Test 2 Ch 4-7

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Question #1

The risk that a person who borrows from a bank may not be able to repay the loan is known as _________ risk.

A Liquidity

B Solvency

C Credit

D Market

Question #2

Which of the following items would appear on the asset side of Dolan Bank’s balance sheet?

A Deposits into checking accounts

B Net worth

C Mortgage loans

D Deposits into savings accounts

Question #3

If Japan’s nominal interest rate is 10% and inflation is 4%, the real interest rate is

A 6%

B 4%

C 12%

D 10%

Question #4

The following is a method of calculating the GDP using the expenditure approach: (Consumption + Inventories+ local taxes + leakages + Imports).

A False

B True

Question #5

When the economy experiences an expansion, the business cycle moves from a peak to a trough.

A False

B True

Question #6

The amount of imports to a country is never influenced by the level of gross domestic income and the exchange rate.

A False

B True

Question #7

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 #8

Government purchases are an injections into the circular flow, whereas net taxes are a leakages.

A True

B False

Question #9

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 All of these.

C The $8,000 you owe the university for tuition

D The $51.47 in paper money and coins that you are carrying with you now for spending money

Question #10

The additional consumption resulting from a one dollar increase in income is known as

A Marginal propensity to consume

B Net financial inflow

C Net taxes

D Consumption expenditure

Question #11

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 False

B True

Question #12

Most structural unemployment is voluntary and short-term.

A True

B False

Question #13

Firms borrow money to fund fixed investment through the financial sector.

A False

B True

Question #14

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 #15

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 solvency

B for liquidity

C to distribute

D to hold

Question #16

An increase in which of the following would lead to a decrease in consumption expenditure?

A Interest rates

B Consumer wealth

C Consumer confidence

D Income

Question #17

Gross Domestic Product fails to account for illegal activity.

A True

B False

Question #18

Final goods or services are those

A Which are ready for sale to parties that use them for consumption, investment, government purchases or export.

B Cannot be estimated using the value added approach.

C Used in the production of another good or service.

D All of these.

Question #19

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; never

B never; never

C almost always; almost always

D never; almost always

Question #20

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 Exchange

C Credit

D Market

Question #21

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 federal bank

B treasury

C central bank

D bank supervision authority

Question #22

Most frictional unemployment is voluntary and short-term.

A True

B False

Question #23

Exports, imports, and unilateral transfers are reported in the current account.

A True

B False

Question #24

The expenditure approach to computing GDP involves summing

A The value added of each intermediate good used in the production of a final good.

B Domestic income.

C Consumption, investment, government purchases, and net exports.

D The value of goods and service production by factors of production owned by resident of the country.

Question #25

Bank of America becomes insolvent. Federal deposit insurance operates to protect the bank’s __________ from loss?

A management

B shareholders

C depositors

D employees

Question #26

When the circular flow is in equilibrium, gross domestic income equals gross domestic output.

A False

B True

Question #27

Economic growth is beneficial because it leads to improved living standards in terms of leisure and reducing poverty.

A False

B True

Question #28

First Notional Bank has assets of $50 billion and liabilities of $42 billion. We can conclude that its net worth is ______.

A $8 billion

B $108 billion

C $92 billion

D -$8 billion (negative net worth)

Question #29

Indexation refers to

A Measuring prices using the Consumer Price Index.

B Adjusting nominal payments for inflation.

C The process of stabilizing economy-wide prices.

D Measuring wages in nominal, rather than real, terms.

Question #30

Which of the following is a nondurable consumption good?

A Automobile

B Gasoline

C Furniture

D Appliances

Question #31

If an economy experienced an unexpected decrease in inflation

A All of these.

B The real interest rate would rise.

C Creditors would be hurt.

D Debtors would be helped.

Question #32

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

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