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Inflation Measurement & Adjustment Chapter Exam

Exam Instructions:

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

Page 1

Question 1 1. In economics, the word 'liquid' refers to which of the following?

Question 2 2. What is the value of this expansionary gap?

Question 3 3. When expansionary monetary policy leads to a decrease in interest rates, the exchange rate _____.

Question 4 4. According to supply-side economists, how are taxes and economic growth related?

Question 5 5. Which is true about actual economic output during different times of the business cycle?

Page 2

Question 6 6. Which of the following will most likely be favored by a Keynesian economist if the economy is experiencing a recessionary gap?

Question 7 7. Besides being known as the reserve ratio, what is the fraction of a customer's deposits that a bank is required to hold in reserve also called?

Question 8 8. Why is unemployment not equal to zero at the full employment level of output?

Question 9 9. If the Federal Reserve suddenly decreases the growth rate of the money supply from 6% to 4% per year, what is likely to happen to aggregate demand and real Gross Domestic Product in the short-run?

Question 10 10. Why does the Federal Reserve require commercial banks to maintain reserves with them?

Page 3

Question 11 11. What is the result of a negative supply shock?

Question 12 12. The Fed's monetary policy has the greatest positive effect on real Gross Domestic Product under what set of conditions?

Question 13 13. Why can the currency exchange rate have a large impact on the trade balance?

Question 14 14. In the country of Athenia, banks charge 10% interest on all loans. If the general price level has been increasing at a rate of 2% per year, what is the real rate of interest in Athenia?

Question 15 15. Why is the GDP deflator considered superior to the consumer price index?

Page 4

Question 16 16. How do automatic stabilizers benefit the economy?

Question 17 17. Increases in aggregate supply that cause a leftward shift in the Phillips Curve will lead to which of the following?

Question 18 18. If expansionary fiscal policy is necessary, what changes should the government make to spending or taxes?

Question 19 19. How is real GDP calculated?

Question 20 20. When someone deposits money into a savings account, this demand deposit becomes _____ to the bank?

Page 5

Question 21 21. How should fiscal policy be used in an inflationary economy?

Question 22 22. During the 1960's, what was the relationship between inflation and employment?

Question 23 23. How do lag times differ between monetary policy implementation and fiscal policy implementation?

Question 24 24. If the unemployment rate rose from 5% to 7%, but more people were employed, what LIKELY occurred?

Question 25 25. How does an increase in the money supply impact economic output within the US economy?

Page 6

Question 26 26. What is the real interest rate when the nominal interest rate on a bank checking account is 1%, and the rate of inflation is 2%?

Question 27 27. How does inflation prevent most of the money in use today from serving as a pure store of value?

Question 28 28. Mary Beth ran a local newspaper business. She found that fewer people were purchasing the local paper since they were able to conveniently access the news online via their computers and smart phones. Mary Beth's business was no longer making a profit, and she was forced to close its doors. This led to people losing their jobs, such as journalists, printers, and newspaper delivery boys. This is an example of _____.

Question 29 29. What is the interest rate that the Federal Reserve charges on loans it makes to member banks called?

Question 30 30. Assume that the Federal Reserve increases the monetary base by $1 billion when the reserve requirement is 10 percent. The money supply will increase by:

Inflation Measurement & Adjustment Chapter Exam Instructions

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

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