U S Macroeconomics Trivia Questions
Study for final exam
- 1.
Faced with growing problems in Asia, the US government spent several billion dollar buying Japanece yen. This action was intended to:
- A.
Increase the supply of Japanese yen in Asia
- B.
Increase the supply of Japanese yen in the US
- C.
Weaken the Japanese yen and strenghten the US dollar
- D.
Strengthen the Japanese yen and make the Japanese exports less expensive
- E.
Strengthen the Japanese yen and make Japanese exports more expensive
Correct Answer
E. Strengthen the Japanese yen and make Japanese exports more expensiveExplanation
The US government spending several billion dollars to buy Japanese yen would increase the demand for yen, which in turn would strengthen the Japanese yen. When a currency strengthens, it becomes more expensive relative to other currencies. As a result, Japanese exports would become more expensive, making them less competitive in the global market. Therefore, the action of buying Japanese yen would strengthen the Japanese yen and make Japanese exports more expensive.Rate this question:
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- 2.
Under the Bretton Woods system,
- A.
Foreign currencies could be converted into US dollars, which could be redemmed for gold at a rate determined by supply and demand
- B.
Foreign currency currencies could be converted into US dollars, which could be redemmed for gold at a rate of 35 dollars per ounce
- C.
Foreign currencies could be converted into gold at a rate determined by supply and demand
- D.
Foreign currencies could be converted into gold at a rate of $35 per ounce
- E.
Gold was the international medium of exchange
Correct Answer
B. Foreign currency currencies could be converted into US dollars, which could be redemmed for gold at a rate of 35 dollars per ounceExplanation
Under the Bretton Woods system, foreign currencies could be converted into US dollars, which could then be redeemed for gold at a fixed rate of $35 per ounce. This means that countries holding foreign currencies could exchange them for US dollars, and then exchange those dollars for gold at a fixed price. This system was in place to maintain stability in the international monetary system and ensure that the US dollar remained the primary reserve currency.Rate this question:
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- 3.
If the U.S. dollar appreciates in the foreign exchange market,
- A.
American goods will become more expensive for foreign buyers and foreign goold will be cheaper for Americans
- B.
American goods will become less expensive for foreign buyers and foreign goods will be more expensive for Americans
- C.
American goods will become more expersive and foreign goods will be more expensive for Americans
- D.
American goods will become cheaper for foreign buyers and foreign goods will be cheaper for Americans
- E.
Neither the price of U.S. exports nor the price oof U.S. imports will change
Correct Answer
A. American goods will become more expensive for foreign buyers and foreign goold will be cheaper for AmericansExplanation
If the U.S. dollar appreciates in the foreign exchange market, it means that the value of the U.S. dollar increases compared to other currencies. This would make American goods more expensive for foreign buyers because they would need to spend more of their own currency to purchase the same amount of U.S. goods. On the other hand, foreign goods would become cheaper for Americans because they would need to spend fewer U.S. dollars to purchase the same amount of foreign goods.Rate this question:
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- 4.
If the exchange rate has been $1.50 per British pound but now falls to $1.25 per British pound, there will be
- A.
More U.S. imports from Great Britain because the price of pounds has fallen
- B.
More exports to Great Britain because the price of pounds has risen
- C.
Fewer exports to Great Britain because the price of the pound has risen
- D.
More US exports to Great Britain since the price of the dollar has falen
- E.
No change in either exports or imports
Correct Answer
A. More U.S. imports from Great Britain because the price of pounds has fallenExplanation
When the exchange rate falls from $1.50 per British pound to $1.25 per British pound, it means that the value of the British pound has decreased compared to the US dollar. This makes British goods and services cheaper for US consumers, leading to an increase in imports from Great Britain. Therefore, there will be more U.S. imports from Great Britain because the price of pounds has fallen.Rate this question:
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- 5.
If the US dollar depreciates, it means that
- A.
The value of the US dollar has increased
- B.
The value of foreign exchange has decreased
- C.
Fewer dollars are required to purchase foreign exchange
- D.
More dollars are required to purchase foreign exchange
- E.
