Eco 405 week 9 quiz strayer

1. ECO 405 Week 9 Quiz – Strayer
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Quiz 8 Chapter 11 and 12
Economic Growth: Why Is The Economic Road So Bumpy?
Multiple Choice Questions
1. Which Of The Following Is Consistent With Economic Growth?
A. Lower Unemployment
B. Increased Gdp
C. Increased Aggregate Demand
D. Increased Sales
E. All Of The Above
2. Why Is Economic Growth An Important Economic And Social Issue?
A. Economic Growth Leads To Improvements In Our Standard Of Living
B. Lower Levels Of Unemployment And Poverty Can Be Achieved Through
Economic Growth
C. A Growing Economy Provides Consumers With More Choices And Opportunities
D. All Of The Above
E. Economic Growth Is Not An Important Economic Issue
3. Which Of The Following Statements Is About Economic Growth?
A. Economic Growth Is A Short-Run Process
B. Growth Of An Economy Is Generally A Smooth Process That Occurs Over Time
C. Economic Growth Is A Long-Run Process Resulting From The Compounding Of
Many Events
D. To Measure Economic Growth, Economists Analyze Changes In The National
Debt
E. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth

2. 4. Which Of The Following Is The Most Commonly Used Measurement Of Economic
Growth? Changes In
A. Real Gdp
B. The Money Supply
C. Nominal Gdp
D. The Federal Government Debt
E. The Level Of International Trade

3. 5. Why Do Small Differences In Economic Growth Rates Today Result In Significant
Differences In The Level Of Economic Activity In The Future?
A. Growth Rates Discount Over Time
B. Economic Growth Compounds Year After Year
C. Economics Grow In An Arithmetic Fashion
D. Business Cycles Are Less Likely At Higher Rates Of Growth
E. All Of The Above
6. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows
At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country A's
Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,050
C. $1,158
D. $1,500
E. $2,500
7. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows
At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country B's
Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,100
C. $1,210
D. $1,300
E. $1,331
8. Of The Following, Which Of The Following Values Most Closely Approximates
The Average Annual Rate Of Growth For The U.S. Economy Since 1960?
A. 1.65%
B. 10.22%
C. 5.35%
D. 4.02%
E. 3.26%

4. 9. Which Decade Resulted In The Lowest Average Annual Rate Of Economic Growth
In The U.S.?
A. 1950s
B. 1960s
C. 1970s
D. 1980s
E. Unknown
10. Which Of The Following Decades Had The Highest Average Annual Rate Of
Economic Growth In The U.S.?
A. 1930s
B. 1960s
C. 1970s
D. 1980s
E. 1990s
11. What Term Is Used To Describe An Erratic Short-Run Fluctuation In Economic
Activity Around The Long-Run Trend?
A. Economic Depression
B. Economic Boom
C. Business Cycle
D. Recession
E. Diminishing Returns
12. Which Of The Following Is Not A Phase Of Every Business Cycle?
A. Trough
B. Expansion
C. Contraction
D. Depressions
E. Peak

5. 13. Which Of The Following Lists The Four Phases Of The Business Cycle In The
Correct Sequence?
A. Expansion, Peak, Contraction, Trough
B. Expansion, Contraction, Peak, Trough
C. Expansion, Peak, Contraction, Depression
D. Expansion, Peak, Depression, Trough
E. Peak, Recession, Trough, Depression
14. Which Phase Of The Business Cycle Best Describes An Economy That Is
Experiencing A Positive Rate Of Economic Growth?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression
15. When The Economy Ends An Expansion, It Enters Which Phase Of The Business
Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression
16. A Decline In The Level Of Economic Activity Occurs During Which Phase Of
The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

6. 17. When Economic Output Hits A Short-Run Economic Low, The Economy Is In
Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression
18. An Exceptionally Strong And Prolonged Contraction Is Known As
A. A Trough
B. A Recession
C. An Economic Bust
D. A Super Contraction
E. A Business Cycle
19. The Last Depression Experienced By The U.S. Economy Occurred
A. During The 1970s
B. In 1982
C. During The 1930s
D. Between 1974-1975
E. In 1990
20. What Is The Average Length Of A Typical Business Cycle In The Modern U.S.
Economy?
A. 12 Months
B. 36 Months
C. 60 Months
D. 95 Months
E. 120 Months

7. 21. Which Group Is Responsible For Announcing The Dates For Each Phase Of A
U.S. Business Cycle?
A. The Federal Reserve
B. The National Bureau Of Economic Research
C. The Department Of Commerce
D. The Bureau Of Labor Statistics
E. The Federal Business Cycle Committee
22. The Most Commonly Used Tool To Forecast Future Changes In Economic
Activity Is The
A. Leading Economic Indicators Index
B. Supply Of Money
C. Unemployment Rate
D. Lagging Economic Indicators Index
E. Federal Budget Deficit
23. The Economic Variables That Make Up The Leading Economic Indicators Index
Tend To Move In The ______ Direction As Overall Economic Output And Do So
_____ Changes In Real Gdp.
A. Opposite; Prior To
B. Same; After
C. Opposite; After
D. Same; Prior To
E. Same; Simultaneously As
24. Which Of The Following Is Not About Business Cycles?
A. All Business Cycles Have Four Distinct Phases
B. The Average Length Of A U.S. Business Cycle Is About 60 Months
C. Since 1960, The U.S. Has Experienced Six Complete Business Cycles
D. The Last Economic Depression In The U.S. Occurred In The 1930s
E. The Turning Points Of A Business Cycle Can Be Easily Predicted

8. 25. What Do You Call Business Cycle Theories Based On The Belief That Economic
Activity Follows General Trends Of Optimism And Pessimism?
A. Theories Of Expectations
B. Real Business Cycle Theories
C. Theories Of Innovation
D. Theories Of Externalities
E. Sunspot Theories
26. Which Of The Following Economists Is Associated With The Business Cycle
Theory Of Innovations?
A. John Maynard Keynes
B. William Stanley Jones
C. Joseph Schumpeter
D. Ansel Sharp
E. Adam Smith
27. Monetary Theories Of The Business Cycle Postulate That Cycles Are Strongly
Influenced By The Policy Actions Of The
A. U.S. Congress
B. Federal Reserve
C. World Trade Organization
D. National Bureau Of Economic Research
E. U.S. Department Of Commerce
28. Which Of The Following Focuses Primarily On Aggregate Supply Variables?
A. Theory Of Expectations
B. Exogenous Theories
C. Monetary Theories
D. Real Business Cycle Theories
E. Jevons' Sunspot Theory

