Ch 15-18 Midterm

Which of the following is the percentage of annual US government spending allocated to foreign aid? 21% 10% 1% 17%

1%

If GDP is 3600 and the money supply is 300, what is the velocity? 18 8 4.57 12

12

A government annually collects $320 billion in tax revenue and allocates $42 billion to education spending. What percentage of this government's budget is spent on education? 24.50% 12.31% 30.13% 13.12%

13.12%

A government collects $600 billion annually in tax revenue. Each year it allocates $35 billion to healthcare and $50 billion for education. What percentage of annual tax revenue is allocated to these two categories of government spending? 21.37% 14.16% 17.51% 26.41%

14.16%

In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012? 2010: .12 U.S. dollars; 2012: .15 U.S. dollars 2010: 1.2 U.S. dollars; 2012: 1.5 U.S. dollars 2010: .82 U.S. dollars; 2012: .66 U.S. dollars 2010: .15 U.S. dollars; 2012: .11 U.S. dollars

2010: .12 U.S. dollars; 2012: .15 U.S. dollars

A government annually collects $230 billion in tax revenue and allocates $70 billion to military spending. What percentage of this government's budget is spent on its military? 27.50% 36.63% 30.43% 41.90%

30.43%

A government began 2013 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause: the exchange rate and the trade deficit to increase. the exchange rate and the trade deficit to decrease. the exchange rate to decrease and the trade deficit to increase. the exchange rate to increase and the trade deficit to decrease.

A

If a country's economic data shows that private savings equal $250 million, government spending equals $400 million, taxes equal $350, and the trade surplus equals $150 million, then what does investment equal? $50 million $75 million $450 million $350 million

A

What do the economies of Greece, Ireland and Germany all share?

A common currency

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

A self fulfilling prophecy

28. Ricardian equivalence means that: A. changes in private savings offset any changes in the government deficit. B. changes in exports offset any changes in the government deficit. C. changes in imports offset any changes in the government deficit. D. changes in investment offset any changes in the government deficit.

A. changes in private savings offset any changes in the government deficit

7. The U.S. economy has two main sources for financial capital; __________________ and ____________________________. A. private savings from U.S. households and firms; inflows of foreign financial investment. B. private sector investment; government borrowing C. private savings from U.S. households and firms; government borrowing D. private sector investment; inflows of foreign financial investment from abroad

A. private savings from U.S. households and firms; inflows of foreign financial investment.

Which of the following is considered to be a relatively weak tool of monetary policy?

Altering the discount rate

A decrease in the government's budget surplus will cause the interest rate to: decrease. increase. either increase or decrease. remain the same.

B

Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely? reduced government borrowing to avoid crowding out private investment difficulty managing public investment so it's done in a cost effective way government budgets will exactly shadow the rate of private investment tax budgets increase without a corresponding drop in private investment

B

If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as: (M - X) - S = (G + T) - I S + (M - X) = I + (G - T) S + (G - T) = I - (X - M) S = (X - M) - (G - T)

B

Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget surplus increases by 100, then: private savings will increase by 100. private savings will decrease by 100. investment will increase by 100. investment will decrease by 100.

B

When a government records a budget surplus, the national savings and investment identity is written as: S = I + (G - T) + (X - M) S + (M - X) + (T - G) = I S - (G - T) = I - (X - M) S + (T - G) = 1 + (X - M)

B

2. If a country's economic data shows private savings of $500 million, government spending of $300 million, tax revenue of $400 million, and a trade surplus of $100 million, then what does investment equal? A. $600 million B. $500 million C. $700 million D. $900 million

B. $500 million

20. If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger. A. a tight monetary policy B. an inflationary increase in the price level C. international financial investment D. the central bank's contractionary monetary policy

B. an inflationary increase in the price level

12. An increase in government borrowing can: A. allow private investment to expand. B. crowd out private investment in physical capital. C. increase the incentive to invest in technology. D. cause a substantial decrease in interest rates.

