Final Exam Part 2 Flashcards
(117 cards)
1
Q
In modern economies, _____________________ receive money from savers and provide funds to borrowers.
A
d. financial intermediaries
2
Q
If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied
A
b. double coincidence of wants
3
Q
Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?
A
c. store of value
4
Q
In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.
A
a. unit of account
5
Q
Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank’s loans is $400 million. What is the value of the bank’s total liabilities?
A
a. $600 million
6
Q
Which of the following would be classified in the M1 category of the money supply?
a. savings deposits
b. money market deposit
c. demand deposits
d. certificates of deposit
A
c. demand deposits
7
Q
Why do banks use a T-account?
A
c. the T-account separates assets on the left from liabilities on the right
8
Q
Stealth bank holds deposits of $200 million. It holds reserves of $15 million. It has purchased government bonds worth $75 million. The current value of its loans, if sold at market value, is $130 million. What is the value of the Stealth bank’s liabilities?
A
b. $200 million
9
Q
In uncertain economic times, ____________________ serves as a way of preserving economic value that can be spent or consumed in the future.
A
b. owning gold
10
Q
The process of banks making loans in financial capital markets is intimately tied to the:
A
c. creation of money.
11
Q
The quantity of money in an economy and the _____________________ are inextricably intertwined.
A
b. quantity of credit for loans
12
Q
_______________________ that require the depositor to commit to leaving their funds in the bank for a certain period of time, in exchange for a higher rate of interest are also called ________________.
A
Certificates of deposit; time deposits
13
Q
In an economy with _______________, money loses some buying power each year, but it remains money.
A
inflation
14
Q
__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.
A
Money market funds
15
Q
If loans become less available, then what sectors of the economy will suffer the most and why?
A
home construction and car manufacturing industries because they depend heavily on borrowed money
16
Q
If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:
A
both the money multiplier and the supply of money in the economy will increase
17
Q
The money multiplier is equal to the _______________ in the economy divided by the original _________________.
A
total money; quantity of money
18
Q
What are reserves?
A
funds that the bank keeps on hand that are not loaned out or invested in bonds.
19
Q
If the United States economy is operating at less than full employment, what are the Fed’s three policy choices for how to get the US back to full employment?
A
lowering the reserve requirement, lowering the discount rate, and purchasing bonds are all ways the Fed can get the US back to full employment because all of these will increase the money supply.
20
Q
What can the Fed do to decrease the quantity of money in the economy?
A
raise the reserve requirement, increase the discount rate, and selling bonds
21
Q
What institution is responsible for overseeing the safety and stability of the U.S. banking system?
A
the Federal Reserve
22
Q
What causes interest rates to increase?
A
Increases in demand for money or credit, Central Bank monetary policies that make it harder for banks to loan out money, increased inflation, and increased government borrowing can all increase interest rates
23
Q
Which of the following events would cause interest rates to increase?
a. lower tax rates
b. a higher discount rate
c. lower reserve requirements
d. an open market operation to buy bonds
A
a higher discount rate
24
Q
What is a traditional tool used by the Fed during recessions?
A
Open market operations
25
How do you find the velocity of money? If GDP is 2400 and the money supply is 600, then what is the velocity?
Divide the GDP by the money supply. 4
26
If the central bank lowers the reserve requirement on deposits, what happens to the money supply and interest rates?
the money supply increases and interest rates decrease.
27
What is the discount rate?
The interest rate the central bank charges when it makes loans to commercial banks
28
What is the basic quantity equation of money?
money supply × velocity of money = price level × real GDP
29
According to the basic quantity equation of money, if price and output fall while velocity increases, then:
b. the quantity of money will fall.
30
MV = PQ is what?
the basic quantity equation of money
31
The quantitative easing policies adopted by the Federal Reserve are usually thought of as:
temporary emergency measures
32
How do banks impact the Central Bank's actions by holding excess reserves because they don't see good lending opportunities?
they negatively affect expansionary money policy
33
When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:
contractionary monetary policy
34
What is the job of the Central Bank?
