Macroeconomics 212
Macroeconomics chapter 23-25
- 1.
A decrease in the government budget deficit decreases the ________ loanable funds and an increase in the government budget surplus increases the ________ loanable funds.
- A.
Demand for; demand for
- B.
Demand for; supply of
- C.
Supply of; demand for
- D.
Supply of; supply of
- E.
Demand for loanable funds and the supply of; supply of loanable funds and the demand for
Correct Answer
B. Demand for; supply ofExplanation
A decrease in the government budget deficit means that the government is spending less than it is receiving in revenue. This leads to a decrease in the demand for loanable funds because the government is borrowing less money. On the other hand, an increase in the government budget surplus means that the government is spending less than it is receiving in revenue. This leads to an increase in the supply of loanable funds because the government has more money available to lend. Therefore, a decrease in the government budget deficit decreases the demand for loanable funds and an increase in the government budget surplus increases the supply of loanable funds.Rate this question:
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- 2.
W hen a government has a budget surplus, the surplus
- A.
Helps finance investment.
- B.
Crowds-out private saving.
- C.
Must be subtracted from private saving.
- D.
Increases the world real interest rate.
- E.
Decreases the demand for loanable funds.
Correct Answer
A. Helps finance investment.Explanation
When a government has a budget surplus, it means that it is spending less than it is collecting in revenue. This surplus can be used to finance investment, such as infrastructure projects or research and development, which can stimulate economic growth. By investing in these projects, the government is able to support and promote economic development. Therefore, the correct answer is that a budget surplus helps finance investment.Rate this question:
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- 3.
An increase in the government budget deficit ________. If the country is an international borrower, the government budget deficit ________. If the country is an international lender, the government budget deficit ________.
- A.
Increases the country's supply of loanable funds; decreases foreign lending; increases foreign borrowing
- B.
Decreases the country's demand for loanable funds; decreases foreign lending; increases foreign borrowing
- C.
Increases the country's demand for loanable funds; increases foreign borrowing; decreases foreign lending
- D.
Decreases the country's supply of loanable funds; increases foreign borrowing; decreases foreign lending
- E.
Increases the country's demand for loanable funds; decreases foreign borrowing; increases foreign lending
Correct Answer
C. Increases the country's demand for loanable funds; increases foreign borrowing; decreases foreign lendingExplanation
An increase in the government budget deficit leads to an increase in the country's demand for loanable funds, as the government needs to borrow more money to cover the deficit. This increase in demand for loanable funds also leads to an increase in foreign borrowing, as the government may need to borrow from international lenders to meet its funding needs. At the same time, the increase in the government budget deficit decreases foreign lending, as the country is relying more on borrowing rather than lending to other countries.Rate this question:
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- 4.
A very small country is a net foreign lender and its supply of loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country ________ and the country's foreign lending ________.
- A.
Increases; decreases
- B.
Does not change; does not change
- C.
Does not change; increases
- D.
Increases; does not change
- E.
Does not change; decreases
Correct Answer
C. Does not change; increasesExplanation
If a very small country is a net foreign lender and its supply of loanable funds increases, it means that the country has more funds available to lend to other countries. However, since it is a very small country, the increase in supply is not significant enough to affect the equilibrium quantity of loanable funds used in the country. Therefore, the equilibrium quantity of loanable funds used in the country does not change. On the other hand, the country's foreign lending increases because it now has more funds available to lend to other countries.Rate this question:
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- 5.
A very small country is a net foreign borrower and its demand for loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.
- A.
Does not change; increases
- B.
Does not change; does not change
- C.
Increases; increases
- D.
Increases; does not change
- E.
Increases; decreases
Correct Answer
C. Increases; increasesExplanation
When a very small country is a net foreign borrower and its demand for loanable funds increases, the equilibrium quantity of loanable funds used in the country increases. This is because the country's increased demand for loanable funds leads to an increase in the quantity of funds borrowed from foreign sources. Therefore, both the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing increase.Rate this question:
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- 6.
Which of the following is an economic function of a chartered bank?
- A.
Issuing bank notes.
- B.
Pooling risk.
- C.
Supervising financial markets.
- D.
Conducting monetary policy.
- E.
None of the above.
Correct Answer
B. Pooling risk.Explanation
Pooling risk is an economic function of a chartered bank because it involves the bank collecting funds from multiple individuals or businesses and using those funds to provide financial services such as loans, investments, and insurance. By pooling the funds together, the bank is able to spread the risk across a larger group of people or businesses, reducing the impact of any individual's financial difficulties. This helps to stabilize the economy and promote economic growth. Issuing bank notes, supervising financial markets, and conducting monetary policy are also functions of a chartered bank, but in this case, pooling risk is the correct answer.Rate this question:
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- 7.
T he Monetary Base consists of the sum of
- A.
Bank of Canada notes held within the Bank of Canada, bank deposits at the Bank of Canada, and coins held by banks.
- B.
Bank of Canada notes held outside the Bank of Canada, the desired reserves of chartered banks, and coins held by banks.
- C.
Bank of Canada notes held outside the Bank of Canada, bank deposits at the Bank of Canada, and coins held by banks and the public.
- D.
Bank of Canada notes held within the Bank of Canada, bank deposits at the Bank of Canada, and coins held by banks and the public.
- E.
