macro economics - Flashcards

question

In November 2010 the labor force in Siouxtown, was 14,800. There were 14,483 persons employed. The local unemployment rate was?

answer

2.1%

question

The _______ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with employment alternatives, are most likely to stay.

answer

adverse selection of wage cuts

question

The unemployment rate may underestimate the true extent of unemployment if:

answer

many part-time employees would like to work fulltime, but are unable to get additional work. // many people become discouraged and cease looking for work.

question

Freelife, New Hampshire has a labor of 78,567 persons and employment of 74,382. The unemployment rate is ______ and the participation rate is _____.

answer

8.3%; 60%

question

The labor force consists of:

answer

all adults who are working actively seeking work

question

The definition of market equilibrium states that at the _____, the quantity of labor demanded by employers will equal the quantity supplied.

answer

equilibrium wage

question

Gomer loses his job as a road construction worker and cannot find another position with equivalent pay and benefits. As a result, he is still checking the want ads and reporting to the unemployment office on a weekly basis. He is considered to be:

answer

underemployed

question

Cyclical unemployment arises when:

answer

business activity in the macroeconomy declines

question

If the number of employed persons in a country equals 24 million, the number of million, and the number of persons over age 16 unemployed persons equals 40 million, the unemployment rate equals:

answer

25%

question

Frictional unemployment is:

answer

unemployment that is due to normal turnover in the labor market

question

Each month the Census Bureau carries out the Current Population Survey (CPS) (which has been carried out every month since 1940). A total of __________ households are contacted every month

answer

60,000

question

The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals

answer

14.4%

question

During the Great Depression of the 1930s, the unemployment rate reached more than _________ of the labor force.

answer

25%

question

Which of the following statements is incorrect

answer

Employment insurance compensation increases the opportunity cost of being unemployed.

question

During the deep recessions of the early 1980s and of 2007-2009, unemployment reaches roughly _____.

answer

10%

question

The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce"

answer

frictional unemployment

question

Women composed __________ of the paid workforce in 1900 and 50% of the paid workforce in 2010

answer

18%

question

The unemployment rate measures:

answer

unemployment workers as a percentage of the labor force.

question

Two factors that complicate the calculation of the inflation rate are

answer

substitution and quality/new product bias

question

Another term used to describe negative inflation is

answer

deflation

question

The GDP deflator is a price index that includes the following components of GDP

answer

Consumption, Investment, Government plus exports minus imports

question

Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be?

answer

2449 billbion

question

Inflation implies that all the level of all prices ______

answer

increase

question

The basket of goods in the Consumer Price Index consists of about _________ products; that is, several hundred specific products in over __________ broad-item categories.

answer

80,000; 200

question

In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______________________ which guaranteed that their wages would keep up with inflation.

answer

cost of living adjustments

question

Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods?

answer

Producer Price Index

question

What name is given to the index based on the prices of exported or imported merchandise?

answer

International Price Index

question

The Producer Price Index is based on prices paid for supplies and inputs by:

answer

producers of goods and services

question

When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be _____

answer

indexed

question

What distinguishes the real value of a statistic from the nominal value of a statistic?

answer

adjusting for inflation

question

Which of the following is an example of one of the major categories in the overall CPI?

answer

recreation

question

__________ implies that pressure for price increases reaches across _______________markets, not just one.

answer

inflation; most

question

Nancy's union has negotiated a three-year wage contract that provides for a 2.4% increase indexed to inflation. The rates of inflation are forecast to be 1.62%, 1.93% and 2.21% respectively. How will Nancy's wage increase be expressed in the new contract?

answer

COLA plus 2.4%

question

While one occasionally sees references to inflation over short time periods, the term typically implies a(n)_____________ in prices.

answer

ongoing raise

question

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time

answer

the basket of goods

question

The situation where the buying power of money in terms of goods and services increases is called

answer

deflation

question

The ____________________ is based on the prices of merchandise that are exported or imported

answer

International Product Index

question

A payment is said to be ________________ if it is automatically adjusted for inflation

answer

indexed

question

ndia has a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars

answer

$418

question

Which of the following is not counted as a part of GDP?

answer

the purchase of 00 shares of AT&T stock by your grandfather

question

Gross Domestic Product equals $1.2 trillion. If consumption equals $690 billion, investment equals $200 billion, and government spending equals $260 billion, then:

answer

imports exceed exports by $50 billion

question

_________ are now the largest single component of the supply side of GDP, representing over half of GDP.

answer

Services

question

The gap between exports and imports in a nation's economy is called the ___________.

answer

trade balance

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_______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country

answer

Economic growth

question

Investment (I) includes:

answer

the amt spent on new factories and machinery

question

On the demand side of GDP, consumption by _____________ is the largest component of GDP, accounting for about two-thirds of the GDP in any year.

answer

households

question

In 1980 Denmark had a GDP of $70 billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) s and a population of 5.3 million. By what percentage did Denmark's GDP per capita rise between 1980 and 2000?

answer

120%

question

On the supply side of the GDP, Structures account for around __________ of U.S. GDP.

answer

7%

question

For most high-income countries of the world, GDP _________________ over time.

answer

has risen gradually

question

Which of the following is true?

answer

The expansions and contractions of real world business cycles last varying lengths of time and often differ in magnitude.

question

Which of the following statements is true?

answer

GDP includes spending on recreation and travel, but it does not cover leisure time.

question

Durable goods and non-durable goods comprise approximately ________ of the supply side of the GDP

answer

45%

question

GDP is:

answer

the value of all final goods and services produced domestically.

question

The change in inventories, a component of aggregate supply, comprises roughly __________ of GDP

answer

0.5%

question

Which of the following is not included in GDP?

answer

cash income paid to a day laborer that is not reported to the tax authorities

question

The value of what businesses provide to other businesses is captured in the final products at the end of the __________ chain.

answer

production

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A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:

answer

expansion, peak, recession, trough

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If imports exceed exports, as in recent years, then __________ exists.

answer

a trade deficit

question

Economists typically measure economic growth by tracking:

answer

real GDP per capita

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Increased investment alone will guarantee economic growth

answer

This a false statement, because economics growth hinges on the quality and type of investment as well as the human capital and improvements in technology

question

During the last two centuries, the average rate of growth of GDP per capita in the leading industrialized countries has averaged about _________ per year.

answer

2%

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The value of what is produced per worker, or per hour worked, is called ____________.

answer

productivity

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To achieve a high standard of living, a nation should:

answer

promote economic growth

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A nation can achieve higher economic growth if:

answer

it devotes more resources to research and development

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In certain African countries like Niger, Tanzania, Nigeria, and Sudan, for example, GDP per capita at the start of the 2000s was still less than $___________.

