Question 1

The term, "dis-saving" means

Accepted Answer

A)  having no respect for savings. 
B)  drawing money out of savings. 
C)  putting money into savings. 
D)  not saving at all. 
A)  having no respect for savings. 
B)  drawing money out of savings. 
C)  putting money into savings. 
D)  not saving at all. B

Question 2

A shift in income distribution from wealthy individuals to poor individuals is likely to

Accepted Answer

A)  increase consumer debt. 
B)  increase the national propensity to consume. 
C)  leave the national propensity to consume unchanged. 
D)  decrease the national propensity to consume. 
A)  increase consumer debt. 
B)  increase the national propensity to consume. 
C)  leave the national propensity to consume unchanged. 
D)  decrease the national propensity to consume. B

Question 3

What is the relationship between the business cycle and the prime rate?

Accepted Answer

A)  The prime rate rises during a contraction and falls during an expansion. 
B)  The prime rate rises during an expansion and falls during a contraction. 
C)  The prime rate rises during an expansion and rises during a contraction. 
D)  The prime rate initially rises during an expansion and then falls. 
A)  The prime rate rises during a contraction and falls during an expansion. 
B)  The prime rate rises during an expansion and falls during a contraction. 
C)  The prime rate rises during an expansion and rises during a contraction. 
D)  The prime rate initially rises during an expansion and then falls. B

Question 4

Those who currently have no savings and have no income

Accepted Answer

A)  are unable to consume. 
B)  will go into debt in order to consume. 
C)  have a zero marginal propensity to consume. 
D)  will increase their level of savings. 
A)  are unable to consume. 
B)  will go into debt in order to consume. 
C)  have a zero marginal propensity to consume. 
D)  will increase their level of savings.

Question 5

Consumer debt as a percentage of national income in the cycle 1991 to 2001 was approximately

Accepted Answer

A)  22% 
B)  52% 
C)  72% 
D)  92% 
A)  22% 
B)  52% 
C)  72% 
D)  92%

Question 6

The availability of credit makes an economy more financially fragile because

Accepted Answer

A)  consumers are unable to spend because they cannot get loans. 
B)  during recessions, consumers and businesses may be unable to repay debt leading to financial difficulties for financial institutions. 
C)  during recessions, financial institutions become too free and easy with credit leading to too much borrowing. 
D)  during expansions, many businesses and individuals may go bankrupt from spending too much. 
A)  consumers are unable to spend because they cannot get loans. 
B)  during recessions, consumers and businesses may be unable to repay debt leading to financial difficulties for financial institutions. 
C)  during recessions, financial institutions become too free and easy with credit leading to too much borrowing. 
D)  during expansions, many businesses and individuals may go bankrupt from spending too much.

Question 7

What is the wealth effect?

Accepted Answer

A)  The tendency for many individuals to copy the consumption patterns of the wealthy. 
B)  The tendency for increases in wealth to lead to increases in savings. 
C)  The tendency for increases in wealth to lead to increases in consumption. 
D)  The tendency for the wealthy to willingly share their good fortune with the less well off. 
A)  The tendency for many individuals to copy the consumption patterns of the wealthy. 
B)  The tendency for increases in wealth to lead to increases in savings. 
C)  The tendency for increases in wealth to lead to increases in consumption. 
D)  The tendency for the wealthy to willingly share their good fortune with the less well off.

Question 8

Why consumers tend to purchase less if they have less wealth (or more debt), even if their income remains constant?

Accepted Answer

A)  Consumers are irrational. 
B)  Consumers may feel richer, so they increase their savings in order to emulate the wealthy. 
C)  Consumers may feel poorer, so they want to increase their savings. 
D)  Consumers may already have bought all they want. 
A)  Consumers are irrational. 
B)  Consumers may feel richer, so they increase their savings in order to emulate the wealthy. 
C)  Consumers may feel poorer, so they want to increase their savings. 
D)  Consumers may already have bought all they want.

Question 9

How do banks create money?

Accepted Answer

A)  Banks print new money and distribute it in return for deposits of old money. 
B)  Banks loan money to the Federal Reserve who then prints new money. 
C)  Banks cannot create money. 
D)  Banks create money when they make loans. 
A)  Banks print new money and distribute it in return for deposits of old money. 
B)  Banks loan money to the Federal Reserve who then prints new money. 
C)  Banks cannot create money. 
D)  Banks create money when they make loans.

Question 10

Assume that the Federal Reserve sets a required reserve ratio of 5%. Then the money multiplier is

Accepted Answer

A)  5 
B)  20 
C)  50 
D)  100 
A)  5 
B)  20 
C)  50 
D)  100

Question 11

What is the prime rate?

Accepted Answer

A)  It is the highest interest rate in the economy. 
B)  It is the interest rate for long-term loans on real estate. 
C)  It is the interest rate offered by commercial banks to their best customers. 
D)  It is the interest rate consumers pay on new car loans. 
A)  It is the highest interest rate in the economy. 
B)  It is the interest rate for long-term loans on real estate. 
C)  It is the interest rate offered by commercial banks to their best customers. 
D)  It is the interest rate consumers pay on new car loans.

Question 12

Assume that the Federal Reserve sets a required reserve ratio of 10%. If a bank receives a deposit of $1000, then

Accepted Answer

A)  it must keep $10 on reserve and can loan out $990. 
B)  it must keep $100 on reserve and can loan out $900. 
C)  it must keep $1000 on reserve and cannot make any loans. 
D)  it must keep $900 on reserve and can loan out $100. 
A)  it must keep $10 on reserve and can loan out $990. 
B)  it must keep $100 on reserve and can loan out $900. 
C)  it must keep $1000 on reserve and cannot make any loans. 
D)  it must keep $900 on reserve and can loan out $100.

