ECO FINAL

Other things equal, an excessive increase in the money supply will

decrease the purchasing power of each dollar.

Suppose that Econland adopts a fixed exchange-rate system and pegs the value of its peso to the U.S. dollar. If Econlanders' demand for dollars increases in the foreign exchange markets, then Econland's foreign-exchange reserves will

decrease.

Money functions as a store of value if it allows you to

delay purchases until you want the goods.

Which of the following is a monetary policy intended to rein in inflation?

decrease the money supply to shift the aggregate demand curve leftward

The table indicates the dollar price of libras, the currency used in the hypothetical nation of Libra. Assume that a system of freely floating exchange rates is in place. The equilibrium dollar price of libras is

$4

The accompanying table contains hypothetical data for an economy. The size of the M2 money supply is

$4,330.

Refer to the accompanying graph, where Sd and Dd are the domestic supply and demand curves for a product. The world price of the product is $6. If the economy is open to international trade but a per unit tariff of $4 is imposed, then the total revenue going to domestic producers would be

$400, the total revenue (after tariff) going to foreign producers would be $120, and the tariff revenue going to the government would be $80.

Refer to the given balance sheets. If the reserve ratio is 25 percent, the maximum money-creating potential of the commercial banking system is

$48.

Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. AssetsLiabilities & Net WorthReserves$60Checkable Deposits$600Securities140Stock Shares260Loans260 Property400 The monetary multiplier for the commercial banking system is

10.

Refer to the accompanying production possibilities tables. Data are in millions of units. Assume that prior to specialization and trade, Germany and the United States both choose production possibility C. Now if each specializes according to its comparative advantage, the resulting gains from specialization and trade will be

6 million units of autos.

Refer to the graph, which shows the import demand and export supply curves for two nations that produce a certain product. The import demand curves for the two nations are represented by lines

7 and 8.

The accompanying tables show data for the hypothetical nations of Alpha and Beta. Qs is domestic quantity supplied, and Qd is domestic quantity demanded. At a world price of $2,

Alpha will want to import 20 units of steel.

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 money supply?

B

The table contains data for the U.S. balance of payments in a prior year. All figures are in billions of dollars. There was a

China has consistently kept the yuan price of a dollar lower than what the free market equilibrium exchange rate would be.

Which of the following statements is most accurate about China's pegging of its currency against the U.S. dollar in the 2000s?

China has consistently kept the yuan price of a dollar lower than what the free market equilibrium exchange rate would be.

Refer to the given market-for-money diagrams. The asset demand for money is shown by

D2

The accompanying table shows the output (either machines or wine) that each unit of input in France and Germany can produce. We see that

Germany has a comparative advantage in producing wine.

Which line in the graph would best illustrate the transactions demand for money curve?

Line 2

Money market deposit accounts are included in

M2 only.

Employing all its available resources, Nation Alpha can produce either 800 units of chemicals or 1,600 units of clothing. Nation Beta can produce either 200 units of chemicals or 800 units of clothing.

Nation Alpha has a comparative advantage in producing chemicals.

Refer to the diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. With a per-unit tariff of PcPt, the total amount of tariff revenue collected on this product will be

PcPt ×wy.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

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

Pt and Pc.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Which of the following statements is true?

The prime interest rate is higher than the Federal funds rate.

A high tariff on imported good X might reduce domestic employment in industry Y if

X is an input used domestically in producing Y.

The table contains budget information for a hypothetical economy. All data are in billions of dollars. The budget deficit was $75 billion in

Year 5.

Which of the following expansionary fiscal policy changes would be most favored by those economists who think that the government is too large and inefficient?

a $40 billion tax cut

Refer to the data for a fictional economy. The changes in the budget conditions between 1998 and 1999 best reflect

a recession.

The problem of cyclical asymmetry refers to the idea that

a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.

United States exports, international tourism in the United States, and foreign capital inflow into the United States all give rise to

a supply of foreign currencies to the United States.

Consider the currency market for British pounds and U.S. dollars. An increase in the demand for British pounds results in

an appreciation of the pound and a depreciation of the dollar.

What are two major outcomes from the large U.S. trade deficits?

an increase in domestic consumption and U.S. indebtedness

The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits

and reserves of commercial banks both decrease.

Members of the Federal Reserve Board of Governors are

appointed by the president to staggered 14-year terms.

The federal funds rate is the interest rate that _______ charge(s) _______.

banks; other banks

A commercial bank can add to its actual reserves by

borrowing from a Federal Reserve Bank.

The amount by which government expenditures exceed revenues during a particular year is the

budget deficit.

The impact of increasing, as opposed to constant, costs is to

cause the bases for further specialization to disappear as nations specialize according to comparative advantage.

Which of the following would be considered to be the most liquid?

checkable deposits

Traditionally, the Federal Reserve can give emergency loans only to

commercial banks.

In the accompanying diagrams, solid lines are production possibilities curves, and the dashed lines are trading possibilities curves. The data contained in the production possibilities curves are based on the assumption of

constant costs.

Which of the following is the best example of public investment?

construction of highways

Tariffs and import quotas would benefit the following groups, except

consumers of the product.

