Macro quiz 3 review
Nick lives in China, returns from Australia with AUD 1,321. He changes them back into Chinese. How much does he get back?
1 AUD = 4.82 Chinese Yuan 1321 AUD * 4.82 Yuan / 1 AUD = 6,367.22 Yuan
In a tariff game by governments:
Both countries will follow protectionist policies unless negotiation between the countries occurs.
Open-market operations: expansionary
Buy gov't bonds
An example of expansionary monetary policy would be:
Buy treasury securities
Grace saves $160 per week for 17 weeks for spending money for her holiday. She exchanges US dollars for Japanese Yen. How many JY does she get? (Exchange rate: 1US $ equals 111.026JYen)
$160 * 17 weeks = 2,720 2,720 USD * 111.026 JY / 1 USD = 301,990.72
Suppose a family's annual disposable income is $12,000 of which it saves $3,000. (a) What is their APC? (b) If income rises to $15,000 and they plan to save $4,200, what are MPS and MPC? (c) Did the family's APC rise or fall with their increase in income?
$9,000 MPS: 0.28 MPC: 0.72 Rise
A given country has 186 million capita of which a labor force of 122 million people, with 93.5 million people employed full time, 16.9 million part-timers, 7.5 discouraged workers and rest are seniors or under age. What is this country's unemployment rate?
(122 - 93.5 - 16.9 - 7.5) / 122 * 100% = 4.1 / 122 * 100% = 3.36%
Suppose that a consumer has a marginal propensity to consume of .77. If this consumer earns an extra $3680, her MPS would be expected to increase by:
.77 * 3680 = $2,833.60 3680 - 2833.60 = $846.40 1 - 0.77 = 0.23 = 23%
Brian lives in London, wanted to buy a BMW converter that costs £39,290 in the UK. The same car costs €43998 Euros in Germany. Where is the car cheapest? How much Cheaper is it? What advice you give Brian? Exchange rate: (GBP £1 = €1.12275 Euros)
39,290 pound * 1.12275 Euro / 1 pound = 44,112.8475 Euros 44,112.8475 Euros when converted from pounds is greater than 43,998 Euros. It is cheaper to buy the car in Germany than in the UK, so it makes more sense to buy the cheaper car.
If the nominal interest rate on a checking account is 2% and the inflation rate is 4% this year, the real interest rate is:
4% - 2% = 2%
Assume that production in the United States is valued at $400,000. Of their income, workers save $10,000, pay $20,000 in taxes, spend $360,000 on consumer goods, and spend $20,000 on imports. Businesses spend $20,000 in new investment spending. And, foreigners spend $10,000 on exports. To avoid any problems of inflation or unemployment, the government should have a budget deficit or surplus of:
400,000 = 10,000 + 20,000 + 360,000+ 20,000 + (10,000 - 20,000) 400,000 = 400,000 Balanced budget
Suppose the exchange rate is currently $1 = 6 Norwegian kroner. If a Big Mac costs $2.50 in the U.S. and there is purchasing power parity, the price of a Big Mac in Oslo is:
6 kroner / 1 USD * 2.5 USD = 15 kroner
Equilibrium in the money market will change if there is:
A change in the real money supply, a change in real income, and a change in competition in the banking industry
Purchasing Power Parity is:
A way of measuring economic variables in different countries so that irrelevant exchange rate variations do not distort comparisons
When one producer can create a given amount of output with fewer inputs, what exists?
Absolute advantage
Gov't debt is defined as:
Accumulated deficits minus accumulated surpluses
What is the correct order of the steps in the scientific method:
Ask questions, make a hypothesis, test the hypothesis, analyze results, draw conclusions, communicate results
Which of the following explanations of business cycles have been forwarded by economists?
Changes in productivity, changes in the money supply, changes in the level of total spending
Monetary policy is:
Changes in the money supply intended to maintain stable prices, full employment, & economic growth
When one producer has a lower opportunity cost of production than another producer for a given item, what exists?
Comparative advantage
When the U.S. places an import quota on imported sugar, we expect which of the following effects?
Consumers seek substitutes for sugar and products that use sugar
The money supply is:
Currency in circulation plus bank deposits
The monetary base is:
Currency in circulation, banks' cash reserves
In the simple circular flow model:
Households are suppliers of resources, businesses are suppliers of final product, households are demanders of products
Budget deficits automatically ___ during expansions and ___ during recessions.
Decrease, increase
Which of the following is an example of a globalized product?
Different formulations of Hills Bros Coffee in France, the UK and Canada, American clothing, movies, and music, and Colgate-Palmolive's hand-powered washing machine for LDCs
Each federal reserve bank
Distributes coin and currency, operates a nation-wide payments system, supervises and regulates banks in its district
Which of the following is not necessary to calculate the real exchange rate?
Domestic interest rate
When you decide whether the data supports the original hypothesis, you are:
Drawing conclusions
A company of the US has excess products that it does not want to sell into the US market because it will bring down the domestic price and instead sells it at another country at below the cost of production. What is this called?
Dumping
If the economy is in a recessionary gap, ___ policy can move the economy to the Natural Real GDP level.
