MacroEconomics Units 6-10
.904. If purchasing power parity held the nominal exchange rate would be higher.
A Starbucks Grande Latte costs $3.75 in the U.S. and 28 yuan in China. The nominal exchange rate is 6.75 yuan per dollar. The real exchange rate is
increase both U.S. exports and U.S. net exports.
A Texas ranch sells beef to a U.S. company that sells it to a grocery chain in Japan. These sales
decrease, and U.S. net capital outflow decreases.
A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports
This increases U.S. net capital outflow and decreases Korean net capital outflow.
A U.S. firm opens a factory that produces power tools in Korea.
25 percent.
A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows that the reserve requirement is
52 4*13=52
It costs $4 in the US to buy a hamburger. Assuming purchasing power parity, what is the price of a hamburger in Japan (in Japanese Yen), if the nominal exchange rate is 13 yen per dollar?
currency, demand deposits and other checkable deposits, traveler's checks
M1 includes:
everything in M1 plus: savings deposits, money market mutual funds, small time deposits (certificate of deposits smaller than 100k), and a few other minor categories.
M2 includes
it usually leads to budget deficits and increases in the national debt.
Most developed economies, including the US, go through a significant demographic transition: population aging. One important aspect of this demographic transition is that:
Investments+NCO
National Savings=
270 (1241-528-443=270)
National saving in a closed economy is $443, GDP is $1,241, consumption is $528, and taxes are $145. Calculate government spending.
reduces the real exchange rate. This reduction could be offset by an increase in the domestic price level.
Other things the same, an increase in the foreign price level
less wealthy, so the quantity of goods and services demanded falls.
Other things the same, an increase in the price level makes consumers feel
continued increases in real GDP and continued decreases in the price level
Other things the same, continued increases in technology lead to
higher than desired prices, which depresses their sales
Other things the same, if the money supply rises by 2% and people were expecting it to rise by 5%, then some firms have
part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.
People who buy stock in a corporation such as General Electric become
National Savings=I+NCO
A hypothetical economy has private savings of $6,562, domestic investments of $1,324, and its government runs a deficit of $5,904. Calculate NCO.
is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.
A mutual fund
the exchange rate rises, so net exports fall.
As the price level rises,
$5
If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs
raises the standard of living in all trading countries.
International trade
creating budget deficits, increasing the national debt, and creating inflation.
What are the negative consequences of fiscal stimulus?
The accumulation of debt acquired to finance budget deficits over time.
What is the national debt?
certificate of indebtedness.
A bond is a
more domestic goods and fewer foreign goods.
A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
by both lowering taxes and increasing the government spending.
A fiscal stimulus can be created
will push the AD curve to the right
A fiscal stimulus will have the following effect on the economy:
people are optimistic about the company's future.
A high demand for a company's stock is an indication that
issued by state and local governments.
A municipal bond is
an increase in the cost of production
An increase in the price level and a reduction in output would result from
borrowing directly from the public.
If the Apple corporation sells a bond it is
2,668.42 507/.19=2668.42
If the banking system has a reserves ratio of 19% and the Fed purchases $507 worth of government bonds from the public, what will be the increase in the money supply?
250 yen per pound
If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?
does not change the money supply.
If you deposit $100 of currency into a demand deposit at a bank, this action by itself
monetary policy deals with influencing the money supply.
Which of the following is true about monetary policy?
1,060 1313-253=1060
Private saving is a closed economy is $1,313 and the government is running a deficit of $253. What is national saving?
1258 1517-259=1258
Private saving is a closed economy is $1,517 and the government is running a deficit of $259. What is national saving?
=Nominal Exchange Rate*(Domestic/Foreign)
Real Exchange Rate=
irregular intervals. During recessions investment spending falls relatively more than consumption spending.
Recession come at
the US price level and real GDP to fall.
Recessions in Canada and Mexico would cause
the multiplier of government spending is greater than the multiplier of taxation
Regarding the multiplier effect of fiscal policy, which one of the following is true in the US?
both aggregate demand and long-run aggregate supply must be shifting right, and the aggregate demand must be shifting farther.
Since the end of World War II, the US has almost always had rising prices and an upward trend in real GDP. To explain this
1,500, Deficit
Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?
104.17 75/.72=104.17
The nominal exchange rate between US and France is 0.72 Euros per Dollar. The price of a good in France is 75 Euros. How many US Dollars does one need to be able to purchase this good in France?
is at the point where the unemployment rate is zero. wrong
The position of the long-run aggregate supply curve
is determined by resource usage and technology.
