Money is -anything that is regularly used

Money is -anything that is regularly usedUnit 4

1. Money is ________.

a. anything that is regularly used in economic transactions or exchanges

b. necessary to conduct economic transactions

c. anything that the government declares to have value

d. anything that has value

2. The fraction of deposits that banks are required by law to

hold and NOT lend out are called its ________.

a. reserves

b. excess reserves

c. required reserves

d. net worth

3. Suppose Erin withdraws $5,000 from her bank. If the reserve requirement is 25%, then this will lead to a decrease in M1 of ________

a. $1,250

b. $5,000

c. $10,000

d. $15,000

4. The group responsible for deciding on monetary policy is

the ________.

a. Federal Open Market Committee

b. Board of Governors only

c. Federal Advisory Council

d. group of 12 Federal Reserve Bank presidents only

5. Generally when the Federal Reserve lowers interest rates, investment spending ________ and GDP ________.

a. increases, decreases

b. increases, increases

c. increases, remains constant

d. decreases, decreases

6. If a bond were to pay off one year from now for $110 and the interest rate is 10 percent, what is the price of the bond?

a. $11

b. $100

c. $110

d. $121

7. The exchange rate is ________.

a. the rate at which banks can borrow from the Fed

b. the slope of the investment function

c. a tool of monetary policy

d. the rate at which one currency trades for another currency

8. Inside lags are ________.

a. longer for monetary policy than for fiscal policy

b. longer for fiscal policy than for monetary policy

c. the same for fiscal policy and monetary policy

d. more variable for monetary policy than for fiscal policy

9. In the long run ________.

a. prices are flexible

b. the economy operates below full employment

c. the economy operates above full employment

d. the level of GDP is determined only by the demand for goods and services

10. Suppose that an economy has been experiencing 3% annual inflation. If output exceeds full employment, prices will generally rise at ________.

a. a rate of 3%

b. a rate greater than 3%

c. a rate less than 3%

d. a rate of 0%

11. An increase in the price level causes ________.

a. a decrease in the demand for money

b. an increase in the demand for money

c. has no effect on the demand for money

d. may increase or decrease the demand for money

12. Political business cycles may occur because politicians follow ________.

a. expansionary policies before an election, and follow contractionary policies after the election

b. contractionary policies before an election, and follow expansionary policies after the election

c. expansionary policies before and after an election

d. contractionary policies before and after an election

13. Money illusion occurs when workers ________.

a. understand the difference between real and nominal wages

b. form expectations of the future path of inflation

c. attempt to predict the actions of the Federal Reserve

d. confuse nominal and real wages

14. In the short run, decreases in the money supply will

________.

a. decrease real interest rates

b. increase real interest rates

c. may increase or decrease real interest rates

d. have no effect on real interest rates

15. According to Milton Friedman ________.

a. if inflation increases so will unemployment

b. there is no permanent relationship between the level of unemployment and the level of inflation

c. when the inflation rate suddenly increases it is likely that none of the change was anticipated

d. if inflation increases unemployment will decrease

16. Suppose that the expected inflation rate is 5.5% and the actual inflation rate is 3%. Then borrowers ________.

a. are worse off and lenders are better off

b. and lenders are both worse off

c. and lenders are both better off

d. are better off and lenders are worse off

17. A deficit is defined as ________.

a. the excess of total expenditures over total revenues

b. the excess of total revenues over total expenditures

c. government spending plus transfer payments

d. the sum of all past borrowing by the government

18. The standard way to measure the effects of debt in an economy is to look at the stock of debt relative to ________.

a. total government spending

b. federal tax revenue

c. GDP

d. the deficit

19. Suppose the public increase the level of savings in anticipation of higher future taxes to service the national debt. This is an example of ________.

a. Reagonomics

b. Smithsonian equivalence

c. Ricardian equivalence

d. Monetary equivalence

20. If the production possibilities curve is drawn as a straight

line it means that ________.

a. the tradeoff between the two goods is increasing

b. the tradeoff between the two goods is decreasing

c. the tradeoff between the two goods is constant

d. no tradeoff is possible between the two goods

21. In a case of ________, each country is self-sufficient and

there is no trade.

a. trade-offs

b. autarky

c. VERs

d. import quotas

22. In 1995 the United States threatened to impose 100% tariffs on ________ from ________ if it didn’t loosen its protectionist policies.

a. luxury cars, Japan

b. auto parts, Japan

c. brandies, France

d. light trucks, Germany

23. The exchange rate is ________.

a. always equal to the terms of trade

b. the rate at which one currency can be exchanged for another

c. the rate at which exports flow out of a nation

d. the rate of return on foreign investments

24. The real exchange rate is the ________.

a. market exchange rate

b. market exchange rate adjusted for interest rates

c. exchange rate determined by the government

d. market exchange rate adjusted for prices

25. Any action that gives rise to a supply of foreign currency is a ________.

a. deficit item on the current account or on the capital account

b. deficit item on the current account and a surplus item on the capital account

c. surplus item on the current account or on the capital account

d. surplus item on the current account and a deficit item on the capital account

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