Mr. Beck

SUNY College at Oneonta
Economics 110  Recent Exam 3 Questions

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Review Questions for Economics 110

1. Assume that Mr. X deposits $1,000 cash in a checking account at Chase Manhattan Bank. If the required reserve ratio (m) were 10% instead of 20%, how much greater would be the maximum increase in the money supply which the banking system has the potential to create as a result of this cash deposit?

    Q1 answer
2. Citibank has $450 million of reserves of which $130 million are currently excess reserves. The required reserve ratio (m) is 20%. What is the current amount of Citibank's demand deposits?
Q2 answer
3. If the Federal Reserve Bank purchases a $1,000 U.S. government bond directly from Wilber National Bank, then, assuming the required reserve ratio (m) is 18%, the increase in Wilber National Bank's required reserves will be
Q3 answer
4. Which one of the following would be expected to occur as the result of an open market sale of government bonds by the Federal Reserve Bank?
  1. Increase in real GDP (Y).
  2. Increase in interest rates charged on loans.
  3. Increase in number of loans made by banks.
  4. Increase in investment spending (I).
  5. Increase in the money supply.

    6. Q4 answer
5. Citibank is initially all loaned up with $400 million of demand deposits. The required reserve ratio (m) is 20%. The Federal Reserve Bank then purchases $20 million of government bonds directly from Citibank at the same time that it lowers the required reserve ratio to 10%.
    After these 2 actions, Citibank will have excess reserves of
Q5 answer
6. In a period of excess demand inflation, it would be appropriate for the Federal Reserve Bank to
  1. increase the rate of growth of the money supply.
  2. lower the required reserve ratio (m).
  3. purchase U.S. government bonds on the open market.
  4. lower the discount rate.
  5. None of the above policies would be appropriate.

    6. Q6 answer
7.. If the U.S. $ were to depreciate relative to the Japanese yen, this would decrease which one, if any, of the following?
  1. U.S. exports to Japan
  2. U.S. imports from Japan
  3. The U.S. inflation rate.
  4. The level of employment in the U.S.
  5. None of the above would be expected to decrease.

    6. Q7 answer
8. An appreciation (increase in value) of the U.S. $ relative to the Japanese yen will
  1. make U.S. goods cheaper in Japan and increase U.S. net exports (X-IM).
  2. make U.S. goods more expensive in Japan and increase U.S. net exports (X-IM).
  3. make U.S. goods cheaper in Japan and decrease U.S. net exports (X-IM).
  4. make U.S. goods more expensive in Japan and decrease U.S. net exports (X-IM).

    5. Q8 answer
9. Eliminating tariffs on imported finished products into the U.S. is generally favored by
  1.  U.S. businesses and U.S. labor unions
  2.  U.S. businesses and U.S. consumers
  3.  only U.S. labor unions
  4.  only U.S. businesses
  5.  only U.S. consumers

    6. Q9 answer
10. The following 2 production possibilities graphs show the alternative outputs which can be produced in 2 countries with 1 year of labor:

Graph question 10

For mutually beneficial trade to occur, the rate of exchange between furniture and air conditioners must be

  1.  less than 1½ units of furniture per air conditioner.
  2.  between 1½ and 2 units of furniture per air conditioner.
  3.  between 3 and 4 units of furniture per air conditioner.
  4.  between 2 and 6 units of furniture per air conditioner.
  5.  more than 6 units of furniture per air conditioner.

    6. Q10 answer
11. If the economy were experiencing a severe recession, then which one of the following, if any, would be an appropriate policy?
  1. Increase taxes.
  2. Federal Reserve Bank selling U.S. government securities (bonds) on the open market.
  3. Decrease government spending.
  4. Federal Reserve Bank buying (purchasing) U.S. government securities (bonds) on the open market.
  5. None of the above would be an appropriate policy.

    6. Q11 answer
12. The following 2 production possibilities graphs show the alternative outputs which can be produced in 2 different countries with 1 year of labor:

Graph Question 12
 It can be concluded that Denmark has a(n)

  1. comparative advantage in both goods and an absolute advantage only in televisions.
  2. comparative advantage in both goods and an absolute advantage only in automobiles.
  3. absolute advantage in both goods and a comparative advantage in both goods.
  4. absolute advantage in both goods and a comparative advantage in neither good.
  5. absolute advantage in both goods and a comparative advantage only in automobiles.
  6. absolute advantage in both goods and a comparative advantage only in televisions.

    7.   Q12 answer
13. A depreciation (decrease in value) of the U.S. dollar relative to the Japanese yen will
  1. make U.S. goods less expensive in Japan and increase U.S. net exports (X – IM).
  2. make U.S. goods more expensive in Japan and increase U.S. net exports (X – IM).
  3. make U.S. goods less expensive in Japan and decrease U.S. net exports (X – IM).
  4. make U.S. goods more expensive in Japan and decrease U.S. net exports (X – IM).