The position of the long-run aggregate supply curve
PV=FV*(PV 1519=1364*(1+r)^2 1519/1364=(1+r)^2 (take square root) 1.1136= (1+r) r=0.055 or 5.5%
The present value of $1,519 received 2 years into the future is $1,364. What is the interest rate? Express the answers in percentages.
7.22 PV=FV*(1+r)^N 1559=1356*(1+r)2 1559/1356=(1+r)^2 1.1497=(1+r)^2 1.07=1+r .0722 OR 7.22%
The present value of $1,559 received 2 years into the future is $1,356. What is the interest rate? Express the answers in percentages.
economic growth, low unemployment, and stable prices.
The primary goals of monetary policy are:
8.125 1.3=X*(10/62) 1.3=X*(.16) 8.125=X
The same good sells for $10 in the US and for 62 Chinese Yuan in China. The real exchange rate between the US and China is 1.3. How many yuan does a dollar buy?
16.47 1.91=X*(10/86) 1.91=X*(.116) 16.47=X
The same good sells for $10 in the US and for 86 Chinese Yuan in China. The real exchange rate between the US and China is 1.91. How many yuan does a dollar buy?
the slope of the AD curve
The wealth effect, the interest rate effect, and exchange rate effect are all explanations for
Higher Prices
What will be the long run effect of a fiscal stimulus?
capital investment.
When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures
it engages in monetary easing.
When the Fed lowers the federal funds rate,
Monetary Policy wrong
When the government pursues policy through manipulations of the federal budget, we call this:
consumption goods demanded and the quantity of net exports demanded both rise.
When the price level falls, the quantity of
nominal wages are slow to adjust to changing economic conditions
Which of the following can explain the upward slope of the short-run aggregate supply curve?
D
Which of the following is correct? a. Economic fluctuations are easily predicted by competent economists. b. Recessions have never occurred very close together. c. Spending, income, and production do not fluctuate closely with real GDP. d. None of the above is correct.
government's tax collections.
Which of the following would not be included in aggregate demand?
an increase in government spending
Which of the following would raise the price level in both the short run and the long run?
increased immigration from abroad a decrease in the price of an imported natural resource opening the economy to international trade
Which of the following would shift long-run aggregate supply to the right?
private roads toll taxes.
Which one of the following is NOT a source of government revenue?
Engaging in open market operations.
Which one of the following is NOT an example of fiscal policy?
it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.
You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same
changing the federal funds rate
The preferred monetary policy tool of the Fed is:
is commodity money.
If an economy uses silver as money, then that economy's money
shifts the AD curve to the left and lowers GDP
Decreasing the money supply,
defer payments.
Credit cards
higher GDP and higher prices. wrong
Decreasing government spending will result in:
$75,000.
If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as
the government collects more tax revenue than it spends during one fiscal year
A budget surplus exists when
monetary policy.
A central bank's setting (or altering) of the money supply is known as
a medium of exchange and as a store of value.
A checking deposit functions as
net exports (NX) are zero.
A closed economy does not engage in international trade, therefore
6264 12,136= X + 5,872 X=6264
A country's NCO is $5,872 and its national savings are $12,136. What is its level of domestic investment?
an average of a group of stock prices.
A stock index is
Congress passes a reform of the tax laws that encourages greater investment.
According to the loanable funds model, which of the following events would result in higher interest rates and greater saving?
private saving = $10,000 and GDP = $63,000.
For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then
8 pesos per dollar 800/100=8
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?
U.S. prices would rise and the nominal exchange rate would fall.
According to purchasing-power parity, if the Federal Reserve increased the money supply
a decrease in the price level, but does not change real GDP
According to the AD-AS model, in the long run a decrease in the money supply leads to
leave national saving unchanged and reduce private saving.
According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would
increased, so it would increase production.
According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had
the quantity of goods and services the government, households, firms, and customers abroad want to buy.
Aggregate demand includes
government purchases increase and shifts left if stock prices fall.
Aggregate demand shifts right if
decreases taxes.
Aggregate demand shifts right when the government
rise in the short run, and rise even more in the long run
An economic expansion caused by a shift in aggregate demand causes prices to
an increase in the money supply
An expansionary monetary policy is:
control the supply of money.
An important function of the U.S. Federal Reserve is to
increases
As the reserve ratio decreases, the money multiplier
-1 percent, 8 percent
Below are pairs of GDP growth rates and unemployment rates. Economists would be shocked to see most of these pairs in the U.S. Which pair of GDP growth rates and unemployment rates is realistic?
