Econ 111 Test 3

When the price level increases, the number of dollars needed to buy a representative basket of goods (a) Increases, so the value of money rises (b) Increases, so the value of money falls (c) Decreases, so the value of money rises (d) Decreases, so the value of money falls

B

From the previous question, what is the banks reserve ratio? (a) 40% (b) 4% (c) 20% (d) 10%

C

Which of the following is not correct? (a) The classical dichotomy separates real and nominal variables, such as real GDP, nominal GDP, real wages, nominal wages, real interest rates, and nominal interest rates (b) Monetary neutrality is the proposition that changes in the money supply do not change real variables like real wages and real GDP in the long run (c) Nominal variables are measured in real physical units while real variables are measured in monetary units such as prices (d) The price level is a nominal variables

C

Which of the following is not part of M1? (a) Currency (b) Demand Deposits (c) Money market mutual funds (d) Travelers checks

C

Which of the following would be a foreign direct investment in the US? (a) Six Flags builds a new roller coaster at their Mexico City park, Six Flags Mexico (b) A US citizen buys stock in KIA (c) BMW expands its factory near Spartanburg, South Carolina (d) A Canadian citizen buys bonds issued by Ford Motor Company

C

If the Fed wanted to reduce money supply it would (a) Reduce reserve requirement (b) Lower discount rate (c) Raise reserve requirement (d) Sale U.S. bonds

C & D

The price of Chevy Silverado (a) And the price of a Chevy Silverado divided by the price of a Ford F150 are both real variables (b) And the price of a Chevy Silverado divided by the price of Ford F150 are both nominal variables (c) Is a real variable and the price of a Chevy Silverado divided by the price of Ford F150 is a nominal variable (d) Is a nominal variable and the price of a Chevy Silverado divided by the price of a Ford F150 is a real variable

D

What is the new real exchange rate (terms of trade) between the U.S. and Canada for Whiskey? (a) 1.125 (b) 0.8 (c) 1.6875 (d) 1.08

D

Which is not a tool the Fed uses for monetary control? (a) Open Market operations (b) Discount rate (c) Reserve requirements (d) Regulations

D

Which of the following identities is correct in an open economy? (a) Y=C+I+G+NCO (b) NX=NCO (c) I=S-NCO (d) All of the above are correct

D

A U.S. firm buys bonds issued by Toyota in Japan. This purchase is an example of U.S. (a) Foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow (b) Foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow (c) Foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow (d) Foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow

A

According to the quantity equation, if Y=200, M=150, and V=4, then P= (a) 3 (b) 2 (c) 0.5 (d) 0.33

A

Based on your calculations and information in the questions above, which of the fol- lowing statements is correct? (a) The real exchange rate (terms of trade) has become more unfavorable for the U.S. because the price of whiskey fell in the U.S. and U.S. dollar appreciated against the Canadian dollar (b) The real exchange rate (terms of trade) has become more favorable for the U.S. because the price of whiskey fell in the U.S. and U.S. dollar depreciated against the Canadian dollar (c) The real exchange rate (terms of trade) has become more unfavorable for the U.S. because the price of whiskey rose in the Canada and U.S. dollar depreciated against the Canadian dollar (d) The real exchange rate (terms of trade) has become more favorable for the U.S. because the price of whiskey stayed the same in Canada and U.S. dollar appreci- ated against the Canadian dollar

A

If a country has $2.4 billion of net exports and purchases of $4.8 billion of goods and services from foreign countries, then it has (a) $7.2 billion of exports and $4.8 billion of imports (b) $7.2 billion of imports and $4.8 billion of goods and services from foreign countries, then it has (c) $4.8 billion of exports and $2.4 billion of imports (d) $4.8 billion of imports and $2.4 billion of exports

A

IfacountryhasY >C+I+G (a) Positive net capital outflow and positive net exports (b) Positive net capital outflow and negative net exports (c) Negative net capital outflow and positive net exports (d) Negative net capital outflow and negative net exports

A

In an open economy model, the consequences of an increase in the U.S government budget deficit is (a) An increase in the real interest rate, an appreciation in the real exchange rate, and a trade deficit (b) A decrease in the real interest rate, an appreciation in the real exchange rate, and a trade deficit (c) A decrease in the real interest rate, a depreciation in the real exchange rate, and a trade surplus (d) An increase in the real interest rate, a depreciation in the real exchange rate, and a trade surplus

A

In an open economy, GDP is $2,450 billion, consumer expenditures is $1,390 billion, government expenditures is $325 billion, investment equals $510 billion, and net capital outflow equals $225 billion. What is national savings and net exports? (a) S=$735 billion and NX=$225 billion (b) S=$510 billion and NX=$510 billion (c) S=$510 billion and NX=$225 billion (d) S=$735 billion and NX=$735 billion

A

In an open-economy, macroeconomic model, when the U.S. real interest rate falls, owning U.S. assets (a) Becomes less attractive compared to foreign assets, so U.S. net capital outflow rises (b) Becomes less attractive compared to foreign assets, so U.S. net capital outflow falls (c) Becomes more attractive compared to foreign assets, so U.S. net capital outflow rises (d) Becomes more attractive compared to foreign assets, so U.S. net capital outflow falls