9. 29. What Was The First Theory Put Forth By An Economist To Explain The
Phenomena Of Business Cycles?
A. Inventory Theory
B. Schumpeter's Theory Of Innovation
C. Real Business Cycle Theories
D. Theory Of Expectations
E. Jevons' Sunspot Theory
30. What Are The Two Primary Determinants Of Economic Growth?
A. The Availability Of Resources And Productivity Factors
B. Technology And Money
C. The Quantity Of Capital And The Quantity Of Money
D. The Ability To Trade And The Size Of The Labor Force
E. Comparative Advantage And The Law Of Diminishing Returns
31. What Is The Result Of A Growing Labor Force?
A. Lower Rates Of Interest In The Capital Market
B. Higher Rates Of Unemployment
C. The Economy's Production Possibilities Curve Shifts Outward
D. The Economy's Production Possibilities Curve Shifts Inward
E. The Economy's Rate Of Growth Must Slow To Accommodate More People
32. Which Of The Following Terms Is Used To Describe The Purchase Of Capital?
A. Savings
B. Consumption
C. Technology
D. Investment
E. Production

10. 33. Why Does Spending On Capital Tend To Increase Economic Growth More Than
Spending Of Consumption Goods? Because
A. Capital Lasts Longer Than Consumer Goods
B. Capital Can Be Used To Produce Future Goods And Services
C. Capital Puts Technology To Use
D. People Prefer To Invest In Capital In Order To Generate Income
E. Capital Purchases Are Taxed At A Lower Rate Than Consumption Purchases
34. What Was The Primary Opportunity Cost Of The Former Soviet Union's Policy
To Heavily Invest In Capital For Economic Growth?
A. An Inability To Trade With Other Nations
B. Democracy
C. Foregone Consumer Goods
D. Technological Innovations
E. Foregone Military Goods
35. Initially 10 Workers Produce 100 Units Of Output In An Economy. The Next
Year, 20 Workers Produce 250 Units Of Output In The Same Economy. Productivity
In The Economy Has
A. Doubled
B. More Than Doubled
C. Increased
D. Decreased
E. Not Changed
36. Which Of The Following Is The Best Definition Of "Productivity"?
A. A Measurement Of How Efficiently Resources Are Converted Into Goods And
Services Through A Production Process
B. A Measurement Of How Technology Increases The Ability Of An Economy To
Produce Goods And Services
C. The Ratio Of Inputs To Output
D. The Quantity Of Goods And Services Produced During A Given Period Of Time
By Labor
E. The Total Output Produced In An Economy Given Its Set Of Resources And The
Current State Of Technology

11. 37. How Do You Calculate The Average Product Of Labor?
A. Total Quantity Of Inputs Divided By Total Output
B. The Average Number Of Workers Times The Average Level Of Output Produced
C. Total Output Produced Divided By Total Units Of Labor Employed
D. Total Units Of Labor Employed Divided By The Total Output Produced
E. The Average Number Of Labor Units Employed Times The Quantity Of Capital
Employed
38. In An Economy, 100 Workers Can Produce 500 Units Of Output And 110
Workers Produce 600 Units Of Output. Which Of The Following Is ? The Average
Product With
A. 100 Workers Is 500
B. 100 Workers Is 5
C. 110 Workers Is 600
D. 10 Workers Is 100
E. Both A) And C)
39. In An Economy, 10 Workers Can Produce 500 Units Of Output And 20 Workers
Produce 800 Units Of Output. Which Of The Following Is ? The Average Product
With
A. 10 Workers Is 500
B. 10 Workers Is 5
C. 20 Workers Is 800
D. 20 Workers Is 300
E. 20 Workers Is 40.
40. What Is Technology?
A. The Tools Of Production
B. The Human Input Of Production
C. Computers, Robots, And Factories
D. The Means And Methods Of Production
E. The Mix Of Labor And Capital Used In Production

12. 41. Which Of The Following Is Cited As Contributing To The Recent Slowdown In
Economic Growth?
A. Slower Rates Of Technological Advancement
B. Changes In Composition Of The Labor Force
C. Low Rates Of Saving And Investment
D. Government Regulation And Public Debt
E. All Of The Above
42. How Has The Increasing Importance Of The U.S. Service Sector Contributed To
The Slowdown In Economic Growth?
A. Services Are Less Important To The Economy Than Goods
B. The Productivity Of The Service Sector Is Hard To Accurately Measure
C. Most Investment Takes Place In The Goods Producing Sector Of The Economy
D. Services Cannot Be Easily Exported To Foreign Nations
E. Technological Advances Have Had A Smaller Impact On The Service Sector
43. What Is The "Crowding Out" Effect?
A. Consumption Spending Is Reduced Because Of Spending On Capital
B. Capital Spending Is Reduced Because People Purchase Great Quantities Of
Consumer Goods
C. Private Investment Is Reduced Because Government Borrowing Diverts Dollars
Away
D. Government Spending Creates A Larger Demand For Capital Goods
E. Savings Is Insufficient To Support The Level Of Capital Investment In The
Economy
44. Which Of The Following Is A "Pro-Growth" Economic Policy?
A. Raising The Tax On Capital Gains
B. Encouraging People To Save Less
C. Reducing Public Dollars Available For Education
D. Investing In Human Capital
E. None Of The Above

13. 45. How Much Does The Federal Government Spend Annually On Research And
Development?
A. Less Than 1% Of Gdp
B. About 10% Of Gdp
C. More Than 25% Of Its Budget
D. Zero
E. Exactly 5% Of Its Budget
46. Which Theories Concerning The Business Cycle Focus On Factors Outside Of
The Economy?
A. Expectations Theories
B. Inventory Theories
C. Exogenous Theories
D. Monetary Theories
E. Theories Of Innovation
47. The Economic Growth Of An Economy Is Generally Measured By Examining
Changes In
A. Employment
B. Real Gdp
C. Income
D. Government Revenues
E. Current Gdp
48. Which Of The Following Statements Is ?
A. The U.S. Economy Grew At A Higher Rate In The 1980s Than It Did In The
1960s
B. The Leading Economic Indicators Index Is Useful For Predicting Economic
Recessions, But Not Economic Expansions
C. The Economist Most Often Associated With Theories Of Innovation Used To
Explain Business Cycles Is Milton Friedman
D. A Small Reduction In Economic Growth Can Have Large Long-Run Effects On
Real Gdp
E. All Of The Above Statements Are

