Kwame Nkrumah University of Science and Technology

Institute of Distance Learning

CEMBA 552: Economic Environment of Business Take Home Quiz 2 - Macroeconomics INDEX NO:_________________________________ Name________________________________ Deadline For Submission: 9th April (HO, Sunyani, Tamale, Koforidua, Central) and 16th April (Kumasi and Accra) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Of the following, modern macroeconomics is LEAST concerned with A) inflation. B) population growth. C) long-term economic growth. D) the unemployment rate. 2) A) B) C) D) Economic growth is measured by changes in real GDP. changes in the employment rate. changes in employment. All of the above are used to measure economic growth.

3) In the above figure, economic growth can be represented as the movement from A) point a to point b. B) point c to point d. C) point b to point c. D) point d to point a. 4) Real GDP is defined as A) the value of total production when the unemployment rate is 6 per cent.

B) the value of total production of all the nations farms, factories, shops and offices measured at the prices of the year it was produced. C) the value of total production of all the nations farms, factories, shops and offices measured in the prices of a single year. D) an increase in the average level of prices. 5) Potential GDP is A) the maximum GDP that an economy actually achieves throughout its entire history. B) the value of production when all the nations labour, land, capital, and entrepreneurial ability are fully employed. C) the level of GDP achieved during periods when 100 per cent of the labour force is employed. D) a goal that can never be achieved by the economy. 6) A business cycle is the A) pattern of short-run upward and downward movements in total output. B) cyclical movement in the interest rates. C) increase in consumer spending that accompanies an increase in disposable income. D) cyclical change in the nations balance of trade. 7) A recession is A) a period during which real successive quarters. B) a period during which real successive quarters. C) the upper turning point of D) the lower turning point of

GDP increases for at least two GDP decreases for at least two a business cycle. a business cycle.

8) In the above figure, a recession begins at point ________ and an expansion begins at point

________. A) b; a B) d; c C) a; b D) b; c 9) A) B) C) D) One of the costs of more rapid growth in GDP is that too many goods eventually are available for consumption. it does not increase the wealth available for all. people must give up current consumption. more money is available for research and development.

10) In the above figure, a trough is at point ________ and a peak is at point ________. A) b; c B) b; a C) a; b D) d; c 11) The unemployment rate generally ________ during recessions and ________ during expansions. A) falls; falls B) falls; rises C) rises; falls D) rises; rises 12) Which of the following points is likely to be associated with the highest unemployment rate? A) a. B) b. C) c. D) d. 13) Inflation is a A) process of falling prices. B) minor change in the price level. C) process of rising prices. D) large, one-time fall in the price level. 14) The CPI can be used to measure A) changes in average price of the goods and services bought by a typical household. B) expectations of the future rate of inflation. C) the unemployment rates of discouraged workers. D) how retail unemployment has changed. 15) If the inflation rate is negative, the ________ is falling and there is ________.

A) price level; inflation B) price level; deflation C) unemployment rate; inflation D) unemployment rate; deflation 16) In 2003 the CPI was 108; in 2004 it was 112. The inflation rate between 2003 and 2004 was A) 4.0 per cent. B) 108 per cent. C) 112 per cent. D) 3.7 per cent. 17) The price level last year was 120 and this year is 150. What is the inflation rate between these two years? A) 2.5 per cent. B) 30 per cent. C) 25 per cent. D) 20 per cent. 18) In the Ghana, the inflation rate A) is always rising. B) is always falling. C) rises and falls over the years. D) remains a stable 3 per cent over the years. 19) Inflation is a problem when it A) diverts resources from productive uses. B) causes the value of money to vary unpredictably. C) is unpredictable. D) All of the above answers are correct. 20) The most serious type of inflation is called ________, which is defined as occurring when the inflation rate exceeds 50 per cent a ________. A) hyperinflation; year B) superinflation; month C) superinflation; year D) hyperinflation; month 21) When the government spends less than it collects in tax revenue, A) it has a government budget surplus. B) it has a government budget deficit. C) it must enact monetary policy. D) it must enact fiscal policy.

22) The government has a budget deficit when government spending A) exceeds tax receipts. B) is less than tax receipts. C) is zero. D) equals tax receipts. 23) If the government budget deficit stays the same and GDP increases, then A) the ratio of the deficit to GDP stays the same. B) the ratio of the deficit to GDP decreases. C) the ratio of the deficit to GDP increases. D) without more information, it is impossible to determine if the ratio of the deficit to GDP increases, decreases, or stays the same. 24) When we export goods to foreign countries, we A) increase our inflation rate. B) make payments to the rest of the world. C) receive payments from the rest of the world. D) decrease our inflation rate. 25) The current account A) is part of GDP. B) does not account for interest payments paid to and received from the rest of the world. C) measures our exports minus our imports taking into account interest payments paid to and received from the rest of the world. D) measures our imports minus our exports. 26) All of the following are policy goals targeted by macroeconomic policy EXCEPT A) increase the current account deficit. B) reduce unemployment. C) keep inflation low. D) stabilize the business cycle. 27) All of the following are part of fiscal policy EXCEPT A) setting government spending.

