Econ Final Exam

Assume that banks lend out all their excess reserves. Currently, the legal reserves that banks must hold equal $11.5 billion. If the Federal Reserve decreases its reserve requirement from 10 percent to 5 percent, then there is potential for the whole banking system to raise the money supply by

$115 billion

Bank A has $25,500 in required reserves. The required reserve ratio is 10 percent. Bank A has total deposits of

$255,000.

Tenth National Bank holds $285 million in total deposits and $35 million in reserves. With a required reserve ratio of 11 percent, how much in excess reserves is Tenth National holding?

$3.65 million

Assume that banks lend out their excess reserves. Currently, the total reserves that banks must hold equal $11.5 billion. If the Federal Reserve decreases its reserve requirements from 10 percent to 5 percent, then the change in the bank's excess reserves is

$5.75 billion

Bank A has $75,000 in total reserves, and zero excess reserves. The required reserve ratio is 12 percent. Bank A has total deposits of

$625,000

Bank A has $75,000 in total reserves, and zero excess reserves. The required reserve ratio is 12 percent. Bank A has total deposits of

$625,000.

Bank A has total deposits of $800,000 and total reserves of $200,000. If the required reserve ratio is 0.11, the bank has required reserves of

$88,000.

Some of the benefits of globalization include: (i) increased international trade. (ii) greater income per person. (iii) lower prices for goods. (iv) greater product variety.

(i), (ii), (iii), and (iv).

Other things equal, the level of real GDP will tend to increase in the short run:​ (i) if reserve requirements are decreased. (ii) if the Fed decreases the interest rate it pays on bank reserves. (iii) if there is an open market purchase by the Fed.

(i), (ii), and (iii).

If the money supply is $80 billion, the velocity money is $5, and real GDP is $320 billion, then the price level equals

1.25

Which of the following is a recommended strategy to increase productivity of the private sector?

A reduction in government subsidies to producers

Which of the following is not an argument in favor of inward-oriented strategies?

Developing countries should compete on the basis of comparative advantage.

Which of the following is least likely to be a reason for the difficulty in measuring poverty across countries?

Different trade balances

Because of the large amounts of resources devoted to understanding the nature of financial crises, researchers now feel comfortable making forecasts and do not expect to have any more surprises in the future.

False

Credit cards are a widely accepted form of money.

False

Credit cards should be included in M1 because they are just like checks.

False

Critics of globalization argue that international trade agreements represent roadblocks to democratic decision making, because power is decentralized from large international institutions to the local communities in the process.

False

Globalization benefits all the participating nations equally.

False

Globalization does not reward countries that follow good economic policies with greater access to the savings of the rest of the world to help finance growth and development.

False

If a person buries his money in his backyard, he is using money as a medium of exchange.

False

If the government requires banks to keep 100 percent of their deposits on reserve, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

False

Open market operations directly change the rate of interest at which banks can borrow funds from the Fed.

False

The Fed is part of the executive branch of the federal government.

False

Which of the following arguments is not used by promoters of globalization as one of the reasons why free trade and international investment result in higher standards of living?

Globalization brings better cultural practices to countries that have obsolete cultural traditions.

A combination of a decrease in the discount rate and an increase in reverse requirements would

Have an indeterminate effect on the money supple

which of the following is not defining characteristics of globalization

Increased frequency of war

Which of the following is not a defining characteristic of globalization?

Increased frequency of wars

What is the main reason for the failure of import-substitution strategies to generate rapid economic growth?

Inefficient allocation of resources

which of the following is considered a political obstacle to economic growth?

Insecure property rights

If the demand for money decreases, but the fed keeps the money supply the same

Interest rates will fall and aggregate demand will rise

Which of the following is an argument in favor of outward-oriented strategy?

It helps the economy to grow more rapidly by encouraging exports.

If every person is willing to accept money in payment, rather than goods and services, money serves as a:

Medium of exchange

Which of the following is likely to be a benefit of foreign investment in a developing country?

New technology is adapted

Why is the fear of expropriation an obstacle to economic growth?

No foreign investment comes to the country, because of the lack of guarantees.

The economic development strategy aimed at exporting domestically manufactured goods is called

Outward- oriented strategy

Which of the following is an obstacle to economic growth?

