Unit 4 Exam

A market in which the money of one nation is exchanged for the money of another nation is a: foreign exchange market. resource market. bond market. stock market.

A

A restrictive monetary policy is designed to shift the: aggregate demand curve leftward. aggregate demand curve rightward. aggregate supply curve rightward. aggregate supply curve leftward.

A

Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be: 10 percent. 20 percent. 25 percent. zero.

A

If a nation has a comparative advantage in the production of X, this means the nation: must give up less of other goods than other nations in producing a unit of X. is not subject to increasing opportunity costs. cannot benefit by producing and trading this product. has a production possibilities curve identical to those of other nations.

A

If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B: Correct! mutually advantageous specialization and trade between A and B may still be possible. then there is no possible basis for mutually advantageous specialization and trade between A and B. it will necessarily be advantageous for B to import both X and Y from A. we can conclude that A is an industrially advanced economy and B is a developing economy.

A

If the monetary authorities want to reduce the monetary multiplier, they should: raise the required reserve ratio. lower interest rates. increase bank reserves. lower the required reserve ratio.

A

In the theory of comparative advantage, a good should be produced in that nation where: its cost is least in terms of alternative goods that might otherwise be produced. the production possibilities line lies further to the right than the trading possibilities line. its absolute money cost of production is least. its absolute cost in terms of real resources used is least.

A

Index funds: are passively managed. may be either passively or actively managed. are neither passively nor actively managed. are actively managed.

A

Picture 12: Refer to the graph. The intercept of the three Security Market Lines is determined by: the risk-free interest rate. all of these. the rate on long-term U.S. government bonds. the interest rate on financial assets with a beta of 1.

A

Picture 4: Answer the question on the basis of the following table for a commercial bank or thrift: Refer to the table. When the legal reserve ratio is 30 percent, the monetary multiplier is: 3.33. 4. 5. 2.5.

A

Picture 5: Answer the question on the basis of the following information for the Moolah Bank. Refer to the information. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be: 10. 8. 20. 5.

A

Picture 8: Answer the question on the basis of the following table: Refer to the given table. An increase in the money supply of $20 billion will cause the equilibrium interest rate to: fall by 2 percentage points. fall by 4 percentage points. rise by 4 percentage points. rise by 2 percentage points.

A

Picture 9: Answer the question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in any preceding ones. Refer to the given data. The commercial banking system has excess reserves of: zero. $5 billion. $10 billion. $2 billion.

A

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves: is larger the smaller the required reserve ratio. will be zero when the required reserve ratio is 100 percent. is directly or positively related to the size of the required reserve ratio. is the reciprocal of the bank's actual reserves.

A

A bank that has assets of $85 billion and a net worth of $10 billion must have: liabilities of $10 billion. liabilities of $75 billion. excess reserves of $75 billion. excess reserves of $10 billion.

B

Appreciation of the Canadian dollar will: make Canada's exports less expensive and its imports more expensive. make Canada's exports more expensive and its imports less expensive. intensify an existing disequilibrium in Canada's balance of payments. make Canada's exports and imports both more expensive.

B

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? Increased by $600. Increased by $1,200. Decreased by $600. Increased by $1,800.

B

If the Fed wants to lower the federal funds rate, it should: increase the reserve ratio. buy government securities in the open market. sell government securities in the open market. increase the discount rate.

B

Picture 11: Refer to the graph. Which of the three Security Market Lines depicts the situation where investors most dislike risk? It cannot be determined from the graph. Line C. Line B. Line A

B

Picture 13: The following diagram is a flexible exchange market for foreign currency: Refer to the diagram. At the equilibrium exchange rate: 0.8 euros will buy $1. 1.25 euros will buy $1. $8 will buy 1 euro. $1 will buy 8 euros.

B

Picture 1: Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 3 in the table. The number appropriate for space Y is: $24,000. $32,000. $96,000. $48,000.

B

Picture 2: Use the following balance sheet for the ABC National Bank in answering the question. Assume the required reserve ratio is 20 percent. Refer to the data. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of: $8,000. $25,000. $48,000. $15,000.

B

Which of the following statements best reflects the concept of present value? "The $5,000 in my savings account is worth less today than five years ago because of inflation." "You owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now." "My $100 savings bond will be worth $200 in 10 years." You Answered "The savings bond I bought five years ago is now worth $1,000."

B

Which of the following will generate a demand for country X's currency in the foreign exchange market? The imports of country X. The desire of foreigners to buy stocks and bonds of firms in country X. Travel by citizens of country X in other countries. Charitable contributions by country X's citizens to citizens of developing nations.

B

At the end of 2012, U.S. households and nonprofit organizations held approximately __________ in mutual funds. $6 trillion $787 billion $5.3 trillion $15.7 trillion

C

Forward commitment by the Fed has which of the following impacts? Forward commitment creates moral hazard in lending, as banks know that the Fed will continue to pump reserves into the system. Forward commitment encourages excessive lending as banks try to take control of as many reserves as possible before the policy is exhausted. Forward commitment encourages lending because banks do not fear that the Fed will suddenly reverse the policy. Forward commitment eliminates all flexibility in monetary policy.