B) choosing the size of the government deficit. C) setting tax rates. D) controlling the quantity of money. 28) Monetary policy in Ghana is controlled by A) Parliament. B) the Government. C) the Bank of Ghana. D) the finance minister. 29) Which of the following is a policy tool of the Bank of Ghana? A) Changes in interest rates. B) Changes in taxes. C) Changes in the government deficit. D) Changes in government spending. 30) The principal aim of monetary policy is to A) keep the budget deficit small and/or the budget surplus large. B) maintain low inflation. C) reverse the productivity growth slowdown. D) lower taxes. 31) If the economy is in a recession, the monetary policy committee (MPC) might A) increase government spending. B) cut taxes to stimulate the economy. C) increase interest rates. D) reduce interest rates to stimulate the economy. 32) Gross domestic product is the total ________ produced within a country in a given time period. A) amount of final and intermediate goods and services B) market value of all final and intermediate goods and services plus investment and depreciation C) market value of all final and intermediate goods and services D) market value of all final goods and services

33) In the circular flow model of an economy with no government sector and no international trade, households A) receive income from producers for the use of factors in the factor markets. B) receive income from buyers of goods and services. C) pay firms for the use of their factors. D) receive income from the sale of factors in the goods markets. 34) If Ghana imports are less than exports, the A) Rest of the world borrows from Ghana. B) Ghana borrows from the rest of the world. C) Ghana government has a budget deficit. D) Ghana government has a budget surplus. 35) Which of the following are equal to one another? I. aggregate production II. aggregate expenditure III. aggregate income A) II equals III, but not I. B) I equals III, but not II. C) I equals II equals III. D) I equals II, but not III. 36) If the government runs a budget deficit, then A) household but not business saving must pay for the deficit. B) national saving is negative. C) national saving cannot fund investment. D) part of private saving finances the deficit. 37) A feature of a stock variable and a flow variable is that A) an example of a stock variable is real GDP and an example of a flow variable is consumption expenditure. B) a stock only measures the value of goods and services produced in a country during a given time period. C) a stock is a quantity per unit of time and a flow is a quantity that exists at a point in time.

D) a stock is a quantity that exists at a point in time and a flow is a quantity per unit of time. 38) Which of the following is a stock variable? A) Income. B) Saving. C) Investment. D) Wealth. 39) Which of the following is a flow variable? A) Investment. B) The amount of money in your savings account. C) Capital. D) The number of CDs you own. 40) Which A) Saving B) Income C) Saving D) Saving of the following is FALSE about saving? is a flow variable. left after paying taxes can either be consumed or saved. adds to wealth. equals wealth minus consumption expenditures.

41) At the beginning of the year, your wealth is 10,000. During the year, you have an income of 40,000 and you spend 30,000 on consumption. You pay no taxes. Your wealth at the end of the year is A) 0. B) 80,000.00. C) 40,000.00. D) 20,000.00. 42) Depreciation A) does not change the level of capital in the economy. B) is a stock variable. C) is the decrease in the capital stock because of wear and tear. D) Both answers B and C are correct. 43) Which of the following is not included in the investment component of GDP? A) A business fails to sell all of its output and therefore experiences an increase in inventories. B) A household invests in an expensive dinner.

C) Purchase of new equipment by a business. D) A firm builds a new warehouse. 44) The total amount spent on adding to the stock of capital and on replacing depreciated capital is A) capital consumption. B) the net stock of investment. C) gross investment. D) depreciation. 45) GDP can be computed as the sum of A) the total expenditures of consumption, investment, and government expenditures on goods and services over a period of time. B) the total expenditures of consumption, investment, government expenditures on goods and services, and net exports over a period of time. C) the total expenditures of consumers and business over a period of time. D) all sales that have taken place in an economy over a period of time. 46) Let C represent consumption expenditure, S saving, I gross investment, G government expenditures on goods and services, and NX net exports of goods and services. Then GDP equals A) C + I + G - NX. B) C + S + G + NX. C) C + I + G + NX. D) C + S + G - NX. 47) The largest component of GDP is A) investment. B) net exports of goods and services. C) consumption expenditures. D) government purchases of goods and services. 48) Goods that are produced this year, stored in inventories, and then sold to consumers next year A) count in next years GDP.

B) are not counted as a part of GDP. C) count in both this years and next years GDP. D) count in this years GDP. 49) All of the following are included in gross investment expenditure EXCEPT a A) businesss purchase of another companys stock. B) a retail stores purchase of shoes to add to its inventory. C) businesss purchase of a fleet of cars. D) households purchase of a new house. 50) In the national accounts, government expenditures on goods and services exclude A) city government purchases. B) transfer payments. C) spending on national defence. D) city government purchases but include national government purchases. Component Amount (billions of pounds) Gross investment 1300 Personal consumption expenditure 1475 Depreciation 25 Government expenditures on goods and services 1315 UK imports 260 UK exports 249 Compensation of employees 65 51) The above table gives data for a hypothetical nation. Gross domestic product is A) 4,079 billion. B) 4,049 billion. C) 4,054 billion. D) 4,339 billion.

