Economics

Chapter 8

1. Changes in regulatory policy in the 1980s _A_the price of trucking services and _B_the profits of trucking firms.

A. a.raised b.lowered B.a.increased b.decreased

2. What is the best example of product differentiation that occurs in a monopolistically competitive​ market?

A.Apple’s iPhone stops working when it becomes wet.

B.Apple’s iPhone is produced by​ low-cost workers in China.

C.Apple’s iPhone can only be used on the​ AT&T network.

D.Apple’s iPhone’s​ built-in ability to​ back-up data to the iCloud.

3. Pete wants to open a restaurant and has chosen to open a​ McDonald’s. McDonald’s requires an upfront investment of $120,000 plus 5.9​% on all sales.If his restaurant does $1.9 million in​ sales, Pete will owe​ McDonald’s ​$___ Nothing for the franchise. ​(Enter your response rounded to the nearest​ dollar.)

4.Uniform​ Trade-Offs. A prominent feature of​ Mao’s Communist China in the 1940s through the 1970s was the blue uniform worn by all citizens.  

a. Which of the following statements best describe the​ trade-off associated with the use of​ uniforms?

A.The benefit of economies of scale means higher average fixed costs.

B.The benefit of a lower average cost of production means less variety for consumers.

C.The benefit of economies of scope means higher average fixed costs.

D.The benefit of economies of scale means higher average production costs.

b. Suppose people had a choice among five uniform colors rather than being required to wear blue uniforms. Would you expect the benefits of requiring uniforms to decrease by a little or a​ lot?

A.A little B.A lot

5. The Cost of Celebrities. Consider a firm that hires an expensive celebrity to advertise its products. Does the firm have an incentive to prevent its customers from discovering how much it pays the​ celebrity?  

A.Yes. If they pay them a lot of​ money, consumers will think the product is too expensive.

B.No. We all know celebrities must be paid a lot of money to do anything.

C.No. Large spending for a celebrity endorsement signals that the producer expects the product to be popular.

D.Yes. If they​ don’t pay them a lot of​ money, consumers will think the product is inferior

6. A dominant strategy is the strategy that allows one firm to dominate the market.

A.True B.False

7. In a​ cartel, the price that will be charged to consumers is the

A.perfectly competitive market price.

B.monopoly price.

C.oligopoly price.

D.duopoly price.

8. If two firms expect to be in the market together for a long​ time, the _A_ of underpricing will be large relative to the _B_

Aa.cost b.benefit B.a.benefit b.cost

9. Otto has a monopoly on limousine​ service, and Carla is thinking about entering the market. The outcome of the​ entry-deterrence game represented by the game tree to the right is that Otto picks the _A_ quantity and Carla _B_ the market.

A.a.small b.large B. a.enters b.stays out of

10. A contestable market is a market

A.with high entry and exit costs.

B.where firms will be secure.

C.with high barriers to entry.

D.with low prices and profits.

Chapter 16 & 17

1. Money market mutual funds are hard to classify in a definition of money because they are only held to facilitate transactions.

A.True B.False

2. Debit Cards. In recent​ years, debit cards have become popular. Debit cards allow the holder of the card to pay a merchant for goods and services directly from a checking account. The introduction of debit cards most likely _A_ the amount of currency in the economy.

A.increased b.decreased c.had no impact on

3. Which of these is NOT included in​ M1?

A.checkable deposits

B.traveler’s checks

C.demand deposits

D.savings deposits

4. Related to​ Application: The Growth in Excess Reserves

When reserves paid ​interest, banks___

A. Preferred to make loans rather than keep reserves

B. Could keep reserve rather than make loans

5. Banks versus Insurance Companies. Even though both insurance companies and banks are financial​ intermediaries, macroeconomists study insurance companies more intensively because insurance companies have a much larger and direct impact on the money supply.

A.True B.False

6. If a bank has $100 billion in demand deposits and required reserves are 12​%, the maximum amount of money it can lend is ​$__billion. ​(Enter your response rounded to one decimal​ place.)

7. The Fed provides a system of check collection and

A.identification b. issuing c.clearing

8. The President of the New York Federal Reserve Bank. Which of the following is a reason that the president of the New York Federal Reserve Bank is always a voting member of the Federal Open Market​ Committee?