Control the quantity of money in the economy and oversee the safety an stability of the banking system
35
Which of the following is described as an innovative and nontraditional method used by the Federal Reserve to expand the quantity of money and credit during the recent U.S. recession?
quantitative easing
36
Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run.
expansionary monetary policy
37
```
When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?
a. real interest rate
b. consumer lending rate
c. nominal interest rate
Selected:d. federal funds rateThis
```
federal funds rate
38
Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?
a. Northern's loan assets increase by $30 million
b. Northern's bond assets increase by $30 million
c. Northern’s net worth changes by $30 million
d. the money supply in the economy decreases
a. Northern's loan assets increase by $30 million
39
If you were to survey central bankers from around the world and ask them what they believe the primary task of monetary policy should be, what would the most popular answer likely be?
fighting inflation
40
The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions.
countercyclical
41
What is the relationship between government deficits and government debt?
Government debt refers to the total amount that the government has borrowed over time.
The budget deficit refers to how much has been borrowed in one particular year.
42
A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.
higher interest rate
43
From a macroeconomic point of view, which of the following is a source of demand for financial capital?
a. savings by households and firms
b. foreign financial investment
c. domestic household private savings
d. government borrowing
government borrowing
44
A prolonged period of budget deficits may lead to ___________________.
lower economic growth
45
An increase in the government’s budget surplus will cause the interest rate to:
decrease (extra gov money to spend means the government will not need to take out more loans, so the interest rates will decrease due to a decrease demand from the government for loans)
46
In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment.
investment in physical capital; fiscal policy
47
What might a government do to encourage investment in technology research and development by private firms?
implement fiscal policy establishing tax incentives
48
In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:
the trade deficit
49
An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?
a. productivity and economic growth
b. increased levels of R&D spending
c. consumer orientated spin-offs
d. highly qualified teachers
productivity and economic growth
50
If a government experiences an increase in its budget surplus, which of the following possible outcomes will likely result?
a. investment falls while everything else holds constant
b. exports decrease while imports and all other variables are held constant
c. imports increase while exports and all other variables are held constant
d. private savings decrease while everything else holds constant
private savings decrease while everything else holds constant
51
An increase in government borrowing can:
b. crowd out private investment in physical capital.
51
An increase in government borrowing can:
b. crowd out private investment in physical capital.
51
An increase in government borrowing can:
b. crowd out private investment in physical capital.
52
A __________________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy?
trade surplus
53
When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant:
a. savings will increase if investment remains constant.
b. investment will increase if savings remain constant.
c. savings will decrease, no matter what happens to investment.
d. investment will decrease if savings remain constant.
investment will increase if savings remain constant
54
A decrease in the government’s budget surplus will cause the interest rate to:
increase
55
A government began 2013 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause:
a. the exchange rate and the trade deficit to increase.
b. the exchange rate and the trade deficit to decrease.
c. the exchange rate to decrease and the trade deficit to increase.
d. the exchange rate to increase and the trade deficit to decrease.
a. the exchange rate and the trade deficit to increase.
56
A reduction in government borrowing can:
a. decrease the incentive to invest.
b. increase the interest rate.
c. crowd out private investment in human capital.
d. give private investment an opportunity to expand.
d. give private investment an opportunity to expand.
57
When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:
a. savings will decrease no matter what happens to investment.
b. savings will decrease if investment remains constant.
c. investment will increase if savings also remains constant.
d. investment will decrease if savings also remains constant.
d. investment will decrease if savings also remains constant.
58
A country's economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?
a. especially large and sustained household saving
b. increased borrowing by private firms
c. reduction in influx of funds for foreign financial investors
d. especially large and sustained government borrowing
d. especially large and sustained government borrowing
59
A government began 2013 with a budget deficit and a trade deficit. During the year, the government changed its policy and is now running a budget surplus. If all other factors hold constant, this change in policy will cause:
a. the exchange rate to decrease and the trade deficit to increase.
b. the exchange rate to increase and the trade deficit to decrease.
c. the exchange rate and the trade deficit to decrease.
d. the exchange rate and the trade deficit to increase.
the exchange rate and the trade deficit to decrease
60
What is crowding out and how can it affect the economy?
