Econ Final

As the interest rate declines the amount of money the public wishes to hold: a. rises. b. falls. c. stays the same.

a

Money is created when someone: a. takes out a bank loan. b. pays back a bank loan. c. spends money. d. saves money.

a

According to the concept of the liquidity trap: a. at very low interest rates people would put their money in the bank. b. at very low interest rates people would simply hold their money. c. at very high interest rates people would simply hold their money. d. people will lend out their money no matter what the interest rate happens to be.

b

All large financial institutions have to hold a reserve of almost _______ percent of their demand deposits. a. 2 b. 10 c. 12 d. 20 e. 100

b

An increase in the money supply will tend to: a. lower interest rates and lower the equilibrium GDP. b. lower interest rates and increase the equilibrium GDP. c. increase interest rates and increase the equilibrium GDP. d. increase interest rates and lower the equilibrium GDP. e. do none of the above.

b

Assume that by devoting all of its resources to the production of X, Cameroon can produce 40 units of X. By devoting all of its resources to Y, Cameroon can produce 60Y. Comparable figures for Mongolia are 60X and 40Y. We can conclude that: a. the terms of trade will be 3X equals 1Y. b. Cameroon should specialize in Y and Mongolia in X. c. Cameroon should specialize in X and Mongolia in Y. d. there is no basis for mutually beneficial specialization and trade.

b

Bank panics were the result of: a. banks holding 100 percent of their deposits on reserve. b. depositors attempting to withdraw more deposits than the banks held in reserve. c. banks hoarding greenbacks during the Civil War. d. the United States going off the gold standard in 1933. e. money circulating too slowly.

b

Banking began in: a. biblical times. b. medieval times. c. the 19th century. d. the 20th century.

b

Considering the data in Exhibit C, which of the following terms of trade would both countries agree to? a. 4.5X = lY b. 0.5X = lY c. 5X = 1Y d. 3X = 1Y

b

In Exhibit D, China's opportunity cost of producing 1 unit of cheese is: a. 1/4 unit of wine b. 1/3 unit of wine c. 3 units of wine d. 1/6 units of wine e. 18 units of wine

b

In exhibit C, Nigeria has an absolute advantage in the production of___ and Ethiopia has an absolute advantage in the production of___ a. both goods; neither good b. good X; good Y c. good Y; good X d. neither good; both goods

b

In exhibit C, the Nigeria is the lower opportunity cost producer of___ and Ethiopia is the lower opportunity cost producer of__. a. good Y; good X b. both goods; neither good c. neither good; both goods d. good X; good Y

b

In the classical model, the velocity of circulation of money: a. increases when the inflation rate increases. b. is a constant. c. increases when interest rates rise. d. decreases when interest rates rise. e. increases as nominal GDP increases.

b

Paper money in the United States is issued by the: a. United States Mint. b. Federal Reserve Banks. c. United States Treasury. d. Federal Open Market Committee. e. United States Government Printing Office.

b

People tend to hold more money as a. the price level rises and credit availability rises. b. the price level rises and credit availability falls. c. the price level falls and credit availability falls. d. the price level falls and credit availability rises.

b

The Board of Governors of the Federal Reserve does each of the following except: a. sit on the Federal Open market Committee. b. serve on the Board at the pleasure of the President, who can make individual governors resign at any time. c. carry out monetary policy. d. raise and lower reserve requirements.

b

The ability to produce a good at a lower opportunity cost than others is called: a. a complementary advantage b. a comparative advantage c. a differential advantage d. an indigenous advantage e. an absolute advantage

b

The classical quantity theory of money is based on: a. exchange rate theory. b. Say's Law. c. the equation of exchange. d. Keynesian theory.

b

The most powerful (but seldom used) tool at the Federal Reserve's disposal is: a. the ability to set reserve requirements. the discount rate. b. open-market operations. c. margin requirements on stock purchases.