    5. Q13 answer
14. The following table shows the alternative outputs which can be produced in Finland and Somalia with 1 year of labor:
 
Finland
Somalia
Refrigerators
20
2
Suits
60
10
For mutually beneficial trade between Finland and Somalia to occur, the rate of exchange between refrigerators and suits must be
  1. less than 3 suits per refrigerator.
  2. between 3 and 5 suits per refrigerator.
  3. between 2 and 60 suits per refrigerator.
  4. between 2 and 30 suits per refrigerator.
  5. between 6 and 10 suits per refrigerator.
  6. more than 10 suits per refrigerator.

    7. Q14 answer
15. Which one of the following is not considered part of the economy’s money supply?
  1. Gold
  2. Checking account balances
  3. Currency
  4. Coins

    5. Q15 answer
16. Which one of the following, if any, would be expected to decrease as the result of an open market purchase of U.S. government securities by the Federal Reserve Bank?
  1. The economy’s level of real GDP (income).
  2. The interest rates charged by banks on loans.
  3. The number of loans made by banks.
  4. Investment spending (I).
  5. Consumption spending (C) by households.
  6. None of the above answers is correct.

    7. Q16 answer
17. Mr. X deposits $200 cash in his checking account at Wilber National Bank. If the required reserve ratio (m) is 10%, what would be the maximum potential change in the money supply banks can create?
Q17 answer
18. The high level of demand by U.S. consumers for video game consoles made in Japan will
  1. cause a movement down and to the right along a given demand curve for Japanese yen and result in an appreciation (increase in value) of the U.S. dollar relative to the Japanese yen.
  2. cause a movement up and to the left along a given demand curve for Japanese yen and result in a depreciation (decrease in value) of the U.S. dollar relative to the Japanese yen.
  3. shift the entire demand curve for Japanese yen to the right and result in an appreciation (increase in value) of the U.S. dollar relative to the Japanese yen.
  4. shift the entire demand curve for Japanese yen to the right and result in a depreciation (decrease in value) of the U.S. dollar relative to the Japanese yen.
  5. shift the entire demand curve for Japanese yen to the left and result in an appreciation (increase in value) of the U.S. dollar relative to the Japanese yen.
  6. shift the entire demand curve for Japanese yen to the left and result in a depreciation (decrease in value) of the U.S. dollar relative to the Japanese yen.

    7. Q18 answer
19. A bank may only safely lend out a dollar amount equal to its
  1. required reserves
  2. excess reserves
  3. demand deposits
  4. cash
  5. reserves

    6. Q19 answer
20. Oneonta National Bank and Trust Company currently has $4,000 in reserves and $10,000 in demand deposits.  Ms. X then deposits $1,000 cash into her demand deposit (checking) account. If the required reserve ratio (m) is 10%, what is the bank's total level of excess reserves after the deposit?
Q20 answer
21. The primary (major) method the Federal Reserve Bank uses to fight an economic recession is to
  1. decrease taxes.
  2. purchase (buy) U.S. government securities (bonds) on the open market.
  3. lower the required reserve ratio.
  4. increase taxes.
  5. sell government securities (bonds) on the open market.
  6. raise the required reserve ratio.

    7.   Q21 answer
22. The following table shows the alternative outputs which can be produced in 2 countries with 1 year of labor:
 
Russia
United States
Microwave Ovens
10
20
CD Players
25
40
 It can be concluded that the United States has a(n)
  1. absolute advantage in both goods and a comparative advantage in neither good.
  2. absolute advantage in both goods and a comparative advantage in both goods.
  3. comparative advantage in both goods and an absolute advantage only in CD players.
  4. comparative advantage in both goods and an absolute advantage only in microwave ovens.
  5. absolute advantage in both goods and a comparative advantage only in CD players.
  6. absolute advantage in both goods and a comparative advantage only in microwave ovens.

    7. Q22 answer
23. Key Bank has $500 million of demand deposits and is all loaned up. (It is unable to make any new loans.) The required reserve ratio (m) is 20%. The Federal Reserve Bank then lowers the required reserve ratio to 14%. As a result of this action, how many dollars of new loans may Key Bank now make?
Q23 answer
24. Each member of the Federal Reserve Bank’s Board of Governors is
  1. elected by the public to serve one non-renewable 14-year term.
  2. elected by the public to serve initially for 14 years. They may be re-elected for a maximum of 2 terms.
  3. appointed by the President and serve for life.
  4. appointed by the President to serve initially for 14 years. They may be re-appointed for a maximum of 2 terms.
  5. appointed by the President to serve one non-renewable 14-year term.

    6.  Q24 answer
25. Wilber National Bank has reserves of $400 million, loans of $500 million, and demand deposits of $900 million.  The required reserve ratio (m) is 10%.  The Federal Reserve Bank then buys (purchases) $20 million of U.S. government securities from Ms. X. She deposits the Federal Reserve Bank’s check in her checking account at Wilber National Bank. After the transaction clears, what will be the $ amount of Wilber National Bank's excess reserves?
Q25 answer
26. Ms. Anderson deposits $2,500 cash in her checking account at Wilber National Bank, a bank which currently is all loaned up. If the required reserve ratio (m) is 13%, then how much can Wilber National Bank lend?
Q26 answer
27. Which one of the following would be considered a liability on Wilber National Bank’s balance sheet?
  1. Cash held in its vaults.
  2. Demand deposit (checking account) balances of its customers.
  3. Interest earning promissory notes signed by borrowers.
  4. Reserve accounts.
  5. Interest earning U.S. government bonds possessed by the bank.

