ECON 102- Final Exam Study Guide Part 3

A country's balance of payments accounts records A) the international trading, borrowing, and lending positions of a country over a period of time. B) only the goods and services purchases among countries over a period of time. C) the flow of human and non-human capital among countries over a period of time. D) only official transactions between governments over a period of time.

A

A decrease in the demand for loanable funds and a leftward shift of the demand for loanable funds curve results from A) decreases in the expected profit. B) tax cuts. C) an increase in the real interest rate. D) technological improvements

A

A nation's investment must be financed by A) national saving plus borrowing from the rest of the world. B) borrowing from the rest of the world only. C) the government's budget deficit. D) national saving only

A

According to purchasing power parity, a rise in inflation in the United States. relative to the rest of the world will lead to A) an exchange rate depreciation. B) an exchange rate appreciation. C) a balance of payments deficit. D) a balance of payments surplus

A

Arbitrage in the foreign exchange market, international loans markets, and goods markets results in A) purchasing power parity, interest rate parity and law of one price. B) purchasing power parity, price parity and no round-trip profit. C) purchasing power parity, interest rate parity and round-trip profit. D) purchasing power parity, interest rate parity and price parity

A

At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's net investment for the year totaled A) 1 machine. B) 2 machines. C) 3 machines. D) 6 machines.

A

For a commercial bank, the term "reserves" refers to A) the cash in its vaults and its deposits at the Federal Reserve. B) the net interest that it earns on loans. C) a banker's concern ("reservation") in making loans to an individual without a job. D) the profit that the bank retains at the end of the year

A

If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African rands per dollar, then the real exchange rate is A) 6 South African goods per U.S. good. B) 8.4 South African goods per U.S. good. C) 1.4 South African goods per U.S. good. D) 9.8 South African goods per U.S. good

A

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20 percent. How many deposits can Bank A create? A) zero, because Bank A has no excess reserves B) $400 C) $200 D) $800

A

Suppose a British bank offers a 3 percent interest rate while a U.S. bank offers a 7 percent interest rate. People must expect the U.S. dollar will A) depreciate 4 percent. B) depreciate 10 percent. C) appreciate 10 percent. D) appreciate 4 percent

A

Suppose a deposit in New York earns 6 percent a year and a deposit in London earns 4 percent a year. Interest rate parity holds if the A) U.S. dollar depreciates by 2 percent a year. B) U.K. pound depreciates by 2 percent a year. C) U.S. dollar appreciates by 2 percent a year. D) None of the above answers is correct because interest rate parity requires that the interest rates be the same in both countries

A

The demand for Mexican tomatoes by an American food grocery chain creates a A) supply of U.S. dollars. B) demand for the U.S. dollar. C) supply of Mexican pesos. D) demand for an interest rate differential.

A

The larger the public's currency drain from the banking system, the A) smaller is the money multiplier. B) smaller is the monetary base. C) larger is the monetary base. D) larger is the money multiplier

A

The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a A) medium of exchange. B) store of value. C) standard of deferred payment. D) unit of account

A

When a good is imported into the United States, a ________is created. A) demand for foreign currencies and a supply of dollars B) supply of foreign currency with no effect on the market for the dollar C) supply of foreign currencies and a demand for dollars D) demand for dollars with no effect on markets for foreign currencies

A

When the monetary base increases by $2 billion, the quantity of money increases by $10 billion. Thus, the money multiplier equals A) 5. B) 20.0. C) 0.2. D) 0.5.

A

When the nominal interest rate rises, the opportunity cost of holding money A) rises and people hold less money. B) falls and people hold more money. C) rises and people hold more money. D) falls and people hold less money

A

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 III C) II and III D) I and II

A

Which of the following are major influences on the expected profit from an investment? I. technology advances II. stock market behavior III. accounting practices A) I only B) I and II C) I and III D) II and III

A

Which of the following exchange rate policies uses a target exchange rate, but allows the target to change? A) crawling peg B) fixed exchange rate C) flexible exchange rate D) moving target

A

Which of the following will shift the supply of loanable funds curve leftward? A) a decrease in disposable income B) a decrease in the real interest rate C) a decrease in expected future income D) a decrease in real wealth

A

With everything else the same, in the foreign exchange market the A) larger the value of U.S. exports, the greater is the quantity of dollars demanded. B) the higher the exchange rate, the cheaper are U.S.-produced goods and services. C) the lower the exchange rate, the smaller is the expected profit from buying dollars. D) lower the exchange rate, the smaller the amount of U.S. exports

A

A factor determining the supply of U.S. dollars in the foreign exchange market is the A) expected future interest rate in the United States. B) expected future exchange rate. C) U.S. supply of exports. D) expected future interest rate in foreign countries.

