question
The idea of menu costs suggests that
a. firms alter prices less frequently as inflation increases.
b. firms alter prices more frequently as inflation increases.
c. firms always alter prices when costs increase.
d. firms alter prices as interest rates rise.
a. firms alter prices less frequently as inflation increases.
b. firms alter prices more frequently as inflation increases.
c. firms always alter prices when costs increase.
d. firms alter prices as interest rates rise.
answer
firms alter prices more frequently as inflation increases.
question
If velocity = 5, the price level = 2, and the real value of output is 2,500, then the quantity of money is
a. $250.
b. $25,000.
c. $1,000.
d. $6,250.
a. $250.
b. $25,000.
c. $1,000.
d. $6,250.
answer
$1,000
question
Purchasing-power parity theory does not hold at all times because
a. many goods are not easily transported.
b. the same goods produced in different countries may be imperfect substitutes for each
other.
c. Both a and b are correct.
d. prices are different across countries.
a. many goods are not easily transported.
b. the same goods produced in different countries may be imperfect substitutes for each
other.
c. Both a and b are correct.
d. prices are different across countries.
answer
Both a and b are correct.
question
If the nominal interest rate is 15 percent and the inflation rate is 5 percent, then what is the real interest rate?
a. 10 percent
b. 20 percent
c. 3 percent
d. 5 percent
a. 10 percent
b. 20 percent
c. 3 percent
d. 5 percent
answer
10 percent
question
In a fractional-reserve banking system, a bank
a. does not make loans.
b. does not accept deposits.
c. keeps only a fraction of its deposits in reserve.
d. None of the above is correct.
a. does not make loans.
b. does not accept deposits.
c. keeps only a fraction of its deposits in reserve.
d. None of the above is correct.
answer
keeps only a fraction of its deposits in reserve.
question
If purchasing-power parity holds, a dollar will buy
a. more goods in foreign countries than in the United States.
b. as many goods in foreign countries as it does in the United States.
c. fewer goods in foreign countries than it does in the United States.
d. None of the above is implied by purchasing-power parity.
a. more goods in foreign countries than in the United States.
b. as many goods in foreign countries as it does in the United States.
c. fewer goods in foreign countries than it does in the United States.
d. None of the above is implied by purchasing-power parity.
answer
as many goods in foreign countries as it does in the United States.
question
Given a nominal interest rate of 6 percent, in which of the following cases would you earn the highest
after-tax real rate of interest?
a. Inflation is 2.5 percent; the tax rate is 25 percent.
b. Inflation is 3 percent; the tax rate is 20 percent.
c. Inflation is 2 percent; the tax rate is 30 percent.
d. The after-tax real interest rate is the same for all of the above
after-tax real rate of interest?
a. Inflation is 2.5 percent; the tax rate is 25 percent.
b. Inflation is 3 percent; the tax rate is 20 percent.
c. Inflation is 2 percent; the tax rate is 30 percent.
d. The after-tax real interest rate is the same for all of the above
answer
Inflation is 2 percent; the tax rate is 30 percent.
question
A U.S. fast food restaurant chain sells dollars for Argentinean pesos and then uses the pesos to buy
Argentinean beef. Which of the following do these transactions increase?
a. Argentinean net capital outflow and Argentinean net exports
b. only Argentinean net exports
c. only Argentinean net capital outflow
d. neither Argentinean net exports nor Argentinean capital outflow
Argentinean beef. Which of the following do these transactions increase?
a. Argentinean net capital outflow and Argentinean net exports
b. only Argentinean net exports
c. only Argentinean net capital outflow
d. neither Argentinean net exports nor Argentinean capital outflow
answer
Argentinean net capital outflow and Argentinean net exports
question
The classical dichotomy argues that changes in the money supply
a. affect both nominal and real variables.
b. affect neither nominal nor real variables.
c. affect nominal variables, but not real variables.
d. do not affect nominal variables, but do affect real variables
a. affect both nominal and real variables.
b. affect neither nominal nor real variables.
c. affect nominal variables, but not real variables.
d. do not affect nominal variables, but do affect real variables
answer
affect nominal variables, but not real variables.
question
The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?
a. 2.4 percent.
b. 3.5 percent.
c. 8.5 percent.
d. 15 percent.
a. 2.4 percent.
b. 3.5 percent.
c. 8.5 percent.
d. 15 percent.
answer
3.5 percent.
question
Which of the following is an example of U.S. foreign direct investment?
a. A U.S. based mutual fund buys stock in Eastern European companies.
b. A U.S. citizen builds and operates a coffee shop in the Netherlands.
c. A Swiss bank buys a U.S. government bond.
d. A German tractor factory opens a plant in Waterloo, Iowa
a. A U.S. based mutual fund buys stock in Eastern European companies.
b. A U.S. citizen builds and operates a coffee shop in the Netherlands.
c. A Swiss bank buys a U.S. government bond.
d. A German tractor factory opens a plant in Waterloo, Iowa
answer
A U.S. citizen builds and operates a coffee shop in the Netherlands.
