Econ Final
Stealth bank has deposits of $350 million. It holds reserves of $30 million and government bonds worth $70 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?
$500 million
Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities?
$600 million
Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?
$620 million
Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?
$970 million
The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?
10
If GDP is 3600 and the money supply is 300, what is the velocity?
12
In 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013?
2009: .71 dollars, 2013: 1.11 dollars
In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012?
2010: .12 U.S. dollars; 2012: .15 U.S. dollars
In 2010, 1 Swiss franc cost .56 British pounds and in 2012 it cost .51 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012?
2010: 1.79 francs, 2012: 1.96 francs
In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93 U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013?
2010: 113.6 yen, 2013: 107.5 yen
If nominal GDP is 2700 and the money supply is 900, what is velocity?
3
If GDP is 2400 and the money supply is 600, then what is the velocity?
4
Contrast the actions a central bank would take to increase the quantity of money in the economy with the actions it would take to produce the opposite effect.
A central bank that wants to increase the quantity of money in the economy can buy bonds in an open market operation, reduce the reserve requirement, lower the discount rate, or engage in quantitative easing. Conversely, a central bank that wants to reduce the quantity of money in the economy can sell bonds in an open market operation, raise the reserve requirement, raise the discount rate, or reverse its past practices of quantitative easing.
Briefly explain why a central bank will be concerned about the exchange rate
A central bank will be concerned about the exchange rate for three reasons: (1) Movements in the exchange rate will affect the quantity of aggregate demand in an economy; (2) Frequent substantial fluctuations in the exchange rate can disrupt international trade and cause problems in a nation's banking system; (3) The exchange rate may contribute to an unsustainable balance of trade and large inflows of international financial capital, which can set the economy up for a deep recession if international investors decide to move their money to another country
Define and contrast contractionary monetary policy and expansionary monetary policy and their respective economic outcomes. Explain what happens if the effects of either of these policies goes too far.
A monetary policy which reduces the amount of money and loans in the economy is a contractionary monetary policy or a "tight" monetary policy. A monetary policy that expands the quantity of money and loans is known as an expansionary monetary policy or a "loose" monetary policy. Tight or contractionary monetary policy that leads to higher interest rates and a reduced quantity of loanable funds will reduce two components of aggregate demand. Conversely, loose or expansionary monetary policy that leads to lower interest rates and a higher quantity of loanable funds will tend to increase business investment and consumer borrowing for big-ticket items. If loose monetary policy seeking to end a recession goes too far, it may push aggregate demand so far to the right that it triggers inflation. If tight monetary policy seeking to reduce inflation goes too far, it may push aggregate demand so far to the left that a recession begins.
______ is a completely inadequate mechanism ______ in a modern advanced economy
Barter; for trying to coordinate trades
_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.
Bonds
The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:
Central Bank; safety and stability of the banking system
_______ that requires the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called _________.
Certificates of deposit; time deposits
__________ are a form of deposits held in banks that are available by making a cash withdrawal or writing a check
Demand deposits
Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets?
French franc
Contrast the actions a central bank should take when an economy is in recession with production substantially below potential GDP and those needed when an economy is producing in overdrive above potential GDP.
If the economy is in a recession, with production substantially below potential GDP, then the central bank should raise the supply of money and credit, first by reducing interest rates, and then by considering the use of "quantitative easing" and direct loans. If the economy is producing in overdrive above potential GDP, experiencing high inflation, then the central bank should raise interest rates by holding down growth of the money supply
_________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?
Long and variable time lags
Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?
M1
________________ serves society in three functions: medium of exchange, unit of account, and store of value.
Money
________ equalizes the prices of internationally traded goods across countries.
Purchasing power parity
___are funds that the bank keeps on hand that are not loaned out or invested in bonds
Reserves
If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:
Sarah's M1 funds
Stealth Bank is holding $4 million in reserves, $9 million in government bonds and $9.6 million in low risk mortgage loans. Out of the $20 million in customers' deposits, Stealth holds $13.1 million in the form of certificates of deposit. Describe the formula for 6 determining Stealth Bank's net worth and, using the figures above, determine the Bank's net worth. Identify the criteria for classifying a bank as healthy or unhealthy and determine which applies to Stealth Bank in these circumstances.
The net worth of a bank is defined as its total assets minus its total liabilities. ($4mil + $9mil + $9.6mil) - $20mil = $2.6 million net worth. For the Stealth Bank, net worth is equal to $2.6 million; that is, $22.6 million in assets minus $20 million in liabilities. For a financially healthy bank, the net worth will be positive. If a bank has negative net worth, and depositors tried to withdraw their money, the bank would not be able to give all depositors their money. In the circumstances noted above, Stealth Bank has a positive net worth and is therefore a healthy bank.