B

A small country is an international borrower and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international borrowing ________. A) does not change; does not change B) does not change; decreases C) does not change; increases D) increases; does not change

B

If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was a A) a crawling peg. B) a flexible exchange rate. C) a fixed exchange rate. D) a nominally fixed exchange rate

B

If an economy has a velocity of circulation of 3, then A) the quantity of money is 3 times real GDP. B) in a year the average dollar is exchanged 3 times to purchase goods and services in GDP. C) the quantity of money is $3 for every dollar of GDP. D) nominal GDP is 1/3 the size of the quantity of money.

B

If foreigners spend more on U.S.-made goods and services than we spend on theirs A) all U.S. national saving remains in the United States. B) foreigners must borrow from the United States or sell U.S. assets to make up the difference. C) we must borrow from foreigners because of low imports. D) funds flow in from abroad to help finance U.S. investment

B

Suppose Mitsubishi Bank (a Japanese bank) expects the exchange rate to be 125 yen per U.S. dollar at the end of the year. If today's exchange rate is 120 yen per U.S. dollar, Mitsubishi bank A) sells U.S. dollars today because it expects losses from buying U.S. dollars and holding them. B) buys U.S. dollars today because it expects profit from buying U.S. dollars and holding them. C) does not buy or sell any U.S. dollars today because it expects zero profit from buying U.S. dollars and holding them. D) None of the above answers is correct because a foreign commercial bank cannot buy or sell U.S. dollars.

B

Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond A) rises from 8 percent to 10 percent. B) falls from 10 percent to 8 percent. C) does not change because it is not affected by the price of the bond. D) falls from 10 percent to 6 percent

B

Suppose the peso-dollar foreign exchange rate changes from 50 pesos per dollar to 30 pesos per dollar. Then the peso has ________ against the dollar and the dollar has ________ against the peso. A) depreciated; appreciated B) appreciated; depreciated C) appreciated; appreciated D) depreciated; depreciated

B

The required reserve ratio A) is higher for banks that make riskier loans. B) is the fraction of a bank's total deposits that is required to be held in reserves. C) is the amount of money that banks require borrowers to reserve in their accounts. D) increases when withdrawals from a bank are made

B

When part of the quantity of money is held in currency, then A) the Fed will find it beneficial to increase the discount rate. B) a currency drain occurs. C) there is a higher level of excess reserves. D) the money multiplier will increase in value

B

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) demand; demand B) demand; supply C) supply; demand D) supply; supply

B

When the Fed is ________ it is ________. A) regulating the nation's financial institutions; conducting monetary policy B) adjusting the amount of money in circulation; conducting monetary policy C) issuing government bonds; conducting monetary policy D) adjusting the amount of money in circulation; issuing government bonds

B

When the U.S. exchange rate rises, foreign goods become ________ and U.S. imports ________. A) less expensive; decrease B) less expensive; increase C) more expensive; increase D) more expensive; decrease

B

Which part of the Federal Reserve System meets every 6 weeks to determine the nation's monetary policy? A) the Federal Reserve Banks B) Federal Open Market Committee C) Board of Governors D) depository institutions such as commercial banks

B

According to the quantity theory of money, in the long run, an increase in the quantity of money results in an equal percentage increase in ________. A) the growth rate of real GDP B) the growth rate of potential GDP C) the price level D) the inflation level

C

According to the quantity theory of money, in the long run, changes in the price level are the result of changes in the A) real interest rate. B) velocity of circulation. C) quantity of money. D) prime interest rate.

C

Airbus is a European jet airline producer. Indian Airlines wants to buy 23 Airbus planes from Airbus, due to increased demand for world travel. As a result A) only the demand curve for Indian rupees shifts rightward. B) only the demand curve for European euros shifts rightward. C) the demand curve for European euros and the supply curve for Indian rupees both shift rightward. D) the demand curve for European euros shifts rightward and the supply curve for Indian rupees shifts leftward

C

An increase in the currency drain A) results in an increase in deposits. B) results in an increase in required reserves. C) decreases the size of the money multiplier. D) leads to an increase in excess reserves.

