UNIVERSITY / INSTITUTE: The George Washington University
CLASS / COURSE: MBAD243
This tutorial has Quizzes 1 to 5 for the course MBAD243 : Economics for MBAs / Macroeconomics at The George Washington University
1. The ___ denotes the rate of growth or decline of the price level from one year to the next. a. PPF b. GDP c. GNP d. rate of inflation 2. Which of the following is NOT considered as the goals of macroeconomics for a typical modern economy? a. High levels and rapid growth of output and consumption. b. Low unemployment rate, with an ample supply of good jobs. c. Price-level stability (or low inflation). d. More exports than imports. The following table provides information on a country’s nominal GDP, real GDP and GDP deflator for 4 consecutive years. Please answer questions 3-4.
3. Calculate real GDP in years 2, 3, and nominal GDP in year 4. a. 8667, 8421, 8450 b. 8241, 8540, 8700 c. 8421, 8540, 10440 4. Calculate the inflation rate from year 2 to year 3 based on the GDP deflator. a. 5.00% b. 5.26% c. 5.13% 5. Which of the following is NOT a macroeconomic policy instrument? a. Government spending. b. Taxation on income. c. Economic sanctions on certain countries. d. Changes in money supply and interest rates. 6. If the government increases military spending during wartime (nothing else changes), what changes will this lead to the AS-AD graph? What will happen to the price level?
a. A left shift in the AS curve; no change. b. A right shift in the AS curve; lower price and higher output. c. A left shift in the AD curve; lower prices. d. A right shift in the AD curve; higher prices. 7. Which of the following is NOT true about macroeconomic measurements? a. GDP = Y = C + I + G + X b. GDP = National income + Depreciation. c. Disposable income = GDP – Taxes – Net business saving – Depreciation + Transfer payments. d. GDP measures the overall economic performance of an economy except government tax revenue. 8. Which of the following is NOT true about price index? a. GDP price index is intended to measure the price of all goods and services produced in the country rather than of a single component. b. The PPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. c. A price index is a measure of the average level of price of the components in the index relative to a base year. d. GDP price index is also called the GDP deflator. Please use the following table to answer questions 9 and 10.
Real GDP $ billion
9. Calculate the growth rate of real GDP in 1983. a. 1.94% b. +4.52% c. +5.08% 10. Calculate the average growth rate of real GDP from 1980 to 1983. a. % b. +1.67% c. +1.22%
1. Based on the saving and investment identity, if private saving = private investment and there is a government budget deficit (government saving < 0), then net exports must be a. negative. b. positive. c. zero. 2. Financial intermediaries are institutions that a. buy and sell all types of goods, including merchandise. b. include only international corporations that have large holdings of various types of currency. c. accept deposits and make loans. d. are not really necessary in the United States because of the size of the federal debt. 3. Which of the following is the U.S. central bank? a. The U.S. Federal Reserve System. b. The U.S. Import and Export Bank. c. The banking industry in New York, a financial center in the U.S. d. The banking industry in the U.S. central states. 4. Raising the discount rate, if effective, tends to: a. expand the money supply and lower interest rates. b. expand the money supply and raise interest rates. c. contract the money supply and lower interest rates. d. contract the money supply and raise interest rates. 5. Which of the following is included in M2 but not in M1? a. Coins and paper currency. b. Savings accounts and small time deposits. c. Checking account. d. $100 bills. 6. The Federal Reserve has decided that inflation is rising too sharply and wants to reverse this trend by reducing the money supply. What is the impact of this monetary policy change on the financial market (refer to the attached graph)? a. The SS curve shifts to the right and interest rates decrease. b. The DD curve shifts up and interest rates increase. c. The SS curve shifts to the left and interest rates increase. d. The DD curve shifts down and interest rates decrease.
Supply of and Demand for Money
7. Which of the following is not considered as part of Japan’s official reserves?
a. Japanese yen.
b. IMF positions.
d. U.S. dollars.
8. When a country accumulates foreign reserves, the country’s money supply tends to
a. increase and build up inflation pressure.
b. decrease and build up deflation pressure.
c. increase and build up deflation pressure.
d. decrease and build up inflation pressure.
9. Sales by the Fed of government securities in the open market will cause:
a. increase in banks' reserve base for deposits.
b. people to end up with less money and more government bonds.
c. expansion of money supply.
10. The Fed has following major policy instruments EXCEPT for:
a. the discount rate on bank borrowing.
c. open-market operations.
d. legal reserve requirements on depository institutions.
1. Assume that the nominal interest rate is 9 percent and that inflation is 4 percent. What is the real interest rate (approximately)?
a. 9 percent.
b. 7 percent.
c. 5 percent.
d. 2 percent.
