ECON131 Final Exam

______ are tax and spending rules that have the effect of slowing down the rate of decrease in aggregate demand when the economy slows down and restraining aggregate demand when the economy speeds up, without any additional change in legislation.

Automatic stabilizers

What is the term used to refer to the following? Trading one good or service for another

Bartering

What is the term used to refer to the following? Items that are used as money, but who also have value from their use as something other than money

Commodity money

_____ currencies are dollar bills or other currencies with values backed up by gold or other items held at a bank.

Commodity-backed

______ is a system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt.

Deposit insurance

______ are policies that require the passing of a law that explicitly changes tax or spending levels.

Discretionary fiscal policies

The interest rate at which one bank lends funds to another bank overnight

Federal funds rate

What is the term used to refer to the following? Money that has no intrinsic value, but is declared by a government to be the legal tender of a country.

Fiat money

The federal ______ program is a program for early childhood education directed at families where the parents may have limited educational and financial resources.

Head Start

______ is usually lower in high-income countries than in low-income countries.

Inflation

Capital that flows across national boundaries as either portfolio investment or direct investment

International capital

The theory that rational private households might shift their saving to offset government saving or borrowing is known as ______.

Ricardian equivalence

What is the term for the following? An approximation to figure out the time an economy requires to double its GDP

Rule of 72

______ refers to workers or firms focusing on tasks for which they are well-suited within the overall production process. It leads to an increase in total world production.

Specialization

What are these countries commonly referred to as? South Korea, Thailand, Malaysia, Indonesia, and Singapore

The East Asian Tigers

What is this term called? The central bank of the United States

The Federal Reserve

Identify a policy that is most effective when an economy is in a recession. a. A cut in personal income taxes b. A decrease in federal grants to state and local governments c. An increase in the discount rate fixed by the central bank d. An increase in the reserve requirement set by the central bank e. None of the above

a. A cut in personal income taxes

Which of the following refers to a floating exchange rate policy? a. A policy which allows the foreign exchange market to set exchange rates b. An exchange rate policy where the central bank sets a fixed and unchanging value for the exchange rate c. An exchange rate policy where the exchange rate always equals the inflation rate d. An exchange rate policy where the government usually allows the exchange rate to be set by the market, but sometimes the central bank might intervene e. None of the above

a. A policy which allows the foreign exchange market to set exchange rates

Which of the following policies will be helpful in tackling inflation in an economy? a. An increase in income tax rates b. A cut in business tax rates c. A decrease in the discount rate d. A decrease in the reserve requirement e. None of the above

a. An increase in income tax rates

Which of the following is an example of a contractionary fiscal policy? a. An increase in individual income taxes b. An increase in the discount rate set by the central bank c. An increase in the purchase of government bonds by the central bank d. A cut in business taxes e. None of the above

a. An increase in individual income taxes

Which of the following is likely to increase the demand for financial capital in an economy, everything else remaining constant? a. An increase in private sector investment b. A decrease in spending by the government c. An increase in the tax revenue earned by the government d. A decrease in private sector investment e. None of the above

a. An increase in private sector investment

What will be the impact of an increase in government borrowing if it is funded by foreign financial investors? a. An increase in trade deficit b. A decrease in the demand for U.S. dollars c. Depreciation for the domestic currency d. An increase in trade surplus e. None of the above

a. An increase in trade deficit

Identify the trend of the Federal Tax Revenue a. As a share of GDP, payroll taxes have increased steadily b. As a share of GDP, the amount collected by individual income taxes has declined sharply c. As a share of GDP, corporate income tax receipts have stayed near constant d. As a share of GDP, the amount collected by state and local governments has declined over time e. None of the above

a. As a share of GDP, payroll taxes have increased steadily

What happens when automatic stabilizers are allowed to work in an economy during recessions? a. Budget deficits increase b. Interest rates increase c. The aggregate demand in the economy decreases d. The level of unemployment in the economy increases e. None of the above

a. Budget deficits increase

Identify the lowest-income country a. Burundi b. Indonesia c. Turkey d. Kenya e. None of the above

a. Burundi

Which of the following accounts for the largest share of state and local government spending? a. Education b. National defense c. Interest payments d. Social Security e. None of the above

a. Education

Identify the correct statement a. In 2009, the trade deficit declines as the budget deficit increased b. The budget deficit grew smaller in the early 1990s as the trade deficit increased c. The budget deficit grew larger in the late 1990s as the trade deficit turned into a surplus d. In the 1980s, the budget deficit and the trade deficit increased at the same time e. None of the above

a. In 2009, the trade deficit declines as the budget deficit increased

What should the central bank of a country do if it wants to raise interest rates? a. It should raise the reserve requirement b. It should reduce the discount rate c. It should reduce its spending d. It should purchase government bonds from commercial banks e. None of the above

a. It should raise the reserve requirement

Identify an important characteristic of the labor market in a low-income country. a. Most workers in these countries barter and trade with others or take a succession of short-term jobs b. Most workers in these countries receive large pension benefits c. Most workers in these countries specialize in tasks in which they are efficient d. Most workers in these countries are employed in the public sector e. None of the above

a. Most workers in these countries barter and trade with others or take a succession of short-term jobs

