Econ Test 3

32. The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be a. 44/400. b. 6/362. c. 38/400. d. 32/400.

. D 32/400

51. During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year? a. $80 billion b. $100 billion c. $120 billion d. $150 billion

a. $80 billion

42. If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is a. -3 percent. b. 0.75 percent. c. 3 percent. d. 11 percent.

a. -3 percent.

21. Refer to Figure 28-3. At the equilibrium wage, how many workers are unemployed? a. 0 b. 4,000 c. 5,000 d. 8,000

a. 0

30. A bank's assets equal its liabilities under a. both 100-percent-reserve banking and fractional-reserve banking. b. 100-percent-reserve banking but not under fractional-reserve banking. c. fractional-reserve banking but not under 100-percent-reserve banking. d. neither 100-percent-reserve banking nor fractional-reserve banking.

a. both 100-percent-reserve banking and fractional-reserve banking.

36. If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could a. buy $300,000 worth of bonds. b. buy $225,000 worth of bonds. c. sell $300,000 worth of bonds. d. sell $225,000 worth of bonds.

a. buy $300,000 worth of bonds.

46. Net capital outflow is defined as the purchase of a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. b. foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. c. domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. d. domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.

47. A Japanese bank buys U.S. government bonds, this purchase a. increases U.S. net capital outflow and has no effect on Japanese net capital outflow. b. increases U.S. net capital outflow and increases Japanese net capital outflow. c. increases U.S. net capital outflow, but decreases Japanese net capital outflow. a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.

a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.

60. According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money a. gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. b. gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. c. loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy. d. loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

a. gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

5. David's Utility Function Wealth Utility $60,000 500 $61,000 505 $62,000 509 $63,000 512.5 If David's current wealth is $61,000, then a. his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is risk averse. b. his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is not risk averse. c. his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is risk averse. d. his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. David is not risk averse.

a. his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. David is risk averse.

24. Susan is a plant manager in charge of a factory in a relatively poor country. Even though market wages are low, she decides to raise the wages of her workers. Her decision a. might increase profits if it means that the wage is high enough for her workers to eat a nutritious diet that makes them more productive. b. will help eliminate the excess supply of labor. c. may cause her workers to reduce the effort they expend at their jobs. d. All of the above are correct.

a. might increase profits if it means that the wage is high enough for her workers to eat a nutritious diet that makes them more productive.

49. If a country has Y > C + I + G, then it has 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. positive net capital outflow and positive net exports.

18. Frictional unemployment is inevitable because a. sectoral shifts are always happening. b. there is a federal minimum-wage law in the U.S. c. some people do not want to be employed. d. unions are very popular in the U.S.

a. sectoral shifts are always happening.

40. In which case is velocity the highest? a. the price level equals 4, the money supply equals 5,000, and output equals 20,000. b. the price level equals 4, the money supply equals 20,000 and output equals 5,000. c. the price level equals 2, the money supply equals 5,000, and output equals 20,000. d. the price level equals 2, the money supply equals 20,000 and output equals 5,000.

a. the price level equals 4, the money supply equals 5,000, and output equals 20,000.

2. Suppose you will receive $500 at some point in the future. If the annual interest rate is 7.5 percent, then the present value of the $500 is a. $411.26 if the $500 is to be received in 5 years and $338.95 if the $500 is to be received in 10 years. b. $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years. c. $291.11 if the $500 is to be received in 5 years and $272.89 if the $500 is to be received in 10 years. d. $291.11 if the $500 is to be received in 5 years and $236.49 if the $500 is to be received in 10 years.

b. $348.28 if the $500 is to be received in 5 years and $242.60 if the $500 is to be received in 10 years.

4. A bond promises to pay $500 in one year and $10,500 in two years. What is the correct way to find the present value of this bond? a. $500(1 + r) + $10,500/ (1 + r)2 b. $500/ (1 + r) + $10,500/ (1 + r)2 c. $11,000/ (1 + r)2 d. $500(1 + r) + $10,500(1 + r)2

b. $500/ (1 + r) + $10,500/ (1 + r)2

59. A tall latte in China costs 30 yuan. The same latte in the U.S. costs 4 dollars. If the exchange rate is 6.5 yuan per dollar then, the real exchange rate is a. .867 so the good is more expensive in the U.S. b. .867 so the good is more expensive in China. c. 1.154 so the good is more expensive in the U.S. d. 1.154 so the good is more expensive in China.

b. .867 so the good is more expensive in China.

