Final

A bank has excess reserves of $5,000 and demand deposits of $40,000; the reserve requirement is 20%. If the reserve requirement is increased to 25%, the maximum amount of new loans this bank can make is:

$3,000

If 1 euro can buy $1.35:

$1 can buy 0.74 euro

Suppose the Treasury sells $10 billion worth of securities to the Social Security Administration and $15 billion to the general public. This sale added ________ billion to gross public debt and ________ billion to the debt held by the public.

$25; $15

Most studies estimate the overall multiplier of the 2009 stimulus to be between:

1.5 and 2.

Last year when Laura attended a business conference in Berlin, the exchange rate was 0.7 euro for US$1. This year she plans to attend that conference and the exchange rate is 0.8 euro for US$1. Laura estimates that her lodging and meals will be _____ expensive than last year.

13% less

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3%, and output is 3% below potential GDP, the target federal funds rate according to the Taylor rule is:

4%

If the reserve requirement is 2.5%, the potential money multiplier is:

40

The yield on a perpetuity bond that has an interest payment of $60 and a price of $1,200 is:

5%

During the period 2008-2009, _______ million people lost their jobs.

7

Which of the following statements about adjustable-rate mortgages is TRUE?

Adjustable-rate mortgages usually have interest rates lower than market rates during the first year

When a country uses a flexible (or floating) exchange rate, _____ will cause its currency to depreciate in the foreign exchange market.

All of the answers are correct

If business taxes increase, the demand for loanable funds curve will shift from _____ to _____ and the new equilibrium will be at point _____, holding supply constant at S0.

D1; D0; a

_______________ lags are shorter for monetary policy than for fiscal policy.

Decision

_____ occurs when aggregate demand expands so much that equilibrium output exceeds full employment output.

Demand-pull inflation

_____ is when goods are sold at lower prices (below cost) abroad than in their home market.

Dumping

__________ government spending, _____ transfer payments, and ____ taxes are all examples of expansionary fiscal policy.

Increasing; increasing; lowering

Which of the following statements concerning the infant industry argument is NOT correct?

Infant industry protection tends to focus on labor-intensive industries

Which of the following is UNTRUE?

Near money includes individual stocks and bonds.

The capital account includes:

The capital account includes:

If the dollar depreciates in terms of the euro, what will happen to the prices of European goods in the United States?

They will increase.

If the Fed pursues an expansionary monetary policy:

U.S. exports to other countries will rise

Which of the following partly explains why the aggregate demand curve is negatively sloped?

When the price of cars manufactured in the United States increases, people buy more cars manufactured abroad.

What would cause the price level to rise and employment to increase?

a shift to the right of the aggregate demand curve

An interest rate that is low only for a short time is called:

a teaser rate

The output of all the goods and services demanded in an economy at various price levels is called:

aggregate demand

The maximum amount of a good that may be imported during a specified period of time is called:

an import quota

If there is excess demand for a currency, the currency will:

appreciate

In counteracting demand shocks, the Fed can achieve:

both full employment and price stability.

Which of the following measures would increase the money supply?

buying government bonds

Suppose short-run aggregate supply shifts to the left because of a decrease in the supply of steel. The Federal Reserve fights the resulting recession with expansionary monetary policy. This will:

cause inflation.

Both Social Security and Medicare are pay-as-you-go programs. This means that:

current taxpayers fund the benefits that are currently paid out.

Suppose the government raises income taxes, so consumers have less take-home pay. This policy action will cause a(n):

decrease in aggregate demand

A negative supply shock causes output to _________ and the price level to _______.

decrease; increase

If exchange rates are fixed and the money supply is held constant, a contractionary fiscal policy leads to a(n) _____ in interest rates and a capital _____.

decrease; outflow

Import restrictions on a product protect domestic industries by

decreasing the imports of the good, and raising the price

When a firm can _____ its capital equipment over a shorter period, it cuts its taxes _____.

depreciate; now

The demand for loanable funds slopes ______ because an increase in the interest rate induces __________.

downward; less investment

An individual bank can, at most, lend out all of its:

excess reserves

Public debt includes debt that is held by:

foreign governments.

Tariffs and quotas lead to ______ prices of imported goods and ______ levels of imports

increased; decreased

Alexander Hamilton argued for strong controls on imports to protect early American industries from competition from more established English industries. This is an example of the ______ argument for trade restriction

infant industry

The housing bubble of 2004-2006 caused ____ pressures, leading the Fed to ____ interest rates

inflationary; raise

Aggregate supply shifts to the left when:

input prices rise

M2 is ____ in dollar value than M1; it also contains ____ assets.

larger; less liquid

Which of the following is NOT a factor that explains jobless recoveries?

lax labor laws

In the long run, when the economy is at full employment, any change in money supply:

leads to a change in prices.

