Macro exam

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to

$10,000 of new money

Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

$100,000

Based on the quantity equation, if Y = 3,000, P = 3, and V = 4, then M =

$2,250

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

$27,000

Suppose the MPC is 0.9. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $30 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion, then by how far does aggregate demand shift to the right?

$300 billion and $270 billion

An increase in the budget deficit

reduces net capital outflow and domestic investment.

People can reduce the inflation tax by

reducing cash holdings.

In an open economy, gross domestic product equals $1,650 billion, government expenditure equals $250 billion, and savings equals $550 billion. What is consumption expenditure?

$850 billion

What are the equilibrium values of the real exchange rate and net exports?

.8, 400

suppose points F and G on the right-hand graph represent two possible outcomes for an imaginary economy in the year 2012, and those two points correspond to points B and C, respectively, on the left-hand graph. Then it is apparent that the price index equaled

100 in 2011.

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

2.55 percent

If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the Bank of Springfield now hold?

9,000

Suppose the economy is in long-run equilibrium. In a short span of time, there is an increase in the money supply, a tax decrease, a pessimistic revision of expectations about future business conditions, and a rise in the value of the dollar. In the short run, we would expect

All of the above are possible.

In 2007 and 2008 households and firms reduced desired expenditures. During the same period inflation fell and unemployment rose.

Both the change in inflation and the change in unemployment are consistent with what a given short-run Phillips curve implies.

Friedman and Phelps believed that the natural rate of unemployment was constant.

FALSE

In the 1970s and 1980s the U.S. dollar depreciated against the German mark and appreciated against the Italian lira because U.S. inflation was lower than in Germany but higher than in Italy.

FALSE

Money is the only asset that functions as a store of value.

FALSE

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

False

If inflation is higher than expected, then borrowers make nominal interest payments that are less than they expected.

False

Given a nominal interest rate of 8 percent, in which of the following cases would you earn the highest after-tax real interest rate?

Inflation is 2 percent; the tax rate is 50 percent.

In the long run, if the Fed increases the growth rate of the money supply

Inflation will be higher

Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand?

It would have to have shifted left by more than aggregate supply.

In the 1980s, the U.S. government budget deficit rose. At the same time the U.S. trade deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net capital outflow decreased. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

None of the above is contrary to the predictions of the model.

A U.S. retailer buys shoes from an Italian company. The Italian firm then uses all of the revenues to buy leather from the U.S. These transactions

None of the above is correct.

Soon after he became the chairman of the Federal Reserve System in 1979, Paul Volcker embarked on a course

Of disinflation.

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

People will want to hold more money as the cost of holding it falls.

If speculators bid up the value of the dollar in the market for foreign-currency exchange, U.S. aggregate demand would shift to the left.

TRUE

In which of the following cases does the aggregate-demand curve shift to the right?

The money supply increases, causing the interest rate to fall.

Refer to Table 29-8. The required reserve ratio is 12 percent. Which of the following is true?

This banks reserve ratio is 13.3 percent. Its excess reserves are $120.

An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

True

If P represents the price of goods and services measured in money, then 1/P is the value of money measured in terms of goods and services.

True

If the quantity of money demanded is greater than the quantity supplied, then the value of money rises.

True

A farmer in Mexico purchases a tractor made in the U.S. This purchase is an example of

a U.S. export and a Mexican import

The initial impact of an increase in an investment tax credit is to shift

aggregate demand right.

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

aggregate demand to the right

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

classical in nature, and that her view is more valid for the long run than for the short run.

Domestic saving must equal domestic investment in

closed, but not open economies.

On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is

consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States

Which of the following increase when the Fed makes open market purchases?

currency and reserves

If the Canadian nominal exchange rate does not change, but prices rise faster abroad than in Canada, then the Canadian real exchange rate

declines

When the Fed sells government bonds, the reserves of the banking system

decrease, so the money supply decreases.

A government budget deficit

decreases both net capital outflow and net exports.

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises.

Credit cards

defer payments.

When prices are falling, economists say that there is

deflation.

Reserves are

deposits that banks have received but have not yet loaned out.

The natural rate of unemployment

does not depend on the rate at which the Fed increases the money supply.

The long-run Phillips curve would shift to the left if

effective job-training programs were implemented, but not if the money supply growth rate increased.

Suppose a central bank takes actions that will lead to a higher inflation rate. The public, however, is slow to adjust its expectation of inflation. Then, in the short run, unemployment

falls. As inflation expectations adjust, the short-run Phillips curve shifts right.

Which among the following assets is the most liquid?

funds in a checking account

Samuelson and Solow argued that

given the historical evidence, a combination of low inflation and low unemployment was not possible.

Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

the U.S. government budget deficit decreases

When the price level falls, people want to

hold less money and the quantity of aggregate goods and services demanded increases.

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate towards its previous level it would

increase the rate at which the money supply increases. However, this will make inflation higher than its previous rate

The economic boom of the early 1940s resulted mostly from

increased government expenditures.

In the open-economy macroeconomic model, the

interest rate adjusts to equate national saving with the sum of investment and net capital outflow.

Other things the same, the aggregate quantity of output supplied will decrease if the price level

is lower than expected so that firms believe the relative price of their output has decreased.

The interest-rate effect

is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

A favorable supply shock shifts the short-run Phillips curve

left and inflation falls.

Prices in both the U.S. and India rise, but prices in India increase by a smaller percentage. According to purchasing-power parity the U.S. dollar

loses value both in terms of the domestic goods and services it can buy and in terms of the Indian currency it can buy.

If purchasing-power parity holds, when a country's central bank increases the money supply, a unit of money

loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Which of the following is the most likely result from an increase in a country's government budget surplus?

lower imports

One determinant of the long-run average unemployment rate is the

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.

A.W. Phillips found a

negative relation between unemployment and inflation in the United Kingdom.

According to the Phillips curve, unemployment and inflation are positively related in

neither the long run nor the short run.

In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.

net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left.

Which of the following will not change the U.S. real interest rate?

the U.S. imposes import quotas

The aggregate demand and aggregate supply model implies monetary neutrality

only in the long run.

According to the theory of liquidity preference, if the interest rate rises

people want to hold less money. This response is shown by moving to the left along the money demand curve.

If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2?

the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per dollar.

An adverse supply shock shifts the short-run Phillips curve to the

right. This means the unemployment rate is higher at each inflation rate.

According to liquidity preference theory, if the price level

rose, the interest rate would rise, and induce investment spending to fall.

If at a given real interest rate desired national saving is $200 billion, domestic investment is $100 billion, and net capital outflow is $80 billion, then at that real interest rate in the loanable funds market there is a

surplus. The real interest rate will fall.

Today, bank runs are not a major problem for the U.S. banking system because

the federal government now guarantees the safety of deposits at most banks.

In the long run an increase in the money supply growth rate affects

the inflation rate, but not the natural rate of unemployment.

In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right?

the short-run but not the long run Phillips curve

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B would shift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

to a lower unemployment rate and a higher inflation rate than policy B.

An example of an automatic stabilizer is

unemployment benefits.

Which of the following will both make people buy more?

wealth rises and interest rates fall.