Demand is relatively elastic when the price elasticity coefficient exceeds 1.0.
a. True
b. False
Indicate whether the statement is true or false
Question 2If Billy Bob's National Bank of Slingblade confronts a 10 percent reserve requirement and has excess reserves of 20,000, what is the maximum amount of additional loans that the bank can extend?
a. 2,000
b. 18,000
c. 20,000
d. 200,000
Question 3Suppose that a labor union negotiates an increase in wages of 4 percent for the coming year because annual inflation for the past five years has been 4 percent. The expectations formed by the union are:
a. pessimistic expectations.
b. deductive expectations.
c. rational expectations.
d. adaptive expectations.
e. optimistic expectations.
Question 4A perfectly elastic demand curve is vertical.
a. True
b. False
Indicate whether the statement is true or false
Question 5If the reserve requirement was 5 and a bank customer makes a deposit of 1,000, the initial result would be:
a. a 950 increase in required reserves and a 50 increase in excess reserves.
b. a 20,000 increase in required reserves and a 950 increase in excess reserves.
c. a 50 increase in required reserves and a 20,000 increase in excess reserves.
d. none of the above
Question 6According to the theory of adaptive expectations, if the inflation rate has been 4.2 percent for the last ten years, people will expect next year's inflation rate to be:
a. 4.2 percent.
b. higher than 4.2 percent.
c. lower than 4.2 percent.
d. 0; that is, they will expect no inflation.
e. 8.4 percent.
Question 7The quantity of gasoline demanded will respond more to a change in price over three weeks than over three years.
a. True
b. False
Indicate whether the statement is true or false
Question 8If the reserve requirement was 15 and a bank customer makes a deposit of 500, the initial result would be:
a. a 75 increase in required reserves and a 425 increase in excess reserves.
b. a 425 increase in required reserves and a 75 increase in excess reserves.
c. a 75 increase in required reserves and a 3,333 increase in excess reserves.
d. a 3,333 increase in required reserves and a 425 increase in excess reserves.
Question 9A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all. Which of the following is most likely to support this observation?
a. Wages are determined by the interaction of the forces of labor demand and supply.
b. The demand for labor is derived demand and hence does not fall during recessions.
c. The labor market usually exhibits perfect competition.
d. The labor supply curve becomes perfectly inelastic during recessions.
e. Long term labor contracts make the wage rates sticky downwards.
Question 10Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.
a. True
b. False
Indicate whether the statement is true or false
Question 11What is the initial impact on reserves of a 2,000 deposit if the reserve ratio is 10?
a. 200 in excess reserves and 1,800 in required reserves
b. 1,800 in excess reserves and 200 in required reserves
c. 2,00 in excess reserves and zero required reserves
d. zero excess reserves and 2,000 in required reserves
Question 12Following a decline in the inflation rate, once long-term wage contracts are renegotiated and all prices in the economy adjust to their new equilibrium:
a. the economy will move up the short-run Phillips curve.
b. the short-run Phillips curve will shift to the left.
c. the economy will return to the vertical Phillips curve.
d. the aggregate supply curve will shift to the right.
e. the aggregate demand curve will shift to the right.
Question 13Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.
a. True
b. False
Indicate whether the statement is true or false
Question 14A bank's assets consist of 1,000,000 in total reserves, 2,100,000 in loans, and a building worth 1,200,000 . Its liabilities and capital consist of 3,000,000 in demand deposits and 1,300,000 in capital. If the bank is required to keep reserves equal to one-third of deposits, what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?
a. zero; zero
b. 300,000; 300,000
c. 300,000; 900,000
d. 700,000; 2,100,000
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