Exports will immediately fall
Correct Answer
D. More dollars are required to purchase foreign exchangeExplanation
If the US dollar depreciates, it means that more dollars are required to purchase foreign exchange. This means that the value of the US dollar has decreased in relation to other currencies. When the US dollar depreciates, it takes more dollars to buy the same amount of foreign currency. This can make imports more expensive and exports cheaper, which can have an impact on international trade.Rate this question:
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- 6.
The inflation associated with the oil embargoes of the 1970's resulted in
- A.
Reduced unemployment because aggregate demand increased
- B.
Reduced unemployment because aggregate demand fell
- C.
Increased unemployment because aggregate demand increased
- D.
Increased unemployment because aggregate demand fell
- E.
Increased unemployment because aggregate supply fell
Correct Answer
E. Increased unemployment because aggregate supply fellExplanation
During the oil embargoes of the 1970s, there was a decrease in the supply of oil, which led to an increase in its price. This increase in oil prices caused a decrease in aggregate supply, as businesses faced higher production costs. As a result, businesses had to reduce their output and lay off workers, leading to increased unemployment. Therefore, the correct answer is "increased unemployment because aggregate supply fell."Rate this question:
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- 7.
The time it takes to identify and examine the nature and seriousness of an economic problem is the
- A.
Activity lag
- B.
Decision-making lag
- C.
Effectiveness lag
- D.
Implementation lag
- E.
Recognition lag
Correct Answer
E. Recognition lagExplanation
The recognition lag refers to the time it takes to identify and examine the nature and seriousness of an economic problem. This lag occurs when policymakers and economists need to gather data, analyze trends, and assess the impact of the problem before taking any action. It is an important step in the decision-making process as it allows for a thorough understanding of the problem before implementing any solutions.Rate this question:
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- 8.
If those who favor an active approach to policy think that the natural rate of unemployment is much lower than it actually is and act accordingly, the long-run result of their error will be
- A.
Unemployment
- B.
A higher level of potential output
- C.
A higher price level
- D.
A lower price level
- E.
A shift of the long-run aggregate supply curve
Correct Answer
C. A higher price levelExplanation
If those who favor an active approach to policy believe that the natural rate of unemployment is lower than it actually is and act accordingly, they will implement policies aimed at reducing unemployment. However, since the actual natural rate of unemployment is higher, these policies will not be effective in reducing unemployment to the desired level. As a result, the economy will experience higher levels of unemployment than expected. This can lead to an increase in inflationary pressures as the labor market tightens due to the mismatch between the desired and actual levels of unemployment. Inflationary pressures can result in a higher price level in the long run.Rate this question:
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- 9.
Velocity measures
- A.
The average length of time that people hold wealth
- B.
How fast aggregate spending will increase for a given decline in money demand
- C.
How fast inflation will rise for a given increase in the money supply
- D.
How quickly money changes hands
- E.
How quickly banks create money
Correct Answer
D. How quickly money changes handsExplanation
Velocity measures how quickly money changes hands. This means it calculates the rate at which money is being spent or used in transactions within an economy. A high velocity indicates that money is circulating rapidly, which can stimulate economic growth. On the other hand, a low velocity suggests that money is being held onto or saved rather than being used for transactions, which can slow down economic activity. Therefore, velocity is an important indicator for understanding the speed and efficiency of money flow within an economy.Rate this question:
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- 10.
A decrease in the interest rate will
- A.
Shift the demand for money curve to the right
- B.
Shift the demand for money curve to the left
- C.
Increase the quiantity of money people want to hold
- D.
Decrease the quantity of money people want to hold
- E.
Have no impact on the demand for money curve
Correct Answer
C. Increase the quiantity of money people want to holdExplanation
A decrease in the interest rate will increase the quantity of money people want to hold. When the interest rate decreases, the opportunity cost of holding money decreases. This means that individuals are willing to hold more money because the return they would receive from holding other assets, such as bonds or stocks, is lower. As a result, the demand for money increases, shifting the demand for money curve to the right.Rate this question:
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- 11.
If the interest rate rises, people hold
- A.
Less money because its opportunity cost has increased
- B.
More money because its opportuniy cost has increased
- C.
Less money because its opportunity cost has declined
- D.
More money because its opportunity cost has declined
- E.
