Econ 202 exam 3

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

$270 million

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.

Bonds

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:

Central Bank; safety and stability of the banking system.

Which of the following is an example of a pegged currency?

Chinese yuan

Which category of the money supply would you be contributing to if you invest in money market funds?

M2

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

Sarah m1 funds

From a neoclassical view, which of the following is a true statement?

The economy cannot sustain production above its potential GDP in the long run.

The most commonly traded currency in foreign exchange markets is the:

U.S. dollar.

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.

In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve?

a vertical line drawn at the level of potential GDP

In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment.

aggregate demand

Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________.

an asset-liability time mismatch; diversify its loans

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

annual inflationary loss of buying power

In modern economies, _____________________ receive money from savers and provide funds to borrowers.

banks

What is the name given to the macroeconomic equation MV = PQ?

basic quantity equation of money

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

both the money multiplier and supply of money in the economy will decrease.

In order to shift the vertical supply curve to the left, which of the following would have to occur?

breakdown of key market institutions

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

What do the economies of Greece, Ireland and Germany all share?

common currency

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

economic growth; the size of the economy

Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.

expansionary monetary policy

Which of the following is a distinguishing characteristic of the neoclassical view?

flexibility of wages and prices over time

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:

following a loose monetary policy.

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is:

following an expansionary monetary policy.

People or firms use one currency to purchase another currency at the

foreign exchange market

The _____________________________ is the largest market in the world economy.

foreign exchange market

In an economy with _______________, money loses some buying power each year, but it remains money.

inflation

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

inflationary increase in price level

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

interest rates; right

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

medium of exchange

Which of the following is a traditional tool used by the Fed during recessions?

open market operations

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________.

potential GDP; natural rate of unemployment

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

price and wage stickiness is reasonable in the short run

After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall?

rational expectations

The market in which loans are bought and sold is called the:

secondary loan market.

Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

store of value

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

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.

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.

According to the basic quantity equation of money, if price and output fall while velocity increases, then:

the quantity of money will fall.

In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right.

vertical AS curve

A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene.

volatility

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

weakening; less