Econ 1051 test 3

Which of the following chain of events would signal that the Fed is pursuing a tight money policy? A) interest rates rise and investment falls B) interest rates rise and GDP increases C) investment increases and GDP increases D) interest rates fall and price level increases

A) interest rates rise and investment falls

In the US federal reserve system: A) members of the Board of Governors also sit on the FOMC B) there is a federal reserve bank located in each state C) there are 14 regional federal reserve banks D) the vice chair of the Board of Governors chairs the FOMC

A) members of the Board of Governors also sit on the FOMC

If the dollar depreciates relative to the Russian ruble, the ruble: will be less expensive to Americans. may either appreciate or depreciate relative to the dollar. will appreciate relative to the dollar. will depreciate relative to the dollar.

will appreciate relative to the dollar.

Functions of Money

• Medium of Exchange o Used to buy/sell goods • Unit of account o Goods valued in dollars • Store of Value o Can accumulate our wealth o Hold some wealth in money form • Different degrees of Liquidity o Time it takes to turn your assets into cash

Depreciation of the dollar will: A. decrease the prices of both U.S. imports and exports. B. increase the prices of both U.S. imports and exports. C. decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports. D. increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.

D. increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.

• Factors that make FED independent from political atmosphere. Arguments for and against its independence

Federal Reserve Independence • Established by congress as an independent agency • Protects the Fed from political pressures • Fed's policies cannot be reversed • Fed is given a freedom to pursue its own objectives and choose monetary policy tools to do so • Feds objectives: dual mandate price stability (2% inflation rate) and maximum and sustainable economic growth • Enables the Fed to take actions to increase interest rates in order to stem inflation as needed • Political business cycle • Opponents: undemocratic, unaccountable, not transparent enough

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that: $1 = 4 euros. $1 = .5 euro. 1 euro = $.50. 1 euro = $2.

$1 = 4 euros.

Which country is the United States' most important trading partner? - Germany - Japan - China - Canada

- Canada

Determinants of aggregate supply

- Change in input prices - Change in productivity - Change in legal

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be an example of: - an asset. - a liability. - net worth. - capital stock.

- a liability.

A $70 price tag on a sweater in a department store window is an example of money functioning as a: - unit of account. - standard of deferred payments. - store of value. - medium of exchange.

- unit of account.

Determinants of aggregate demand

-change in consumer spending - change in investment spending -change in government spending - change in export spending

On Dec 4, 2014 one euro could be exchanged for $1.2. How many euros could one dollar buy?

0.83 euros

How many regional Fed banks are there?

12

If Federal Reserve officials attempt to pull the economy out of a recession when the price level is relatively stable, the policies they would most likely use would be to:

Buy government securities and decrease the discount rate

Other things equal, a dramatic decrease in the money supply would: A) increase price level B) reduce purchasing power of the dollar C) increase purchasing power of the dollar D) I have no idea

C) increase purchasing power of the dollar

The primary responsibility of the Federal Open Market Committee (FOMC) is: A) issuing currency and acting as the fiscal agent for the federal government. B) handling the Fed's collection of checks and adjusting legal reserves among banks. C) setting the Fed's monetary policy and directing the buying and selling of government securities. D) supervising bank operations to make sure they follow regulations and monitoring banks for fraud.

C) setting the Fed's monetary policy and directing the buying and selling of government securities.

2. Members of the Federal Reserve Board of Governors are: A. appointed by Congress to staggered 14-year terms. B. selected by the Federal Open Market Committee for 4-year terms. C. appointed by the president to staggered 14-year terms. D. selected by each of the Federal Reserve Banks for 4-year terms.

C. appointed by the president to staggered 14-year terms.

Checkable deposits are included in: A. M1 but not in M2. B. M2 but not in M1. C. both M1 and M2. D. neither M1 nor M2.

C. both M1 and M2.

4. Money functions as a store of value if it allows you to: A. measure the value of goods in a reliable way. B. make exchanges in a more efficient manner. C. delay purchases until you want the goods. D. increase your confidence in money.

