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macroeconomics canada in the global environment

Questions and Answers of Macroeconomics Canada In The Global Environment

The ____________ demand for money arises because individuals and businesses use money in ordinary business.
The principle of ____________ suggests that the demand for money should increase as prices increase.
Money demand will ____________ (increase/decrease)as prices rise.
We measure the opportunity cost of holding money with ____________ .
Assess the challenges the Fed faces in implementing monetary policy.
Describe both the domestic and international channels through which monetary policy can affect real GDP.
Demonstrate using supply and demand curves how the Fed can determine short-term interest rates.
List the tools that the Fed can use to change short-term interest rates.
Explain the role of demand and supply in the money market.
Bailouts? Some critics of the Fed’s actions with AIG and Bear Stearns said that the government was just bailing out failing financial firms that should have been allowed to fail. It is true that
Check Clearing and September 11. How did the Federal Reserve manipulate the check-clearing process to increase liquidity in response to the potential financial crisis following the terrorist attacks
The Federal Reserve Loan to JPMorgan Chase &Co. When the Federal Reserve makes a loan to a bank or financial institution, it requires the institution to specify certain assets the Federal Reserve can
Crisis in the Short-Term Credit Market. In 1973, several major companies went bankrupt and were not going to be able to pay interest on their short-term loans. This caused a crisis in the market.
Required Reserves during the Great Depression.During the Great Depression, banks held excess reserves because they were concerned depositors might be more inclined to withdraw funds from their
Two actions the Fed took after September 11, 2001, to ensure the financial system operated smoothly were ____________ and ____________. (Related to Application 3.)
The “float” in the banking system is the difference between the Federal Reserve’s ____________ and ____________ when clearing checks.
The Federal Reserve arranged for JPMorgan Chase &Co. to ____________ Bear Stearns during the financial crisis in 2008. (Related to Application 4.)
Additional Congressional Oversight? A presidential candidate in 2012, Ron Paul, has strongly argued for more accountability and auditing of the Federal Reserve. What are the pros and cons of more
The President of the New York Federal Reserve Bank. The president of the New York Federal Reserve Bank is always a voting member of the Federal Open Market Committee. Given your understanding of the
Where Should Regional Banks Be Located Today?Given the changes in the location of economic activity that have occurred since the founding of the Federal Reserve, how would the location of the
The Treasury Secretary and the Fed. Occasionally, some economists or politicians suggest that the secretary of the Treasury become a member of the Federal Open Market Committee. How do you think this
The Fed provides a system of check collection and ____________.
____________-year terms help ensure the political independence of the Board of Governors.
The San Francisco Federal Reserve Bank is the only one in the West because San Francisco outbid Los Angeles to be its host. ____________ (True/False)
The Federal Reserve is the “ ____________ of last resort.”
Setting the Interest Rate on Reserves. What would be the danger if the Fed set an interest rate on reserves close to the market interest rate on loans? (Related to Application 2.)
Money Market Mutual Funds, Banks, and Reserves. Money market mutual funds typically invest in government securities and other financial instruments that can be easily bought and sold. They are not
Cash Withdrawals and Changes in the Money Supply. If a customer withdrew $2,000 in cash from a bank and the reserve ratio was 0.2, by how much could the supply of money eventually be reduced?
Understanding M1 and M2. If you write a check from your checking account to your money market account, what happens to M1 and M2?
Banks versus Insurance Companies. Both insurance companies and banks are financial intermediaries.Why do macroeconomists study banks more intensively than insurance companies?
A Bad Trade at a Bank. In 2012, the bank JPMorgan Chase lost over $2 billion in a bad trade in the market.What happened to owners’ equity after the trade?
If the reserve ratio is 0.2, the simplified money multiplier will be ____________.
If the reserve ratio is 0.2 and a deposit of $100 is made into a bank, the bank can lend out ____________.
When reserves do not pay interest, banks prefer to keep reserves rather than make loans. ____________(True/False) (Related to Application 2.)
Banks are required by law to keep a fraction of their deposits as ____________.
Currency and Underground Economy. Search the Web for articles on “currency and the underground economy.” How have various authors used estimates of currency to measure the underground economy?
Inflation and Currency Held Abroad. Suppose inflation in the United States rose to around 7 percent a year. How do you think this would affect the demand for U.S. currency by foreigners?
Credit Cards. Why aren’t traditional credit cards part of the money supply?
Brazilian Local Money “The capavaris issued in Brazil can be viewed as a type of gift card for purchases made locally.” Explain this quote. (Related to Application 1.)
Gift Cards. Gift cards have grown in popularity as a mechanism to give gifts. Cards are available for popular bookstores and for coffee shops. Should these gift cards be considered part of the money
Debit Cards. In recent years, debit cards have become popular. Debit cards allow the holder of the card to pay a merchant for goods and services directly from a checking account. How do you think the
So much U.S. currency is in global circulation because it is a safe asset compared to assets denominated in foreign currency. ____________(True/False)
Money market mutual funds are hard to classify in a definition of money because they are only held to facilitate transactions. ____________(True/False)
The largest component of M2 is deposits in ____________.
Deposits in checking accounts are included in the definition of money because they are a very liquid asset. ____________(True/False)
Gold is a good example of commodity money. ____________(True/False)
Money solves the problem of double coincidence of wants that would regularly occur under a system of ____________.
Discuss examples of how the Federal Reserve acts during financial crises.
Describe the structure of the Federal Reserve.
Explain the process of multiple expansion and contraction of deposits.
Identify the components of money in the U.S.economy.
If you toss the coin 1,000 times and receive heads fewer than 400 times, you will lose money. What do you think is the probability of this occurring?