Crowding out is when federal spending and borrowing causes interest rates to rise
It can cause business and personal investments to fall, stagnating economic growth
61
A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.
contractionary
62
A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.
proportional tax
63
If government tax policy requires Peter to pay $15,000 in tax on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
regressive
64
The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.
a. an expansionary fiscal policy; an increase in government spending
b. a contractionary fiscal policy; a reduction in taxes
c. a contractionary fiscal policy; an increase in taxes
d. an expansionary fiscal policy; an increase in corporate taxes
a. an expansionary fiscal policy; an increase in government spending
65
When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:
discretionary fiscal policy
66
At the beginning of 2009, a government had a total debt of $540 billion dollars. It ended 2009 with a $6 billion dollar budget surplus. In 2010, its budget surplus reached $8 billion dollars. What is the total debt of the government equal to at the end of 2010?
b. $540 billion
67
What are fiscal policies?
the set of policies that relate to government spending, taxation, and borrowing
68
What is a balanced budget?
government spending and taxes are equal
69
_____________________ are a form of tax and spending rules that can affect aggregate demand in the economy without any additional change in legislation.
Automatic stabilizers
70
Assume that laws have been passed that require the federal government to run a balanced budget. During a recession, the government will want to implement _____________________, but may be unable to do so because such a policy would ____________________________.
a. contractionary fiscal policy; lead to a budget deficit
b. discretionary fiscal policy; lead to a budget surplus
c. contractionary fiscal policy; lead to a budget surplus
d. expansionary fiscal policy; lead to a budget deficit
d. expansionary fiscal policy; lead to a budget deficit
71
If government tax policy requires Jane to pay $25,000 in taxes on annual income of $200,000 and Mary to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
progressive
72
What do goods like gasoline, tobacco, and alcohol typically share in common?
They are subject to government excise taxes
73
If Canada's economy moves into an expansion while its economy is producing more than potential GDP, then:
a. government spending and tax revenue will increase because of automatic stabilizers.
b. government spending and tax revenue will decrease because of automatic stabilizers.
c. automatic stabilizers will increase government spending and decrease tax revenue.
d. automatic stabilizers will decrease government spending and increase tax revenue.
d. automatic stabilizers will decrease government spending and increase tax revenue.
74
If government tax policy requires Bill to pay $20,000 in taxes on annual income of $200,000 and Paul to pay $10,000 in tax on annual income of $100,000, then the tax policy is:
a. regressive.
b. progressive.
c. proportional.
d. optional.
proportional
75
During a recession, if a government uses an expansionary fiscal policy to increase GDP, the:
a. aggregate supply curve will shift to the right.
b. aggregate supply curve will shift to the left.
c. aggregate demand curve will shift to the left.
d. aggregate demand curve will shift to the right.
d. aggregate demand curve will shift to the right.
76
When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.
regressive
77
If the government for the state of Washington collects $65.8 billion in tax revenues in 2013 and total spending in the same year is $74.8 billion, the result will be:
a budget deficit
78
When increasing oil prices cause aggregate supply to shift to the left, then:
a. unemployment and inflation decrease.
b. unemployment decreases and inflation increases.
c. . unemployment and inflation increase.
d. unemployment increases and inflation decreases.
unemployment and inflation increase
79
Import tariffs generally ________ the output of domestic producers of the affected products and also _________ the output of domestic exporters.
increase, decrease
80
Say that Alland can produce 32 units of food per person per year or 16 units of clothing per person per year, but Georgeland can produce 16 units of food per year or 8 units of clothing. Which of the following is true?
a. Georgeland has a comparative advantage, but not an absolute advantage, in producing clothing.
b. Georgeland has both a comparative and absolute advantage in producing clothing.
c. Alland has a comparative advantage, but not an absolute advantage, in producing food.
d. Alland has an absolute advantage, but not comparative advantage, in producing food.
c. Alland has a comparative advantage, but not an absolute advantage, in producing food.
