ECON final

A commercial bank has checkable-deposit liabilities of $50,000 and a required-reserve ratio of 20%. What is the amount of required reserves?

$10,000

Joe complains that 32% of his income last year went to taxes. He is referring to his:

Average tax rate

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending.

DECREASE, INCREASE

Cost- push inflation is characterized by an:

Decrease in aggregate supply and no change in aggregate demand

The interest rate effect on aggregate demand indicates that a:

Decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending

The upward slope of the short aggregate supply cure is based on the assumption that :

Wages and other resources prices do not respond to price level changes

Money is "created" when

a bank grants a loan to a customer

f Japanese autos surge in popularity in the United States, then this event is most likely to cause the Japanese yen to:

appreciate and the U.S. dollar to depreciate

If the dollar depreciates in value relative to foreign currencies, then aggregate:

demand increases

The U.S demand for euros is:

downsloping because, at lower dollar prices for euros, Americans will want to buy more European goods and services.

Nations specialize in production and engage in international trade in order to:

increase output and income

The crowding-out effect suggests that:

increases in gov spending may reduce private investment

A contraction of the money supply:

increases the interest rate and decreases aggregate demand

A country is said to have an absolute advantage in a good over another country if that first country:

is a more efficient producer of the good

The use of tariffs and quotas for trade protection results in:

less efficiency in the economy

In a supply-and-demand graph for the federal funds market, the demand curve is downward-sloping because:

lower rates give banks more incentive to borrow reserves.

Lowering the discount rate has the effect of:

making it less expensive for commercial banks to borrow from central banks.

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

quantity of the U.S imports

The purpose of an expansionary monetary policy is to increase:

real GDP

The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a:

recongnition lag

What other economic process needs to accompany international trade, for nations to benefit from such trade?:

specialization in production.

When a commercial bank borrows from a Federal Reserve Bank:

the commercial bank's lending ability is increased

The U.S. supply of Japanese yen is

upsloping because a higher dollar price of yen means U.S. goods are cheaper to the Japanese

The following are hypothetical exchange rates: $1 = 140 yen; 1 Swiss franc = $.10. We can conclude that:

1 Swiss franc = 14 yen

The Federal Reserve System was established by the Federal Reserve Act of:

1913

How many members can serve on the Board of Governors of the Federal Reserve System?:

7

What function is money serving when you use it when you go shopping?:

A medium of exchange

Members of the Federal Reserve Board of Governors are:

Appointed by the president to staggered 14-year terms

When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has:

Appreciated

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the:

Administrative lag

Why would an economist consider sales tax highly regressive?:

Because the poor use a larger portion of their income on purchases

The Federal Reserve System consists of which of the following?:

Board of Governors and the 12 Federal Reserve Banks

A federal budget deficit exists when:

Fed gov spending exceeds tax revenues in a given year

The equilibrium exchange rate between two currencies is determined by the supply and demand in the:

Foreign exchange markets

The federal deficit is financed by:

Government issuance and sale of treasury securities

A Federal budget deficit is financed by the:

Government issuance or sale of Treasury securities

Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at the different levels of economic efficiency shown in the graphs. It can be deduced that:

Greece has a comparative advantage in chemicals

The immediate short run aggregate supply curve is:

Horizontal

The aggregate demand curve shows the:

Inverse relationship between the price level and the quantity of real GDP purchased

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

Lead to additional future taxes that reduce economic incentives

An increase in personal income taxes would shift AD to the

Left because C will decrease

A decrease in expected returns on investment will most likely shift the AD curve to the:

Left because Ig will decrease

The real-balances effect on aggregate demand suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

Which tools are used during expansionary fiscal policy?

Lower taxes and increased gov spending

Menu costs will:

Make prices inflexible downward

Assume that Nation X can produce either 40 notepads or 80 pens, and that Nation Y can produce either 10 notepads or 40 pens. This implies that:

Nation X has a comparative advantage in producing notepads.

The reason for the Fed being set up as an independent agency of government is to:

Protect it from political pressure

The required-reserve ratio is equal to a commercial bank's:

Required reserves divided by its checkable-deposit liabilities.

The foreign purchases effect on aggregate demand suggests that a:

Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

A television report states: "The Federal Reserve will lower the discount rate for the fourth time this year." This report indicates that the Federal Reserve is most likely trying to:

Stimulate the economy

A fall in labor will costs will cause aggregate:

Supply to increase

An excise tax on imported items is known as a:

Tariff

The M1 money supply is composed of

all coins and paper money held by the general public and the banks

A nation with abundant capital resources tends to be an exporter of

capital intensive products

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

controlling the money supply