Macroeconomics Exam #4 Review

The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are $0. Correct $1,000. $5,000. $30,000.

$0.

Refer to the accompanying table. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are $0.35 million. $0.65 million. $1.35 million. $1.65 million.

$0.65 million.

The Norfolk Bank has $18,000 in excess reserves, and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold? $160,000 in checkable-deposit liabilities and $48,000 in reserves $140,000 in checkable-deposit liabilities and $46,000 in reserves $120,000 in checkable-deposit liabilities and $32,000 in reserves $100,000 in checkable-deposit liabilities and $30,000 in reserves

$140,000 in checkable-deposit liabilities and $46,000 in reserves

The accompanying table gives domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. With a $1-per-unit tariff, price and total quantity sold will be $3 and 7 units. $5 and 2 units. $1 and 16 units. $2 and 11 units.

$2 and 11 units.

If the reserve ratio is 100 percent, the value of the monetary multiplier is 0. 1. Correct 10. 100.

1.

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is 10 percent. 12.5 percent. Correct 20 percent. 5 percent.

12.5 percent.

Answer the question based on the information in the table. The equilibrium interest rate in this economy is 3 percent. 4 percent. Correct 5 percent. 6 percent

4 percent.

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is 10. 4. 5. Correct 2.

5.

Refer to the graphs. An increase in the economy's human capital would shift curve AB to CD and curve Y to X. CD to AB and curve X to Y. X to Y, while leaving curve AB in place. AB to CD and curve X to Y.

AB to CD and curve X to Y.

Which of the following statements is false? In recent years, the United States has had large annual trade deficits in goods. The United States imports some of the same categories of goods as it exports. China has the largest share of world exports. As a percentage of GDP, U.S. exports are the highest among the industrially advanced nations.

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

In a world with two products, wheat (W) and coffee (C), nation Alpha produces wheat and nation Beta produces coffee. Nation Alpha prefers an exchange rate of 1W = 2C, and nation Beta prefers an exchange rate of 1W = 1C. The exchange rate preferred by nation Alpha will prevail if world demand for coffee is great relative to its supply. Alpha will prevail if world demand for wheat is weak relative to its supply. Beta will prevail if world demand for coffee is great relative to its supply. Correct Beta will prevail if world demand for wheat is great relative to its supply.

Beta will prevail if world demand for coffee is great relative to its supply.

Refer to the graph, which shows the supply and demand for money, where Dm1, Dm2, and Dm3 represent different demands for money and Sm1, Sm2, and Sm3 represent different levels of the money supply. The initial equilibrium point is A. What will be the new equilibrium point following a decrease in the transactions demand for money? B E F Correct I

F

Which of the following is a tenet of supply-side economics? High marginal tax rates severely discourage work, saving, and investment. Correct Increases in Social Security taxes and other business taxes shift the aggregate supply curve to the right. The Federal Reserve should adhere to a monetary rule that limits increases in the money supply to a 5 percent annual rate. Transfer payments increase incentives to work.

High marginal tax rates severely discourage work, saving, and investment.

The accompanying table gives maximum-output alternatives for Brazil and Poland. It can be seen that if the two nations open up trade with each other, then Brazil will specialize in producing machines and import wine. Poland will specialize in producing machines and import wine. Correct Poland will export wine. Brazil will not gain from specializing and trading, but Poland will gain.

Poland will specialize in producing machines and import wine.

The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the International Monetary Fund (IMF). World Trade Organization (WTO). Correct Common Market Organization (CMO). International Trade Commission (ITC).

World Trade Organization (WTO).

Refer to the diagram. The move of the economy from c to e on short-run Phillips Curve PC2 would be explained by an increase in aggregate demand in the economy. increase in aggregate supply in the economy. actual rate of inflation that is less than the expected rate. Correct actual rate of inflation that exceeds the expected rate.

actual rate of inflation that is less than the expected rate.

A bank is in the position to make loans when required reserves equal actual reserves. equal excess reserves. are less than actual reserves. are greater than actual reserves.

are less than actual reserves.

Banks create money when they allow loans to mature. accept deposits of cash. buy government bonds from households. Correct sell government bonds to households.

buy government bonds from households.

