ECON3

The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude that 1 euro = $0.50. $1 = 0.5 euro. $1 = 4 euros. 1 euro = $2.

$1 = 4 euros.

If the reserve requirement is 20%, the checkable deposits are $300,000, and the actual reserves are $70,000, then the excess reserves are ___

$10,000

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is $1 = 2 British pounds in the United States. $0.50 = 1 British pound in Great Britain. $1 = 2 British pounds in Great Britain. $2 = 1 British pound in the United States

$2 = 1 British pound in the United States

Monetary policy is expected to have its greatest impact on G. Xn .Ig. C.

.Ig.

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $0.10. We can conclude that 1 Swiss franc = 28 yen. 1 Swiss franc = 14 yen. 1 yen = 14 Swiss francs. 1 yen = 280 Swiss francs.

1 Swiss franc = 14 yen.

$price of euro is $0.80 At the equilibrium exchange rate, 1.25 euros will buy $1. $8 will buy 1 euro. 0.8 euros will buy $1. $1 will buy 8 euros.

1.25 euros will buy $1.

Which of the following best describes the cause-effect chain of a restrictive monetary policy? An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP

A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then Americans will buy more Mexican goods and services. the peso has appreciated in value. the dollar has depreciated in value. more U.S. goods and services will be demanded by the Mexicans.

Americans will buy more Mexican goods and services.

Which of the following describes the identity embodied in a balance sheet? Net worth plus assets equal liabilities. Assets plus reserves equal net worth. Assets plus liabilities equal net worth. Assets equal liabilities plus net worth

Assets equal liabilities plus net worth

What is one significant characteristic of fractional reserve banking? Banks hold a fraction of their loans in reserve. Banks use deposit insurance for loans to customers. Banks can create money through lending their reserves. Bank loans will be equal to the amount of gold on deposit.

Banks can create money through lending their reserves.

The central authority of the U.S. banking system is the Board of Governors of the Federal Reserve. Council of Economic Advisers. Federal Open Market Committee (FOMC). Federal Monetary Authority.

Board of Governors of the Federal Reserve

With which of the following countries does the United States have its largest goods and services deficit? Japan Canada Germany China

China

The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the Federal Open Market Committee (FOMC). Federal Bond Sale Authority. Federal Deposit Insurance Corporation (FDIC). Council of Economic Advisers

Federal Open Market Committee (FOMC).

Which of the following is correct? Granting and repaying bank loans do not affect the money supply. Granting a bank loan destroys money; repaying a bank loan creates money. Granting a bank loan creates money; repaying a bank loan destroys money. Both the granting and repaying of bank loans expand the aggregate money supply.

Granting a bank loan creates money; repaying a bank loan destroys money.

A contraction of the money sup lowers both the interest rate and aggregate demand. increases both the interest rate and aggregate demand. lowers the interest rate and increases aggregate demand. increases the interest rate and decreases aggregate demand

Increases the interest rate and decreases aggregate demand

Assuming no other changes, if balances in money market deposit accounts increase by $50 billion and small-denominated time deposits decrease by $50 billion, the M1 money supply will decline. M1 and M2 money supplies will not change. M2 money supply will increase and the M1 money supply will decrease. M2 money supply will increase.

M1 and M2 money supplies will not change.

Assuming no other changes, if checkable deposits decrease by $40 billion and balances in money market mutual funds increase by $40 billion, the M1 and M2 money supplies will both decline. M1 money supply will decline and the M2 money supply will remain unchanged. M1 and M2 money supplies will not change. M1 money supply will increase and the M2 money supply will remain unchanged.

M1 money supply will decline and the M2 money supply will remain unchanged.

"Near monies" are included in M2 only. M1 only. neither M1 nor M2. both M1 and M2.

M2 only.

"NAFTA" stands for

North American Free Trade Agreement

Which of the following statements best describes the 12 Federal Reserve Banks? They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare. They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners. They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry. They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.

They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as a unit of account. an economic investment. a medium of exchange. a store of value.

a medium of exchange.

Money Functions as a unit of account. a medium of exchange. a store of value. a store of value, a unit of account, and a medium of exchange.

a store of value, a unit of account, and a medium of exchange.

