ECO FINAL
For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as
A (those items that can be readily accessed and used to buy goods and services)
During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year?
a. $80 billion
Other things the same, a decrease in the U.S. real interest rate induces
a. Americans to buy more foreign assets, which increases U.S. net capital outflow.
A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are
b. larger in closed economies than in open economies.
According to the classical dichotomy, which of the following increases when the money supply increases?
d. None of the above increases.
According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes
d. the interest rate to rise, so aggregate demand shifts left.
If the central bank in some country lowered the reserve requirement, then the money multiplier for that country
(A) would increase
The reserve ratio for this bank is
(B) 20 percent
A bank has $200,000 in deposits and $190,000 in loans. It has loaned out all it can. It has a reserve ratio of
(B) 5 percent
Which tool of monetary policy does the Federal Reserve use most often?
(B) open-market operations
To decrease the money supply, the Fed can
(C) sell government bonds or increase the discount rate
Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is
(D) 1 and banks do not create money
The reserve requirements are 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds, what happens to the money supply?
(D) it decreases by $250,000
Which of the following is a function of money?
D (all of the above are correct)
If the federal funds rate were above the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
a (buying bonds. This buying would increase the money supply)
In which of the following situations must national saving rise?
a. Both domestic investment and net capital outflow increase.
Which of the following actions might we logically expect to result from rising stock prices?
a. Jim increases his consumption spending.
U.S.-based John Deere sells machinery to residents of South Africa who pay with South African currency (the rand).
a. This increases U.S. net capital outflow because the U.S. acquires foreign assets.
If U.S. citizens decide to save a larger fraction of their incomes, the real interest rate
a. decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.
The interest rate would fall and the quantity of money demanded would
a. increase if there were a surplus in the money market.
The economic boom of the early 1940s resulted mostly from
a. increased government expenditures.
An increase in the budget deficit
a. reduces net capital outflow and domestic investment.
When the money supply curve shifts from MS1 to MS2
a. the equilibrium value of money decreases.
Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes
a. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased.
In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 3. It follows that, when income is $101, consumer spending is
b. $60.67.
If the relevant money-supply curve is the one labeled MS1, then the equilibrium price level is
b. 2 and the equilibrium value of money is 0.5.
Suppose a Starbucks tall latte cost $4.00 in the United States, 5.00 euros in the euro area and $2.50 Australian dollars in Australia. Nominal exchange rates are .80 euros per dollar and 1.4 Australian dollars per U.S. dollar. Where does purchasing power parity hold?
b. Neither the euro area or Australia.
Which of the following is correct concerning recessions?
b. They are associated with comparatively large declines in investment spending.
In the open-economy macroeconomic model, equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from
b. U.S. net capital outflow and the demand for dollars for U.S. net exports.
Other things the same, continued increases in the money supply lead to
b. continued increases in the price level but not continued increases in real GDP.
If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as
b. e(P/P*).
Net exports of a country are the value of
b. goods and services exported minus the value of goods and services imported.
Other things the same, if the price level falls, people
b. increase foreign bond purchases, so the dollar depreciates.
A Peruvian firm purchases construction equipment made in the U.S. and pays for it with Peruvian currency. This transaction
b. increases U.S. net exports, and decreases Peruvian net capital outflow.
The Fisher effect
b. says there is a one for one adjustment of the nominal interest rate to the inflation rate.
Which of the following will decrease U.S. net capital outflow?
b. the government budget deficit increases
According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in
b. the interest rate.
Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation the price level is now
c. 1.5 times its old value.
Stacey, a U.S. citizen, buys a bond issued by an Italian pasta manufacturer.
c. This purchase is foreign portfolio investment. By itself it increases U.S. net capital outflow.
The term hyperinflation refers to
c. a period of very high inflation.
Starting from point B and assuming that aggregate demand is held constant, in the long run the economy is likely to experience
c. a rising price level and a falling level of output.
The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have
c. lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied.
Which of the following lists includes only changes that shift aggregate demand to the right?
c. passing of an investment tax credit, an increase in the money supply
What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand?
d. Net exports would fall which by itself would decrease U.S. aggregate demand.
When a country experiences capital flight, the interest rate
c. rises because the demand for loanable funds shifts right.
At an interest rate of 4 percent, there is an excess
c. supply of money equal to the distance between points a and b.
Other things the same, the aggregate quantity of goods demanded in the U.S. increases if
c. the dollar depreciates.
If the demand for loanable funds shifts right, then
c. the real interest rate and the equilibrium quantity of loanable funds both rise.
If the quantity of loanable funds supplied is greater than the quantity demanded, then
c. there is a surplus of loanable funds and the interest rate will fall.
If saving is greater than domestic investment, then
c. there is a trade surplus and Y > C + I + G.
In Ireland, a pint of beer costs 3 euros. In Australia, a pint of beer costs 4 Australian dollars. If the exchange rate is .8 euros per Australian dollar, what is the real exchange rate?
d. 2.4/4 pints of Irish beer per pint of Australian beer
If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?
d. 2.5 percent
An increase in government spending on goods to build or repair infrastructure
d. All of the above are correct.
If the economy were initially in equilibrium at r2 and E3 and the government removed import quotas, the exchange rate would
d. depreciate to E2.
Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation
d. does not change the real interest rate but reduces the after-tax real rate of interest.
High and unexpected inflation has a greater cost
d. for savers in low income tax brackets than for savers in high income tax brackets.
In the market for foreign-currency exchange, the effects of an increase in the budget surplus is illustrated as a move from g to
d. i.
If the inflation rate is zero, then
d. neither the nominal interest rate nor the real interest rate can fall below zero.
The aggregate quantity of goods and services demanded changes as the price level falls because
d. real wealth rises, interest rates fall, and the dollar depreciates.
What is measured along the horizontal axis of the left-hand graph?
d. the quantity of money
