Test 3 Econ
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Refer to Exhibit 11-2. At point B, if we cut tax rates slightly, tax revenues
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Increase
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Decrease
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Will not change.
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Drop to zero.
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.png "Test 3 Econ - Quiz")
Test 3 Econ focuses on key economic concepts such as recessionary gaps, tax impacts, and aggregate demand shifts. It assesses understanding of Keynesian policies, crowding out, and fiscal interventions, crucial for students studying advanced economics.
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- 2.
96. If excess reserves are $10 million, (total) reserves are $14 million, and the required reserve ratio is 10%, then required reserves equal ________________ and checkable deposits equal ____________________.
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$4 million; $40 million
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$40 million; $4 million
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$24 million; $240 million
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$7 million; $70 million
Correct Answer
A. $4 million; $40 millionExplanation
The required reserve ratio is the percentage of deposits that banks are required to hold as reserves. In this case, the required reserve ratio is 10%. To find the required reserves, we multiply the total reserves by the required reserve ratio. 10% of $14 million is $1.4 million. Since excess reserves are $10 million, the required reserves must be $1.4 million less than the total reserves, which is $14 million - $1.4 million = $12.6 million. Therefore, required reserves equal $12.6 million. Checkable deposits can be calculated by subtracting the required reserves from the total reserves, which is $14 million - $12.6 million = $1.4 million. Therefore, checkable deposits equal $1.4 million.Rate this question:
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- 3.
25. According to the text, L. Frank Baum, the author of The Wonderful Wizard of Oz, blamed ____________________ for the economic depression of 1893 and the related hardships faced by farmers and workers.
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The gold standard
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The silver standard
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A massive tornado
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High taxes
Correct Answer
A. The gold standardExplanation
According to the text, L. Frank Baum blamed the gold standard for the economic depression of 1893 and the related hardships faced by farmers and workers.Rate this question:
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- 4.
Suppose that government expenditures are currently $700 billion and tax revenues are currently $550 billion. Assume further that the government estimates that if the economy were operating at full employment government expenditures would only be $685 billion and tax revenues would be $600 billion. In this case, the structural deficit is _____________ billion.
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$85
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$65
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$150
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$215
Correct Answer
A. $85Explanation
The structural deficit is calculated by subtracting the estimated tax revenues at full employment from the estimated government expenditures at full employment. In this case, the estimated tax revenues at full employment are $600 billion and the estimated government expenditures at full employment are $685 billion. Therefore, the structural deficit is $685 billion - $600 billion = $85 billion.Rate this question:
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- 5.
35. If checkable deposits in Bank A total $100 million and the required reserve ratio is 9 percent, then required reserves at Bank A equal
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$81.0 million.
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$9.0 million.
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$9.9 million.
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$900,000
Correct Answer
A. $9.0 million.Explanation
The required reserve ratio is the percentage of checkable deposits that banks are required to hold as reserves. In this case, the required reserve ratio is 9 percent. To find the required reserves at Bank A, we multiply the checkable deposits ($100 million) by the required reserve ratio (9 percent) and convert it to million dollars. Therefore, the required reserves at Bank A equal $9.0 million.Rate this question:
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- 6.
Refer to Exhibit 11-1. The economy is currently at point 1. Suppose the federal government increases purchases and there is complete crowding out. As a result, the aggregate demand (AD) curve in the exhibit
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Maintains its present position at AD1.
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Shifts rightward, but does not shift rightward by enough to go through point 2.
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Shifts rightward by enough to go through point 2.
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Shifts leftward.
Correct Answer
A. Maintains its present position at AD1. -
- 7.
Refer to Exhibit 11-1. The economy is currently at point 1. In this situation, Keynesian economists would most likely propose
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An increase in government purchases.
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A decrease in government purchases.
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An increase in taxes.
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A and c
Correct Answer
A. An increase in government purchases.Explanation
Keynesian economists believe that during a recession, when the economy is below full employment, government intervention is necessary to stimulate economic growth. They argue that increasing government purchases, such as infrastructure projects or public spending, can create jobs and increase aggregate demand, leading to economic expansion. Therefore, in the given situation where the economy is at point 1, Keynesian economists would most likely propose an increase in government purchases to boost the economy.Rate this question:
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- 8.
10. If a person uses money to buy a pair of shoes, money is functioning as
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A unit of account.
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A store of value.
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A medium of exchange.
