Review of Exam Two Multiple Choice Identify the choice that best completes the statement or answers the question 1 Fiat money a has no intrinsic value b c d In the open economy macroeconomic model the key determinant of net capital outflow is the is backed by gold is a medium of exchange but not a unit of account is any close substitute for currency such as checkable deposits 2 a nominal exchange rate b nominal interest rate c d real exchange rate real interest rate 3 Other things the same an increase in the U S real interest rate induces a Americans to buy more foreign assets which increases U S net capital outflow b Americans to buy more foreign assets which reduces U S net capital outflow c d foreigners to buy more U S assets which reduces U S net capital outflow foreigners to buy more U S assets which increases U S net capital outflow 4 Which of the following is not included in M1 a 5 bill in your wallet a b 100 in your checking account c 500 in your savings account d All of the above are included in M1 If the money multiplier is 2 and the Fed buys 50 000 worth of bonds what happens to the money supply 5 a b c d it increases by 100 000 it increases by 150 000 it decreases by 100 000 it decreases by 150 000 6 Other things the same as the real interest rate rises a domestic investment and net capital outflow both rise b domestic investment and net capital outflow both fall c domestic investment rises and net capital outflow falls d domestic investment falls and net capital outflow rises 7 When the real exchange rate for the dollar appreciates U S goods become a less expensive relative to foreign goods which makes exports rise and imports fall 1 less expensive relative to foreign goods which makes exports fall and imports rise b c more expensive relative to foreign goods which makes exports rise and imports fall d more expensive relative to foreign goods which makes exports fall and imports rise Interest rates adjusted for the effects of inflation 8 a b c d and inflation are nominal variables and inflation are real variables are real variables inflation is a nominal variable are nominal variables inflation is a real variable then a both the nominal and the real interest rate fall 9 Under the assumptions of the Fisher effect and monetary neutrality if the money supply growth rate falls 2 any b neither the nominal nor the real interest rate fall c a d b c d All of the above are correct the nominal interest rate falls but the real interest rate does not that is closed the real interest rate falls but the nominal interest rate does not for which Y C I G for which S Y C G 11 Based on the quantity equation if M 3 000 P 2 and Y 4 500 then V 10 Net exports must equal zero for economy a 1 33 b 1 5 c 3 d 6 75 12 U S net capital outflow 13 Other things the same if the U S real exchange rate depreciated then U S net exports would is a source of the supply of loanable funds and the source of the supply of dollars in the foreign exchange market is a source of the supply of loanable funds and a source of the demand for dollars in the foreign exchange market is a part of the demand for loanable funds and the source of the supply of dollars in the foreign exchange market is a part of the demand for loanable funds and a source of the demand for dollars in the foreign exchange market fall and the quantity of dollars demanded in the market for foreign currency exchange would fall fall and the quantity of dollars demanded in the market for foreign currency exchange would rise rise and the quantity of dollars demanded in the market for foreign currency exchange would fall rise and the quantity of dollars demanded in the market for foreign currency exchange would rise 14 If a government increases its budget deficit then interest rates a b c d a b c d a b c d 15 If the British government raised its budget deficit then the pound Britain s currency would rise and the real exchange rate appreciates fall and the real exchange rate depreciates rise and the real exchange rate depreciates fall and the real exchange rate appreciates a depreciate and British net exports would rise b depreciate and British net exports would fall c appreciate and British net exports would rise appreciate and British net exports would fall d reserve requirement a b c d None of the above is correct It has 40 in reserves and 3 960 in loans It has 400 in reserves and 3 600 in loans It has 444 in reserves and 3 556 in loans 3 16 A bank has a 10 percent reserve requirement 4 000 in deposits and has loaned out all it can given the 17 The classical dichotomy refers to the idea that the supply of money a is irrelevant for understanding the determinants of nominal and real variables b determines nominal variables but not real variables c determines real variables but not nominal variables is a determinant of both real and nominal variables d 4 18 The nominal interest rate is 6 percent and the real interest rate is 2 percent What is the inflation rate 19 John and Jane decide to go on a vacation As a result they withdraw 2 500 from their savings account As a a 3 percent b 4 percent c 8 percent d 12 percent result of this transfer by itself a M1 increases by 2 500 and M2 decreases by 2 500 b M1 increases by 2 500 and M2 stays the same c M1 decreases by 2 500 and M2 stays the same d M1 decreases by 2 500 and M2 decreases by 2 500 appreciates and there is a trade surplus a appreciates and there is a trade deficit b c depreciates and there is a trade surplus d depreciates and there is a trade deficit is correct a Private and public saving are both positive b Private saving is positive public saving is negative c Private saving is negative public saving is positive d Both private saving and public saving are negative 20 If a government of a country with a zero trade balance increases its budget deficit then the real exchange rate 21 You observe a closed economy that has a government deficit and positive investment Which of the following 22 From 2001 to 2004 the U S budget went from surplus to deficit According to the open economy macroeconomic model this change should have increased U S interest rates and increased the real exchange rate of the dollar a b increased U S interest rates and decreased the real exchange rate of the dollar c decreased U S interest rates and …
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