econ final

Refer to the diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers, respectively, would be

V and Vz.

The asset demand for money

Varies inversely with the rate of interest.

The domestic opportunity cost of producing 100 barrels of chemicals in Germany is one ton of steel. In France, the domestic opportunity cost of producing 100 barrels of chemicals is 2 tons of steel. In this case,

Germany has a comparative advantage in the production of chemicals.

The crowding-out effect of expansionary fiscal policy suggests that

Government spending increases at the expense of private investment.

Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price of this product is $1. This nation will.

Neither export nor import the product.

Which of the following statements about government securities is not true?

No one wishes to buy US securities anymore because they have become so risky.

In which of the following situations is it certain that the quantity demanded by the public will decrease?

Nominal GDP decreases and the interest rate increases.

The U.S. public debt

Consists of the historical accumulation of all past federal deficits and surpluses.

Which group aids the board of governors of the federal reserve system in conducting monetary policy?

Federal open market committee.

If nominal GDP is $600 billion and, on average, each dollar spent three times per year, then the amount of money demanded for transactions purposes will be

$200 Billion.

If this nation were entirely closed to international trade, equilibrium price and quantity would be

$3 and 7 units.

The accompanying table gives budget info for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. The budget deficit in year 3 is

$44 Billion. The budget deficit is the difference between tax revenues and government spending for a single year. For year 3, it is $44 billion ($510-$554)

With a $1-per-unit tariff, prices (revenue per unit) received by domestic and foreign producers respectively will be

$2 and $1

To keep high inflation from eroding the value of money, monetary authorities in the United States

Control the supply of money in the economy.

It is costly to hold money because?

In doing so, one sacrifices interest income.

Other things equal, an increase in productivity will

Increase both aggregate supply and real output.

A decrease in the interest rate will cause a

Increase in the amount of money held as an asset.

A decrease in the interest rate will cause an

Increase in the amount of money held as an asset.

Refer to the table in which investment is in billions. Which of the following scenarios would be consistent with successful restrictive monetary policy.

The Fed raises the interest rate from 5 to 6 percent, then investment spending changes from $90 to $80 billion. A successful restrictive monetary policy is one in which investment spending decreases when interest rates are increased.

How do you find the MPC

The MPC can be found by dividing the change in C by the change in GDP. Multiply the amount of the lump-sum tax times the MPC to find how much consumption will decrease.

What backs the money supply of the United States?

The U.S. government's ability to keep the value of money relatively stable

Which of the following is correct?

The asset demand for money is downward sloping because the opportunity cost of holding money increases as the interest rate rises.

The cyclically-adjusted budget estimates the federal budget deficit or surplus if

The economy was at full employment.

Which line in the graph would best illustrate the asset demand for money curve?

1

With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers would be

1 unit and 15 units respectively.

With free trade, that is , assuming no tariff, the outputs produced by domestic and foreign producers would be

1 unit and 15 units, respectively.

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. A budget surplus occurred in year.

2. A budget surplus occurs when tax revenues exceed government spending for the year. That only occurs once in this economy and that is in year 2: Tax revenues ($465) are greater than government spending ($300)

In 2021 about...... percent of the U.S. public debt was held by people and institutions abroad?

26%

The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nations existence and year 6 is the present year, this nation's public debt is

275 billion. Add together the budget surpluses and budget deficits for the 6 year time span by subtracting government spending from tax revenues for each year.

Which of the following would be feasible terms for trade between Latalia and Trombonia?

4 tons of beans for 1 ton of pork.

If the money supply is $120, the equilibrium interest rate will be

5 percent. (Together, the transactions demand for money and the asset demand for money equal the money supply at equilibrium. If the money supply is $120, then add columns 2&3 until you find they sum to $120. That occurs at an interest rate of 5 percent.

With a $1 per unit tariff, the quantities sold by foreign and domestic producers, respectively, will be

7 units and 4 units.

