Shared Flashcard Set

Details

ECON 2035 Final Exam R. Stahl
ECON 2035 Final Exam R. Stahl
85
Economics
Undergraduate 2
12/08/2011
Click here to study/print these flashcards.

Create your own flash cards! Sign up here.

Additional Economics Flashcards

 

 

Cards

Term
1. Financial markets help channel _______ to _______ and help people share_____.
 Definition
D.) Savings; Investors; Risk
Term
2. Which of the following, $1,000 face value, 5-year coupon bonds have the HIGHEST yield to maturity?
 Definition
E.) a 8% coupon rate selling for $900 (Higher Interest, lower cost)
Term
3. Suppose the Federal Reserve decides to enter into an open market sale of Treasury bonds. Everything else held constant, this would cause the nominal interest rate to ______.
 Definition
B.) Increase
Term
4. Suppose that everyone’s income rose nationwide and the Federal Reserve decided to buy bonds. Everything else held constant, this would cause the nominal interest rate to __________.
 Definition
B.) Either increase, decrease, or remain constant.
Term
5. Which of the following situations would be the LEAST preferable situation to lend?
 Definition
E.) A nominal interest rate of 30% and an inflation rate of 31%
(Inflation Rate is higher than nominal interest rate.)
Term
6. According to the Gordon Growth Model, if the Fed is worried about inflation, you would expect the Fed to _____ interest rates, which would cause stock prices to ______.
 Definition
B.) Increase; Decrease
Term
7. Which of the following are functions of a central bank?
I. It is responsible for clearing checks.
II. It conducts fiscal policy.
III. It acts as the lender of last resort.
 Definition
B.) I and III
Term
8. Some firms prefer to retain their earnings and reinvest funds in the company rather than pay dividends. This policy has which of the following effects on the company’s stock price?
 Definition
A.) The stock price will increase because the firm expects the investment to increase future earnings.
Term
9. When measuring the money supply, economists ignore _______.
 Definition
C.) Payments made by credit card.
Term
10. So-called “junk bonds” are rated ________ by Standard & Poor’s.
 Definition
D.) Anything less than BBB.
Term
11. If the nominal interest rate is 4%, the expected inflation rate is 3%, and the actual inflation rate of inflation is 2%, the ex ante real interest rate is _____%.
 Definition
C.) 1. (3-4+2)
Term
12. Big China works as an economist professor. Each month, he receives a direct deposit from the university where he teaches, and uses the balance on his checking account to pay for rent, food, transportation, and entertainment. This situation best describes which of the following functions of money?
 Definition
E.) Medium of Exchange
Term
13. When measuring the inflation rate, which of the following price indexes is preferred by the Federal Reserve?
 Definition
A.) Personal Consumption Expenditure Price Index
Term
14. Which of the following would be an example of moral hazard of some fuck-stick taking out a loan to buy a building so he can open up an adult novelty shop?
 Definition
D.) Fuck-stick fails to take out insurance on the building.
Term
15. Which of the following criteria is NOT necessary for a commodity to function effectively as money?
 Definition
A.) It must be issued by a bank.
Term
16. When “dollarization” takes place, _______.
 Definition
C.) A foreign currency becomes the medium of exchange, unit of account, and store of value, instead of the local currency.
Term
17. The more liquid the asset is, the ________ its _____________.
 Definition
A.) Less; Risk premium.
Term
18. Pussies are easily frightened by financial news. Suppose that, in a panic, those pussies take all of their money out of their savings accounts and puts all of it into metal cans and hides them in the fucking kitchen. The function of money that is being fulfilled is ____________. Also, those pussies’ actions will cause the values of M2 to _________________.
 Definition
B.) Store of Value; Stay constant.
Term
18. Suppose that the real interest rate in the U.S. increases. Everything else held constant, this will cause the real interest rate in gay ass Canada to ______________.
 Definition
B.) Increase. (WTH, A?)
Term
19. Suppose Newman is looking at the bond section of a financial newspaper and you notice that the 5-year Treasury Note has a yield of 3.55% and the 5-year TIPS has a yield of 1.05%. Both bonds have the same coupon rate and maturity date. From this information, you know that traders in the TIPS market expect that the average yearly inflation rate will be ______ % over the next five years.
 Definition
B.) 2.50 (Why?)
Term
20. The phrase “this note is legal tender for all debts private” refers to what function of money?
 Definition
C.) Standard of deferred payment.
Term
21. When economists refer to “core” prices, they are referring to ______.