If you are estimating your total expenses for school next semester, you are using money primarily as a unit of account. a store of value. a medium of exchange. an economic investment.

a unit of account.

The purpose of an expansionary monetary policy is to shift the aggregate demand curve leftward. aggregate demand curve rightward. investment demand curve leftward. aggregate supply curve leftward.

aggregate demand curve rightward.

Differences in production efficiencies among nations in producing a particular good result from different endowments of fertile soil. different amounts of skilled labor. different levels of technological knowledge. all of these.

all of these.

The total demand for money curve will shift to the right as a result of an increase in nominal GDP. a decline in the interest rate. an increase in the interest rate. a decline in nominal GDP.

an increase in nominal GDP.

The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits of commercial banks are unchanged, but their reserves decrease. and reserves of commercial banks both decrease. and reserves of commercial banks are both unchanged. of commercial banks are unchanged, but their reserves increase.

and reserves of commercial banks both decrease.

Near Monies are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1. are defined as monetary balances that are immediately available, at zero cost, for household and business transactions. include all financial and real assets that can be easily converted into currency. are excluded from M2 because they are highly liquid.

are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.

A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of liabilities. net worth. capital stock. assets.

assets.

Currency in circulation is part of M1 only. M2 only. both M1 and M2. neither M1 nor M2.

both M1 and M2.

Which is an example of a nontariff barrier (NTB)? an excise tax on the dollar value of imported goods an excise tax on the physical volume of imported goods an export subsidy box-by-box inspection requirements for imported fruit

box-by-box inspection requirements for imported fruit

The money supply is backed by the government's ability to control the supply of money and therefore to keep its value relatively stable. by gold reserves representing a fraction of the total value of dollars in circulation. by government bonds. dollar-for-dollar by gold and silver.

by the government's ability to control the supply of money and therefore to keep its value relatively stable.

Which of the following is an example of a capital-intensive commodity? sunflower seeds wool clothing chemicals

chemicals

In the United States, the money supply (M1) includes currency, checkable deposits, and Series E bonds. paper currency, coins, gold certificates, and time deposits. coins, paper currency, checkable deposits, and credit balances with brokers. coins, paper currency, and checkable deposits

coins, paper currency, and checkable deposits

Countries engaged in international trade specialize in production based on comparative advantage. relative inflation rates. relative levels of GDP. relative exchange rates.

comparative advantage.

Studies show that it is impossible to estimate the benefits of trade barriers. costs and benefits of trade barriers are about equal. benefits of trade barriers exceed their costs in developing nations. costs of trade barriers exceed their benefits, creating an efficiency loss for society

costs of trade barriers exceed their benefits, creating an efficiency loss for society

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending. decrease; increase increase; increase increase; decrease decrease; decrease

decrease; increase

Excess reserves refer to the difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. difference between actual reserves and required reserves. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. difference between actual reserves and loans.

difference between actual reserves and required reserves.

Which of the following is an example of a labor-intensive commodity? digital cameras gasoline aspirin tablets beer

digital cameras

A nation will neither export nor import a specific product when its export supply curve lies above its import demand curve. export supply curve is upsloping. import demand curve is downsloping. domestic price equals the world price.

domestic price equals the world price.

shape os asset demand curve

downward sloping

In order for mutually beneficial trade to occur between two otherwise isolated nations, each nation must be able to produce at least one good absolutely cheaper than the other. one nation's production must be labor-intensive, while the other nation's production is capital-intensive. each nation must be able to produce at least one good relatively cheaper than the other. each nation must face constant costs in the production of the good it exports.

each nation must be able to produce at least one good relatively cheaper than the other.

Suppose the domestic price (no-international-trade price) of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation costs, the United States will neither export nor import wheat. have a domestic shortage of wheat. import wheat. export wheat.

export wheat.

If there is an increase in the nation's money supply, the interest rate will fall, investment spending will rise, aggregate demand will shift right, real GDP will rise, and the price level will fall. fall, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise. rise, investment spending will fall, aggregate demand will shift right, real GDP will fall, and the price level will rise. rise, investment spending will fall, aggregate demand will shift right, real GDP will rise, and the price level will fall.

fall, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise.

