Econ Hw

1. Would Henry Hazlitt more likely:
a. Say we are already suffering the long-run consequences of the policies of the remote or recent past.
b. Advocate public or collective ownership and administration of the means of production and distribution of goods.
c. Argue for more governmental stimulus to help the economy.

2. Would Henry Hazlitt more likely say:
a. That government should fund public works to maintain full employment.
b. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
c. From each according to his ability, to each according to his needs.

3. (10 points) In Henry Hazlitt’s “Broken Window” story the glazier gained $250 in business because the hoodlum broke the window of the baker. Some witnesses argue that the glazier will now have $250 more to spend with other merchants and that the smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor. How might Henry Hazlitt respond to this position? (Answer in 200 words or less)

In the "Broken Window" Hazlitt states that that money could have also gone to the tailor that the baker was intending to buy a suit from, so the tailor is in turn losing potential money earnings. Also, destroying property diminishes the value of the area, so overall it is a loss for the community. Hazlitt would say that the tailor, many people, are being left behind in the consideration and that all angles need to be evaluated to be a good economist.

4. Changes in the quantity of money affect
a. interest rates
b. prices
c. production
d. All of the above are correct

5. Which list ranks assets from most to least liquid?
a. currency, fine art, stocks
b. currency, stocks, fine art
c. fine art, currency, stocks
d. fine art, stocks, currency

6. Fiat money
a. has no intrinsic value.
b. is backed by gold.
c. has intrinsic value equal to its value in exchange.
d. is any close substitute for currency such as checkable deposits.

7. The agency responsible for regulating the money supply in the United States is
a. the Comptroller of the Currency.
b. the U.S. Treasury.
c. the Federal Reserve.
d. the U.S. Bank.

8. When the Federal Reserve conducts open-market operations to increase the money supply, it
a. redeems Federal Reserve notes.
b. buys government bonds from the public.
c. raises the discount rate.
d. decreases its lending to member banks.

9. Which of the following Fed actions would both increase the money supply?
a. buy bonds and raise the reserve requirement
b. buy bonds and lower the reserve requirement
c. sell bonds and raise the reserve requirement
d. sell bonds and lower the reserve requirement

10. Over the last 70 years the average annual U.S. inflation rate was about
a. 1 percent.
b. 4 percent.
c. 6 percent.
d. 8 percent.

11. Deflation
a. increases the ability to pay debts and raises the value of money.
b. increases the ability to pay debts and lowers the value of money.
c. reduces the ability to pay debts and raises the value of money.
d. reduces the ability to pay debts and lowers the value of money.

12. Open-market purchases by the Fed make the money supply
a. increase, which makes the value of money increase.
b. increase, which makes the value of money decrease.
c. decrease, which makes the value of money decrease.
d. decrease, which makes the value of money increase.

13. An associate professor of economics gets a $100 a month raise. She figures that with her current monthly salary she can't buy as many goods as she could last year.
a. Her real and nominal salary have risen.
b. Her real and nominal salary have fallen.
c. Her real salary has risen and her nominal salary has fallen.
d. Her real salary has fallen and her nominal salary has risen.

14. When the Fed conducts open-market sales,
a. it sells Treasury securities, which increases the money supply.
b. it sells Treasury securities, which decreases the money supply.
c. it borrows from member banks, which increases the money supply.
d. it lends money to member banks, which decreases the money supply.

15. The Fed can influence unemployment in
a. the short and long run.
b. the short run, but not the long run.
c. the long run, but not the short run.
d. neither the short nor long run.

16. In a 100-percent-reserve banking system,
a. banks can create money by issuing currency.
b. banks can create money by lending out reserves.
c. the Fed can increase the money supply with open-market sales.
d. banks hold as many reserves as they hold deposits.

17. Suppose that the reserve ratio is 5 percent and that a bank has $1,000 in deposits. Its reserves are
a. $5.
b. $50.
c. $95.
d. $950.

18. Suppose a bank has $10,000 in deposits and $8,000 in loans. It has loaned out all it can. It has a reserve ratio of
a. 2 percent.
b. 12.5 percent.
c. 20 percent.
d. 80 percent.

19. When the National Bureau of Economic Research (NBER) says that a recession is over, what are they saying?
a. Prosperity has returned.
b. Economic activity is no longer declining.
c. The economy has returned to normal.
d. Prices have begun to rise again.

20. Which of the following statistics is usually regarded as the best single measure of a society’s economic well-being?
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit

21. GDP is defined as
a. the market value of all goods and services produced within a country in a given period of time.
b. the market value of all goods and services produced by the citizens of a country, regardless of where they are living in a given period of time.
c. the market value of all final goods and services produced within a country in a given period of time.
d. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

22. (15 points total, 3 points each) Choose True or False for each of the following:
a. If the price of an apple is twice the price of an orange, then an apple contributes twice as much to GDP as does an orange. True or False?
b. Vegetables you buy at the grocery store and vegetables you grow at home are calculated as part of GDP. True or False?
c. When Joe sells his used car to Jane the value is included in GDP. True or False?
d. When you buy a CD made by your favorite band and when you pay to hear them in concert is calculated as part of GDP. True or False?
e. When a Mexican citizen works temporarily (and legally) in the United States, his production is part of GDP. True or False?

23. To compute GDP, we
a. add up the wages paid to all workers.
b. add up the costs of producing all final goods and services.
c. add up the market values of all final goods and services.
d. take the difference between the market value of all final goods and services and the cost of producing those final goods and services.

24. Which of the following is not included in GDP?
a. a carpenter makes repairs to his own house without buying new tools or materials
b. services such as those provided by lawyers and hair stylists
c. the estimated rental value of owner-occupied housing
d. production of foreign citizens living in the United States

25. A farmer sells wheat to a baker for $2. The baker uses the wheat to make bread, which is sold for $3. What is the total contribution of these transactions to GDP?
a. $2
b. $3
c. $5
d. $6

26. (6 points total, 2 points each) What components of GDP (if any) would each of the following transactions affect? Reminder: Components of GDP are consumption, investment, government purchases, & net exports. Type answer in blank lines given.

a. A family buys a new refrigerator. consumption
b. California repaves Highway 101. government purchases
c. Honda expands its factory in Marysville, OH. investment