(Alland doesn't have an absolute advantage because the cost of producing food is half of the amount that could be produced in food in clothing and the ratio is the same for Georgeland)
81
If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:
the dollar strengthened against the peso
82
In one developing country, only 56 young women were enrolled in secondary school for every 100 young men. Describe two ways in which greater educational opportunities for young women could lead to faster economic growth for these countries.
Increased access to education will grow human capital, which essentially means the country's population of skilled workers will increase. In the long run, an investment in education will mean more skilled workers that will lead to technological advancements and more productive workplaces. Newly educated workers bring new ideas, and new ideas are what developing countries need to improve their economies. Additionally, increased productivity catalyzed by the advancements that can take place in all industries because of the influx of educated female workers will cause the GDP to grow because increases in productivity are what shift the production possibilities curve of a country. By increasing the capacity the country has to produce more goods efficiently, countries will experience quick economic growth. Education lies at the root of innovation, and innovation will move the GDP through technological advancements.
83
International trade currently involves about ______________ worth of goods and services thundering around the globe.
$20 trillion
84
Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. The opportunity cost of producing 1 orange for Alpha and Beta, respectively, are:
0.5 apples; 0.25 apples
85
If the USA could produce 1 ton of potatoes or 0.5 tons of wheat per worker per year, while Ireland could produce 3 tons of potatoes or 2 tons of wheat per worker per year, there can be mutual gains from trade if:
a. The USA specializes in potatoes because of its comparative advantage in producing potatoes.
86
The reasons that nations trade includes the fact that:
a. no one country produces all of what citizens within the country want.
87
In India one person can produce 330 pounds of rice or 110 shirts in one year. In China one person can produce 400 pounds of rice or 200 shirts in one year. Which of the following statements is true?
a. India has a comparative advantage in the production of rice.
b. China has a comparative advantage in the production of rice.
c. China has both an absolute and comparative advantage in the production of rice.
d. India has an absolute advantage in the production of rice.
a. India has a comparative advantage in the production of rice.
88
Intra-industry trade between similar trading partners allows the gains from ______________________ that arise when firms and workers specialize in the production of a certain product.
learning and innovation
89
Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. If the terms of trade are established as 1 apple for 4 oranges, then:
a. there are no incentives for Beta to engage in international specialization and trade with Alpha.
b. it is in the interest of Beta to grow oranges and trade for apples.
c. it is in the interest of both countries to specialize and trade with one another.
d. there are no incentives for Alpha or Beta to specialize and trade with one another.
a. there are no incentives for Beta to engage in international specialization and trade with Alpha.
90
Which of the following is true?
a. A nation can have a comparative advantage in the production of a good only if it also has an absolute advantage.
b. A nation can have a comparative advantage in the production of every good, but not an absolute advantage.
c. A nation cannot have an absolute advantage in the production of every good.
d. A nation cannot have a comparative advantage in the production of every good.
d. A nation cannot have a comparative advantage in the production of every good.
91
When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) __________________ in producing that product.
absolute advantage
92
What are the effects of a tariff, and who benefits and who loses when tariffs are imposed? What are the effects of a quota, and who benefits and who loses when quotas are imposed?
When a tariff is imposed, the prices of imports rise as additional taxes are placed on certain foreign imports, which benefits domestic producers and harms foreign producers and domestic consumers. When a quota is imposed, the same thing happens as when a tariff is imposed, because both are protectionary measures implemented for the protection of domestic industries. A quota places a limit on the quantity or total value of foreign imports allowed into the country to control trade. This benefits domestic producers, as their competition is reduced and they can raise their prices, and harms domestic consumers who are forced to pay higher prices for goods. Quotas also harm foreign producers as their demand from foreigners decreases.