Political instability

Which of the following is a primary product?

Salt

Which of the following sentences about the benefits of foreign investment is true?

The ability of foreign firms to utilize modern technology in a developing country depends on having a supply of engineers and technical personnel in the host country.

Which of the following is an argument in support of globalization?

The benefits of globalization to all consumers greatly outweigh the loss of jobs to international competition.

In the equation of exchange, PxQ represents

The dollar value of all final goods and services sold in a country in a given year

Which of the following is a direct consequence of the development of faster and cheaper computers?

The enhanced ability of managers of business operations to deal with complex transactions in far-flung locations

Which of the following is a common argument against allowing a foreign firm to operate a business in a developing country?

The foreign firm may gain control over national resources.

Which of the following holds true if a country is said to have a comparative advantage in the production of wheat?

The opportunity cost of producing wheat is the lowest in the country.

What has happened to countries that did not participate in the globalization of the world economy?

These countries have been mired in a low-growth path and are experiencing high poverty rates.

A financial system is a means of bringing together savers and borrowers.

True

An overall decline in communication and transportation costs have facilitated global interactions in the twentieth and the twenty first century.

True

Evidence exists that countries with the most open economies tend to have more stringent environmental regulations.

True

Supporters of globalization argue that multinational firms pay higher wages than local firms, and provide greater benefits for workers than existed in the country prior to globalization.

True

Supporters of globalization believe that free trade and international investment result in all countries raising their living standards.

True

The phrase "race to the bottom" refers to the situation in which globalization results in countries competing for international investment by imposing low or no environmental regulations or labor standards.

True

There are 12 regional Federal Reserve Banks in the Federal Reserve System.

True

With globalization, the world is moving from hundreds of national economies toward one large world economy.

True

​The demand for money will increase when either the price level or real GDP increases.

True

Rapid population growth leads to age dependency which refers to:

a large number of dependent children whose consumption requirements lower the ability of the economy to save.

If a person uses money to buy a pair of shoes, money is functioning as

a medium of exchange.

In order to encourage domestic saving, it is necessary to have:

a stable system of property rights.

The practice of imposing import restrictions to protect a newly developing domestic economy typically results in:

allocation of resources away from the primary products.

Globalization can be defined as:

an increased cross-border flow of trade in goods, services, and financial assets, along with an increased international mobility of technology, information, and individuals.

A foreign aid that flows from one country to another is called a(n):

bilateral aid.

Less-developed countries are experiencing rapid population growth because _____.

birthrates are rising while mortality rates are falling

If rapid population growth reduces the amount of capital per worker, thereby lowering labor productivity, it is referred to as:

capital shallowing.

An inefficient manufacturing base is likely to result when:

competitive foreign imports are restricted.

Societies in which _____ produce more entrepreneurs.

culture supports individual achievements

An inward-oriented strategy is designed to:

develop the domestic manufacturing sector.

Countries that enjoy long distance flows of goods, capital, and services as well as information and perceptions that accompany market exchanges would be categorized under _____ globalization.

economic

Reserves held beyond the required amount are called __________ reserves.

excess

To follow an outward-oriented strategy, a country that has scarce natural resources and abundant labor supplies should _____.

export manufactured products and import primary goods

The Taiwanese government allows tax credits for domestic producers who compete with manufacturers in First World nations. This suggests that Taiwan engages in _____.

export substitution

When a country follows an inward-oriented strategy, it tends to produce:

goods that replace foreign manufactured products.

Some of the benefits of globalization include

greater product variety.

The replacement of foreign manufactured goods by domestically manufactured goods is called _____.

import substitution

Supporters of globalization argue that increased globalization will lead to:

increased living standards.

Globalization

is the growing integration of the national economies of the world to such an extent that a single worldwide economy may be emerging.

A narrowly conceived physical quality-of-life index attempts to measure:

living standards.

Compared to First World countries, developing countries would have _____.

lower education levels

Countries that have a large number of embassies, have memberships to international organizations, and participate in UN peace missions would be categorized under _____ globalization.

political

A product in the first stage of production is defined as a(n):

primary product.

