ECON 2000 Study Guide - Final Guide: Floating Exchange Rate, Gordon Thiessen, Foreign Exchange Market

True or False

1. The loanable fund market demand is the demand for consumption.

( ) 2. An increase in the bond price increases the bond yield.

( ) 3. An increase in the stock price increases the stock rate of return.

( ) 4. Monopoly increases unemployment, but monopsony does not.

( ) 5. The open market operation is the changes in interest rate in open market.

( ) 6. The high reserve requirement has the direct relationship with money creation.

( ) 7. The money value and price level have inverse relationship.

( ) 8. The nominal interest rate is related to inflation.

( ) 9. An inflation tax is the tax put on inflation.

( ) 10. Government expenditure belongs to the aggregate supply.

( ) 11. 1973-1975 recession is due to aggregate demand shift.

( ) 12. 2001 recession is due to aggregate demand shift.

( ) 13. As potential GDP is smaller than actual GDP, recession occurs.

( ) 14. A money supply results in shift of aggregate supply GDP.

( ) 15. The multiplier effect is bigger as marginal propensity to consume is smaller.

( ) 16. The multiplier effect comes together with crowding effect.

( ) 17. A recession results in decrease of welfare program.

( ) 18. A recession results in decrease of tax revenue.

( ) 19. The unemployment and inflation are in inverse relation.

( ) 20. The unemployment and inflation relation does not related to aggregate demand.

( ) 21. A quota deceases export

( ) 22. A tariff decreases import.

( ) 23. A real exchange rate is not related to nominal exchange rate.

( ) 24. A purchasing power parity exchange rate is not related to nominal exchange rate.

( ) 25. A flexible exchange rate is not related to nominal exchange rate.

( ) 26. The export increases consumer surplus.

( ) 27. The trade deficit results in capital inflow.

2. Summarize

(1) loanable fund market

(2) monetary policy tools

(3) quantity equation

(4) Okun's law

(5) mutiplier effect and crowding effect

(6) automatic stabilizers

(7) risk aversion and risk taking

(8) Fisher effect

(9) aggregate model

(10) aggregate demand shift

(11) Phillips curve

(12) protectionist policies

(13) capital inflow and capital outflow

Question 32

1. Tim, a citizen of the United States living in Virginia, buys a computer that was made in South Korea by a Japanese firm. This transaction would affect the GDP of the United States in which way?

   		Net exports would decrease and GDP would decrease.
   		Net exports would decrease and GDP would be unaffected.
   		Net exports would increase and GDP would increase.
   		Net exports would increase and consumption would increase.

1 points

Question 33

1. An increase in U.S. government spending tends to

   		increase U.S. interest rates and increase the U.S. capital account surplus.
   		increase U.S. interest rates and decrease the U.S. capital account surplus.
   		decrease U.S. interest rates and increase the U.S. capital account surplus.
   		decrease U.S. interest rates and decrease the U.S. capital account surplus.

1 points

Question 34

1. A _______ is a system in which the government intervenes extensively in the foreign exchange market to keep the exchange rate within certain bounds.

   		dirty float
   		floating exchange rate
   		fixed exchange rate
   		dollarization

1 points

Question 35

1. Suppose the exchange rate between the euro and the dollar is E0.5 to $1. If a Big Mac costs $3 in the United States and E1.5 in Germany, then the real exchange rate is

   		1:1.
   		2:1.
   		1:2.
   		It cannot be determined from this information.

1 points

Question 36

1. Which of the following prevent the purchasing power parity theorem from holding perfectly?

   		transportation costs
   		goods that cannot be shipped
   		tariffs and quotas
   		Each of these answers is correct.

1 points

Question 37

1. Fiscal policy is more effective in affecting economic activity if

   		many resources are unemployed.
   		there is a real shock instead of an aggregate demand shock.
   		the economy returns to the long-run condition almost immediately.
   		there is a long implementation lag.

1 points

Question 38

1. In a typical year, changes in government spending compared to overall spending are relatively

   		small.
   		large.
   		unpredictable.
   		well-timed.