52) Which of the following relationships is correct? A) Real GDP = Nominal GDP 100 B) Nominal GDP = (GDP Deflator Real GDP) 100 C) GDP Deflator = (Nominal GDP Real GDP) 100 D) Real GDP = (Nominal GDP GDP Deflator) 100 53) To calculate real GDP, the GDP deflator can used to adjust nominal GDP for changes in A) the cost of the typical workers market basket. B) the unemployment rate. C) the general price level. D) national income. 54) In years with inflation, nominal GDP increases ________ real GDP. A) at the same rate as B) slower than C) faster than D) sometimes faster, sometimes slower, and sometimes at the same rate as 55) The working-age population is defined as the number of A) people working full-time jobs who are over the age of 16. B) people looking for work. C) people between the age of 16 and retirement who are not in jail, hospital, or other institution. D) people who have a job. 56) The working-age population can be divided into two groups, A) people in the workforce and people who are not in the workforce. B) people looking for work and those in the armed forces. C) people in the workforce and people looking for work. D) people in the workforce and people with a job.

57) The workforce is the sum of A) the working-age population and the number of unemployed people. B) the number of employed people and the number of unemployed people. C) the number of employed people and the working-age population. D) the total population and the number of unemployed people. 58) Unemployment as measured includes the total number of people who A) would like to have a full-time job but are working part-time. B) have jobs or are currently looking for jobs. C) would like to have a job but have stopped seeking work. D) are available and looking for work but unable to find employment. 59) Which of the following is NOT considered to be in the workforce? A) A person who is waiting to start a new job in the next 30 days. B) A student who works part-time. C) A person who is not working and who has not tried to find a job. D) A person who is not working but who has tried to find a job in the past week. 60) The unemployment rate is calculated as A) [(number of people unemployed) (working-age population)] 100 B) [(workforce) (number of people unemployed)] 100. C) [(number of people unemployed) (workforce)] 100. D) [(workforce) (population)] 100. Component Number of people Total population Working-age population

(millions) 246 207

Workforce Employed Unemployed

139 133 6

61) Using the information in the above table, the unemployment rate is A) 4.5 percent. B) 6.0 percent. C) 2.8 percent. D) 4.3 percent. 62) The economic activity rate is A) 95.7 percent. B) 67.1 percent. C) 64.0 percent. D) 56 percent. 63) The employment rate is A) 64 percent. B) 67 percent. C) 50 percent. D) 62 percent. 64) The duration of unemployment is the length of time a person A) is unemployed even though that person is not looking for work. B) is unemployed while looking for work. C) spends working in a job. D) is employed while looking for work. 65) Frictional unemployment A) is unemployment associated with declining industries. B) is voluntary part-time unemployment. C) is unemployment associated with the changing of jobs in a changing economy. D) includes discouraged workers. 66) When a student finishes college and begins looking for work, A) cyclical unemployment increases. B) frictional and cyclical unemployment increase. C) frictional unemployment increases. D) structural unemployment increases. 67) Structural unemployment is the result of A) irresponsible workers with poor work habits.

B) a slowdown in the rate of economic expansion. C) normal labour market turnover. D) technological change or foreign competition. 68) When the economy switches production toward services and away from manufacturing and workers in the manufacturing industry are permanently made redundant, A) frictional and cyclical unemployment increase. B) frictional unemployment decreases. C) cyclical unemployment increases. D) structural unemployment increases. 69) Suppose the country of Tiny Town decided to open its borders to free trade. As a result, a number of its workers lost their jobs to international competition and cant find new jobs because their skills dont match what is required for job openings. The workers who lost their jobs would best be considered part of A) cyclical unemployment. B) frictional unemployment. C) structural unemployment D) discouraged workers. 70) Cyclical unemployment A) occurs when technology improvements change job requirements. B) fluctuates over the business cycle. C) is due mainly to job leavers. D) may increase or decrease during an expansion. 71) Cyclical unemployment ________ during expansions and ________ during recessions. A) decreases; decreases B) decreases; increases C) increases; decreases D) increases; increases 72) Full employment occurs when A) cyclical unemployment is zero. B) frictional unemployment is zero.

