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ECO 202– Questions With Solutions (Correct & Verified)
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ECO 202– Questions With Solutions (Correct & Verified)
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ECO 202– Questions With Solutions (Correct &Verified)
The federal government debt equals the Right Ans - accumulation of past
budget deficits minus budget surplus
an expansion tends to cause the federal budget deficit to _____ because tax
revenues ______ and government spending on transfer payments ______ Right
Ans - decrease
rise
fall
Which best describes supply-side economics Right Ans - Tax rates,
particularly marginal tax rates, affect the incentive to work, save, and invest,
and therefore aggregate supply
Open market operations refer to the buying and selling of ____ by the ____ to
control the money supply Right Ans - Treasury securities
Federal Reserve
M2 includes (ignoring travelers' checks) Right Ans - currency in
circulation, checking account deposits, and savings-type account deposits
If households in the economy decide to take money out of savings accounts
and put this money into checking account deposits, this will Right Ans -
increase M1 and not change M2 `
The seven members of the Board of Governors of the Federal Reserve are
appointed by Right Ans - the President
A bank is legally required to hold a fraction of its _____ as ______ Right Ans -
deposits
required reserves
The three traditional monetary policy tools used by the Federal Reserves to
manage the money supply are Right Ans - open market operations,
discount policy, and reserve requirements
,The maturity mismatch that banks face refers to the banks having _____
deposits and ______ loans Right Ans - short-term
long-term
As a lender of last resort, a central bank like the Federal Reserve makes loans
to "banks" that have Right Ans - liquidity problems
Investment banks were more vulnerable than commercial banks to "bank
rules" because investment banks Right Ans - did not have federal deposit
insurance
The aggregate demand-aggregate supply model seeks to explain Right Ans
- the business cycle and the inflation rate
What will shift the aggregate demand curve to the left? Right Ans - a
decrease in household wealth
Suppose a developing country receives more machinery and capital
equipment as foreign entrepreneurs increase the amount of investment in the
economy. As a result, Right Ans - the long-run aggregate supply curve will
shift to the right
As the economy moves up a given long-run aggregate supply curve. Right
Ans - cyclical unemployment does not change
As the economy moves out and up along a given short-run aggregate supply
curve Right Ans - cyclical unemployment does not change
Technology advances in the economy would shift Right Ans - both the
short-run aggregate supply curve and the long-run aggregate supply curve to
the right
An increase in oil prices would be represented by a movement from Right
Ans - SRAS1 to SRAS3
If the bank of Waterloo receives a $10,000 deposit, and the reserves
requirement is 10 precent, how much can the bank loan out? (Assume that
, before the deposit this bank is just meeting its legal reserve requirement)
Right Ans - $9,000
If the Fed lowers the reserve requirement, then this Right Ans - increases
excess reserves, encourages the banks to make more loans, and increase the
money supply
What best describes how banks create money? Right Ans - Banks create
checking account deposits when making loans, and increases the money
supply
Assets:
Reserves $25,000
Loans $75,000
Liabilities:
Deposits $100,000
If the required ratio is 10 precent, how much in new loans can National City
make? Right Ans - $15,000
If the Fed buys U.S. Treasury securities, then this Right Ans - increases
reserves, encourages banks to make more loans, and increases the money
supply
Suppose banks decide to hold fewer excess reserves for any given amount of
checkable deposits. What would be the effect on the money supply? Right
Ans - The money supply would increase
In the basic aggregate demand-aggregate supply model, a decrease in firms;
expectations of the future profitability of investment spending will in the
short run lead to _____ in real GDP and _____ in the price level. Right Ans - a
decrease
a decrease
In the basic aggregate demand-aggregate supply model, a decrease in
aggregate demand will in the long run lead to _____ in real GDP and _____ in the
price level. Right Ans - no change
a decrease
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