ECON 2 Lecture Notes - Lecture 9: East Los Angeles College, Exchange Rate, Loanable Funds

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17 Jun 2020

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How two markets are interrelated: the market for loanable funds and the market for dollars in exchange for other currencies. In an open economy the rise in the interest rate also reduces net capital outflow. This makes the crowding out effect on investment smaller than it would have been in a closed economy. As the interest rate increase it becomes more enticing to invest in an economy reducing net capital outflow. Borrowing leads to an increase in the interest rate which reduces net capital outflow. An increase in real exchange rate (e) makes us goods more expensive to foreigners, reduces foreign demand for us goods and dollars. Selling foreign dollar reserves decreases a nation"s net capital outflow. Three facts about economic fluctuations: economic fluctuations are irregular and unpredictable, as output falls, unemployment rises. Aggregate supply slopes run: sort-run aggregate supply vs long run.

Related Questions

51.The Fed is conducting expansionary monetary policy if it:

A increases the discount rate, buys bonds, and sets a lower target for the federal funds rate.

B decreases the discount rate and sells bonds.

C sets a lower target for the federal funds rate and buys bonds in the open market.

D increases reserve requirements and buys bonds in the open market.

E buys bonds in the open market and raises the discount rate.

52.If banks become concerned about future conditions and decide to hold larger excess reserves, which of the following is a likely result?

A A rise in interest rates

B An increase in bond prices

C An increase in aggregate demand

D An increase in the money supply

E Both C and D

53.The Fed is under no obligation to coordinate its actions with fiscal policy. And in fact, the Fed may take actions specifically designed to counteract some piece of fiscal policy. An example of fiscal and monetary policies with opposite effects is:

A an increase in taxes and increased sales of bonds by the Fed.

B a decrease in government spending and an increase in the discount rate.

C a decrease in taxes and a decrease in the target for the federal funds rate.

D an increase in government spending and an increase in reserve requirements.

E a decrease in taxes and increased purchases of bonds by the Fed.

54.In the fictitious nation of Zagora, a worker can produce either 5 books or 10 televisions in an hour. In neighboring Plovdiv, a worker can produce either 3 books or 5 televisions in an hour. Which statement about this situation is true?

A Zagora has comparative advantage in the production of books.

B Zagora has comparative advantage in the production of televisions.

C Workers in Plovdiv canât possibly compete against the super-productive workers in Zagora.

D Workers in Zagora canât be expected to compete against the low-wage workers in Plovdiv.

E None of the above

55.Given the U.S. has a current account deficit, a large increase in the demand for U.S. computer programs among Japanese residents will have all the following effects except:

A an increase in the exchange rate, expressed in yen per dollar.

B an increase in the U.S. capital account surplus.

C an increase in investment in Japan.

D an decrease in the U.S. trade deficit.

E It may have all the above effects.

56.Fiscal policy affects exchange rates because:

A as government spending increases, the government must buy more and more goods and services from foreign countries.

B as government debt increases, interest rates rise, and the value of the currency rises.

C as government debt increases, interest rates rise, and the value of the currency falls.

D as the money supply increases, interest rates fall, and the value of the currency rises.

E as the money supply increases, interest rates fall, and the value of the currency falls.

57.There are many kinds of trade restrictions, and trade restrictions are put into place for many reasons. Which of the following is not a reason to use trade restrictions?

A To save natural habitats from over-use

B To protect the jobs of workers in certain industries

C To make a political statement regarding the labor policies of another nation

D To compensate for higher taxes placed on domestic producers

E To create a lower prices for domestic consumers

58.If the value of the U.S. dollar in foreign exchange markets rises:

A U.S. exports will become relatively less expensive.

B capital inflows into the United States will increase.

C people in the U.S. will purchase fewer imports.

D U.S. exports will likely decrease.

E All of the above

59.Saying that leakages equal injections give the equation:

A T + S + X = G + I + M

B Y = C + S + T

C Y = C + I + G + X - M

D T + S + M = C + G + I + X

E T + S + M = G + I + X

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Question 3

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

	A	some new products unleash a gale of destruction that drive other new products out of the market.
B		new products unleash a gale of destruction that drives old products out of the market.
C		new products are created by the destruction of capital.
D		the creation of new products never involves the destruction of old products.

Question 4

Which of the following countries had the highest GDP per capita in 2012?

		A Qatar
B		United States
C		Japan
D		Norway

Question 5

________ save a ________ of their income. This ________ capital in their economy and raises economic growth.

	A	Developing countries; large proportion; decreases
B		Developing countries; small proportion; increases
C		High-income countries; large proportion; increases
D		High-income countries; small proportion; increases

Question 6

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A		government
B		households
C		banks
D		firms

Question 7

The U.S. economy has been more stable since 1950.

True

False

Question 8

When the economy reaches a trough in a business cycle, which of the following will occur?

A		Income, production, and employment will continue to fall.
B		Income, production, and employment will begin to rise.
C		Income and production will rise, but employment will continue to fall.
D		Employment rises, but income and production will continue to fall.

Question 9

In a closed economy, what is the relationship between saving and investment?

A		Saving is greater than investment.
B		Investment is greater than saving.
C		Investment is equal to saving.
D		Investment may be greater or smaller than saving.

Question 10

The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A		labor; real GDP; technology
B		capital; real GDP; technology
C		labor; capital; real GDP
D		capital; labor; real GDP

Question 11

New growth theory states that increases in ________ capital will result in ________ at the ________ level.

	A	knowledge; increasing returns to scale; firm
	B	physical; decreasing returns to scale; firm
	C	knowledge; decreasing returns to scale; economy
D		knowledge; increasing returns to scale; economy

Question 12

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A		The British government was committed to upholding private property rights.
B		The British government was able to eliminate arbitrary increases in taxes.
C		The British government was able to more easily seize wealth.
D		Institutional changes by the British government helped protect wealth.

Question 13

Growth in real GDP per capita for the world economy was greatest during

A		the seventeenth century.
B		the eighteenth century.
C		the nineteenth century.
D		the twentieth century.

Question 14

Which of the following is a normative statement about economic growth?

A		Economic growth is associated with higher labor productivity growth.
B		Economic growth increases GDP per capita.
C		Economic growth hurts developing countries.
D		Foreign direct investment stimulates economic growth.

Question 15

The effect of a recession on a company like Whirlpool Corporation is such that

A		sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods.
B		profits fall less sharply as compared to firms that do not produce durable goods.
C		the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D		there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods.

Question 16

For the recessions in the United States since the 1950s,

A		cyclical unemployment has been non-existent.
B		unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C		unemployment falls on average by 2 percentage points 12 months after a recession begins.
D		unemployment rises on average about 5 percentage points 12 months after a recession begins.

Question 17

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

A		a reduction in sales taxes
B		an investment tax credit
C		a reduction in taxes on luxury yachts
D		All of these

Question 18

In comparison to a government that runs a balanced budget, when the government runs a budget deficit,

	A	the equilibrium interest rate will fall.
	B	business investment will fall.
	C	household savings will fall.
	D	None of these

Question 19

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

A		labor force participation
B		the quantity of goods or services that can be produced by one hour of work
C		the working-age population
D		nominal GDP

Question 20

Policies to promote growth by increasing saving and investment work through

A		decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.
B		increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.
C		increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital.
D		increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

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ECON 2 Lecture Notes - Lecture 9: East Los Angeles College, Exchange Rate, Loanable Funds

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