A.The FRB of NY conducts monetary policy.

B.NY is the​ world’s financial center.

C.NY is a major economic power of the U.S.

D.All of the above.

9. Decisions on changes to the money supply are made by the

A.Federal Reserve Bank of New York.

B.Board of Governors of the Federal Reserve.

C.Chairperson of the Federal Reserve.

D.Federal Open Market Committee

10. In the banking​ system, when clearing​ checks, the difference between the Federal​ Reserve’s credits and debits is​ the:

A.money.

B.float.

C.liability.

D.reserve.

Chapter 17

1. We measure the opportunity cost of holding money​ with:

A.the interest rate.

B.currency.

C.liquidity.

D.money demand.

2. An ATM Next to Your Apartment Building. Suppose an ATM connected to your own bank is installed right next to your apartment building.

a. How will this affect the average amount of currency you carry around with​ you?

A.You will carry more currency since it is more convenient to get your money holdings out of the bank.

B.You will carry less currency since it is convenient to leave your money holdings in the bank earning some interest.

C.You will carry the same amount of currency since ATMs have been readily available.

b. If you withdraw funds at your ATM only from your checking​ account, will your action have any effect on total money​ demand?

A.No, if income has increased and you want less currency for transactions.

B.No, if this withdrawal is an action that facilitates your normal level of transactions.

C.Yes, if interest rates have increased and you need more currency for transactions.

D.Yes, if prices have fallen and you need more currency for transactions.

3. Banks trade reserves with one another in​ the:

A.money market.

B.capital market.

C.discount market.

D.federal funds market.

4. China’s Increase in Reserve Requirements. The Chinese government purchased U.S. dollars in the foreign exchange market with Chinese currency. During the same​ period, the Chinese sharply raised the reserve requirement on banks because they wanted to prevent the money supply from expanding too rapidly.

The effect of the Chinese​ government’s purchase of U.S. dollars in the foreign exchange market with Chinese currency would be to _A_the supply of Chinese currency.

Since the Chinese wanted to prevent the money supply from expanding too​ rapidly, they raised the reserve requirement on​ banks, _B_ the ability of banks to make​ loans, thereby _C_ the Chinese money supply.

A.a.increase b..decrease B.a.increasing b.reducing C.a.decreasing b.increasing

5. Pricing a Bond. A bond promises to pay ​$115 next year and the interest rate is 6 percent per year.

a. What will the price of the bond​ be?

$__. ​(Enter your response rounded to the nearest penny​.)

b. What will the new price of the bond be if the interest rate falls to 4 ​percent?$__. ​(Enter your response rounded to the nearest penny​.)

6. An Increase in the Riskiness of the Stock Market. If investors began to think the stock market is becoming more ​risky, how will this belief affect the demand for​ money?

The demand for money will

A.decrease since people will want less money to buy stocks.

B.increase since people will want more money to buy stocks.

C.increase since people will prefer assets that have a more certain value.

D.be unchanged since stock and currency are different assets.

This would have

A.no affect on either M1 or M2.

B.more affect on M2 since it has more components that are assets substitutes for stock.

C.more affect on M1 since money is a larger component of M1 than of M2.

D.and equal affect on M1 and M2 since M1 is part of M2.

7.Where Is Monetary Policy​ Stronger? In an open​ economy, changes in monetary policy affect both interest rates and exchange rates. Comparing the United States and​ Switzerland, in which country would monetary policy have a more significant effect on GDP through changes in exchange​ rates?

A.Switzerland B.United States

8. Experimental evidence shows us that committees tend to perform __ individuals in making monetary policy decisions.

A.better than B.the same as C.worse than

9. What Information Does the Fed​ Use? What type of information is provided in the Beige Book prepared by the Federal​ Reserve?

A.Data on​ ‘hot money’ investment flows among different nations.

B.Data on national and regional economic conditions.

C.Data on international​ conditions, trade​ flows, exchange​ rates, and trade barriers.

D.A history of past policy decisions made by the FOMC.

10. According to most econometric​ models, when cutting interest​ rates, the outside lags for monetary policy can take

A.2 years.

B.9 months.

C.1 year.

D.6 months.