Final Flashcards
Money is useful because it…
a. can transfer purchasing power from the present to the future
b. can indicate the value of a good or service
c. can be exchanged between individuals to facilitate trades
Which of the following has more intrinsic value?
b. a large lump of coal
Which of the following would be included in M2?
a. savings deposits
b. demand deposits
c. currency
d. money market funds
As the reserve ratio increases…
b. the money supply decreases
d. banks will hold more in reserves
g. banks will make fewer loans
A serious concern for fractional-reserve banks is the potential of a “run on the bank.” Why would this be a concern for banks?
c. Banks do not hold all of a client’s assets and as such would be unprepared to pay off all of their liabilities at once.
- If the Federal Reserve wants to increase the money supply by $10 thousand, it should…
b. buy $2,000 worth of bonds if the reserve requirement is 20%
- Suppose that Jacob deposits $1,000 into his bank. His bank then loans out all of the excess reserves ($850) to Sara who deposits it into her bank (assume that all banks are identical). Now suppose that the Federal Reserve institutes a reserve requirement of 20%. Which of the following is true?
b. Jacob’s bank will loan out less money after the policy is implemented.
d. Sara’s bank will loan out less money after the policy is implemented.
f. The money supply will decrease.
- Suppose that the demand for money increases. We can expect that…
c. the value of money will increase and the price level will decrease
- If we produce 25 banana smoothies in a given year while the price is $3 per banana smoothie. What would the money supply have to be if the velocity of money is $5?
d. 15
- The Federal Reserve decides to sell $50 worth of bonds. If the reserve ratio is 10%, this would change the money supply to _______ by $______.
a. decrease, $500
- This change, referring to the previous question, in the money supply would cause the price level to _____ and the value of money to _____.
b. decrease, increase
- Money neutrality is based on the theory that…
c. Nominal variables can change while real variables don’t change in the long run
- According to the Quantity Theory of Money, price changes, at least in the long run, are almost entirely driven by ______.
a. changes in the money supply
- When people expect prices to increase, it becomes possible for…
d. price levels to rise before the money supply actually increases
- High inflation, leading to high nominal interest rates makes it…
a. Difficult to afford a large fixed-rate mortgage at a time of origination
c. Easy to afford payments later in the fixed-rate mortgage contract
- Suppose that, instead of having direct deposit or apps that send your check information to your bank, you were forced to drive to the bank in order to deposit your paycheck. Under rapid inflation, this would cause you to take time and gas to travel to the bank frequently. This is an example of….
e. The shoeleather cost of inflation
- Under high inflation, it would be an optimizing decision to…
b. purchase more durable goods than you would otherwise prefer
c. convert cash frequently into other currencies with lower inflation
- Under the expectation that inflation would be 5%, your bank agreed to give you a loan at a nominal interest rate of 8%. If the actual inflation was 3%, which of the following is true?
b. the real interest rate increased
c. your purchasing power decreased
d. your banks purchasing power increased
- Which of the following is not a possible cause for why trade has increased as a fraction of GDP?
b. appreciation of the dollar over recent years
- Which of the following is true about Net Capital Outflow (NCO)?
c. NCO=Net Exports
d. NCO = purchase of foreign assets by domestic residents - purchase of domestic assets by foreign residents
- Suppose that the US exports $2 trillion worth of goods and services abroad. Which of the following could happen?
a. The US imports $2 trillion of goods and services from foreign countries
c. The US imports $2.5 trillion of goods and services and foreigners purchase $500 billion of US assets
d. The US imports $1.5 trillion of goods and services and also purchases $500 billion of foreign assets
Which of the following could be an example of where investment was used to increase the productive capacity of the U.S.?
b. The building of a new public school
- Which of the following is an expression that identifies the amount of savings in a closed economy?
b. Y-C-G
- When is it possible to invest more than we save?
a. If we have net capital inflow (negative net capital outflow)
- Suppose political uncertainty in China causes Chinese citizens to desire more US assets. How might that affect economic activity?
