Exam 3
Exam 3
Student: ___________________________________________________________________________
1. Market power is:
A. The ability to alter the market price of a product.
B. Most common for competitive firms.
C. Enjoyed by all firms at high levels of output.
D. A characteristic of all market structures.
2. The demand curve faced by a monopolist is:
A. Vertical.
B. The market demand curve.
C. The same as the marginal revenue curve.
D. Horizontal.
3. If a monopolist is producing a level of output where MR exceeds MC, then it should:
A. Increase its output.
B. Raise its price.
C. Shift its marginal cost curve upward.
D. Lower its output.
4. A barrier to entry is:
A. An obstacle that prevents additional workers from entering an industry, such as a union.
B. A commitment on the part of big business to allow smaller companies to compete.
C. A law established by the government to protect new industries.
D. An obstacle that makes it difficult for new firms to enter a market.
5. Which of the following is a barrier to entry in a monopoly market?
A. A vertical supply curve.
B. A patent on a new product.
C. Economic profits greater than zero for the monopolist.
D. A rising long-run average total cost curve.
6. The ultimate market constraint on the exercise of market power:
A. Is the ATC curve facing the monopolist.
B. Is marginal cost pricing.
C. Is the demand curve facing the monopolist.
D. Are barriers to entry.
7. Which of the following is an example of price discrimination by the only 10-minute oil change business in town?
A. Charging a lower price if the customer does not want their car vacuumed.
B. Charging a lower price if the windshield wiper fluid does not need to be refilled.
C. Charging women a lower price because it is Tuesday.
D. Charging a lower price for cars that require less oil.
8. The business cycle is defined as:
A. Alternating periods of economic growth and contraction.
B. The growth of real GDP.
C. Changing wages and prices.
D. An effort to reach full employment.
9. When money is used to express the market value of goods and services it is functioning as a:
A. Substitute for precious metals.
B. Medium of exchange.
C. Standard of value.
D. Store of value.
10. When money is used to acquire goods and services it is functioning as a:
A. Store of value.
B. Standard of account.
C. Equation of value.
D. Medium of exchange.
11. Which of the following is not included in the narrowest definition of the money supply?
A. Traveler's checks.
B. Currency in circulation.
C. Credit card balances.
D. Transactions account balances.
12. The minimum amount of reserves a bank is required to hold is known as:
A. Required reserves.
B. Excess reserves.
C. Total reserves.
D. The money multiplier.
13. Suppose a bank has $200,000 in deposits and a required reserve ratio of 20 percent. Then required reserves are:
A. $80,000.
B. $20,000.
C. $40,000.
D. $200,000.
14. Banks are required to keep a minimum amount of funds in reserve because:
A. Borrowers may decide to repay loans ahead of schedule.
B. The Fed may decide to withdraw funds at any time.
C. Depositors may decide to withdraw funds at any time.
D. The bank may decide to increase aggregate demand at any time.
15. Initially a bank has a required reserve ratio of 20 percent and no excess reserves. If $5,000 is deposited into the bank, then ceteris paribus:
A. This bank can increase its loans by $4,000.
B. Required reserves will increase by $5,000.
C. This bank can increase its loans by $5,000.
D. Total reserves will increase by $4,000.
16. Which of the following explains why banks try to keep their holdings of excess reserves low?
A. To maximize profits.
B. To escape Fed penalties.
C. To keep the money multiplier low.
D. To please bank examiners.
17. Excess reserves are:
A. Total reserves less transactions account balances.
B. Bank reserves in excess of vault cash.
C. Required reserves less demand deposits.
D. Total reserves less required reserves.
18. Which of the following is a bank liability?
A. Reserve deposits at the Fed.
B. Securities the bank has purchased.
C. Loans made to customers.
D. Transactions account balances.
19. Suppose a bank has $200,000 in deposits, a required reserve ratio of 15 percent, and total reserves of $100,000. Then it has excess reserves of:
