Test 2
A country has national saving of $100 billion, government expenditures of $30 billion, domestic investment of $80 billion, and net capital outflow of $20 billion. What is its demand for loanable funds?
$100 billion
If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs
$5.
Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?
$50 million
If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a
$510 increase in excess reserves and a $90 increase in required reserves.
If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be
$60 billion
If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is
-.3 trillion euros, so it must have a trade deficit.
If a McDonald's Big Mac cost $4.50 in the United States and 3.60 euros in the Euro area, then purchasing-power parity implies the nominal exchange rate is how many euros per dollar?
1.25 If the value is less than this, it costs fewer dollars to buy a Big Mac in the U.S. then in the Euro area.
If P denotes the price of goods and services measured in terms of money, then
1/P represents the value of money measured in terms of goods and services.
. If the reserve ratio is 10 percent, the money multiplier is
10.
Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she holds?
20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her money holdings she needs to hold more dollars.
If velocity = 4, the quantity of money = 20,000, and the price level = 2.5, then the real value of output is
32,000.
The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the reserve requirement must be
32/400.
If the price level increased from 120 to 130, then what was the inflation rate?
8.3 percent.
John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase $2,500 worth of traveler's checks. As a result of these changes,
M1 increases by $2,500 and M2 stays the same.
If a country has a trade deficit then
S < I and Y < C + I + G.
In the open-economy macroeconomic model, the market for loanable funds identity can be written as
S = I + NCO
On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.
The $80 is a nominal variable. The quantity of shoes is a real variable.
Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports
and U.S. net capital outflow both decrease.
If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could
buy $300,000 worth of bonds.
The Fed's primary tool to change the money supply is
conducting open market operations
At the original exchange rate an import quota
creates a shortage in the market for foreign-currency exchange, so the exchange rate rises.
An American retailer sells dollars to obtain euros. It then uses the euros to buy ready-to-assemble furniture from Sweden. These transactions
decrease U.S. net capital outflow because foreigners obtain U.S. assets.
In a fractional-reserve banking system, an increase in reserve requirements
decreases both the money multiplier and the money supply.
The classical dichotomy refers to the idea that the supply of money
determines nominal variables, but not real variables.
. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as
e(P/P*).
If purchasing-power parity holds, a dollar will buy
enough foreign currency to buy as many goods as it does in the United States.
A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has
exports of $2 billion and a trade deficit of $1 billion.
In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow
falls and the real exchange rate rises.
Shoeleather costs arise when higher inflation rates induce people to
hold less money.
If a country went from a government budget deficit to a surplus, national saving would
increase, shifting the supply of loanable funds right.
The federal funds rate is the
interest rate at which the Federal Reserve makes short-term loans to banks.
In an open economy, the source of the demand for loanable funds is
investment + net capital outflow
Susan, a U.S. citizen, builds and operates a kennel in France. This action is an example of
investment for Susan and U.S. foreign direct investment.
When the Consumer Price Index increases from 100 to 120
more money is needed to buy the same amount of goods, so the value of money falls.
Suppose the price level rises, but the number of dollars you are paid per hour stays the same. This means that your
real wage is lower.
If a government increases its budget deficit, then interest rates
rise and the real exchange rate appreciates.
Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to
rise because national saving rises.
When conducting an open-market sale, the Fed
sells government bonds, and in so doing decreases the money supply
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.
A tax on imported goods is called a(n)
tariff.
Alfonso, a citizen of Italy, decides to purchase bonds issued by Ireland instead of ones issued by the United States even though the Irish bonds have a higher risk of default. An economic reason for his decision might be that
the Irish bonds pay a higher rate of interest.
Other things the same, in the open-economy macroeconomic model, if the exchange rate rises,
the demand for dollars shifts right.
Liquidity refers to
the ease with which an asset is converted to the medium of exchange.
When the Fed buys government bonds,
the money supply increases and the federal funds rate decreases.
A decrease in the budget deficit causes domestic interest rates
to fall and investment to rise.