    6. Q27 answer
28. Mr. Asbury deposits $400 in his checking account at Wilber National Bank. The required reserve ratio (m) is 10%. Wilber National Bank then lends to Ms. Bernstein only one half the $ amount it is permitted to lend. Ms. Bernstein uses the full amount of this loan to buy an antique from Creative Creations, Inc. Creative deposits Ms. Bernstein’s check in its checking account at Key Bank, a bank which currently is all loaned up.
      After Ms. Bernstein’s check clears, what will be Key Bank’s $ amount of excess reserves?
Q28 answer
29. Mr. X deposits $1,000 cash in his checking account. For the maximum potential resultant increase in the money supply to occur as a result of this deposit, which one of the following must be true?
  1. Banks elect not to hold any excess reserves and all checks are deposited in banks.
  2. Banks elect to hold some excess reserves and all checks are deposited in banks.
  3. Banks elect not to hold any excess reserves and some checks are cashed (not deposited in banks).
  4. Banks elect to hold some excess reserves and some checks are cashed (not deposited in banks).

    5. Q29 answer
30. U.S. strategic trade policy is a negotiating stance whereby the U.S. threatens to
  1. lower our tariffs on imported goods unless our trading partners lower their tariffs on U.S. goods.
  2. lower our tariffs on imported goods unless our trading partners raise their tariffs on U.S. goods.
  3. raise our tariffs on imported goods unless our trading partners lower their tariffs on U.S. goods.
  4. raise our tariffs on imported goods unless our trading partners raise their tariffs on U.S. goods.

    5. Q30 answer
31. Assume the U.S. is more productive than Ecuador in the production of both computers and automobiles; however, while the U.S. is 5 times as productive as Ecuador in computers, it is only 3 times as productive as Ecuador in automobiles. Relative to Ecuador, the U.S. is said to have a(n)
  1. comparative advantage in both goods and an absolute advantage only in computers.
  2. comparative advantage in both goods and an absolute advantage only in automobiles.
  3. absolute advantage in both goods and a comparative advantage in both goods.
  4. absolute advantage in both goods and a comparative advantage in neither good.
  5. absolute advantage in both goods and a comparative advantage only in computers.
  6. absolute advantage in both goods and a comparative advantage only in automobiles.

    7. Q31 answer
32.  Assume that Mr. X deposits $7,000 cash in a checking account at Citibank. If the required reserve ratio (m) were 10% instead of 25%, how much greater would be the $ resultant maximum increase in the money supply which the banking system has the potential to create as a result of this cash deposit?
Q32 answer
33.  If the Federal Reserve Bank purchases an $80,000 U.S. government bond directly from Wilber National Bank, then, assuming the required reserve ratio (m) is 14%, the increase in Wilber National Bank's excess reserves will be
Q33 answer
34.  Which one of the following would be expected to occur as the result of an open market sale of government bonds by the Federal Reserve Bank?
  1. Both the $ amount of loans made by banks and the interest rate charged on loans would increase.
  2. Both the $ amount of loans made by banks and the interest rate charged on loans would decrease.
  3. The $ amount of loans made by banks would decrease and the interest rate charged on loans would  increase.
  4. The $ amount of loans made by banks would increase and the interest rate charged on loans would  decrease.

    5. Q34 answer
35. Key Bank has $150 million of reserves and  $420 million of demand deposits. The required reserve ratio (m) is 10%. The Federal Reserve Bank then sells $45 million of government bonds directly to Key Bank at the same time that it raises the required reserve ratio to 15%.
    After these 2 actions, Key Bank will have excess reserves of
Q35 answer
36. Today the U.S. $ is equal to 8 Chinese Yuan. If this exchange rate were to change to $1 = 6 Chinese Yuan, then this would decrease which one, if any, of the following?
  1. U.S. imports from China.
  2. U.S. exports to China.
  3. The U.S. inflation rate.
  4. The level of employment in the U.S.
  5. None of the above would be expected to decrease.

    6. Q36 answer
37. Raising tariffs on imported finished products into the U.S. is generally favored by
  1. U.S. businesses and U.S. labor unions.
  2. U.S. businesses and U.S. consumers.
  3. U.S. labor unions and U.S. consumers.
  4. only U.S. consumers.

    5. Q37 answer
38. The following 2 production possibilities graphs show the alternative outputs which can be produced in Luxembourg and Thailand with 1 year of labor:

Graph Question 38
 For mutually beneficial trade between Luxembourg and Thailand to occur, the rate of exchange between chairs and HDTVs must be

  1. between 1½ and 2 chairs per HDTV.
  2. between 1½ and 3 chairs per HDTV.
  3. between 1½ and 4 chairs per HDTV.
  4. between 2 and 3 chairs per HDTV.
  5. between 2 and 4 chairs per HDTV.
  6. between 3 and 4 chairs per HDTV.

