practice test 2

Question 1

to socialize the cost of healthy food, we would?

Answer 1

tax everyone, then purchase food for everyone

Question 2

Karl Marx said

Answer 2

we should produce according to our abilities

Question 3

in the 1950’s, socialists changed their emphasis in advocating socialism in capitalist countries. why?

Answer 3

because Marx’s predictions about the labor market did not materialize

Question 4

how are externalities related to the rationale for socialism?

Answer 4

when nature socializes costs and benefits, inefficiencies are created that might only be reduced by man’s deliberate socialism

Question 5

which is true?
there is no socialism in the US
there is socialism in the US, but only to counter problems with externalities
US socialism is more fascistic than communistic
the US economy is, in truth, purely communistic

Answer 5

US is more fascistic than communistic

Question 6

with imminent domain, an individual’s property

Answer 6

is taken with compensation

Question 7

the latest socialist rationale is

Answer 7

if an individual receives benefits from goods provided by the state, the state has a right to the individual’s property

Question 8

many capitalist philosophers agree that legitimate functions of the state are to

Answer 8

protect persons and property

Question 9

the US poverty rate is about

Answer 9

16%

Question 10

a free market rate at which banks lend to other banks is

Answer 10

the federal funds rate

Question 11

if the required reserve ratio is .25 and the Fed sells $100B in government bonds, then throughout the banking system, then the money supply

Answer 11

falls by 400B

Question 12

which is not one of the listed function of money: 
factor of production 
unit of account
store of value 
medium of exchange

Answer 12

factor of production

Question 13

which is true:
if a commodity becomes money, no one will use it anymore as a commodity
for a commodity to successfully become money, no one must be able to produce more of it
using a commodity money has higher transactions costs than barter
a and b
none of the above are true

Answer 13

none of the above

Question 14

M1 does not include:
currency held inside banks
certificates of deposit
M1 includes all of the above 
M1 includes none of the above

Answer 14

none of the above

Question 15

which is not a tool of monetary policy?
the discount rate
making loans to businesses
the required reserve ratio
buying and selling US gov. bonds

Answer 15

making loans to businesses

Question 16

if the Fed lowers the required reserve ratio:

Answer 16

the money supply rises

Question 17

which is true about the federal open market committee?
they vote on all monetary policy initiatives
the Fed chairman’s recommendations are nearly always adopted
a and b
neither a and b

Answer 17

both a and b

Question 18

which of the fed’s tools is considered dangerous?

Answer 18

the required reserve ratio

Question 19

if the CPI in 2013 is 650 with a base year of 1967, then:
every item sold in 2013 costs $650 more than it did in 1967
the same stuff that would have cost $100 in 1967, costs $650 in 2013
the same stuff that would have cost $100 in 1967, cost $1538 in 2013
prices in 2013 are 650 times higher than they were in 1967

Answer 19

the same stuff that would have cost $100 in 1967, costs $650 in 2013

Question 20

if bubbles earned 50000 in 1995 when the CPI was 150 and earned 60000 in 2002 when the CPI was 180:
bubbles was better off in 2002
bubbles was worse off in 2002
bubbles was equally well off in the two years
the answer cannot be calculated with the given information

Answer 20

bubbles was equally well off in the two years

Question 21

the equation of exchange says

Answer 21

the nation’s output is caught by the money supply turning over

Question 22

if the money supply is 3 trill, velocity is 4, and price level is 2. we know that:
.75 is spent on output
1.33 is spent on output
output is 6 trill
given the assumptions of the simple quantity theory, if the money supply rises to 6 trillion, the price level will rise to 3

Answer 22

output is 6 trill 6

Question 23

which is not an assumption of monetarism?
the equation of exchange holds
velocity is stable function of a few variables
eventually output is at its potential
all of the above are assumptions of monetarism
none of the above as an assumption

Answer 23

none of the above

Question 24

in the helicopter drop story:
in the short run an increase in the money supply can increase output
in the short run an increase in the money supply cannot increase output
in the long run an increase in the money supply increase prices proportionally
a and c
b and c

Answer 24

both a and c

Question 25

with unanticipated inflation: those with significant long term contracts to pay for goods and services see their wealth rise those with significant long term contracts to pay for goods and services see their wealth fall those with long term contracts to pay for good and services are not affected the outcomes is uncertain, either a or b could happen

Answer 25

those with significant long term contracts to pay for goods and services see their wealth rise

Question 26

inflation can cause unemployment because: people are unsure of the value of goods, services, and resources borrowers gain and lenders lose those with long term contracts to pay for goods and services at fixed prices are harmed none of the above-- inflation does not cause unemployment

Answer 26

people are unsure of the value of goods, services, and resources

Question 27

what is behind the idea of the inflationary tax?

Answer 27

inflation reduces the real value of government debt

Question 28

with the gold standard: average inflation was lower inflation had smaller swings above and below its average inflation had larger swings above and below its average a and b a and c

Answer 28

a and b

Question 29

austrians say that inefficient money creation is at the heart of all destabilization of entire economies is based on the idea that?

Answer 29

only government can coordinate economy wide failures in the price system through money growth

Question 30

you buy a government bond. this is an example of:

Answer 30

direct finance

Question 31

if the real interest rate is 4% and anticipated inflation is 7% then the nominal interest rate is?

Answer 31

11%

Question 32

``` financial intermediaries develop comparative advantage at: evaluating borrowers collecting debts a and b neither a or b ```

Answer 32

a and b

Question 33

``` if people become more optimistic about the growth of their future incomes then: interest rates fall interest rates rise the supply of loanable funds falls the supply of loanable funds rises ```

Answer 33

interest rates rise

Question 34

if the US government borrows 3 trill extra dollars, this will cause

Answer 34

total loanable funds to expand by less than 3 trill

Question 35

``` in the general motors bankruptcy: the firm was liquidated the absolute priority rule was not followed the company was insolvent all of the above none of the above ```

Answer 35

the absolute priority rule was not followed

Question 36

bastiat says that government guarantees could raise the rate of interest. this is because:

Answer 36

demand for loanable funds increases

Question 37

bastiat says that Ariste's savings

Answer 37

is another way of spending

Question 38

the community reinvestment act, passed in 1977 required that

Answer 38

banks make loans to poor people

Question 39

in the 1990's and the 2000's, Fannie Mae did not care if homeowners defaulted on mortgage loans because

Answer 39

with higher housing prices, foreclosed homes could be sold for more than the debt

Question 40

which is not a service provided by financial intermediaries? dividing denominations of lender and savers matching risk of non-payment all of the above are provided by financial intermediaries none of the above are provided by financial intermediaries

Answer 40

all of the above