Econ 102 Final Exam 3

10) In the above figure, the economy is at point a on the initial demand for loanable funds curve DLF0. What happens if the real interest rate rises? A) There is a movement to a point such as b on the demand for loanable funds curve DLF0. B) The demand for loanable funds curve shifts leftward to a curve such as DLF1. C) The demand for loanable funds curve shifts rightward to a curve such as DLF2. D) none of the above

A

12) A decrease in the quantity of reserves supplied to commercial banks could be the result of A) the sale of government securities by the Federal Reserve. B) a decrease in the government's budget deficit. C) an increase in the exchange rate. D) a decision by U.S. households to hold less currency.

A

12) Approximately, the real interest rate ________ the inflation rate ________ the nominal interest rate. A) plus; equals B) equals; minus C) equals; plus D) minus; equals

A

12) If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher U.S. interest rate A) increases the demand for dollars. B) will stop all trading between the currencies of the U.S. and other countries. C) has no effect on the demand for dollars. D) decreases the demand for dollars

A

14) An increase in disposable income shifts the supply of loanable funds curve A) rightward and decreases the real interest rate. B) leftward and decreases the real interest rate. C) rightward and increases the real interest rate. D) leftward and increases the real interest rate.

A

24) By fixing its exchange rate, China is most likely A) achieving a low inflation rate by anchoring to the U.S. inflation rate. B) keeping its export prices low. C) making it easier to compete in world markets. D) Both B and C.

A

6) Investment is financed by which of the following? I. Government spending II. National saving III. Borrowing from the rest of the world A) II and III only B) I and III only C) I, II, and III D) I and II only

A

8) In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if disposable income decreases? A) The supply of loanable funds curve would shift leftward to a curve such as SLF1. B) The supply of loanable funds curve would shift rightward to a curve such as SLF2. C) There would be a movement to a point such as b on supply of loanable funds curve SLF0. D) Nothing; the economy would remain at point a.

A

28) The demand for loanable funds is the relationship between loanable funds and the ________ other things remaining the same. A) price level B) real interest rate C) inflation rate D) nominal interest rate

B

10) If the Fed buys $100 in securities from a commercial bank, the A) quantity of money will decrease. B) Fed's assets will decrease. C) quantity of reserves will increase. D) amount of reserves will not change.

C

16) Currency outside of banks increases from $100 million to $200 million. This change is considered A) expansionary monetary policy. B) contractionary monetary policy. C) a currency drain. D) a decrease in the monetary base

C

18) Suppose the exchange rate for the U.S. dollar falls. This could be caused by A) a decrease in U.S. import demand. B) an increase in the U.S. interest rate differential. C) a fall in the expected future exchange rate. D) an increase in the world demand for U.S. exports.

C

2) When people who are holding the money of some other country want to exchange it for U.S. dollars, they ________ U.S. dollars and ________ that other country's money. A) supply; demand B) supply; supply C) demand; supply D) demand; demand

C

22) How does a country maintain a fixed exchange rate? A) By setting domestic interest rates to achieve purchasing power parity as the desired exchange rate. B) By intervening in import and export markets to achieve the desired current account and exchange rate. C) By intervening in the foreign exchange markets and buying or selling currency as needed to achieve the desired exchange rate. D) By forbidding foreign exchange markets to trade currency at anything other than the official exchange rate.

C

36) In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and the expected profit falls, the amount of loanable funds demanded will be A) between $450 billion and $600 billion. B) $450 billion. C) less than $450 billion. D) greater than $600 billion.

C

4) Of the following, the riskiest assets held by commercial banks are A) U.S. government bonds. B) reserves. C) loans. D) U.S. government Treasury bills

C

10) Which of the following creates a demand for U.S. dollars? A) a U.S. restaurant purchasing Mexican tomatoes B) a U.S. tourist catching a show in London C) a Japanese tourist catching a show in London D) Toyota, a Japanese firm, purchasing land in Texas

D

14) Suppose the exchange rate between the dollar and the euro is 2 euros per dollar. The price of a clock in Europe is 20 euros while the price of the same clock in the United States is $5. From these prices and exchange rate, it can be concluded that A) interest rate parity holds. B) money buys more in Europe. C) purchasing power parity holds. D) money buys more in the United States.

D

18) If a customer deposits $10,000 in currency into a checking account, the bank's total reserves ________. A) decrease B) do not change C) are greater than 100 percent D) increase

D

40) If net taxes exceed government expenditures, the government sector has a budget ________ and government saving is ________. A) surplus; negative B) deficit; positive C) deficit; negative D) surplus; positive

D

40) In the above table, net exports equals a A) deficit of $100 billion. B) surplus of $100 billion. C) surplus of $200 billion. D) deficit of $200 billion.