    7. Q38 answer
39. Which one of the following, if any, would be expected to decrease if the Federal Reserve Bank were to decrease the required reserve ratio (m)?
  1. The $ amount of banks’ excess reserves.
  2. Consumption spending (C) by households.
  3. The number of loans made by banks.
  4. Investment spending (I) by businesses.
  5. The interest rates charged by banks on loans.
  6. None of the above would be expected to decrease.

    7. Q39 answer
40. The following table shows the alternative outputs which can be produced in Pakistan and Singapore with 1 year of labor:
 
Pakistan
Singapore
Toasters
28
112
Food Processors
4
56

 For mutually beneficial trade between Pakistan and Singapore to occur, the rate of exchange between toasters and motorcycles must be

  1. between 2 and 4 toasters per Food Processor.
  2. between 2 and 7 toasters per Food Processor.
  3. between 2 and 14 toasters per Food Processor.
  4. between 4 and 7 toasters per Food Processor.
  5. between 4 and 14 toasters per Food Processor.
  6. between 7 and 14 toasters per Food Processor.

    7. Q40 answer
41. If the economy were experiencing a severe recession, then which one of the following would be an appropriate policy?
  1. Increase taxes.
  2. Federal Reserve Bank decreasing the required reserve ratio (m).
  3. Decrease government spending.
  4. Federal Reserve Bank selling U.S. government securities (bonds) on the open market.

    5. Q41 answer
42. The following 2 production possibilities graphs show the alternative outputs which can be produced in India and South Korea with 1 year of labor:

Graph Question 42

 It can be concluded that South Korea has a(n)

  1. comparative advantage in both goods and an absolute advantage only in refrigerators.
  2. comparative advantage in both goods and an absolute advantage only in trucks.
  3. absolute advantage in both goods and a comparative advantage in both goods.
  4. absolute advantage in both goods and a comparative advantage in neither good.
  5. absolute advantage in both goods and a comparative advantage only in trucks.
  6. absolute advantage in both goods and a comparative advantage only in refrigerators.

    7. Q42 answer
43. Mr. X deposits $250 cash in his checking account at Wilber National Bank. If the required reserve ratio (m) is 20%, what would be the maximum potential resultant change in the money supply banks can create?
Q43 answer
44. Assume SONY’s forthcoming Playstation 3 video game console made in Japan is a flop with U.S. consumers and sales are much lower than for the launch of the Playstation 2. This will
  1. cause a movement down and to the right along a given demand curve for Japanese yen and result in an appreciation (increase in value) of the Japanese yen relative to the U.S. dollar.
  2. cause a movement up and to the left along a given demand curve for Japanese yen and result in a depreciation (decrease in value) of the Japanese yen relative to the U.S. dollar.
  3. shift the entire demand curve for Japanese yen to the right and result in an appreciation (increase in value) of the Japanese yen relative to the U.S. dollar.
  4. shift the entire demand curve for Japanese yen to the right and result in a depreciation (decrease in value) of the Japanese yen relative to the U.S. dollar.
  5. shift the entire demand curve for Japanese yen to the left and result in an appreciation (increase in value) of the Japanese yen relative to the U.S. dollar.
  6. shift the entire demand curve for Japanese yen to the left and result in a depreciation (decrease in value) of the Japanese yen relative to the U.S. dollar.

    7. Q44 answer
45. Key Bank currently has $4,500 in reserves and $10,000 in demand deposits.  Ms. X then deposits $500 cash into her demand deposit (checking) account. If the required reserve ratio (m) is 10%, what is the bank's total level of excess reserves after the deposit?
Q45 answer
46. The primary (major) method the Federal Reserve Bank uses to fight inflation is to
  1. decrease taxes.
  2. purchase (buy) U.S. government securities (bonds) on the open market.
  3. lower the required reserve ratio.
  4. increase taxes.
  5. sell government securities (bonds) on the open market.
  6. raise the required reserve ratio.

    7. Q46 answer
47. NBT Bank has reserves of $160 million and demand deposits of $500 million.  The required reserve ratio (m) is 10%.  The Federal Reserve Bank then sells $50 million of U.S. government securities to Ms. Dandridge who has her checking account at NBT Bank. After the transaction clears, what will be the $ amount of NBT Bank's excess reserves?
Q47 answer
48. A depreciation of the U.S. $ relative to the Japanese yen will
  1. reduce the U.S. balance of trade deficit because U.S. exports will increase.
  2. reduce the U.S. balance of trade deficit because U.S. exports will decrease.
  3. increase the U.S. balance of trade deficit because U.S. exports will increase.
  4. increase the U.S. balance of trade deficit because U.S. exports will decrease.

