midterm 2

Question 1

What is the most important initial step in the evolution of paper currency

Answer 1

The expectance of goldsmiths receipts

Question 2

The “transactions demand” for money arises from the fact that

Answer 2

Households decide to hold money in order to make purchases of goods and services.

Question 3

The major advantage of using money rather than barter is that

Answer 3

the use of money significantly reduces transactions costs

Question 4

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Answer 4

The bank of Canada buys government securities from a Canadian commercial bank

Question 5

In any given year the governments debt service payments are

Answer 5

the interest payments on the outstanding stock of government debt

Question 6

other things being equal, the purchasing power of money is

Answer 6

inversely related to the price level

Question 7

economic growth is often associated with structural change in the economy and this change can present difficult policy challenges to governments, which of the following government policies would be most useful at addressing the social costs of economic growth?

Answer 7

Worker retraining and education program

Question 8

Fiscal and mandatorie policies typically effect the short run level of gdp because they cause shifts in the _______ but they will not generally have any long run affects on real gdp unless they effect ___________

Answer 8

AD Curve ; the level of potential output

Question 9

all else constant a decrease in the income tax rate will result in

Answer 9

an AE Curve with a steeper slope

Question 10

excess reserves for a comercial bank

Answer 10

Any reserves (cash or deposits within the bank of Canada) that the bank holds over and above its desired reserves

Question 11

the function of money in an economy is to serve as

Answer 11

1, a unit of account
2, a sore of medium
3, a medium of exchange

Question 12

In a basic AD/AS macro model it is assumed that for any given interest rate the demand for money depends on the

Answer 12

level of real gdp and the price level

Question 13

consider an open econonmy AD/AS macro model an expansionary fiscal policy will generally increase the governments budget ________ and also tends to ____________ and thus __________ net exports

Answer 13

Deficit; appreciate the currency; decrease

Question 14

Doug is saving money in order to purchase a new snowboard next winter. this represents using money as

Answer 14

a store of value

Question 15

when a government changes its fiscal policy, it is

Answer 15

changing government spending and or tax rates to change national income

Question 16

the largest component of the liabilities of the bank of canada is

Answer 16

Canadian dollars in circulation

Question 17

consider the aggregate production function Y=f(k,L) if the inputs K and L are increased by 5% each and the production function dsiplays constant returns to scale then total output will increase by _____ percent

Answer 17

5%

Question 18

The difference between the governments debt and its deficit is that the debt is the

Answer 18

accumulation of past defficits whereas the deficit is the annual shortfall between revenues and disbursments

Question 19

the present value of an asset is

Answer 19

the most someone would be willing to pay today for the asset

Question 20

an example of an embodied technical change is

Answer 20

the replacement of old computer chips with new ones designed for faster processing.

Question 21

if a person is holding money ofr the purchase of goods and services this demand for money is known as

Answer 21

transactions demand

Question 22

it can be argued that a government budeget deficit rather than being a burden for future generations may provide net benefits to future generations this view is correct if the current budget deficit is used to

Answer 22

finance projects that deliver long term benefits to society

Question 23

fiat money has value because it

Answer 23

is generally accepteded