answer

300

question

In the long run, the most important source of increase in a nation's standard of living is a

answer

high rate of economic growth

question

Country Able and Country Baker initially have the same real GDP per capita. Country Able experiences no economic growth, while Country Baker grows at a sustained rate of 7 percent. In 12 years, Country Baker's GDP will be approximately ___________ that of Country Able

answer

double

question

Over the long run, ____________ per hour is the most important determinant of the average wage level in any economy

answer

productivity

question

Which of the following is most likely to contribute to economic growth as measured by GDP per capita?

answer

increased capital formation

question

Some recent economic research has suggested that African countries' economic growth may have been limited by __________________

answer

Geography and climate

question

A country will roughly double its GDP in twenty years if its annual growth rate is:

answer

3.5 percent

question

Country Alpha and Country Beta initially have the same real GDP per capita. Country Alpha experiences no economic growth, while Country Beta grows at a sustained rate of 5 percent. In 14 years, Country Alpha's GDP will be approximately _________ that of Country Beta.

answer

one-half

question

In the long run, the most important source of increase in a nation's standard of living is a:

answer

high rate of economic growth

question

Investment in human capital:

answer

is characterized by both b) and c)

question

Since the late 1950s, economists have performed "growth accounting" studies in the United States. These have determined that ________________ is typically the most important contributor to U.S. economic growth.

answer

technology

question

Some prominent members of the slow-economic growth country club include a high-income country like _________.

answer

Germany

question

Which of the following is correct?

answer

Increased education adds to the stock of human capital, not unlike factories ads to the stock of physical capital.

question

In macroeconomics, the connection from inputs to outputs for the entire economy is called _______________.

answer

an aggregate production function

question

Assuming a country's economy maintains an 8% rate of growth, young adults starting at age 20 would see the average standard of living in their country more than double by the time they had reached age __________.

answer

30

question

Which of the following is unlikely to affect the rate of economic growth?

answer

the level of government spending

question

An economy's rate of productivity growth is closely linked to the growth rate of its ______________, although the two aren't identical

answer

GDP per capita

question

Investment in human capital:

answer

can be acquired through on-the-job training // is an important source of economic growth

question

Which of the following did not result in economic growth?

answer

many citizens emigrating from Zimbabwe when a politically repressive regime took office.

question

Which of the following best describes the relationship between economic growth and literacy?

answer

Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education.

question

Which of the government policies below is most unlikely to encourage per capita economic growth?

answer

special subsidies for capital-intensive forms of production

question

Which of the following factors contribute to economic growth?

answer

an increase in the proportion of the population that is college educated

question

When discussing economic growth, it is often useful to focus on ____________, to avoid studying changes in the size of GDP that represent only having more people in the economy, and focus on those increases in GDP which represent an actual rise in the standard of living on a per person basis

answer

GDP per capita

question

Increased investment alone will guarantee economic growth.

answer

This is a false statement, because economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology

question

_____________________ is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s

answer

The Industrial Revolution

question

To achieve a high standard of living, a nation should:

answer

promote economic growth

question

Since the late 1950s, economists have performed "growth accounting" studies in the United States. These have determined that ________________ is typically the most important contributor to U.S. economic growth.

answer

technology

question

On the demand side of GDP, consumption by _____________ is the largest component of GDP, accounting for about two-thirds of the GDP in any year.

answer

households

question

India has a GDP of 23,000 billion Indian rupees, and a population of 1.1 billion. The exchange rate is 50 rupees per U.S. dollar. Calculate the GDP per capita of India as measured in U.S. dollars

answer

$418

question

___________ is about two-thirds of the demand side of GDP, but it moves relatively little over time

answer

Consumption

question

GDP does not directly include:

answer

the value intermediate goods sold during a period

question

_________ is calculated by taking _________ and then subtracting the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year.

answer

NNP: GNP

question

Which of the following are most likely classified by economists as consumer durable goods?

answer

automobiles, furniture

question

Which of the following is included in GDP calculations?

answer

the university tuition paid to enroll in a course

question

Which of the following is included in GDP?

answer

the fees charged for a stock broker's services

question

Once every __________, the Census Bureau does a comprehensive survey of housing and residential finance.

answer

10 years

question

Middle-income countries, which include much of Latin America, Eastern Europe, and some countries in East Asia, have per capita GDP in the range of ___________

answer

6,000 to 12,000

question

___________ is a small category that refers to the goods produced by one business that have yet to be sold to consumers, and are either still sitting in warehouses and on store shelves

answer

Inventories

question

_________ are now the largest single component of the supply side of GDP, representing over half of GDP

answer

Services

question

For most high-income countries of the world, GDP _________________ over time

answer

has risen gradually

question

Which of the following is included in the calculated Gross Domestic Product?

answer

A local ice cream stores sell $17,000 worth of cones and sundaes on July 1

question

Final goods or services used to compute GDP refer to:

answer

goods and services purchased by the ultimate users

question

The difference between nominal GDP and real GDP is:

answer

real GDP adjusts for inflation

question

Consumption in the United States is about ____________ of GDP, and it moves relatively little over time.

answer

68%

question

Country Able and Country Baker initially have the same real GDP per capita. Country Able experiences no economic growth, while Country Baker grows at a sustained rate of 7 percent. In 12 years, Country Baker's GDP will be approximately ___________ that of Country Able.

answer

double

question

Over the long run, ____________ per hour is the most important determinant of the average wage level in any economy.

answer

productivity

question

When discussing economic growth, it is often useful to focus on ____________, to avoid studying changes in the size of GDP that represent only having more people in the economy, and focus on those increases in GDP which represent an actual rise in the standard of living on a per person basis.

answer

GDP per capita

question

_________ is output per hour in the business sector.

answer

productivity

question

____________ is a term which refers to the widespread use of power-driven machinery and the economic and social changes that resulted in the first half of the 1800s.

answer

Industrial Revolution

question

An economy's rate of productivity growth is closely linked to the growth rate of its ______________, although the two aren't identical.

answer

GDP per capita

question

The unemployment rate may overestimate the true extent of unemployment if:

answer

- many people who claim to be unemployed actually work in the underground economy. - people falsely claim that they are actively seeking work in order to receive unemployment benefits

question

Craigburg has a working age population of 20 million. Of those, 11 million are employed and 1 million are unemployed. The unemployment rate is ________ and the participation rate is __________.