The same amount of money
Correct Answer
A. Less money because its opportunity cost has increasedExplanation
When the interest rate rises, the opportunity cost of holding money increases. This means that individuals can earn a higher return by investing their money rather than keeping it as cash. As a result, people are more likely to hold less money and instead invest it or spend it on other assets that offer higher returns. Therefore, the correct answer is that people hold less money because its opportunity cost has increased.Rate this question:
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- 12.
The immediate effect of a bank's purchases of U.S. government securities from the Fed is a(n)
- A.
Decrease in the bank's liabilities
- B.
Increase in the bank's liabilities
- C.
Increase in the bank's required reserve
- D.
Increase in the bank's actual reserves
- E.
Decrease in the bank's actual reserves
Correct Answer(s)
A. Decrease in the bank's liabilities
E. Decrease in the bank's actual reservesExplanation
When a bank purchases U.S. government securities from the Fed, it is essentially exchanging its own liabilities (such as deposits) for the government securities. This transaction reduces the bank's liabilities because it is decreasing the amount of deposits it owes to its customers. At the same time, the bank's actual reserves decrease because it is using those reserves to purchase the securities. Therefore, the immediate effect of this transaction is a decrease in the bank's liabilities and a decrease in its actual reserves.Rate this question:
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- 13.
When people choose to hold some of a newly recieved loan as cash in stead of keeping it in a checking account, the money supply
- A.
Will not increase as a result of that loan
- B.
Decrease as a result of that loan
- C.
Will not increase as much from that point on as it would if borrowers redeposited all of the money because the cash withdrawl increase excess reserves
- D.
Will not increase as much from that point on as it would if borrowers redeposited all of the money because cash is not include in the money supply
- E.
Will not increase as much from that point on as it would if borrowers redeposited all of the money because the cash withdrawal decreases excess reserves
Correct Answer
E. Will not increase as much from that point on as it would if borrowers redeposited all of the money because the cash withdrawal decreases excess reservesExplanation
When people choose to hold some of a newly received loan as cash instead of keeping it in a checking account, the money supply will not increase as much from that point on as it would if borrowers redeposited all of the money because the cash withdrawal decreases excess reserves. This means that when borrowers withdraw cash from the loan, it reduces the amount of money available for lending by banks, thereby limiting the potential increase in the money supply.Rate this question:
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- 14.
Banks create new deposits by
- A.
Lending out excess reserves
- B.
Lending out required reserves
- C.
Raising interest rates on loans
- D.
Calling in loans
- E.
Printing new checks
Correct Answer
A. Lending out excess reservesExplanation
Banks create new deposits by lending out excess reserves. Excess reserves refer to the funds held by banks that are above the required reserve amount set by regulatory authorities. When banks lend out these excess reserves, they are essentially creating new deposits in the form of loans. This process increases the money supply in the economy, allowing for economic growth and investment. By lending out excess reserves, banks can earn interest on the loans and stimulate economic activity.Rate this question:
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- 15.
Monetary policy is
- A.
Controlled by the president, who appoints the members of the Board of Governors
- B.
Controlled by the president, who appoints the member of the Open Market Committee
- C.
Insulated from politics since the term of only two members of the Board of Governers expire during tenure of any modern President of thhe U.S.
- D.
Insulated from the tenure of any modern President of the US
- E.
Controlled by the president
Correct Answer
C. Insulated from politics since the term of only two members of the Board of Governers expire during tenure of any modern President of thhe U.S.Explanation
The correct answer is "insulated from politics since the term of only two members of the Board of Governors expire during tenure of any modern President of the U.S." This means that the monetary policy is not directly controlled by the president, as their influence is limited to appointing members of the Board of Governors. The fact that only two members' terms expire during a president's tenure ensures that the policy remains independent from political interference.Rate this question:
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- 16.
In Germany after World War II, prices were set well below what people though they should be. As a result,
- A.
Sellers stopped accepting money, and this forced people to borrrow
- B.
The German mark no longer served as a unit of account
- C.
Gresham's Law took effect when people switched to flat money
- D.
The German price level rose
- E.
