Econ Test #2

If a country has a trade surplus

it has positive net exports and positive net capital outflow.

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

it increases by $150,000

GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. For this economy, public saving is equal to

$0.2 trillion and the government is running a budget surplus of $0.2 trillion.

GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. For this economy, private saving is equal to

$1 trillion

GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. For this economy, investment amounts to

$1.2 trillion

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?

-$10 million

According to purchasing-power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

1/2 pound per dollar

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio?

10 and your purchase will increase Brazil's net exports.

The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?

3 percent

A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, what is the real exchange rate (expressed as the number of Mexican goods per one U.S. good)?

4/3 so the good is more expensive in the U.S.

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?

6.75

If the price level increased from 120 to 130, then what was the inflation rate?

8.3 percent

Which of the following statements is correct?

For a closed economy, the sum of private saving and public saving must equal investment.

Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year, she spent all of her income to purchase 180 units of corn at $6 per unit.

Jane's nominal income increased this year, but her real income decreased.

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?

Private saving is positive; public saving is negative.

Which of the following is an example of financial intermediation?

Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

The supply of loanable funds shifted left.

Jane's nominal income increased this year, but her real income decreased.

a good description of the long run, but not the short run.

The law of one price states that

a good must sell at the same price at all locations.

The classical dichotomy argues that changes in the money supply

affect nominal variables, but not real variables.

Who can vote on Federal Open Market Committee decisions?

all of the members of the Board of Governors and some of the Federal Reserve Bank presidents

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

appreciates so U.S. goods become more expensive relative to foreign goods.

Credit cards

are not considered money

Matt and Melinda are American residents. Matt buys stock issued by a German corporation. Melinda opens a shoe factory in Panama. Whose purchase, by itself, increases the U.S.'s net capital outflow?

both Matt's and Melinda's

If the dollar buys fewer bananas in Guatemala than in Honduras, then traders could make a profit by

buying bananas in Honduras and selling them in Guatemala, which would tend to raise the price of bananas in Honduras.

When the Federal Reserve conducts open-market operations to increase the money supply, it

buys government bonds from the public.

If inflation is lower than what was expected,

debtors pay a higher real interest rate than they had anticipated.

Which of the following is an example of menu costs?

deciding on new prices printing new price lists advertising new prices

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

decreases, so the value of money rises.

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also

either a rise in output or a fall in velocity.

Fiat money

has no intrinsic value.

Foreign-produced goods and services that are purchased domestically are called

imports

As the reserve ratio decreases, the money multiplier

increases

Which list ranks assets from most to least liquid?

money, bonds, cars, houses

Higher inflation makes relative prices

more variable, making it less likely that resources will be allocated to their best use.

If Israel's domestic investment exceeds its national saving, then Israel has

negative net capital outflows and negative net exports.

If purchasing-power parity holds, then the value of the

real exchange rate is equal to one.

Economic variables whose values are measured in goods are called

real variables.

Which of the following is included in M2 but not in M1?

savings deposits

The interest rate the Fed charges on loans it makes to banks is called

the discount rate.

If there is a shortage of loanable funds, then

the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.

The sale of stocks

to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.

Tara deposits money into an account with a nominal interest rate of 6 percent. She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara's after-tax real rate of interest

will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation turns out to be higher than 2 percent.

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

would decrease and investment would increase.