ECON 252 Final Purdue Vargas

If the dollar price of a euro is $1.25, then the euro price of the dollar is __________.

0.80 euros

An increase in the price of output will lead to a_______.

Right shift in the labor demand curve

An increase in income in both the United States and the United Kingdom will __________.

increase the supply and demand for pounds and have an uncertain effect on the exchange rate

The school of thought that believes the activist policies of the Federal Reserve exacerbate economic fluctuations is __________.

monetary theory

A recession in the United States will __________.

shift the supply curve of dollars to the left

The actions the Federal Reserve takes to manage the money supply and interest rates in order to pursue economic objectives are called __________.

Monetary policy

What is the name given to the highest-valued alternative that must be given up to engage in any activity?

Opportunity cost

The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources is known as:

absolute advantage

A product produced in a foreign country and purchased by residents of the home country is called:

an import

The October 2008 government bailout of financial institutions has been criticized for:

benefiting the wealthy.

According to the graph, which period of time is the economy generally considered to be in an expansion phase of the business cycle?

between points A and C.

To increase the money supply, the FOMC directs the trading desk located at the Federal Reserve Bank of New York to:

buy U.S. Treasury securities from the public.

If the FOMC decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to:

buy U.S. Treasury securities.

Steve is a US citizen who is currently working in the United Kingdom. In the official international trade accounts, he is considered a________________.

citizen of the US and domestic resident of a foreign country

Economists __________ with regard to how recessions should be handled.

do not have consensus

Credit cards are:

not part of the money supply.

Nearly all economies of the world are:

open economies

The Fed conducts monetary policy primarily through:

open market operations.

When nations specialize in their comparative advantage and engage in trade:

overall standards of living increase

Multinational corporations expanding into foreign markets often:

provide thousands of jobs for foreign nationals

According to real business cycle theory, a major source of fluctuations in economic activity is __________.

shocks to technology

The Federal Reserve System is __________.

the central bank of the United States

The part of the balance of payments that records a country's exports and imports of goods and services is __________.

the current account

If the price level increases, __________.

the money demand curve shifts to the right

When the dollar appreciates against the yen, __________.

one dollar will buy more yen

When the growth of two aggregate macroeconomic variables decreases during a recession, it shows _______.

Co-movement

Countries gain from specializing in producing goods in which they have a(n) __________ advantage and trading for goods in which other countries have a(n) __________ advantage.

Comparative, comparative

A _______ is an exchange rate that changes constantly depending on the quantity supplied and the quantity demanded for each currency in the market.

Floating rate

Which of these factors could have caused the increase in supply shown in this graph?

Lower U.S. interest rates

The economist that is considered the founder of monetarism is __________.

Milton Friedman

One of the factors driving the demand for Japanese yen is;

U.S. demand for Japanese goods.

When incomes rise faster in the United States than in other countries:

U.S. net exports will fall.

Velocity is defined as:

V = (P x Q) / M M = money supply V = velocity of money P = price level Q = real output

You and your neighbor pick apples and cherries. If you can pick apples at a lower opportunity cost than your neighbor can, which of the following is true?

You have a comparative advantage in picking apples.

A tariff is ______.

a tax on imports

Ms. Boulware is the best lawyer and the best secretary in town. She has:

an absolute advantage in both jobs

When fewer units of a foreign currency are required to buy one dollar, the foreign currency is said to have with respect to the dollar.

appreciated

The federal funds rate is the rate:

at which banks lend to each other.

If consumers in the United States decrease their demand for Mexican roses, the result will be to __________.

decrease the value of the Mexican peso relative to the dollar

A sustained decrease in the average level of prices and wages in the economy is __________.

deflation

A floating exchange rate is;

determined by the supply and demand for two currencies in the market.

Government policies that increase aggregate demand are called_________.

expansionary policies

Goods and services produced domestically but sold to other countries are called __________.

exports

In this graph, as the dollar depreciates __________.

fewer dollars are supplied

A country that allows demand and supply to determine the value of its currency is said to have a __________.

floating exchange rate system

When a firm buys or builds facilities in a foreign country it is known as:

foreign direct investment

Other things equal, the greater the U.S. interest rate differential the __________.

greater the demand for U.S. dollars

Consumption tends to be _____ volatile than (as) investment.

less

A __________ is one where governments intervene in currency markets and buy or sell currency in order to keep an exchange rate trading in a certain range.

managed exchange rate system

When the real exchange rate decreases, a country's net exports will __________.

rise

A decline in net exports leads to a decline in GDP and causes labor demand to;

shift leftward.

