Econ 202 Exam 2 greenriver

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is $100,000. $80,000. $300,000. $20,000. $200,000.

$200,000.

If the exchange rate between the U.S. dollar and the Russian ruble was 0.04 ($0.04 = one ruble), what would be the price in dollars of a bottle of Russian wine selling for 2,000 ruble? $50 $80 $100 $500

$80

Suppose you are earning 5 percent nominal interest on your savings account. If the rate of inflation is 3 percent, the real rate of interest you are earning is 2 percent. 3 percent. 5 percent. 8 percent.

2 percent.

If the expected inflation rate is 3 percent and banks charge a 10 percent money rate of interest, the real rate of interest is 3 percent. 7 percent. 10 percent. 17 percent.

7 percent.

A pair of Nike tennis shoes costs $90 in the United States. If the exchange rate between the United States and Mexico is 0.10 ($0.10 = 1 peso), then that same pair of shoes would cost ____ pesos. 90 900 1,000 9,000

900

Inflation

A continuing rise in the general level of prices of goods and services.

Depreciation

A decrease in the value of one currency relative to another.

Fiat Money

A medium of exchange that has neither intrinsic value nor the backing of a commodity with intrinsic value.

Stagflation

A period in which an economy is experiencing both substantial inflation and either declining or slow growth in real output.

Discouraged Worker

A person who has given up searching for employment because they believe additional job search efforts would be fruitless.

Trade Surplus

A situation that occurs when a country's exports of goods and services are greater than its imports.

Trade Deficit

A situation that occurs when a country's imports of goods and services are greater than its exports.

Import Quota

A specific limit or maximum quantity (or value) of a good permitted to be brought into a country during a given period.

Balance of Payments

A summary of all economic transactions between a country and all other countries during a specific time period, usually a year.

Tariff

A tax levied on goods imported into a country.

Liquid Asset

An asset that can be easily and quickly converted to cash without loss of value.

Medium of Exchange

An asset that is commonly used to buy and sell goods, services, or resources.

Appreciation

An increase in the value of one currency relative to another.

Suppose the Treasury sells $10 billion of newly issued Treasury bills to the Fed and uses the proceeds to increase government spending by $10 billion. How will this affect the money supply and the national debt? The money supply will increase; the national debt will decline. The money supply will decline; the national debt will increase. The money supply will be unaffected; the national debt will increase. Both the money supply and the national debt will increase.

Both the money supply and the national debt will increase.

Demand Deposits

Checking accounts that can either be withdrawn or made payable to a third party.

In practice, money supply and short-term interest rates are determined by the Treasury and Commerce departments. Federal Open Market Committee. Board of Governors. House and Senate.

Federal Open Market Committee.

business cycle

Fluctuations in the general level of economic activity as measured by such variables as the rate of unemployment and changes in real output.

Credit

Funds that are acquired by borrowing.

Federal Funds Rate

The interest percentage that banks charge other banks for borrowing funds.

Discount Rate

The interest percentage that the Federal Reserve charges banking institutions for borrowing funds.

If the U.S. exports passenger jet aircraft, what is the effect in the foreign exchange market? It will create demand for U.S. dollars. It will reduce demand for U.S. dollars. It will increase supply of U.S. dollars. It will decrease supply of U.S. dollars.

It will create demand for U.S. dollars

If more Japanese tourists visit Yellowstone Park in the state of Wyoming, what is the effect in the foreign exchange market? It will increase demand for Japanese yen. It will decrease demand for Japanese yen. It will increase supply of Japanese yen. It will decrease supply of Japanese yen.

It will increase supply of Japanese yen.

An increase in the dollar price of the Mexican peso (an appreciation of the peso) would cause Mexico's imports to increase and exports to decline Mexico's exports to increase and imports to decline. both Mexico's imports and exports to decline. both Mexico's imports and exports to rise.

Mexico's imports to increase and exports to decline

An increase in the dollar price of the Mexican peso (an appreciation of the peso) would cause Correct! Mexico's imports to increase and exports to decline. Mexico's exports to increase and imports to decline. both Mexico's imports and exports to decline. both Mexico's imports and exports to rise.

Mexico's imports to increase and exports to decline.

From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent. When inflation is constant for an extended period, which of the following is most likely? People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will approach the natural rate of unemployment. People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will exceed the natural rate of unemployment. The actual inflation rate will be greater than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment. Actual inflation will be less than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment.

People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will approach the natural rate of unemployment.