C) structural unemployment is zero. D) cyclical and frictional unemployment are zero. 73) The natural rate of unemployment A) is the unemployment rate when the economy is at potential GDP. B) is not a fixed percentage of the workforce. C) occurs when only there is no cyclical unemployment present. D) All of the above answers are correct. 74) Full employment means A) zero unemployment. B) only frictional and structural unemployment. C) only cyclical unemployment. D) None of the above answers are correct. 75) Price indexes can overstate inflation because they A) do not contain the prices of foreign goods. B) do not contain the correct collection of goods purchased by consumers. C) do not contain the prices of services. D) omit some quality improvements. 76) Aggregate supply describes the behaviour of A) producers. B) households. C) foreign buyers. D) government. 77) An aggregate supply curve depicts the relationship between A) the price level and the aggregate quantity supplied. B) household expenditures and household income. C) the price level and nominal GDP. D) the price level and the aggregate quantity demanded. 78) The long-run aggregate supply (LAS) curve A) has a positive slope. B) has a negative slope. C) is horizontal. D) is vertical.

79) In the macroeconomic long run, A) regardless of the price level, the economy is producing at potential GDP. B) the economy is at full employment. C) real GDP = potential GDP. D) All of the above answers are correct. 80) The short-run aggregate supply curve A) is vertical. B) has a negative slope. C) is horizontal. D) has a positive slope. 81) The short-run aggregate supply curve A) illustrates the level of potential real GDP. B) is vertical. C) shifts because of changes in the price level. D) shows the impact changes in the price level have on the quantity of real GDP when factor prices are constant. 82) Your real wealth is measured as the A) amount of goods and services your wealth will buy. B) amount of goods you have divided by the price level. C) amount of money you have. D) amount of assets you have in dollar terms. 83) One reason that the aggregate demand curve has a negative slope is because A) people buy fewer goods and save more when the price level rises because their real wealth decreases. B) people earn more money when output rises. C) firms produce more when the price rises. D) The premise of the question is wrong because the aggregate demand curve has a positive slope. 84) According to the wealth effect, an increase in the price level ________ real wealth and ________ consumption expenditure.

A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases 85) In the above figure, when the price level is 130, the quantity of real GDP demanded is A) 1,000 billion. B) 1,050 billion. C) 950 billion. D) 900 billion.

86) In the Keynesian model of aggregate expenditure, real GDP is determined by the A) level of aggregate demand. B) price level. C) level of taxes. D) level of aggregate supply. 87) A consumption function shows a A) positive (direct) relationship between consumption expenditure and disposable income. B) positive (direct) relationship between consumption expenditure and the price level. C) negative (inverse) relationship between consumption expenditure and saving. D) negative (inverse) relationship between consumption expenditure and the price level. 88) The graph of the consumption function has consumption expenditure on the vertical axis and A) the interest rate on the horizontal axis. B) the price level on the horizontal axis. C) disposable income on the horizontal axis. D) time on the horizontal axis. 89) Disposable income is A) income plus transfer payments minus consumption expenditure. B) income minus net taxes. C) total income divided by the price level.

D) income minus saving. 90) Full employment occurs when the A) structural unemployment rate equals the frictional unemployment rate. B) cyclical unemployment rate equals the natural rate of unemployment. C) natural rate of unemployment equals the frictional unemployment rate. D) unemployment rate equals the natural rate of unemployment. 91) Which of the following variables does NOT have a direct effect of changing consumption expenditure? A) Disposable income. B) Wealth. C) Expected future profits. D) Expected future income. 92) Autonomous consumption is that portion of consumption expenditure that is not influenced by A) the legal authorities. B) income. C) prices. D) preferences. 93) Dissaving occurs when a household A) spends less than it receives in disposable income. B) spends more than it saves. C) consumes more than it receives in disposable income. D) saves more than it spends. 94) When disposable income is 0, consumption is 2000. Then A) saving = 2000. B) saving = 0. C) saving = -2000. D) the MPC = 0.2. 95) The marginal propensity to consume is A) the fraction of a change in disposable income that is consumed. B) one minus the fraction of total disposable income that is saved.

C) the percentage of a given income that is consumed. D) the percentage of interest income consumed. 96) The marginal propensity to consume A) exceeds 1. B) equals 1. C) is negative if dissaving is present. D) is between 0 and 1. 97) If consumption expenditures for a household increase from 1000 to 1800 when disposable income rises from 1000 to 2000, the marginal propensity to consume is A) 0.5. B) 0.2. C) 0.3. D) 0.8. 98) The marginal propensity to consume measures how much A) consumption expenditure occurs at the equilibrium income. B) disposable income is consumed. C) of a change in disposable income will be consumed. D) disposable income goes to saving. 99) The larger the MPC, the A) more likely that the multiplier will be inconsequential. B) larger the value of the multiplier. C) less likely that the multiplier will be affected. D) smaller the value of the multiplier. 100) In the above figure, autonomous expenditure along AE1 equals A) 300 billion. B) 600 billion. C) 0. D) an amount not given in the above answers. 101) In the above figure, equilibrium expenditure along AE2 is A) 1,200 billion. B) 600 billion. C) 300 billion.