Bank of Canada notes held outside the Bank of Canada, bank deposits at the Bank of Canada, and notes and coins held by banks.
Correct Answer
C. Bank of Canada notes held outside the Bank of Canada, bank deposits at the Bank of Canada, and coins held by banks and the public.Explanation
The correct answer is "Bank of Canada notes held outside the Bank of Canada, bank deposits at the Bank of Canada, and coins held by banks and the public." This is because the Monetary Base includes the currency held by the public, which includes bank notes held outside the Bank of Canada and coins held by banks and the public. It also includes bank deposits at the Bank of Canada, which are reserves held by the banks.Rate this question:
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- 8.
Suppose the Bank of Canada follows a fixed-exchange rate of 0.50 U.K. pounds per Canadian dollar. If the demand for dollars temporarily decreases, to maintain the target exchange rate, the Bank can
- A.
Sell dollars
- B.
Buy dollars.
- C.
Increase Canadian exports.
- D.
Increase Canadian imports
- E.
Violate purchasing power parity.
Correct Answer
B. Buy dollars.Explanation
If the demand for dollars temporarily decreases, the Bank of Canada can maintain the target exchange rate by buying dollars. By purchasing dollars, the Bank increases the demand for dollars and helps to stabilize the exchange rate at the fixed rate of 0.50 U.K. pounds per Canadian dollar. This action prevents the Canadian dollar from depreciating and maintains the desired exchange rate.Rate this question:
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- 9.
Money is
- A.
Equivalent to barter.
- B.
Currency plus credit cards plus debit cards.
- C.
The same as gold.
- D.
A means of payment.
- E.
Currency plus coins.
Correct Answer
D. A means of payment.Explanation
The correct answer is "a means of payment." This is because money serves as a medium of exchange for goods and services, allowing individuals to make transactions and settle debts. It can be in the form of currency, credit cards, or debit cards, making it a versatile tool for facilitating payments. Money is not necessarily equivalent to barter, gold, or limited to coins, but rather encompasses various forms that enable individuals to conduct financial transactions.Rate this question:
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- 10.
W ithout money to act as a medium of exchange,
- A.
The standard of living in the economy would increase.
- B.
Barter exchange would allow for a much simpler yet increased standard of living.
- C.
The increased transaction costs associated with trading would prohibit some trades from taking place.
- D.
Independence in production would lead to a proliferation of new products.
- E.
All exchanges that take place under a monetary system would still take place.
Correct Answer
C. The increased transaction costs associated with trading would prohibit some trades from taking place.Explanation
Without money as a medium of exchange, people would have to rely on barter exchange, which can be more complicated and time-consuming. This would result in increased transaction costs, as individuals would need to find someone who wants what they have and has what they want. As a result, some trades may not take place due to the difficulties and inefficiencies of barter exchange. Therefore, the increased transaction costs associated with trading would prohibit some trades from taking place.Rate this question:
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- 11.
The reserve ratio of a depository institution is the
- A.
Ratio of excess reserves to total deposits.
- B.
Ratio of a bank's total reserves that are held in its vault or on deposit with the Bank of Canada to total deposits
- C.
Ratio of a bank's total reserves that are held in its vault in cash only to total deposits.
- D.
Ratio of a bank's total reserves that are held in an account with the Bank of Canada only to total deposits.
- E.
Ratio of a bank's total reserves that a bank regards as necessary to conduct its business to total deposits.
Correct Answer
B. Ratio of a bank's total reserves that are held in its vault or on deposit with the Bank of Canada to total depositsExplanation
The reserve ratio of a depository institution is the ratio of a bank's total reserves that are held in its vault or on deposit with the Bank of Canada to total deposits. This means that the reserve ratio represents the portion of a bank's reserves that are physically held by the bank or kept in an account with the central bank. It is an important measure as it determines the amount of funds that a bank must keep on hand to meet potential withdrawal demands from depositors.Rate this question:
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- 12.
T he ratio of currency to deposits is the
- A.
Currency drain ratio.
- B.
Excess reserve ratio.
- C.
Monetary reserve ratio
- D.
Reserve ratio.
- E.
Currency ratio.
Correct Answer
A. Currency drain ratio.Explanation
The correct answer is "currency drain ratio." The currency drain ratio refers to the ratio of currency held by the public to total deposits in the banking system. It measures the extent to which individuals and businesses prefer to hold currency rather than deposit it in banks. A higher currency drain ratio indicates a higher preference for holding cash, which can have implications for the effectiveness of monetary policy and the overall liquidity of the banking system.Rate this question:
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- 13.
If the current account is in deficit and the capital account is also in deficit, then the official settlements account balance is
- A.
Negative.
- B.
Positive.
- C.
Probably close to zero, but could be either negative or positive.
- D.
Zero.
- E.
Equal to the sum of the current account and the capital account.
Correct Answer
B. Positive.Explanation
If both the current account and the capital account are in deficit, it means that the country is experiencing a negative balance of trade and a negative balance of capital flows. This implies that the country is spending more on imports and foreign investments than it is earning from exports and foreign investments. As a result, the official settlements account balance will be positive, indicating that the country is borrowing or receiving funds from abroad to cover the deficit.Rate this question:
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Mar 20, 2023Quiz Edited by
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Mar 03, 2010Quiz Created by
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