Economics 202 Exam 3
How many Australian dollars does a Euro buy according to the table below? (Round to two decimal points) EUR-USD 1.3869 GBP-USD 1.687 USD-JPY 102.2 AUD-USD 0.9277 USD-CAD 1.0972
1.49
In 2009, the U.S. government spent $1.4 trillion more than it collected in taxes. This deficit was about _______ of the size of the U.S. GDP in 2009. 10% 20% 30% 40%
10%
Total public debt as a percentage of GDP in the U.S. is? (Based on #numbers file)
105%
If nominal GDP is 3600, price level is 100 and the money supply is 300, what is the velocity?
12 Remember that the Basic Equation of Money Supply is MV=PQ, where M represents the money supply, V represents velocity, P represents price per unit, and Q represents the quantity produced. To find the velocity (V), we have to change the equation around a little. The equation now becomes PQ/M = V Because nominal GDP is (price)(quantity), we can make the equation: 3600/300 = 12
A government annually allocates $5 billion of its total tax revenue to weather related disaster relief, $21 billion to healthcare and $11 billion to education. If the government's quarterly tax revenue is $33 billion, what percentage of its budget is allocated annually to healthcare? (Round your answer to two decimal places)
15.91 Because the budget is given quarterly, first multiply 33 by 4 to get the total annual budget for the government. Divide $132 billion by $21 billion to get 0.15909. Take that figure and multiply by 100 to find the whole-number percentage, then round your answer to two decimal places and you will get 15.91.
A government collects $700 billion annually in tax revenue. Each year it allocates $70 billion to the justice system and $130 billion for its own administrative costs. What percentage of annual tax revenue is allocated to these two categories of government spending? (Round your answer to two decimal places) 2010: .12 U.S. dollars; 2012: .15 U.S. dollars 2010: .15 U.S. dollars; 2012: .11 U.S. dollars 2010: 1.2 U.S. dollars; 2012: 1.5 U.S. dollars 2010: .82 U.S. dollars; 2012: .66 U.S. dollars
2010: 0.12 USD; 2012: 0.15 USD
If a country's economic data shows private savings of $300 million, government spending of $350 million, tax revenue of $400 million, and a trade surplus of $75 million, then what does investment equal (in $ millions)?
275 S + (M - X) = I + (G - T) 300 + (-75) = I + (350 - 400) 225 + 50 = I I = 275
A government collects $700 billion annually in tax revenue. Each year it allocates $70 billion to the justice system and $130 billion for its own administrative costs. What percentage of annual tax revenue is allocated to these two categories of government spending? (Round your answer to two decimal places)
28.57
How many Japanese yen does one Canadian dollar buy according to the table below? (Round answers to two decimal places.) EUR-USD 1.3869 GBP-USD 1.687 USD-JPY 102.2 AUD-USD 0.9227 USD-CAD 1.0972 Note: the value column for currency pair X-Y shows the price of currency X in terms of currency Y. For example, EUR-USD 1.3869 means 1 Euro costs 1.3869 U.S. Dollars.
93.15 To find the answer, first recognize the pair we're looking for: CAD-JPY. Next, find two pairs: one with CAD and another with JPY. In this case, it's CAD-USD and USD-JPY. Because we're only given USD-CAD, we must divide 1 by the USD-CAD exchange rate (1.0972) to get CAD-USD of 0.91141. Next, we take the second currency pair, USD-JPY and multiply that figure by the CAD-USD price. (0.91141)(102.2) = 93.15 after rounding.
