Exam 3 - Macroeconomics
1st shirt costs - $7 2nd shirt costs - $10 3rd shirt costs - $15 4th shirt costs - $20 What is the producer surplus if the market price is $18 a shirt
18 - 7 = 11 18 - 10 = 8 18 - 15 = 3 11+8+3 = $22 producer surplus
If the nominal exhcnage rate between teh American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars.
2.5/0.89 = $2.81
Market price of a cone is $2.50 what is the consumer surplus if a cone costs $3
3 - 2.5 = $.50
If the market price is $2.50 and cone 1 is priced at $3.50 what is the consumer surplus of cone 1?
3.50 - 2.50 = $1
Producer surplus is the difference between the highest price someone is willing to pay and the price he actually pays.
False. (This is consumer surplus)
The Federal Reserve can directly affect its monetary policy _____, which then affect its monetary policy_____.
Targets; goals
Fiscal Policy
Taxes and Purchases
Fiscal policy is defined as changes in federal ____ and ____ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment.
Taxes; expenditures.
The interest rate that banks charge other banks for overnight loans is the
federal funds rate
EUR/USD has gone from 1.0668 on January 1st to 1.0959 today. This means that the US dollar has ______ against the euro year-to-date
depreciated
USD/MXN has gone from 19.4662 on January 1st to 18.0536 today. This means that the US dollar has _____ against the Mexican peso year-to-date.
depreciated
Loans issued by the Federal Reserve to member commercial banks are called
discount loans.
In a recessionary period, the fiscal policy prescription is
expansionary policy
Countercyclical fiscal policy refers to
expansionary policy during recession, contractionary policy during expansion.
"A system in which the medium of exchange is intrinsically useless, but its value is guaranteed by some institution, and therefore accepted as a means of payment" is called
fiat money
Automatic stabilizers refer to
government spending and taxes that automatically increase or decrease along with the business cycle.
National saving equals
income - consumption - government spending.
An increase in real GDP
increases the buying and selling of goods and increases the demand for money as a medium of exchange.
A decrease in the discount rate ____ bank reserves and _____ the money supply if banks respond appropriately to the change in the rate.
increases; increases
The largest source of tax revenue in the united states comes from
individual income taxes
The largest source of federal government revenue in 2012 was
individual income taxes.
Because minimum wage is a price floor.
it will create a deadweight loss.
The additional cost to a firm of producing one more unit of a good or service is the
marginal cost
Using money to buy goods and services is an example of its use as a
medium of exchange
The quantity equation states that the
money supply times the velocity of money equals the price level times real output.
An appreciating yen makes japanese products
more expensive in foreign markets.
In order to be binding, a price floor must.
must lie above the free-market equilibrium price.
Net foreign investment is equal to
net foreign portfolio investment plus net foreign direct investment.
Deadweight loss refers to
the reduction in economic surplus resulting from not being in competitive equilibrium.
If national saving increases, __________ (Assume that the capital account is zero and net transfers are zero.)
the sum of domestic investment and foreign investment must increase.
When American increase their demand for Japanese goods,
the supply of dollars will rise, and the demand for yen will rise.
What is an example of discretionary fiscal policy?
the tax cuts passed by congress to combat recession.
The quantity theory of money assumes that
the velocity of money is constant.
The largest and fastest-growing category of federal government expenditures is
transfer payments.
Depreciation of the euro is represented as movement form
up and to the left.
Commodity money is a good
used as money that also has value independent of its use as money.
A decrease in real GDP can
Shift money demand to the left and decrease the interest rate.
If Curly is willing to pay $50 dollars, Moe is willing to pay $30 and Larry is willing to pay $15 what is the consumer surplus if the product costs $95?
$0 - no one is buying
If a cone costs $2.50 what is the marginal benefit of buying this cone
$2.50
How many Regional Federal Reserve banks are in the Federal Reserve system?
12
Depreciation of the Euro is represented as movement in
A decrease of supply and movement in supply resulting in a higher exchange rate.
_________ dictates the lowest wage that firms may pay for labor.
A minimum wage law.
Which of the following would increase the current account balance of the United States?
An increase in the balance of trade.
Which of the following would cause the dollar to appreciate?
An increase in the demand for dollars.
How does an increase in a country's exchange rate affect its balance of trade?
An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade.
The Increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and decrease in government spending on unemployment insurance payments to workers during an expansion is an example of
Automatic stabilizers
If net exports are equal to net foreign investment,
Balance of Payment is zero net cap inflow are equal to imports minus exports current account balance is equal to the negative of the financial account balance
When depositors lose confidence in a bank and try to withdraw all their deposits, we call it a
Bank run
What is not a consequence of the fed changing the reserve requirement?
Changes in the ratio are easily incorporated into banks' routine management.
To increase the money supply the Federal Reserve could
Conduct an open market purchase of Treasury securities.
The difference between the highest price a consumer is willing to pay for a good/ service and the actual price is called the...
Consumer surplus.
The increase in interest rates and the resulting decline in consumption and investment after an increase in government purchases is called.
Crowding out.
