Macro Assignment 5

During the Chinese experience with pegging the yuan to the dollar, the yuan was undervalued. As a result,

there was a surplus of dollars on the market that the Chinese government had to purchase to maintain the peg.

Refer to Figure 15-12. In the dynamic AD- AS model, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in

unemployment rates higher than what would occur if no policy had been pursued.

A bank's largest liability is its

deposits of its customers.

If net exports are equal to net foreign investment,

...

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%

Suppose that the federal budget is balanced when GDP is at potential GDP. If equilibrium GDP falls below potential,

All of these are correct.

Which of the following statements about capital markets is true?

At one time, the U.S. capital market was larger than all other capital markets combined, but that is no longer the case.

Refer to Figure 18-1. The appreciation of the dollar is represented as a movement from

D to C.

The budget deficit increases during wars and recessions.

True

A depreciation of a country's currency always lowers the domestic firm's profits.

False

Ceteris paribus, a real depreciation of the dollar will decrease net exports in the United States.

False

Ceteris paribus, an increase in the government budget deficit increases interest rates in the United States and causes a real appreciation of the dollar.

False

Contractionary monetary policy should increase foreign financial investment in the United States.

False

The supply of money is easier to control with commodity money than it is with fiat money.

False

Your checking account balance is included in your bank's assets.

False

In 1931, the first major country to abandon the gold standard - in order to increase its policy options in face of the Great Depression - was

Great Britain

The quantity equation becomes the basis for a theory when we assume that velocity of money is constant.

True

The three most important financial centers in the world today are New York, London, and Tokyo.

True

Refer to Figure 19-2. Which of the following would cause the change depicted in the figure above?

The Chinese increase their preferences for goods produced in the United States.

A law requiring the government to balance its budget in each year would serve as an automatic destabilizer.

True

An increase in the purchasing power of money need not lead to an increase in the purchasing power of income because the falling price level would likely mean falling wages and salaries.

True

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

True

Fiscal policy has a greater impact in a closed economy than it does in an open economy.

True

Public saving equals taxes minus government spending minus transfer payments.

True

Refer to Figure 19-1. Which of the following would cause the change depicted in the figure above?

U.S. productivity rises relative to European productivity.

Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency

allow one to buy the same amount of goods and services.

Gold is an example of

commodity money

In an open economy, expansionary monetary policy will cause

consumption, investment, and net exports to rise.

Fiat money

has no or very little value except as money.

Suppose the government wants to maintain a balanced budget. To achieve this goal, when the economy falls into recession government would need to ________ taxes, which would cause aggregate demand to ________.

increase; decrease

Refer to Figure 15-11. In the dynamic model of AD- AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in

inflation higher than what would occur if no policy had been pursued.

Which of the following information about fiat money is false? Fiat money

is backed by gold.

In an open economy, the current account balance equals ________. (Assume that the capital account is zero and net transfers are zero.)

net foreign investment

The graph above depicts supply and demand for U.S. dollars during a trading day, where the quantity is millions of dollars. In order to support a fixed exchange rate of 0.30 pounds per dollar, the U.S. central bank must

sell 0.8 million dollars per trading day.

Which of the following functions of money would be violated if inflation were high?

store of value

The velocity of money is defined as

the average number of times each dollar is used to purchase goods and services.

Borrowing to pay for long-lived capital expenditures makes sense as

the benefits are received over many years so the burden of paying for them should be spread over many years.

Hyperinflation can be caused by

the government selling bonds to the central bank.

According to the quantity theory of money, inflation is caused by

the growth rate of real GDP.