ECO exam 4

Shifts in monetary policy will

stimulate output and employment with time lags that are long and variable and this will make it more difficult for policy-makers to change monetary policy in a manner that will promote macroeconomic stability.

When the residents of a nation are free to trade with foreigners, domestic producers will be able to

supply a larger quantity of goods they can produce at a relatively low cost

The main source of profit for financial institutions is

the difference between interest paid on deposits and interest received on loans

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

the federal funds rate

If money were not used as a medium of exchange...

the gains from trade would be extremely limited

Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation) and a nominal (and real) interest rate of 4 percent. If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 percent,

the nominal interest rate will rise to 10 percent, but the real interest rate will remain at 4 percent.

Which of the following most clearly limits the ability of the commercial banking industry to expand the money supply?

the reserve requirements mandated by the Fed

An analysis of countries experiencing rapid inflation indicates that inflation is generally

the result of rapid growth in the money supply

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

there is no change in the money supply, and the reserves of your bank decline

When individuals and businesses are permitted to trade freely over a larger market area

they will be able to produce a larger output and consume a more diverse bundle of goods

The equation of exchange states that

velocity multiplied by money supply equals real output times the price level

The "rule of 70" is a simple rule

(70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates

Life expectancy at birth for the world rose from 24 years to 26 years between 1000 and 1820, but by 2003, life expectancy had risen to

64 years

Which of the following weakened the demand stimulus effects of the fed's low interest rate policy during the years following the 2008-2009 recession?

A reduction in earnings of senior citizens and others from money market accounts, saving deposits, and similar forms of savings.

In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?

An increase in real output

Regarding economic growth and income levels, which of the following is true?

Countries that fail to adopt institutions and policies supportive of trade, entrepreneurial discovery, and private investment will remain poor in the foreseeable future

Concerning tax rates and growth, which of the following is true?

Countries with low marginal tax rates have generally had higher rates of economic growth than those with high tax rates.

Which of the following is true for the world as a whole?

During the 800 years between 1000 and 1800, the increases in both world income per person and life expectancy at birth were small, but both of these indicators have increased sharply during the past 200 years.

The velocity of money is the

GDP divided by the money supply

Which of the following contributed to the dramatic rise in housing prices between 2002 and mid-year 2006?

Government policy made credit for housing abundant and easily available

Which of the following is true about tax rates and economic growth?

High tax rates will tend to drive investment funds and highly productive citizens to other countries where tax rates are lower

Which of the following about the banking system is true?

If a bank should fail, the FDIC guarantees that depositors can get their funds up to a $250,000 limit per account.

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will

"Every major contraction in the U.S. economy has either been created or greatly exacerbated by monetary instability. Every major inflation has been caused by monetary expansion." Which of the following economists made this statement?

Milton Friedman

Which of the following will discourage investment?

Monetary instability

Are "smart cards" or E-cash cards part of the money supply?

No, because they are merely means of transferring checking deposits

Which of the following will be most likely to contribute to the growth of a less-developed country?

Secure property rights and low marginal tax rates

Which of the following guarantees the deposits in almost all banks up to a $250,000 limit per account?

The FDIC

Which of the following lists two things that both increase the money supply?

The Fed buys bond and lowers the discount rate

Which of the following is true regarding the per person income of the world during the past 1000 years?

The world's income per person changed very little during the 800 years prior to 1813, but it has increased by nearly tenfold during the past 200 years

What has happened to the world's economy over the past 200 years?

There has been economic growth, less poverty, and longer life spans

Suppose you withdraw $1,000 from your checking account. If the reserve requirement is 20 percent, how does this transaction affect the supply of money and the excess reserves of your bank?

There is no change in the supply of money; your bank's excess reserves are reduced by $800.

Which of the following will increase the excess reserves of commercial banks?

a reduction in the reserve requirement ratio

The recent growth records of Japan and Hong Kong during the last fifty years indicate that a nation can grow rapidly without

abundant domestic natural resources

How do high marginal tax rates affect the economic prosperity of a nation?

all of the above are correct

A decrease in the required reserve ratio would be

an expansionary policy because it raises the amount of excess reserves in the banking system.

If people decide to hold less money as currency and more as checking deposits, this will most likely cause

an increase in the money supply

The per capita income level of the world grew very slowly prior to

around 1800, when per capita GDP began to increase rapidly in some Western countries

The velocity of money is the

average number of times a dollar is used to buy goods and services included in GDP

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

buy U.S. securities on the open market

The replacement of older products by newer improved ones is called

creative destruction

If the Fed unexpectedly deceases the money supply, real GDP

decreases because the resulting increase in the interest rate leads to a decrease in investment.

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

does not change the money supply

In order for barter trades to occur, there must be a

double coincidence of wants

Which of the following is a driving force underlying economic growth?

entrepreneurial discovery and production of improved products

Economic growth will

expand the production possibilities of an economy

Demographic changes that increase the number of people in the lending phase (approximately age 50 to 75) and fewer in the borrowing phase (under age 50), would tend to

expand the supply of loanable funds and push interest rates downward

Which of the following is most important if the living standards of people residing in a country are going to improve?

growth of per capita GDP

To move up the income ladder and achieve high-income status, countries must

have sustained economic growth

The short run sequence of events following an unanticipated shift to a more restrictive monetary policy would be

higher interest rates, decrease in aggregate demand, and a reduction in output.

When the monetary authorities expand the supply of money rapidly...

holding money is a poor method of storing value

If the public decides to hold less currency and more deposits in banks, bank reserves

increase and the money supply eventually increases

An unanticipated shift to a more restrictive monetary policy by the Fed will

increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.

If the Fed wanted to shift to a restrictive monetary policy and reduce the money supply, it could

increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

According to Angus Maddison, a leading authority in the area, world per capita GDP

increased by about 50 percent during the 800 years following year 1000, but it increased by nearly tenfold during the past 200 years

During the past 1000 years, the income per person of the world has

increased by approximately tenfold during the past 200 years, but there was only a small increase during the 800 years prior to 1800

During the past 200 years, income per person has

increased far more rapidly in both developed and less developed countries than during the centuries prior to 1800

During 2008-2013, the Fed initiated several rounds of "quantitative easing." Under this policy, the Fed

increased its purchases of financial assets and thereby injected additional reserves into the banking system

The low interest rate policies of the Federal Reserve during 2002-2004,

increased the demand for housing, placing upward pressure on housing prices

The M1 money supply

is composed of assets that reflect the medium of exchange function of money

Investment in both physical and human capital tends to enhance economic growth because it generally

makes it possible for individuals to produce more goods and services per hour worked

In response to the severe recession of 2008-2009, the Fed

more than doubled the size of the monetary base and pushed short-term interest rates to near zero.

According to the quantity theory of money, which one of the following economic variables would change in response to an increase in the money supply?

prices

Which of the following lists two things that both decrease the money supply?

raise the discount rate and raise the reserve requirement ratio

Obstacles that restrict trade, either domestic or international, will

reduce output, income, and the general living standard of the populace