TEST 2

Question 1

Karl Marx Said

Answer 1

We should produce according to our abilities

Question 2

In the 1950’s socialists changed their emphasis in advocating socialism in capitalist countries. Why?

Answer 2

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

Question 3

What is the capitalist answer to the externalities rationale for socialism?

Answer 3

Externalities are a problem, but self-interested state decision makers with bad information might make the problem worse.

Question 4

For property to be taken by civil forfeiture…

Answer 4

the owner does not need to be arrested or convicted of a crime

Question 5

the latest rationale for socialism is…

Answer 5

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

Question 6

about how much per person does the US spend on anti poverty programs

Answer 6

20,000

Question 7

Don Bordreaux’s tale about Smith and Jones points out that….

Answer 7

fairness has more dimensions than just worldly goods

individual choices have unequal outcomes

Question 8

Burkhauser, Larrimore and Simon point out that, because more people are living together without being married, Piketty and Saez…

Answer 8

identify some taxpayers as being poor, even though they are not

Question 9

Thomas Sewell points out that..

Answer 9

this decades poor may be next decade’s middle class

Question 10

Bastiat says that machines…

Answer 10

do not cause unemployment

Question 11

If the Fed lowers the required reserve ratio….

Answer 11

Excess reserves of banks immediately rise

Question 12

If the Fed puts money into the banking system…

Answer 12

the Federal Funds rate will fall because money is now more abundant

Question 13

If the required reserve ratio is .2, then a $25 Billion purchase of bonds by the fed will…

Answer 13

raise the money supply by $250 million

Question 14

If the price index was 220 in the year 2005 and is 275 today, then since 2005 we have seen a total of….

Answer 14

25% inflation. Because the inflation formula is..

I = (PI year1 / PI year2) - 1

Question 15

If Bubbles earned $30,000 in 2000 when the CPI was 180 and earned $40,000 in 2013 when the CPI was 230….

Answer 15

Bubbles was worse off in 2000

Question 16

What does M1 include?

Answer 16

currency held outside banks

checking account balances

travelers checks

Question 17

If the CPI in the 2013 is 650, with a base year of 1967, then….

Answer 17

The same stuff that wouldve cost $100 in 1967 costs $650 in 2013

Question 18

When the price of an important resource in the economy rises sharply…

Answer 18

This cannot cause a general inflation because in order to spend more on some things, people must spend less on others, which lowers the prices of other things.

Question 19

If the money supply is 8 trillion, velocity is 3, price level is 6 and output is 4 trillion, then according to the simple quantity theory….

Answer 19

MV=PQ

```
8) (3) = (6) (4
24 = 18
(reduce)
12 = 9
MV rises to 12 price level rises to 9
~~~

Question 20

what are the assumptions of monetarism?

Answer 20

The equation of exchange holds

Velocity is a stable function of a few variables

eventually output is at potential

Question 21

The pizza place example teaches…

Answer 21

evenly spread anticipated inflation does not change wellbeing

Question 22

Suppose that we have unanticipated inflation, if it is evenly spread throughout the economy, then problems include..

Answer 22

destabilization due to lenders getting poorer and borrowers getting richer

Question 23

Inflation can cause unemployment because

Answer 23

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

Question 24

What is behind the idea of “the inflationary tax?”

Answer 24

inflation reduces the real value of government debt

Question 25

Many view normal inflation as…

Answer 25

3%

Question 26

when we say that intermediaries divide denominations, we mean that they solve the problem that..

Answer 26

savers want to save different amounts that borrowers want to borrow

Question 27

The Department of Housing and Urban Development….

Answer 27

encouraged Fannie Mae to purchase loans that banks made to poor people

Question 28

the Dodd -Frank bill’s “Bailout Insurance” will…

Answer 28

encourage risks due to being insured against risks

Question 29

If we compare excess reserves in the banking system in August 2008 to excess reserves currently in the banking system, we find that they have multiplied by a factor of

Answer 29

1000

Question 30

The reason that someone would purchase a zero coupon bond is…

Answer 30

they buy the bond for less than the face value

Question 31

Credit card interest rates are higher than mortgage interest rates because…

Answer 31

mortgage loans are secured

credit card loans expand or contract making them harder to service

Question 32

in Bastiat’s chapter on thrift, how do people say Ariste’s saving harms the economy?

Answer 32

lower spending kills jobs

Question 33

The Financial Stability Oversight Committee may be hindered in that..

Answer 33

it is supposed to monitor systemic risks but its members themselves were the causes of systemic risk

Question 34

In Bastiat’s example of the loaned plow, he thinks the plow is misallocated because government

Answer 34

guarantees loans for uncreditworthy borrowers