Macro Econ Test #3
Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?
$510 million
Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. The opportunity cost of producing 1 orange for Alpha and Beta, respectively, are:
0.5 apples; 0.25 apples
In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012?
2010: .12 U.S. dollars; 2012: .15 U.S. dollars
Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.
a self-fulfilling prophesy
Refer to Exhibit 11-1. The economy is currently at point 1. In this situation, Keynesian economists would most likely propose
an increase in government purchases
With respect to measuring the money supply, which of the following terms describes a checking account?
demand deposits
The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?
10
A government collects $600 billion annually in tax revenue. Each year it allocates $35 billion to healthcare and $50 billion for education. What percentage of annual tax revenue is allocated to these two categories of government spending?
14.16%
Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 24 units of food per year or 12 units of clothing. Which of the following is true?
Alland has an absolute advantage in producing food but will not trade with Georgeland.
A stronger euro is less favorable for:
American tourists traveling in France
Which of the following institutions determines the quantity of money in the economy as its most important task?
Central Bank
Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 36 units of food per year or 18 units of clothing. Which of the following is true?
Georgeland has an absolute but not a comparative advantage in producing clothing.
Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 24 units of food per year or 12 units of clothing. Which of the following is true?
Georgeland has an absolute disadvantage, but not a comparative disadvantage, in producing clothing.
Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
M1
If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:
a budget deficit
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following
a contractionary monetary policy
In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.
a double coincidence of wants
If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:
a floating exchange rate
Jethro has a(n) __________________ in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up.
absolute advantage
When one nation can produce a product using fewer resources relative to another nation, it is said to have a(n) __________________ in producing that product.
absolute advantage
Colombia produces coffee with less labor and land than any other country; it therefore necessarily has:
an absolute advantage in coffee production
Which of the following denotes a common misunderstanding about exchange rates?
an appreciating currency must be better than a depreciating currency
The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.
an expansionary fiscal policy; an increase in government spending
If an economy moves into a recession, causing that country to produce less than potential GDP, then:
automatic stabilizers will cause tax revenue to decrease and government spending to increase.
A ______________________ means that government spending and taxes are equal.
balanced budget
____________ is a completely inadequate mechanism ____________________ in a modern advanced economy.
barter; for trying to coordinate trades
The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:
borrow for the short term from the central bank
If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:
both the money multiplier and the supply of money in the economy will increase.
A central bank that wants to increase the quantity of money in the economy will:
buy bonds in open market operations
How are the specific interest rates for the lending and borrowing markets determined?
by the forces of supply and demand
When nations increase production in their area of _________________ and trade with each other, both sides can benefit.
comparative advantage
_____________________ identifies the area where a producer's absolute advantage is relatively greatest, or where the producer's absolute disadvantage in productivity is relatively least.
comparative advantage
A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports .
contractionary; reduces; stimulates
The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions.
countercyclical
If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:
create an inflationary increase in price level
Refer to Exhibit 11-2 (which is known as the Laffer Curve). At point A, if we cut tax rates slightly, tax revenues
decrease
_________________________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check.
demand deposits
If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.
depend on borrowed money
What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
discount rate
When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:
discretionary fiscal policy
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.
double coincidence of wants
The _____________ is an example of a large-scale common currency.
euro
A stronger British pound is beneficial for:
exchange students with a British scholarship studying in Canada
If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?
expansionary
Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.
expansionary monetary policy
From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.
exports; imports
People or firms use one currency to purchase another currency at the _______________________.
foreign exchange market
According to international trade theory, a country should:
import goods in which it has a comparative advantage
If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?
income tax is a progressive tax
When the central bank decides to increase the discount rate, the:
interest rates increase
Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.
interest rates; right
Currently, the U.S. government accumulated debt to GDP ratio
is lower than its historical high point
Intra-industry trade between similar trading partners allows the gains from ______________________ that arise when firms and workers specialize in the production of a certain product.
learning and innovation
____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?
long and variable time lags
Trade allows each country to take advantage of _________________ in the other country.
lower opportunity costs
The idea behind comparative advantage reflects the possibility that one party:
may be able to produce something at a lower opportunity cost than another party
In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?
medium of exchange
In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects?
monitoring asset prices and leverage
The money multiplier is equal to_______________ divided by the _________________.
one; required reserve ratio
The slope of the production possibility frontier is determined by the ________________ of expanding production of one good, measured by how much of the other good would be lost.
opportunity cost
The theory of comparative advantage shows that the gains from international trade do not just result from the absolute advantage of producing at lower cost, but also from pursuing comparative advantage and producing at a lower ________________.
opportunity cost
The market where loans are made to borrowers is called the:
primary loan market
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
A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.
progressive tax
If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
proportional
A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.
proportional tax
________________________ equalizes the prices of internationally traded goods across countries.
purchasing power parity
A central bank that desires to reduce the quantity of money in the economy can:
raise the reserve requirement
If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
regressive
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
The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.
reserve ratio
A __________________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate.
soft peg exchange rate
Some nations that seek to produce all of their own needs face the problem that:
some industries are too small to be efficient if restricted to their domestic markets alone
For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.
swings in exchange rates
Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.
taking a management responsibility
The Canadian dollar will most likely strengthen against the U.S. dollar if:
the Canadian inflation rate becomes extremely low
Why do banks use a T-account?
the T-account separates assets on the left from liabilities on the right
Suppose that the USA can make 15,000,000 cars or 20,000,000 bottles of wine with one year's worth of labor. France can make 10,000,000 cars or 18,000,000 bottles of wine with one year's worth of labor. From these numbers, we can conclude:
the USA has a comparative advantage in the production of cars
If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:
the dollar depreciated against the yen
If 1000 Mexican pesos could buy $100 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:
the dollar strengthened against the peso
The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?
the money supply in the economy decreases
When the central bank lowers the reserve requirement on deposits:
the money supply increases and interest rates decrease
_________________________ are included in the aggregate amount of MI money currently in circulation.
traveller's checks
In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.
unit of account
When inflation begins to climb to unacceptable levels in the economy, the government should:
use contractionary fiscal policy to shift aggregate demand to the left
Refer to Exhibit 11-4. If a person's taxable income is $20,000, how much does he pay in taxes?
$1,800
A government annually allocates $5 billion of its total tax revenue to weather related disaster relief, $21 billion to healthcare and $11 billion to education. If the government's quarterly tax revenue is $33 billion, what percentage of its budget is allocated annually to healthcare?
15.90%
The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?
20
In 2010, 1 Canadian dollar cost .56 British pounds and in 2012 it cost .63 British pounds. How much would 1 British pound purchase in Canadian dollars in 2010 and 2012?
2010: 1.79 dollars, 2012: 1.59 dollars
Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. Which of the following statements is true?
If Alpha specializes in growing apples and Beta specializes in growing oranges, they could both gain by specialization and trade.
In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true?
India has a comparative advantage in the production of rice
Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?
by increasing its reserves
When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?
federal funds rate
If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?
fighting inflation
In modern economies, _____________________ receive money from savers and provide funds to borrowers.
financial intermediaries
Which of the following is a traditional tool used by the Fed during recessions?
open market operations
___________are funds that the bank keeps on hand that are not loaned out or invested in bonds
reserves
A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene.
volatility