The most commonly used tool of monetary policy in the U.S. a. Open Market Operations b. Buying and selling public goods c. Changing the discount rate d. Changing the Reserve Requirements e. None of the above

a. Open Market Operations

Identify an underlying cause behind the rapid growth rate in some of the middle-income countries in recent decades. a. Some of these countries are among the highest savers in the world b. These countries rely exclusively on indigenous techniques of production c. These countries have policies that support heavy investment in physical capital but no in human capital d. These countries have policies that discourage domestic competition e. None of the above

a. Some of these countries are among the highest savers in the world

If the U.S. government increases its borrowing and the funds come from European financial investors, which of the following will happen? a. The dollar will appreciate b. The volume of imports by the U.S. will decrease c. The demand for U.S. dollars in the foreign exchange market will decrease d. The volume of U.S. exports will increase e. None of the above

a. The dollar will appreciate

What happens when the central bank of an economy purchases bonds from a commercial bank? a. The money supply in the economy increases b. The number of loans made by the commercial bank decreases c. The commercial bank's reserves decline d. The investment expenditure int he economy decreases e. None of the above

a. The money supply in the economy increases

Which of the following taxes provides funds for Social Security and Medicare? a. The payroll tax b. A gift tax c. The individual income tax d. The corporate income tax e. None of the above

a. The payroll tax

Identify the correct trend in government spending in the United States. a. The share of GDP spent on Social Security has increased over the years b. The share of GDP spent on education has decreased over the years c. The share of GDP spent on national defense has increased over the years d. The share of GDP spent on healthcare has decreased over the years e. None of the above

a. The share of GDP spent on Social Security has increased over the years

Which of the following happens when the central bank implements a contractionary monetary policy? a. The supply curve of loanable funds shifts to the left b. The equilibrium quantity of loanable funds traded in the market will increase c. The demand curve for loanable funds shifts to the right d. The demand curve for loanable funds shifts to the left e. none of the above

a. The supply curve of loanable funds shifts to the left

Which of the following will happen if an expansionary policy is introduced during a recession? a. The unemployment rate will fall b. Interest rates will increase c. Aggregate demand will decrease d. The money supply in the economy will decrease e. None of the above

a. The unemployment rate will fall

Which of the following explains the rapid growth rates experienced by some of the middle-income countries in recent decades? a. These countries had policies that supported heavy investment in human capital b. These countries had policies that restricted domestic competition c. These countries had exceptionally low rates of national saving d. These countries had policies that supported only traditional business models e. None of the above

a. These countries had policies that supported heavy investment in human capital

What is the main goal of growth-oriented public policies in high-income countries? a. To shift the aggregate supply curve to the right b. To restrict domestic competition c. To shift the aggregate supply curve to the left d. To restrict international competition e. None of the above

a. To shift the aggregate supply curve to the right

Which of the following is a feature of the labor market in a low-income country? a. Workers are often unable to specialize very much b. All workers enjoy pension benefits c. Most workers are employed in regular wage-paying jobs d. All workers enjoy unemployment insurance e. None of the above

a. Workers are often unable to specialize very much

Gains from trade can occur ______. a. even if one of the trading partners has an absolute advantage in the production of both goods b. export more than 15,000 shirts for at least 200 laptops c. import fewer than 15,000 shirts for at left 150 laptops d. import fewer than 1,000 shirts for at least 500 laptops e. None of the above

a. even if one of the trading partners has an absolute advantage in the production of both goods

A country should consider that rapid movements from a weak to a strong exchange rate may adversely affect _______. a. its export industries b. those industries that rely heavily on imports c. foreign investors in the country d. those citizens of the country who are traveling abroad e. None of the above

a. its export industries

What is the term for the following? A country's ability to produce a good using fewer resources than other countries

absolute advantage

When the exchange rate for a currency rises, so that the currency exchanges for more of other currencies, it is referred to as ______.

appreciating

The process of buying and selling goods or currencies across international borders at a profit

arbitrage

An _______ is something of value that is owned and can be used to produce something.

asset

A bank views loans as _______.

assets

The gap between the deficit or surplus in the standardized employment budget and the deficit or surplus in the actual budget shows the impact of the ______.

automatic stabilizers

Identify the correct formula for the money multiplier a. 1/interest rate b. 1/reserve requirement c. 1/exchange rate d. interest rate/inflation rate

b. 1/reserve requirement

Which of the following refers to a soft exchange rate peg policy? a. An exchange rate policy where the exchange rate is always determined by market forces b. An exchange rate policy where the exchange rate is usually determined by market forces, but the central bank might intervene sometimes c. An exchange rate policy where the government chooses a common currency that it shares with one or more countries d. An exchange rate policy where the exchange rate is always fixed by the government e. None of the above

b. An exchange rate policy where the exchange rate is usually determined by market forces, but the central bank might intervene sometimes

