Econ. Final Exam

True or False: Money is any commodity that is backed up and controlled by the government?

False. Money is not necessarily backed up by or controlled by the government. While many countries do have government-issued currency, not all money is government-backed.

...occurs when a foreign producer sells its exports at a lower price than in the domestic market.

dumping

When we use money to buy lunch, money is performing what function?

medium of exchange

Do consumer gain or lose from tariff? Do producers gain or lose from a tariff? Does the government gain or lose from a tariff. Explain.

-Consumers tend to lose from tariffs because the price of imported goods increases. -Producers may experience a gain or lose from a tariffs because the tariffs could help them make their goods cheaper but mean time if the country is exporting experiencing a decrease than it could be a result of the tariff. -Government gains to impose from tariffs to raise revenue, protect domestic industries, etc.

Why is the money demand function downward sloping? Why is money supply vertical?

-Money demand function is downwards due to people want to hold less of their wealth in the form of money the higher interest rates on bonds and other investments. -Money supply is vertical because the money doesn't depend on the interest rates, only depends on central banks

If real GDP is growing at 3 percent a year, nominal interest rate is 6 percent per year, inflation is 2 percent per year, the growth of money is 5 percent.

-What is the real interest rate? -What is velocity of circulation?

What are the two objectives of the Fed?

1.) Maximum sustainable employment: Recognizes that full employment is not achievable without some level of unemployment, it seeks to use monetary policy to foster conditions that support a high level of employment and economic activity. 2.) Stable prices to support long-term economic growth. Price stability is often interpreted as keeping inflation in check.

why is it bartering difficult to conduct? What problem arises?

Bartering is challenging due to the necessity of a double coincidence of wants, where both parties must desire what the other offers. The lack of a common measure of value, indivisibility of goods, difficulty in storage and transport, and the absence of future transactions further complicate direct exchange, making bartering less efficient compared to using a standardized medium of exchange like money.

Suppose the government collects $230 billion in tax revenue and spends $226. What is the impact on the budget?

Budget Surplus = Tax Revenue - Government Spending = $230 billion - $226 billion = $4 billion

What theory best explains why countries specialize and trade with one another?

Comparative advantage: a country can produce a g/s at a lower opp. cost gains from specialization and trace exist -When trade is unrestricted, countries benefit from specialization and trade.

Paper bills and coins are the only things that can be considered as money. Yes or No. Explain?

No. Money is a broader concept that includes various forms of currency and financial instruments. In addition to physical cash, money can exist in digital forms, such as electronic or virtual currency. Bank deposits, credit cards, and other financial instruments also serve as means of exchange and are considered forms of money in modern economies. Money essentially represents a medium of exchange, a unit of account, and a store of value.

What is the difference between nominal interest rate and real interest rate?

Nominal interest rate is the actual price borrowers pay lenders without accounting for any other economic factors while real interest rate accounts for inflation, giving more precise reading of borrowers buying power.

In the labor market, which workers gain and which workers lose with international trade?

The buyer gains more than the domestic seller loses.

Suppose you are a farmer who lives in a country that is importing oranges from Peru. Do you gain or lose from trade? Explain.

There may be short-term challenges for domestic farmers facing import competition, the overall impact of trade depends on a range of factors, and there are potential long-term benefits for the economy as a whole.

-Suppose the government is currently running a budget deficit. How can it balance its budget?

To balance a budget with a deficit, the government can consider a combination of increasing revenue through tax adjustments, reducing expenditures through targeted spending cuts, and implementing measures to stimulate economic growth. Striking a balance between fiscal responsibility and supporting essential services is crucial in achieving budgetary equilibrium.

If the government does as you suggested, what is the impact on the economy?

While it may contribute to fiscal stability and reduce the risk of unsustainable debt, it can also potentially dampen economic growth by reducing consumer and business spending. The overall impact depends on the specific measures taken, the economic context, and the government's ability to strike a balance between fiscal discipline and supporting economic activity.

If you take a vacation in Europe, then your expenditures on a hotel in France are counted as a...

Your spending on the hotel in France would contribute to the "services" component of the current account, which includes transactions such as tourism, transportation, and other services. This is distinct from the "goods" component, which includes physical products traded between countries.

Banks create money by

accepting deposits and making loans.

If a US company purchases $0.5 million worth of French wine, the value of this transaction is recorded in the

current account

A country has a current account deficit if its exports are ____ (less than/greater than) it's imports.

greater than

If the US loans $150 million to Mexico to fight drug cartels, the value of this transaction is recored in the

in the financial account of the balance of payments. The financial account includes transactions involving financial assets, such as loans and investments, between a country and the rest of the world.

In order to conduct monetary policy, the Fed adjusts

interest on reserve balances rates

What does money neutrality mean?

is a concept of monetary economics for which an increase in the supply of money affects only prices, without impacting the real economy

A country has a financial account surplus if it ___ (borrows/lends) more than it ____ (borrows from/lends to) other countries.

lends; borrows from

The minimum amount of a deposit that a bank must hold is determined by the

reserve requirement

When we keep money in our bank account, we are using money as...

store of value

The amount of loans that a bank can create is limited by:

the banks excess reserves, its desired reserve ratio, and the currency drain ratio.

The government should guard small industries under the infant industry protection because they cannot compete against large scale foreign producers. Agree or Disagree?

the debate revolves around the balance between nurturing domestic industries and ensuring economic efficiency and competitiveness. Policymakers must carefully consider the specific context and long-term implications when deciding on infant industry protection measures.

What do banks typically do with excess reserves?

they make loans to customers so that they can make profits on the interest

When we put a price tag on goods and services, we are using money as a...

unit of account

The speed with which a dollar circulates as people buy goods and services is

velocity of money

If a German company purchases land in the US to produce cars, the value of this transaction is recorded as

would be recorded in the financial account of the balance of payments. Specifically, it falls under the category of foreign direct investment (FDI).