C. delay purchases until you want the goods.

. If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: A. Americans will buy fewer Korean goods and services. B. the won has appreciated in value. C. fewer U.S. goods and services will be demanded by the South Koreans. D. the dollar has depreciated in value.

C. fewer U.S. goods and services will be demanded by the South Koreans.

A rise in prices of imported resources that are used as input in a production will cause aggregate: A. supply to increase. B. demand to increase. C. supply to decrease. D. demand to decrease.

C. supply to decrease.

• About factors that cause the 2007/09 financial crisis AND how the government and fed responded to the crisis

Mortgage default crisis • Subprime mortgage loans • Mortgage-backed securities • Government programs that encouraged home ownership • Bad incentives provided by mortgage lenders (no credit checks) • Declining real estate values - Severe conflict of interests - Troubled Asset Relief Program (TARP) • Allocated $700 billion to make emergency loans • Instead Treasury ended up buying stock • Saved several institutions from failure • Fed extensively lent money to financial institutions • Too big to fail? o If corporations knows that it will always get bailed out by the government, then it has very strong incentives to be reckless.

The economy is experiencing inflation and the Federal Reserve decides to pursue a restrictive money policy. Which actions by the Fed would be most consistent with this policy?

Selling government securities

In macroeconomics, the long-run is characterized by:

a period in which nominal wages have fully responded to changes in the price level

All else equal, depreciation of the dollar will shift

aggregate demand to the right and aggregate supply to the left

Which of the following is not a routine function of the Federal Reserve Banks? A) issuing currency B) providing for check collection C) regulating money supply D) collecting tax revenue

collecting tax revenue

If the rate of exchange for a pound is $4, the rate of exchange for the dollar is: ¼ pound. 4 pounds. $.25. $1.00.

¼ pound.

Depreciation of the dollar will: decrease the prices of both U.S. imports and exports. increase the prices of both U.S. imports and exports. decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports. increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.

increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.

If Fed conducts open market purchases:

it buys government securities and increases money supply

The required reserve ratio is 10 percent. The system initially has no excess reserves. $20 billion in new currency is deposited in the system. This will initially create excess reserves of:

$18 billion

Continuing the previous example. If banks to choose to lend out all the excess reserves and public holds no currency, then money supply will increase by:

$200 billion

During the financial crisis of 2007-2009, FDIC increased deposit insurance. What is the new amount per account?

$250,000

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that: - $1 = 4 euros. - $1 = .5 euro. - 1 euro = $.50. - 1 euro = $2.

- $1 = 4 euros. Since $1 = 2 pounds, 1 pound = $1/2 = $.50. Substituting into the first equation: 2 euros = $.50, so 4 euros = $1 (2 * 2 = $.50 * 2).

A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20 percent. What is the amount of required reserves? - $10,000 - $50,000 - $250,000 - $1 million

- $10,000 Required reserves = $50,000 * .20 = $10,000.

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, while the required reserve ratio is 10 percent. The excess reserves of the bank are: - $50,000. - $100,000. - $900,000. - $1 million.

- $100,000. Excess reserves = Actual reserves - Required reserves. Required reserves = Required reserve ratio * Bank's checkable-deposit liabilities: .10 * $9,000,000 = $900,000. $1,000,000 - $900,000 = $100,000.

A bank has excess reserves of $5000 and deposit liabilities of $50,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, this bank can lend a maximum of: - $1000. - $1500. - $2000. - $2500.

- $2500.

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of: - $122,000. - $175,000. - $300,000. - $75,000.

- $75,000. Maximum checkable-deposit creation = Excess reserves * Money multiplier. Excess reserves = Actual reserves - Required reserves. Required reserves = Required reserve ratio * Checkable deposits: .20 * $100,000 = $20,000. Excess reserves = $35,000 - 20,000 = $15,000. Money multiplier = 1/Required reserve ratio = 1/.20 = 5. So, the maximum checkable-deposit creation (or supply of money): $15,000 * 5 = $75,000.

Which of the following would be considered to be the most liquid? - Checkable deposits. - Small time deposits. - Money market mutual funds. - Savings deposits.

- Checkable deposits.

