Download Economics 101 Quiz Solutions - Fall 2002 and more Quizzes Economics in PDF only on Docsity! Name Economics 101 Davidson College Fall 2002 Mark C. Foley Quiz #6 Suggested Solutions 1. Financial markets are B (a) the financial institutions through which savers can indirectly provide funds to borrowers. (b) the financial institutions through which savers can directly provide funds to borrowers. (c) the financial institutions that sell shares to the public and use the proceeds to buy a selection of various types of stocks and/or bonds. (d) None of the above are correct. 2. Long-term bonds are generally A (a) more risky than short-term bonds and so pay higher interest. (b) more risky than short-term bonds and so pay lower interest. (c) less risky than short-term bonds and so pay higher interest. (d) less risky than short-term bonds and so pay lower interest. 3. A mutual fund B (a) sells stocks and bonds on behalf of small and obscure firms who would otherwise have to pay high interest to obtain credit. (b) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. (c) a financial market where small firms sells stocks and bonds to raise funds. (d) money set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 4. Which of the following represents national saving in a closed economy? C (a) Y โ I โ G โ NX (b) Y โ I โ C (c) Y โ C โ G (d) G + C โ Y 5. A budget deficit is created when the government B (a) buys back more bonds than it issues. (b) spends more than it receives in tax revenue. (c) receives more tax revenue than it spends. (d) None of the above are correct. 6. A higher interest rate induces people to D (a) save more, so the demand for loanable funds slopes upward. (b) save less, so the demand for loanable funds slopes downward. (c) invest more, so the demand for loanable funds slopes upward. (d) invest less, so the demand for loanable funds slopes downward. 7. Suppose that Congress were to institute an investment tax credit. What would A happen in the market for loanable funds? (a) the demand for loanable funds would shift right. (b) the supply of loanable funds would shift right. (c) the demand for loanable funds would shift left. (d) the supply of loanable funds would shift left. 8. When you put money in your mattress, which function of money are you using? A (a) store of value (b) medium of exchange (c) unit of account (d) None of these. 9. Liquidity refers to C (a) the suitability of an asset to serve as a store of value. (b) a measurement of the intrinsic value of commodity money. (c) the ease with which an asset is converted to the medium of exchange. (d) None of the above refers to liquidity. 10. The agency responsible for regulating the money supply in the U.S. is B (a) the Comptroller of the Currency. (b) the Federal Reserve. (c) the U.S. Treasury. (d) the U.S. Bank. 11. The Fed can increase the price level by D (a) conducting open market sales and raising the discount rate. (b) conducting open market sales and lowering the discount rate. (c) conducting open market purchases and raising the discount rate. (d) conducting open market purchases and lowering the discount rate. 12. If the reserve ratio is 20 percent, $1,000 of excess reserves can create B (a) $1,250 of new money. (b) $5,000 of new money. (c) $12,500 of new money. (d) $50,000 of new money. 13. Which list contains only actions that increase the money supply? B (a) raise the discount rate, make open market purchases (b) raise the discount rate, make open market sales (c) lower the discount rate, make open market purchases (d) lower the discount rate, make open market sales