b

The precautionary demand for money arise: a. because people feel relatively certain what the future will bring. b. because individuals are uncertain about the future. when nominal income exceeds potential income. c. as important exceptions to the Keynesian model. d. because the transaction demand for money is never adequate to absorb the money supply.

b

The vicious circle of poverty refers to the idea that poor countries are poor because; a. the government doesn't collect enough taxes to provide tax benefits to poor persons b. they cant' save and invest, but they can't save and invest because they are poor c. they produce goods that are sold to more developed countries who pay such low prices that the poor countries can't develop new products that can be sold at higher prices d. the more developed countries find it advantageous to keep them poor so that the more developed countries can prevent the less developed countries (LDCs) from effectively competing with them

b

Real economic growth is an increase from one period to the next in: a. business starts b. building permits c. nominal GNP real GNP d. none of the above

d

The amount of reserves remaining after reserve requirements have been satisfied is called: a. the required reserve ratio. b. legal reserves. c. federal reserves. d. excess reserves.

d

Which statement is false? a. MV = GDP b. PQ = GDP c. MV = PQ d. None is false.

d

The major consideration of whether something can serve as money is that it must be: a. redeemable in precious metals such as gold or silver. b. printed by each nation's government of banking authority. c. freely available to all who want it. d. exchangeable for other types of money. e. acceptable as a means of payment.

e

"Fungibility" means: a. substitutable b. flowing c. elastic d. efficient e. none of the above

a

An expansionary monetary policy tends to ________ the United States dollar relative to foreign currencies and to ______ our balance of trade. a. raise, help b. raise, hurt c. lower, help d. lower, hurt

a

Bank deposit creation is limited by: a. reserve requirements. b. the interest rate. c. whether a bank is nationally or state chartered. d. whether a bank is in a large city or rural area.

a

Consider the following data on country X nominal GNP= $64,000,000; real GNP= $48,000,000; population = 4,000; labor force = 1,600. Per-capita read GNP in country X is: a. $12,000 b. $16,000 c. $30,000 d. $40,000

a

During the course of a bad recession the Fed would probably be doing each of the following except: a. selling securities on the open market. b. lowering interest rates. c. lowering reserve requirements. d. lowering the discount rate.

a

From Exhibit D, which of the following statements is NOT correct? a. Cameroon has a comparative advantage in wine production b. China has a absolute advantage in wine production c. China has a comparative advantage in wine production d. China has a absolute advantage in cheese production e. none of the above

a

If most bankers could do what they wanted, they would probably hold reserves of about: a. 0% b. 3-4% c. 7-8% d. 10-12% e. 22-25%

a

Money performs its job as a standard of deferred payment very well: a. in the short run. b. in the long run. c. in both the short and long run. d. in neither the short run nor the long run.

a

Open market operations are: a. the buying and selling of United States government securities by the Fed. b. borrowing by banks from the Fed. c. the selling of United states government securities by the United States Treasury, d. raising or lowering reserve requirements by the Fed.

a

The Depository Institutions Deregulation and Monetary Control Act of 1980 had two key provisions, one of which was: a. uniform reserve requirements for all financial institutions. b. zero reserve requirements for all time deposits. c. no interest on checking deposits. d. vault cash no longer counting toward reserves.

a

The average number of times each dollar is used per year to buy goods and services in the economy is called the: a. velocity of circulation of money. b. price level. c. income level. d. marginal respending rate. e. transactions demand.

a

The crude quantity theory of money assumes that: a. V and Q remain constant. b. V and Q vary. c. V is constant and Q varies. d. Q is constant and v varies.

a

The transaction demand for money is most closely related to its use as a: a. medium of exchange. b. standard of value. c. measure of value. d. store of value. e. standard of deferred payment.

a

Which of the following will increase commercial bank reserves? a. The purchase of government bonds in the open market by the Federal Reserve Banks. b. A decrease in the reserve ratio. c. An increase in the discount rate. d. The sale of government bonds in the open market by the Federal Reserve Banks.