What do goods like gasoline, tobacco, and alcohol typically share in common?
They are all subject to government excise taxes
Referring to the diagram above (photo 2), which of the following statements is true?
This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.
The most commonly traded currency in foreign exchange markets is the
U.S. dollar
If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:
a budget deficit
What do the economies of Greece, Ireland and Germany all share?
a common currency
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:
a contractionary monetary policy
In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.
a double coincidence of wants
Which of the following events would cause interest rates to increase?
a higher discount rate
If American Airlines were to purchase Malaysian Airlines, it would likely have ______________________________ in mind.
a longer-term horizon
Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.
a self-fulfilling prophecy
Banks typically come under financial stress because of:
a widespread decline in the value of their assets
Which of the following is considered to be a relatively weak tool of monetary policy?
altering the discount rate
One of the following groups is not participating in the foreign exchange markets. Which one?
an Iowa travel firm that arranges vacation tours for local seniors to Hawaii
Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?
an estate
The federal government levies _____________________________ on people who pass assets ____________________________, either after death or during life
an estate and gift tax; to the next generation
Which of the following is a valid criticism of the use of money as a store of value in modern economies?
annual inflationary loss of buying power
What is the name given to the macroeconomic equation MV = PQ?
basic quantity of equation of money
The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:
borrow for the short term from the central bank
If the central bank increases the amount of reserves banks are required to hold to 20%, then:
both the money multiplier and supply of money in the economy will decrease.
A ______________________ is created each time the federal government spends more than it collects in taxes in a given year
budet deficit
Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?
by increasing its reserves
If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:
cause the exchange rate for U.S. currency to depreciate
A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.
contractionary
A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports.
contractionary; reduces; stimulates
Which of the following would be classified in the M1 category of the money supply?
demand deposits
With respect to measuring the money supply, which of the following terms describes a checking account?
demand deposits
What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?
discount rate
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.
double coincidence of wants
The _____________ is an example of a large-scale common currency.
euro
A central bank must be concerned about whether a large and unexpected __________________ will drive most of the country's existing banks into bankruptcy.
exchange rate depreciation
Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future.
exchange rates or rates of return
If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then:
exchange rates will have less reason to vary
A stronger British pound is beneficial for:
exchange students with a British scholarship studying in Canada
From a macroeconomic point of view, increases in _____ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand
exports; imports
When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?
federal funds rate
If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?
fighting inflation
If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:
follow tight monetary policy
When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:
following a loose monetary policy
If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:
her M1 funds
In an economy with _______________, money loses some buying power each year, but it remains money.
inflation
If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.
inflation or recession
If the Canadian dollar is strengthening, then:
it has appreciated in terms of other currencies
Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?
it would depreciate the country's exchange rate and break its hard peg
If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?
medium of exchange
In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment?
medium of exchange
In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.
medium of exchange
In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects?
monitoring asset prices and leverage
Which of the following is a traditional tool used by the Fed during recessions?
open market operations
The market where loans are made to borrowers is called the:
primary loan market
If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
progressive
If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
proportional
A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.
proportional tax
The quantity of money in an economy and the _____________________ are inextricably intertwined.
quantity of credit for loans
A central bank that desires to reduce the quantity of money in the economy can:
raise the reserve requirement
If South Dakota's governor reports a budget surplus in 2011, state government likely:
received more in taxes than it spent in that year.
If the economy is at equilibrium as shown in the diagram above (photo 1), then an expansionary monetary policy will:
reduce unemployment, but have little effect on inflation.
When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.
regressive
The term ___________________ describes the proportion of deposits that the bank must hold in the form of reserves that are not loaned out or invested in bonds.
reserve ratio
Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?
reserve requirements
When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market.
soft peg
A _______________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate.
soft peg exchange rate
The quantitative easing policies adopted by the Federal Reserve are usually thought of as:
temporary emergency measures
If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;
the Canadian dollar appreciated against the U.S. dollar
The Canadian dollar will most likely strengthen against the U.S. dollar if:
the Canadian inflation rate becomes extremely low
If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:
the credit card company's M1 funds
If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then:
the dollar depreciated against the yen
When Mataeo buys Euros through ______, he will use his U.S. dollars to pay for them
the foreign exchange market
When the central bank decides it will sell bonds using open market operations:
the money supply decreases
The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?
the money supply in the economy decreases
The money multiplier is equal to the _______________ in the economy divided by the original _________________.
total money; quantity of money
A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene.
volatility
