04.07 Module Four Exam

Use this image to answer the following question. When government sets a price for a good above equilibrium, there will bea surplus
What would most likely happen if Congress decreased taxes and increased spending?
How does the president most directly influence the Federal Reserve System?Through appointments to the Board of Governors
Banks that are members of the Federal Reserve have the benefit ofearning dividends from stock in the Federal Reserve
Which is an example of a natural monopoly?A single source for electricity in your community
From an Associated Press article on Venezuela dated January 22, 2008:
“… troops are cracking down on the smuggling of food … the National Guard has seized about 750 tons of food … [President] Hugo Ch├ávez ordered the military to keep people from smuggling scarce items like milk … He’s also threatened to seize farms and milk plants …”

These actions were the result of a price ceiling on food. Which zone (represented by a letter) on the graph reflects this policy, and what does it create?

Letter C; demand exceeds supply, resulting in a shortage
Why do governments regulate natural monopolies?To prevent prices from rising too high and to increase efficiency
The inflation rate is decreasing and unemployment is rising. The economy is likely incontraction
Lowering the discount rate can promote full employment becausecompanies are more likely to expand and hire more workers
The country of Lilliput has low unemployment and high consumer spending, and small businesses are thriving. However, prices are starting to rise throughout the economy. What should Lilliput’s government do to prevent inflation from happening?
Which of the following circumstances usually comes before a period of economic contraction?Peak production
In the diagram above, what will happen if the government sets the minimum wage at Point A?There will be a surplus of workers.
Which of these is required to balance the budget for the year?Revenue equal to spending
Which of these is the result of a government-regulated natural monopoly?
When a government spends more money in one year than it collects in taxes, there is a budgetdeficit
Use this image to answer the following question. When the economy is operating at point C, the U.S. Congress is most likely to follow
What is the difference between a deficit and a surplus?A deficit results when more money is spent than is taken in; a surplus results when more money is taken in than is spent.
During a cold winter, there is a natural-gas shortage. The government sets a price ceiling on natural gas so that people can continue to afford heating. If the price ceiling remains in effect, what will happen?
Consumers benefit from Federal Reserve oversight because they
Inflation is skyrocketing, and prices are out of control. What are banks most likely to ask the Federal Reserve to do with regards to government bonds and reserve requirements? Be sure to explain why.The banks are most likely to ask the Fed’s to raise interest rates, sell bonds on the open market, and raise the reserve ratio in order to decrease inflation. So, there will be less money in the hands of the people and less spending, over all.