Macroeconomics Exam 2
A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100. If customers deposit $50 into the bank, what is the value of the money supply?
$100
Suppose ice cream cones cost $3. Molly holds $60. What is the real value of the money she holds?
20 ice cream cones
Other things the same, a government budget deficit
Reduces both public and national saving
The inflation tax falls most heavily on
Those who hold a lot of currency but accounts for a small share of U.S. Government revenue
The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 10%. People hold no currency, and the banking system keeps no excess reserves. United States money supply will eventually increase by
$2,000
If the exchange rate is 0.60 British pounds= $1, a bottle of ale that cost 3 pounds costs
$5
Based on the quantity equation, if velocity=3.5, the quantity of money=15,000, and the price level= 1.2, then the real value of output is
43,750.00
Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money she holds?
8 units of goods
The term hyperinflation refers to
A period of very high inflation
When in France you notice that prices are posted in euros, this best illustrates money's function as
A unit of account
The primary advantage of mutual funds is that they
Allow people with small amounts of money to diversify
In the foreign exchange market, the supply of US dollars comes from
Americans, and the demand for US dollars come from foreigners
A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is
An asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply
If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has
Appreciated. Other things the same, the appreciation would make Americans more likely to travel to Mexico
If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has
Appreciated. Other things the same, the appreciation would make Americans more likely to travel to Mexico.
Two of the economy's most important financial intermediaries are
Banks and mutual funds
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
Bond A has a term of 20 years and Bond B has a term of 2 years
When the Fed decreases the discount rate, banks will
Borrow more from the Fed and lend more to the public. The money supply increases.
Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a
Borrower or as a demander of funds
If money is neutral and velocity is stable, an increase in the money supply creates a proportional increase in
Both the price level and nominal output
The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called a
Credit risk
Which list ranks assets from most to least liquid?
Currency, stocks, fine arts
When the price level falls, the number of dollars needed to buy a representative basket of goods
Decreases, so the value of money rises
The principle of monetary neutrality implies that an increase in the money supply will
Increase the price level, but not real GDP
Institutions that help to match one person's savings with another person's investments are collectively called the
Financial system
In a system of 100-percent-reserve banking, the purpose of the bank is to
Give depositors a safe place to keep their money
You use US currency to pay the owner of a restaurant for a delicious meal. The currency
Has no intrinsic value. The exchange is not an example of barter
In 1991, the Federal Reserve lowered the reserve requirement from 12% to 10%. Other things the same, this should have
Increased both the money multiplier and the money supply
When European goods and services become more attractive to Chinese, the demand for euros
Increases, and Euros appreciate
When European goods and services become more attractive to Chinese, the demand for euros
Increases, and euros appreciate
When American goods and services become more attractive to Chinese, the demand for US dollars
Increases. The supply of Chinese yuan increases
If an economy uses silver as money, then that economy's money
Is commodity money
You hold bonds issued by the city government of Sacramento, California. The interest you earn each year on these bonds
Is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the United States government
If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
It increases by $100,000
If the government currently has a budget deficit, then
Its debt is increasing
If a reform of the tax laws encourages greater saving, the result would be
Lower interest rates and greater investment
When inflation rises, people
Make more frequent trips to supermarkets and firms make more frequent price changes
The primary economic function of the financial system is to
Match one person's saving with another person's investment
When there is a reserve requirement, banks
May hold more than, but not less than, the required quantity of reserves.
Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving?
None of the above is correct
The Fed can increase the money supply by
Selling government bonds or by raising the discount rate
Dollar bills, rare paintings, and emerald necklaces are all
Stores of value
The Laffer Curve shows the relationship between
Tax revenue and tax rate
The supply of money increases when
The Fed makes open-market purchases
The economy's two most important financial markets are
The bond market and the stock market
You are planning a graduation trip to Nepal. Other things the same, if the dollar depreciates relative to the Nepalese rupee, then
The dollar buys fewer rupees. Your purchases in Nepal will require more dollars
You are staying in London over the summer and you have a number of dollars with you. If the dollar depreciates relative to the British pound, then other things the same,
The dollar would buy fewer pounds. The depreciation would discourage you from buying as many British goods and services.
If velocity and real output were nearly constant, then
The inflation rate would be about the same as the money supply growth rate
The data on hyperinflation show a clear link between the quantity of money and
The price level
According to the classical dichotomy, when the money supply doubles, which of the following doubles?
The price level and nominal GDP
Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?
U.S. Government bonds generally pay a higher rate of interest than corporate bonds
If congress instituted an investment tax credit, the interest rate
Would rise and saving would rise
Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes
Your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.