C

Due to the recession in 2008, firms decreased their profit expectations. As a result, there was a ________ shift in the ________ loanable funds curve. A) rightward; demand for B) rightward, supply of C) leftward; demand for D) rightward; supply of

C

If the Fed wants to depreciate the dollar against the yen, the Fed will A) increase the demand for dollars by selling yen. B) increase the supply of dollars by selling yen. C) increase the supply of dollars by buying yen. D) decrease the supply of dollars by selling yen.

C

If the nominal interest rate is 7 percent and the inflation rate is 1 percent, the real interest rate is approximately A) -6 percent. B) 7 percent. C) 6 percent. D) 8 percent

C

If the world real interest rate falls, then a country that is an international lender A) does not change the amount of its lending. B) increases the amount of its lending. C) decreases the amount of its lending. D) None of the above answers is correct because lending might increase, decrease, or not change

C

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent A) the purchasing power of your loan has remained constant over the year regardless of the interest rate at which you lent it. B) the purchasing power of your loan has risen over the year regardless of the interest rate at which you lent it. C) you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan. D) you must have earned a nominal interest rate of 5 percent to maintain the purchasing power of your loan.

C

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's gross investment totaled A) $1 million. B) $900,000. C) $200,000 D) $300,000

C

In the foreign exchange market, an increase in the world demand for U.S. exports shifts the A) supply curve for U.S. dollars rightward. B) supply curve for U.S. dollars leftward. C) demand curve for U.S. dollars rightward. D) demand curve for U.S. dollars leftward

C

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 10 yuan, the price of this airplane to China Airlines is A) 10.52 million yuan. B) 10 million yuan. C) 950 million yuan. D) 9.5 million yuan.

C

Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can A) sell dollars. B) attempt to freeze all sales of dollars. C) buy dollars. D) any of the above actions could take place

C

The Fed buys $100 million of government securities from Bank A. What is the effect on the Federal Reserve's balance sheet? A) Securities increase by $100 million and reserves of Bank A decrease by $100 million. B) Securities decrease by $100 million and reserves of Bank A increase by $100 million. C) Securities increase by $100 million and reserves of Bank A increase by $100 million. D) Securities increase by $100 million and Federal Reserve notes (currency) decrease by $100 million

C

The Ricardo-Barro effect says that A) government budget deficits resulting from an increase in government expenditure have no effect on investment but government deficits resulting from a decrease in taxes crowd out investment. B) government budget deficits crowd out private investment and thereby lower the real interest rate. C) government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government. D) government budget deficits cause households to save more in anticipation of higher taxes, which causes higher real interest rates.

C

The crowding-out effect refers to A) private investment crowding out government saving. B) government spending crowding out private spending. C) government investment crowding out private investment. D) private saving crowding out government saving

C

The higher the exchange rate today, the A) greater the quantity of U.S. dollars demanded in the foreign exchange market today. B) greater is the expected profit from buying U.S. dollars today and holding them. C) smaller is the expected profit from buying U.S. dollars today and holding them. D) smaller is the expected profit from buying foreign currency today and holding it.

C

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) $1.0 billion; $0.7 billion B) $1.0 billion; $1.3 billion C) $1.3 billion; $1.0 billion D) $1.3 billion; $1.6 billion

C

When price levels rise, the quantity of nominal money demanded will ________ and the quantity of real money demanded will ________. A) increase; increase B) increase; decrease C) increase; stay the same D) decrease; increase

C

When the Fed lowers the federal funds rate, it can lead to A) a decrease in demand deposits. B) the Fed selling government securities. C) an increase in lending by banks. D) a decrease in the quantity of money.

C

When the U.S. exchange rate falls, U.S. goods become ________ to foreign residents and U.S. exports ________. A) more expensive; decrease B) more expensive; increase C) less expensive; increase D) less expensive; decrease

C

Which of the following is TRUE? I. As the real interest rate increases, people increase the quantity they save. II. The supply of loanable funds curve is downward sloping. III. As disposable income increases, the supply of loanable funds curve becomes steeper. A) I and III B) II and III C) I only D) III only

C

A small country is an international lender and its domestic supply of loanable funds increases. Consequently, the equilibrium quantity of loanable funds used in the country ________ and the country's international lending ________. A) increases; does not change B) increases; decreases C) does not change; does not change D) does not change; increases

D

Checks are NOT money because they A) are not backed by either gold or silver. B) have value in exchange but little intrinsic value. C) are issued by banks, not by the government. D) are merely instructions to transfer money.

