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4. Referring to the balance sheet for Bank X below, answer the following questions: a. Assuming a 9% reserve ratio, what is the amount of required reserves for Bank X? b. What dollar amount of excess reserves does Bank X have? c. If Bank X receives a checkable deposit of $60,000, how much would Bank X be able to loan out as a result of receiving the deposit? Bank X– Balance Sheet Liabilities: Checkable Deposits $80,000,000 Assets: Reserves; Vault Cash $800,000 Deposit with the Fed $6,600,000 Loans Outstanding; Mortgage Loans $28,600,000 Business Loans 23,000,000 Personal Loans 19,000,000 U.S. Government Securities 2,000,000 Total Loans Outstanding $72,600,000 Total Assets $80,000,000 5. List the effects of inflation. Answers for Chapter 10 Fill-in-the-blanks: 1. Money 7. Required 2. Fiat 8. deposits, Fed 3. Barter 9. Excess 4. checkable 10. liquid 5. creation 11. One-shot 6. intermediation 12. Seignorage FOR REVIEW ONLY - NOT FOR DISTRIBUTION 10 - 17 Money, Money Creation, and Inflation
Multiple Choice: 1. c. 9. d. 17. a. 2. d. 10. c. 18. d. 3. c. 11. c. 19. d. 4. b. 12. c. 20. b. 5. d. 13. d. 21. a. 6. c. 14. a. 22. c. 7. d. 15. d. 23. c 8. d. 16. a. 24. b. Problems: 1. Barter is the direct exchange of goods. The problem with barter as a means of exchange is that to make a trade by barter requires a double coincidence of wants. You must find someone who has what you want and who wants what you have. 2. The three functions of money are: (1) Medium of exchange (2) Measure of value (3) Store of value 3. U.S. government securities are an attractive asset for a bank to hold because: (1) U.S. government securities pay interest (2) U.S. government securities are low risk (3) U.S. government securities are highly liquid 4. a. Required reserves = $7,200,000 b. Excess reserves = $200,000 c. Amount to loan out = $54,600 5. The effects of inflation: (1) Inflation decreases the buying power of people who hold money. (2) Inflation reduces the real interest rate earned on savings. (3) Increasing inflation benefits borrowers and hurts lenders. (4) Inflation increases uncertainty and can thus discourage investment. Answers to Think Like an Economist: 1. The price level would rise. The demand for cigarettes to smoke is less elastic than the demand for other commodities (smokers would continue to smoke about the same amount as before the increase in the standard of living), so the supply of cigarettes would decrease more slowly than the supply of other commodities, and the price level would rise. 2. The prices of luxuries would rise. The increase in the standard of living would increase the demand for luxuries more than the demand for necessities, causing the prices of luxuries to rise. 3. The prices of necessities would fall. The increase in the standard of living would increase the demand for necessities less than the demand for luxuries, causing the prices of necessities to fall. FOR REVIEW ONLY - NOT FOR DISTRIBUTION Money, Money Creation, and Inflation 10 - 18
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PRINCIPLES OF ECONOMICS JEFF HOLT S
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Principles of Economics, 6th Editio
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16. Study Guide for Chapter 7 17. C
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11. Appendix: Book Review - “The
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20. Appendix: The NCAA Cartel 21. S
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Introduction: A Brief History of U.
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In the twentieth century, per capit
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Appendix: The 35 Largest National E
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Multiple Choice: ___ 1. The Jamesto
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2. Describe the economic cost of th
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Chapter 1 Scarcity and Choices The
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Example 5B: At the end of 1982, the
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Example 11: When Cindy quits her jo
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consequences may result in failure
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An upward sloping curve (as in Exam
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In making decisions, humans tend to
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5. ______________________ _________
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___ 13. If the value of one variabl
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Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7
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Chapter 2 Trade and Economic System
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Example 4B: The following quantitie
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1. An increase in the quantity of r
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3. For whom to produce? This is det
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The graph below illustrates the shi
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The two primary economic systems ar
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___ 12. The capitalist vision sees
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___ 25. According to the book “Ca
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Chapter 3 Demand, Supply, and Equil
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. For inferior goods, income and de
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The same information can be placed
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Not only does a free market elimina
