Deck 1

Question 1

A rise in the Euro relative to the dollar:

Answer 1

Will make U.S. goods and services cheaper for Europeans.

Question 2

If the dollar price of the Euro rises:

Answer 2

Additional dollars are required to purchase U.S. goods and services.

Question 3

If dollar price of Euro rises from $1.25 per Euro to $1.50 per Euro:

Answer 3

Dollar depreciates.

Question 4

Federal Reserve sells U.S. Treasury bonds:

Answer 4

Reduces money supply

Question 5

Fed reduces discount rate:

Answer 5

Increases money supply by allowing banks to increase their lending portfolios.

Question 6

CPI tracks changes in the general price level of household goods and services by comparing:

Answer 6

Current year prices with prices in a base year.

Question 7

Percentage change in price formula:

Answer 7

[(Base year-Last year prices) - (Base year-10 years ago prices)]/Base year - 10 years ago prices

Question 8

Base year-Last year prices=

Answer 8

Last year prices/CPI Index

Question 9

Base year-10 years ago prices=

Answer 9

10 years ago prices/CPI Index

Question 10

Most expansions are:

Answer 10

Several years long

Question 11

Most recessions are:

Answer 11

Several months long (with very few exceeding 2 years)

Question 12

If unemployment is above NAIRU:

Answer 12

Actual GDP will likely be below potential GDP

Question 13

Selling U.S. government bonds:

Answer 13

Is contractionary and reduces the money supply.

Question 14

To avoid a recession, the FED will employ expansionary policies such as:

Answer 14

Lowering the discount rate. This makes it less expensive for banks to borrow, borrowing increases, and it provides more funds available for lending.

Question 15

Countries with trade deficits need to take actions to prevent currency depreciation such as:

Answer 15

Increasing interest rates.

Question 16

To maintain stable exchange rates, countries need to maintain similar inflation rates, and thus to:

Answer 16

Increase interest rates if their inflation rates are higher.

Question 17

Globalization:

Answer 17

More international trade, more occurs within companies rather than across companies.

Question 18

Preventive measure for a period of deflation:

Answer 18

Increasing the money supply. More money means more spending power and higher prices.

Question 19

Stagflation:

Answer 19

High unemployment and high inflation.

Question 20

An item is inelastic if:

Answer 20

Increase in demand is proportionally higher than a decrease in price.