D

If 100 Japanese yen buy more U.S. dollars today than yesterday, the dollar has ________ and the yen has ________. A) depreciated; depreciated B) appreciated; appreciated C) appreciated; depreciated D) depreciated; appreciated

D

If the European Central Bank increases interest rates A) the demand curve for European euros shifts leftward and the supply curve of European euros shifts rightward. B) the demand curve for European euros and the demand curve for U.S. dollars both shift rightward. C) the demand curve for European euros shifts leftward and the demand curve for U.S. dollars shifts rightward. D) the demand curve for European euros shifts rightward and the supply curve of European euros shifts leftward

D

If the Federal Reserve increases interest rates A) the demand curve for U.S. dollars and the demand curve for European euros both shift rightward. B) the demand curve for U.S dollars shifts leftward and the demand curve for European euros shifts rightward. C) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S. dollars shifts rightward. D) the demand curve for U.S. dollars shifts rightward and the supply curve of U.S. dollars shifts leftward.

D

If the People's Bank of China adopted a flexible exchange rate policy A) the yuan would depreciate. B) the U.S. dollar would appreciate. C) the yuan-U.S. dollar exchange rate would rise. D) the U.S. dollar would depreciate

D

If the economy's capital stock increases over time A) depreciation is less than zero. B) depreciation exceeds gross investment. C) gross investment equals depreciation. D) net investment is positive.

D

If the real interest rate increases from 3 percent to 5 percent A) the supply of loanable funds curve will shift rightward. B) the nominal interest rate will also increase. C) the demand for loanable funds curve will shift rightward. D) there will be a movement up along the demand for loanable funds curve

D

If velocity is 6 and the quantity of money is $2 trillion, what is nominal GDP? A) $6 trillion B) $3 trillion C) $333 billion D) $12 trillion

D

In the absence of the Ricardo-Barro effect, an increase in the government deficit results in a ________ real interest rate and a ________ equilibrium quantity of investment. A) lower; lower B) lower; higher C) higher; higher D) higher; lower

D

In the foreign exchange market, the supply curve for dollars slopes upwards because A) supply curves always slope upwards. B) as the exchange rate rises, more dollars are supplied since the profit from selling dollars falls. C) as the exchange rate rises, imports become more expensive, and more dollars are supplied to pay for the imports. D) as the exchange rate rises, imports become cheaper, and more dollars are supplied to pay for the increase in the quantity of imports

D

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

D

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

D

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

D

Last year the exchange rate between U.S. dollars and Mexican pesos was 10 pesos per dollar. Today is it 11 pesos per dollar. Here, the dollar ________ against the peso, and the peso ________ against the dollar A) depreciated; appreciated B) depreciated; depreciated C) appreciated; appreciated D) appreciated; depreciated

D

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 percent. How many loans can Bank A create at Bank A? A) zero, because Bank A has no excess reserves B) $850 C) $200 D) $50

D

Suppose China Airlines wants to purchase a French Airbus. The price of the Airbus is 95 million Euro. If the exchange rate is 1 euro per 9 yuan, the price of this airplane to China Airlines is A) 85.5 million yuan. B) 10.6 million yuan. C) 11.11 million yuan. D) 855 million yua

D

The demand curve for U.S. dollars slopes downward because as the dollar ________ U.S. goods become ________ expensive to foreign residents, so they purchase fewer U.S. goods, and the quantity of dollars demanded decreases. A) depreciates; more B) appreciates; less C) depreciates; less D) appreciates; more

D

The lower the exchange rate today, ceteris paribus, the A) smaller the quantity of U.S. dollars demanded in the foreign exchange market today. B) smaller is the expected profit from buying U.S. dollars today and holding them. C) greater is the expected profit from buying foreign currency today and holding it. D) greater is the expected profit from buying U.S. dollars today and holding them

D

The opportunity cost of holding money refers to A) the price level. B) the utility that would have been received if the money balances had been used to buy a good or service. C) the service fees charged to withdraw currency from an ATM. D) the interest that could have been earned if the money balances had been changed into an interest-bearing asset

D

The quantity of money in an economy is $9 million, and the velocity of circulation is 3. Nominal GDP in this economy is ________. A) $9 million B) $3 million C) $6 million D) $27 million

D

The quantity of real money demanded is A) proportional to the price level B) negatively related to the price level. C) positively related to the price level. D) independent of the price level

D

The term "foreign currency" refers to foreign I. coins II. notes III. bank deposits A) II only B) II and III only C) I and II only D) I, II, and III

D

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

Which of the following will lead to an appreciation of the U.S. dollar against the British pound? A) an increase in U.S. demand for British imports B) an increase in British interest rates C) a decrease in British demand for U.S. assets D) an increase in British demand for U.S. imports

D