2.1. Banks are required by law to keep a fraction of their deposits as _________. 2.2. When reserves do not pay interest, banks prefer to keep reserves rather than make loans. _________ (True/ False) 2.3. If the reserve ratio is 0.3 and a deposit of $500 is made into a bank, the bank can lend out _________. 2.4. If the simplified money multiplier is 4, the reserve ratio is _________. 2.5. Payments for Lawsuits at Banks. In 2015, U.S. Bank National Association paid $18 million to customers of Peregrine Financial Group to settle a lawsuit. If the reserve ratio was 0.1, how did this payment immediately change assets, liabilities, and owner’s equity? 2.6. Banks versus Insurance Companies. Both insurance companies and banks are financial intermediaries. Why do macroeconomists study banks more intensively than insurance companies? 2.7. Understanding M1 and M2. If you write a check from your checking account to your money market account, what happens to M1 and M2? 2.8. Cash Withdrawals and Changes in the Money Supply. If a customer withdrew $1,000 in cash from a bank and the reserve ratio was 0.1, by how much could the supply of money be eventually reduced? 2.9. 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 subject to reserve requirements and, in fact, hold minimal reserves. Banks, on the other hand, make loans to businesses for investment purposes. If there were no reserve requirements for banks, how do you think their reserve holdings would compare to money market mutual funds? 2.10. 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?
> 4.1. A firm’s short-run supply curve shows the relationship between on the horizontal axis and on the vertical axis. 4.2. The part of a firm’s marginal cost curve that is above the minim
> 3.1. The presence of explains the negatively sloped portion of a long-run average-cost curve, and the notion of explains the horizontal portion of the curve. 3.2. Consider the information provided in Figure 23.6. Suppose the output of a large aluminum f
> 1.1. The computation of economic cost is based on the principle of . 1.2. A firm’s implicit cost is defined as the cost of nonpurchased inputs, such as the entrepreneur’s and . 1.3. Economic profit equals minus . 1.4. Fill with “ec
> 4.1. The average cost of electricity (increases/ decreases) as the size of the wind turbine increases. 4.2. For information goods such as a music video distributed online, the cost of producing the first copy is very , but the marginal
> 2.1. The short-run marginal cost curve is shaped like the letter _________ and the short-run average cost curve is shaped like the letter _________. 2.2. The negatively sloped portion of the short-run marginal-cost curve is explained by _________ and th
> 1.1. Based on Figure 22.1, fill in the blanks in the following table to identify different points on the consumer’s budget line. Figure 22.1: 1.2. In Figure 22.1 (above), suppose the price of movies increases to $9. Draw a new budge
> 2.1. In an economy with no government sector or foreign sector, saving must equal investment because a. total demand is equal to consumption and investment. b. total income is equal to consumption and saving. c. total income is equal to total demand.
> 2.1. In Figure 22.5, suppose the price of movies increases from $3 to $6. The increase in price shifts the benefit curve (marginal utility per dollar) for movies (upward/downward). For the initial quantity of six movies, the marginal utility per dollar b
> 4.1. The introduction of cognition into a consumer’s choice between healthy and unhealthy food shifts the curve downward, causing the marginal utility per dollar of to be less than the marginal utility per dollar of . 4.2. C
> 5.1. The 1990 tax on yachts and other luxury goods was shifted forward to and backward to . 5.2. A tax paid in legal terms by producers will be partly shifted forward onto and partly shifted backward onto
> 2.1. You are willing to pay $3,000 to have your windows covered, and Tom’s marginal cost of covering windows is $2,500. If you agree to split the difference, the price is , your consumer surplus is , and Tom&a
> 4.1. In Figure 21.6, the taxi medallion policy prevents mutually beneficial transactions for consumers on the demand curve between points and and producers on the supply curve between points and . Figure 21.6: 4.2. In Figur
> 3.1. Arrow up or down: In Figure 21.5, rent control the quantity of apartments , producer surplus, consumer surplus , and the total market surplus . Figure 21.5: 3.2. In Figure 21.5 (
> 1.1. Consumer surplus equals minus . 1.2. Producer surplus equals minus . 1.3. In Figure 21.1, Tupak’s consumer surplus is , compared to for Thurl. Figure 21.1: 1.4. In Figure 2
> 2.1. Recall the example “Beer Prices and Highway Deaths” from the chapter. A doubling of the tax on beer will reduce the number of highway deaths among young adults by _________ percent. 2.2. Recall the example â
> 6.1. Assume that the elasticity of demand for chewing tobacco is 0.70 and the elasticity of supply is 2.30. Suppose an antichewing campaign decreases the demand for chewing tobacco by 18 percent. The equilibrium price of chewing tobacco will _________ (d
> 5.1. When the price of paper increases from $100 to $104 per ton, the quantity supplied increases from 200 to 220 tons per day. The price elasticity of supply is _________. 5.2. Suppose that in a month the price of movie rentals increases from $2 to $2.