answer

8.3%; 60%

question

In November 2010 the labor force in Siouxtown, was 14,800. There were 14,483 persons employed. The local unemployment rate:

answer

2.1%

question

The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of ____________.

answer

4%-6%

question

Which of the following statements is incorrect?

answer

Employment insurance compensation increases the opportunity cost of being unemployed

question

The development of a nationwide computerized job bank listing of all job openings would be most likely to reduce:

answer

frictional unemployment

question

Gomer loses his job as a road construction worker and cannot find another position with equivalent pay and benefits. As a result, he is still checking the want ads and reporting to the unemployment office on a weekly basis. He is considered to be:

answer

underemployed

question

A forestry worker who is out of work because of the temporarily low demand for wood products associated with a recession is defined as:

answer

cyclically unemployed

question

The rise in unemployment that occurs because of a recession is known as cyclical unemployment, because it is closely tied to the ______________.

answer

business cycle

question

Through good economic years and bad, many European economies had unemployment rates hovering near _________ since the 1970s.

answer

10%

question

Frictional unemployment occurs when:

answer

a worker decides to quit one job to seek a different job

question

The extent of _______________________ will depend on how easy it is for workers to learn about alternative jobs, which may reflect the ease of communications about job prospects in the economy.

answer

frictional unemployment

question

The definition of market equilibrium states that at the _______________, the quantity of labor demanded by employers will equal the quantity supplied.

answer

equilibrium wage

question

Insofar as government public policy is concerned, the best way to battle unemployment would be __________________.

answer

to minimize recessions

question

The most significant real economic cost of high unemployment is:

answer

the potential goods and services that might have been produced but weren't.

question

Women composed __________ of the paid workforce in 1900 and 50% of the paid workforce in 2010.

answer

18%

question

The _________________ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with fewer employment alternatives, are more likely to stay.

answer

adverse selection of wage cuts

question

The unemployment rate may underestimate the true extent of unemployment if:

answer

many people become discouraged and cease looking for work.

question

If the unemployment rate is 6 percent and the number of persons unemployed is 6 million, then the number of people employed is equal to:

answer

94 million

question

During the deep recessions of the early 1980s and of 2007-2009, unemployment reached roughly __________.

answer

10%

question

If a nation's labor force receives a significant influx of young workers:

answer

the natural rate of unemployment is likely to increase.

question

If the unemployment rate is 8 percent, then this means:

answer

8 percent of the labor force is unemployed.

question

Cyclical unemployment arises when:

answer

business activity in the macroeconomy declines.

question

Suppose that everyone who has looked for a job for more than six months gave up in despair and stopped looking. What would happen to the unemployment rate?

answer

It would fall

question

Karen chooses to go to university fulltime rather than to work. Karen:

answer

is not part of the labor force.

question

The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals:

answer

14.4%

question

If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals:

answer

25%

question

Freelife, New Hampshire has a labor force of 78,567 persons and employment of 74,382. The unemployment rate for the city is:

answer

5.3%

question

Each month the Census Bureau carries out the Current Population Survey (CPS) (which has been carried out every month since 1940). A total of __________ households are contacted every month.

answer

60,000

question

The ____________________ is based on the prices of merchandise that are exported or imported.

answer

International Product Index

question

If the price index moves from 107 to 110, the rate of inflation is:

answer

2.8%

question

An economics professor is discussing a measure of inflation over time based on a basket of goods comprised of all the components of GDP. Which measure is it?

answer

GDP Deflator

question

With regard to the economy, the term negative inflation is synonymous with which of the following?

answer

deflation

question

A payment is said to be ________________ if it is automatically adjusted for inflation.

answer

indexed

question

One of the reasons that a rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living, is:

answer

substitution bias

question

Two factors that complicate the calculation of the inflation rate are:

answer

substitution and quality/new product bias

question

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ___________________ the rise in a consumer's true cost of living, because it doesn't take into account that the person can substitute between goods according to changes in their relative prices.

answer

overstate

question

In the early 1990's extremely high inflation rates of 2500% were common in Russia. During that time, we can say that as a result of those inflation rates, Russia was experiencing ___________________.

answer

hyperinflation

question

When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be __________.

answer

indexed

question

Inflation implies that the level of all prices _____________________.

answer

the basket of goods

question

The __________________ is the nominal interest rate minus the rate of inflation.

answer

real interest rate

question

The situation where the buying power of money in terms of goods and services increases is called:

answer

deflation

question

When we want to measure wage inflation in the labor market, we use the:

answer

Employment Cost Index

question

When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $540.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $630.00. What is the overall rate of inflation for Anders' gym membership?

answer

16.66%

question

Another term used to describe negative inflation is:

answer

deflation

question

The GDP deflator is a price index that includes the following components of GDP:

answer

Consumption, Investment, Government plus Exports minus Imports

question

The percentage change in the price level from one time period to the next, whether the price level is measured in terms of money or as a price index, will be the _____________.

answer

inflation rate

question

Inflation can be calculated in terms of how the overall cost of ___________________ changes over time.

answer

the basket of goods

question

The effects of inflation are seen in:

answer

goods, services, wages and income levels

question

The term _____________ describes circumstances where a country's exports exceed its imports

answer

trade surplus

question

A period of strong economic growth tends to make a __________________.

answer

trade deficit larger

question

One of the following must be used as a starting point in order to perform an analysis that will determine what the connections between imbalances of trade in goods and services and the flows of international financial capital are. Which one is it?

answer

define the balance of trade

question

In the United States, which of the following government institutions would most likely provide economists with the basic data for merchandise trade?

answer

Census Bureau

question

Which of the following would most likely be included in the negative side of the current account balance?

answer

money earned by Canadian firms in the U.S

question

Which of the following represents a financial inflow into the U.S. economy?

answer

Canadian investors buying real estate in Arizona

question

From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result?

answer

deep economic recession

question

The extent to which a national economy is involved in global trade:

answer

is not very strongly related to either a or b above.

question

Which of the following would most likely be included in the positive side of the U.S. current account balance?

answer

money earned by U.S. firms in Europe

question

Which of the following will strongly influence a nation's level of trade?

answer

size of its economy, its geographic location, and its history of trade

question

Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________.

answer

current account balance; goods, services, international income flows, and foreign aid.

question

A country's current national savings and investment identity is expressed in algebraic terms as (M - X) = I - S - (T - G). In this instance:

answer

domestic investment is higher than domestic savings

question

In the U.S., all companies involved in international flows of capital must file reports, which are ultimately compiled by the:

answer

Department of the Treasury

question

During the past year a country's government ran a budget surplus. How will this be represented as a component of in the country's national savings and investment identity?