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None of the above
Correct Answer
A. A medium of exchange.Explanation
In this scenario, money is being used to purchase a pair of shoes, indicating that it is being used as a medium of exchange. A medium of exchange is a function of money that allows it to be exchanged for goods and services. It facilitates transactions by providing a universally accepted form of payment. The other options, unit of account and store of value, do not accurately describe the role of money in this specific situation.Rate this question:
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- 9.
13. In the Yap civilization of the South Pacific prior to 1920, large, heavy stones in the shape of a wheel were used as money. Which function of money was probably least served by this form of money?
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Medium of exchange
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Store of value
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Unit of account
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Store of wealth
Correct Answer
A. Medium of exchangeExplanation
In the Yap civilization, the large, heavy stones in the shape of a wheel were used as money. While they served as a store of value and a unit of account, they were probably least effective as a medium of exchange. This is because the stones were difficult to transport and exchange, making it impractical for everyday transactions.Rate this question:
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- 10.
Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Use the information provided in Exhibit 11-4. What is the marginal tax rate on the 23,000th dollar earned?
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9%
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13%
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17%
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It is impossible to determine the answer to this question.
Correct Answer
A. 9%Explanation
The marginal tax rate on the 23,000th dollar earned is 9%. This is because according to the given tax brackets, the tax rate for the income range of $0 - $23,000 is 9% of taxable income. Since the 23,000th dollar falls within this income range, the marginal tax rate for that dollar would be 9%.Rate this question:
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- 11.
The lag between an increase in government spending and the impact of this increased spending on the economy is called the __________ lag.
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Effectiveness
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Transmission
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Legislative
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Data
Correct Answer
A. EffectivenessExplanation
The lag between an increase in government spending and the impact of this increased spending on the economy is called the "effectiveness" lag. This refers to the time it takes for the government's spending to have a noticeable effect on the overall economy. It takes time for the increased spending to be implemented and for the economy to respond to it, which is why there is a lag between the two.Rate this question:
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- 12.
31. In the history of banking, warehouse receipts refer to receipts
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That goldsmiths once issued acknowledging that they held a customer's gold.
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For storing furniture in a warehouse.
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Goldsmiths issued to each other when they borrowed gold.
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For storing food and other perishables in a warehouse.
Correct Answer
A. That goldsmiths once issued acknowledging that they held a customer's gold.Explanation
Warehouse receipts were historically issued by goldsmiths to acknowledge that they held a customer's gold. This practice allowed customers to deposit their gold with the goldsmiths for safekeeping and receive a receipt as proof of ownership. These warehouse receipts were often used as a form of currency, as they could be exchanged or transferred to others. This system played a significant role in the early development of banking and the circulation of money.Rate this question:
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- 13.
Federal Reserve Action Effect on the Money Supply Raise the required reserve ratio (1) Raise the discount rate (2) Lower the required reserve ratio (3) Conduct open market sale (4) Lower the discount rate (5) Conduct open market purchase (6) 120. Refer to Exhibit 13-2. What word (up or down) should go in the place of blank (5) and blank (6), respectively?
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Up; up
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Up; down
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Down; up
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Down; down
Correct Answer
A. Up; upExplanation
When the Federal Reserve lowers the discount rate, it encourages banks to borrow more from the central bank, which increases the money supply. This leads to an increase in lending and spending in the economy, resulting in an "up" effect on the money supply. Similarly, when the Federal Reserve conducts open market purchases, it injects money into the economy by buying government securities from banks, which also increases the money supply. Therefore, the correct answer is "up; up".Rate this question:
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- 14.
What are the two types of discretionary fiscal policy?
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Automatic and expansionary
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Expansionary and contractionary
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Expansionary and recessionary
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Automatic and contractionary
Correct Answer
A. Expansionary and contractionaryExplanation
The correct answer is expansionary and contractionary. Discretionary fiscal policy refers to the deliberate changes in government spending and taxation to influence the economy. Expansionary fiscal policy involves increasing government spending and/or reducing taxes to stimulate economic growth and increase aggregate demand. On the other hand, contractionary fiscal policy involves decreasing government spending and/or increasing taxes to slow down economic growth and reduce inflationary pressures. These two types of fiscal policy are used by governments to manage the overall economic conditions of a country.Rate this question:
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- 15.
Fiscal policy refers to
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Efforts to balance a government's budget.
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Changes in the money supply to achieve particular economic goals.
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Changes in government expenditures and taxation to achieve particular economic goals.
