Question

1.

All of the following programs are considered mandatory spending EXCEPT:

	interest on national debt.
	Medicare.
	Social Security.
	national defense.

2.

What did Arthur Laffer suggest President Reagan do in the 1980s?

	increase welfare benefits
	increase corporate taxes
	increase income taxes
	decrease income taxes

3.

A type of money made from a substance that is also valuable is called:

	economic money.
	fiat money.
	commodity money.
	metallic money.

4.

What are the two common measures of the money supply in use today?

	M0 and M1
	M0 and M2
	M1 and M2
	M2 and M3

5.

In the market for loanable funds, what can cause a rise in interest rates?

	supply shifting right only
	supply shifting left and demand shifting right
	supply shifting right and demand shifting right
	demand shifting right only

6.

Which of these is an example of money being used as a store of value?

	A restaurant's profits for the week of October 3 to October 10 are $1,250.
	A restaurant sells a large ice cream sundae and charges the customer's debit card.
	A customer buys a burger, fries, and a medium diet cola for $6.95.
	A customer receives $3.05 in change and returns the next day to make another purchase.

7.

Which of the following is NOT true about the Fed's Board of Governors?

	Members of the Board of Governors serve one 14-year term.
	Members of the Board of Governors are elected by voters in the region they serve.
	There are seven members of the Board of Governors.
	The Board of Governors is located in Washington, D.C.

8.

Which of these would be the lowest interest rate?

	prime rate
	discount rate
	30-year mortgage rate
	federal funds rate

9.

A shift of the long-run aggregate supply curve to the right suggests which of the following?

	an increase in productivity
	a decrease in economic growth
	a decrease in the average standard of living
	an increase in tax revenue

10.

With the power of compounding, a $500 deposit in a savings account that earns 3% interest per year will earn how much in total interest after 10 years?

	more than 30%
	less than 15%
	between 15% and 30%
	exactly 30%

11.

Barter as a system tends to work only:

	among large, multinational corporations.
	in small U.S. towns and villages.
	when agricultural products are exchanged.
	in primitive economies with little product variety.

12.

If MPC = 0.6, what is the spending multiplier?

	2.5
	1.66
	4
	6

13.

Suppose the government collected $3.2 trillion in tax revenues and spent $3.8 trillion, and discretionary spending was $1.5 trillion. For the government to fully balance the budget this year, how much discretionary spending needs to be cut?

	10%
	20%
	40%
	30%

14.

If a government collects $550 billion in taxes and spends $700 billion, it would have a:

	deficit of $1,250 billion.
	surplus of $150 billion.
	deficit of $150 billion.
	surplus of $1,250 billion.

15.

Which one of the following is a reason the crowding-out effect could be mitigated?

	deficit spending used for public investment
	a decrease in tax revenues
	an increase in consumer consumption
	an increase in the saving rate

Answer 1

1. interest on national debt
(Medicare, social security and national defense are part of mandatory spending which are required for the economic welfare but interest on national debt is not a part of mandatory spending.

2. decrease income taxes
(according to Laffer, decreasing the income taxes would increase the tax revenue and thereby contribute towards economic growth)

3. commodity money
(also called metallic money because they are made of valuable substance)

4. M0 and M1
(They are narrow measures and controlled by monetary policy)

5. supply shifting rightand demand shifting right
(both of the cases would result in increase in interest rate)