answer

(T - G); saving side

question

Only one of the following statements about trade surplus and capital flow is correct. Which one is it?

answer

a trade surplus means that there is a net outflow of capital

question

A country finds itself in the following situation: a government budget deficit of $800; total domestic savings of $1800, and total domestic physical capital investment of $1300. According to the national saving and investment identity, what is the current account balance?

answer

deficit of $300

question

If a country's economy records a surplus, how will the X and M components be represented in its national savings and investment identity?

answer

(X - M); left side

question

Which of the following represents a financial outflow from the U.S. economy?

answer

U.S. investors buying foreign assets in Germany

question

With respect to the national saving and investment identity for any country, the quantity of _______________ at any given time by savings must ________________ for purposes of making investments.

answer

financial capital supplied; equal the quantity of capital financial demanded

question

Which of the following represents the national savings and investment identity - Supply of financial capital = Demand for financial capital - expressed in algebraic terms?

answer

S + (M - X) = I + (G - T)

question

The term _____________ describes circumstances where a country's exports exceed its imports.

answer

trade surplus

question

Which of the following represents a financial inflow to the U.S. economy?

answer

returns paid on U.S. financial investments in Switzerland

question

From a macroeconomic perspective, an economic transaction in the form of a financial investment is synonymous with which of the following?

answer

trade in the financial capital market

question

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic savings rises, while the level of domestic investment and private saving remains unchanged. In this instance

answer

-less foreign financial capital is required to meet investment needs. -government policy will involve increasing private savings -the country's trade deficit will decline

question

If imports ______________, then the economy is said to have a trade deficit.

answer

exceed exports

question

A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In this instance, the rise in domestic: investment will mean

answer

a higher trade deficit.

question

The term __________ is used to describe what those in one country buy from those in other countries.

answer

imports

question

In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in famine relief to Africa, and received $3 billion to support its first democratic election efforts. What was the merchandise trade deficit in Vesey in 2010?

answer

$213 billion

question

In 2009, because U.S. imports were $2,535 billion while exports were $2,116 billion:

answer

imports exceeded exports by a sizeable $419 billion.

question

In most high-income economies, including the United States, goods currently make up ___________, while services currently compose ____________.

answer

less than half of total production; more than half of total production

question

In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in famine relief to Africa, and received $3 billion to support its first democratic election efforts. What was the current account balance in Vesey for 2010?

answer

$271.8 billion

question

The surge in international trade related to services to be performed in one country and sold in another that began in the 1990s has been powered by which of the following?

answer

technological advances

question

A country's current national savings and investment identity is expressed in algebraic terms as (M - X) = I - S - (T - G). In this instance

answer

domestic investment is higher than domestic savings.

question

If exports and imports:

answer

are equal, then trade is balanced.

question

The national saving and investment identity teaches that the rest of the economy can absorb an inflow of foreign financial capital by:

answer

leaving domestic saving and investment unchanged using any of the above.

question

A country's current national savings and investment identity is expressed in algebraic terms as X - M = S + (G - T) - I. In this instance:

answer

private and public domestic savings are higher than domestic investment.

question

To a macroeconomist, a trade deficit is synonymous with which of the following?

answer

inflow of financial capital

question

The statement that GDP = C + I + G + X - M is an identity, because ________________________________.

answer

it is true according to the definition of GDP

question

A series of macroeconomic events has led an economy into a deep recession. Which of the following factors is most likely to have initiated this series of events?

answer

unbalanced trade

question

A country's current account balance refers to a broad measure of the balance of trade that includes:

answer

goods and services, international flows of income, and foreign aid.

question

Goods and services produced in one country that are then sold in other countries are called ____________.

answer

exports

question

The final category of the current account balance is ____________________, which can be thought of as payments made by individuals in which money is sent abroad _________________________.

answer

unilateral transfers; without any direct good or service being received

question

In what way are the factors used to calculate the current account balance similar to each other?

answer

each involves a flow of financial payments between countries

question

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be

answer

short-term

question

The graph below refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?

answer

- unemployment is likely to rise. - the economy will experience lower economic growth

question

_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________.

answer

Neoclassical economists; long run

question

The term "full employment GDP" is synonymous with which of the following?

answer

potential GDP

question

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.

answer

interest rate effect

question

In an AD/AS diagram, __________________________ could explain a rise in cyclical unemployment?

answer

a shift to the left in either AS or AD

question

Why is productivity growth considered to be the most important factor in the AD/AS model?

answer

it shifts the AS curve in the long-term

question

As the aggregate price level in an economy rises, ____________________.

answer

interest rates increase

question

The _____________ holds that a rise in price level will make domestic goods relatively more expensive, ____________ exports and _______________ imports.

answer

foreign price effect; discouraging; encouraging

question

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.

answer

equilibrium

question

If Keynes' law applies during economic contractions and Say's law applies during economic expansion, how will the three goals of macroeconomics be affected?

answer

trade-offs and connections may differ in the short run and the long run

question

The _________________ means that a higher price level leads to lower real wealth.

answer

wealth effect

question

_________________ results when an economy experiences high unemployment and high inflation at the same time.

answer

Stagflation

question

Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.

answer

relatively flat; relatively steep

question

Potential GDP in the U.S. will be unaffected by ____________________.

answer

the unemployment rate

question

Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to produce and sell and the _________________, holding the price of inputs fixed.

answer

total quantity; price level for output

question

Which of the following will have the greatest influence on the slope of the demand curve in a single market model?

answer

substitute goods

question

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

answer

hyper-intense production will be unsustainable in the long run.

question

Changes in the price level of the different components of aggregate demand are reflected in the AD/AS macroeconomic model by a ________________________.

answer

downward sloping AD curve

question

In an AD/AS diagram, an increase in structural unemployment will:

answer

have no effect on AS or AD.

question

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.

answer

interest rate effect

question

The __________________ in an AD/AS diagram is most relevant to Keynes's Law.

answer

flat portion of the AS curve

question

Referring to the diagram below, which of the following is a true statement?

answer

There is insufficient aggregate demand to reach full employment.

question

In an AD/AS model:

answer

real GDP is shown on the horizontal axis.

question

_______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.

answer

Full employment GDP

question

Say's Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy.

answer

value of supply; value of demand

question

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

answer

higher profits will induce expanded production.

question

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

answer

hyper-intense production will be unsustainable in the long run.

question

Which of the following will have the greatest influence on the slope of the demand curve in a single market model?

answer

substitute goods

question

In an AD/AS model, the point where the economy has excess capacity is called the:

answer

Keynesian zone of the AS curve

question

What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions?