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The change in private expenditures that occurs as a consequence of changes in government spending.
Correct Answer
A. Changes in government expenditures and taxation to achieve particular economic goals.Explanation
Fiscal policy refers to the changes in government expenditures and taxation to achieve particular economic goals. This means that the government can adjust its spending and tax policies in order to stimulate or slow down the economy, control inflation, reduce unemployment, or achieve other economic objectives. By increasing or decreasing government spending and taxes, policymakers can influence the overall level of economic activity and steer the economy towards desired outcomes.Rate this question:
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- 16.
50. The crowding-out effect suggests that
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High taxes reduce both consumption and saving.
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Increases in consumption are always at the expense of saving.
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Increases in government spending may raise the interest rate, thereby reducing investment.
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Increases in government spending will close a recessionary gap.
Correct Answer
A. Increases in government spending may raise the interest rate, thereby reducing investment.Explanation
The crowding-out effect refers to the phenomenon where increases in government spending lead to higher interest rates, which, in turn, reduce private sector investment. This happens because when the government borrows money to finance its spending, it increases the demand for loanable funds, causing interest rates to rise. As interest rates increase, businesses and individuals find it more expensive to borrow, leading to a decrease in investment. Therefore, increases in government spending may raise the interest rate, thereby reducing investment.Rate this question:
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- 17.
That part of the deficit due to output being below Natural Real GDP is called the __________ deficit.
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Net
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Gross
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Cyclical
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Structural
Correct Answer
A. CyclicalExplanation
The part of the deficit due to output being below Natural Real GDP is called the cyclical deficit. This refers to the portion of the deficit that is caused by economic downturns or recessions, which lead to a decrease in production and income. During these periods, tax revenues are lower and government spending on programs like unemployment benefits increases, resulting in a cyclical deficit. This deficit is temporary and tends to decrease as the economy recovers.Rate this question:
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- 18.
If there is complete crowding out, the effective value of the multiplier is
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Zero
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One
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Infinite
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There is not enough information to answer the question.
Correct Answer
A. ZeroExplanation
Complete crowding out refers to a situation where an increase in government spending is offset by an equal decrease in private sector spending, resulting in no net increase in overall economic activity. In this scenario, the effective value of the multiplier, which measures the impact of government spending on the economy, would be zero. This means that the initial increase in government spending does not lead to any additional economic growth or stimulus, as it is completely offset by reduced private sector spending.Rate this question:
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- 19.
Taxable Income Taxes $0 - $23,000 9% of taxable income $23,001 - $42,000 $2,070 + 13% of everything over $23,000 $42,001 - $69,000 $4,540 + 17% of everything over $42,000 Refer to Exhibit 11-4. If a person’s taxable income is $60,000, how much does he pay in taxes?
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$7,600.
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$10,200.
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$8,780.
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$15,300.
Correct Answer
A. $7,600.Explanation
Based on the tax brackets provided in Exhibit 11-4, if a person's taxable income is $60,000, they fall into the $42,001 - $69,000 bracket. In this bracket, they would pay $4,540 plus 17% of everything over $42,000. Therefore, the calculation would be $4,540 + (17% x ($60,000 - $42,000)) = $7,600.Rate this question:
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- 20.
27. The first bankers were
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Sheriffs.
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Goldsmiths.
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Clergy
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Innkeepers.
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Economists.
Correct Answer
A. Goldsmiths.Explanation
Goldsmiths were the first bankers because they were trusted with people's valuable items, such as gold and jewelry, which they kept in their safes. Over time, they started issuing receipts for these deposits, which could be exchanged for the stored items. These receipts began to circulate as a form of currency, leading to the development of banking practices. Goldsmiths also started offering loans and credit, further solidifying their role as early bankers.Rate this question:
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- 21.
12. According to the text, the good that emerged as money in World War II POW camps was
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Tinned beef
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Toilet paper
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Cigarettes
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Cheese
Correct Answer
A. CigarettesExplanation
During World War II POW camps, cigarettes emerged as a form of currency. This was likely because cigarettes were in high demand and considered valuable by the prisoners. They could be used for bartering and trading for goods and services within the camp. Cigarettes were portable, easily divisible, and had a recognized value among the prisoners, making them a practical choice for a form of money in the camp economy.Rate this question:
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- 22.
Barter is
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The exchange of money for goods and then the exchange of those goods for money.
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The exchange of money for money, or the exchange of money for stocks and bonds.