Which is the most important function of the Federal Reserve System? - Setting reserve requirements. - Controlling the money supply. - Lending money to banks and thrifts. - Acting as the fiscal agent for the U.S. government.

- Controlling the money supply.

Michelle transfers $4000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2? - M1 decreases and M2 increases. - M1 increases and M2 decreases. - M1 increases and M2 stays the same. - M2 increases and M1 stays the same.

- M1 increases and M2 stays the same.

Which one of the following is a tool of monetary policy for altering the reserves of commercial banks? - Issuing currency. - Check collection. - Open-market operations. - Acting as the fiscal agent for the federal government.

- Open-market operations.

Which one of the following is true about the U.S. Federal Reserve System? - The head of the U.S. Treasury also chairs the Federal Reserve Board. - There are 10 regional Federal Reserve Banks. - There are 14 members of the Federal Reserve Board. - The Federal Open Market Committee (FOMC) has more members than does the Federal Reserve Board of Governors.

- The Federal Open Market Committee (FOMC) has more members than does the Federal Reserve Board of Governors.

Which of the following statements is true? - The Federal Reserve sets the Federal funds rate. - The Federal Reserve sets the target for the Federal funds rate, and then uses the reserve ratio to push banks toward that target. - The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open-market operations. - The Federal Reserve will set a higher target for the Federal funds rate if pursuing an expansionary monetary policy.

- The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open-market operations.

Which of the following will generate a demand for country X's currency in the foreign exchange market? - Travel by citizens of country X in other countries - The desire of foreigners to buy stocks and bonds of firms in country X - The imports of country X - Charitable contributions by country X's citizens to citizens of developing nations

- The desire of foreigners to buy stocks and bonds of firms in country X

Which would provide the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves? - A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment. - A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment. - The money supply is decreased, which increases the interest rate and causes investment spending, output, and employment to decrease. - The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase.

- The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase.

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment? - The purchase of government securities in the open market and an increase in taxes. - The sale of government securities in the open market and a decrease in taxes. - The sale of government securities in the open market and a decrease in government spending. - The purchase of government securities in the open market and an increase in government spending.

- The purchase of government securities in the open market and an increase in government spending.

Checkable deposits are money because they are: - legal tender. - fiat money. - acceptable in exchange. - token money.

- acceptable in exchange.

Members of the Federal Reserve Board of Governors are: - appointed by Congress to staggered 14-year terms. - selected by the Federal Open Market Committee for 4-year terms. - appointed by the president to staggered 14-year terms. - selected by each of the Federal Reserve Banks for 4-year terms.

- appointed by the president to staggered 14-year terms.

The following diagram is a flexible exchange market for foreign currency: Other things equal, a rightward shift of the supply curve would: - appreciate the euro. - cause a surplus of euros. - decrease the equilibrium quantity of euros. - appreciate the dollar.

- appreciate the dollar.

In a fractional reserve banking system: - bank panics cannot occur. - the monetary system must be backed by gold. - banks can create money through the lending process. - the Federal Reserve has no control over the amount of money in circulation.

- banks can create money through the lending process.

The following diagram is a flexible exchange market for foreign currency: Other things equal, a rightward shift of the demand curve would: - depreciate the dollar. - appreciate the dollar. - reduce the equilibrium quantity of euros. - depreciate the euro.

- depreciate the dollar.

A trade surplus implies that: - exports of goods exceed imports of goods. - imports of goods exceed exports of goods. - exports of services exceed imports of services. - imports of services exceed exports of services.

- exports of goods exceed imports of goods.

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: - Americans will buy fewer Korean goods and services. - the won has appreciated in value. - fewer U.S. goods and services will be demanded by the South Koreans. - the dollar has depreciated in value.

- fewer U.S. goods and services will be demanded by the South Koreans.

Assume the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the public, then the money supply will immediately: - increase by $80 million, and the maximum money-lending potential of the commercial banking system will increase by $80 million. - increase by $80 million, but the maximum money-lending potential of the commercial banking system will decrease by $80 million. - increase by $80 million, and the maximum money-lending potential of the commercial banking system will increase by $400 million. - decrease because the securities are an asset to the commercial banks and a liability to the Federal Reserve.