D

6) The ________ the exchange rate, the ________ are foreign-produced goods and hence the smaller the quantity of dollars supplied. A) greater; more expensive B) greater; cheaper C) lower; cheaper D) lower; more expensive

D

18) Which of the following are included in the supply of loanable funds? i. private saving ii. government budget surplus iii. international borrowing A) i, ii and iii. B) i and ii. C) i and iii. D) ii and iii

A

2) Suppose a bond promises to pay its holder $100 a year forever. The interest rate on the bond rises from 4 percent to 5 percent. The price of the bond A) falls from $2,500 to $2,000. B) does not change because it is not affected by the interest rate. C) rises from $2,000 to $2,500. D) falls from $25,000 to $20,000.

A

20) In the above figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of increased use of credit cards? A) The demand for money curve would shift leftward to MD0. B) There would be a movement upward along the demand for money curve MD1. C) The demand for money curve would shift rightward to MD2. D) There would be a movement downward along the demand for money curve MD1

A

22) A small country is a net foreign borrower and its demand for loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________. A) increases; increases B) increases; does not change C) does not change; increases D) does not change; does not change

A

22) In the figure above, if the interest rate is 4 percent, there is a $0.1 trillion excess A) demand for money and the interest rate will rise. B) quantity of money and the interest rate will fall. C) quantity of money and the interest rate will rise. D) demand for money and the interest rate will fall.

A

24) When the inflation rate is zero, the A) real interest rate equals the nominal interest rate. B) real interest rate is less than the nominal interest rate. C) real interest rate is greater than the nominal interest rate. D) nominal interest rate is zero.

A

26) If the Fed sells U.S. dollars, the exchange rate A) falls. B) rises. C) does not change. D) changes, but the direction depends on whether the Fed affected the demand for dollars or the supply of dollars.

A

30) Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is ________. A) greater than 15 percent. B) greater than 10 percent. C) positive. D) greater than 5 percent

A

32) In the above table, saving must be A) $400 billion. B) $300 billion. C) -$300 billion. D) -$400 billion

A

32) The banking system has just experienced an increase in deposits of $50,000. The currency drain ratio is 20 percent and the desired reserve ratio is 10 percent. What does the money multiplier equal? A) 4.00 B) 10.00 C) 3.33 D) 0.25

A

36) In the short run, when the Fed decreases the quantity of money A) bond prices fall and the interest rate rises. B) the demand for money increases. C) bond prices rise and the interest rate falls. D) the supply of money curve shifts rightward.

A

38) The term "crowding out" relates to the decrease in A) private investment from a government budget deficit. B) consumption expenditure from an increase in investment. C) the real interest rate from a government budget deficit. D) saving from an increase in disposable income.

A

4) The law of demand in the foreign exchange market refers to the relationship between the A) exchange rate and the quantity of U.S. dollars demanded B) interest rate and the exchange rate C) U.S. price level and the exchange rate D) interest rate and the quantity of U.S. dollars demanded

A

4) This year Pizza Hut makes a total investment of $1.3 billion in new stores. Its depreciation in this year is $300 million. Pizza Hut's gross investment is ________ and its net investment is ________. A) $1.3 billion; $1.0 billion B) $1.0 billion; $1.3 billion C) $1.3 billion; $1.6 billion D) $1.0 billion; $0.7 billion

A

16) Using the above figure, an increase in the demand for Dutch goods by U. S. consumers will lead to A) an increase in the supply of Dutch currency as foreign exchange. B) a decrease in the supply of Dutch currency as foreign exchange. C) an appreciation in the Dutch currency D) a depreciation in the Dutch currency.

C

26) The quantity of loanable funds demanded increases so there is a movement downward along the demand for loanable funds curve when A) business expectations become more optimistic. B) the pool of loanable funds falls. C) the real interest rate falls. D) the expected profit from investment decreases.

C

16) When a government has a budget surplus, the surplus A) must be subtracted from private saving to get total saving. B) crowds-out private saving. C) increases the world real interest rate. D) helps finance investment.

D

2) According to the table above, the value of M1 is ________ and the value of M2 is ________. A) $910 billion; $1,960 billion B) $860 billion; $4,560 billion C) $860 billion; $2,750 billion D) $910 billion; $3,660 billion

D

20) In the figure above, the shift in the supply curve for U.S. dollars from S0 to S2 could occur when A) the expected future exchange rate rises. B) the U.S. interest rate differential increases. C) the current exchange rate falls. D) the U.S. interest rate falls.

