Economics 002- Principles of Economics II » Fall 2022 » Test 2 Ch 4-7

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Question #1
If a U.S. automaker manufactures cars in Mexico, these cars will be included in U.S. gross national product and Mexico’s gross domestic product.
A.   False
B.   True
Question #2
If an economy experienced an unexpected decrease in inflation
A.   The real interest rate would rise.
B.   All of these.
C.   Creditors would be hurt.
D.   Debtors would be helped.
Question #3
Which of the following is a nondurable consumption good?
A.   Furniture
B.   Gasoline
C.   Automobile
D.   Appliances
Question #4
Indexation refers to
A.   Adjusting nominal payments for inflation.
B.   The process of stabilizing economy-wide prices.
C.   Measuring prices using the Consumer Price Index.
D.   Measuring wages in nominal, rather than real, terms.
Question #5
First Notional Bank has assets of $50 billion and liabilities of $42 billion. We can conclude that its net worth is ______.
A.   $108 billion
B.   -$8 billion (negative net worth)
C.   $92 billion
D.   $8 billion
Question #6
Economic growth is beneficial because it leads to improved living standards in terms of leisure and reducing poverty.
A.   False
B.   True
Question #7
When the circular flow is in equilibrium, gross domestic income equals gross domestic output.
A.   True
B.   False
Question #8
Bank of America becomes insolvent. Federal deposit insurance operates to protect the bank's __________ from loss?
A.   depositors
B.   shareholders
C.   employees
D.   management
Question #9
The expenditure approach to computing GDP involves summing
A.   Consumption, investment, government purchases, and net exports.
B.   The value of goods and service production by factors of production owned by resident of the country.
C.   Domestic income.
D.   The value added of each intermediate good used in the production of a final good.
Question #10
Exports, imports, and unilateral transfers are reported in the current account.
A.   False
B.   True
Question #11
Most frictional unemployment is voluntary and short-term.
A.   False
B.   True
Question #12
Every country has a government agency that is responsible for monetary policy, and often for regulating banks; the general term for this agency is the _________.
A.   central bank
B.   bank supervision authority
C.   treasury
D.   federal bank
Question #13
U.S. Bank holds U.S. Treasury bonds as part of its portfolio. Due to an international crisis, the value of U.S. Treasury bonds decreases substantially. This is an example of ________ risk.
A.   Liquidity
B.   Market
C.   Credit
D.   Exchange
Question #14
In the originate-to-hold model, banks ___________ hold loans to maturity and in the originate-to-distribute model, banks ___________ hold loans to maturity.
A.   almost always; almost always
B.   never; never
C.   almost always; never
D.   never; almost always
Question #15
Final goods or services are those
A.   Used in the production of another good or service.
B.   Cannot be estimated using the value added approach.
C.   All of these.
D.   Which are ready for sale to parties that use them for consumption, investment, government purchases or export.
Question #16
Gross Domestic Product fails to account for illegal activity.
A.   True
B.   False
Question #17
An increase in which of the following would lead to a decrease in consumption expenditure?
A.   Consumer wealth
B.   Interest rates
C.   Income
D.   Consumer confidence
Question #18
A model of banking in which banks make loans and then quickly sell them, using the proceeds to make new loans, is called originate ___________.
A.   for liquidity
B.   to hold
C.   for solvency
D.   to distribute
Question #19
A discouraged worker is a person who would work if a suitable job were available but has given up looking for a job.
A.   False
B.   True
Question #20
Firms borrow money to fund fixed investment through the financial sector.
A.   False
B.   True
Question #21
Most structural unemployment is voluntary and short-term.
A.   False
B.   True
Question #22
People who are willing to work in principle, but who do not look for work because they think no work is available, are counted as unemployed.
A.   True
B.   False
Question #23
The additional consumption resulting from a one dollar increase in income is known as
A.   Marginal propensity to consume
B.   Net financial inflow
C.   Consumption expenditure
D.   Net taxes
Question #24
Which of the following is considered an asset for you, as a university student?
A.   The dorm room that you rent from the university
B.   The $51.47 in paper money and coins that you are carrying with you now for spending money
C.   The $8,000 you owe the university for tuition
D.   All of these.
Question #25
Government purchases are an injections into the circular flow, whereas net taxes are a leakages.
A.   False
B.   True
Question #26
The price index based on a sample of goods and services purchased by business firms is known as the consumer price index.
A.   False
B.   True
Question #27
The amount of imports to a country is never influenced by the level of gross domestic income and the exchange rate.
A.   True
B.   False
Question #28
When the economy experiences an expansion, the business cycle moves from a peak to a trough.
A.   True
B.   False
Question #29
The following is a method of calculating the GDP using the expenditure approach: (Consumption + Inventories+ local taxes + leakages + Imports).
A.   False
B.   True
Question #30
If Japan’s nominal interest rate is 10% and inflation is 4%, the real interest rate is
A.   10%
B.   12%
C.   4%
D.   6%
Question #31
Which of the following items would appear on the asset side of Dolan Bank's balance sheet?
A.   Deposits into savings accounts
B.   Mortgage loans
C.   Net worth
D.   Deposits into checking accounts
Question #32
The risk that a person who borrows from a bank may not be able to repay the loan is known as _________ risk.
A.   Market
B.   Solvency
C.   Credit
D.   Liquidity

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