question
You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your
marginal tax rate is 35 percent. What is your after-tax real rate of interest?
a. 5.25 percent
b. 3.05 percent
c. 2.55 percent
d. 1.25 percent
marginal tax rate is 35 percent. What is your after-tax real rate of interest?
a. 5.25 percent
b. 3.05 percent
c. 2.55 percent
d. 1.25 percent
answer
2.55 percent
question
Other things the same, which of the following would both make foreigners more willing to engage in U.S.
portfolio investment?
a. U.S. interest rates rise, the default risk of U.S. assets rise
b. U.S. interest rates rise, the default risk of U.S. assets fall
c. U.S. interest rates fall, the default risk of U.S. assets rise
d. U.S. interest rates fall, the default risk of U.S. assets fall
portfolio investment?
a. U.S. interest rates rise, the default risk of U.S. assets rise
b. U.S. interest rates rise, the default risk of U.S. assets fall
c. U.S. interest rates fall, the default risk of U.S. assets rise
d. U.S. interest rates fall, the default risk of U.S. assets fall
answer
U.S. interest rates rise, the default risk of U.S. assets fall
question
. When the Fed sells government bonds,
a. the money supply increases and the federal funds rate increases.
b. the money supply increases and the federal funds rate decreases.
c. the money supply decreases and the federal funds rate increases.
d. the money supply decreases and the federal funds rate decreases.
a. the money supply increases and the federal funds rate increases.
b. the money supply increases and the federal funds rate decreases.
c. the money supply decreases and the federal funds rate increases.
d. the money supply decreases and the federal funds rate decreases.
answer
the money supply decreases and the federal funds rate increases.
question
The Federal Reserve
a. was created in 1836.
b. serves as a lender of last resort.
c. was created to facilitate the federal government's collection of taxes as well as its
expenditures.
d. All of the above are correct.
a. was created in 1836.
b. serves as a lender of last resort.
c. was created to facilitate the federal government's collection of taxes as well as its
expenditures.
d. All of the above are correct.
answer
serves as a lender of last resort.
question
Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and
excess reserves amount to $5 billion. What is the level of deposits?
a. $5,000 billion
b. $4,937.5 billion
c. $5,062.5 billion
d. $4,995 billion
excess reserves amount to $5 billion. What is the level of deposits?
a. $5,000 billion
b. $4,937.5 billion
c. $5,062.5 billion
d. $4,995 billion
answer
$4,937.5 billion
question
If the reserve ratio is 20 percent, then $100 of new reserves can generate
a. $60 of new money in the economy.
b. $250 of new money in the economy.
c. $500 of new money in the economy.
d. $2,000 of new money in the economy
a. $60 of new money in the economy.
b. $250 of new money in the economy.
c. $500 of new money in the economy.
d. $2,000 of new money in the economy
answer
$500 of new money in the economy
question
Suppose the relevant money-supply curve is the one labeled MS1; also suppose the
economy's real GDP is 30,000 for the year. If the money market is in equilibrium, then the velocity of
money is approximately
a. 3.0
b. 6.0
c. 9.0
d. 1.5
economy's real GDP is 30,000 for the year. If the money market is in equilibrium, then the velocity of
money is approximately
a. 3.0
b. 6.0
c. 9.0
d. 1.5
answer
6.0
question
Refer to Figure 30-3. What quantity is measured along the vertical axis?
a. the price level
b. the velocity of money
c. the value of money
d. the quantity of money
a. the price level
b. the velocity of money
c. the value of money
d. the quantity of money
answer
the value of money
question
Suppose a Starbucks tall latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a
McDonald's Big Mac costs $4.40 in the United States and 5.50 euros in Euro area. If the nominal exchange
rate is .80 euros per dollar, the prices of which goods have prices that are consistent with purchasing-power
parity?
a. both the tall latte and the Big Mac
b. the tall latte but not the Big Mac
c. the Big Mac but not the tall latte
d. neither the tall latte nor the Big Mac
McDonald's Big Mac costs $4.40 in the United States and 5.50 euros in Euro area. If the nominal exchange
rate is .80 euros per dollar, the prices of which goods have prices that are consistent with purchasing-power
parity?
a. both the tall latte and the Big Mac
b. the tall latte but not the Big Mac
c. the Big Mac but not the tall latte
d. neither the tall latte nor the Big Mac
answer
the tall latte but not the Big Mac
question
A U.S. firm buys apples from New Zealand with New Zealand dollars it got in exchange for U.S. dollars.
