$$900,000$$, since $$1,000,000 \times (1 - 0.10) = 900,000$$

Question 1

Which of the following best describes a traditional economy?

Accepted Answer

An economy where economic decisions are based on customs, beliefs, and traditions passed down through generations.

Question 2

Which of the following is a disadvantage of a command economy?

Accepted Answer

Lack of incentives for individuals to work hard or innovate.

Question 3

In a market economy, what is the primary role of competition?

Accepted Answer

To drive innovation and keep prices low for consumers.

Question 4

Which of the following is NOT a characteristic of capitalism?

Accepted Answer

Centralized government planning of production.

Question 5

Suppose the government increases the reserve requirement for banks. What is the most likely immediate effect on the money supply?

Accepted Answer

The money supply will decrease because banks can lend out less money.

Question 6

Which of the following best illustrates the concept of consumer sovereignty?

Accepted Answer

Consumers determine what goods and services are produced by choosing what to buy.

Question 7

If the Federal Reserve wants to tighten monetary policy, which of the following actions would it most likely take?

Accepted Answer

Sell government securities in the open market.

Question 8

Which of the following is a function of money as a medium of exchange?

Accepted Answer

Facilitating transactions by eliminating the need for barter.

Question 9

A bank has total deposits of $1,000,000 and the reserve requirement is 10%. What is the maximum amount the bank can lend out?

Accepted Answer

$$900,000$$, since $$1,000,000 	imes (1 - 0.10) = 900,000$$

Question 10

Which of the following is an example of fiat money?

Accepted Answer

U.S. dollar bills, which have value because the government declares them legal tender.

Question 11

Which of the following is NOT a characteristic of money?

Accepted Answer

Unlimited supply.

Question 12

If inflation rises rapidly and a person is on a fixed income, what is the most likely effect?

Accepted Answer

The person's purchasing power will decrease.

Question 13

Which of the following best describes the role of the Federal Open Market Committee (FOMC)?

Accepted Answer

It sets monetary policy by buying and selling government securities.

Question 14

Which of the following is a primary goal of the U.S. economic system?

Accepted Answer

Economic freedom, allowing individuals to make their own economic choices.

Question 15

Suppose the Federal Reserve lowers the discount rate. What is the most likely effect on the economy?

Accepted Answer

Banks will borrow more from the Fed, increasing the money supply.

Question 16

Which of the following is an example of commodity money?

Accepted Answer

Gold coins used as currency.

Question 17

Which of the following best explains the concept of 'moral suasion' as used by the Federal Reserve?

Accepted Answer

The Fed uses persuasion and public statements to influence the behavior of banks and the public.

Question 18

If a bank experiences a 'bank run,' what is most likely happening?

Accepted Answer

Many depositors are trying to withdraw their money at the same time due to fears the bank will fail.

Question 19

Which of the following is a direct result of the Glass-Steagall Act?

Accepted Answer

It separated commercial banking from investment banking.

Question 20

If the money supply is measured by $$M1$$ and $$M2$$, which of the following is included in $$M2$$ but not in $$M1$$?

Accepted Answer

Savings deposits.

Macroeconomics 4th Quarter Exam Review Guidance

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