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$7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
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Example 17: The graph below illustr
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Questions for Chapter 3 Fill-in-the
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___ 12. Assuming a market originall
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$8 - 7 - 6 - 5 - Price 4 - 3 - 2 -
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Chapter 4 Inflation and Unemploymen
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Computing the Rate of Inflation The
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Full Employment Though unemployment
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3. Cyclical unemployment - due to d
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During the Great Depression, the ec
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Appendix: Think Like an Economist -
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Answer questions 8. and 9. based on
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___ 25. The extension of unemployme
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Chapter 5 Measuring Total Output: G
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5. Leisure. Leisure time is by defi
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The U.S. is a high per capita GDP c
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Example 17: In “An International
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The simple circular flow diagram be
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___ 3. Which of the following would
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2. Explain what nonproduction trans
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Chapter 6 The Aggregate Market The
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Example 2C: Assume the same facts a
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Example 5B: The price of crude oil
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Price Level Real GDP SRAS AD 2 AD 1
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Appendix: Why the Aggregate Demand
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___ 3. DEF Company can invest in ne
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2. List and explain the two factors
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Chapter 7 Classical Economic Theory
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Notice that the investment demand c
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Long-Run Equilibrium If Real GDP is
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Example 6B: When the economy is in
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Laissez-faire If the economy is sel
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Page 130 and 131: 3. On the graph below, draw an aggr
Page 132 and 133: Chapter 8 Keynesian Economic Theory
Page 134 and 135: Example 2B: The graph below illustr
Page 136 and 137: Example 5: Assume that the table be
Page 138 and 139: Notice on the graph on the previous
Page 140 and 141: According to Keynesian theory, a ch
Page 142 and 143: “The General Theory” also inclu
Page 144 and 145: ___ 8. If the consumption function
Page 146 and 147: 3. If the MPC is .667, and investme
Page 148 and 149: Chapter 9 Fiscal Policy The basic e
Page 150 and 151: Keynesian Fiscal Policy Theory and
Page 152 and 153: Example 5A: The federal government
Page 154 and 155: The Laffer Curve What will happen t
Page 156 and 157: Appendix: The Importance of Incenti
Page 158 and 159: ___ 4. A decrease in government exp
Page 160 and 161: 2. Explain what automatic stabilize
Page 162 and 163: Chapter 10 Money, Money Creation, a
Page 164 and 165: Example 4B: The castaways on Gillig
Page 166 and 167: Looking at the balance sheet below,
Page 168 and 169: Demand-side One-shot Inflation Exam
Page 170 and 171: 4. Inflation increases uncertainty
Page 172 and 173: life; it came into existence not by
Page 174 and 175: calculated by using the potential d
Page 176 and 177: ___ 12. If the required-reserve rat
Page 180 and 181: Chapter 11 The Federal Reserve Syst
Page 182 and 183: 5. After Bank X sells the $300,000
Page 184 and 185: Low Mortgage Interest Rates Mortgag
Page 186 and 187: Relaxed Standards for Mortgage Loan
Page 188 and 189: The Bursting of the Housing Bubble
Page 190 and 191: On February 17, 2009, the federal g
Page 192 and 193: Fed policies caused short-term inte
Page 194 and 195: ___ 10. The Fed’s most important
Page 196 and 197: ___ 25. In response to the recessio
Page 198 and 199: Chapter 12 Monetary Policy The basi
Page 200 and 201: 2. A change in aggregate demand (AD
Page 202 and 203: Monetarist Transmission Mechanism C
Page 204 and 205: 3. Borrowers do not have to seek ou
Page 206 and 207: Appendix: Book Review - “The Age
Page 208 and 209: Questions for Chapter 12 Fill-in-th
Page 210 and 211: ___ 16. The primary source of incom
Page 212 and 213: 7. According to Alan Greenspan, wha
Page 214 and 215: Chapter 13 Taxes, Deficits, and the
Page 216 and 217: Example 5: In 2015, Taxpayer A had
Page 218 and 219: of $5 and a quantity of 10 units. T
Page 220 and 221: The complexity of the tax law also
Page 222 and 223: the current government spending and
Page 224 and 225: cut of 1964. The top rate was lower
Page 226 and 227: ___ 6. Federal excise taxes: a. are
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3. How would eliminating the loopho
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Chapter 14 Economic Growth The basi
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2. Labor. Labor can contribute to e
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estricting international trade (e.g
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An improvement in technology (e.g.