D

14) Suppose that the money multiplier is 4. If the monetary base decreases by $2 million, the quantity of money will A) increase by $8 million. B) decrease by $8 million. C) increase by $500,000. D) decrease by $500,000.

B

26) Use the figure above to answer this question. Suppose the economy is operating at point a. A move to ________ could be explained by ________. A) point b; an increase in the nominal interest rate B) point c; an increase in the use of credit cards C) point b; an increase in real GDP D) point e; an increase in U.S. exports

B

28) Epsilon is a country whose unit of currency is the omega. New information leads people to expect that the omega will appreciate next year. To keep the foreign exchange value of the omega fairly steady, the Bank of Epsilon will ________ enough omegas on the foreign exchange market so that the ________ omegas will ________. A) buy; supply of; decrease B) sell; supply of; increase C) buy; demand for; decrease D) buy; demand for; increase

B

30) If the Fed wants to depreciate the U.S. dollar against the British pound, it will ________. A) sell British pounds B) sell U.S. dollars C) decrease the money supply D) sell foreign exchange

B

32) Suppose that Country A (a small country) has exports of $40 million and imports of $50 million. As a result, Country A will ________ funds from/to the rest of the world and engage in net foreign ________. A) send; lending B) receive; borrowing C) receive; lending D) send; borrowing

B

34) If net exports is 100 and the private sector balance is 150, then the government sector balance is A) 250. B) -50. C) 50. D) 0.

B

34) If the desired reserve ratio rises, the money multiplier A) increases. B) decreases. C) stays the same. D) probably changes but more information is needed to determine if it increases or decreases.

B

38) An increase in the opportunity cost of holding money creates a ________ the money demand curve and an increase in real GDP creates a ________ the money demand curve. A) leftward shift of; movement down along B) movement up along; rightward shift of C) movement up along; leftward shift of D) rightward shift of; movement down along

B

38) Using the data in the above table, if net exports = -$500 billion and the government balances its budget, A) the private sector runs a surplus of $850 billion. B) savings must equal $150 billion. C) saving must equal $650 billion. D) the private sector must balance its budget

B

40) If nominal GDP equals $10 trillion and the velocity of circulation is 5, then A) the quantity of money is $50 trillion. B) the quantity of money is $2 trillion. C) the real value of the quantity of money is $10 trillion. D) real GDP is $2 trillion.

B

20) In the global loanable funds market, A) when funds enter a country, a surplus of funds raises the real interest rate. B) when funds leave a country, a shortage of funds lowers the real interest rate. C) funds flow into countries with the lowest risk-adjusted interest rates and out of countries with the highest risk-adjusted interest rates. D) funds flow into countries with the highest risk-adjusted interest rates and out of countries with the lowest risk-adjusted interest rates.

D

24) In the above figure, suppose the economy is initially on the demand for money curve MD1. What is the effect of a rise in the nominal interest rate? A) There would be a movement downward along the demand for money curve MD1. B) The demand for money curve would shift leftward to MD0. C) The demand for money curve would shift rightward to MD2. D) There would be a movement upward along the demand for money curve MD1.

D

28) The quantity theory of money states that A) as the interest rate rises, the demand for money decreases. B) changes in the quantity of money are determined by the commercial banks and not the Federal Reserve. C) as the price level increases, the demand for money increases. D) inflation increases when the money growth rate increases.

D

30) Suppose the money growth rate is 3 percent, velocity is constant, and real GDP is growing at 2 percent. What is the inflation rate? A) 6 percent B) 5 percent C) 3 percent D) 1 percent

D

34) Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the A) United States must borrow an amount equal to national saving. B) United States must borrow an amount equal to consumption expenditure plus investment. C) rest of the world may or may not finance the U.S. trade deficit. D) United States must borrow an amount equal to imports minus exports.

D

36) In part, a country's current account measures A) borrowing and lending activity between the country's residents and foreigners. B) its current debt as opposed to its long-term debt. C) net increases and decreases in a country's holdings of foreign currency. D) receipts from the sale of goods and services to foreigners and payments for goods and services bought from foreigners.

D

6) The major role of a commercial bank is to A) make mortgage loans. B) restrain the growth of the quantity of money. C) sell shares and use the proceeds to buy stocks. D) receive deposits and make loans.

D

8) If the exchange rate falls from 120 yen per dollar to 100 yen per dollar, the dollar has ________ and the yen has ________. A) appreciated; depreciated B) depreciated; depreciated C) appreciated; appreciated D) depreciated; appreciated

D

8) When the Fed wants to undertake open market operations, it A) can require all commercial banks to buy from or sell to it. B) can require all member banks to buy from or sell to it. C) buys securities from or sells securities to the federal government. D) buys or sells securities.

D