- increase by $80 million, and the maximum money-lending potential of the commercial banking system will increase by $400 million. Money multiplier = 1/Required reserve ratio = 1/.20 = 5. Maximum money-lending potential = $80 * 5 = $400.

Depreciation of the dollar will: - decrease the prices of both U.S. imports and exports. - increase the prices of both U.S. imports and exports. - decrease the prices of U.S. imports but increase the prices to foreigners of U.S. exports. - increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.

- increase the prices of U.S. imports but decrease the prices to foreigners of U.S. exports.

The Federal Reserve System: - has the same status as the Supreme Court. - is basically an independent agency. - has the status of a congressional committee. - is an agency of the executive branch of the federal government.

- is basically an independent agency.

U.S. currency has value primarily because it: - is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the federal government. - is generally acceptable in exchange for goods or services, is backed by the gold and silver of the federal government, and facilitates trade. - is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services. - facilitates trade, is legal tender, and permits the use of credit cards and near-monies.

- is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services.

Foreign exchange rates refer to the: - price at which purchases and sales of foreign goods take place. - movement of goods and services from one nation to another. - price of one nation's currency in terms of a second nation's currency. - difference between exports and imports in a particular nation.

- price of one nation's currency in terms of a second nation's currency.

If the dollar depreciates relative to the Russian ruble, the ruble: - will be less expensive to Americans. - may either appreciate or depreciate relative to the dollar. - will appreciate relative to the dollar. - will depreciate relative to the dollar.

- will appreciate relative to the dollar.

If the rate of exchange for a pound is $4, the rate of exchange for the dollar is: - ¼ pound. - 4 pounds. - $.25. - $1.00.

- ¼ pound. If 1 pound = $4, $1 = 1/4 pound.

On Dec 4, 2014 Bank of America exchanged $2 million for 24 million Mexican pesos. What was the exchange rate between dollar and peso?

12 pesos per dollar

If a Japanese importer could buy $1000 U.S. for 122,000 yen, the rate of exchange for one dollar would be: 112 yen. 122 yen. 1220 yen. 12,200 yen.

122 yen.

If a Japanese importer could buy $1000 U.S. for 122,000 yen, the rate of exchange for one dollar would be: - 112 yen. - 122 yen. - 1220 yen. - 12,200 yen.

122 yen. Since $1000 = 122,000 yen, $1 = 122,000/1000 = 122 yen.

A glass of sake costs 500 yens in Tokyo. If the exchange rate is 150 yens per dollar, how much would you have to pay for sake in dollars A) 75,000 B) 650 C) 3.3 D) Nothing, because I don't pay for my drinks.

3.3

The exchange rate between British pound and US dollar was $0.6 per pound. Today the exchange rate is $0.4 per pound. Which of the following is correct? A) pound depreciated B) pound appreciated C) dollar depreciated D) none of the above

A) pound depreciated

An increase in money supply will: A) reduce interest rates, increasing investment and GDP B) reduce interest rates, reducing investment and GDP C) increase interest rates, reducing investment and GDP D) increase interest rates, increasing investment and GDP

A) reduce interest rates, increasing investment and GDP

25. The economy is experiencing high unemployment and a low rate of economic growth and the Fed decides to pursue an expansionary money policy. Which action by the Fed would be most consistent with this policy? A. Buying government securities. B. Selling government securities. C. Raising the reserve ratio. D. Raising the discount rate

A. Buying government securities.

Inflationary pressure is a growing problem for the economy. Therefore, the Federal Reserve decides to pursue a policy to reduce the inflationary pressure. Which monetary policy tool changes by the Fed would reinforce each other to achieve that objective? A. Selling government securities and raising the discount rate. B. Selling government securities and lowering the discount rate. C. Buying government securities and lowering the discount rate. D. Buying government securities and lowering the reserve ratio.

A. Selling government securities and raising the discount rate.

Which one of the following is true about the U.S. Federal Reserve System? A. There are 12 regional Federal Reserve Banks. B. The head of the U.S. Treasury also chairs the Federal Reserve Board. C. There are 14 members of the Federal Reserve Board. D. The Open Market Committee is smaller in size than the Federal Reserve Board.

