quiz 3

If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is a. 2,000. b. 32,000. c. 12,500. d. 200,000.

B

If saving is greater than domestic investment, then there is a trade a. deficit and Y > C + I + G. b. deficit and Y < C + I + G. c. surplus and Y > C + I + G. d. surplus and Y < C + I + G.

C

If the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate? a. 5/3 or 1.67 pounds per dollar b. 15/4 or 3.75 pounds per dollar c. 3/5 or 0.6 pounds per dollar d. 4/15 or 2.67 pounds per dollar

C

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then a. nominal GDP would rise by 5 percent; real GDP would be unchanged. b. nominal GDP would be unchanged; real GDP would rise by 5 percent. c. neither nominal GDP nor real GDP would change. d. nominal and real GDP would rise by 5 percent.

A

If the exchange rate is expressed as euros/dollar, t he dollar is said to depreciate against the euro if the exchange rate a. falls. Other things the same, it will cost fewer euros to buy U.S. goods. b. rises. Other things the same, it will cost more euros to buy U.S. goods. c. rises. Other things the same, it will cost fewer euros to buy U.S. goods. d. falls. Other things the same, it will cost more euros to buy U.S. goods.

A

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners a. more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. b. more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. c. less willing to purchase U.S. bonds, so U.S. net capital outflow would rise. d. less willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

A

Suppose the market for money, drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis , is in equilibrium. If the money supply increases, then at the old value of money there is an a. excess supply of money that will result in an increase in spending. b. excess supply of money that will result in a decrease in spending. c. excess demand for money that will result in an increase in spending. d. excess demand for money that will result in a decrease in spending.

A

The inflation tax refers to a. the revenue a government creates by printing money. b. taxes being indexed for inflation. c. the idea that, other things the same, an increase in the tax rate raises the inflation rate. d. higher inflation which requires more frequent price changes.

A

Which of the following helps to explain why the "inflation fallacy" is a fallacy? a. Nominal incomes tend to rise at the same time that the price level is rising, leaving real income unchanged . b. As the price level rises, the value of a dollar falls. c. Increases in the price level can be created by increases in money demand. d. Inflation only changes real variables.

A

A country's trade balance will fall if either a. investment or saving fall. b. saving falls or investment rises. c. investment or saving rise. d. investment falls or saving rises.

B

A depreciation of the U.S. real exchange rate induces U.S. consumers to buy a. fewer domestic goods and more foreign goods. b. more domestic goods and fewer foreign goods. c. fewer domestic goods and fewer foreign goods. d. more domestic goods and more foreign goods.

B

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to a. the classical dichotomy, but not the quantity theory of money. b. neither the classical dichotomy nor the quantity theory of money. c. both the classical dichotomy and the quantity theory of money. d. the quantity theory of money, but not the classical dichotomy.

B

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 billion, and net capital outflow equals $225 billion. What is national saving? a. $510 billion b. $735 billion c. $225 billion d. $1,390 billion

B

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes, a. M1 increases by $2,500 and M2 decreases by $2,500. b. M1 increases by $2,500 and M2 stays the same. c. M1 and M2 stay the same. d. M1 decreases by $2,500 and M2 increases by $2,500. Hide Feedback

B

In the last part of the 1800s a. deflation made it easier for farmers to pay off their debt. b. inflation made it easier for farmers to pay off their debt. c. deflation made it harder for farmers to pay off their debt. d. inflation made it harder for farmers to pay off their debt.

C

In the long run, money demand and money supply determine a. the value of money and the real interest rate. b. the real interest rate but not the value of money. c. the value of money but not the real interest rate. d. neither the value of money nor the real interest rate.

C

The purchase of U.S. government bonds by Egyptians is an example of a. U.S. imports. b. foreign direct investment by Egyptians. c. foreign portfolio investment by Egyptians. d. U.S. exports.

C

Which of the following is an example of U.S. foreign direct investment? a. An Australian bank buys stocks issued by a U.S. corporation. b. A U.S. bank buys bonds issued by an Australian corporation. c. A U.S. company opens an auto parts factory in Canada. d. A Chinese company opens a restaurant in the U.S.

C

Which of the following is not included in either M1 or M2? a. Demand deposits b. Small time deposits c. U.S. Treasury bills d. Money market mutual funds

C

Which of the following statements is not true about the relationship between national saving, investment, and net capital outflow? a. An increase in saving associated with an equal increase in net capital outflow leaves domestic investment unchanged. b. Saving is the sum of investment and net capital outflow. c. For a given amount of saving, a decrease in net capital outflow must decrease domestic investment. d. For a given amount of saving, an increase in net capital outflow must decrease domestic investment.

C

If purchasing-power parity holds, then the value of the a. nominal exchange rate is equal to one. b. real exchange rate is equal to the nominal exchange rate. c. real exchange rate is equal to the difference in inflation rates between the two countries. d. real exchange rate is equal to one.

D

If the real interest rate is 6 percent and the price level is falling at a rate of 2 percent, what is the nominal interest rate? a. 8 percent b. 6 percent c. 10 percent d. 4 percent

D

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is a. 29.1 percent. b. 16.4 percent. c. 18.0 percent. d. 22.5 percent.

D

The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing-power parity to hold? a. 40 florin b. 60 florin c. 20 florin d. 80 florin

D

When inflation causes relative-price variability consumer decisions, a. are distorted, but markets are still able to efficiently allocate factors of production. b. are not distorted, but the ability of markets to efficiently allocate factors of production is impaired. c. are not distorted and markets are still able to efficiently allocate factors of production. d. are distorted and the ability of markets to efficiently allocate factors of production is impaired.

D

Which of the following both increase the money supply? a. An increase in the discount rate and a decrease in the interest rate on reserves b. An increase in the discount rate and an increase in the interest rate on reserves c. A decrease in the discount rate and an increase in the interest rate on reserves d. A decrease in the discount rate and a decrease in the interest rate on reserves

D

Which of the following functions as both a store of value and a medium of exchange? a. Neither cash nor stocks b. Stocks but not cash c. Cash and stocks d. Cash but not stocks

D

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy a. more goods in that country but buy fewer dollars. b. more goods in that country and buy more dollars. c. fewer goods in that country but buy more dollars. d. fewer goods in that country and buy fewer dollars. Hide Feedback

D

Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits? a. $4,937.5 billion b. $5,000 billion c. $4,995 billion d. $5,062.5 billion

A

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement. a. It has $80 in reserves and $9,920 in loans. b. It has $800 in reserves and $9,200 in loans. c. It has $1,250 in reserves and $8,750 in loans. d. It has $8,000 in reserves and $2,000 in loans.

B

Which of the following is correct? Since 1950 a. U.S. exports increased only slightly and U.S. imports have increased significantly. b. U.S. exports have decreased and U.S. imports have increased. c. U.S. exports and U.S. imports each have increased significantly. d. U.S. exports and U.S. imports each have increased slightly.

c

When the price level falls, the number of dollars needed to buy a representative basket of goods a. increases, so the value of money falls. b. increases, so the value of money rises. c. decreases, so the value of money falls. d. decreases, so the value of money rises.

d