D) an amount not given in the above answers. Consumption expenditure: C = 8 + 0.7Y Investment: I = 5 Government expenditures: G = 7 Exports: X = 10 Imports: M = 0.2Y 102) The equations above describe the economy of La La Land. What is the equation for the aggregate expenditure curve? A) AE = 30 + 0.5Y. B)AE = 30 + 0.9Y. C)AE = 13 + 0.5Y. D)AE = 30 0.5Y. 103) The equations above describe the economy of La La Land. What is the equilibrium level of expenditure? A) 90. B) 29. C) 60. D) 30. 104) The equations above describe the economy of La La Land. What is the equilibrium level of consumption expenditure? A) 60. B) 40. C) 50. D) None of the above answers are correct. 105) Which of the following is a purpose of the governments budget? I. To help the economy achieve full employment. II. To finance the activities of the government. III. To promote sustained economic growth. A) II and III. B) I, II and III. C) I and II. D) I and III. 106) Fiscal policy includes A) decisions related to the purchase of government goods and services, the value of transfer payments, and tax revenue. B) only decisions related to the value of transfer payments and tax revenue.

C) only decisions related to the purchase of government goods and services and the value of transfer payments. D) only decisions related to the purchase of government goods and services. 107) Which of the following is NOT a source of revenue for Ghana government? A) National insurance contributions. B) Transfer payments. C) Taxes on income. D) None of the above answers is correct because they all list sources of revenue. 108) A balanced budget occurs when government A) outlays exceeds revenue. B) revenue is counted as an outlay. C) revenue exceeds expenditures. D) revenue equals outlays. 109) If the government runs a deficit, the total amount of government debt is A) constant. B) zero. C) increasing. D) decreasing. 110) When the governments expenditures exceed its revenues, the government A) incurs a budget deficit. B) needs to borrow. C) debt increases. D) All of the above answers are correct. 111) The difference between the government debt and the budget deficit is A) the government debt shows the annual discrepancy between government outlays and tax revenue and the budget deficit shows the accumulated balance of past government debts. B) the budget deficit shows the annual discrepancy between government outlays and tax

revenue and the government debt shows the accumulated balance of past government debts. C) not significant because both move in the same direction. D) none. 112) If tax revenue equal 1.5 billion and government outlays equal 1.6 billion, then A) the government budget has a deficit of 0.1 billion. B) the government budget has a surplus of 0.1 billion. C) the government debt declines by 0.1 billion. D) the government debt is equal to 0.1 billion. 113) A discretionary fiscal policy is a fiscal policy that A) involves a change in tax rates. B) involves a change in government defence spending. C) requires action by the Chancellor of the Exchequer. D) is triggered by the state of the economy. 114) The tax increases passed to help move the economy more rapidly toward potential GDP are an example of A) lump-sum taxes. B) automatic fiscal policy. C) discretionary fiscal policy. D) contractionary fiscal policy. 115) An example of a discretionary fiscal policy is when A) laws are passed that raise taxes. B) unemployment payments rise with unemployment rates. C) autonomous taxes are constant. D) tax revenues fall as incomes fall. 116) The effects of a change in government expenditures is multiplied throughout an economy A) only when there is an increase in expenditures. B) because taxes are left unchanged. C) only when there is a decrease in expenditures.

D) because these purchases generate changes in consumption expenditure. 117) The term induced taxes refers to A) sales taxes that we pay but could avoid if we choose not to purchase the item. B) the rise in taxes that are the result of an increase in real GDP. C) the taxes that we are forced to pay. D) local property taxes that we pay in addition to the income tax. 118) An automatic stabilizer A) requires action by Parliament for it to take effect. B) involves a change in tax rates. C) involves a change in government expenditures. D) is triggered by the state of the economy. 119) Because of automatic stabilizers, when real GDP decreases A) government expenditures equal tax revenues. B) the economy automatically goes to full employment. C) government expenditures decrease and tax revenues increase. D) government expenditures increase and tax revenues decrease. 120) An example of an expansionary fiscal policy is A) a decrease in government expenditures. B) a cut in taxes. C) an increase in taxes. D) None of the above is an expansionary fiscal policy. 121) An example of a contractionary fiscal policy is A) a cut in taxes. B) an increase in government expenditures. C) an increase in taxes. D) None of the above is a contractionary fiscal policy.

122) If the government wants to engage in fiscal policy to increase real GDP, it could ________ government expenditures in order to ________. A) decrease increase aggregate supply B) decrease; decrease aggregate demand C) increase; increase aggregate supply D) increase; increase aggregate demand 123) An increase in government expenditures shifts the AD curve ________ and an increase in taxes shifts the AD curve ________. A) rightward; rightward B) leftward; rightward C) leftward; leftward D) rightward; leftward 124) The functions of money are A) medium of exchange, unit of account, and store of value. B) pricing, contracts, and means of payment. C) medium of exchange and the ability to buy goods and services. D) medium of exchange, unit of account, and means of payment. 125) Income taxes and transfer payments A) increase the effects of investment and imports. B) prevent the economy from moving toward equilibrium. C) increase the long-run income growth rate. D) act like economic shock absorbers and stabilize fluctuations in income. 126) An example of an automatic fiscal policy stabilizer is when A) the government passes a law that raises tax rates. B) tax revenues decrease as real GDP decreases. C) the budget deficit moves into a surplus during a recession. D) the government decides to cut government expenditures. 127) Which of the following does NOT describe a function of money? A) A hedge against inflation. B) A unit of account.