answer

potential GDP

question

The graph below refers to a significant increase in oil prices. Which of the following is likely to result?

answer

a rise in inflation from 2.0% to 3.0%

question

Referring to the diagram below, which of the following is a true statement?

answer

There is insufficient aggregate demand to reach full employment.

question

Potential GDP in the U.S. will be unaffected by ____________________.

answer

the unemployment rate

question

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

answer

higher profits will induce expanded production.

question

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

answer

aggregate demand (AD)

question

As the aggregate price level in an economy decreases,

answer

imports decrease.

question

When the economy of a country is operating close to its full capacity:

answer

cyclical unemployment is close to zero.

question

Which of the following must be present in order for the aggregate supply curve to form an upward slope?

answer

fixed cost of inputs combined with rising prices for outputs

question

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:

answer

short-term

question

When the aggregate demand curves slope downwards because the price of a good increases, people will

answer

substitute and buy other goods instead.

question

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

answer

bigger leakages

question

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

answer

recessionary gap

question

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

answer

increased spending by the government on health care

question

The onset of a trade deficit is most likely supported by a country's:

answer

strong economic growth.

question

The equilibrium quantity of labor decreases and the equilibrium wage increases when:

answer

labor supply shifts to the left, if wages are flexible.

question

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:

answer

tangible and/or intangible capital.

question

When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect?

answer

steeper consumption function due to high marginal propensity to consume

question

____________________ will not cause a shift of the AS curve in a Keynesian framework.

answer

Changes in output prices

question

Refer to the graph shown below. At point B:

answer

economic growth is low or even negative.

question

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

answer

is producing at a point where output is less than potential GDP.

question

The equilibrium quantity of labor and the equilibrium wage increase when:

answer

labor demand shifts to the right, if wages are flexible.

question

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

answer

exchange rates

question

The equilibrium quantity of labor and the equilibrium wage level decrease when:

answer

labor demand shifts to the left, if wages are flexible.

question

When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

answer

500

question

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

answer

shift substantially

question

In macroeconomics, a _________________ is used to show the relationship between output and the input price level.

answer

Phillips curve

question

The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income.

answer

-374 - Y=400

question

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

answer

an increase; domestic investment

question

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

answer

45-degree line

question

Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. Following this multiplier effect, what value will be recycled in the next round in the cycle?

answer

36

question

The sum of all the income received for contributing resources to GDP is called ___________________.

answer

national income (Y)

question

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

answer

coordination

question

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

answer

labor supply shifts to the right, if wages are flexible,

question

The equilibrium quantity of labor and the equilibrium wage level decrease when:

answer

labor demand shifts to the left, if wages are flexible.

question

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

answer

750

question

Consumption, investment, government spending, exports, and imports are:

answer

all components of aggregate demand.

question

Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?

answer

147.48

question

If markets throughout the global economy all have flexible and continually adjusting prices, then:

answer

each economy will always head for its natural rate of unemployment.

question

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

answer

menu costs

question

The Keynesian economic framework is based on an assumption that:

answer

prices and wages are sticky and do not adjust rapidly.

question

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions

answer

coordination

question

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________.

answer

potential GDP; natural rate of unemployment

question

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

answer

slopes upward; slopes downward

question

From a neoclassical viewpoint, government should focus less on:

answer

cyclical unemployment.

question

The shape of the ______________ involves a tradeoff between unemployment and inflation.

answer

Phillips curve

question

Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause:

answer

at least a slight increase in unemployment.

question

From a neoclassical view, which of the following is less important?

answer

fighting unemployment

question

Referring to the diagram below, complete the following sentence: Any increase in aggregate demand in the short-run will lead to:

answer

an increase in output (Q1 to Q2), but it will also lead to prices increasing.

question

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

answer

zero

question

Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in:

answer

an increase in price level.

question

Referring to the diagram below, which of the following is a true statement?

answer

Higher cost levels of increased output will force an increase in price for the product.

question

In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands

answer

productivity increases

question

In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve?

answer

a vertical line drawn at the level of potential GDP

question

Which of the following represents a Keynesian point of view of macroeconomics?

answer

creating increases in aggregate demand to reduce unemployment

question

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

answer

lower unemployment.

question

Which of the following is a building block of neoclassical economics?

answer

wages and prices will adjust in a flexible manner

question

If aggregate supply is vertical, then which of the following statements must be true?

answer

Aggregate demand does not affect the quantity of output.

question

________________ economists place an emphasis on __________ run economic performance.

answer

Neoclassical; long

question

From a neoclassical view, which of the following is a true statement?

answer

The economy cannot sustain production above its potential GDP in the long run.

question

In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment.

answer

aggregate demand

question

Which of the following is most strongly supported by the Keynesian perspective of macroeconomics?

answer

inflation is a price that might have to be paid to achieve lower unemployment

question

Referring to the diagram below, which of the following is a true statement?

answer

The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

question

A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies:

answer

a vertical Phillips curve.

question

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

answer

encouraging long-term growth

question

Suppose that productivity growth in an economy over a two-year period has fallen to less than 2% per year, causing a severe recession. From the neoclassical view, which of the following will be more important in these circumstances?

answer

the growth rate of long-term productivity

question

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

answer

inflationary increase in price level

question

In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands.

answer

productivity increases

question

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

answer

potential GDP and aggregate supply

question

At a macroeconomic level, the theory of rational expectations points out that if the ______________________ is vertical over time, then people should rationally expect this pattern.

answer

aggregate supply curve

question

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

answer

aggregate demand

question

The shape of the ______________ involves a tradeoff between unemployment and inflation

answer

Phillips curve

question

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

answer

standard of living is ultimately determined by long-term growth

question

Which of the following is a valid criticism of the rational expectations theory?

answer

the assumption seems too strong

question

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

answer

economic growth; the size of the economy

question

In the neoclassical view, the economy has a ___________________________ to move back to potential GDP.

answer

self-correcting tendency

question

Referring to the diagram below, which of the following is a true statement?

answer

Higher cost levels of increased output will force an increase in price for the product.

question

From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?

answer

investments in human capital

question

In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right.

answer

vertical AS curve

question

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

answer

is vertical; is vertical

question

The Keynesian view of economics assumes that:

answer

wages are sticky.

question

If aggregate supply is vertical, then aggregate demand does not affect:

answer

the quantity of output.

question

If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur?

answer

a rise in unemployment

question

Referring to the diagram below, which of the following is a true statement?

answer

The increase in output (Q1 to Q2) may come about because of lower levels of taxation.