A. $200,000.
B. Negative $100,000.
C. $30,000.
D. $70,000.
20. If the banking system has a required reserve ratio of 20 percent, then the money multiplier is:
A. 5.0.
B. 0.8.
C. 0.2.
D. 1.25.
21. Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:
A. Make their decisions based on economic, rather than political, considerations.
B. Have time to learn how the Fed operates.
C. Have enough time to travel to all 12 regional banks.
D. Are more likely to make politically-acceptable decisions.
22. The current chairman of the Federal Reserve is:
A. George W. Bush.
B. Ben Bernanke.
C. Nancy Pelosi.
D. Alan Greenspan.
23. The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is known as:
A. Open market operations.
B. Discounting.
C. Federal funds operations.
D. Zero coupon bonding.
24. Long-run economic growth can be illustrated by:
A. An outward shift of the production possibilities curve.
B. An inward shift of the production possibilities curve.
C. A rightward shift of the aggregate demand curve.
D. A leftward shift of the aggregate supply curve.
25. Those who work part-time and do not desire full-time employment are referred to as:
A. Discouraged workers.
B. Underemployed
C. Employed.
D. The phantom unemployed.
26. The unemployment rate is the:
A. Proportion of the labor force that is unemployed.
B. Amount of all resources not used in production.
C. Proportion of the citizens that are not working.
D. Percentage of the population that is unemployed.
27. If the population of a country is 250,000 people, its labor force consists of 145,000 people, and 35,000 people are unemployed, the unemployment rate is:
A. 19.4 percent.
B. 24.1 percent.
C. 22.1 percent.
D. 14.0 percent.
28. When an economy enters a recession the:
A. Duration of unemployment rises.
B. Number of unemployed falls.
C. Cost of unemployment falls.
D. Number of discouraged workers falls.
29. Which of the following is considered a discouraged worker?
A. A professional football player who gets cut after the preseason schedule has been completed.
B. A retired professional football player who tried to make a comeback but found no one was willing to give him a tryout, so he no longer looks for a job.
C. A professional football coach coming off a 0-16 season.
D. A professional football player who is forced to play a new position.
30. After the harvest, some farmhands lose their jobs. They are considered to be:
A. Seasonally unemployed.
B. Structurally unemployed.
C. Cyclically unemployed.
D. Frictionally unemployed.
31. Frictional unemployment goes up when:
A. A corporation transfers a worker to another city.
B. There is inadequate demand for labor.
C. A student quits work to return to school at the end of the summer.
D. A worker quits one job in order to search for another.
32. Structural unemployment occurs when:
A. Firms fail in the normal course of business activity.
B. An industry experiences a seasonal downturn.
C. Workers do not have the skills required to fill the vacant positions in the job market.
D. There is inadequate demand for labor.
33. An increase in the average level of prices of goods and services is:
A. Deflation.
B. Inflation.
C. Bracket creep.
D. Consumer Price Index.
34. Real income is:
A. The basis for indexing of price changes.
B. The amount of money income received in a given time period, measured in current dollars.
C. Nominal income adjusted for inflation.
D. The use of nominal dollars to gauge changes in income.
35. The Consumer Price Index is:
A. Used to measure the impact of business speculation on consumers.
B. A measure of changes in the average price of all goods and services.
C. A measure of changes in the average price of consumer goods and services.
D. The impact felt by consumers who move into a higher tax bracket because of inflation.
36. The base period is the:
A. First year in which inflation figures were calculated.
B. Time period when full employment is reached.
C. Absence of significant changes in the average price level.
D. Time period used for comparative analysis.
37. The GDP deflator:
A. Is the best measure of inflation.
B. Is the price index based on a fixed basket of goods and services.
C. Is the broadest price index, covering all output.
D. Reflects the price changes felt by producers but not consumers.
Exam 3, Spring 2012 Key
1. (p. 185) Market power is:
A. The ability to alter the market price of a product.
b. Most common for competitive firms.
c. Enjoyed by all firms at high levels of output.
d. A characteristic of all market structures.
2. (p. 185) The demand curve faced by a monopolist is:
a. Vertical.