B. crowd out private investment in physical capital

33. If an economy has a budget surplus of 1,500, private savings of 3,000, and investment of 5,000, what will the balance of trade in this economy equal? A. deficit of 500 B. surplus of 500 C. surplus of 1,500 D. deficit of 1,500

B. surplus of 500

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

Both the money multiplier and supply of money in the economy will decrease.

Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits? high inflation substantial inflows of foreign financial capital increasing exchange rates strains on a country's financial system

C

9. When a government records a trade surplus, the national savings and investment identity is written as: A. S = (G - T) + (X - M) - I B. S - (G - T) = I - (X - M) C. S = I + (G - T) + (X - M) D. S + (G - T) = I - (X - M)

C. S = I + (G-T) + (X-M)

14. When the interest rate in an economy decreases, it is most likely as a result of: A. an increase in the government budget surplus or its budget deficit. B. a decrease in the government budget surplus or its budget deficit. C. an increase in the government budget surplus or a decrease in its budget deficit. D. a decrease in the government budget surplus or an increase in its budget deficit.

C. an increase in the government budget surplus or a decrease in its budget deficit

23. If a government decides to finance an investment in ______ with higher taxes or ___________ in other areas, it need not worry that it is crowding out private investment. A. roads and bridges; increased borrowing B. water supply and sewers; by raising capital spending C. public physical capital; lower government spending D. hydroelectric dams and windmills; government R&D

C. public physical capital; lower government spending

Which of the following is an example of a pegged currency? U.S. dollar British pound Euro Chinese yuan

Chinese yuan

If a country's economic data shows that private savings equal $300 million, government spending equals $400 million, taxes equal $300, and the trade surplus equals $100 million, then what does investment equal? $150 million $175 million $200 million $100 million

D

In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment. economic growth activities; monetary policy economic growth activities; fiscal policy investment in human capital; monetary policy investment in physical capital; fiscal policy

D

3. If a country's economic data shows private savings of $400 million, government spending of $250 million, tax revenue of $400 million, and a trade surplus of $175 million, then what does investment equal? A. $550 million B. $425 million C. $800 million D. $375 million

D. $375 million

15. An increase in the government's budget surplus will cause the interest rate to: A. either increase or decrease. B. remain the same. C. increase. D. decrease.

D. decrease.

1. A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy? A. especially large and sustained household saving B. increased borrowing by private firms C. reduction in influx of funds for foreign financial investors D. especially large and sustained government borrowing

D. especially large and sustained government borrowing.

13. A reduction in government borrowing can: A. decrease the incentive to invest. B. increase the interest rate. C. crowd out private investment in human capital. D. give private investment an opportunity to expand.

D. give private investment an opportunity to expand.

18. A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment. A. deficit decrease B. smaller trade surplus C. larger trade surplus D. higher interest rate

D. higher interest rate

21. If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then: A. higher interest rates will crowd out private investment. B. government borrowing is likely to crowd out private investment. C. an inflationary increase in the price level is a real danger. D. the central bank might react with an expansionary monetary policy

D. the central bank might react with an expansionary monetary policy.

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

Federal funds rate

When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:`

Investment will decrease if savings also remains constant

Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result? Northern's loan assets increase by $30 million Northern's bond assets increase by $30 million Northern's net worth changes by $30 million the money supply in the economy decreases

Northern's loan assets increase by $30 million

_______________ equalizes the prices of internationally traded goods across countries

Purchasing power parity

When a business firm makes an investment in physical capital, what is that investment subject to?

