__ 1. Banks try to keep their excess reserves at a maximum in order to maximize profits.
____ 2. The demand for reserves depends on income and the price level.
____ 3. The "infant industry argument" recommends protectionism for industries that produce children's clothing.
____ 4. Money and income are used interchangeably by noneconomists but mean different things.
____ 5. The International Monetary Fund was established to manage the Bretton Woods System.
____ 6. The ability of a government to fix its currency's exchange rate is limited by the size of its reserves.
____ 7. When one currency appreciates, another currency must depreciate.
____ 8. To decrease the money supply, the Fed purchases government securities, which decreases government spending.
____ 9. Tariffs are more desirable than quotas if a government wants to increase revenues and reduce benefits to inefficient exporters.
____ 10. Comparative advantage is the rule that ordinarily prevents a nation from independently producing all of the goods it requires.
____ 11. Liquidity refers to the ability of an asset to hold its value in periods of inflation.
____ 12. If one country has an absolute advantage in every commodity, there is no reason for it to trade.
____ 13. Monetary policy is the system of actions taken by the Fed to influence the money supply.
____ 14. An economic recession in the United States would shift the demand for foreign currencies outward, that is, increase demand.
____ 15. To increase the money supply, the Fed purchases government securities from banks, paying for them with new reserves.
____ 16. A country's comparative advantage can be illustrated by the graph of the production possibilities frontier.
____ 17. Fractional reserve banking began as a result of the search for additional profits.
____ 18. Modern paper money is fiat money because it is backed only by the faith the holder has in the government that issued it.
____ 19. Open market operations refer to the purchase and sales of stocks listed on the New York Stock Exchange.
____ 20. A country devaluing its currency reduces the official value of its currency.
____ 21. Fixed exchange rates are determined in free markets by the forces of demand and supply.
____ 22. Due to the private nature of bank ownership, there is often a difference between private and macroeconomic objectives.
____ 23. The exchange rate states the price, in terms of one currency, at which another currency can be bought.
____ 24. The amount of money held in checking accounts is significantly greater than money in the form of currency.
____ 25. Capital, labor, and other factors of production move more freely from country to country than they do within a country.
____ 26. Many economists believe that the difference between savings accounts and checking accounts is disappearing.
____ 27. If all countries produce the goods for which they have comparative advantages, all countries benefit with the increased production of goods with no additional resources being used.
____ 28. Interest rate differentials can cause rapid fluctuations in short-run exchange rates.
____ 29. Cheap labor is the source of comparative advantages.
____ 30. The gold standard established fixed exchange rates among all countries.
____ 31. A tariff is a limitation on the amount of a good that can be imported.
____ 32. Mercantilist policy is to do everything it can to promote exports and to discourage imports.
____ 33. Many countries impose tariffs or quotas to protect the domestic industry from competition.
____ 34. Under the gold standard, a balance of payments surplus leads to an outflow of gold.
____ 35. Equilibrium price in international trade is the common price between exporting and importing countries.
____ 36. Even though international trade is more complicated, supply and demand are still at the center of the price determination mechanism.
____ 37. A freely floating exchange rate brings some risks to people who are actively engaged in foreign trade.
____ 38. A fixed exchange rate system encourages speculators to attack weaker currencies.
____ 39. We should expect to see home construction activity decrease when interest rates increase.
____ 40. When a government influences the exchange rate of its currency, it is said to be practicing "dirty floating."
____ 41. The Fed frequently uses the discount rate and the required reserve ratio as instruments of monetary policy.
____ 42. If you have a checking account at Citibank, the account is a liability of the bank.
____ 43. When prices for goods and services are quoted in money terms, this is an example of money being used as a store of value.
____ 44. One country has an absolute advantage over another country if it can produce a good using smaller quantities of resources.
____ 45. "Dumping" means destroying goods to prevent driving down the price.
____ 46. Comparative advantage is illustrated by the slopes of production possibilities frontiers.
____ 47. Bank runs are "contagious" in that they often spread to other banks.
____ 48. An export subsidy is a payment by the government to exporters to permit them to charge lower prices.
____ 49. The U.S. government uses export subsidies extensively to stimulate exports.
____ 50. Voluntary exchange is based on the principle that all parties must gain from trade.
____ 51. A quota reduces quantity sold by operating through the demand side of the market.
____ 52. A tariff has one distinct advantage over a quota. It increases tax revenues to the government.
____ 53. There are at least three exchange rates between every pair of national currencies.
____ 54. The Federal Open Market Committee oversees the money supply through the purchase and sale of government securities.
____ 55. An overvalued currency, such as the Argentinean peso in 2001, is an indicator of a balance of payments surplus.
____ 56. The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.
____ 57. At higher interest rates, banks will want to hold more reserves.
____ 58. Inflation increases the use of money as a store of value.
____ 59. Individual banks always respond quickly and significantly to changes in the discount rate.
____ 60. Higher price levels will eventually lead to lower interest rates as people reduce their demand for money.
____ 61. International trade usually benefits one trading partner while making the other trading partner worse off.