The interest rate that banks charge one another on overnight loans is called the prime lending rate. overnight lending rate. federal funds rate discount rate.

federal funds rate

Overnight loans from one bank to another for reserve purposes entail an interest rate called the discount rate. prime rate. federal funds rate. treasury bill rate.

federal funds rate.

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

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

A market in which the money of one nation is exchanged for the money of another nation is a foreign exchange market. resource market. stock market. bond market.

foreign exchange market.

Critics of the World Trade Organization (WTO) say that liberalized world trade does all of the following except produce environmental degradation. allow producers to circumvent labor protections such as workplace safety, child labor restrictions, and collective bargaining rights. promote the interests of multinational corporations. help developing nations escape from poverty

help developing nations escape from poverty

Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will have a domestic surplus of copper. import copper. export copper. neither export nor import copper.

import copper.

Country A limits other nation's exports to Country A to 1,000 tons of coal annually. This is an example of a(n) import quota. export subsidy. protective tariff. voluntary export restriction.

import quota

It is costly to hold money because the rate at which money is spent may decline. deflation may reduce its purchasing power. in doing so, one sacrifices interest income. bond prices are highly variable.

in doing so, one sacrifices interest income.

When a bank loan is repaid, the supply of money may either increase or decrease. is increased. is constant, but its composition will have changed. is decreased.

is decreased.

The amount of money reported as M2 includes large ($100,000 or more) certificates of deposit. is larger than the amount reported as M1. is smaller than the amount reported as M1. excludes coins and currency.

is larger than the amount reported as M1.

A fractional reserve banking system only tends to exist in developing economies. is susceptible to bank "panics" or "runs." prevents the Federal Reserve from influencing the money supply. prevents money creation through the lending process.

is susceptible to bank "panics" or "runs."

A major strength of monetary policy is the rule that it uses to manage the economy. the relatively short appointments of members of the Fed's Board of Governors. its long-term consequences. its speed and flexibility

its speed and flexibility

Which of the following is not part of the M2 money supply? money market mutual fund balances money market deposit accounts large-denominated time deposits currency

large-denominated time deposits

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of capital stock. net worth. assets. liabilities.

liabilities.

An increase in the money supply will increase interest rates and increase the equilibrium GDP .lower interest rates and lower the equilibrium GDP. lower interest rates and increase the equilibrium GDP. increase interest rates and lower the equilibrium GDP.

lower interest rates and increase the equilibrium GDP.

Tariffs are per-unit subsidies designed to promote exports. are also called import quotas. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs). are excise taxes on goods exported abroad.

may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).

The transactions demand for money is most closely related to money functioning as a store of value. measure of value. unit of account. medium of exchange

medium of exchange

Monetary policy is easier to conduct than fiscal policy because the economy responds better to monetary policy than to fiscal policy. monetary policy has a much shorter administrative lag than fiscal policy. monetary policy is easier to understand. the Fed has more control of the economy.

monetary policy has a much shorter administrative lag than fiscal policy.

The primary gain from international trade is increased employment in the domestic import sector. tariff revenue. increased employment in the domestic export sector. more goods than would be attainable through domestic production alone

more goods than would be attainable through domestic production alone

In which of the following situations is it certain that the quantity of money demanded by the public will decrease? nominal GDP decreases and the interest rate decreases nominal GDP decreases and the interest rate increases nominal GDP increases and the interest rate decreases nominal GDP increases and the interest rate increases

nominal GDP decreases and the interest rate increases

Coins held in commercial bank vaults are included in M1 but not in M2. included in M2 but not in M1. not part of the nation's money supply. included both in M1 and in M2.

not part of the nation's money supply.

Which of the following is a tool of monetary policy? changes in banking laws changes in tax rates open-market operations changes in government spending

open-market operations

Which of the following tools of monetary policy is considered the most important on a day-to-day basis? paying interest on excess reserves open-market operations the reserve ratio the discount rate

open-market operations

The discount rate is the interest rate at which the central banks lend to the U.S. Treasury. rate at which the Federal Reserve Banks lend to commercial banks. yield on long-term government bonds. rate at which commercial banks lend to the public.

rate at which the Federal Reserve Banks lend to commercial banks.

