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Grand Canyon ECN 360 Final Exam

1. Which of the following represents the relationship between Disposable income (DI), consumption (C), and saving (S)?
DI + C = S
DI = C * S
DI = C - S
DI = C + S
2. Which of the following is NOT a method for promoting global Economic growth?
Count on the world's governments to develop policies that promote economic growth in developing nations.
Reliance on private markets to direct capital goods toward their best use.
Encourage population growth so that developing nations' labor supply increases.
Market based approach.
3. In the classical model, an increase in aggregate demand will cause
a decrease in price level.
an increase in actual output, or Gross Domestic Product (GDP).
an increase in price level.
a decrease in actual output, or Gross Domestic Product (GDP).
4. Of the relationships below, which is the least stable?
Consumption
Net exports
Investment
Saving
5. When investment occurs in developing nations
investors hope to gain significant returns on their investment and residents gain higher rates of economic growth.
Significant levels of pollution usually occur.
Government politicians usually benefit from the illegal payments made to secure the investment.
higher rates of economic growth are usually not achieved.
6. A multinational agency that specializes solely in making loans to promote long-term development and growth in developing countries is the
Federal Reserve System.
International Monetary Fund.
International World Fund.
World Bank.
7. The Board of Governors of the Federal Reserve System is
composed of seven members who are appointed by the President and approved by the Senate.
elected by the general public.
composed of 12 members of the Senate and the U.S. House of Representatives.
composed of representatives from the country's 12 largest commercial banks.
8. Supply-side inflation is caused by
an increase in aggregate demand and no change in aggregate supply.
a decrease in aggregate supply and no change in aggregate demand.
an increase in aggregate supply and no change in aggregate demand.
a decrease in aggregate demand and no change in aggregate supply.
9. Keynesian theory is based on the concept that
planned savings equal planned investment only at full employment.
full employment is automatically attained in any economy.
saving and consumption are influenced primarily by real current disposable income.
saving is influenced primarily by the interest rate.
10. When the Fed conducts open market operations, it
also raises taxes at the same time.
shifts the demand for money curve.
Purchases or sells government bonds issued by the U.S. Treasury.
is engaging in fiscal policy.
11. An increase in the money supply will
decrease aggregate demand.
increase aggregate demand.
increase aggregate supply.
decrease aggregate supply.
12. According to the quantity theory of money, an excess quantity of money supplied will lead to
a higher price level.
a reduced level of real Gross Domestic Product (GDP).
a reduction in spending and higher interest rates.
a higher level of employment.
13. Adverse selection is a barrier to financing global growth because
of the differences between financing using loans, portfolio investment and foreign direct investment.
there is the possibility that the funds are used for riskier behavior than the lender agreed to.
firms sometimes have trouble determining whether they need funds or not.
if investors have trouble identifying high-risk firms they may be unwilling to lend funds to creditworthy firms.
14. An increase in the money supply will cause which of the following to occur?
a rightward shift of the aggregate supply curve
a leftward shift of the aggregate demand curve
a leftward shift of the aggregate supply curve
a rightward shift of the aggregate demand curve
15. In the above figure, when disposable income is greater than 600,
saving is positive.
the MPS is negative.
the MPC is greater than 1.
saving is negative.
16. Which of the following is true about the World Bank?
It is a U.N. sponsored agency that specializes in development loans.
It is a multinational agency that specializes in development loans.
It is a U.S. agency that specializes in development loans.
It is made up of all central banks in the world
17. A higher domestic price level should
decrease net exports.
increase desired investment.
increase real wealth and consumption.
none of these.
18. Moral hazard is a barrier to financing global growth because
if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.
firms sometimes have trouble determining whether they need funds or not.
there is the possibility that the funds are used for riskier behavior than the lender agreed to.
of the differences between financing using loans, portfolio investment and foreign direct investment.
19. In the Keynesian model, whenever planned investment is greater than planned saving,
the amount of planned investment will decrease, and real GDP will decrease.
there will be an unplanned inventory decrease, and GDP will eventually increase.
the amount of planned investment will decrease, and real GDP will remain unchanged.
there will be an unplanned inventory increase, and GDP will eventually decrease
20. Country X has experienced GDP growth of 6 percent and a population growth of 4 percent. What is this country's growth of per capita real GDP?
10 percent
-2 percent
6 percent
2 percent
21. Fractional reserve banking can be thought of as a bank
withholding a portion of its total deposits that are not loaned out.
holding deposits equal to its net worth.
paying a fraction of its profit to depositors.
loaning out all of its reserves
22. Suppose that a new customer opens a checking account and a saving account, placing $50,000 in each. Later, the bank makes a loan of $100,000 to a business firm. For this bank,
assets remained unchanged but liabilities increased by $100,000 because of the loan.
assets increased by $100,000 because the checking and saving accounts are assets, and liabilities
increased by $100,000 because the loan is a liability.
assets increased by $100,000 because the loan is an asset, and liabilities increased by $100,000 because the checking and saving accounts are liabilities.
assets increased by $50,000 because the saving account is an asset, while liabilities increased by $50,000 because the checking account is a liability.
23. Consider the above figure. At a price level of 150
inventories of unsold goods decline.
total planned real expenditures exceed total planned real production.
the price level would rise.
total planned production exceeds total planned real expenditures.
24. Europe and Asia both fall into deep economic recessions. What impact will this have on U.S. aggregate demand?
The U.S. aggregate demand curve will shift to the right.
U.S. aggregate demand will remain unchanged.
None. A nation's aggregate demand is only affected by its own economic conditions.
U.S. aggregate demand will decrease.
25. How does the Fed increase the level of reserves in the banking system?
by raising interest rates
by selling bonds
by buying bonds
by lowering interest rates
26. Involuntary unemployment
will increase as the wage rate falls.
exists when there is a shortage of labor.
exists when there is an excess quantity of labor supplied.
occurs when the wage rate is below the equilibrium wage rate.
27. At a level of real disposable income of $0, suppose consumption is $2,000. Given this information, we know with certainty that saving equals
-$2,000.
-$1,000.
$0.
$2,000.
28. Suppose that when disposable income decreases by $2,000, consumption spending increases by $1500. Given this information, we know that the marginal propensity to consume (MPC) is
1/.25 = 4.
$1,000/$750 = 1.33.
.75.
.25.
29. In the Keynesian model, an aggregate demand shock
will cause the aggregate demand curve to shift, leading to a change in the price level but not real GDP.
will cause the aggregate demand curve to shift, leading to a change in the price level and real GDP.
will cause the aggregate demand curve to shift, leading to a change in real GDP but not the price level.
will not lead to a shift of the aggregate demand curve.
30. The planned investment function will shift downward if
the existing stock of capital decreases.
business expectations become more pessimistic.
the interest rate falls.
real disposable income increases.
31. Which of the following is NOT a function of the Fed?
Regulating the money supply
Holding reserves for depository institutions
Lending funds to credit-worthy private firms
Supervising member banks
32. Refer to the above figure. If the MPC is unchanged and level of autonomous consumption increases, what occurs?