The discipline of the market

If the economy is in recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP? a tight monetary policy fewer loanable funds a loose monetary policy higher interest rates

a loose monetary policy

Which of the following denotes a common misunderstanding about exchange rates? an appreciating currency must be better than a stronger currency a depreciating currency must be better than an appreciating currency a weaker currency must be better than a stronger currency an appreciating currency must be better than a depreciating currency

an appreciating currency must be better than a depreciating currency

A consensus estimate based on a number of studies suggests that if there is an increase in budget deficits (or a fall in budget surplus) by 1% of GDP, it will most likely cause which of the following? an increase of 0.5-1.0% in the long-term interest rate long and variable time lags in enacting the fiscal policy smaller impact due to temporary fiscal policy output above the potential GDP output level

an increase of 0.5-1.0% in the long-term interest rate

If an economy moves into a recession, causing that country to produce less than potential GDP, then

automatic stabilizers will cause tax revenue to decrease and government spending to increase.

How are the specific interest rates for the lending and borrowing markets determined? U.S. Treasury Department Board policy by the forces of supply and demand through open market operations by altering the discount rate

by the forces of supply and demand

Ricardian equivalence means that:

changes in investment offset any changes in the government deficit.

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

discount rate

When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting: discretionary fiscal policy. progressive fiscal policy. regressive fiscal policy. fiscal policy.

discretionary fiscal policy.

A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?

especially large and sustained government borrowing

The _____________ is an example of a large-scale common currency. euro dollar pound franc

euro

Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future. interest rates foreign investment tax rates exchange rates or rates of return bond rates and interest rates

exchange rates or rates of return

If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then: foreign investment will increase significantly. exchange rates will have less reason to vary. domestic investments in foreign businesses will decrease. government will intervene to peg the nation's currency.

exchange rates will have less reason to vary.

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

follow tight monetary policy

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is: following a loose monetary policy. following a tight monetary policy. following a contractionary monetary policy. reversing quantitative easing.

following a loose monetary policy.

The _____________________________ is the largest market in the world economy. international exchange market foreign exchange market foreign currency market international currency market

foreign exchange market

Currently, the US government accumulated debt to GDP ratio: is lower than its historical high point. is higher than it has ever been. is lower than it has ever been. has remained relatively steady for the past decade.

is lower than its historical high point.

If Australia's exchange rate is stronger than the PPP rate for several years, which of the following will likely result? its imports will increase its exports will increase aggregate demand will increase trade deficit will decrease

its imports will increase

A prolonged period of budget deficits may lead to

lower economic growth

In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects?

monitoring asset prices and leverage

The market where loans are made to borrowers is called the

primary market

If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is: regressive. progressive. proportional. optional.

proportional.

Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession? increased discount rate increased reserves requirements open market operations quantitative easing

quantitative easing

expansionary monetary policy will

reduce unemployment, but have little effect on inflation

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________. optional proportional progressive regressive

regressive

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? discount requirements deposit requirements reserve requirements monetary requirements

reserve requirements

Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs: risk causing even greater fluctuations in foreign exchange markets. will save an economy that consistently fails at achieving the main economic goals. gain the power to use monetary policy to focus on domestic inflations. gain the power to use monetary policy to focus on domestic recessions.

risk causing even greater fluctuations in foreign exchange markets.

The quantitative easing policies adopted by the Federal Reserve are usually thought of as: short term loans to fill out reserves. temporary emergency measures. traditional monetary policies. a relatively weak tool.

temporary emergency measures.

The Canadian dollar will most likely strengthen against the U.S. dollar if

the Canadian inflation rate becomes extremely low

If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then:

the central bank might react with an expansionary monetary policy.

When the central bank decides it will sell bonds using open market operations: interest rates decrease. the money supply increases. the money supply decreases. the money supply is unaffected.

the money supply decreases.

If the economy is producing less than its potential GDP, _____________________ will show a larger deficit than the actual budget. discretionary fiscal policy the automatic stabilizers the standardized employment budget expansionary fiscal policy

the standardized employment budget

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________. distinctive trade-offs and risks exchange rate policy monetary policy the tools of demand and supply

the tools of demand and supply

According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result? unpredictable rises and falls in nominal GDP monetary policy will become inevitably imprecise quantity of credit rises above where it otherwise be innovations relating to banking and finance

unpredictable rises and falls in nominal GDP