The accompanying table gives data for Country X. Column 1 of the table is the price of a product. Column 2 is the quantity demanded domestically ( Qdd), and Column 3 is the quantity supplied domestically ( Qsd). If the world price is $5, there will be

A domestic surplus of 200 units that will be exported. The domestic equilibrium price is $3 and is found where quantity supplied equals quantity demanded. At any world price above the domestic equilibrium price of $3, the country would export product. At $5, the country would export 200 units since there is a surplus of 200 units (the domestic quantity demanded is 200 and the domestic quantity supplied is 400).

Refer to the data for a fictional economy. The changes in the budget conditions between year 1 and 2 best reflect

A recession.

Compared to fiscal policy, monetary policy is not subject to a

Administrative lag.

A tariff can best be described as

An excise tax on an imported good.

Refer to the data for a fictional economy. The changes in the budget conditions between year 2& year 3 best reflect

An expansionary fiscal policy.

Which one of the following might offset a crowding-out effect of financing a large public debt?

An increase in public investment.

The increased domestic employment argument for tariff protection holds that

An increase in tariffs will increase net exports and stimulate domestic employment.

Which of the following best describes the cause-effect chain of expansionary monetary policy

An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and real GDP.

Which of the following will happen when the federal reserve lowers the interest rate paid on reserve balances?

Banks will choose to lend money into the money market instead of lending to the fed.

The federal reserve system consists of which of the following?

Board of governors and the 12 Federal reserve banks.

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the federal reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the fed would tend to offset each other in trying to achieve that objective

Buying government securities and raising the discount rate.

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the federal government to balance its budget during a recession would be

Contractionary and worsen the effects of the recession. (A balanced-budget rule during a recession would mean that government expenditures would have to decrease because in recessions tax revenues decrease as incomes and spending decline worsening the effects of the recession)

The PPF for country X are either 6,000 bushels of soybeans or 10,000 bushels of wheat. The ppf for country y are either 2,000 bushels of soybeans or 4,000 bushels of wheat. Which of the following is true?

Country X has the absolute advantage in both soybeans and wheat.

Refer to the diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full employment GDP and actual GDP are each $400 Billion, this economy will realize a

Cyclically-adjusted deficit of $20 billion.

Refer to the given market-for-money diagrams. The total demand for money is shown by

D3

The built-in stabilizers in the economy tend to

Dampen the irregular swings in real GDP.

Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary, full-employment output Qf in the economy, the Fed should try to

Decrease aggregate demand by increasing the interest rate from 4 to 6 percent.

The sale of government bonds in the open market by the fed will

Decrease aggregate demand.

Other things equal, an appreciation of the US dollar would

Decrease net exports and decrease aggregate demand.

Refer to the diagrams. The numbers in parentheses after the AD1, 2, and 3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If aggregate demand is AD3 and the monetary authorities desire to reduce it to AD2, they should

Decrease the money supply from $120 to $100

Suppose the United State eliminates high tariffs on German bicycles. As a result, we would expect

Employment to decrease in the US bicycle industry.

If the fed reduces the interest on reserve balances rate, it is trying to

Encourage the banks to lend into the money market.

All else equal, when the federal reserve banks engage in a restrictive monetary policy, the prices of government bons usually

Fall

Fractional reserve banking refers to a system where banks

Hold only a fraction of their deposits in their reserves.

Assume that the MPC is 0.75 and that the price level is sticky. If the federal reserve increases the money supply and investment spending increases by $8 billion, then aggregate demand is likely to

Increase by $32 billion. The multiplier is 4[= 1/ (1-MPC)] If investment spending increases by $8, then aggregate demand will increase by $32 billion (4x$8)

Assume that the MPC is 0.80 and that prices are fully flexible. If the federal reserve increases the money supply and investment spending increases by $10 billion, then aggregate demand is likely to

Increase by $50 billion. The multiplier is 5(1/(1-MPC). If investment spending increases by $10 billion then aggregate demand will increase by $50 billion. (5 x$10)

Refer to the diagrams. The numbers in parentheses after Ad1 Ad2 and Ad3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. If the money supply is MS1 and the goal of the monetary authorities is full-employment output Qf, they should.

