Midterm 3

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What are the official measures of​ money? Are all the measures really​ money? The two main official measures of money in the United States today are​ ______. The two main official measures of money in the United States​ ______ really money.

M1 and​ M2; are The value of M1 is ​$ 235 billion. The value of M2 is ​$ 1,055 billion.

Sarah takes out a loan today for ​$15 comma 000 at an interest rate of 4 percent a year. She plans to repay the loan after 5 years. How much will he have to​ pay?

Sarah will have to pay ​$ 18,250.

The table gives information about the commercial banks in Zap. If banks have no unplanned​ reserves, what is the​ banks' desired reserve​ ratio?

The desired reserve ratio is 3 percent.

In​ Japan, potential GDP is 600 trillion yen and the graph shows the aggregate demand​ curve, the​ short-run aggregate supply​ curve, and the​ long-run aggregate supply curve. Does Japan have an inflationary gap or a recessionary gap and what is its​ magnitude?

The graph shows that Japan has an output gap that is a recessionary gap. The size of the recessionary gap is yen 100 trillion.

Suppose an increase in the monetary base of ​$4​00,000 increases the quantity of money by ​$2 comma 000 comma 000. Calculate the money multiplier.

The money multiplier is 5.

If the nominal interest rate is 8 percent and the inflation rate is 2​ percent, the real interest rate is approximately

6 percent.

An increase in the interest rate in the United States compared to the interest rate in Great Britain will

A. increase the U.S. interest rate differential. B. increase the demand for pounds. C. shift the demand curve for dollars rightward. D. - CORRECT ANSWER Both answers A and C are correct.

Which of the following is NOT a part of the monetary​ base?

U.S. government securities owned by the Fed

The U.S. dollar exchange rate increased from ​$0.89 Canadian in June 2009 to ​$0.96 Canadian in June 2010​, and it decreased from 83.8 euro cents in January 2009 to 76.9 euro cents in January 2010. What was the value of the Canadian dollar in terms of U.S. dollars in June 2009 and June 2010​? Did the Canadian dollar appreciate or depreciate against the U.S. dollar over the year June 2009 to June 2010​?

In June 2009​, the value of the Canadian dollar was ​$ 1.12 U.S. In June 2010​, the value of the Canadian dollar was ​$ 1.04 U.S. The Canadian dollar depreciated against the U.S. dollar between June 2009 and June 2010.

In the​ figure, the economy is initially at point B. If taxes​ increase, there is

a shift to AD2.

All the following statements about the Federal Reserve are true EXCEPT the fact that it​ ________.

accepts checking deposits from the​ nation's residents

Describe three types of​ short-run macroeconomic equilibrium. A macroeconomic equilibrium in which real GDP exceeds potential GDP is​ _____ equilibrium. And one in which real GDP is less than potential GDP is​ _____ equilibrium The graph shows an​ economy's long-run aggregate supply curve. The economy is at a full​-employment equilibrium. Draw an aggregate demand curve and a​ short-run aggregate supply curve. Label them. Draw a point at the​ short-run equilibrium.

an above full-employment; a below full-employment

According to the quantity theory of​ money, in the long run

an increase in the quantity of money creates an increase in prices but no additional increase in real GDP.

When real GDP exceeds potential​ GDP, then the economy has

an inflationary gap.

The graph shows the economy in​ long-run equilibrium. Then the world economy expands and the demand for​ U.S.-produced goods increases. Draw a curve that​ shows: ​1) the effect of increased demand for​ U.S.-produced goods. Label it 1. ​2) the effect of a rising money wage rate that returns the economy to full employment. Label it 2. Draw a point at the new​ long-run equilibrium. An economy is in a​ long-run equilibrium. An increase in aggregate demand creates​ ______ gap. A rise in the money wage rate decreases​ ______ and returns the economy to a​ full-employment equilibrium.

an​ inflationary; the quantity of real GDP demanded

If real GDP is less than potential​ GDP, then the economy is​ ________ equilibrium.

at a below full - employment

If the Fed sells government securities

commercial bank reserves will decrease.