Nominal GDP fell while real GDP increased
Correct Answer
A. Sellers stopped accepting money, and this forced people to borrrowExplanation
After World War II in Germany, prices were set at a lower level than what people believed they should be. This led to a situation where sellers refused to accept money as a means of payment. As a result, people were forced to borrow money instead. This indicates that the German mark was no longer functioning as a unit of account, leading to a shift towards flat money. The action of sellers refusing money and people resorting to borrowing demonstrates the impact of Gresham's Law. It is important to note that while this situation occurred, the German price level increased, indicating inflation, while nominal GDP fell, suggesting a decrease in the overall value of economic output.Rate this question:
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- 17.
Who is famous for his observation that bad money drives out good money?
- A.
John Maynard Keynes
- B.
Thomas Gresham
Correct Answer
B. Thomas GreshamExplanation
Thomas Gresham is famous for his observation that bad money drives out good money. This observation, known as Gresham's Law, states that when two forms of money are in circulation, people will hoard the more valuable form and use the less valuable form for transactions. This is because the less valuable form will be more readily accepted in the market, while the more valuable form will be kept and not used. Gresham's Law has been used to explain various economic phenomena throughout history.Rate this question:
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- 18.
How does money function as a unit of account?
- A.
Money has intrinsic worth as a commodity
- B.
Money is convertible into commodities that have intrinsic worth
- C.
The prices of all goods and services are measured in terms of money
- D.
Things that function as money can do so because people know there is a standard of value that ultimately backs the money even if it is only faith
- E.
Bank accounts make it easy for people to store their wealth
Correct Answer
C. The prices of all goods and services are measured in terms of moneyExplanation
Money functions as a unit of account because the prices of all goods and services are measured in terms of money. This means that money serves as a common measure or standard for determining the value of different goods and services in the economy. It allows for easy comparison and exchange of goods and services by providing a consistent and widely accepted unit of measurement.Rate this question:
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- 19.
Which of the following does NOT limit the effectiveness of discretionary fiscal policy?
- A.
The difficulty of estimating the natural rate of unemployment
- B.
Time lags involved in enacting appropriate legislation
- C.
The difficulty of getting an accurate measure of the rate of inflation
- D.
Time lags involved in recognizing the need for fiscal policy
- E.
The tendency for people to distinguish between temporary and permanent changes in their income
Correct Answer
C. The difficulty of getting an accurate measure of the rate of inflationExplanation
The difficulty of getting an accurate measure of the rate of inflation does not limit the effectiveness of discretionary fiscal policy because fiscal policy primarily focuses on government spending and taxation to influence aggregate demand in the economy. Inflation measurement is more relevant for monetary policy, which aims to control the money supply and interest rates to stabilize prices. While accurate inflation data is important for economic analysis, it does not directly impact the ability of fiscal policy to stimulate or contract the economy.Rate this question:
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- 20.
By how much would government purchases have to change if the government wanted to increase income by $1000 and the MPC were point 9
- A.
$100
- B.
$900
- C.
$1000
- D.
$10000/9
- E.
$10,000
Correct Answer
A. $100Explanation
If the government wants to increase income by $1000 and the MPC (Marginal Propensity to Consume) is 0.9, it means that for every additional dollar of income, individuals will spend 90 cents and save 10 cents. To achieve the desired increase in income, the government purchases would have to increase by $100, as this amount would be spent by individuals and circulate in the economy, resulting in a multiplier effect and ultimately leading to a $1000 increase in income.Rate this question:
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- 21.
When the short-run aggregate supply (SRAS) curve has a positive slope, effective fiscal policy to correct for an expansionary gap will
- A.
Only reduce the PL
- B.
Only reduce real GDP
- C.
Only increase the PL
- D.
Only increase real GDP
- E.
Reduce both the price level and real GDP
Correct Answer
E. Reduce both the price level and real GDPExplanation
When the short-run aggregate supply (SRAS) curve has a positive slope, it means that as the price level increases, firms are willing to produce more output. In this case, an expansionary gap exists, indicating that the economy is operating above its potential output level. To correct for this gap, effective fiscal policy, such as reducing government spending or increasing taxes, will decrease aggregate demand. As a result, both the price level and real GDP will decrease, leading to a reduction in both the price level and real GDP.Rate this question:
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Mar 20, 2023Quiz Edited by
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May 09, 2009Quiz Created by
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