question

In order to shift the vertical supply curve to the left, which of the following would have to occur?

answer

breakdown of key market institutions

question

What is the name given to the macroeconomic equation MV = PQ?

answer

basic quantity equation of money

question

In good economic times, a surge in lending exaggerates the episode of economic growth. Which of the following adaptations of monetary policy can moderate these exaggerated effects?

answer

monitoring asset prices and leverage

question

If the economy is at equilibrium as shown in the diagram below, then an expansionary monetary policy will:

answer

reduce unemployment, but have little effect on inflation.

question

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?

answer

quantitative easing

question

The diagram below refers to a private closed economy. In this instance, the equilibrium GDP is:

answer

$180 billion.

question

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is:

answer

following a loose monetary policy.

question

A central bank that wants to increase the quantity of money in the economy will:

answer

buy bonds in open market operations.

question

Central bank policy requires all banks to hold 10% of deposits as reserves. Pacific Bank policy prevents it from holding excess reserves. Suppose banks cannot trade any of the bonds they already have. If the central bank decides to lower the reserve requirement to 9%, which of the following will result?

answer

increase of $1 million in Pacific's loan assets

question

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?

answer

fighting inflation

question

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the:

answer

Central Bank; safety and stability of the banking system.

question

Which of the following institutions determines the quantity of money in the economy as its most important task?

answer

Central Bank

question

The central bank uses a ____________________ monetary policy to offset business related economic contractions and expansions?

answer

countercyclical

question

If a Central Bank decides it needs to decrease both the aggregate demand and the money supply, then it will:

answer

follow tight monetary policy.

question

When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected?

answer

federal funds rate

question

Which of the following is considered to be a relatively weak tool of monetary policy?

answer

altering the discount rate

question

If GDP is 3600 and the money supply is 300, what is the velocity?

answer

12

question

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

answer

by increasing its reserves

question

What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks?

answer

discount rate

question

When banks hold excess reserves because they don't see good lending opportunities:

answer

it negatively affects expansionary monetary policy.

question

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely:

answer

borrow for the short term from the central bank.

question

Which of the following events would cause interest rates to increase?

answer

a higher discount rate

question

If the economy is at equilibrium as shown in the diagram below, then a contractionary monetary policy will

answer

increase unemployment, but have little effect on inflation.

question

According to the basic quantity equation of money, if price and output fall while velocity increases, then:

answer

the quantity of money will fall.

question

When the central bank decides it will sell bonds using open market operations:

answer

the money supply decreases.

question

Which of the following is considered to be a relatively weak tool of monetary policy?

answer

altering the discount rate

question

If GDP is 1800 and the money supply is 300, then what is the velocity?

answer

6

question

A central bank that wants to increase the quantity of money in the economy will:

answer

buy bonds in open market operations.

question

When the central bank lowers the reserve requirement on deposits:

answer

the money supply increases and interest rates decrease.

question

Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank?

answer

reserve requirements

question

If GDP is 2400 and the money supply is 600, then what is the velocity?

answer

4

question

How are the specific interest rates for the lending and borrowing markets determined?

answer

by the forces of supply and demand

question

If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:

answer

create an inflationary increase in price level.

question

If nominal GDP is 1800 and the money supply is 450, then what is velocity?

answer

4

question

The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the

answer

Central Bank; safety and stability of the banking system.

question

A central bank that desires to reduce the quantity of money in the economy can:

answer

raise the reserve requirement.

question

Which of the following is a traditional tool used by the Fed during recessions?

answer

open market operations

question

Atlantic Bank is required to hold 10% of deposits as reserves. If the central bank increases the discount rate, how would Atlantic Bank respond?

answer

by increasing its reserves

question

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:

answer

a contractionary monetary policy.

question

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result?

answer

the money supply in the economy decreases

question

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?

answer

Northern's loan assets increase by $30 million

question

If nominal GDP is 2700 and the money supply is 900, what is velocity?

answer

3

question

____________________________ will often cause monetary policy to be considered counterproductive because it makes it hard for the central bank to know when the policy will take effect?

answer

Long and variable time lags

question

If the original level of aggregate demand is AD0, then an expansionary monetary policy that shifts aggregate demand to AD1 will only:

answer

create an inflationary increase in price level.

question

Which of the following institutions oversees the safety and stability of the U.S. banking system?

answer

The Federal Reserve

question

Exchange rates are an effective way to analyze the price of one currency in terms of another currency with _________________________.

answer

the tools of demand and supply

question

In 2010, 100 Japanese yen purchased .88 U.S. dollars and in 2013, it purchased .93 U.S. dollars. How much was 1 U.S. dollar worth in Japanese yen, in 2010 and 2013?

answer

2010: 113.6 yen, 2013: 107.5 yen

question

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:

answer

the dollar strengthened against the peso.

question

Why would an expansionary monetary policy no longer be available to combat recession for a country that has pegged its exchange rate?

answer

it would depreciate the country's exchange rate and break its hard peg

question

A __________________________ policy in which the government almost never acts to intervene in the exchange rate market will look a great deal like a floating exchange rate.

answer

soft peg exchange rate

question

Referring to the diagram below, which of the following statements is true?

answer

This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.

question

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

answer

a self-fulfilling prophecy

question

If the Canadian dollar is strengthening, then:

answer

it has appreciated in terms of other currencies

question

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

answer

interest rates; right

question

The _____________________________ is the largest market in the world economy.

answer

foreign exchange market

question

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

answer

weakening; less

question

A stronger British pound is beneficial for:

answer

exchange students with a British scholarship studying in Canada.

question

One of the following groups is not participating in the foreign exchange markets. Which one?

answer

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

question

n 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013?

answer

2009: .71 dollars, 2013: 1.11 dollars

question

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

answer

the Canadian dollar appreciated against the U.S. dollar.

question

The _____________ is an example of a large-scale common currency

answer

euro

question

In 2010, 1 Swiss franc cost .56 British pounds and in 2012 it cost .51 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012?

answer

2010: 1.79 francs, 2012: 1.96 francs

question

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of

answer

inflation or recession

question

For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits.

answer

swings in exchange rates

question

In 2010, 1 Canadian dollar cost .56 British pounds and in 2012 it cost .63 British pounds. How much would 1 British pound purchase in Canadian dollars in 2010 and 2012?

answer

In 2010, 1 Canadian dollar cost .56 British pounds and in 2012 it cost .63 British pounds. How much would 1 British pound purchase in Canadian dollars in 2010 and 2012?

