30.Which of the following statements is true about an OMO (open market operation) purchase of bonds by the Fed?

a.The Fed buys the bonds directly from the public.

b.The Fed transacts in the primary market for securities for an OMO purchase of bonds.

c.The Fed always prints money to pay for the bond.

d.The money supply changes as soon as the Fed pays the dealers.

e.The money supply changes when the dealers lend out the extra reserves and creates additional demand deposit accounts.

31.When the government increases money supply in a full employment economy, in the transition:

a.real GNP remains unaffected.

b.interest rates increase.

c.the country experiences deflation.

d.the exchange rate overshoots its long-run target.

e.the domestic currency appreciates.

32.At what rate of interest in the United States will the interest rate parity hold between the two countries?

Select one:

a.9.87 percent

b.8.82 percent

c.10.82 percent

d.9.68 percent

e.11.87 percent

Question 33

33.In reality, the investment demand of a nation is::

a.always autonomous.

b.positively related to the growth rate of GNP.

c.negatively related to GNP.

d.positively related to the interest rate.

e.positively related to the rate of inflation.

34.The market basket used to calculate the consumer price index:

a.consists only of tangible items.

b.is decided on the basis of what the top 50 percent of the households consume.

c.depends on the income distribution in the economy.

d.varies from year to year.

e.consists of the average quantities of all goods and services purchased by a typical household during some period.

35.Identify the correct statement from the following.

a.Exchange rates are only expressed in terms of the dollar, because the dollar is the most used in international transactions.

b.If $1 can buy 0.64, then it implies that 1 can buy $0.64.

c.The value of a U.S. dollar in terms of British pounds is the $/ exchange rate.

d.The value of the Japanese yen in terms of dollar is the $/ exchange rate.

e.If $1= 0.64, then 1= $0.36

36_____ in the movement of exchange rates increase the risk faced by traders and investors in the Forex market.

Select one:

a.Predictability

b.Volatility

c.Rigidity

d.Flexibility

e.Price stickiness

37.Suppose the exchange rate E$/ = 0.01172 today. How much yen would you need (approximately) to buy $200 at this exchange rate?

a.17,064.85

b.2.344

c.11.72

d.1,706.48

e.0.99

38. If the Fed raises the domestic interest rate, ceteris paribus, which of the following statements will be true?:

a.The demand curve for pounds will shift to the right.

b.The dollar will depreciate.

c.The demand curve for pounds will remain unchanged.

d.The supply curve of pounds shifts to the right.

e.The exchange rate E/$ will rise.

39.Which of the following facts were revealed by the data on budget balance and national debt both as a percentage of GDP for the year 2009?

a.Japans national debt was an astounding 172 percent of GDP during this year.

b.Japan and South Korea were the only countries which experienced budget surplus during this year.

c.Budget surplus in the U.S. and Japan exceeded 10 percent during this year.

d.Budget deficits for most countries were below 5 percent of the GDP.

e.National debt as a percent of GDP in the U.S. reached 50 percent in this year.

40.Consider a Forex market where dollars are traded for pounds. Suppose the U.S. interest rate rises, leading to an increase in the demand for dollars. This will cause the demand curve of pounds to _____, the supply curve of pounds to _____, leading to a(n) _____ in E$/.

a.shift rightward; shift leftward, increase

b.shift leftward; shift rightward; fall

c.shift rightward; remain unchanged; increase

d.remain unchanged; shift leftward, increase

e.shift leftward; remain unchanged; fall

41.Suppose Rachel wins $200 on a bet and deposits the money in a savings account. Identify the correct statement from the following.

a.The $200 is a part of M1.

b.Putting the money in the bank entails no opportunity cost.

c.The $200 goes out of circulation.

d.The opportunity cost of putting the $200 in the bank is the interest rate she earns on it.

e.The $200 will earn no interest.

Question text

42.Which of the following policies adopted by the Fed can be classified as an expansionary monetary policy?

a.Buying dollars in the Forex for foreign currency

b.Increasing the Federal funds rate

c.Increasing the reserve requirements

d.Purchase treasury bonds in the money market

e.Increasing interest rates

43.The marginal propensity to consume

a.corresponds to the slope of the aggregate demand function.

b.is likely to be 1 for most economies.

c.lies in the range of -1 to 0.

d.represents the marginal demand for goods and services given an additional dollar of disposable income.

e.is independent of the level of income.

44.Suppose the spot exchange rate between the Russian ruble and the Canadian dollar (CAD) was 0.056 rubles/CAD a year back. If the same exchange rate is 0.034 today, calculate the approximate percentage change in the value of the Canadian dollars.

a.-39.29 percent

b.64.7 percent

c.-2.65 percent

d.-3.93 percent

e.26.5 percent

45.The U.S. economy was the largest in the world in 2008, because:

a.its annual nominal GDP was about $14 trillion.

b.the U.S. government expenditure had amounted to $2.9 trillion.

c.gross private domestic investment was over $2 trillion.

d.personal consumption expenditures were over $10 trillion.

e.total U.S. imports were more than $2.5 trillion.

46._____ refers to the demand by businesses for physical capital goods and services used to maintain or expand its operations.

a.Investment demand

b.Consumption demand

c.Government demand

d.Import demand

e.Export demand

47.Which of the following is an endogenous variable in the G&S market model?

a.Transfers

b.Government demand

c.Investment demand

d.Taxes

e.Real GNP

48.Suppose interest rate parity holds between the U.S. and England. If the Bank of England reduces the domestic interest rate, ceteris paribus

a.the British investors will supply more pounds in the Forex market.

b.the American investors will supply more pounds in the Forex market.

c.the British investors will shift funds from American investments to domestic investments.

d.the American investors will shift funds to British investments.

e.the equilibrium exchange rate E/$ will increase.

49.Data on current account balance and unemployment rate in the U.S. during 1980 to 2009, shows:

a.an inverse relationship between the trade balance and the unemployment rate.

b.a direct relationship between the trade balance and the unemployment rate.

c.no relationship between the trade balance and the unemployment rate.

d.a steady unemployment rate over twenty years.

e.a steady trade balance over twenty years.

50.Which of the following relationships are shown by the G&S market model?

a.The positive relation between the domestic real currency value and the domestic price level.

b.The negative relation between the domestic real currency value and the foreign price level.

c.The negative relation between government demand and GNP.

d.The negative relation between investment demand and GNP

e.The positive relation between disposable income and equilibrium GNP.