Macro Econ

Other things the same, if the U.S. price level falls, then U.S. residents want to buy

more foreign bonds. the real exchange rate falls - More people want foreign exchange: net capital outflow.

The price level rises by 5% over a year. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?

- 0.5 percent Real= nominal - i (inflation) 4.5-5%

A company in Panama pays a U.S. architect to design a factory building. By itself this transaction

A. increases Panama's imports and so decreases the Panama's trade balance.

This bank's leverage ratio is

b. 50. total assets/ capital 10k/200= 50

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

a. 2 gallons of Argentinean milk/1 gallon of U.S. milk e^n= nominal exchange rate e^n *dom price/for price 4pesos*3$/6pesos-galon

An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy fewer goods and services than she could buy last year.

a. Her real salary has fallen and her nominal salary has risen.

An increase in the economy's trade surplus means net capital outflow is

a. Positive and increasing

When the money supply shifts from MS1 to MS2

a. the equilibrium value of money decreases. buying bonds

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

a. the inflation rate and the nominal interest rate by the same number of percentage points.

Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?

b. 200,000 2% over the required reserve. 2% * 500,000 = 10k 60k reserve -10k=50k/500,000 deposits =10% m=1/10 10k open purchases PLUS the 10k above = 20,000*10 (mulitplier)

Which of the following accurately describes of the effect of the government budget deficit on the open economy?

b. Real interest rates rise, which causes crowding out of domestic investment; the currency appreciates pushing the trade balance toward deficit. intrest rate ^ foreigners interact (compete for dollars) = exchange rates ^ surplus oppisite than deficit

Net Exports equals

b. exports minus imports net cash outflows

Suppose a country's net capital outflow does not change, but its investment DECLINES by $420 billion. Its saving must have

b. fallen by $420 billion, but its net exports are unchanged. s=i+nco -420+0

A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can, given the reserve requirement. It follows that the reserve requirement is

c. 25 percent 2k res 8k deposit 6k loans

The principle of monetary neutrality implies that an increase in the money supply will increase

c. The price level, but NOT real GDP

Which of the following will increase the price level in the long run?

c. an increase in the money supply

In a system of fractional-reserve banking,

c. banks can increase the money supply. one of the tools for the fed. Increase or dereas the money supply put hold to lending

A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese net exports

c. decrease, and U.S. net capital outflow increases.

If U.S. speculators gained greater confidence in foreign economies so that they wanted to move more of their wealth into foreign countries, the dollar would

c. depreciate and net exports would increase

You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then the dollar buys

c. more pesos. Your hotel room in Mexico will require fewer dollars.

Which of the following is not an example of monetary policy?

d. The Federal Reserve facilitates bank transactions by clearing checks.

If the US experiences capital flight, which of the following curves shift right?

d. The demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.

Which of the following best represents fiat money?

A. The euro

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $500 million in deposits and $455 million in loans. Given this information you find that the reserve requirement must be

D. 7.0 percent 10million excess 45res-10excess=35 45m res 500M deposits loans :455 35/500=7%

According to purchasing-power parity, when a country's central bank decreases the money supply, a unit of money

b. gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy. Currency is getting stronger ( decrease of money supply)

You hold currency from a foreign country. If that country has a lower rate of inflation than the United States, then over time the foreign currency will buy

b. more goods in that country but buy fewer dollars.

Which curve shows the relation between the exchange rate and net exports?

c. The demand curve in graph (c).

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.

d. Its trade deficit rose.

Which of the following can a country increase in the long run by increasing its money growth rate?

a. The nominal wage

When the Fed decreases the discount rate, banks will

a. borrow more from the Fed and lend more to the public. The money supply increases.

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

a. did not change if the inflation rate was 20 percent.

The economy of Umrica uses gold as its money. If the government discovers a large reserve of gold on their land the

b. supply of money increases, the value of money falls, and prices rise.

Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Cheerton are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Cheerton decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?

d. 24,000 multiplier: 60k*5%=3k 4200-3k=1200 excess 1/.05=20 1200*20=24000

If you are vacationing in Spain and the dollar depreciates relative to the euro, then the dollar buys

d. fewer euros. It will take more dollars to buy a good that costs 50 euros.

A problem that the Fed faces when it attempts to control the money supply is that

d. the Fed does not control the amount of money that households choose to hold as deposits in banks.

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

b. inflation falls by the same amount by which money supply growth changed. money supply is declining, disinflation

If U.S. net exports are negative, then net capital outflow is

d. negative, so American assets bought by foreigners are greater than foreign assets bought by Americans. foreigners coming in capital inflow, real rates went up.

According to the quantity theory of money, which variable adjusts to balance the supply and demand for money?

d. price level affects nominal variables

5. If real GDP doubles and the price level doubles, then nominal GDP

d. quadruples

In 1998, the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

d. reduced Russian interest rates and increased Russian net exports.