A. There are 12 regional Federal Reserve Banks.

Dumping is the sale of a product in a foreign market: A. at a price below its domestic price or cost of production. B. that does not meet the quality standards in the domestic market. C. and is the principal means used to enforce nontariff barriers. D. and is encouraged by voluntary export restraints.

A. at a price below its domestic price or cost of production.

The most frequently used monetary device for achieving price stability is: A. open-market operations. B. the discount rate. C. the reserve ratio. D. the prime interest rate.

A. open-market operations.

A protective tariff will: A. increase the sales of foreign exporters. B. increase the price and sales of domestic producers. C. increase the welfare of domestic consumers. D. create an efficiency gain in the domestic economy

B. increase the price and sales of domestic producers.

Which of the following is a correct statement? All else equal: A) a decrease in the real rate of interest will reduce the level of investment B) a decrease in the real rate of interest will increase the level of investment C) an increase in business taxes will increase the level of investment D) an increase in the level of current disposable income will decrease the level of investment.

B) a decrease in the real rate of interest will increase the level of investment

Holding the money deposits of businesses and households and making loans to the public are the basic functions of: A) district banks of the Federal Reserve System. B) commercial banks and thrift institutions. C) the Open Market Committee and the Board of Governors. D) the Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation.

B) commercial banks and thrift institutions.

The United States: A) leads the world in the percentage of its GDP that's traded B) leads the world in the total dollar volume of exports and imports C) exports more than imports D) is importing a smaller percentage of its GDP now compared to 25 years ago

B) leads the world in the total dollar volume of exports and imports

If actual reserves in the banking system are $8000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are: A. zero. B. $1000. C. $2000. D. $500.

B. $1000.

If a Japanese importer could buy $1000 U.S. for 122,000 yen, the rate of exchange for one dollar would be: A. 112 yen. B. 122 yen. C. 1220 yen. D. 12,200 yen.

B. 122 yen.

1. The Board of Governors of the Federal Reserve has ____ members. A. 5 B. 7 C. 9 D. 14

B. 7

Which is a valid counterargument to the infant industry argument for protective tariffs? A. It results in too many benefits for domestic firms that export goods and services. B. It is difficult to determine which infant industries will become mature industries with a comparative advantage. C. The objective would be better achieved through strategic trade policy. D. The objective would be better achieved by import quotas and nontariff barriers.

B. It is difficult to determine which infant industries will become mature industries with a comparative advantage.

The statement that "tariffs are needed to protect American firms from foreign producers that sell excess goods in the American market at less than cost" would be most closely associated with which tariff argument? A. Cheap foreign labor B. Protection against dumping C. Diversification for stability D. Increased domestic employment

B. Protection against dumping

The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the: A. International Monetary Fund (IMF). B. World Trade Organization (WTO). C. Common Market Organization (CMO). D. International Trade Commission (ITC).

B. World Trade Organization (WTO).

Demand-pull inflation is associated with a(n): A. decrease in aggregate demand. B. increase in aggregate demand. C. increase in aggregate supply. D. decrease in aggregate supply.

B. increase in aggregate demand.

If the dollar price of the yen rises, then: A. the yen price of dollars also rises. B. the dollar depreciates relative to the yen. C. the yen depreciates relative to the dollar. D. the dollar will buy fewer U.S. goods.

B. the dollar depreciates relative to the yen.

Which would be one of the factors that increase aggregate demand? A. An increase in personal income tax rates. B. An increase in the productivity of labor. C. An increase in consumer wealth. D. An increase in real interest rates.

C. An increase in consumer wealth.

The following diagram is a flexible exchange market for foreign currency: Other things equal, a rightward shift of the supply curve would: A. appreciate the euro. B. cause a surplus of euros. C. decrease the equilibrium quantity of euros. D. appreciate the dollar.

D. appreciate the dollar.

Assuming that the Federal Reserve Banks sell $40 million in government securities to commercial banks and the reserve ratio is 20 percent, then the effect will be to reduce: A. excess reserves by $8 million. B. excess reserves by $200 million. C. the potential money supply by $200 million. D. the potential money supply by $400 million.

