1) firms develop new products that replace old products in the economy,
thereby encouraging economic growth. economic growth can only be sustained if capital
depreciates rapidly. knowledge capital can be created through a system of government
subsidies for education and research and development. research and development
should only be financed if research and development is incremental (a result of making
small changes to existing products). 82. Extensive economic growth ________ output per
worker at a(n) ________ rate due to diminishing marginal returns. (Points : 1) increases;
decreasing decreases; decreasing increases; increasing decreases; increasing 83.
By offering more generous unemployment insurance programs, European countries can
expect (Points : 1) to pay less in taxes than in the United States. workers to gain new
skills quickly in response to fluctuations in the labor market. shorter periods of
unemployment for their workers. longer periods of unemployment for their workers.
84. The industrialized group of countries has growth rates that are consistent with the
findings of the economic growth model. That is, Ireland and Japan had ________ incomes in
1960 than the U.S. and Switzerland, and Ireland and Japan grew ________ than the U.S. and
Switzerland between 1960 and 2004. (Points : 1) lower; more rapidly greater; less
rapidly lower; less rapidly greater; more rapidly 85. Which of the following is a true
statement about the multiplier? (Points : 1) The formula for the multiplier overstates

9. the real world multiplier when we take into account the impact of changes in GDP on
imports, inflation and the interest rate. The larger the MPC, the smaller the multiplier.
The multiplier is the ratio of the change in spending to the change in GDP. The multiplier
makes the economy less sensitive to changes in autonomous expenditure. 86. Which of
the following is a reason why increases in the price level results in a decline in aggregate
expenditure? (Points : 1) Price level increases raise real wealth which causes
consumption spending and aggregate expenditures to decline. Price level increases cause
firms and consumers to hold more money, which raises the interest rate. Higher interest
rates lower consumption and planned investment expenditures, which lowers aggregate
expenditures. Price level increases in the U.S. relative to other countries, raise net
exports, which lowers aggregate expenditures. As the price level rises, government
spending falls, which lowers aggregate expenditures. 87. Macroeconomic equilibrium
occurs when (Points : 1) aggregate expenditure = GDP. aggregate expenditure = C+ I
+ G + net transfers. aggregate income = planned inventories. aggregate income =
planned inventories. 88. If economists forecast a decrease in aggregate expenditure,
which of the following is likely to occur? (Points : 1) GDP will rise. GDP will fall.
Wages will rise. Inventories will fall. 89. The sale of Treasury securities by the Federal
Reserve will, in general, (Points : 1) not change the money supply. not change the
quantity of reserves held by banks. increase the quantity of reserves held by banks.
decrease the quantity of reserves held by banks. 90. Suppose a bank has $100 million in
checking account deposits with no excess reserves and the required reserve ratio is 20
percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the
bank will now have excess reserves of (Points : 1) $0. $5 million. $15 million.
$20 million. 91. You earn $500 a month, currently have $200 in currency, $100 in your
checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and
$1,000 of debt. You have (Points : 1) money = $2,300, annual income = $6,000, and
wealth = $5,000. money = $300, annual income = $6,000, and wealth = $4,300. money
= $200, annual income = $500, and wealth = $4,300. money = $300, annual income =
$6,000, and wealth = $5,000. 92. Scenario 25-2Imagine that Kristy deposits $10,000 of
currency into her checking account deposit at Bank A and that the required reserve ratio is
20%.Refer to Scenario 25-2. Suppose you withdraw $500 from your checking account
deposit and bury it in a jar in your backyard. If the required reserve ratio is 10 percent,
checking account deposits in the banking system as a whole could drop up to a maximum of
(Points : 1) $0. $50. $500. $5,000. 93. Which of the following would be most
likely to induce the Federal Reserve to conduct expansionary monetary policy? A significant
decrease in (Points : 1) oil prices. business taxes. income tax rates. investment
spending. 94. If the probability of losing your job remains ________, a recession would be a
good time to purchase a home because the Fed usually ________ interest rates during this
time. (Points : 1) low; lowers low; raises high; lowers high; raises low; does
not change 95. Inflation targeting refers to conducting ________ policy so as to commit the
central bank to achieving a ________. (Points : 1) fiscal; publicly announced level of
inflation fiscal; zero inflation rate monetary; publicly announced level of inflation
monetary; zero inflation rate 96. Which of the following describes a similarity between

10. the current European residential housing and mortgage market and the U.S. residential
housing and mortgage market? (Points : 1) The housing markets in both geographic
areas are slowing down after a long period of growth and rapidly rising prices. Both have
central banks that have raised the lending rate by a factor of 2 since a few years ago. The
majority of new mortgages issued in both markets are the long-term, fixed rate variety.
Most banks in both geographic regions do not offer home-equity withdrawals. 97. Which
of the following would be classified as fiscal policy? (Points : 1) The federal government
passes tax cuts to encourage firms to reduce air pollution. The Federal Reserve cuts
interest rates to stimulate the economy. A state government cuts taxes to help the
economy of the state. The federal government cuts taxes to stimulate the economy.
States increase taxes to fund education. 98. From an initial long-run equilibrium, if
aggregate demand grows more slowly than long-run and short-run aggregate supply, then
the president and the Congress would most likely (Points : 1) increase the required
reserve ratio and decrease government spending. decrease government spending.
decrease oil prices. decrease taxes. lower interest rates. 99. The Federal Reserve
plays a larger role than the president and the Congress in stabilizing the economy because
(Points : 1) the Federal Reserve can more quickly change monetary policy than the
president and the Congress can change fiscal policy. the Federal Reserve can
immediately recognize when the economy is below or above potential. changes in
interest rates have a considerably larger effect on the economy than changes in government
purchases or taxes. changes in interest rates have their full effect on the economy in a
short period of time, whereas changes in government spending and taxes have their full
effect over a long period of time. 100. The use of fiscal policy to stabilize the economy is
limited because (Points : 1) changes in government spending and tax rates have a small
effect on aggregate demand. changes in government spending and tax rates have a small
effect on interest rates. the legislative process can be slow, which means that it is difficult
to make fiscal policy actions in a timely way. the Internal Revenue Service (IRS) resists
changes in tax rates, because of all the changes they would have to make to the tax code.