Identify an example of an expansionary fiscal policy a. An increase in the reserve requirement for commercial banks b. An increase in government spending on final goods and services c. An increase in corporate income taxes d. An increase in the discount rate e. None of the above

b. An increase in government spending on final goods and services

What are the components of M1 money supply? a. Time deposits, demand deposits, and traveler's checks b. Cash, checkable deposits, and traveler's checks c. Credit cards, debit cards, and cash d. Cash, checkable deposits, and money market funds e. None of the above

b. Cash, checkable deposits, and traveler's checks

Which of the following is a function of the Federal Reserve? a. Restoring the macroeconomic equilibrium by increasing or decreasing aggregate demand b. Conducting monetary policy c. Regulating product market d. Lending to private individuals for undertaking entrepreneurial activities e. None of the above

b. Conducting monetary policy

Identify the correct statement about the structure of the Fed. a. Policy decisions of the Federal Reserve requirement congressional approval b. It is semi-decentralized, mixing government appointees with representation from private-sector banks c. The President of the United States can ask for the resignation of a Federal Reserve Governor d. It is run by a board of governors and each governor appoint for a two-year term e. None of the above

b. It is semi-decentralized, mixing government appointees with representation from private-sector banks

Identify an important function of the Federal Reserve a. Lending to private individuals b. Lending to commercial banks c. Estimating the money spent by the government in providing various public goods d. Estimating the money spent by the government on infrastructure e. None of the above

b. Lending to commercial banks

What will happen if the central bank of an economy lowers the reserve requirement? a. The average savings rate in the economy will increase b. The M1 money supply will increase c. The aggregate price level will decrease d. The value of the money multiplier will fall e. None of the above

b. The M1 money supply will increase

What should the central bank of an economy do when the economy produces a quantity of output below its potential GDP? a. The central bank should raise the income tax rates b. The central bank should purchase government bonds from commercial banks c. The central bank should seek the approval of the president before implementing new policies d. The central bank should raise the reserve requirement e. None of the above

b. The central bank should purchase government bonds from commercial banks

What happens when the U.S. experiences a relatively higher inflation compared to Europe? a. The supply of dollar decreases b. The dollar depreciates c. The demand for euro decreases d. The dollar appreciates e. None of the above

b. The dollar depreciates

Identify a characteristic of middle-income countries that witnessed rapid rates of growth in the 1980s. a. These countries had policies that only supported traditional business models b. The governments of these countries made a concerted effort to seek out applicable technology c. These countries had policies that supported investments in physical capital and not in human capital d. These countries had policies that restricted competition e. None of the above

b. The governments of these countries made a concerted effort to seek out applicable technology

Identify the correct statement regarding federal spending in the United States. a. The share of GDP spent on healthcare has declined over the years b. The share of GDP spent on national defense has decline over they years c. The largest share of federal spending goes to the housing sector d. The largest share of federal spending goes to the education sector e. None of the above

b. The share of GDP spent on national defense has decline over they years

A ______ production possibilities frontier implies that opportunity costs are constant. a. downward-sloping, convex b. downward-sloping, linear c. downward-sloping, concave d. horizontal e. None of the above

b. downward-sloping, linear

Gains from trade can occur ______. a. only if each country specializes in its comparative advantage completely b. even if the trading partners do not specialize completely c. only if each country specializes in its absolute advantage completely d. only if one country has an absolute advantage in the production of both goods e. None of the above

b. even if the trading partners do not specialize completely

A country should consider that rapid movements from a strong to a weak exchange rate may adversely affect ______. a. its investors abroad b. its banking sector c. its export industries d. foreign students studying in the U.S. e. None of the above

b. its banking sector

A distinguishing feature of low-income countries is exceptionally low levels of ______. a. Burundi b. savings c. East Asia d. 8 years e. None of the above

b. savings

The primary reason behind predictions of enormous budget deficits in the United States in the near future is the ______—the exceptionally high birthrates that began in 1946, right after World War II, and lasted for about two decades.

baby boom

What is this term called? An accounting tool that lists assets and liabilities

balance sheet

If a government spends as much as it receives in taxes, it is said to have a ______.

balanced budget

A bank's net worth is also referred to as _______.

bank capital

Depositors racing to the bank to withdraw their deposits for fear that otherwise they would be lost is called a ______.

bank run

A bank that is ________ will have a negative net worth.

bankrupt

What is the term for the following? A situation where a government spends more money than it receives in taxes

budget deficit

When a government receives more money in taxes than it spends in a year, it runs a ______.