    5. Q48 answer
49. Wilber National Bank has reserves of $10,000 and demand deposit (checking account) balances of $10,000. The required reserve ratio (m) is 10%. It lends out $6,000 by opening up a checking account for Ms. Anthony. Ms. Anthony purchases a $4,500  item by writing a check to Barney’s, Inc. Barney’s banks at Key Bank and deposits the check there in their checking account. After the check clears, what is Wilber National Bank's level of excess reserves?
Q49 answer
50. Which one of the following would be expected to occur as the result of an open market purchase of U.S. government securities (bonds) by the Federal Reserve Bank?
  1. Both the interest rate charged on loans and household consumption spending would increase.
  2. Both the interest rate charged on loans and household consumption spending would decrease.
  3. The interest rate charged on loans would increase and household consumption spending would decrease.
  4. The interest rate charged on loans would decrease and household consumption spending would increase.

    5. Q50 answer
51. Mr. Roberts withdraws $100 cash from his checking account at Citibank. This would
  1. reduce Citibank’s liabilities by $100, but have no effect on Citibank’s assets.
  2. reduce Citibank’s assets by $100, but have no effect on Citibank’s liabilities.
  3. reduce both Citibank’s liabilities and assets by $100.
  4. reduce Citibank’s liabilities by $100, but increase Citibank’s assets by $100.
  5. reduce Citibank’s assets by $100, but increase Citibank’s liabilities by $100.
  6. have no effect on the amount of  either Citibank’s liabilities or assets.

    7. Q51 answer
52. Assume that, in 2007, the value of 1 U.S. dollar changes from 118 Japanese yen to 114 Japanese yen. This change would represent
  1. a depreciation of the U.S. dollar.
  2. a depreciation of the Japanese yen.
  3. a devaluation of the U.S. dollar.
  4. a devaluation of the Japanese yen.
  5. an appreciation of the U.S. dollar.

    6. Q52 answer
53. An examination of Miss Jacobs’ financial situation on 11/16/06 reveals that she has $400 cash, $200 in credit card debt, $900 in her passbook savings account, a credit card limit of $3,100, and a checking account balance of $520. How much money does Miss Jacobs have?
Q53 answer
54. Advocates (proponents) of the infant industry argument call for
  1. imposing tariffs on foreign-produced goods essential for our national defense
  2. lowering prices of U.S. goods to drive foreign competitors out of business.
  3. temporary tariff protection while firms gain experience needed to compete with established foreign rivals.
  4. using the threat of tariffs as a negotiation tool to encourage foreign countries to reduce their tariffs.
  5. permanent tariff protection to protect jobs in selected key domestic industries.

    6. Q54 answer
55.  In 1969, $35 could be converted into 1 ounce of gold. At that time, one British pound was worth $2.80. How many British pounds did it take to buy 1 ounce of gold? (Note: exact answer required. Do not round.)
Q55 answer
56. Ben Bernanke, the new member and chairperson of the Federal Reserve Bank, was appointed by President Bush to serve as chair beginning on 1/1/06. Bernanke will serve as chair for
  1.  life
  2. 14 years. He may not be reappointed as chair.
  3. 14 years. He may be reappointed as chair only one more time.
  4. 4 years. He may be reappointed as chair by the next president.
  5. 4 years. He may not be reappointed as chair by the next president.

    6.  Q56 answer
57. Given the following production possibilities frontier for Chile:
Graph Question 57
Because France is so efficient at TV production, France has agreed to export to Chile 1 TV for every 3 radios Chile exports to France. If Chile specializes completely in radio production and trades with France, how many more TVs would Chile be able to have than if Chile did not trade with France? Assume, whether Chile trades with France or not, Chile must have exactly 450 radios/year for its own use.
Q57 answer
58. The required reserve ratio (m) is 10%. Mr. Andrews deposits $700 in his checking account at Wilber National Bank, a bank which currently is all loaned up. Wilber National Bank then lends to Ms. Boone the maximum amount it is permitted to lend. Ms. Boone uses the full amount of this loan to buy an item from Costco. Costco deposits Ms. Boone’s check in its checking account at Key Bank, a bank which currently is all loaned up.
      After Ms. Boone’s check clears, how much can Key Bank lend?
Q58 answer
59. Wilber National Bank currently has $3,600 in reserves and $12,000 in demand deposits.  Mr. X then withdraws $200 cash from his demand deposit (checking) account. If the required reserve ratio (m) is 10%, what is Wilber National Bank's total level of excess reserves after the withdrawal?
Q59 answer
60. Key Bank has reserves of $170 million and demand deposits of $540 million.  The required reserve ratio (m) is 10%.  The Federal Reserve Bank then purchases (buys) $80 million of U.S. government securities (bonds) from Ms. Astor who deposits the check in her checking account at Key Bank. After the transaction clears, what will be the $ amount of Key Bank's excess reserves?
Q60 answer
61. Wilber National Bank has reserves of $10,000 and demand deposit (checking account) balances of $10,000. The required reserve ratio (m) is 10%. It lends out $8,000 by opening up a checking account for Ms. Yarrow. Ms. Yarrow purchases a $3,400  item by writing a check to ZZZ Inc. ZZZ banks at Key Bank and deposits the check there in their checking account. After the check clears, what is Wilber National Bank's level of excess reserves?
Q61 answer
62. Which one of the following would be expected to occur as the result of an open market sale of U.S. government securities (bonds) by the Federal Reserve Bank?
  1. Both business investment spending and household consumption spending would increase.
  2. Both business investment spending and household consumption spending would decrease.
  3. Business investment spending would increase and household consumption spending would decrease.
  4. Business investment spending would decrease and household consumption spending would increase.