> 5.1. Clear property rights reduce growth in an economy because producers are not able to freely use innovations. ____________ (True/False) 5.2. Which of the following events hinder economic growth? a. Uncertain financial environment b. Reduced savings
> 4.1. The income elasticity of demand is _________ (positive/ negative) for normal goods and _________ (positive/ negative) for inferior goods. 4.2. If a 20 percent increase in income increases the quantity of iPods demanded by 30 percent, the income ela
> 3.1. Demand is _________ on the upper portion of a linear demand curve and _________ on the lower portion of a linear demand curve. 3.2. If Maria spends a fixed dollar amount per week on movie rentals regardless of changes in the price, Maria’s demand f
> 3.1. Net transfers from abroad are a (n) entry on the current account. 3.2. The current, financial, and capital accounts must sum to . 3.3. The balance of payments is divided into three major accounts,
> 2.1. The best measure of the purchasing power of one currency relative to another is the . 2.2. When the U.S. and foreign price levels remain the same but the dollar appreciates, the real exchange rate will . 2.3. The
> 5.1. When prices rose in Mexico faster than in the United States and the nominal exchange rate remained constant, the real exchange rate . 5.2. If a country borrows in dollars, a depreciation of its own currency against the dollar
> 4.1. The government foreign currency for dollars if it wants to peg the exchange rate at a higher rate than would normally prevail in the market. 4.2. If there is an excess supply of a country’s currency at the fixed exchange rate, the
> 3.1. The _________ industry argument is often given to provide a rationale for tariffs for new firms. 3.2. Knowledge gained during production is known as _________ by doing. 3.3. If only one firm can exist in a market, a government may try to subsidize
> 5.1. Price discrimination occurs when a good is sold at _________ (higher/lower/similar/different) prices to different consumers. 5.2. Under global trade rules, the United States was allowed to ban Chinese bicycles because China violated U.S. dumping ru
> 2.1. If a country bans the importation of a particular good, the market equilibrium is shown by the intersection of the _________ curve and the _________ curve. 2.2. The equilibrium price under an import quota is _________ (above/below) the price that o
> 1.1. A country has a comparative advantage if it has a lower _________ cost of producing a good. 1.2. The terms of trade is the rate at which two goods can be _________ for one another. 1.3. Suppose a country has a comparative advantage in shirts but n
> 3.1. Labor market equilibrium occurs at a real wage at which the quantity demanded for labor equals the quantity __________ of labor. 3.2. The labor __________ (demand/supply) curve is based on the decisions of __________ (firms/workers); these decision
> 4.1. The latest trade round is called the _________ round. 4.2. The _________ was formed in 1995 to oversee GATT. 4.3. NAFTA took effect in _________ and was implemented over a _________ year period between _________, Mexico, and _________. 4.4. When
> 3.1. Suppose there is a consumption tax of 20 percent. You earn $1,150, have an income tax rate of 30 percent, and save $100 after tax. Your tax will be equal to . 3.2. A sales tax that is levied at all stages of production is known as a(n) tax. 3.3. M
> 1.1. If a government runs a deficit, it will its outstanding debt. 1.2. Proponents of Ricardian equivalence believe that deficits do not really matter as long as taxes are raised in the future. (True/F
> 2.1. In recent years, many developed countries have found that inflation targeting (increased/ decreased) the autonomy of their central banks, helping them fight inflation. 2.2. In , inflation targeting was adopted in 1992,
> 2.1. If actual inflation is higher than expected inflation, the actual unemployment rate will be _________ than the natural rate. 2.2. James Tobin explained business cycles with rational expectations. _________ (True/False) 2.3. The increase in the fra
> 1.1. The expected real rate of interest is the nominal interest rate plus the expected inflation rate. _________ (True/ False) 1.2. Countries with lower rates of money growth have _________ interest rates. 1.3. If the growth rate of money increases fro
> 4.1. The velocity of money is defined as _________ income divided by the supply of money. 4.2. According to the quantity equation, the product of money supply and velocity is equal to the product of _________ and _________. 4.3. The growth version of t
> 5.1. To eliminate a budget deficit, a government can _________ (increase/decrease) taxes and/or _________ (increase/decrease) spending. 5.2. During hyperinflations the velocity of money tends to _________ sharply. 5.3. Economists call inflation “hyperi
> 3.1. An aggressive union will shift the aggregate supply curve _________, causing prices to and real GDP to _________. 3.2. In the face of an upward shift in the aggregate supply curve, the Fed can increase the supply of money. This will prevent a reces
> 3.1. As the price level increases, the demand for money _________ and interest rates _________. 3.2. If output is above full employment, we expect wages and prices to rise, money demand to increase, and interest rates to fall. _________ (True/False) 3.