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would increase by $5 billion decrease by $5 billion. Correct be added to net worth. remain the same.

decrease by $5 billion.

If the Board of Governors of the Federal Reserve System increases the legal reserve ratio, this change will increase the excess reserves of member banks and thus increase the money supply. increase the excess reserves of member banks and thus decrease the money supply. decrease the excess reserves of member banks and thus decrease the money supply. Correct decrease the excess reserves of member banks and thus increase the money supply.

decrease the excess reserves of member banks and thus decrease the money supply.

Refer to the diagram of the market for money. Given Dm and Sm, an interest rate of I3 is not sustainable because the supply of bonds in the bond market will decline and the interest rate will rise. supply of bonds in the bond market will increase and the interest rate will decline. demand for bonds in the bond market will decline and the interest rate will rise. demand for bonds in the bond market will rise and the interest rate will fall.

demand for bonds in the bond market will rise and the interest rate will fall.

Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million. directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

An example of a nontariff barrier would be a minimum limit on the quantity of imports. excessive licensing requirements. Correct a tax on an imported product. voluntary export restraints.

excessive licensing requirements.

All else equal, when the Federal Reserve Banks engage in an expansionary monetary policy, the interest rates received on government bonds usually fall. Correct rise. remain constant. move in the same direction as the bonds' price.

fall.

According to the Taylor rule, for every 1 percentage point that unemployment exceeds the natural rate of unemployment, there is a 2-percentage-point gap between potential and actual GDP. growth in the money supply should be limited to the long-run average growth rate of real GDP. if inflation rises by 1 percentage point above its target, then the Fed should raise their targeted interest rate by one-half a percentage point. Correct the rate of money growth should be set at 4 percent per year.

if inflation rises by 1 percentage point above its target, then the Fed should raise their targeted interest rate by one-half a percentage point.

Refer to the diagram, which pertains to two nations and a specific product. Lines FC and GD are domestic supply curves for two countries. domestic demand curves for two countries. import demand curves for two countries. Correct export supply curves for two countries.

import demand curves for two countries.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point X on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary, full-employment level of real GDP? decrease aggregate demand from AD1 to AD2 increase the money supply from $75 to $150 billion Correct increase interest rates from 4 to 8 percent make no change in monetary policy

increase the money supply from $75 to $150 billion

Refer to the diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should increase the money supply from $80 to $100. Correct increase the money supply from $80 to $120. maintain the money supply at $80. decrease the money supply from $80 to $60.

increase the money supply from $80 to $100.

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed? decreased by $600 increased by $1,800 increased by $600 increased by $1,200

increased by $1,200

Henry deposits $2,000 in currency in the First Street Bank. Later that same day, Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the supply of money has increased by $2,100. increased by $3,300. increased by $5,400. Correct decreased by $3,300.

increased by $5,400.

In the theory of comparative advantage, a good should be produced in that nation where the production possibilities line lies further to the right than the trading possibilities line. its cost is least in terms of alternative goods that might otherwise be produced. Correct its absolute cost in terms of real resources used is least. its absolute money cost of production is least.

its cost is least in terms of alternative goods that might otherwise be produced.

Refer to the graphs. Assume that the economy is initially at equilibrium where AD2 and AS intersect in Graph 1, and also assume that the economy is initially at point C in Graph 2. If the government implements a contractionary or restrictive policy, it would make the economy in graph 2Refer to the graphs. Assume that the economy is initially at equilibrium where AD2 and AS intersect in Graph 1, and also assume that the economy is initially at point C in Graph 2. If the government implements a contractionary or restrictive policy, it would make the economy in graph 2 move from point C to point B. move from point C to point A. move from point C to point D. Correct remain at point C.

move from point C to point D.

Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price of this product is $1, this nation will export all of the product. import all of the product. import some of the product and produce some of the product domestically. neither export nor import the product.

neither export nor import the product.

Refer to the graph. An expansion of the economy's production possibilities can, by itself never cause inflation. Correct never cause price level to fall. cause a decrease in real output. cause a decrease in employment level.

never cause inflation.