    5. Q62 answer
63. An examination of Miss Campbell’s financial situation on 4/19/07 reveals that she has $610 in currency, $20 in coins, $310 in credit card debt, $1,400 in her passbook savings account, a checking account balance of $460, and a credit card limit of $2,500, How much money does Miss Campbell have?
Q63 answer
64. Citibank has $150 million of reserves and  $350 million of demand deposits. The required reserve ratio (m) is 10%. The Federal Reserve Bank then sells $65 million of government securities (bonds) directly to Citibank at the same time that it raises the required reserve ratio to 20%.
    After these 2 actions, Citibank will have excess reserves of
Q64 answer
65. Today one U.S. dollar = 0.75 Euros. If this exchange rate were to change to $1 = 1 Euro, then this change would increase which one, if any, of the following?
  1.  U.S. imports from Europe.
  2.  U.S. exports to Europe.
  3. The U.S. inflation rate.
  4. The level of employment in the U.S.
  5. None of the above would be expected to increase.

    6. Q65 answer
66. The Federal Reserve Bank purchases a $1,000 U.S. government security (bond) directly from Wells Fargo Bank. As a result, which one of the following will happen to Wells Fargo Bank?
  1. Both its assets and liabilities will increase by $1,000.
  2.  Both its assets and liabilities will decrease by $1,000.
  3. Its assets will increase by $1,000, but its liabilities will decrease by $1,000.
  4. Its assets will decrease by $1,000, but its liabilities will increase by $1,000.
  5. It will have no effect on the total amount of Wells Fargo Bank’s assets or liabilities.

    6. Q66 answer
67. Wilber National Bank currently has $4,000 in reserves and $15,000 in demand deposits.  Mr. X then deposits $900 cash into his demand deposit (checking) account. If the required reserve ratio (m) is 10%, what is Wilber National Bank's total level of excess reserves after the cash deposit?
Q67 answer
68. Wilber National Bank has reserves of $230 million and demand deposits of $500 million.  The required reserve ratio (m) is 10%.  The Federal Reserve Bank then purchases (buys) $60 million of U.S. government securities (bonds) from Ms. Roberts who deposits the check in her checking account at Wilber National Bank. After the transaction clears, what will be the $ amount of Wilber National Bank's excess reserves?
Q68 answer
69. NBT Bank has reserves of $50,000 and demand deposit (checking account) balances of $50,000. The required reserve ratio (m) is 10%. It lends out $20,000 by opening up a checking account for Mr. X. Mr. X purchases a $12,600 item by writing a check to Walmart. Walmart banks at Key Bank and deposits the check there in their checking account. After the check clears, what is NBT Bank's level of excess reserves?
Q69 answer
70. Which one of the following would be expected to occur as the result of an open market purchase of U.S. government securities (bonds) by the Federal Reserve Bank?
  1. Both business investment spending and household consumption spending would increase.
  2. Both business investment spending and household consumption spending would decrease.
  3. Business investment spending would increase and household consumption spending would decrease.
  4. Business investment spending would decrease and household consumption spending would increase.

    5. Q70 answer
71. Assume Paraguay is less productive than the U.S. in the production of both computers and TVs; however, while Paraguay is only 30% as productive as the U.S. in computer production, it is 60% as productive as the U.S. in TV production. Relative to the U.S., Paraguay is said to have a(n)
  1. absolute advantage in neither good and a comparative advantage only in TVs.
  2. absolute advantage in neither good and a comparative advantage only in computers.
  3. comparative advantage in neither good and an absolute advantage only in TVs.
  4. comparative advantage in neither good and an absolute advantage only in computers.
  5. absolute advantage in neither good and a comparative advantage in neither good.
  6. absolute advantage in neither good and a comparative advantage in both goods.

    7. Q71 answer
72. Wachovia Bank has $400 million of demand deposits and is all loaned up; that is, the bank has no excess reserves. The required reserve ratio (m) is 10%. The Federal Reserve Bank then buys $60 million of government securities (bonds) from Mr. X who deposits the Federal Reserve Bank’s check in his checking account at Wachovia Bank. At the same time, the Federal Reserve Bank lowers the required reserve ratio to 5%. After these 2 actions, Wachovia Bank will have excess reserves of
Q72 answer
73. For a 2-country, 2-good model, the following 2 production possibilities frontier show the alternative outputs which can be produced in Laos and Germany with 1 year of labor:

Graph Question 73
 The law of comparative advantage indicates that Laos should

  1. export refrigerators to Germany and import radios from Germany.
  2. export radios to Germany and import refrigerators from Germany.
  3. import both radios and refrigerators from Germany.
  4. export both radios and refrigerators to Germany.