Expansionary monetary policy
When interest rate rise, other things equal, we can expect the quantity of real money holdings to:
Fall
When the demand curve shifts downward shift, equilibrium price ___ and equilibrium quantity ___
Falls, falls
An increase in the price level will likely increase the demand for nominal money (T/F)
False
The money supply is controlled by using open market operations to determine the money multiplier and by using reserve requirements and the discount rate to determine the monetary base (T/F)
False
The size of the money multiplier is determined by the marginal propensity to consume (T/F)
False
Farmer John has a pistachio farm. It takes him 5 hours-worth of work to harvest 1 pound of nuts. Farmer Rick also has a pistachio farm. It takes him 10 hours-worth of work to harvest 1 pound of nuts. Finally, Farmer Erica owns a third pistachio farm. She can harvest 1 pound of nuts in 2 hours. Who has the absolute advantage in this example?
Farmer Erica
Nicole is an American tourist visits U.K. She heard at Heathrow A/P the U.S. dollar appreciates, it means that:
Fewer U.S. dollars are required to purchase 100 Sterling Pounds
Trade diversion occurs when:
Higher cost suppliers replace lower cost external suppliers within the free trade area.
A fall in investment demand can result from
Higher interest rates, lower expected future profits, more expensive capital goods
Which of the following is a consequence of a protective tariff set by current the U.S. government on imported steel?
Income is transferred from steel consumers to steel producers
Higher interest rates in the United States will attract foreign investors. This will cause ___ in the exchange rate between the dollar and other currencies, and ___ in net exports.
Increase, decrease
A reduction in interest rates, causes an increase in the monetary base that results in an ___ in the availability of consumer credit and a ___ in the cost of consumer credit
Increase, reduction
Central banks prefer to fix the ___ and accept the resulting ___
Interest rate, equilibrium money supply
What effect would an increase in the discount rate have on the money supply?
It would cause the money supply to contract
If banks and the private sector decide to hold less cash the money multiplier will be:
Larger
Banks create money by:
Lending out part of their deposits
Discount rate: expansionary
Lower the discount rate
Mechanic A can change a tire in 1 hour and change a sparkplug in 2 hours. Mechanic B can change a tire in 0.5 hours and change a sparkplug in 0.25 hours. Who has the comparative advantage in changing sparkplugs?
Mechanic B
Which of the following is not a factor or "wheel" of economic growth?
Money
When real income increases, other things equal, we can expect the demand for real money holdings to:
Not change
If the central bank buys financial securities in the open market to increase the monetary base, this is an example of:
Open market operations
If I keep some money available in case I see a bargain, this is an example of:
Precautionary demand for money
Three variables affect the demand for money:
Price level, interest rates, real income
There are three producers. Producer A spends $10 to make a widget. Producer B spends $50 to make a widget. Producer C spends $4. Who has the absolute advantage?
Producer C
Which of the following would be included in the income approach to measure GDP?
Profit, wages, rent
What is it called when the government places limits on the number of a given good that can be imported?
Quotas
What is the equation for the real exchange rate?
Real exchange rate = (nominal exchange rate X domestic price) / (foreign price)
How could the Federal Reserve encourage banks to lend out more of their reserves?
Reduce the discount rate
One of the transmission mechanisms of monetary policy is through customer demand. When interest rates ___, household wealth ___ and consumption ___
Rises, falls, falls
When there is an upward shift in demand, equilibrium price ___ and equilibrium quantity ___
Rises, rises
An increase in consumer income, other things being equal will:
Shift the demand curve for an inferior good to the left
If At & t fires some of its operators and replaces them with computer technology, the operators would be considered:
Structurally unemployed
What mechanisms have national governments used to protect their economies and industries from foreign competition?
Tariffs and import quotas
If a Japanese firm sold $10 billion of machinery in US and the US dollar declined against the Japanese currency:
The Japanese firm will report less revenue (in terms of Yen) than if the US dollar had remained stable.
Crowding-out refers to:
The decline in private expenditures that result from an increase in government purchases.
If the demand curve for British pounds shifts to the right:
The dollar price of British pound will increase
Which of the following theories holds that countries will produce and export products that use large amounts of production factors that they have in abundance?
The factor endowment theory
The route by which changes in the supply of money are translated into changes in output, employment, prices, and inflation is called:
The money-supply multiplier
Which statement of the following is positive economics?
The rising prices of crude oil in world markets lead to an increase in cycling to work
Interest groups have a disproportionate amount of influence on trade policy decisions because:
The small number of individuals represented by the interest group stands to gain greatly, while each of the millions of consumers would be scarcely affected and so do not vote. (this happens because of money and politics)
Why does the Federal Reserve alter monetary policy?
To lessen the effect of natural business cycles
A floating exchange rate allows rates to freely float and change per supply and demand. In addition, stable exchange rates are a sign of a struggling economy or an economy in crisis (T/F)
True
The Principle of Comparative Advantage implies that:
Two countries can benefit from specialization even if a country is better at producing one good compared to another in absolute terms.
Which of the following is a situation in which trade is advantageous?
Two countries produce different goods for different costs
Points inside a production possibilities frontier represent:
Unemployment of resources
M4 is a ___ measure of money and includes deposits at both ___ and ___
Wide, banks, building societies
