Quiz_ Practice Exam 6

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University of Nebraska Medical Center *

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Economics

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Jun 4, 2024

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Practice Exam 6  This is a preview of the published version of the quiz Started: May 7 at 7:57pm Quiz Instructions  Question 1 0.5 pts Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $1 million, the monetary base is $15 million, and bank deposits are $30 million. Bank reserves are equal to $2 million. $5 million. $3 million. $10 million.  Question 2 0.5 pts Assume that the currency-deposit ratio is 0.5. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action increased the money supply by $2 million. What is the reserve-deposit ratio? 0.25 0.35 0.40 0.50  Question 3 0.5 pts 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 1/10 Idk why formatting different. Bear with the change

 Question 4 0.5 pts  Question 5 0.5 pts Suppose that in Mysore, the reserve-deposit ratio is res = 0.5 - 2 i , where i is the nominal interest rate. The currency-deposit ratio is 0.2 and the monetary base equals 100. The real quantity of money demanded is given by the money demand function L(Y, i) = 0.5 Y - 10 i , where Y is real output. Currently, the real interest rate is 5% and the economy expects an inflation rate of 5%. The money supply equals 400. 200. 300. 240. The Fed can reduce the money supply by reducing the currency-deposit ratio. the discount rate. the monetary base. reserve requirements. The primary purpose of the discount window is to fulfill the bank's lender of last resort role. influence the nation's money supply. influence the amount of loans that banks provide to the public. 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 2/10

 Question 6 0.5 pts  Question 7 0.5 pts  Question 8 0.5 pts control banks' excess reserves. Who determines the open-market operations of the Federal Reserve System? FOMC Board of Governors FDIC FHLBB Which of the following is an instrument of monetary policy? The discount rate The mortgage interest rate The interest rate on three-month Treasury bills The budget deficit A liquidity trap occurs when there are runs on banks that are solvent but illiquid. the demand for loans increases in a country on the gold standard, so that the monetary supply is not able to increase and interest rates rise dramatically. the Fed increases the money supply, causing the expected inflation rate to rise more than the real interest rate declines, so that the nominal interest rate increases. 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 3/10

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 Question 9 0.5 pts  Question 10 0.5 pts  Question 11 0.5 pts any additions to the monetary base are held as cash by people or reserves at banks. In the financial crisis in 2008, the Federal government created the ________, to purchase financial assets that were thought to be temporarily undervalued, preventing further financial panic. Troubled Asset Relief Program Federal Home Loan Board Federal Deposit Insurance Corporation Bank Insurance Fund In response to an unanticipated tightening of monetary policy, output ________ at first, then ________ after about four months. remains roughly unchanged; falls significantly remains roughly unchanged; rises significantly rises; returns most of the way to its original value falls; returns most of the way to its original value The problem with the strategy of achieving credibility through reputation is that reputations are rarely credible. rules always have a lower cost than reputations in maintaining credibility. serious costs may be incurred during the period in which reputation is established. 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 4/10

 Question 12 0.5 pts  Question 13 0.5 pts  Question 14 0.5 pts reputations lack any commitment. Monetarists suggest doing which of the following? Use fiscal policy to combat inflation in the long run. Use monetary policy to combat unemployment in the long run. Maintain a steady growth rate of the money supply. Use fiscal policy to combat unemployment in the short run. According to the Taylor rule, if inflation in the last year was 6% and output was 2% below its full- employment level, the nominal Fed funds rate should be 7%. 3%. 9%. 5%. Net interest payments by the government are usually small and sometimes negative for the federal government, but large and positive for state and local governments. small and sometimes negative for both the federal, and state and local governments. small and sometimes negative for state and local governments, but large and positive for the federal government. large and positive for both the federal, and state and local governments. 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 5/10

 Question 15 0.5 pts  Question 16 0.5 pts  Question 17 0.5 pts  Question 18 0.5 pts The primary deficit is equal to outlays - tax revenues. government purchases + transfers - tax revenues. outlays + net interest - tax revenues. government purchases + transfers + net interest - tax revenues. From the late 1960s to the late 1990s, the share of GDP devoted to government purchases drifted gradually upward. increased, but only after the onset of a war or a military buildup. remained fairly steady. drifted gradually downward. An increase in the marginal tax rate, with the average tax rate held constant, will not affect the amount of labor supplied at any real wage. increase the amount of labor supplied at any real wage. increase the amount of labor supplied at any real wage if the average tax rate is above the marginal tax rate, but decrease the amount of labor supplied at any real wage if the average tax rate is below the marginal tax rate. decrease the amount of labor supplied at any real wage. 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 6/10

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 Question 19 0.5 pts  Question 20 0.5 pts Suppose that all workers place a value on their leisure of 40 goods per day. The production function relating output per day Y to the number of people working per day N is Y = 200 N - 2 N 2 and the marginal product of labor is MPN = 200 - 2 N . A 20% tax is levied on wages. Output per day would be 7250. 5625. 11,250. 9375. Assume that the lost output due to tax distortions is proportional to the square of the tax rate. If the average cost of the distortion created by taxes is currently $1000, and the tax rate is increased from 40% to 50%, the average cost of the distortion created by taxes will increase to $1562.50. $450.00. $383.33. $640. U.S. data suggest that the U.S. economy is located where on the Laffer curve? On the right side, after the peak in tax revenue On the left side, before the peak in tax revenue At the peak in tax revenue 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 7/10

 Question 21 0.5 pts  Question 22 0.5 pts  Question 23 0.5 pts The economy was on the right side before the 1980s and on the left side after 1980. Which of the following policies would not prevent the Social Security trust fund from running out of assets? Earn a higher rate of return Reduce promised benefits Increase taxes Reduce taxes According to the Ricardian equivalence proposition, current deficits will not affect consumption or national saving. will affect national saving but not consumption. will affect consumption but not national saving. will affect both consumption and national saving. Auerbach and Gorodnichenko found that the government spending multiplier is ________ in expansions and ________ in recessions. 1.0 to 1.5; 0.0 to 0.5 0.0 to 0.5; 1.0 to 1.5 0.0 to -0.5; 0.5 to 1.0 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 8/10

 Question 24 0.5 pts  Question 25 0.5 pts  Question 26 0.5 pts 1.0 to 1.5; 2.0 to 2.5 Real money demand in the economy is given by L = 0.5 Y - 2500 i , where Y is real income and i is the nominal interest rate. In equilibrium, real money demand L equals real money supply M/P . Suppose that Y equals 1000 and the real interest rate is 0.02. At what rate of inflation is seignorage maximized? 0.10 0.09 0.075 0.05 State governments in the United States can raise revenue by all the following means except increasing sales taxes. increasing income taxes. increasing the money supply. increasing taxes on corporate profits. Assume that in an all-currency economy the real interest rate is 4%, the expected rate of inflation is 8%, and the nominal interest rate is 12%. The monetary base equals $50 billion. The real seignorage revenue collected by the government would equal $8 billion. $12 billion. 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 9/10

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Not saved $4 billion. $6 billion. Submit Quiz 5/7/24, 7:57 PM Quiz: Practice Exam 6 https://canvas.unl.edu/courses/167808/quizzes/379654/take?preview=1 10/10

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