question

In 2010, 1 Swiss franc cost .56 British pounds and in 2012 it cost .51 British pounds. How much would 1 British pound purchase in Swiss francs in 2010 and 2012?

answer

2010: 1.79 francs, 2012: 1.96 francs

question

Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets?

answer

French franc

question

If a nation merges its currency with another nation to create a single currency, what must it give up?

answer

the ability to determine its own nationally-oriented monetary policy

question

Expansionary monetary policy lowers ______________, and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________.

answer

interest rates; right

question

In 2010, 1 Canadian dollar cost .56 British pounds and in 2012 it cost .63 British pounds. How much would 1 British pound purchase in Canadian dollars in 2010 and 2012?

answer

2010: 1.79 dollars, 2012: 1.59 dollars

question

The most commonly traded currency in foreign exchange markets is the:

answer

U.S. dollar.

question

From a macroeconomic point of view, increases in ____________ are an addition to aggregate demand, while increases in ___________ are a subtraction from aggregate demand.

answer

exports; imports

question

Governments that attempt to intervene in exchange rate markets through soft pegs or hard pegs:

answer

risk causing even greater fluctuations in foreign exchange markets.

question

In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012?

answer

2010: .12 U.S. dollars; 2012: .15 U.S. dollars

question

Movements in exchange rates can have a powerful effect on incentives to export and import, and thus on ________________ in the economy as a whole.

answer

aggregate demand

question

________________________ equalizes the prices of internationally traded goods across countries.

answer

Purchasing power parity

question

Which of the following is an example of a pegged currency?

answer

Chinese yuan

question

Referring to the diagram below, which of the following statements is true?

answer

This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.

question

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:

answer

cause the exchange rate for U.S. currency to depreciate.

question

Which of the following denotes a common misunderstanding about exchange rates?

answer

an appreciating currency must be better than a depreciating currency

question

The Canadian dollar will most likely strengthen against the U.S. dollar if:

answer

the Canadian inflation rate becomes extremely low

question

If the Canadian dollar is strengthening, then:

answer

it has appreciated in terms of other currencies.

question

A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene

answer

volatility

question

A soft peg policy typically allows the exchange rate to move up and down by relatively small amounts in _________________, but seeks to avoid extreme short-term fluctuations.

answer

the short run

question

A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies.

answer

weakening; less

question

When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market.

answer

soft peg

question

If a government uses monetary policy to alter the exchange rate, then it cannot at the same time use monetary policy to address issues of ______________________.

answer

inflation or recession

question

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

answer

a floating exchange rate.

question

If 1000 Mexican pesos could buy $1.00 U.S. dollar in 2006 and 87 U.S. dollars in 2010, then:

answer

the dollar strengthened against the peso.

question

In 2010, $1.00 U.S. bought 8.24 Chinese yuan and in 2012 it bought 6.64 Chinese yuan. How many U.S. dollars could 1 Chinese yuan purchase in 2010 and 2012?

answer

2010: .12 U.S. dollars; 2012: .15 U.S. dollars

question

Which of the following is an example of a pegged currency?

answer

Chinese yuan

question

In 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013 it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013?

answer

2009: .71 dollars, 2013: 1.11 dollars

question

Which of the following is no longer one of the most commonly traded currencies in foreign exchange markets?

answer

French franc

question

The Canadian dollar will most likely strengthen against the U.S. dollar if:

answer

the Canadian inflation rate becomes extremely low

question

A ______________________ monetary policy can be used to decrease aggregate demand because it _____________ exports and _________________ imports .

answer

tight; stimulates; reduces

question

One of the following groups is not participating in the foreign exchange markets. Which one?

answer

an Iowa travel firm that arranges vacation tours for local seniors to Hawaii

question

If a nation merges its currency with another nation to create a single currency, what must it give up?

answer

the ability to determine its own nationally-oriented monetary policy

question

If the U.S. government uses an expansionary monetary policy to reduce interest rates, then it will:

answer

cause the exchange rate for U.S. currency to depreciate.

question

The _____________ is an example of a large-scale common currency.

answer

euro

question

Referring to the diagram below, which of the following statements is true?

answer

This expansionary monetary policy shift also includes the effect of exchange rates on exports and imports.

question

If $1.00 U.S. bought $1.40 Canadian dollars in 2006 and in 2010 it bought $1.00 Canadian dollar, then;

answer

the Canadian dollar appreciated against the U.S. dollar.

question

In 2010, 1 Canadian dollar cost .56 British pounds and in 2012 it cost .63 British pounds. How much would 1 British pound purchase in Canadian dollars in 2010 and 2012?

answer

2010: 1.79 dollars, 2012: 1.59 dollars

question

If the U.S. dollar weakens, which of the following parties will benefit?

answer

U.S firms selling in Europe

question

If Australia's exchange rate is stronger than the PPP rate for several years, which of the following will likely result?

answer

its imports will increase

question

A central bank must be concerned about whether a large and unexpected ___________________________ will drive most of the country's existing banks into bankruptcy.

answer

exchange rate depreciation

question

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

answer

annual inflationary loss of buying powe

question

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?

answer

20

question

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?

answer

$600 million

question

Which of the following is omitted in a barter transaction?

answer

money

question

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

answer

Money

question

_____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest.

answer

Bonds

question

In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

answer

an asset-liability time mismatch

question

___________are funds that the bank keeps on hand that are not loaned out or invested in bonds.

answer

Reserves

question

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

answer

total money; quantity of money

question

The process of banks making loans in financial capital markets is intimately tied to the:

answer

creation of money.

question

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

answer

Sarah's M1 funds

question

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?

answer

$200 million

question

If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.

answer

double coincidence of wants

question

With respect to measuring the money supply, which of the following terms describes a checking account?

answer

demand deposits

question

_______________________ 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 ________________.

answer

Certificates of deposit; time deposits

question

The market where loans are made to borrowers is called the:

answer

primary loan market.

question

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.

answer

unit of account

question

If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system?

answer

medium of exchange

question

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

answer

$270 million

question

In an economy with _______________, money loses some buying power each year, but it remains money.

answer

inflation

question

___________are funds that the bank keeps on hand that are not loaned out or invested in bonds

answer

Reserves

question

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 5% of the deposits as reserves. What is the money multiplier in this economy?

answer

20

question

_________________________ are included in the aggregate amount of MI money currently in circulation.

answer

Traveler's checks

question

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

answer

a double coincidence of wants

question

Which of the following would function as a store of value, and also provide a medium of exchange, and unit of account?

answer

an estate

question

With respect to measuring the money supply, which of the following terms describes a checking account?