To keep high inflation from eroding the value of money, monetary authorities in the United States

control the supply of money in the economy.

The Federal Reserve System performs many functions, but its most important one is

controlling the money supply.

The accompanying table shows labor-productivity figures in two countries facing constant costs. It can be deduced that

country B has a comparative advantage in producing houses.

Which of the following is not part of the M2 money supply?

credit card balances

Most of the U.S. public debt is owed to the nation's citizens and domestic institutions. This is one reason that the public debt

does not impose a large burden on future generations.

Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. If the government wants to move the level of real GDP back to Y and reduce demand-pull inflation, in the presence of a ratchet effect, it should

enact a contractionary fiscal policy that will shift aggregate demand left to AD1.

If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to

export more than it imports.

Refer to the diagram pertaining to two nations and a specific product. Lines FA and GB are

export supply curves for two countries.

An export subsidy for a product will benefit

foreign consumers of the product.

Other things equal, economists would prefer

free trade to tariffs and tariffs to import quotas.

A nation's balance of trade on goods is equal to its exports of goods less its imports of

goods.

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

government bonds.

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that

help offset changes in GDP.

Specialization and trade between individuals or between nations leads to

higher total output.

Benefits from international trade are based on differences in the following areas, except

income levels.

The imposition of a tariff on a product is least likely to result in a(n)

increase in efficiency in the domestic industry producing the product.

Collateralized default swaps

insured holders of loan-backed securities in case the underlying loans were not repaid.

The value of money varies

inversely with the price level.

The following financial institutions traditionally accept deposits from savers, except

investment banks.

The Federal Reserve System

is basically an independent agency.

When paper money is designated as legal tender, it means that

it is a means of payment by law.

The current account section in a nation's balance of payments includes

its goods exports and imports and its services exports and imports.

To maintain a fixed exchange rate, the government can use the following tools, except

keeping its level of international reserves strictly fixed.

One of the potential consequences of the public debt is that it may

lead to additional future taxes that reduce economic incentives.

A contractionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve.

The Federal Reserve alters the amount of the nation's money supply by

manipulating the size of excess reserves held by commercial banks.

The law of increasing opportunity costs

may limit the extent to which a nation specializes in producing a particular product.

Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on

net international transfers.

Refer to the diagram of the market for money. Other things equal, the money demand curve in the diagram would shift leftward if

nominal GDP decreased.

The purchase and sale of government securities by the Fed is called

open-market operations.

Increases in the federal budget deficit from 2007 to 2009 were caused

primarily by a combination of recession and expansionary fiscal policy.

The consolidation in the financial industry into fewer and larger firms

progressed further in the Financial Crisis of 2007-2008.

Which of the following actions by the Fed would cause the money supply to increase?

purchases of government bonds from banks

Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the

quantity of U.S. imports.

Before the financial crisis of 2008, restrictive monetary policy by the Fed involved

raising the target federal funds rate and using an open-market sale of bonds to adjust bank reserves and thereby raise the federal funds rate to hit its target.

In Year 1, the actual budget deficit was $150 billion and the cyclically adjusted deficit was $125 billion. In Year 2, the actual budget deficit was $130 billion and the cyclically adjusted deficit was $125 billion. It can be concluded that from Year 1 to Year 2,

real GDP increased.

Refer to the diagram. If the full-employment GDP is Y5, government should

reduce taxes and increase government spending.

If the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by

reducing government expenditures by $20 billion.

Which of the following items are included in money supply M2 but not M1?

savings deposits

The crowding-out effect is

strongest when the economy is at full employment.

The table contains hypothetical data for the 2016 U.S. balance of payments. All figures are in billions of dollars. The United States has a balance of goods

surplus of $20 billion.

Which of the following "backs" the value of money in the United States?

the acceptability of it as a medium of exchange

Suppose that the United States fixes the dollar-pound exchange rate. In the process of maintaining the fixed exchange rate, the U.S. central bank regularly finds itself in a position of having to increase its reserves of pounds. Based on this, we could conclude that

the fixed dollar-pound exchange rate consistently exceeds the equilibrium exchange rate that would be produced by a private foreign exchange market.

Which of the following varies directly with the interest rate?

the opportunity cost of holding money

The cyclically adjusted budget refers to

the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment.

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the

time fiscal action is taken and the time that the action has its effect on the economy.

The table contains data for the U.S. balance of payments in a prior year. All figures are in billions of dollars. There was a

trade surplus but a current account deficit.

Refer to the given market-for-money diagrams. Curve D1 represents the

transactions demand for money.

The Bretton Woods system of exchange rates

was a system of fixed or pegged exchange rates, which occasionally could be adjusted.

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be

weaker.

To say money is socially defined means that

whatever performs the functions of money extremely well is considered to be money.

Stabilizing a nation's price level and the purchasing power of its money can be achieved

with both fiscal and monetary policy.

Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions. AssetsLiabilities & Net WorthReserves$60Checkable Deposits$600Securities140Stock Shares260Loans260 Property400 The commercial banking system has excess reserves of

zero.