Question 13

Brad and Angie own a nice house worth $400,000. They have two cars worth $20,000 each, and $5,000 in the bank. They recently borrowed $100,000 on their house in order to send their daughter, Jennifer, to college. They also gave Jennifer a credit card for her expenses, and the balance is now $10,000. How much wealth do Brad and Angie have?

Accepted Answer

A)  $330,000 
B)  $445,000 
C)  $110,000 
D)  $525,000 
A)  $330,000 
B)  $445,000 
C)  $110,000 
D)  $525,000

Question 14

Assume that Sam has $2000 in savings and a car worth about $10,000. He owes $9,000 on his car and $3000 on his credit card. What is Sam's wealth?

Accepted Answer

A)  $2,000 
B)  $12,000 
C)  0 
D)  $1,000 
A)  $2,000 
B)  $12,000 
C)  0 
D)  $1,000

Question 15

Assume that the Federal Reserve sets a required reserve ratio of 20%. An individual deposits $1000 in cash into the bank. How much money will eventually be created when all banks are fully loaned out?

Accepted Answer

A)  $800 
B)  $640 
C)  $4,000 
D)  $5,000 
A)  $800 
B)  $640 
C)  $4,000 
D)  $5,000

Question 16

Assume that the Federal Reserve sets a required reserve ratio of 20%. An individual deposits $1000 in cash into the bank. From the point of view of the bank,

Accepted Answer

A)  $160 of this deposit will be required reserves; $840 will be excess reserves. 
B)  $200 of this deposit will be required reserves; $800 will be excess reserves. 
C)  $128 of this deposit will be required reserves; $872 will be excess reserves. 
D)  Half of the deposit will be required reserves, half will be excess reserves. 
A)  $160 of this deposit will be required reserves; $840 will be excess reserves. 
B)  $200 of this deposit will be required reserves; $800 will be excess reserves. 
C)  $128 of this deposit will be required reserves; $872 will be excess reserves. 
D)  Half of the deposit will be required reserves, half will be excess reserves.

The term, "dis-saving" means

A shift in income distribution from wealthy individuals to poor individuals is likely to

What is the relationship between the business cycle and the prime rate?

Those who currently have no savings and have no income

Consumer debt as a percentage of national income in the cycle 1991 to 2001 was approximately

The availability of credit makes an economy more financially fragile because

What is the wealth effect?

Why consumers tend to purchase less if they have less wealth (or more debt), even if their income remains constant?

How do banks create money?

Assume that the Federal Reserve sets a required reserve ratio of 5%. Then the money multiplier is

What is the prime rate?

Assume that the Federal Reserve sets a required reserve ratio of 10%. If a bank receives a deposit of $1000, then

Assume that Sam has $2000 in savings and a car worth about $10,000. He owes $9,000 on his car and $3000 on his credit card. What is Sam's wealth?

Assume that the Federal Reserve sets a required reserve ratio of 20%. An individual deposits $1000 in cash into the bank. How much money will eventually be created when all banks are fully loaned out?

Assume that the Federal Reserve sets a required reserve ratio of 20%. An individual deposits $1000 in cash into the bank. From the point of view of the bank,

What Is Macroeconomics and the Evolution of Capitalism

The Classical View of the Macro-Economy

The Keynesian Revolution

National Income Accounting

Classical and Keynesian Graphical Analysis

Introduction to Economic Growth

Introduction to Business Cycles

Investment and Profit, and the Multiplier

Housing Bubble, Financial Crisis, and Government Spending, Taxes, and Deficits

The Trade Gap

Business Cycles

Globalization and the Spread of Instability

Inflation

Monetary Policy, Financial Regulation, and Debates Over Monetary Policy

Fiscal Policy: How to Stimulate the Economy

Fiscal Policy: Austerians and Deficit Hawks V Stimulus

A Road to Full Employment

Filters

Exam 9: Consumer Spending, and Credit and Interest

The term, "dis-saving" means

A shift in income distribution from wealthy individuals to poor individuals is likely to

What is the relationship between the business cycle and the prime rate?

Those who currently have no savings and have no income

Consumer debt as a percentage of national income in the cycle 1991 to 2001 was approximately

The availability of credit makes an economy more financially fragile because

What is the wealth effect?

Why consumers tend to purchase less if they have less wealth (or more debt), even if their income remains constant?

How do banks create money?

Assume that the Federal Reserve sets a required reserve ratio of 5%. Then the money multiplier is

What is the prime rate?

Assume that the Federal Reserve sets a required reserve ratio of 10%. If a bank receives a deposit of $1000, then

Assume that Sam has $2000 in savings and a car worth about $10,000. He owes $9,000 on his car and $3000 on his credit card. What is Sam's wealth?

Assume that the Federal Reserve sets a required reserve ratio of 20%. An individual deposits $1000 in cash into the bank. How much money will eventually be created when all banks are fully loaned out?

Assume that the Federal Reserve sets a required reserve ratio of 20%. An individual deposits $1000 in cash into the bank. From the point of view of the bank,

What Is Macroeconomics and the Evolution of Capitalism

The Classical View of the Macro-Economy

The Keynesian Revolution

National Income Accounting

Classical and Keynesian Graphical Analysis

Introduction to Economic Growth

Introduction to Business Cycles

Investment and Profit, and the Multiplier

Housing Bubble, Financial Crisis, and Government Spending, Taxes, and Deficits

The Trade Gap

Business Cycles

Globalization and the Spread of Instability

Inflation

Monetary Policy, Financial Regulation, and Debates Over Monetary Policy

Fiscal Policy: How to Stimulate the Economy

Fiscal Policy: Austerians and Deficit Hawks V Stimulus

A Road to Full Employment

Filters