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The exchange of goods and services for goods and services without the use of money.
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Any exchange, with or without the use of money, in which the participants negotiate (or barter) the price of the goods to be exchanged.
Correct Answer
A. The exchange of goods and services for goods and services without the use of money.Explanation
Barter refers to the exchange of goods and services for goods and services without the use of money. In this system, participants negotiate the price of the goods to be exchanged, without involving any monetary transactions. This method of trade was prevalent before the invention of money and is still practiced in some communities or situations where currency is scarce or not readily available.Rate this question:
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- 23.
76. Consider the following data: currency (held outside banks) = $354 billion, checkable deposits = $250 billion, traveler's checks = $4 billion, small-denomination time deposits = $200 billion, savings deposits = $100 billion, retail money market mutual funds = $160 billion. M1 equals __________ billion and M2 equals __________ billion.
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$608; $1,068
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$708; $1,038
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$708; $948
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$694; $1,038
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None of the above
Correct Answer
A. $608; $1,068Explanation
M1 includes currency held outside banks, checkable deposits, and traveler's checks. Adding these together gives us $354 billion + $250 billion + $4 billion = $608 billion. M2 includes M1 plus small-denomination time deposits, savings deposits, and retail money market mutual funds. Adding these together gives us $608 billion + $200 billion + $100 billion + $160 billion = $1,068 billion. Therefore, the correct answer is $608; $1,068.Rate this question:
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- 24.
41. Bank A has deposits of $8,000 and total reserves of $2,000. If the required reserve ratio is 0.15, the bank has required reserves of
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$4,000.
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$1,200.
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$900
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$300.
Correct Answer
A. $1,200.Explanation
The required reserve ratio is the percentage of deposits that banks are required to hold as reserves. In this case, the required reserve ratio is 0.15, which means that the bank is required to hold 15% of its deposits as reserves. The bank has deposits of $8,000, so the required reserves would be 0.15 times $8,000, which is $1,200.Rate this question:
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- 25.
50. The unit of account function of money refers to the
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Fact that money and income are the same thing.
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Common denominator of measurement provided by money.
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Characteristic that all money is intrinsically valuable.
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All of the above
Correct Answer
A. Common denominator of measurement provided by money.Explanation
The unit of account function of money refers to the common denominator of measurement provided by money. This means that money serves as a standard unit in which the value of goods, services, and assets can be measured. It allows for easy comparison and exchange of different items by assigning them a monetary value. Money acts as a universal measure of economic value, facilitating transactions and economic calculations.Rate this question:
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- 26.
23. In a barter economy, people are _________ to specialize in the production of one good or service, compared to in a money economy.
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More likely
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Less likely
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Equally likely
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Almost always going
Correct Answer
A. Less likelyExplanation
In a barter economy, where goods and services are exchanged directly without the use of money, it is less likely for people to specialize in the production of one good or service compared to in a money economy. This is because in a barter system, individuals need to find someone who wants what they have and has what they want, which can be more difficult and time-consuming. In a money economy, the use of currency allows for easier and more efficient exchanges, enabling individuals to specialize in producing what they are best at and then using money to acquire other goods and services.Rate this question:
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- 27.
86. If reserves rise by $1 million, what is the dollar difference between the maximum change in checkable deposits when the required reserve ratio is 10 percent and when it is 15 percent?
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$10 million
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$3.33 million
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$2 million
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$5 million
Correct Answer
A. $3.33 millionExplanation
When the required reserve ratio is 10 percent, the maximum change in checkable deposits can be calculated by dividing the change in reserves ($1 million) by the reserve ratio (0.10). This gives us a maximum change of $10 million.
When the required reserve ratio is 15 percent, the maximum change in checkable deposits can be calculated in the same way, dividing the change in reserves ($1 million) by the reserve ratio (0.15). This gives us a maximum change of $6.67 million.
The dollar difference between these two maximum changes is $10 million - $6.67 million = $3.33 million. Therefore, the correct answer is $3.33 million.Rate this question:
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- 28.
Federal Reserve Action Effect on the Money Supply Raise the required reserve ratio (1) Raise the discount rate (2) Lower the required reserve ratio (3) Conduct open market sale (4) Lower the discount rate (5) Conduct open market purchase (6) Refer to Exhibit 13-2. What word (up or down) should go in the place of blank (3) and blank (4), respectively?