14. 49. How Many Complete Business Cycles Has The U.S. Experienced Since 1960?
A. 7
B. 1
C. 12
D. 2
E. 23
50. Relative To The Past, Business Cycles In The U.S. Are Becoming
A. Shorter In Duration
B. More Severe
C. Longer In Duration
D. (A) And (B)
E. Non-Existent
51. Which Of The Following Is Responsible For Officially Tracking The Index Of
Leading Economic Indicators?
A. The U.S. Department Of Commerce
B. The Conference Board
C. The Bureau Of Labor Statistics
D. The Council Of Economic Advisors
E. The Federal Reserve Board Of Governors
52. Which Of The Following Is Not A Component Of The Index Of Leading
Economic Indicators?
A. Stock Market Prices
B. An Index Of Consumer Expectations
C. New Building Permits Granted
D. Real Money Supply
E. None Of The Above. All Are Part Of The Index

15. 53. In Response To An Economic Recession, Monetary Theories Of The Business
Cycle Predict That The Federal Reserve Would
A. Increase The Supply Of Money To Create An Expansion
B. Reduce The Supply Of Money To Create An Expansion
C. Raise Interest Rates To Increase Real Economic Growth
D. Increase The Demand For Money To Bring About Economic Growth
E. Lower Taxes To Avoid A Full Depression
54. Which Famous Economist Is Associated With The Sunspot Theory Of Business
Cycles?
A. Joseph Schumpeter
B. Milton Friedman
C. William Stanley Jevons
D. John Maynard Keynes
E. Charles Alan Register
55. Which Set Of Theories Can Be Used To Explain All Business Cycles?
A. Exogenous Theories
B. Theories Of Innovation
C. Inventory Theories
D. Monetary Theories
E. None Of The Above. No One Theory Can Explain Every Business Cycle
56. For An Economy To Expand Its Investment In The Production Of Capital Goods,
It Must
A. Enhance Its Current Level Of Technology
B. Forego Some Production Of Consumer Goods And Services
C. Expand Its Geographic Territory
D. Increase Its Real Supply Of Money
E. Reduce The Level Of Savings By Consumers
57. The Quantity Of Capital In The U.S. Economy Has Grown At A Rate ________
The Growth In The Labor Force.
A. Slower Than
B. About The Same As
C. Faster Than
D. Only Half As Much As
E. Unknown

16. 58. Human Capital Refers To
A. Foregone Earnings Of Students Enrolled In College
B. Money Required To Enroll In Educational Programs
C. Slaves Owned By Capitalists
D. Skills And Training That Increase A Worker's Productivity
E. Factories And Equipment Owned By Workers
59. The First Decade Of The 21st Century Has Been Characterized By ______.
A. A Booming Economy Through The Period
B. A Recession At The Start Of The Decade, Followed By A Slow Recovery And
Then A Second Recession
C. Stagflation
D. One Recession Followed By An Unprecedented Economic Boom
E. None Of The Above
60. Which Of The Following Statements Is ?
A. In The Foreseeable Future, Real Gdp Will Grow Slower Than The U.S. Population
B. Based On Past Economic Performance, It Is Likely That Standards Of Living In
The U.S. Will Fall During The Early Part Of The 21st Century
C. Real Per Capita Gdp Will Likely Increase In The Near Future Due In Part To The
Slowdown In The Rate Of Population Growth
D. In Economics, The Past Is A Very Poor Predictor Of The Future
E. The Rate Of Economic Growth Does Not Affect Individual People

17. Questions 61 - 65 Refer To The Graph Below.
61. An Economy's Production Possibilities Curve Will Shift Out The Farthest In 2017
If It Chooses To Operate At Which Point In 2012?
A. A
B. B
C. C
D. F
E. E
62. An Increase In Labor Resources Will Cause Which Of The Following Shifts On
The Graph?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

18. 63. Economic Growth Is Represented On The Graph As A Movement From
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E
64. An Increase In Productivity Is Consistent With Which Of The Following
Movements?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E
65. A Movement From Point D To Point C Is Consistent With
A. An Increase In Capital Goods Without A Decrease In Consumer Goods
B. Technological Change Between 2012 And 2017
C. An Increase In Productivity Between 2012 And 2017
D. All Of The Above
E. None Of The Above

19. Questions 66 - 70 Refer To The Graph Below.
66. An Economic Expansion Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line
67. An Economic Contraction Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

20. 68. A Peak In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line
69. A Trough In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line
70. The Straight Line On The Graph Represents
A. An Economic Expansion
B. An Economic Contraction
C. A Business Cycle
D. A Long-Run Growth Trend
E. A Boom Period
71. The Longest Sustained Period Of Economic Growth In Modern U.S. History
Occurred During The
A. 1920s
B. 1950s
C. 1960s
D. 1980s
E. 1990s

21. 72. Which Of The Following Factors Was Not One Of The Reasons Why A
Recession Started In 2008?
A. The Collapse Of A Speculative Bubble In The Real Estate Market
B. A Spike In Interest Rates
C. A Significant Rise In The World Price Of Oil
D. A Series Of Financial Fraud Schemes In The Financial Industry
E. All Of The Above
73. The Decline That Occurred In Real Gdp In The Fourth Quarter Of 2008 Was
________ .
A. The Smallest Decrease On Record
B. The Average Reduction
C. Smaller Than The Decrease In The Third Quarter
D. The Largest In Over 50 Years
E. There Was No Decline In Real Gdp During 2008
74. Which Of The Following Contributed To The Inflation-Free Economic Expansion
Of The 1990s And Early 2000s?
A. Fed Policies To Raise Interest Rates
B. An Increase In Aggregate Supply
C. Improvements In Productivity
D. Improvements In Technology
E. All Of The Above
75. Productivity Gains In The 1990s Were A Result Of Which Of The Following?
A. Capital Investment
B. Improved Labor Quality
C. Technological Progress
D. Increased Use Of Computers
E. All Of The Above
76. Saving In An Economy Is Important For Economic Growth Because
A. If Households Don't Save, They Cannot Consume In The Future
B. Without Saving, Aggregate Demand Increases
C. One Person's Saving Is Another Person's Consumption
D. It Is The Source Of Funds For Investment
E. Of None Of The Above; Saving Is Not Important For Economic Growth

22. 77. Which Of The Following Is Not Something That Will Increase Economic
Growth?
A. Expenditures On Research And Development
B. Increased Education
C. Using Resources To Develop Additional Capital
D. Replacing Old Machinery
E. All Of The Above Will Increase Economic Growth
78. According To Real Business Cycle Theory, The Primary Factor That Increases
Aggregate Supply Is
A. Savings
B. Increases In The Size Of The Labor Force
C. Technological Improvements
D. Government Spending
E. Reductions In Regulation
True / False Questions
79. Economic Growth Is Necessary To Create New Jobs, Increase Incomes, And
Raise Standards Of Living.
80. Economic Growth Is An Important Social Issue, But It Is Not Related To Other
Problems Such As Unemployment And Poverty.
81. Economists Consider Economic Growth As A Short-Run Process.
82. Between 1960 And The Mid-1990s, The American Economy More Than Tripled
Its Level Of Real Gdp.

