Macroeconomics Exam 2

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100. If customers deposit $50 into the bank, what is the value of the money supply?

$100

Suppose ice cream cones cost $3. Molly holds $60. What is the real value of the money she holds?

20 ice cream cones

Other things the same, a government budget deficit

Reduces both public and national saving

The inflation tax falls most heavily on

Those who hold a lot of currency but accounts for a small share of U.S. Government revenue

The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 10%. People hold no currency, and the banking system keeps no excess reserves. United States money supply will eventually increase by

$2,000

If the exchange rate is 0.60 British pounds= $1, a bottle of ale that cost 3 pounds costs

$5

Based on the quantity equation, if velocity=3.5, the quantity of money=15,000, and the price level= 1.2, then the real value of output is

43,750.00

Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?

8 units of goods

The term hyperinflation refers to

A period of very high inflation

When in France you notice that prices are posted in euros, this best illustrates money's function as

A unit of account

The primary advantage of mutual funds is that they

Allow people with small amounts of money to diversify

In the foreign exchange market, the supply of US dollars comes from

Americans, and the demand for US dollars come from foreigners

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

An asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply

If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has

Appreciated. Other things the same, the appreciation would make Americans more likely to travel to Mexico

If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has

Appreciated. Other things the same, the appreciation would make Americans more likely to travel to Mexico.

Two of the economy's most important financial intermediaries are

Banks and mutual funds

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Bond A has a term of 20 years and Bond B has a term of 2 years

When the Fed decreases the discount rate, banks will

Borrow more from the Fed and lend more to the public. The money supply increases.

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Borrower or as a demander of funds

If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in

Both the price level and nominal output

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called a

Credit risk

Which list ranks assets from most to least liquid?

Currency, stocks, fine arts

When the price level falls, the number of dollars needed to buy a representative basket of goods

Decreases, so the value of money rises

The principle of monetary neutrality implies that an increase in the money supply will

Increase the price level, but not real GDP

Institutions that help to match one person's savings with another person's investments are collectively called the

Financial system

In a system of 100-percent-reserve banking, the purpose of the bank is to

Give depositors a safe place to keep their money

You use US currency to pay the owner of a restaurant for a delicious meal. The currency

Has no intrinsic value. The exchange is not an example of barter

In 1991, the Federal Reserve lowered the reserve requirement from 12% to 10%. Other things the same, this should have

Increased both the money multiplier and the money supply

When European goods and services become more attractive to Chinese, the demand for euros

Increases, and Euros appreciate

When European goods and services become more attractive to Chinese, the demand for euros

Increases, and euros appreciate

When American goods and services become more attractive to Chinese, the demand for US dollars

Increases. The supply of Chinese yuan increases

If an economy uses silver as money, then that economy's money

Is commodity money

You hold bonds issued by the city government of Sacramento, California. The interest you earn each year on these bonds

Is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the United States government

If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

It increases by $100,000

If the government currently has a budget deficit, then

Its debt is increasing

If a reform of the tax laws encourages greater saving, the result would be

Lower interest rates and greater investment

When inflation rises, people

Make more frequent trips to supermarkets and firms make more frequent price changes

The primary economic function of the financial system is to

Match one person's saving with another person's investment

When there is a reserve requirement, banks

May hold more than, but not less than, the required quantity of reserves.

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

None of the above is correct

The Fed can increase the money supply by

Selling government bonds or by raising the discount rate

Dollar bills, rare paintings, and emerald necklaces are all

Stores of value

The Laffer Curve shows the relationship between

Tax revenue and tax rate

The supply of money increases when

The Fed makes open-market purchases

The economy's two most important financial markets are

The bond market and the stock market

You are planning a graduation trip to Nepal. Other things the same, if the dollar depreciates relative to the Nepalese rupee, then

The dollar buys fewer rupees. Your purchases in Nepal will require more dollars

You are staying in London over the summer and you have a number of dollars with you. If the dollar depreciates relative to the British pound, then other things the same,

The dollar would buy fewer pounds. The depreciation would discourage you from buying as many British goods and services.

If velocity and real output were nearly constant, then

The inflation rate would be about the same as the money supply growth rate

The data on hyperinflation show a clear link between the quantity of money and

The price level

According to the classical dichotomy, when the money supply doubles, which of the following doubles?

The price level and nominal GDP

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

U.S. Government bonds generally pay a higher rate of interest than corporate bonds

If congress instituted an investment tax credit, the interest rate

Would rise and saving would rise

Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

Your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.