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: A loose monetary policy An expansionary monetary policy A quantitative easing policy A contractionary monetary policy
A contractionary monetary policy
When the interest rate in an economy increases, it is likely the result in either: a. an increase in the government budget surplus or its budget deficit b. a decrease in the government budget surplus or its budget deficit c. an increase in the government budget surplus or a decrease in its budget deficit d. a decrease in the government's budget surplus or an increase in its budget deficit
A decrease in the government's budget surplus or an increase in its budget deficit
If the economy is in a recession with high unemployment and output below potential GDP, then __________________ would cause the economy to return to its potential GDP? a. fewer loanable funds b. higher interest rates c. a tight monetary policy d. a loose monetary policy
A loose monetary policy
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will follow: a. tight monetary policy b. loose monetary policy c. expansionary monetary policy d. quantitative easing policy
A tight monetary policy
A central bank must be concerned about whether a large and unexpected __________ will drive most of the country's existing banks into bankruptcy. a. exchange rate depreciation b. exchange rate appreciation c. increase in foreign investments d. interest rate increase
Aggregate demand
A stronger Euro is less favorable for (note, Germany and France use Euro) American tourists traveling in France Canadian firms selling in Germany Canadian investors that invested in Germany German tourists traveling abroad
American tourists traveling in France
The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy. a. an expansionary fiscal policy; an increase in government spending b. an expansionary fiscal policy; an increase in corporate taxes c. a contractionary fiscal policy; a reduction in taxes d. a contractionary fiscal policy; an increase in taxes
An expansionary fiscal policy; an increase in government spending
________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation. a. Discretionary fiscal policies b. Standardized employment budgets c. Budget expenditures d. Automatic stabilizers
Automatic stabilizers
What name is given to the macroeconomic equation MV = PQ?
Basic quantity equation of money
If the state of Washington's government collects $75 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be a: a. decrease in proportional taxes b. budget deficit c. budget surplus d. decrease in payroll tax
Budget surplus
A central bank that wants to increase the quantity of money in the economy will: a. implement a reverse quantitative easing b. sell bonds in open market operations c. buy bonds in open market operations d. raise the discount rate
Buy bonds in open market operations
How are the specific interest rates (i.e. car loan rates, mortgage rates etc.) determined? a. by the forces of supply and demand in those markets b. by the U.S. Treasury Department Board policy c. through open market operations d. by altering the discount rate
By the forces of supply and demand in those markets
If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will: Cause the exchange rate for U.S. currency to depreciate Lower levels of consumption and investment Lead to higher imports and lower exports Cause the exchange rate for U.S. currency to appreciate
Cause the exchange rate for U.S. currency to depreciate
Ricardian equivalence means that: a. changes in imports offset any changes in the government deficit b. changes in investment offset any changes in the government deficit c. changes in private savings offset any changes in the government deficit d. changes in exports offset any changes in the government deficit
Changes in private savings offset any changes in government deficit
If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with: An expansionary monetary policy A contractionary monetary policy A loose monetary policy A discretionary monetary policy
Contractionary monetary policy
When inflation begins to climb to unacceptable levels in the economy, the government should use __________ fiscal policy to shift aggregate demand to the __________. a. contractionary; right b. expansionary; left c. expansionary; right d. contractionary; left
Contractionary; left
If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________. a. increase b. remain unchanged c. decrease d. either increase or decrease
Decrease
An increase in government borrowing can _________ Cause substantial decrease in interest rates Allow private investment to expand Decrease private investment in physical capital
Decrease private investment in physical capital
Expansionary monetary policy __________ interest rates, __________ consumption and investment and __________ real GDP and price level. Decreases; decreases; increases Decreases; increases; decreases Decreases; increases; increases Increases; increases; increases
Decreases; increases; increases
A central bank must be concerned about whether a large and unexpected __________ will drive most of the country's existing banks into bankruptcy. a. exchange rate depreciation b. exchange rate appreciation c. increase in foreign investments d. interest rate increase
Exchange rate depreciation
If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used? Contractionary Standardized Discretionary Expansionary
Expansionary
Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _______________, but may be unable to do so because such a policy would _______________. a. contractionary fiscal policy; lead to a budget surplus b. discretionary fiscal policy; lead to a budget surplus c. expansionary fiscal policy; lead to a budget deficit d. contractionary fiscal policy; lead to a budget deficit
Expansionary fiscal policy; lead to a budget deficit
From a macroeconomic point of view, increases in ____________ add to the aggregate demand, while increases in ____________ subtract from the aggregate demand. Rates of return; exchange rates Exchange rates; rates of return Imports; exports Exports; imports
Exports; imports
A U.S. investor abroad benefits from a stronger dollar. True or False?
