Posted: July 30th, 2024

Blinn College ECON 2301 – Other things being equal, a reduction in taxes will

1)
Other things being equal, a reduction in taxes will
A) cause an increase in aggregate demand that is less than the increase in demand due to
the due to an equal increase in government spending.
B) lead to a reduction in the long run aggregate supply curve as businesses enjoy greater profits.
C) lead to a corresponding reduction in interest rates increasing the crowding out effect.
D) influence the short run aggregate supply curve but not the aggregate demand curve

2) According
to supply side economists, lower marginal tax rates will not necessarily lead
to lower tax revenues because
A) Lower
tax rates have no effect on the opportunity cost of labor.
B) The
crowding out effect does not apply to taxes
C) The
lower marginal tax rates will be applied to a growing tax base due to economic
growth.
D) The
aggregate supply curve will shift inward to the left if the tax rates are
lowered.

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3) When
government expenditures are greater than tax revenues, what can occur?
a.) is there a budget
surplus
b.) automatic
stabilizers do not kick in
c.) there will be
budget deficit
d.) the public debt
will be reduced

4) Suppose
that the government of Springfield spends $2 trillion in 2011 and receives tax
revenues of $1.5 trillion. Which of the following is true?
A) Springfield has a
budget surplus of $0.5 trillion.
B) Springfield has a
budget deficit of $0.5 trillion.
C) Springfield has a
trade deficit of $0.5 trillion.
D) Springfield has a
trade surplus of $0.5 trillion.

5) The
fastest growing component of the annual federal budgets since 2000 is
A) Funding
for NASA.
B) Entitlement
payments.
C) Funding
for health research.
D) The
education budget.

6) The
capital budget includes expenditures for
A) Current
operations such as salaries.
B) Legislative
and presidential office expenses including travel for members of Congress.
C) Interest
payments.
D) Investing
funding with long-term borrowing.

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7) Which
of the following correctly describes a way in which deficit spending can impose
a burden on future generations?
I.
Failure to allocate
deficit spending to uses that boost future real Gross Domestic Product (GDP)
will require taxing future generations at a higher rate to repay the resulting
higher public debt.
II.
Government deficits
that lead to higher employment and real Gross Domestic Product (GDP) in the
future will generate increased income taxes for future governments, which will
respond by spending the higher tax revenues, creating higher future government
budget deficits.
III.
Other things being
equal, deficit spending fuels increased consumption of goods and services by
the current generation that crowds out capital investment, thereby leaving
future generations with a smaller stock of capital than otherwise would have
existed.
A) I
only
B) II
only
C) I
and III only
D) II
and III only

8) To
move from gross public debt to net public debt, subtract
A) The
amount owed to individuals and firms outside the United States
B) All
government interagency borrowing.
C) The
current year’s budget deficit from the amount of public debt at the start of
the year.
D) The
interest paid annually on the public debt.

9) Financial
intermediaries are important because
A) They
bring lenders and borrowers together in a way that lowers transaction costs.
B) They
increase costs for banks
C) They
provide large funds to the stock market.
D) They
employ large numbers of people.

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10) The
fact that individuals whose credit worthiness is less than it appears to be are
those who are most willing to borrow funds at any given interest rate is an
example of
A) Moral
bonuses
B) Diverse
origins
C) Adverse
selection.
D) Symmetric
information.

11) The
Federal Deposit Insurance Corporation
A) Discourages
banks from engaging in excessive risk taking.
B) Only
insures deposits in money-center banks.
C) Increases
the stability of the banking system by reducing the likelihood of bank runs.
D) Was
established after the Panic of 1907.

12) The Board of Governors of the Federal Reserve
System is
A) Elected
by the members of the American Banking Association.
B) Appointed
by the President with approval of the U.S. Senate.
C) Appointed
by Congress.
D) Elected
by the public.

13) Federal
Reserve notes are
A) An
asset to the Federal Reserve System.
B) Both
an asset and a liability to the Federal Reserve System.
C) A
liability to the United States Treasury.
D) A
liability to the Federal Reserve System.

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14) Which
of the following relationships should always be true?
A) Legal
reserves + required reserves = excess reserves
B) Legal
reserves – required reserves = excess reserves
C) Excess
reserves + required reserves = transactions deposits
D) Excess
reserves = required reserves

15) Supposed
that the required reserve ratio is 20 percent and that a bank is just meeting
that requirement when $10,000 in cash is withdrawn from a demand deposit. The
bank must now
A) Decrease
its reserves by $2,000
B) Do
nothing since both its assets and liabilities are affected equally.
C) Make
$200,000 in new loans.
D) Increase
its reserves by $8,000

16) The
difference between assets and liabilities of a bank is known as
A) Reserves
B) Required
reserves
C) Net
worth
D) Legal
reserves

17) All
depository institutions must
A) Charge
the interest rates and pay the interest rates determined by their Federal
Reserve district bank.
B) Keep
all of their deposits at the Federal Reserve district bank except their vault
cash.
C) Keep
a certain percentage of their deposits at the Federal Reserve district bank or
as vault cash.
D) Limit
their loans to households to a certain percentage of all their loans, and the
limit is set by the Federal Open Market Committee.

