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Econ 202
exam 3
| Question | Answer |
|---|---|
| ________________ economists place an emphasis on __________ run economic performance. | Neoclassical; long |
| The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________ | potential GDP; natural rate of unemployment |
| Which of the following is a building block of neoclassical economics? | wages and prices will adjust in a flexible manner |
| From a neoclassical viewpoint, government should focus less on: | cyclical unemployment. |
| The Keynesian view of economics assumes that: | wages are sticky. |
| In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right. | vertical AS curve |
| Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in: | an increase in price level. |
| If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur? | inflationary increase in price level |
| In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment. | aggregate demand |
| In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP. | potential GDP and aggregate supply |
| Which of the following is omitted in a barter transaction? | money |
| If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied. | double coincidence of wants |
| In macroeconomics, a _______________ describes the common way in which market values are measured in an economy. | unit of account |
| In modern economies, credit cards are a _________________ because of their wide acceptance as a method of payment for both goods and services. | medium of exchange |
| 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? | store of value |
| In 2010, Tara used $50,000.00 from funds she had invested in certificates of deposit as a down payment to buy a house. What function did this portion of her investments serve when she made the down payment? | medium of exchange. |
| If mollusk shells were accepted as a method of payment in modern-day markets, what economic role would they play in the financial system? | medium of exchange |
| Which of the following is a valid criticism of the use of money as a store of value in modern economies? | annual inflationary loss of buying power |
| ___________ are funds that the bank keeps on hand that are not loaned out or invested in bonds. | Reserves |
| If the central bank increases the amount of reserves banks are required to hold to 20%, then: | both the money multiplier and supply of money in the economy will decrease. |
| Which of the following institutions determines the quantity of money in the economy as its most important task? | Central Bank |
| Which of the following institutions oversees the safety and stability of the U.S. banking system? | The Federal Reserve |
| Which of the following terms is used to describe the proportion of deposits that banks are legally required to deposit with the central bank? | reserve requirements |
| What term is used to describe the interest rate charged by the central bank when it makes loans to commercial banks? | discount rate |
| A central bank that wants to increase the quantity of money in the economy will: | buy bonds in open market operations. |
| A central bank that desires to reduce the quantity of money in the economy can: | raise the reserve requirement. |
| When the central bank lowers the reserve requirement on deposits: | the money supply increases and interest rates decrease. |
| When the Federal Reserve announces that it is implementing a new interest rate policy, the ____________________ will be affected? | federal funds rate |
| When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is: | following an expansionary monetary policy. |
| ____________________________ 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? | Long and variable time lags |
| People or firms use one currency to purchase another currency at the _______________________ . | foreign exchange market |
| What do the economies of Greece, Ireland and Germany all share? | a common currency |
| If the Canadian dollar is strengthening, then: | it has appreciated in terms of other currencies. |
| A depreciating U.S. dollar is ________________ because it is worth ___________ in terms of other currencies. | weakening; less |
| ________________________ equalizes the prices of internationally traded goods across countries. | Purchasing power parity |
| When a government uses a ______________ exchange rate policy, it usually allows the exchange rate to be set by the market. | soft peg |
| In 2009, 1 U.S. dollar purchased 1400 Korean won and in 2013it purchased 900 Korean won. How much did 1000 Korean won cost in U.S. dollars in 2009 and 2013? | 2009: .71 dollars, 2013: 1.11 dollars |
| Which of the following is an example of a pegged currency? | Chinese yuan |
| Expansionary monetary policy lowers ______________ , and increases demand for investment and consumer borrowing, which shifts aggregate demand to the ________________ . | interest rates; right |
| If a central bank focuses on preventing either high inflation or deep recession by using low and reasonably steady interest rate policy, then: | exchange rates will have less reason to vary. |
| The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________. | economic growth; the size of the economy |
| In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve? | a vertical line drawn at the level of potential GDP |
| Which of the following is a distinguishing characteristic of the neoclassical view? | flexibility of wages and prices over time |
| Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession? | standard of living is ultimately determined by long-term growth |
| In order to shift the vertical supply curve to the left, which of the following would have to occur? | breakdown of key market institutions |
| After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall? | rational expectations |
| In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment. | aggregate demand |
| If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur? | inflationary increase in price level |
| From a neoclassical view, which of the following is a true statement? | The economy cannot sustain production above its potential GDP in the long run. |
| Which category of the money supply would you be contributing to if you invest in money market funds? | M2 |
| In modern economies, _____________________ receive money from savers and provide funds to borrowers. | financial intermediaries |
| Banks can protect themselves against an unexpectedly high rate of loan defaults and against the risk of ____________________ by adopting a strategy that will ______________. | an asset-liability time mismatch; diversify its loans |
| If Sarah uses her smart card to purchase movies over the internet, then the money to pay the retailer will come from: | Sarah's M1 funds. |
| The market in which loans are bought and sold is called the: | secondary loan market |
| . In an economy with _______________, money loses some buying power each year, but it remains money. | inflation |
| _____________ are a form of financial instrument through which corporations and governments borrow money from financial investors and promise to repay with interest. | Bonds |
| According to the basic quantity equation of money, if price and output fall while velocity increases, then: | the quantity of money will fall. |
| Regardless of the outcome in the long run, ______________________ always has the effect of stimulating the economy in the short run. | expansionary monetary policy |
| The ___________________ is the institution designed to control the quantity of money in the economy and also to oversee the: | Central Bank; safety and stability of the banking system. |
| Which of the following is a traditional tool used by the Fed during recessions? | open market operations |
| A central bank that wants to increase the quantity of money in the economy will: | buy bonds in open market operations. |
| When the central bank lowers the reserve requirement on deposits: | the money supply increases and interest rates decrease |
| How are the specific interest rates for the lending and borrowing markets determined? | by the forces of supply and demand |
| When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is: | following an expansionary monetary policy. |
| When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is: | following a loose monetary policy. |
| What is the name given to the macroeconomic equation MV = PQ? | basic quantity equation of money |
| Foreign direct investment is the term used to describe purchases of firms in another country that involve ______________________. | taking a management responsibility |
| If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to: | a floating exchange rate. |
| For firms engaged in international lending and borrowing, ____________________ can have an enormous effect on profits. | swings in exchange rates |
| The _____________________________ is the largest market in the world economy. | foreign exchange market |
| The most commonly traded currency in foreign exchange markets is the: | U.S. dollar. |
| If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then: | the dollar depreciated against the yen. |
| A soft peg exchange rate may create additional _______________ as exchange rate markets try to anticipate when and how the government will intervene. | volatility |
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