econ long quiz 3
A country will export a good if it
can sell the good to a foreigner at a higher price than the no-trade price.
Ricardian equivalence means that:
changes in private savings offset any changes in the government deficit.
The fundamental force that generates international trade is
comparative advantage.
A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.
contractionary
When housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements ________ as many households found it ________ to borrow against the value of their homes.
declined; harder
When an economy faces an inflationary gap, an appropriate fiscal policy is to
decrease government expenditure.
The crowding out effect refers to the ________ from ________ in the government's budget deficit.
decrease in investment; an increase
By increasing the federal funds target, the Fed will ________ reserves and ________ the quantity of money.
decrease; decrease
Between the second quarter of 2006 and the first quarter of 2009, the value of housing wealth
decreased by about $600 billion per quarter.
An income tax hike
decreases potential GDP.
If the exchange rate rises, then the quantity of dollars demanded ________ because with the higher U.S. exchange rate, U.S. exports ________.
decreases; decrease
Ignoring any supply-side effects, if government expenditure on goods and services decrease by $10 billion and taxes decrease by $10 billion, then real GDP ________ and the price level ________.
decreases; falls
If a country's economic data shows private savings of $300 million, government spending of $350 million, tax revenue of $400 million, and a trade surplus of $75 million, then what does investment equal?
$275 million
In October 2008, Congress passed the ________, under which the Treasury provided funds to banks in exchange for stock.
Troubled Asset Relief Program (TARP)
In April 2015, the assets with the largest value on the Fed's balance sheet was
U.S. Treasury securities.
In the foreign exchange market, the demand for dollars decreases and the demand curve shifts leftward if the
U.S. interest rate differential decreases.
For many years, U.S. investment has exceeded savings and government expenditure has exceeded taxes. These imbalances (deficits) have been financed through international ________ by the United States as shown by the surplus on the balance of payments ________ account.
borrowing; capital and financial
The main advantage of trade between two countries is that
both countries have consumption choices beyond their current resource and production constraints
International trade benefits
both the exporter and the importer.
In the United States for the year 2017, the federal government had a ________ so the national debt was ________.
budget deficit; increasing
When the exchange rate between the U.S. dollar and the euro changes from 1.30 euros per dollar to 1.00 euro per dollar the dollar has ________ and European goods have become ________ to people in the United States so that quantity of U.S. dollars supplied ________.
depreciated; more expensive; decreases
The treasury bill rate is the interest rate paid
on government securities that mature in less than a year.
The balanced budget multiplier is
positive because the magnitude of government expenditure multiplier is larger than the magnitude of tax multiplier.
The foreign exchange rate is defined as the
price at which one currency exchanges for another.
The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.
private savings from U.S. households and firms; inflows of foreign financial investment.
Specialization and trade allow a country to
produce on its production possibility frontier and consume outside it.
If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
progressive
If South Dakota's governor reports a budget surplus in 2011, that state government likely:
received more in taxes than it spent in that year.
The Reserve Bank of India is lowering its rates to fight
recession.
When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.
regressive
If the Fed wants to maintain a dollar exchange rate of 1.20 euros per dollar but the exchange rate rises, then in the short run the Fed can
sell dollars and buy euros.
If the equilibrium exchange rate of the dollar is 1.10 euros per dollar and currently the exchange rate is 0.90 euros per dollar, then there is a ________ of dollars that leads to ________.
shortage; a rise in the exchange rate
Automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic
stabilizers.
By the height of the housing bubble in 2005 and early 2006, lenders had greatly loosened the standards for obtaining a mortgage loan, with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.
sub-prime; "Alt-A"
If the federal government has a budget surplus, then it is definitely the case that
tax revenues exceeds government outlays.
Expansionary monetary policy
tends to lead to a depreciation of a nation's currency.
What two parts of the government determine the federal budget?
the Congress and the President
A flexible exchange rate between two countries is determined by
the demand and supply of both countries' currencies.
Suppose that the price of a plasma TV is $1,200 in the United States and 13,200 pesos in Mexico. If the current exchange rate is 10 pesos to the dollar, then purchasing power parity theory would predict that in the long run
the exchange value of the peso will depreciate.
Interest rate parity occurs when
the interest rate in one currency equals the interest rate in another currency when exchange rate changes are taken into account.
Purchasing power parity determines the exchange rate in
the long run
The United States has a comparative advantage in the production of wheat, and Haiti has a comparative advantage in the production of sugar. If both countries specialize based on the theory of comparative advantage,
the production and consumption of both goods will increase.
While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008, others were critical of these actions. The critics were concerned that by not allowing large firms to fail
there is an increased likelihood that other firms will engage in risky behavior in the future with the expectation that they will also not be allowed to fail.
Exchange rate changes are
very volatile because supply and demand changes reinforce each other.