    5. Q73 answer
74.  Today one European Euro = $1.47. If this exchange rate were to change to 1 Euro = $1.70, then this change would decrease which one, if any, of the following?
  1.  U.S. exports to Europe.
  2.  U.S. imports from Europe.
  3. The U.S. inflation rate.
  4. The level of employment in the U.S.
  5. None of the above would be expected to decrease.

    6. Q74 answer
75.  Wilber National Bank has reserves of $30,000 and demand deposits of $50,000. The Federal Reserve Bank then sells a $12,000 U.S. government security (bond) directly to Wilber National Bank. Assuming the required reserve ratio (m) is 10%, Wilber National Bank's excess reserves will now be
Q75 answer
76.  The following table shows the alternative outputs which can be produced in Belgium and Chad with 1 year of labor:
 
 
Belgium
Chad
Automobiles
80
20
Cell Phones
45,000
15,000
It can be concluded that Belgium has a(n)
  1. absolute advantage in both goods and a comparative advantage in both goods.
  2. absolute advantage in both goods and a comparative advantage in neither good.
  3. comparative advantage in both goods and an absolute advantage only in cell phones.
  4. comparative advantage in both goods and an absolute advantage only in automobiles.
  5. absolute advantage in both goods and a comparative advantage only in automobiles.
  6. absolute advantage in both goods and a comparative advantage only in cell phones.

    7. Q76 answer
77. The following 2 production possibilities graphs show the alternative outputs which can be produced in Vietnam and Sweden with 1 year of labor:
Graph Question 77

For mutually beneficial trade between Vietnam and Sweden to occur, the rate of exchange between lawn mowers and tractors must be between

  1. 2 and 4 lawn mowers per tractor.
  2. 2 and 8 lawn mowers per tractor.
  3. 4 and 8 lawn mowers per tractor.
  4. 2 and 16 lawn mowers per tractor.
  5. 4 and 16 lawn mowers per tractor.
  6. 8 and 16 lawn mowers per tractor.

    7. Q77 answer
78. Key Bank currently has $8,000 in reserves and $25,000 in demand deposits.  Mr. X then withdraws $700 cash from his demand deposit (checking) account at Key Bank. If the required reserve ratio (m) is 10%, what is Key Bank's total level of excess reserves after the cash withdrawal?
Q78 answer
79. Citibank has reserves of $340 million and demand deposits of $800 million.  The required reserve ratio (m) is 10%.  The Federal Reserve Bank then sells $40 million of U.S. government securities (bonds) to Ms. Lansing. She pays for the bonds by writing a check. Her checking account is at Citibank. After the check clears, what will be the $ amount of Citibank’s excess reserves?
Q79 answer
80. A depreciation (decrease in value) of the U.S. dollar relative to the Chinese yuan will
  1. increase both U.S. imports from China and U.S. exports to China.
  2. decrease both U.S. imports from China and U.S. exports to China.
  3. increase U.S. imports from China, but decrease U.S. exports to China.
  4. decrease U.S. imports from China, but increase U.S. exports to China.

    5. Q80 answer
81. Wilber National Bank has reserves of $40,000 and demand deposit (checking account) balances of $40,000. The required reserve ratio (m) is 10%. It lends out $5,000 by opening up a checking account for Mr. X. Mr. X then purchases a $3,800 item by writing a check to Otsego Automotive. Otsego Automotive banks at NBT Bank and deposits the check there in their checking account. After the check clears, what is Wilber National Bank's level of excess reserves?
Q81 answer
82. Assume that during 2008 there is a significant increase in the income levels of households in both China and India, countries which are major trading partners with the United States. What effect will this have on the United States?
  1. This would reduce (narrow) the U.S. trade deficit because U.S. exports would decrease.
  2. This would reduce (narrow) the U.S. trade deficit because U.S. exports would increase.
  3. This would increase (widen) the U.S. trade deficit because U.S. exports would decrease.
  4. This would increase (widen) the U.S. trade deficit because U.S. exports would increase.

    5. Q82 answer
     
83.  Which one of the following, if any, would be expected to result from a depreciation of the U.S. $ relative to the Chinese yuan?
  1. The U.S. trade deficit with China would get larger.
  2. The U.S. inflation rate would increase.
  3. The U.S. unemployment rate would increase.
  4. None of the above would be expected to result.

    5. Q83 answer
84. Assume Chile is less productive than the U.S. in the production of both airplanes and automobiles; however, while Chile is one-half as productive as the U.S. in automobile production, it is only one-fourth as productive as the U.S. in airplane production. Relative to the U.S., Chile is said to have a(n)
  1. comparative advantage in neither good and an absolute advantage only in automobiles.
  2. comparative advantage in neither good and an absolute advantage only in airplanes.
  3. absolute advantage in neither good and a comparative advantage in neither good.
  4. absolute advantage in neither good and a comparative advantage in both goods.
  5. absolute advantage in neither good and a comparative advantage only in automobiles.
  6. absolute advantage in neither good and a comparative advantage only in airplanes.

    7. Q84 answer


Formulas

Government Budget Surplus = Amount by which T > G

Government Budget Deficit = amount by which G > T.

