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HW5

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 
If M = 3,000, P = 2, and Y = 12,000, what is velocity?
a.
1/2
b.
2
c.
4
d.
8
 

 2. 
When the price level rises, the number of dollars needed to buy a representative basket of goods
a.
increases, and so the value of money rises.
b.
increases, and so the value of money falls.
c.
decreases, and so the value of money rises.
d.
decreases, and so the value of money falls
 

 3. 
When the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money
a.
increases, so the quantity of money demanded increases.
b.
increases, so the quantity of money demanded decreases.
c.
decreases, so the quantity of money demanded decreases.
d.
decreases, so the quantity of money demanded increases.
 

 4. 
The price level falls.  This might be because the Federal Reserve
a.
bought bonds which raised the money supply.
b.
bought bonds which reduced the money supply.
c.
sold bonds which raised the money supply.
d.
sold bonds which reduced the money supply.
 
 
Figure 1
nar001-1.jpg
 

 5. 
Refer to Figure 1. If the current money supply is MS1, then
a.
there is no excess supply or excess demand if the value of money is 2.
b.
the equilibrium is at point C.
c.
there is an excess supply of money if the value of money is 1.
d.
None of the above is correct.
 

 6. 
Economic variables whose values are measured in goods are called
a.
dichotomous variables.
b.
nominal variables.
c.
classical variables.
d.
real variables.
 

 7. 
Velocity is computed as
a.
(P mc007-1.jpg Y)/M.
b.
(P mc007-2.jpg M)/Y.
c.
(Y mc007-3.jpg M)/P.
d.
(Y mc007-4.jpg M)/V.
 

 8. 
According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then
a.
nominal and real GDP would rise by 5 percent.
b.
nominal GDP would rise by 5 percent; real GDP would be unchanged.
c.
nominal GDP would be unchanged; real GDP would rise by 5 percent.
d.
neither nominal GDP nor real GDP would change.
 

 9. 
Based on past experience, if a country is experiencing hyperinflation, then which of the following would be a reasonable guess?
a.
The country has high money supply growth.
b.
Inflation is acting like a tax on everyone who holds money.
c.
The government is printing money to finance its expenditures.
d.
All of the above are correct.
 

 10. 
Printing money to finance government expenditures
a.
causes the value of money to rise.
b.
imposes a tax on everyone who holds money.
c.
is the principal method by which the U.S. government finances its expenditures.
d.
None of the above is correct.
 

 11. 
The Fisher effect says that
a.
the nominal interest rate adjusts one for one with the inflation rate.
b.
the growth rate of the money supply is negatively related to the velocity of money.
c.
real variables are heavily influenced by the monetary system.
d.
All of the above are correct.
 

 12. 
The shoeleather cost of inflation refers to
a.
the redistributional effects of unexpected inflation.
b.
the time spent searching for low prices when inflation rises.
c.
the waste of resources used to maintain lower money holdings.
d.
the increased cost to the government of printing more money.
 

 13. 
The costs of changing price tags and price listings are known as
a.
inflation-induced tax distortions.
b.
relative-price variability costs.
c.
shoeleather costs.
d.
menu costs.
 

 14. 
Wealth is redistributed from creditors to debtors when inflation was expected to be
a.
high and it turns out to be high.
b.
low and it turns out to be low.
c.
low and it turns out to be high.
d.
high and it turns out to be low.
 

 15. 
Net exports of a country are the value of
a.
goods and services imported minus the value of goods and services exported.
b.
goods and services exported minus the value of goods and services imported.
c.
goods exported minus the value of goods imported.
d.
goods imported minus the value of goods exported.
 

 16. 
Which of the following both raise net exports?
a.
exports rise, imports rise
b.
exports rise, imports fall
c.
imports rise, exports rise
d.
imports rise, exports fall
 

 17. 
Net capital outflow measures
a.
foreign assets held by domestic residents minus domestic assets held by foreign residents.
b.
the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners.
c.
the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners.
d.
None of the above is correct.
 

 18. 
When Microsoft establishes a distribution center in France, U.S. net capital outflow
a.
increases because Microsoft makes a portfolio investment in France.
b.
decreases because Microsoft makes a portfolio investment in France.
c.
increases because Microsoft makes a direct investment in capital in France.
d.
decreases because Microsoft makes a direct investment in capital France.
 

 19. 
Which of the following is always correct?
a.
Y - I = NCO
b.
NCO = NX
c.
NX = I
d.
All of the above are correct.
 

 20. 
A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods.  Overall as a result of these transactions
a.
both U.S. net capital outflow and U.S. net exports rise.
b.
both U.S. net capital outflow and U.S. net exports fall.
c.
U.S. net capital outflow rises and U.S. net exports fall.
d.
U.S. net capital outflow falls and U.S. net exports rise.
 