budget surplus

Who among the following will be better off when the dollar strengthens? a. A foreign tourist in the United States b. A U.S. producer selling abroad c. A U.S. tourist abroad d. A U.S. investor who wants to buy the bonds issued by a foreign government e. None of the above

c. A U.S. tourist abroad

Which of the following is likely to increase the money supply in an economy? a. An increase in tax rates b. A rise in the discount rate c. A decrease in reserve requirements d. The sale of government bonds by the central bank e. None of the above

c. A decrease in reserve requirements

Identify the correct statement Exchange Rate Movements a. A stronger dollar leads to an increase in the number of foreign tourists in the U.S. b. A stronger dollar leads to an increase in the amount of foreign investment in the U.S. c. A weaker U.S. dollar leads to an increase in the U.S. exports d. A weaker dollar leads to a decrease in the amount of U.S. investment abroad e. None of the above

c. A weaker U.S. dollar leads to an increase in the U.S. exports

Identify a function of the Federal Reserve a. Estimating the total expenditure of the government b. Collecting tax revenue c. Assuring that commercial banks act in compliance with consumer protection laws d. Ensuring that tax rates are raised during expansions e. None of the above

c. Assuring that commercial banks act in compliance with consumer protection laws

The table shows the total quantities of wheat and corn that Country A and Country B can produce by exhausting each of their respective farming resources (both countries have the same amount of resources). Refer to the table and identify the correct statement. a. Country B has an absolute advantage in wheat production b. Country A has more resources than Country B c. Country A has an absolute advantage in wheat production d. Country B has a comparative advantage in wheat production e. Country A has a comparative advantage in corn production

c. Country A has an absolute advantage in wheat production

Identify a difference between foreign direct investments and portfolio investments. a. Foreign direct investment can be withdrawn from a country faster than portfolio investment b. Foreign direct investors supply foreign currency, whereas portfolio investors demand foreign currency c. Foreign direct investments involve managerial responsibility while portfolio investments do not involve such responsibilities d. Foreign direct investors demand foreign currency, whereas portfolio investors supply foreign currency e. None of the above

c. Foreign direct investments involve managerial responsibility while portfolio investments do not involve such responsibilities

How will a fall in budget surplus affect an economy, everything else remaining equal? a. It may result in a rise in domestic investment b. It may result in an improvement in the quality of exports c. It may result in a rise in trade deficit d. It may result in an increase in money supply e. None of the above

c. It may result in a rise in trade deficit

How will a fall in budget deficit affect an economy, everything else remaining equal? a. It may result in a rise in private savings b. It may result in a rise in trade deficit c. It may result in a rise in trade surplus d. It may result in an improvement in the quality of exports e. None of the above

c. It may result in a rise in trade surplus

Identify the correct statement about money supply: a. credit cards are considered as money because these can be used for making purchases b. M2 money supply includes those monies that are very liquid c. M1 money supply includes those monies that are very liquid d. Debit cards are considered as components of M1 because these can be used for making purchases e. None of the above

c. M1 money supply includes those monies that are very liquid

Identify the correct statement: Money Supply a. M2 money supply includes savings deposits but does not include money market funds b. M2 money supply includes M1 plus money market funds but does not include certificates of deposit c. M2 money supply includes M1 plus savings and time deposits, certificates of deposits, and money market funds d. M2 money supply includes M1 supply plus plastic money e. none of the above

c. M2 money supply includes M1 plus savings and time deposits, certificates of deposits, and money market funds

Identify a common characteristic of most low-income countries. a. Freedom for market forces b. Scarce natural recourses c. Political instability d. Low levels of corruption e. None of the above

c. Political instability

In which part of the world are several of the most economically challenged countries located? a. South Asia b. Latin America c. Sub-Sarahan Africa d. East Asia e. None of the above

c. Sub-Sarahan Africa

Which of the following is likely to happen if the U.S. government runs chronic large deficits? a. Private investment in human capital will increase b. Private investment in physical capital will increase c. The cost of financing the debt will increase d. The economy's real wealth will increase e. None of the above

c. The cost of financing the debt will increase

Identify the correct statement a. An excise tax is a tax on people who pass large amounts of assets to the next generation b. The Medicare payroll tax is a regressive tax c. The income tax is a progressive tax d. The Social Security payroll tax is a proportional tax e. None of the above

c. The income tax is a progressive tax

What does a portfolio investment refer to? a. The purchase of domestically produced goods from a foreign country b. The recruitment of foreign workers in a domestic organization c. The purchase of purely financial assets in a foreign country d. The dumping of domestically produced goods in foreign markets e. None of the above

c. The purchase of purely financial assets in a foreign country

Suppose the U.S. government increases its borrowing and the funds come from European financial investors. Which of the following is most likely to be true in this case? a. The demand curve for U.S. dollars will shift to the left b. The volume of U.S. exports will increase c. The supply curve of U.S. dollars will shift to the left d. The euro will appreciate e. None of the above

