28) Fiscal policy refers to changes in A. federal taxes and purchases that are intended to achieve macroeconomic policy objectives. B. state and local taxes and purchases that are intended to achieve macroeconomic policy objectives. C. the money supply and interest rates that are intended to achieve macroeconomic policy objectives. D. federal taxes and purchases that are intended to fund the war on terrorism. 29) If the economy is slipping into a recession, which of the following would be an appropriate fiscal policy? A. a decrease in government purchases B. an increase in the money supply and a decrease in interest rates C. a decrease in oil prices D. a decrease in taxes 30) Which of the following is an objective of fiscal policy? A. health care coverage for all Americans B. energy independence from Middle East oil C. high rates of economic growth D. discovering a cure for AIDs 31) Which of the following assets is most liquid? A. bond B. money C. stock D. savings account 32) If credit card balances rise in the economy, then M1 will ________ and M2 will ________. A. not change; not change B. increase; increase C. increase; decrease D. not change; increase E. decrease; increase 33) Economists estimate that ________ of U.S. currency is outside the United States and held primarily by ________. A. less than one quarter; foreign banks and foreign governments B. over half; households and firms in countries where there is little confidence in the local currency C. less than one quarter; households and firms in countries where there is little confidence in the local currency D. over half; foreign banks and foreign governments 34) The M2 measure of the money supply equals A. M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares. B. savings account balances plus small-denomination time deposits plus traveler's checks. C. M1 plus savings account balances plus small-denomination time deposits. D. savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares. 35) The M1 measure of the money supply equals A. currency plus checking account balances plus traveler's checks plus savings account balances. B. paper money plus coins in circulation. C. currency plus checking account balances plus traveler's checks. D. currency plus checking account balances. 36) Which of the following is one of the most important benefits of money in an economy? A. Money encourages people to produce all of their own goods (self-sufficiency) and therefore increases economic stability. B. Money allows for the exchange of goods and services. C. Money makes exchange easier, leading to more specialization and higher productivity. D. Money allows for the accumulation of wealth. 37) To increase the money supply, the Federal Reserve could A. conduct an open market purchase of Treasury securities. B. raise the discount rate. C. lower transfer payments. D. decrease income taxes. E. raise the required reserve ratio. 38) Which of the following determines the amount of money the banking system as a whole can create? A. the quantity of bank reserves B. the quantity of vault cash held by banks C. the gold reserves held by the Federal Reserve D. the limit on profits by banks imposed by the U.S. Congress 39) Money market mutual funds sell shares to investors and use the money to buy A. overseas assets through foreign direct investment. B. mortgage-backed securities. C. short-term securities. D. foreign currency. 40) The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of ________, it also can achieve the goal of ________ simultaneously. A. high employment; lowering government spending B. high employment; economic growth C. economic growth; a low current account deficit D. stability of financial markets; a low current account deficit 41) The Federal Reserve System's four monetary policy goals are A. low rate of bank failures, high reserve ratios, price stability, and economic growth. B. low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. C. price stability, high employment, economic growth, and stability of financial markets and institutions. D. price stability, low government budget deficits, low current account deficits, and low rate of bank failures. 42) The Federal Reserve's two main ________ are the money supply and the interest rate. A. policy tools B. monetary policy targets C. fiscal policy targets D. fiscal tools 43) Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except A. increase the variety of products that it can consume with no increase in resources. B. engage in mutually beneficial trade with other nations. C. consume a combination of goods that lies outside its own production possibilities frontier. D. produce a combination of goods that lies outside its own production possibilities frontier. 44) Table 2-3 Serena Haley Bracelets 8 9 Necklaces 16 12 Refer to Table 2-3. Which of the following statements is true? A. Serena has an absolute advantage in making both products. B. Haley has an absolute advantage in making both products. C. Haley has an absolute advantage in making bracelets and Serena in making necklaces. D. Haley has an absolute advantage in making necklaces and Serena in making bracelets. 45) Table 2-3 Serena Haley Bracelets 8 9 Necklaces 16 12 Refer to Table 2-3. What is Haley's opportunity cost of making a bracelet? A. 3 bracelets B. 3/4 of a bracelet C. 1 1/3 necklaces D. 2 necklaces 46) How does an increase in a country's exchange rate affect its balance of trade? A. An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade. B. An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade. C. An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade. D. An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade. 47) Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market? A. Demand for dollars will decrease, and supply of dollars will decrease. B. Demand for dollars will increase, and supply of dollars will decrease. C. Demand for dollars will decrease, and supply of dollars will increase. D. Demand for dollars will increase, and supply of dollars will increase. 48) When the market value of the dollar rises relative to other currencies around the world, we say that A. the supply of dollars has increased. B. the dollar has appreciated. C. the demand for dollars has increased. D. the dollar has depreciated. 49) Destabilizing speculation refers to A. any depreciation of a country's currency as a result of long-run adjustments to purchasing power parity. B. actions taken by the International Monetary Fund that increase lending to countries who have pegged their currencies against the dollar. C. actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price. D. actions taken by currency traders to sell a currency that is undervalued. 50) If the purchasing power of the dollar is greater than the purchasing power of the euro, purchasing power parity predicts that the exchange rate will A. not fluctuate and stay constant in the long run. B. increase if the exchange rate is greater than 1 euro per dollar. C. be equal to the relative purchasing power across the currencies in the long run. D. decrease if the exchange rate is less than 1 euro per dollar. 51) Pegging a country's exchange rate to the dollar can be advantageous if A. imports are not a significant fraction of the goods the country's consumers buy. B. the country does not trade much with the United States. C. a country wishes to conduct independent monetary policy. D. investors believe the dollar to be more stable than the domestic country's currency. 52) The three most important international financial centers today are A. Tokyo, London, and New York. B. New York, Los Angeles, and London. C. San Francisco, Paris, and Mexico City. D. London, Tokyo, and Beijing. 53) China has been accused of deliberately undervaluing its currency, the yuan, in order to A. maintain purchasing power parity. B. increase its exports. C. prevent deflation. D. increase its imports. 54) What two countries each accounted for more than 25% of all foreign purchases of U.S. stocks and bonds in 2008? A. Mexico and Canada B. Japan and Mexico C. Japan and India D. China and the United Kingdom  |