A country imported goods and services worth $24 billion and exported goods and services worth $32 billion during a particular year. The country's trade______equals__________.

surplus; $8 billion

The cycle of short-term ups and downs in the economy is called:

the business cycle

The primary current debate with regard to monetary policy is __________.

the timing on withdrawing the monetary stimulus.

When a person owes more money on a house than the current market value of the house, that person is said to be ________.

upside down

_______ wages have not been adjusted for inflation.

Nominal

According to the quantity theory of money, if the Fed engages in an open market purchase of bonds _______GDP will __________

Nominal; increase

According to the theory of comparative advantage, specialization and free trade will benefit:

all trading partners who specialize in goods where they have comparative advantage

In the Keynesian model, in a depression:

the economy operates in the horizontal range of the SRAS curve.

According to the quantity theory of money, the growth rate of money supply equals

the growth rate of nominal GDP

Asset bubbles occur when there is a disconnect between the true value of an asset and __________.

the market's valuation

If the FOMC orders the trading desk to sell Treasury securities:

the money supply curve will shift to the left and the equilibrium interest rates will rise.

Many economists believe that tinkering with the economy via fiscal policy is not effective due to:

the presence of lags.

When the interest rate decreases, __________.

there is movement down a stationary money demand curve

According to the graph, what is the reduction in U.S. lumber consumption as a result of the tariff?

100,000 board feet

How many Federal Reserve districts are there?

12

According to the graph, how many board feet of lumber will be imported if imports are allowed into the United States?

500,000

If the exchange rate between the U.S. dollar and the Japanese yen is $1 = 100 yen, the price level in the United States is 90 and the price level in Japan is 100, what is the real exchange rate?

90

According to the graph, what quantity of domestic lumber will be supplied after a tariff of $0.50 per board foot is imposed?

900,000 board feet

In the real business cycle model, which of these best explains an increase in real GDP above the full-employment level?

A positive technology shock

According to the graph, at what point does the economy begin a period of recession?

After the peak

Which of these statements best describes the scenario shown in these graphs?

An open market purchase leads to an increase in the money supply which causes interest rates to fall and investment spending to rise.

George Soros made over $1 billion in the foreign currency markets due to his famous 1992 bet that the;

British pound would depreciate.

In the graphs shown, which country has a comparative advantage in the production of shirts?

Country B

Which type of fiscal policy would cause the move of the AD curve represented in this graph?

Higher government spending

Which of these statements about interest rates and inflation is true?

If there is zero inflation, the nominal interest rate is equal to the real interest rate.

When we say that money serves as a unit of account, we mean that:

Prices of goods and services are quoted in terms of money.

Which of the following is a determinant of exchange rates?

Relative price levels

The Board of Governors of the Federal Reserve has _________ members that are appointed for staggered _________ by the __________ and confirmed by the Senate.

Seven, 14-year terms, President

Which graph best depicts the impact of an increase in exports?

The graph on the left

The balance of trade is:

equal to the difference between exports of goods and imports of goods

A higher domestic price level will result in:

higher imports

When the Federal Reserve engages in contractionary monetary policy and interest rates increase it will the demand for U.S. dollars.

increase

A government may actively participate in the foreign exchange market to weaken their currency in order to;

increase exports.

When the economy is in a recession, the government can:

increase government purchases or decrease taxes in order to increase aggregate demand.

What are the three functions that money serves in an economy?

Medium of exchange, store of value and unit of account

Fluctuations in total spending in the economy may affect:

both employment and production in the short run.

When the dollar appreciates relative to the Chinese yuan the U.S. will;

import more from China.

Okun's law states that __________.

in the short-run, unemployment will fall by one percent for every two percent increase in real GDP

If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct:

an open market sale of bonds.

A depression is a prolonged downturn in economic activity characterized by;

an unemployment rate of 20% or more.

According to John Maynard Keynes, consumption and investment could be affected by psychological factors that changed the mood of consumers and businesses. He dubbed these factors;

animal spirits.

Suppose that velocity is 3 and the money supply is $500 million. According to the quantity theory of money, nominal output equals:

$1.5 billion. According to the quantity theory of money M x V = P x Q. Because P x Q is equal to output, if V = 3 and M = $500 million then the nominal output is equal to 3 x $500 million = $1.5 billion.

FoodClothingCountry A63Country B12 Using information in the previous table, what is country A's opportunity cost of producing 1 unit of clothing?

