SAMPLE THIRD EXAMECON 123 NAME _______________________PART I. MULTIPLE CHOICE. Answer all multiple choice questions on the BLUE SIDE of the scantron. Using a #2 pencil, darken the circle by the letter which bestanswers each question. 1. Financial depository institutions can:a. Make loans.b. Create money.c. Accept deposits.d. All of the above.2. Money is created when Ms. Smith:a. Borrows $1000 from a bank.b. Takes a loan of $1000 from her mother.c. Cashes a $1000 check for $1000 in paper money.d. Trades $1000 in coins for ten new $100 bills at a credit union.3. Which of the following is NOT an objective of the Federal Reserve System?a. Oversee the U.S. money supply.b. Coordinate commercial bank operations.c. Regulate some aspects of all depository institutions.d. Regulate overall borrowing by the federal government.4. A reserve account can be defined as:a. The cash that a financial depository institution keeps in its vaults.b. A deposit that a Federal Reserve Bank keeps with the U.S. Treasury.c. The amount designated by a financial depository institution to cover bad checks, defaulted loans, and such.d. A deposit in the name of a financial depository institution held at a Federal Reserve Bank.5. A financial depository institution’s actual reserves are equal to the:a. Amount of deposits in the institutions.b. Required reserve ratio times the institution’s deposits.c. Required reserve ratio times the institution’s reserve account.d. Amount the institution has in its reserve account plus its vault cash.6. Excess reserves:a. Equal actual reserves minus required reserves.b. Determine the value of new loans that can be made by a depository institution.c. Are actual reserves over and above the amount a depository institution is required to hold as actual reserves.d. All of the above.7. If the required reserve ratio is 25% (.25), the money multiplier is:a. 1.b. 4.c. 25.d. 75%.8. If the required reserve ratio were decreased from 20 percent to 15 percent, the money multiplier would:a. Increase.b. Decrease.c. Not be affected.d. Change in no predictable way.29. The price paid to borrow money, which is expressed as a percentage of the amount borrowed, is the:a. Fund rate.b. Interest rate.c. Required reserve ratio.d. Balance requirement.10. Financial, legal, technological, and other factors that prevent firms from coming into a market are:a. Barriers to entry.b. Illegal.c. Not found in the United States.d. Found in perfectly (purely) competitive markets.11. A perfectly (purely) competitive seller’s demand curve for its product is perfectly horizontal because:a. There are other sellers in the firm’s market.b. The firm has no control over the price it receives for its product.c. The market is difficult to enter and exit.d. The firm produces a different product from that of its competitors.3USE THE GRAPH OF A TYPICAL FIRM IN A PERFECTLY (PURELY) COMPETITIVE MARKET TO HELP YOU ANSWER QUESTIONS 12 AND 13. $ ATC $10 D = P $7 25 Output (q)12. If the firm produces 25 units of output it:a. Is earning an economic profit greater than zero.b. Is earning an economic profit less than zero.c. Is earning an economic profit equal to zero.d. Is earning a normal profit.13. If all firms are like the typical firm above, then over the long-run:a. Some firms will leave the market.b. New firms will enter the market.c. The number of firms in the market will remain the same.d. Firms will enter and exit the market.14. Which of the following is not a characteristic of a pure monopoly?a. Economic profits always move toward zero in the long-run.b. Barriers prevent the entry of new firms into the market.c. The product sold has no close substitutes.d. The industry has only one seller.4ANSWER QUESTIONS 15, 16, AND 17 AND BY REFERRING TO THE DIAGRAMS OF THE MARKET FOR LOANS BELOW.Interest S Interest SRate (i) Rate (i) A A i1 i1 D’ D’ D D L1Loans (L) L1 Loans (L)PANEL A PANEL BInterest S Interest S’ SRate (i) Rate (i) A A i1 S’ i1 D D L1Loans (L) L1 Loans (L)PANEL C PANEL D15. The effect of an increase in excess reserves on interest rates and the amount of loans made is shown by the movement from:a. D to D’ in Panel A.b. D to D’ in Panel B.c. S to S’ in Panel C.d. S to S’ in Panel D.16. The effect of an increase in the required reserve ratio on interest rates and theamount of loans made is shown by the movement from:a. D to D’ in Panel A.b. D to D’ in Panel B.c. S to S’ in Panel C.d. S to S’ in Panel D.17. The effect of a decrease in the amount of borrowing by households on interest rates and the amount of loans made is shown by the movement from:a. D to D’ in Panel A.b. D to D’ in Panel B.c. S to S’ in Panel C.d. S to S’ in Panel D.518. If the economy is in a recession, the Federal Reserve would probably:a. Increase the banking system’s excess reserves.b. Decrease the banking system’s excess reserves.c. Increase the banking system’s required reserves.d. All of the above.19. The correct Federal Reserve policy to counteract demand-pull inflation would be to:a. Buy securities in the open market, raise the required reserve ratio, raise the discount rate.b. Sell securities in the open market, raise the required reserve ratio, raise the discount rate.c. Buy securities in the open market, lower the required reserve ratio, lower the discount rate.d. Sell securities in the open market, lower the required reserve ratio, lower the discount rate.20. The most commonly used tool of monetary policy is:a. Open market operations.b. The discount rate.c. The required reserve ratio.d. Borrowing by the Treasury Department.21. A sole proprietorship is a:a. Legal entity with limited liability.b. Single-owner business with limited liability.c. Single-owner business with unlimited liability.d. Multiple-owner business with unlimited liability.22. Difficulty in raising large amounts of funds is a problem mainly for:a. Corporations.b. Partnerships and corporations.c. Sole proprietorships and corporations.d. Sole proprietorships and partnerships.23. Most businesses in the United States are legally organized as:a. Corporations.b. Partnerships.c. Sole proprietorships.d. Holding companies.624. In economics, it is assumed that the basic goal of a firm is to:a. Maximize its sales revenues.b. Drive its rivals out of business.c. Maximize profit or minimize loss.d. Maximize the recognition of the