23. 83. During The Past Three Decades, The U.S. Economy Experienced Significant
Periods Of Growth Without Interruption.
84. Even Small Differences In Growth Rates Can Result In Significant Gaps In Gdp
Between Two Countries Over The Long Run.
85. Economic Growth Compounds Over Time.
86. The U.S. Economy Has Never Experienced A Year Of Negative Economic
Growth.
87. U.S. Economic Growth Rates In The 1990s Have Been Higher Than Those
Experienced In The 1960s.
88. An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run
Trend Is Called A Business Cycle.
89. Every Business Cycle Has Four Distinct Phases; Expansion, Peak, Contraction,
And Trough.
90. Strong Economic Expansions Are Sometimes Referred To As Economic Booms.

24. 91. Another Name For The Trough Of A Business Cycle Is Recession.
92. Each Phase Of A Business Cycle Has Approximately The Same Duration.
93. Since Wwii, The Average Length Of A Typical U.S. Business Cycle Is
Approximately 60 Months.
94. Given Modern Data Collection Techniques, It Is Very Easy To Identify When The
Economy Is About To Move Into The Next Phase Of A Business Cycle.
95. In The U.S., The Official Dates For Each Phase Of A Business Cycle Are
Determined After The Fact By The National Bureau Of Economic Research (Nber).
96. The Index Of Leading Economic Indicators Is Used By Economists To Forecast
Changes In Economic Performance Over Time.
97. The Components Of The Index Of Leading Economic Indicators Tend To Change
Prior To Changes In The Economy As A Whole.
98. The Components Of The Index Of Leading Economic Indicators Lead Changes In
The Aggregate Economy, But Move In An Opposite Direction.

25. 99. Economists Have Agreed Upon One Widely Accepted Theory To Explain
Business Cycle Behavior.
100. Expectations About The Future Influence The Economic Decisions That People
Make Today.
101. Joseph Schumpeter Theorized That Business Cycles Were Determined Primarily
By Long-Run Waves Of Innovation.
102. Monetary Theories Of Business Cycles Are Based On How The Federal Reserve
Manages The Money Supply In Response To Changing Economic Conditions.
103. Real Business Cycle Theorists Postulate That Economic Fluctuations Are
Primarily Due To Changes In Aggregate Demand.
104. Jevons' Sunspot Theory Of The Business Cycle Is Widely Used By Economists
Today To Forecast Future Levels Of Economic Activity.
105. The Primary Determinants Of Economic Growth Include The Availability Of
Resources And Productivity Factors.

26. 106. As An Economy's Labor Force Increases In Size, Its Production Possibilities
Frontier Shifts Outward.
107. The U.S. Labor Force Has Not Grown Substantially During The Past Four
Decades.
108. The Term Investment Is Used To Describe The Purchase Of Consumer Goods
By Households In The Economy.
109. Investments In Capital Goods Increase An Economy's Ability To Produce
Consumer Goods In The Future.
110. In Recent Years, Capital Has Grown At A Slower Rate Than The Labor Force
Within The U.S. Economy.
111. Productivity Is A Measure Of How Efficiently Resources Are Converted Into
Goods And Services Through A Production Process.
112. The Total Output Produced Divided By The Total Units Of Labor Employed Is
Called The Average Product Of Labor.
113. Productivity Is Not Influenced By The Law Of Diminishing Returns.

27. 114. The Average Level Of Educational Attainment In The U.S. Has Been Gradually
Declining Since The Mid-1970s.
115. Technology Refers To The Means And Methods Of Production.
116. On Average, The U.S. Economy Has Grown About 3.12% Annually Since
1960.
117. The U.S. Economy Grew At A Faster Rate In The 1980s Relative To The 1960s.
118. In The 1990s, The U.S. Economy Grew At An Average Annual Rate Of Only
2.1%.
119. The Rate Of Technological Growth In The U.S. Economy Is Higher Today Than
It Was In The 1960s.
120. Capital Accumulation In An Economy Is Dependent Upon Savers To Provide
Funds For Investors.
121. The Increasing Importance Of The Service Sector In The American Economy
May Lead To An Overestimation Of Economic Growth.

28. 122. Some Forms Of Government Regulation Of Business May Reduce Productivity
And Therefore Contribute To The Slowdown Of Economic Growth.
123. "Crowding Out" Occurs When Government Borrowing To Finance Its Debt
Diverts Funds Away From The Private Sector.
123. The Size Of The American Economy Will Double Within The Next Ten Years.
125. Currently, The Population Of The U.S. Is Growing At A Faster Rate Than Real
Gdp Is Growing.
126. To Stimulate Additional Economic Investment, Some Policy Makers Favor
Increasing The Tax Rate On Capital Gains.
127. Government Policies That Subsidize Higher Education Should Stimulate Labor
Productivity And Enhance Long-Run Economic Growth.
128. The U.S. Government Spends Less Than 1% Of Gdp On Research And
Development Each Year.
129. In Economics, The Past Is A Very Poor Predictor Of The Future.

29. 130. The Slowdown In The Rate Of Population Growth Has Increased The Growth
Rate In The Real Per Capita Gdp For The U.S.
131. The Rate Of Economic Growth Affects Everyone Living In An Economy.
132. Most Economic Forecasts Of The Near Future Predict That The Standard Of
Living In The United States Will Fall.
133. One Strategy To Promote Economic Growth Is To Encourage People To Save
More.
134. Savings Can Only Occur When The Economy Is In The Expansion Phase Of A
Business Cycle.
135. A Reduction In Savings Will Lead To A Reduction In The Level Of Investment.
136. The Average Annual Rate Of Growth For The U.S. Economy During The
Twentieth Century Was Between 3% And 3.5%.
137. The Most Important Determinants Of Economic Growth Are The Availability Of
Resources And Productivity Factors.

