ECON 2013 Final
Fiscal policy includes
decisions related to government expenditure on goods and services, the value of transfer payments, and tax revenue.
If GDP growth decreases what does the federal reserve do?
decrease interest rate and increase bank reserves
What will the federal reserve do if they expect inflation to decrease?
decrease interest rate and increase bank reserves
Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is
decreasing
Hyundai is a large South Korean company that produces finished steel products. Hyundai plans to buy raw steel from U.S. Steel. As a result, the
demand curve for U.S. Dollars shifts rightward
If the interest rate on Japanese yen assets falls while interest rates in the United States remain constant, the
demand for dollars will increase.
Which of the following transactions directly leads to a surplus on the U.S. capital and financial account?
A Japanese resident purchases a U.S. government bond.
Why can the U.S. run a deficit without trouble?
Because the U.S. dollar is a demanded reserve currency
The demand for dollars in the foreign exchange market will increase (so that the demand curve shifts rightward) if
None of the above answers is correct.
The budget process includes the
President proposing the budget and the Congress passing the budget
Reserve currency
Stable, trusted money of a major country that is used for international trade
Suppose the exchange rate of the U.S. dollar was 1.50 British pounds = $1.00 (U.S.) on Wednesday, and on the following Monday the exchange rate was $0.75 (U.S.) = 1.00 British pound. Which of the following best describes what happened between Wednesday and the following Monday?
The British pound appreciated against the U.S. dollar. The U.S. dollar depreciated against the British pound.
Which of the following institutions is NOT part of the structure of the Federal Reserve system? 33) A) The Federal Open Market Committee B) The Board of Governors C) The Federal Reserve Banks D) The Federal Government
The Federal Government
Suppose the exchange rate of the U.S. dollar was 1.00 euro = $0.50 on Thursday, and on Friday the exchange rate was $1.00 = 2.10 euros. Which of the following best explains what has happened between Thursday and Friday?
The U.S. dollar appreciated against the euro.
what are open market operations?
The buying and selling of government securities by the Fed.
law of diminishing returns
as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline.(add more, get more, at a diminishing rate)
Open market operations by the Fed lead to
changes in the federal funds rate.
What are the two types of money?
commodity money and fiat money
vehicle currency
currency used as an intermediary to convert funds between two other currencies if their currencies are not reserve currencies
The exchange rate is the price at which the ________ of one country exchanges for the ________ of another country.
currency; currency
The account that records the receipts from the exports of goods and services sold abroad, the payments for imports of goods and services from abroad, net interest income paid abroad, and net transfers is the
current account
Commercial banks do NOT
determine what assets are money
Why do exchange rates change?
due to flexibility and changes in curves
characteristics of money
durability, portability, divisibility, uniformity, limited supply, acceptability
Liquidity is the same as
easy conversion of an asset to a means of payment, with little or no loss of value.
Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond
falls from 10 percent to 8 percent.
Which of the following does NOT describe a function of money? 15) A) hedge against inflation B) unit of account C) medium of exchange D) store of value
hedge against inflation
We are interested in long-term growth primarily because it brings...
higher standards of living.
Money market mutual funds invest in
highly liquid assets.
If a customer deposits $10,000 in currency into a checking account, the bank's total reserves
increase
What will the federal reserve do if they expect inflation to rise?
increase interest rates and decrease bank reserves
Today, the dollar is worth 1.15 euros. Due to changes in economic conditions, people expect that the dollar will be worth 1.20 euros in the next month. This belief
increases the demand for dollars.
Federal Open Market Committee (FOMC) is
is the 12-member monetary policy committee of the Federal Reserve.
A country's balance of payments accounts record
its international trading, borrowing, and lending.
Moving along the aggregate production function shows the relationship between ________, holding all else constant.
labor input and real GDP
The key aim of monetary policy is to
maintain price stability.
Depository institutions
make profit from the spread between the interest rate they pay on deposits and the interest rate they receive on loans
The functions of money are
medium of exchange, unit of account, and store of value.
fiat money
money that has value because the government has ordered that it is an acceptable means to pay debts
In the short-run, real GDP can be greater than or less than potential GDP because in the short run the
money wage rate is fixed
The current account records all transactions below EXCEPT for
net foreign investment.
The real interest rate is approximately equal to the
nominal interest rate minus the inflation rate.
Monetary policy is conducted
only by the Federal Reserve
The term capital, as used in macroeconomics, refers to
physical capital.
In the short-run macroeconomic equilibrium
real GDP and the price level are determined by short-run aggregate supply and aggregate demand.
The major role of a commercial bank is to
receive deposits and make loans
Lquidity preference theory curve
relationship between interest rates(y) and bank reserves/available money(x)
In a short-run macroeconomic equilibrium, real GDP exceeds potential GDP. If aggregate demand does not change, then the
short-run aggregate supply curve will shift leftward as the money wage rate rises.
Changes in which of the following is included as part of fiscal policy?A) tax rates B) the quantity of money C) monetary policy D) the level of interest rates
tax rates
A budget surplus occurs when government
tax revenues exceeds outlays.
A government incurs a budget deficit when
taxes are less than government outlays.
An open market operation occurs when ________ buys or sells securities ________.
the Federal Reserve System; in the open market
An open market operation involves
the Federal Reserve's purchase or sale of securities.