If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to buy government securities, raise reserve requirements, raise the discount rate, and reduce the amount of interest paid on reserves held at the Fed banks. sell government securities, raise reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks. sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks. sell government securities, lower reserve requirements, lower the discount rate, and increase the interest paid on reserves held at the Fed banks.

sell government securities, raise reserve requirements, raise the discount rate, and increase the interest paid on reserves held at the Fed banks.

Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation (domestic price is $1). If the world price for this product is $0.50, this nation will experience a domestic surplus of 160 units, which will reduce the world price to $1.00. shortage of 160 units, which will increase the domestic price to $1.60. shortage of 160 units, which it will meet with 160 units of imports. surplus of 160 units, which it will export

shortage of 160 units, which it will meet with 160 units of imports.

If you place a part of your summer earnings in a savings account, you are using money primarily as a standard of value. store of value. medium of exchange. unit of account.

store of value.

The asset demand for money is most closely related to money functioning as a medium of exchange. measure of value. unit of account. store of value.

store of value.

Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation (domestic price of $1). If the world price for this product is $1.60, this nation will experience a domestic shortage of 160 units, which it will meet with 160 units of imports. shortage of 160 units, which will increase the domestic price to $1.60. surplus of 160 units, which it will export. surplus of 160 units, which will reduce the world price to $1.00

surplus of 160 units, which it will export.

When a commercial bank borrows from a Federal Reserve Bank, the commercial bank's reserves are reduced. it indicates that the commercial bank is unsound financially. the commercial bank's lending ability is increased. the supply of money automatically increases.

the commercial bank's lending ability is increased.

The four main tools of monetary policy are changes in government expenditures, the reserve ratio, the federal funds rate, and the discount rate. tax-rate changes, changes in government expenditures, open-market operations, and interest on excess reserves. the discount rate, the reserve ratio, interest on excess reserves, and open-market operations. tax-rate changes, the discount rate, open-market operations, and the federal funds rate

the discount rate, the reserve ratio, interest on excess reserves, and open-market operations.

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

the dollar depreciates relative to the yen

The difference between M1 and M2 is that the former includes time deposits. the latter includes cash held by commercial banks and the U.S. Treasury. the latter includes negotiable government bonds. the latter includes small-denominated time deposits, savings accounts, money market deposit accounts, and money market mutual fund balances.

the latter includes small-denominated time deposits, savings accounts, money market deposit accounts, and money market mutual fund balances.

The exchange rate system currently used by the industrially advanced nations is the gold standard. the Bretton Woods system. the managed float. a fixed rate system.

the managed float.

Which of the following will increase commercial bank reserves? an increase in the discount rate the sale of government bonds in the open market by the Federal Reserve Banks a decrease in the reserve ratio the purchase of government bonds in the open market by the Federal Reserve Banks

the purchase of government bonds in the open market by the Federal Reserve Banks

To say that coins are "token money" means that they are not legal tender. their face value is less than their intrinsic value. their face value is equal to their intrinsic value. their face value is greater than their intrinsic value.

their face value is greater than their intrinsic value.

The basic objective of monetary policy is to increase employment and stabilize exchange rates. to assist the economy in achieving a full-employment, noninflationary level of total output. to eliminate inflation and lower interest rates. to maintain steady exchange rates and lower inflation

to assist the economy in achieving a full-employment, noninflationary level of total output

d1 is vertical. It represents transactions demand for money. total demand for money. asset demand for money. stock of money.

transactions demand for money.

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

unit of account.

Export supply curves are __________________; import demand curves are ___________________.

upsloping; downsloping

The asset demand for money is unrelated to both the interest rate and the level of GDP. varies directly with the level of nominal GDP. varies inversely with the rate of interest. varies inversely with the level of real GDP.

varies inversely with the rate of interest.

Which of the following is an example of a land-intensive commodity? chemicals watches wool autos

wool

In the accompanying diagrams, solid lines are production possibilities curves, and the dashed lines are trading possibilities curves. The trading possibilities curves imply that both nations will be worse off as a result of international specialization and trade. both countries have a trade surplus that will result in economic growth. the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources. world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage.

world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage.