Econ Exam 3

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The economy is in a recession. The government enacts a policy to increase purchases by $2billion. The MPC is 0.8. What would be the full increase in real GDP from the change in government purchases at a given price level?

$10 Billion

The government would like to increase government spending to bring the economy out of recession. If MPC = 0.8, how much does G need to increase to get the economy back to full employment

$2 billion

In equilibrium, price is $8 and quantity is $40. What is total economic surplus?

$320

I value AirPods at $50, so I will not buy them if the price is $145. If i get them as a birthday present, what is my consumer surplus

$50

6) The economy is in a recession. The government enacts a policy to increase purchases by $2billion. The MPC is 0.8. What would be the full increase in real GDP from the change ingovernment purchases at a given price level?

10 billion

Assume that there is a 25% reserve requirement and that the Federal Reserve buys $4 billionworth of government securities. This action has the potential to increase the money supply by amaximum of

16 billion

suppose the fed wishes to increase the money supply by $500 billion without changing the reserve requirement of 10%. How much does it need to increase reserves by

50 billion

The current USD - Euro exchange rate is $1.00 to 0.90 Euros. A pound of Parmesan cheese costs 10 Euro. Rounded to the nearest cent, what is that price in U.S. Dollars?

?

Which of the following fiscal policy changes would be the most expansionary?

A) A $40 billion increase in government purchases

The economy is initially in a long run equilibrium. The, there is a large increase in investment spending. How does this affect the AD or AS

AD shifts right

Suppose the governments does not intervene to stabilize the economy. What will eventually happen in the long run as a result of that shift.

AS shifts in

Which of the following statements best describes what occurs when monetary authorities sell government securities? A) The size of commercial banks' excess reserves decreases, the money supply increases, andinterest rates fall, thereby causing a decrease in investment spending and real GDP. B) The size of commercial banks' excess reserves decreases, the money supply decreases, and theinterest rates rise, thereby causing a decrease in investment spending and real GDP. C) The size of commercial banks' excess reserves decreases, the money supply decreases, andinterest rates rise, thereby causing an increase in investment spending and real GDP. D) The size of commercial bank reserves increases, the money supply increases, and interestrates fall, thereby causing an increase in investment spending and real GDP.

B) The size of commercial banks' excess reserves decreases, the money supply decreases, and theinterest rates rise, thereby causing a decrease in investment spending and real GDP

The foreign exchange rate is the ________.

B) amount of one nation's currency that can be purchased with a unit of another nation's currency

13) Crowding out may occur because ________ fiscal policy usually involves the government________ money.

B) expansionary; borrowing

In the monetarist view

B) inappropriate monetary policy is a major source of macroeconomic instability.

In the mainstream view, one major source of instability in the macro economy is the volatilityof

B) investment spending.

Amanda buys a ruby for 330 for which she was willing to pay 340. The minimum acceptableprice to the seller, Tony, was 140. Tony experiences a

B) producer surplus of 190 and Amanda experiences a consumer surplus of 10.

The real business cycle theory holds that business fluctuations are caused by

B) significant changes in technology and resource availability

7) The Self-Correction view believes that in a recession_____

B) there are forces in the markets that automatically move the economy back to full employment

From the mainstream perspective, instability in the economy is due to

B) volatility of aggregate demand.

Theoretically, the sum of the current account, the financial account, and the capital account is________.

B) zero

You are given the following information about aggregate demand at the existing price levelfor an economy: (1) consumption = $400 billion, (2) investment = $40 billion, (3) governmentpurchases = $90 billion, and (4) net exports = $25 billion. If the full-employment level of GDPfor this economy is $600 billion, then what combination of actions would be most consistentwith closing the GDP-gap here?

D) An increase in government purchases and a decrease in taxes

If currency speculators believe South Korea will have much lower inflation in the future than the United States, this will most likely cause the South Korean won to ________and the U.S.dollar to ________

D) appreciate; depreciate

French and German farmers wanting to buy equipment from an American manufacturer basedin the U.S. will be ________.

D) demanding dollars and supplying euros in the foreign exchange market

According to real business cycle theory,

D) recessions result from declines in long-run aggregate supply, rather than decreases inaggregate demand.

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system

D) serves as an automatic stabilizer for the econom

The long expansions during the 1990s and 2000s were the result of mass business adoption ofcomputers and smart phones. This argument would be made by ________.

D) the Real Business Cycle theory

All else held constant, the international value of foreign currencies will increase against theU.S. dollar if ________

D) there are withdrawals of funds by foreigners from U.S. money markets

Suppose a bank gets $100 in new deposits. How would a change in the reserve ratio from 10% to 20% affect the money supply created?

Decrease it by $500

The United States runs a current ________ and a financial account _______

Deficit; Surplus

the lending ability of commercial banks increases when the

Fed buys securities in the open market

The United States and Canada can both produce either cowboy hats or maple syrup. TheUnited States can produce either 100 cowboy hats or 100 jars of syrup. Canada canproduce either 100 jars of syrup or 50 cowboy hats. Which of the following statements isnot true

In equilibrium, the United States trading 2 cowboy hats to Canada in exchange for 1jars of syrup would be acceptable to both parties.

What happens to interest rates when the money supply decreases?

Interest rates Increase.

The purchase and sale of government securities by the Fed is called

Open market operations

which school of thought would be most likely to make this statement: "In a recession, we should just leave the economy alone. Prices and wages will sort themselves out and lead to recovery"

Self - correction

Belize maintains a fixed exchange rate and pegs its currency to the U.S. dollar. A sudden decrease in tourism leads to a decline in Americans traveling to Belize on vacation. Which of the following represents an activity that the Belize government would likely undertake to maintain a fixed exchange rate?

Sell US dollars for Belize currency.

Suppose people in France decide they want to purchase more American-made cars. How will this affect the exchange rate?

Supply of Euros shifts right

Which of the following is a drawback of using a fixed exchange rate?

The country loses the ability to set monetary policy

Samsung makes televisions in china, sells them to the US for $1,000, and uses that income to buy US savings bonds ($500) and hire an American engineer to work temporarily in Japan ($500). How does that affect the US balance of payments

The current account decreases by $500 and the financial account increases by $500

Suppose people become so convinced that interest rates cannot fall further that they holdmoney rather than bonds. This situation is

The liquidity trap

Which of the following is a reason why Fed policy might be ineffective?

The liquidity trap

Suppose there is an increase in exports of U.S.-made farm equipment. There are no changesin imports, factor income, or transfers. What must be the case

There is a decrease in the Financial Account Balance of the United States

The Federal Reserve System regulates the money supply primarily by

altering the reserves of commercial banks, largely through sales and purchases of governmentbonds

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion, (2) investment = $40 billion, (3) government purchases = $90 billion, and (4) net exports = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

an increase in government purchases and a decrease in taxes

in the mainstream view, macroeconomic instability is caused by

changes in expenditures

The intent of contractionary fiscal policy is to

decrease aggregate demand

The sale of government bonds by the Federal Reserve Banks to commercial banks wil

decrease aggregate supply

suppose the reserve requirement is 20%. How does the Feds decision to sell $20 billion in bonds affect the money supply

decrease by $100 billion

if the fed wants to prevent inflation, it should _ the money supply. This will cause GDP to _

decrease; decrease

The expansionary policy will push the exchange rate down. In order to maintain the exchange rate, the Chinese central bank will need to _ the supply of yuan on the exchange market by buying _ using _

decrease; yuan; US dollars

suppose the bank gets $100 in new deposits. How would a change in the reserve ratio from 5% to 10% affect the money supply created

decreases by $1000

Suppose michael scott has his taxes increased by $10. He has a marginal propensity to consume of 75%. How does the tax affect is consumption

decreases by $7.50

Foreign events cause a decrease in the amount of output demanded by other countries, leading to a sharp drop in exports from the US. As a result, the government undertakes expansionary fiscal policy, increasing government spending through borrowing. How does this affect the loanable funds market.

demand shifts out

the demand curve for British pounds (in terms of U.S. dollars) is ________

downward-sloping because a lower dollar price of pounds means British goods are cheaper toAmerican

the demand curve for federal funds is

downward-sloping, because higher interest rates discourage commercial banks fromborrowing federal funds, but lower rates encourage borrowing

The interest rate that commercial banks charge each other for very short-term loans is calledthe

federal funds rate

Monetary policy is expected to have its greatest impact on

gross investment

Assume that the full-employment level of output is $500, and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $450and, at the price level of 100, current aggregate demand is $400. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.75, then it should

increase government purchases by $25.

which of the following is a fiscal policy that the government could implement if it wants to return the economy to its initial long-run equilibrium GDP and prices

increase taxes

what happens to price level when AD increases

increases

All else held constant, if the supply of money is increased

investment spending will increase

If the Federal Reserve System buys government securities from commercial banks and thepublic, then

it will be easier to obtain loans at commercial banks

if the Fed were to reduce the reserve requirement, we would expect

lower interest rates, an expanded GDP, and a higher rate of inflation

Which school of thought would be most likely to make this statement: "The great depression was made worse because the fed tightened the money supply too much"

monetarist

A recession occurs in China, and the Chinese government uses expansionary monetary policy in response. This means that government shifts the money supply _, which would push the price of yuan _

out; down

Suppose manufacturers in the US run advertisements encouraging Americans to avoid buying products made in Europe. How does this affect the exchange rate

price of Euros goes down, quantity traded goes up

The purpose of a contractionary monetary policy is to

raise interest rates and restrict the availability of bank credit (lower inflation)

which school of thought would be most likely to make this statement: "In a recession, we should just leave the economy alone. Prices and wages will sort themselves out and lead to a recovery"

self-correction

Suppose the fed wants the federal funds rate to be 6%. It should _ bonds in order to _ the quantity of federal funds

sell; decrease

U.S. exports create a _____.

supply of foreign currencies and a demand for dollars in the foreign exchange markets

In real business cycles theory, macroeconomics instability is caused by?

technological change and innovation

in the real business cycle theory, macroeconomic instability is caused by

technological change and innovation

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars, the supply-of-pounds curve is upward- sloping because

the British will purchase more U.S. goods or services when the dollar price of pounds rises

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars, the supply-of-pounds curve is upward-sloping because _

the British will purchase more U.S. goods or services when the dollar price of pounds rises

If Americans go to Canada for vacation and buy more Canadian goods, how will this affect the market for U.S Dollars?

the price of U.S. dollars in Canadian dollars will fall.

When investment increases, aggregate demand increases, because investment is a component of aggregate demand (true or false)

true

Suppose I am going on a trip to Europe. Currently, I can exchange one dollar for 0.9 euros. I should want the number of Euros I can get for my dollar to go

up, above 0.9

Allowing imports decreases producer surplus (True of false)

True

When the federal government uses taxation and purchasing actions to stimulate the economy itis conducting

Fiscal Policy

What happens to investment when interest rates increase

decrease

In the mainstream view, macroeconomics instability is caused by:

Changes in expenditures, which impact AD

In the market for a particular pair of shoes, Jena is willing to pay 75 for a pair while Jane iswilling to pay 85 for a pair. The actual price that each has to pay for a pair of shoes is 65. Whatis the combined amount of consumer surplus for Jena and Jane

30

The current USD - Euro exchange rate is $1 to 0.90 Euros. The ferrari 812 superfast costs 330,000 Euros. What is that price in USD

366,667

When calculating the balance of payments, which of the following would be credit in theFinancial Account of the United States?

A Chinese investor purchasing a hotel in the United States

A farmer sells carrots to Canada for $100 and then sends the money to his family in Mexico. How does this affect the current account

A credit of $100 to *Sales & purchases of Goods and Services* and a debit of $100 to *Transfers*

Belize maintains a fixed exchange rate and pegs its currency to the U.S. dollar. A boom intourism leads to many more Americans traveling to Belize on vacation. Which of thefollowing represents an activity that the Belize government would likely undertake tomaintain a fixed exchange rate?

C) Buy U.S. dollars using Belize currency

One advantage of automatic stabilizers over discretionary fiscal policy is that automaticstabilizers

C) are not subject to the timing problems of discretionary fiscal policy.

Consider the currency market for British pounds and U.S. dollars. An increase in the supply ofBritish pounds ________.

C) is equivalent to an increase in the demand for the U.S. dollar

When crowding out occurs, it ________ the effectiveness of ________ fiscal policy.

C) reduces; expansionary

In a graph showing the market supply and demand for British pounds in terms of U.S. dollars,the supply-of-pounds curve is upward-sloping because ________.

C) the British will purchase more U.S. goods or services when the dollar price of pounds rises

If currency speculators believe South Korea will have much lower inflation in the future than the United States, this will most likely cause the South Korean won to ________and the U.S. dollar to ________

appreciate; depreciate

In response, China will _ the supply of yuan by _ US bonds

increase; purchasing

Trade restrictions on chinese products are lifted, so Americans are free to purchase more chinese products. Demand for yuan

increases


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