c. The supply curve of U.S. dollars will shift to the left

Which of the following will happen if the central bank of an economy sells government bonds to a commercial bank? a. There will be an increase in the aggregate price level in the economy b. There will be an increase in investment expenditure in the economy c. There will be a decline in the commercial banks' reserves d. There will be a fall in the interest rates in the economy e. None of the economy

c. There will be a decline in the commercial banks' reserves

Which of the following is a characteristic of the labor markets in low-income countries? a. Most workers are employed in regular wage-paying jobs b. Workers specialize in the tasks in which they are most efficient c. Workers are often not eligible for unemployment insurance d. Most workers are employed in the industrial sector e. None of the above

c. Workers are often not eligible for unemployment insurance

Country A was producing 1,000 laptops and 15,000 shirts before specialization and trade. It then shifted production toward its comparative advantage and started producing 500 laptops and 30,000 shirts. According to Ricardo's theory of comparative advantage, it will benefit from trade if it can ______. a. export more than 20,000 shirts for at least 200 laptops b. import fewer than 1,000 shirts for at least 500 laptops c. export fewer than 15,000 shirts for at least 500 laptops d. import fewer than 15,000 shirts for at least 150 laptops e. export more than 15,000 shirts for at least 200 laptops

c. export fewer than 15,000 shirts for at least 500 laptops

The inflow of savings from abroad is, by definition, equal to the trade deficit. Therefore, the inflow of foreign investment capital can be written as ______. a. imports plus exports b. disposable income minus imports c. imports minus exports d. imports plus consumption expenditure e. None of the above

c. imports minus exports

If an exchange rate is pegged below what would otherwise be the equilibrium, then the ______. a. supply curve for the currency will shift to the right b. A policy which allows the foreign exchange market to set exchange rates c. quantity demanded of the currency will exceed the quantity supplied d. the supply curve of the currency will shift to the left e. None of the above

c. quantity demanded of the currency will exceed the quantity supplied

In the short run, a government that runs a very large budget deficit can shift ______. a. the aggregate demand function to the right and cause high levels of unemployment b. the aggregate demand function to the left and trigger severe inflation c. the aggregate demand function to the right and trigger severe inflation d. the aggregate demand function to the left and reduce inflation e. the aggregate demand function to the left and lower unemployment

c. the aggregate demand function to the right and trigger severe inflation

The organization responsible for conducting monetary policy and ensuring that a nation's financial system operates smoothly is called the ______.

central bank

If budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, the central bank may react with a ______.

contractionary monetary policy

What is the term for the following? An economy that demonstrates the ability to catch up to the technology leaders

converging economy

The monetary policy should be ______; that is, it should act to restore the macroeconomic equilibrium in an economy after periods of economic downturns or upswings.

countercyclical

Federal spending and borrowing can cause interest rates to rise and business investment to fall. This is referred to as ______.

crowding out

When government borrowing soaks up available financial capital and leaves less for private investment in physical capital, the result is known as ______.

crowding out

How many years will an economy need to double its income if its annual growth rate is 8%? a. 80 years b. 6 years c. 72 years d. 9 years e. None of the above

d. 9 years

Which of the following groups of economic actors will be worse off if the dollar appreciates? a. A foreign firm exporting to the U.S. b. A U.S. tourist abroad c. A foreigner who holds U.S. government bonds d. A U.S. firm selling abroad e. None of the above

d. A U.S. firm selling abroad

Which of the following refers to a policy of hard exchange rate pegs? a. A policy where the exchange rate equal the growth rate of real GDP b. A policy where the government chooses a common currency that it shares with other countries c. An exchange rate policy where the exchange rate is determined by the market forces d. An exchange rate policy where the central bank intervenes in the foreign exchange market to keep the exchange rate fixed at a constant level e. None of the above

d. An exchange rate policy where the central bank intervenes in the foreign exchange market to keep the exchange rate fixed at a constant level

Identify a factor that is likely to increase the demand for financial capital in an economy, everything else remaining unchanged. a. An increase in private sector saving b. A decrease in private sector investment c. An increase in the tax revenue earned by the government d. An increase in government borrowing e. None of the above

d. An increase in government borrowing

What will be the impact of an expansionary monetary policy? a. A decrease in the inflation rate b. A decrease in consumption expenditure c. An increase in interest rates d. An increase in investment expenditure e. none of the above

d. An increase in investment expenditure

Which of the following is likely to raise interest rates in an economy? a. An increase in tax rates b. A decrease in the discount rate c. A decrease in tax rates d. An increase in the discount rate e. None of the above

d. An increase in the discount rate

Which of the following is most effective in tackling unemployment from a recession? a. A policy mix of an expansionary monetary policy and a contractionary monetary policy b. Both contractionary monetary and fiscal policies c. Only a contractionary fiscal policy d. Both expansionary monetary and fiscal policies e. None of the above

