Econ 1040 final

Question 1

we say that money is a store of value because it represents

Answer 1

a certain amount of purchasing power held over time

Question 2

what is extremely inefficient compared to using money

Answer 2

bartering

Question 3

any form of money that can be legally exchanged into a fixed amount of an underlying commodity

Answer 3

commodity-backed money

Question 4

the cash that a bank keeps in its vault is called its

Answer 4

reserves

Question 5

the ratio of money created by the lending activities of the banking system to change in the banking reserves is called the

Answer 5

money multiplier

Question 6

if the reserve ratio is 20 percent, then the money multiplier is approximated to be

Answer 6

5

Question 7

your checking account balance would be counted in which measure of money?

Answer 7

it would be counted in both M1 and M2

Question 8

the institution ultimately responsible for managing the nation’s money supply and coordinating the banking system to ensure a sound economy is called a

Answer 8

central bank

Question 9

the regional Federal Reserve bank presidents are

Answer 9

are responsible for overseeing the day-to-day actions of the regional banks

Question 10

the twin (dual) responsibilities of the Federal Reserve are

Answer 10

to ensure price stability and maintain full employment

Question 11

Which of the following tools is used most often by the Fed for changing the supply of money?

Answer 11

open market operations

Question 12

contractionary monetary policy involves actions that

Answer 12

reduce the money supply in order to decrease aggregate demand

Question 13

when the economy experiences inflation, people are demanding a

Answer 13

higher quantity of money, shifting the money demand curve rightward

Question 14

in the simple liquidity preference model, if the money demanded curve is elastic, then

Answer 14

small changes to the money supply will cause insignificant changes to the interest rate

Question 15

if the money supply in the economy were at MS2, to engage in the contractionary policy the Federal Reserve Bank would us open market operation to move money supply to

Answer 15

MS1

Question 16

if the money supply in the economy were at MS2, and the Federal Reserve Bank used open market operations to move money supply to MS1 the overall result in the economy would be

Answer 16

aggregate demand shifted in, causing GDP to fall

Question 17

if money has intrinsic value, it has value

Answer 17

unrelated to its use as money

Question 18

wide acceptance of money without intrinsic value comes largely from the fact that it

Answer 18

has a stable value

Question 19

we know how many dollars banks create using the

Answer 19

money multiplier

Question 20

cash, checking accounts, saving accounts and other financial instruments where money is locked away for a specified period of time is

Answer 20

the definition of M2

Question 21

core inflation is a measure of

Answer 21

inflation that excludes goods with price changes

Question 22

-allow us to convert nominal measures of output into real measures of output

-let us measure how much real stuff we get for our money

-like the CPI or GDP price deflator are used to measure the aggregate price level

Answer 22

price indexes

Question 23

the neutrality of money is the idea that

Answer 23

aggregate price levels do not affect real outcomes in the economy

Question 24

the relationship between money supply, output and the overall level of prices is illustrated by the

Answer 24

classical theory of inflation

Question 25

the quantity theory of money relies on which variable to remain constant

Answer 25

velocity of money

Question 26

if an economy produces 1,000 units of output with a price level of $1 and the money supply (M) is $500, the velocity is

Answer 26

2

Question 27

if an economy produces 2,500 units of output with a money supply of $500 and a velocity of 10, we know the price level must be

Answer 27

$2

Question 28

• describes a long-run equilibrium
• explains the direct relationship between money supply and the price level
• shows neutrality of money in the long run

Answer 28

the classical theory of inflation

Question 29

one of the costs associated with predictable inflation is

Answer 29

tax distortions

Question 30

when we consider our savings, interest rates _______ and inflation rates _______ the value

Answer 30

increase ; decrease

Question 31

suppose the nominal interest rate is 7 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 7 percent. at the end of the year, you have earned

Answer 31

a decrease in your purchasing power

Question 32

if the real rate of return is 2 percent, and the inflation rate is 2 percent, then the nominal interest rate must be