Why did the monetary base increase rapidly during the economic crisis of 2008? The Fed sold financial assets and extended fewer loans. The Fed increased both its purchase of assets and quantity of loans extended. The Fed increased its purchases of assets, but offset this with an increase in the reserve requirement. The Fed sold financial assets, but offset this with a reduction in the reserve requirement.

The Fed increased both its purchase of assets and quantity of loans extended.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another.

Absolute Advantage

The ability to produce more of a good with the same amount of resources than another.

Open Market Operations

The buying and selling of U.S. government securities in the secondary market by the Federal Reserve.

Unemployment

The condition of a person not currently employed who is either actively seeking employment or waiting to begin or return to a job.

Monetary Policy

The deliberate control of the money supply or credit conditions for the purpose of achieving macroeconomic goals.

Reserve Requirement

The minimum amount of money that a bank is required by law to keep to "back up" its deposits.

Civilian Labor Force

The number of persons age 16 of age and over who are either employed or unemployed.

Exchange Rate

The price of one unit of currency in the units of another currency.

Dumping

The sale of a good by a foreign supplier in another country at a price below that charged by the supplier in its home market.

Money Supply

The sum of currency, checking account funds and traveler's checks in an economy.

National Debt

The sum of the liabilities of the federal government in the form of outstanding bonds.

Fiscal policy

The use of government taxation and expenditure decisions for the purpose of achieving macroeconomic goals.

During the period following 1995, many individuals shifted funds from interest-earning checking accounts to money market deposit accounts. How did these shifts impact the M1 and M2 money supply figures? They reduced the growth rate of M1 but exerted little impact on M2. They reduced the growth rate of M2 but exerted little impact on M1. They reduced the growth rate of both M1 and M2. They did not affect the growth rate of either M1 or M2.

They reduced the growth rate of M1 but exerted little impact on M2.

A nation's trade deficit will tend to shrink when its economy is expanding. its economy is shrinking. its investment environment is less attractive to foreigners. b and c are true.

b and c are true.

Trade restrictions that limit the sale of low-price foreign goods in the U.S. market increase the real income of Americans. benefit domestic producers in the protected industries at the expense of consumers and domestic producers in export industries. help channel more of our resources into producing goods for which we are a low-cost producer. reduce unemployment and increase the productivity of American workers.

benefit domestic producers in the protected industries at the expense of consumers and domestic producers in export industries.

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy? buy U.S. securities force the Treasury to reduce the national debt raise the discount rate increase the reserve requirements

buy U.S. securities

If the dollar price of the euro goes from $1 to 90 cents, the euro has appreciated, and Europeans will find U.S. goods cheaper. appreciated, and Europeans will find U.S. goods more expensive. depreciated, and Europeans will find U.S. goods cheaper. depreciated, and Europeans will find U.S. goods more expensive.

depreciated, and Europeans will find U.S. goods more expensive.

An appreciation in the U.S. dollar would encourage foreigners to make investments in the United States. discourage foreign consumers from buying U.S. goods. increase the number of dollars it would take to buy a Swiss franc. encourage foreigners to buy more U.S. goods.

discourage foreign consumers from buying U.S. goods.

In the foreign exchange market, the price of one nation's currency in terms of the currency of another nation is known as the inflation rate. wage rate. interest rate. exchange rate.

exchange rate.

Under a system of flexible exchange rates, an increase in demand for a nation's currency in the foreign exchange market will cause the nation's currency to appreciate. make it more expensive for the nation to import goods. cause the nation's balance on current account to shift toward a surplus. make it less expensive for foreigners to buy the nation's goods.

cause the nation's currency to appreciate.

Suppose a student group from your university tours the United Kingdom. As they purchase English goods, their actions will create a demand for dollars and a supply of English pounds in the foreign exchange market. create a demand for English pounds and a supply of dollars in the foreign exchange market. cause the U.S. dollar to appreciate. cause the English pound to depreciate.

create a demand for English pounds and a supply of dollars in the foreign exchange market.

Under a pure flexible exchange rate system, the rate that equates demand and supply in the exchange rate market will also lead to a balance of merchandise exports and merchandise imports. current account transactions. capital account transactions. current and capital account transactions.

current and capital account transactions.

A system that permits banks to hold less than 100 percent of their deposits as reserves is called a federal reserve system. fractional reserve banking system. partially funded deposit insurance system. gold standard banking system.

fractional reserve banking system.

As prices rise, a fixed money supply will be able to buy fewer goods and services. This effect is due to a(n) reduction in the interest rate. increase in aggregate demand. decline in the purchasing power of money. increase in income.

decline in the purchasing power of money.