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18) The
required reserve ratio is 10 percent. A bank with $100 million in deposits has
$5 million in vault cash, $6 million on deposit with the Fed, government
securities of $9 million, and other assets of $80 million If some deposits a
check for $1 million in the bank, the maximum loan the bank can make is
A) $1.9
million.
B) $900,000
C) $1
million.
D) $2
million.

19) If a bank has $4 million in transactions
deposits, and the required reserve ratio is 10 percent, then the bank’s
required reserves are
A) $600,000
B) $3,600,000
C) $40,000
D) $400,000

20) The required reserve ratio is 10 percent,
banks desire to hold no excess reserves, and all loan proceeds are deposited in
transactions accounts. A bond dealer has $100 million in deposits, $8 million
in vault cash, and $7 million in deposits at the Fed. The Fed sells $1 million
in securities to the bond dealer. As a result of this transaction alone,
A) The
money supply falls by $1 million, total reserves fall by $900,000 and excess
reserves fall by $900,000
B) The
money supply falls by $1 million, but reserves don’t change since the bank had
$5 million in excess reserves before the transaction.
C) The
money supply falls by $1 million, total reserves fall by $1 million, and excess
reserves fall by $900,000
D) The
money supply falls by $1 million, total reserves fall by $1 million and excess
reserves fall by $1 million.

21) When
the Federal Reserve Bank sells government securities, the immediate effect is
that
A) The
reserve requirement ratio initially decreases.
B) Excess
reserves decrease.
C) The
reserve requirement ratio initially increases.
D) Total
reserves increase.

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22) If
the actual money multiplier equals the potential money multiplier and if the
Federal Reserve wishes to increase the money supply by $500 when the required
reserve ratio is 10 percent, it should
A) Sell
$50 of government bonds.
B) Sell
$5000 of government bonds.
C) Buy
$5000 of government bonds.
D) Buy
$50 of government bonds.

23) The
required reserve ratio is 10 percent, Bank A has $1 million in excess reserves,
and all other banks have zero excess reserves. If the Fed buys $1 million of
U.S. government securities and the funds are deposited in Bank A, but Bank A
refuses to grant any loans or buy any financial securities, then
A) The
money supply increases by $900,000
B) The
money supply increases by $1 million.
C) The
money supply increases by more than $1 million.
D) The
money supply does not increase.

24) If
there are $5 million in excess reserves in the U.S. banking system and the
required reserve ratio is $20 percent, then the most money supply can increase
is
A) $25
million.
B) $5
million.
C) $20
million.
D) $0.

25) If
the required reserve ratio is 10 percent, total deposits are $100 billion,
banks decide they want to keep 10 percent of their deposits as reserves, and
the Fed buys $5 billion in government securities, the money supply will
A) Increase
by $25 billion.
B) Increase
by $5 billion since the security purchase increases the money supply directly.
However, there will be no new loans and no further expansion of the money
supply.
C) Not
change because the bank will make no loans.
D) Decrease
by $25 billion.
26) Assume
(other things constant) that the Fed increases the money supply. The mechanism through
which aggregate demand increases is, according to interest-rate-based
transmission mechanism, summarized as follows:
A) Increase
in money supply -> decrease in money balances held -> decrease in
interest rates -> increase in planned investment spending -> increase in
aggregate demand.
B) Increase
in money supply -> increase in money balances held -> decrease in
interest rates ->decrease in planned investment spending -> increase in
aggregate demand.
C) The
money supply increases -> there is a drop in money balances held ->
interest rates increase -> planned investment spending decreases ->
aggregate demand increases.
D) Increase
in money supply -> decrease in interest rates -> increase in planned
investment spending ->increase in aggregate demand.

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ABC Bank Balance
Sheet

Assets -------------------------- Liabilities
__________________________________________________
Reserves $25,000 --------- Demand Deposits
$100,000
Required $20,000
Excess $5,000
Loans $75,000
___________________________________________________
Total Assets $100,000--------Total Liabilities
$100,000

27) According to this Table, the required
reserve ratio for ABC Bank is
A) 10%
B) 15%
C) 5%
D) 20%

28) Suppose that $10,000 in new deposits is
received by the ABC Bank. If there were no other changes in the balance sheet,
then the bank would be in a position to make new loans in the amount of...
A) $15,000
B) $8,000
C) $10,000
D) $13,000
ABC Bank
Balance Sheet

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Assets -------------------------- Liabilities
__________________________________________________
Reserves $200,000 --------- Demand
Deposits $2,000,000
Required $200,000
Excess $0
Securities $200,000
Loans $1,600,000
___________________________________________________
Total Assets $2,000,000--------Total
Liabilities $2,000,000

29) According to this Table, the required
reserve ratio for ABC Bank is
A) 10%
B) 15%
C) 1%
D) 20%

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