Econ Exam 4
Which of the following statements about the European Union (EU) is true? Multiple
The EU has abolished most trade barriers among participating countries and has common tariffs applied to non-EU goods
Assets Liabilities and Net Worth Stock Shares $400 Reserves 40 Property 300 Securities 160 Loans 80 Demand Deposits 180 The figures in the table are for a single commercial bank, Bank A. All figures are in thousands of dollars. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of Bank B, then the actual reserves of Bank A will
decrease $10,000
The sale of government bonds by the Federal Reserve Banks to commercial banks will
decrease aggregate demand
If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would
decrease by $5 billion
If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will
decrease the excess reserves of member banks and thus decrease the money supply
Refer to the graph. If the interest rate rises from 2 percent to 3 percent, the supply of money must have
decreased by $50 billion
A commercial bank's checkable-deposit liabilities can be estimated by
dividing its required reserves by the reserve ratio
The beta for an asset considered to be risk-free
equals zero
Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply
expands and commercial bank reserves increase
In recent years, the United States has
exported more services abroad than it has imported
The term trade deficit refers to a situation where
exports are less than imports
The interest rate that banks charge one another on overnight loans is called the
federal funds rate
"Subprime mortgage loans" refer to
high-interest-rate loans to home buyers with above-average credit risk
Specialization and trade between individuals or between nations leads to
higher total output
Refer to the diagram, which pertains to two nations and a specific product. Lines FC and GD are
import demand curves for two countries
In 2018, the United States
imported more goods than it exported
It is costly to hold money because
in doing so, one sacrifices interest income
Other things equal, an increase in consumer wealth will
increase aggregate demand
Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the excess reserves at Bank A and Bank B?
increase by $10,000 at Bank A, and decrease by $10,000 at Bank B
A decrease in the interest rate will cause a(n)
increase in the amount of money held as an asset
The total demand for money will shift to the left as a result of
a decline in nominal GDP
Refer to the graph. Which of the following would best be explained by an expansionary monetary policy?
a shift from SML2 to SML1
If you are estimating your total expenses for school next semester, you are using money primarily as
a unit of account.
On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes, respectively, the transactions demand for money can be represented by
a vertical line
A restrictive monetary policy is designed to shift the
aggregate demand curve leftward
The buying and selling activities that tend to equalize the rates of return on identical or nearly identical assets is called
arbitrage
Near monies
are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1
Small-denominated time deposits, by definition
are less than $100,000.
A natural-resource abundant nation would be expected to export a land-intensive commodity such as
beef
"Thrifts" refers to the following institutions except
commercial banks
The principal concept behind comparative advantage is that a nation should
concentrate production on those products for which it has the lowest domestic opportunity cost
Commercial banks create money when they
create checkable deposits in exchange for IOUs
An increase in the money supply is likely to reduce
interest rates
Refer to the given list of assets. 1. Large-denominated ($100,000 and over) time deposits 2. Savings deposits 3. Currency (coins and paper money) in circulation 4. Small-denominated (under $100,000) time deposits 5. Stock certificates 6. Checkable deposits 7. Money market deposit accounts 8. Money market mutual fund balances held by individuals 9. Money market mutual fund balances held by businesses 10. Currency held in bank vaults Which of the following are considered to be near monies?
items 2, 4, 7, and 8
The amount of reserves that a commercial bank is required to hold is equal to
its checkable deposits multiplied by the reserve requirement
The present value of a future amount of money will be greater the
less the amount of time before the future payment is received
A major goal of the World Trade Organization is to
liberalize international trade among nations
In a two-nation, two-good world, if country A has the comparative advantage in producing good X over country B, then country A
must have the comparative disadvantage in producing the other good, Y
If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B
mutually advantageous specialization and trade between A and B may still be possible
Which of the following is an economic investment?
newly built houses
Which of the following is an economic investment?
newly built housesCorrect
A bond that pays no annual interest (or coupons) and has a face value at maturity will fetch a price today that is equal to the
present value of its face value
The reason for the Fed being set up as an independent agency of government is to
protect it from political pressure
Cash held by a bank in its vault is a part of the bank's
reserves
If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will
rise, causing households and businesses to hold less money
In the accompanying graph, bracket A represents the
risk premium for an asset with a certain risk level
The Federal Open Market Committee (FOMC) of the Federal Reserve System is primarily for
setting the Fed's monetary policy and directing the purchase and sale of government securities
The last transaction in the federal funds market occurred in 2008 because
since the financial crisis, nearly every bank has significant excess reserves
The Standard & Poor's 500 Index measures prices of the 500
stocks of the largest companies in the United States
If you place a part of your summer earnings in a savings account, you are using money primarily as a
store of value
Checkable deposits include
the deposits held by banks and thrifts on which checks can be written
As expansionary monetary policy tools, quantitative easing (QE) and traditional open-market purchases differ in all of the following, except
the desired goal of shifting aggregate demand
An investor with a diversified portfolio is generally less concerned about
the diversifiable risk of potential new investments
When cash is withdrawn from a checkable-deposit account at a bank
the money supply M1 does not change, but its composition changes
What is one of the advantages of monetary policy over fiscal policy?
the quickness with which it can be used
Short-term U.S. government securities are practically risk-free, and thus their rates of return are payments solely for
time preference
When the interest rate falls, the
total amount of money demanded increases
A $70 price tag on a sweater in a department store window is an example of money functioning as a
unit of account
Stock market price quotations best exemplify money serving as a
unit of account
If the Fed raises the interest rates on short-term U.S. government bonds, then the Security Market Line shifts
upward as the risk-free interest rate increases
Which of the following are all assets to a commercial bank?
