Econ Exam 3
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
