Economics Final Chapters

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

$1 = 4 euros.

The accompanying table gives data for a commercial bank or thrift. In row 4, the number appropriate for space Z is

$10,000.

If a U.S. importer can purchase 10,000 British pounds for $20,000, the rate of exchange is

$2 = 1 British pound in the United States.

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

1 Swiss franc = 14 yen.

The accompanying diagram represents a flexible exchange market for foreign currency. At the equilibrium exchange rate,

1.25 euros will buy $1.

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

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.

Which of the following describes the identity embodied in a balance sheet?

Assets equal liabilities plus net worth.Correct

What is one significant characteristic of fractional reserve banking?

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.

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

China

Refer to the given market-for-money diagrams. The asset demand for money is shown by

D2.

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).

Which of the following is correct?

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

Monetary policy is expected to have its greatest impact on

Ig.

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

"Near monies" are included in

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.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

a medium of exchange.

Money functions as

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.

The purpose of an expansionary monetary policy is to shift the

aggregate demand curve rightward.

Differences in production efficiencies among nations in producing a particular good result from

all of these.

The total demand for money curve will shift to the right as a result of

an increase in nominal GDP.

The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits

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.

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

assets.

Currency in circulation is part of

both M1 and M2.

Which is an example of a nontariff barrier (NTB)?

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.

Which of the following is an example of a capital-intensive commodity?

chemicals

In the United States, the money supply (M1) includes

coins, paper currency, and checkable deposits.

Countries engaged in international trade specialize in production based on

comparative advantage.

Studies show that

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

Excess reserves refer to the

difference between actual reserves and required reserves.

Which of the following is an example of a labor-intensive commodity?

digital cameras

A nation will neither export nor import a specific product when its

domestic price equals the world price.

In order for mutually beneficial trade to occur between two otherwise isolated nations,

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

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, and real GDP and the price level will rise. Correct

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

federal funds rate.

The interest rate that banks charge one another on overnight loans is called the

federal funds rate.

If the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won, then

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.

Critics of the World Trade Organization (WTO) say that liberalized world trade does all of the following except

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

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.

It is costly to hold money because

in doing so, one sacrifices interest income.

A contraction of the money supply

increases the interest rate and decreases aggregate demand.

When a bank loan is repaid, the supply of money

is decreased.

The amount of money reported as M2

is larger than the amount reported as M1.

A fractional reserve banking system

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

A major strength of monetary policy is

its speed and flexibility.

Which of the following is not part of the M2 money supply?

large-denominated time deposits

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of

liabilities.

An increase in the money supply will

lower interest rates and increase the equilibrium GDP.

Tariffs

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

medium of exchange.

Monetary policy is easier to conduct than fiscal policy because

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

The primary gain from international trade is

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 increases

Coins held in commercial bank vaults are

not part of the nation's money supply.

Which of the following is a tool of monetary policy?

open-market operations

Which of the following tools of monetary policy is considered the most important on a day-to-day basis?

open-market operations

The discount rate is the interest

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

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. If the world price for this product is $0.50, this nation will experience a domestic

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

store of value.

The asset demand for money is most closely related to money functioning as a

store of value.

Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $1.60, this nation will experience a domestic

surplus of 160 units, which it will export.

When a commercial bank borrows from a Federal Reserve Bank,

the commercial bank's lending ability is increased.

The four main tools of monetary policy are

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

If the dollar price of yen rises, then

the dollar depreciates relative to the yen.

The difference between M1 and M2 is that

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 managed float.

Which of the following will increase commercial bank reserves?

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

To say that coins are "token money" means that

their face value is greater than their intrinsic value.

The basic objective of monetary policy is

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

Refer to the given market-for-money diagrams. Curve D1 represents the

transactions demand for money.

A $70 price tag on a sweater in a department store window is an example of money functioning as a

unit of account.

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

upsloping; downsloping

The asset demand for money

varies inversely with the rate of interest.

Which of the following is an example of a land-intensive commodity?

wool

n the accompanying diagrams, solid lines are production possibilities curves, and the dashed lines are trading possibilities curves. The trading possibilities curves imply that

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