ECON EXAM 3

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be a) $500 higher and M2 would be $1,500 higher. b) $1,000 higher and M2 would be $1,500 higher. c) M2 and M1 would be $1,500 higher. d) $1,000 high and M2 would be $500 higher.

$1,000 higher and M2 would be $1,500 higher

Suppose a country's net capital outflow does not change, but its investment declines by $420 billion. Its saving must have a) fallen by $420 billion, so its net exports have risen. b) fallen by $420 billion, but its net exports are unchanged. c) risen by $420 billion, so its net exports have fallen. d) risen by $420 billion, but its net exports are unchanged.

$25 and your purchase will increase the United Kingdom's net exports

If the exchange rate is 9 Pound sterlings per U.S. dollar and a meal in London costs 225 Pound sterlings, then how many U.S. dollars does it take to buy a meal in London? a) $34 and your purchase will increase the United Kingdom's net exports. b) $25 and your purchase will increase the United Kingdom's net exports. c) $25 and your purchase will decrease the United Kingdom's net exports. d) $34 and your purchase will decrease the United Kingdom's net exports. do not memorize numbers!

$25 and your purchase will increase the United Kingdom's net exports.

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits? (don't just memorize numbers)

$4,9937.5 billion

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $50, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold? a) 52 florin b) 25 florin c) 48 florin d) 100 florin

2=P*1/50--> 100 florin

Katarina puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. The nominal interest rate was a) 10 percent and the inflation rate was 6 percent. b) 6 percent and the inflation rate was 2 percent. c) 10 percent and the inflation rate was 4 percent. d) 4 percent and the inflation rate was 2 percent.

6 percent and the inflation rate was 2 percent.

Which of the following is an example of barter? a) A parent gives a teenager a $10 bill in exchange for her babysitting services b) A homeowner gives an exterminator a check for $50 in exchange for extermination services c) A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet d) A doctor performs surgery on a patient whose insurance pays 100% of the bill

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet

An associate professor of physics gets a $200 a month raise. With her new monthly salary she can buy more goods and services than she could buy last year. a) Her real and nominal salary have risen. b) Her real and nominal salary have fallen. c) Her real salary has risen and her nominal salary has fallen. d) Her real salary has fallen and her nominal salary has risen.

Her real and nominal salary have risen.

Which of the following statements about a country with a trade deficit is not true? a) Exports<Imports b) Net Capital Outflow<0 c) Investment<Savings d) Y < C+I+G

Investment<Savings

First Bank National Assets: Reserves- $1200 Loans- $8,000 Short term securities- $800 Liabilities & Owners' Equity: Deposits- $9,000 Debt- $800 Capital- $200 The bank's leverage ratio is (don't memorize numbers)

LR= assets/capital--> 10,000/200=50

If M = 5,000, P = 5.5, and Y = 9,000, what is velocity? a) 10 b) 2 c) 2.75 d) .55 don't memorize numbers

M x V= P x Y--> 10

Suppose that a country imports $120 million worth of goods and services and exports $160 million worth of goods and services. What is the value of net exports? a) $10.0 million b) $20 million c) −$40 million d) $40 million don't memorize numbers

NX= exports minus imports= 160-120= $40 million

A U.S. citizen uses euros it already owned to purchase bonds issued by a company in Germany. Which of these countries has an increase in net capital outflow? a) Germany and the U.S. b) Germany but not the U.S. c) The U.S. but not Germany d) Neither Germany nor the U.S.

Neither Germany nor the U.S.

According to the classical dichotomy, which of the following increases when the money supply increases? a) The real interest rate b) The real GDP c) The real wage d) The nominal wage

The nominal wage

The "law of one price" states that a) a good must sell at the price fixed by law. b) a good must sell at the same price at all locations. c) a good cannot sell for a price greater than the legal price ceiling. d) nominal exchange rates will not vary.

a good must sell at the same price at all locations

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced a) both a nominal gain and a real gain, and you paid taxes on the nominal gain. b) both a nominal gain and a real gain, and you paid taxes only on the real gain. c) a nominal gain, but no real gain, and you paid taxes on the nominal gain. d) a nominal gain, but no real gain, and you paid no taxes on the transaction.

a nominal gain, but no real gain, and you paid taxes on the nominal gain.

When the Fed decreases the discount rate, banks will a) borrow more from the Fed and lend more to the public. The money supply increases. b) borrow more from the Fed and lend less to the public. The money supply decreases. c) borrow less from the Fed and lend more to the public. The money supply increases. d) borrow less from the Fed and lend less to the public. The money supply decreases.

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

Domestic saving must equal domestic investment in a) both closed and open economies. b) closed, but not open economies. c) open, but not closed economies. d) neither closed nor open economies.

closed, but not open economies.