 Definition
E.) All item less : (food & energy)
Term
22. Suppose you read that G.E. unexpectedly announces that it will increase its dividend payment. Under the classical theory of asset prices, which of the answers that follows best explains how this news might affect G.E.’s stock price?
 Definition
B.) The stock price will increase because increased dividends signal increased expected earnings.
Term
23. Suppose that investors based their inflation expectations on rational expectations and that inflation is expected to be much higher in the future than it is today. Everything else held constant, this would cause the nominal interest rate to ________.
 Definition
D.) Increase.
Term
24. Money that has no intrinsic value is known as __________.
 Definition
D.) Fiat money.
Term
25. Suppose the government budget moves from deficit to surplus and investor confidence falls. Everything else held constant, these two effects will cause the real interest rate to _________.
 Definition
A.) Decrease.
Term
26. Suppose the government offers a new tax-free retirement account. Everything else held constant, the ______ loanable funds will ________, and the real interest rate will __________.
 Definition
C.) Supply of; increase; fall
Term
27. Consider two assets, A + B, with φa < φb; then asset A has __________ present-value price when compared to the present-value price of B.
 Definition
B.) a higher.
Term
1. Regardless of which measure of the inflation rate of core consumer prices you are looking at, the current core inflation rate is __________ to where the Federal Reserve believes is consistent with strong, stable economic growth.
 Definition
B.) Lower
Term
2. If a bank has $50 of rate sensitive assets and $60 in rate sensitive liabilities, and the interest rate falls from 5% to 3%, a bank’s profits _______ from _____.
 Definition
D.) Rise; $0.20
Term
3. Suppose the price of a pair of Levis, a U.S. made product, is $40 in the U.S. If the exchange rate is 0.75 Euros to 1.00 American dollar, then changes to 0.65 Euros to 1.00 American dollar, the Euro has _____ and the price of jeans in Italy _______.
 Definition
A.) Appreciate; Falls.
Term
4. Suppose that the inflation rate in the U.S. is 2%, the inflation rate in Canada is 3%, and the inflation rate in BFE Fucking Mexico is 5%. According to the theory of Purchasing Power Parity, which of the following statements is TRUE?
 Definition
A.) The Canadian dollar will appreciate vs. the Mexican peso, and depreciate vs. the American dollar.
Term
5. When using your ATM card to buy foreign currency,
 Definition
C.) A bank adds a small fee to the purchase.
Term
6. Everything else held constant, if the current debt crisis in the Euro zone gets worse, then the values of the U.S. dollar against the Euro will _______.
 Definition
D.) Appreciate.
Term
7. Commercial banks and finance companies differ in that:
I. Commercial banks accept deposits and finance companies do not.
II. Commercial banks make private loans and finance companies do not.
III. Commercial banks do not specialize in a type of loan, while finance companies do specialize.
 Definition
D.) I only.
Term
8. A good way to predict the expected change in the nominal exchange rate it to:
 Definition
D.) look at the difference in foreign and U.S. inflation rates.
Term
9. To economists, the min problem with ___________ is that individuals engage in _______ behavior.
 Definition
B.) Moral hazard; harmful.
Term
10. Suppose economic data get released that suggests that the U.S. economy has unexpectedly entered into a recession. Everything else held constant, the release of this data will cause the U.S. dollar to ________.
 Definition
C.) Depreciate.
Term
11. The ______ Act restricts banks from holding more than __________ of all commercial bank deposits.
 Definition
C.) Riegle-Neal; 10
Term
12. One reason that the credit default swap market grew so rapidly from 2000 to 2007 is that:
 Definition
B.) People could buy credit default swaps on assets they did not own
Term
13. Your bitch-ass step-mom give you $1000 as a graduation gift; you decide to save 50% ($500) in bonds and 50% ($500) in Apple stock. If the return to the bonds is 3% and the return to Apple is 15%, then your overall return on wealth would be about:
 Definition
C.) 9%
Term
14.You are perusing the Reuters news Web page and read the following. “ NEW YORK, Aug. 18 (Reuters)- Major U.S. airlines will see a 6% drop in passengers during the eight-day national holiday honoring the marriage of Wolverine and Lady Gaga as high oil prices continue to roil the industry, the airlines’ trade organization predicted on Monday”. Using the efficient markets hypothesis, you believe______ and expect to see________.
 Definition
D.) Airline stock prices are currently overloaded; Stock price falls.
Term