In November​ 2015, the exchange rate was 122 yen per U.S. dollar. By November​ 2016, the exchange rate had fallen to 111 yen per U.S. dollar. Explain the exports effect of this change in the exchange rate. As the exchange rate falls​, prices of​ U.S.-produced goods and services to foreigners​ ______ and the volume of U.S. exports​ ______.

fall; increases

When real GDP​ increases, the demand for money

increases.

If households expect an increase in their future​ incomes, they will save

less and consume more today

Suppose the equilibrium interest rate in the money market is 5 percent and the current interest rate is 7 percent. As a​ result,

people buy bonds and the interest rate falls.

How does a change in the quantity of money change the interest rate in the short​ run? Starting from a​ short-run equilibrium, when the Fed decreases the quantity of​ money, _______. The price of a bond​ ______ and the interest rate in the short run​ ______.

people enter the loanable funds market and sell bonds falls; rises

What are the functions of depository​ institutions? The functions of depository institutions include​ _______.

pooling risk

The term​ "crowding out" relates to the decrease in

private investment from a government budget deficit.

The​ "double coincidence of​ wants" problem is

resolved by the use of money.

The key financial institutions in the United States include all of the following EXCEPT

the U.S. Treasury

U.S. residents come to believe that the dollar will depreciate in the​ future, that​ is, the exchange rate in the future will be lower than the current exchange rate. As a​ result,

the demand curve for dollars shifts leftward.

When does potential GDP​ increase? Potential GDP increases when​ _______.

the full-employment quantity of labor increases

A financial decision should be pursued when

the net present value is positive.

A movement downward along the demand for loanable funds curve occurs when

the real interest rate falls

The nominal interest rate approximately equals which of the​ following?

the real interest rate plus the inflation rate

If the quantity of loanable funds supplied exceeds the quantity of loanable funds​ demanded, then​ ________.

the real interest rate will fall

Changes in all of the following shift the supply curve of loanable funds EXCEPT

the real interest rate.

The present value of​ $200 one year from now when the interest rate is 7 percent is

​$187

The exchange rate policy adopted by China until July 2005 was a​ _______ exchange rate. To make it​ work, China​ _______. The graph shows the foreign exchange market prior to any intervention by China. Draw a point at the equilibrium exchange rate and equilibrium quantity of dollars. Suppose that​ China's target exchange rate is 7 yuan per U.S. dollar. Draw a horizontal line at the target exchange rate. Label it. Draw an arrow to show the surplus or shortage of U.S. dollars at​ China's target rate. Label it.

​fixed; buys and sells U.S. dollar reserves to maintain the target exchange rate ​buy; appreciate

Before the Fed decreases the quantity of​ money, the equilibrium interest rate is 7 percent a year. After the Fed decreases the quantity of​ money, at an interest rate of 7 percent a​ year, people want to hold ​ _______ money than the quantity​ supplied, so they ​ _______ bonds. The price of a bond​ _______ and the interest rate​ _______.

​more; sell ​falls; rises

In the figure to the​ right, if the exchange rate is equal to 1 Canadian dollar per U.S.​ dollar, there is a​ ________ of​ ________ currency and the exchange rate​ will________.

​shortage; domestic; rise

The demand for loanable funds is the relationship between loanable funds and the​ ________ other things remaining the same.

real interest rate

If the present value of​ $220 one year from now is​ $200, then the interest rate is

10 percent.

​________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.

Keynesian

Suppose the current situation is such that the price level is​ 120, real GDP is​ $17 trillion, and GDP along the long - run aggregate supply curve is​ $16.6 trillion. What will take place to restore the long - run ​equilibrium?

Money wage rates will rise until real GDP reaches​ $16.6 trillion.

Which of the following is an asset of the​ Fed?

Mortgage - backed securities

Facebook sold shares of stock for the first time in an IPO on May​ 18, 2012. The stock originally sold for​ $38 per share. As of October​ 19, 2012, a share of Facebook stock was valued at​ $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called

a capital loss.

An increase in the currency drain

decreases the size of the money multiplier.


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