d. Both expansionary monetary and fiscal policies

Which of the following is likely to be true if the theory of Ricardin Equivalence holds completely true? a. An increase in government borrowing will lead to a rise in trade deficits b. An increase in government borrowing will lead to a depreciation of the domestic currency c. Changes in government borrowing will have no effect on private savings d. Changes in government borrowing will have no effect on trade balances e. None of the above

d. Changes in government borrowing will have no effect on trade balances

Which of the following is an implication of the theory of Ricardian Equivalence? a. An increase in government borrowing will be offset by an increase in private investment in physical capital b. Changes in government borrowing will have no impact on private savings c. An increase in government borrowing will be offset by an increase in trade surplus d. Changes in government borrowing will have no impact on physical capital investment e. None of the above

d. Changes in government borrowing will have no impact on physical capital investment

Why did national debt decline in the United States during 1998 to 2001? a. Federal spending on social security increased during this period b. The revenue collected through payroll taxes declined during this period c. Interest payments by the federal government increased during this period d. Defense spending declined during this period e. None of the above

d. Defense spending declined during this period

Which of the following is likely to happen if the budget deficit rises? a. The money supply in the economy will increase b. The money supply in the economy will decrease c. Private savings will fall d. Domestic private investment will fall e. None of the above

d. Domestic private investment will fall

Which of the following is most likely to happen if the budget deficit falls, everything else remaining unchanged? a. Money supply will increase b. Private firms will borrow less c. Trade deficit will rise d. Households will save less e. None of the above

d. Households will save less

Identify the correct statement a. If automatic stabilizers are allowed to work in an economy during a recession, the level of unemployment in the economy increases b. If contractionary monetary policies are introduced in an economy during a recession, the unemployment rate in the economy falls c. If automatic stabilizers are allowed to work in an economy during a recession, the economy's trade deficit increases d. If it takes time to implement discretionary fiscal policy in an economy during a recession, it is likely to be unsuccessful e. None of the above

d. If it takes time to implement discretionary fiscal policy in an economy during a recession, it is likely to be unsuccessful

In which of the following situations will an inflationary pressure arise in an economy? a. If the government raises tax rates b. If the central bank raises the discount rate c. If the central bank sells government bonds to commercial banks d. If the central bank lowers the reserve requirement for commercial banks e. None of the above

d. If the central bank lowers the reserve requirement for commercial banks

Which of the following is true? a. In the first half of the 2000s, both budget and trade deficits decreased b. In 2009, the budget deficit declined as the trade deficit increased c. In the early 1990s, the budget deficit and the trade deficit increased at the same time d. In the 1980s, the budget deficit and the trade deficit declined at the same time e. None of the above

d. In the 1980s, the budget deficit and the trade deficit declined at the same time

Identify an example of a contractionary monetary policy. a. Increase in tax rates b. Decrease in the discount rate c. Decrease in the reserve requirement d. Increase in the sale of government bonds by the central bank e. None of the above

d. Increase in the sale of government bonds by the central bank

What should the central bank of a country do if it wants to raise interest rates? a. It should lower tax rates b. It should purchase government bonds from commercial banks c. It should reduce its spending d. It should raise the reserve requirement e. None of the above

d. It should raise the reserve requirement

Countries in ______ have relatively high GDP per capita compared to countries in other parts of the world. a. East Asia b. Sub-Saharan Africa c. South Asia d. Latin America e. None of the above

d. Latin America

What is this term? Basic quantity equation of money a. Real GDP x velocity = Nomial GDP b. Money supply x Interest rate = Nominal GDP c. Money supply x velocity = Nominal GDP - Real GDP d. Money supply x velocity = Nominal GDP e. None of the above

d. Money supply x velocity = Nominal GDP

What does a foreign direct investment refer to? a. Selling domestically produced goods to foreign consumers b. Sending back money earned in a foreign country to the home country c. Buying foreign goods d. Starting up a new enterprise in a foreign country e. None of the above

d. Starting up a new enterprise in a foreign country

What will be the effect of a sharp depreciation of the yen against the dollar if several large Japanese banks owe millions of U.S. dollars? a. There will be an increase in the level of unemployment in the U.S. b. Banks in the U.S. will go bankrupt c. There will be a sharp decrease in the volume of Japan's exports d. The Japanese economy will experience a recession e. None of the above

d. The Japanese economy will experience a recession

What happens when the currency in an economy depreciates? a. The level of foreign investment in the economy increases b. The number of domestic tourists traveling abroad increases c. The level of unemployment d. The aggregate demand in the economy increases e. None of the above

d. The aggregate demand in the economy increases

Which of the following is true of the debt/GDP ratio in the U.S.? a. The debt/GDP ratio in the United States during the 1940s was very low b. The debt/GDP ratio in the United States fell sharply in the 1980s and early 1990s c. The debt/GDP ratio in the United States fell during the recession of 2008-2009 d. The debt/GDP ratio in the United States rose from 2002 to 2008 e. None of the above

d. The debt/GDP ratio in the United States rose from 2002 to 2008

Suppose the U.S. government increases its borrowing and the funds come from European financial investors. Which of the following is likely to happen in this case? a. The euro will strengthen b. U.S. exports will become cheaper c. The supply curve of U.S. dollars will shift to the right d. The demand curve for U.S. dollars will shift to the right e. None of the above

d. The demand curve for U.S. dollars will shift to the right

What is likely to happen if the euro/dollar exchange rate is expected to strengthen? a. The supply curve for dollars will shift to the right b. The demand curve for euros will shift to the right c. There will be an unequivocal decrease in the quantity of dollars traded in the foreign exchange market d. The demand curve for dollars will shift to the right e. None of the above

d. The demand curve for dollars will shift to the right

Which of the following is likely to happen if the expected rate of return on dollars becomes higher than the expected rate of return on euros? a. The supply curve for dollars will shift to the left b. There will be an unequivocal increase in the quantity of dollars traded in the foreign exchange market c. The euro/dollar exchange rate will weaken d. The demand curve for dollars will shift to the right e. None of the above

d. The demand curve for dollars will shift to the right

Which is the largest single source of federal government revenue in the United States? a. Excise tax b. The corporate income tax c. The payroll tax d. The individual income tax e. None of the above

d. The individual income tax

What will happen if the central bank of an economy lowers the discount rate? a. The aggregate price level in the economy will fall b. The investment expenditure in the economy will increase c. The interest rates in the economy will increase d. The money supply will increase e. None of the above

d. The money supply will increase

Which of the following will happen if European financial investors provide funds for government borrowing in the U.S.? a. The U.S. dollar will weaken against the euro b. The demand for U.S. dollars in the foreign exchange market will decrease c. The volume of U.S. imports will decrease d. The volume of U.S. exports will decrease e. None of the above

d. The volume of U.S. exports will decrease

Why are these taxes used? Tobin taxes a. To decrease the volume of imports b. To increase the volume of exports c. To attract foreign direct investments d. To reduce international capital flows e. None of the above

d. To reduce international capital flows

An increase in government borrowing ______. a. shifts the demand curve for financial capital to the left b. produces deflationary pressure if the economy is producing more than its potential GDP c. produces deflationary pressure if the economy is producing its potential GDP d. causes the interest rate to rise e. None of the above

d. causes the interest rate to rise

A strategy where banks lend to a variety of customers is called ______. a. securitization b. speculation c. amortization d. diversification e. none of the above

d. diversification

If an exchange rate is pegged above what would otherwise be the equilibrium, then the ______. a. quantity demanded of the currency will exceed the quantity demanded b. A policy which allows the foreign exchange market to set exchange rates c. A policy where the exchange rate equals the growth rate of real GDP d. quantity supplied of the currency will exceed the quantity demanded e. None of the above

d. quantity supplied of the currency will exceed the quantity demanded

Many banks make mortgage loans so that people can buy a home, but then do not keep the loans on their books as an asset. Instead, the bank sells the loan. This is called ______. a. diversification b. speculation c. amortization d. securitization e. None of the above

d. securitization

What is the term used to refer to the following? Amounts held in checking accounts.

demand deposits

If a government spends more than it receives in taxes, it can be viewed as a ______ of financial capital.

demander

When the exchange rate for a currency falls, so that a currency trades for less of other currencies, it is referred to as ______.

depreciating

What is the term used to refer to the following? Use the U.S. dollar as the currency

dollarize

Taxes on international capital flows a. Pigouvian taxes b. Custom duties c. Value-added taxes d. Excise duties e. None of the above

e. Tobin taxes

The ______ rate is the interest rate charged by commercial banks making overnight loans to other banks.

federal funds

Banks act as ______ that is, institutions that operate between savers who deposit money in a bank and borrowers who receive loans from that bank.

financial intermediaries

What is the term for the following? A series of studies that show, statistically, that 70% of the differences in income per person across the world is explained by differences in physical capital

growth consensus

What is the following term? Using a financial transaction to protect oneself against currency risk

hedging

What is the term for the following? A nation with a per capita income of $12,475 or more, and that typically has high levels of human and physical capital

high-income country

Once a bill is passed by the government of a country regarding a new policy or project, it takes some time for the funds to be dispersed to the appropriate agencies to kick-start the programs. The time to get the projects started is often called the ______ lag.

implementation

One concern with pegged exchange rate policies is that they imply a country's monetary policy is no longer focused on controlling ______.

inflation

A rule that central banks should focus on keeping the rate of increase in the aggregate price level low

inflation targeting

Aside from the neoclassical determinants of growth, four additional determinants are significant in a wide range of statistical studies and are worth mentioning: geography, demography, industrial structure, and ______.

institutions

The time to get a bill passed is often referred to as the ______ lag.

legislative

To prevent solvent banks from failing and a financial crisis from spreading, the Fed stands ready to lend to banks and other financial institutions when they cannot obtain funds from anywhere else. This is known as the ______ role of the Fed.

lender of last resort

A bank views deposits as _________.

liabilities

A ________ is a debt or something you owe.

liability

If a nation is experiencing the inflow of foreign investment capital associated with a trade deficit because foreign investors are making ______ investments in firms, there may be no substantial reason for concern.

long-term direct

What is the term for the following? A nation that has a per capita income of less than $1,025

low-income country

Money serves as a ______, which means that money acts as an intermediary between the buyer and the seller. To serve this function, money must be very widely accepted as a method of payment in the markets for goods, labor, and financial capital. a. standard of deferred payment b. a social equalizer c. medium of exchange d. a store of value e. none of the above

medium of exchange

An approach to exchange rate policy that eliminates foreign exchange risk altogether is for a nation to choose a common currency shared with one or more nations. A nation that chooses such a policy has a ______.

merged currency

What is the term for the following? A nation with per capita income between $1,025 and $12,475

middle-income country

What is the term for the following? The total amount that the government has borrowed over time

national debt

European economies have a higher ______ than the U.S. because they have a greater number of rules and restrictions that discourage firms from hiring and unemployed workers from taking jobs.

natural rate of unemployment

There exists a ______ relationship between sustained deficits that lead to high levels of government debt and long-term growth.

negative

Regulation requires that banks maintain a minimum ______, usually expressed as a percent of their assets, to protect their depositors and other creditors.

net worth

The ________ of a bank is the asset value minus how much is owed.

net worth

In a two-country, two-commodity model, the ______ of the two commodities help to identify the range of possible trades that would benefit each country.

opportunity costs

Banks are a critical intermediary in what is called the ______, which helps an economy exchange goods and services for money or other financial assets.

payment system

What is the term for the following? A tax that collects a greater share of income from those with high incomes than from those with lower incomes

progressive tax

What is the term for the following? A tax that is a flat percentage of income earned, regardless of level of income

proportional tax

When a government runs a budget deficit, ______ is negative.

public savings

The exchange rate that equalizes the prices of internationally traded goods across countries is called the ______ exchange rate.

purchasing power parity

The purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand

quantitative easing

The deficit in the standardized employment budget is smaller than the actual budget deficit if the economy is in a ______.

recession

The time it takes to determine that a recession has occurred is often called the ______ lag.

recognition

What is the term for the following? A tax in which people with higher incomes pay a smaller share of their income in tax

regressive tax

What is the therm used to refer to the following? Money that a bank keeps on hand

reserves

Governments should beware of a sustained pattern of high budget deficits and high trade deficits. The danger arises in particular when the inflow of foreign investment capital is funding ______ investment in government bonds.

short-term portfolio

Money serves as a _______, which means that if money is usable today to make purchases, it must also be acceptable to make purchases today that will be paid in the future. a. medium of exchange b. store of value c. standard of deferred payment d. unit of account e. none of the above

standard of deferred payment

Each year, the nonpartisan Congressional Budget Office (CBO) calculates the ______ budget—that is, what the budget deficit or surplus would be if the economy were producing at potential GDP.

standardized employment

Money serves as a ______, which means that although money loses some buying power each year in an economy with inflation, it still remains money. a. store of value b. unit of account c. social equalizer d. standard of deferred payment e. none of the above

store of value

In an economy without money, a doctor who wishes to buy a pair of jeans needs to find a person who has a pair of jeans in the correct size and who is willing to exchange it for some hours of the doctor's service. This is an example of _______. a. the tragedy of commons b. the prisoner's dilemma c. the problem of double coincidence of wants d. the paradox of thrift e. none of the above

the problem of double coincidence of wants

When each country has a product others need and it can be produced with fewer resources in one country over another, then it is easy to imagine all parties benefiting from ______.

trade

If the funding for a larger budget deficit comes from international financial investors, then a budget deficit may be accompanied by a ______.

trade deficit

The expected pattern of trade imbalances in the world economy has been that high-income economies will run trade surpluses, which means they will experience a net outflow of capital to foreign destinations or export more than they import, while low-income and middle-income economies will run ______, which means that they will experience a net inflow of foreign capital.

trade deficits

The expected pattern of trade imbalances in the world economy has been that high-income economies will run ______, which means they will experience a net outflow of capital to foreign destinations or export more than they import, while low-income and middle-income economies will run trade deficits, which means that they will experience a net inflow of foreign capital.

trade surpluses

Banks help in bringing savers and borrowers together. Thus, banks help in lowering ________ costs.

transaction

A country is said to run ______ when it runs a budget deficit as well as a trade deficit.

twin deficits

Money serves as a _______, which means that it is the ruler by which other values are measured. a. standard of deferred payment b. unit of account c. medium of exchange d. store of value e. none of the above

unit of account

The speed with which money circulates through the economy

velocity of money