B. The market demand curve.
c. The same as the marginal revenue curve.
d. Horizontal.
3. (p. 187) If a monopolist is producing a level of output where MR exceeds MC, then it should:
A. Increase its output.
b. Raise its price.
c. Shift its marginal cost curve upward.
d. Lower its output.
4. (p. 188) A barrier to entry is:
a. An obstacle that prevents additional workers from entering an industry, such as a union.
b. A commitment on the part of big business to allow smaller companies to compete.
c. A law established by the government to protect new industries.
D. An obstacle that makes it difficult for new firms to enter a market.
5. (p. 188) Which of the following is a barrier to entry in a monopoly market?
a. A vertical supply curve.
B. A patent on a new product.
c. Economic profits greater than zero for the monopolist.
d. A rising long-run average total cost curve.
6. (p. 195) The ultimate market constraint on the exercise of market power:
a. Is the ATC curve facing the monopolist.
b. Is marginal cost pricing.
C. Is the demand curve facing the monopolist.
d. Are barriers to entry.
7. (p. 195) Which of the following is an example of price discrimination by the only 10-minute oil change business in town?
a. Charging a lower price if the customer does not want their car vacuumed.
b. Charging a lower price if the windshield wiper fluid does not need to be refilled.
C. Charging women a lower price because it is Tuesday.
d. Charging a lower price for cars that require less oil.
8. (p. 145) The business cycle is defined as:
A. Alternating periods of economic growth and contraction.
b. The growth of real GDP.
c. Changing wages and prices.
d. An effort to reach full employment.
9. (p. 256) When money is used to express the market value of goods and services it is functioning as a:
a. Substitute for precious metals.
b. Medium of exchange.
C. Standard of value.
d. Store of value.
10. (p. 256) When money is used to acquire goods and services it is functioning as a:
a. Store of value.
b. Standard of account.
c. Equation of value.
D. Medium of exchange.
11. (p. 257) Which of the following is not included in the narrowest definition of the money supply?
a. Traveler's checks.
b. Currency in circulation.
C. Credit card balances.
d. Transactions account balances.
12. (p. 262) The minimum amount of reserves a bank is required to hold is known as:
A. Required reserves.
b. Excess reserves.
c. Total reserves.
d. The money multiplier.
13. (p. 262) Suppose a bank has $200,000 in deposits and a required reserve ratio of 20 percent. Then required reserves are:
a. $80,000.
b. $20,000.
C. $40,000.
d. $200,000.
14. (p. 262) Banks are required to keep a minimum amount of funds in reserve because:
a. Borrowers may decide to repay loans ahead of schedule.
b. The Fed may decide to withdraw funds at any time.
C. Depositors may decide to withdraw funds at any time.
d. The bank may decide to increase aggregate demand at any time.
15. (p. 262) Initially a bank has a required reserve ratio of 20 percent and no excess reserves. If $5,000 is deposited into the bank, then ceteris paribus:
A. This bank can increase its loans by $4,000.
b. Required reserves will increase by $5,000.
c. This bank can increase its loans by $5,000.
d. Total reserves will increase by $4,000.
16. (p. 262) Which of the following explains why banks try to keep their holdings of excess reserves low?
A. To maximize profits.
b. To escape Fed penalties.
c. To keep the money multiplier low.
d. To please bank examiners.
17. (p. 262) Excess reserves are:
a. Total reserves less transactions account balances.
b. Bank reserves in excess of vault cash.
c. Required reserves less demand deposits.
D. Total reserves less required reserves.
18. (p. 262) Which of the following is a bank liability?
a. Reserve deposits at the Fed.
b. Securities the bank has purchased.
c. Loans made to customers.
D. Transactions account balances.
19. (p. 262) Suppose a bank has $200,000 in deposits, a required reserve ratio of 15 percent, and total reserves of $100,000. Then it has excess reserves of:
a. $200,000.
b. Negative $100,000.
c. $30,000.
D. $70,000.
20. (p. 265) If the banking system has a required reserve ratio of 20 percent, then the money multiplier is:
A. 5.0.
b. 0.8.
c. 0.2.
d. 1.25.
