Los Angeles Mission College » Economics » Economics 002- Principles of Economics II » Fall 2022

Economics 002- Principles of Economics II » Fall 2022 » Test 3 Ch 8-10

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Question #1

Use of the Internet makes it easy to find up-to-minute exchange rates for any pair of currencies that exist.

A. True

B. False

Question #2

If exchange rates and prices in other countries remain constant, then an increase in the U.S. price level will tend to increase U.S. exports.

A. False

B. True

Question #3

Other things being equal, which of the following will cause the aggregate demand curve to shift to the right?

A. An increase in foreign demand for a country's exports

B. An increase in net taxes

C. An increase in interest rates

D. A decrease in consumer confidence

Question #4

A decrease in consumer confidence tends to decrease aggregate demand.

A. False

B. True

Question #5

Foreign exchange rates for the U.S. dollar change constantly as supply and demand conditions change.

A. True

B. False

Question #6

The four principal components of aggregate demand do not include which of the following?

A. Government expenditures

B. Net exports

C. Planned investment

D. Net profitability

Question #7

Money market mutual funds are an example of an asset that is highly liquid, but not counted as part of M2.

A. True

B. False

Question #8

On July 1, the exchange rate between the Canadian dollar (CAD) and the US dollar (USD) is 1 CAD for 0.80 USD. On August 1, the exchange rate is 1 CAD for .70 USD. Over this period of time, what would we say?

A. The USD has depreciated

B. The CAD has appreciated

C. The CAD has depreciated

D. The CAD neither appreciated or depreciated

Question #9

Which of the following instruments is not used by the Fed to change the money supply?

A. State and local tax rates

B. The federal funds rate

C. The required reserve ratio

D. Open-market operations

Question #10

If a country experiences inflation, its exports become ________ competitive, which tends to ________ the economy.

A. more; impose a drag on

B. more; stimulate

C. Less; impose a drag on

D. less; stimulate

Question #11

When do U.S. exports tend to increase?

A. None of the answers

B. When economic activity abroad is relatively low

C. When U.S. prices are relatively high

D. When U.S. prices are relatively low

Question #12

On July 1, the exchange rate between the Canadian dollar (CAD) and the US dollar (USD) is 1 CAD for 0.80 USD. On August 1, the exchange rate is 1 CAD for 1 USD. Over this period of time, what would we say?

A. The USD has appreciated

B. The CAD has depreciated

C. The CAD neither appreciated or depreciated

D. The CAD has appreciated

Question #13

A decrease in consumer confidence tends to decrease aggregate demand.

A. True

B. False

Question #14

According to purchasing power parity, when should a nation's currency appreciate?

A. When it does not produce products that are traded on international markets

B. When it experiences greater inflation than its trading partners

C. When its interest rates are expected to decrease

D. When it experiences lower inflation than its trading partners

Question #15

Fiscal policy is policy that is concerned with government purchases, taxes, and transfer payments.

A. False

B. True

Question #16

Bonnie withdraws some cash from her checking account at Dolan Bank. Dolan Bank's assets will ________ and its liabilities will ________.

A. increase; increase

B. decrease; increase

C. increase; decrease

D. decrease; decrease

Question #17

If the Fed wishes to increase the money supply it could _______ dollar-denominated bonds or _______ bonds denominated in a foreign currency.

A. buy; buy

B. sell; sell

C. buy; sell

D. sell; buy

Question #18

Fiscal policy is policy that is concerned with government purchases, taxes, and transfer payments.

A. True

B. False

Question #19

A decrease in consumer confidence tends to ________ aggregate demand. A decrease in business confidence will ________ aggregate demand.

A. increase; increase

B. increase; decrease

C. decrease; increase

D. decrease; decrease

Question #20

Deflation power parity is a situation in which goods cost the same in one country as in another when prices are compared using the market exchange rate.

A. True

B. False

Question #21

The __________ exchange rate reflects the rate parties experience at the time of a transaction. The ________ exchange rate takes into account the rates of inflation in both countries.

A. real; real

B. nominal; real

C. nominal; nominal

D. real; nominal

Question #22

Real government purchases may fall when the price level rises if which of the following is true?

A. All parts of the government budget are fixed in real terms.

B. Some parts of the government budget are fixed in nominal terms.

C. Governments prefer more expensive goods to less expensive goods because they create more jobs.

D. Governments always buy the same quantity of goods and services regardless of how much they cost.

Question #23

The aggregate supply curve shows the relationship between real GDP and the average price level.

A. False

B. True

Question #24

The four principal components of aggregate demand do not include which of the following?

A. Net exports

B. Property values

C. Government expenditures

D. Planned investment

Question #25

Monetary policy is the term used for the government policy regarding government spending, taxes, and government debt.

A. False

B. True

Question #26

Money is called a "liquid asset" because its nominal value is subject to unpredictable changes.

A. True

B. False

Question #27

Anything that serves as a unit of account, a store of purchasing power, and a means of payment can be called money.

A. False

B. True

Question #28

Quantitative easing involves which of the following?

A. The reduction of reserves held by the commercial banks

B. The use of open-market operations to increase the quantity of reserves held by the commercial banks

C. The reduction of the discount rate in order to stimulate lending by commercial banks

D. The use of open-market operations to increase the quantity of reserves held by the Fed

Question #29

The M1 definition of the money stock focuses on the function of money as a means of payment.

A. True

B. False

Question #30

The Japanese yen depreciates relative to the USD. What should we expect?

A. An increase in U.S. demand for Japanese goods

B. An increase in the number of Japanese tourists visiting the United States

C. An increase in Japanese demand for U.S. goods

D. A decrease in the number of U.S. tourists visiting Japan.

Question #31

Fiscal policy changes can shift the position of the aggregate demand curve.

A. True

B. False

Question #32

In an aggregate demand curve diagram, what is plotted on the horizontal axis?

A. Aggregate demand

B. Nominal output

C. Real output

D. Average price level

Question #33

Fiscal policy changes can shift the position of the aggregate demand curve.

A. False

B. True

Question #34

When a country's exchange rate appreciates, its residents find it _______ expensive to buy goods made in other countries, and imports ___________.

A. less; increase

B. more; decrease

C. more; increase

D. less; decrease

Question #35

If a country experiences inflation, its exports become less competitive and its imports tend to increase, which puts a drag on the economy.

A. True

B. False

Question #36

The price of Mexico's currency in terms of that of the United States is the ______________.

A. exchange rate

B. currency ratio

C. balance of payments

D. foreign exchange

Question #37

The aggregate supply curve shows an inverse relationship between prices and real planned expenditure.

A. True

B. False

Question #38

An increase in net taxes will shift the aggregate demand curve to the right.

A. True

B. False

Question #39

Which of the following items is included in M2, but not in M1?

A. Treasury bills (T-bills)

B. Currency

C. Travelers checks

D. Savings deposits

Question #40

An individual member of a currency union can change its exchange rate to ease adjustment if it experiences an unfavorable economic shock.

A. False

B. True

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