Other things constant, if Americans suddenly decreased their desire for Mexican tequila, the exchange rate value of the Mexican peso would increase, which is an appreciation of the Mexican peso. increase, which is a depreciation of the Mexican peso. decrease, which is an appreciation of the Mexican peso. decrease, which is a depreciation of the Mexican peso.

decrease, which is a depreciation of the Mexican peso.

The circular flow of income is coordinated by the goods and services market, resources market, foreign exchange market, and loanable funds market. consumption market, investment market, stock market, and government market. government market, household goods market, bond market, and business market. financial market, corporate market, stock market, and loanable funds market.

goods and services market, resources market, foreign exchange market, and loanable funds market.

The theory of comparative advantage suggests that nations should produce a good if they have the lowest opportunity cost. have the lowest wages. have the most resources. can produce more of the good than any other nation.

have the lowest opportunity cost.

An increase in incomes in other countries, other things equal, would tend to cause U.S. exports to decrease and imports to increase. exports to increase and imports to increase. imports to decrease and exports to decrease. imports to increase and exports would remain unchanged. imports to remain unchanged and exports to increase.

imports to remain unchanged and exports to increase.

An increase in incomes in other countries, other things equal, would tend to cause U.S. exports to decrease and imports to increase. exports to increase and imports to increase. imports to decrease and exports to decrease. imports to increase and exports would remain unchanged. Correct! imports to remain unchanged and exports to increase.

imports to remain unchanged and exports to increase.

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will decrease and the money supply will eventually decrease. decrease and the money supply will eventually increase. increase and the money supply will eventually decrease. increase and the money supply will eventually increase.

increase and the money supply will eventually increase.

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could decrease the reserve requirements imposed on commercial banks. purchase U.S. government securities and other financial assets in the open market. decrease the interest rate on loans extended to banks and other financial institutions. increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

An increase in the real interest rate will increase the inflationary premium. decrease the inflationary premium. increase the price of current consumption relative to future consumption. decrease the price of current consumption relative to future consumption.

increase the price of current consumption relative to future consumption.

Other things constant, if Americans suddenly increased their desire to vacation in Mexico, the dollar price of the Mexican peso would increase, which is an appreciation of the Mexican peso. increase, which is a depreciation of the Mexican peso. decrease, which is an appreciation of the Mexican peso. decrease, which is a depreciation of the Mexican peso.

increase, which is an appreciation of the Mexican peso.

The resource market involves transactions dealing with natural resources and financial services. the borrowing and lending of financial capital. the buying and selling of final goods and services. labor services, natural resources, and physical capital.

labor services, natural resources, and physical capital.

If the actual price level is lower than the expected price level reflected in long-term contracts, many firms will find production more profitable than they had expected and will increase the quantity of output supplied many firms will find production less profitable than they had expected and will decrease the quantity of output supplied many firms will find production more profitable than they had expected and will decrease the quantity of output supplied many firms will find production less profitable than they had expected and will increase the quantity of output supplied

many firms will find production less profitable than they had expected and will decrease the quantity of output supplied

If the exchange rate has been $2.00 per British pound but now falls to $1.60 per British pound, there will be more U.S. imports from Great Britain because the price of pounds has fallen. more exports to Great Britain because the price of pounds has risen. fewer exports to Great Britain because the price of the pound has risen. more U.S. exports to Great Britain since the price of the dollar has fallen. no change in either exports or imports.

more U.S. imports from Great Britain because the price of pounds has fallen.

Output in the goods and services market will be sustained into the future if aggregate demand and short-run aggregate supply are in balance. only when the prior choices of decision makers were based on a correct anticipation of prices. only when prices are rising. only when wage rates are declining.

only when the prior choices of decision makers were based on a correct anticipation of prices.

Assume, for Canada, that the domestic price of steel without international trade is higher than the world price of steel. This suggests that with trade, Canada has a comparative advantage in the production of steel over other countries and Canada will import steel. Canada has a comparative advantage in the production of steel over other countries and Canada will export steel. other countries have a comparative advantage over Canada in the production of steel and Canada will import steel. other countries have a comparative advantage over Canada in the production of steel and Canada will export steel.

other countries have a comparative advantage over Canada in the production of steel and Canada will import steel.

Which of the following is not a component of the M1 money supply? demand deposits large-denomination (more than $100) bills interest-earning checking deposits outstanding balances on credit cards

outstanding balances on credit cards

Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the goods and services market represents nominal output or nominal GDP. the interest rate. real output or real GDP. the consumer price index.

real output or real GDP.