In terms of aggregate supply, the difference between the long run and the short run is that in the long run,In terms of aggregate supply, the difference between the long run and the short run is that in the long run, the price level is variable. employment is variable. real output is variable. nominal wages and other input prices are fully responsive to price-level changes.

nominal wages and other input prices are fully responsive to price-level changes.

The Federal Reserve Banks buy government securities from commercial banks. As a result, the checkable deposits of commercial banks are unchanged, but their reserves increase. Correct and reserves of commercial banks both decrease. of commercial banks are unchanged, but their reserves decrease. and reserves of commercial banks are both unchanged.

of commercial banks are unchanged, but their reserves increase.

The use of monetary policy to shift aggregate demand to the right in a severe recession is like pushing on a string. Correct putting all your eggs in one basket. pulling on one's purse-strings. pushing the envelope.

pushing on a string.

The possible asymmetry of monetary policy is the central idea of the invisible hand concept. ratchet analogy. pushing-on-a-string analogy. Correct bandwagon effect.

pushing-on-a-string analogy.

The purpose of a restrictive monetary policy is to alleviate recessions. raise interest rates and restrict the availability of bank credit. Correct increase aggregate demand and GDP. increase investment spending.

raise interest rates and restrict the availability of bank credit.

Open-market operations include changes in the reserve ratio. repos and reverse repos. Correct paying interest on excess reserves held at Federal Reserve Banks. changes in the discount rate.

repos and reverse repos.

Which of the following Fed actions will decrease the money supply? reverse repos Correct repos open-market purchases of bonds raising taxes

reverse repos

Bank panics occur frequently in fractional reserve banking systems. are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently. cannot occur in a fractional reserve banking system. occur more frequently when the monetary system is backed by gold.

are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently.

Supply-side economist Arthur Laffer has argued that there is no empirically proven relationship between tax rates and incentives. large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand. Correct the only way to eliminate inflation is to increase taxes to induce a recession severe enough to eliminate inflationary expectations. large cuts in income taxes will increase aggregate demand more than aggregate supply.

large reductions in personal and corporate income taxes will increase aggregate supply much more than aggregate demand.

If nominal GDP is $4,000 billion and the amount of money demanded for transactions purposes is $800 billion, it can generally be concluded that the asset demand for money is $3,200 billion. the total demand for money is $4,800 billion. on average, each dollar will be spent five times a year. Correct the supply of money needs to be increased to meet the demand.

on average, each dollar will be spent five times a year.

The following are commonly used arguments for protection against imports, except self-sufficiency and diversification-for-stability. protection against dumping. infant industry protection. price and profit maintenance.

price and profit maintenance.

Suppose the full employment level of real output (Q) for a hypothetical economy is $500, the price level (P) initially is 100, and prices and wages are flexible both upward and downward. Refer to the accompanying short-run aggregate supply schedules. If the price level unexpectedly increases from 100 to 125, the level of real output in the short run will rise from $500 to $560. Correct fall from $500 to $440. fall from $560 to $500. rise from $440 to $500.

rise from $500 to $560.

Stagflation's demise during the 1980s resulted in a movement along the Phillips Curve toward less unemployment. movement along the Phillips Curve toward more inflation. shift in the Phillips Curve to the left. Correct shift in the Phillips Curve to the right.

shift in the Phillips Curve to the left.

As expansionary monetary policy tools, quantitative easing (QE) and traditional open-market purchases differ in all of the following, except the intended effect on the federal funds rate. securities purchased by the Fed. the mechanics of how the Fed buys the securities. the desired goal of shifting aggregate demand.

the desired goal of shifting aggregate demand.

Refer to the diagram and assume the economy is initially at point b1. Which of the following movements is consistent with the traditional Phillips Curve?Refer to the diagram and assume the economy is initially at point b1. Which of the following movements is consistent with the traditional Phillips Curve? the movement from b1 to b2 the movement from b1 to c1 Correct the movement from c1 to b2 the movement from b2 to b1

the movement from b1 to c1

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment? the purchase of government securities in the open market and an increase in taxes the sale of government securities in the open market and a decrease in taxes the sale of government securities in the open market and a decrease in government spending the purchase of government securities in the open market and an increase in government spending

the purchase of government securities in the open market and an increase in government spending