b. Chinese citizens would use money generated from positive trade balance to invest in US assets instead of US goods and services
d. If Chinese citizens purchased more US assets, US citizens could save less and still keep investment high
- Suppose that the exchange rate of pounds per dollar is 1.5. A hotel in the UK costs 100 pounds. A hotel in the US costs $120. Which is cheaper?
a. In the UK
- Suppose the nominal exchange rate of pounds per dollar is .67. However, the price level in the UK is 110 and the price level in the US is 100. What is the real exchange rate? Round to the nearest hundredth.
c. .61
- As the US increases their money supply, assuming that everything else remains equal, what will happen to the nominal exchange rate of pounds per dollar?
b. we will get fewer pounds per dollar, dollar depreciates
- Purchasing Power Parity makes the claim that
c. through arbitrage, relative prices will converge to become equal
- Graphically, the difference between the aggregate supply in the long run and the aggregate supply in the short run is that
a. the long-run supply curve is vertical while the short-run supply is upward-sloping
- According to Keynesian economics, the short-run aggregate supply curve is…
a. upward-sloping due, in part, to sticky-wages
- If people expect tax cuts today to be equal to tax hikes in the future (discounting appropriately), the effects of tax policy on aggregate demand might be…
a. less than anticipated
- Which of the following could lead to an increase in aggregate demand in the U.S.?
a. a decrease in interest rates
b. a decrease in the sales tax
c. a depreciation of the dollar
d. a new government program to build a freeway
e. an anticipation of an asset boom
- In anticipation for poor financial times ahead, you should
b. save more today in order to smooth your consumption
- Which of the following could increase the long-run aggregate supply of an economy?
a. an influx of productive workers
d. the discovery of a new technology
- Within the U.S. economy, there is a sudden and permanent decrease in the labor force participation rate. In the long run, this will…
b. decrease output and raise price level
- In the long-run, a temporary decrease in the production costs of all goods will…
e. leave production and price level unchanged
- Assuming that sticky-wages exist, when the price level in an economy increases due to a shock in aggregate demand, firms will produce _____ in the short-run and _____ in the long-run.
f. more, the same amount
- Suppose that the current interest rate is above the equilibrium rate, which of the following is true?
a. Consumers wish to hold less money than exists in the system
c. Banks lower interest rates in response to increase the supply of loanable funds
- If the Fed decides to decrease the reserve ratio, which of the following will occur?
a. at fixed prices, consumers want to buy more goods
c. prices increase
f. interest rates decrease
g. investment increases
- Assuming that wages are sticky and that the economy is currently in the long-run equilibrium, then as the Fed sells bonds, which of the following will occur?
a. Aggregate Demand will decrease
d. Price level will decrease
f. Unemployment will increase
g. Real output decreases
- If the Federal Reserve believes that consumer confidence has unexpectedly and suddenly increased, which of the following (is an/are) appropriate policy(ies) if they want to stabilize output?
b. Increase the reserve ratio
d. Sell bonds
- Which of the following is an/are example(s) of fiscal policy?
c. A tax hike/cut
d. Increasing/Decreasing government spending
- Which of the following could be a serious concern if an economy’s central bank (the Fed in the U.S.) was not independent?
b. hyperinflation due to seasonal (election cycle) increases in the money supply
Bob has 10 hours of time and can produce 5 hammers per hour or 10 omelets per hour.
What is Bob’s opportunity cost of a hammer?
What is Bob’s opportunity cost of an omelet?
What is Bob’s opportunity cost of a hammer?
2 omelets
What is Bob’s opportunity cost of an omelet?
½ hammer
Jill has 8 hours of time and can produce 20 hammers per hour or 20 omelets per hour
What is Jill’s opportunity cost of a hammer?
What is Jill’s opportunity cost of an omelet?
What is Jill’s opportunity cost of a hammer?
1
What is Jill’s opportunity cost of an omelet?