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The table below shows the economic
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will increase both Real GDP and per
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___ 8. Which of the following is co
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___ 26. The opinion that economic g
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Chapter 15 Less Developed Countries
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Example 8: Countries A, B, C, and D
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Obstacles to Economic Development f
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c. Restrictions on international tr
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Appendix: Book Review - “The Powe
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Example 25: In Brazil, about half t
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Study Guide for Chapter 15 Chapter
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___ 13. Among the counterproductive
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4. List four ways that governments
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Chapter 16 International Trade The
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Other Benefits of Free Internationa
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Example 6: The graph below illustra
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competitive disadvantage. But dumpi
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is only 25% as productive as before
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Smith was skeptical of government a
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___ 4. For Country X, what is the o
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___ 18. Frédéric Bastiat’s “P
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4. On the graph below: (1) What is
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Chapter 17 Elasticity We are often
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Example 4A: What is price elasticit
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Example 5A: Gertie’s Gas and Go i
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Example 10A: When the price of Good
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Example 13B: On the graph below, su
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$7 - 6 - 5 - Price 4 - 3 - 2 - 1 -
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In the long run, would the deadweig
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___ 7. The factors that determine w
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3. a. Which price (or prices) from
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Chapter 18 Utility The basic econom
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Nonetheless, society generally assu
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Example 9: Capital City operates a
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Marginal rate of substitution - the
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The diamond-water paradox is the ob
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Complete the table below to answer
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4. The graph below shows indifferen
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Chapter 19 The Firm The basic econo
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than contributing to team productio
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1. Difficulty in raising large amou
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Corporations also use self-financin
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Example 24: A blacksmith who produc
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For financing needs, proprietorship
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___ 13. Corporations: a. are comple
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5. List two things that the absence
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Chapter 20 Production and Costs The
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In Example 5B, Birdwell finds that
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variable cost initially decreases,
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Quantity TC MC AFC AVC ATC 0 240 X
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If the scale of operation is increa
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average total cost. Average fixed c
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___ 11. Concerning the cost curves:
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5. Complete the following cost tabl
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Chapter 21 Perfect Competition The
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Even though a perfect competitor ca
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Example 6C: This example builds on
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At what price will there be neither
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Appendix: Perfect Competition in th
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Multiple Choice: ___ 1. A perfect c
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___ 17. Perfect competition: a. req
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Answers for Chapter 21 Fill-in-the-
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Chapter 22 Monopoly Of the four mar
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3. Exclusive ownership of an essent
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maximizing quantity (4 units) creat
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$22 - 20 - 18 - 16 - 14 - Deadweigh
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2. Negotiating, beginning at a high
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Legal barriers are created by gover
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___ 8. The slope of the demand curv
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Price Quantity 3. List some of the
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Chapter 23 Monopolistic Competition
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For Percomp (the perfect competitor
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Example 7A: The graph below represe
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Example 9: The Organization of the
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Example 12 illustrates the dilemma
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its current price and quantity. The
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___ 14. Game theory: a. is a method
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Answers for Chapter 23 Fill-in-the-
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Chapter 24 Factor Markets The basic
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$ $240 - 200 - 160 - 120 - 80 - 40
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Since producers will attempt to equ
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2. Differences in nonmoney aspects
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were his strikeouts, walks, and hom
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___ 3. To maximize profits, a produ
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___ 19. According to the book, “M
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Multiple Choice: 1. a. 8. c. 15. d.
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Chapter 25 Labor Unions The primary
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The elasticity of demand for union
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Example 4A: Assume that the graph b
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Notice from the graph in Example 6
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Wage Factory A Quantity of Labor S
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As a cartel, a labor union faces a
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___ 10. For a monopsony: a. there i
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3. The graph below represents a lab
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Chapter 26 Interest, Present Value,
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An increase in expected rates of re
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An asset is valuable because we exp
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Example 13B: General Ordnance prove
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Appendix: Present Value Table One f
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___ 4. An increase in expected rate
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Problems: 1. List and explain the t
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Chapter 27 Market Failure The basic
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External Benefit If a market genera
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Example 2: To encourage the consump
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$100 - 90 - 80 - MSC 70 - $ 60 - 50
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A common good is nonexcludable. Non
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___ 5. What government policy would
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4. Based on the information on the
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Chapter 28 Public Choice and Govern
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Candidates and the Median Voter Mod
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Example 8: According to State and F
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Example 10: When Elvis Presley was
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4. Pessimistic bias. This is the te
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___ 5. An elected official will: a.
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2. If a certain policy will yield s
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Chapter 29 Government Regulation of
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underproduction is the amount that
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micromanagement results in business
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market. They may agree with their c
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Questions for Chapter 29 Fill-in-th
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___ 10. The public interest theory
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4. List the four types of costs imp
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Chapter 30 Agriculture and Health C
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weather may cause bumper crops. Bad
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Security and Rural Investment Act o
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Example 12: From 1960 to 2013, the
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1. NHI would provide universal heal
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d. Insurance providers are not allo
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Answer questions 7. through 10. by
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___ 21. If there were no individual
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Chapter 31 Income Distribution and
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Income is more equally distributed
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over a typical career is the accumu
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Ideal Income Redistribution The ide
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Poverty - a family whose income fal
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Appendix: Income Inequality around
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How is this story an analogy for th
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___ 2. In 2013, the Lowest Income 6
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Problems: 1. Explain the two primar
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Absolute advantage - when one natio
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Fiat money - money by government de
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Nonrivalrous good - a good for whic
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Absolute advantage, 16-9 Absolute e
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“Company town”, 25-6 Comparativ
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Eli Lilly and Company, 22-1 Emergen
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Houston, Texas, 15-10 Human capital
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Market, 3-1, 3-8-9 Market basket, 4
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Political bias, 9-4, 12-7 Political
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Short run production, 20-2-3 Short-
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Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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