C

From 2004 to 2006 the Fed raised the federal funds rate gradually in a series of steps. The Fed's purpose was to raise the prime interest rate so that: banks would reduce lending that was building up unmanageable consumer debt. high inflation rates would fall. aggregate demand would continue to grow consistently and with low inflation. aggregate supply would grow, increasing output and lowering the price level.

C

If nominal GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes will be: $1,800 billion. $600 billion. $200 billion. $1,200 billion.

C

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company profits, $1 for each share he owns. Refer to the information given. If Indy sells all his shares at a price of $30 per share, he will receive a: total capital gain of $10. dividend of $10 per share. total capital gain of $1,000. a capital gain of $30 per share.

C

Indy owns 100 shares of stock in Pet Mart Corporation that he purchased for $20 per share. Every year he has received, from company profits, $1 for each share he owns. Refer to the information given. Indy should necessarily sell his stock if: the company stops paying dividends. the price falls below $20 per share. he expects the sum of future capital gains and dividends to be negative. any of these circumstances occur.

C

Open-market operations refer to: the specifying of loan maximums on stock purchases. purchases of stocks in the New York Stock Exchange. the purchase or sale of government securities by the Fed. central bank lending to commercial banks.

C

Picture 7: Refer to the given market-for-money diagrams. The total demand for money is shown by: S. D2. D3. D1.

C

The possible asymmetry of monetary policy is the central idea of the: invisible hand concept. bandwagon effect. pushing-on-a-string analogy. ratchet analogy.

C

Which of the following is common to all investments? Owners are guaranteed future payments. The payment of interest. Some price must be paid to acquire them. Government insurance backs them.

C

Which of the following tools of monetary policy has not been used since 1992? The federal funds rate. Open-market operations. The reserve ratio. Interest on reserves.

C

Commercial banks monetize claims when they: collect checks through the Federal Reserve System. accept repayment of outstanding loans. borrow from the Federal Reserve Banks. make loans to the public.

D

If a U.S. importer can purchase 10,000 British pounds for the rate of exchange is: $1 = 2 British pounds in Great Britain. $.5 = 1 British pound in Great Britain. $1 = 2 British pounds in the United States. $2 = 1 British pound in the United States.

D

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is: 20 percent. 10 percent. 5 percent. 12.5 percent.

D

If the demand for money and the supply of money both decrease, the equilibrium: quantity of money and the equilibrium interest rate will both increase. quantity of money will increase, but we cannot predict the change in the equilibrium interest rate. interest rate will decline, but we cannot predict the change in the equilibrium quantity of money. quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.

D

If the dollar price of yen rises, then: the dollar will buy fewer U.S. goods. the yen depreciates relative to the dollar. the yen price of dollars also rises. the dollar depreciates relative to the yen.

D

If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then: the dollar has depreciated in value. the peso has appreciated in value. more U.S. goods and services will be demanded by the Mexicans. Americans will buy more Mexican goods and services.

D

If the quantity of money demanded exceeds the quantity supplied: the supply-of-money curve will shift to the left. the demand-for-money curve will shift to the right. the interest rate will fall. the interest rate will rise.

D

In order for mutually beneficial trade to occur between two otherwise isolated nations: each nation must be able to produce at least one good absolutely cheaper than the other. each nation must face constant costs in the production of the good it exports. one nation's production must be labor-intensive while the other nation's production is capital-intensive. each nation must be able to produce at least one good relatively cheaper than the other.

D

Index funds are a portfolio of: bonds with rates of return fixed at 2 percentage points above the rate of inflation. mutual funds that track different indexes. stocks guaranteed rates of return in excess of growth in the GDP price index. stocks or bonds that exactly match a particular index.

D

Picture 10: Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the MPC for the economy described by the figures is 0.8: an increase in the money supply from $80 to $100 will shift the aggregate demand curve leftward by $40 billion at each price level. a decrease in the interest rate from 9 percent to 6 percent will shift the aggregate demand curve leftward by $100 billion at each price level. a decrease in the interest rate from 6 percent to 3 percent will shift the aggregate demand curve leftward by $50 billion at each price level. an increase in the money supply from $80 to $100 will shift the aggregate demand curve rightward by $50 billion at each price level.

D

Picture 3: Answer the question on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. Refer to the data. If the commercial banking system actually loans the maximum amount it is able to lend: reserves and deposits equal to that amount will be gained. excess reserves will fall to $1.7 billion. excess reserves will be $2.6 billion. excess reserves will be reduced to zero.

D

Picture 6: Refer to the diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if: the asset demand for money increased. the overall price level rose. the transactions demand for money increased. nominal GDP decreased.

D

Present value is best defined as the: worth in the future of a current flow of returns or costs. current worth of a financial asset purchased in the past. expected future value of a financial asset purchased today. worth or value today of future expected returns or costs.

D

The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that: the production possibilities curves of any two nations are identical. a nation's production possibilities and trading possibilities lines coincide. a nation's production possibilities line lies to the right of its trading possibilities line. a nation's trading possibilities line lies to the right of its production possibilities line.

D

Which of the following is not common to all investments? Owners are given the opportunity to receive future payments. Investors are required to pay some price to acquire them. Future payments are typically risky. Paying a positive rate of interest.

D