answer

demand deposits

question

Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at market value of $400 million, what will its total assets equal?

answer

$510 million

question

_______________________ 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 ________________

answer

Certificates of deposit; time deposits

question

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

answer

annual inflationary loss of buying power

question

_______________________ 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 ________________.

answer

Certificates of deposit; time deposits

question

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

answer

annual inflationary loss of buying power

question

________________ serves society in three functions: medium of exchange, unit of account, and store of value.

answer

Money

question

The market in which loans are bought and sold is called the:

answer

secondary loan market.

question

The people in an economy have $10 million in money. There is only one bank that all the people deposit their money in and it holds 10% of the deposits as reserves. What is the money multiplier in this economy?

answer

10

question

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

answer

total money; quantity of money

question

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?

answer

store of value

question

__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds.

answer

Money market funds

question

In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services.

answer

medium of exchange

question

If the central bank increases the amount of reserves banks are required to hold to 20%, then

answer

both the money multiplier and supply of money in the economy will decrease.

question

If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

answer

depend on borrowed money

question

Why do banks use a T-account?

answer

the T-account separates assets on the left from liabilities on the right

question

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?

answer

$970 million

question

__________________ pool the deposits of many investors together and invest them in a safe way like short-term government bonds

answer

Money market funds

question

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

answer

her M1 funds.

question

In macroeconomics, ___________________________ describes a situation in which two people each want to exchange some good or service that the other can provide.

answer

a double coincidence of wants

question

Which of the following is a valid criticism of the use of money as a store of value in modern economies?

answer

annual inflationary loss of buying power

question

The market where loans are made to borrowers is called the:

answer

primary loan market.

question

Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank's assets?

answer

$970 million

question

If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:

answer

both the money multiplier and the supply of money in the economy will increase.

question

Banks typically come under financial stress because of:

answer

a widespread decline in the value of their assets

question

Which category of the money supply would you be contributing to if you invest in money market funds?

answer

M2

question

With respect to measuring the money supply, which of the following terms describes a checking account?

answer

demand deposits

question

The process of banks making loans in financial capital markets is intimately tied to the

answer

creation of money.

question

If the central bank increases the amount of reserves banks are required to hold to 20%, then:

answer

both the money multiplier and supply of money in the economy will decrease.

question

Antonio tries to limit his risk of overexposure to debt by using a ________________ to store a certain amount of value that he then uses to make purchases.

answer

smart card

question

If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from:

answer

Sarah's M1 funds.

question

Stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. What does Stealth bank's net worth equal?

answer

$620 million

question

Which of the following would be classified in the M1 category of the money supply?

answer

demand deposits

question

The money multiplier is equal to the _______________ in the economy divided by the original _________________.

answer

total money; quantity of money

question

In macroeconomics, a _______________ describes the common way in which market values are measured in an economy.

answer

unit of account

question

Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?

answer

M1

question

_______________________________ can set the stage for international financial investors first to send their funds to a country and cause an appreciation of its exchange rate and then to pull their funds out and cause a depreciation of the exchange rate and a financial crisis as well.

answer

trade balance

question

When a business firm makes an investment in physical capital, what is that investment subject to?

answer

the discipline of the market

question

If the government initiates an expansionary monetary policy at the same time that its budget deficit increases, then the interest rate will __________________.

answer

either increase or decrease

question

If a country's economic data shows that private savings equal $350 million, government spending equals $375 million, taxes equal $300, and the trade surplus equals $125 million, then what does investment equal?

answer

$150 million

question

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with:

answer

a contractionary monetary policy.

question

In most developed countries, the government plays a large role in society's investment in human capital through _________________________.

answer

the education system

question

An increase in government borrowing can:

answer

crowd out private investment in physical capital.

question

If an economy has a budget surplus of 1,500, private savings of 3,000, and investment of 5,000, what will the balance of trade in this economy equal?

answer

surplus of 500

question

If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as:

answer

S + (M - X) = I + (G - T)

question

When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view?

answer

central bank prints more money

question

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?

answer

especially large and sustained government borrowing

question

Which of the following is not a consequence of an increase in the government's budget deficit?

answer

exports increase while imports and all other variables are held constant

question

A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country's banking and financial system.

answer

sustained pattern of large budget deficits

question

When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant:

answer

investment will increase if savings remain constant.

question

A government deficit has increased from 30 to 50. The country's trade deficit is 100 and private savings equal 65 and investment equal 90. If Ricardian neutrality holds true, after this change in the government's budget, private savings will equal:

answer

85

question

The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.

answer

private savings from U.S. households and firms; inflows of foreign financial investment.

question

If an economy has a budget deficit of 600, private savings of 2,000, and investment of 800. What is the balance of trade in this economy?

answer

surplus of 600

question

A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment.

answer

higher interest rate

question

Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits?

answer

increasing exchange rates

question

In the U.S. economy, the offsetting effects of private saving compared to government borrowing are typically noted as being represented by which of the following ratios?

answer

much less than one-to-one

question

:If the U.S. government's budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then:

answer

the central bank might react with an expansionary monetary policy.

question

When a government records a budget surplus, the national savings and investment identity is written as:

answer

S + (M - X) + (T - G) = I

question

If a government experiences an increase in its budget surplus, which of the following possible outcomes will likely result?

answer

private savings decrease while everything else holds constant

question

If a country's economic data shows private savings of $500 million, government spending of $300 million, tax revenue of $400 million, and a trade surplus of $100 million, then what does investment equal?

answer

$500 million

question

A prolonged period of budget deficits may lead to ___________________.

answer

lower economic growth

question

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________.

answer

decrease

question

An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?

answer

productivity and economic growth

question

Ricardian equivalence means that:

answer

changes in private savings offset any changes in the government deficit.

question

Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget surplus increases by 100, then:

answer

private savings will decrease by 100.

question

An increase in the government's budget surplus will cause the interest rate to:

answer

decrease.

question

When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant:

answer

investment will decrease if savings also remains constant.

question

A government will likely ____________________________ to encourage investment in technology R;D by private firms?

answer

implement fiscal policy establishing tax incentives

question

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

answer

government borrowing

question

A reduction in government borrowing can:

answer

give private investment an opportunity to expand.

question

Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely?

answer

difficulty managing public investment so it's done in a cost effective way

question

A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a cause for concern.

answer

moderate increase in a trade deficit and a moderate appreciation of the exchange rate

question

A decrease in the government's budget surplus will cause the interest rate to:

answer

increase

question

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.

answer

investment in physical capital; fiscal policy

question

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to:

answer

the trade deficit.

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