C) A store of value. D) A medium of exchange. 128) Barter is A) the exchange B) another type C) the exchange services. D) printing too

of goods and services for any type of money. of money. of goods and services directly for other goods and much money.

129) The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a A) medium of exchange. B) store of value. C) unit of account. D) standard of deferred payment. 130) The unit of account function occurs when money serves as A) a means of payment. B) a medium of exchange. C) a double coincidence of wants. D) the way in which prices are quoted. 131) Which of the following is an example of using money as a store of value? A) Keeping 200 on hand for an emergency. B) Paying rent with a cheque on a demand deposit. C) Paying for a new dress with a credit card. D) Paying cash for a new automobile. 132) In the Ghana today, money consists of A) only deposits at banks and other financial institutions. B) only currency. C) only coins. D) currency and deposits at banks and other financial institutions. 133) In Ghana M2+ is a measure of

A) B) C) D)

liquidity money and money and money and

and in which the most liquid asset is money. includes both currency and all deposits. includes sight deposits but not time deposits. includes only currency.

134) Cheques are A) money, as are credit cards. B) not money, and neither are credit cards. C) not money, but credit cards are. D) money, but credit cards are not. 135) Using a credit card can best be likened to A) a barter exchange. B) taking out a loan. C) using any other form of money because you immediately get to take the goods home. D) writing a cheque on your demand deposit account. 136) Which of the following institutions is NOT a financial intermediary? A) A rural bank. B) A commercial bank. C) The bank of Ghana. D) None of the above answers is correct because all the answers listed are financial intermediaries. 137) A financial intermediary is best defined as A) a government agency, such as the Bank of England. B) the most powerful body within the Bank of England. C) as a firm that accepts deposits from households and makes loans to other households. D) as the lender of last resort. 138) The major role of a commercial bank is to A) make mortgage loans.

B) restrain the growth of the quantity of money. C) receive deposits and make loans. D) sell shares and use the proceeds to buy stocks. 139) Which of the following balance sheet items is a liability of a commercial bank? A) The publics deposits with the bank. B) The banks holdings of Ghana government bonds. C) The banks holdings of Brazilian government bonds. D) Reserves of the bank at the Bank of Ghana. 140) For a commercial bank, the term reserves refers to A) a bankers concern ( reservation ) in making loans to an individual without a job. B) the cash in its vaults and deposits at the Bank of Ghana. C) the profit that the bank retains at the end of the year. D) the net interest that it earns on loans. 141) Of the following, the riskiest assets held by commercial banks are A) reserves. B) Ghana government Treasury bills. C) loans made to business firms. D) Ghana government bonds. 142) Liquidity is the A) ease with which an asset can be converted into payment with little loss of value. B) degree to which an asset acts as money without C) ease with which credit cards are accepted as a payment. D) degree to which money can be converted into an little loss of value.

a means of a loss of value. means of asset with

143) Financial intermediaries create liquidity when they A) buy assets that are liquid. B) borrow long and lend short.

C) have liabilities that are illiquid. D) borrow short and lend long 144) Pooling of risk occurs when financial intermediaries A) lend to a variety of different borrowers. B) specialize in loaning only to good borrowers. C) bring lenders together. D) make assets more liquid. 145) The banking system in Ghana creates money through the combination of excess reserves and A) stringent Bank of Ghana regulations. B) banks loaning excess reserves. C) banks assets being more than their liabilities. D) commodity money. 146) You make a deposit of 2,000 in currency at your bank. Your bank has a desired reserve ratio of 25 per cent. As a result of your deposit, your bank will be able to loan A) 500. B) 2,000. C) 1,500. D) None of the above answers is correct. 147) The formula for the deposit multiplier is A) 1/(desired reserve ratio). B) 1/(1 - desired reserve ratio). C) 1/(1 - actual reserves). D) 1/(1 - desired reserves). 148) The larger the desired reserve ratio, the A) lower is the interest rate that banks charge borrowers. B) smaller is the deposit multiplier. C) larger is the ratio of loans to deposits. D) higher is the interest rates that banks pay depositors. 149) A desired reserve ratio of 5 per cent yields a deposit multiplier of A) 5.0. B) 10. C) 1.25. D) 20.