(G is government spending; T is net taxes which is Taxes - Transfer payments)

Required Reserve Ratio (m)  =   Required Reserves/Demand Deposits

Required Reserves  =  m x  Demand Deposits

Excess Reserves  =  Reserves - Required Reserves

Money Multiplier  =  1/m

Resultant change in the money supply = 1/m  x initial change in excess reserves
(This formula represents the maximum potential change in the money supply banks can create.)

A trade balance occurs if net exports (X - IM) are 0; that is, X = IM.                      X is exports and IM is imports.
A trade surplus occurs if net exports (X - IM) are positive; that is, X > IM.
A trade deficit occurs if net exports (X - IM) are negative; that is, X < IM.
 
 

Answers

1. $5,000  greater Return to Q1
Solution to Q1

2. $1,600 million Return to Q2
Solution to Q2

3.  0  Return to Q3
Solution to Q3

4.  b  Return to Q4
Solution to Q4

5. $60 million  Return to Q5
Solution to Q5

6. e  Return to Q6
Solution to Q6

7. b  Return to Q7
Solution to Q7

8. d  Return to Q8
Solution to Q8

9. e  Return to Q9
Solution to Q9

10. d  Return to Q10
Solution to Q10

11. d  Return to Q11
Solution to Q11

12. e  Return to Q12
Solution to Q12

13.  a   Return to Q13
Solution to Q13

14.  b  Return to Q14
Solution to Q14

15. a  Return to Q15
Solution to Q15

16. b Return to Q16
Solution to Q16

17. $1,800  Return to Q17
Solution to Q17

18.  d  Return to Q18
Solution to Q18

19.  b  Return to Q19
Solution to Q19

20. $3,900  Return to Q20
Solution to Q20

21. b Return to Q21
Solution to Q21

22. f  Return to Q22
Solution to Q22

23.  $30 million  Return to Q23
Solution to Q23

24.  e  Return to Q24
Solution to Q24

25. $328 million  Return to Q25
Solution to Q25

26. $2,175  Return to Q26
Solution to Q26

27. b Return to Q27
Solution to Q27

28.  $162  Return to Q28
Solution to Q28

29.  a  Return to Q29
Solution to Q29

30. c  Return to Q30
Solution to Q30

31. e   Return to Q31
Solution to Q31

32. $42,000  Return to Q32
Solution to Q32

33. $80,000  Return to Q33
Solution to Q33

34. c   Return to Q34
Solution to Q34

35. $42 million  Return to Q35
Solution to Q35

36. a  Return to Q36
Solution to Q36

37. a  Return to Q37
Solution to Q37

38. e    Return to Q38
Solution to Q38

39. e   Return to Q39
Solution to Q39

40. b  Return to Q40
Solution to Q40

41. b  Return to Q41
Solution to Q41

42. f  Return to Q42
Solution to Q42

43. $1,000   Return to Q43
Solution to Q43

44. f   Return to Q44
Solution to Q44

45. $3,950  Return to Q45
Solution to Q45

46. e  Return to Q46
Solution to Q46

47. $65 million  Return to Q47
Solution to Q47

48. a   Return to Q48
Solution to Q48

49. $4,350   Return to Q49
Solution to Q49

50. d  Return to Q50
Solution to Q50

51. c   Return to Q51
Solution to Q51

52. a  Return to Q52
Solution to Q52

53.  920  Return to Q53
Solution to Q53

54. c  Return to Q54
Solution to Q54

55.  12.5   Return to Q55
Solution to Q55

56.  d  Return to Q56
Solution to Q56

57.  60  Return to Q57
Solution to Q57

58.  567  Return to Q58
Solution to Q58

59.  $2,220  Return to Q59
Solution to Q59

60. $188 million   Return to Q60
Solution to Q60

61.  $5,140   Return to Q61
Solution to Q61

62. b  Return to Q62
Solution to Q62

63.  $1,090   Return to Q63
Solution to Q63

64.  $15 million  Return to Q64
Solution to Q64

65.  a  Return to Q65
Solution to Q65

66.  e  Return to Q66
Solution to Q66

67.  $3,310  Return to Q67
Solution to Q67

68. $234 million   Return to Q68
Solution to Q68

69.  $31,660   Return to Q69
Solution to Q69

70. a  Return to Q70
Solution to Q70

71. a  Return to Q71
Solution to Q71

72. $77 million   Return to Q72
Solution to Q72

73. b    Return to Q73
Solution to Q73

74. b  Return to Q74
Solution to Q74

75. $13,000    Return to Q75
Solution to Q75

76. e  Return to Q76
Solution to Q76

77. a   Return to Q77
Solution to Q77

78.  $4,870   Return to Q78
Solution to Q78

79.  $224 million   Return to Q79
Solution to Q79

80.  d  Return to Q80
Solution to Q80

81.  $32,080   Return to Q81
Solution to Q81

82. b  Return to Q82
Solution to Q82

83.  b   Return to Q83
Solution to Q83

84. e  Return to Q84
Solution to Q84

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