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Up; up
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Up; down
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Down; up
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Down; down
Correct Answer
A. Up; downExplanation
In the given question, blank (3) refers to the effect on the money supply when the required reserve ratio is lowered. Lowering the required reserve ratio means that banks are required to hold a smaller percentage of their deposits as reserves, which allows them to lend out more money. This increases the money supply, so the word "up" should go in the place of blank (3).
Blank (4) refers to the effect on the money supply when an open market sale is conducted by the Federal Reserve. An open market sale involves the Fed selling government securities, which reduces the reserves of banks and decreases the money supply. Therefore, the word "down" should go in the place of blank (4).Rate this question:
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- 29.
28. Because money __________________, people are _________________ likely to specialize their work in a money economy.
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Is a store of value; less
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Eliminates the double coincidence of wants; more
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Is a unit of account; more
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Eliminates the need for holdings of precious metals; more
Correct Answer
A. Eliminates the double coincidence of wants; moreExplanation
Money eliminates the double coincidence of wants, which means that people no longer have to find someone who has what they want and wants what they have in order to make an exchange. This makes it easier for people to specialize in their work because they can rely on money to facilitate transactions and trade. The use of money as a medium of exchange allows individuals to focus on their own skills and abilities, leading to a greater likelihood of specialization in a money economy.Rate this question:
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- 30.
44. Bank A holds $1 million in required reserves and the required reserve ratio is 9 percent. It follows that Bank A holds checkable deposit liabilities that total approximately
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$111 million.
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$11,111,111.
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$90 million.
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$900 million.
Correct Answer
A. $11,111,111.Explanation
Bank A holds $1 million in required reserves, which is 9 percent of the total checkable deposit liabilities. To find the total checkable deposit liabilities, we can use the formula: Total checkable deposit liabilities = Required reserves / Required reserve ratio. Plugging in the values, we get: Total checkable deposit liabilities = $1 million / 0.09 = $11,111,111.Rate this question:
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- 31.
94. The president of the ________________________ holds a permanent seat on the FOMC.
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United States
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Federal Reserve District Bank of New York
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Federal Reserve District Bank of San Francisco
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U.S. Senate banking committee
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None of the above
Correct Answer
A. Federal Reserve District Bank of New YorkExplanation
The president of the Federal Reserve District Bank of New York holds a permanent seat on the FOMC.Rate this question:
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- 32.
71. Which of the following Fed actions will increase the money supply?
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Open market purchases of Treasury notes
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An increase in the required reserve ratio
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An increase in the discount rate
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All of the above
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None of the above
Correct Answer
A. Open market purchases of Treasury notesExplanation
Open market purchases of Treasury notes by the Fed will increase the money supply. When the Fed buys Treasury notes from the open market, it injects money into the economy. This increases the reserves of banks, allowing them to lend more money to businesses and individuals. As a result, the money supply in the economy expands. Therefore, the correct answer is open market purchases of Treasury notes.Rate this question:
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- 33.
97. Here is how an open market sale works: A commercial bank __________ government securities to (from) the Fed, which lowers the bank's deposits at the __________ and __________ the bank's __________.
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Buys; Fed; lowers; reserves
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Sells; Treasury; raises; reserves
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Sells; Fed; raises; reserves
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Buys; Treasury; lowers; liabilities
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None of the above
Correct Answer
A. Buys; Fed; lowers; reservesExplanation
An open market sale works by a commercial bank buying government securities from the Fed. This transaction lowers the bank's deposits at the Fed and decreases the bank's reserves.Rate this question:
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- 34.
1. The Federal Reserve System is the
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Federal government agency that collects taxes and spends these receipts on tanks, bridges, government employees' salaries, etc.
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Company that delivers packages to your front door.
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Central bank of the United States.
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Federal government agency that collects and disseminates all the economic data that economists are interested in.
Correct Answer
A. Central bank of the United States.Explanation
The correct answer is the central bank of the United States. The Federal Reserve System is responsible for regulating the country's monetary policy, supervising and regulating banks, and maintaining the stability of the financial system. It does not collect taxes or deliver packages, but rather focuses on managing the economy and ensuring the smooth functioning of the banking sector.Rate this question:
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- 35.
A curve showing the relationship between tax rates and tax revenues is called a __________ curve.