Countries in which one would see a spread of ideas, information, images, and people would be categorized under _____ globalization.

social

A key reason for low foreign direct investment in developing nations is:

the fear of exploitation of domestic resources by foreign owners.

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Gamblers Last Chance Bank of Las Vegas has zero excess reserves. If a new customer deposits $10,000, this bank can now extend new loans up to a maximum of:

​$8,000.

If a bank receiving a new deposit of $200,000 would be able, as a result, to increase their lending by at most $120,000, then the reserve requirement equals:

​40%.

If the reserve requirement for a bank is $200,000 for a deposit of $1 million, then the deposit expansion multiplier is:

​5

Decisions regarding purchases and sales of securities by the Fed are made by:

​Federal Open Market Committee.

​Which of the following increases Money Demand?

​Higher real GDP

If the Fed sells a U.S. government bond to a bank, what is the effect on the money supply?

​It will decrease.

Which of the following is the Fed's most common way to change the money supply?

​Open market operations

Which of the following would constitute contractionary monetary policy by the Fed?

​Open market sales of government securities, an increase in the discount rate, and an increase in reserve requirements

Which of the following is true about the equation of exchange?​

​Velocity represents the average number of times that a dollar is used in purchasing final goods or services in a one-year period.

When is a particular bank in a position to make new loans?

​When required reserves are less than actual reserves.

Which of the following would cause the U.S. money supply to expand?

​a decrease in reserve requirements

Say the reserve requirement is 20 percent. If you pay back a loan of $10,000 a bank had previously made to you, the act of paying back the loan:

​adds $10,000 in bank reserves.

​If the Fed sells bonds, the short run impact of this policy will tend to include:

​an increase in real interest rates.

Fractional reserve banking takes its name from the fact that:

​banks keep only a fraction of total deposits on reserve.

If the Fed was to use all of its three most common tools to increase the money supply, it would:

​buy bonds, reduce the discount rate, and reduce reserve requirements.

​If unemployment is the major problem in the economy, which of the following would be an appropriate monetary policy response?

​decrease the discount rate

A combination of an increase in the discount rate and an open market sale of government securities by the Fed would:

​decrease the money supply.

​Which of the following is not one of the functions of money?

​encouraging people to barter

If you deposit $500 cash into your account at a commercial bank. If it faces a 10 percent reserve requirement, as a result of your deposit, the bank will:

​have $450 of additional excess reserves.

A combination of Fed purchases of government securities and an increase in reserve requirements would:

​have an indeterminate effect on the money supply.

A combination of a decrease in the discount rate and an increase in reserve requirements would:

​have an indeterminate effect on the money supply.

Assume the Fed purchases $5,000 worth of U.S. Treasury bonds from Bill Gates, who promptly deposits the money in Microsoft Rules National Bank. Assuming that the required reserve ratio is 25 percent and banks keep zero excess reserves, then the money supply will ultimately:

​increase by a maximum of $20,000.

Considering open market operations, which of the following observations is incorrect?

​it is potentially the most powerful tool to control the supply of money.

​If M increases faster than V decreases:

​nominal GDP increases.

If the demand for money decreases, but the Fed keeps the money supply the same:​

​nominal interest rates will fall and aggregate demand will rise.

All decisions of the Fed are subject to approval by:

​none of the above

Other things constant, a decrease in credit card balances would ____ M1 and ____ M2.

​not change; not change.

A change in the required reserve ratio changes:

​the amount of excess reserves in the banking system.

If the Fed buys a U.S. government bond from a member of the public,

​the banking system has more reserves and the money supply tends to grow.

​If money supply and money demand both increased:

​the change in nominal interest rates and investment would be indeterminate.

In the equation of exchange, PQ represents:​

​the dollar value of all final goods and services sold in a country in a given year.

If the Fed conducted an open market sale of government bonds and raised the discount rate:

​the money supply would decrease.

Federal funds market rate is:

​the rate charged on loans from one bank to another provided to meet reserve requirement.

If M increases and V decreases:​

​there is an indeterminate effect on nominal GDP.

An increase in the money supply and a decrease in real GDP at the same time is consistent with the equation of exchange if:​

​velocity falls rapidly enough.

​An increase in the money supply:

​will probably result in inflation if the economy is fully employed.