15. Suppose that the United States has experienced a growing trade deficit over the last five years. Over this same time period, the trading partners of the U.S. have increased their purchasing of U.S. Treasury securities. Everything else held constant, these two factors would have caused the U.S. dollar to ________.
 Definition
E.) Either appreciate, depreciate, or remain constant.
Term
16. Because of the McFadden Act each state had its own:
 Definition
A.) Banking industry.
Term
17. When a firm issues bonds instead of stocks it is lessening the problem of _______ because bonds _____________.
 Definition
A.) Adverse Selection; Pay a given amount as long as the firm does not default.
Term
18) (Figure 6.2: The Real Exchange Rate) You are listening to BBC and hear that the Federal Reserve is lowering interest rates. Simultaneously, the European Central Bank is worried about inflation and is raising interest rates. What do you predict will happen to the real exchange rate?
 Definition
D. NCO will move from NCO1 to NCO2 and E1 → E2
Term
19) The Gramm-Leach-Bliley Act, which fully repealed the __, was passed in 1999.
 Definition
D. separation of commercial banks and securities firms
Term
20) A project pays $100 with a probability of 0.75 or pays $50. What is the expected value of this project?
 Definition
C. $87.50
Term
21) To reduce moral hazard after buying a stock or bond, individual savers should monitor the firm’s
I. projects
II. Future projects
III. Expenditures
 Definition
A. I and III
Term
22) Over-the-Counter Markets can create volatility in stock prices because
 Definition
D. the trades are made directly between the buyer and seller and other participants do not have information on the transaction.
Term
23) The nominal exchange rate in the short run is determined by
 Definition
B. imports + capital outflows = exports + capital inflows
Term
24) Which of the following is not an off-balance sheet bank activity?
 Definition
A. Federal Funds Loans
Term
25) Unlike brokers, who ___, dealers ___.
 Definition
A. buy and sell securities for others; buy and sell securities for themselves.
Term
26) The Federal Funds Deposit Corporation (FDIC) raised the insurance limit on bank account deposits from __ to __ in 2008.
 Definition
A. $100,000; $250,000
Term
28) A banking panic like the one that occurred in the 1930s is not likely to happen again because
 Definition
D. None of the above answers is correct
Term
29) Suppose you work for a corporation that is about to make an announcement that will surely increase its stock price. If you know about this before everyone else and you decide to buy stock in this corporation, you will be guilty of ___.
 Definition
A. Insider Trading
Term
1) Which of the following lags are considered shorter for fiscal policy rather than for monetary policy?
I. Data
II. Recognition
III. Legislative
IV. Implementation
V. Effectiveness
 Definition
A. V Only
Term
2) Using the parts of the business cycle, the NBER Business-Cycle Dating Committee’s definition of recession implies that a recession is ___. The AE/PC model implies that a recession is ___
 Definition
A. Between the peak and the trough of the business cycle; when the output
GAP is negative.
Term
3) Which of the following represents a channel in the monetary transmission mechanism?
 Definition
C. Federal Funds Rate (DOWN)→ Wealth (UP)→ Consumption (UP) → AE (UP)
Term
4) Suppose that output is at potential but the Fed’s concerned that the inflation rate is too low. Assuming that consumers have adaptive expectations and there are no time lags associated with policy changes, if the fed wants to permanently move the inflation rate to a higher level, it should __ interest rates. To permanently change the inflation rate, the Fed should wait for at least __ before reversing policy to return output to the potential level.
 Definition
D. decrease; two periods
Term
6) Suppose real output is at the potential level. Further assume that the Federal Government decides that the current budget deficit is too high and passes a change in policy to eliminate the deficit. Everything else held constant, if the central bank enacts counter-cyclical policy, it will __ real interest rates. If the central bank does nothing, the inflation rate will __, everything else held constant.
 Definition
B. Decrease; Decrease
Term
7) There are __ voting members of the FOMC; __ are members of the Board of Governors and __ of the Federal District Bank Presidents.
 Definition
E. 12; 7; 5
Term
9) Like many other countries, the U.S. has what is called a channel/corridor system. For the U.S. the corridor helps the Fed control the __ where the __ acts as the ceiling and the __ acts as the floor of the corridor.
 Definition
C. Federal funds rate, discount rate, interest rate paid on reserve
Term