The conduct of monetary policy is the responsibility of commercial banks. the U.S. Treasury. the Federal Reserve System. the Congress and the president.

the Federal Reserve System.

The U.S. dollar will appreciate if the U.S. demand for foreign exchange decreases. the U.S. demand for foreign exchange increases. the U.S. supply of foreign exchange decreases. Americans want to buy more foreign goods. foreigners want fewer American goods.

the U.S. demand for foreign exchange decreases.

If investment opportunities in the U.S. become more attractive to foreigners, the exchange-rate value of the dollar will fall. the current-account balance will shift toward a deficit the capital inflows to the U.S. will fall. all of the above are true.

the current-account balance will shift toward a deficit.

When a country allows trade and becomes an exporter of a good, the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good. the gains of the domestic consumers of the good exceed the losses of the domestic producers of the good. the losses of the domestic producers of the good exceed the gains of the domestic consumers of the good. the losses of the domestic consumers of the good exceed the gains of the domestic producers of the good.

the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.

The short-run aggregate supply curve shows the relationship between the general level of prices and the quantity of goods and services purchased by all consumers in the economy. the general level of prices and the quantity of goods and services that domestic firms will supply. the interest rate and the quantity of goods and services that domestic firms will supply. the money supply and the quantity of goods and services that domestic firms will supply.

the general level of prices and the quantity of goods and services that domestic firms will supply.

The macroeconomy is said to be in long-run equilibrium only if: the output of the economy equals the full-employment level of output. prices were incorrectly estimated by decision makers. the output of the economy exceeds the full-employment level of output. the economy is operating along its short-run aggregate supply curve.

the output of the economy equals the full-employment level of output.

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market? the spending of French tourists in the United States the purchase of Japanese automobiles by American consumers the sale of U.S. computer equipment to a French buyer the purchase of a U.S. shoe factory by a Mexican investor

the purchase of Japanese automobiles by American consumers

Which one of the following would create a demand for a foreign currency and supply of dollars in the foreign exchange market? the sale of U.S. automobiles to a Mexican consumer the spending by British tourists in the United States the purchase of 1,000 shares of IBM stock by a Latin American investor the purchase of Japanese televisions by an American distributor

the purchase of Japanese televisions by an American distributor

As prices rise, people will buy fewer goods and services because the interest rate has declined. aggregate demand has increased. the purchasing power of the fixed quantity of money has declined. the income of households has increased.

the purchasing power of the fixed quantity of money has declined.

Which one of the following would increase the supply of dollars to the foreign exchange market? the spending of U.S. tourists in Europe the purchase of U.S. automobiles by Japanese consumers the sale of U.S. automobiles to European consumers the purchase of an American electronics factory by a Japanese investor

the spending of U.S. tourists in Europe

Within the aggregate demand/aggregate supply framework, the quantity on the horizontal axis in the aggregate goods and services market represents the total amount of government spending. total real output (real GDP) of the economy. total unemployment of the economy. price level of the economy.

total real output (real GDP) of the economy.

If the value of a country's merchandise exports is less than the value of its merchandise imports, it is said to have a trade surplus. trade deficit. current account surplus. capital account deficit.

trade deficit

An important explanation for the current account deficit and capital account surplus in the United States is that we buy fewer goods from foreigners than they buy from us, and foreigners find the United States an attractive place to invest. we buy more goods from foreigners than they buy from us, and foreigners find the United States an attractive place to invest. we buy fewer goods from foreigners than they buy from us, and Americans find foreign countries an attractive place to invest. we buy more goods from foreigners than they buy from us, and Americans find foreign countries an attractive place to invest.

we buy more goods from foreigners than they buy from us, and foreigners find the United States an attractive place to invest.

Suppose U.S.-produced wheat costs $5 per bushel and the exchange rate is 100 yen = $1. If the exchange rate changes to 90 yen = $1, the wheat would now cost more dollars. Answer wheat would now cost the Japanese citizen less yen. wheat would now cost less dollars. wheat would now cost the Japanese citizen more yen. yen has depreciated in value.

wheat would now cost the Japanese citizen less yen.

Relative to a no-trade situation, if the United States exported wheat, the domestic price of wheat would rise, and domestic output would also rise. would decline, but the domestic output would rise. would decline, and domestic output would decline also. would rise, but domestic output would fall.

would rise, and domestic output would also rise.