SOPHIA ECON102 Unit 3 Milestone Latest 2022 May

ECON102 Macroeconomics

Unit 3 Milestone

1Which of the following is an example of medium of exchange?

People invest in gold because it stays stable over time and does not tarnish, rust or deteriorate.

A restaurant lists a price for dinner in gold coins.

People in the Pacific Islands used cowrie shells as a form of payment for the things they wanted.

A chicken farmer who wants a cow needs to find a cattle farmer who wants some chickens.

2Which of the following is true about a fractional reserve banking system?

There are no regulations concerning the portion of reserves banks must hold.

It allows banks to loan out a portion of deposits and therefore create money.

The central bank does not allow for this type of system.

It is likely to fail as most people demand all of their money each day.

3Which of the following is an example of deflation?

Someone owes more on a house than it is worth.

Prices are increasing, so the purchasing power of the currency is falling.

People revert back to a barter economy.

Economic instability destroys the value of the currency.

4If the MPC is 0.75 and the government increases spending by $100 billion, the effect this change has on the economy will be which of the following?

There will be an increase of $100 billion in economic activity.

There will be an increase of $133.3 billion throughout the economy.

There will be an increase of $400 billion in economic activity.

There will be an increase of $75 billion in economic activity.

5Which of the following is false about budget deficits?

They are financed with tax revenue or new debt.

They represent the difference between tax revenue and government expenditures.

They typically happen when using contractionary fiscal policy.

They can affect long run RGDP.

6Which of the choices below is NOT true about expansionary fiscal policy?

It can trigger the multiplier effect.

It is financed by selling treasury securities.

It will result in an increase in the unemployment rate.

It often results in government expenditures exceeding tax revenues.

7What does the expression Y – (C + T) represent?

GDP

Government savings

Public savings

Investments

8In which of the following ways does the Fed use the open market to control the money supply?

It raises interest rates.

It loans money to private banks.

It creates money out of thin air.

It buys and sells U.S. Treasury securities.

9Using the expenditure approach and the information shown here, which of the following is the GDP?

Individual Purchases: $5 billion

Government purchases: $10 billion

Business investments: $5 billion

Imports: $5 billion

Exports: $10 billion

$35 billion

$45 billion

$25 billion

$15 billion

10Which of the following can offset rising interest rates due to government borrowing?

Reducing the money supply

Lowering taxes

Promising future increases in government spending

Expansionary monetary policy

11Which of the following makes the Federal Reserve different from central banks in other countries?

The Federal Reserve is not directly controlled by the federal government.

The Federal Reserve can expand the money supply during recessions.

The Federal Reserve works to combat inflation.

The Federal Reserve has tools to manage the money supply.

12Which answer below is NOT one of the goals of monetary policy?

To promote stable prices

To promote the maximum sustainable level of employment

To change levels of government spending and taxation

To avoid extremes of inflation and deflation

13Which of the following is an example of contractionary monetary policy?

Lowering interest rates

Policies taken in response to the housing crisis

Reducing reserve requirement

Open market sale of treasury securities

14Which of the following statements applies to the discount rate?

This rate is used when banks borrow directly from the Fed.

The fed funds rate is the same as this rate.

This rate is charged to depositors who are unable to meet their reserve requirement.

The Fed does not directly control this rate.

15Which of the following is NOT a way that the government finances fiscal policy?

Rolling over debt

Sale of treasury securities

Tax revenue

Printing money

16Which of the following is the reason the United States had been opposed to the idea of central banks in the past?

The value of currency was uncertain.

It was easier to make money trading currency using the old banking methods.

The risk of runs and panics was still too high.

The British central bank had exerted control over the colonies.

17If the reserve requirement of a bank is 33%, then $100 of M0 will lead to how much of M1?

$1000

$33

$330

$300

18Which of the following is NOT a way that the Fed prevents runs from happening?

Private banks can choose to “hold” their reserves at regional Federal Reserve banks.

Private banks rely on the Federal Government’s oversight of the Federal Reserve’s monetary policies.

If reserves run low, the Fed will loan money to the private banks.

The Fed ensures that these private banks have access to currency needed for depositors who wish to withdraw cash.

19Which of the following is NOT a step in the development of the gold standard?

Banks began to print paper money.

Banks emerged as depositories.

People wrote checks that could transfer ownership of gold without removing it from the vault.

Gold functioned in limited ways; its primary use was in making jewelry.

20Which of the following regarding the federal funds market is NOT true?

The Fed directly controls the federal funds rate.

The federal funds market developed to help banks meet their reserves requirements at the end of the day.

Transactions influence the amount of money that banks have on hand to meet the reserve requirement at the end of the day.

FOMC meetings set a target for the federal funds rate.

21Money market mutual funds are an example of which of the following types of money?

M1

M2

M3

M0

22Which statement below corresponds to the term “central bank?”

This was developed by the founding fathers in order to ensure strict banking practices.

This can happen when consumers lose confidence in the bank or the system as a whole.

They allow a bank to loan out money to other banks.

They have a variety of tools that can be used to control the money supply.

23Under which of the following circumstances would a fractional reserve system fail?

As long as there is more gold than paper money

As long as the holders of paper currency demand more gold than what banks are holding as reserves

As long as banks are able to earn money on interest

As long as banks are able to make loans