Some analysts blame the financial crisis of 2008 on Fed policy. They argue that:

low interest rates encouraged excessive mortgage borrowing, leading to the housing bubble.

Which of the following arguments would the federal government use to protect the body armor business from international competition?

national defense

Starting at point j, the economy will move to ____ in the long run if policymakers reduce aggregate demand.

r

Economic expectations formed after individuals make the best possible use of all publicly available information are known as _____ expectations.

rational

When a financial institution provides a standardized financial product such as a mortgage, it is:

reducing transaction costs.

Tightening monetary policy causes interest rates to ____ and aggregate ____ to _______.

rise; demand; decrease

If the government offers firms investment tax credits for building new factories, the after-tax rate of return _______, causing the loanable funds __________ curve to shift ______, leading to __________ interest rates.

rises; demand; rightward; higher

The supply curve for loanable funds represents _____ and is _____.

savers; upward sloping

What types of loans are NOT typically included in collateralized debt obligations?

student loans

Productovia, which had exports of $50 billion and imports of $40 billion, had a trade:

surplus of $10 billion.

All of the following are arguments against free trade, EXCEPT:

the NAFTA agreement does not provide protection to American companies.

If there is a general rise in fear of the financial system:

the actual multiplier will fall

If banks increase excess reserves to increase their ability to absorb a higher rate of defaults:

the actual multiplier will fall.

In the equation of exchange, if M = $2 trillion, P = 1.5, and Q = $8 trillion:

the velocity of money (V) = 6

Monetized debt:

will result in a weaker dollar if foreigners hold fewer dollars.

Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. What is the change in his bank's excess reserves?

$1,125

From the information in the table, the near monies for June 2010 amounted to:

$6,886.7 billion.

When demand for U.S. goods increases, the U.S. dollar will _____, and the equilibrium exchange rate will shift from _____ to _____.

appreciate; e0; e1

Rank these components in order from the SMALLEST share of M1 to the largest.

coins, banknotes, demand deposits

Which of the following items is NOT a component of the balance of payments accounts?

commercial account

The fiscal policy that involves reducing government spending, reducing transfer payments, or raising taxes to decrease aggregate demand is called ___________.

contractionary

Computer game cartridges produced in EconomyLand sell for $50 each. The same cartridges made in MarketLand have a price of $100. If free trade were allowed, we would expect the prices in both countries to:

converge to somewhere between $50 and $100

If the spread of ATMs made it more likely for people to hold their money in banks, the potential money multiplier probably ____ and the actual money multiplier probably ____, ceteris paribus.

did not change; rose

Assume the reserve requirement is 25% and the Federal Open Market Committee buys $4 million of U.S. government bonds from the public. As a result of this transaction the supply of money is:

directly increased by $4 million and has the potential to be increased by another $12 million.

Inflation targeting:

explicitly considers the long-run goal of price stability for monetary policy.

Public debt held by foreigners is known as ________ debt.

externally held

What is the interest rate for money borrowed to satisfy daily reserve requirements?

federal funds rate

The long-run aggregate supply curve uses the classical assumptions that all variables are __________ in the long run and that long-run equilibrium occurs at

flexible; full employment

What approach to federal finance would you agree with if you were most concerned with the federal government's pursuit of fostering economic growth, stable prices, and full employment?

functional finance

Most developed countries with high deficits tend to:

have high debt-to-GDP ratios.

Barter as a system tends to work only:

in primitive economies with little product variety

The change in foreign-owned holdings is a net:

increase of $600 billion.

From a practical perspective, trade restrictions are often placed because:

losses from implementing the restrictions are diffused among many buyers, while gains from restrictions are concentrated among several groups of workers and producers.

Student loans funded by the government typically offer ____ interest rates than similar bank loans and ____.

lower; can be paid back later

Which of the following lists represents monetary policy actions that are consistent with one another?

sell government bonds, raise reserve requirements, raise the discount rate

The graph depicts:

stagflation

To say that interest rates represent the opportunity cost of holding money means that as interest rates rise:

there is a movement upward along the demand curve for money.

The Fed policy of buying bonds, adding to bank reserves, can be referred to by any of the following terms EXCEPT:

tight money policy.

Using real GDP and employment growth relative to the peak of the business cycle, the 2007-2009 recession, as compared to the previous two recessions in 1990 and 2001:

was deeper

In recent years, China has helped make its currency ____ by ____ U.S. dollars.

weaker; buying