If you toss the coin 1,000 times, what is the expected payoff?
Did a higher percentage of the class agree to play the game with 1,000 tosses? How does this illustrate the principle of diversification?
Mutual Funds. Why does it make sense for individual investors to invest in mutual funds (which invest in a wide range of stocks), rather than in just a few individual companies?
Savings and Loans and Risk. Traditionally, savings and loan institutions made loans only for home mortgages and held on to those mortgages. At one point, this was viewed as a safe way of doing
“Ninja” Loans. During the housing boom, overeager lenders were said to have made “ninja” loans—that is, loans to individuals with “no income, job, or assets.”How did ninja loans
A Leverage Example. Suppose you purchased an asset for $1000. The asset is risky and can either increase in value to $1,200 or fall in value to $900.Let’s look at the effects of leverage on your
Banks and Debt Forgiveness. Can you think of any circumstances in which a bank would reduce (or forgive)part of the loan amount it made to a customer?How might this voluntary decision made by a bank
If a financial intermediary buys loans from a mortgage company and then packages them to sell in the financial markets, this is known as ____________ .
Financial intermediaries reduce the risk of assets through ____________ .
Stock Prices, Interest Rates, and Corporate Earnings. Holding other factors constant, explain why stock prices tend to rise whena. interest rates fall.b. expected corporate earnings rise.
Hydroelectric Dams. Hydroelectric dams are very costly to build and construct, but there are considerable savings in operating costs compared to other energy alternatives. Explain why hydroelectric
Stock Prices, Investment, and Causation. Figure 4 shows that from 1997 through 2003, that investment spending followed the same trends as stock prices.Does this mean that movements in stock prices
Low Interest Rates but No Takers. In 2010, interest rates on home mortgages were in the neighborhood of 5 percent—very low by historical standards—but many individuals did not wish to buy homes.
The price of a stock can be thought of as the present value of future ____________ .
The Q-theory of investment was developed by ____________ .
Corporate bonds, retained earnings, and tax deductions are the three sources of funds that firms have for investments. ____________ (True/False)
As real interest rates rise, investment spending in the economy ____________ .
If a project costs $100 and pays $107 next year, the maximum interest rate at which the present value of the investment exceeds its cost is ____________ .
Pension Funds and Interest Rates. Many firms have pension funds that have fixed dollar obligations to their retirees. For financial purposes, firms must estimate the present value of these
Present Value of Lottery Payments. A lottery pays a winner $1 million a year for 20 years (starting in year 1). What is the present value of this sum at an interest rate of 8 percent? You can do this
Annuity Payments and Interest Rates. Suppose you have $500,000 to purchase an annuity. Currently the annuity payments are $35,000 per year as long as you live. What do you think would happen to the
Investments in Solar Energy. Proponents of solar energy point to the vast savings that come in the long run from using a free source of energy (the sun) rather than paying high prices for
The present value of lottery winnings paid over a 20-year period will ____________ (rise/fall) with a rise in interest rates.
If interest rates increase, the present value of a fixed payment in the future ____________ .
Oil Price Floor and Investment Spending. Suppose the government said that it would not let the U.S.price for a barrel of oil fall below $50. It could do this by raising taxes on oil if the price fell
Residential Housing Investment, the 1990 Recession, and the Most Recent Downturn. Use the Web site for the Federal Reserve Bank of St. Louis(www.research.stlouisfed.org/fred2) to find out how
Index of Consumer Confidence and Investment in Durable Goods. Using the ideas of “animal spirits,”explain why changes in measures of consumer confidence would be correlated to consumer spending
Accelerator Theory of Investment. Explain how in the accelerator theory of investment that future expectation of high GDP growth will cause GDP to increase in the current period.
Since investment spending rises and falls with GDP, it is ____________ .
The economist who coined the phrase “animal spirits”to refer to investment spending by firms was ____________ .
Investment spending is very ____________ , since it moves in conjunction with GDP.
Investment is a larger component of GDP than consumption, but it is much more volatile. ____________ (True/False)
List the ways that financial intermediation can facilitate investment.
Describe the role of interest rates in making investment decisions.
Discuss the concept of present value.
Explain why investment spending is a volatile component of GDP.
Long-Run Deficit Projections. The Congressional Budget Office makes long-run deficit budget projections, extending far into the twenty-first century.What are the main causes of the long-run deficits
A Dramatic Drop in the Corporate Tax. Go to the Web site for the Congressional Budget Office (www.cbo.gov) and find the data for corporate tax revenue between 2007 and 2009. What was the decrease and
College Students and Tax Rebates. If a college student with a low credit card limit received a tax rebate, do you think he or she would be more likely to save it or spend it? How about a middle-aged
Personal Debt and Tax Cuts. Suppose you had a large unpaid balance on your credit card and were paying a high rate of interest. You then received a one-time tax rebate from the government and decided
The Rise and Fall of Fiscal Surpluses. What factors led the United States from federal surpluses at the end of the 1990s to deficits in the first decade of the twenty-first century? What factors led
Tax Refunds and Consumer Spending. In 1999, the Internal Revenue Service began to mail out refund checks because of changes in the tax law in 1998.Economic forecasters predicted that consumption and
Long-run average income is known as income.
The U.S. economy witnessed federal budget surpluses in ____________.
Walter Heller was President Lyndon Johnson’s chief economic adviser. ____________ (True/False)
____________was the first president to consciously use fiscal policy to stabilize the economy.
High Tax Rates and Summer Employment.Suppose you were considering taking a summer job to earn additional spending money for school. The job pays $12 an hour but you have to pay both income and social
Mandatory Spending and Entitlements. Is“ mandatory spending” really mandatory? ____________(yes/no) Explain how mandatory spending differs from discretionary spending. In the face of the coming

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