vault cash, property, and reserves
The Trade Adjustment Assistance Act of 2002 focused mainly on assisting
workers displaced by imports or plant relocations abroad
An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by
$10,800
Money Market Mutual Fund Balances Held by Businesses$100Money Market Mutual Fund Balances Held by Individuals220Currency in Banks10Currency in Circulation60Savings Deposits, Including Money Market Deposit Accounts50Large-denominated ($100,000 or more) Time Deposits180Small-denominated ($100,000 or less) Time Deposits80Checkable Deposits70 Refer to the table. Money supply M1 for this economy is
$130
Money Market Mutual Fund Balances Held by Businesses$100Money Market Mutual Fund Balances Held by Individuals220Currency in Banks10Currency in Circulation60Savings Deposits, Including Money Market Deposit Accounts50Large-denominated ($100,000 or more) Time Deposits180Small-denominated ($100,000 or less) Time Deposits80Checkable Deposits70 Refer to the table. Money supply M1 for this economy is
$130.
Orange Computers, Inc., is planning to spend $200,000 on the promotion of its new portable music player next year. The current market interest rate is 5 percent. What is the present value of this promotional budget
$190,476
A manufacturing firm takes out a $500,000 loan to expand its plant. The loan has an annual interest rate of 7 percent. What would be the total compounded interest on the loan at the end of five years, excluding the principal
$201,275Correct
Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?
$24,000
Legal Reserve Ratio (%) Checkable Deposits Actual Reserves 10 $40,000 $10,000 20 40,000 10,000 25 40,000 10,000 30 40,000 10,000 The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio is 10 percent, the money-creating potential of this single bank is
$6,000
Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of
$75,000
Assets Liabilities + Net Worth Reserves $120,000 Checkable Deposits $300,000 Loans 140,000 Stock Shares 200,000 Securities 40,000 Property 200,000 The accompanying table is the consolidated balance sheet for the commercial banking system. All figures are in billions. Assume that the required reserve ratio is 10 percent. The maximum amount by which this commercial banking system can expand the supply of money by lending is
$900,000 billion
If an amount $AAA today earns interest at a rate of i percent per year, then the accumulated amount at the end of n years will be
$AAA × (1 + i)n.
Answer the question based on the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. AssetsLiabilities & Net WorthReserves$60Checkable Deposits$600Securities140Stock Shares260Loans260 Property400 The monetary multiplier for the commercial banking system is
10
The Federal Reserve System is divided into
12 districts
If the price index rises from 100 to 130, then the purchasing power of the dollar will fall by about
23 percent
The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be
25 percent
Germany Production Possibilities (Production Alternatives)ProductABCDEFAutos048121620Chemicals4032241680 U.S. Production Possibilities (Production Alternatives)ProductABCDEFAutos03691215Chemicals60483624120 Refer to the accompanying production possibilities tables. Data are in millions of units. Suppose that each nation specialized in producing the product for which it has a comparative advantage and the terms of trade were set at 3 units of chemicals for 1 unit of autos. In this case, Germany could obtain and consume a maximum combination of 8 million units of autos and
36 million units of chemicals
George buys an antique car for $20,000 and sells it five years later for just over $24,000. George's per-year rate of return is
4 percent
(Advanced analysis) Alex wants to have $800 saved up at the end of 10 years. If he deposits $500 today, what annually compounded rate of interest would he have to earn to reach his goal?
4.8 percent
Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs. Assume that prior to specialization and trade, Italy and Greece preferred points I and G on their respective production possibilities curves. As a result of complete specialization according to comparative advantage, the resulting gains in total output will be
5 steel and 15 chemicals
AssetsLiabilities + Net WorthReserves$120,000Checkable Deposits$300,000Loans140,000Stock Shares200,000Securities40,000 Property200,000 The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is
5.00
AssetsLiabilities + Net WorthReserves$60Checkable Deposits$150Loans100Stock Shares135Securities25 Property100 Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. If commercial bankers decide to hold additional excess reserves equal to 7 percent of any newly acquired deposits, then the relevant monetary multiplier for this banking system will be
5.26
The Board of Governors of the Federal Reserve has ____ members.
7
Which of the following best describes the cause-effect chain of a restrictive monetary policy?
A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP
The accompanying tables show data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied, and Qd is domestic quantity demanded. At a world price of $2,
Alpha will want to import 20 units of steel
The Federal Reserve System consists of which of the following?
Board of Governors and the 12 Federal Reserve Banks
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the
Federal Open Market Committee (FOMC)
In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because
Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves
The domestic opportunity cost of producing 100 barrels of chemicals in Germany is one ton of steel. In France, the domestic opportunity cost of producing 100 barrels of chemicals is two tons of steel. In this case,
Germany has a comparative advantage in the production of chemicals
(Last Word) The Assistant U.S. Attorney General in charge of prosecuting financial crimes did which of the following in response to HSBC bank's years of money laundering and helping firms and individuals cheat on their taxes?
Imposed only modest fines on HSBC so as not to destabilize the bank and the financial system.
Which of the following statements is true about buying an old factory?
It is a financial investment but not an economic investment
Which of the following statements best describes the relationship between asset prices and average expected returns
Less risky assets will have higher prices than more risky assets
The accompanying tables show data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied, and Qd is domestic quantity demanded. Alpha's export supply is represented by
P Q $5 50 4 20 3 0
In which case would the quantity of money demanded by the public tend to increase by the greatest amount?
The interest rate decreases and nominal GDP increases
Which of the following statements best describes the 12 Federal Reserve Banks?
They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare
Refer to the graph. The risk premium for an asset with a beta equal to X would be
Z minus B