2. What happens to the price of bonds when interest rates increase?
a. The price of bonds increases.
b. The price of bonds remains constant.
c. The price of bonds decreases.
d. There is no relationship between the price of bonds and interest rates.
3. Present value may be defined as:
a. future cash flows discounted to the present.
b. official prescribed price.
c. present cash flows compounded into the future.
d. the average of the bid and asked price.
4. If the annual rate of interest increases from 8 percent to 10 percent, the holder of a perpetuity which yields $100 a year forever receives a capital:
a. loss of $40.
b. loss of $50.
c. loss of $250.
d. gain of $50.
e. gain of $250.
5. According to economists, which of the following statements on profits is NOT true?
a. Profits are the motivation for firms to invest in capital goods for
b. The implicit return on unpaid or owned inputs is not a part of profits.
c. Innovational profits will be earned by entrepreneurs who introduce new
products or innovations.
d. Uninsurable risk is a source of profits.
6. According to the net present value rule, an investment is acceptable if NPV ___
a. has no risk.
b. is greater than the cost of investment.
c. is greater than present value.
d. is more desired than consumption.
e. is positive.
7. Find the present value of $5,325.00 to be received in one year if the annual interest rate is 6.50%.
8. The equation [Ct/(1+r)t] provides
a. the compound value of a series of payments with a single interest rate.
b. the compound value of a series of payments with a series of interest rates.
c. the present value of a single payment at future time t.
d. the compound value of a single payment.
e. the present value of a series of payments with a single interest rate.
9. Suppose that a one-year bond pays $100 of interest plus the original principal of $2000 when the bond matures. If the market annual rate of interest is 5%, what is the maximum value you are willing to pay for this bond?
10. Which of the following statements on interest (rate) is NOT true?
a. Falling interest rates are a signal to society to adopt more labor-intensive
projects with lower rates of return.
b. Interest rate will be beaten down by competition.
c. Interest provides an incentive for people to save and accumulate wealth.
d. Interest allows society to select only those investment projects with the
highest rates of return.
1. On April 5, 2007, the exchange rate between the euro and the dollar was $1.3424 per euro (or $1.3424/€; €: euro) (Source: The Wall Street Journal, April 6, 2007, page C12). Which of the following quotes is consistent with this exchange rate? a. $0.7449/€. b. €0.7449/$. c. €1.3424/$. 2. Suppose you observe the following rates: $2.00/£ in London ¥100/$ in New York ¥400/£ in Tokyo Which of the following inter-market arbitrage strategies can take advantage of the market inconsistency? a. Sell $ for £ in London, sell £ for ¥ in Tokyo, then sell ¥ for $ in New York. b. Sell $ for ¥ in New York, sell ¥ for £ in Tokyo, then sell £ for $ in London. c. Sell £ for $ in London, sell $ for ¥ in New York, then sell ¥ for £ in Tokyo.
3. Refer to the exchange rates below ($ per pound) for January 21, 2005 (Wall Street Journal Online, http://online.wsj.com/documents/mktindex.htm?worldval.htm). U.K. (Pound) 1.879 1 Month Forward 1.8754 3 Months Forward 1.8693 6 Months Forward 1.8616
What was the annualized premium for the pound for the 1-month forward contract? a. 0.192% b. 2.304% c. -2.299% 4. On October 11, 2001, the spot rate between the U.S. dollar and the Japanese yen was ¥121.355/$, and the three-month forward rate was ¥120.615/$. What was the annualized forward premium (or discount) for the Japanese yen? a. -4.9000% b. 4.9000% c. -2.4391% d. 2.4541% 5. Refer to the following exchange rates (August 22, 2003. Source: The Wall Street Journal, Aug. 25, 2003)
Euro (in U.S. dollars) 1.0891 Japanese yen (per U.S. dollar) 117.58 British pound (in U.S. dollars) 1.5754 Canadian dollar (per U.S. dollar) 1.4015 What was the exchange rate between the Euro and the Canadian dollar on August 22, 2003? a. Can$1.5264/€ b. Can$0.6551/€ c. € 1.2868/ Can$ d. Can$1.2868/€ 6. Which of the following countries has been the largest foreign exchange trading center in the world? a. The United States. b. Japan. c. The United Kingdom. d. Germany. 7. Which of the following is NOT true? a. Developed countries such as the European Union, the United States, and Japan received more foreign investment than developing countries. b. The U.S. dollar is in a unique position as compared with other currencies in the world’s foreign exchange market. c. Developing countries are the predominant source of foreign direct investment. d. The trading volumes of a country’s currency have a lot to do with a country’s economic position in the world. 8. Which of the following statements about instruments or transactions in the foreign exchange market is NOT correct? a. A spot transaction is a single outright transaction involving the exchange of two currencies at a rate agreed upon on the date of the contract for delivery (cash settlement) within two business days. b. A currency futures’ contract is a contract which gives the right to buy or sell a currency with another currency at a specified exchange rate during a specified period. c. A currency swap is a contract which commits two counterparties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a previously agreed exchange rate at maturity.