Line ABC will drop down.
Line EBD rotates and becomes steeper.
Line ABC shifts up.
Line EBD will shift up.
33. When a nation's currency suddenly loses value, the ________ may step in to buy the afflicted currency.
World Bank
United Nations
Federal Reserve Bank
International Monetary Fund
34. A checking account is
an asset to a commercial bank.
a liability to a commercial bank.
an asset for the Federal Reserve System.
a liability to the household or firm that has the account.
35. A decrease in aggregate demand will cause
aggregate supply to fall according to classical economists, and prices to fall according to Keynes.
prices to fall and unemployment to increase according to both classical economists and Keynes.
aggregate supply to fall according to Keynes, and unemployment to increase according to classical economists.
prices to fall according to classical economists, and unemployment to increase according to Keynes.
36. The classical model uses the assumption that
all wages and prices are flexible.
monopoly is widespread in the economy.
interest rates are not flexible.
economic markets are fragile and have no tendency to move towards an equilibrium.
37. Investment includes spending on
capital goods, consumer durable goods, and changes in business inventories.
capital goods, buildings, and consumer durable goods.
capital goods, buildings, and changes in business savings.
capital goods, buildings, and changes in business inventories.
38. The multinational organization that aims to promote world economic growth by fostering financial stability is the
International Monetary Fund.
World Trade Organization.
United Nations.
World Bank.
39. When the U.S. dollar appreciates,
foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.
foreign residents demand fewer of U.S. goods, and U.S. residents desire to purchase more foreign goods.
foreign residents demand more of U.S. goods, and U.S. residents desire to purchase fewer foreign goods.
foreign residents demand more of U.S. goods, and U.S. residents desire to purchase more foreign goods.
40. The international unit of accounting used by the International Monetary Fund (IMF) is called
the IMF dollar.
special drawing rights.
the Eurodollar.
the quota subscription.


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