Which of the following does the federal reserve not do? a) conduct monetary policy b) act as a lender of last resort c) conduct fiscal policy d) serves as a bank regulator

conduct fiscal policy

If the Federal Open Market Committee decides to increase the money supply, it a) creates dollars and uses them to purchase government bonds from the public b)sells government bonds from its portfolio to the public. c)creates dollars and uses them to purchase various types of stocks and bonds from the public. d)sells various types of stocks and bonds from its portfolio to the public

creates dollars and uses them to purchase government bonds from the public

Which list ranks assets from most to least liquid a) currency, houses, stocks b) currency, stocks, houses c) houses, currency, stocks d) houses, stocks, currency

currency, stocks, houses

Other things the same, if reserve requirements are decreased, the reserve ratio a) increases, the money multiplier increases, and the money supply increases. b) decreases, the money multiplier increases, and the money supply increases. c) increases, the money multiplier decreases, and the money supply decreases. d) decreases, the money multiplier decreases, and the money supply increases.

decreases, the money multiplier increases, and the money supply increases.

The purchase of U.S. government bonds by Japanese is an example of a) U.S. imports. b) U.S. exports. c) foreign portfolio investment by Japanese. d) foreign direct investment by Japanese.

foreign portfolio investment by Japanese.

Net exports of a country are the value of a) goods and services imported minus the value of goods and services exported. b) goods and services exported minus the value of goods and services imported. c) goods exported minus the value of goods imported. d) goods imported minus the value of goods exported.

goods and services exported minus the value of goods and services imported.

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is a) higher than he had expected, and the real value of the loan is higher than he had expected b) higher than he had expected, and the real value of the loan is lower than he had expected. c) lower than he had expected, and the real value of the loan is higher than he had expected. d) lower than he had expected, and the real value of the loan is lower than he had expected.

higher than he had expected, and the real value of the loan is higher than he had expected

A country's trade balance a) must be zero. b) must be greater than zero. c) is greater than zero only if exports are greater than imports. d) is greater than zero only if imports are greater than exports.

is greater than zero only if exports are greater than imports.

You receive money as payment for mowing your neighbor's lawn. which function of money does this best illustrate?

medium of exchange

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners a) more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. b) more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. c) less willing to purchase U.S. bonds, so U.S. net capital outflow would fall. d) less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.

more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

According to the assumptions of the quantity theory of money, if the money supply increases by 7 percent, then a) nominal and real GDP would rise by 0.70 percent. b) nominal GDP would rise by 7 percent; real GDP would be unchanged. c) nominal GDP would be unchanged; real GDP would rise by 7 percent. d) neither nominal GDP nor real GDP would change.

nominal GDP would rise by 7 percent; real GDP would be unchanged.

If the price level increased from 130 to 150, then what was the inflation rate? a) 1.2 percent b) 0.9 percent c) 15.4 percent d) 20.0 percent

price new -price old divided by price old * 100--> 150-130/130*100= 15.4%

The dollar is said to appreciate against the euro if the exchange rate a) rises. Other things the same, it will cost fewer euros to buy U.S. goods. b) falls. Other things the same, it will cost more euros to buy U.S. goods. c) falls. Other things the same, it will cost fewer euros to buy U.S. goods. d) rises. Other things the same, it will cost more euros to buy U.S. goods.

rises. Other things the same, it will cost more euros to buy U.S. goods.

Which of the following is not included in M1? a) currency b) demand deposits c) saving deposits d) traveler's checks

saving deposits

A country's trade balance will fall if either a) investment or saving rise. b) investment falls or saving rises. c) saving falls or investment rises. d) investment or saving fall.

saving falls or investment rises

If saving is greater than domestic investment, then there is a trade a) deficit and Y > C + I + G. b) deficit and Y < C + I + G. c) surplus and Y > C + I + G. d) surplus and Y < C + I + G.

surplus and Y > C + I + G

A problem that the Fed faces when it attempts to control the money supply is that a) the 100-percent-reserve banking system in the United States makes it difficult for the Fed to carry out its monetary policy. b) the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. c) the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. d) the Fed does not control the amount of money that households choose to hold as deposits in banks.

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

Which of the following best represents fiat money? a) the euro b) gold bar c) monopoly money d) baseball cards

the euro

The inflation tax refers to a) the revenue a government creates by printing money. b) higher inflation which requires more frequent price changes. c) the idea that, other things the same, an increase in the tax rate raises the inflation rate. d) taxes being indexed for inflation.

the revenue a government creates by printing money.

In the long run, money demand and money supply determine a) the value of money and the real interest rate. b) the value of money but not the real interest rate. c) the real interest rate but not the value of money. d) neither the value of money nor the real interest rate.

the value of money but not the real interest rate.