> 1.1. Economic models that assume that wages and prices adjust freely to changes in demand and supply are known as __________ models. 1.2. At full employment, there are only frictional and __________ unemployment. 1.3. According to classical economists, a
> 1.1. Wages and prices will fall when unemployment falls below its natural rate. _________ (True/False) 1.2. The short run in macroeconomics is the time period over which _________ do not adjust to economic conditions. 1.3. According to the logic of the
> 2.1. If output is less than potential output, prices _________ and the short-run aggregate supply curve shifts _________. 2.2. Output will automatically return to full employment in the long run if it deviates from full employment. _________ (True/False
> 1.1. We measure the opportunity cost of holding money with _________. 1.2. If interest rate decreases, investment spending _________ (increases/decreases) and money demand _________ (increases/decreases). 1.3. The principle of _________ suggests that t
> 5.1. _________ (Inside/Outside) lags would be longer for the European Central Bank. 5.2. Compared to fiscal policy, the outside lag for monetary policy is longer for monetary policy. _________ (True/ False) 5.3. Current and future short-term interest r
> 4.1. When the Federal Reserve buys bonds on the open market, it leads to _________ (increase/decreases) in the price of bonds. 4.2. To decrease the level of output, the Fed should conduct an open market _________ (sale/purchase) of bonds. 4.3. An open
> 2.1. To increase the supply of money, the Fed should _________ bonds. 2.2. An increase in price levels leads to _________ money demand. 2.3. Banks trade reserves with one another in the _________ market. 2.4. Banks borrow from the Fed at the _________
> 3.1. Interest rates typically rise in booms because the demand for money depends _________ on changes in real income. 3.2. If interest rates are 12 percent per year, the price of a bond that promises to pay $100 next year will be equal to _________. 3.
> 4.1. The Federal Reserve arranged for JPMorgan Chase & Co. to _________ Bear Stearns during the financial crisis in 2008. 4.2. The Federal Reserve helps finance the deficit of the U.S. government by _________ (creating/reducing) money. 4.3. A stress te
> 1.1. Money provides a convenient measuring rod when the _________ of all goods are expressed in _________ terms. 1.2. Gold is a good example of commodity money. _________ (True/False) 1.3. In the United States, currency held by the public constitutes a
> 5.1. On a graph of the labor market, show the effects of an increase in the payroll tax. 5.2. On a graph of the labor market, show the effects of a negative shock to technology on wages and employment. 5.3. Two examples of major technological innovatio
> 3.1. The Federal Reserve is the “_________ of last resort.” 3.2. The United States is divided into 12 districts, each of which has a Federal Reserve Bank. These banks do not participate in monetary policy decisions, but liaise between the Fed and other
> 3.1. If a project costs $100 and pays $105 in year 1 and $110 in year 2, the maximum interest rate at which the present value of investment exceeds its cost is _________. 3.2. As real interest rates rise, investment spending in the economy _________. 3
> 4.1. An illiquid financial asset is one that can easily be used to buy goods and services. _________ (True/False) 4.2. Creation of _________ following the Great Depression has greatly reduced the likelihood of runs on banks today. 4.3. Securitization r
> 2.1. If the interest rate is 25 percent, the present value of $500 paid 2 years from now equals _________. 2.2. If the interest rate is 10 percent, the present value of $300 paid 1 year from now equals _________. If the $300 is received in 5 years, the
> 1.1. Investment is a larger component of GDP than consumption, but it is much more volatile. _________ (True/False) 1.2. Investment spending is very _________, since it moves in conjunction with GDP. 1.3. Keynes states that optimism and pessimism relat
> 6.1. An increase in the price level will _________ GDP and thereby move the economy _________ the aggregate demand curve. 6.2. At any price level, the income-expenditure model determines the level of equilibrium output and the corresponding point on the
> 2.1. The consumption function describes the relationship between consumption expenditures and the level of _________. 2.2. A decrease in consumer confidence will shift the consumption function _________ (upward/downward). 2.3. If housing prices fall, y
> 4.1. The multiplier for taxes is greater than the multiplier for government spending. _________ (True/False) 4.2. An increase in the tax rate will _________ the government spending multiplier. 4.3. Economic fluctuations have _________ since World War I