33. The money multiplier equals a. 1/R, where R represents the quantity of reserves in the economy. b. 1/R, where R represents the reserve ratio for all banks in the economy. c. 1/ (1+R), where R represents the quantity of reserves in the economy. d. 1/ (1+R), where R represents the reserve ratio for all banks in the economy.

b. 1/R, where R represents the reserve ratio for all banks in the economy.

3. Lucretia puts $400 into an account when the interest rate is 10 percent. Later she checks her balance and finds it's worth about $708.62. How many years did she wait to check her balance? a. 5 years b. 6 years c. 7 years d. 8 years

b. 6 years

31. A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement. a. It has $25 in reserves and $4,975 in loans. b. It has $250 in reserves and $4,750 in loans. c. It has $1,000 in reserves and $4,000 in loans. d. None of the above is correct.

b. It has $250 in reserves and $4,750 in loans.

15. Who is not included in the labor force by the Bureau of Labor Statistics? a. Anita, who is on temporary layoff b. Lauren, who has retired and is not looking for work c. Raymond, who does not have a job but has applied for several in the last week d. None of the above is correct.

b. Lauren, who has retired and is not looking for work

54. The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times a. U.S. prices minus foreign prices. b. U.S. prices divided by foreign prices. c. foreign prices divided by U.S. prices. d. None of the above is correct.

b. U.S. prices divided by foreign prices.

58. The law of one price states that a. a good must sell at the price fixed by law. b. a good must sell at the same price at all locations. c. a good cannot sell for a price greater than the legal price ceiling. d. nominal exchange rates will not vary.

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

26. The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money a. being a unit of account. b. being a medium of exchange. c. serving as a store of value. d. having intrinsic value.

b. being a medium of exchange.

50. An American brewery sells dollars to obtain euros. It then uses the euros to buy brewing equipment from a German company. These transactions a. increase U.S. net capital outflow because Germans obtain U.S. assets. b. decrease U.S. net capital outflow because Germans obtain U.S. assets. c. increase U.S. net capital outflow because the U.S. buys capital goods. d. decrease U.S. net capital outflow because the U.S. buys capital goods.

b. decrease U.S. net capital outflow because Germans obtain U.S. assets.

41. According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also a. either a rise in output or a rise in velocity. b. either a rise in output or a fall in velocity. c. either a fall in output or a rise in velocity. d. either a fall in output or a fall in velocity.

b. either a rise in output or a fall in velocity.

23. Efficiency wages a. increase productivity and reduce unemployment. b. increase productivity but increase unemployment. c. decrease productivity but reduce unemployment. d. decrease productivity and increase unemployment.

b. increase productivity but increase unemployment.

14. The Bureau of Labor Statistics produces data on unemployment a. weekly. b. monthly. c. quarterly. d. yearly.

b. monthly.

44. Peru has exports of $31.5 million and imports of $30 million. Peru a. sells more overseas then it buys from overseas; it has a trade deficit. b. sells more overseas then it buys from overseas; it has a trade surplus. c. buys more from overseas then it sells overseas; it has a trade deficit. d. buys more from overseas then it sells overseas; it has a trade surplus.

b. sells more overseas then it buys from overseas; it has a trade surplus.

16. The labor-force participation rate is computed as a. (Employed ÷ Adult Population) × 100. b. (Employed ÷ Labor Force) × 100. c. (Labor Force ÷ Adult Population) × 100. d. (Adult Population ÷ Labor Force) × 100.

c. (Labor Force ÷ Adult Population) × 100.

45. If a country had a trade deficit of $20 billion and then its exports rose by $7 billion and its imports fell by $10 billion, its net exports would now be a. $37 billion b. $3 billion c. -$3 billion d. -$37 billion

c. -$3 billion

48. Which of the following equations is always correct in an open economy? a. I = Y - C b. I = S c. I = S - NCO d. I = S + NX

c. I = S - NCO

11. Fundamental analysis shows that stock in Garske Software Corporation has a present value that is higher than its price. a. This stock is overvalued; you should consider adding it to your portfolio. b. This stock is overvalued; you shouldn't consider adding it to your portfolio. c. This stock is undervalued; you should consider adding it to your portfolio. d. This stock is undervalued; you shouldn't consider adding it to your portfolio.

c. This stock is undervalued; you should consider adding it to your portfolio.