The Federal Reserve System controls
the amount of currency in circulation.
Balance of payments accounts include
the current account
Airbus is an European jet airline producer. Indian Airlines wants to buy 23 Airbus planes from Airbus, due to increased demand for world travel. As a result
the demand curve for European euros and the supply curve for Indian rupees both shift rightward.
The supply of dollars in the foreign exchange market decreases and that means that the supply curve of dollars shifts leftward if
the expected future exchange rate rises
The interest rate banks charge other banks for overnight loans is
the federal funds rate
If the Fed sells U.S. government securities then
the federal funds rate rises.
time value of money
the increase of an amount of money due to earned interest or dividends
A country's balance of payments accounts records
the international trading, borrowing, and lending positions of a country over a period of time.
The opportunity cost of holding money is
the nominal interest rate.
The risk of making a loan is
the risk that the lender does not pay.
Lquidity preference theory curve show
there is an inverse relationship between the price of money(interest rate) and money(bank reserves)
Why does the fed change interest rates?
to fight inflation + unemployment related to GDP
quantitative easing
when the Fed buys longer-term government bonds or other securities in order to change money supply
The Federal Reserve System is the
central bank of the United States.
commodity money
a good used as money that also has value independent of its use as money
Bank reserves are:
cash and similar assets held to meet depositor withdrawals or payments
6 ways to create economic growth
1) Infrastructure 2)Institutions 3) Research and development 4)education 5) Financial sector 6) Trade
How does the Fed change the money supply?
1) open market operations 2)Large scale asset purchases(quantitative easing)
2 things that the Federal reserve does because of monetary policy?
1) sets the federal funds rate(short term benchmark interest rate) 2)manage bank reserves
In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012?
9.0 percent
Usually, the Federal Reserve changes its target for the federal funds rate in units of
1/4 of 1 percentage point
If the present value of $220 one year from now is $200, then the interest rate is
10 percent
The nation is divided into ________ Federal Reserve districts, each having a Federal Reserve Bank.
12
Over the past 100 years, real GDP per person in the United States has grown at an average of ________ percent a year.
2
The Board of Governors of the Federal Reserve System consists of
7 members appointed by the President of the United States.
In long-run macroeconomic equilibrium, the 54) A) long-run aggregate supply curve has shifted in response to a money wage rate increase so that potential GDP equals real GDP. B) real wage rate has adjusted so that the economy is on the short-run aggregate supply curve but not on the long-run aggregate supply curve. C) aggregate demand curve adjusts to the point where the long-run aggregate supply curve and the short-run aggregate supply curve intersect. D) None of the above answers is correct.
D) None of the above answers is correct.
Real GDP
GDP adjusted for inflation
Nominal GDP
GDP not adjust for inflation or price level
The quantity of money that people choose to hold depends on which of the following? I. The price level II. Financial innovation III. The exchange rate
I. The price level II. Financial innovation
If the price level increases, but workers' money wage rates remain constant,which of the following is TRUE? I. The quantity of labor demanded will increase. II. The real wage rate will decrease. III. The demand for labor curve shifts rightward.
I. The quantity of labor demanded will increase. II. The real wage rate will decrease.
Which of the following helps determine the growth rate of potential GDP? I. capital accumulation II. technology advances III. growth in the quantity of money
I. capital accumulation II. technology advances
The term "foreign currency" refers to foreign I. coins II. notes III. bank deposits
I. coins II. notes III. bank deposits
Which of the following items are considered physical capital? I. shares of Ford stock traded on the New York Stock Exchange II. the Taco Bell store nearest you III. the rental cars owned by Hertz Rental-A-Car IV. the salaries paid to Intel executives
I. shares of Ford stock traded on the New York Stock Exchange III. the rental cars owned by Hertz Rental-A-Car
federal funds rate
Interest rate the federal reserve manages
what type of relationship does the price of a bond/Tbill have with the yield of a bond/Tbill?
Inverse/negative
Which of the following examples definitely illustrates a depreciation of the U.S. dollar? 69) A) The dollar exchanges for 250 yen and then exchanges for 275 euros. B) The dollar exchanges for 120 euros and then exchanges for 100 euros. C) The dollar exchanges for 100 euros and then exchanges for 110 euros. D) The dollar exchanges for 275 euros and then exchanges for 250 yen. 13
The dollar exchanges for 120 euros and then exchanges for 100 euros.
What has happened to U.S. real GDP per person over the past four decades?
U.S. real GDP per person has increased.
If the United States sells beef to Japan, the U.S. beef producer is paid with
US dollars
monetary policy
When the federal reserve manages money in the central bank to give the dollar value
A credit union is
a depository institution owned by a social or economic group.
A decrease in the value of a currency in terms of other currencies is known as
a depreciation
price index
a measurement that shows how the average price of a standard group of goods changes over time(shows inflation)
Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent. At the end of the year you have earned
a real return of $50.
Taylor rule for monetary policy
a rule that sets the federal funds rate according to the level of the inflation rate and either the output gap or the unemployment rate
If the exchange rate is above equilibrium, there will be ________ in the foreign exchange market.
a surplus
When the Fed lowers the federal funds rate, it can lead to
an increase in lending by banks