New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following
increases?
a. New Zealand's net capital outflow and New Zealand's net exports
b. only New Zealand's net exports
c. only New Zealand's net capital outflow
d. neither New Zealand's net exports nor New Zealand's capital outflow
New Zealand residents then use these dollars to purchase oranges from the U.S. Which of the following
increases?
a. New Zealand's net capital outflow and New Zealand's net exports
b. only New Zealand's net exports
c. only New Zealand's net capital outflow
d. neither New Zealand's net exports nor New Zealand's capital outflow
answer
neither New Zealand's net exports nor New Zealand's capital outflow
question
Which of the following helps to explain why the inflation fallacy is a fallacy?
a. Increases in the price level can be created by increases in money demand.
b. Nominal incomes tend to rise at the same time that the price level is rising.
c. As the price level rises, the value of a dollar falls.
d. Inflation only changes nominal variables
a. Increases in the price level can be created by increases in money demand.
b. Nominal incomes tend to rise at the same time that the price level is rising.
c. As the price level rises, the value of a dollar falls.
d. Inflation only changes nominal variables
answer
Nominal incomes tend to rise at the same time that the price level is rising.
question
The Fed purchases $200 worth of government bonds from the public. The reserve requirement is 12.5 percent,
people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually
increases by
a. $25.
b. between $200 and $300.
c. $1,600.
d. $2,500.
people hold no currency, and the banking system keeps no excess reserves. The U.S. money supply eventually
increases by
a. $25.
b. between $200 and $300.
c. $1,600.
d. $2,500.
answer
$1,600.
question
. On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates
a. and a price index are both real variables.
b. and a price index are both nominal variables.
c. are real variables, and a price index is a nominal variable.
d. are nominal variables, and a price index is a real variable
a. and a price index are both real variables.
b. and a price index are both nominal variables.
c. are real variables, and a price index is a nominal variable.
d. are nominal variables, and a price index is a real variable
answer
and a price index are both nominal variables.
question
A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of
$10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?
a. $20 billion
b. $30 billion
c. $50 billion
d. $60 billion
$10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?
a. $20 billion
b. $30 billion
c. $50 billion
d. $60 billion
answer
$50 billion
question
The federal funds rate is the interest rate
a. the Federal Reserve charges for loans it makes to the federal government.
b. the Federal Reserve charges banks for short-term loans.
c. banks charge each other for short-term loans of reserves.
d. on newly issued one-year Treasury bonds.
a. the Federal Reserve charges for loans it makes to the federal government.
b. the Federal Reserve charges banks for short-term loans.
c. banks charge each other for short-term loans of reserves.
d. on newly issued one-year Treasury bonds.
answer
banks charge each other for short-term loans of reserves.
question
Which of the following would not be a consequence of an increase in the U.S. government budget deficit?
a. U.S. interest rates rise
b. U.S. net capital outflow falls
c. the real exchange rate of the U.S. dollar depreciates
d. the U.S. supply of loanable funds shifts left
a. U.S. interest rates rise
b. U.S. net capital outflow falls
c. the real exchange rate of the U.S. dollar depreciates
d. the U.S. supply of loanable funds shifts left
answer
the real exchange rate of the U.S. dollar depreciates
question
In the open-economy macroeconomic model, if a country's interest rate falls, then its
a. net capital outflow and its net exports rise.
b. net capital outflow rises and its net exports fall.
c. net capital outflow falls and its net exports rise.
d. net capital outflow and its net exports fall.
a. net capital outflow and its net exports rise.
b. net capital outflow rises and its net exports fall.
c. net capital outflow falls and its net exports rise.
d. net capital outflow and its net exports fall.
answer
net capital outflow and its net exports rise.
question
A X
B \
C \|
Which curve is determined by net capital outflow only?
a. the demand curve in panel a.
b. the demand curve in panel c.
c. the supply curve in panel a.
d. the supply curve in panel c.
B \
C \|
Which curve is determined by net capital outflow only?
a. the demand curve in panel a.
b. the demand curve in panel c.
c. the supply curve in panel a.
d. the supply curve in panel c.
answer
\|
question
Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by
U.S. corporations. Other things the same, these actions
a. raise both U.S. net exports and U.S. net capital outflows.
b. raise U.S. net exports and lower U.S. net capital outflows.
c. lower both U.S. net exports and U.S. net capital outflows.
d. lower U.S. net exports and raise U.S. net capital outflows.
U.S. corporations. Other things the same, these actions
a. raise both U.S. net exports and U.S. net capital outflows.
b. raise U.S. net exports and lower U.S. net capital outflows.
c. lower both U.S. net exports and U.S. net capital outflows.
d. lower U.S. net exports and raise U.S. net capital outflows.
answer
lower both U.S. net exports and U.S. net capital outflows.
question
If the price level last year was 180 and this year it is 176, then
a. there was inflation of 2.3 percent.
b. there was inflation of 4.0 percent.
c. there was deflation of 2.2 percent.
d. there was deflation of 4.0 percent.
a. there was inflation of 2.3 percent.
b. there was inflation of 4.0 percent.
c. there was deflation of 2.2 percent.
d. there was deflation of 4.0 percent.
answer
there was deflation of 2.2 percent.
question
The discount rate is the interest rate that
a. banks charge one another for loans.
b. banks charge the Fed for loans.
c. the Fed charges banks for loans.
d. the Fed charges Congress for loans.
a. banks charge one another for loans.
b. banks charge the Fed for loans.
c. the Fed charges banks for loans.
d. the Fed charges Congress for loans.
answer
the Fed charges banks for loans
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