10. If you believe that stock prices follow a random walk, then probably you a. do not believe that there is positive relationship between risk and return. b. do not believe that stock prices reflect all available information. c. believe in the validity of the efficient markets hypothesis. d. believe that it is a good idea to engage in fundamental analysis.

c. believe in the validity of the efficient markets hypothesis

37. Other things the same if reserve requirements are decreased, the reserve ratio a. decreases, the money multiplier increases, and the money supply decreases. b. increases, the money multiplier increases, and the money supply increases. c. decreases, the money multiplier increases, and the money supply increases. d. increases, the money multiplier increases, and the money supply decreases.

c. decreases, the money multiplier increases, and the money supply increases.

34. Bank regulators impose capital requirements in order to a. increase the amount of leverage in the economy. b. provide an incentive for banks to hold risky assets. c. ensure banks can pay off depositors. d. increase the probability of a credit crunch.

c. ensure banks can pay off depositors.

43. Which of the following both reduce net exports? a. exports rise, imports rise b. exports rise, imports fall c. exports fall, imports rise d. exports fall, imports fall

c. exports fall, imports rise

27. The Soviet government in the 1980's never abandoned the ruble as the official currency. However, the people of Moscow preferred to accept a. cigarettes in exchange for goods and services, because they were convinced that cigarettes were going to soon become hard to come by. b. American dollars in exchange for goods and services, because rubles were extremely hard to come by. c. goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money. d. All of the above are correct.

c. goods such as cigarettes or American dollars in exchange for goods and services, reminding us of the fact that government decree by itself is not sufficient for the success of a commodity money.

35. When the Fed conducts open-market purchases, a. banks buy Treasury securities from Fed, which increases the money supply. b. banks buy Treasury securities from the Fed, which decreases the money supply. c. it buys Treasury securities, which increases the money supply. d. it buys Treasury securities, which decreases the money supply.

c. it buys Treasury securities, which increases the money supply.

52. The nominal exchange rate is the a. nominal interest rate in one country divided by the nominal interest rate in the other country. b. the ratio of a foreign country's interest rate to the domestic interest rate. c. rate at which a person can trade the currency of one country for another. d. the real exchange rate minus the inflation rate.

c. rate at which a person can trade the currency of one country for another.

28. At the Federal Reserve, a. the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets about every six weeks. b. the nation's monetary and fiscal policies are made by the Federal Open Market Committee, which meets twice a year. c. the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks. d. the nation's monetary policy is made by the Federal Open Market Committee, which meets twice a year.

c. the nation's monetary policy is made by the Federal Open Market Committee, which meets about every six weeks.

57. If the U.S. has a trade deficit and the nominal exchange rate depreciates, then other things the same a. the trade deficit rises and net capital outflow rises. b. the trade deficit rises and net capital outflow falls. c. the trade deficit falls and net capital outflows rise. d. the trade deficit falls and net capital outflows fall.

c. the trade deficit falls and net capital outflows rise.

19. Which of the following does not help reduce frictional unemployment? a. government-run employment agencies b. public training programs c. unemployment insurance d. All of the above help reduce frictional unemployment.

c. unemployment insurance

13. Cyclical unemployment refers to a. the relationship between the probability of unemployment and a worker's changing level of experience. b. how often a worker is likely to be employed during her lifetime. c. year-to-year fluctuations of unemployment around its natural rate. d. long-term trends in unemployment.

c. year-to-year fluctuations of unemployment around its natural rate.

1. Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent. The future value of the $500 after 2 years is a. $428.67. b. $470.00. c. $580.00. d. $583.20.

d. $583.20.

38. If the price level increased from 120 to 130, then what was the inflation rate? a. 1.1 percent. b. 7.7 percent. c. 10.0 percent. d. 8.3 percent.

d. 8.3 percent.

