Econ exam 3

Which of the following is true? A. A nation cannot have a comparative advantage in the production of every good. B. A nation can have a comparative advantage in the production of every good, but not an absolute advantage. C. A nation cannot have an absolute advantage in the production of every good. D. A nation can have a comparative advantage in the production of a good only if it also has an absolute advantage

A nation cannot have a comparative advantage in the production of every good.

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic stabilizers

Demand deposits are institutions that accept money deposits and then uses the deposits to make loans.

False

The Federal Open Market Committee (FOMC) provides deposit insurance in the United States.

False

Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?

Northern's loan assets increase by $30 million

_________________________ are included in the aggregate amount of MI money currently in circulation.

Traveler's checks

Net worth is the excess of the asset value over and above the amount of the liability or total assets minus total liabilities.

True

The federal funds rate is the interest rate at which one bank lends funds to another bank overnight.

True

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n)____________________in producing that product.

absolute advantage

Suppose the government of Taiwan subsidized its watch-making industry, enabling Taiwanese producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Taiwanese subsidization policy by:

accepting the subsidy of the Taiwanese government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________.

an asset-liability time mismatch; diversify its loans

__________________ identifies the area where a producer's absolute advantage is relatively greatest, or where the producer's absolute disadvantage in productivity is relatively least.

comparative advantage

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.

expansionary monetary policy

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

federal funds rate

According to international trade theory, a country should:

import goods in which it has a comparative disadvantage.

Raising an existing tariff on grapes from Argentina will:

increase domestic production of grapes.

Economists would say tariffs:

limit voluntary exchanges.

The quantity of money in an economy and the _____________________ are inextricably intertwined.

quantity of credit for loans

The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.

reserve ratio

The market in which loans are bought and sold is called the:

secondary loan market.

When a country's economy is producing at a level that exceeds its potential GDP, the standardized employment budget will show a __________________ than the actual budget.

smaller deficit

Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

store of value

The quantitative easing policies adopted by the Federal Reserve are usually thought of as:

temporary emergency measures.

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

the credit card company's M1 funds.

When the central bank decides it will sell bonds using open market operations:

the money supply decreases.

If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:

the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.

unit of account

When inflation begins to climb to unacceptable levels in the economy, the government should:

use contractionary fiscal policy to shift aggregate demand to the right.