1
Exchange between individuals
Can increase the consumption possibilities for both individuals relative to what they could produce on their own
If marijuana is a substitute for alcohol, in the short run legalizing marijuana is likely to
Shift the demand curve of alcohol to the left
They want to drink less so shifts it to the left
If marijuana is a substitute for alcohol, in the short run legalizing marijuana is likely to
Shift the demand curve of alcohol to the left and cause the price of alcohol to fall
Quantity falls and brings price down
Suppose that there is free entry of firms into the market for alcohol. If marijuana is a substitute for alcohol, in the long run legalizing marijuana is likely to
Shift the demand curve of alcohol to the left and not affect the price of alcohol
As the price of buffalo meat rises by 10 percent, quantity demanded falls by 20 percent. This implies that:
The elasticity of demand for buffalo meat is 2 Abs(change in %Q / change in %P) Midpoint meathod The demand for buffalo meat is elastic True
If the elasticity of supply for buffalo meat was 1, a tax on buffalo meat would mostly land on producers
True
The elasticity of demand is likely to be
Greater for apples than food
Greater in the long run than the short run
Greater for ipads than heating oil
Ipads are not a nacesity
In the absence of transaction costs, externalities, and imperfect information, markets achieve an efficient allocation. Consequently, when these conditions hold
Markets maximize the sum of consumer and producer surplus
Suppose the government imposes a price ceiling on sugar. This creates deadweight loss because
Some consumers value the product above the marginal cost of production but cannot purchase it
Individuals may have to wait in line to receive the product which wastes their time
If there is rationing or a lottery, those who consume the good may value it less than some consumers who are not able to consume the good
Deadweight loss of taxation will be small when we
Tax necessities that have a low elasticity of substitution
The following are benefits of free trade
Collectively countries become richer
Consumers can eat more different types of chocolate
The Coase theorem suggests that negotiation between private parties is likely to result in an efficient solution to the problems of
Appropriate royalties for the owner of a useful patent
A firm is currently losing $10,000 a month on $100,000 of revenue. It has decided to remain in business in the short run. This suggests that the firm
Has fixed costs of at least $10,000 a month
Should exit in the long run
If the long run supply curve is upward sloping in the long run, we know
There are a limited number of efficient firms
Efficient firms are the first to enter and last to exit
Monopolies
Induce deadweight loss when they cannot perfectly price discriminate
According to the signaling model of advertising
Advertising makes sense in a setting with repeat purchases
What is true about a set of strategies that maximize the sum of payoffs across players?
May be a Nash Equilibrium
May still allow a particular player to choose a different strategy that maximizes her specific payoff
Defines an efficient point where no player can be made better off without another player being made worse off
Firms are most likely to collude successfully when
They expect to operate in a market together moving forward
Those in charge of the firms have close personal connections
Firms engage in a price matching campaign
They create an organization that coordinates production and pricing
Suppose that automobile prices rise. Which of the following would occur?
Workers marginal revenue product of labor would increase
# $
Demand for workers would increase
Wages would rise
Suppose that firms pay Scandinavian-Americans less than other workers. This is consistent with:
Enough business owners do not like SA’s such that there is a wage penalty for being SA
SA’s prefer to work in jobs that impose fewer hours
SA’s on average take more sick days once they’re on a job
Suppose that there was an influx of savings to the US from developing countries. Which of the following would occur?
The quantity demanded for domestic loans would increase
The interest rate would decrease
The current value of a bond that pays $1000 in a year would go up
James is a stay at home dad who takes care of his children
Lois works as a waitress while looking for a job as a rocket scientist
Bill is currently not working but applied for a job at BYU
Lizzy lost her leg in a ping pong accident and collects disability
James: Not in Labor Force, but member of population
Lois: Underemployed, but still employed
Bill: Unemployed
Lizzy: Not in Labor Force
Suppose that the US government issues $1 billion in currency. The reserve ratio is .05. What is the money multiplier? What is the money supply?
Money Multiplier = 20
Money Supply = $20 billion
Finding new oil reserves is likely to
Lead to broad increases in well-being if institutions are strong
Put strain on existing institutions due to the potential to fight over windfall
Raise well-being more in poor countries than rich countries if both have strong institutions