Answer 32

4 percent

Question 33

unexpected high inflation redistributes wealth from

Answer 33

those who save to those who borrow

Question 34

the net result of deflation is to

Answer 34

reduce the level of aggregate demand in the economy

Question 35

disinflation is the term for a period during which overall inflation rates are

Answer 35

positive and failing

Question 36

if inflation was zero percent, nominal interest rates would be

Answer 36

equal to real interest rate

Question 37

when an economy is producing at its potential level of output

Answer 37

cyclical unemployment is not occurring

Question 38

the idea that in the long run real economic variables (such as GDP, relative prices and real wages) are not influenced by nominal economic variables (such as money supply price level and inflation)

Answer 38

the neutrality of money

Question 39

money is neutral in the _______ leaving real economic variables unchanged

Answer 39

long run

Question 40

any equilibrium output level to the left of the full employment output Y represents

Answer 40

a recession

Question 41

nominal interest rate=

Answer 41

real interest rate + inflation rate

Question 42

money multiplier=

Answer 42

1/reserve ratio

Question 43

inflation always _____ the demand for money, aka inflation causes the demand for money to shift to the _____

Answer 43

increases ; right

Question 44

when demand for money is elastic, a small change in money supply will

Answer 44

have little to no effect

Question 45

contractionary monetary policy means the Federal Reserve reduces the money supply. so,

Answer 45

the supply curve for money shifts to the left from MS2 to MS1

Question 46

interest rates increase so

Answer 46

the AD curve decreases (shifts to the left), causing GDP to fall

Question 47

China imports _____ from the U.S. compared to how many goods the U.S. imports from China

Answer 47

less

Question 48

a main trading partner with the U.S. is

Answer 48

China

Question 49

the value of exports minus the value of imports is called the

Answer 49

balance of trade

Question 50

the type of good with the largest import in the U.S. is

Answer 50

consumer goods

Question 51

ford opens a parts manufacturing plant in Haiti, which ships its parts back to the U.S. to be assembled in Detroit. Running the factory in Haiti is an example of

Answer 51

foreign direct investment

Question 52

IBM buys treasury bonds from the UK as part of its investment portfolio. this is an example of

Answer 52

foreign portfolio investment

Question 53

one reason the chinese buy a great deal of U.S. government debt is because

Answer 53

they have dollars left over from the sale of their goods to the U.S. and want to buy something dollar denominated

Question 54

the income-expenditure identify got an open economy is

Answer 54

Y = C + I + G + NX

Question 55

savings for an economy is equal to

Answer 55

private savings + public savings

Question 56

China’s high net exports must be balanced by

Answer 56

high net capital outflows

Question 57

in the market for loanable funds in an open economy, the demand for loanable funds

Answer 57

can be demanded for domestic investment or international investment

Question 58

reduction in domestic investment caused by governments running a deficit

Answer 58

“crowding out” effect

Question 59

the exchange rate is the

Answer 59

value of one currency expressed in terms of another currency

Question 60

if $1 is worth .8 Canadian dollars, then 1 Canadian dollar is worth

Answer 60

$1.25

Question 61

when the value of one currency increases relative to the value of another currency, it has experienced

Answer 61

exchange rate appreciation

Question 62

when the U.S. dollar appreciates against a foreign currency, U.S. goods become

Answer 62

more expensive to people abroad, and we expect net exports to decrease

Question 63

the demand for dollars will increase in foreign exchange markets if

Answer 63

U.S. interest rates are high relative to those overseas

Question 64

when the Fed lowers the interest rate

Answer 64

both investment and net exports increase

Question 65

can occur to currencies with fixed exchange rates

Answer 65

a speculative attack

Question 66

the institution that is responsible for maintaining international monetary stability is the

Answer 66

international monetary fund

Question 67

digital assets created outside the realm of the government

Answer 67

cryptocurrencies

Question 68

-mining them

-buying them from an exchange

-buying them from an ATM machine

Answer 68

3 ways to get cryptocurrencies