> 5.1 A decrease in the marginal propensity to import will _________ the multiplier for investment spending. 5.2. The _________ is positive because consumers import more goods and services as income rises. 5.3. Use the income-expenditure graph to illustr
> 3.1. In our simple model, if C = 100 + 0.8y, and I = 50, equilibrium output will be _________. 3.2. If in Exercise 3.1 I increase to 100, a. the equilibrium income will be _________. b. the multiplier is _________. 3.3. The slope of the consumption fu
> 4.1. Suppose the supply of labor increases. Draw a graph to show how potential output and wages change. 4.2. Draw a graph to show how potential output and wages change when the stock of capital decreases. 4.3. Full-employment output is the level of out
> A.1. Find the Multiplier. An economy has a marginal propensity to consume (b) of 0.6 and a marginal propensity to import (m) of 0.2. What is the multiplier for government spending for this economy? A.2. The Effects of Taxes and Spending. Suppose the eco
> 1.1. To decrease aggregate demand, a government can either decrease spending or _________ taxes. 1.2. Fiscal policy refers to the _________ and _________ policies used by the government to influence the economy. 1.3. If the multiplier for taxation is &
> 2.1. Fiscal year 2015 began on October 1, _________. 2.2. Corporate taxes are the largest component of federal revenue. _________ (True/False) 2.3. Federal spending consists of _________ and _________. 2.4. The largest category of federal spending is
> 3.1. _________ was the first president to consciously use fiscal policy to stabilize the economy. 3.2. Since both taxes and government spending increased in the United States during the 1930s, there was __________ (large/little/no) net fiscal expansion.
> 3.1. The __________ depicts the relationship between the level of prices and the total quantity of goods and services that firms supply. 3.2. A decrease in material costs will shift the short-run aggregate supply __________. 3.3. The aggregate supply c
> 2.1. Which of the following is not a component of aggregate demand? a. Consumption b. Investment c. Government expenditures d. The supply of money e. Net exports 2.2. When we draw the aggregate demand curve, __________ should be on the x-axis and _
> 1.1. Arthur Okun distinguished between auction prices, which changed rapidly, and __________ prices, which are slow to change. 1.2 Auction prices are prices that adjust __________, while custom prices are prices that adjust __________. 1.3 The price sy
> 4.1. Suppose the supply of money increases, causing output to exceed full employment. Prices will __________ and real GDP will __________ in the short run, and prices will __________ and real GDP will __________ in the long run. 4.2. Consider a decrease
> 5.1. For each of the following pairs of population groups, indicate which group has a higher poverty rate: a. white vs. Hispanic b. white vs. Asian c. married couple vs. femaleheaded ho
> 3.1. A patent increases the incentive to develop new products because it the price of the product and thus generates profit to cover a firm’s costs of . 3.2. In some cases, a patent is socially inefficient because it merely
> 1.1. The firm-specific demand curve shows the relationship between the charged by the firm and the by the firm. 1.2. Consumers do not have a strong preference for the output of one seller over that of another in a market because the firms sell a standar
> 3.1. The key region of the brain for the valuation of benefits is the . 3.2. In the dopamine learning system, learning happens when the about the pleasure from a product are (correct/wrong). 3.3. The key region of the brain for the valuation of costs is
> 1.1. To compute the price elasticity of demand, we divide the percentage change in _________ by the percentage change in _________ and then take the value of the ratio. 1.2. If a 10 percent increase in price decreases the quantity demanded by 12 percent
> 1.1. The dollar against the euro when the European central bank lowers interest rates. 1.2. If the dollar appreciates against the euro, then the euro also against the dollar. 1.3. The price of one country’s currency in terms of another country’s curren
> 4.1. Professors Don _________ and Franco _________ developed the adjustment-process model used in this chapter. 4.2. Keynes’s objection to Say’s law was that it is possible for demand to create its own supply. _________ (True/ False) 4.3. Economists wh
> A.1. ____________ and ____________ are the two factors that determine how the stock of capital changes over time. A.2. Which of the following causes capital deepening to come to an end? a. The marginal principle b. The principle of diminishing returns
> 1.1. The income-expenditure model is most appropriate for long-run analysis. _________ (True/False) 1.2. Equilibrium output occurs when real output equals planned expenditures. _________ (True/False) 1.3. In our most basic model of the economy, the onl