a

Which scenario best illustrates the vicious circle of poverty? a. Incomes are low, thus saving is low; because saving is low, investment is low; because investment is low, income is low. b. Income are low, thus investment is low; because investment is low, interest rates are high; because interest rates are high, people can't buy homes; without homes, people are not satisfied enough to work. c. Agricultural incomes are low when the weather is bad; the weather is bad in certain parts of the world; nothing can change the weather, so agricultural incomes will continue to be low. d. If you can't spend, you can't buy; if you can't buy, you can't spend.

a

When inflation occurs: a. money gains in value. b. money loses value. c. the value of money is unaffected. d. the value of demand deposits falls but the value of currency is unaffected. e. inflation has nothing to do with the value of money.

b

Which of the following concepts do economists think is the most useful measurement of how much better or worse off the "average" person is in one period compared to another? a. real economic growth b. per-capita real economic growth c. an increase in the production possibilities frontier (PPF) d. gross national product (GNP)

b

According to the equation of exchange: a. when M rises, P must rise. b. when M rises, V must fall. c. when MV falls, PQ must fall. d. when V rises, Q must rise.

c

An abundant supply of natural resources in a country: a. is a necessary condition for economic growth b. is a sufficient condition for economic growth c. will make economic growth in that country easier and more likely, ceteris paribus d. guarantees that the country will experience economic growth

c

Barter involves a. money. b. specialization. c. a double coincidence of wants. d. demand deposits.

c

Demand deposits are: a. coins and currency. b. based on gold deposits with the Fed. c. funds in checking accounts. d. not legally required to be available sooner than 30 e. days after a check is presented to a bank.

c

If country A can produce 40 units of good Y with a certain amount of resources and country B can produce 42 units of good Y with the same amount of resources: a. country A has an absolute advantage in the production of good Y b. country A has an comparative advantage in the production of good Y c. country B has an absolute advantage in the production of good Y d. country B has an comparative advantage in the production of good Y

c

In Exhibit C, if Nigeria is to specialize in the production of one of the two goods (and then trade that good to Ethiopia), which good should it be and why? If Ethiopia is to specialize in the production of one of the two good (and then trade that good to Nigeria), which good should it be and why? a. Good X for Nigeria because Nigeria is the higher opportunity cost producer of good X; good Y for Ethiopia because Ethiopia is the higher opportunity cost producer of good Y. b. Good Y for Nigeria because Nigeria is the lower opportunity cost producer of good Y; good X for Ethiopia because Ethiopia is the lower opportunity cost producer of good X. c. Good X for Nigeria because Nigeria is the lower opportunity cost producer of good X; good Y for Ethiopia because Ethiopia is the lower opportunity cost producer of good Y. d. Good Y for Nigeria because Nigeria is the higher opportunity cost producer of good Y; good X for Ethiopia because Ethiopia is the higher opportunity cost producer of good X.

c

In exhibit C, the opportunity cost of one unit of Y for Nigeria is ___ whereas the opportunity cost of one unit of Y for Ethiopia is _____ a. 3X; 3X b. 10X; 2x c. 4X; 1X d. 5X; 1X e. none of the above

c

Money is destroyed when: a. loans are made. b. checks written on one bank are deposited in another bank. c. loans are repaid. d. the net worth of the banking system declines.

c

The Federal Open Market Committee has _____ members. a. 7 b. 10 c. 12 d. 14 e. 17

c

The _________ demand for money is most sensitive to interest rate changes. a. transactions b. precautionary c. speculative b. inflationary

c

The modern monetarists believe that a. V is very unstable. b. V never changes. c. any changes in V are either very small or predictable. d. if M rises, V will fall by the same percentage.

c

The most important policy weapon of the Fed is: a. changing the discount rate. b. changing the reserve requirements. c. open market operations. d. moral suasion.

c

The most powerful individual in the Federal Reserve System is the: a. senior member of the Federal Open Market Committee. b. Superintendent of the Board of Governors. d. Chairman of the Federal Reserve Board. c. New York District Bank President.