30. 138. Close Examination Of The Recent History Of Real Gdp In The U.S. Reveals
That The Rate Of Economic Growth Has Been Diminishing Over Time.
Chapter 12
Money, Banking, And The Financial System: Old Problems With New Twists
Multiple Choice Questions
1. Commercial Banks Operate
A. By Attracting Deposits And Making Loans
B. Both Pay And Charge Interest
C. By Engaging In Financial Intermediation
D. All Of The Above
E. Under The Control Of State Governments
2. Commercial Banks
A. Attract Deposits By Offering To Pay Interest
B. Sell New Issues Of Stocks And Bond
C. Operate On A Non-Profit Basis
D. Attract Deposits By Offering Free Toasters
E. None Of The Above
3. Commercial Banks
A. Started By Offering Credit To Wealthy Landowners
B. Began As Goldsmiths That Provided Receipts To Customers Who Stored Their
Gold With The Goldsmith
C. Operate In Both The Primary And Secondary Financial Markets
D. Operate Only In Cities With Major Financial Markets
E. Began In Germany
4. A Financial Intermediary
A. Seeks Deposits
B. Makes Loans
C. Matches Up Savers And Borrowers
D. All Of The Above
E. Operates In Between Two Banks

31. 5. Investment Banks
A. Make Loans To Individual Households To Buy Houses And Cars
B. Work With Corporations To Finance Their Operations Through Primary Financial
Markets
C. Work With Corporations To Finance Their Operations Through Secondary
Financial Markets
D. Work With Investments From Private Individuals
E. None Of The Above
6. A Stock Is
A. A Financial Instrument That Provides Ownership Rights To Shareholders
B. A Financial Instrument That Provides Annual Payments Of Interest
C. A Financial Instrument That Is Traded Only In Primary Financial Markets
D. A Financial Instrument That Is Bought And Sold By Commercial Banks
E. All Of The Above
7. A Dividend
A. Must Be Paid By A Commercial Banks
B. Must Be Paid By Corporations To Owners Of The Company’s Stock
C. Is A Distribution Of A Corporation’s Profits To Stockholders
D. Is A Financial Instrument That Is Bought And Sold By Commercial Banks
E. None Of The Above
8. Corporations Raise Funds In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above
9. When A Person Buys A Stock On A Stock Exchange They Are Participating In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above

32. 10. Insurance Policies
A. Require An Initial, One-Time Payment By Policy Holders But No Further Outlay
B. Make Payments To Policy Holders On A Monthly Basis
C. Require A Regular Payment Of Insurance Premiums By Policy Holders
D. Require An Initial Payment And Regular Payments Of Insurance Premiums By
Policy Holders
E. None Of The Above
11. The Financial Crisis Of 2008 Affected
A. Only Commercial Banks
B. Only Investment Banks
C. Only Insurance Companies
D. All Of The Above
E. The Revenues Of Only State Governments
12. In The Early Years Of The American Republic, The First Bank Of The United
States Was Established Through The Efforts Of
A. Thomas Jefferson
B. George Washington
C. James Madison
D. Alexander Hamilton
E. Aaron Burr
13. During Most Of The 1800s, The Federal Monetary Authority Was Called
A. The Bank Of America
B. The Bank Of Washington
C. The First National Bank
D. The Third Bank Of The United States
E. None Of The Above
14. Throughout The History Of The U.S., Until The Creation Of The Federal Reserve
System In 1913, The Monetary System Was
A. Characterized By A Series Of Panics And Periods Of Instability
B. Under The Control Of The Second Bank Of The United States
C. The Product Of The Work Of President Andrew Jackson
D. Based Upon The English System
E. Under The Supervision Of The Us Mint

33. 15. Prior To The Creation Of The Federal Reserve System, The Money Supply
A. Was Very Stable And Highly Valued
B. Was Comprised Of Currency Printed By The Department Of The Treasury
C. Was Produced By Local Banks And Often Traded At A Discount
D. Was Available Only To Bank Depositors
E. Was Comprised Of Gold
16. Money Serves As
A. A Unit Of Account
B. A Store Of Value
C. A Medium Of Exchange
D. All Of The Above
E. An Emblem Of Personal Wealth
17. When You Use Dollar Bills To Pay For A Purchase At A Store, Money Is Serving
Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above
18. When You Compare A Dollar's Worth Of Apples To A Dollar's Worth Of
Oranges, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. A Measure Of Wealth
19. If You Keep Some Cash In A Safe Place So That You Have It To Use Later,
Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above

34. 20. Banking Regulation Is Intended To Prevent
A. Bank Failures
B. Excess Bank Profits
C. Bank Losses
D. Banks From Selling Securities
E. Banking Monopolies
21. The Gramm-Leach-Bliley Act Allows Banks To
A. Sell Insurance
B. Underwrite Insurance
C. Sell Securities
D. Invest In Real Estate
E. Do All Of The Above
22. Money Is "Liquid" Because
A. It Loses Value With Inflation
B. Coins Can Be Melted To Use Their Metal To Make Goods
C. It Serves As A Measure Of Value
D. It Does Not Have To Be Sold To Buy Goods And Services
E. It Is A Valuable Asset
23. Which Of The Following Is Of A Fractional Reserve Banking System?
A. Banks Must Hold All Of Depositors' Deposits In Their Vaults
B. Banking Is Only A Fraction Of The Services Banks Provide To Their Customers
C. Banks Lend Out Part Of Their Depositors' Deposits
D. The Reserve Ratio Is 100%
E. Banks May Not Hold Excess Reserves
24. If The Reserve Ratio Is 10% And A New Demand Deposit Of $10,000 Is Made,
What Is The Maximum Deposit Creation Possible?
A. $1,000
B. $9,000
C. $10,000
D. $90,000
E. $100,000
25. If The Reserve Ratio Is 10% And A New Demand Deposit Of $5,000 Is Made,
What Is The Maximum Deposit Creation Possible?
A. $500
B. $4,500
C. $5,000
D. $45,000
E. $50,000
26. If The Reserve Ratio Is 20% And A New Demand Deposit Of $10,000 Is Made,
What Is The Maximum Deposit Creation Possible?

35. A. $1,500
B. $10,000
C. $15,000
D. $40,000
E. $50,000
27. Money Does Not Serve As A
A. Medium Of Exchange
B. Store Of Value
C. Measure Of Value
D. Price Index
E. It Serves As All Of The Above
28. M1 Includes
A. Currency And Coins In Circulation, Traveler's Checks, Demand Deposits At
Commercial Banks, And Other Checkable Deposits
B. Currency And Coins In Circulation, All Demand Deposits, And All Time Deposits
C. All Demand Deposits And All Time Deposits
D. Just Currency And Coins In Circulation
E. None Of The Above
29. Banks Make Loans From Their
A. Required Reserves
B. Excess Reserves
C. Net Worth
D. U.S. Government Securities
E. None Of The Above
30. Which Of The Following Is Among The Assets Of A Commercial Bank?
A. Demand Deposits
B. Net Worth
C. Any Liability
D. Loans And Investments
E. Time Deposits
31. M2 Includes
A. M1, Plus Savings And Time Deposits Of Small Denomination, And Money
Market Mutual Funds
B. M1 Plus Savings And Time Deposits Of Large Denomination (Over $100,000)
C. M1 Plus Banks Acceptances And Treasury Bills
D. M1 Plus Currency And Demand Deposits
E. None Of The Above
32. The Basic Money Supply Is
A. Composed Of Small Denomination Time Deposits Plus Coin And Currency Held
By The Nonbank Public
B. Composed Of Assets That Are Completely Liquid And Easily Accessible
C. Our Broadest Measure Of Money