The nominal interest rate cannot fall below
zero.
A financial asset is considered a security if
it can be sold in a secondary market.
In 2015, a dollar could be traded for 100 yen and in 2016 a dollar could be traded for 90 yen. Between these two years, the dollar has become ________ valuable and so the dollar has ________.
less; depreciated against the yen
The phenomenon in which an insured individual takes less care in preventing the event against which she is insured is an example of
moral hazard.
In 2008, the Treasury and Federal Reserve took several actions in response to the deepening financial crisis. One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for
mortgage-backed securities.
If the amount you owe on your house is greater than the price of the house, you have
negative equity in your house.
The structural deficit or surplus is the
government budget deficit or surplus that would occur if the economy were at full employment.
When the government's expenditures exceed its tax revenues, the budget
has a deficit and the national debt is increasing.
Most t-shirts bought by Americans are made in Asia. As a result of free trade, the production of t-shirts in America
has decreased.
A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.
higher interest rate
Which of the following is a factor in determining the demand for the dollar on the foreign exchange market? i. the exchange rate ii. interest rates in the United States and other countries iii. the expected future exchange rate
i, ii, and iii
Transfer payments include i. social security benefits ii. medicare and medicaid benefits iii. unemployment benefits
i, ii, and iii.
How could an expansionary fiscal policy increase real GDP and lower the price level?
if aggregate supply increases more than aggregate demand increases
Which of the following are reasons why U.S. residents supply dollars to the foreign exchange market? i. to buy U.S. exports ii. to buy foreign real estate iii. to buy foreign bonds
ii and iii
A cyclical deficit is the budget deficit that occurs when i. actual output is at potential output ii. the economy is at full-employment output. iii. tax revenues and outlays are not at their full-employment levels.
iii only
By the 2000s, an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.
investment banks
When the government's outlays equal its tax revenue, the budget
is balanced and the national debt is not changing.
A government collects $700 billion annually in tax revenue. Each year it allocates $70 billion to the justice system and $130 billion for its own administrative costs. What percentage of annual tax revenue is allocated to these two categories of government spending?
28.57%
China has a comparative advantage in textiles and an absolute advantage in both textiles and radios. Japan has a comparative advantage in radios. According to this scenario
China should export textiles and import radios
The theory of comparative advantage is credited to
David Ricardo.
Which of the following explains why mortgages weren't considered securities prior to 1970?
Prior to 1970, mortgages were rarely resold in the secondary market.
When a government records a budget surplus, the national savings and investment identity is written as:
S + (M - X) + (T - G) = I
If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as:
S + (M - X) = I + (G - T)
In 2008, the Treasury and Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing. Which of the following is one reason why these measures were taken?
The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail.
The magnitude of the tax multiplier is smaller than the magnitude of the government expenditure multiplier because
a change in taxes does not change expenditures by as much as the same size change in government expenditure.
Purchasing power parity can be used as
a long-run gauge, but in the short run large deviations in currency values can exist.
The government expenditure multiplier is used to determine the
amount aggregate demand is affected by a change in government expenditure.
The advantage in the production of a product enjoyed by one country over another when it uses fewer resources to produce that product than the other country does is
an absolute advantage
The federal budget is defined as
an annual statement of expenditures and tax revenues of the U.S. government.
Purchasing power parity is defined as
an equal value of money across currencies.
The federal government levies _____________________________ on people who pass assets ____________________________, either after death or during life.
an estate and gift tax; to the next generation
A tax cut that increases the budget deficit results in ________ in the ________ loanable funds.
an increase; demand for
If the U.S. economy is producing at a level that is substantially less than potential GDP and the government's budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger.
an inflationary increase in the price level
The Taylor rule is an example of
an instrument rule focused on the federal funds rate.
Under a system of floating exchange rates, an excess demand for a particular currency will lead to a(n)
appreciation of that currency
A ______________________ means that government spending and taxes are equal.
balanced budget
If the interest rate rises, you would expect the price of any stock to
fall.
When housing prices ________, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements decline as many households find it ________ to borrow against the value of their homes.
fall; harder
Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?
fiscal policies
Exchange rates that are determined by the unregulated forces of supply and demand are
floating exchange rates.
The United States imports t-shirts because
foreign nations have a lower opportunity cost of production.
The Bank of Israel's actions ________ bank reserves and have the goal of ________ consumption.
increase; increasing
Between the first quarter of 2000 and the first quarter of 2006, the value of housing wealth
increased by about $500 billion per quarter.
When a nation exports a good or service in which it has a comparative advantage, employment in that industry
increases.
If the interest rate rises in the United States relative to other nations, then in the foreign exchange market the demand for dollars ________ and the supply of dollars ________.
increases; decreases
An increase in U.S. exports to Japan _______the demand for U.S. dollars and _______ the supply of yen.
increases; increases