c

The opportunity cost of holding money: a. is zero because money is not an economic resource. b. varies inversely with the interest rate. c. varies directly with the interest rate. d. varies inversely with the level of economic activity.

c

Using the rule of 72, how many years will it take a country with a 4 percent growth rate per year to double in size? a. 10 years b. 12 years c. 18 years d. 24 years

c

When a person cashes a check drawn on her own account, the money supply: a. increases. b. decreases. c. remains the same. d. increases because of interest rates.

c

Which is true? a. M1 is part of M2, but M2 is not part of M3. b. M1 is not part of M2, bug M2 is part of M3. c. M1 is part of M2, and M2 is part of M3. d. None is true.

c

A country has an absolute advantage in the production of a good if it can: a. with the same quantity of resources produce the same quantity of the good as another country b. with more resources produce more of the good of another country c. with the same quantity of resources produce the less of the good than another country d. with the same quantity of resources produce more of the good than another country e. none of the above

d

In Exhibit C, suppose the Nigeria produces 80X and 10Y in the no specialization - no trade (NS-NT) case, and Ethiopia produced 20X and 40Y. In the specialization-trade (S-T) case, the two countries agree to trade 40X for 20Y. Assuming that each country specializes in the production of the good in which it has a comparative advantage, Nigeria can consume ____ more units of good ____ in the S-T case than in the NS-NT. Ethiopia can consume ___ more units of good ____ in the S-T case than in the NS-NT case. a. 20; X; 10; Y b. 20; Y; 20; X c. 10; X; 20; Y d. l0; Y; 20; X

d

In order to buy securities the Fed offers: a. a low price and drives up interest rates. b. a low price and drives down interest rates. c. a high price and drives up interest rates. d. a high price and drives down interest rates.

d

John Maynard Keynes thought that when interest rates fell to very low levels people would: a. keep their money in the bank. b. lend out their money. c. buy bonds. d. hold their money.

d

The classical quantity theory of money states that: a. money is a medium of exchange necessary for the efficient functioning of the economy. b. increases in the stock of money result in greater increases in the price level. c. decreases in the stock of money increase the price level. d. increases in the stock of money result in proportionate increases in the price level.

d

The purpose of establishing the Federal Reserve System was: a. to regulate commercial banking. b. to provide for a more elastic currency. c. to increase the confidence in the nation's banks. d. all of the above. e. none of the above.

d

When the Fed wants to increase the money supply it: a. raises the discount rate. b. raises reserve requirements. c. sells securities. d. buys securities.

d

Banks that receive their charters from the federal government are called: a. official banks. b. government banks. c. state banks. d. federal banks. e. national banks.

e

If there is no comparative advantage in the production of either of the two goods produced by countries 1 and 2, then: a. the benefits resulting from trade between the two countries are increased b. there are no gains from specialization and trade between the two countries c. one country must be more productive in producing all goods than the other d. each country should specialize in the production of a particular good e. none of the above

e

The Federal Reserve District Banks are owned by: a. the federal government b. a combination of state governments and the federal government. c. the board of governors. d. their member banks. e. both (b) and (d) above.

e

The discount rate refers to: a. the penalty paid by risky bank borrowers; that is, the amount of interest they pay in excess of the prime rate. b. the rate at which bank write off and loans. c. the rate at which assets lose their real value as a result of inflation. d. the rate at which money loses its value as a result of inflation. e. the rate of interest that the Fed charges on loans to commercial banks.

e

The rate of interest charged by the Fed and paid by banks when they borrow reserves from the Fed is called the: a. federal funds rate. b. prime rate. c. real interest rate. d. reserve rate. e. discount rate.

e

Which of the following statements is false? a. If a country has an absolute advantage in the production of two goods in a two-good world, it may still benefit by specialization and trading. b. A country has a comparative advantage in the production of a good when it can produce the good at lower opportunity cost than another country. c. It is possible through specialization and trade for a country's inhabitants to consume at a level beyond its production possibilities frontier. d. a and b e. none of the above

e