36. D. Simply The Coins And Currency Held By The Nonbank Public
E. None Of The Above
33. Excess Reserves Refer To
A. Reserves That Banks Are Required By Law To Hold
B. The Major Assets Of The Bank
C. Reserves A Bank Holds In Case Of Unexpected Case Needs
D. Reserves Over And Above The Bank's Required Reserves
E. None Of The Above
34. The Money Multiplier Is
A. 1/R
B. Er
C. R/E
D. E/R
E. 1+1/Er
35. Suppose The Legal Reserve Requirement Is 0.20, And A Bank Has Excess
Reserves Of $1,000,000. The Ultimate Increase In The Money Supply Will Be
A. $2,000,000
B. $200,000
C. $800,000
D. $5,000,000
E. $500,000
36. The Inflation Rate And The Growth In The Money Supply Are
A. Usually Inversely Related
B. Usually Directly Related
C. Never Directly Related
D. Not Related To One Another
E. Negatively Related
37. Who Controls The Aggregate Volume Of Demand Deposits In The Banking
System?
A. The U.S. Treasury
B. The Federal Reserve Board Of Governors
C. Congress
D. Bankers
E. The President Of The United States
38. To Reduce Inflationary Pressures, The Federal Reserve Authorities Should
A. Sell Government Securities, Raise Reserve Requirements, And Lower The
Discount Rate
B. Sell Government Securities, Lower Reserve Requirements, And Lower The
Discount Rate
C. Buy The Government Securities, Raise Reserve Requirements, And Raise The
Discount Rate

37. D. Sell Government Securities, Raise Reserve Requirements, And Raise The Discount
Rate
E. Buy Government Securities, Decrease Reserve Requirements, Decrease The
Discount Rate
39. If The Open Market Committee Of The Federal Reserve Sells Securities, This
Action Will
A. Decrease The Money Supply
B. Increase The Money Supply
C. Reduce The Reserve Requirement
D. Decrease The Discount Rate
E. Do None Of The Above
40. When A Central Bank Wants To Increase The Money Supply, It
A. Sells Bonds
B. Buys Bonds
C. Sells Good And Services
D. Buys Goods And Services
E. Does None Of The Above
41. The Federal Reserve Can Decrease The Supply Of Money By
A. Selling U.S. Government Securities
B. Buying U.S. Government Securities
C. Selling Goods And Services
D. Buying Goods And Services
E. Decreasing The Reserve Requirement
42. The Federal Open Market Committee (Fomc) Is Highly Concerned With
A. The National Unemployment Rate
B. The Growth Of Real Gdp
C. Interest Rates
D. The Level Of The Stock Market
E. All Of The Above
43. When The Open Market Committee (Fomc) Purchases Government Securities,
Their Actions Are An Attempt To
A. Raise Interest Rates
B. Lower Interest Rates
C. Reduce Borrowing
D. Raise The Inflation Rate
E. Influence Voters In The Next Presidential Election
44. When The Fed Increases The Money Supply, It Generally Has The Effect Of
A. Making Banks More Profitable
B. Increasing The Value Of Stocks

38. C. Lowering Interest Rates
D. Lowering The Inflation Rate
E. Increasing The Size Of Bank Deposits
45. When The Fed Wishes To Increase The Money Supply, It Can Do So By
A. Purchasing Government Securities Through Open Market Operations
B. Lowering The Discount Rate
C. Reducing The Reserve Requirement
D. All Of The Above
E. Increasing The Size Of Bank Deposits
Questions 46 - 49 Refer To The Graph Below.
46. Suppose That The Fed Has Increased The Money Supply. This Is Shown In The
Diagram By
A. Q1 To Q0
B. Q0 To Q1
C. Ms1
D. Ms2
E. None Of The Above

39. 47. Based On The Diagram, The Opportunity Cost Of Money Is Higher If
A. The Interest Rate Is I0
B. The Interest Rate Is I1
C. The Money Supply Is Curve Ms1
D. The Money Supply Is Curve Ms2
E. The Opportunity Cost Of Money Is Not Shown In The Diagram
48. A Shift From Ms1 To Ms2 Would Be The Result Of
A. An Increase In Aggregate Demand
B. An Increase In Aggregate Supply
C. A Decision By The Fed To Purchase Government Securities By The Fomc
D. A Decision By The Fed To Sell Government Securities By The Fomc
E. A Change In The Stock Market
49. If The Fed Wanted To Stimulate Business Investment, It Could Do So By
A. Increasing Interest Rates From I1 To I0
B. Decreasing The Money Supply From Ms2 To Ms1
C. Increasing The Money Supply From Ms1 To Ms2
D. Raising The Reserve Requirement
E. Increasing The Discount Rate
50. The Equation Of Exchange Is
A. Mp = Qv
B. Mv = Pq
C. M = V/Pq
D. P = Q/Mv
E. Pv = Qm
51. The Value Of Money Varies
A. Directly With The Interest Rate
B. Directly With The Price Level
C. Directly With The Volume Of Employment
D. Inversely With The Price Level
E. With None Of The Above
52. According To The Equation Of Exchange,
A. The Right-Hand Side Will Equal The Left-Hand Side Only If Velocity Does Not
Change From Year To Year
B. Velocity Must Be Constant
C. An Increase In The Quantity Of Money Will Lead To An Increase In The Price
Level, Other Things Constant
D. Prices Cannot Change
E. All Of The Above
53. The Quantity Theory Of Money Emphasizes
A. Government Taxation Policies