False
Social Security Tax is a progressive tax True or false?
False
A soft peg is the name for an exchange rate policy where the government allows the exchange rate to be set by the market. True or false?
False— a soft peg is policy the government enacts in which their currency is kept within boundaries (as opposed to a free market currency where there is no government intervention on currency and a hard peg, which is a set price that does not fluctuate.)
The specific interest rate targeted by the Federal Reserve by using open market operations is the __________ rate which is the interest rate charged by commercial banks making overnight loans to other banks. Discount Loanable funds Federal funds Lending Borrowing Overnight
Federal funds
The Federal Reserve targets _______________ when implementing monetary policy. Nominal interest rate Consumer lending rate Real interest rate None of the listed interest rates Federal funds rate
Federal funds rate
From a macroeconomic point of view, which of the following is a source of demand for financial capital? Domestic household private savings Savings by households and firms Government borrowing Foreign financial investment
Government borrowing
If a country experiences a relatively ____________ inflation rate compared with other countries, then it's currency will ______________. Constant; appreciate High; depreciate High; appreciate Low; depreciate Constant; depreciate
High; depreciate
Which of the following events would cause interest rates to increase? a. lower tax rates b. an open market operation to buy bonds c. a higher discount rate d. lower reserve requirements
Higher discount rate
A weaker dollar _____ U.S. importing firms, and _____ U.S. investors abroad, _____ foreign tourists in the U.S., and _____ foreign investors in the U.S. Benefits; hurts; hurts; benefits Hurts; hurts; benefits; benefits Hurts; hurts; hurts; hurts Hurts; benefits; benefits; hurts
Hurts; benefits; benefits; hurts
A stronger dollar _____ U.S. exporting firms, _____ U.S. investors abroad, _____ foreign tourists in the U.S., and _____ foreign investors in the U.S. a. hurts; hurts; benefits; benefits b. hurts; hurts; hurts; benefits c. benefits; hurts; hurts; benefits d. hurts; hurts; hurts; hurts
Hurts; hurts; hurts; benefits
In 2010, one Swiss franc cost 0.56 British pounds and in 2012, it cost 0.51 British pounds. How many Swiss francs would one British pound purchase in 2010 and 2012?
In 2010, one British pound would purchase 1.79 francs In 2012, one British pound would purchase 1.96 francs These figures are found by dividing one Swiss franc by 0.56 and then rounding to two decimal places. 1 / 0.56 = 1.7857
A decrease in the government's budget surplus will cause the interest rate to: Decrease Either increase or decrease Increase Remain the same
Increase
If a country's GDP decreases, but its debt increases during that year, then the country's debt to GDP ratio for that year will _______________ in proportion to the magnitude of the changes. Decrease (because GDP decreased) Increase of decrease Increase Decrease
Increase
If a country's GDP increases, but its debt also increases during that year, then the country's debt to GDP ratio for the year will _______________ in proportion to the magnitude of the changes. a. increase b. remain unchanged c. decrease d. increase, decrease or remain unchanged
Increase, decrease, or remain unchanged
Contractionary monetary policy __________ interest rates, __________ consumption and investment and __________ real GDP and price level. Increases; decreases; increases Increases; increases; decreases Increases; decreases; decreases Increases; increases; increases
Increases; decreases; decreases
When the central bank decides to increase the discount rate, then __________. a. interest rates are unaffected b. interest rates increase c. interest rates decrease d. money supply increases
Interest rates increase
Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________. Exchange rates; left Rates of return; left Interest rates; right
Interest rates; right
When banks hold excess reserves because they don't see good lending opportunities: a. contractionary monetary policy is unaffected b. it negatively affects expansionary monetary policy c. it negatively affects contractionary monetary policy d. expansionary monetary policy is unaffected
It negatively affects expansionary monetary policy