Increase the money supply from $80 to $100.

The average tax rate required to service the public debt is roughly measured by

Interest on the debt as a percentage of the GDP.

Which line in the graph would best illustrate the transactions demand for money curve?

Line 2.

Madison, a CPA needs her house painted, in which situation below would she choose to hire Mason, a professional house painter rather than sacrifice time and income from accounting.

Madison can paint the house in 30 hours and would sacrifice $50 per hour, Mason would take 40 hours to paint the house and charge $15 per hour.

The domestic opportunity cost of producing a television in the United States is 20 bushels of wheat. In korea, the domestic opportunity cost of producing a television is 10 bushels of wheat, in this case

Mutual gains from trade can be obtained if the United States imports televisions from Korea and Korea imports wheat from United States.

The accompanying table gives maximum output alternatives for Brazil and Poland. It can be seen that if the 2 nations open to trade with each other then

Poland will specialize in producing machines and import wine.

Which of the following best describes the idea of a political business cycle?

Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.

When there is inflation in the economy, it implies that the

Price index is rising and the purchasing power of money is falling.

Increases in the federal budget deficit from 2007 to 2009 were caused

Primarily by a combination of recession and expansionary fiscal policy.

The federal reserve banks are owned by

Private commercial banks within each district.

Refer to the diagram where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. With a PcPt per unit tariff, per-unit revenue received by domestic and foreign producers, respectively, will be

Pt and Pc

Refer to the diagram where Sd and Dd are domestic supply and demand for a product and Pc is the world price of that product. With a per-unit tariff in the amount of PcPt, price and total quantity will be

Pt and Y.

Which of the following statements about quantitative easing is most accurate?

Quantitative easing refers to the fed's use of open market operations to buy hundreds of billions of dollars' worth of long-term bonds.

Which of the following best describes what occurs when monetary authorities sell government securities as a part of quantitative tightening?

Sales of longer-term government bonds as part of QT will decrease the money supply as the Fed stores away in its vaults, completely out of public circulation, all of the money paid to it by the purchasers of those bonds.

Which of the following best describes what occurs when monetary authorities sell government securities as a part of quantitative tightening.

Sales of longer-term government bonds as part of QT will decrease the money supply as the fed stores away in its vaults, completely out of public circulation, all of the money paid to it by the purchasers of those bonds.

The equilibrium rate of interest in the market for money is determined by the intersection of the

Supply of money curve and the total demand for money curve.

The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statements describes

The crowding-out effect.

When current government expenditures equal current tax revenues and the economy is achieving full employment,

The cyclically-adjusted budget has neither a deficit nor a surplus.

Which of the following arguments for trade protection contends that new domestic industries need support to establish themselves and survive?

The infant industry argument.

The sale of government securities by the fed will cause

The money supply to decrease

The asset demand for money is downward sloping because

The opportunity cost of holding money increases as the interest rate rises.

Which of the following serves as an automatic stabilizer in the economy?

The progressive income tax. Automatic stabilizers consist of the tax system and transfer payments and work without the need for congress or the admin. to act and were written into law at an earlier time.

If the fed buys government securities in the open market

The securities go into the fed's vault and the fed creates new money to pay for them.

Refer to the diagram of the market for money. The vertical money supply curve Sm reflects the fact that

The stock of money is determined by the federal reserve system and does not change when the interest rate changes.

In comparing a tariff and an import quota, we find that

The tariff generates revenue for the US treasury, but the quota does not.

Which of the following statements is correct?

There is a tendency for the public debt to grow during recessions.

Which of the following is not true about the federal reserve banks?

They compete with commercial banks in their basic functions.

A consumer holds money to meet spending needs. This would be an example of

Transactions demand for money.

A high tariff on imported good X might reduce domestic employment in industry Y if

X is an input used domestically in producing Y.