Hw 8- 12 (Final Chapters for Finals)

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 how much is investment?

$275 million

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?

10

In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013?

2010: 113.6 yen, 2013: 107.5 yen

Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

510 million

An increase in interest rates is consistent with:

A decrease in the government's budget surplus or an increase in its budget deficit.

If government policy allows a country's currency to be determined in the exchange rate market, then that currency has a:

A floating exchange rate.

Under what conditions will a larger budget deficit cause a trade deficit?

A larger budget deficit will cause an increase in the trade deficit when private savings do not offset the spending increase and private investment is not fully crowded out.

What are the four functions served by money?

A unit of account. A medium of exchange. A store of value. A standard of deferred payment.

How well does Ricardian equivalence actually work?

A variety of statistical studies shows that private savings increase about 30 cents for every one dollar added to government debt.

During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:

Aggregate demand curve will shift to the right.

A stronger euro is less favorable for: A. German tourists traveling abroad. B. American tourists traveling in France. C. Canadian firms selling in Germany. D. Canadian investors with money investments in Germany.

American tourists traveling in France.

One of the following groups is not participating in the foreign exchange markets. Which one? A. Boston business firms trading goods and services with firms in France B. international investors buying bonds issued by a German car manufacturing firm C. An Iowa travel firm that arranges vacation tours for local seniors to Hawaii D. international investors buying part-ownership of a mining operation in Afghanistan

An Iowa travel firm that arranges vacation tours for local seniors to Hawaii

Which of the following is a common misunderstanding about exchange rates?

An appreciating currency must be better than a depreciating currency

The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.

An expansionary fiscal policy; an increase in government spending

How can an unexpected fall in the dollar/euro exchange rate injure the financial health of a US bank?

An unexpected fall in the dollar-euro exchange rate can make it more difficult for US banks to repay European creditors, since the dollar will buy a smaller amount of foreign currency.

_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.

Automatic Stabilizers

If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:

Automatic stabilizers will decrease government spending and increase tax revenue.

A ______________________ means that government spending and taxes are equal.

Balanced budget

Why is a bank called a financial intermediary?

Banks help lenders find borrowers and vice versa, serving as a middleman to help facilitate financial transactions.

If the central bank increases the amount of reserves banks are required to hold from 10% to 20% of deposits, then:

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

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

Budget deficit

When a government is a borrower in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view?

Central bank prints more money

Ricardian equivalence means that:

Changes in private savings offset any changes in the government deficit.

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.

Contractionary

The process of banks making loans in financial capital markets is intimately tied to the:

Creation of money.

An increase in government borrowing can:

Crowd out private investment in physical capital.

Which of the following would be classified in the M1 category of the money supply? A. savings deposits B. money market deposit C. demand deposits D. certificates of deposit

Demand deposits

What's the difference between discretionary fiscal policy and automatic stabilizers?

Discretionary fiscal policy are tax and spending changes that must be enacted by Congress, while automatic stabilizers take place without any new legislative action being necessary.

In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

Diversification

Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future.

Exchange rates and rates of return

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____________________________.

Expansionary fiscal policy; lead to a budget deficit

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?

Fiscal Policies

What are some of the ways fiscal policy might encourage economic growth?

Fiscal policy can increase government spending on goods and services, which boosts aggregate demand and leads to increased economic output if the economy is below full employment GDP.

What is the difference between foreign direct investment and portfolio investment?

Foreign direct investment involves purchasing a firm or starting up a new enterprise in a foreign country, while foreign portfolio investment involves purchasing stocks, bonds and other financial assets which involve no management by the investor.

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

Foreign exchange market

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

Government Borrowing

A prolonged period of budget deficits may lead to ___________________.

Higher levels of government debt

Temporary tax cuts will stimulate aggregate demand unless:

Individuals save more.

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which ________ aggregate demand.

Interest rates; increases

A constitutional requirement for a balanced budget:

Is in most US states' constitutions.

If Australia's exchange rate is stronger than the PPP rate for several years, which of the following will likely result?

Its imports will increase

How would you expect larger budget deficits to affect private sector investment in physical capital? Why?

Larger budget deficits increase the government's demand for financial capital which drives up interest rates and makes private sector investment more expensive.

Which category of the money supply would you be contributing to if you invest in money market funds? A. M2 B. M1 C. time deposits D. savings deposits

M2

In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?

Medium of exchange

How does the existence of money simplify the process of buying and selling?

Money facilitates exchange by eliminating the need to find barter arrangements to which both parties are agreeable, what economists call a "coincidence of wants."

If a government decides to finance an investment in ________________ with higher taxes or ____________________, it need not worry that it is crowding out private investment.

New buildings at a public university; lower government spending

Why are temporary tax cuts often ineffective in increasing aggregate demand substantially?

People tend to save temporary tax cuts and to spend more if they perceive the tax cut to be permanent.

The U.S. economy has two main sources of financial capital; _______________________ and ____________________________.

Private savings from U.S. households and firms; inflows of foreign financial investment.

An additional investment in human capital, especially for the lowest-income nations of the world, will likely directly increase which of the following?

Productivity and economic growth

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

Progressive tax

If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:

Proportional.

________________________ equalizes the prices of internationally traded goods across countries.

Purchasing power parity

If South Dakota's governor reports a budget surplus in 2011, that state government likely:

Received more in taxes than it spent in that year.

Increased government spending will stimulate aggregate demand in the short term unless:

Recognition lag is very long. Implementation lag is very long. Legislative lag is very long.

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 policy is:

Regressive.

The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.

Reserve ratio

The time lag for monetary policy is typically ________________ the time lag for fiscal policy.

Shorter than

How do banks create money?

Solution : Banks create money by loaning out deposits to borrowers, creating a multiplier effect on the money supply.

A government will likely ____________________________ to encourage investment in technology R&D by private firms.

Spend more on R&D in government laboratories

What are some spending policies for improving a society's human capital?

Spending on education (which enable people to accumulate and use knowledge up to today's frontier) and spending on scientific research (which enables people to accumulate and use knowledge and skills beyond today's frontier).

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

Why do banks use a T-account?

The T-account separates assets on the left from liabilities on the right

What is the difference between a budget deficit and the national debt?

The budget deficit is the difference between tax revenue and spending in a given year. The national debt is the accumulation of all past deficits.

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

The credit card company's M1 funds.

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.

In most developed countries, the government plays a large role in society's investment in human capital through _________________________.

The education system

What is the foreign exchange market?

The foreign exchange market is where currencies are traded for one another.

What are the main categories of U.S. federal government spending?

The main categories are national defense, Social Security and Medicare payments, and interest on the debt.

What is the formula for the money multiplier?

The money multiplier is the reciprocal of the reserve requirements on banks.

What is the purchasing power parity exchange rate?

The purchasing power parity exchange rate is the rate that equalizes the prices of tradable goods across two economies.

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

Total money; quantity of money

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

U.S. dollar.

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

Weakening; less

How does a higher rate of return in a nation's economy, all other things being equal, affect the exchange rate of its currency?

Yes. A higher rate of return will attract foreign investment, increase the demand for the currency and cause the exchange rate to rise. It will also affect supply of currency.

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

a double coincidence of wants

Provide three examples of expenditures that automatically tend to increase when the economy goes into recession.

food stamps, unemployment insurance, medicaid

The current level of US government accumulated debt, when measured in nominal dollars:

is higher than it has ever been.

Which of the following is omitted in a barter transaction?

money

In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.

owning gold

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:

the trade deficit.