Would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate? Inflation or recession must be ignored in order to focus on its soft peg It would appreciate the country's currency and break its hard peg It would depreciate the country's exchange rate and break its hard peg It would use up all its reserves of international currency to buy its own currency
It would depreciate the country's exchange rate and break its hard peg
When the central bank decides to sell bonds using open market operations: Interest rates decrease Money supply increases Money supply is unaffected Money supply decreases
Money supply decreases
A Central Bank's policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result? a. the money supply in the economy decreases b. Northern's loan assets increase by $30 million c. Northern's bond assets increase by $30 million d. Northern's net worth changes by $30 million
Northern's loan assets increase by $30 million
When inflation begins to climb to unacceptable levels in the economy, the government should use __________ fiscal policy to shift aggregate demand to the __________. a. contractionary; right b. expansionary; left c. expansionary; right d. contractionary; left
Progressive tax
A _______________ is calculated as a flat percentage of income earned, regardless of the level of income. Proportional tax Progressive tax Regressive tax
Proportional tax
A central bank that desires to reduce the quantity of money in the economy can: Lower the discount rate Raise the reserve requirement Buy bonds in open market operations Engage in quantitative easing
Raise the reserve requirement
If South Dakota's governor reports a budget surplus in 2011, then that state government likely: Equalized spending and taxes in that year Increased the corporate income tax rate Increased the proportional tax level Received more in taxes than it spent in that year
Received more in taxes than it spent in that year
If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000 then the tax structure is: Proportional Increasing Regressive Progressive Optional Decreasing
Regressive
If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as: S + (G - T) = I - (X - M) S + (M - X) = I + (G - T) (M - X) - S = (G + T) - I S = (X - M) - (G - T)
S + (M - X) = I + (G - T) ====== Remember that normally, the equation is written as: S - I = (G - T) + (X - M)
If 1,000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 0.87 U.S. dollars in 2010, then: The peso appreciated against the dollar The dollar strengthened against the peso The peso strengthened against the peso The dollar depreciated against the peso
The dollar strengthened against the peso
When the central bank lowers the reserve requirement on deposits: The money supply and interest rates decrease The money supply decreases and interest rates increase The money supply and interest rates increase The money supply increases and interest rates decrease
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 The quantity of money will slowly rise The quantity of money will rise before it falls The quantity of money will fall
The quantity of money will fall
In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to: Private sector investment The trade deficit Domestic household savings The trade deficit
The trade deficit
What do goods like gasoline, tobacco, and alcohol typically share in common? a. A progressive tax is imposed on each of them b. They are all subject to government excise taxes c. A regressive tax is imposed on each of them d. They are all subject to government fiscal taxes
They are all subject to government excise taxes
The central bank requires Southern Bank 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? Southern's net worth increases by $25 million The money supply in the economy will decrease Decrease in Southern's bond assets by $25 million Increase in Southern's loan assets of $25 million
They money supply in the economy will decrease
A hard peg is the name for an exchange rate policy where the central bank sets a fixed and unchanging value for the exchange rate. True or false?
True
Foreign direct investment (FDI) is defined as purchasing more than 10% of the firm or starting a new enterprise in another country. True or false?
True
If the U.S. shifts from a government budget deficit to a budget surplus, then the dollar is likely to depreciate all else equal True or false?
True
The Federal Reserve's discount rate is set higher than the federal funds rate. True or false?
True
If the U.S. dollar weakens, which of the following parties will benefit? Australian firms selling in the U.S. U.S. firms selling in Europe Countries exporting to the U.S. Japanese investors who have invested in the U.S.
U.S. firms selling in Europe