21. (p. 274) Members of the Federal Reserve Board of Governors are appointed for one fourteen-year term so that they:
A. Make their decisions based on economic, rather than political, considerations.
b. Have time to learn how the Fed operates.
c. Have enough time to travel to all 12 regional banks.
d. Are more likely to make politically-acceptable decisions.
22. (p. 274) The current chairman of the Federal Reserve is:
a. George W. Bush.
B. Ben Bernanke.
c. Nancy Pelosi.
d. Alan Greenspan.
23. (p. 280) The purchase and sale of government bonds by the Fed for the purpose of altering bank reserves is known as:
A. Open market operations.
b. Discounting.
c. Federal funds operations.
d. Zero coupon bonding.
24. (p. 108) Long-run economic growth can be illustrated by:
A. An outward shift of the production possibilities curve.
b. An inward shift of the production possibilities curve.
c. A rightward shift of the aggregate demand curve.
d. A leftward shift of the aggregate supply curve.
25. (p. 111) Those who work part-time and do not desire full-time employment are referred to as:
a. Discouraged workers.
b. Underemployed
C. Employed.
d. The phantom unemployed.
26. (p. 109) The unemployment rate is the:
A. Proportion of the labor force that is unemployed.
b. Amount of all resources not used in production.
c. Proportion of the citizens that are not working.
d. Percentage of the population that is unemployed.
27. (p. 109) If the population of a country is 250,000 people, its labor force consists of 145,000 people, and 35,000 people are unemployed, the unemployment rate is:
a. 19.4 percent.
B. 24.1 percent.
c. 22.1 percent.
d. 14.0 percent.
28. (p. 110) When an economy enters a recession the:
A. Duration of unemployment rises.
b. Number of unemployed falls.
c. Cost of unemployment falls.
d. Number of discouraged workers falls.
29. (p. 110) Which of the following is considered a discouraged worker?
a. A professional football player who gets cut after the preseason schedule has been completed.
B. A retired professional football player who tried to make a comeback but found no one was willing to give him a tryout, so he no longer looks for a job.
c. A professional football coach coming off a 0-16 season.
d. A professional football player who is forced to play a new position.
30. (p. 114) After the harvest, some farmhands lose their jobs. They are considered to be:
A. Seasonally unemployed.
b. Structurally unemployed.
c. Cyclically unemployed.
d. Frictionally unemployed.
31. (p. 115) Frictional unemployment goes up when:
a. A corporation transfers a worker to another city.
b. There is inadequate demand for labor.
c. A student quits work to return to school at the end of the summer.
D. A worker quits one job in order to search for another.
32. (p. 115) Structural unemployment occurs when:
a. Firms fail in the normal course of business activity.
b. An industry experiences a seasonal downturn.
C. Workers do not have the skills required to fill the vacant positions in the job market.
d. There is inadequate demand for labor.
33. (p. 124) An increase in the average level of prices of goods and services is:
a. Deflation.
B. Inflation.
c. Bracket creep.
d. Consumer Price Index.
34. (p. 126) Real income is:
a. The basis for indexing of price changes.
b. The amount of money income received in a given time period, measured in current dollars.
C. Nominal income adjusted for inflation.
d. The use of nominal dollars to gauge changes in income.
35. (p. 131) The Consumer Price Index is:
a. Used to measure the impact of business speculation on consumers.
b. A measure of changes in the average price of all goods and services.
C. A measure of changes in the average price of consumer goods and services.
d. The impact felt by consumers who move into a higher tax bracket because of inflation.
36. (p. 132) The base period is the:
a. First year in which inflation figures were calculated.
b. Time period when full employment is reached.
c. Absence of significant changes in the average price level.
D. Time period used for comparative analysis.
37. (p. 133) The GDP deflator:
a. Is the best measure of inflation.
b. Is the price index based on a fixed basket of goods and services.
C. Is the broadest price index, covering all output.
d. Reflects the price changes felt by producers but not consumers.