ECON 2301 TEST 3 Study Guide. Spring 2013

Transcription

1 ECON 2301 TEST 3 Study Guide Spring 2013 Instructions: 33 multiple-choice questions, each with 4 responses Students need to bring: (1) Sanddollar ID card; (2) scantron Form 882-E; (3) pencil; (4) calculator (optional) Chapter 29 Definition of money Functions of money Commodity vs fiat money Liquidity Monetary aggregates Central banking The Federal Reserve, it s structure, the Board of Governors and the FOMC Reserves Fractional reserve banking Money multiplier Financial crisis of tools of monetary policy Problems with tools Bank runs Fed funds rate vs discount rate Chapter 30 General definition of inflation Disinflation, deflation and hyperinflation Classical theory of money Demand and supply of money Classical dichotomy Quantity theory of money Equation of exchange Monetary neutrality Evidence for quantity theory hyperinflation episodes Inflation tax Fisher effect/hypothesis Costs of inflation shoeleather, menu, higher variability Tax distortions Anticipated vs unanticipated money supply increase effects Deflation Wizard of Oz Chapter 31 Trade balance and what determines it Net capital outflow and what determines it Relation between trade balance and net capital outflow Simple national income algebra to evaluate saving, investment and the trade balance US external balance history Nominal exchange rates appreciation and depreciation Real exchange rates PPP and its limitations Big mac standard

2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate? a. store of value b. medium of exchange c. unit of account 2. Liquidity refers to a. the ease with which an asset is converted to the medium of exchange. b. the measurement of the intrinsic value of commodity money. c. the measurment of the durability of a good. d. how many time a dollar circulates in a given year. 3. Which of the following is included in both M1 and M2? a. savings deposits b. demand deposits c. small time deposits d. money market mutual funds 4. The Federal Reserve a. was created in b. serves as a lender of last resort. c. was created to facilitate the federal government s collection of taxes as well as its expenditures. d. All of the above are correct. 5. Which of the following is an asset of a bank and a liability for its customers? a. deposits of its customers and loans to it customers b. deposits of its customers but not loans to its customers c. loans of its customers but not the deposits of its customers d. neither the deposits of its customers nor the loans to its customers 6. If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to a. $5,500 of new money. b. $5,000 of new money. c. $4,000 of new money. 7. To increase the money supply, the Fed could a. sell government bonds. b. increase the discount rate. c. decrease the reserve requirement.

3 8. You put money in the bank. The increase in the dollar value of your savings a. and the change in the number of goods you can buy with your savings are both nominal variables. b. and the change in the number of goods you can buy with your savings are both real variables. c. is a nominal variable, but the change in the number of goods you can buy with your savings is a real variable. d. is a real variable, but the change in the number of goods you buy with your savings is a nominal variable. 9. The principle of monetary neutrality implies that an increase in the money supply will a. increase real GDP and the price level. b. increase real GDP, but not the price level. c. increase the price level, but not real GDP. d. increase neither the price level nor real GDP. 10. If M = 4,000, P = 1.5, and Y= 6,000, what is velocity? a b c If inflation is higher than what was expected, a. creditors receive a lower real interest rate than they had anticipated. b. creditors pay a lower real interest rate than they had anticipated. c. debtors receive a higher real interest rate than they had anticipated. d. debtors pay a higher real interest rate than they had anticipated. 12. Peru has exports of $31.5 million and imports of $30 million. Peru a. sells more overseas then it buys from overseas; it has a trade deficit. b. sells more overseas then it buys from overseas; it has a trade surplus. c. buys more from overseas then it sells overseas; it has a trade deficit. d. buys more from overseas then it sells overseas; it has a trade surplus. 13. Which of the following statements is correct for an open economy with a trade surplus? a. The trade surplus cannot last for very many years. b. The trade surplus must be offset by negative net capital outflow. c. The trade surplus implies that the country's national saving is greater than domestic investment. 14. Most of the change from 1980 to 1987 in U.S. net capital outflow as a percent of GDP was due to a(n) a. decrease in U.S. investment. b. decrease in U.S. national saving. c. increase in U.S. investment. d. increase in U.S. national saving.

4 15. Other things the same, the real exchange rate between American and Mexican goods would be lower if a. prices of Mexican goods were higher, or the number of pesos a dollar purchased was higher. b. prices of Mexican goods were higher, or the number of pesos a dollar purchased was lower. c. prices of Mexican goods were lower, or the number of pesos a dollar purchased was higher. d. prices of Mexican goods were lower, or the number of pesos a dollar purchased was lower. 16. Suppose the real exchange rate is 5/4 of a Canadian textbook per U.S. textbook, a U.S. textbook costs $150, and a Canadian one costs 120 Canadian dollars. To the nearest penny, what is the nominal exchange rate? a..64 Canadian dollars per U.S. dollar b. 1 Canadian dollar per U.S. dollar c Canadian dollars per U.S. dollar 2301 Midterm 3 Examples Answer Section MULTIPLE CHOICE 1. ANS: A PTS: 1 DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Store of value 2. ANS: A PTS: 1 DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Liquidity 3. ANS: B PTS: 1 DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: M2 4. ANS: B PTS: 1 DIF: 2 REF: 29-2 NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Reserve System 5. ANS: C PTS: 1 DIF: 1 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: T-accounts 6. ANS: D PTS: 1 DIF: 1 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Money multiplier 7. ANS: C PTS: 1 DIF: 1 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Monetary policy tools 8. ANS: C PTS: 1 DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Nominal interest rate Real interest rate

5 9. ANS: C PTS: 1 DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Monetary neutrality 10. ANS: A PTS: 1 DIF: 1 REF: 30-1 NAT: Analytic LOC: The role of money TOP: Quantity equation 11. ANS: A PTS: 1 DIF: 2 REF: 30-2 NAT: Analytic LOC: Unemployment and inflation TOP: Wealth redistribution 12. ANS: B PTS: 1 DIF: 2 REF: 31-1 NAT: Analytic LOC: International trade and finance TOP: Net exports Trade balance 13. ANS: C PTS: 1 DIF: 2 REF: 31-1 NAT: Analytic LOC: International trade and finance TOP: Purchasing-power parity 14. ANS: B PTS: 1 DIF: 2 REF: 31-1 NAT: Analytic LOC: International trade and finance TOP: U.S. trade 15. ANS: B PTS: 1 DIF: 2 REF: 31-2 NAT: Analytic LOC: International trade and finance TOP: Real exchange rate 16. ANS: B PTS: 1 DIF: 3 REF: 31-2 NAT: Analytic LOC: International trade and finance TOP: Real exchange rate