1 points

Question 39

1. Which statement is TRUE about the difference between monetary and fiscal policy?

   		Fiscal policy can quickly adjust to changes in aggregate demand.
   		Fiscal policy can have a more direct impact.
   		Monetary policy is subject to many long lags.
   		Monetary policy can affect the economy regardless of the actions banks take.

1 points

Question 40

1. Fiscal policies that help an economy in a recession without additional actions by policy makers are called

   		consumption smoothers.
   		Ricardian equalizers.
   		automatic stabilizers.
   		Each of these answers is correct.

1 points

Question 41

1. The U.S. individual income tax system can best be described as a

   		regressive tax system.
   		flat tax system.
   		zero tax system.
   		progressive tax system.

1 points

Question 42

1. What demographic change in the United States will cause government spending to increase in the next 50 years?

   		The population over 65 will grow.
   		The population will be younger.
   		Women will have fewer children.
   		Immigration will increase.

1 points

Question 43

1. What kind of rising costs will mostly cause U.S. government spending to skyrocket in the future?

   		defense
   		environmental protection
   		education
   		health care

1 points

Question 47

1. The Fed could have popped the bubble of the housing boom in the 2000s by

   		lending directly to homeowners.
   		regulating the stock markets more.
   		reducing the growth rate of the money supply.
   		doing nothing.

1 points

Question 48

1. Which of the following would be an example of running monetary policy by rules?

   		A 5 percent increase in money supply automatically leads to a 2 percent increase in real GDP.
   		An increase in money supply automatically leads to an increase in inflation.
   		The Fed will increase money growth to different levels, depending on the severity of the recession.
   		A 1 percent drop in real GDP will automatically elicit a 2 percent increase in money supply. Question 50 Moral hazard occurs when the failure of one financial institution can bring down other institutions as well. financial institutions take on too much risk because they are insured. financial institutions become insolvent because they issued too many loans. there are more short-term liabilities than short-term assets. Which of the following is NOT a transmission mechanism? reductions in the money supply intertemporal substitution uncertainty sticky wages and prices Question 56 For a given increase in government spending growth, intertemporal substitution is more widespread when the impact of AD growth on both inflation and real GDP growth is stronger. the impact of AD growth on both inflation and real GDP growth is weaker. the impact of AD growth on inflation is stronger and the impact of the AD growth on real GDP growth is weaker. the impact of AD growth on inflation is weaker and the impact of AD growth on real GDP growth is stronger. Stalin: instituted democratic reforms, leading to widespread prosperity. took government control of the farms in Ukraine, leading to the starvation of millions of people. increased the provision of public goods, which had a positive effect on lowering the unemployment rate. tried unsuccessfully to expand voting rights in 1924 Russia. 1 points Question 60 1 points Question 59 If voters care about two issues such as taxes and war, then politicians: will form a stable policy on these issues. can pose a policy that will never lose against another policy. must assume that there is no median voter. may never converge on a stable outcome. 1 points Question 58 Policy A adversely affects 50 million people at a cost of $1 per person. But Policy A also benefits 1,000 people at $30,000 per person. Which of the following statements is true? Policy A will not become law because it hurts more people than it helps. Policy A concentrates all the costs among a small group of people and all the benefits among a large group of people. Policy A is likely to be supported by politicians even though it makes society worse off. Since Policy A negatively affects many people, and so rational ignorance will not be a problem. 1 points Question 57 Data for the United States show that the incumbent party tends to win the election if: I. personal disposable income is growing. II. the inflation rate is low. III. the political party has not been in power for too many continuous terms. I only I and II only I and III only I, II, and III 1 points Question 53 1 points Question 52 What is the purpose of the Fed's structure? to give the President of the United States as many tools as possible to regulate the economy to make sure all states are given equal access to monetary policy decisions to keep the private sector out of the monetary policy making arena to keep the power of the Fed dispersed 1 points Question 51 An increase in money growth will cause inflation to increase in the short run only. the long run only. both the short run and the long run. neither the short run nor the long run.