The sale of Treasury securities by the Federal Reserve will, in general,
Decrease the quantity of reserves held by banks.
A fractional reserve banking system is one in which banks hold less than 100% of ______ in reserve.
Deposits
Loans issued by the Federal Reserve to member commercial banks are called
Discount loans
What is a consequence of minimum wage laws?
Employers will be reluctant to offer low-skilled workers jobs with training.
When interest rates rise in England
Exchange rate decrease as a result of demand decreasing and supply increasing.
Current Account Balance
Exports - Imports + Net income + Net Transfers
What is a reason why we should consider the federal national debt a problem?
If the debt drives up interest rates, crowding out will occur.
Which of the following describes the difference between "Scarcity" and "Shortage'?
In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price.
The level of saving in Japan has historically been high relative to the level of domestic investment. Based on this information, we would expect that
Japan's net exports have been relatively high.
Quantity equation states
M x V = P x Y
The Quantity equation states that
M x V = P x Y
In a competitive market equilibrium, the ______ equals the ______ of the last unit sold.
Marginal benefit; Marginal cost.
In a competitive market equilibrium the _____ equals the _____ of the last unit sold.
Marginal benefit; marginal cost.
The additional cost to a firm of production one more unit of a good or service is the
Marginal cost
Monetary Policy
Money Supply and Interest Rates
Which of the following is not a consequence of hyperinflation?
Money's function as a medium of exchange is enhanced.
In order to be binding, a price floor must.
Must lie above the free-market equilibrium price.
Three main monetary policy tools used by the Federal Reserve to manage the money supply are.
Open market operations, discount policy, and reserve requirements.
Members of the Board of Governors serve a single, 14-year term to avoid.
Political Pressure
The tax wedge is the difference between the
Pre tax and Posttax returns to an economic activity.
The difference between the lowest price a producer is willing to accept for a good/service and the actual price.
Producer Surplus
What is an example of fiscal policy
The federal government cuts taxes to stimulate the economy
What is an example of a government expenditure, but is not a government purchase?
The federal government pays out an unemployment insurance claim.
Open market operations refer to the buying and selling of _____ by the _____ to control the money supply.
Treasury securities; Federal Reserve.
A decrease in the marginal income tax rate is a fiscal policy which will increase aggregate demand. T/F
True
For the purchasing power of money to increase the price level has to fall. T/F
True
The level of crowding out associated with a tax cut will be smaller if the tax change has a supply-side effect than it will be if it only has a demand-side effect. T/F
True
Open market operations refer to the purchase or sale of ______ to control the money supply.
U.S. treasury securities by the Federal Reserve.
An increase in United States net foreign direct investment would occur if
United States citizens have increased their building or purchasing of facilities in foreign countries.
Open market operations refer to the purchase or sale of _____ to control the money supply.
Us treasury securities by the Federal Reserve.
The maximum price that a buyer is willing to pay for a good measures his
Willingness to pay.
Hyperinflation is caused by
a high rate of growht in the money supply.
If the government implements a price ceiling on insulin, this will have all of the following effect on the market for insulin except
a more efficient equilibrium.
What is not included in the balance of the financial account of the united states?
a purchase of german legal services by chase manhattan bank.
The statement, "My iPhone is worth $300" represents money's function as
a unit of account.
A central bank can help stop a bank panic by
acting as a lender of last resort.
A central bank can help stop bank panic by
acting as a lender of last resort.
What can increase the balance on the current account?
an increase in the balance of trade.
Which of the following would increase the balance on the current account?
an increase in the balance of trade.
An economy that has interactions in trade or finance with other economies is referred to as
an open economy
The cyclically adjusted budget deficit or surplus measures what the deficit or surplus would be if the economy was
at potential GDP
Unemployment insurance is an example of what type of fiscal policy?
automatic stabilizers.
When the money supply shifts to the right at a lower interest rate households and firms will
buy Treasury bills.
To decrease the money supply, the Federal Reserve could
conduct an open market sale of Treasure securities.
To decrease the money supply, the Federal Reserve could
conduct an open market sale of treasury securities.
double taxation refers to
corporations paying taxes on profits and individuals paying taxes on dividends.
If California increase their purchase of Italian wine, assuming all else remains constant, this will ____ of the United States.
decrease the balance of trade.
An increase in capital outflows from the united states will
decrease the balance on the financial account.
An increase in the Money supply will
decrease the interest rate.
Reducing the marginal tax rate on income will
reduce the tax wedge face by workers and increase labor supplied.
What functions of money would be violated if inflation were high?
store of value.
The money supply curve is vertical if
the Fed is able to completely determine the money supply.
The velocity of money is defined as
the average number of times each dollar is used to purchase goods and services.
When a foreign investor buys a bond issues in the United States,
the balance on the financial account increases.
The balance of trade is defined as
the difference between the value of the goods a country exports and the value of the goods a country imports.
If the exchange rate changes from $2.00 = £1 to $2.01 = £1 then
the dollar has depreciated.
The sum of the consumer surplus and producer surplus is equal to
the economic surplus
The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals
the growth rate of real GDP
The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth ate of the money supply equals
the growth rate of real GDP.