d. An outright forward is a transaction involving the exchange of two currencies at a rate agreed on the date of the contract for value or delivery (cash settlement) at some time in the future (more than two business days later). 9. _________ play a pivotal role in the foreign exchange market because they facilitate the exchanges of interest-bearing bank deposits that make up the bulk of foreign exchange trading. a. International corporations b. Commercial banks c. National central banks d. Nonbank financial institutions 10. Suppose you sign a contract to sell a piece of health equipment for €1 million to a French customer and payment will be made in one year from now. You face a foreign exchange rate risk: you don’t know how much that €1 million is worth in dollars in one year because the exchange rate changes. How can you use the forward to get rid of the uncertainty? a. Selling the €1 million forward as a known forward rate. b. Buying the €1 million forward as a known forward rate.
1. Based on purchasing power parity, when a country is experiencing higher inflation than its trade partners, its currency should ____________. a. appreciate b. depreciate c. remain unchanged 2. Suppose we have the following information: S$/€ : $1.35/€ (€: Euro) F$/€ : $1.30/€ (one year) i€ : 5.00% (for one-year investment) i$: 5.00% (for one-year investment) Assume the perfect capital market assumptions hold. In which currency would you like to make an investment, in dollars or in euros for one year?
a. In dollars.
b. In euros.
c. Indifferent; they provide equal returns.
3. Suppose that on January 1 a firm in Mexico borrows $20 million from Citibank (USA) for one year at 8.00% interest per annum. The loan was taken when the spot rate was Peso 3.40/US$. At the end of the one-year loan period the exchange rate was Peso 5.80/US$. Based on the above information, what is the cost to the firm of the loan in Mexican peso (percent)?
4. The relationship between the percentage change in the spot exchange rate over time and the differential between comparable interest rates in different national capital markets is known as ___________________.
a. absolute PPP
b. the law of one price
c. relative PPP
d. the international Fisher Effect
5. If the Big Mac costs $2.00 in the U.S. and 300 Japanese yen in Japan, the PPP implied exchange rate between the Japanese yen and the U.S. dollar is
6. On December 31, 2004, the one-year interest rate for the U.S. dollar (US$ LIBOR) was 3.1000% and the equivalent yen interest rate (yen LIBOR) was 0.0925%. Based on interest rate parity, a. the yen should be at a premium of about 3% against the dollar.
b. the dollar should be at a premium of about 3% against the yen.
7. Suppose the expected inflation in 2008 is 3% in the United States and 8% in the United Kingdom, and current (2007) exchange rate is $2.00/£. What is the expected exchange rate between the two currencies in 2008? a. $1.9074/£. b. $2.0971/£. c. $2.0500/£. d. $1.9500/£. 8. Based on the interest rate parity and the International Fisher Effect, the expected exchange rate at future time should _______________.
a. be the same as today’s exchange rate
b. be the corresponding forward exchange rate
c. have no relationship with the forward exchange rate
9. In recent years, “carry trade” involving the Japanese yen became an investment strategy for some financial firms. “Here's how it works: An investor buys the currencies of countries with high interest rates while selling short those with low rates. The return comes from both interest income and the expected strengthening of the high-rate currencies and the weakening of the low-rate ones.” (BusinessWeek, February 12, 2007, page 94). That is, the investor borrows Japanese yen at a very low interest rate, convert the borrowed yen into dollars, and invest in dollars at higher interest rates. It seems that some investors have made a lot of money following this strategy. This phenomenon in the global financial market indicates that a. International Fisher Effect works perfectly. b. there have been deviations from International Fisher Effect. c. purchasing power parity works well.
10. On Tuesday, April 10, 2007, the yields (interest rates) of two-year U.S. government bond was 4.705% while the equivalent for Australia was 6.330% (Wall Street Journal, April 11, 2007, page C7). Which of the following is true based on the real interest rate parity?
a. It was expected that inflation would be lower in Australia than in the U.S. for the next two years. b. It was expected that Australian government would spend more money than the U.S. government in the next two years. c. It was expected that the savings rate in Australia would be lower than in the U.S. for the next two years. d. It was expected that inflation would be higher in Australia than in the U.S. for the next two years.
Completed Solution is attached. Click on Buy button and then download file to get full solution.
SUBJECTS / CATEGORIES:
3. Business Economics
DOWNLOAD QUESTION FILE: