Midterm 3
What are the official measures of money? Are all the measures really money? The two main official measures of money in the United States today are ______. The two main official measures of money in the United States ______ really money.
M1 and M2; are The value of M1 is $ 235 billion. The value of M2 is $ 1,055 billion.
Sarah takes out a loan today for $15 comma 000 at an interest rate of 4 percent a year. She plans to repay the loan after 5 years. How much will he have to pay?
Sarah will have to pay $ 18,250.
The table gives information about the commercial banks in Zap. If banks have no unplanned reserves, what is the banks' desired reserve ratio?
The desired reserve ratio is 3 percent.
In Japan, potential GDP is 600 trillion yen and the graph shows the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve. Does Japan have an inflationary gap or a recessionary gap and what is its magnitude?
The graph shows that Japan has an output gap that is a recessionary gap. The size of the recessionary gap is yen 100 trillion.
Suppose an increase in the monetary base of $400,000 increases the quantity of money by $2 comma 000 comma 000. Calculate the money multiplier.
The money multiplier is 5.
If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately
6 percent.
An increase in the interest rate in the United States compared to the interest rate in Great Britain will
A. increase the U.S. interest rate differential. B. increase the demand for pounds. C. shift the demand curve for dollars rightward. D. - CORRECT ANSWER Both answers A and C are correct.
Which of the following is NOT a part of the monetary base?
U.S. government securities owned by the Fed
The U.S. dollar exchange rate increased from $0.89 Canadian in June 2009 to $0.96 Canadian in June 2010, and it decreased from 83.8 euro cents in January 2009 to 76.9 euro cents in January 2010. What was the value of the Canadian dollar in terms of U.S. dollars in June 2009 and June 2010? Did the Canadian dollar appreciate or depreciate against the U.S. dollar over the year June 2009 to June 2010?
In June 2009, the value of the Canadian dollar was $ 1.12 U.S. In June 2010, the value of the Canadian dollar was $ 1.04 U.S. The Canadian dollar depreciated against the U.S. dollar between June 2009 and June 2010.
In the figure, the economy is initially at point B. If taxes increase, there is
a shift to AD2.
All the following statements about the Federal Reserve are true EXCEPT the fact that it ________.
accepts checking deposits from the nation's residents
Describe three types of short-run macroeconomic equilibrium. A macroeconomic equilibrium in which real GDP exceeds potential GDP is _____ equilibrium. And one in which real GDP is less than potential GDP is _____ equilibrium The graph shows an economy's long-run aggregate supply curve. The economy is at a full-employment equilibrium. Draw an aggregate demand curve and a short-run aggregate supply curve. Label them. Draw a point at the short-run equilibrium.
an above full-employment; a below full-employment
According to the quantity theory of money, in the long run
an increase in the quantity of money creates an increase in prices but no additional increase in real GDP.
When real GDP exceeds potential GDP, then the economy has
an inflationary gap.
The graph shows the economy in long-run equilibrium. Then the world economy expands and the demand for U.S.-produced goods increases. Draw a curve that shows: 1) the effect of increased demand for U.S.-produced goods. Label it 1. 2) the effect of a rising money wage rate that returns the economy to full employment. Label it 2. Draw a point at the new long-run equilibrium. An economy is in a long-run equilibrium. An increase in aggregate demand creates ______ gap. A rise in the money wage rate decreases ______ and returns the economy to a full-employment equilibrium.
an inflationary; the quantity of real GDP demanded
If real GDP is less than potential GDP, then the economy is ________ equilibrium.
at a below full - employment
If the Fed sells government securities
commercial bank reserves will decrease.
In November 2015, the exchange rate was 122 yen per U.S. dollar. By November 2016, the exchange rate had fallen to 111 yen per U.S. dollar. Explain the exports effect of this change in the exchange rate. As the exchange rate falls, prices of U.S.-produced goods and services to foreigners ______ and the volume of U.S. exports ______.
fall; increases
When real GDP increases, the demand for money
increases.
If households expect an increase in their future incomes, they will save
less and consume more today
Suppose the equilibrium interest rate in the money market is 5 percent and the current interest rate is 7 percent. As a result,
people buy bonds and the interest rate falls.
How does a change in the quantity of money change the interest rate in the short run? Starting from a short-run equilibrium, when the Fed decreases the quantity of money, _______. The price of a bond ______ and the interest rate in the short run ______.
people enter the loanable funds market and sell bonds falls; rises
What are the functions of depository institutions? The functions of depository institutions include _______.
pooling risk
The term "crowding out" relates to the decrease in
private investment from a government budget deficit.
The "double coincidence of wants" problem is
resolved by the use of money.
The key financial institutions in the United States include all of the following EXCEPT
the U.S. Treasury
U.S. residents come to believe that the dollar will depreciate in the future, that is, the exchange rate in the future will be lower than the current exchange rate. As a result,
the demand curve for dollars shifts leftward.
When does potential GDP increase? Potential GDP increases when _______.
the full-employment quantity of labor increases
A financial decision should be pursued when
the net present value is positive.
A movement downward along the demand for loanable funds curve occurs when
the real interest rate falls
The nominal interest rate approximately equals which of the following?
the real interest rate plus the inflation rate
If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, then ________.
the real interest rate will fall
Changes in all of the following shift the supply curve of loanable funds EXCEPT
the real interest rate.
The present value of $200 one year from now when the interest rate is 7 percent is
$187
The exchange rate policy adopted by China until July 2005 was a _______ exchange rate. To make it work, China _______. The graph shows the foreign exchange market prior to any intervention by China. Draw a point at the equilibrium exchange rate and equilibrium quantity of dollars. Suppose that China's target exchange rate is 7 yuan per U.S. dollar. Draw a horizontal line at the target exchange rate. Label it. Draw an arrow to show the surplus or shortage of U.S. dollars at China's target rate. Label it.
fixed; buys and sells U.S. dollar reserves to maintain the target exchange rate buy; appreciate
Before the Fed decreases the quantity of money, the equilibrium interest rate is 7 percent a year. After the Fed decreases the quantity of money, at an interest rate of 7 percent a year, people want to hold _______ money than the quantity supplied, so they _______ bonds. The price of a bond _______ and the interest rate _______.
more; sell falls; rises
In the figure to the right, if the exchange rate is equal to 1 Canadian dollar per U.S. dollar, there is a ________ of ________ currency and the exchange rate will________.
shortage; domestic; rise
The demand for loanable funds is the relationship between loanable funds and the ________ other things remaining the same.
real interest rate
If the present value of $220 one year from now is $200, then the interest rate is
10 percent.
________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.
Keynesian
Suppose the current situation is such that the price level is 120, real GDP is $17 trillion, and GDP along the long - run aggregate supply curve is $16.6 trillion. What will take place to restore the long - run equilibrium?
Money wage rates will rise until real GDP reaches $16.6 trillion.
Which of the following is an asset of the Fed?
Mortgage - backed securities
Facebook sold shares of stock for the first time in an IPO on May 18, 2012. The stock originally sold for $38 per share. As of October 19, 2012, a share of Facebook stock was valued at $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called
a capital loss.
An increase in the currency drain
decreases the size of the money multiplier.