> 2.1. Arrows up or down: An increase in the wage the opportunity cost of leisure time, which tends to leisure time and labor time. 2.2. Arrows up or down: An increase in the wage real income, and if leisure is a normal good
> 4.1. Government transfer and tax policies increase the income share of the lowest quintile of the income distribution from about percent to about percent. 4.2. The college premium is defined as the percentage difference be
> 1.1. The marginal revenue product of labor equals times . 1.2. A profit-maximizing firm will hire the number of workers where equals . 1.3. Your favorite professional team is considering hiring a new player for $3 mil
> 3.1. Arrows up or down: A decrease in the supply of nurses will the equilibrium wage and the equilibrium quantity of nursing services. 3.2. Arrows up or down: An increase in the demand for nursing services will the equilibrium wage and
> 3.1. Compared to a pollution tax, a uniform-abatement policy is (more/less) efficient because it does not exploit differences in across firms. 3.2. The “command” part of a command-and-control pollution policy specifies a f
> 1.1. The optimal level of pollution abatement is the level at which the of abatement equals the of abatement. 1.2. The marginal cost of abatement typically (increases/decreases) with the level of abatement. 1.3. The
> 2.1. The private cost of production includes the amount a firm pays for , , and . 2.2. The external cost of production is the cost incurred by . 2.3. The social cost of production equals the cost plus the c
> 4.1. Under a system of marketable pollution permits, a firm with (low/high) abatement costs will buy permits from a firm with (low/high) abatement costs. 4.2. Arrow up or down: A switch from regular pollution permits to marketable perm
> 3.1. According to the model of voting developed in the chapter, the choices made by the government match the preferences of the voter. 3.2. The self-interest theory of government explains why many states have limits on and . 3.3
> 4.1. Who developed the theory of scale of the market? a. Joseph Schumpeter b. Milton Friedman c. Adam Smith d. John Maynard Keynes 4.2. The notion that innovation is promoted by the competitive desire to break production monopolies is known as creat
> 6.1. When the economy operates at full employment, an increase in government spending must crowd out consumption. __________ (True/False) 6.2. A(n) __________ economy is open to trade, whereas a closed economy is not. 6.3. In an open economy, increases
> What are the differences in accounting for a forward contract used as a fair value hedge of (a) a foreign-currency-denominated asset or liability and (b) a foreign currency firm commitment?
> What are the differences in accounting for a forward contract used as (a) a cash flow hedge and (b) a fair value hedge of a foreign-currency-denominated asset or liability?
> Buch Corporation purchased Machine Z at the beginning of Year 1 at a cost of $100,000. The machine is used in the production of Product X. The machine is expected to have a useful life of 10 years and no residual value. The straight line method of deprec
> What is the concept underlying the two-transaction perspective to accounting for foreign currency transactions?
> On August 1, Year 1, Huntington Corporation placed an order to purchase merchandise from a foreign supplier at a price of 100,000 dinars. The merchandise is received and paid for on October 31, Year 1, and is fully consumed by December 31, Year 1. On Aug
> On October 1, Year 1, Butterworth Company entered into a forward contract to sell 100,000 rupees in four months (on January 31, Year 2). Relevant exchange rates for the rupee are as follows: Butterworth Company’s incremental borrowing
> Artco Inc. engages in various transactions with companies in the country of Santrica. On November 30, Year 1, Artco sold artwork at a price of 400,000 ricas to a Santrican customer, with payment to be received on January 31, Year 2. In addition, on Novem
> On November 1, Year 1, Alexandria Company sold merchandise to a foreign customer for 100,000 francs with payment to be received on April 30, Year 2. At the date of sale, Alexandria Company entered into a six-month forward contract to sell 100,000 francs.
> The same facts apply as in Exercise 14 except that Budvar Company purchases parts from a foreign supplier on December 1, Year 1, with payment of 20,000 crowns to be made on March 1, Year 2. On December 1, Year 1, Budvar enters into a forward contract to
> The Budvar Company sells parts to a foreign customer on December 1, Year 1, with payment of 20,000 crowns to be received on March 1, Year 2. Budvar enters into a forward contract on December 1, Year 1, to sell 20,000 crowns on March 1, Year 2
> Beech Corporation has three finished products (related to three different product lines) in its ending inventory at December 31, Year 1. The following table provides additional information about each product: Beech Corporation expects to incur sellin
