Econ exam #3

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.89 Canadian dollars per American dollar, how many American dollars are required to buy a product that costs 2.5 Canadian dollars?

$2.81

If the government purchases multiplier equals 2, and real GDP is $14 trillion with potential real GDP $14.5 trillion, then government purchases would need to increase by ________ to restore the economy to potential real GDP.

$250 billion

Which of the following is the best example of a tariff? A) a tax placed on all sports utility vehicles sold in the domestic market B) a subsidy granted by the U.S. government to domestic sports utility vehicle manufacturers so they can compete more effectively with foreign sports utility vehicle manufacturers C) a $5,000 per-car fee imposed on all sports utility vehicles imported into the United States D) a limit imposed on the number of sports utility vehicles that the United States can import from Japan

$5,000 per-car fee imposed on all sports utility vehicles imported into the United States

If the required reserve ratio is 5 percent, then the simple deposit multiplier is

20 (1/5 = .20)

How does a decrease in value of a country's currency relative to other currencies affect its balance of trade?

A decrease in value of a country's currency relative to other currencies reduces imports, raises exports, and increases the balance of trade

Suppose the Fed increases the money supply. Which of the following is true?

At the original interest rate, the quantity of money demanded is less than the quantity of money supplied.

Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?

Demand for dollars will decrease, and supply of dollars will increase

How does expansionary monetary policy affect net exports?

Expansionary monetary policy increases exports and reduces imports.

Expansionary monetary policy refers to the ________ to increase real GDP

Federal Reserve's increasing the money supply and decreasing interest rates

If there is currently a shortage of dollars, which of the following would you expect to see in the foreign exchange market?

The dollar will appreciate

Open market operations refer to the purchase or sale of ________ to control the money supply

U.S. Treasury securities by the Federal Reserve

The current account does not include which of the following?

U.S. holdings of foreign assets

If the federal government's expenditures are less than its tax revenues, then

a budget surplus results

Which of the following is not included in the balance of the financial account of the United States?

a purchase of German legal services by Chase Manhattan Bank

If you can produce more of something than others with the same resources, you have

an absolute advantage

A change in consumption spending caused by income changes is ________ change in spending, and a change in government spending that occurs to improve roads and bridges is ________ change in spending.

an induced; an autonomous

An economy that has interactions in trade or finance with other economies is referred to as

an open economy.

Trade that is within a country or between countries is based on the principle of

comparative advantage

In an open economy, expansionary monetary policy will cause

consumption, investment, and net exports to rise.

The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks

Suppose the Fed purchases Treasury securities. Interest rates in the United States will ________ and the U.S. dollar will ________ against foreign currencies.

decrease; depreciate

An increase in interest rates

decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports

The required reserves of a bank equal its ________ the required reserve ratio

deposits multiplied by

A person's wealth

equals the value of the person's assets minus his or her liabilities.

The tax multiplier equals the change in ________ divided by the change in ________.

equilibrium real GDP; taxes

The interest rate that banks charge other banks for overnight loans is the

federal funds rate.

An increase in government purchases will increase aggregate demand because

government expenditures are a component of aggregate demand.

Congress and the president carry out fiscal policy through changes in

government purchases and taxes.

An increase in the demand for American-made goods will

increase the demand for dollars on the foreign exchange market.

A recession tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.

increase; fall; rises

A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.

increases; increases (The interest rate the Federal Reserve charges on discount loans.)

The multiplier effect refers to the series of

induced increases in consumption spending that result from an initial increase in autonomous expenditures

To increase the money supply, the Federal Reserve could

lower the discount rate.

The money demand curve has a

negative slope because an increase in the interest rate decreases the quantity of money demanded

Suppose the government cuts taxes. We would expect interest rates to ________ and the dollar to ________ in foreign exchange markets.

rise; appreciate

M2 includes M1 plus

savings account balances, money market deposit accounts in banks, small-denomination time deposits, and noninstitutional money market fund shares.

The Fed can attempt to increase the federal funds rate by

selling Treasury bills, which decreases bank reserves

Free trade refers to trade between countries

that is without restrictions

Comparative advantage means

the ability to produce a good or service at a lower opportunity cost than any other producer.

When the United States sends money to Indonesia to help tsunami survivors, in what account is this transaction recorded?

the current account

If the exchange rate changes from $1.45 = 1 euro to $1.37 = 1 euro, then

the euro has depreciated and the dollar has appreciated.

When housing prices fell as they did beginning in 2006 following the housing market bubble, most banks and other lenders ________ the requirement for borrowers, making it ________ for potential home buyers to obtain mortgages.

tightened; harder