2 units of food

According to the graph, if the solid line represents the GDP without policy and the dotted line includes policy, which side shows an ill-timed stabilization policy?

B

Fiat money_______

Has no intrinsic value

Who is the chairperson of the Federal Open Market Committee (FOMC)?

The chairperson of the Board of Governors.

Which of these statements is true about using fiscal policy to stabilize the economy?

The delay caused by the legislative process is typically longer for fiscal policy than for monetary policy.

According to real business cycle theory, shifts in aggregate demand:

have no impact on real GDP.

Contractionary monetary policy could impact fiscal policy due to:

higher interest rates on the debt.

Economic booms would ________unemployment and might _______inflation.

reduce; create

Several economists believe that the Fed should actively intervene in order to:

restrain market bubbles.

The point where economic activity bottoms out in a full business cycle is known as:

the trough

What is the correct order of the following events in a typical expansionary monetary policy process? I. Short-term interest rates fall II. Consumption and Investment rise III. Labor demand curve shifts to the right IV. Long-term interest rates fall

I --> IV --> II --> III

Which of these predictions can be made using the growth rates associated with the quantity theory of money equation?

If the money supply grows at a faster rate than real GDP, there will be inflation

Which of these would be a fiscal policy the government might want to use if the economy is operating at too high a level of output?

Increasing income tax rates

The Taylor rule for federal funds rate targeting does which of these things?

It links the Fed's long-run target for the federal funds rate to specific economic variables.

__________ advocates active government intervention via fiscal policy when the economy is in recession.

Keynesian theory

The sum of all currency in the hands of the public plus demand deposits and other checkable deposits plus traveler's checks is the official definition of:

M1

How did the FOMC react to the recession of 2007-2009?

The FOMC reduced the target for the fed funds rate steadily in 2008.

Which of these facts is true about the creation of the Federal Reserve System (the Fed)?

The Fed was created in 1913.

Which body of the Federal Reserve System sets the majority of U.S. monetary policy?

The Federal Open Market Committee

Taxes and transfer payments that stabilize GDP without requiring explicit actions by policymakers are called __________.

automatic stabilizers

If the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in __________.

contractionary monetary policy

An increase in government spending causes private spending to fall. What phenomenon is described in this particular situation?

crowding out.

If the sum of net exports, net income received from abroad, and net transfer payments from abroad yields a negative number, we say that a country's __________.

current account is in deficit

Countercyclical monetary policy slows down the growth rate of an economy during an expansion by shifting the labor _____curve to the ________.

demand; left

Countercyclical fiscal policy stimulates an economy during a recession by shifting the labor _____curve to the ________.

demand; right

The tax multiplier equals the change in:

equilibrium GDP divided by the change in taxes.

The Federal Reserve has been criticized for __________ as a result of the financial crisis of 2008-2009.

expanding the money supply too much

The American Recovery and Reinvestment Act of 2009 is a clear example of:

expansionary fiscal policy.

All of these will most likely increase as a result of expansionary monetary policy except:

government purchases.

If a country has a comparative advantage in the production of a good, then that country:

has a lower opportunity cost in the production of that good

A fiscal policy of subsidizing wages will lead to a(n) ______ in _________.

increase; labor demand

According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:

increasing government spending.

During the mid-to-late 1970s the economy was experiencing both high inflation and high unemployment. The Fed adopted a policy of:

increasing interest rates to combat the inflation.

One problem associated with the recent fiscal stimulus designed to move the economy out of the 2009 recession is __________.

it contributed to higher budget deficits

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________.

low, high

If the Fed wants to stimulate the economy, it will ________.

lower short-term interest rates

Consumption and investment co-move, which means that when investment growth is _____, consumption growth is _____________.

negative; negative

Monetary stimulus designed to increase aggregate demand would have __________ on real output according to real business cycle theory.

no impact

Sometimes there can be benefits from inflation. One of them is that more labor might be demanded after a rise in the price level. For this to happen, the _______wage would be fixed and _______the competitive equilibrium level.

nominal; above

One of the primary goals of the Federal Reserve is __________.

price level stability

The theory concerning the link between the money supply and the price level that assumes the velocity of money is constant is called the __________.

quantity theory of money

The history of hyperinflations includes __________.

recent events. Hyperinflations have occurred in recent times as well as the past

The recession of 2007-2009 was caused by a;

sharp drop in housing prices.

Keynes maintained that the economy could remain long-term at levels of output below the full-employment level of output due to:

sticky wages and prices.

In the balance of payments, the difference between the value of the goods a country exports and the value of goods a country imports is called the:

trade balance