On a bank's balance sheet, the value of its assets must equal:
a. net worth only.
b. liabilities only.
c. owner's equity.
d. the value of its liabilities plus net worth.
e. its revenues minus costs.
QUESTION 2Which of the following will shift the consumption function upward?
a. A decrease in disposable income
b. An increase in disposable income
c. An increase in the interest rate
d. Expectations of lower future prices
e. An increase in net wealth
QUESTION 3Which of the following is an example of a positive externality?
a. A firm emits pollution into the air, harming members of society.
b. An auto body shop makes a lot of noise, reducing the property values of nearby homes.
c. A coastal dairy farmer's undeveloped land offers unimpeded views of the ocean for a nearby neighborhood.
d. You go to a store and pay 0.65 for a candy bar that you then eat.
QUESTION 4A bank's net worth is:
a. equal to assets plus liabilities.
b. sometimes called the owners' equity.
c. equal to assets minus reserves.
d. the same thing as net profits.
e. the amount of interest charged by the bank for short-term loans.
QUESTION 5A decrease in net wealth will _____.
a. shift the consumption function downward
b. make the consumption function steeper
c. cause an upward movement along the consumption function
d. cause a downward movement along the consumption function
e. make the consumption function flatter
QUESTION 6When consumption of a good or service produces benefits or costs that are not reflected in the market price for the good, this is known as a(n):
a. externality.
b. common pool problem.
c. nonexcludable resource.
d. public good.
QUESTION 7Which of the following is true of banks?
a. Banks reduce the opportunity cost of holding idle cash.
b. Banks act as intermediaries between the government and private investors.
c. Banks can reduce risk by lending to rich borrowers.
d. Banks reduce the transaction costs of borrowing and lending money.
e. Banks can reduce risks by extending more loans.
QUESTION 8An increase in net wealth will:
a. increase consumption and saving at each level of income.
b. increase saving and decrease consumption at each level of income.
c. decrease consumption and saving at each level of income.
d. increase consumption and decrease saving at each level of income.
e. have no effect on consumption because consumption is a function of income.
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