150) The quantity of money that people choose to hold depends on which of the following? I. The price level. II. Financial innovation. III. The exchange rate. A) I and II. B) I. C) I, II, and III. D) I and III. 151) The nominal demand for money is A) measured in constant pounds. B) proportional to the price level. C) inversely related to GDP. D) inversely related to the price level. 152) Suppose you hold 50 to buy groceries weekly and then the price of groceries increases by 5 per cent. To be able to buy the same amount of groceries, your nominal money holdings A) must increase by 5. B) must increase by 2.50. C) can decrease by 5. D) must increase, but the amount of the increase is different than the above answers. 153) The opportunity cost of holding money is the A) ease with which an asset can become money. B) price of goods and services. C) interest rate. D) level of wage and rental income. 154) The opportunity cost of holding money increases when A) the price of goods and services falls. B) the interest rate rises. C) consumers incomes increase. D) the purchasing power of money rises.

155) When the interest rate rises, the quantity of money demanded decreases because A) the price level also rises and people decrease their demand for money. B) people will buy fewer goods and hold less money. C) people shift funds from money holdings to interest-bearing assets. D) people move funds from interest-bearing assets into money. 156) ________ in real GDP increase the demand for money and ________ in the interest rate decrease the quantity of money demanded. A) Decreases; increases B) Increases; increases C) Increases; decreases D) Decreases; decreases 157) The demand for money curve A) has a negative slope. B) is vertical. C) has a positive slope. D) is horizontal. 158) The supply of money curve A) is horizontal. B) has a negative slope. C) has a positive slope. D) is vertical. 159) Bond prices and interest rates are A) unrelated. B) independent of any action by the Bank of England. C) inversely related. D) positively related. 160) If bond prices fall, A) interest rates rise. B) bank reserves grow. C) households increase cash holdings. D) interest rates fall.

161) Suppose that the interest rate is greater than the equilibrium interest rate. Which of the following occurs? I. There is an excess quantity of money. II. The quantity of money automatically increases. III. People start buying bonds. A) I. B) I and II. C) I and III. D) I, II and III. 162) The Bank of Ghana A) regulates the nations financial institutions. B) conducts the nations monetary policy. C) Both answers A and B are correct. D) Neither answer A nor B is correct. 163) Which of the following is NOT a function of a central bank? A) Regulating banks. B) Operating as a bank for the government. C) Operating as a borrower of first resort. D) Operating as a bank for commercial banks. 164) Controlling the quantity of money and interest rates to influence aggregate economic activity is called A) fiscal policy. B) bank policy. C) monetary policy. D) foreign policy. 165) The monetary base (high-powered money) is the sum of A) banks reserves at the Bank of Ghana and repo loans to banks. B) government deposits at the Bank of Ghana, notes held by the public, coins, and banks reserves at the Bank of England. C) Treasury bills and other government securities. D) notes held by the public, coins, and banks reserves at the Bank of Ghana. 166) Which of the following is a tool that is used by the Bank of Ghana to control the supply of money?

A) Excess reserves. B) Government expenditure multiplier. C) Real interest rates. D) Open market operations. 167) The Bank of Ghanas purchase or sale of Ghana government securities is A) done less frequently than any of the Bank of Ghanas other monetary policy tools. B) an example of the Bank of Ghana using its repo rate. C) called an open market operation. D) an example of the Bank of Ghana acting as a lender of last resort. 168) The money multiplier determines how much A) the monetary base will expand given a change in the quantity of money. B) the quantity of money will expand given a change in the monetary base. C) money demand will expand given a change in the quantity of money. D) real GDP will expand given an increase in autonomous investment. 169) When the real interest rate falls, A) net exports decrease. B) investment expenditures increase. C) consumption expenditures decrease. D) the pound exchange rate rises. 170) If the Bank of Ghana decreases the supply of money, then A) aggregate demand decreases. B) long-run aggregate supply increases. C) long-run aggregate supply decreases. D) aggregate demand increases. 171) The Bank of Englands actions to fight inflation shift the A) long-run aggregate supply curve rightward.

B) long-run aggregate supply curve leftward. C) aggregate demand curve leftward. D) aggregate demand curve rightward. 172) The supply of and demand for money determine the equilibrium A) interest rate. B) price level. C) real wage rate. D) level of real GDP. 173) An expansionary fiscal policy ________ the interest rate. A) lowers B) raises C) does not change D) None of the above answers is correct because the effect on the interest rate depends on whether the expansionary fiscal policy was an increase in government expenditures or a cut in taxes. 174) A tax cut increases real GDP. The increase in real GDP ________ the demand for money. A) increases B) decreases C) does not change D) probably changes but more information is needed to determine if it increases or decreases 175) The idea that an expansionary fiscal policy decreases investment is called the A) capital investment effect. B) crowding-out effect. C) government-investment effect. D) offset effect. 176) Fiscal A) a change quantity of B) a change quantity of policy is most effective if in the interest rate has a large effect on the money demanded. in the interest rate has a small effect on the money demanded.