93
Policies that provide governments with economic controls should be evaluated on their _________________________________, not on the basis of the promises of their supporters or the theories of economists.
a. ability to be dismantled quickly over time
b. acceptance by market-oriented economists
c. actual effects, which can be positive or negative
d. ability to act as a critical ingredient for faster growth
c. actual effects, which can be positive or negative
94
When other factors such as health and illiteracy rates are added to global comparisons of GDP and population, which of the following is likely to be revealed?
a. rough comparisons between regions as data are not available
b. very wide differences in the standard of living
c. 2% of the world's GDP comes from agriculture in low-income countries
d. the similarity in the low degree of urbanization
b. very wide differences in the standard of living
95
In what type of economies do firms and workers often build upon or copy technologies and industries developed by the technology leaders.
converging economies (China and India)
96
While governments will play a different role across countries, all the ________________ economies have found that increasing ____________________ for firms and workers has been a critical ingredient in the recipe for faster growth.
b. converging; market-oriented incentives
97
The main public policies of technological leading countries are _______________ focused on investment, including investment in human capital, in technology, and in physical plant and equipment.
fiscal policies
98
Along with the general growth-oriented agenda, some central Asian nations need an improved infrastructure of _________________, along with research into ___________ focused on their particular economic realities.
communication and transportation; technology
99
North American and the European Union have about _________% of the world’s population and their combined economic statistics show that they produce and consume about _________% of the world’s GDP.
9, 70
100
Developing the means to increase human capital, and using existing technology to connect to the global economy are generally associated with growth policies of:
converging nations
101
The high-income economies of the world contain approximately __________ of the world’s population and produce and consume ___________ of the World’s GDP.
b. 12%; over 60%
102
A tariff differs from a quota in that a tariff is:
a. a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.
103
Suppose the government of Taiwan subsidized its watch-making industry, enabling Taiwanese producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Taiwanese subsidization policy by:
a. setting a tariff high enough to just offset the subsidy granted to the Taiwanese watch-making industry.
b. setting a declining quota on the import of Taiwanese watches such that the nation's domestic watch-making industry would continue to grow at the same rate as the rest of the economy.
c. setting a tariff such that the prices of Taiwanese and domestic watches to the consumer are equal.
d. accepting the subsidy of the Taiwanese government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.
d. accepting the subsidy of the Taiwanese government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.
104
What would be expected to happen if the tariff on foreign-produced automobiles were increased?
The supply of foreign automobiles to the domestic market would be reduced, causing auto prices to rise
105
There are nontariff barriers in the form of _______________ regulations, in which certain textiles are made in the United States, shipped to other countries, combined in making apparel with textiles made in those other countries—and then re-exported back to the United States at a lower tariff rate.
"rules of origin"
106
The infant industry argument for protectionism suggests that industry must be protected in the early stages of its development so that:
domestic producers can attain the economies of scale to allow them to compete in world markets
107
If Japan does not have a comparative advantage in producing rice, the consequences of adopting a Japanese policy reducing or eliminating imports of rice into the country would include:
a. Japan will be able to consume a combination of rice and other goods beyond their domestic production possibilities curve.
b. the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall
c. the real incomes of Japanese rice consumers would rise, but the real incomes of Japanese rice producers would fall.
d. the price of rice in Japan will fall.
b. the real incomes of Japanese rice producers would rise, but the real incomes of Japanese rice consumers would fall.
108
Portfolio investments are often made based on beliefs about how _______________ are likely to move in the near future.
exchange rates or rates of return
109
Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________.
taking a management responsibility
110
________________________ equalizes the prices of internationally traded goods across countries.
Purchasing power parity
111
Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.
interest rates; right
112
When Mataeo buys Euros through _________________________, he will use his U.S. dollars to pay for them.
the foreign exchange market
113
A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports .
a. tight; stimulates; reduces
b. loose; stimulates; reduces
c. expansionary; reduces; stimulates
d. contractionary; reduces; stimulates
a. tight; stimulates; reduces
114
If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:
floating exchange rate
115
People or firms use one currency to purchase another currency at the _______________________.
foreign exchange market
