42. Assume that the Fed lowers the required reserve ratio. How will this affect
ID: 1219261 • Letter: 4
Question
42. Assume that the Fed lowers the required reserve ratio. How will this affect the money supply?
a.
It would decrease.
b.
It would increase.
c.
It would remain unchanged.
d.
It depends on the value of interest rates.
____ 43. Which of the following will increase interest rates in the short run?
a.
an decrease in reserve requirements
b.
open market sales by the Fed
c.
a decrease in real GDP
d.
an decrease in the price level
____ 45. Which of the following were not actions taken by the Federal Reserve in order to stimulate the economy during the recession of 2007-2009?
a.
decreasing the discount rate
b.
suspending trading on the major stock exchanges
c.
massive lending to banks
d.
open market purchases of assets other than Treasury bills
Figure 18-1
____ 47. In Figure 18-1,
a.
Great Britain has an absolute advantage over Germany in the production of both scientific equipment and woolens.
b.
Germany has a comparative advantage over Great Britain in the production of woolens.
c.
Great Britain has a comparative advantage in the production of woolens.
d.
Great Britain should export scientific equipment to Germany, and Germany should export woolens to Great Britain.
Table 18-3
Output Per Unit Labor Input
Cotton
Wheat
Egypt
10
2
United States
20
20
____ 48. The data in Table 18-3 indicate that the United States has
a.
an absolute advantage in both goods, and a comparative advantage in cotton.
b.
an absolute advantage in both goods, and a comparative advantage in wheat.
c.
only a comparative advantage in wheat.
d.
only a comparative advantage in cotton.
Figure 18-9
____ 49. In Figure 18-9, Pestoland at price OA
a.
is importing MN pasta from Pastaland.
b.
is exporting MN pasta to Pastaland.
c.
is exporting XY pasta to Pastaland.
d.
is exporting OZ pasta to Pastaland.
____ 50. In Figure 18-9, at price OC total quantity demanded exceeds quantity supplied and price will rise to
a.
OJ in Pastaland.
b.
OA in Pestoland.
c.
OA in both countries.
d.
OJ in both countries.
____ 51. In Figure 18-9, Pestoland exports pasta to Pastaland. The equilibrium price of pasta will be
a.
OC
b.
OJ
c.
OA
d.
OK
____ 52. The supply of euros would come from
a.
American demand for European real estate.
b.
European demand for U.S. government bonds.
c.
Americans vacationing in Barcelona, Spain.
d.
French supplies of wine to U.S. importers.
____ 53. If a Mexican pension fund decides to purchase U.S. government bonds, what is the effect in the foreign exchange market?
a.
It will increase demand for U.S. dollars.
b.
It will decrease demand for U.S. dollars.
c.
It will increase supply of U.S. dollars.
d.
It will decrease supply of U.S. dollars.
____ 54. If Wisconsin cheddar cheese sells for $3.00 per pound in the United States and for 27.90 pesos in Mexico, what is the exchange rate between the dollar and the peso (assuming PPP holds)?
a.
$1 = 2.79 pesos
b.
$1 = 7.90 pesos
c.
$1 = 9.30 pesos
d.
$1 = 27.90 pesos
____ 55. A country with an undervalued currency
a.
will have a balance of payments deficit.
b.
will accumulate reserves of foreign currencies.
c.
will suffer losses of foreign reserves.
d.
must intervene in the foreign exchange market to buy its own currency.
____ 56. The decline in the value of the dollar from 1985 to 1988 was beneficial to
a.
American tourists travelling to Europe.
b.
firms importing goods into America.
c.
American exporting businesses.
d.
foreigners holding U.S. government bonds.
____ 57. One of the problems that monetary unions eliminate is
a.
inflationary gaps.
b.
recessionary gaps.
c.
exchange rate instability.
d.
business cycles.
____ 58. An increase in the value of the U.S. dollar relative to the Japanese yen will
a.
increase aggregate demand in the United States.
b.
decrease aggregate supply in the United States.
c.
increase aggregate demand in Japan.
d.
increase aggregate supply in Japan.
____ 59. If a currency appreciates, a country's net exports
a.
fall and AD increases.
b.
rise and AD increases.
c.
fall and AD decreases.
d.
rise and AD decreases.
____ 60. If Japan experiences a period of deflation and the United States does not, what will happen in the United States?
a.
an increase in aggregate supply
b.
a decrease in aggregate supply
c.
a decrease in aggregate demand
d.
an increase in aggregate demand
a.
It would decrease.
b.
It would increase.
c.
It would remain unchanged.
d.
It depends on the value of interest rates.
Explanation / Answer
(42) (b)
As required reserve ratio falls (rises), money multiplier (= 1 / Reserve ratio) rises (falls) and money supply rises (falls).
(43) (b)
Open market sale of federal securities will lower the money supply, so money supply curve shifts to left and interest rates increase.
(45) (b)
(47) Graph missing
(48) (b)
US makes more quantity of both cotton and wheat, so has absolute advantage in both.
Opportunity cost (OC) of wheat in Egypt = 10/2 = 5 cotton
OC of wheat in US = 20/20 = 1 cotton
Since US has a lower OC in wheat than Egypt, US has comparative advantage in wheat.
(49) - (51) - Missing graph
(52) (b)
Europe will buy US dollar by selling (supplying) Euros.
(53) (a)
Note: First 6 questions are answered.
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