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Phillips
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Keynesian
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Gaussian
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Laffer
Correct Answer
A. LafferExplanation
A curve showing the relationship between tax rates and tax revenues is called a Laffer curve. The Laffer curve illustrates the concept that at a certain point, increasing tax rates beyond a certain threshold can actually lead to a decrease in tax revenues. This is because higher tax rates can discourage economic activity and incentivize tax evasion. The curve is named after economist Arthur Laffer, who popularized this idea in the 1980s.Rate this question:
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- 36.
Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of
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Incomplete crowding out.
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Complete crowding out.
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Zero crowding out.
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A and c
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None of the above
Correct Answer
A. Complete crowding out.Explanation
This scenario demonstrates complete crowding out because the increase in government spending on public education is exactly offset by the decrease in individual spending on private education. As a result, there is no net increase in overall education spending, indicating that government spending has completely crowded out private spending.Rate this question:
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- 37.
38. Tenth National Bank holds $235,000,000 in checkable deposits and $25,500,000 in reserves. With a required reserve ratio of 10 percent, how much in excess reserves is Tenth National holding?
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$20,000,000
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$2,000,000
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$220,500,000
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$18,900,000
Correct Answer
A. $2,000,000Explanation
The required reserve ratio is 10 percent, which means that Tenth National Bank is required to hold 10 percent of its checkable deposits as reserves. Therefore, the required reserves would be 10 percent of $235,000,000, which is $23,500,000. Since Tenth National Bank is holding $25,500,000 in reserves, this means that they have $2,000,000 in excess reserves ($25,500,000 - $23,500,000 = $2,000,000).Rate this question:
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- 38.
Which of the following illustrates the data lag?
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The economy turns down on January 8, 2006, but policymakers do not figure this out until April 19, 2006.
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Policymakers wait and see what is really going on with the economy.
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Policymakers implement policy X on September 12, 2006, but the effects are not felt until six months later.
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The data lag is illustrated equally well by a, b, and c.
Correct Answer
A. The economy turns down on January 8, 2006, but policymakers do not figure this out until April 19, 2006.Explanation
The correct answer illustrates the data lag because it shows a situation where the economy experiences a downturn on a specific date, but policymakers only become aware of this downturn several months later. This delay in policymakers' understanding of the economic situation represents a data lag, as there is a gap between when the event occurs and when it is recognized and acted upon.Rate this question:
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- 39.
Elaine's taxable income increases by $1 and her tax payment increases by $0.28. Her marginal tax rate is
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72 percent.
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28 percent.
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56 percent.
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There is not enough information to answer the question.
Correct Answer
A. 28 percent.Explanation
If Elaine's taxable income increases by $1 and her tax payment increases by $0.28, it means that her marginal tax rate is $0.28/$1, which is equal to 0.28 or 28%. This indicates that for every additional dollar of taxable income, Elaine is required to pay 28% as taxes. Therefore, the correct answer is 28 percent.Rate this question:
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- 40.
Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million. This is an example of
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Incomplete crowding out.
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Complete crowding out.
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Zero crowding out.
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A and c
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None of the above
Correct Answer
A. Complete crowding out.Explanation
This scenario illustrates complete crowding out because the increase in government spending on public education is exactly offset by the decrease in individual spending on private education. As a result, there is no net increase in overall education spending in the economy. This suggests that government intervention has fully replaced private sector activity in this particular context.Rate this question:
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- 41.
45. When a bank makes a loan to one of its customers, to the bank the loan is classified as
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An asset.
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A liability.
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Neither an asset nor a liability.
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An asset in some cases and a liability in other cases, depending on the type of loan.
Correct Answer
A. An asset.Explanation
When a bank makes a loan to one of its customers, the loan is classified as an asset. This is because the bank expects to receive payments from the customer in the form of principal and interest over a period of time. These expected future cash flows represent an economic benefit for the bank, making the loan an asset on its balance sheet.Rate this question:
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- 42.
99. The potential buyer of a house has less information about the house than the seller of the house. This is a case of
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Externality information.
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Free ridership.
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Asymmetric information.
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Biased information.
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A public good not being a private good.
Correct Answer
A. Asymmetric information.Explanation
Asymmetric information refers to a situation where one party in a transaction has more information than the other party. In this case, the potential buyer of a house has less information about the house compared to the seller. This can create an imbalance in power and bargaining position, as the seller may take advantage of the buyer's lack of information. Asymmetric information can lead to market inefficiencies and potential issues in the transaction process.Rate this question:
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- 43.
17. Your neighbor has knowledge of economics and you would like her to share it with you. You own a car, a CD player and a new pair of running shoes. You wish to make a trade, but the neighbor does not want what you have. The problem can be stated as follows: You are not satisfying the
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Rule of transaction costs.