C) a change in the interest rate has no effect on the quantity of money demanded. D) there is a lot of crowding out. 177) Monetary policy A) a given change in interest rate. B) a given change in inflation. C) the interest rate D) a given change in interest rate. is most effective when the money supply has a large effect on the the money supply has a large effect on does not influence aggregate expenditures. the money supply has no effect on the

178) The goods and services that a country buys from other countries are called its A) imports. B) exports. C) tariffs. D) quotas. 179) Net exports is A) the volume of exports minus the volume of imports. B) the volume of trade minus the value of trade. C) total UK trade minus the total trade of the rest of the world. D) the value of exports minus the value of imports. 180) A country has a comparative advantage in producing a good if in comparison to any other country, it can produce that good A) with a smaller weighted average of inputs. B) with less labour. C) at a lower opportunity cost. D) at lower average cost. 181) When trade between two countries occurs, the result is that A) both countries gain because they each produce more than before. B) one country gains because it can consume more than before and the other country loses.

C) both countries lose because the increase in demand for each countrys output causes prices to rise. D) both countries gain because both can consume more than before. 182) A tariff is a A) subsidy on an exported good. B) tax on an imported good or service. C) subsidy on an imported good. D) tax on an exported good or service. 183) A major purpose of tariffs is to A) discourage imports. B) discourage exports. C) encourage exports. D) encourage imports. 184) Any action other than a tariff that restricts international trade is called a A) subsidy. B) non-tariff barrier. C) quota. D) surcharge. 185) A non-tariff barrier is A) a license fee that must be paid to get an export license in the United Kingdom. B) an amount of money paid for the privilege of selling a good exported from the country. C) any action other than a tariff that limits the imports of goods and services. D) any action other than a tariff that limits the production of goods and services. 186) Tools used to protect domestic industries from foreign competition include which of the following? I. tariffs. II. membership in the WTO.

III. participation in GATT. A) I. B) I and II. C) II and III. D) I, II, and III. 187) UK trade barriers on beef A) reduce UK beef prices and decrease UK jobs raising cattle. B) raise UK beef prices and decrease UK jobs raising cattle. C) reduce UK beef prices and increase UK jobs raising cattle. D) raise UK beef prices and increase UK jobs raising cattle. 188) Tariffs A) encourage producers to produce less. B) earn revenue for consumers. C) encourage consumers to buy more imports. D) earn revenue for the government. 189) Quotas A) are not used by the United Kingdom. B) are the same as tariffs. C) set the minimum percentage of the value of a product that must consist of imported components. D) set the number of units of a good that can be imported. 190) A quota directly restricts ________ and so it protects domestic ________. A) exports; producers B) imports; producers C) imports; consumers D) exports; consumers 191) All of the following are arguments for protection from international free trade EXCEPT A) protection strengthens the efficiency gains from a comparative advantage. B) protection penalizes lax environmental standards. C) protection promotes diversity and stability. D) protection preserves domestic culture.

192) The most efficient way to encourage the growth of an infantindustry is through a A) tariff. B) quota. C) voluntary export restraint. D) subsidy. 193) The balance of payments account used to record payments for imported goods and services is the A) current account. B) capital account. C) import account. D) exim account. 194) The UK capital account measures A) receipts from goods and services sold and transfers to and from foreigners. B) net transfer payments between UK residents and foreigners. C) net increases and decreases in the UK holdings of foreign currency. D) foreign investment in the United Kingdom minus UK investment abroad. 195) A creditor nation means a nation whose A) lending to the rest of the world exceeds its borrowing from the rest of the world. B) exports exceed its imports. C) current account is larger than its capital account. D) total investments in the rest of the world exceeds the rest of the worlds investments in that country. 196) A debtor nation means a nation whose A) current account is less than its capital account. B) imports exceeds its exports. C) total investments in the rest of the world are less than the rest of the worlds investments in that country.

D) lending to the rest of the world exceeds its borrowing from the rest of the world. 197) Which of the following apply to exchange rates? I. The exchange rate is a price. II. The exchange rate for a currency depends on which foreign exchange market you use. III. The foreign exchange rate is different from other prices because it is NOT determined by supply and demand. A) II and III. B) I. C) I, II, and III. D) I and II. 198) By definition, currency depreciation occurs when the value of A) the currency rises relative to another currency. B) the currency falls relative to another currency. C) all currencies fall relative to gold. D) gold falls relative to the value of currencies. 199) The law of demand for cedis means that the A) lower the exchange rate, the greater the quantity of cedis demanded. B) higher the exchange rate, the smaller the quantity of cedis demanded. C) lower the exchange rate, the smaller the quantity of Ghana exports demanded. D) Both answers A and B are correct. 200) The greater the demand for Ghana exports, the A) larger is the current account deficit. B) larger is the quantity of Ghana pounds demanded. C) larger is the demand for non-Ghana currencies. D) smaller is the quantity of Ghana pounds demanded.