A

Suppose that foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign companies. Other things the same, these actions (a) Raise both U.S. net exports and U.S. net capital outflows (b) Raise U.S. net exports and lower U.S. net capital outflows (c) Lower both U.S. net exports and U.S net capital outflows (d) Lower U.S. net exports and raise U.S. net capital outflows

A

When inflation rises, business and firms (a) More frequent price changes which raises their menu costs (b) More frequent price changes which reduces their menu costs (c) Less frequent price changes which raises their menu costs (d) Less frequent price changes which reduces their menu costs

A

Which of the following is not a variable that influences net capital outflow (NCO)? (a) Transportation costs (b) Government policies (c) Real interest rates (d) The risk of holding foreign assets

A

Why is the supply of dollars in the market for foreign exchange perfectly inelastic? (a) Because net capital outflow does not depend on the real exchange rate, but rather the real interest rate (b) Because the US Federal Reserve fixes the amount of dollars available for the market for foreign exchange (c) Because net capital outflow equals the supply of loanable funds and the supply of loanable funds is fixed by the U.S. Federal Reserve (d) Because net exports does not depend on the real interest rate

A

How much money would the initial $200 create? (a) $100 (b) $1000 (c) $50 (d) $250

B

If banks have a total of $200 in deposits and keep $40 as reserves what is the money supply? (a) $160 (b) $360 (c) $240 (d) $40

B

If the real GDP in an economy is 10,000 goods per year, the money supply is $5,000 and the price of those goods is $2, then according to the quantity equation, the number of times the average dollar circulates or changes hands in the economy is (a) 1 (b) 4 (c) 5,000 (d) 2

B

If velocity and real GDP are relatively constant, then (a) The inflation rate would be much higher than the money supply growth rate (b) The inflation rate would be about the same as the money supply growth rate (c) The inflation rate would be much lower than money supply growth rate (d) The inflation rate would be much lower than the price level

B

In an open economy, the supply of loanable funds comes from demand for loanable funds comes from . (a) National Savings, only domestic investment (b) National Savings, domestic investment and net capital outflow (c) Only net capital outflow, national savings and domestic investment (d) Net capital outflow, domestic investment

B

The Fisher effect (a) Says the government can generate revenue by printing money (b) Says there is a one for one adjustment of the nominal interest rate with the inflation rate with the inflation rate (c) Explains how higher money supply growth leads to higher inflation (d) Says there is a one for one adjustment of the real interest rate with the inflation rate

B

What is the real exchange rate(terms of trade) between the U.S. and Canada for Whiskey? (a) 1.75 (b) 1.5 (c) 1.04 (d) 1.2

B

When the money market is drawn with the value of money on the vertical axis, the money demand curve slopes (a) Upward because at higher prices people want to hold more money for purchases (b) Downward because at higher prices people want to hold more money for purchases (c) Downward because at higher prices people want to hold less money for purchases (d) Upward because at higher prices people want to hold less money for purchases

B

----- is a commodity money and ----- is a fiat money. (a) Cigarettes, gold coins (b) Gold coins, cigarettes (c) Gold coins, British Pound (d) Seashells, gold coins

C

14. So based on the fisher effect if inflation goes from 1% to 3%, the real interest rate will go from 4% to ----- , and the nominal interest rate will go from 5% to ----- . (a) 5,8 (b) 6,9 (c) 4,7 (d) 2,5

C

A country has a trade deficit so which of the following must also be true? (a) Net capital outflow is positive and domestic investment is larger than national saving (b) Net capital outflow is positive and domestic investment is smaller than national saving (c) Net capital outflow is negative and domestic investment is larger than national saving (d) Net capital outflow is negative and domestic investment is smaller than national saving

C

Last year you earned $10 per hour and the price level was $2.50. This year you earn $12 per hour and the price level is now $3. Based on this information (a) Your nominal wage increased, but your real wage decreased (b) Your nominal wage and your real wage increased (c) Your nominal wage increased but your real wage remained constant (d) Your nominal wage remained constant but your real wage increased

C

One of the major limitations of the purchasing power parity is that (a) Price levels are the same in all countries (b) Income levels vary in most countries (c) Some tradable goods are not perfect substitutes with their foreign counterparts, ex. BMW vs. Chevy Cobalt (d) Resource endowments vary across countries, ex cheap labor versus expensive cap- ital

C

What does this real exchange rate(terms of trade) calculated in 24 mean? (a) One dollar of U.S. currency can be traded for 1.5 dollars of Canadian currency (b) One bottle of U.S. whiskey can be traded for 1.75 bottles of Canadian whiskey (c) One bottle of U.S. whiskey can be traded for 1.5 bottles of Canadian whiskey (d) One dollar of U.S. currency can be traded for 1.2 dollars of Canadian currency

C

What would the money multiplier be using the reserve ratio from the above question? (a) 10 (b) 40 (c) 5 (d) 160

C

When Microsoft establishes a distribution center in Canada, U.S. net capital outflow (a) Increases because Microsoft makes a foreign portfolio investment in Canada (b) Decreases because Microsoft makes a foreign portfolio investment in Canada (c) Increases because Microsoft makes a foreign direct investment in Canada (d) Decreases because Microsoft makes a foreign direct investment in Canada

C