3 percent, 5 percent
Below are pairs of GDP growth rates and unemployment rates. Economists would be shocked to see most of these pairs in the US. Which pair of GDP growth rates and unemployment rates is realistic?
the price of the basket of goods falls in the U.S. and rises in Taiwan.
Consider an identical basket of goods in both the U.S. and Taiwan. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?
paper bills and coins.
Currency includes
a shift of the AD curve to the right, which will increase GDP and prices.
Cutting taxes will result in:
stores of value.
Dollar bills, rare paintings, and emerald necklaces are all
sales and profits fall.
During recessions
consumption and investment
During recessions, which type of spending falls?
has no intrinsic value.
Fiat money
financial institutions through which savers can indirectly provide funds to borrowers.
Financial intermediaries are
the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.
For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,
aggregate demand right.
From 2001 to 2005, there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted
M1 = $1,350 billion, M2 = $5,600 billion.
Given the following information, what are the values of M1 and M2? Small time deposits $1,800 billion Demand deposits and other checkable deposits $1,000 billion Savings deposits $1,400 billion Money market mutual funds $1,000 billion Traveler's checks $50 billion Large time deposits $600 billion Currency $300 billion Miscellaneous categories in M2 $50 billion
every 6 weeks
How often does the FOMC meet to discuss changes in monetary policy?
the bank keeps 8 percent of its deposits as reserves and loans out the rest.
If a bank has a reserve ratio of 8 percent, then
rise and aggregate demand would shift right.
If banks and speculators in the US decided to exchange US dollars for foreign currencies of other countries, but foreigners do not desire to increase their holdings of US dollars, then US net exports would
the U.S. nominal exchange rate but not the U.S. real exchange rate
If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?
enough foreign currency to buy as many goods as it does in the United States.
If purchasing-power parity holds, a dollar will buy
fall, and European exports to the U.S. rise.
If the U.S. real exchange rate appreciates, U.S. exports to Europe
depreciates which causes U.S. net exports to increase.
If the number of Japanese yen a dollar buys falls, but neither country's price level changes, then the real exchange rate
will be able to make new loans up to a maximum of $9.50.
If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank
the dollar buys fewer euros. It will take more dollars to buy a good that costs 50 euros.
If you are vacationing in France and the dollar depreciates relative to the euro, then
2.7/4 loaves of British bread per loaf of French bread
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?
private saving would rise and national saving would fall
In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?
1532 800+536+196=1532
In a closed economy, public savings are $350 and private savings are $800. What is GDP, if taxes are $196 and consumption is $536?
1126 646+376+104=1126 Currency+Checking accounts+Travelers Checks
In an economy there are $646 in currency, $380 in savings accounts, $376 in checking accounts, $104 in traveler's checks, and $726 in small time deposits. What is M1?
typically have a higher rate of return and lower costs than managed mutual funds.
Index funds
financial system.
Institutions that help to match one person's saving with another person's investment are collectively called the
real GDP will fall and the price level might rise, fall, or stay the same. wrong
Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major restrictions on logging removed. In the short run
purchases or by lowering the discount rate.
The Fed can increase the money supply by conducting open-market
the FOMC.
The Fed has the power to increase or decrease the number of dollars in the economy through the decisions of
the price level on the vertical axis. The price level can be measured by the GDP deflator.
The aggregate demand and aggregate supply graph has
as it relates to the overall price level is called the aggregate-supply curve.
The curve that shows the quantity of goods and services that firms produce and sell
unemployment rate
The following graph tracks one important macroeconomic variable over time. The gray-shaded vertical bars represent economic recessions. What is the graph representing?
aggregate demand right.
The initial impact of an increase in an investment tax credit is to shift
24.57 1294/5267=.24568 100*.24568= 24.57
The level of bank deposits is $5,267 and the level of loans is $3,973. If banks hold no excess reserves, what is the reserves requirement? Express your answer in percentages, rounded to 2 decimals.
865+882=1747 1747/9847= .1774 or 17.74% 1/0.1174=5.6369 100*5.6369= $563.69
The level of bank deposits is $9,847 and the banks hold $865 in required reserves and $882 in excess reserves. If the Fed introduces $100 worth of new reserves in the economy, by how much will the money supply increase?
real GDP and the price level
The model of aggregate demand and aggregate supply explains the relationship between
1/4= 0.25 (75% are loans) 3764*(4/3)= 5018.67
The money multiplier is 4 and the level of loans in the economy is $3,764. Calculate the level of deposits.
5,628.57 4,925*(8/7)=5628.57
The money multiplier is 8 and the level of loans in the economy is $4,925. Calculate the level of deposits.
