Final Exam
Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?
$27,000
If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, then according to the quantity equation, the average price level is
1.20
If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?
1.5 percent
You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?
2.55 percent
In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate?
2.7/4 loaves of British bread per loaf of French bread
According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?
8 pesos per dollar
Which of the following is an example of U.S. foreign direct investment?
A U.S. citizen builds and operates a coffee shop in the Netherlands.
In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate
Both A and B are correct.
The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?
The banking system currently has $10 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time buys $1 billion worth of bonds, then by how much does the money supply change?
Paying efficiency wages means that wages are
above equilibrium, and profits are higher than otherwise.
If the government of India implemented a policy that decreased national saving, its real exchange rate would
appreciate and Indian net exports would fall.
In a system of 100-percent-reserve banking,
banks do not make loans.
When a union bargains successfully with employers, in that industry,
both wages and unemployment increase.
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
buying bonds. This buying would increase reserves.
The primary difference between commodity money and fiat money is that
commodity money has intrinsic value but fiat money does not.
When inflation causes relative-price variability,
consumer decisions are distorted and the ability of markets to efficiently allocate factors of production is impaired.
At the original exchange rate an import quota
creates a shortage in the market for foreign-currency exchange, so the exchange rate rises.
When a Japanese auto maker opens a factory in the U.S., U.S. net capital outflow
declines because the foreign company makes a direct investment in capital in the U.S.
If the U.S. real exchange rate appreciates, U.S. exports
decrease and U.S. imports increase.
If the Fed sells government bonds to the public, then reserves
decrease and the money supply decreases.
For a given real interest rate, an increase in inflation makes the after-tax real interest rate
decrease, which discourages savings.
Other things the same if reserve requirements are decreased, the reserve ratio
decreases, the money multiplier increases, and the money supply increases.
In an open economy, national saving equals
domestic investment plus net capital outflow.
If purchasing-power parity holds, a dollar will buy
enough foreign currency to buy as many goods as it does in the United States.
If the demand for dollars in the market for foreign-currency exchange shifts left, then the exchange rate
falls and the quantity of dollars exchanged does not change.
Suppose that because of the popularity of the low-carb diet, bakeries need fewer workers and steak houses need more workers. The unemployment created by this change is
frictional unemployment created by sectoral shifts
Suppose the demand for hard-wood flooring increases, while the demand for wall-to-wall carpeting decreases. Based on this change in consumer tastes, the demand for hard-wood-flooring factory workers in North Carolina increases, while the demand for carpet factory workers in Georgia decreases. This is an example of
frictional unemployment created by sectoral shifts.
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called
frictional unemployment.
Suppose the U.S. removes an import quota on steel. U.S. exports
increase, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow is unchanged.
Open-market purchases by the Fed make the money supply
increase, which makes the value of money decrease.
An increase in the minimum wage
increases structural unemployment.
The reserve requirement is 4 percent, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 worth of bonds, what happens to the money supply?
it decreases by $250,000
The theory of efficiency wages explains why
it may be in the best interest of firms to offer wages that are above the equilibrium level.
Other things the same, if a country saves less, then
net capital outflow falls, so net exports fall.
According to the classical dichotomy, which of the following is influenced by monetary factors?
nominal wages
When a minimum-wage law forces the wage to remain above the equilibrium level, it
raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level.
The Fisher effect
says there is a one for one adjustment of the nominal interest rate to the inflation rate.
To decrease the money supply, the Fed can
sell government bonds or increase the discount rate.
If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
selling bonds. This selling would reduce reserves.
If at a given real interest rate desired national saving is $140 billion, domestic investment is $90 billion, and net capital outflow is $60 billion, then at that real interest rate in the loanable funds market there is a
shortage. The real interest rate will rise
Evidence indicates that the typical person who becomes unemployed will
soon find a job
People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as
structurally unemployed.
Other things the same, an increase in the U.S. interest rate causes
supply in the market for foreign-currency exchange to decrease so the exchange rate increases.
If a bank posts a nominal interest rate of 4 percent, and inflation is expected to be 3 percent, then
the expected real interest rate is 1 percent.
The idea that inflation by itself reduces people's purchasing power is called
the inflation fallacy.
When the Fed sells government bonds,
the money supply decreases and the federal funds rate increases.
When the Fed buys government bonds,
the money supply increases and the federal funds rate decreases.
If the demand for loanable funds shifts right, then
the real interest rate and the equilibrium quantity of loanable funds both rise.
In the open-economy macroeconomic model, the key determinant of net capital outflow is
the real interest rate. When the real interest rate rises, net capital outflow falls.
In December 1999 people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors' demands. These actions by the public
would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds.
If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as
$10,000.
Which of the following is not included in M1?
$500 in your savings account
If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is
-$100 billion and the U.S. has a trade deficit.
Based on the quantity equation, if M = 150, V = 4, and Y = 300, then P =
2
If the price level increased from 120 to 130, then what was the inflation rate?
8.3 percent.
In a fractional-reserve banking system, a bank
In a fractional-reserve banking system, a bank
If a country has a trade surplus then
S > I and Y > C + I + G.
Which of the following contains a list only of things that increase when the budget deficit of the U.S. increases?
U.S. imports, U.S. interest rates, the real exchange rate of the dollar
The law of one price states that
a good must sell at the same price at all locations.
When inflation rises, people will desire to hold
less money and will go to the bank more frequently.
A central bank's setting (or altering) of the money supply is known as
monetary policy.
Credit card limits are included in
neither M1 nor M2.
An increase in the budget deficit
reduces investment because the interest rate rises.
If the government of a country with a zero trade balances increases its budget deficit, then interest rates
rise and the trade balance moves to a deficit.
When Mexico suffered from capital flight in 1994, Mexico's real interest rate
rose and the peso depreciated.
If the U.S. imposed import quotas on cotton, then which of the following would rise?
the U.S. real exchange rate but not U.S. net exports
According to the classical dichotomy, which of the following is not influenced by monetary factors?
unemployment