40. B. Government Spending Policies
C. Labor Productivity
D. Changes In The Money Supply
E. None Of The Above
54. A Key Assumption In The Quantity Theory Of Money Is That
A. The Supply Of Money Is Increasing At A Constant Rate
B The Price Level Is Stable Over Long Periods Of Time
C. The Level Of Output Of Goods And Services Changes Frequently In Response To
Changes In Velocity
D. The Velocity Of Money Is Constant
E. None Of The Above
55. The Residential Housing Market Saw Remarkable Increases In
A. Housing Prices At The End Of The 1990’s And Through The First Half Of The
2000’s
B. Housing Prices At The End Of The 1980’s And Beginning Of The 1990’s
C. Foreclosure Rates At The End Of The 1990’s And Through The First Half Of The
2000’s
D. Foreclosure Rates At The End Of The 1980’s And Beginning Of The 1990’s
E. Both A And C
56. The Growth In The Residential Real Estate Market Is Largely A Product Of
A. A Large Increase In The Demand For Housing
B. An Unexpected Growth In Us Population
C. A Decline In Housing Prices
D. A Tightening Of Government Policies That Restrict Homeownership
E. A Decrease In Mortgage Availability
57. The Federal National Mortgage Association (Or Fannie Mae) Was Created To
A. Make Mortgages Hard To Obtain
B. Make Mortgages Less Likely To Go Into Foreclosure
C. Make A Larger Market In Mortgages By Establishing A Secondary Financial
Market In Mortgages
D. Make Mortgages Available To New Immigrants To The Us
E. None Of The Above
58. A Mortgage Backed Security Is
A. A Share Of Common Stock Based Upon Home Mortgages
B. A Financial Instrument That Reduces Risk By Pooling Together A Large Number
Of Mortgages Into One Asset
C. A Financial Instrument Developed To Reduce Liquidity In The Housing Market
D. A Financial Instrument That Is The Combination Of Only Subprime Mortgages
E. All Of The Above

41. 59. A Subprime Mortgage
A. Made Obtaining A Mortgage Easier For Low Income Households
B. Is A Mortgage That Does Not Meet The Requirements For A Conventional
Mortgage
C. Is Usually Structured As An Adjustable Rate Mortgage
D. All Of The Above
E. Is No Different From A Conventional Mortgage
60. A Collateralized Debt Obligation (Or Cdo)
A. Is Generally Riskier Than A Single Debt Of An Equal Value
B. Sells For A Lower Price Than Re-Sales Of Individual Mortgages That Comprise
Them
C. Is Sold In The Primary Financial Market
D. Is A Financial Instrument That Obscures The Underlying Risks Of The Mortgages
That Comprise Them
E. Is Always A Bad Financial Investment
61. The Interest Rate On An Adjustable Rate Mortgage (Arm) Is
A. Set To Equal The Fed Funds Rate
B. Adjusted On A Daily Basis
C. Set To Rise At The End Of Every Year For The Life Of The Mortgage
D. Adjusted Periodically Based Upon Current Market Conditions
E. Adjusted Based Upon The Value Of The House Purchase
62. Home Equity Loans
A. Allow A Home Owner To Recapture Some Of The Increase In The Value Of Their
Home Without Selling The Home
B. A Way For Homeowners To Issue Stock, Or Equity, In Their Home
C. Only Used When Home Prices Are Increasing
D. A Way For The Market To Eliminate Paper Profits
E. None Of The Above
63. Besides Homeowners, Who Attempted To Profit From Increasing Home Prices
During The Housing Bubble In The Early Part Of The 2000s?
A. Large Corporations
B. Speculators
C. Foreign Investors
D. Individuals Who Had Low Incomes
E. All Of The Above
64. A Credit Default Swap
A. Is What Happens When Homeowners Swap Their Mortgages With Their
Neighbors
B. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Make
Even More Money
C. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Reduce
The Risk Of An Increase In Mortgage Foreclosures
D. Is A Way For Investors To Increase The Risks To Homeowners
E. Exists Only In Markets With Subprime Mortgages

42. 65. Assets That Are “Marked To Market” Will Be Priced At
A. Their Original Purchase Price
B. Their Original Purchase Price Less The Depreciation Of The Asset
C. A Price That Is Equal To The Original Purchase Price Plus The Rate Of Inflation
D. A Price That Is Based Upon The Asset’s Current Market Value
E. A Price Determined In The Stock Market
66. Many Large Banks And Wall Street Investment Firms Got Into Financial
Problems Due To
A. Investments In Subprime Mortgages
B. Required Payments On Credit Default Swaps
C. Failures Of Collateralized Debt Obligations Resulting From Home Foreclosures
D. Having To Mark Down A Significant Number Of Their Assets Due To The “Mark
To Market” Accounting Requirement
E. All Of The Above
67. The Federal Government Stepped In During 2008 To Prevent Several
Commercial Banks And Investment Banks From Failing Based Upon The Idea That
A. They Were “Too Big To Fail”
B. Any Business Failure Would Hurt Shareholders
C. These Banks Made Large Political Contributions And This Was A Way For
Politicians To Pay Them Back
D. Government Would Make Large Profits By Doing So
E. None Of The Above
68. In Late 2008, The Us Treasury Department Began
A. Closing Banks That Were Not Following Regulations
B. To Implement The Troubled Asset Relief Program (Tarp)
C. Raising Interest Rates To Stimulate The Economy
D. Engaging In Open Market Operations
E. To Implement The Opening Of A New Bank Of The United States
69. Each Of The Following Is A Financial Intermediary Except
A. Commercial Banks
B. Investment Banks
C. Insurance Companies
D. Credit Unions
E. All Of The Above Are Financial Intermediaries
70. A Capital Gain Exists
A. When One Political Party Increases The Number Of Its Members In Congress
B. When An Interest Payment Is Made
C. When The Price Of An Asset Goes Up
D. When The Price Of An Asset Exceeds The Price Paid For It
E. When Taxes Are Paid On The Asset
71. Liquidity Of An Asset Increases When

43. A. It Is Easier To Convert The Asset Into Cash
B. The Asset’s Value Is Below Its Original Price
C. The Asset Is Purchased
D. The Asset Depreciates
E. The Asset Is Put On The Market
72. When A Share Of Stock Is Sold On The New York Stock Exchange, It Is Traded
A. In A Prime Financial Market
B. In A Primary Financial Market
C. For A Promise To Pay A Fixed Return
D. To Another Stock Exchange
E. In A Secondary Financial Market
73. The Financial Crisis That Began In 2008 Is A Result Of All Of The Following
Except
A. The Bursting Of The Dot.Com Bubble
B. Problems In The Residential Real Estate Market
C. Changes In Accounting Rules About Asset Valuation
D. Large Firms Taking On Assets Whose Value Was Not Well Determined
E. Policies That Allowed Many Unqualified Homebuyers To Receive Mortgages That
They Could Not Pay
74. Historically, Many Commercial Banks Began As
A. Coffee Houses And Taverns Where Stocks Were Traded
B. Jewelry Stores That Specialized In The Sale Of Precious Stones
C. Businesses That Engaged In Small Loans
D. Goldsmiths That Held Stores Of Gold For Their Customers
E. None Of The Above
75. An Increase In The Reserve Requirement Can
A. Decrease Interest Rates
B. Increase Liquidity
C. Decrease The Money Supply
D. Increase The Money Supply
E. Decrease The Profits Of Banks
True / False Questions
76. Commercial Banks Are Financial Intermediaries But Insurance Companies Are
Not.
77. Investment Banks Assist Corporations In Issuing Stocks And Bonds In The
Primary Financial Market.
78. Silversmiths Became Banks When They Started Lending Out Money Based Upon
The Excess Silver That They Held For Their Customers.