 21. 
If a country has business opportunities that are relatively attractive to other countries, we would expect it to have
a.
both positive net exports and positive net capital outflow.
b.
both negative net exports and negative net capital outflow.
c.
positive net exports and negative net capital outflow.
d.
negative net exports and positive net capital outflow.
 

 22. 
A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?
a.
$15 million.
b.
-$15 million.
c.
$105 million.
d.
-$105 million.
 

 23. 
The country of Sylvania has a GDP of $900, investment of $200, government purchases of $200, and net capital outflow of -$100. What is consumption?
a.
$700
b.
$600
c.
$500
d.
$300
 

 24. 
If the exchange rate were .8 Canadian dollars per U.S. dollar, a watch that costs $8 US dollars would cost
a.
6.4 Canadian dollars.
b.
10 Canadian dollars.
c.
12.50 Canadian dollars.
d.
None of the above is correct.
 

 25. 
When a country's central bank increases the money supply, a unit of money
a.
gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.
b.
gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy.
c.
loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy.
d.
loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.
 

 26. 
According to purchasing-power parity, if prices in the United States increase by a smaller percentage than prices in Poland, then
a.
the real exchange defined as Polish goods per unit of U.S. goods rises.
b.
the real exchange defined as Polish goods per unit of U.S. goods falls.
c.
the nominal exchange rate defined as Polish currency per dollar rises.
d.
the nominal exchange rate defined as Polish currency per dollar falls.
 

 27. 
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.
 

 28. 
Over the past two decades, the United States has
a.
generally had, or been very near to a trade balance.
b.
had trade deficits in about as many years as it has trade surpluses.
c.
persistently had a trade deficit.
d.
persistently had a trade surplus.
 

 29. 
In the open-economy macroeconomic model, the supply of loanable funds comes from
a.
national saving.
b.
private saving.
c.
domestic investment.
d.
the sum of domestic investment and net capital outflow.
 

 30. 
In an open economy, the demand for loanable funds comes from
a.
only those who want to borrow funds to buy domestic capital goods.
b.
only those who want to borrow funds to buy foreign assets.
c.
those who want to borrow funds to buy either domestic capital goods or foreign assets.
d.
neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets.
 

 31. 
In the open-economy macroeconomic model, the supply of loanable funds equals
a.
national saving. The demand for loanable funds comes from domestic investment + net capital outflow.
b.
national saving. The demand for loanable funds comes only from domestic investment.
c.
private saving. The demand for loanable funds comes from domestic investment + net capital outflow.
d.
private saving. The demand for loanable funds comes only from domestic investment.
 

 32. 
If the demand for loanable funds shifts right, then
a.
the real interest rate and the equilibrium quantity of loanable funds both fall.
b.
the real interest rate falls and the equilibrium quantity of loanable funds rises.
c.
the real interest rate and the equilibrium quantity of loanable funds both rise.
d.
the real interest rate rises and the equilibrium quantify of loanable funds falls.
 

 33. 
In an open economy,
a.
net capital outflow = imports.
b.
net capital outflow = net exports.
c.
net capital outflow = exports.
d.
None of the above is correct.
 

 34. 
In the open economy macroeconomic model, the amount of dollars demanded in the market for foreign-currency exchange at a given real exchange rate increases if
a.
either U.S. imports or exports increase.
b.
either U.S. imports or exports decrease.
c.
either U.S. imports increase or U.S. exports decrease.
d.
either U.S. imports decrease or U.S. exports increase.
 

 35. 
The variable that links the market for loanable funds and the market for foreign-currency exchange is
a.
net capital outflow.
b.
national saving.
c.
exports.
d.
domestic investment.
 

 36. 
U.S. net capital outflow
a.
is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market.
b.
is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market.
c.
is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market.
d.
is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market.
 
 
Figure 2
Refer to this diagram to answer the questions below.

nar002-1.jpg
 

 37. 
Refer to Figure 2. The curve in panel b shows that as the interest rate rises,
a.
domestic investment declines.
b.
net capital outflow declines.
c.
net capital outflow and domestic investment decline.
d.
None of the above is correct.
 

 38. 
Refer to Figure 3. Which curve shows the relation between the exchange rate and net exports?
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.
 

 39. 
A government budget deficit
a.
increases both net capital outflow and net exports.
b.
decreases both net capital outflow and net exports.
c.
increases net capital outflow and decreases net exports.
d.
decreases net capital outflow and increases net exports.
 

 40. 
Trade policies
a.
alter the trade balance because they alter imports of the country that implemented them.
b.
alter the trade balance because they alter net capital outflow of the country that implemented them.
c.
do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them.
d.
do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.
 



 
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