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Double coincidence of wants.
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Law of marketability.
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Terms of a common denominator.
Correct Answer
A. Double coincidence of wants.Explanation
The correct answer is "double coincidence of wants." In economics, double coincidence of wants refers to the situation where two parties have goods or services that the other party desires, creating a mutual benefit for trade. In this scenario, the neighbor does not want what the person has to offer, leading to a lack of double coincidence of wants. This hinders the possibility of a trade taking place.Rate this question:
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- 44.
A unit of account is
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A bank account.
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A savings account.
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A common measurement in which values are expressed.
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The same as a medium of exchange.
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None of the above
Correct Answer
A. A common measurement in which values are expressed.Explanation
A unit of account refers to a common measurement in which values are expressed. It is a standard unit used to measure and compare the value of different goods, services, and assets. This allows for easy exchange and comparison of value in economic transactions. It is different from a bank account or a savings account, which are specific financial instruments used for storing and managing money. Similarly, it is not the same as a medium of exchange, which refers to a form of currency or method used to facilitate transactions.Rate this question:
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- 45.
2. The Federal Reserve System began operations in
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1834.
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1896
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1914
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1935.
Correct Answer
A. 1914Explanation
The correct answer is 1914. The Federal Reserve System, also known as the Fed, is the central banking system of the United States. It was established in 1914 to provide a stable monetary and financial system for the country. The Fed is responsible for regulating the banking industry, conducting monetary policy, and promoting the stability of the financial system.Rate this question:
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- 46.
A "flat tax" is another term for __________ tax.
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A progressive
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A proportional
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A regressive
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The inflation
Correct Answer
A. A proportionalExplanation
A "flat tax" is a term used to describe a tax system where the tax rate remains the same regardless of the individual's income level. This means that everyone, regardless of their income, pays the same percentage of their income in taxes. Therefore, a "flat tax" is synonymous with a proportional tax, as both terms refer to a tax system where the tax rate remains constant.Rate this question:
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- 47.
51. The store of value function of money refers to the ability of money to
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Facilitate the exchange of goods and services.
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Maintain its value over time.
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Express relative scarcity.
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Earn interest over time.
Correct Answer
A. Maintain its value over time.Explanation
The store of value function of money refers to its ability to maintain its value over time. This means that money can be saved and held onto for future use without losing its purchasing power. It is important for money to maintain its value over time so that individuals can rely on it as a stable and reliable form of wealth. If money were to lose its value over time, it would not effectively serve as a store of value and people would be less likely to hold onto it.Rate this question:
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- 48.
56. Money is defined by economists as
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The market value of an asset.
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The funds one receives during a specified period of time.
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Any good that is widely accepted in exchange and for the repayment of debts.
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Both b and c
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All of the above
Correct Answer
A. Any good that is widely accepted in exchange and for the repayment of debts.Explanation
Money is defined by economists as any good that is widely accepted in exchange and for the repayment of debts. This definition encompasses both physical forms of money, such as coins and banknotes, as well as digital forms, such as electronic bank transfers. Money serves as a medium of exchange, allowing individuals to trade goods and services, and it also functions as a unit of account, providing a common measure of value. Additionally, money is a store of value, allowing individuals to save and accumulate wealth over time. Therefore, this definition accurately captures the essential characteristics of money as recognized by economists.Rate this question:
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- 49.
Suppose that government expenditures are currently $700 billion and tax revenues are currently $550 billion. Assume further that the government estimates that if the economy were operating at full employment government expenditures would only be $685 billion and tax revenues would be $600 billion. In this case, the total budget deficit is _____________ billion.
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$85
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$65
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$150
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$215
Correct Answer
A. $65Explanation
The total budget deficit can be calculated by subtracting tax revenues from government expenditures. In this case, the government expenditures are $700 billion and tax revenues are $550 billion. If the economy were operating at full employment, government expenditures would be $685 billion and tax revenues would be $600 billion. Therefore, the total budget deficit is $700 billion - $550 billion = $150 billion.Rate this question:
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.png "Refer to Exhibit 11-1. The economy is currently at point 1. Suppose the federal government increases purchases and there is complete crowding out. As a result, the aggregate demand (AD) curve in the exhibit")
.png "Refer to Exhibit 11-1. The economy is currently at point 1. In this situation, Keynesian economists would most likely propose")
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