44. 79. Residential Real Estate Is Generally Considered To Be More Liquid Than A
Savings Account.
80. The Us Has, Over Its History, Had Only One National Bank, That Is, A Bank Of
The United States.
81. The Most Important Function Of Money Is As A Medium Of Exchange.
82. If The Supply Of Money Decreases, The Value Of A Dollar Increases.
83. The Key To The Federal Reserve's Control Over The Money Supply Is Its Ability
To Create Money By Making Loans.
84. A Commercial Banking System With Excess Reserves Has The Ability To Create
Money In The By Making Loans.
85. A Credit Union, Unlike A Bank, Is Not A Financial Intermediary, Since It Is A
Cooperative Banking Venture.
86. In The U.S. Banking System, The Ratio Of A Bank's Reserves And Its
Outstanding Deposits Is Usually Less Than One.
87. During Inflationary Periods, The Federal Reserve Should Lower The Discount
Rate So That Member Banks May More Easily Obtain Needed Reserves To Enable
Them To Increase Their Loans.
88. The Money Supply Consists Primarily Of Gold, Silver, And Other Metals Held
By The Government.
89. Monetary Policy Refers To Control Of The Money Supply By The Federal
Reserve Authorities.
90. Appropriate Federal Reserve Actions To Combat Inflation Are An Increase In The
Discount Rate, An Increase In The Reserve Ratio And The Sale Of Government
Securities.

45. 91. The Reserve Ratio Is The Rate Of Interest Charged Commercial Banks When
They Borrow From The Federal Reserve.
92. During Inflationary Periods, The Federal Reserve Should Buy Securities So That
Commercial Banks Will Have More Reserves To Loan Out.
93. One Of The Main Functions Of Banks Is To Create Money.
94. When A Bank Makes A Loan To One Of Its Customers, It Increases Its
Liabilities.
95. The Maximum Demand Deposit Creation Possible From A New Deposit Is
Derived From The Equation D = E X 1/R.
96. The Discount Rate Is The Ratio Of Demand Deposits To Reserves That Banks
Have To Maintain.
97. Policy Actions That Affect Changes In The Growth Rate Of The Money Supply
To Keep Interest Rates At Levels That Promote Economic Stability And Growth Are
Called "Fine Tuning" Policies.
98. The Issue Of The Appropriate Monetary Policy Target Has Been Resolved To
The Satisfaction Of All Policy Makers.
99. The Quantity Theory Of Money States That Increases In The Money Supply
Cause Increases In Both The Price Level And Output.
100. A Credit Union Is A Cooperative Banking Venture Where The Members Or
Owners Of The Organization Have A Common Employer Or Union.
101. The Main Purpose Of The Fed Is To Control The Rate Of Interest.
102. The Annual Growth Rate In The Money Supply Has Been Held Constant By The
Federal Reserve.
103. The Quantity Theory Of Money Stresses The Importance Of The Velocity Of
Money.

46. 104. The Money Multiplier Is Derived From The Legal Reserve Requirement.
105. An Increase In The Supply Of Money Will Decrease Interest Rates.
106. The Federal Reserve Open Market Committee’s Primary Function Is To Open
New Banks.
107. The Discount Rate Charged By The Federal Reserve, Is Lower For More
Creditworthy Banks.
108. Any Time The Discount Rate Increases, The Money Supply Also Increases.
109. If The Required Reserve Ratio Is Increased By The Fed, One Could Assume
That The Fed Is Attempting To Control Inflation.
110. Prior To The Enactment Of The Monetary Control Act Of 1980, State-Chartered
Banks Had The Option Of Whether Or Not They Wanted To Be A Member Of The
Federal Reserve System.
111. Interest Rates Increase Or Decrease So That An Equilibrium Exists In The
Money Market.
112. The Federal Government, Through The Work Of Agencies Like The Federal
National Mortgage Association, Has Worked To Increase The Supply Of Funds
Available To Mortgage Lenders.
113. A Policy Implemented By The Clinton Administration Resulted In Tighter
Financial Requirements For Less Creditworthy Borrowers, So That Financial Markets
Were Less Risky.
114. A Subprime Mortgage Is A Mortgage Issued To A Highly Qualified Borrower
At Reduced Interest Rates.
115. Subprime Mortgages And Home Equity Loans Contributed Little To The
Increase In The Demand For Residential Real Estate, Increasing Prices Dramatically.

47. 116. A Homeowner Whose House Is Worth $500,000 But Who Owes $600,000 On
Their Mortgage Is A Good Candidate For A Home Equity Loan, So That The
Homeowner Can Build Their Equity.
117. Collateralized Debt Obligations Are A Way That Lenders Can Reduce The Risk
Of Individual Mortgage Lending.
118. Collateralized Debt Obligations Always Exclude Subprime Mortgages, Because
These Are Too Risky For Most Investors.
119. A Credit Default Swap Is One Way That Lenders Can Offset Some Of The
Risks Associated With Investing In Subprime Mortgages.
120. A Number Of Banks Encountered Problems Because A Change In Accounting
Rules Required Firms To Mark Assets At Their Original Purchase Price.
121. Borrowers Who Obtain A Mortgage Will Always Find That Their Mortgage
Payments Rise Over Time.
122. The Definition Of The Money Supply Called M1 Includes All Of The Assets
Included In The Definition Of M2.
123. An Increase In The Required Reserve Ratio Will Allow Banks To Create Less
Money.
124. The Open Market Committee Of The Federal Reserve System Meets Regularly
To Determine The Required Reserve Ratio.
125. Because Of Recent Changes In The Regulatory System, Commercial Banks Are
Able To Offer A Smaller Variety Of Financial Products And Services Than In The
Past.
126. The Distinctions Between Commercial Banks And Other Financial Institutions
Has Blurred In Recent Years.
127. Large Corporations Enter The Secondary Financial Market To Provide
Themselves Adequate Liquidity To Conduct Their Day To Day Operations.

48. 128. Stockholders Can Receive A Capital Gain When They Purchase A Financial
Asset.
129. Stocks And Bonds Are Essentially Interchangeable Financial Assets, Since
Owners Of Both Of These Instruments Receive Regular Interest Payments.
130. When Ben Bernanke Became Fed Chairman, The Federal Reserve Began
Explicitly Announcing Money Supply Targets.