10) Suppose depositors start holding more funds in savings deposits and other time deposit accounts relative to their checking accounts. Everything else held constant, this would cause the M1 multiplier to __ and the M2 multiplier to __.
 Definition
E. Not be affected; increase
Term
11) In an economic boom, firms sell more output, which allows them to ___; this effect __ the boom and is called the __ multiplier.
 Definition
D. Finance investment more easily; magnifies; investment
Term
12) During the financial crisis of 2007-2009, the money multiplier was __ 1.0 because banks __.
 Definition
C. below; decreased their lending
Term
13) Long-run monetary neutrality implies that changes in the money supply __.
 Definition
C. Does not affect real variables in the long-run.
Term
14) Consider the Philips curve equation where output is at potential, α = 2, and π(-1) = 4%. Suppose an oil price shock occurs such that ν = 1.5. If policymakers fully accommodate the shock, everything else held constant, inflation will be __ and the output gap will be __.
 Definition
D. 5.5 %; zero
Term
15) Which of the following lags are, operationally, not a factor for monetary policy?
I. Data
II. Recognition
III. Legislative
IV. Implementation
V. Effectiveness
 Definition
E. III and IV
Term
16) Your parents are growing anxious over the declining state of the economy. They read the paper and see that the Fed has lowered the federal funds rate by 1%. They ask you when the economy will start to recover. What do you tell them?
 Definition
B. “Economic research has found that output gap will begin to recover in about one year, and prices will take about twice as long to adjust.”
Term
18) Suppose that there is an increase in the efficiency and accuracy of collecting survey responses as well as an increase in the reliability of the statistical methods to analyze the survey responses. Everything else held constant, which of the following lags will be affected by these changes:
I. Data
II. Recognition
III. Legislative
IV. Implementation
V. Effectiveness
 Definition
A. I and II
Term
19) During the end of the year holiday season, we would expect banks to hold __ reserves relative to demand deposits. Everything else held constant, thi would cause the M1 money multiplier to __.
 Definition
D. more; fall
Term
20) According to the Federal Reserve Board of Governors in December 2010, reserves equaled $1 trillion, currency in circulation equaled $978 billion, and checking deposits were $241 billion. The monetary base was ___ and the M1 money supply was ___.
 Definition
C. $1.978 trillion; $1.219 trillion
Term
21) Suppose that the European Central Bank decides to buy US dollar reserves and hold them on account at the Federal Reserve. The appropriate counter-cyclical response from the Fed would be to enact an open-market __. If the Fed does nothing, the interest rate will __, everything else held constant.
 Definition
D. purchase; increase
Term
22) Suppose the Fed lends $500 to a commercial bank. As a result of this transaction, ___, and ___.
 Definition
A. Reserves increase by $500; The Monetary Base increases by $500
Term
23) Using the current unemployment rate in the US and the standard assumption that the natural rate of unemployment is 5%, then Okun’s Law would predict that the current output gap in the US is __ percent.
 Definition
B. -8.0%
Term
24) In the most recent recession, the Federal Reserve Bank
 Definition
C. encountered a zero bound problem when it cut interest rates to near zero.
Term
25) Based on the last two Employment Situation reports, the one sector that has been the biggest drag on the increase in the number of nonfarm payroll employment has been the ___.
 Definition
B. public sector
Term
26) Everything else held constant, if the Fed enacts accommodating policy in the face of a surge in consumer confidence, output __, and the inflation rate __. Everything else held constant, if the Fed enacts non-accommodating policy in the face of a surge in consumer confidence, output __ and the inflation rate __.
 Definition
E. increases; increases; remains constant; remains constant.
Term
28) What is the maximum length a member of a Board of Governors can serve?
 Definition
B. between 14 and just under 28 years.
Term
29) When the real interest rate rises in the United States, there is __ in net capital outflows, which causes the dollar to __ and aggregate expenditure to __.
 Definition
B. A decline; appreciate; to fall
Term
30) In the aftermath of the downturn in the early 1930s, private banks __; between 1936 and 1937 the Fed raised the __, which __ the Great Depression.
 Definition
B. increased their holdings of excess reserves; reserve requirements; prolonged
Term

 

___ - ratio of nominal GDP to the money supply (V = PY/M)

Shows how quickly money moves through the economy

PY = Price Level * Real GDP

M = Money Supply

 

 

 Definition
Velocity of Money
Supporting users have an ad free experience!