Macroeconomics Exam 3

If a euro is worth $1.15, what is the euro price of a dollar?

0.87 1/1.15

The money multiplier is equal to

1 ÷ required reserve ratio.

If the nominal rate of interest is 5 percent and the real rate of interest is 2 percent, what rate of inflation is anticipated?

3%

Suppose the Federal Reserve System has a required reserve ratio of 0.20. If the Open Market Committee sells $10 billion of securities to the commercial banking system, then before the money multiplier takes effect, initially excess reserves

Decrease by $10 billion.

In foreign exchange markets, the supply of U.S. dollars is determined by all of the following except

Foreign demand for American exports.

Under a system of fixed exchange rates, excess demand by Germans for the Swiss franc represents a potential

German balance-of-payments deficit with Switzerland.

A rightward shift in aggregate demand will cause an increase in output and no change in the price level if aggregate supply is

Horizontal.

The exchange rate is the

Price of one country's currency expressed in terms of another country's currency

Assume the United States and Australia have the same amount of resources. In a given time period, the United States can produce 2 tons of beef or 200,000 cars. Australia can produce 1 ton of beef or 100,000 cars. This means that

The United States has an absolute advantage in both beef and cars.

An improvement in the infrastructure of a country, ceteris paribus, should result in a lower price level and increased employment.

True

A leftward shift in aggregate demand will cause a decrease in both output and price level if aggregate supply is

Upward-sloping to the right.

If the annual interest rate printed on the face of a bond is 25 percent, the face value of the bond is $1,000, and the current market price of the bond is $700, what is the current yield on the bond?

35.7% The current yield is equal to the fixed annual interest payment divided by the current market price of the bond times 100, which in this case is ($250/$700) ?100 equals 35.7 percent.

If the annual interest rate printed on the face of a bond is 16 percent, the face value of the bond is $1,000, and the current market price of the bond is $200, what is the current yield on the bond?

80% The current yield is equal to the fixed annual interest payment divided by the current market price of the bond times 100, which in this case is ($160/$200) ?100 equals 80.0 percent.

Stagflation is the result of

A decrease in aggregate supply.

Assume the reserve requirement is 25 percent, demand deposits are $500 million, and total reserves are $32 million. If the reserve requirement is decreased to 20 percent, the banking system will experience

A deficiency of required reserves equal to $68 million.

A tax imposed on imported goods is

A tariff.

According to extreme monetarists, monetary policy affects

Aggregate demand, prices, and nominal interest rates only.

Consumption possibilities, during a given time period, refer to the

Alternative combinations of goods and services that a country can consume.

Which of the following equals the current yield on a bond?

Annual interest payment ÷ current market price of the bond.

An excess demand for domestic currency at current exchange rates is known as a

Balance-of-payments surplus.

Global money can impact monetary policy

Because businesses may be able to borrow from foreign banks at cheaper rates.

Which of the following countries has the highest export ratio?

Belgium.

An open market purchase occurs when the Fed

Buys bonds from the public, increasing bank reserves.

The success of Fed intervention depends on how well

Changes in long-term interest rates closely follow changes in short-term interest rates.

Which of the following countries has the lowest export ratio?

Myanmar.

In terms of the world as a whole, imports must equal exports because

Every good exported by one country becomes an import for another country.

A movement along the Phillips curve shows that the unemployment rate and inflation rate are

Inversely related to each other.

If trade is mutually beneficial, then increasing trade

Leads to increased output in export industries.

Which of the following causes the opportunity cost of holding money in the form of cash to decrease?

Lower interest rates.

The Fed could sell bonds in the open market in an effort to keep interest rates constant when

Money demand decreases.

Because of the United States' long-standing trade deficit with Japan, the supply of U.S. dollars in Japan has increased. Which of the following is true about this situation?

The value of the U.S. dollar will decrease in terms of the yen, ceteris paribus, thereby reducing the trade deficit.

Keynes believed that monetary stimulus would be ineffective during a recession because of all of the following except

The willingness of consumers to increase consumption when interest rates fall.

Monetary policy is most effective when the money demand curve is __________ and investment demand is _____________.

downward-sloping; elastic