9. Chloe talked to several stockbrokers and made the following conclusions. Which, if any, of Chloe's conclusions are correct? a. It is relatively easy to reduce firm-specific risk by increasing the number of companies one holds stock in. b. Stock prices, even if not exactly a random walk, are very close to it. c. Some people have made a lot of money in the stock market by using insider information, but these cases are not contrary to the efficient markets hypothesis. d. All of Chloe's conclusions are correct.

d. All of Chloe's conclusions are correct.

17. Job search a. is one reason economies always experience some unemployment. b. is the process of matching workers with appropriate jobs. c. would not be a problem if all workers and all jobs were the same. d. All of the above are correct.

d. All of the above are correct.

12. Fundamental analysis shows that Quadrangle Company is fairly valued. Then Quadrangle Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful competitor. Suppose this has no effect on the price of the stock of Quadrangle Company. a. Fundamental analysis would now show the corporation is overvalued. The fact that the price was unchanged is consistent with the efficient markets hypothesis. b. Fundamental analysis would now show the corporation is overvalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis. c. Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is consistent with the efficient markets hypothesis. d. Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis.

d. Fundamental analysis would now show the corporation is undervalued. The fact that the price was unchanged is not consistent with the efficient markets hypothesis.

20. Minimum-wage laws a. reduce unemployment. b. cause labor shortages, which further raise wages above equilibrium. c. affect highly-educated workers more than high school dropouts. d. None of the above is correct.

d. None of the above is correct.

25. Consider five individuals with different occupations. Allen prepares taxes wants ribs Betty does dry cleaning wants computer fixed Calvin fixes computers wants bread Diedre bakes bread wants taxes prepared Eric barbecues ribs wants dry cleaning In a barter system which of the following pairs has a double coincidence of wants? a. Allen and Eric b. Diedre and Calvin c. Both A and B are correct. d. None of the above is correct.

d. None of the above is correct.

56. Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports a. increase and U.S. net capital outflow decreases. b. decrease and U.S. net capital outflow increases. c. and U.S. net capital outflow both increase. d. and U.S. net capital outflow both decrease.

d. and U.S. net capital outflow both decrease.

55. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as a. P*/ (Pe). b. P/ (P*e). c. e (P*/P). d. e(P/P*),

d. e(P/P*),

6. Refer to Figure 27-1. The utility function that is shown exhibits the property of diminishing a. wealth. b. utility. c. marginal wealth. d. marginal utility.

d. marginal utility.

22. The introduction of a union into an industry a. raises wages and employment in that industry. b. lowers wages and employment in that industry. c. lowers wages and raises employment in that industry. d. raises wages and lowers employment in that industry.

d. raises wages and lowers employment in that industry.

29. When conducting an open-market sale, the Fed a. buys government bonds, and in so doing increases the money supply. b. buys government bonds, and in so doing decreases the money supply. c. sells government bonds, and in so doing increases the money supply. d. sells government bonds, and in so doing decreases the money supply.

d. sells government bonds, and in so doing decreases the money supply.

8. A measure of the volatility of a variable is its a. present value. b. future value. c. return. d. standard deviation.

d. standard deviation.

53. The dollar is said to appreciate against the euro if a. the exchange rate falls. Other things the same, it will cost fewer euros to buy U.S. goods. b. the exchange rate falls. Other things the same, it will cost more euros to buy U.S. goods. c. the exchange rate rises. Other things the same, it will cost fewer euros to buy U.S. goods. d. the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.

d. the exchange rate rises. Other things the same, it will cost more euros to buy U.S. goods.

7. As the number of stocks in a person's portfolio increases, a. the risk of the portfolio increases, as indicated by the increasing value of the standard deviation of the portfolio. b. the risk of the portfolio increases, as indicated by the decreasing value of the standard deviation of the portfolio. c. the risk of the portfolio decreases, as indicated by the increasing value of the standard deviation of the portfolio. d. the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio

d. the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio

39. When the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money a. and equilibrium quantity of money to increase. b. and equilibrium quantity of money to decrease. c. to increase, while the equilibrium quantity of money decreases. d. to decrease, while the equilibrium quantity of money increases.

d. to decrease, while the equilibrium quantity of money increases.