C. the potential money supply by $200 million.

Which country is the United States' most important trading partner? Germany Japan China Canada

Canada

3. Tariffs on imports generally: A. hurt domestic producers. B. benefit domestic consumers. C. benefit foreign producers. D. benefit domestic producers.

D. benefit domestic producers.

Which of the following were factors in the financial crisis of 2007-2008? A) Mortgage default crisis. B) Securitization. C) Subprime mortgage loans. D) All of these.

D) All of these.

Which of the following will cause the aggregate demand curve to shift to the left? A. A depreciation of the US dollar. B. A decrease in US interest rates. C. An increase in national incomes abroad. D. An appreciation in the value of the U.S. dollar.

D. An appreciation in the value of the U.S. dollar.

Which set of events would most likely decrease aggregate demand? A. A depreciation of dollar. B. A reduction in business and personal tax rates. C. An increase in investment spending. D. An increase in personal income tax rates.

D. An increase in personal income tax rates.

Which is a likely result of imposing tariffs to increase domestic employment? A. A decrease in consumer prices B. A decrease in the tariff rates of foreign nations C. An increase in the number of jobs D. An increase in the possibility of retaliatory tariffs

D. An increase in the possibility of retaliatory tariffs

Which is not commonly offered as a reason to support protectionism and abandon free trade? A. Maintaining military self-sufficiency B. Increasing domestic employment C. Allowing infant industries to mature and become competitive D. Promoting specialization and increasing worldwide production levels

D. Promoting specialization and increasing worldwide production levels

The tools of monetary policy for altering the reserves of commercial banks are the: A. tax rate and level of government spending. B. Consumer Price Index and unemployment rate. C. public debt, budget surplus, and budget deficit. D. discount rate, reserve ratio, and open-market operations.

D. discount rate, reserve ratio, and open-market operations.

A graph of the long-run aggregate supply curve is: A. horizontal, and a graph of the short-run aggregate supply is upsloping. B. upsloping, and a graph of the short-run aggregate supply is vertical. C. upsloping, and a graph of the short-run aggregate supply is horizontal. D. vertical, and a graph of the short-run aggregate supply is upsloping.

D. vertical, and a graph of the short-run aggregate supply is upsloping.

Writing a check to purchase a new computer is an example of using money primarily as a:

Medium of Exchange

Which of the following will generate a demand for country X's currency in the foreign exchange market? Travel by citizens of country X in other countries The desire of foreigners to buy stocks and bonds of firms in country X The imports of country X Charitable contributions by country X's citizens to citizens of developing nations

The desire of foreigners to buy stocks and bonds of firms in country X

You take a cab from de Gaulle airport to downtown Paris. A cab meter shows 120 euros. A cab driver says that he is OK with dollars as well and asks for $140. You caught a glance at the exchange kiosk in the airport that one dollar is trading for 0.91 euros. Which would you rather pay, dollars or euros? A) $140 B 120 euros

euros!

A trade surplus implies that: exports of goods exceed imports of goods. imports of goods exceed exports of goods. exports of services exceed imports of services. imports of services exceed exports of services.

exports of goods exceed imports of goods.

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then: Americans will buy fewer Korean goods and services. the won has appreciated in value. fewer U.S. goods and services will be demanded by the South Koreans. the dollar has depreciated in value.

fewer U.S. goods and services will be demanded by the South Koreans.

• Problem: Unemployment and recession - Expansionary

o Fed buys bonds, lowers reserve ratio, or lowers the discount rate o Buy gov securities o Excess reserves increase o Money supply rises o Interest rate falls o investment spending increases o Real GDP rises

• Problem: Inflation - Restrictive

o Fed sells bonds, increases reserve ratio, or increases the discount rate o Sell Gov securities o Excess reserves decrease o Money supply falls o Interest rate rises o Investment spending decreases o Inflation decrease

Foreign exchange rates refer to the: price at which purchases and sales of foreign goods take place. movement of goods and services from one nation to another. price of one nation's currency in terms of a second nation's currency. difference between exports and imports in a particular nation.

price of one nation's currency in terms of a second nation's currency.