ECN Exam 2

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

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

2 gallons of Argentinean milk/ 1 gallon of US milk

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?

24,000

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 ...

25 percent

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 ...

Her real salary has fallen and her nominal salary has risen

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

Its trade deficit rose

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

Real interest rates rise, which causes crowding out of domestic investment; the currency appreciates pushing the trade balance toward deficit

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

The Federal Reserve facilitates bank transactions by clearing checks

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

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?

The euro

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

The nominal wage

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

an increase in the money supply

In a system of fractional-reserve banking ...

banks can increase the money supply

When the Fed decreases the discount rate, banks will ...

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

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 ...

decrease, and U.S. net capital outflow increase

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...

depreciate and Net Exports would increase

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 ...

did not change if the inflation rate was 20 percent

Net exports equal ...

exports minus imports

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

fallen by $420 billion, but its net exports are unchanged

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

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

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 ...

fewer goods in that country but buy more dollars

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

gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy

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

increase Panama' imports and so decreases the Panama's trade balance

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

inflation falls by the same amount by which money supply growth changed

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

more foreign bonds. the real exchange rate falls

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

positive and increasing

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

price level

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

quadruples

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

reduced Russian interest rates and increased Russian net exports

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

supple of money increases, the value of money falls, and prices rise

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

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

When the money supply curve shifts from MS1 to MS 2 ...

the equilibrium value of money decreases

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

the inflation rate and the nominal interest rate by the smae number of percentage points

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

the price level, but not real GDP

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?

$200,000

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

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

If US net exports are negative, then net capital outflow is ...

negative, so American assets bought by foreigners are greater than foreign assets bought by Americans

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 ...

7.0 percent