Macro Exam 4

Myrna borrows $500 at an annually compounded interest rate of 8 percent that she will repay at the end of 10 years. How much will be required to pay off the loan at the end of 10 years

$1,079.46

What is the present value of $5,000 to be received 10 years from now if the interest rate is 10 percent

$1,927.72

$200 invested at an annual interest rate of 5 percent will be worth how much at the end of one year?

$210

Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization and trade will be

4 tons of beans

Refer to the Tables 47. Which of the following would be feasible terms for trade between Latalia and Trombonia?

4 tons of beans for 1 ton of pork

Pigou buys a house for $500,000, rents it for $2,000 per month for years, and then sells it for $600,000. What is Pigou's per-year rate of return?

9.8 percent

Commercial bank reserves, most of which are held by the Federal Reserve banks are.

A liability of Federal Reserve Banks and an asset for commercial banks.

Assume that by devoting all of its resources to the production of X, nation Alphacan produce 40 units of X. By devoting all of its resources to Y, Alpha can produce60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that

Alpha should specialize in Y and Beta in X

A tariff can best be described as

An excise tax on an imported good.

which of the following statements is false?

As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

Which of the following statements is true

Asset prices and average expected rates of return are inversely related, but levels of nondiversifiable risk and average expected rates of return are directly related.

Which of the following is a difference between stocks and bonds?

Bond payouts are more predictable than payouts from stocks.

Debt contracts (also called instruments) issued by government and corporations are known as

Bonds

Which of the following is an example of a capital-intensive commodity?

Chemicals

In general, risk levels and average expected rates of return are

Directly related

Mutual funds may contain

Either stocks or bonds

The lending ability of commercial banks increases when the

Fed buys securities in the open market

The interest rate that banks charge one another on overnight loans is called the

Federal funds rate

The collateral used for repos and reverse repos is (are)

Government bonds

Refer to the diagram, which pertains to two nations and a specific product. The equilibrium level of exports and imports occurs at

H, where GB and FC intersect.

Refer to the Tables from 47. In Latalia the domestic real cost of 1 ton of pork

Is 5 tons of beans

Katie buys a house for $200,000 and rents it for $1,000 per month. Katie's annual rate of return

Is 6 percent

Refer to the Tables from 47. If these two nations specialize on the basis of comparative advantage.

Latalia will produce beans, and Trombonia will pork.

Since the financial crisis that began in 2007, the Federal Reserve has added a significant amount of which of the following securities.

Mortgage-backed securities

Which of the following tools of monetary policy is flexible policy is flexible and able to affect bank reserves quickly and by relatively specific amounts?

Open-market operations

Refer to the diagram, where S d and D d are the domestic supply and demand for a product and Pc is the world price of that product. With a P cPt per-unit tariff, per-unit revenue received by domestic and foreign producers, respectively, will be

Pt and Pc

The initial aggregate demand curve is AD 1 , and the initial aggregate supply curve is AS 1 . Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a

Rightward shift of the aggregate supply curve from AS2 to AS1

In a reverse repo transaction

The Fed borrows money to financial institutions.

Which of the following will increase commercial bank reserves?

The purchase of government bonds in the open market by the Federal Reserve Banks.

Which institution is least likely to default on a bond?

U.S. federal government

The maximum amount of money that company shareholders can lost on their investment in the corporation is

Whatever they paid for the shares in the company.

Refer to the diagram, where S d and D d are the domestic supply and demand for a product and P c is the world price of that product. With a P cPt per-unit tariff, the quantities sold by foreign and domestic producers, respectively, will be

Wy and w

The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. Demand-pull inflation in the short run is best shown as.

a shift of the aggregate demand curve from Ad1 to Ad2

Adam smith recognized the benefits from trade based on _____, and David Ricardo recognized the benefits from trade based on____.

absolute advantage; comparative advantage.

Rightward and upward shifts of the phillips curve in the 1970s and early 1980s were caused by

adverse shocks to aggregate supply

A horizontal security market line would imply that investors.

are unconcerned about risk and require no additional compensation for risk.

The average expected rate of return of a financial asset equals

are unconcerned about risk and require no additional compensation for risk.

in the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that.

banks held on to excess reserves and people chose to pay off loans rather than spend

If a corporation goes bankrupt

bondholders get paid from the sale of company assets before stockholders do.

Non Diversifiable risk refers to potential losses from

events that move all investments in the same direction.

The price of an asset should

exactly equal the total present value of all the asset's future payments

The term trade deficit refers to a situation where

exports are less than imports

NAFTA

has reduced most trade barriers between Canada, Mexico, and the United States.

Refer to the given diagram assume that nominal wages initially are set on the basis of the price level p2 and the economy initially is operating at its full employment level of output Qr. In the short run, an increase in the price level from p2 to p3 will.

increase real output from Qf to Q2

Arbitrage occurs when

investors try to profit from selling a lower rate of return asset to buy one that is nearly identical but with a higher rate of return.

The given curve is known as the

laffer Curve

An investment with a beta of 4.0 means that the investment has four times the.

level of nondiversifiable risk as the market portfolio.

Riskier investments tend to sell for

lower prices, so they provide a higher expected rate of return to compensate for risk.

According to the Taylor rule, if the inflation rate is one percentage point below the target of 2 percent, then the Fed should

lower the federal funds rate by half of a percentage point.

The present value of a future amount of money will be greater the

lower the interest rate.

According to the concept of the time value of money

money is more valuable to a person the sooner it is received.

Refer to the diagram. Assume that nominal wages initially are set on the basis of the price level P2 and that the economy initially is operating at its full employment level of output Qf. In the long run, an increase in the price level from P2 to P3 will

move the economy from b to d

According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and real GDP rises by 1 percent above potential GDP, then the Fed should

raise the federal funds rate by half of a percentage point.

The principle of comparative advantage indicates that mutually beneficial international trade can take place only when

relative costs of production differ between nations.

In effect, tariffs on imports are

subsidies for domestic producers

The ratio at which nations will exchange one product for another is known as the

terms of trade.

Statistical data for the 1970s and 1980s suggest that

the Phillips Curve was unstable

The traditional Phillips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment,

the inflation rate will increase

Investors diversify portfolios

to reduce the risk of losing their investment.

Arbitrage occurs when investors try to profit from situations where

two identical assets have different rates of return.